Opinion
Case No. 01 C 8277
January 14, 2002
MEMORANDUM DECISION AND ORDER
This is an original action filed by Administrative Committee of the Wal-Mart Stores, Inc. Associates' Health and Welfare Plan ("Wal-Mart"), a fiduciary under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001-1461, asserting claims under section 502(a)(3) of ERISA, for "appropriate equitable relief," including an injunction, declaration of rights, specific performance, imposition of constructive trust, and restitution against defendants Clara Varco ("Varco") and her attorney, Laurence Dunford ("Dunford"). Jurisdiction is alleged under section 502(e)(1) of ERISA, 29 U.S.C. § 1132(e)(1). Both defendants have moved to dismiss the first amended verified complaint and have made several other motions. Plaintiff has moved this court to stay proceedings in a related state court proceeding and to enjoin defendants from further adjudicating the matter in state court. For the reasons set forth below, the court grants in part and denies in part defendants' motions to dismiss, denies defendants' remaining motions as moot, grants plaintiff's motion to stay the state court proceedings on the ERISA matter, and grants plaintiff's motion to enjoin defendants from proceeding further in state court.
Section 502(a)(3) of ERISA provides that "[a] civil action may be brought . . . by a participant, beneficiary or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan[.]" 29 U.S.C. § 1132(a)(3).
Plaintiff also asserts claims Illinois common law of breach of contract by Varco and tortious interference of contractual relations by Dunford.
With exceptions not applicable here, "the district courts of the United States . . . have exclusive jurisdiction of civil actions under this subchapter brought by . . . a . . . fiduciary . . . ." 29 U.S.C. § 1132(e)(1). Administrative Committee v. Gauf, 188 F.3d 767, 770 (7th Cir. 1999).
Defendants' other motions include a motion to strike plaintiff's first amended verified complaint by Dunford and a motion to vacate the court's preliminary injunction by Varco.
Due to the nature of the case and the language of the Anti-Injunction Act, 28 U.S.C. § 2283, the court addresses plaintiff's emergency motion as a motion to stay the state court proceedings and to enjoin defendants from further proceeding in state court to resolve the ERISA matter.
FACTS AND PROCEDURAL HISTORY
Varco at all relevant times was a participant in a health and welfare plan (the "Plan") provided by her employer and administered by Wal-Mart. The Plan provides that it has a right to "recover or subrogate 100 percent of the benefits paid or to be paid by the Plan on your behalf and/or your dependents to the extent of . . . [a]ny judgment, settlement or any payment made or to be made, relating to the accident, including but not limited to other insurance." The Plan further provides that it "does not pay for nor is responsible for the participant's attorney's fees. Attorney's fees are to be paid solely by the participant." After an automobile accident with Kristopher Lapsis ("Lapsis") during September, 2000, Wal-Mart paid medical benefits on behalf of Varco in the amount of $34,034.55. Varco filed a tort action in the Circuit Court of Cook County, Illinois, against Lapsis, and in October, 2001, in contemplation of settlement, Varco by and through her counsel, Dunford, sought adjudication of various liens, including that of Wal-Mart. Wal-Mart asked the state court to postpone adjudication of its lien and on October 4, 2001, removed the state court case to this court. The Honorable James A. Alesia, relying on Blackburn v. Sundstrand Corp., 115 F.3d 493 (7th Cir. 1997), and Speciale v. Seybold, 147 F.3d 612 (7th Cir. 1998), held the case improperly removed and remanded it to the state court. Varco v. Lapsis, 172 F. Supp.2d 985, 986-87 (N.D. Ill. 2001). On October 29, Wal-Mart filed this action. In early December, 2001, Dunford disbursed the settlement funds, while still subject to plaintiff's lien, to Varco and himself. Shortly thereafter, plaintiff sought emergency relief in this court to restrain defendants from further disposition of the funds until plaintiff's claim could be resolved. On December 14 and 21, 2001, this court granted plaintiff's motions for a temporary restraining order ("TRO") and preliminary injunction, respectively, because this court found that it had subject matter jurisdiction under Administrative Committee v. Gauf, 188 F.3d 767, 770 (7th Cir. 1999), and that plaintiff had a likelihood of success on the merits of a claim to impose a constructive trust where plaintiff's counsel had disbursed the funds without an adjudication by any court of Wal-Mart's claim to share in the fund. On or about December 29, Dunford and Varco returned to state court with a motion to adjudicate Wal-Mart's lien. In response, plaintiff filed the motion which this opinion principally addresses: an emergency motion pursuant to the Anti-Injunction Act, 28 U.S.C. § 2283, the All Writs Act, 28 U.S.C. § 1651, and "the Princess Lida doctrine" to enjoin the state court from adjudicating plaintiff's right to reimbursement subject to the lien.
Further background may be found in Varco v. Lapsis, 172 F. Supp.2d 985, 987-88 (N.D. Ill. 2001).
The court relied on Wal-Mart Stores, Inc. Assocs.' Health and Welfare Plan v. Wells, 213 F.3d 398, 403-04 (7th Cir.), cert. denied, 121 S.Ct. 441 (2000).
Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 466-67 (1939).
On January 3, 2002, this court requested that Dunford ask the state court to continue the motion to adjudicate the lien to permit this court to consider plaintiff's emergency motion. On January 4, 2002, the state court continued the matter to January 11, noting its own jurisdiction over the remanded Lapsis case and specifically over Varco's petition to adjudicate the right of Wal-Mart to reimbursement. On January 10, 2002, this court entered an order to stay the state court proceedings and to enjoin defendants from further proceeding in state court. This opinion sets forth this court's reasoning for its order.
ANALYSIS
I. Subject matter jurisdiction
In opposition to plaintiff's motion, defendants contend that this court lacks subject matter jurisdiction because Wal-Mart is seeking monetary and not equitable relief under § 502(a)(3) and, in light of the remand of the Lapsis case to the state court, defendants believe they are entitled to have the state court adjudicate Wal-Mart's lien. The rule of Blackburn and Speciale is that a fiduciary of an ERISA plan is not entitled to remove a personal injury action to federal court on the basis that the state court's jurisdiction is pre-empted by ERISA, even though "conflict preemption" under section 514(a) requires the state court to apply federal law to issues governed by ERISA. In Speciale, the court concluded, "[I]n a state cause of action where there are adversarial claims to a settlement fund between an ERISA plan subrogation claim and other statutory medical liens, there is no preemption under § 502(a) and the allocation of funds is a matter for the state court under which original jurisdiction arose." 147 F.3d at 616. Nevertheless, where a fiduciary of an ERISA plan files a complaint in federal court which states a claim for equitable relief, a federal court has exclusive jurisdiction to decide the claim. Gauf, 188 F.3d at 771; see Spitz v. Tepfer, 171 F.3d 443, 447 (7th Cir. 1999). Thus, the issue before this court is whether plaintiff's complaint states a claim for equitable relief.
Section 514(a) of ERISA, 29 U.S.C. § 1144(a), provides, as relevant here, "[T]he provisions of this subchapter . . . shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . . ."
Great-West Life Annuity Insurance Company v. Knudson, 2002 WL 15399 (U.S. Jan. 8, 2002), held that section 502(a)(3) does not authorize a suit by an ERISA plan against a beneficiary for reimbursement where the settlement funds (derived from the personal injury suit) had already been distributed to a special needs trust for the beneficiary's care, the beneficiary's attorney in the state court action, and lien holders (including a small portion to the plan). Specifically, the Court reasoned that a complaint under ¶ 502(a)(3)(A) for an injunction requiring restitution could not be properly characterized as equitable relief but was actually a claim for damages for breach of contract. Defendants contend that this case is within Great West Life and therefore must be dismissed. This court would agree but for the facts that, unlike in Great West Life, Wal-Mart here claims that it is rightfully entitled to a portion of the settlement funds and has sued the individuals who have possession of them, and this court has assumed control of those funds by imposing a constructive trust by virtue of its preliminary injunction.
Defendants have argued that this court cannot impose a constructive trust because there was no res after Dunford disbursed the funds to Varco and himself. The court disagrees. As stated in Great West Life,
[A] plaintiff could seek restitution in equity, ordinarily in the form of a constructive trust or an equitable lien, where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession. A court of equity could then order a defendant to transfer title (in the case of the constructive trust) . . . to a plaintiff who was, in the eyes of equity, the true owner. But where `the property [sought to be recovered] or its proceeds have been dissipated so that no product remains, [the plaintiff's] claim is only that of a general creditor,' and the plaintiff `cannot enforce a constructive trust . . . upon other property of the [defendant].' Thus, for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession.
___ U.S. ___, 2002 WL 15399, Part II, sec. B, ¶ 3 (internal citations omitted). Where, as here, Dunford disbursed the settlement funds without obtaining adjudication of the lien in the state court and where Wal-Mart filed an original action to impose a constructive trust to avoid dissipation before its right to share in the fund could be adjudicated, a res exists over which this court has assumed jurisdiction. See id. This is a request for equitable relief and therefore this court has exclusive jurisdiction under 29 U.S.C. § 1132(e)(1).
II. Stay of state court proceedings
Wal-Mart relies on a variety of authorities in support of its position that this court should prevent the state court, which has before it Varco's belated motion to adjudicate Wal-Mart's lien, from proceeding. It cites to the "in aid of jurisdiction" exception in the Anti-Injunction Act, 28 U.S.C. § 2283, the "in aid of jurisdiction" authority in the All Writs Act, 28 U.S.C. § 1651, and the Princess Lida doctrine, from Princess Lida of Thurn and Taxis v. Thompson et al., 305 U.S. 456, 466-67 (1939). "This case is by no means an easy one." Atlantic Coast Line R.R. Co. v. Bhd. of Locomotive Eng'rs, 398 U.S. 281, 296 (1970). The court is loathe to interfere with the proceedings in the state court. Nevertheless, courts have stayed or enjoined state court proceedings when the state court proceedings will frustrate the proceedings in the federal court. See In re Bankamerica Corp. Secs. Litig., 263 F.3d 765, 802-03 (8th Cir. 2001); In re Inter-Op Hip Prothesis Prod. Liab. Litig., No. 01 C 9000, 2001 WL 1540552, at *5 (N.D. Ohio Sept. 17, 2001); In re Consol. Welfare Fund "ERISA" Litig., Dep't of Labor v. Goldstein, 798 F. Supp. 125, 127 and n. 3 (S.D.N.Y. 1992). Defendants rely on a variety of cases in which the state (or foreign) court had concurrent jurisdiction and the federal court refused to enjoin or stay those proceedings even though the risk of inconsistent outcomes existed. See, e.g., National Basketball Ass'n v. Minnesota Prof'l Basketball, Ltd. P'ship, 56 F.3d 866, 872 (8th Cir. 1995) (holding, in part, to reverse district court's relieving the NBA from the state court's preliminary injunction because "a preliminary injunction is a protectable judgment under the relitigation exception in § 22[8]3"); see also Atlantic Coast Line R.R. Co., 398 U.S. at 294-97 (stating that "the state and federal courts had concurrent jurisdiction in this case, and neither court was free to prevent either party from simultaneously pursuing claims in both courts[.]"). Because this court has exclusive jurisdiction over the property, however, these cases are distinguishable. See Green v. Green, 233 F.2d 642, 644 (7th Cir. 1956) (holding that the federal court could enjoin a defendant from proceeding in state court because the federal court had in rem jurisdiction and control over the res); see also Bowles v. Willingham, 321 U.S. 503, 512 (1944) (holding in part that Congress established the federal district courts' exclusive jurisdiction to adjudicate certain matters under the Emergency Price Control Act); Kline v. Burke Constr. Co., 260 U.S. 226, 235 (1922) (upholding "that where an action is one in rem that court — whether state or federal — which first acquires jurisdiction draws itself the exclusive authority to control and dispose of the res, involves the conclusion that the rights of the litigants to invoke the jurisdiction of the respective courts are of equal rank."); Goehring v. Harleysville Mut. Cas. Co., 460 Pa. 138, 145, 331 A.2d 457, 460 (1975); cf. Propper v. Clark, 337 U.S. 472, 491-91 (1949) (stating that "as the state court could reasonably require complete adjudication of the controversy, the District Court would perhaps be compelled to stay proceedings in the state court to protect its own adjudication. 28 U.S.C. § 2283."); Levy v. Lewis, 635 F.2d 960, 967 (2d Cir. 1980) (while holding that ERISA did not apply to the case, the court recognized that "federal courts must hear claims within their exclusive jurisdiction, for otherwise the right alleged would never fully be adjudicated.").
The Anti-Injunction Act states "A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C. § 2283.
The All Writs Act states that "The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." 28 U.S.C. § 1651(a).
The Princess Lida doctrine provides,
[I]t is settled that where the judgment sought is strictly in personam, both the state court and the federal court, having concurrent jurisdiction, may proceed with the litigation at least until judgment is obtained in one of them which may be set up as res judicata in the other. . . . On the other hand, if the two suits are in rem, or quasi in rem, so that the court, or its officer, has possession or must have control of the property which is the subject of the litigation in order to proceed with the cause and grant the relief sought the jurisdiction of the one court must yield to that of the other. . . . We have said that the principle applicable to both federal and state courts that the court first assuming jurisdiction over property may maintain and exercise that jurisdiction to the exclusion of the other, is not restricted to cases where property has been actually seized under judicial process before a second suit is instituted, but applies as well where suits are brought to marshal assets, administer trusts, or liquidate estates, and in suits of a similar nature where, to give effect to its jurisdiction, the court must control the property. . . . The doctrine is necessary to the harmonious cooperation of federal and state tribunals. . . . While it has no application to a case in a federal court based upon diversity of citizenship, wherein the plaintiff seeks merely an adjudication of his right of his interest as a basis of a claim against a fund in the possession of a state court, . . . this is not such a case. No question is presented in the federal court as to the right of any person to participate in the res or as to the quantum of his interest in it. The contentions are solely as to administration and restoration of corpus.
Princess Lida of Thurn and Taxis, 305 U.S. at 466-67 (1939) (internal citations omitted).
The court recognizes that stay or enjoinment of state court proceedings may appear to strain the principles of comity. See Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996); Propper v. Clark, 337 U.S. 472, 493 (1949) ("Comity does not require abnegation to the extent that a federal court cannot adjudicate the rights to the claim involved."). In fact, the procedural posture of this case creates confusion for all parties, the state court and the federal court. Unlike the court in Dailey v. The National Hockey League, 987 F.2d 172 (3rd Cir. 1993), this court finds itself in the awkward position of having its jurisdiction questioned by a state court in adjudicating plaintiff's reimbursement subject to either ERISA or the lien.
In light of cases such as Bishop v. Burgard, 317 Ill. App.3d 923, (3rd Dist. 2000), on appeal, 197 Ill.2d 565 (2001), where the Illinois Appellate Court ruled that terms of the health and welfare plan superseded the Illinois common fund doctrine, and further where there is no great likelihood of inconsistent rulings had Dunford obtained adjudication of the lien rather than simply disbursing the funds, this court would take a different view. But because it became necessary for Wal-Mart to seek preliminary injunctive relief in this court, the court has assumed exclusive jurisdiction over the res and must require defendants to litigate in the federal forum. Because this is the only remaining issue pending before the state court, it is necessary to require the state court, in aid of this court's jurisdiction, to defer to the jurisdiction of the federal court.
ORDER
For the above-stated reasons, this court denies in part defendants' motions to dismiss plaintiff's first amended verified complaint [#8-1] [#10-2], insofar as it states a claim for imposition of constructive trust on particular property in the hands of the defendants and for the pendent state law claims, but grants in part defendants' motions to dismiss plaintiff's other claims for equitable relief. It denies defendants' remaining motions as moot, including Dunford's motion to strike plaintiff's first amended verified complaint [#10-1] and Varco's motion to vacate the preliminary injunction. This court grants plaintiff's motion for this court to stay the state court proceedings and enjoin the defendants from further proceedings in state court [#20-1] pursuant to its Order of January 10, 2002. All other motions are continued to January 21, 2002, at 9:30 a.m.