Administrative Committee of the Wal-Mart Associates Health & Welfare Plan v. Willard

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
DEC 28 2004
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

ADMINISTRATIVE COMMITTEE
OF THE WAL-MART ASSOCIATES
HEALTH AND WELFARE PLAN,
No. 04-3081
Plaintiff - Appellee,

v.

MELVIN WILLARD,

Defendant - Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
(D.C. No. 02-CV-2571-KHV)

Lori Bolton Fleming (Fred Spigarelli, and Thomas E. Hayes, with her on the
briefs), The Spigarelli Law Firm, Pittsburg, Kansas, for Defendant - Appellant.

Christopher R. Hedican, (Heidi A. Guttau-Fox, with him on the brief), Baird,
Holm, McEachen, Pedersen, Hamann & Strasheim, L.L.P., Omaha, Nebraska, for
Plaintiff - Appellee.

Before KELLY, Circuit Judge, McWILLIAMS, Senior Circuit Judge and
LUCERO, Circuit Judge.

KELLY, Circuit Judge.

Defendant-Appellant Melvin Willard appeals a judgment in favor of
Plaintiff-Appellee Administrative Committee of the Wal-Mart Associates Health

and Welfare Plan (“Plan Administrators”). The district court held that the relief

sought by the Plan Administrators constituted “appropriate equitable relief” under

§ 502(a)(3) of ERISA. Admin. Comm. of the Wal-Mart Assocs. Health &

Welfare Plan v. Willard, 302 F. Supp. 2d 1267, 1276 (D. Kan. 2004). On appeal,

Mr. Willard argues that the relief sought is not “appropriate equitable relief”

under § 502(a)(3) of ERISA, that the district court erred in interpreting and

enforcing the reimbursement and subrogation provision in the Plan, and that the

district court’s decision to enforce the terms of the Plan violates public policy.

We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.

Background

Melvin Willard suffered injuries when a pharmacy employee of Wal-Mart

Stores, Inc. (“Wal-Mart”) erroneously filled his prescription in June 2001. Mr.

Willard was a covered beneficiary under the Wal-Mart Associates Health and

Welfare Plan (“the Plan”). The Plan provided coverage for Mr. Willard’s medical

expenses in the amount of $534,919.68. In August 2002, Mr. Willard and Wal-

Mart reached a confidential settlement agreement, which stipulated that Wal-Mart

would retain the amount of Mr. Willard’s medical expenses from the full tort

settlement, pending determination of the ownership of the funds equivalent to the

-2-
medical expenses.

On November 13, 2002, the Plan Administrators filed suit for equitable

relief including an injunction, declaration of rights under the Plan, specific

performance, mandamus, constructive trust, and equitable restitution against

Willard to enforce the terms of the ERISA Plan.

The Summary Plan Description provided:

The plan has the right to . . . recover or subrogate 100 percent
of the benefits paid or to be paid by the Plan for covered
persons to the extent of any and all of the following payments:

Any judgment, settlement, or payment made or to be made
because of an accident or malpractice, including but not
limited to other insurance.

II Jt. App. at 164. A note to the reimbursement language further stated: “The

Plan’s right to reduction, reimbursement, and subrogation applies to any funds

recovered from another party or on behalf of the estate of any covered person.”

Id. at 165. Finally, in a separate section of the Plan entitled “Cooperation

Required,” the Plan stated that covered persons or their representatives must

“cooperate in order to guarantee reimbursement to the Plan from third party

benefits.” Id. at 164.

The Plan also set forth the Administrators’ discretion and authority. The

Plan Wrap Document provided:

(a) The Plan Administrator shall have the sole discretion and
authority to control and manage the operation and

-3-
 administration of the Plan.

(b) The Plan Administrator shall have complete discretion to
interpret the provisions of the Plan . . . .

III Jt. App. at 232.

The district court allowed Wal-Mart to intervene and deposit the portion of

the settlement proceeds equivalent to the medical expenses into the court registry.

Thus, Wal-Mart had possession of the funds until April 7, 2003, when they were

deposited into the registry. Wal-Mart was later dismissed. In July 2003, Willard

and the Plan Administrators agreed to distribute the proceeds to the Plan

Administrators pending resolution of the case. The court allowed the funds to be

distributed. Later, the court vacated the order to distribute the proceeds and

ordered the Plan Administrators to return the disputed proceeds to the court

registry. Mr. Willard has never had possession of the funds in question.

On December 18, 2003, the Court heard oral argument on both parties’

motions for summary judgment. Willard, 302 F. Supp. 2d at 1269 n.1. The

parties agreed that a formal trial was unnecessary and that the dispute could be

resolved on the cross motions for summary judgment. Id. Accordingly, the

district court treated the memoranda on the cross motions for summary judgment

as proposed findings of fact and conclusions of law and ruled as if the arguments

and evidence had been submitted at a bench trial. Id. Ultimately, the district

court entered judgment in favor of the Plan Administrators, holding that they were

-4-
entitled to an equitable lien on the disputed funds. Id. at 1285.

Discussion

Because the parties agreed that the oral argument on cross motions for

summary judgment could be treated as a bench trial, we “review the district

court’s factual findings for clear error and its legal conclusions de novo.” Keys

Youth Servs., Inc. v. City of Olathe, 248 F.3d 1267, 1274 (10th Cir. 2001). The

parties do not dispute the facts of this case. Aplee. Br. at 3-11; Aplt. Br. at 2-3.

ERISA § 502 authorizes a civil action “by a participant, beneficiary, or

fiduciary (A) to enjoin any act or practice which violates . . . 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 . . . the terms of the plan.” 29

U.S.C. § 1132(a)(3).

A. Appropriate Equitable Relief

The Supreme Court addressed the meaning of “appropriate equitable relief”

under § 502(a)(3) of ERISA in Mertens v. Hewitt Associates, 508 U.S. 248, 251-

63 (1993), and Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S.

204, 209-21 (2002). In Mertens, the Court held that the term “appropriate

equitable relief” in § 502(a)(3) allows only “those categories of relief that were

typically available in equity (such as injunction, mandamus, and restitution, but

-5-
not compensatory damages).” 508 U.S. at 256.

Subsequently, in Great-West, the Court elaborated on the distinction

between “legal” and “equitable” relief, stating that “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.” 534 U.S. at 213. On the other hand, reasoned the Court, if “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 of or an equitable lien upon other

property of the [defendant].” Id. at 213-14 (alteration in original) (citation and

internal quotation omitted). In such an instance, the plaintiff is seeking a legal

remedy - the imposition of personal liability on the defendant to pay a sum of

money which the plaintiff is owed - so his claim falls outside § 502(a)(3)’s

jurisdictional grant. Id. at 210.

Following Great-West, several other circuits have addressed whether a plan

administrator may maintain an action for “appropriate equitable relief” to enforce

a reimbursement provision after a plan beneficiary has received compensation

from a third party. Identifying the key facts discussed and relied upon in Great-

West, courts have applied a three-part test: “Does the Plan seek to recover funds

-6-
(1) that are specifically identifiable, (2) that belong in good conscience to the

plan, and (3) that are within the possession and control of the defendant

beneficiary?” Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer,

Poirot & Wansbrough, 354 F.3d 348, 356 (5th Cir. 2003); see also Admin. Comm.

of Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan v. Varco, 338 F.3d 680,

687 (7th Cir. 2003).

a. Specific Identifiability

In the instant case, the funds are specifically identifiable. In Varco, the

court found that where the defendant established a reserve bank account from the

settlement proceeds in the expected amount of the medical bills, the funds had not

been dissipated and were specifically identifiable. 338 F.3d at 684. Similarly,

the Bombardier court found that the funds in question were specifically

identifiable when the settlement proceeds were placed in a trust account by the

beneficiary’s law firm. 354 F.3d at 350.

In this case, as part of the settlement agreement, Wal-Mart withheld the

amount of medical expenses from the agreed tort settlement and deposited the

funds in the court registry. Later, by agreement of the parties, the funds were

distributed to the Plan Administrators pending resolution of the case. Thereafter,

the court vacated the order distributing the funds to the Plan Administrators, and

the res was returned to the court registry. Thus, the proceeds of the settlement in

-7-
contention in this case have not been dissipated and are specifically identifiable.

b. The Plan’s Rights to the Funds

In Great-West, Bauhaus USA, Inc. v. Copeland, 292 F.3d 439, 441 (5th Cir.

2002), Bombardier, and Varco, the terms of the plans, like the plan before us,

contained express, unambiguous reimbursement provisions, which resulted in the

conclusion that the disputed funds belonged in good conscience to the plan.

Here, the Plan gives the Administrators the right to “recover or subrogate,”

and also gives “first priority with respect to its right to reduction, reimbursement,

and subrogation.” Though Mr. Willard contends that the Plan does not contain an

express, unambiguous reimbursement provision entitling the Administrators to the

proceeds of the third-party settlement, the language employed leaves no doubt

that the funds in question “‘belong in good conscience’ to the plan.” Bombardier,

354 F.3d at 356.

Despite the fact that the plan vests complete discretion in the Plan

Administrators to interpret the provisions of the plan, Mr. Willard argues that the

district court erred in applying the arbitrary and capricious standard rather than

the de novo standard in reviewing the Administrators’ interpretation of the Plan.

Aplt. Br. at 18 (citing Lefler v. United HealthCare of Utah, Inc., 162 F. Supp. 2d

1310 (D. Utah 2001). In Lefler, insured beneficiaries filed suit under § 502(a)(3)

for breach of fiduciary duty. The court adopted a de novo standard of review

-8-
because the allegations under Utah insurance law and other ERISA provisions

implicated defendant’s fiduciary responsibilities. Lefler, however, is inapposite

since in this case we are not concerned with a breach of fiduciary duty. Further,

the Lefler court did not apply the de novo standard of review, but rather dismissed

the § 502(a)(3) claims because viable claims existed under § 502(a)(1)(B).

“ERISA abounds with the language and terminology of trust law,”

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989). Accordingly,

“[t]rust principles make a deferential standard of review appropriate when a

trustee exercises discretionary powers.” Id. at 111. Following this direction from

Firestone, numerous courts have applied the arbitrary and capricious standard to

review an administrator’s discretionary actions in § 502(a)(3) cases. Bd. of

Admin. v. Huntsman, No. 98-3766, 1999 WL 591458, at *3 n.3 (6th Cir. July 27,

1999); Watkins v. Westinghouse Handford Co., 12 F.3d 1517, 1524 (9th Cir.

1993); Engle v. Wal-Mart Assocs. Health & Welfare Plan, 48 F. Supp. 2d 1114,

1118 (N.D. Ind. 1999).

Here, by deciding to file suit for recovery of funds pursuant to a

reimbursement and subrogation provision in the Plan, the Plan Administrators

relied on their interpretation of the language of the plan. See Bill Gray Enters.,

Inc. Employee Health & Welfare Plan v. Gourley, 248 F.3d 206, 217 n.10 (3d Cir.

2001). Accordingly, it is appropriate to apply an arbitrary and capricious standard

-9-
to the Plan Administrators’ interpretation of the reimbursement and subrogation

provision. Nevertheless, we note that under either the arbitrary and capricious or

de novo standards of review, our determination would be the same.

In interpreting an ERISA plan, the court examines the plan documents as a

whole and, if unambiguous, construes them as a matter of law. Chiles v. Ceridian

Corp., 95 F.3d 1505, 1511 (10th Cir. 1996). In doing so, we give “the language

its common and ordinary meaning as a reasonable person in the position of the

[plan] participant, not the actual participant, would have understood the words to

mean.” Blair v. Metro. Life Ins. Co., 974 F.2d 1219, 1221 (10th Cir. 1992)

(emphasis omitted).

Mr. Willard argues that the Plan is ambiguous because the language of the

reimbursement provision conflicts with a note to this provision and with the

language under the “Cooperation Required” section of the Summary Plan

Description. He points to language of the reimbursement provision stating that

the Plan has the right to “recover or subrogate” any benefits paid to the extent of

“[a]ny judgment, settlement, or payment made or to be made because of an

accident.” Mr. Willard argues that this provision is ambiguous when read against

a note to the Plan, which reads, “The Plan’s right to reduction, reimbursement,

and subrogation applies to any funds recovered from another party by or on behalf

of the estate of any covered person.” In essence, he claims an ambiguity because

- 10 -
the reimbursement provision provides for recovery from “any judgment,” while

the note regarding recovery from estates of covered persons provides for recovery

only from “another party.”

Ambiguity exists when a plan provision is “reasonably susceptible to more

than one meaning, or where there is uncertainty as to the meaning of the term.”

Stewart v. Adolph Coors Co., 217 F.3d 1285, 1290 (10th Cir. 2000). We agree

with the district court that because an estate is commonly and ordinarily used to

describe the property one owns at death, a reasonable plan participant would read

the note only to apply in the specific case where the beneficiary is deceased.

Thus, the note does not limit the reimbursement provision; it only clarifies its

terms in the event of a covered person’s death.

Mr. Willard also argues that the language under the heading “Cooperation

Required,” which requires covered persons to cooperate to allow reimbursement

by the Plan from “third parties,” creates ambiguity. Simply, he argues that it is

ambiguous because the Plan allows recovery of “any judgment” while the

“Cooperation Required” section only discusses recovery “from another party.”

However, the reference under the “Cooperation Required” heading only

describes a participant’s obligation to cooperate; it does not define the source of

payments which are subject to reimbursement. The reimbursement provision in

question is very broad, allowing recovery from any and all judgments and

- 11 -
settlements, not just third party settlements and payments. “Right to Reduction,

Reimbursement, and Subrogation” and “Cooperation Required” come under

separate headings, are clearly distinguished under the Plan, and have different

purposes. The terms of the Plan are clear: the reimbursement provision, not the

“Cooperation Required” section, describes from whom the Plan Administrators

may recover. Thus, Mr. Willard’s arguments that the Plan is ambiguous are

without merit, and we find that the Plan Administrators have a clear right to the

funds in question.

c. Possession and Control of the Funds

The final factor also favors the Plan Administrators. In Great-West, as in

this case, the plan fiduciary paid benefits and sought reimbursement of those

benefits pursuant to a provision in the plan. 534 U.S. at 207. After disposing of

the fiduciary’s claims for reimbursement in the form of specific performance or

injunctive relief, the Court turned to the claim that the plan fiduciary sought

restitution in equity in the form of constructive trust or equitable lien. Id. at 213.

The Court ultimately determined that equitable restitution was not an available

remedy because the funds claimed by the plan fiduciary were not in the plan

beneficiary’s possession, but rather were placed in a Special Needs Trust, as

required by California law, and a client trust account. Id. at 214. Thus, Mr.

Willard argues that the funds must be in the defendant’s possession for a

- 12 -
reimbursement claim to be considered equitable. Aplt. Br. at 14-16.

Similarly, Mr. Willard analogizes the instant case to Bauhaus, in which the

disputed funds had been deposited in the state court’s registry while the parties

contested ownership in federal court. Aplt. Br. at 15. The Fifth Circuit found

that the beneficiary did not have possession and control because the court was

totally independent of the plan beneficiary. Bauhaus, 292 F.3d at 445. Likewise,

Mr. Willard argues that the instant case is similar to Primax Recoveries, Inc. v.

Sevilla, 324 F.3d 544 (7th Cir. 2003). Aplt. Br. at 15-16. In Primax, the

tortfeasor settled with the plan member and made payment with a check issued to

the plan member, her attorney, and Primax. Primax held the check and refused to

sign it because the attorney claimed he was entitled to fees. Primax, 324 F.3d at

546. Because the plan member never held the funds in question, the court found

that the suit was one for monetary damages rather than equitable relief. Id. at

547-48.

The instant case, however, is distinguishable. Although the funds in

dispute are currently held by the district court, the funds were placed in the

court’s registry by agreement of the parties after negotiation between the

tortfeasor and the victim. Importantly, unlike Bauhaus, the federal court

adjudicating the rightful owner of the funds also had possession of the funds until

the parties agreed that they should be distributed to the Plan Administrators.

- 13 -
Moreover, once the court vacated the order to distribute the funds pending trial,

the funds were again in the registry of the adjudicating court. Thus, although Mr.

Willard is not in physical possession of the settlement proceeds, he did exercise

control over the funds and can be deemed to be in constructive possession of the

funds.

This case is more similar to Bombardier, in which the court found that

because the funds were “in a bank account in the name of the participant’s

attorneys,” the plan participant had sufficient control over the funds such that the

participant was in constructive possession of the disputed funds. 354 F.3d at 356.

Similarly, in Varco, the Seventh Circuit determined that the funds were “in the

control of a Plan participant due to the fact that [the beneficiary’s attorney]

placed them in a reserve account in [the beneficiary’s] name.” 338 F.3d at 687.

Thus, the Varco court distinguished Great-West, and awarded the equitable relief

sought. Id. at 688.

Mr. Willard also argues that Westaff (USA), Inc. v. Arce, 298 F.3d 1164,

1166-67 (9th Cir. 2002), which looked to the substance of the relief sought,

dictates that we find that the action here is one for monetary relief. Aplt. Br. at

14-17. In that case, the Ninth Circuit held that a plan administrator's suit to

recoup benefits paid to a beneficiary upon the beneficiary's receipt of settlement

funds from a third party tortfeasor was essentially legal in nature, even though the

- 14 -
beneficiary had placed the funds in an escrow account in the beneficiary's name

pending a determination of the rightful owner. Westaff, 298 F.3d at 1167.

We, like the Fifth Circuit, perceive that Westaff departs from the Supreme

Court's opinions in Mertens and Great-West, and decline to follow the Ninth

Circuit's highly restrictive view of the scope of "appropriate equitable relief"

under § 502(a)(3). Bombardier, 354 F.3d at 358 n.43. After all, any equitable

relief, including those forms explicated by the Court as available under

§ 502(a)(3), must involve the direct or indirect transfer of money, and we cannot

read the statute to proscribe all forms of relief. Rather, we find that the instant

case, rather than involving one for monetary damages, involves exactly the type

of equitable restitution claim the Court had in mind in Great-West.

Finally, Mr. Willard argues that determining the relief sought by the Plan

Administrator to be “appropriate equitable relief” under § 502(a)(3) would

contravene public policy. However, Mr. Willard did not present this argument to

the district court, and “we find no reason to deviate from the general rule that we

do not address arguments presented for the first time on appeal.” United States v.

Mora, 293 F.3d 1213, 1216 (10th Cir. 2002).

Accordingly, we find that because Mr. Willard voluntarily agreed to allow

Wal-Mart to withhold $534,919.38 from his tort settlement, agreed to place these

funds in the court registry pending the outcome of this case, and allowed the court

- 15 -
to distribute the funds to the Plan Administrators pending resolution of this

dispute, he exercised control over the funds in question. Thus, because all three

parts of this test have been met, the Plan Administrators are entitled to restitution

in the form of an equitable lien as “appropriate equitable relief” under §

502(a)(3).

B. Application of the Terms of the Plan

Finally, Mr. Willard argues that even if the language is unambiguous, Wal-

Mart is not a “third party” or “another party” under the reimbursement provision

because it is a “party in interest” under ERISA. However, ERISA defines “parties

in interest” to ensure that the Plan does not engage in certain prohibited

transactions. Thus, the fact that Wal-Mart is a “party in interest” and must abide

by certain rules of separation from the Plan does not support the conclusion that

Wal-Mart is not an entity distinct from the Plan. Although Mr. Willard points to

many facts showing a close relationship between the Plan Administrators and

Wal-Mart, including control and oversight by the company, Mr. Willard fails to

establish that the two are not distinct entities for purposes of ERISA.

Thus, we find that the Plan Administrators’ suit for restitution to be for

“appropriate equitable relief” under § 502(a)(3) of ERISA, and the district court’s

judgment is therefore

AFFIRMED.

- 16 -