United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 96-4151
No. 97-1537
Brian J. Stillmunkes, *
*
Debtor - Appellant/Cross-Appellee, *
*
* Appeals from the United
States
* District Court for the
R e i n e S. Stillmunkes, *
Southern District of Iowa.
*
Debtor - Appellant/Cross-Appellee, *
*
v. *
*
Hy-Vee Employee Benefit Plan *
and Trust, *
*
Creditor-Appellee/Cross-Appellant. *
___________
Submitted:
June 13, 1997
Filed: October
20, 1997
___________
Before LOKEN, REAVLEY1 and JOHN R. GIBSON, Circuit Judges.
___________
1
The HONORABLE THOMAS M. REAVLEY, United States Circuit Judge for
the United States Court of Appeals for the Fifth Circuit, sitting by designation.
JOHN R. GIBSON, Circuit Judge.
Reine and Brian Stillmunkes appeal from an order of
the district court2 affirming an order of the bankruptcy
court3 that refused to reduce the claim of the Hy-Vee
Employee Benefit Plan and Trust in the Stillmunkeses'
Chapter 7 bankruptcy to require Hy-Vee to pay its share
of certain attorneys' fees and expenses as required by
Iowa law. The Stillmunkeses argue that the bankruptcy
court should have reduced Hy-Vee's claim because Iowa
state law limits the amount of Hy-Vee's claim to less
than the bankruptcy court allowed and because Hy-Vee's
claim should be reduced to pay Hy-Vee's share of the
attorneys' fees and expenses. Hy-Vee cross-appeals from
the denial of its motion for sanctions against the
Stillmunkeses' attorneys. We affirm the order of the
district court.
Reine was severely injured in a car accident. At the
time of the accident Reine's husband Brian was a member
of Hy-Vee, which is a self-funded employee benefit plan
and is governed by the Employee Retirement Income
Security Act of 1974, 29 U.S.C. §§ 1001-1461. Hy-Vee
extends medical benefits to its members and their
dependents, and it paid Reine's medical bills resulting
from the accident.
2
The Honorable Charles R. Wolle, Chief Judge, United States District Court for
the Southern District of Iowa.
3
The Honorable Lee M. Jackwig, United States Bankruptcy Judge for the
Southern District of Iowa.
-2-
Less than a month after the accident Reine and Brian
filed for bankruptcy. One of the assets was Reine's
cause of action against the state of Iowa for its
negligence in causing the accident in which she was
injured. Reine sued the state of Iowa, but the Trustee
of the Stillmunkeses' bankruptcy was later substituted
for her in the lawsuit.
-3-
The Trustee and the state eventually reached a settlement
in which the state paid $350,500 to the Trustee for the
damages Reine suffered in the car accident.
Hy-Vee filed a claim in the Stillmunkeses' bankruptcy
seeking reimbursement for the medical bills that it paid
on behalf of Reine.4 The Stillmunkeses argued in the
bankruptcy court that subsections 668.5(3) and 668.5(4)
of the Iowa Code limited Hy-Vee's claim for reimbursement
to 35% of the amount Hy-Vee claimed.5 They also
4
Hy-Vee bases its claim on a provision in its plan which provides:
RIGHT OF REIMBURSEMENT
If you or one of your Dependents:
- receive benefit payment as described in this booklet as the
result of a sickness or injury; and
- have a lawful claim against another party or parties for
compensation, damages or other payment because of the
same sickness or injury; and
- receive payment from the other party or parties (regardless
of the reason or nature of the payment, and whether or not
the other party or parties acknowledge liability in connection
with the payment);
this Plan shall have right [sic] to be reimbursed for benefits paid under
this Plan.
5
Subsection 668.5(3) of the Iowa Code provides:
Contractual or statutory rights of persons not enumerated in section 668.2
for subrogation for losses recovered in proceedings pursuant to this
-4-
argued that Hy-Vee's claim should be reduced by Hy-Vee's
proportionate share of the attorneys' fees and expenses
incurred in the lawsuit against the state of Iowa.
The bankruptcy court rejected the Stillmunkeses'
arguments, ruling that subsections 668.5(3) and 668.5(4)
could not reduce Hy-Vee's claim because ERISA pre-empted
them. The court permitted Hy-Vee to submit an unsecured
claim for the full amount of Reine's accident-related
medical bills that Hy-Vee paid. The Stillmunkeses
appealed to the district court, and the district court
affirmed, again ruling that ERISA pre-empted subsections
668.5(3) and 668.5(4) of the Iowa Code. The
Stillmunkeses appeal the order of the district court.
I.
The Stillmunkeses argue that ERISA does not pre-empt
subsections 668.5(3) and 668.5(4) and that Hy-Vee's claim
should be reduced according to the terms of subsections
chapter shall not exceed that portion of the judgment or verdict
specifically related to such losses, as shown by the itemization of the
judgment or verdict returned under section 668.3, subsection 8, and
according to the findings made pursuant to section 668.14, subsection 3,
and such contractual or statutory subrogated persons shall be responsible
for a pro rata share of the legal and administrative expenses incurred in
obtaining the judgment or verdict.
Subsection 668.5(4) of the Iowa Code provides:
Subrogation payment restrictions imposed pursuant to [subsection
668.5(3)] apply to settlement recoveries, but only to the extent that the
settlement was reasonable.
-5-
668.5(3) and 668.5(4).6 The question of whether ERISA
pre-empts
6
The Stillmunkeses argued at oral argument that Hy-Vee was contractually bound
to pay its proportionate share of the attorneys' fees and expenses incurred in the lawsuit
against the state of Iowa because Hy-Vee had agreed to do so in a letter. Although the
Stillmunkeses referred to the letter in their initial brief to this court, their reference
lacked sufficient clarity to be recognized as an argument. We refuse to consider an
argument presented to this court for the first time at oral argument. Cf. Wiener v.
Eastern Ark. Planting Co., 975 F.2d 1350, 1357 n.6 (8th Cir. 1992) (refusing to
consider an argument raised for the first time in a reply brief).
-6-
subsections 668.5(3) and 668.5(4) is one of law.
Therefore, we review the decision de novo. See Wegner v.
Grunewaldt, 821 F.2d 1317, 1320 (8th Cir. 1987).
Hy-Vee's claim for reimbursement is a contractual
claim that is normally governed by state law. See Butner
v. United States, 440 U.S. 48, 54-55 (1979). Hy-Vee
argues that subsections 668.5(3) and 668.5(4) do not
apply to its claim for "reimbursement" because they speak
in terms of "subrogation." Subsections 668.5(3) and
668.5(4) by their express terms cover the type of
situation presented in this case, even though they use
the term subrogation rather than reimbursement. The
relevant part of subsection 668.5(3) states that
"contractual . . . rights of persons . . . for
subrogation for losses recovered . . . shall not exceed
that portion of the judgment or verdict specifically
related to such losses, . . . and such . . . subrogated
persons shall be responsible for a pro rata share of the
legal and administrative expenses incurred in obtaining
the judgment or verdict." Subsection 668.5(4) further
provides that "subrogation payment restrictions imposed
pursuant to [subsection 668.5(3)] apply to settlement
recoveries, but only to the extent that the settlement
was reasonable." Hy-Vee has a right to receive the money
it previously paid for Reine's medical bills from the
money which the state of Iowa paid to the Trustee on
behalf of Reine in the settlement. We conclude that even
though subsections 668.5(3) and 668.5(4) use the term
subrogation, they apply to the type of claim that Hy-Vee
has made in the Stillmunkeses' bankruptcy. Cf. Principal
Cas. Ins. Co. v. Norwood, 463 N.W.2d 66, 68 (Iowa 1990)
-7-
(applying section 668.5 to insurer's claim under similar
facts).
Our analysis must continue, however, because Hy-Vee
is an employee benefit plan governed by ERISA. ERISA,
through its "deemer" clause, exempts self-funded
-8-
ERISA plans from state laws that regulate insurance. See
29 U.S.C. § 1144(b)(2)(B); FMC Corp. v. Holliday, 498
U.S. 52, 57-58, 61 (1990). The deemer clause provides:
"Neither an employee benefit plan described in section
1003(a) of this title, which is not exempt under section
1003(b) of this title (other than a plan established
primarily for the purpose of providing death benefits),
nor any trust established under such a plan, shall be
deemed to be an insurance company or other insurer, . .
. or to be engaged in the business of insurance . . . for
purposes of any law of any State purporting to regulate
insurance companies, [or] insurance contracts . . . ."
29 U.S.C. § 1144(b)(2)(B). Subsections 668.5(3) and
668.5(4) are state laws that regulate insurance. See FMC
Corp., 498 U.S. at 58-61 (holding Pennsylvania statute
regulating subrogation is a law regulating insurance).
Therefore, we conclude that Hy-Vee, as a self-funded
ERISA plan, is exempt from subsections 668.5(3) and
668.5(4) pursuant to ERISA's deemer clause, and we reject
the Stillmunkeses' argument that subsections 668.5(3) and
668.5(4) reduce Hy-Vee's claim. See FMC Corp., 498 U.S.
at 61.
II.
The Stillmunkeses argue that the common fund doctrine
in federal common law requires the reduction of Hy-Vee's
claim by Hy-Vee's proportionate share of the attorneys'
fees and expenses incurred in the lawsuit against the
-9-
state of Iowa. We conclude that the bankruptcy court did
not err in denying these arguments.7
7
We realize that this court has recently reached a conclusion in Waller v. Hormel
Foods, No. 96-2080, 1997 WL 398642 (8th Cir. July 17, 1997) that is somewhat at
odds with our holding today. In that case, however, this court relied on federal
common law to address the issue of attorneys' fees and expenses where both ERISA
and the individual ERISA plan were silent. We need not resort to federal common law
in the case at hand. Because the Trustee assumed the role of party plaintiff in the
lawsuit against the state of Iowa, the attorneys' fees incurred as a result of that lawsuit
were properly treated as administrative expenses borne by the estate. Such
administrative expenses are properly governed by the bankruptcy code, and so federal
common law is inapplicable.
-10-
III.
Hy-Vee cross-appeals from the bankruptcy court's
denial of Hy-Vee's motion for sanctions against the
Stillmunkeses' attorneys. We review the bankruptcy
court's refusal to impose sanctions for an abuse of
discretion. See Grunewaldt v. Mutual Life Ins. Co. (In
re Coones Ranch, Inc.), 7 F.3d 740, 743 (8th Cir. 1993).
We have carefully reviewed the record, and the bankruptcy
court did not abuse its discretion in refusing to impose
sanctions on the Stillmunkeses' attorneys.
We affirm the district court's order in all respects.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH
CIRCUIT.
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