UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________________________
No. 01-60343
_____________________________________
BAUHAUS USA, INC.,
Plaintiff-Appellant,
v.
Lillie Regina Holmes COPELAND, ect; ET AL,
Defendants,
Lillie Regina Holmes COPELAND,
as natural guardian and next friend of Reshan Holmes; and
Reshan HOLMES, a minor,
Defendants-Appellees.
__________________________________________________
Appeal from the United States District Court
for the Northern District of Mississippi
__________________________________________________
May 21, 2002
Before DAVIS, WIENER, and BARKSDALE, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Plaintiff Bauhaus USA, Inc. (“Bauhaus”), appeals from the
district court’s dismissal of its declaratory judgment action to
enforce the terms of an employee benefit plan against defendants
Lillie Regina Holmes Copeland and her daughter Reshan Holmes.
Bauhaus sought a declaratory judgment in the district court that
it was entitled, under the terms of the plan, to funds resulting
from a settlement between defendants and third-party tortfeasors.
The defendants moved to dismiss the case, arguing that the
Employee Retirement Income Security Act of 1974 (“ERISA”)1 does
not preempt Mississippi’s anti-assignment rule. The district
court granted the defendants’ motion. Because we conclude that
ERISA does not authorize Bauhaus’ declaratory judgment action, we
do not reach the preemption question.
I.
On June 1, 1996, James Davis crashed the vehicle he was
driving into a car carrying seven year-old defendant Reshan
Holmes, who suffered injuries. Holmes is the daughter of
defendant Lillie Regina Holmes Copeland. Copeland was an
employee of Bauhaus, the sponsor and administrator of an employee
benefit plan (the “Plan”) that covered Copeland as a participant
and Holmes as a beneficiary. Although the Plan did not cover
injuries resulting from the acts of another, the Plan honored
Copeland’s request for benefits and elected to advance payments
for Holmes’ medical expenses in the amount of $46,229.45.
According to the Plan’s provisions, one condition of any
advance payment of benefits is that the Covered Person reimburse
the Plan out of any recovery against a third party. In relevant
part, the Plan provides:
Medical care benefits are not payable to or for a
person covered under this Plan when the injury or illness to
1
29 U.S.C. § 1001 et seq (2002).
-2-
the Covered Person occurs through the act, omission or
alleged negligence of another person . . . .
However, the Plan may elect to advance payment for
Medical Care expenses incurred for an injury or illness in
which a third party may be liable if the Covered Person
agrees to the following:
The Covered Person will reimburse the Plan out of the
Covered Person’s recovery for all benefits paid by the Plan.
The Plan will be reimbursed prior to the Covered Person
receiving any monies recovered from a Third Party or their
insurer as a result of judgment, settlement or otherwise . .
. .
. . . .
The Covered Person further agrees that he will not
release any third party or their insured without prior
written approval from the Plan, and will take no action
which prejudices the Plan’s subrogation right.
The Plan defines “Covered Person” to include both employees and
their minor children. The Plan is self-funded--that is, it does
not purchase an insurance policy but is funded only by the
sponsoring employer–-here Bauhaus. The parties agree that the
Plan is an employee welfare benefit plan governed by ERISA.
Davis, the driver of the other vehicle, was an employee of
James M. Newman, who did business as Newman Trucking and was
insured by Canal Insurance Company. Copeland, on behalf of the
minor, sued these parties (collectively, the “Tortfeasors”)in
Mississippi state court, and they eventually negotiated a
settlement of the claims, including medical expenses, in return
for $750,000.
For legal standing to represent Holmes in litigation,
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Copeland sought and was granted appointment as Holmes’ legal
guardian. In the context of that guardianship case, Copeland
petitioned the Mississippi Chancery Court for authority to settle
Holmes’ claim against the Tortfeasors according to the proposed
settlement agreement. The settlement agreement required the
Tortfeasors to pay into the Registry of the Lee County Chancery
Court $78,161.47 of the settlement proceeds, an amount sufficient
to cover all liens against the proceeds. The agreement further
stated that all parties with claims against that money would then
be “served with process in the interpleader action.”
A separate interpleader action never developed. Rather, the
Chancery Court ordered that the Plan be made a party to the
guardianship case and required to show why the Tortfeasors should
not be given a release. The Plan then gave notice of removal of
the guardianship case to the Northern District of Mississippi.
Holmes moved to remand, and the Plan consented; accordingly, the
district court remanded the case to the state court in June 2000.
A week later, Bauhaus, as administrator of the Plan, sued
Copeland, Holmes, and the Tortfeasors in the Northern District of
Mississippi, seeking a declaratory judgment that “Bauhaus is
entitled to and shall receive full reimbursement of $46,229.45
from the proceeds of the settlement . . . upon approval by the
Chancery Court of the settlement.” The crux of Bauhaus’ case
was, and is, that ERISA preempts the Mississippi law that
-4-
requires court approval of the assignment of a minor’s right to
insurance proceeds.
A week after Bauhaus filed suit in federal court, the
Chancery Court approved Copeland’s petition to settle Homes’
claims. The sum of $78,161.47 remains in the registry of that
court, and the guardianship case is still pending.2 The tort
litigation, however, is closed. The Chancery Court’s order (1)
released the Tortfeasors from all “claims, demands, liens [and]
subrogation interests” arising out of the tort litigation,
including Bauhaus’ claim; and (2) required dismissal of the tort
litigation.
The Tortfeasors, Copeland, and Holmes moved the district
court to dismiss the action. The Tortfeasors argued that the
doctrines of res judicata and release barred Bauhaus from suing
them again. Copeland and Holmes contended that dismissal was
proper on three grounds: (1) absence of a federal question,
because ERISA does not preempt Misssissippi’s anti-assignment
rule; (2) lack of federal jurisdiction over the funds in
question, because they are in the registry of the Mississippi
court; and (3) consent to state jurisdiction, because Bauhaus had
agreed to remand the guardianship case to state court.
In March 2001, the district court granted the motions to
dismiss because it found that ERISA did not preempt Mississippi’s
2
At oral argument, the parties agreed that the Chancery
Court is collegially awaiting our ruling.
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anti-assignment rule, and therefore, that it did not have
jurisdiction to hear the case. Bauhaus then filed its notice of
appeal. We granted the Tortfeasors’ unopposed motion to dismiss
them from this case prior to oral argument. Bauhaus now appeals
only the district court’s dismissal of its claims against
Copeland and Holmes.
II.
We review de novo a district court’s grant of a motion to
dismiss.3 We must therefore take the complainant’s allegations
as true, and may not dismiss a claim unless it appears certain
that the plaintiff cannot prove any set of facts in support of
its claim that would entitle it to relief.4
The parties urge this court to decide whether ERISA preempts
Mississippi’s anti-assignment rule that requires court approval
of any assignment of a minor’s interest in insurance proceeds.5
Before we may reach the merits of the parties’ preemption
arguments, however, we must make certain that jurisdiction is
3
Carney v. Resolution Trust Corp., 19 F.3d 950, 954 (5th
Cir. 1994) (citing Benton v. United States, 960 F.2d 19, 21 (5th
Cir. 1992)).
4
Id.
5
The Mississippi Supreme Court articulated this rule in
McCoy v. Preferred Risk Ins. Co., 471 So.2d 396, 397-99 (Miss.
1985) and Methodist Hospitals v. Marsh, 518 So.2d 1227, 1228 (Miss.
1988).
-6-
proper in this case.6 “Every federal appellate court has a
special obligation to satisfy itself not only of its own
jurisdiction, but also that of the lower courts in a cause under
review, even though the parties are prepared to concede it.”7
ERISA grants the federal courts “exclusive jurisdiction of
civil actions under this title brought by . . . [a] fiduciary.”8
The parties agree that the Plan is governed by ERISA and that
Bauhaus, as administrator of the Plan, is a “fiduciary” under
6
There is no independent ground for federal question
jurisdiction under § 1331 based on plaintiff’s preemption argument
because plaintiff’s suit cannot “arise under” ERISA for purposes of
§ 1331 if ERISA does not authorize the suit. See Franchise Tax Bd.
v. Construction Laborers Vacation Trust, 463 U.S. 1 (1983);
Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58 (1987). In
Franchise Tax Board and Taylor, the Supreme Court held that “ERISA
preemption, without more, does not convert a state claim into an
action arising under federal law.” Taylor, 481 U.S. at 64 (citing
Franchise Tax Board, 463 U.S. at 25-27). A claim that ERISA
preempts a state law cannot create federal question jurisdiction
where the federal issue is not part of the plaintiff’s well-pleaded
complaint but could only arise as a defense, unless Congress
created a cause of action in the allegedly preemptive statute. See
Franchise Tax Board, 463 U.S. at 25-27; Taylor, 481 U.S. 64-66; see
also Erwin Chemerinsky, Federal Jurisdiction § 5.2, at 265-67 (2d
ed. 1994). In Taylor, 481 U.S. 64-66, the Court held that federal
jurisdiction existed where ERISA preemption arose as a defense
because § 502(a)(1) expressly created a cause of action available
to the plaintiff. The Court reasoned that the federal courts had
jurisdiction in that case because “Congress has clearly manifested
an intent to make causes of action within the scope of the civil
enforcement provisions of § 502(a) removable to federal court.”
Id. at 66. Therefore, because we conclude, as discussed later in
this opinion, that § 502(a)(3) does not authorize Bauhaus’ suit,
the preemption claim cannot form the basis of federal question
jurisdiction.
7
Arizonans for Official English v. Arizona, 520 U.S. 43,
73 (1997) (internal citation omitted).
8
29 U.S.C. § 1132(e)(1) (1994).
-7-
ERISA. The only question that this court must resolve to
determine whether jurisdiction is proper, therefore, is whether
ERISA authorizes Bauhaus’ suit.
ERISA § 502(a)(3) authorizes a civil action “by a . . .
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.”9 ERISA
authorizes Bauhaus’ suit, and this court has jurisdiction then,
only if Bauhaus’ declaratory judgment action is an action “to
enjoin any act or practice which violates . . . the terms of the
plan” or “to obtain other appropriate equitable relief.”10
In Mertens v. Hewitt Associates,11 the Supreme Court made
clear that the term “equitable relief” in § 502(a)(3) referred
only to “those categories of relief that were typically available
in equity.”12 In its later, and quite recent, case of Great-West
Life & Annuity Insurance Co. v. Knudson,13 the Court considered a
case with facts nearly identical to the instant case.14 In
9
29 U.S.C. § 1132(a)(3).
10
§ 502(a)(3).
11
508 U.S. 248 (1993).
12
Id. at 256 (emphasis in original).
13
534 U.S. 204, 122 S.Ct. 708 (2002).
14
Id.
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Great-West, Janette Knudson, a beneficiary of an ERISA-governed
employee welfare benefit plan, was injured in a car accident.15
The employee benefit plan included a reimbursement provision
similar to the one at issue in the present case; the provision
stated that the plan had “‘the right to recover from the
[beneficiary] any payment for benefits’ paid by the Plan that the
beneficiary is entitled to recover from a third party.”16 In
particular, the Plan had “‘a first lien upon any recovery,
whether by settlement, judgment or otherwise,’ that the
beneficiary receives from the third party, not to exceed ‘the
amount of benefits paid [by the Plan] . . . [or] the amount
received by the [beneficiary] for such medical treatment . . .
.’”17 According to this provision, the plan covered $ 411,157.11
of Janette’s medical expenses, of which all except $ 75,000 was
paid by Great-West.18
Janette and her then-husband filed a state tort suit against
the Hyundai Motor Company (“Hyundai”), the manufacturer of the
car in which they were riding when they were injured, and other
tortfeasors.19 The parties negotiated a $650,000 settlement
15
Id. at 711.
16
Id. (citing the plan at App. 58).
17
Id. (citing the plan at App. 58-59).
18
Id.
19
Id.
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which allocated $256,745.30 to a Special Needs Trust to provide
for Janette’s medical care; $373,426 to attorney’s fees and
costs; and $13,828.70 to satisfy Great-West’s claim under the
plan’s reimbursement provision.20 Before the state court
approved the settlement, however, Great-West filed a notice of
removal in the federal district court, asserting ERISA claims and
that it was a defendant in the state law action.21 The district
court denied Great-West’s notice and remanded the case to state
court, where that court approved the settlement.22 Accordingly,
the tortfeasors paid the settlement money to the Special Needs
Trust and gave the remainder to the Knudsons’ attorney, who
tendered a check in the amount of $13,828.70 to Great-West.23
Instead of cashing its check, however, Great-West filed suit in
the federal district court seeking declaratory and injunctive
relief under ERISA § 502(a)(3) to enforce the reimbursement
provision of the plan and recover from the settlement proceeds
the $411,157.11 it had advanced to Janette.24
The Supreme Court held that ERISA did not authorize Great-
West’s suit, and therefore, affirmed the dismissal of the
20
Id.
21
Id.
22
Id.
23
Id.
24
Id. at 712.
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action.25 The Court found that Great West was not seeking “to
enjoin any act or practice which violate[d] . . . the terms of
the plan” or “to obtain other appropriate equitable relief” under
§ 502(a)(3).26 Declining to construe Great-West’s complaint as
seeking a remedy that was “typically available in equity” as
Mertens requires, the Court reasoned that Great-West essentially
sought “to impose personal liability on [the Knudsons] for a
contractual obligation to pay money–relief that was not typically
available in equity.”27
The Court refused to accept Great-West’s argument that the
relief it sought met the Mertens standard.28 First, the Court
rejected Great-West’s contention that Great-West sought an
injunction or specific performance to compel the Knudsons to
repay the contested funds. The Court reasoned that “an
injunction to compel the payment of money past due under a
contract, or specific performance of a past due monetary
obligation, was not typically available in equity.”29
The Court also held that the relief that Great-West sought
25
Id. at 718-19.
26
Id.
27
Id. at 712-13.
28
Id. at 712-19.
29
Id. at 713.
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did not constitute restitution in equity.30 Distinguishing
restitution in equity from restitution at law, the Court defined
restitution in equity as a “form of constructive trust or
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.”31
The Court reasoned that Great-West did not seek restitution in
equity because the proceeds of the settlement to which Great-West
maintained it was entitled were not in the Knudsons’ possession,
but were in the Special Needs Trust.32 The Court explained that
“[t]he basis for petitioners’ claim is not that respondents hold
particular funds that, in good conscience, belong to petitioners,
but that petitioners are contractually entitled to some funds for
benefits that they conferred.”33
Finally, the Court rejected the contention that the common
law of trusts encompassed the relief sought by Great-West.34 The
30
Id. at 714.
31
Id. (emphasis added). In contrast, the Court defined
“restitution at law” as a remedy available to a plaintiff who
“could not assert title or right to possession of particular
property, but in which nevertheless he might be able to show just
grounds for recovering money to pay for some benefit the defendant
had received from him.” Id. (internal citation omitted) (emphasis
in original).
32
Id. at 715.
33
Id.
34
Id. at 717.
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Court found that the trust remedies were “simply inapposite” to
the relief sought by Great-West.35
We conclude that the facts of the instant case are
indistinguishable in principle from Great-West. Both cases
involve ERISA-governed employee benefit plans that include
reimbursement provisions allowing the plans to recover from any
settlement proceeds any amount the plans advanced for medical
expenses resulting from third party wrong-doing. Third-party
tortfeasors injured the plan beneficiaries in both cases, and the
plans advanced funds to the beneficiaries for medical expenses.
In both cases, the plan beneficiaries made tort settlements with
third-party tortfeasors following suit in state court. In both,
the plan administrator or assignee filed suit in the federal
district court seeking declaratory relief that it was entitled to
repayment of the benefits it had conferred. In the instant case,
the settlement proceeds are in the registry of the Mississippi
Chancery Court. In Great-West, the proceeds of the settlement
were placed in a private Special Needs Trust outside the
possession and control of the plan beneficiary. Nevertheless,
the defendants in this case, like the Knudsons in Great-West, are
not in possession of the disputed funds, a fact that Justice
Scalia found extremely important in Great-West.
The Court in Great-West characterized the suit in that case
35
Id.
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as “[a] claim for money due and owing under a contract” and that
such a suit is “quintessentially an action at law.”36 Because
the facts in today’s case are, in principle, indistinguishable
from those in Great-West, we are bound by that decision and hold
that § 502(a)(3) does not authorize Bauhaus’ suit.
III.
For reasons stated above, we affirm the district court’s
dismissal of this suit for lack of federal jurisdiction because
ERISA does not authorize this suit. Consequently, we do not
reach the parties’ preemption arguments.
AFFIRMED.
36
Id. at 713 (internal citation omitted).
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WIENER, Circuit Judge, dissenting:
Federal preemption is the keystone that gives ERISA’s arch
the ability to span the nation with a single, uniform, pension
and welfare-benefit law. When Congress manifested its intent to
create such an exclusive federal presence in that field of law,
it expressly decreed perhaps the most comprehensive and pervasive
preemption of the present era. In the absence of federal
jurisdiction, however, federal statutory preemption fails.
Therefore, unless the federal courts cautiously, deliberately,
and charily examine every asserted challenge to, or claim of
limitation on, subject-matter jurisdiction under ERISA,
Congress’s command cannot be effectuated to the extent clearly
intended.
Unfortunately, in adopting an overly expansive reading of
Great-West Life37 to conclude that the district court lacked
jurisdiction over Bauhaus’s suit, the panel majority errs.
Although I have difficulty in discerning the majority’s precise
reasoning, I am left no choice but to conclude that my learned
colleagues have misunderstood the narrowness of the rule that the
Supreme Court announced in that case. Because I am convinced
that jurisdiction of this case lies in the federal courts even
under Great-West Life, and believe that for us to affirm the
district court’s dismissal is to frustrate the unmistakable
37
Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S. Ct. 708 (2002).
congressional policy embodied in ERISA, I respectfully dissent.
I can only hope that the majority’s result will not chill the
discretionary delivery in this circuit of health care to plan
beneficiaries who are victims of tortfeasors. Today’s tort
victim is a minor; future victims will likely be adults made
legally incompetent by the very tort injuries for which they need
prompt medical care. Whoever might be the victims, however,
today’s ruling could very well harm many of those for whose
benefit Congress enacted ERISA.
I. SUBJECT-MATTER JURISDICTION
Great-West Life, asserts the majority, requires that we affirm
the district court’s dismissal. That assertion is not at all
supported by the realization (alluded to and perhaps relied on by
the majority) that Bauhaus’s complaint seeks an extremely narrow
remedy. And that assertion is utterly refuted by a deeper analysis
and thorough understanding of the Supreme Court’s opinion in Great-
West Life.
A. Declaratory Judgment
The fact that Bauhaus’s complaint specifically sought only
declaratory relief38 does not mean, as the majority seems to imply,
38
Bauhaus captioned and described its federal complaint as a “complaint for declaratory
judgment.” The demand and prayer for relief, which Bauhaus never amended, read as follows:
20. Plaintiff demands that this Court enter declaratory judgment in favor of
Plaintiff determining and declaring that Bauaus [sic] is entitled to and shall receive full
reimbursement of $46,229.45 from the proceeds of the settlement....
Wherefore, premises considered, Plaintiff prays that this Court declare that
Bauhaus USA, Inc. is entitled to $46,229.45 from the aforementioned settlement
-16-
that the district court automatically lacks jurisdiction of this
case.39 It is true that the district court could have had subject-
matter jurisdiction only if Bauhaus raised a federal question.40
But when we construe Bauhaus’s prayer for relief with the
liberality that the federal rules require of us, the federal
question becomes undeniably apparent.
1. ERISA (29 U.S.C. § 1132)
ERISA gives the federal district courts “exclusive
jurisdiction of civil actions under this subchapter brought by . .
. [a] fiduciary.”41 No one contests that Bauhaus, as the custodian
and administrator of the Plan, is a “fiduciary” within the meaning
of this section. The statute carefully delineates how a fiduciary
can enforce its rights judicially under a plan:
(a) Persons empowered to bring a civil action. A civil
proceeds and that this Court will advance this matter on its docket, order a speedy
hearing as provided in Rule 57 of the Federal Rules of Civil Procedure and for [sic]
other general relief to which Plaintiff may be entitled [emphasis added].
39
The majority accurately states that Great-West sought declaratory judgment; but it is
inaccurate to imply, as the majority appears to, that the Court in Great-West Life held that
declaratory judgment was not available to ERISA fiduciaries seeking to enforce their plan rights.
Great-West sought “injunctive and declaratory relief.” Great-West Life, 122 S. Ct. at 712 (emphasis
added). The Court therefore did not determine whether declaratory relief alone was permissible, but
went straight to the underlying claim. As I shall show, we should do the same here, regardless of the
contents of Bauhaus’s prayer for relief. See Part I.A.2–3, infra.
40
Bauhaus is a Mississippi corporation; Copeland and Holmes are domiciled in Lee County,
Mississippi; and the amount in controversy is less than $75,000. However, ERISA gives the district
courts jurisdiction over suits under 29 U.S.C. § 1132(a) “without respect to the amount in
controversy or the citizenship of the parties.” 29 U.S.C. § 1132(f).
41
29 U.S.C. § 1132(e)(1).
-17-
action may be brought—
. . .
(3) by a . . . 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[.]42
Hence the first jurisdictional issue: Is a complaint that demands
a purely declaratory judgment a “civil action . . . to obtain other
appropriate equitable relief” under § 1132(a)(3)(B)?
The leading case construing “appropriate equitable relief” is
Mertens v. Hewitt Associates.43 In it, the Supreme Court
interpreted § 1132(a)(3)(B) to enable plaintiffs to sue for only
“those categories of relief that were typically available in equity
(such as injunction, mandamus, and restitution but not compensatory
damages).”44 The panel majority cites no case, and I have found
none, that addresses the question whether declaratory judgment,
taken alone, is “appropriate equitable relief” under § 1132(a)(3).45
42
29 U.S.C. § 1132(a)(3) (emphases added). Thus a fiduciary is in a different position from
a plan beneficiary or participant, whom ERISA expressly authorizes to seek relief that clarifies a right
under a plan. See 29 U.S.C. § 1132(a)(1)(B).
43
508 U.S. 248 (1993).
44
Id. at 256 (emphasis original).
45
In FMC Corp. v. Holliday, 498 U.S. 52 (1990), the Supreme Court reached the merits of
a case in which the plaintiff had sought a declaration that it was entitled to subrogation for its
payments of the covered person’s medical expenses. But FMC was also a diversity case, and thus
did not settle the instant question. Id. at 56 (“Petitioner, proceeding in diversity, then sought a
declaratory judgment in Federal District Court.”). In Heimann v. Natl. Elevator Industry Pension
-18-
To answer this question in the affirmative may seem
incongruous at first. Like most courts, we generally view the
Declaratory Judgment Act46 as a procedural statute, not an
independent basis of federal jurisdiction.47 More importantly, the
Declaratory Judgment Act became law in the 1930s, just as the
Federal Rules of Civil Procedure were merging law and equity.
Thus, at least in the federal courts, declaratory judgment was not
a remedy “typically available” in equity, as Mertens requires. If
the district court’s selection of remedies were determined solely
by Bauhaus’s narrow prayer for relief, I would have to agree with
the majority that the district court lacked jurisdiction over
Bauhaus’s suit.
2. Rule 54(c)
Nevertheless, the remedies that a federal court may bring to
Fund, 187 F.3d 493 (5th Cir. 1999), we liberally construed a complaint brought by a plan participant
under § 1132(a)(1), not by a plan fiduciary under § 1132(a)(3), the provision that applies to this case.
46
28 U.S.C. § 2201 (permitting a federal court to render a declaratory judgment “[i]n a case
of actual controversy within its jurisdiction”).
47
See Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671–72 (1950); In re B-727
Aircraft Serial No. 21010, 272 F.3d 264, 270 (5th Cir. 2001) (“[T]he Declaratory Judgment Act does
not provide a federal court with an independent basis for exercising subject-matter jurisdiction.”)
(citation omitted); 10B CHARLES ALAN WRIGHT, ARTHUR R. MILLER, & MARY KAY KANE, FEDERAL
PRACTICE AND PROCEDURE § 2766 (West 3d ed. 1998) (citing cases):
The operation of the Declaratory Judgment Act is procedural only. By passage of the
Act, Congress enlarged the range of remedies available in the federal courts but it did
not extend their subject-matter jurisdiction. Thus, prior to deciding whether to
exercise its discretion and allow a declaratory-judgment action to be brought, the
court must determine if jurisdict ion and venue are proper. There must be an
independent basis of jurisdiction, under st atutes equally applicable to actions for
coercive relief, before a federal court may entertain a declaratory-judgment action.
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bear are not constrained by a litigant’s prayer for relief; rather,
the Federal Rules of Civil Procedure command the federal courts to
grant relief that complainants do not demand when such relief is
appropriate.48 As one leading treatise notes,
adherence to the particular legal theories of counsel
that may have been suggested by the pleadings is
subordinated to the court’s duty to grant the relief to
which the prevailing party is entitled, whether it has
been demanded or not.49
Thus “coercive relief or damages may be given in a suit seeking a
declaratory judgment.”50 The Rules’ policy of mandating liberal
construction of pleadings should place Bauhaus’s complaint in the
Mertens box, because in general, “it is not the...type of relief
requested in the demand that determines whether the court has
jurisdiction.”51 As I demonstrate below, Bauhaus is entitled to
relief that would pass the Mertens test.
In short, the panel majority implicitly assumes that in our
48
“[E]very final judgment shall grant the relief to which the party in whose favor it is rendered
is entitled, even if the party has not demanded such relief in the party’s pleadings.”
FED. R. CIV. P. 54(c) (emphasis added). See also FED. R. CIV. P. 8(e) (“No technical forms of
pleading or motions are required.”); FED. R. CIV. P. 8(f) (“All pleadings shall be so construed as to
do substantial justice.”) (emphasis added); FED. R. CIV. P. 8(a).
49
10 CHARLES ALAN WRIGHT, ARTHUR R. MILLER, AND MARY KAY KANE, FEDERAL
PRACTICE AND PROCEDURE § 2664 & n.2 (West 3d ed. 1998) (collecting eight Fifth Circuit cases).
See also United States v. Universal Management Servs., Inc., 191 F.3d 750 (6th Cir. 1999); Minyard
Enters., Inc. v. Southeastern Chem. & Solvent Co., 184 F.3d 373 (4th Cir. 1999); Valona v. United
States Parole Comm’n, 165 F.3d 508 (7th Cir. 1998).
50
Id. & n.24 (collecting cases).
51
Id. & n.9 (collecting cases).
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jurisdictional analysis, we must take Bauhaus’s prayer for relief
at face value, even though the Rules mandate that in awarding
relief, federal courts look beyond the prayer to the underlying
claim. The facial assumption that the prayer controls the relief,
which the majority makes no attempt to defend, is heavy freight
with which to lade the language of § 1132(a)(3). It is also
clearly at variance with the Supreme Court’s insistence in Great-
West Life that we should focus on the essential nature of the
relief sought, not on the label that creative —— or, in this case,
tentative —— lawyering might give the requested remedy.52 Rather
than read this policy-filled statute as irreconcilable with the
Rules, we should try to make sense of both and find them compatible
if we can in a principled manner —— and I believe that we can.
3. The Remedial Indeterminacy of Declaratory Judgment
Even if we were bound by Bauhaus’s prayer for relief (which
may or may not be the panel majority’s view), the relationship
between declaratory judgment and equity can be —— and is here ——
far tighter than the majority suggests. For openers, declaratory
judgment’s historical roots do lie in equity.53 Such a judgment,
52
Great-West Life, 122 S. Ct. at 713 n.1.
53
EDWIN BORCHARD, DECLARATORY JUDGMENTS 238–39 (Banks-Baldwin 2d ed. 1941)
(“[T]he power granted by the declaratory judgment statutes is more strictly a direction to use an
existing power than an authorization of new power. . . . [I]t is both historically and traditionally a
power exercised primarily by courts of equity, and even where exercised by law courts it is largely
equitable in nature.”); id. at 348 (stating that declaratory judgment was “born under equitable
auspices and ha[d] preponderantly equitable affiliations”).
-21-
however, is now a preliminary procedure: as the Declaratory
Judgment Act provides, a successful declaratory plaintiff may seek
“[f]urther necessary or proper relief” to enforce a declaratory
judgment.54 This suggests that the majority’s result may well be
premature. Furthermore, the modern view is that, although
declaratory judgment in and of itself is neither legal nor
equitable, it takes on the character of the underlying right or
relation that it declares.55 A judgment decreeing that Bauhaus is
entitled to a particular portion of identifiable funds sojourning
in the registry of another court could not conceivably be equated
to a declaration that Bauhaus can impose general liability on and
collect contractual damages from Copeland and Holmes, which Great-
West Life proscribes. Rather —— as I shall explain —— such a
judgment would declare only that Bauhaus is entitled to remedies
traditionally available at equity. I am convinced, then, that to
whatever extent the majority relies on the narrowness of Bauhaus’s
prayer for relief to determine that Bauhaus does not seek an
equitable remedy and therefore that federal jurisdiction is
lacking, the majority errs.
B. Interpreting Great-West Life
54
28 U.S.C. § 2202.
55
BORCHARD, supra, at 239 (“[I]n principle declaratory relief is sui generis and is as much
legal as equitable.”); DAN B. DOBBS, LAW OF REMEDIES § 2.6(3) (West 1993) (“More commonly the
declaratory action is regarded as equitable when the underlying dispute is equitable, otherwise it is
legal.”).
-22-
The majority seems to rely chiefly, however, on Great-West
Life rather than Mertens, stating that “the facts in today’s case
are, in principle, indistinguishable from those in Great-West,” and
apparently drawing from that case the rule that if the disputed
funds are not in the possession of an ERISA beneficiary, the ERISA
plan cannot sue in federal court. This simply is not the rule that
Great-West Life laid down; and, importantly, the instant facts are
distinguishable from Great-West Life’s facts in the very ways that
the Supreme Court found to be dispositive there.
1. The Great-West Life Opinion
In Great-West Life, the Court determined that given the
posture of that case, restitution, specific performance, and
constructive trust were not equitable remedies that permitted
federal jurisdiction of a fiduciary’s suit seeking to enforce an
ERISA plan’s reimbursement provision.56 Great-West, the ERISA
fiduciary that had funded medical care, sued for declaratory and
injunctive relief, but Justice Scalia —— as we should do here ——
looked beyond the labels of the requested remedies to their
essentials, and held that Great-West actually sought “to impose
personal liability on respondents for a contractual obligation to
pay money —— relief that was not typically available in equity.”57
Creative lawyering can couch this relief as injunctive to prevent
56
Great-West Life, 122 S. Ct. at 713–19.
57
Id. at 712–13.
-23-
violation of a plan, but that does not mask the reality, said the
Court.58 The Court described the relief that Great-West actually
sought as “legal restitution” —— “the imposition of personal
liability for the benefits that [it] conferred” on the plan
participant —— not equitable restitution, in which the plaintiff
seeks “to restore to the plaintiff particular funds or property in
the defendant’s possession.”59 Similarly, the other remedies Great-
West sought —— injunctive and trust remedies —— were, in the
posture of Great-West Life, actually legal ones, no matter in what
guise they walked. Therefore, the Court held, the district court
lacked jurisdiction.
I part company with the panel majority in my understanding of
the Great-West Life Court’s basis for these distinctions between
legal and equitable remedies. The majority seizes on the phrase
“in the defendant’s possession” as a pronouncement that if the
disputed funds are not in the defendant’s possession, the remedy
sought must be legal, not equitable. This seriously misreads
Great-West Life.
The Court’s analysis did indeed turn on the fact that the
personal-injury proceeds had already been paid out: some to a
special needs trust for Knudson, the tort victim, under a provision
of California’s probate code; some to Knudson’s attorney; some to
58
Id. at 713 n.1.
59
Id. at 715 (emphasis added).
-24-
California Medicaid; and only $14,000 to the ERISA plan that had
spent over $410,000 on the victim’s care.60 But the significance
of this fact was not simply that the funds were not in the
beneficiary’s possession; and, conversely, to read the Court’s
opinion as requiring that the disputed funds be in the defendant’s
possession is to mistake the relevant analysis.
A closer examination reveals the Court’s doctrinal point:
After the distribution of the funds, the tort victim herself was
left without specific, identifiable funds to which the ERISA plan
could assert title.61 This fact made the remedy that Great-West
sought to impose essentially personal and general contractual
damages —— classically, a legal remedy, which the statute does not
permit.62 In other words, the Court’s test was not whether the
money was in the defendant’s possession vel non, but whether the
remedy that the plan sought to impose was legal or equitable; and
this distinction turned on where the money to pay the judgment
would come from: if from the defendant’s personal, fungible, and
untraceable resources, the remedy sought was legal and proscribed.
That was the case in Great-West Life; that is not the case with
60
Id. at 711 (describing the facts), 714–15 (distinguishing between restitution of personal
property in a defendant’s possession and imposing personal liability on a defendant). Compare id.
at 721 (Ginsburg, J., dissenting) (noting that “whether relief is ‘equitable’ would turn entirely on the
designation of the defendant”) with id. at 718 (majority) (expressing no opinion as to whether federal
jurisdiction would exist over a suit brought against the trust, rather than its beneficiary).
61
Great-West Life, 122 S. Ct. at 714–15.
62
Id. at 712–15.
-25-
Bauhaus.
2. Disputed Funds Are in State Court Registry
In deciding today’s case, the majority glides past the most
salient factual distinction between this case and Great-West Life
for purposes of the analysis that the Court performed in that case.
There was no parallel guardianship proceeding and thus no money in
a state-court registry, as there are here. The posture of the
instant case thus differs markedly from the posture that ultimately
determined the outcome in Great-West Life.
Funds in the registry of a court are deposited in the court’s
bank, which is otherwise uninvolved in the case. Such funds are
truly in legal limbo vis-à-vis parties in interest. Asserting a
claim against funds in the registry of the Chancery Court, then,
does not require the imposition of general, in personam
responsibility on Copeland, Holmes, or anyone else —— the
quintessentially legal remedy that the Great-West Life Court held
was unavailable under § 1132(a)(3)(B). Instead, Bauhaus is
contesting title to a specific and identifiable quantum of funds in
custodia legis that it claims as its own under the Plan. The court
(or its bank) possesses for no one in particular until the rightful
owner is determined. Here, the disputed funds have not yet been
distributed in the sense seized upon by the Court in Great-West
Life, and the parties agree that the funds are more than sufficient
to satisfy Bauhaus’s claim. There is thus no conceivable danger,
in this case’s current posture, of the district court’s imposing
-26-
general, personal, contractual liability on anyone. The relief
sought by Bauhaus is not in personam against Copeland or Holmes,
but is in rem against funds possessed by a neutral stakeholder.
This proposition —— that the location of the instant funds in
the Chancery Court’s possession, and not in the defendant’s
possession, should actually defeat a rote application of Great-West
Life —— is borne out by this case’s resemblance to situations that
Justice Scalia specifically and explicitly said Great-West Life did
not reach. He cautioned that the Court did not “decide whether
petitioners could have obtained equitable relief against
respondents’ attorney and the trustee of the Special Needs Trust.”63
Leaving these questions undecided necessarily meant that the
Court’s test hinged not on who possessed the disputed funds, but
rather on what kind of remedy would enable the plaintiff to recover
those funds. The attorney and the trustee, both technically third
parties in Great-West Life, are closely analogous to the Chancery
Court here; and that state court is far more neutral among and
attenuated from the several claimants here than were the attorney
and the trustee in Great-West Life, who were closely aligned with
the defendant. It follows obviously and indisputably that by
seeking funds held in the registry of a court —— particularly a
63
122 S.Ct. at 718.
-27-
state court of equity64 —— Bauhaus does not seek to impose (1) a
legal remedy (2) of general liability on Copeland or Holmes. That
was the Court’s basic concern in Great-West Life, and we could have
easily allayed it here.
3. Subrogation, Not Reimbursement
Another important distinction between Great-West Life and the
instant case is the nature of the obligation that Bauhaus here
seeks to enforce. The right that Bauhaus asserts is to
subrogation, not reimbursement or restitution.
The plan provision at issue is less than pellucid, but when
read fairly it requires that the Plan recover funds before the
beneficiary does. The Plan may elect to pay the expenses of a
beneficiary injured by a third party if the beneficiary (or
“Covered Person”) agrees that
The Covered Person will reimburse the Plan out of
the Covered Person’s recovery for all benefits paid by
the Plan. The Plan will be reimbursed prior to the
Covered Person receiving any monies recovered from a
Third Party or their [sic] insurer as a result of
judgment, settlement, or otherwise . . . .
. . .
The Covered Person further agrees that he will not
release any third party or their insured without prior
written approval from the Plan, and will take no action
which [sic] prejudices the Plan’s subrogation right
[emphasis added].
64
See MISS. CONST. art 6, § 159:
The chancery court shall have full jurisdiction in the following matters and cases, viz.:
(a) All matters in equity;
(b) Divorce and alimony;
(c) Matters testamentary and of administration; [and]
(d) Minor’s business[.]
-28-
Needless to say, Copeland and Holmes have violated every clause of
these paragraphs: They have failed to turn over funds to Bauhaus;
they have themselves recovered before turning over anything; they
have released the tortfeasors; and they have taken other actions to
the prejudice of Bauhaus’s subrogation right. But the prohibitions
on release and prejudicial action, and the requirement that Bauhaus
recover its advances before the Covered Person is paid, remove any
doubt that this provision is a subrogation provision, not a
reimbursement provision, regardless of any loose or contradictory
language in the document. The duty that this provision imposes on
Copeland and Holmes becomes even clearer on close inspection of the
form that Copeland signed after the accident so that Holmes might
receive medical treatment. In signing that form, Copeland
promised, on Holmes’s behalf,65 that:
I hereby agree that such plan is subrogated and succeeds
to the right, which right is hereby assigned to such
plan, of such covered individual to recover therefore
[sic] against any person who . . . is liable . . . . I
further agree to take all such further action and to
execute and deliver . . . such further instruments as may
be required to secure the foregoing rights for the plan.
This is in obvious contrast to the contractual provision
implicated in Great-West Life. To quote the Court’s description of
that provision:
The Plan includes a reimbursement provision that is the
65
Neither party contends on appeal that Copeland’s signature was invalid because she
technically was not yet Holmes’s legal guardian. Copeland’s signature at least implied the contrary,
and Bauhaus certainly relied detrimentally on her signature.
-29-
basis for the present lawsuit. This provides that the
Plan shall have “the right to recover from the
[beneficiary] any payment for benefits” paid by the Plan
that the beneficiary is entitled to recover from a third
party. Specifically, the Plan has “a first lien upon any
recovery . . .” that the beneficiary receives from the
third party . . . . If the beneficiary recovers from a
third party and fails to reimburse the Plan, “then he
will be personally liable to [the Plan] . . . up to the
amount of the first lien.”66
This passage explains the Court’s reluctance to enforce the Great-
West plan provision, which itself provided for personal liability
of the beneficiary; Bauhaus’s does not. And, again, Great-West
Life involved a reimbursement provision, not a subrogation
provision.
The subrogation remedy contained in the instant provisions is
doctrinally distinguishable from the varieties of restitution
discussed in Great-West Life. Subrogation stands on its own as a
typically equitable remedy.67 Unlike garden-variety restitution or
reimbursement, subrogation does not require that the contested
funds be in the possession of the principal obligor; indeed, they
usually are not. This, I submit, is a controlling distinction for
the purposes of Great-West Life.
66
Id. at 711 (emphasis added).
67
See 1 GEORGE E. PALMER, THE LAW OF RESTITUTION (Little Brown 1978) § 1.5(b)
(“Subrogation is an equitable remedy that was used as early as the seventeenth century.”); DAN B.
DOBBS, LAW OF REMEDIES § 4.3(1) (West 1993) (listing subrogation as a “major restitutionary
remedy in equity”), § 4.3(4) (“Subrogation is another equitable remedy in which tracing is used to
prevent unjust enrichment and to give effective relief to the plaintiff.”).
There is no doubt that we have here a classic case of subrogation. See DOBBS, supra note 3,
§ 4.3(4) (“The most familiar case of subrogation is that of the collision insurer.”).
-30-
4. Other Equitable Remedies
The term “subrogation” does not occur anywhere in the majority
opinion in Great-West Life, which discusses the remedies that the
parties in that case contested: injunction, restitution, and
common-law trust remedies.68 The panel majority may therefore be
holding that subrogation is per se not an equitable remedy under
the statute. To whatever extent the majority views Great-West Life
as describing the only remedies available under § 1132(a)(3), the
majority fails to recognize that at least two of these three
permissible remedies remain available to Bauhaus.69 To reiterate,
the Great-West Life Court held that restitution and trust remedies
were unavailable to the ERISA plan in that case because the plan
essentially sought to impose personal and general contractual
liability on the beneficiary, which was a legal remedy, and not an
equitable one. That objection does not lie against Bauhaus.
The Supreme Court’s discussion of trust remedies is
particularly illuminating on this point. The Court noted that if
68
Great-West Life, 122 S. Ct. at 713–18.
69
Injunctions may be problematic here. Neither of the parties has brought to our attention the
implications for this case of the Anti-Injunction Act, 28 U.S.C. § 2283 (“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.”).
This Circuit has previously upheld a district court’s dismissal, for failure to state a claim, of a
fiduciary’s ERISA-preemption action that sought both an injunction against state-court proceedings
and a declaratory judgment. Total Plan Services, Inc. v. Texas Retailers Ass’n, 925 F.2d 142, 144
(5th Cir. 1991). Furthermore, in a non-ERISA preemption case, this Circuit also stated that
declaratory judgment would not be available in cases where the Anti-Injunction Act forbids an
injunction. Texas Employers’ Insurance Ass’n v. Jackson, 862 F.2d 491, 506 (5th Cir. 1988).
-31-
a trustee advances funds to a trust beneficiary, that beneficiary’s
interest in the trust may be subject to a charge for repayment of
the money lent; but the Court distinguished the situation under
scrutiny in Great-West Life by noting that “[t]hese setoff remedies
do not give the trustee a separate equitable cause of action for
payment from other moneys.”70 In contrast, the funds in the
Chancery Court truly are analogous to the corpus of a trust,71 so
Bauhaus has —— or should have —— a setoff remedy in federal court.72
Those funds are not “other moneys,” but are instead precisely the
identifiable and traceable funds to which Bauhaus is entitled under
the Plan. No judgment for Bauhaus would create a general money
obligation. Rather, such a judgment would equitably dispose of a
particular quantum of funds in judicial custody, and would
therefore be equitable under the Great-West Life test.
5. No Remedy in State Court
The fourth and final distinction between today’s case and
Great-West Life is that here it is uncontroverted that Bauhaus
70
Great-West Life, 122 S. Ct. at 718.
71
The more direct analogy would of course be to regard the assets of the Plan as held in trust
for beneficiaries, but Congress likely did not intend that Bauhaus recover against a beneficiary’s
interest in the Plan —— in other words, a beneficiary’s right to further health benefits.
72
Neither party, nor the majority, makes an argument from Princess Lida of Thurn and Taxis
v. Thompson, 305 U.S. 456 (1939), and its sequelae regarding concurrent jurisdiction quasi in rem.
That doctrine might have been a better basis on which to decide this case than the result reached by
the majority, which apparently will protect not only funds held by state courts, but also funds held by
tort victims’ lawyers and trustees, from federal ERISA jurisdiction, since such funds are also not in
the victims’ possession.
-32-
lacks an adequate remedy in state court. This difference, while
perhaps insufficient on its own to justify viewing the relief
Bauhaus seeks as equitable, certainly adds strong support to that
conclusion.
In Great-West Life, the justices raised this issue in debating
what the Court’s holding would mean for cases in which a state-law
action is preempted by ERISA. The majority stated that its opinion
did not resolve the question:
We note . . . that there may have been other means for
petitioners to obtain the essentially legal relief that
they seek . . . . We express no opinion as to whether
petitioners could have intervened in the state-court tort
action brought by respondents or whether a direct action
by petitioners against respondents asserting state-law
claims such as breach of contract would have been pre-
empted by ERISA.73
This passage reflects the Great-West Life Court’s determination
that the ERISA plan in that case may have had other remedies
available to it. At the very least, the justices did not view that
possibility as foreclosed.
In today’s case, though, that possibility is foreclosed.
Bauhaus has no adequate legal remedy in either federal or state
court. In federal court, by ERISA’s express terms, legal remedies
are totally unavailable. In state court, Bauhaus is already party
to the action in Chancery Court; but that action obviously will
avail it naught, because, as I describe below, Mississippi’s anti-
assignment rule holds sway there. This very problem was foreseen
73
Great-West Life, 122 S. Ct. at 718.
-33-
by Justice Ginsburg, dissenting in Great-West Life:
After today, ERISA plans and fiduciaries unable to fit
their suits within the confines the Court’s opinion
constructs are barred from a federal forum; they may seek
enforcement of reimbursement provisions like the one here
at issue only in state court. Many such suits may be
precluded by antisubrogation laws, others may be
preempted by ERISA itself, and those that survive may
produce diverse and potentially contradictory
interpretations of the disputed plan terms.74
The panel majority’s result will henceforth require insurers that
advance funds to pay for medical treatment of minor or incompetent
Mississippi tort victims to seek recovery of those funds in state
court, where the insurers are now fated to fall victim to the state
rule. What plan administrator would risk fiduciary liability by
advancing funds of a plan under these conditions? None. And who
will be the victims of this result? Plan beneficiaries injured by
third parties.
The total absence of legal remedies in today’s case is
important because such absence was key to the distinction between
equity and law. Although Justice Scalia stated for the majority in
Great-West Life that “an injunction to compel the payment of money
past due under a contract, or specific performance of a past due
monetary obligation, was not typically available in equity,”75 he
went on to discuss several exceptions to this rule, without
purporting to exhaust the list of exceptions or identifying the
74
Id. at 722 (Ginsburg, J., dissenting) (citation omitted).
75
Id. at 713 (majority).
-34-
general principle from which those exceptions flow. Yet that
principle is widely recognized: When the remedy of damages is not
adequate at law, equitable remedies may be sought.76 This doctrine
is so well established that it must be credited as one kind of
relief that was “typically available in equity” —— the
quintessential alternate equitable remedy that becomes available
when legal remedies are inadequate or nonexistent. Here, this
conclusion does not run afoul of Justice Scalia’s caution that the
statutory phrase “equitable relief” cannot mean any remedy, for the
simple reason that —— in contrast to Great-West Life —— injunction,
subrogation, restitution, and trust remedies are all, in the
circumstances of this case, eminently equitable.
Because the Great-West Life Court expressed “no opinion” on
questions central to this aspect of the distinction between law and
equity, that case simply cannot be read to control the
jurisdictional outcome in today’s case as mechanically as the panel
majority would suggest. I am satisfied that we have the customary
latitude here to apply the doctrine of adequacy of legal remedies
as requiring resort to an equitable remedy and thus as supporting
federal jurisdiction. I am even more satisfied that we have erred
by failing to do so.
76
See id. at 725 (Ginsburg, J., dissenting); DAN B. DOBBS, LAW OF REMEDIES (West 1993)
§ 2.5(1) (discussing irreparable harm test); § 2.5(2) (stating that an equitable remedy is “usually
granted” in cases —— such as the insolvency of the defendant —— where “a legal remedy [is]
available but not collectible”).
-35-
Federal courts are certainly courts of limited jurisdiction,
but when that jurisdiction is mapped out by a statute like ERISA
which textually incorporates equity’s long traditions of fairness
and flexibility, those traditions must be imported into the
jurisdictional cartographic exercise. That this importation might
make the exercise less than crisp does not mean that the exercise
is illegitimate; on the contrary, it implements Congress’s command
and therefore is our assigned task. I would hold the remedy
Bauhaus seeks in federal court to be equitable under the Mertens
test. Indeed, equity arose for the very purpose of correcting such
anomalies in a coordinate court system as the one we should correct
today.
6. Summary
In sum, I would heed the warning of the dissenters in Great-
West Life that if the district courts are held to lack jurisdiction
of cases such as this, ERISA plaintiffs like Bauhaus would have to
sue in state court, overcome ERISA preemption, and then contend
with a welter of disparate state laws —— such as Mississippi’s
anti-reimbursement doctrine at issue here —— that could and likely
would defeat the congressional purpose of achieving a nationally
uniform set of rules to govern ERISA plans.77 This case presents
77
See Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 9 (1987) (noting that Congress sought
through ERISA “to establish a uniform administration scheme” and to ensure that plan provisions
would be enforced in federal court, free of “the threat of conflicting or inconsistent State and local
regulation”) (internal quotation marks omitted).
-36-
a stereotypical example of what the Great-West Life dissenters
feared; more importantly, its postural facts are readily
distinguishable from those of Great-West Life and thus cry out for
a recognition of these differences and thus a different outcome.
In my view, the remedy that Bauhaus seeks is undeniably equitable;
ergo Bauhaus’s complaint arises under ERISA; ergo the district
court had subject-matter jurisdiction of this case.
Copeland nevertheless advances three defenses to Bauhaus’s
suit that she describes as jurisdictional: lack of a federal
question, lack of federal jurisdiction over the “interpled” funds,
and consent to state jurisdiction. To whatever extent my
discussion of remedies has not already shown how these three
jurisdictional issues should be resolved, they collapse into the
preemption question: If ERISA preempts, there is a federal
question; federal jurisdiction is exclusive78; the Chancery Court
lacks jurisdiction to decide this case; and Bauhaus’s consent to
remand to that court cannot have conferred jurisdiction on it. To
preemption, therefore, I now turn —— both to round out the
jurisdictional argument and to demonstrate what is really at stake
in this case.
II. PREEMPTION
78
29 U.S.C. § 1132(e):
Except for actions [by participants or beneficiaries] under subsection (a)(1)(B) of this
section, the district courts of the United States shall have exclusive jurisdiction of civil
actions under this subchapter brought by the Secretary or by a participant, beneficiary,
[or] fiduciary.
-37-
The district court granted the motions to dismiss solely on
preemption grounds. The court tersely stated that it
could engage in a lengthy analysis on the preemption
question presented here, but, after careful
consideration, the court finds that Clardy v. ATS, Inc.
Employee Welfare Benefit Plan, 921 F. Supp. 394 (N.D.
Miss. 1996) (Davidson, J.), ably resolves this
matter. . . .
. . . This court is in accord with Judge Davidson’s
conclusion that
the state law under consideration...does not
prevent subrogation of claims, nor does it
even directly address the matter of
subrogation. The administration of a minor’s
estate is entirely a matter of state law, and
is law of general application which affects a
broad range of matters entirely unrelated to
ERISA plans.... The [plan] in this case would
have this court preempt not a state law which
impinges upon contractual subrogation rights
under ERISA, but a state law of general
application which has only an incidental
effect upon an ERISA plan. The state law in
question...relates to ERISA in “too tenuous,
remote, or peripheral a manner” to be
preempted in this case.79
Clardy, on which the district court relied entirely, is but one of
several cases in which state and federal courts in Mississippi have
held that ERISA does not preempt the state’s jurisprudential rule
requiring Chancery-Court approval of any assignment of a minor’s
interest in insurance proceeds.
1. Mississippi’s Anti-Assignment Rule
Mississippi’s anti-assignment rule was announced in McCoy v.
79
Bauhaus, USA, Inc. v. Copeland, 2001 WL 1524373 at *1 (N.D. Miss. 2001) (citing Clardy
v. ATS, Inc. Employee Welfare Benefit Plan, 921 F. Supp. 394, 399 (N.D. Miss. 1996)).
-38-
Preferred Risk Ins. Co.,80 in which the Mississippi Supreme Court
derived, from that state’s uninsured-motorists law, the principle
that a parent, acting individually, cannot transfer a child’s right
to insurance proceeds, even in exchange for medical treatment
following the accident that gives rise to the right.81 That court
later extended its McCoy holding by requiring that parents seek
chancery-court approval to assign insurance proceeds.82
From the purely common-law rule of McCoy, state and federal
courts in Mississippi have taken the giant step needed to reach the
view that this rule somehow withstands ERISA preemption, oblivious
to the universal recognition that ERISA’s is one of the most
pervasive of all federal preemptions. In Cooper Tire & Rubber Co.
v. Striplin,83 the Mississippi Supreme Court dismissed as “without
merit” an employer’s argument that ERISA permitted the employer to
enforce a subrogation agreement and recover the medical expenses of
a covered minor to whom an insurer had paid benefits.84 The court
proceeded from the premise that “Congress did not pre-empt areas
80
McCoy v. Preferred Risk Ins. Co., 471 So.2d 396 (Miss. 1985).
81
Id. at 398–99; id. at 397–98 (“These [uninsured motorist] benefits were due the son, David,
who was the person injured, and his parents as individuals had no authority to assign such benefits.”).
82
Methodist Hospitals of Memphis v. Marsh, 518 So.2d 1227, 1228 (Miss. 1988) (“Mrs. Tina
Marsh, the mother, had no legal authority, in the absence of prior chancery court approval, to execute
any document binding Stephen’s estate insofar as the insurance proceeds to which he was entitled.”).
83
Cooper Tire & Rubber Co. v. Striplin, 652 So.2d 1102 (Miss. 1995).
84
Id. at 1104.
-39-
traditionally regulated by the states” —— areas such as domestic
relations and minors’ business.85 This rallying cry has met with
great favor in the Northern District of Mississippi: The instant
case is at least the third in which that court has held that ERISA
does not preempt the Mississippi anti-assignment rule.86 The
district court certainly abided by its own jurisprudence, if
nothing more precedential, in finding no preemption here. But that
jurisprudence, examined in the light of Supreme Court precedent, is
simply incorrect; for the Mississippi Supreme Court’s premise that
ERISA does not preempt areas traditionally regulated by the states
simply does not hold water.
2. Preemption under ERISA
ERISA states that “the provisions of this subchapter . . .
shall supersede any and all State laws insofar as they may now or
hereafter relate to any employee benefit plan.”87 ERISA’s
provisions preempt state jurisprudential rules as well as state
statutes.88 It matters not that an ERISA savings clause states that
85
Id. at 1103–04.
86
See Ashmore v. Healthcare Recoveries, Inc. (In re Ashmore), 1998 WL 211778 at *2 (N.D.
Miss. 1998) (“Even if the parties’ ERISA plan contained an express subrogation clause, Mississippi
law requiring prior chancery court approval of assignment of a minor’s right to insurance proceeds
would not be preempted by ERISA.”); Clardy, 921 F. Supp. 394, 397–401 (N.D. Miss. 1996).
87
29 U.S.C. § 1144(a).
88
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 48 n.1 (1987) (“Decisional law that ‘regulates
insurance’ may fall under the savings clause.”); 29 U.S.C. § 1144(c) (“For purposes of this section:
(1) The term ‘State law’ includes all laws, decisions, rules, regulations, or other State action having
the effect of law, of any State.”).
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“nothing in this subchapter shall be construed to exempt or relieve
any person from any law of any State which regulates insurance”89:
ERISA’s “deemer clause” declares that an employee benefit plan ——
which, as all parties concede, the Plan unquestionably is —— shall
not be “deemed to be an insurance company . . . or to be engaged in
the business of insurance . . . for purposes of any law of any
State purporting to regulate insurance companies.”90 Neither does
it matter here that ERISA shall not preempt “any generally
applicable criminal law of a State,”91 a qualified domestic
relations order, or a medical child support order.92
The Supreme Court has clarified that the “relate[s] to”
standard shows that Congress intended ERISA “to establish pension
plan regulation as exclusively a federal concern.”93 For example,
in FMC Corp. v. Holliday,94 the Court held that ERISA preempted a
Pennsylvania statute that forbade reimbursement or subrogation from
a claimant’s tort recovery in a motor-vehicle action.95 There, the
89
29 U.S.C. § 1144(b)(2)(A).
90
29 U.S.C. § 1144(b)(2)(B).
91
29 U.S.C. § 1144(b)(4).
92
29 U.S.C. § 1144(b)(7).
93
Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981).
94
FMC Corp. v. Holliday, 498 U.S. 52 (1990).
95
Id. at 54 (describing the statute); id. at 58 (“Pennsylvania’s antisubrogation law ‘relate[s]
to’ an employee benefit plan.”).
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state law “relate[d] to” an ERISA plan because it “risk[ed]
subjecting plan administrators to conflicting state regulations.”96
The Court stated that its construction of ERISA was “respectful of
the presumption that Congress does not intend to preempt areas of
traditional state regulation” because that construction
distinguished between plans —— like the one now before us —— that
are self-funded and those that are insured, permitting the states
to regulate the latter more closely, in accordance with the states’
longstanding role in regulating the insurance industry.97
Despite its abstract concern for areas of traditional state
regulation, however, when push has come to shove, the Supreme Court
has held that ERISA preempts any number of such areas. For
example, the Court held that ERISA trumps the effect of Louisiana’s
community property system and succession laws, prototypical areas
of traditional state regulation. In Boggs v. Boggs,98 the sons of
a decedent’s first wife (herself also deceased) contended that her
assignment to them of her interests in the decedent’s annuity was
valid under Louisiana law; the second spouse claimed that the
annuity was all hers under ERISA.99 After we, acting as a sharply
96
Id. at 59.
97
Id. at 62.
98
Boggs v. Boggs, 520 U.S. 833 (1997).
99
Id. at 836–38.
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divided en banc court, held for the sons,100 the Supreme Court
reversed. Despite the fact that community property laws “implement
policies and values lying within the traditional domain of the
States,”101 the Court held that ERISA’s survivor annuity provisions
preempted and controlled.102
Just last year, and more directly relevant to this appeal, the
Supreme Court, in Egelhoff v. Egelhoff,103 confirmed that ERISA
preempts a state statutory scheme closely tied to the traditional
state concerns of probate and family law. At issue in Egelhoff was
the effect of a Washington state statute that automatically
revoked, upon a couple’s divorce, any designation of a spouse as
the beneficiary of a nonprobate asset.104 Justice Thomas, writing
for a majority of seven justices, held that this beneficiary-
revocation law had an “impermissible connection with ERISA plans”
because it ran counter to ERISA’s commands that the plan shall
specify those to whom benefits shall be paid and that the fiduciary
shall administer the plan in accordance with plan documents.105 The
100
Boggs v. Boggs, 82 F.3d 90 (5th Cir. 1996), rehearing en banc denied, Boggs v. Boggs,
89 F.3d 1169 (5th Cir. 1996).
101
Boggs, 520 U.S. at 840.
102
Id. at 841–44.
103
Egelhoff v. Egelhoff, 121 S.Ct. 1332 (2001).
104
Id. at 1325–26.
105
Id. at 1327–28.
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Washington statute, the Court determined, “govern[ed] the payment
of benefits, a central matter of plan administration.”106
Furthermore, enforcement of the Washington statute would
impermissibly “interfere with nationally uniform plan
administration” and raise the possibility that administrators would
shift the costs of that interference onto plans’ beneficiaries:
If they instead decide to await the results of litigation
before paying benefits, they will simply transfer to the
beneficiaries the costs of delay and uncertainty.
Requiring ERISA administrators to master the relevant
laws of 50 States and to contend with litigation would
undermine the congressional goal of minimizing the
administrative and financial burdens on plan
administrators —— burdens ultimately borne by the
beneficiaries.107
The Court acknowledged that family law is an area of traditional
state regulation, but concluded that the presumption against
preemption in such an area “can be overcome where, as here,
Congress has made clear its desire for preemption. Accordingly, we
have not hesitated to find state family law pre-empted when it
conflicts with ERISA or relates to ERISA plans.”108
Egelhoff is not meaningfully distinguishable from this case.
Each dispute involves payment of benefits under the plan; each
state’s law would prevent the plan administrator from relying on
the plan’s documents alone; and each state’s law implicates a
106
Id. at 1328.
107
Egelhoff, 121 S.Ct. at 1329 (quotation marks, brackets, and citation omitted).
108
Id. at 1330 (citing Boggs).
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traditional area of state regulation. Albeit prior to Great-West
Life, district courts in several circuits have squarely held that,
to the extent there is any conflict, ERISA preempts state statutes
that protect minors against parental assignment of their insurance
proceeds or other parental contracts on their behalf.109
Copeland does not address these precedents, virtually ignores
Boggs and Egelhoff, and in attempting to distinguish FMC,
mischaracterizes what the district court did in the instant case.110
Copeland has begged the question by relying exclusively on the
state and federal precedents from Mississippi, which heretofore
have not been tested in the crucible of federal appeals. Copeland
also argues that the ERISA provision exempting “qualified domestic
relations orders”111 from preemption applies; but no qualified
109
See Great West Life and Annuity Ins. Co. v. Moore, 133 F. Supp. 2d 677, 680 (N.D. Ill.
2001) (“The Illinois rule which prohibits insurers from having a right of subrogation and
reimbursement against a covered person when the covered person is a minor is preempted under
ERISA.”); Estate of Lake v. Marten, 946 F. Supp. 605, 610 (N.D. Ill. 1996) (“Subjecting self-funded
ERISA plans to various state anti-subrogation laws . . . would be contrary to the purpose of ERISA’s
preemption clause, which was to avoid a multiplicity of regulation in order to permit the nationally
uniform administration of employee benefit plans.”); Blue Cross and Blue Shield of Alabama v.
Cooke, 3 F. Supp. 2d 668, 672 (E.D.N.C. 1997) (finding that ERISA preempted North Carolina’s
doctrine limiting authority of parents to contract on behalf of their children for anything other than
“necessaries”); Rhodes, Inc. v. Morrow, 937 F. Supp. 1202, 1211–12 (M.D.N.C. 1996) (same).
110
Copeland’s appellate brief states that “the district court did not reach a preemption
determination because it did not have jurisdiction over the guardianship funds.” This misstates the
district court’s express holding that ERISA did not preempt Mississippi’s anti-assignment rule. The
court summed up thus: “[B]ecause plaintiff is not entitled to a declaration . . . that its entire
subrogation claim is valid and enforceable, that matter not having been completely preempted by
ERISA, the motions of defendants to dismiss are granted.” Bauhaus, 2001 WL 1524373 at *2
(emphasis added).
111
29 U.S.C. § 1144(b)(7).
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domestic relations order is at issue here, nor could one be.112
To summarize, the Supreme Court has made abundantly clear that
by enacting ERISA, Congress spoke loudly and lucidly enough to
preempt both Louisiana’s marital-property system and Washington’s
family and probate law. Given these precedents, Mississippi’s
anti-assignment rule cannot withstand preemption. A minor’s
financial business is traditionally an area of state regulation,
but no more so than family-property, inheritance, or probate law.
III. CONCLUSION
I regret that my colleagues’s parsimoniousness with federal
jurisdiction pretermits our addressing this issue and reaching this
indubitable result. Plaintiffs who put forward claims that are
completely controlled, and indeed vindicated, by the most panoramic
and potent federal statutory preemption presently on the books
should have their days in federal court.
For the foregoing reasons, I view the district court’s
dismissal for either lack of jurisdiction or failure to state a
claim as reversible error. Despite the majority’s reliance on
Great-West Life to affirm the district court, I am convinced that
the district court did have jurisdiction of this case.
I respectfully dissent.
112
Such an order, to qualify for the exception from ERISA preemption, must “create[ ] or
recognize[ ] the existence of an alternate payee’s right to, or assigns to an alternate payee the right
to, receive all or a portion of the benefits payable with respect to a participant under a plan.” 29
U.S.C. § 1056(d)(3)(B)(i)(I).
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Bauhaus USA, Inc. v. Copeland
Court: Court of Appeals for the Fifth Circuit
Date filed: 2002-05-21
Citations: 292 F.3d 439, 2002 WL 1021430
Copy CitationsCombined Opinion