Atteberry v. Memorial-Hermann Healthcare Systems

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT April 1, 2005

Charles R. Fulbruge III
Clerk
No. 04-20349

CHARLES ATTEBERRY SR, ET AL
Plaintiffs
v.
MEMORIAL-HERMANN HEALTHCARE SYSTEMS, On Behalf and for the
Benefit of The Estates, Heirs, Devisees, Legatees, Spouses,
Children and/or Parents of Charles Atteberry Jr.
Plaintiffs - Appellees
v.
MEMORIAL-HERMANN HEALTHCARE SYSTEM; MEMORIAL-HERMANN HOSPITAL
SYSTEM
Plaintiffs - Appellants - Appellees
v.
BEN ETHRIDGE
Intervenor - Plaintiff - Appellee
v.
DALINDA SHELTON; CAROL ANN PITTMAN, also known as Carol Ann
Peterson, Independent Executrix of the Estate of John Linwood
Pittman, Jr., Deceased and Individually as Beneficiary of John
Linwood Pittman, Jr.
Intervenor - Plaintiffs - Appellants
v.
EUROCOPTER DEUTSCHLAND, GMBH, ET AL
Defendants

--------------------
Appeals from the United States District Court
for the Southern District of Texas
--------------------

Before GARWOOD, BENAVIDES, and STEWART, Circuit Judges.

BENAVIDES, Circuit Judge:

I. INTRODUCTION

This action arises from the crash of a Life Flight

helicopter owned and operated by Memorial-Hermann Healthcare

System and Memorial-Hermann Hospital System (collectively
“MHHS”). All three MHHS employees aboard the helicopter –

Charles Atteberry, Jr., John Pittman, Jr., and Silvia Lynn

Ethridge – perished in the crash. At the time of their deaths,

the employees were covered by MHHS’ ERISA Occupational Benefits

Plan (the “Occupational Benefits Plan”) which essentially

provided death benefits of $1,000,000 to the estate of the

deceased employee or, in the absence of a will, to the employee’s

heirs at law.

This appeal involves the claims of three separate

appellants, Dalinda Shelton (“Shelton”), MHHS, and Carol Pittman

(“Pittman”). Each of the disputes centers on the scope and

extent of MHHS’ claimed subrogation rights following the payment

of death benefits pursuant to MHHS’ Occupational Benefits Plan.

More specifically, Shelton appeals the district court’s grant of

summary judgment against her and its conclusion that MHHS’

subrogation right gives MHHS the right to control the prosecution

and settlement of the claims of the Estate of Silvia Lynn

Ethridge (the “Ethridge Estate”). MHHS appeals the district

court’s denial of its motion for summary judgment with respect to

Ben Ethridge and its conclusion that MHHS is not subrogated to

Ben Ethridge’s wrongful death claim arising from the death of his

daughter Silvia Ethridge. Pittman appeals the district court’s

grant of partial summary judgment against her – as well as its

subsequent denial of her motion for partial summary judgment

against MHHS – and its conclusion that MHHS is subrogated to her
claims, both as an individual and as the independent executrix of

the Estate of John Linwood Pittman, Jr. (the “Pittman Estate”).

Having reviewed the record and considered the briefs and

arguments on appeal, we uphold the district court’s grant of

summary judgment against Shelton and its denial of MHHS’ motion

for summary judgment with respect to Ben Ethridge. However, we

reverse the district court’s grant of summary judgment against

Pittman in her individual capacity.

II. STANDARD OF REVIEW

The parties agree that MHHS’ ERISA Occupational Benefits

Plan Administrative Committee (the “Administrative Committee”)

had discretionary and final authority to interpret MHHS’

Occupational Benefits Plan and make all necessary factual

findings. When a plan administrator has such discretionary

authority, this Court applies an abuse of discretion standard.

Pickrom v. Belger Cartage Serv., Inc., 57 F.3d 468, 471 (5th Cir.

1995). This Court reviews de novo the district court’s holdings

regarding whether a plan administrator has abused its discretion.

Threadgill v. Prudential Sec. Group, Inc., 145 F.3d 286, 292

(5th Cir. 1998).

III. DISCUSSION

A. Dalinda Shelton and Ben Ethridge

1. Factual and procedural history

On December 23, 1999, MHHS paid a death benefit under its

Occupational Benefits Plan in the amount of $1,050,816 to the
Ethridge Estate through Dalinda Shelton; Shelton is Silvia

Ethridge’s same-sex domestic partner, the personal representative

and independent executrix of the Ethridge Estate, and the

principal beneficiary under Silvia Ethridge’s will. Payment of

the death benefit to the estate representative is consistent with

Article 8.2 of MHHS’ Occupational Benefits Plan which states that

“[i]n the event of the Death of an Eligible Employee, any Death

Benefits payable hereunder shall be paid to the personal

representative of the estate of the deceased Eligible Employee

after the Administrative Committee receives appropriate

directions.”

At the time the death benefit was paid, Shelton and the

Occupational Benefits Plan Administrator for MHHS entered into an

Acknowledgment of Receipt of Benefits, Subrogation Rights and

Confidentiality Agreement (the “Agreement”). As part of the

Agreement, Shelton recognized that she received funds from MHHS’

Occupational Benefits Plan and acknowledged that MHHS was

subrogated to the Ethridge Estate’s claims and causes of action.

The Administrative Committee subsequently determined that MHHS’

subrogation rights gave it the right to pursue and settle the

Ethridge Estate’s claims without the participation of Shelton as

the Ethridge Estate representative.

Ben Ethridge, for his part, denies receiving Occupational

Benefits Plan death benefits. In his deposition testimony, Ben

Ethridge acknowledged receipt of a share of the Occupational
Benefits Plan death benefit, but stated that he received that

money not from the Occupational Benefits Plan, but as a gift from

Shelton. Although Ben Ethridge did not receive Occupational

Benefits Plan death benefits, he did receive other insurance

proceeds resulting from his daughter’s death; those proceeds were

paid to him through separate insurance policies that are

different from the Occupational Benefits Plan that is at the

heart of the instant dispute. Specifically, Ben Ethridge

received life insurance and accidental death and dismemberment

insurance proceeds pursuant to a Beneficiary Designation Form, on

which Silvia Ethridge designated both Ben Ethridge and Dalinda

Shelton as her designated beneficiaries. At oral argument, it

was conceded by MHHS that while the Beneficiary Designation Form

determined how the life insurance and accidental death and

dismemberment insurance proceeds were to be paid out in the event

of Silvia Ethridge’s death, it did not set forth how the death

benefit under MHHS’ Occupational Benefits Plan was to be

disbursed.

The Administrative Committee determined that the Beneficiary

Designation Form governed the disbursement of the death benefit

under MHHS’ Occupational Benefits Plan and that Ben Ethridge was

a designated beneficiary who received Occupational Benefits Plan

monies, albeit indirectly from Shelton. The Administrative

Committee concluded that because Ben Ethridge was a beneficiary

of Occupational Benefits Plan death benefits, his wrongful death
cause of action was subrogated to MHHS, which could then sue

third parties on Ben Ethridge’s behalf.

MHHS filed suit against the third-party helicopter

manufacturer on behalf of, inter alios, Ben Ethridge and the

Ethridge Estate. The district court subsequently permitted

Shelton and Ben Ethridge to intervene in the action. Shelton

claimed that as executrix of the Ethridge Estate, she had the

right to control the prosecution and settlement of Silvia

Ethridge’s survival action. Ben Ethridge contended that his

wrongful death cause of action was not subrogated to MHHS because

he was not a recipient of Occupational Benefits Plan death

benefits and that, therefore, MHHS could not sue the helicopter

manufacturer on his behalf.

MHHS moved for summary judgment against Shelton, as

executrix and beneficiary, and against Ben Ethridge. The

district court granted MHHS’ motion for summary judgment with

respect to Shelton and concluded that MHHS, as subrogee, has the

authority to prosecute and settle the claims of the Ethridge

Estate without the consent or participation of the Ethridge

Estate representative. The district court denied MHHS’ motion

for summary judgment with respect to Ben Ethridge and concluded

that Ben Ethridge’s claims were not subrogated to MHHS because he

had not received Occupational Benefits Plan death benefits.

Shelton and MHHS subsequently appealed the judgment of the

district court.
 2. Shelton’s claims

Because it is undisputed that MHHS is subrogated to the

Ethridge Estate’s causes of action, the sole issue of contention

between Shelton and MHHS is the meaning of the term “subrogation”

as used in the Occupational Benefits Plan. Shelton contends that

the Administrative Committee’s interpretation of the meaning of

subrogation amounts to an abuse of discretion because MHHS’

subrogation rights do not allow MHHS the right to exclusively

control the Ethridge Estate’s causes of action without the

consent or participation of the Ethridge Estate representative.

We conclude that the Administrative Committee’s

interpretation of the meaning of subrogation is legally correct

under both an ordinary meaning analysis and the three-part test

this Court employs to determine the legal correctness of an ERISA

plan administrative committee’s determination.

a. Ordinary meaning analysis

Subrogation is not defined in the Occupational Benefits Plan

and its meaning cannot be unambiguously discerned from the

Occupational Benefits Plan language. However, as it is

ordinarily understood, “subrogation simply means substitution of

one person for another; that is, one person is allowed to stand

in the shoes of another and assert that person’s rights.”

Black’s Law Dictionary 1468 (8th ed. 2004). Put differently,

“[i]n a subrogation action, it is well established that there is

only one cause of action for the insured’s injuries . . . . [and
t]he insurer can assert its subrogation claim independently of

the insured.” Prudential Prop. and Cas. Co. v. Dow

Chevrolet-Olds, Inc., 10 S.W. 3d 97, 100 (Tex. App. Texarkana

1999). Moreover, under Texas state law, “[t]he subrogees stand

in the shoes of the one whose rights they claim.” Interstate

Fire Ins. Co. v. First Tape, Inc., 817 S.W. 2d 142, 145 (Tex.

App. Houston 1991). Therefore, if there is only one cause of

action for an insured’s injuries, and in a subrogated action that

cause of action belongs to the insurance company subrogee, it

follows that the insurance company subrogee has the right to

control the subrogated cause of action.

As applied to the instant case, the Ethridge Estate has a

cause of action on behalf of Silvia Ethridge. However, under the

clear terms of the Occupational Benefits Plan, by accepting

Occupational Benefits Plan death benefits, the Ethridge Estate

has subrogated its cause of action to MHHS, which then stands in

the shoes of the Ethridge Estate. Because there is only one

cause of action, and MHHS received from the Ethridge Estate the

right to control that cause of action, as the party in control

MHHS is entitled to prosecute and settle the Ethridge Estate’s

claims without seeking approval from the Ethridge Estate

representative.

b. Legally correct interpretation

Moreover, the Administrative Committee gave the meaning of

subrogation in the Occupational Benefits Plan a legally correct
interpretation under the three-part test employed by this Court

to determine the legal correctness of an ERISA administrative

committee’s determination. Pickrom v. Belger Cartage Serv.,

Inc., 57 F.3d 468, 471 (5th Cir. 1995). Under the three-part

test, this Court considers: (1) whether the administrative

committee has given the plan a uniform construction; (2) whether

the administrative committee’s interpretation is consistent with

a fair reading of the plan; and (3) whether different

interpretations of the plan will result in unanticipated costs.

Id.

Regarding the first factor, when there is no evidence in the

record as to whether an administrative committee has given the

plan a uniform construction, this Court should proceed to the

other two factors. See id. Because there is no evidence in the

record that the Administrative Committee previously had to

construe the scope of the Occupational Benefits Plan’s

subrogation rights, our analysis necessarily turns to the

remaining two factors.

Regarding the second factor, the Administrative Committee’s

interpretation of the term “subrogation” is consistent with a

fair reading of the Occupational Benefits Plan. The Occupational

Benefits Plan language limits MHHS’ recovery to the extent of

“any Benefit payments made under the Plan,” but does not limit

MHHS’ right of subrogation. The Occupational Benefits Plan

language, in fact, grants MHHS a broad subrogation right since it
states that MHHS “has the right to pursue any action to enforce

its subrogation rights against a third party.” Therefore, a

plain reading of the Occupational Benefits Plan language gives

MHHS the right of subrogation to all of the Ethridge Estate’s

claims, with MHHS’ right of recovery in any action against a

third party limited to the amount of the death benefit paid to

the Ethridge Estate.

Regarding the third factor, a different interpretation of

the Occupational Benefits Plan than the one adopted by the

Administrative Committee would result in unanticipated costs to

MHHS. If, as Shelton argues, MHHS should not be permitted to

prosecute or settle any subrogated claims without the consent of

an employee’s estate as subrogor, MHHS would be at the mercy of

the estate. Pursuant to Article 11.3 of the Occupational

Benefits Plan, MHHS has priority over an employee’s estate with

respect to all funds recovered from third parties, up to the

amount of benefits MHHS has paid plus the costs of recovery. If

MHHS is not permitted to independently prosecute and settle the

claims of an employee’s estate, MHHS runs the risk that the

estate – having already received funds from MHHS – will hold up

settlement negotiations in the hopes of obtaining a larger

recovery. An estate that has received funds from MHHS has no

incentive to settle its claims for any amount that does not

exceed that already paid to it by MHHS, irrespective of how

reasonable the settlement offer may be. Adopting an alternate
reading of the term “subrogation” would result in unanticipated

costs to MHHS, namely the increased costs of recovering from

third parties. Accordingly, we conclude that the Administrative

Committee has given a legally correct interpretation to the term

“subrogation” as it appears in the Occupational Benefits Plan.

Therefore, for the foregoing reasons, we affirm the judgment

of the district court upholding the Administrative Committee’s

interpretation of MHHS’ subrogation rights with respect to any

claims of the Ethridge Estate, and rejecting Shelton’s argument

that she should control or share in the control of the

prosecution of any actions brought on behalf of the Ethridge

Estate.

3. MHHS’ claims

MHHS appeals the district court’s denial of MHHS’ motion for

summary judgment and its holding that Ben Ethridge retained his

wrongful death cause of action against third parties because he

was not a beneficiary of MHHS’ Occupational Benefits Plan death

benefits. MHHS contends that the Administrative Committee’s

determination was not an abuse of discretion for the following

reasons: (1) because Silvia Ethridge designated Ben Ethridge as

a beneficiary of her Life Insurance and Accidental Death &

Dismemberment Insurance Plans, Ben Ethridge also should be

considered a designated beneficiary of Occupational Benefits Plan

death benefits; (2) under Article 8.2 of the Occupational

Benefits Plan, MHHS must pay the Occupational Benefits Plan death
benefit as the designated Occupational Benefits Plan

beneficiaries request; (3) at the request of Ben Ethridge and

Shelton, MHHS made the death benefit check payable to Shelton as

the personal representative of the Ethridge Estate; and (4) Ben

Ethridge did receive money from Shelton.

We conclude that the Administrative Committee’s

determination that Ben Ethridge received Occupational Benefits

Plan death benefits and was therefore required to comply with the

Occupational Benefits Plan’s subrogation and assignment

provisions is legally incorrect under the first prong of the

abuse of discretion standard articulated supra.

MHHS has not demonstrated that Ben Ethridge was a recipient

of Occupational Benefits Plan death benefits. Although Ben

Ethridge did receive life insurance and accidental death and

dismemberment insurance proceeds, which are not at issue in the

instant case, he did not receive from MHHS any portion of the

Occupational Benefits Plan death benefit, nor was he a designated

beneficiary of Occupational Benefits Plan benefits. The entire

amount of the death benefit was made payable to Dalinda Shelton

as the personal representative of the Ethridge Estate; Ben

Ethridge did not receive any money directly from MHHS’

Occupational Benefits Plan. Moreover, the money Ben Ethridge did

receive from Shelton was a gift to Ben Ethridge and was drawn

from Shelton’s own funds.

Therefore, because the Administrative Committee’s
determination that Ben Ethridge received Occupational Benefits

Plan death benefits is inconsistent with a fair reading of the

Occupational Benefits Plan, we conclude that the Administrative

Committee’s determination is legally incorrect. See Gosselink v.

Am. Tel. & Tel., Inc., 272 F.3d 722, 727 (5th Cir. 2001) (holding

that it is an abuse of discretion if an administrative committee

interprets a plan in a way that directly contradicts the plain

meaning of the plan language). Accordingly, we agree with the

decision of the district court denying MHHS’ motion for summary

judgment as it relates to Ben Ethridge.

B. Carol Pittman

1. Factual and procedural history

Both Carol Pittman, common law wife of the deceased John

Pittman, Jr., and John Pittman III and Jennifer Pittman

(collectively, the “Pittman children”), the surviving children of

the deceased, asserted to MHHS that the $1,000,000 death benefit

under the Occupational Benefits Plan be paid to them. Unsure who

it should pay, on December 21, 2000, MHHS filed a Petition in

Interpleader against Pittman and the Pittman children asking that

the probate court administering the Pittman Estate determine who,

as between Pittman and the Pittman children, was the appropriate

payee. MHHS then deposited the $1,000,000 death benefit into the

court registry. The probate court subsequently issued an Agreed

Final Judgment ordering that the funds be released to the

“personal representative of the Estate of John Linwood Pittman,
Jr.” The probate court further determined that Pittman was the

duly authorized personal representative of the Pittman Estate.

After Pittman accepted the death benefit provided under the

Occupational Benefits Plan, she filed a declaratory judgment

action in probate court in which Pittman sought to avoid the

subrogation provisions of the Occupational Benefits Plan. MHHS

removed Pittman’s claim to federal court and Pittman filed a

motion to remand. The district court denied Pittman’s motion to

remand and consolidated the removed action with MHHS’ action

against the third-party helicopter manufacturer on behalf of,

inter alios, Carol Pittman and the Pittman Estate.

On July 30, 2003, MHHS filed with the district court a

motion for partial summary judgment against Pittman in her

capacity as executrix and beneficiary of the Pittman Estate.

MHHS contended that summary judgment was appropriate because the

Administrative Committee concluded that Pittman had accepted

death benefits under the Occupational Benefits Plan and that MHHS

had a right of subrogation to the amounts paid by it plus the

costs of prosecuting the claim. Pittman also filed with the

district court a motion for partial summary judgment against

MHHS.

The district court granted MHHS’ motion for partial summary

judgment and denied Pittman’s motion for partial summary

judgment. Pittman appeals those adverse judgments against her.

2. Pittman’s claims
 Pittman concedes that the claims of the Pittman Estate are

subject to subrogation because the Pittman Estate received

Occupational Benefits Plan death benefits from MHHS. Moreover,

as the Pittman Estate’s personal representative, Carol Pittman

admits she accepted Occupational Benefits Plan death benefits,

but did so only on behalf of her deceased husband and not on her

own behalf as his wife. As such, Pittman contends that her

claims as an individual are not subject to subrogation because

she as an individual did not receive Occupational Benefits Plan

death benefits, nor did she as an individual contractually assign

her claims to MHHS by executing an Acknowledgment of Receipt of

Benefits, Subrogation Rights and Confidentiality Agreement.

The Administrative Committee read the Occupational Benefits

Plan language to mean that Pittman, upon receipt of Occupational

Benefits Plan death benefits, subrogated all of her rights, in

whatever capacity, to MHHS. We conclude that this interpretation

amounts to an abuse of discretion because the Administrative

Committee, in reaching its conclusion, ignored the plain language

of the Occupational Benefits Plan.

Article 11.1 of the Occupational Benefits Plan states that

“[i]n the event of any Benefit payments made under the Plan to or

on behalf of any Employee, the Plan shall, to the extent of such

payments, be subrogated to all the rights of recovery . . . of

the Employee.” Article 11.1 further states that by participating

in the Occupational Benefits Plan, an employee also obligates the
legal representative of his estate and that “the Plan shall be

fully subrogated to any recovery or right of recovery that the

estate may have against any third party.” The quoted language

plainly means that when an employee or his estate accepts

Occupational Benefits Plan benefits, the employee or his estate

must surrender to MHHS all of its rights against third parties.

As applied to the instant case, the Occupational Benefits

Plan language means only that the Pittman Estate, via Pittman as

the estate representative, must surrender its claims to MHHS.

The language does not mean that Pittman must surrender the

wrongful death claims she independently possesses as John

Pittman, Jr.’s wife merely because she also served as the

representative of the Pittman Estate. Because Pittman took

Occupational Benefits Plan death benefits as the Pittman Estate

representative - and not in her individual capacity - she cannot

be made to subrogate to MHHS the wrongful death claims she

independently possesses in her individual capacity as the

decedent’s wife. In other words, MHHS acquired no subrogation

rights nor control of any of Pittman’s individual claims.

Accordingly, we reverse the judgment of the district court

insofar as it granted MHHS’ motion for summary judgment with

respect to Pittman in her individual capacity, and remand the

case to the district court for proceedings not inconsistent with

this opinion.

IV. CONCLUSION
 For the foregoing reasons, the judgment of the district

court is AFFIRMED in part and REVERSED and REMANDED in part.