Gorman v. Carpenters' & Millwrights' Health Benefit Trust Fund

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
June 8, 2005
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

PAUL D. GORMAN,

Plaintiff - Appellee,
v. No. 03-1526
CARPENTERS' & MILLWRIGHTS'
HEALTH BENEFIT TRUST FUND,

Defendant - Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D.C. NO. 03-WY-191-CB (PAC))

Timothy J. Parsons (Dean C. Heizer and Miranda K. Hawkins with him on the
briefs) of Gorsuch Kirgis, LLP, Denver, Colorado, for Defendant-Appellant.

Raphael M. Solot, Denver, Colorado, for Plaintiff-Appellee.

Before BRISCOE and MURPHY , Circuit Judges, and STEWART *, District
Judge.

STEWART , District Judge.

*
The Honorable Ted Stewart, United States District Judge for the District
of Utah, sitting by designation.
 Defendant/appellant Carpenters’ and MillWrights’ Health Benefit Trust

Fund (the Fund) appeals from the district court’s Order on Motions for Summary

Judgment granting plaintiff/appellee Paul Gorman (Plaintiff) equitable relief from

the terms of a subrogation contract on the grounds that the Fund acted arbitrarily

and capriciously because its contract imposed a condition on Plaintiff that was not

contained in the Plan or the Summary Plan Description. The new condition was

that the Plaintiff must file a third-party action at his own expense in order to

obtain his vested medical benefits resulting from the injuries he sustained in an

accident. The Fund also appeals the award to Plaintiff of attorney’s fees and

costs under 29 U.S.C. § 1132(g)(1). We have jurisdiction under 28 U.S.C. § 1291

and affirm.

BACKGROUND

On August 31, 2002, Plaintiff and his wife were injured in a motorcycle

accident. The accident left Plaintiff unable to work. Plaintiff was a beneficiary

of the Fund, an ERISA-qualified welfare plan described in a Restated Plan

document (the Plan) and the 1999 Summary Plan Description (the 1999 SPD). In

September 2002, Plaintiff and his wife filed medical claims with the Fund.

Plaintiff’s medical expenses totaled over $120,000.

Initially, the Fund approved payment of Plaintiff’s wife’s claim. However,

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it denied Plaintiff’s claim for benefits under the 1999 SPD’s commission of a

crime exclusion because he was cited by law enforcement for “following too

close” in connection with the accident. Pursuant to Plaintiff’s administrative

appeal, the Fund’s trustees eventually reversed their denial and allowed Plaintiff’s

claim. However, the Fund required Plaintiff and his wife to sign its Subrogation

Assignment Contract (SAC) as a pre-condition to payment of benefits. Although

the Fund asserted the 1999 SPD provided authority for the requirement, the SAC

added several provisions not included in the 1999 SPD. The new provisions

included (1) that Plaintiff must file a legal action against the third party within

one year; (2) that the Fund would not “be liable for payment of any portion of the

beneficiary’s litigation costs and/or attorney’s fees in connection with any legal

action against such third-party;” (3) that Plaintiff would diligently pursue the

third-party action; and (4) that Plaintiff would obtain the Fund’s prior written

consent for any settlement of the third-party action that would not pay the Fund in

full. Rec. 230-31.

The SAC recites that Plaintiff desired to proceed with an action against the

third-party. It is undisputed that Plaintiff did not want to bring such a lawsuit

under the conditions imposed by the SAC. However, he was injured and unable

to work, was under pressure from creditors to pay his substantial medical bills,

and the Fund refused to pay any of his medical bills unless he signed the SAC.

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Plaintiff’s wife refused to sign the SAC under those conditions and eventually

withdrew her claim for health benefits.

On January 14, 2003, Plaintiff signed the SAC in order to obtain payment

of his medical bills while he challenged the Fund’s right to require him to sue at

his own expense. Plaintiff’s attorney refused the Fund’s demand that he also sign

the SAC.

On January 17, 2003, Plaintiff filed a lawsuit against the third-party driver

for the purpose of complying with the SAC. On January 30, 2003, Plaintiff filed

the present action challenging the SAC under ERISA.

The Fund amended its Plan and the 1999 SPD to add an express provision

that the Fund would not pay any attorney’s fees or costs (the 2003 SPD).

Significantly, however, the 2003 SPD did not provide that the Fund could require

a participant or beneficiary to file a third-party action at his own expense as a

condition of receiving benefits. Further, although the 2003 SPD is dated as

“effective January 1, 2003,” it is undisputed that the Fund did not distribute it to

plan participants until May 2003, long after Plaintiff signed the SAC and filed his

third-party suit and this action.

Plaintiff filed this action seeking equitable relief in the form of

reformation, rescission, or declaratory relief. The parties agreed the facts were

undisputed and submitted the matter pursuant to summary judgment. The district

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court applied the 1999 SPD because it was the SPD in effect at the time Plaintiff

made his claim. The district court found that the Fund’s interpretation of the

1999 SPD was unreasonable. It found that the Fund was arbitrary in “going

beyond any reasonable request for documentation” under the 1999 SPD’s

cooperation clause when it imposed the SAC as a prerequisite for benefits. It also

found as follows:

The Fund acted in an arbitrary and capricious manner in requiring the
signing of the SAC and forcing Plaintiff to bring a third-party action
when he may have chosen not to bring such an action. If Plaintiff
chose not to bring a third-party action, [t]he Fund, through its
subrogation rights, could have brought a legal action at their own
expense against a third-party. However, [t]he Fund put all of the risk
on the beneficiary and retained all of the benefits for a no lose
situation.

Rec. at 287.

Accordingly, the district court rescinded the SAC and granted equitable

relief. It initially ordered that any third-party recovery be divided proportionally,

with the Fund “being reimbursed for the amount of funds it paid to Plaintiff, less

[the Fund’s] proportion of the attorney’s fees and litigation costs.” Id. at 288.

Pursuant to § 1132(g)(1), the district court awarded Plaintiff reasonable attorney’s

fees and costs associated with defending the Fund’s Motion for Summary

Judgment.

Subsequently, the third-party claim settled for $80,000.00, less than the

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$86,014.24 total of benefits paid by the Fund. 11 The settlement proceeds are

currently held in Plaintiff’s attorney’s trust account.

On November 28, 2003, the district court entered an Order on Various

Motions (Clarification Order), noting that the third-party claim had settled for an

amount less than the amount of the benefits paid to Plaintiff by the Fund. The

district court found the attorney’s fees ($26,666) and costs ($3,323) to be

reasonable, ordered them subtracted from the settlement proceeds, and ordered

that the entire net amount of $50,011 be paid to the Fund per its right of

subrogation under the 1999 SPD. It also found Plaintiff’s attorney’s fees and

costs in the amount of $19,732.50 for defending the Fund’s summary judgment

motion to be reasonable and granted judgment in that amount to Plaintiff.

On appeal, the Fund contends that: (1) the district court erred in finding the

Plan’s interpretation of the Plan documents to be arbitrary and capricious; (2) the

district court erred by rescinding the subrogation contract because rescission is

not appropriate equitable relief under ERISA, 29 U.S.C. §1132(a)(3); (3) the

district court erred in applying the common fund doctrine; and (4) the district

court erred by awarding Plaintiff attorney’s fees pursuant to ERISA, 29 U.S.C. §

1132(g)(1).

11
The Fund paid $82,504.95 in medical benefits and $3,509.29 in
disability benefits.

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 DISCUSSION

A. Standard of Review

This court reviews the grant of summary judgment under the same standard

as applied by the district court. Charter Canyon Treatment Ctr. v. Pool Co., 153

F.3d 1132, 1135 (10 th Cir. 1998). Because the parties agree there are no material

issues of fact, we review de novo the district court’s legal conclusions. Thus, we

review de novo the district court’s legal conclusion that the Fund’s decision was

arbitrary and capricious. Sandoval v. Aetna Life and Cas. Ins. Co., 967 F.2d 377,

380 (10 th Cir. 1992).

B. Arbitrary and Capricious

The Fund contends that the district court erroneously relied on the 1999

SPD, rather than the 2003 SPD. It contends that a reasonable interpretation of the

subsequent Plan and SPD amendments would allow the Fund to require execution

of the terms of its SAC.

We agree with the district court that the controlling document is the 1999

SPD. 2 “Because plan administrators have an obligation imposed by ERISA to

operate the plan according to current plan documents, a post hoc amendment

clearly cannot alter a plan provision in effect at the time performance under the

2
However, our decision would be same under the 2003 SPD because it
did not provide the Fund the right to require a plan participant to file a third-party
action at his or her own expense.

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plan became due.” Member Services Life Ins. Co., v. American National Bank

and Trust Co., 130 F.3d 950, 957 (10 th Cir. 1997).

The Fund contends that the 2003 SPD controls because it provided notice

of the amendments within the 120 days following their adoption as required by

ERISA, 29 U.S.C. § 1024(b)(1), and the SAC was signed after the effective date

of the 2003 SPD. However, Plaintiff’s benefits were vested prior to the effective

date of the 2003 SPD. A welfare plan’s benefits vest when performance is due.

Member Services, 130 F.3d at 956. Under the 1999 SPD, benefits vest upon

receipt of written proof satisfactory to the Fund. The Fund’s November and

December 2002 communications to Plaintiff specifically rely on the 1999 SPD as

authority for its demand that Plaintiff and his wife sign the SAC. Rec. at 161 and

167. The communications also notified Plaintiff that benefits would not be paid

unless and until the SAC was signed. The Fund’s January 7, 2003, letter

announced its decision on the administrative appeal, reiterated its demand that

Plaintiff sign the previously provided SAC, and declared that the failure to do so

would result in a loss of benefits.

The fact that the SAC was finally signed shortly after the effective date of

the new amendments does not mean that the Fund can apply those new

amendments to Plaintiff’s previously vested benefits. Because the Fund cannot

unilaterally change the terms of its performance after performance is due, we find

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no error in the district court’s holding that the 1999 SPD controls.

We turn to the issue of whether the Fund’s interpretation of its SPD was

arbitrary and capricious. The 1999 SPD provides:

This Plan shall be subrogated and may, if deemed appropriate by the
Plan, succeed to the individual’s right of recovery from a third party
for incurred Hospital, medical and surgical expenses. The individual
shall pay over to the Plan all sums recovered by suit, settlement or
otherwise in an amount equal to such services or benefits which the
Plan provided. . . .

***

The Fund may, in its sole discretion, commence an independent
action based on the Fund’s right of subrogation against a third party
for medical, hospital and surgical expenses incurred by the Eligible
Employee and paid by the Fund regardless of whether the Eligible
Employee has commenced his/her own action against any third party.

If a Participant is injured or becomes ill due to or as a result of the
act or omission of any other person and if . . . benefits are provided
to or on behalf of the Participant by this Plan due to or as a result of
such injury or illness, then to the extent that the Participant recovers
similar medical expenses for the same injury or illness from any
responsible third party, or the third party’s insurance carrier, this
Plan shall be entitled to receive a refund from the Participant in an
amount equal to such services or benefits which this Plan provided.
This Plan may file a lien for such payment. The Participant shall,
upon request, execute and deliver such instrument or papers as may
be required and do whatever else is necessary to carry out this
provision.

Rec. at 204. The 1999 SPD does not address attorney’s fees or other costs of

litigation.

In support of its position that it did not act arbitrarily and capriciously in

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requiring Plaintiff to sign the SAC providing that Plaintiff must bring a third-

party action at his own expense, the Fund relies upon our unpublished case, Alves

v. Silverado Foods, Inc., 6 Fed. Appx. 694 (10 th Cir. 2001). It also submits as

supplemental authority our recent case Administrative Committee of the Wal-Mart

Associates Health and Welfare Plan v. Willard, 393 F.3d 1119 (10 th Cir. 2004)

and the Fourth Circuit case Kress v. Food Employers Labor Relations Ass’n., 391

F.3d 563 (4 th Cir. 2004). We find those cases to be distinguishable.

In Alves, we affirmed the district court’s granting of summary judgment in

favor of a plan on a claim that it breached its fiduciary duty when it refused to

pay claims until the beneficiaries signed an agreement recognizing its rights to

subrogation and reimbursement. However, in Alves, the district court found that

the reimbursement agreement “did not broaden the Plan’s rights from those in the

SPD.” 6 Fed. Appx. at 705.

Thus, Alves is distinguishable because, in the present case, the Fund

interpreted the 1999 SPD in a way that attempted to materially broaden its rights

by conditioning benefits on the participant’s signing an agreement that added an

entirely new requirement not found in the Plan or the 1999 SPD. For the same

reason, the Willard case, supra, is inapposite because it also did not involve a

plan’s imposition of conditions that broadened its rights from those in the SPD.

In Kress, the Fourth Circuit held it was not an ERISA violation for a fund

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to require the participant and his attorney to sign a subrogation agreement

agreeing to reimburse the plan first out of any recovery because that condition

was plainly required in the SPD. 391 F.3d at 567-68. Thus, there was no attempt

in Kress to broaden rights from those in the plan and the SPD.

Further distinguishing Kress are two facts. First, the accident-related

medical expenses at issue in Kress were, unlike the benefits in the present case,

expenses that were not covered by the plan. Instead the expenses were advanced

as an “interest free loan” from the fund to employees injured by third parties. 391

F.3d at 568. Second, the subrogation agreement in Kress did not require that a

participant file a third-party action because even if the participant “did accept the

advance, he was under no obligation to sue.” Id. at 570 n.2; see also id. at 570

(“If the participant and his attorney conclude that private litigation will not

produce a sufficient recovery to make the litigation worthwhile, they need not

bring the case.”). Because the injured plan participant could choose not to file a

third-party action, the Kress court held it was not unconscionable to require a

subrogation agreement from a participant and his attorney providing that any

attorney’s fees be subordinated to the Plan’s right to reimbursement. Id. at 570-

71.

In the present case, as previously noted, the SAC attempted to broaden the

Fund’s rights by imposing a new requirement on Plaintiff as a condition for

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receiving benefits. Despite requiring the unwilling Plaintiff to file an action, the

SAC provides that the Fund will not pay any portion of the litigation costs and

fees. Because that requirement was not contained in the 1999 SPD, it was

arbitrary and capricious for the Fund to impose the new condition as a

prerequisite to paying Plaintiff his benefits under the 1999 SPD.

C. Appropriate Equitable Relief

The Fund contends that the district court erred by rescinding the

subrogation contract because (1) rescission is not a remedy under subsection 29

U.S.C. § 1132(a)(3); (2) the district court lacked authority to impose rescission

under that section; (3) Plaintiff seeks monetary not equitable relief; and (4)

Plaintiff did not establish the prerequisites for a rescission claim.

Plaintiff brought this action under ERISA, 29 U.S.C.§ 1132(a):

(a) A civil action may be brought ...

(3) by a participant, beneficiary, or fiduciary

(A) to enjoin any act or practice which violates any
provision of [Title I of ERISA] 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 [Title I of ERISA] or the terms of the plan[.]

29 U.S.C.§ 1132(a)(3)(A) and (B) (emphasis added).

Other circuits have determined that in appropriate circumstances, rescission

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may be “appropriate equitable relief” within the meaning of § 1132(a)(3)(B). See

Griggs v. E.I. DuPont and Nemour & Co., 385 F.3d 440, 446 n.3 (4 th Cir. 2004)

(collecting cases).

However, we need not address the issue because we find that the district

court’s resolution was pure equitable relief within its authority under §

1132(a)(3)(B). The district court determined (1) that the Fund’s interpretation of

the SPD was unreasonable; (2) that the Fund acted arbitrarily and capriciously in

requiring the SAC; and (3) that the Plaintiff would not have filed the third-party

action but for the fact that he was compelled to do so by the SAC. The Fund’s

action provided a basis for equitable relief under § 1132(a)(3)(B). Accordingly,

the district court acted to restore the parties to the positions they would have

occupied had the Fund not acted arbitrarily and capriciously in conditioning

payment of vested benefits on signing a contract that imposed terms not contained

in the Plan or disclosed in the 1999 SPD.

Prior to the signing of the SAC, the parties were in the following position:

the Fund had a subrogation right to “all sums” recovered in an amount equal to

the benefits and a refund right to the amount equal to such services or benefits

that the Plan provided. Rec. at 203-04. Plaintiff had an obligation to cooperate

in such subrogation and refund. However, he also had the right to decide whether

or not to bring a third-party action, depending on how he evaluated factors such

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as the stress of litigation, the strength of his case, and the likelihood of recovery.

Among the factors Plaintiff would have to consider in deciding whether or not to

bring a third-party action was that the Fund was entitled to a full refund in the

amount of any benefits paid. If Plaintiff choose not to file an action under these

circumstances, he would incur no attorney’s fees or other litigation-related

expenses. The Fund always had the right to file its own third-party action for

subrogation, in which case the Fund would bear its own costs and fees incurred as

a result of its decision to file an action.

In its equitable resolution, the district court imposed responsibility for the

attorney’s fees and costs on the party that made the decision to file the third-party

action–the Fund. At the same time, the district court recognized the Fund’s right

under the 1999 SPD to a repayment in the amount of the benefits it paid Plaintiff

by requiring that Plaintiff repay the Fund the full remainder of the settlement.

As we recently noted, this type of equitable resolution is available under §

1132(a)(3). In Callery v. United States Life Insurance Company in the City of

New York, 392 F.3d 401 (10 th Cir. 2004), we examined “appropriate equitable

relief” under § 1132(a)(3) and found that the various remedies sought were not

available because the employee was in actuality seeking money damages, a classic

form of legal relief. Id. at 404-05. However, we distinguished the types of relief

sought in Callery from the clear equitable remedy of the type applied in our

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earlier case, Downie v. Independent Drivers Ass'n Pension Plan, 934 F.2d 1168

(10th Cir. 1991). In Downie, as in the present case, a plan acted arbitrarily and

capriciously and violated the participant’s rights under the plan.

In Downie, the court used its equitable powers to restore the parties to
their original positions in order to affect the beneficiary's ability to
receive future payments. Id. at 1170-71. This is a clear equitable
remedy and is distinct from the relief sought in this case.

Callery, 392 F.3d at 407.

The fact that the relief sought in the present case involved the attorney’s

fees incurred in the third-party action does not mean that Plaintiff sought

monetary relief instead of equitable relief within the meaning of §1132(a)(3). As

we recently noted, “any equitable relief, including those forms explicated by the

Court as available under [§1132(a)(3)], must involve the direct or indirect transfer

of money, and we cannot read the statute to proscribe all forms of relief.”

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

Willard, 393 F.3d at 1125 (plan administrator’s suit for equitable restitution is

“appropriate equitable relief”).

We hold that on the unique facts of this case, the district court’s action

granted “appropriate equitable relief” within the meaning of 29 U.S.C.

§1132(a)(3)(B).

D. Common Fund

The Fund also contended that the district court erred by applying the

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common fund doctrine. However, as we have determined that the district court’s

resolution was equitable relief within the meaning of 29 U.S.C.§ 1132(a)(3), the

common fund doctrine is not dispositive.

E. Attorney’s Fees under § 1132(g)(1)

The Fund contends that the district court erred in its Clarification Order by

awarding Plaintiff attorney’s fees incurred in the present case pursuant to

§1132(g)(1) because it did not apply the five-factor test to determine whether an

award of attorney’s fees is appropriate. See Gordon v. U.S. Steel Corp., 724 F.2d

106, 109 (10 th Cir. 1983) (applying five-factor test from Eaves v. Penn, 587 F.2d

453, 463 (10 th Cir. 1978)). Plaintiff contends that the Fund waived this argument

by failing to raise it below.

Section 1132(g)(1) of ERISA provides:

In any action under this subchapter . . . by a participant, beneficiary,
or fiduciary, the court in its discretion may allow a reasonable
attorney’s fee and costs of action to either party.
Id.

We consider each case individually in determining whether to exercise our

discretion to consider a question raised for the first time on appeal. Tele-

Communications, Inc. v. C.I.R., 104 F.3d 1229, 1232 (10 th Cir. 1997). Such

determination must begin with recognition that sound policy supports the

proposition that an appellate court will not consider an issue raised for the first

time on appeal.

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 Review of issues not raised below would require us frequently to
remand for additional evidence gathering and findings; would
undermine the need for finality in litigation and conservation of judicial
resources; would often have this court hold everything accomplished
below for naught; and would often allow a party to raise a new issue on
appeal when that party invited the alleged error below. Lyons v.
Jefferson Bank & Trust, 994 F.2d 716, 721 (10th Cir. 1993).

This rule is particularly apt when dealing with an appeal from a grant
of summary judgment, because the material facts are not in dispute and
the trial judge considers only opposing legal theories.

Id.

The Fund contends that it raised the issue of the failure to apply the five-

factor test below, citing its one-sentence general objection to any award of

attorney’s fees contained in its Response to Plaintiff’s Application for Attorney’s

Fees. However, raising a theory in “a vague and ambiguous way” or by “raising a

related theory” is insufficient to preserve an issue for appeal. Id. at 1234 (citing

Lyons v. Jefferson Bank & Trust, 994 F.2d 716, 722 (10th Cir.1993)). Our review

of the record reveals that the argument that the district court failed to apply the

five-part test was never raised below. Because the issue was never presented to

the district court, it did not have the opportunity to rule on the issue, and the issue

cannot be raised in this appeal.

CONCLUSION

We AFFIRM the judgment of the district court.

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