Letourneau Lifelike Orthotics & Prosthetics, Inc. v. Wal-Mart Stores, Inc.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

_______________________________

No. 01-40995
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LETOURNEAU LIFELIKE ORTHOTICS & PROSTHETICS, INC., as assignee of
Pamela L. Nichols,

Plaintiff-Appellee,

versus

WAL-MART STORES, INC.; WAL-MART ASSOCIATES HEALTH & WELFARE PLAN;
COMMITTEE OF THE WAL-MART ASSOCIATES HEALTH & WELFARE PLAN,

Defendants-Appellants.

_________________________________________________

Appeal from the United States District Court
for the Eastern District of Texas
_________________________________________________

July 10, 2002

Before HIGGINBOTHAM, WIENER and BENAVIDES, Circuit Judges.

WIENER, Circuit Judge:

Plaintiff-Appellee LeTourneau Lifelike Orthotics &

Prosthetics, Inc. (“LeTourneau”) filed this action in district

court against the captioned Defendants-Appellants, seeking $9,767

in payment for replacing part of a prosthetic device that

LeTourneau had furnished to Pamela L. Nichols, a beneficiary of the

defendant Wal-Mart Associates Health & Welfare Plan (the “Plan”).

In addition to asserting that claim under Section 502 of ERISA,1

1
29 U.S.C. § 1132(a).
LeTourneau advanced the Texas common law claim of quantum meruit.

The state law claim and all claims against defendant Wal-Mart

Stores, Inc. were eventually dismissed on an agreed motion.

Following a bench trial, the court entered judgment for LeTourneau

against the Plan in the amount of its principal demand, plus

prejudgment interest, attorney’s fees, costs, and post-judgment

interest. Concluding that LeTourneau lacked standing to bring this

action, we reverse the district court’s determination to the

contrary, vacate the judgment for LeTourneau, and remand with

instructions to dismiss the complaint.

I. FACTS AND PROCEEDINGS

Nichols was a beneficiary of the Plan by virtue of her

husband’s participation. The Plan is governed by ERISA, sponsored

by Wal-Mart Stores, Inc., and administered by an administrative

committee. The Plan’s Summary Plan Description (“SPD”) contained

the following anti-assignment clause:

ASSIGNMENT

Transferring to Another Party
Medical coverage benefits of this Plan may not be
assigned, transferred or in any way made over to another
party by a participant. Nothing contained in the written
description of Wal-Mart medical coverage shall be
construed to make the Plan or Wal-Mart Stores, Inc.,
liable to any third-party to whom a participant may be
liable for medical care, treatment, or services.
....

2
 Assignment Overview

Except as permitted by the Plan or as required by state
Medicaid law, no attempted assignments of benefits will
be recognized by the Plan.2

When Nichols became a patient of LeTourneau in December 1996, she

signed a form containing a direct payment authorization which

permitted the Plan to pay LeTourneau directly for “all things to

which” Nichols was “entitled” under the Plan. Nichols’s physician

had prescribed the above-knee leg prosthesis in question, which was

covered by the Plan. She received the prosthesis from LeTourneau

early in 1997. Based on the direct payment authorization in

Nichols’s entry form, the Plan paid $19,553 directly to LeTourneau

for the device and the services related to fitting it.

About a year-and-a-half after Nichols received the original

prosthesis, the same physician prescribed a new socket for it.

LeTourneau contacted the Plan’s agent, Blue Cross/Blue Shield, and

confirmed that Nichols was still a beneficiary of the Plan; at that

time, however, neither Nichols nor LeTourneau sought either prior

approval for replacing the socket or verification of coverage of

Nichols for this service. LeTourneau replaced the socket and

submitted a claims form to Blue Cross/Blue Shield, seeking payment

of $9,767.

2
The Plan did not, in contrast, prohibit participants or
beneficiaries from authorizing the Plan to make direct prepayments
to health care benefit providers, like LeTourneau, for covered
services.

3
 Sometime later, LeTourneau was informed that the Plan would

pay nothing at that time, adding that confirmation as to medical

necessity was required regarding the new socket and other

components. LeTourneau eventu2ally submitted a copy of the

physician’s prescription for the socket and a Certificate of

Medical Necessity which was signed and dated by the doctor more

than a year after the Plan had notified LeTourneau of its denial.

On the same day that the Certificate of Medical Necessity was

signed by Nichols’s doctor and delivered to the Plan, the Plan

furnished LeTourneau an Explanation of Benefits and advised that

the Plan was denying the new socket charges based on the following

provision in the “Other Covered Expenses” section of the SPD:

Standard prostheses limited to artificial
limbs, artificial eyes, breast implants where
the breast tissue is removed, or initial
placement of contact lenses or glasses after
cataract surgery; limited to once every three
years. Replacement will be allowed when the
original prosthesis was medically necessary
and only when a change of prescription occurs.
NOTE: The Plan must be given prior approval of
your prosthesis supplier.

Without further efforts to explore administrative

reconsideration, LeTourneau brought the instant action as Nichols’s

assignee. The Plan contested LeTourneau’s standing because (1)

Nichols’s direct payment authorization was not the equivalent of an

assignment of benefits, and (2) even if it were, it would be

invalid for purposes of LeTourneau’s pursuing an ERISA Section 502

claim, given the SPD’s anti-assignment clause. After denying the

4
Plan’s motion for summary judgment, the district court conducted a

bench trial. Implicitly rejecting the challenge to standing, the

court accepted LeTourneau’s contentions that Nichols’s direct

payment authorization was an assignment of benefits and, relying on

our decision in Hermann Hospital v. MEBA Medical & Benefits Plan

(Hermann II),3 held that an employee benefits plan cannot enforce

an anti-assignment clause against a provider of medical services.

The court rendered judgment in favor of LeTourneau and the Plan

timely filed a notice of appeal.

II. ANALYSIS

A. Standard of Review

On appeal from a bench trial, we review the factual findings

of the trial court for clear error.4 We review conclusions of law

de novo, including the trial court’s determination of its own

standard of review of an ERISA administrator’s determination of

eligibility for benefits.5

B. LeTourneau’s Standing

3
959 F.2d 569 (5th Cir. 1992).
4
Kona Tech. Crop. v. S. Pac. Transp. Co., 225 F.3d 595, 601
(5th Cir. 2000).
5
Id.; Meditrust Fin. Servs. Corp. v. The Sterling Chems.,
Inc., 168 F.3d 211, 213 (5th Cir. 1999).

5
 Standing is jurisdictional.6 LeTourneau has no direct claim

against the Plan; and, absent a valid assignment of benefits from

Nichols, LeTourneau would have no derivative standing to sue the

Plan under ERISA Section 502.7 In finding the presence of a valid

assignment and rejecting the Plan’s anti-assignment assertion, the

district court relied entirely on Hermann II, in which the ERISA

plan at issue contained the following anti-assignment clause:

No employee, dependent or beneficiary shall have the
right to assign, alienate, transfer, sell, hypothecate,
mortgage, encumber, pledge, commute, or anticipate any
benefit payment hereunder, and any such payment shall not
be subject to any legal process to levy execution upon or
attachment or garnishment proceedings against for the
payment of any claims.8

Although we held for the hospital, we did so primarily on the basis

of estoppel: The ERISA Plan was estopped from enforcing its anti-

assignment clause because of the Plan’s protracted failure to

assert anti-assignment when the hospital requested payment under an

assignment of payment provision for covered benefits.

Here, however, the district court did not rely on estoppel.

Rather, it relied on our alternative holding in Hermann II that the

anti-assignment clause was ineffectual against the hospital. In

that alternative holding, we concluded that the anti-assignment

6
Florida Dept. of Ins. v. Chase Bank of Texas, 274 F.3d 924,
928-29 (5th Cir. 2001) (citing Valley Forge Christian College v.
Americans United for Separation of Church and State, Inc., 454 U.S.
464, 475-76 (1982)).
7
See generally Hermann II, 959 F.2d at 572.
8
Hermann II, 959 F.2d at 574.

6
clause there at issue would not preclude the hospital’s recovery

from the plan because the clause applied only to unrelated, third-

party assignees, such as creditors who might attempt to obtain

voluntary assignments to cover debts having no nexus with a plan or

its benefits, or even involuntary alienation such as attempts to

garnish such payments.

The district court’s reliance on Hermann II’s alternative

holding, which analogized that anti-assignment clause to anti-

assignment clauses commonly found in spendthrift trusts, is

misplaced. There simply is no similarity between the language of

the Plan’s anti-assignment clause and the wording of the clause

that we analyzed in Hermann II. In no way resembling typical

spendthrift trust provisions or the third-party creditor anti-

assignment clause provision in Hermann II, the Plan’s anti-

assignment clause states that “no attempt at assignments or

benefits will be recognized by the Plan” and, most significantly,

that “[n]othing contained in the written description of Wal-Mart

medical coverage shall be construed to make the Plan or Wal-Mart

Stores, Inc., liable to any third-party to whom a participant may

be liable for medical care, treatment, or services.” This language

is unquestionably directed at providers of health care services

such as LeTourneau in precisely the way that the anti-assignment

language Hermann II was not.

We have previously stated that “we must ... interpret ERISA

plans’ provisions as they are likely to be ‘understood by the

7
average plan participant,’ consistent with ERISA’s statutory

drafting requirements.”9 When, as in the instant case, the plan

administrator is vested with discretion to review plan terms and

decide claims for benefits, we review the administrator’s

interpretation of an SPD’s terms only for abuse of discretion.10

In Hermann I11 we held that “ERISA allows the assignment of health

care benefits” but noted that the validity of the assignment

depends on a construction of the plan at issue.12 Neither Hermann

I nor Hermann II stands for the proposition that all anti-

assignment clauses are per se invalid vis-à-vis providers of health

care services. Furthermore, neither Hermann opinion mandates that

any putative assignment somehow grants derivative standing to the

provider, as an assignee, to sue on behalf or standing in the shoes

9
Walker v. Wal-Mart Stores, Inc., 159 F.3d 938, 940 (5th
Cir. 1998) (per curiam)(quoting 29 U.S.C. § 1022(a)(1)); see also
Fallo v. Piccadilly Cafeterias, Inc., 141 F.3d 580, 583 (5th Cir.
1998) (“ERISA requires plan administrators to provide its
participants with an accurate, comprehensive, and easy to
understand summary of the Plan.”); id. at 583 n.14 (“‘The summary
plan description ... shall be written in a manner calculated to be
understood by the average plan participant, and shall be
sufficiently accurate and comprehensive to reasonably apprise such
participants and beneficiaries of their rights and obligations
under the plan.’" (quoting 29 U.S.C. § 1022(a)(1))).

10
See McCall v. Burlington Northern/Santa Fe Co., 237 F.3d
506, 512 (5th Cir. 2000), cert. denied, 122 S. Ct. 57 (2001).

11
Hermann Hospital v. MEBA Medical & Benefits Plan, 845 F.2d
1286 (5th Cir. 1988).
12
Id. at 1289, 1290.

8
of the plan’s beneficiary. On the contrary, our case law affirms

“the well-settled principle that Congress did not intend that ERISA

circumscribe employers' control over the content of benefit plans

they offered to their employees” as well as “Congress's intent that

employers remain free to create, modify and terminate the terms and

conditions of employee benefits plans without governmental

interference.”13 We are aware of no statute or case law, and

LeTourneau has invited our attention to none, that would preclude

application of these principles to the anti-assignment clause here

under consideration. Applying universally recognized canons of

contract interpretation to the plain wording of the instant anti-

assignment clause leads inexorably to the conclusion that any

purported assignment of benefits from Nichols to LeTourneau would

be void.

This conclusion is underscored by the fact that the Plan

dutifully paid LeTourneau for the original prosthesis, never

attempting to deny responsibility by relying on the anti-assignment

clause. In other words, the Plan did not attempt to make its anti-

assignment provisions trump the direct payment authorization that

Nichols validly exercised; rather, the Plan fully honored it by

paying LeTourneau in full for the original prosthesis. The Plan’s

subsequent invoking of the anti-assignment clause to challenge

LeTourneau’s derivative standing to bring an ERISA section 502

13
McGann v. H & H Music Co., 946 F.2d 401, 407 (5th Cir.
1991), cert. denied, 506 U.S. 981 (1992).

9
claim for the replacement socket is consistent with the Plan’s

implicit acknowledgement that the contents of the entry form signed

by Nichols, although ineffective to assign her other contractual or

statutory rights under ERISA, did effectively assign to her health

care services provider her right to receive payments for duly

covered claims. Again, the anti-assignment provision in Hermann II

is so distinguishable from the Plan’s that our rejection of

facially dissimilar distinctions in Hermann II are wholly

inapposite here.

At oral argument, LeTourneau conceded —— as it had to —— that,

prior to providing the new socket for Nichols’s prosthesis, it

never bothered to seek advance authorization through Blue

Cross/Blue Shield or the Plan; neither did it attempt to verify

that such a replacement, if made within less than three years

following the initial installation of the prosthesis, would be

covered. LeTourneau’s decision to verify nothing other than that

Nichols was still a beneficiary of the Plan nicely illustrates the

distinctions that are at work here: The fact that a health care

services provider verifies beneficiary status and has a direct

payment authorization in hand is worth nothing when coverage of the

service provided to the beneficiary has not been verified or pre-

approved, and is ultimately determined in the discretion of the

plan administrator not to be covered. Any right that Nichols

herself might have enjoyed as a beneficiary to challenge Wal-Mart’s

denial of coverage and to claim entitlement to socket replacement

10
despite the passage of less than three years could not be assigned

to any third party, including her provider of health care services;

and without an assignment, the provider, LeTourneau, could have no

standing to pursue coverage, either administratively or judicially.

Regrettably for LeTourneau, by failing to verify coverage for

Nichols’s socket replacement in advance, it assumed the risk (as it

candidly conceded in oral argument) that coverage might be denied

by the Plan’s administrator. Because of the anti-assignment

provision of the Plan, LeTourneau had no derivative standing to

assert coverage retrospectively as Nichols’s assignee.

III. CONCLUSION

The district court erred as a matter of law in holding the

anti-assignment provision in the Plan’s SPD ineffective as to

LeTourneau. Because that clause is valid vis-à-vis LeTourneau, it

renders nugatory any purported assignment of benefits from the

beneficiary, Nichols. And, absent an enforceable assignment of

benefits, LeTourneau had no standing to sue the Plan for Nichols’s

benefits under ERISA Section 502. Therefore, we must reverse the

court’s ruling on the inapplicability of the Plan’s anti-assignment

clause to LeTourneau and vacate the court’s judgment in favor of

LeTourneau. Consequently, we need not and therefore do not

consider whether the district court erred when it determined that

(1) Nichols’s direct payment authorization was an assignment, (2)

the Plan improperly denied payment in reliance on the “Other

11
Covered Expenses” provision of the SPD, (3) it need not refer the

claim to the plan administrator once it determined that the anti-

assignment clause did not apply to LeTourneau, (4) the standard of

review to employ in analyzing the Plan’s interpretation of and

reliance on the “once every three years” limitation to deny

coverage for replacing Nichols’s knee socket, or (5) the Plan did

indeed afford coverage for replacement of the socket, irrespective

of timing.

Because LeTourneau had neither direct nor derivative standing

to bring this suit, the district court lacked jurisdiction to hear

it. We therefore reverse the court, vacate its judgment in favor

of LeTourneau, and remand this case with instructions to dismiss it

at LeTourneau’s cost.

REVERSED, JUDGMENT VACATED, AND CASE REMANDED with instructions to

dismiss at plaintiff’s cost.

12