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IN RE ESTATE OF SHEPPARD

United States District Court, Central District of Illinois, Springfield Division


April 20, 1987

IN RE THE ESTATE OF JAMES A. SHEPPARD, A MINOR. THE ESTATE OF JAMES A. SHEPPARD. A MINOR, PLAINTIFF,
v.
CATERPILLAR, INC., ALLSTATE INSURANCE CO., AND MENNONITE HOSPITAL, DEFENDANTS.

The opinion of the court was delivered by: Mills, District Judge:

OPINION ORDER

The employer here may not enter the federal court by the back stairs when the main door to the courthouse is locked.

Can the mere fact that ERISA is involved in this suit confer federal jurisdiction?

No.

The Estate of James Sheppard originally brought this suit in the Circuit Court of Illinois, McLean County. In re Estate of Sheppard, No. 86-P-309 (Cir.Ct. McLean Co., filed Nov. 12, 1986). Therein, the estate sought, inter alia, a declaration that a $54,000 lien placed by Caterpillar upon the proceeds of its proposed settlement with a tortfeasor was invalid.

Sheppard, a minor, sustained serious injury when a vehicle in which he was riding overturned. Under the terms of a group insurance plan entered into with his father (a Caterpillar employee) the company covered a portion of the child's medical expenses. Subsequently, the estate reached a tentative structured settlement with the auto driver's insurance company, Fireman's Fund. The insurer, however, indicated it would put the names of Caterpillar and other claimants on the initial $175,000 payment check to protect itself, unless the liens were adjudged null as to the settlement — a settlement thus giving rise to the present litigation.*fn1

Caterpillar now petitions this Court pursuant to 28 U.S.C. § 1441(a), (c) for removal of the state probate proceeding.*fn2 The company contends that since the policy under which it made payments to the minor is an "employee benefit plan" regulated by the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1002(1), (3), 1003(a), the Plaintiff's claim arises under ERISA and so is more properly addressed to a federal tribunal.*fn3

The estate, in turn, petitions for remand to the Eleventh Circuit of Illinois, asserting neither ERISA's provisions nor federal common law governs the controversy; it urges, rather, that state substantive law and the terms of Defendant's plan are dispositive.

In compliance with 28 U.S.C. § 636(b)(1)(B), the United States Magistrate has entered a recommendation to remand the cause. Relying upon Golen v. Chamberlain Mfg. Corp., 139 Ill. App.3d 53, 93 Ill.Dec. 677, 487 N.E.2d 121 (1st Dist. 1985), he suggests that Plaintiff's action only tangentially concerns ERISA.*fn4 Hence, he concludes that the conflict is for an Illinois court to decide as a matter of state law. See also Local Union 212 Int'l Bhd. of Elec. Workers Vacation Trust Fund v. Local 212 IBEW Credit Union, 549 F. Supp. 1299 (S.D.Ohio 1982), aff'd, 735 F.2d 1010 (6th Cir. 1984).

Having carefully reviewed the record, as well as the status of applicable law, the Court finds the procedural posture of this case and the jurisdictional problem it presents both complex and confusing. Nevertheless, it is convinced that to decide the validity of Caterpillar's lien would be to act "improvidently and without jurisdiction." 28 U.S.C. § 1447(c). Consequently, the Court adopts the Magistrate's recommendation, albeit upon a different course of reasoning.

Before proceeding with an analysis, however, further clarification of the parties' respective positions is in order.

The Controversy

Caterpillar asserts its lien on the settlement proceeds through an alleged right of subrogation contained in the ERISA governed insurance policy. Thus, the estate's action purportedly seeks a declaration of rights under the employee benefit plan pursuant to 29 U.S.C. § 1132(a)(1)(B):

  A civil action may be brought by a participant or
  beneficiary to recover benefits due him under the
  terms of his plan, to enforce his rights under
  the terms of the

  plan, or to clarify his rights to future benefits
  under the terms of the plan.

In other words, the minor, a beneficiary, requests a determination of the propriety of the employer's subrogation claim — a suit over which, Defendant alleges, state and federal courts exercise concurrent jurisdiction. 29 U.S.C. § 1132(e)(1).

In contrast, the estate's position as set forth on the face of its state petition is two-fold. First, it contends that the Illinois Family Expense Statute, Ill.Rev.Stat. ch. 40, § 1015 (1985), renders only parents liable for the medical expenses of their minor children: "Thus, the obligation to pay the medical expenses is on the parent, and the cause of action to recover for the medical expenses lies in the parent, not in the child." Estate of Hammond v. Aetna Casualty, 141 Ill. App.3d 963, 965, 96 Ill.Dec 270, 272, 491 N.E.2d 84, 86 (1st Dist. 1986). Since the minor is not primarily liable for the hospital bills, his estate believes Caterpillar cannot enforce a right of subrogation against it.

Furthermore, Plaintiff asserts the lien is invalid because the settlement is not for past expenses, but rather for the minor's pain, disability and suffering. The subrogation clause of the plan states:

  [T]he Employer . . . shall be subrogated to all
  right of recovery of the Employee or Dependent
  with respect to any expenses included in
  any . . . settlement only to the extent that
  said . . . settlement is expressly identified as a
  payment for services. . . .

The estate, however, cites neither ERISA nor the clause in its claim for relief.

Countering the petition, the corporation argues Plaintiff may not assert state law against it.*fn5 It maintains the subrogation right is an integral part of the plan's administration. Therefore, any Illinois statute purporting to override that right must be preempted by § 514 of ERISA, 29 U.S.C. § 1144: "[T]he provisions of this subchapter . . . shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan. . . ." See Shaw v. Delta Air Lines, 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). The estate's suit, then, necessarily arises under ERISA. Removal of an action is proper where the real nature of the claim is federal, regardless of Plaintiff's characterization. Mitchell v. Pepsi-Cola Bottlers, Inc., 772 F.2d 342 (7th Cir. 1985), cert. denied, ___ U.S. ___, 106 S.Ct. 1266, 89 L.Ed.2d 575 (1986); Waycaster v. AT & T Technologies, Inc., 636 F. Supp. 1052 (N.D.Ill. 1986).

Admittedly, the artful pleading exception allows the Court to review Defendant's removal petition in addition to the complaint in determining whether Plaintiff actually pleads a federal cause of action. Having done so, however, the Court finds both parties somewhat misguided in their analyses.

Discussion

As Caterpillar correctly notes, Plaintiff's state petition in essence requests a declaratory judgment that the employer's lien is of no force against the settlement. See Ill.Rev.Stat. ch. 110, ¶ 2-701 (1985). Thus, upon removal, this Court must consider the estate's action as originating under the Federal Declaratory Judgment Act, 28 U.S.C. § 2201.*fn6 Illinois ex rel. Barra v. Archer Daniels Midland Co., 704 F.2d 935, 939 (7th Cir. 1983). Consequently, we review the jurisdictional question in light of the act's purpose and construction.

I

An historic function of the declaratory judgment suit is to enable a potential defendant to avoid inconvenience by accelerating a plaintiff's action. Thomas v. Shelton, 740 F.2d 478, 485 (7th Cir. 1984). For example, the Seventh Circuit in Wisconsin v. Baker, 698 F.2d 1323, 1329-30 (7th Cir.), cert. denied, 463 U.S. 1207, 103 S.Ct. 3537, 77 L.Ed.2d 1388 (1983), allowed removal of the state's declaratory count alleging members of an Indian tribe had no federal right under a treaty to restrict access to navigable waters:

  [T]he State's federal claim is well-pleaded.
  True, it is anticipatory in that it is a defense
  to a coercive action defendants could have
  brought in federal court. But it is precisely
  this kind of anticipation that the Declaratory
  Judgment Act was intended to allow.

Id. at 1329;*fn7 see also Sticker Indus. Supply Corp. v. Blaw-Knox Co., 367 F.2d 744, 746-47 (7th Cir. 1966). The operation of the act then is procedural only: "Congress enlarged the range of remedies available in the federal courts but did not extend their jurisdiction." Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 878-79, 94 L.Ed. 1194 (1950). Accordingly, where a declaratory judgment plaintiff seeks in substance to assert defenses to an adversary's imminent action, it is the character of the threatened action, not the defenses, which determines federal question jurisdiction. Public Service Comm'n v. Wycoff Co., 344 U.S. 237, 248, 73 S.Ct. 236, 242, 97 L.Ed. 291 (1952); see generally Stone & Webster Eng'g Corp. v. Ilsley, 690 F.2d 323, 327 (2d Cir. 1982).

In this instance, Plaintiff's petition merely precipitates Caterpillar's subrogation action against it. The estate had no other choice but to seek a declaratory judgment when the tortfeasor's insurance company threatened to place the alleged lienholder's name on the settlement check. Its complaint raises only defenses — namely, that Illinois law and the plan's subrogation clause negate the employer's lien on the settlement proceeds.*fn8

Thus, jurisdiction cannot be premised upon § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132. As previously mentioned, that section allows a beneficiary to enforce his rights under the plan. But here, the minor's estate attempts to shield itself from a subrogation right asserted by the corporation. Seeking a declaration of liability does not "enforce" the plan. Gulf Ins. Co. v. Arnold, 809 F.2d 1520, 1523-24 (11th Cir. 1987). Indeed, Caterpillar, as an employer, attempts to enforce a claimed right under the plan! Nothing, however, in subsection (a)(1)(B) grants an employer the power to do so in federal court — Congress gave only participants and beneficiaries this privilege.

The issue then becomes whether Caterpillar could bring an ERISA-based action in this Court asserting its lien against the estate. If not, the corporation is entitled to no relief. The procedural structure of this lawsuit will not permit the employer to enter the district court by an indirect means when it cannot do so directly.

II

At the outset of its analysis, the Court notes that the language of ERISA must control: "[T]he legislative purpose is expressed by the ordinary meaning of the words used. Thus, absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive." American Tobacco Co. v. Patterson, 456 U.S. 63, 68, 102 S.Ct. 1534, 1537, 71 L.Ed.2d 748 (1982). Moreover, district courts possess limited jurisdiction. They may not exercise judicial authority without a clear legislative mandate. Pressroom Unions-Printers League Income Sec. Fund v. Continental Assurance Co., 700 F.2d 889, 892 (2d Cir.), cert. denied, 464 U.S. 845, 104 S.Ct. 148, 78 L.Ed.2d 138 (1983).

A

On the issue at hand, the Seventh Circuit has not yet spoken.*fn9 Nevertheless, courts generally agree that ERISA's jurisdictional provision does not provide a civil action for employers qua employers. See, e.g., Great Lakes Steel v. Deggendorf, 716 F.2d 1101, 1102 (6th Cir. 1983). As the Supreme Court stated: "The express grant of federal jurisdiction in ERISA is limited to suits brought by certain parties as to whom Congress presumably determined that a right to enter federal court was necessary to further the statute's purposes." Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 21, 103 S.Ct. 2841, 2852, 77 L.Ed.2d 420 (1983). Those parties are enumerated in § 502(e)(1), 29 U.S.C. § 1132:

    Except for actions 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. State courts of competent jurisdiction
  and district courts of the United States shall have
  concurrent jurisdiction of actions under subsection
  (a)(1)(B) of this section. (emphasis added).

Nothing in the documents submitted to this Court, however, indicates that Caterpillar is a "participant, beneficiary, or fiduciary" as the terms are defined in 29 U.S.C. § 1002. Rather, the corporation describes itself as an administrator. See 29 U.S.C. § 1002(16)(A). But although Congress certainly felt employers and administrators were important to the proper functioning of ERISA's regulatory scheme, it provided them no power under the act to institute a civil action. Congress drafted § 1132 with particular precision — a precision upon which United States Courts are not permitted to expand. As the Second Circuit noted in Pressroom, 700 F.2d at 892:

  We focus not on whether the legislative history
  reveals that Congress intended to
  prevent actions by employers or other parties, but
  instead on whether there is any indication that the
  legislature intended to grant subject matter
  jurisdiction over suits by employers, funds, or
  other parties not listed in § 1132(e)(1). . . .
  ERISA's legislative history is silent on both these
  questions, and we therefore conclude that absent
  such expression, § 1132(e)(1) should be viewed as
  an exclusive jurisdictional grant.*fn10

  (criticizing Fentron Indus. Inc. v. National Shopmen Pension Fund, 674 F.2d 1300 (9th Cir. 1982) (employer could bring action under ERISA)). See also Stone & Webster Eng'g Corp. v. Ilsley, 690 F.2d 323, 326 (2d Cir. 1982), aff'd without opinion, 463 U.S. 1220, 103 S.Ct. 3564, 77 L.Ed.2d 1405 (1983) (employer afforded no jurisdiction under § 1132(e)(1));*fn11 Amalgamated Indus. Union Local 44-A Health & Welfare Fund v. Webb, 562 F. Supp. 185 (N.D.Ill. 1983) (adopting reasoning of Pressroom). Thus, Caterpillar could not maintain an action under ERISA in the district court to enforce its lien. Consequently, it may not remove the estate's declaratory judgment suit from state court.

The corporation argues vehemently that any state law which might negate the lien seeks to regulate the insurance plan and must be preempted by ERISA § 514(a), 29 U.S.C. § 1144. Even assuming, however, that the Illinois Family Expense Statute, Ill.Rev.Stat. ch. 40, ¶ 1015 (1985), "relates to" the plan, the Court's power to hear this case as presenting a federal question does not follow. The teaching of the Supreme Court is appropriate here:

  ERISA carefully enumerates the parties entitled
  to seek relief under § 502 [29 U.S.C. § 1132]; it
  does not provide anyone other than participants,
  beneficiaries, or fiduciaries with an express cause
  of action . . . on the issues in this case. A suit
  for similar relief by some other party does not
  "arise under" that provision.

Franchise Tax Board, 463 U.S. at 27, 103 S.Ct. at 2855; see also Whitworth Bros. Storage Co. v. Central States, Southeast & Southwest Areas Pension Fund, 794 F.2d 221, 224-28 (6th Cir.), cert. denied, ___ U.S. ___, 107 S.Ct. 645, 93 L.Ed.2d 701 (1986) (Congress intended to limit the parties who could maintain actions pursuant to § 502).*fn12 Unquestionably, federal jurisdiction to determine Caterpillar's subrogation right under the ERISA-governed plan is absent in the case at bar.

B

As an alternative to a jurisdictional approach, many courts have analyzed employer suits under the act in terms of standing. Id. at 226 n. 7. The issue of standing, however, is undoubtedly analytically distinct from the question of jurisdiction and warrants a brief discussion. Cf. Pressroom, 700 F.2d at 894. As the Pressroom court properly noted, 29 U.S.C. § 1132 addresses jurisdiction and standing separately. Id. at 891-92. Subsection (a) sets forth the parties entitled to bring certain types of actions while subsection (e)(1) grants the district court jurisdiction over those suits.*fn13

Still, a separate review of both problems leads to the same conclusion. Subsection 1132(a), like (e)(1), offers Caterpillar no encouragement. It provides standing only to participants, beneficiaries, fiduciaries, and the Secretary of Labor. Most notably, that provision excludes employers and administrators. Thus, an analysis of the standing issue necessarily follows the Court's discussion of jurisdiction closely. See, e.g., Tuvia Convalescent Center, Inc. v. National Union of Hospital & Health Care Employees, 717 F.2d 726 (2d Cir. 1983); R.M. Bowler Contract Hauling Co. v. Central States, Southeast & Southwest Areas Pension Fund, 547 F. Supp. 783 (S.D.Ill. 1982).

Indeed, Caterpillar may satisfy the prerequisite for standing under Article III of the Constitution: A personal stake in the outcome of the controversy warranting invocation of federal-court jurisdiction and justifying exercise of the court's remedial powers on the claimant's behalf. Warth v. Seldin, 422 U.S. 490, 498-99, 95 S.Ct. 2197, 2204-05, 45 L.Ed.2d 343 (1975). But Congress, through legislation, may restrict the scope of the standing doctrine by choosing not to expand the concept to the full extent allowed by Article III, Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 100, 99 S.Ct. 1601, 1608, 60 L.Ed.2d 66 (1979). In drafting ERISA, the lawmakers elected such a course.*fn14

The act seeks to protect the interests of participants and beneficiaries in employee benefit plans by way of a carefully drawn regulatory scheme. 29 U.S.C. § 1001. In § 1132, Congress specified the parties and actions necessary to insure that the law's aims were met. And while no doubt the legislature considered employers and administrators to be an intricate part of the plot, it failed to provide them with a cause of action under ERISA. This tribunal is bound by that decision.

Thus, not only does the district court lack jurisdiction to decide the validity of Caterpillar's lien, but moreover the corporation does not possess the requisite standing to ask it to do so.

Ergo, the recommendation of the United States Magistrate is ADOPTED.

This cause is hereby REMANDED to the Circuit Court of Illinois, McLean County, pursuant to 28 U.S.C. § 1447(c).


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