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Morlan v. Universal Guaranty Life Insurance Company

July 26, 2002

DAVID A. MORLAN, PLAINTIFF-APPELLANT,
v.
UNIVERSAL GUARANTY LIFE INSURANCE COMPANY, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Southern District of Illinois. No. 99 C 274--G. Patrick Murphy, Chief Judge.

Before Bauer, Posner, and Williams, Circuit Judges.

The opinion of the court was delivered by: Posner, Circuit Judge

ARGUED MAY 28, 2002

This appeal from the dismissal of a class action presents novel issues at the intersection of bankruptcy and class action law. A procedural chronology will help in framing them.

April 1999. David Morlan files this class action suit as the representative of a class of insurance agents of the defendants, affiliated insurance companies that maintain employee welfare benefit plans. 29 U.S.C. § 1002(1). Morlan's suit charges that the defendants, in breach of the fiduciary duty that ERISA imposes on fiduciaries of pension and welfare plans, see 29 U.S.C. § 1109(a), improperly treated him and the other members of the class as independent contractors, when actually they were employees of the defendants and so were entitled to the health, vacation, and other benefits to which the defendants' plans entitled the defendants' acknowledged employees.

May 1999. Morlan files for bankruptcy.

September 1999. The bankruptcy court (1) orders Morlan's debts discharged, on the basis of the trustee's report that the estate in bankruptcy has no assets and that consequently the trustee has made no distribution to the creditors, and (2) dismisses the bankruptcy proceeding.

January 2000. Morlan files an amended complaint in the class action suit.

August 2000. The suit is certified by the district court as a class action with Morlan the only named plaintiff.

September 2001. Having learned about the bankruptcy, the district judge decertifies the class in Morlan's ERISA suit and dismisses the suit without prejudice. Morlan's claim under ERISA, the judge reasons, became an asset of the estate in bankruptcy and was not abandoned by the trustee. So when the class was certified, the named plaintiff (Morlan) had no standing to sue because he did not own the claim that he was suing upon.

Morlan asks us to reverse the dismissal of his suit.

The dismissal presupposes the assignability of Morlan's ERISA claim to the trustee in bankruptcy; if it was assignable and assigned, it became property of the estate in bankruptcy, as in In re Polis, 217 F.3d 899, 901 (7th Cir. 2000); if it was not assignable, Morlan rather than the trustee was entitled to sue to enforce it.

ERISA requires pension plans to include a provision forbidding the assignment or alienation (these are synonyms, Riordan v. Commonwealth Edison Co., 128 F.3d 549, 552 (7th Cir. 1997), except that the addition of "alienation" to "assignment" makes crystal clear that the anti-assignment provision bars involuntary as well as voluntary assignments) of pension-plan benefits, 29 U.S.C. § 1056(d)(1); Plumb v. Fluid Pump Service, Inc., 124 F.3d 849, 863 (7th Cir. 1997), and thus keeps such property out of the plan participant or beneficiary's estate in bankruptcy. 11 U.S.C. § 541(c)(2); Patterson v. Shumate, 504 U.S. 753, 760 (1992); In re Weinhoeft, 275 F.3d 604, 605 (7th Cir. 2001). Some types of claim are nonassignable voluntarily but assignable involuntarily, as in In re Polis, supra, 217 F.3d at 901. Tort claims, for example, normally are not assignable, but they do become property of the claimant's estate in bankruptcy by operation of bankruptcy law. ERISA's anti-assignment clause, however, as the Patterson and Weinhoeft cases make clear, bars the latter type of assignment as well.

ERISA imposes no similar requirement on welfare plans; nor do the plans at issue in this case contain a clause forbidding assignment or alienation. Since, however, Morlan's claim is in part a claim for pension benefits, in part it is indeed nonassignable; and so the dismissal of his suit was improper. But it will make a difference on remand whether he can sue on all or only the pension part of his claim; and so we ...


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