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Iowa Health System, Inc. v. Graham

July 23, 2009

IOWA HEALTH SYSTEM, INC., PLAINTIFF,
v.
SALLI GRAHAM, AS TRUSTEE OF DUNCAN GRAHAM, DEFENDANT.



The opinion of the court was delivered by: Joe Billy McDADE United States District Judge

MEMORANDUM OPINION

Before the Court are cross-motions for summary judgment, filed by Plaintiff Iowa Health System, Inc. (Doc. 16) and Defendant Salli Graham (Doc. 18). For the reasons that follow, Salli Graham's motion is DENIED and Iowa Health System Inc.'s motion is GRANTED. A corresponding Order follows the conclusion of this Opinion.

FACTS

In this action under Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), codified at 29 U.S.C. § 1132(a)(3), Iowa Health System, Inc. ("Iowa Health") seeks to enforce the terms of an employee benefit medical plan ("IH Plan") over which it purports to serve as a fiduciary. The material facts are not in dispute.*fn1 Salli Graham ("Graham"), the defendant, is the mother of Duncan Graham ("Duncan"). (Def.'s 12/5/2007 Mot. to Dismiss ¶ 3). During the relevant time period, Duncan (a minor) was a beneficiary of the IH Plan through Salli's employment with Iowa Health and her participation in the plan. (Pl.'s SUMF ¶ 2; Compl. ¶¶ 7-8; Answer ¶¶ 7-8). Under the terms of the IH Plan,

The Plan has the right to . . . recover and subrogate 100 percent of the benefits paid or to be paid by the Plan for Members to the extent of any and all of the following payments[:] Any judgment, settlement or payment made or to be made, because of an accident or malpractice for which the Plan paid benefits, including but not limited to other insurance[;] Any auto or recreational vehicle insurance coverage or benefits including, but not limited to, uninsured/underinsured motorist coverage for injuries for which the Plan paid or will pay benefits[;] Business and homeowners medical and/or liability insurance coverage or payments for injuries for which the Plan paid or will pay benefits[;] Attorney's fees. (Ex. A to Compl.; Compl. ¶ 10; Answer ¶ 10).*fn2

On April 9, 2004, during the period he was covered by the IH Plan, Duncan Graham sustained personal injuries in an automobile accident. (Pl.'s SUMF ¶ 1). The IH Plan paid medical benefits in the amount of $21,587.06 to cover costs of Duncan's resulting medical treatment. (Pl.'s SUMF ¶ 3; Compl. ¶ 9; Answer ¶ 9). The record indicates that Principal Life Insurance Company (not a party to this action) was involved in the payment of benefits. (Def.'s SUMF ¶ 3; Ex. D to Def.'s 12/5/2007 Mot. to Dismiss, Principal Life's Motion to Quash ¶ 2).*fn3

Subsequently Dennis and Salli Graham, as guardians of Duncan's estate, brought a negligence action (Case No. 2004P363) in the Circuit Court for Rock Island County, Illinois against the individual purportedly responsible for the April 9, 2004 accident. (Compl. ¶ 11; Answer ¶ 11; Ex. H to Def.'s 12/5/2007 Mot. to Dismiss, Rock Island County Circuit Court's Order Approving Settlement And Order of Distribution dated 10/5/2004). The suit settled for $50,000.*fn4 (Pl.'s SUMF ¶ 5). The state court ordered Duncan's guardians to deposit a $37,498.42 portion of the settlement ("Settlement Funds") into an account at Mississippi Valley Credit Union -- located at 358 17th Avenue, East Moline, Illinois -- and to keep the funds there until further court order. (10/5/2004 Rock Island County Circuit Court's Order Approving Settlement ¶ 13). Also as part of the order approving the settlement, the state court barred Principal Life Insurance Company from asserting subrogation rights as to proceeds of the settlement. (10/5/2004 Rock Island County Circuit Court's Order Approving Settlement¶ 4). Later, the state court vacated the portion of its order that applied to Principal Life because Principal Life had not been properly served with process. (Electronic History for Case No. 2004P363 in the Circuit Court of Rock Island County, Illinois, Docket Entry dated 5/25/2005).*fn5

In response to the state court's order vacating judgment as to Principal Life, the guardians of Duncan's estate filed (in the same action, Case No. 2004P363) an Application to Adjudicate Lien against Principal Life. This time, Principal Life was served with process but did not appear. Accordingly, the state court entered Principal Life's default and barred it from asserting a subrogation lien against Duncan's estate. (Def.'s SUMF ¶ 9; Ex. E/F to Def.'s 12/5/2007 Mot. to Dismiss, Rock Island County Circuit Court's 8/31/2005 Order entering Principal Life's default). Principal Life took no action to set aside the default judgment. (Def.'s SUMF ¶ 11).

On June 20, 2007, Iowa Health filed the instant action in federal court seeking to enforce the reimbursement provision of the IH Plan. Specifically, Iowa Health has sued under Section 502(a)(3) of ERISA. Pursuant to that statute, Iowa Health asks this Court to impose a constructive trust and/or equitable lien over a portion of the Settlement Funds held by the Estate of Duncan Graham. Additionally, Iowa Health seeks an order enjoining Salli Graham (as Duncan's trustee) from transferring or disposing of the disputed settlement funds.

On December 5, 2007, Salli Graham moved to dismiss Iowa Health's Complaint. She raised the following arguments: (1) Res judicata bars Iowa Health's claim because the cause of action was litigated in state court as part of the lien adjudication proceedings against Principal Life; (2) Under Illinois law, subrogation liens against recoveries received by minors' estates are not valid; and (3) Salli Graham does not possess or control the settlement funds belonging to Duncan's estate. This Court rejected all three arguments in denying Graham's motion to dismiss on July 30, 2008. Iowa Health Sys., Inc. v. Graham, 2008 WL 2959796 (C.D. Ill. July 30, 2008). The parties have now both moved for summary judgment.

LEGAL STANDARD

Summary judgment should be granted where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In ruling on a motion for summary judgment, the Court must "view the record and all inferences drawn from it in the light most favorable to the [non-moving party]." Holland v. Jefferson Nat. Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir. 1989). In doing so, the Court is not "required to draw every conceivable inference from the record -- only those inferences that are reasonable." Bank Leumi Le-Isreal, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir. 1991). If the record before the Court "could not lead a rational trier of fact to find for the non-moving party," then no genuine issue of material fact exists, and the moving party is entitled to judgment as a matter of law. McClendon v. Indiana Sugars, Inc., 108 F.3d 789, 796 (7th Cir. 1997) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

ANALYSIS

Iowa health is suing under Section 502(a)(3) of ERISA, codified at 29 U.S.C. ยง 1132(a)(3), which provides, "A civil action may be brought . . . by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter 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 this subchapter or the terms of the plan[.]" For purposes of summary judgment, Graham has conceded that ERISA applies to ...


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