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Schrempf, Kelly, Napp & Darr, Ltd. v. Carpenters' Health & Welfare Trust Fund

Court of Appeals of Illinois, Fifth District

July 8, 2015

SCHREMPF, KELLY, NAPP & DARR, LTD., Plaintiff-Appellee,

Motion to publish granted July 8, 2015.

Appeal from the Circuit Court of Madison County. No. 09-MR-745. Honorable Barbara L. Crowder, Judge, presiding.

For Appellants: John C. Grellner, St. Louis, MO; James E. Robertson, Millar, Schaefer, Hoffmann & Robertson, Clayton, MO.

For Appellee: Lanny H. Darr II, Schrempf, Kelly, Napp & Darr, Ltd., Alton, IL.

PRESIDING JUSTICE CATES delivered the judgment of the court, with opinion. Justices Goldenhersh and Schwarm concurred in the judgment and opinion. Honorable Judy L. Cates, P.J. Honorable Richard P. Goldenhersh, J., and Honorable S. Gene Schwarm, J., Concur.



[¶1] The plaintiff, Schrempf, Kelly, Napp & Darr, Ltd., was granted summary judgment by the circuit court of Madison County for attorney fees and costs it claimed were due pursuant to the Illinois common fund doctrine. The defendants, the Carpenters' Health and Welfare Trust Fund and the trustees of the Carpenters' Health and Welfare Trust Fund of St. Louis, appeal. We affirm.

[¶2] On May 4, 2006, James Corey Miller (Miller) was injured when he fell from a ladder. Miller was a participant in the Carpenters' Health and Welfare Trust Fund of St. Louis (the Plan). The Plan is a self-funded, multi-employer, employee welfare benefit plan subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001 et seq. (ERISA) and applicable regulations issued thereunder.

[¶3] The defendants became aware that Miller's injuries were " sustained due to the act or omission of a third party when Miller applied for disability benefits because he was no longer able to work." As a part of his benefit coverage, the Plan was " not obligated to pay any benefits" for an injury or sickness where " a third party [was] legally liable to make payment or does make payment." The Plan documents contained a subrogation clause, however, which provided that when the Plan paid benefits for a covered injury, " the Plan [was] subrogated, to the extent of the benefits paid, to all rights and claims of the [employee] against any third party who may be liable." As a part of the written subrogation terms, the Plan reserved, for itself, the option to institute and prosecute a legal action in the name of the injured employee against any potentially liable third party. In the event of a recovery, the Plan was to be indemnified not only for the Plan benefits paid to the employee, but also for any attorney fees and costs incurred by the Plan to obtain the reimbursement. In the event the defendants chose not to pursue recovery, and the employee successfully, on his own, prosecuted his claim, then the Plan was entitled to immediate reimbursement for all of the Plan benefits paid to the employee. The Plan documents mandated that the rate of reimbursement was 100%, without any reduction whatsoever. Further, if the employee retained his own attorney to recover the Plan benefits, " the Plan [was] not obligated to pay or contribute to or be charged for any part of any attorney fees or other expenses incurred by [the employee] to obtain [the] third-party recovery, and all such fees and expenses [were] the obligation of the [employee] alone." In other words, the Plan received 100% reimbursement for the benefits extended to the employee, without any deduction for attorney fees or costs incurred to create the fund of money used to reimburse the Plan.

[¶4] Miller retained the law firm of Schrempf, Kelly, Napp & Darr, Ltd. (the plaintiff), to represent Miller and his wife in a personal injury action for the damages they suffered as a result of Miller's fall from the ladder. The Millers agreed to pay the plaintiff a one third contingency fee for the legal work performed on their behalf, and also agreed to reimburse the plaintiff for any costs incurred. As a condition for payment of Plan benefits, Miller and his attorney were required by the Plan to complete and sign a " Subrogation Agreement--Right To Reimbursement" form to warrant that they would adhere to the requirements of the Plan in the event of any third-party recovery on account of Miller's injuries. The written agreement acknowledged the Plan's right to subrogation and reaffirmed Miller's obligation to reimburse the Plan up to 100% of the payments made, without any deduction, whatsoever. There were no additional terms set forth in the letter agreement not previously set forth in the Plan document. The subrogation agreement made no mention, specifically, of attorney fees or placed any obligations on the Millers' attorneys, other than acknowledgment of the terms of the subrogation agreement.

[¶5] The plaintiff filed a lawsuit against the third party allegedly responsible for causing Miller's fall. As a result of this litigation, Miller and his wife ultimately settled their claims for the lump sum amount of $500,000. Prior to the settlement, the defendants had advanced benefits under the Plan for Miller in the amount of $86,709.73. Pursuant to the terms of the Plan, Miller reimbursed the full amount of $86,709.73 to the defendants, without any deduction for attorney fees or costs. The plaintiff then made a demand on the Plan for payment of attorney fees in the amount of $28,903.25, representing one-third of the Plan benefits ($86,709.73) Miller had returned to the Plan as a result of the settlement. The plaintiff also requested costs in the amount of $3,020.09. The defendants refused payment, which led to the filing of this separate action based upon the Illinois common fund doctrine.

[¶6] Once served with the plaintiff's complaint, the defendants filed suit in the United States District Court for the Southern District of Illinois and sought an injunction to stay the plaintiff's state court action for attorney fees and costs. The federal district court entered a temporary restraining order and made it permanent by way of an injunction pursuant to the Anti-Injunction Act (28 U.S.C. § 2283 (2006)). Consequently, the state court action was stayed. The plaintiff appealed this ruling to the Seventh Circuit, claiming that the federal court lacked jurisdiction where a state court defendant raises ERISA preemption as a basis for federal jurisdiction under the well-pleaded complaint rule. Trustees of Carpenters' Health & Welfare Trust Fund of St. Louis v. Darr, 694 F.3d 803, 806 (7th Cir. 2012). The plaintiff also claimed the federal court had no authority to enter an injunction under the Anti-Injunction Act (Act), 28 U.S.C. § 2283, to prohibit the plaintiff from pursuing its claim in state court under the Illinois common fund doctrine. The Seventh Circuit dispensed with the jurisdiction argument, recognizing the right of the defendants to " bring claims under § 502(a)(3)(A) of ERISA to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan. 29 U.S.C. § 1132(a)(3)." (Internal quotation marks omitted.) Trustees, 694 F.3d at 807. Having found a basis for jurisdiction, the court next considered whether the district court had the authority, pursuant to the Act (28 U.S.C. § 2283 (2006)), to enter the injunction enjoining the state court action. To answer that question, the Seventh Circuit first looked at the Act, which states: " A court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C. § 2283 (2006). The court then examined whether the lawsuit filed by the plaintiff in state court was expressly preempted by some mandate contained within ERISA's statutory scheme. The court questioned whether the plaintiff's state law claim, brought pursuant to the Illinois common fund doctrine, would interfere with the enforcement, administration, or other core concepts covered by ERISA's comprehensive statutory scheme. In doing so, the court acknowledged that " run-of-the-mill state court lawsuits, 'although obviously affecting and involving ERISA plans and their trustees, are not preempted by ERISA' when they involve unpaid rent, a failure to pay creditors, or even commonplace torts. [Citation.] [The plaintiff's] common fund suit, although certainly involving the Fund's finances, [did] not directly involve the recovery of benefits." Trustees, 694 F.3d at 808. The Seventh Circuit therefore concluded that ERISA did not preempt the plaintiff's lawsuit because the common fund doctrine claim was merely tangential to those core federal interests preempted by ERISA. Thus, the state law claim was not a sufficient basis for an injunction " simply because the state law claim [might] trigger a liability the plan intended to place on beneficiaries." Trustees, 694 F.3d at 810. The Seventh Circuit therefore vacated the district court's injunction, allowing this litigation to proceed.

[¶7] The defendants continued their refusal to pay the plaintiff's attorney fees and costs. In their answer to the plaintiff's first amended complaint, the defendants again claimed, among other defenses, that ERISA preempted the plaintiff's state law claim pursuant to the Illinois common fund doctrine. The plaintiff subsequently filed a motion for summary judgment pursuant to section 2-1005 of the Code of Civil Procedure (735 ILCS 5/2-1005 (West 2012)) against the defendants. The trial court allowed the parties the opportunity to fully brief the issues, held a formal hearing on the motion, and granted the plaintiff's motion for summary judgment. In its order, the court found that " ERISA does not pre-empt Illinois law where, as here, those seeking to apply the common fund doctrine are not parties to the plan." The court concluded that the common fund doctrine applied to the plaintiff's claim and entered judgment for the plaintiff in the amount of $28,903.25, plus prejudgment interest and costs. This appeal followed.

[¶8] The defendants argue on appeal that they should not have to pay the plaintiff any attorney fees or costs because the Illinois common fund doctrine is preempted by ERISA in the case ...

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