Jacaruso v. Walters

Filed 10/11/06 Jacaruso v. Walters CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Patricia Y. Cowett, Judge. Affirmed.

Conflicting holdings exist on the question of whether, and under what circumstances, the pre-emption and jurisdictional provisions of the Employment Retirement Income Security Act (ERISA) (29 U.S.C. § 1001 et seq.) prevent employer-funded health care providers from asserting subrogation rights in state courts. Recently, in Sereboff v. Mid Atlantic Medical Services (2006) ___U.S.___ [126 S.Ct. 1869] (Sereboff) the United States Supreme Court clarified that medical liens held by ERISA employee benefit plans may only be asserted against identifiable funds in the possession of a plan beneficiary. Thus, the trial court did not err in denying the defendant's motion to reduce the amount of the plaintiff's judgment by the amount of a lien asserted by the plaintiff's health care provider and purchased by defendant. At the time the judgment was entered no funds were in plaintiff's possession and thus the existence of a lien would not support any reduction in the amount of the judgment.

SUMMARY

While riding his motorcycle, plaintiff and respondent Louis Jacaruso was struck by a car being driven by defendant and appellant Wilda Walters. Jacaruso was treated at Kaiser Permanente Hospital (Kaiser) for his injuries. Kaiser provided care for Jacaruso under the terms of a health care plan Jacaruso's wife obtained from her employer. Because of the potential recovery from a third party, Kaiser billed its services at the rate for nonmembers. Although Jacaruso was not required to make any out-of-pocket payments to Kaiser, the nonmember cost of the services provided to Jacaruso totaled $79,394.09. By way of an agreement the Jacarusos signed following the accident, the Jacarusos agreed they would pay Kaiser the amount of its lien from the proceeds of any tort action they brought.

Jacaruso sued Walters for negligence. While Jacaruso's complaint was pending, Kaiser served Walters with a notice of a lien in the amount of $79,394.09 against any recovery Jacaruso obtained from her. Shortly before trial, Walters paid Kaiser $20,000 for its lien rights.

At trial Jacaruso presented the jury with evidence of the $80,998 in past medical expenses. He also presented evidence he was likely to incur $25,000 in future medical expenses. The jury returned a verdict in Jacaruso's favor and awarded him a total of $250,498.09 in damages.

Following entry of the jury's verdict, Walters moved for a partial judgment notwithstanding the verdict or in the alternative for a partial new trial on the issue of damages. Walters argued the verdict should be reduced by the amount of the lien she acquired from Kaiser. The trial court denied her motion on the ground that the lien "would not and cannot be used as a basis upon which to grant either of the two motions." Following entry of judgment, Walters filed a timely notice of appeal.DISCUSSION

I

Standard of Review

"A trial court must render judgment notwithstanding the verdict whenever a motion for a directed verdict for the aggrieved party should have been granted. [Citation.] A motion for judgment notwithstanding the verdict may be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence in support. [Citation.]

"The moving party may appeal from the judgment or from the order denying the motion for judgment notwithstanding the verdict, or both. [Citation.] As in the trial court, the standard of review is whether any substantial evidence) contradicted or uncontradicted (supports the jury's conclusion. [Citations.]" (Sweatman v. Department of Veterans Affairs (2001) 25 Cal.4th 62, 68.)

With respect to a motion for a new trial, Code of Civil Procedure section 657 provides in pertinent part: "A new trial shall not be granted upon the ground of . . . excessive . . . damages, unless after weighing the evidence the court is convinced from the entire record, including reasonable inference therefrom, that the court or a jury clearly should have reached a different verdict or decision." As we stated in In re Coordinated Latex Glove Litigation (2002) 99 Cal.App.4th 594, 614: "[O]rdinarily, the function of a new trial motion is to allow a reexamination of an issue of fact, and accordingly, on review of a ruling on a new trial motion, the abuse of discretion standard will apply. [Citation.] However, an appellate court has the power to look at the substance of a new trial ruling rather than just its title. [Citation.] If the effect of the ruling is actually closer in nature to a directed verdict or a JNOV, then in such a case, the ruling may be deemed to have been based upon a conclusion of law, and de novo review is appropriate." Here the effect of Walters's alternative motion for a new trial, if granted, would have been a determination that, as a matter of law, Walters was entitled to have the amount of the verdict reduced by the amount of the Kaiser lien. Thus, the trial court's order denying the alternative motion for a new trial presents a question of law which we review de novo. (Ibid.)

II

Limitation of Walters's Lien Rights

Walters, as an assignee of Kaiser's lien, "stands in the shoes" of Kaiser and her rights are no greater than those of Kaiser. (Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc. (2002) 102 Cal.App.4th 765, 775.) Thus, here, any restraints on Kaiser's ability to assert its lien also restrain Walters. We therefore explore Kaiser's rights to assert the lien.

III

ERISA's Preemption of State Remedies

Kaiser's lien arose under a health benefits plan covered by ERISA. Preliminarily, we note that although Walters argues the lien is not covered by ERISA because it was asserted by Kaiser Permanente Hospital, rather than the Kaiser Foundation Health Plan, Inc., the record does not support her contention. The notice of lien and assignment was prepared by the Kaiser Foundation Health Plan, Inc., and relies solely on the terms of the health plan's agreement with its members as the source of its lien rights. Indeed, the notice of lien and assignment contains the following statement: "Remember, Health Plan has a lien claim on any amounts recovered from Third Party. This means it has a legal right to that recovery in order to collect the amount due. It has designated Southern California Permanente Medical Group and Kaiser Foundation Hospitals to administer and collect its lien claim." Thus the record plainly demonstrates the lien originated under the terms of an employer's health benefits plan and for that reason is covered under ERISA. (See Jefferson-Pilot Life Ins. Co. v. Krafka (1996) 50 Cal.App.4th 190, 194 (Krafka).)

Because the lien arose under a plan covered by ERISA, any limitation ERISA imposes on the remedies available to plan administrators preempts any contrary state remedies, including those available under Civil Code section 3045.1. As the court in Marshall v. Bankers Life & Casualty Co. (1992) 2 Cal.4th 1045, 1050-1051, stated: "ERISA is a comprehensive federal law designed to promote the interests of employees and their beneficiaries in employee pension and benefit plans. [Citation.] As a part of this integrated regulatory system, Congress enacted various safeguards to preclude abuse and to secure the rights and expectations that ERISA brought into being. [Citations.] Prominent among these safeguards is an expansive preemption provision, found at section 514 of ERISA. [Citations.]

"ERISA's preemption clause is conspicuous for its breadth, establishing as an area of exclusive federal concern the subject of every State law that 'relates to' an employee benefit plan governed by ERISA. [Citation.] ERISA preempts 'any and all State laws insofar as they . . . relate to any employee benefit plan,' except laws 'which regulate insurance . . . .' [Citation.] An employee benefit plan is not deemed to be an insurance company or other insurer, or to be engaged in the business of insurance, for purposes of any state law purporting to regulate insurance companies or insurance contracts. [Citation.]

"In Pilot Life Ins. Co. v. Dedeaux, supra, 481 U.S. 41, the high court held that ERISA preempts state common law tort and contract actions based on an insurer's improper processing of a claim for benefits under an insured employee benefit plan because such actions 'relate to' an employee benefit plan, and because the state common law of tort and contract does not 'regulate insurance' within the intent of ERISA. [Citation.] In Commercial Life Ins. Co. v. Superior Court, supra, 47 Cal.3d 473, we held that ERISA preempts a surviving private cause of action brought under California Insurance Code section 790.03, subdivision (h), when the action asserts a claim arising from an employee benefit plan. [Citations.]"

IV

ERISA Limits Assertion of a Lien to

Identifiable Funds in Possession of a Beneficiary

ERISA limits the ability of health care providers to recover on liens for services provided under employee benefit plans governed by ERISA. (See e.g. Sereboff, supra, ___U.S.___ [126 S.Ct. 1869]; Great-West Life & Annuity Ins. Co. v. Knudson (2002) 534 U.S. 204, 218-220 (Knudson); Mertens v. Hewitt Associates (1993) 508 U.S. 248, 251 (Mertens); Krafka, supra, 50 Cal.App.4th at pp. 194-197; FMC Medical Plan v. Owens (9th Cir. 1997) 122 F.3d 1258, 1260-1262 (Owens).) These limitations have been based on provisions of ERISA which in general preempt state laws and limit the remedies available to plan administrators and fiduciaries. (See ERISA §§ 502 (a)(3), 514 [29 U.S.C. §§ 1132(a)(3), 1144].)

As we noted at the outset, there have been a number of conflicting opinions and holdings with respect to the effect of these limitations (compare Carpenters Health & Welf. Trust Fund v. McCracken (2000) 83 Cal.App.4th 1365, 1370-1373, and Krafka, supra, 50 Cal.App.4th at pp. 195-197.) However, following the United States Supreme Court's opinions in Sereboff and Knudson, at least this much is now certain: a benefits plan administrator governed by ERISA may assert a lien only against identifiable funds in the possession of a plan beneficiary. (Sereboff, supra, ___ U.S. ___ [126 S.Ct. 1869]; see also Knudson, supra, 534 U.S. at p. 214.) In Sereboff two beneficiaries of an employer-sponsored health benefits plan were injured in an automobile accident and incurred $75,000 in medical fees which were paid by the health plan. Eventually, the beneficiaries received $750,000 in settlement of their third party tort claims. The health plan's administrator then brought an action against the beneficiaries, alleging that it had a lien against the proceeds of the settlement under an Acts of Third Parties provision in the health plan. By stipulation the beneficiaries agreed to hold $75,000 of the settlement proceeds in a segregated investment account until the plan's lien claim was resolved. Because under the ERISA plan administrators are only authorized to enforce the terms of a plan by way of equitable actions, the question the court was required to resolve in Sereboff was whether the administrator's attempt to recover the amount held by the plan beneficiaries was an equitable action or a legal one.

The court found the action was an equitable action because it (1) sought recovery of an identifiable sum of money which was in the possession of the beneficiaries and (2) the Acts of Third Parties provision in the health plan the beneficiaries created an equitable lien. (Sereboff, supra, ___ U.S. ___ [126 S.Ct. 1869].)

In discussing the requirement that an identifiable sum be in the possession of a plan beneficiary, the court carefully distinguished its earlier holding in Knudson. In Knudson a plan administrator attempted to recover from funds which had never been in the possession of the beneficiary but instead had been paid from a third party tortfeasor directly to a special needs trust. "In response to the argument that [the plan administrator's] claim in Knudson was for 'restitution' and thus equitable under § 502(a)(3)(B) . . . , we noted that 'not all relief falling under the rubric of restitution [was] available in equity.' [Citation.] To decide whether the restitutionary relief sought by [the plan administrator] was equitable or legal, we examined cases and secondary legal materials to determine if the relief would have been equitable 'in the days of the divided bench.' [Citation.] We explained that one feature of equitable restitution was that it sought to impose a constructive trust or equitable lien on 'particular funds or property in the defendant's possession.' [Citation.] That requirement was not met in Knudson, because 'the funds to which petitioners claimed an entitlement' were not in Knudson's possession, but had instead been placed in a 'Special Needs Trust' under California law. [Citation.] The kind of relief [the plan administrator] sought, therefore, was 'not equitable -- the imposition of a constructive trust or equitable lien on particular property -- but legal -- the imposition of personal liability for the benefits that [the health plan] conferred upon [Knudson].' [Citation]. We accordingly determined that the suit could not proceed under § 502(a)(3). [Citation.]

"That impediment to characterizing the relief in Knudson as equitable is not present here. As the Fourth Circuit explained below, in this case [the plan administrator] sought 'specifically identifiable' funds that were 'within the possession and control of the Sereboffs' -- that portion of the tort settlement due Mid Atlantic under the terms of the ERISA plan, set aside and 'preserved [in the Sereboffs'] investment accounts.' [Citation.]" (Sereboff, supra, ___ U.S. ___ [126 S.Ct. 1869, 1874].)

Here at the time Walters made her motion for judgment on the pleadings, Jacaruso had not received any funds from Walters or any other third party tortfeasor. Thus at the time of the judgment there was no basis for an equitable restitution claim against Jacaruso and under ERISA no other means of enforcing the lien. (See Sereboff, supra, ___ U.S. ___ [126 S.Ct. 1869]; Knudson, supra, 534 U.S. at p. 214.)^[1] Although a money judgment constitutes a legal right to compel the transfer of money (see Knudson, supra, 534 U.S. at p. 216), because the judgment in favor of Jacaruso had not yet been collected, the judgment did not constitute an identifiable fund in the possession of Jacaruso as required for equitable relief.

In sum then the trial court did not err in denying Walters's motion for judgment on the pleadings or in the alternative for a new trial.

Judgment affirmed. Respondent is to recover his costs of appeal.^[2]

BENKE, Acting P. J.

WE CONCUR:

NARES, J.

IRION, J.

Publication courtesy of California pro bono legal advice.

Analysis and review provided by La Mesa Property line Lawyers.

^[1] We note that because the services Jacaruso received from Kaiser were based on an obligation that was entirely independent of Walters's tort liability to Jacaruso, alternative relief in the nature of equitable indemnity or an equitable off set was not available. (Compare McQuillan v. Southern Pacfic Co. (1974) 40 Cal.App.3d 802, 807, and American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 594-604; see also Joyce v. Simi Valley Unified School Dist. (2003) 110 Cal.App.4th 292, 307.)

^[2] By way of motion in this court, Jacaruso asks that we award him attorney fees recoverable under the terms of the Kaiser lien. Jacaruso made no attorney fee claim in the trial court and Walters had no opportunity to fully oppose it in the trial court. Accordingly, we deny the motion without prejudice to Jacaruso's right to pursue his attorney fees claim in the trial court.