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361 & 417 Health Fund v. Dinnigan

United States District Court, S.D. New York

November 21, 2012

IRON WORKERS LOCALS 40, 361 & 417 HEALTH FUND., Plaintiff,
Robert DINNIGAN, as Father and Natural Guardian of Amanda Dinnigan, an Infant; the Amanda C. Dinnigan Supplemental Needs Irrevocable Trust; Alan Shapey; and Lipsig Shapey Manus & Moverman, P.C., Defendants.

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[Copyrighted Material Omitted]

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John Stackpole Groarke, Erin O. Brennan, Colleran, O'Hara & Mills LLP, Garden City, NY, for Plaintiff.

Franklin P. Solomon, Locks Law Firm, LLC, Cherry Hill, NJ, for Defendants.


PAUL A. CROTTY, District Judge:

This is a dispute between an employee health and welfare benefits plan, subject to the Employee Retirement Income Security Act (ERISA, 29 U.S.C. § 1002 et seq), and a plan beneficiary who has recovered plan-paid medical expenses from a third party tortfeasor. The Health Plan seeks reimbursement of the full amount of medical expenses it paid out on behalf of the beneficiary: almost $1.7 million. The plan beneficiary argues that the plan has no claim to recover, or, in the alternative, the Plan is entitled to a substantially reduced percentage of the recovery.

Plaintiff Iron Workers Locals 40, 361, & 417 Health Fund (the " Fund" or the " Plan" ) sues one of its members, Robert Dinnigan, as father and natural guardian of Amanda Dinnigan, the Amanda C. Dinnigan Supplemental Needs Irrevocable Trust and the attorney who represents the Dinnigans. The Plan seeks equitable relief under ERISA, 29 U.S.C. § 1132(a)(3), including restitution, imposition of a constructive trust and a declaration of its rights under ERISA and the Fund's Summary Plan Description (" SPD" ). Defendants have moved to dismiss, and in the alternative for summary judgment. Plaintiff

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has responded and cross-moved for summary judgment.


Defendant Robert Dinnigan, a union iron worker, received medical coverage from his Union Health Fund pursuant to his employment. Mr. Dinnigan's daughter, Amanda Dinnigan, was horribly and permanently injured in a single-vehicle automobile accident [1] on February 21, 2007 when she was seven years old. Amanda received spinal cord and other injuries; she is a quadriplegic, and completely insensate below her jaw, requiring a ventilator to breathe and a shunt to control hydrocephalus. She requires round-the-clock nursing care and has needed emergency hospital treatment several times since her initial four-month hospitalization following the crash. Amanda's injuries are permanent, and her medical expenses have been estimated to be in excess of $500,000 per year. Def. Rule 56.1 Stmt. at Ex. B.

Amanda is covered as a dependent of Mr. Dinnigan under the Health Fund. The Health Fund has paid for $1,692,371.76 of Amanda's medical care since the accident occurred.


The Health Fund is an employee benefit fund, as defined by Section 3 of ERISA, 29 U.S.C. § 1002 et seq. The Fund covers hospital expense benefits, medical expense benefits, prescription drug expense benefits, dental expense benefits, optical expense benefits, hearing aid expense benefits, disability expense benefits, death expense benefits, accidental death and dismemberment expense benefits, and vacation benefits. The SPD details the benefits of the Health Fund, and informs participants and beneficiaries of their rights under the Health Fund. All participants receive a copy of the SPD. The Plan covers union members such as Mr. Dinnigan and his dependants, including his daughter Amanda.

In March, 2007, Mr. Dinnigan brought suit in the Supreme Court of New York, Suffolk County, on behalf of Amanda against General Motors (" GM" ) [2], a number of interrelated entities doing business under the name Takata, Bright Bay GMC Truck, Inc. (" Bright Bay" ), and Daniel Coll [3]. GM had designed and manufactured the vehicle that Amanda was riding in at the time of the accident. GM was also the manufacturer of the third row seat belt system included in the vehicle. The Takata defendants supplied component parts of the seat belt system and assisted GM in its development. Bright Bay is the vehicle's dealer-seller, and Daniel Coll is Amanda's uncle and the owner of the vehicle. The Dinnigans' complaint alleged that the defective design of the seat belt system caused Amanda's severe injuries. The case involved ten expert witnesses, as well as extensive discovery consisting of more than 80,000 documents along with dozens of videotaped crash tests. Plaintiff incurred over $975,000 in court-approved expenses in prosecuting this action.

The Dinnigans settled Amanda's claim against Bright Bay at a mediation on or about November 2, 2010 for $8,000,000, which was approved by the Supreme Court, Suffolk County on February 18, 2011. The claim against GM was resolved through a mediation process instituted by

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the Bankruptcy Court. GM agreed to assign a value of $14,000,000 to Amanda's claim, converting it from an unliquidated, unsecured claim to an allowed unsecured claim. Due to GM's bankruptcy, however, Amanda has only received approximately $3.56 million of this amount, although it is possible that she may receive more money in the future. See Defendant's Motion for Judgment on the Pleadings or for Summary Judgment at Ex. E (" Def. Summary Judgment Motion" ). After approximately thirty days of trial from September-November, 2011 in New York State Supreme Court, the Dinnigans settled their case against the remaining Takata and Coll defendants for $2.6 million. The total recovery, before attorney's fees, is approximately $14.16 million.

The Health Fund has paid for most of Amanda's medical care since the accident. In connection with Dinnigan's settlement agreement with Defendant Bright Bay, the Health Fund was permitted to intervene in the personal injury action brought on Amanda's behalf. The Health Fund claimed that it was entitled to reimbursement of more than $1.2 million in healthcare expenses out of any recovery from third party tortfeasors obtained for Amanda's benefit. The Dinnigans disputed the Health Fund's claim, and were directed by the court to place $1.2 million in an escrow account, pending the approval of a proposed Infant's Compromise Order and a determination by the Supreme Court as to what rights, if any, the Health Fund had to reimbursement from the Dinnigan's settlement funds.

Following the settlement with Takata and Coll in November 2011, the Health Fund claimed it was entitled to an additional payment of more than $480,000 from the proceeds of Amanda's settlements, bringing its total claim to approximately $1.7 million. The Suffolk County Department of Social Services had a medicaid lien for the $367,741.63 of Amanda's medical expenses it covered.[4] In addition to the settlement of the Suffolk County claim, the Takata/Coll settlement also provided: (1) Robert Dinnigan, as Trustee of the Amanda Dinnigant Supplemental Needs Trust, post a $5,000,000 bond; (2) payment of counsel fees and disbursements as set forth in the petition be approved [5]; (3) the Takata and Coll settlement funds be deposited in a separate escrow account; and (4) that a final order of compromise be submitted, which shall provide for the release and distribution of the funds already on deposit in the existing escrow account, to the Amanda Dinnigan Supplemental Needs Trust. The state court further determined that it did not have subject matter jurisdiction over the Health Fund's claim for reimbursement, resulting in the Fund bringing this action in federal court.

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Defendants' Motion to Dismiss or for Summary Judgment (Def. Br. (1) [6]) argues: (1) the Health Fund's benefits are insured by Empire Blue Cross Blue Shield, and therefore are subject to New York state law regulating insurance— including state anti-subrogation statutes, collateral source laws, or rules that would bar any reimbursement claim as a matter of law; (2) the terms of the Health Fund fail to meet the requirements supporting a cause for " equitable" — as opposed to " legal" — relief under ERISA § 502(a)(3) [7]; (3) the Plan language fails to create any rights exercisable against the Defendants, and is otherwise so ambiguous and indefinite as to require application of common-law rules and canons of construction that bar any enforcement action here; (4) any claim under ERISA § 502(a)(3) is limited to equitable relief that is " appropriate" and does not unjustly enrich a health plan at its beneficiary's expense; and (5) the Health Fund cannot impose a lien or constructive trust on funds that are not in the possession or control of a defendant plan beneficiary.


Plaintiff responds that state law does not apply to regulate the Health Fund, since the Health Fund is self-insured and Amanda's medical, hospitalization, and pharmaceutical benefits were provided solely from the plan's assets (accumulated under the provisions of the CBA and held in a Trust Fund for the purpose of providing benefits to covered participants). While Empire Blue Cross/Blue Shield provides services, it is an " Administrative Services Only" (" ASO" ) arrangement, whereby Empire's sole duties include processing hospitalization claims (investigating and reviewing claims to determine what amount, if any, is deemed payable according to the terms and conditions of the SPD). Plaintiff denies that any medical, hospitalization, or pharmaceutical benefits were paid for by an insurance company. Next, Plaintiff contends that it is pursuing an equitable claim for relief under ERISA § 502(a)(3), not a legal remedy. Third, the two applicable SPDs, 2000 and 2008, clearly provide that the Health Fund is a subrogee for any and all recoveries from third party tortfeasors. Fourth, the relief sought here was always in the clear contemplation of all parties and recovery of its legitimate contributions to cover Amanda's necessary medical expenses is neither a windfall nor inappropriate. Finally, the funds the Health Plan seeks are clearly available.


The facts and legal questions raised by the Defendants' Motion to Dismiss and

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their Motion for Summary Judgment, as well as Plaintiff's Cross-Motion for Summary Judgment are the same, and summary judgment may be granted when 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). To defeat the motion, the nonmoving party must " set forth specific facts showing that there is a genuine issue for trial." McAvey v. Orange-Ulster BOCES, 805 F.Supp.2d 30, 38 (S.D.N.Y.2011) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The court considers the evidence in " the light most favorable to the non-moving party and draw all reasonable inferences in its favor, and may grant summary judgment when no reasonable trier of fact could find in favor of the nonmoving party." Id. (citing Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir.1995)). If there is evidence in the record that could reasonable support a jury's verdict for the nonmoving party, then summary judgment is improper. Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286 (2d Cir.2002).

To survive a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (Fed.R.Civ.P. 12(b)(6)), " a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face ... The plausibility standard ... asks for more than a sheer possibility that a defendant has acted unlawfully." Galiano v. Fidelity Nat., Title Ins. Co., 684 F.3d 309, 313 (2d Cir.2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)). A plaintiff must assert " enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).


A. Standard of Review for ERISA ...

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