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Continental Insurance Co. v. Dawson

United States District Court, N.D. Texas, Dallas Division

March 31, 2017

CONTINENTAL INSURANCE COMPANY, AS ASSIGNEE OF AETNA LIFE INSURANCE COMPANY, OF HARTFORD, CONNECTICUT, Plaintiff,
v.
DAVID DAWSON, Defendant.

          MEMORANDUM OPINION AND ORDER

          BARBARA M. G. LYNN, CHIEF JUDGE

         Before the Court are the following Motions filed by Plaintiff: a Motion for Leave to File a Second Amended Complaint (ECF No. 71), a Motion for Partial Summary Judgment (ECF No. 75), and a Motion to Dismiss Defendant's Counterclaims (ECF No. 83), which, having given notice pursuant to Fed.R.Civ.P. 12(d), the Court is treating as a motion for summary judgment (ECF No. 143). For the reasons stated below, the Motions for Summary Judgment are GRANTED and the Motion for Leave to File a Second Amended Complaint is DENIED.

         I. Factual and Procedural Background

         On November 16, 2007, Defendant David Dawson was severely burned while working for Hill International, Inc. in Baghdad, Iraq. Fluor Intercontinental, Inc. managed Dawson's living quarters in Iraq. Hill had an employee benefit plan (the “Plan”) which is governed by the Employee Retirement Income Security Act (“ERISA”) and is fully insured by Aetna Life Insurance Company of Hartford, Connecticut. Plaintiff Continental Insurance Company was Hill's workers' compensation carrier, and thus was required to pay for Dawson's medical expenses under the Longshore and Harbor Workers' Compensation Act (“LHWCA”).[1] Aetna was the company that provided Dawson's group health insurance through Hill. Between November 18, 2007, and January 24, 2008, Aetna paid $282, 774.51 in medical expenses incurred overseas on Dawson's behalf. Continental paid Dawson's subsequent medical expenses of $388, 457.67. The Plan states Aetna has the right to be repaid for all benefits provided by the Plan on behalf of the covered person for injuries caused by a third party.[2]

         In 2009, Dawson filed suit against Fluor in the 134th Judicial District Court of Dallas County, Texas. Both Continental and Aetna intervened in the state lawsuit, asserting liens against any settlement or judgment Dawson obtained against Fluor. In April 2010, Continental and Dawson executed a settlement agreement pursuant to § 8(i) of the LHWCA. Continental paid Dawson $260, 759.68 in exchange for a complete discharge of its liability for compensation and past medical care arising out of the injury. The agreement further provided that Continental could recover from Dawson the full amount of its asserted lien of $388, 457.67, if Dawson was awarded more than $2 million in the state case against Fluor. On May 24, 2010, the Department of Labor's Office of Workers' Compensation Programs (“OWCP”) approved the settlement between Continental and Dawson. Dawson subsequently won a $20 million jury verdict and judgment, but Dawson entered into a confidential settlement with Fluor. At the request of the parties, the court of appeals entered a judgment setting aside the trial court's judgment and instead entered a take nothing judgment. Fluor Intercontinental, Inc. v. Dawson, 05-13-00209- CV, 2014 WL 6466946 (Tex. App.-Dallas Nov. 19, 2014, no pet.).[3] Dawson has since stipulated that the settlement exceeded $2 million.

         In 2012, Dawson executed an agreed judgment regarding Continental's asserted lien rights for medical benefits it paid on his behalf. He then satisfied the balance of Continental's $388, 457.67 lien. On May 9, 2012, Aetna filed with the OWCP a claim against Continental, seeking reimbursement under § 8(i) for expenses it paid for Dawson's overseas medical care. The parties refer to this action as the San Francisco Longshore Proceeding (“SFLP”). Aetna and Continental eventually settled that dispute. Aetna agreed to assign the full value of its $282, 774.51 lien against Dawson to Continental, and agreed to assist Continental in enforcing the Plan's subrogation and reimbursement provisions. In exchange, Continental paid Aetna $219, 000. On April 23, 2013, OWCP approved the § 8(i) settlement between Aetna and Continental. Continental requested Dawson to stipulate that Aetna's subrogation interest had been properly assigned to Continental, but Dawson refused.

         On October 14, 2013, Continental filed suit against Dawson in this Court, alleging claims under ERISA as a derivative fiduciary of the Plan, seeking to enforce, as an assignee, Aetna's subrogation and reimbursement rights. Continental also sought a declaratory judgment that it has an equitable lien on Dawson's recovery in the Fluor suit, and a permanent injunction prohibiting Dawson from retaining any recovery from the Fluor settlement without first reimbursing Continental. Dawson maintained that Continental could not recover as Aetna's assignee because Continental and Dawson's 2010 agreement discharged him of any further liability to Continental.

         On March 31, 2015, this Court granted Dawson summary judgment on the ground that the 2010 agreement precluded Continental from recovering as Aetna's assignee. On April 6, 2016, the United States Court of Appeals for the Fifth Circuit reversed, and held that Continental could recover for subrogation and reimbursement rights assigned to it by Aetna.

         Dawson then answered and counterclaimed, alleging that Continental breached its fiduciary duty under ERISA, by intentionally misrepresenting to Dawson that he owes Continental $282, 774.51. Dawson also alleges Continental aided and abetted a breach of fiduciary duty by Aetna. On April 13, 2016, Continental filed a Motion for Leave to File its Second Amended Complaint, seeking to add claims for breach of contract and a claim alleging failure to reimburse it under the LHWCA (ECF No. 71). On April 22, 2016, Continental filed a Motion for Partial Summary Judgment on its declaratory judgment claim to recover its first-money lien (ECF No. 75). On May 11, 2016, Continental filed a Motion to Dismiss Dawson's Counterclaims (ECF No. 83). On September 1, 2016, the Court held a Rule 16 conference, and directed Dawson to file a proffer to explain what he hoped to prove in his counterclaims. On September 8, 2016, Dawson filed a Proffer of Proof, to which Continental responded (ECF Nos. 137, 138, 139). Because the Court is now considering the Proffer of Proof, and all other evidence in the record, the Court gave notice and converted Continental's Motion to Dismiss into a Motion for Summary Judgment (ECF No. 143).

         II. Legal Standard

         A. Summary Judgment

         Under Fed.R.Civ.P. 56, summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A factual issue is material “if its resolution could affect the outcome of the action.” Weeks Marine, Inc. v. Fireman's Fund Ins. Co., 340 F.3d 233, 235 (5th Cir. 2003). A factual dispute is “‘genuine, ' if the evidence is such that a reasonable [trier of fact] could return a verdict for the non-moving party.” Crowe v. Henry, 115 F.3d 294, 296 (5th Cir. 1997). If the moving party seeks summary judgment as to his opponent's claims or defenses, “[t]he moving party bears the initial burden of identifying those portions of the pleadings and discovery in the record that it believes demonstrate the absence of a genuine issue of material fact, but is not required to negate elements of the non-moving party's case.” Lynch Props., Inc. v. Potomac Ins. Co., 140 F.3d 622, 625 (5th Cir. 1998).

         The Court is required to view all facts and draw all reasonable inferences in the light most favorable to the non-moving party and resolve all disputed factual controversies in favor of the non-moving party-but only if both parties have introduced evidence showing that an actual controversy exists. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The non-moving party must allege genuine issues of fact concerning the essential components of its case. Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998). If the non-movant has been given an opportunity to raise a genuine factual issue but the record could not lead a rational trier of fact to find for the non-moving party, then there is no genuine issue for trial. DIRECTV, Inc. v. Minor, 420 F.3d 546, 549 (5th Cir. 2005); Steadman v. Texas Rangers, 179 F.3d 360, 366 (5th Cir. 1999). If the non-moving party fails to offer proof concerning an essential element of its case, all other facts are immaterial and no genuine issue of fact exists. Adams v. Travelers Indem. Co. of Conn., 465 F.3d 156, 164 (5th Cir. 2006).

         B. Amending a Complaint

         The trial court should grant leave to amend unless there is evidence of undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies in previous amendments, undue prejudice to the opposing party, or if the amendment would be futile. Rosenzweig v. Azurix Corp., 332 F.3d 854, 864 (5th Cir. 2003). To determine whether adding new claims would be futile, courts “apply the same standard of legal sufficiency as applies under Rule 12(b)(6).” Stripling v. Jordan Prod. Co., LLC, 234 F.3d 863, 873 (5th Cir. 2000) (citations and internal quotations omitted). A futility finding is warranted if “the amended complaint would fail to state a claim upon which relief could be granted.” Id.

         III. Analysis

         A. Continental's Lien and Dawson's Affirmative Defenses

         i. Preemption and Colorado Law

         The parties do not dispute that Aetna paid $282, 774.51 for Dawson's overseas medical expenses, and that as a result of the assignment from Aetna, Continental has a claim and lien against Dawson in that amount.[4] Dawson asserts two affirmative defenses: first, that under a Colorado statute, C.R.S. § 10-1-135, the lien must be offset or reduced, and second, that the lien must be offset or negated because of either Continental's breach of fiduciary duty or its aiding and abetting Aetna's breach of fiduciary duty under 29 U.S.C. § 1132(a)(3).[5] Continental argues as a matter of law that Colorado law is completely preempted by ERISA, and that neither Continental nor Aetna breached their fiduciary duties to Dawson.

         ERISA contains a broad preemption provision declaring that the statute shall “supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Metro. Life Ins. Co. v. Massachusetts, 471 U.S. 724, 732 (1985) (citing 29 U.S.C. § 1144(a)). The broad preemption by ERISA is, however, qualified by 29 U.S.C. § 1144(b)(2)(A), which states that nothing in ERISA “shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.” Id. at 732-33.

         There are two types of preemption that must be considered in the context of ERISA: conflict preemption and complete preemption. See Arana v. Ochsner Health Plan, 338 F.3d 433, 439 (5th Cir. 2003). Even if a state law is not conflict preempted because it regulates insurance, it may still be completely preempted if a claim “fall[s] within the scope of an ERISA [29 U.S.C. § 1132] remedy.” Aetna Health Inc. v. Davila, 542 U.S. 200, 206 (2004); see also Arana, 338 F.3d at 440. Dawson argues that fully insured plans, like Aetna's, are not conflict preempted by ERISA because they are subject to state laws that regulate insurance. However, Dawson does not address complete preemption.

         ERISA completely preempts state law when a claim falls within the scope of 29 U.S.C. § 1132(a)(1)(B), which provides that: “a civil action may be brought-by a participant or beneficiary…to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.” The Fifth Circuit addressed a fact pattern similar to that found here in Arana v. Ochsner Health Plan, 338 F.3d 433 (5th Cir. 2003). There, the plan sought reimbursement for medical expenses it had paid. The plaintiff argued the health plan's subrogation and reimbursement terms violated a Louisiana statute, thereby nullifying the terms of the ERISA plan, and that, therefore he was not seeking relief under ERISA. In finding complete preemption, the Fifth Circuit held:

Arana's [Louisiana law] claim can be fairly characterized either as a claim to recover benefits due to him under the terms of his plan or as a claim to enforce his rights under the terms of the plan. As it stands, Arana's benefits are under something of a cloud, for OHP is asserting a right to be reimbursed for the benefits it has paid for his account. It could be said, then, that although the benefits have already been paid, Arana has not fully recovered them because he has not obtained the benefits free and clear of OHP's claims. Alternatively, one could say that Arana seeks to enforce his rights under the terms of the plan, ...

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