Dinnigan v ABC Corp.

[*1] Dinnigan v ABC Corp. 2012 NY Slip Op 50717(U) Decided on March 27, 2012 Supreme Court, Suffolk County Whelan, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 27, 2012
Supreme Court, Suffolk County

Robert Dinnigan as F/N/G of AMANDA DINNIGAN, an infant, Plaintiff,

against

ABC Corporation, 123 INC., XYZ CORP., XYZ INC., XYZ2 INC., XYZ3 INC., XYZ HOLDINGS, INC., DANIEL J. COLL and ARLENE DINNIGAN, Defendants. Iron Workers Locals 41, 361, & 417 HEALTH FUND, Intervenor, plaintiff



14432-07



LIPSIG, SHAPEY, MANUS ET AL

Attys. For Plaintiff

40 Fulton St.

New York, NY 10038

WECHSLER & COHEN, LLP

Attys. For Defs. XYZ Defendants

17 State St.

New York, NY 10004

ZAKLUKIEWICZ, PUZO, et al

Attys. For Def. Coll

PO Box 389

Islip Terrace, NY 11752

COLLERAN, O'HARA & MILLS, LLP

Attys. For Intervenor, Iron Workers

1225 Franklin Ave.

Garden City, NY 11530

Thomas F. Whelan, J.

Upon the following papers numbered 1 to 34read on the motion (No.041) to approve a compromise; and two cross motions (#042) & (#043) for declaratory and other equitable relief ; Proposed Infant Compromise Order and supporting papers 1 - 3 ; Affirmations/Affidavits Memos and supporting papers 4-5; 6-7; 8-9; 10-11; Reply papers 12-13 ; Notice of Cross Motion (#042) and supporting papers by the intervenor plaintiff14-18 ; Answering Affirmations/Affidavits and supporting papers 19-20; 21-22; Replying papers 23- 24- 25-26; 27-28 ; Second Notice of Cross Motion (#043) and supporting papers by plaintiffs29-32; Answering Affirmations/Affidavits Memos and supporting papers29-30; Replying papers31-32; 33-34; Other Short Form Order dated December 29, 2011; (and after hearing counsel in support and opposed to the motion) it is,

ORDERED that in view of the compromise of the claims interposed by and against Coll plaintiffs under the terms of orders issued herein on April 27, 2011 and May 18 2011, as supplemented and amended by orders dated May 4, 2011 and June 8, 2011 (Jones, J.), the court severs and continues the claims by and between the remaining parties; and it is further

ORDERED that to reflect the severance and in furtherance of certain confidentiality agreements and orders, the caption of this action is amended to delete therefrom, the Coll plaintiffs and to rename

the corporate defendants, fictitiously, as ABC Corporation; 123 Inc., and XYZ Corp., XYZ Inc., XYZ2 Inc., and XYZ Holdings, Inc., as set forth in the caption above; and it is further

ORDERED that the plaintiffs' motion (#041) for an order pursuant to CPLR 1206, 1207 and 1208, is granted as the court hereby approves the amount of this proposed compromise together with the amount of counsel fees and disbursements requested and payment of the sum of $23,436.77 to the Suffolk County Department of Social Services in partial satisfaction of its Medicaid lien, together with distribution of the net proceeds remaining to the Trustee of the Amanda Dinnigan Supplemental Needs Trust, to the extent set forth in the final order of compromise to be entered hereon; and it is further

ORDERED that the plaintiff, Robert Dinnigan, as parent and natural guardian of Amanda [*2]Dinnigan and his individual capacity, is authorized to execute releases of the type contemplated by CPLR 5003-a; and such other papers plaintiff's counsel deems necessary and proper to effectuate the settlement; and it is further

ORDERED that the XYZ defendants and the Coll defendants shall pay their respective portions of the compromise funds, in accordance with CPLR 5003-a, to the plaintiff's counsel, who shall immediately deposit these funds into a separate escrow account where they shall remain until the distribution thereof is directed in the final order of compromise to be entered herein; and it is further

ORDERED that the derivative claims, if any, of plaintiff Robert Dinnigan, to the extent asserted against the XYZ and Coll defendants, are dismissed as abandoned; and it is further

ORDERED that plaintiff, Robert Dinnigan, in his capacity as Trustee of the Supplemental Needs Trust of Amanda Dinnigan, shall post a bond in the amount of $5,000,000.00 with the Clerk as contemplated by CPLR Article 25, prior to his receipt of any settlement funds, and maintain said bond by the payments associated therewith until further order of the court and he shall file all annual accountings of all monies received and disbursed for each year since the inception of said trust with the Clerk of the Article 81 guardianship part and with the Suffolk County Department of Social Services; and it is further

ORDERED that the cross motion (#042) by the intervenor plaintiff for an order declaring the validity of its equitable lien and/or right of reimbursement and its entitlement to recovery of the health care expenditures it paid on behalf of the infant plaintiff in the form of medical, pharmaceutical and hospital benefits and directing the payment thereof out of these settlement funds and those on deposit in an escrow account is denied for want of subject matter jurisdiction; and it is further

ORDERED that the cross motion (#043) by the plaintiffs for summary judgment dismissing the intervenor's claims for recovery of benefits paid and denying said intervenor's claims for recovery out of the settlement proceeds or from the segregated escrow account, is denied for want of subject matter jurisdiction; and it is further

ORDERED that the funds on deposit in the existing escrow account established by the prior order of the court dated February 18, 2011 (Jones, J.) shall be released and distributed in accordance with the terms of the final order of compromise to be entered herein.

This personal injury action arises out of single car accident that occurred on February 21, 2007, in which the two of several child passengers were seriously injured. Presently before the court are three applications. The first (#041), is an application by the Dinnigan plaintiffs for: 1) an order approving a compromise of the claims of the infant plaintiff against defendants XYZ Corp. and the [*3]individual defendants Coll and Dinnigan in accordance with terms spread upon the record during the trial of this action; 2) directing payment by XYZ Corp. of amounts demanded as reimbursement of disbursements paid and approval of the legal fees of plaintiff's counsel in the amounts demanded; 3) directing defendant XYZ Corp. to pay the sum of $23,436.77 in partial satisfaction of the outstanding Medicaid lien of the Suffolk County Department of Social Services which is now in excess of $350,000.00; and 4) an order directing distribution of the net remaining proceeds into an existing supplemental needs trust established by the parents of the infant plaintiff, Amanda Dinnigan in 2007.

The second application pending before the court is a cross motion (#042) by the intervenor plaintiff for summary judgment on its complaint in which it seeks equitable relief pursuant to 29 U.S.C. § 1132(a)(3) to recoup all medical, hospital and pharmaceutical benefits paid on behalf of the infant plaintiff under the terms her father's union welfare benefits plan. In response thereto, the plaintiffs interposed a cross motion (#043) for summary judgment denying on the merits, the intervenors' asserted right of reimbursement and dismissing its complaint.

The record reflects that the plaintiffs struck settlements with various defendants prior to the trial of this action, over which, this court presided for some thirty days beginning in October of 2011 and ending with a proposed compromise of the claims that were the subject of the trial. The record further reflects that the prior, pre-trial settlements with defendants ABC Corporation and 123 Inc. were memorialized in infant compromise orders issued by the IAS Justice prior to the assignment of the action to the undersigned for trial of the remaining claims. Under the terms of a February 18, 2011 pre-trial compromise order (Jones, J) issued in connection with the prior partial settlements, the sum of $1,224,758.11 was placed in escrow pending the resolution of the federal claims of reimbursement asserted by the intervenor (hereinafter the "Health Fund"). The monies deposited into this escrow account were equivalent to the amounts expended by the Health Plan from 2007 through December 31, 2010 for medical, pharmaceutical and hospital services rendered to the infant plaintiff.

The record further reflects that Suffolk County Department of Social Services is an interested party by virtue of its possession of a Medicaid lien for medical care and pharmaceutical benefits incurred by the infant plaintiff Amanda Dinnigan. While the public lienor has not been served with any of the above described applications, the plaintiff's counsel and the Suffolk County Attorney's office on behalf of SCDSS have agreed to a partial compromise of the current lien which is in excess of $350,000.00 by payment of the sum of $23,436.77 out of the proceeds of this proposed compromise. This agreement, while not binding on this court, is premised upon SCDSS' previous receipt of a partial payment of its lien under the terms of two prior, pretrial compromise orders entered herein and the preservation of its right to recoup all remaining and future amounts expended by the designation of SCDSS as the first remainderman of the corpus of the Amanda Dinnigan Supplemental Needs Trust established by her parents in 2007.

Court Approval of the Amount of the Proposed Compromise:

Those portions of the plaintiffs' motion (#041) wherein they seek court approval of the [*4]proposed compromise of the claims against the XYZ corporate defendants and the Coll defendants is granted. Having presided over the month long, quasi-unified trial on liability and damages, at which the monies that now comprise the proposed settlement funds were offered and having observed the infant plaintiff during her trial testimony, this court is fully familiar with the facts and circumstances surrounding the accident, the injuries sustained, the current condition of the infant plaintiff, her need for future medical assistance and the relative strengths and weaknesses of the claims and defenses interposed by and between the parties to the trial. Armed with this knowledge and mindful of its role as parens patrie to its ward, the infant plaintiff, this court finds that the amount of the proposed compromise is fair and reasonable and will serve the best interests of said infant plaintiff (see CPLR 1207; 1208; Edionwe v Hussain, 7 AD3d 751, 777 NYS2d 520 [2d Dept 2004]). The court further approves payment of the plaintiff's counsel fees in the amounts requested and the disbursements incurred in connection with the trial.

Also approved is the negotiated partial settlement of the Medicaid lien of SCDSS in the sum of $23,436.77 and the payment thereof to the Suffolk County Department of Social Services, as such payment will serve the best interests of the infant plaintiff. The approval of such payment is, however, conditioned upon the payment of the net settlement proceeds (as determined in the final compromise order to be entered hereon) to the Trustee of the Amanda Dinnigan Supplemental Needs Trust; the Trustee's immediate deposit thereof into the corpus of said trust; and the posting of a bond by said Trustee in the amount of $5,000,000.00, prior to his receipt of such funds. The amount of the bond is commensurate with the size of the trust corpus as funded and, as indicated below, is imposed in order to safeguard it from certain risks of loss. Following its posting, the bond shall continue to be maintained by the trustee by his prompt payment of premiums when due until cancelled or modified by further order of this court or such other court having jurisdiction over the trust.

The Remaining Claims Against the Settlement Proceeds:

By its complaint, the Health Fund demands declaratory and equitable relief enforcing its asserted right to recoup the medical, pharmaceutical and hospital benefits it paid under the terms of its union benefits welfare plan that afforded coverage to plaintiff and Robert Dinnigan and the infant plaintiff as his dependent. The Health Fund predicates its entitlement to such relief on the civil enforcement provisions of the Employee Retirement Income Security Act ["ERISA"] that are set forth at 29 U.S.C. § 1132(a)(3). The answer served by the plaintiffs, as intervenor defendants, contains a multitude of affirmative defenses but no counterclaims or any demands for affirmative relief from this court.

The Health Fund's cross motion (#042) for summary judgment on its complaint rests upon allegations that its plan is a self-funded union welfare benefits plan within the contemplation of ERISA. The Health Fund asserts that the terms of its ERISA plan provide it with an equitable lien or right of reimbursement due to the plaintiffs' recovery from third parties such as the defendants in this action. The Health Fund further asserts that due to the self-insured nature of its ERISA plan, its right of reimbursement enjoys a total exemption from any limitations that might otherwise be [*5]imposed upon such a right by the provisions of state statutes and/or principles of state common law. The Health Fund thus claims an entitlement under federal law to enforce the right of reimbursement allegedly conferred upon it in the plan's Summary Plan Description (hereinafter "SPD") and to recover the amounts it expended on behalf of the infant plaintiff. The Health Fund demands summary judgment on its complaint for declaratory and equitable relief and an order directing the Health Fund's recovery of all amounts it expended under the plan be reimbursed from the proceeds of this final partial settlement and from the monies on deposit in the separate escrow account established by the prior order of the court.

The plaintiffs oppose the Health Fund's cross motion and cross move (#043) for summary judgment dismissing the intervenor complaint without relying upon any of the affirmative defenses in bar set forth in their answer. Instead, the plaintiffs contest the merits of the Health Fund's claim of reimbursement under federal and state law. In this regard, the plaintiffs deny the Health Fund's entitlement to recoup the medical, pharmaceutical and hospital benefits it paid on behalf of the infant plaintiff under any federally recognized right of reimbursement or equitable lien purportedly arising from any applicable SPD. In addition, the plaintiffs claim that the Health Fund's welfare plan is not exempt from the reach of this state's new anti-subrogation law, codified in 2009 at General Obligation Law § 5-335, which abrogated the subrogation rights of health insurers whether such rights are derived from the law governing equitable liens, equitable subrogation or contractual rights of reimbursement. The plaintiffs thus contend that all claims for reimbursement asserted herein by the Health Fund are not actionable. The plaintiffs alternatively contend that the Health Fund's plan is not self insured, at least with respect to hospital benefits portion, as the SPDs clearly indicate that those benefits are insured by Blue Cross & Blue Shield. They assert that the Health Fund's claims, to the extent they seek reimbursement of the hospital benefits paid, are extinguished by GOL § 5-335(b) and that the court must deny relief to the Health Fund with respect thereto.

In its complaint, the Health Fund's claims expressly assert that its claims are interposed pursuant to 29 U.S.C. § 1132(a)(3), which is one of the several statutory provisions that enable participants, beneficiaries, plan administrators (fiduciaries) to enforce, by way of civil actions, the provisions of ERISA. Under subpart (B) of § 1132(a)(3), plan administrators, as well as, participants and beneficiaries are authorized to bring a civil action "to obtain other appropriate equitable relief", a term that supplements the injunctive relief that is the subject of the preceding subpart (A) of § 1132(a)(3). A narrow construction of the phrase "other appropriate equitable relief" set forth in 29 U.S.C. § 1132(a)(3)(B), so as to exclude therefrom, claims by plan administrators for recoupment of medical benefits paid to a plan beneficiary, was the position taken by the Supreme Court in its early decisions on the subject (see e.g. Great-West Life & Annuity Ins. Co. v Knudson, 534 U.S. 204, 122 S. Ct. 708, [2002]; see also Mertens v Hewitt Assoc., 508 U.S. 248, 113 S. Ct. 2063 [1993]). In 2006, however, a less restrictive view emerged.

In Sereboff v Mid Atlantic Med. Serv. (547 U.S. 356, 360, 126 S. Ct. 1869 [2006]), the Supreme Court held that an ERISA plan may sue to enforce a right of reimbursement set forth in its plan pursuant to 29 U.S.C. § 1132(a)(3)(B). The Sereboffs were injured in a car accident, received insurance benefits for medical expenses incurred, and later settled against third parties involved in [*6]the accident. Pursuant to 29 U.S.C. § 1132(a)(3)(B), the insurer, Mid Atlantic, sought to enforce a plan provision which required "a beneficiary who receives benefits under the plan ... to reimburse [Mid Atlantic] for those benefits from [a]ll recoveries from a third party." (Id. at 359, [internal quotation marks omitted]). The Supreme Court found that the reimbursement provision in the Sereboffs' insurance plan gave rise to an equitable lien "by agreement", that is, a lien arising out of an agreement to convey ownership of specific property to one party as soon as the other party gets title to the property (Id. at 363€"65). The court went on to hold that plan language specifying a right to reimbursement from "[a]ll recoveries from a third party (whether by lawsuit, settlement, or otherwise)" was sufficient to create an equitable lien by agreement that was actionable under 29 U.S.C. § 1132 (a)(3)(B) (see Id. at 369).

The claims asserted here by the Health Fund are of the same nature and character as those asserted by the Sereboff plan administrator. As in Sereboff, one or more of the applicable SPA's here provide a right of reimbursement in favor of the Health Fund, although the effectiveness and/or scope of those plan provisions are sharply contested. By virtue of its appearance herein, the Health Fund secured the deposit of approximately $1,225,000.00 dollars, derived from prior settlements with other defendants, into a segregated escrow account. The escrow deposit represents one of the two funds from which reimbursement for amounts expended by the Health Plan from 2007 through December 31, 2010 is sought. Amounts expended by the Health Fund since January 1, 2011, totaled as of February 1, 2012, $470,480.47. This amount is alleged to be sufficiently identified so as to permit the Health Plan's recovery therefrom of the $470,480.47 benefits paid since January 1, 2011, under the equitable principles of recovery established by the court in Sereboff, notwithstanding that the settlement funds remain in the hands of these latest settling defendants who await this court's directives with respect to payment thereof.

Unfortunately, subject matter jurisdiction over claims interposed pursuant under any subpart of 29 U.S.C. § 1132(a)(3), including subpart (B) thereof, by a plan administrator to enforce a right of reimbursement arising under plan documents as asserted here or to obtain other equitable relief is vested, exclusively, in the district courts of the United States. Subparagraph (e) of § 1132 is the governing provision and it is therein provided as follows:

(e) Jurisdiction

(1) Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, fiduciary, or any person referred to in section 1021(f)(1) of this title. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under paragraphs (1)(B) and (7) of subsection (a) of this section.

(2) Where an action under this subchapter is brought in a district court of the United States, it may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found, and process may be served in any other district where a defendant resides or may be found. [*7]

The claims for reimbursement interposed by the Health Fund in this action do not fall within subsection (a)(1)(B) or (a)(7), of § 1132 of 29 U.S.C. Instead, they lie entirely within 29 U.S.C. § 1132(a)(3) which puts exclusive jurisdiction over such claims in the federal district courts. This court is thus without subject matter jurisdiction to determine such claims.

Nor are there any asserted claims by the plaintiffs which are cognizable in this court. As indicated above, the answer interposed by the plaintiffs in response to the intervenor complaint contains no counterclaims for affirmative relief under ERISA or state law. The claims advanced by the plaintiffs in support of their cross motion for summary judgment are likewise not cognizable in this court, as all of such claims address the merits, or purported lack thereof, of the claims of the Health Fund. While this court is conferred with concurrent jurisdiction with the federal district courts over claims brought by plan participants or beneficiaries pursuant to 29 U.S.C. § 1132(a)(1)(B), the unpleaded claims of the plaintiffs advanced on their cross motion do not fall within that statutory provision, as it is limited to the following: "(a) a civil action may be brought (1) by a participant or beneficiary (A)..... (B) 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;". Benefits due or rights under the plan are not at issue here; only the rights of the plan to obtain equitable relief of the type contemplated by 29 U.S.C. § 1132(a)(3) of ERISA are before the court on the instant cross motions.

Since subject matter jurisdiction may not be conferred by consent, the court denies, for want of subject matter jurisdiction, the cross motions interposed by the Health Fund (#042) and the plaintiffs (#043), without any determination of the merits thereof. Except as may be otherwise ordered, the plaintiffs shall be entitled to the release of and distribution to the Supplemental Needs Trustee of the previously segregated settlement funds on deposit in the escrow account upon compliance with the terms and conditions of this order and the further directives for any such release and distribution that are set forth in the compromise order to be entered herein.

Although the court has granted the plaintiffs' request for an order directing distribution of the net settlement proceeds, after payment of counsel fees, disbursements, payment to SCDSS of the amounts approved in partial satisfaction of its lien, and the court has conditionally directed release of the net settlement funds to the Trustee of the Amanda Dinnigan Supplemental Needs Trust, the court finds that the Trustees's receipt of any further settlement funds must be conditioned upon the imposition of certain safeguards. The Amanda Dinnigan Supplemental Needs Trust was established without court oversight in accordance with the provisions of EPTL § 7-1.12 and other statutes. The injuries suffered by the infant plaintiff in the subject accident rendered her a disabled person within the contemplation of EPTL § 7-1.12(a)(5) and the Social Security Act at 42 U.S.C. § 1382(c)(a)(3) (see generally Matter of Abraham XX, 11 NY3d 429, 871 NYS2d 599 [2008]; Matter of the Estate of Woolworth, 76 AD3d 160, 903 NYS2d 218 [2010]). These circumstances allow the court to direct, in its discretion, a distribution of the net settlement funds into the corpus of a qualified supplemental needs trust rather than in the manner required by the provisions of CPLR 1206 (see Di Gennaro v Community Hosp. of Glen Cove, 204 AD2d 259, 611 NYS2d 591 [2d Dept 1994]. Such distribution obviates the need for the appointment of fiduciary of the property for the disabled [*8]plaintiff, such as an Article 81 property management guardian, guardian of the property of a person disabled under Article 17-a et. seq., of the SCPA or a guardian of the property of an infant plaintiff under CPLR 1210.

Here, the infant plaintiff, while "disabled" for purposes of establishing her Supplemental Needs Trust, is not incapacitated within the meaning of CPLR 1201, as her disabilities are physical in nature and have not affected her ability to comprehend. By reason of her minority, however, the infant plaintiff stands before this court as an infant and is thus a person under "legal disability" within the contemplation of CPLR Article 12. The court is thus free, if not duty bound, to impose conditions upon the distribution of the net settlement proceeds that will assure that the best interests of the infant plaintiff will be best served during the term of her minority and beyond, should her condition so dictate. The absence of an appointed fiduciary, the extra-judicial nature of the supplemental needs trust established here and the sizeable amount of the net settlement proceeds warrant the imposition of certain conditions upon the Trustee's receipt and deposit of the such proceeds, all of which are aimed at protecting the corpus of said trust from risks of loss. Accordingly, the Trustee must forthwith post a bond in the amount of $5,000,000.00 with the Clerk of the court pursuant to CPLR Article 25 and submit proof of such filing with the submission of the final compromise order to be issued hereon. The Trustee is also directed to file, on or before May 31, 2012, with SCDSS and with the Clerk of the Article 81 Guardianship Part, annual accountings of his stewardship of the monies collected by him as Trustee since the Trust's inception, proof of bond premium payments, and such other papers as may be required.

Payment of the gross settlement funds owing from the XYZ and Coll defendants under the terms of this approved compromise shall be paid to plaintiff's counsel pursuant CPLR 5003-a(a). Following receipt thereof by the plaintiff's counsel and his immediate deposit of such funds into a separate escrow account, a final order of compromise providing for distribution of such proceeds to the persons entitled thereto under the terms of this order or any other shall issue from this court. Said order shall also provide for release and distribution of the funds already on deposit in the existing escrow account to the infant plaintiff's Supplemental Needs Trustee as contemplated by the terms of this order. The plaintiffs shall settle such an order on not less than twenty (20) days notice to all interested parties, including the Suffolk County Department of Social Services. The proposed settled order shall be accompanied by a copy of this order, proof of the funding of the new escrow account with the gross settlement funds derived from this compromise and proof of the posting of the bond of Robert Dinnigan as Trustee of Amanda Dinnigan Supplemental Needs Trust with the Clerk.

Settle final compromise order on not less than twenty (20) days notice to all parties interested.

Dated: March2012_______________________________

THOMAS F. WHELAN, J.S.C.