The plaintiff Shrempf, Kelly, Napp & Darr, Ltd. was granted summary judgment by the Circuit Court of Madison County for attorney fees and costs they 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, appealed.
On May 4, 2006, James Corey Miller was injured when he fell from a ladder. Miller was a participant in the defendants’ 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).
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 part of Miller’s 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 contain a subrogation clause, 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 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 that the defendants chose not to pursue recovery on its own and the employee successfully, on his own, prosecute 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 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.”
Miller hired the law firm, the plaintiff, to represent him and his wife in the personal injury action for his damages as a result of his fall from the ladder. Miller’s contract with the plaintiff’s law firm was for a one-third contingency fee for the legal work performed on their behalf and also agreed to reimburse the plaintiff law firm 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 plaintiff law firm filed a lawsuit against the third-party alleging responsibility for causing Miller’s fall and injuries. The case settled for a lump sum 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 don the Plan for payment of attorney fees in the amount of $28,903.25 representing one-third of the Plan benefits Miller had returned to the Plan as a result of the settlement. The plaintiff law firm also requested costs to be reimbursed in the amount of $3,020.09. The defendants refused payment, which led to the filing of this separate action based on the Illinois Common Fund Doctrine.
The defendants filed suit in the U.S. District Court for the Southern District of Illinois once they were served with plaintiff’s complaint and sought an injunction to stay the plaintiff’s state court action for attorney fees and costs. The 7th Circuit Court of Appeals on appeal from the federal district court said 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 sufficient basis for an injunction. “Simply because the state law claim [might] trigger a liability the Plan intended to place on the beneficiaries.”
The 7th Circuit therefore vacated the district court’s injunction allowing this litigation to proceed.
However, the defendants refused to pay the attorney fees and costs. The plaintiff law firm then filed a motion for summary judgment pursuant to Section 2-1005 of the Code of Civil Procedure (735 ILCS 5/2-1002) against the defendants. The court found that “ERISA does not preempt Illinois law where, as here, those seeking to apply the Common Law Fund Doctrine not parties to the plan.” The court concluded that the Common Fund Doctrine applied to the plaintiff’s law firm’s claim and entered judgment for the law firm in the amount of $29,903.25 plus prejudgment interest and costs. The defendants appealed.
The Illinois Appellate Court found that “the Common Law Fund Doctrine is an exception to the general American rule that, absent a statutory provision or an agreement between parties, each party to litigation bears its own attorney fees and may not recover those fees from an adversary. *** Underlying the doctrine is the equitable concept that the beneficiaries of a fund will be unjustly enriched by the attorney’s services unless they contribute to the costs of the litigation.” This case Wendling v. Southern Illinois Hospital Services, 242 Ill.2d 261, 265, 950 N.E. 2d 646, 648 (2011). The Common Fund Doctrine is a “quasi-contractual right to payment of fees for services” that “rest[s] *** upon equitable considerations of quantum meruit and the prevention of prevention of unjust enrichment. Scholtens v. Schneider, 173 Ill.2d 375, 390, 671 N.E. 2d 657, 665 (1996).
It is well settled law in Illinois that an attorney’s claim pursuant to the Illinois Common Fund Doctrine is not preempted by the terms of a self-funded ERISA plan. See Bishop v. Burgard, 198 Ill.2d 495, 507-07, 764 N.E.2d 24, 31-32 (2002).
An action by a lawyer or law firm under the Common Fund Doctrine is an independent action invoking the attorneys’ right to the payment of fees for services rendered in wholly unrelated to the Plan itself. The Plan’s contractual provisions cannot govern the relationship between an independent entity, i.e., the attorney whose efforts created the common fund, and the Plan itself. Therefore, it is not preempted by ERISA. See Bishop, 198 Ill.2d 495 and Scholtens 173 Ill.2d 375.
In this case, Miller was the Plan beneficiary who’s bound by the contractual terms of the Plan. His lawyers however were not parties to the contract and the contractual provisions did not govern the relationship between the Plan and the plaintiff, an independent entity. The fact that the Plan’s terms attempted to shift the payment of attorney fees to the beneficiary had no effect on the claim by the plaintiff law firm. There is nothing in the record that would allow the appellate court to conclude that the plaintiff law firm agreed to forego payment of its attorney fees and costs for conferring benefit on the Plan.
The facts presented here were near identical to those considered by the Illinois Supreme Court in the Bishop case.
Even though the defendants relied heavily on the U.S. Supreme Court case of U.S. Airways, Inc. v. McCutchen, 133 S.Ct. 1537, 1547 (2013) which held that the terms of the ERISA plan in that case could not be altered by equitable doctrines, this Illinois Appellate Court found that the Bishop case was quite clear on the direction to be taken and that there is dicta of the McCutchen case that could foreshadow a different result than the Illinois Supreme Court has pronounced in the past. For the time being however the Illinois Common Fund Doctrine is a deeply rooted equitable remedy in Illinois with respect to self-funded employee benefit plans. For the foregoing reasons, the Illinois Appellate Court affirmed the judgment of the summary judgment in favor of the plaintiff law firm.
Schrempf, Kelly, Napp & Darr, Ltd. v. The Carpenters’ Health and Welfare Trust Fund, et al., 2015 IL App (5th) 130415 (July 8, 2015).
Kreisman Law Offices has been handling construction site accident cases, catastrophic injury cases, truck accident cases, automobile accident cases and nursing home abuse cases for individuals and families who have been injured or killed by the negligence of another for more than 38 years, in and around Chicago, Cook County and its surrounding areas including, Schaumburg, Schiller Park, Northlake, Bensenville, Itasca, Long Grove, River Grove, River Forest, Oak Park, Oak Lawn, Cicero, Elgin, Joliet, Waukegan and Evergreen Park, Ill.
Related blog posts:
Illinois Appellate Court Affirms Cook County Summary Judgment Order that Insurer Must Defend Toxic-Tort Complaints Even When the Dates of Exposure or Injury Were Vague or Unknown
Insurance Company’s Restrictive Endorsement Did Not Limit Coverage in Accident; Indiana Insurance Co. v. Royce Realty