Jamie Janssen v. Mineapolis Auto

The Janssens brought this action against the Minneapolis Auto Dealers Benefit
Fund (the "Plan") alleging an unlawful denial of benefits under the Employee
Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461. The district
court1 granted summary judgment in favor of the plaintiffs. It held that the Plan had
waived its right to pursue its claims for reimbursement of medical expenses by failing
to defend a motion to dismiss the Plan's subrogation claim in an earlier medical
malpractice action. The Plan now brings this timely appeal. We affirm.

I. Background

The Janssens are participants in and beneficiaries of the Plan, a self-funded
employee welfare benefit plan governed by ERISA. The Plan provides medical,
dental, disability, and other welfare benefits to employees covered by a collective
bargaining agreement. Jamie Janssen is an employee participant in the Plan. The
remaining plaintiffs are eligible dependents.

In 1995 during a surgical procedure, a nerve in Alex Janssen's face was
damaged. The damage resulted in atrophy of his facial muscles. In November 2002,
Jamie and Elizabeth Janssen commenced a medical malpractice action on Alex
Janssen's behalf. They alleged that the physician who performed the surgery was
negligent in failing to monitor and repair the damaged facial nerve. In 2003, Alex
underwent multiple corrective surgeries at the Mayo Clinic.

On September 30, 2003, Joseph Crosby, the attorney for the plaintiffs in their
medical malpractice suit, sent a letter to the Plan explaining that he was counsel for the Janssens in the malpractice action. He inquired whether the Plan was interested
in retaining him to pursue recovery of past medical expenses it paid for Alex Janssen's
surgical procedures. Crosby also informed the Plan that the trial date was set for
March 2004.

On December 30, 2003, the law firm of Felhaber, Larson, Fenlon & Vogt sent
a letter to Crosby informing him that Terrance Cullen of the Felhaber firm represented
the Plan. It also stated that the Plan intended to assert a subrogation interest in the
amount of $27,963.29. Crosby disclosed the subrogation interest to the medical
malpractice defendant in response to an interrogatory served in the malpractice action.
Crosby sent a copy of this response to the Felhaber firm with a reminder of the trial
date. On February 26, 2004, Crosby sent another letter to Cullen's assistant at the
Felhaber firm stating that the malpractice defendants had agreed to stipulate that the
medical care received by Alex was necessary, but causation remained in dispute. The
Plan did not take any actions to intervene or otherwise pursue its subrogation claim
for medical expenses in the malpractice action.

The malpractice trial began on March 1, 2004. The Plan was not represented
at the trial. On March 2, 2004, the medical malpractice defendants told Crosby that
they planned to move to dismiss the Plan's subrogation claim based on the statute of
limitations.2 The same day, Crosby informed the Felhaber firm of the motion so the
Plan could represent its interests. Later that day, Cullen informed Crosby that the Plan
believed it was in the Janssen's best interest for Crosby to defend the Plan's
subrogation claim. This request by Cullen represented a change in position from the
Plan's earlier election not to retain Crosby to pursue its subrogation claim. On March
3, 2004, Crosby sent a fax to Cullen stating that he only represented Alex Janssen and that he would not take a position regarding the motion to dismiss the Plan's
subrogation interest.

On March 5, 2004, no one appeared to represent the Plan at the hearing on the
motion to dismiss. The motion was granted based on the statute of limitations and the
Plan's failure to prosecute.

Following the presentation of evidence, the Janssens settled their malpractice
action for $225,000. The settlement did not cover reimbursement of medical
expenses. Since Alex was a minor, the settlement agreement was subject to court
approval. A hearing for the settlement agreement was set for March 25, 2004.

On March 24, 2004, Cullen's assistant contacted Crosby to inquire about the
Plan's subrogation interest. Crosby responded by facsimile, stating that the trial court
had dismissed the Plan's subrogation interest at the March 5 motion hearing. He also
informed Cullen of the settlement hearing. On March 25, 2004, the settlement hearing
was held. Marnie Polhamus attended for the Felhaber firm, but made no objection to
the settlement. The settlement agreement was approved.

On March 30, 2004, Crosby received a letter from Cullen objecting to the
settlement agreement. Cullen objected to the lack of a provision in the agreement
providing subrogation to the Plan. Further, Cullen stated that pursuant to the
Summary Plan Description (SPD), the Plan would not pay future benefits to the
Janssens until it recovered its subrogation interest.

On April 5, 2004, Cullen sent a letter to the Plan's Trustees. In that letter,
Cullen summarized the settlement hearing and subsequent letter to Crosby. The letter
did not mention dismissal of the Plan's subrogation interest claim or the fact that the
Felhaber firm did not defend the claim at the motion hearing or object to the
settlement agreement at the approval hearing. Cullen stated in the letter that it was unlikely that the Plan would recover its interest from the settlement. Rather, he
suggested that the Plan should recover its subrogation interest by denying future
medical claims by the Janssens until the Plan was repaid. The letter requested that the
Trustees initial the letter if they agreed with Cullen's plan, which they did. On April
7, 2004, Cullen told the Plan's administrative manager to notify Jamie Janssen that
claims for future benefits would be denied.

On April 13, 2004, the Plan sent a letter to Jamie Janssen informing him that
it had suspended the Janssens' benefits because it did not recover any of its
subrogation claim as part of the settlement reached in the Janssens' medical
malpractice lawsuit. The letter stated that any new claims would be denied until the
total amount of denied claims equaled $29,431.47, the amount the Plan believed it
should have received under subrogation. On April 23, 2004, counsel for the Janssens
asked the Trustees to review the decision to deny the Janssens' medical benefits. The
Plan responded in letters dated April 29 and May 11, 2004, reaffirming its position
that benefits would be suspended until the overpayment was resolved.

In May 2004, Jamie Janssen visited the dentist. The dentist submitted an
insurance claim to Delta Dental. The claim was denied. When Elizabeth Janssen
contacted Trustee Tom Tweet, he informed her that all of the Janssens' benefits had
been terminated. On July 14, 2004, the Janssens sent a letter to the Plan demanding
reinstatement of their benefits. The Plan responded in a letter again stating that the
Janssens had been overpaid by $29,431.47 and that the Plan was entitled to recoup this
amount by denying benefits to the Janssens.

On July 30, 2004, the Janssens commenced this lawsuit against the Plan
pursuant to 29 U.S.C. § 1132(a)(1)(B) and (a)(3). The Janssens alleged that: 1) the
Plan unlawfully denied benefits owed to the Janssens; 2) the Plan breached its
fiduciary duty owed to the Janssens; and 3) the Plan failed to comply with certain
procedural requirements of ERISA.

The Janssens brought a motion for summary judgment on their claim that the
Plan unlawfully denied benefits. The Plan brought a cross-motion to dismiss, or in
the alternative, for summary judgment. The district court granted summary judgment
in favor of the Janssens on the first count, finding that the Plan waived its right to
pursue its claims for medical expenses by failing to defend the motion to dismiss. It
also found that the Plan's subrogation claim was time-barred and that the settlement
proceeds represented only payment for Alex Janssen's pain and suffering, not his
medical expenses. The district court granted summary judgment in favor of the Plan
as to the fiduciary duty claim because that claim sought no relief greater than that
claimed by the denial of benefit claim. The district court denied the Plan's motions
with respect to the final claim of failure to comply with certain procedural
requirements of ERISA. The Plan now brings this timely appeal.

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