Reynolds Metals Co. v. Ellis, Robert

By: Elodie Mailliet, Medill News Service

Questions presented

Whether a fiduciary of an employee benefit plan subject to the Employee Retirement Income Security Act of 1974 (""ERISA"") may enforce the provisions of the plan in federal court.

Brief

In 1994, Robert Ellis had a terrible car accident near Merced, Calif., which left him paraplegic.

At the time Ellis was an employee of Reynolds Metals Co. and was a beneficiary of the groups medical plan.

In the aftermath of the accident, the plan paid Ellis and his health care providers more than $560,000 in benefits.

In 1997, Ellis brought a civil suit, seeking damages from the person responsible for the accident and settled the case for an amount approximating $1 million.

Ellis insurance plan includes a provision that states: ""If the Plans paid for health care services, supplies or treatment and you receive payment from a third party, you must reimburse the Plans, but not more than the amount of the third-party payment you received.""

This clause is a very common clause aimed at cutting about 50 percent of health care costs for both the employer and the employee, explained Edward A. Scallet, an attorney for Reynolds Metals.

Ellis should have used part of the money coming from the settlement to reimburse his employers health care plan, said Scallet.

Ellis refused.

The same year, Reynolds Metals filed suit in federal court against Ellis, seeking reimbursement of its benefits under the Employer Retirement Security Act.

ERISA is a 1974 law governing employee benefits plans. Under ERISA, a company can only bring monetary relief claims in a federal court if it is also seeking equitable relief.

The federal judge dismissed the case, ruling that since the company was not seeking equitable relief, the claim could not proceed in federal court and told Reynolds Metals to go to state court.

The distinction between equitable and legal matters is a very old concept coming from England. In England, equitable courts used to be separated from legal courts and dealt with the matters that were not directly covered by law.

Generally, equitable matters are defined as fairness-related matters, such as restitution or injunctions or property claims, whereas legal matters deal with cases where a precise law is at stake.

""The distinction between equitable and legal matters has blended over the years,"" Scallet said. ""When the concepts came to the United States, they appeared before the same court, already making it harder to understand the distinction.""

In Reynolds Metals case, the district court understood ""equitable relief"" to be non-monetary, or similar to an injunction.

If the relief sought by the company was to be monetary, the company had to prove that the employee had fraudulently received the damages, that he had lied about them, or arranged the accident.

Reynolds Metal appealed to the 9th Circuit Court of Appeals. While the appeal pended there, the case was heard in state court. That court concluded that, it too, did not have jurisdiction, in its case, because ERISA enforcement matters were a matter of federal jurisdiction.

""The basic problem in the case is that if youre suing for regulatory damages (to enforce ERISA), you dont have a jurisdiction to go to,"" said John A. Kukankos, the attorney for Central States, SE and SW Areas Health and Welfare Fund, which supports Reynolds Metal.

Back in federal court, a unanimous 9th Circuit Court of Appeals panel, on Feb. 10, 2000, agreed with the district court, citing its 1997 holding in FMC Medical Plan v. Owens as controlling.

In so doing, the 9th Circuit panel rejected the argument that the opinion conflicted with Supreme Court precedent and other 9th Circuit opinions.

In its petition to the U.S. Supreme Court, Reynolds Metal argued that Owens was in conflict with decisions out of the 7th, 8th and 11th circuits.

The Court granted certiorari on Nov. 26, 2000, and allowed Central States, Southeast and Southwest Areas Health and Welfare Fund to file an amicus brief in the case.

If Ellis prevails in the Supreme Court, said Kukankos of the health and welfare fund, he will keep the money and walk away with double payments, once from his health benefits and once from the settlement of his personal injury case.

The day after new year, on Jan. 2, 2001, the Court dismissed the case upon the request of both parties. Oral arguments had not yet been heard.

Alcoa, Inc., which had bought Reynolds Metals shortly before the Court granted certiorari in the case, issued a statement indicating that it ""would not have brought a reimbursement action on its own behalf"" had it owned the compnay when the action was filed.