In Oregon Teamster Employers Trust v. Hillsboro Garbage Disposal, Inc., 800 F.3d 1151 (9th Cir. 2015), the corporate defendant, Hillsboro Garbage entered into contracts with a union health plan that provided coverage for Hillsboro’s union and non-union employees. Beginning in 2003, the union received contributions for the two individual defendants, who purportedly worked for Hillsboro, but actually were employed by a different company owned by Hillsboro’s owner. The plan covered these defendants until 2011, even though a 2006 audit showed that they were not eligible for coverage.
The plan asserted two 1132(a)(3) claims, the first against Hillsboro and the two individuals for restitution, and the second against Hillsboro for specific performance to repay the benefits wrongly paid. The plan also asserted state law breach of contract claims. The district court granted summary judgment to the defendants, and the Ninth Circuit affirmed.
The court first held that ERISA preempted the breach of contract claims, because the claims are premised on the existence of an ERISA plan, and the existence of the plan is essential to the claims’ survival. Particularly, the court held that interpretation of the plan was necessary to the outcome of the claims. In so ruling, the court distinguished Providence Health Plan v. McDowell, 385 F.3d 1168, 1172 (9th Cir.2004), which allowed a plan to assert a breach of contract claim to enforce the reimbursement provision in an ERISA plan, where the parties did not dispute the correctness of the benefits paid. Here, in contrast, the court held that a key issue was whether the individual defendants were eligible for coverage under the plan.
In a concurring opinion, Judge Fletcher called for an en banc review to overrule McDowell: “I concur in the panel’s opinion because I agree that McDowell is narrowly distinguishable (if unconvincingly) from this case, and because we must distinguish McDowell if McDowell remains the law and we are to reach the correct result in this case. But the underlying reality is that McDowell was wrongly decided. We should take the opportunity to rehear this case en banc and overrule McDowell.
The court also rejected as speculative an argument that a finding of ERISA preemption would subject the plan to liability under the Labor Management Relations Act.
The court next found that the claim for specific performance of the reimbursement provisions of the plan was legal, not equitable, because “Knudson held that specific performance is typically a legal remedy unless it is ‘sought to prevent future losses that either were incalculable or would be greater than the sum awarded.’ … The exception Sereboff carved out to this rule was for restitution sought from a particular fund (or ‘res’), not specific performance.”
The court also found the restitution claim was not equitable, under Sereboff and Bilyeu: “Although the plan contained ‘a promise by the beneficiary to reimburse’ OTET, it did not ‘specifically identify a particular fund, distinct from the beneficiary’s general assets, from which the fiduciary will be reimbursed’—that is, there is no res from which OTET seeks recovery. … Moreover, even if the agreement specifically identified funds from which OTET could recover, the amounts it paid for the individual defendants’ medical expenses are not in their ‘possession and control.’”