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LLP v. South Central Minnesota Electrical Workers' Family Health Plan

Court of Appeals of Minnesota

December 31, 2018

O'Brien & Wolf, LLP, petitioner, Appellant,
South Central Minnesota Electrical Workers' Family Health Plan, Respondent.

          Olmsted County District Court File No. 55-CV-17-3161

          Daniel J. Heuel, O'Brien & Wolf, L.L.P., Rochester, Minnesota (for appellant)

          Amanda R. Cefalu, Kutak Rock LLP, Minneapolis, Minnesota (for respondent)

          Considered and decided by Ross, Presiding Judge; Johnson, Judge; and Smith, Tracy M., Judge.


         When a member of an ERISA health plan is injured by tortfeasors and retains an attorney who represents the member knowing that the health plan will pay attorney fees only upon prior agreement to pay the fees and who settles the member's tort claims in a settlement sufficient to cover the member's reimbursement duty to the health plan, a contract implied in law has not been established so as to impose on the health plan the equitable duty to pay the attorney a contingent fee for recovering the reimbursement amount.


          ROSS, JUDGE

         Travis Schurhammer was injured in a snowmobile collision. Schurhammer was a covered member of an ERISA health plan (the Plan) that paid his medical expenses, which, by the Plan's terms, Schurhammer was obligated to reimburse from any recovery from a third party for his injury. Schurhammer settled his lawsuit against the alleged tortfeasors, and the law firm that represented him sent the Plan a reimbursement check on his behalf from the recovered sum and served the Plan with a notice of attorney lien, demanding that the Plan pay it a contingency fee on the reimbursed amount. The law firm argued unsuccessfully to the district court, and now argues on appeal, that the Plan is obligated to pay the fee under the equitable doctrine of contract implied in law. Because justice and fairness do not obligate the Plan to pay the firm for the legal services it provided Schurhammer, no implied-in-law contract existed between the law firm and the Plan, and we affirm.


         Travis Schurhammer suffered a serious injury in a 2014 snowmobile collision. Schurhammer is an eligible beneficiary of South Central Minnesota Electrical Workers' Family Health Plan, which is an ERISA plan that paid Schurhammer's medical expenses totaling $152, 739. In connection with receiving these healthcare benefits, Schurhammer signed a form provided by the Plan acknowledging that, under the Plan's terms, he must reimburse the Plan for its payment of his medical expenses in the event he recovers funds from another party for his injury. This obligation exists under the Plan even if the recovery does not fully compensate Schurhammer for all his claimed damages and even if the recovery is characterized as compensating Schurhammer for something other than medical costs.

         Schurhammer (and his wife) retained O'Brien & Wolf LLP to represent Schurhammer in a lawsuit against two men who were allegedly responsible for the collision. Schurhammer's contingency-fee agreement with the firm entitled the firm, "as compensation for services, [to] one-third . . . of any sum obtained or recovered for [Schurhammer] in the settlement . . . of [his] claim." The Plan's attorney sent O'Brien & Wolf a letter informing the firm that the Plan was established under ERISA and that "Mr. Schurhammer is obliged to fully reimburse the Plan out of any recovery he receives, regardless of how that recovery is characterized." The letter included a copy of the Plan documents that detailed Schurhammer's reimbursement obligation and stated that the Plan "[would] not be responsible for any attorney's fees . . . incurred by [Schurhammer] in any legal proceeding or claim for recovery under . . . any . . . legal theory unless prior to incurring such fees . . ., the [Plan's] Trustees agree[d] in writing to pay all or some portion of attorney's fees." Neither Schurhammer nor O'Brien & Wolf ever sought the Plan's agreement to pay any of O'Brien & Wolf's attorney fees.

         O'Brien & Wolf's billing records show that, during its representation of Schurhammer leading up to and immediately after settlement, large blocks of the billing attorney's time were spent on matters concerning the Plan's right to first-priority reimbursement. The firm described this work under entries: "Review file re subrogee's health plan;" "legal research concerning priorities;" "Legal research concerning ERISA subrogation claims;" "Continue working on subrogation claims;" "letter to subrogees re discounts;" "Telephone conference with client re status, subrogation claims;" "Review letter from Attorney Morben, re subrogation claim; letter to Attorney Morben re same;" "Telephone conference with Attorney Morben, re settlement of ERISA claim;" "review ERISA document;" "Review . . . summary plan description and Electrical Workers summary plan description; telephone conference . . . with . . . adjuster Walker, re same;" "Memo to file re distribution formula, hold back on subrogation claims;" "Legal research concerning subrogation claims;" "letter to . . . South Central Health re reimbursement of attorney fees;" etc.

         Schurhammer, represented by O'Brien & Wolf in negotiations, settled his claims with the alleged tortfeasors. O'Brien & Wolf did not invite the Plan's attorney to participate in the settlement negotiations. O'Brien & Wolf attorney Daniel Heuel notified the Plan of the settlement agreement by letter, saying that "Mr. Schurhammer has agreed to release [the two tortfeasors] in exchange for the combined liability policy limits of $800, 000." Heuel requested that the Plan accept less than its full reimbursement of $152, 739, asserting that Schurhammer had agreed to take a 60% discount to settle the claim, which Heuel said "has been presented as amounting to at least $2, 000, 000." The Plan refused the request and insisted on full reimbursement.

         Heuel then sent the Plan another letter, acknowledging that the Plan refused to discount its right to be fully reimbursed but adding, "However, my request now is that the Plan agree to compensate O'Brien & Wolf for its fee in recovering this amount." The letter cited Keene v. Stattman, discussed below, and claimed that the firm is "entitled to compensation under principles of equity for producing a recovery on behalf of the Plan." Heuel's letter, which did not disclose that in the preceding month the firm had reduced Schurhammer's contingency-fee rate from one-third to one-fourth, represented, "Our retainer agreement with Mr. Schurhammer provided for a standard one-third contingency fee and I am requesting that the Plan honor that same percentage agreement." The Plan refused to pay O'Brien & Wolf the fee. The firm finally sent a $152, 739 check to the Plan with its memo line stating, "For Travis Schurhammer - subro." The firm served the Plan a notice of attorney lien along with the check.

         The Plan filed an action in the United States District Court in the District of Minnesota, alleging that O'Brien & Wolf's attorney lien was preempted by ERISA law, 29 U.S.C. § 1144a (2012). O'Brien & Wolf filed this action to enforce its attorney lien in state district court and moved the federal district court to dismiss the Plan's federal action for failure to state a claim. The federal court dismissed the Plan's suit without prejudice, holding that the federal dispute could not be resolved until O'Brien & Wolf's state-court action was decided.

         The state district court decided two issues in denying O'Brien & Wolf's attorney-lien action. It held that federal ERISA law does not preempt O'Brien & Wolf's claim to establish an attorney lien under state law. And it held that O'Brien & Wolf has no enforceable attorney lien against the reimbursement ...

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