Court in Default Judgment Order Recovery From Tort Settlement Proceeds
Very strange case where the plan participant never appears to defend herself against the efforts of the plan to obtain a judgment imposing a constructive trust or equitable lien against tort settlement proceeds. The case is ACS Recovery Services, Inc. v Kaplan, 2010 WL 144816 (N.D. Cal., Jan. 11, 2010)
Esther Kaplan was covered by a health policy issued by Great West Healthcare when she was injured by a third party. She incurred substantial expenses as a result of that injury, and Great West paid more than $153,000 in benefits. She subsequently filed a personal injury claim against the third party and settled her claim for $500,000. After paying her attorney, she received a net payment of $333,000, a portion of which represented the $153,000 or so that Great West had paid on account of her injuries.
Great West had assigned its claims against Kaplan to ACS recovery Services (ACS), the plaintiff in this case, which sought reimbursement of the benefits that were paid to Kaplan by asserting a lien against any proceeds she would receive in settlement of her personal injury claim. It asked Kaplan and her attorney to keep it apprised of the progress of her claim against the third party, but neither she nor her attorney did so. Thus, ACS was unable to participate in any mediation and settlement discussions regarding the tort claim.
ACS filed this lawsuit in the U.S. District Court, Northern District of California, seeking to recover the health expenses paid by Great West. ACS was unable to serve its summons and complaint on Kaplan, but it did serve a “Mr. Kaplan” at her residence. Neither Kaplan nor her attorney ever appeared in connection with this lawsuit and never filed an answer or made any arguments against the efforts by ACS to obtain reimbursement of the benefits paid.
About two months after filing its lawsuit, ACS filed a motion for entry of a default judgment against Kaplan. The matter was referred to the chief magistrate judge of the district court for a report and recommendation regarding the motion by ACS for a default judgment. The chief magistrate judge heard the arguments ACS presented on the issue a few months later. Kaplan did not appear or file any response to the motion.
The chief magistrate judge ruled that the District Court in California had jurisdiction to hear and decide the case brought by ACS pursuant to a ruling by the 9th U.S. Circuit Court of Appeals.
First, the judge held that subject matter jurisdiction existed under Section 502 (a)(3) of ERISA because ACS was seeking an equitable lien and/or constructive trust, which constituted equitable relief. ACS had identified a specific fund (the settlement proceeds) that she found were apart from Kaplan’s general assets.
Next, the judge found that there was a diversity jurisdiction because the amount at issue exceeded $75,000 and the parties were citizens of different states (Kaplan being a resident of California, where the lawsuit was brought, and ACS is incorporated in Illinois).
Finally, the judge ruled that the court had personal jurisdiction because when the lawsuit began, the plan participant was a resident of California.
Next, the chief magistrate judge noted that under the Federal Rule of Civil Procedure 4(e)(2), service of process is accomplished by leaving a copy with “a person of suitable age and discretion residing at the defendant’s home.” She noted that after making several unsuccessful attempts over a six-week period to serve Kaplan, the process server personally served a “Mr. Kaplan” (apparently the defendant’s husband) who was 50 years old and was served at her residence.
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