Synergy Blog

Court’s Authority Over a Minor’s Settlement is Not Preempted by ERISA

By Dave Place, J.D., Director of Lien Resolution

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. As every plaintiff’s attorney knows, the rights of self-funded ERISA qualified plans are daunting. The strength of their recovery right arises from their ability to preempt state law and enforce the terms of the plan document. ERISA’s preemption clause states that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan….” (29 U.S.C. § 1144(a)).

The Northern District of Mississippi in the Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13) performs an in-depth analysis of the application of ERISA preemption to situations where a probate court has been empowered to oversee the settlement of a minor’s personal injury claim.  In this case, the minor’s parents were appointed guardians and eventually were able to settle the personal injury action for policy limits. They then petitioned the chancery court to approve the settlement adjudicating the alleged subrogation/reimbursement claim of the self-funded ERISA plan that had paid the minor’s medical bills. 

The self-funded ERISA plan moved the matter to federal court where it examined both procedural issues and the application of ERISA preemption over the chancery court’s adjudication of the minor’s issues. 

To determine whether a claim is preempted by ERISA, the Fifth Circuit has directed application of a two-prong test, which asks: “(1) whether the claim addresses areas of exclusive federal concern and not of traditional state authority, such as the right to receive benefits under the terms of an ERISA plan, and (2) whether the claim directly affects the relationship among traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries.”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13) (quoting Hobson v. Robinson, 75 F. App’x 949, 953, (5th Cir.2003)).

In the case of minors:

“Mississippi Code Section 93–13–59 grants authority to guardians “empowered by the Court” to compromise claims of minors. The Mississippi Constitution further gives full jurisdiction of minor’s business to the chancery courts of the State. See MISS.CODE art. 6, § 159(d).”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

In support of their position that despite 29 U.S.C. 1144(a), the chancery court retained the authority to oversee settlements involving minors. They cited previous Northern District of Mississippi cases.  In those cases “the court has affirmatively held that ERISA does not preempt Mississippi law requiring chancery court approval of minor’s settlements. (See, Clardy v. ATS, Inc. Employee Welfare Benefit Plan, 921 F.Supp. 394 (N.D.Miss.1996)Bauhaus USA, Inc. v. Copeland, 2001 WL 1524373 (N.D.Miss. Mar. 9, 2001)Estate of Ashmore v. Healthcare Recoveries, Inc., 1998 WL 211778 (N.D.Miss. Mar. 25, 1998).

“In Clardy the Court examined ERISA’s broad preemption clause, as well as United States Supreme Court precedence, and held that ‘Mississippi law requiring a Chancellor’s approval before a parent may contract away a minor’s legal rights is not preempted by ERISA in this case.’  Id. at 397–99, 401. The Court found that the area of domestic relations was an area traditionally governed by state law, and preemption of state laws concerning domestic relations was uncommon, even under ERISA. Id. at 398.”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

The Northern District of Mississippi continued to rely on the rationale of their previous decision in Clardy quoting that:

“’[t]he administration of a minor’s estate is entirely a matter of state law, and is law of general application which affects a broad range of matters entirely unrelated to ERISA plans….’ [Clardy] at 399. Therefore, the statute is but a ‘state law of general application which has only an incidental effect upon an ERISA plan.” 

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

Even in the face of specific plan language providing for a contractual right of subrogation, the court continued to stand by its previous rulings that chancery court approval of a minor’s settlement was not subject to ERISA preemption.

[I]n Estate of Ashmore v. Healthcare Recoveries, Inc., 1998 WL 211778 (N.D. Mar. 25, 1998). , the court further opined that ‘[e]ven if the parties’ ERISA plan contained an express subrogation clause, Mississippi law requiring prior chancery court approval of assignment of a minor’s rights to insurance proceeds would not be preempted by ERISA.’ Id. (citing Methodist Hosp. of Memphis v. Marsh, 518 So.2d 1227, 1228 (Miss.1988)(written agreement executed by minor’s mother not enforceable without prior chancery court approval); Clardy, 921 F.Supp. at 399 (domestic relations are traditionally matters of state law)”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

It is clear from this string of rulings that the courts, empowered to oversee settlement of minors’ claims, retain their authority even when faced with attempts by self-funded ERISA plans to overcome them with preemption. It is not uncommon for the plaintiff’s attorney, who is often responsible for protecting the rights of minors and those under incapacity, to seek authority from a chancery or probate court to settle personal injury action. The wise plaintiff’s counsel should petition this court to adjudicate the recovery rights of the self-funded ERISA plan. This case, as well as its predecessors, provide compelling arguments supporting that court’s overarching authority and ability to determine if, and how much an ERISA plan should be repaid.

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