Bauhaus v. Bill Benson, Chancery Court Clerk and Bancorp South : Court Distinguishes Knudson and Holds That Health Plan is Entitled to Imposition of a Constructive Trust

Thomas H. Lawrence¹

The United States District Court for the Northern District of Mississippi decided Bauhaus USA, Inc. v. Bill Benson and Bancorp South, No. 1:02CV180-JAD, on February 6, 2003.

On May 21, 2002, the United States Court of Appeals for the Fifth Circuit held that ERISA did not authorize Bauhaus' lawsuit to enforce the reimbursement provision in its health plan because that action was filed against Lillie Copeland, the covered dependent's guardian, and Reshan Holmes, the covered dependent, and not against the parties who controlled the funds, the Chancery Court Clerk and Bancorp South. Bauhaus v. Copeland, 292 F.3d 439 (5th Cir. 2002).

Thereafter, Bauhaus filed a new action in the Northern District of Mississippi against the Chancery Court Clerk, Bill Benson, and Bancorp South. On February 6, 2003, the Court granted Bauhaus' motion for summary judgment.

The Court held that "the funds at question are traceable and identifiable to Reshan Holmes and are owed to [Bauhaus USA] by the terms of the Plan." Bauhaus, p. 2 (citing IBEW-NECA Southwestern Health and Benefit Fund v. Douthitt, 211 F. Supp. 2d 812 (N.D. Tex. 2002)). With regard to whether Mississippi's anti-subrogation law, which precludes subrogation from a minor's recovery unless there has been prior chancery court approval, the Court held that "it is clear that state laws are preempted by ERISA to the extent they attempt to regulate a health plan's effort to enforce a subrogation/reimbursement provision in a health plan." Id., p. 3.

Bauhaus v. Benson is an important decision because it highlights the distinction recognized by the Supreme Court in Great-West Life v. Knudson, which is that a plan fiduciary's claim is authorized under ERISA if a defendant in the action is control of the disputed funds and the plan fiduciary is entitled to those funds under the terms of the plan.

[1]Thomas H. Lawrence is a partner in the Memphis, Tennessee law firm of Lawrence & Russell, LLP, and represents employers, health plans, and insurers in healthcare and property and casualty subrogation and other employee benefits and employment matters and related litigation in state and federal courts throughout the United States. He was one of the attorneys who represented Great-West Life in Knudson , and has been counsel of record in many of the otherpost-Knudson decisions that have clarified the scope of relief available under ERISA.