Eighth Circuit: ERISA Health Plan’s Counterclaim Seeking Equitable Right to Settlement Funds Does Not Establish Subject-Matter Jurisdiction in Federal District Court

In Kellum v. Gilster-Mary Lee Corp. Grp. Health Benefit Plan, No. 23-2765, __F.4th__, 2024 WL 3930833 (8th Cir. Aug. 26, 2024), a dispute where a self-funded health plan removed an action seeking uninsured-motorist coverage from state court to federal court and asserted an equitable right to the insurance proceeds under ERISA, the Eighth Circuit on its own determined that the district court lacked subject-matter jurisdiction and vacated the judgment in favor of the health plan.

Mychal Byrd was a covered person under the Gilster-Mary Lee Corporation Group Health Benefit Plan at the time he was injured in an automobile accident with an unknown motorist. The Plan paid over $400,000 in treatment for his injuries before he died. After his death, his mother and children sued Nationwide Insurance Company, Byrd’s auto insurer, in state court for approval of a settlement for $50,000 in uninsured-motorist coverage. The Plan demanded that Nationwide tender the insurance proceeds to the Plan pursuant to the equitable lien provision in the health plan document. Byrd’s family sought state court approval of a wrongful death settlement which included a request for the court to determine the amount the Plan’s administrator was entitled to pursuant to its lien. The Plan moved to intervene, which the district court granted, and then removed the case to federal court. The Plan counter-claimed against the family and cross-claimed against Nationwide, asserting an equitable right to the $50,000. The district court granted summary judgment for the Plan.

Though none of the parties raised the issue of subject-matter jurisdiction, the Eighth Circuit determined that the district court did not have subject-matter jurisdiction. The court found dispositive the fact that the family could not have brought their claim under ERISA because they were not plan beneficiaries. Because they could not have sued under ERISA, there is no complete preemption of their state law claim. A defendant seeking removal on the basis of a federal question must establish subject-matter jurisdiction and it is not enough that the defendant’s claims establish jurisdiction. The court vacated the judgment and remanded the case to the district court with instructions to return the case to state court.