Freiermuth v. St. Paul Electrical Workers Health Plan

Background

Mary Freiermuth participated in the St. Paul Electrical Workers Health Plan, which provided health and welfare benefits funded by employer contributions and self-payments. After Freiermuth was seriously injured in a December 2020 car accident, she submitted a claim for medical expenses that were not fully covered by her no-fault automobile insurance.

The Plan conditioned payment on Freiermuth and her attorney signing a Subrogation/Reimbursement/Lien Agreement. The agreement was intended to allow the Plan to seek repayment from a third party responsible for the injury and to prevent double recovery. Freiermuth signed the agreement, but her attorney refused, arguing that signing it would be unethical and that requiring the signature breached the Plan’s fiduciary duty. The Plan denied Freiermuth’s claim because her attorney refused to sign. Freiermuth did not appeal the denial through the Plan’s administrative process.

Freiermuth sued the Plan, acting through its Board of Trustees; Wilson-McShane Corporation, the Plan administrator; and Ronald G. Ethier, identified as a Plan fiduciary. Count I alleged wrongful denial of benefits under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1133. Count II alleged breach of fiduciary duty. She sought payment of the medical benefits, an injunction against requiring her attorney to sign the agreement, damages, and attorney’s fees and costs.

Court’s Analysis

The court considered the defendants’ motions to dismiss for failure to state a claim. Under that standard, a complaint must contain enough factual matter to make the requested relief plausible, rather than merely offering labels, conclusions, or speculation.

Count I: Wrongful Denial of Benefits

The court first addressed exhaustion of administrative remedies. It explained that exhaustion is required before an ERISA lawsuit when the plan requires it and gives proper notice, unless the participant shows that exhaustion would have been futile. The futility exception is narrow: the participant must show that the claim was certain to be denied on appeal, not merely that an appeal was unlikely to change the result.

The court rejected Freiermuth’s argument that an appeal would certainly have been denied. It found that speculation about the trustees’ likely decision did not establish futility. Freiermuth could have presented her arguments to the appeal board, and the Plan provided that the trustees would give no deference to the initial benefit decision and would consider all submitted information. The court therefore determined that exhaustion would not have been futile.

The court also considered the merits of Freiermuth’s challenge to the attorney-signature requirement. It rejected her reliance on ethics opinions from several states because those opinions addressed attorney indemnification and hold-harmless provisions in client settlement agreements, not subrogation agreements. The court found no apparent conflict in requiring an attorney to sign an agreement designed to prevent a claimant’s double recovery and to allow the Plan to recover payments made or owed by responsible third parties.

Citing decisions recognizing similar ERISA subrogation requirements, including Eighth Circuit decisions, the court held that the requirement was valid and that the Plan did not wrongfully deny benefits. It concluded that Count I had to be dismissed for failure to state a claim.

Count II: Fiduciary Duty

Count II alleged that the Plan fiduciaries breached their duties by requiring Freiermuth’s attorney to sign the Subrogation Agreement and by denying benefits after the refusal to sign. Because the court found the subrogation requirement enforceable, it held that actions consistent with that requirement could not support a breach-of-fiduciary-duty claim. The court dismissed Count II as well.

Disposition

The court granted the defendants’ motions to dismiss and ordered that the case be dismissed with prejudice. Judge David S. Doty dated and signed the order on March 15, 2022.