Mtl Omaha Ins Co v. Natl Assn Govt Empl

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 10, 1998 Decided June 23, 1998

No. 97-5129 Mutual of Omaha Insurance Company and Union Labor Life Insurance Company,

Appellees v. National Association of Government Employees, Inc., et al.,

Appellants Office of Personnel Management and Constance J. Horner, in her official capacity as

Director of OPM,

Appellees Appeal from the United States District Court for the District of Columbia

(88cv0516) Denis F. Gordon argued the cause for appellants with whom Brad W. Spencer was on the briefs. James R. Barnett entered an appearance.

Dara A. Corrigan, Assistant United States Attorney, ar- gued the cause for appellees Office of Personal Management and Constance J. Horner, with whom Wilma A. Lewis, Unit- ed States Attorney, and R. Craig Lawrence, Assistant United States Attorney, were on the brief. John D. Bates, Assistant United States Attorney, entered an appearance.

William O. Bittman argued the cause for appellees Mutual of Omaha Insurance Company and Union Labor Life Insur- ance Company, with whom Michael Barrett was on the brief. James S. Ray entered an appearance.

Before: Silberman, Henderson, and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Silberman. Silberman, Circuit Judge: The National Association of

Government Employees (the Union or NAGE) appeals from a district court order "extinguishing" its claim for money con- tained in a contingency reserve fund maintained by the Office of Personnel Management (the Office or OPM). The district court lacked jurisdiction to make this determination--and may well have lacked jurisdiction over the whole case--thus we vacate its order.

I.

The Federal Employee Health Benefits Act establishes a subsidized health insurance program for civilian employees and annuitants of the federal government. Carriers contract with OPM, the agency that oversees the program, to provide health insurance to those who choose to enroll. As an "employee organization," the Union qualified as a "carrier" under the statute, 5 U.S.C. s 8903(3) (1994), and it contracted with the Office to sponsor a health insurance program for its members. That contract subjected all disputes arising under it to the jurisdictional limitations of the Contract Disputes Act. By subcontract, Mutual of Omaha Insurance Company (Mutual) and Union Labor Life Insurance Company (Union Labor or ULLICO) underwrote the plan during successive periods. The Office maintains a "contingency reserve fund" comprised of three percent of the plan's total contributions for each plan established under the Act. When a plan's costs exceed its annual income, the carrier may apply for a special transfer from this surplus account. 5 C.F.R. s 890.503(c)(5) (1998).1

After suffering approximately $17.5 million in losses during its underwriting period, Mutual applied to the Office for a special transfer from the NAGE plan's contingency reserve fund. The Office refused to consider the application, taking the position that only the Union, the party with whom it contracted, qualified as a "carrier" of the plan. Mutual then sued both the Office and the Union, but ultimately dropped its claims against the Union in a 1990 settlement agreement. Union Labor, afraid that Mutual's claims would deplete the contingency reserve, intervened as a plaintiff in the lawsuit to recover losses it had incurred underwriting the NAGE plan.

Two days before trial, the parties settled. They recorded the agreement in front of the district court on August 9, 1995:

Mr. Kozma (Counsel for ULLICO): [W]e all understand that Mr. Haynes [Assistant U.S. Attorney] has to get his approvals and all of that, but with everybody's concur- rence, I will go ahead and state the settlement as I understand it.

O.P.M. has agreed to pay out $17,450,000 out of the contingency reserve fund. Of that amount, four-million will go to Mutual of Omaha. The balance will come to Union Labor Life Insurance Company.

We have agreed that the payment should be within forty-five days. That is subject to O.P.M. using--O.P.M. and the U.S. Attorney using their best efforts to obtain All counsel drafted affidavits setting forth their recollection of the settlement negotiations. According to Kozma, OPM officials had expressed concern early in the negotiations that no close-out accounting statement had been submitted for the NAGE plan. Yet though the statement--and any accompa- nying request for reimbursement--remained outstanding, the government made no attempt to secure a waiver from the Union. Haynes admitted that he did not "specifically recall" the Union agreeing to a waiver. He nevertheless insisted that the Office had perceived itself to be entering a "global settlement." The government's self-serving perception ap- pears to be based more on wish fulfillment (and fear of embarrassment) than on hard facts. As Kozma explained, "The settlement discussions concerned only the claims made in this action. At no time did the NAGE defendants mention any new claim against the contingency reserve. Conversely, at no time did the OPM defendants request a release from any party going beyond the claims made in this action." Similarly, counsel for Mutual said, "At all times, the settle- ment discussions concerned only the resolution of claims that had been brought in this lawsuit ... [a]t no time did the settlement discussions ever concern the release of claims that had not been brought and could not have been brought in this lawsuit regarding the NAGE Plan's contingency reserve." Counsel for both insurance companies agreed that the Un- ion's claim could not have been brought in this lawsuit because it would have been subject to the Contract Disputes Act, which deprives district courts of jurisdiction over certain contract claims against the federal government.

Mutual and Union Labor filed a joint motion to enforce the settlement agreement, and the district court ordered the Union to show cause why it should not be bound. On December 12, 1995, the district court issued an order (drafted by Mutual and adopted wholesale) enforcing the settlement and "extinguishing" the Union's claims. In this order, the court found that the Union's silence regarding its claim "estopped" it from asserting that it did not agree to the settlement. When it finally ruled on the Union's motion to amend the judgment--two years later--the court, clarifying its earlier order, said that the language of estoppel did not mean that the Union had consented to the contract. The following interchange took place between the government's counsel and the district court:

Mr. Haynes: Your Honor, I interpreted your estoppel language as being--as falling in that area of contract law where they say that you can be bound to a contract by silence--by conduct. We certainly argue that they were bound to the settlement.

The Court: That is an argument for you to make before O.P.M.

Mr. Haynes: Well, I can tell you, Your Honor, that O.P.M. is not going to pay their claim, because it's our view that we entered into a global settlement. And I think we went through this. I don't want to go over what we have been through, but we thought we had a global settlement. Now, they are trying to carve out their part of it so that we end up the loser, because we paid out $17,500,000.00 to the plaintiffs on the assump- tion that we would get the rest of it. Now they come to us, after the agreement is reached, and say, "No, you don't get that. You have to give us a good part of it."

So we feel as though there was an agreement. They are bound by their silence--by their conduct, and that Your Honor correctly extinguished their claims, but on the basis that they were part of the contract.

Thank you, Your Honor.

The Court: But I did not find that they were a party to the contract. (Emphasis added.)

II.

This is an extraordinary case. The government fiercely defends the district court's determination that the Union is bound to the settlement, but does not produce any evidence or real legal theory to support its claims. Although the government reiterates the "view" of its counsel below that it entered into a "global settlement," which presumably picked up the Union through its gravitational pull, we gained the impression that the government believes the Union is also guilty of l%22ese majest%21e because the government's lawyers were not told of the Union's objections until after the Assistant United States Attorney had received the Deputy Attorney General's blessing of the settlement. Consistent with its global settlement claim, the government contends that there can be no agreement between it and the insurance companies if the Union prevails. The insurance companies, for their part, treat the Union like the proverbial skunk at the garden party, but insist that whatever happens to the Union, the government is bound.

Recognizing that the district judge did not find it a party to the settlement agreement (and discounting the estoppel no- tion as without legal support), the Union reasons that the district court's determination must have been a ruling on the merits of its claim against the contingency reserve. It argues that the district court lacked subject matter jurisdiction to make that determination because the Union's claim is covered by the Contract Disputes Act. The government does not dispute that the Contract Disputes Act, see 41 U.S.C. s 602(a) (1994), would apply to any claim arising under the NAGE policy. Such claims can only be resolved by the "contracting officer," id. s 605(a) (1994), and appealed to either an agency board of contract appeals or the United States Court of Federal Claims. Id. s 606 (1994); s 609 (1994).

The Union's jurisdictional argument raised for us the ques- tion whether the district court lacked jurisdiction over the entire case. If the insurance companies' claims are predicat- ed on the Union's policy, they too might be covered by the Contract Disputes Act. We asked the parties to address this issue at oral argument (but had little success), and Mutual submitted a supplementary brief which has left us even more uncertain as to whether the district court had jurisdiction over the insurance companies' complaints. Without it, the court may not have had authority to enter an order enforcing the settlement agreement. In Kokkonen v. Guardian Life Insurance Co. of America, 511 U.S. 375 (1994), the Supreme Court held that a district court had no power to enforce a settlement agreement after it had completely dismissed the underlying suit. That case at least implies that district courts cannot enforce settlement agreements without some basis for jurisdiction of the underlying suit--which is merely a specific application of the long-standing rule that "[w]ithout jurisdic- tion the court cannot proceed at all in any cause." Ex parte McCardle, 74 U.S. (7 Wall.) 506, 514 (1869). See also Steel Co. v. Citizens for a Better Env., 118 S. Ct. 1003, 1016 (1998) ("Hypothetical jurisdiction produces nothing more than a hypothetical judgment--which comes to the same thing as an advisory opinion....")

In its supplemental brief, Mutual argued in a conclusory fashion that both of the insurance companies' complaints are really administrative challenges to the Office's interpretation of its own rules and the Health Benefits Act. But this characterization is not determinative, for "a plaintiff may not avoid the jurisdictional bar of the [Contract Disputes Act] merely by alleging violations of regulatory or statutory provi- sions rather than breach of contract." Ingersoll-Rand Co. v. United States, 780 F.2d 74, 77 (D.C. Cir. 1985). Nor would the Health Benefits Act confer jurisdiction on the court if the complaints indeed turn on contract. A section of that Act does provide that "[t]he district courts of the United States have original jurisdiction, concurrent with the United States Court of Federal Claims, of a civil action or claim against the United States founded on this chapter." 5 U.S.C. s 8912 (1994) (emphasis added). But an action founded on contract is not "founded on this chapter." Cf. 28 U.S.C. s 1346(a)(2) (1994) (depriving district courts of jurisdiction over claims against the United States "founded upon any express or implied contract" with the United States that is subject to the Contract Disputes Act) (emphasis added). What matters is the source of the right at stake. As we said in Ingersoll- Rand, "determining whether an action is founded upon a contract ... 'depends both on the source of the rights upon which the plaintiff bases its claims, and upon the type of relief sought (or appropriate).' " 780 F.2d at 76 (quoting Mega- pulse, Inc. v. Lewis, 672 F.2d 959, 968 (D.C. Cir. 1982)).

We think the best course, given our uncertainty as to the nature of the insurance companies' original claims, is to remand the case to the district court so that it can make an explicit determination as to its jurisdiction over the insurance companies' suits against the government. (It is of course possible that even if the district court lacked jurisdiction the settlement agreement would be enforceable in some tribunal.) But we think the Union is entitled to escape this mess. The district court expressly found that it was not a party to the settlement, and we cannot imagine how the Union could be otherwise "estopped" from pursuing its claim (nor, for that matter, how it could even be criticized for its behavior). We thus agree with the Union that the district court's order should be construed as reaching the merits of its claim against OPM--which it clearly lacked jurisdiction to do. Ac- cordingly, we direct that the district court's order be vacated and the case remanded to determine whether the settlement can be enforced as to the parties other than the Union.

So ordered.