United States District Court, D. Nevada
ADAM P. SEGAL, ESQ., an individual, Plaintiff(s),
ALAN LEFEBVRE, et al., Defendant(s)
JAMES C. MAHAN, District Judge.
Presently before the court is defendants' motion to dismiss. (Doc. # 5). Plaintiff has responded (doc. # 8) and defendants have replied (doc. # 14).
Also before the court is plaintiff's motion for summary judgment. (Doc. # 17). Defendants have responded (doc. # 27) and plaintiff has replied (doc. # 28).
The instant dispute relates to a prior case before this court involving the Employee Retirement Income Security Act ("ERISA").
Plaintiff Adam Segal ("Segal") is a Nevada attorney employed by the law firm Brownstein, Hyatt, Farber, Schreck, LLP. Segal represents the Laborers Local 872 Health & Welfare Trust ("Trust"). Defendants Janeen Isaacson and Alan Lefebvre have been sued in their official capacities as bar counsel to the State Bar of Nevada (collectively "the Bar").
Non-party Julie Tafoya ("Tafoya") was a participant in the Trust whose medical claims from a car accident were paid by the Trust. The Trust's plan requires participants who recover from third-parties for their injuries to reimburse the plan for any medical claims paid and attorney's fees expended in enforcing those rules. Donald Kudler, Esq., ("Kudler") was Tafoya's attorney and sought recovery from the liable third-party. Kudler ultimately recovered $15, 000 ("the payment") on behalf of Tafoya from the third-party's insurance carrier. In addition to the Trust, various other third-parties asserted an interest in the payment.
The complaint asserts that Kudler was required by Nevada ethical rules to hold those funds until the dispute over which parties were entitled to the payment was resolved. After Kudler allegedly delayed in acquiescing to the Trust's assertion of its interest, the Trust sued Tafoya. During a hearing in that action, Kudler represented that he intended to fully repay the Trust. The action was thereafter dismissed for lack of a case or controversy. See Construction Industry and Laborers Health & Welfare Trust, et al, v. Cap, et al, case no. 2:09-cv-02420-JCM-PAL (D. Nev. May 13, 2010).
The complaint alleges that Kudler did not comply with his obligation to keep the payment until all disputes over it were resolved, that he instructed the liable party's insurance company to issue the payment jointly to himself, Tafoya, and the Trust, and that he did so without Segal's knowledge. Kudler then allegedly instructed Tafoya to endorse the payment to the Trust, also without conferring with Segal. Finally, Kudler allegedly sent the payment, which was then fully payable to the Trust, to Segal, and "purported to transfer the obligation to keep and sort out the competing interests to Mr. Segal, none of which Mr. Segal ever consented or agreed to do."
After having the payment turned over to him, Segal alleges it became a Trust asset under ERISA, and that he was a functional fiduciary under section 3(21). Segal asserts he had no discretionary authority regarding what to do with the payment at that time, and that he was obligated by ERISA to turn it over to the Trust.
The Bar reacted to these events by initiating disciplinary proceedings against Segal regarding the manner in which he handled the recovery check. In particular, the State Bar has cited violations of Nevada Supreme Court Rule 8.4, governing misconduct, and Nevada Rule of Professional Conduct 1.15 ("NRPC 1.15"), governing the safekeeping of property. The Bar asserts that NRPC 1.15 required that Segal hold the payment in trust for the benefit of Tafoya's creditors. In response, Segal asserts that ERISA clearly prohibited doing anything with the payment other than transmitting it to the Trust.
The instant complaint seeks declaratory relief that NRPC 1.15 is in conflict with, and therefore preempted by, obligations imposed by ERISA.
A. Motion to dismiss