By Dave Place, Vice President & Director of Lien Resolution
For some time a split has existed in the Circuits regarding the ability of an ERISA Plan to reach assets that are not in the “control and possession” of the plan participant. Eight of the thirteen circuits have expressed opinions on the presented questions, with the majority (6 to 2) finding that the ERISA plan fiduciary is able to have a very lax standard regarding the need for the ERISA Plan to seek repayment only from “specifically identifiable funds in the control and possession of the plan participant.”
On March 30th ,2015 the U.S. Supreme granted Certiorari in the case of Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan.
The issue presented before the Court as follows:
“Does a lawsuit by an ERISA fiduciary against a participant to recover an alleged overpayment by the plan seek “equitable relief” within the meaning of ERISA section 502(a)(3), 29 U.S.C. § 1132(a)(3), if the fiduciary has not identified a particular fund that is in the participant’s possession and control at the time the fiduciary asserts its claim?”
In my opinion, this is the least favorable plaintiff issue that the 11th Circuit opinion presented, but could have the most significant impact for the plaintiff’s bar. In the underlying case the issues regarding the ability of the Summary Plan Description to establish rights not established in the Master Plan, as well as the conflation of “common fund” with the attorney fee issue were issues I think the court would have seen in a more favorable light for the plaintiff. Perhaps we can expect some dicta on these issues, especially given that on remand it has been discovered the Master Plan Document for the U.S. Airways plan in McCutchen did not contain any subrogation or reimbursement language, but the SPD did.
However, as noted in Footnote four of the Petition that is not an issue presented:
“In the lower courts, Mr. Montanile argued that the Reimbursement Provision was not enforceable as a term of the National Elevator Plan because the Summary Plan Description did not qualify as the written instrument required by 29 U.S.C. § 1102. The Court of Appeals disagreed, holding that the terms of the Summary Plan Description “are enforceable, pursuant to § 1132(a)(3) because (1) no other document lays out the rights and obligations of plan participants and (2) the Trust Agreement contemplated the rights and obligations would be set forth in a separate document.” Pet. App. 15. Mr. Montanile does not seek further review of the Court of Appeals’ decision with respect to the enforceability of the Reimbursement Provision.”
This narrow question will give SCOTUS the opportunity to correct the misunderstanding of Sereboff that is often the root of the rationale for ignoring the need for “specifically identifiable funds in the control and possession of the plan participant” as a condition precedent for enforcing a reimbursement claim.
Most trial attorneys who are attempting to resolve ERISA subrogation/reimbursement claims and raise the issue of “identifiable funds” as a means to thwart recovery efforts will be familiar with this misinterpretation of Sereboff. The Petition for cert in this matter addresses this misinterpretation and directs the Court to the well explained analysis of the Solicitor General’s Amicus Brief in Thurber.
“To reiterate: in its Thurber invitation brief, the United States has explained in detail why the position of the First, Second, Third, Sixth, Seventh (and now Eleventh) Circuits is wrong and conflicts with this Court’s ERISA section 502(a)(3) cases.”
That explanation in Thurber reads:
“In arguing that it may enforce an equitable lien by agreement even without identifying a fund still in petitioner’s possession, respondent relies (Br. in Opp. 27) on the Court’s statement in Sereboff that the plan’s “inability to satisfy the ‘strict tracing rules’ for ‘equitable restitution’ is of no consequence.” 547 U.S. at 365. But that statement quite clearly was not meant to negate the need to identify a fund to which the equitable lien attached—a requirement the Court had just described at length, id. at 362-363—but was instead aimed solely at rejecting the argument that the funds sought by the plan in that case had to be traceable back to the plan itself. Id. at 364 (discussing requirements where “an asset belonging to the plaintiff had been improperly acquired by the defendant and exchanged by him for other property”); accord Bilyeu, 683 F.3d at 1092 (reading Sereboff’s rejection of “strict tracing” to mean only that, “to satisfy the requirements for an equitable lien by agreement, Mid Atlantic was not required to trace the funds in the Sereboffs’ tort recovery back to Mid Atlantic’s own 5 possession”). Sereboff establishes that a fund need not be traced back to the plaintiff for an equitable lien by agreement to attach, but that distinct holding does not dispense with the requirement that there be a fund in the defendant’s possession in the first place. We recognize that this result can leave a gap in ERISA’s mechanisms for enforcing plan terms, where the participant or beneficiary has received and spent the funds out of which reimbursement was to be made before the plan took action to obtain or recover those funds. But the Court concluded in Great-West that that consequence is insufficient to overcome the text of Section 502(a)(3), which, “by its terms, only allows for equitable relief.” 534 U.S. at 221.”
Should the Court agree with their own rationale in Sereboff , that dissipating settlement funds place ERISA Plan’s liens in the same category as general unsecured creditors, then the options available for the trial bar to protect settlement assets from these plans will be greatly enhanced (irrevocable trusts, structured settlement, special need trusts, bankruptcy, etc.).
We can expect the U.S. Government to file another Amicus Brief in support of the minority opinion as they did in Thurber. We likely will not have an answer to this question until 2016, so until then use this uncertainty to your advantage when dealing with a self-funded ERISA plan or their recovery vendors. As many obstacles as you can place between the settlement funds and the ERISA Plans (or more specifically their recovery agents (i.e. Rawlings, Trover, Xerox, Optum, etc.) the more likely you will be able to use this uncertainty to negotiate a favorable reduction or perhaps even a waiver of their subrogation/reimbursement claim.
Before taking over Synergy’s plaintiffs only lien resolution division I spent fourteen years working on the “dark side,” specifically with John Kolb at Gibson & Sharps, attorney for Respondent. Speaking from that experience, I can say that it was the dissipation of settlement funds that caused us the biggest headaches in our recovery efforts. The business model of these recovery vendors is to ride on your “coat-tails” until they can grab the “low hanging fruit” you have worked to create. By raising your “fruit” further up the tree – by structuring it, placing it in a trust, etc. the likely result in a more serious review of your reduced repayment offer. Until we have an opinion from SCOTUS on the viability of these tactics use this granting of cert, and the inherent uncertainty to your advantage.