By: David L. Place, J.D. Vice President, Director of Lien Resolution Services
In the case of Sharon Thurber v. Aetna Life Insurance Company the petitioner has file a writ of certiorari asking the U.S. Supreme Court to re-enforce the equitable limitations on ERISA plan’s recovery rights they articulated in Great West Life & Annuity Insurance co. v. Knudson, 534 U.S. 204 (2002) and Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, (2006). Donald B. Verrilli, Jr., the United States Solicitor General, has filed an amicus brief in support of Ms. Thurber, though conceding that this may not be the best vehicle for the Court to use in once again holding that “specifically identifiable funds, in the control and possession of the plan participant” is needed for the ERISA plan to prosecute their “equitable lien by agreement.”
The Solicitor General argues that:
“In the government’s view, the [2nd] court of appeals in this case erred in concluding that a plan fiduciary can enforce an equitable lien regardless of whether the funds at issue have been dissipated.” Brief for the United States as Amicus Curia pg. 9
Allowing ERISA plans to seek repayment even from dissipated settlement funds is acceptable in the 1st, 2nd, 3rd, 6th and 7th Circuits. However, both the 8th and 9th do require that the ERISA plan only seek a recovery from “specifically identifiable funds, in the control and possession of the plan participant.”
Often the rationale that ERISA plan’s and their recovery vendors offer as to how they are able to seek a recovery from dissipated funds is that under Sereboff the Court reasoned that there is no “strict tracing” requirement in order to enforce an equitable lien against settlement funds. In Sereboff the plan’s “inability to satisfy the ‘strict tracing rules’ for ‘equitable restitution’ [was] of no consequence.” Id. at 365. The Solicitor General succinctly addresses this misreading by pointing out that when the U.S. Supreme Court was discussing “strict tracing” in Sereboff they were not talking about tracing from the plaintiff’s possession forward, “but w[ere] 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.” Sereboff at 684. As the 9th Circuit agrees with this understanding of Sereboff and reasoned in Bilyeu v. Morgan Stanley LongTerm Disability Plan, 683 F.3d 1083 (2012), cert. denied, 133 S. Ct. 1242 (2013) that “strict tracing” meant:
“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 possession.” Id. at 1092
The Solicitor General points out that the U.S. Supreme Court made that very point in Great West noting that:
“[W]here ‘the property (sought to be recovered) or its proceeds have been dissipated so that no product remains, (the plaintiff ’s) claim is only that of a general creditor,’ and the plaintiff ‘cannot enforce a constructive trust of or an equitable lien upon other property of the (defendant).’ ” Id. at 213-214 (quoting Restatement of Restitution and Unjust Enrichment § 215 (1936), cmt. a, at 867) (brackets in original).
Though the Solicitor General’s support is well received, and much appreciated it remains to be seen if cert. will be granted in this case, and if so, how persuasive will these arguements be before a clearly unsympathetic U.S. Supreme Court.