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Labor and Employment Law

U.S. High Court Considers Equitable Relief In ERISA Reimbursement Dispute

 WASHINGTON, D.C. — (Mealey’s) The U.S. Supreme Court today heard arguments regarding whether an employee welfare plan’s attempt to recover an alleged overpayment from a participant constitutes permissible “equitable relief” under Employee Retirement Income Security Act Section 502(a)(3), where the participant spent the funds subject to the lien (Robert Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, No. 14-723, U.S. Sup.).

The 11th Circuit U.S. Court of Appeals held that where an employee welfare plan provision gave the National Elevator Industry Health Benefit Plan a first-priority claim to all payments made by a third party, an equitable lien attached to any settlement funds the beneficiary received and that the beneficiary’s subsequent dissipation of the funds “could not destroy the lien that attached before” the dissipation.

Peter K. Stris of Stris & Maher in Los Angeles, representing plan participant Robert Montanile, argued that since Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), the Supreme Court historically has held that an equitable lien is enforceable “only against specific property or its traceable product” in the defendant’s possession [subscribers can access an enhanced version of this opinion: | Lexis Advance].

Citing tracing rules at equity, Stris commented that “[t]he only way we would prevail on remand is if [Montanile] got the money and he spent it down — ­ all of his money, not just the settlement but all of the cash that he had — ­ down below the — the amount of the settlement.”

Stris argued that the trustees are advocating for application of the “swollen asset theory,” which “never was applied at equity.”

Plan Not Diligent

Ginger D. Anders, assistant to the solicitor general, Department of Justice, in Washington appeared for the United States as amicus curiae in support of Montanile. In responding to Justice Ruth Bader Ginsburg’s question as to why the government filed on the side of the plan in Great-West but in favor of the beneficiary in the instant case, Anders commented that in Great-West, the government took “a somewhat broader view of equitable relief than the court ended up adopting in that case. And so as we get here today, we've taken this position because we think it is absolutely the logical consequence of Great­West and Sereboff [v. Mid Atlantic Medical Services, Inc. (547 U.S. 356 [(2006)])] together [ | Lexis Advance].”

Anders commented that this case “is unlike the mine run of cases where we see that plans since Great­-West have developed measures that they can take in order to protect their rights.” The instant plan “wasn't diligent.” Rather, it “waited for months when it knew that it had a reimbursement claim, and that that was being disputed. It didn't seek an injunction. It didn't file suit,” Anders said.

Chief Justice John G. Roberts Jr. said that the actions plans can take to avoid dissipation are “complicated” and that the court tries “to avoid complicating the procedures in this area, for the simple reason that nobody has to set up one of these plans.”

2nd Wrong

Neal K. Katyal of Hogan Lovells in Washington on behalf of the plan argued that “[w]hen a right under equity has attached and a defendant then knowingly frustrates that equitable claim, it is absolutely part of equity to permit that claim. This reflects the cold reality that the defendant took actions that blocked an otherwise valid claim in equity.”

Chief Justice Roberts commented that Montanile “has a significant point that it’s actually not as hard as it might appear” for a plan to protect itself. Katyal responded that plans are not given notice when settlements occur, that it is expensive for plans to monitor settlements and that the money the plan spends on monitoring and filing lawsuits or restraining orders is taken away from other plan beneficiaries.

Justice Elena Kagan commented that several of the remedies that Katyal was citing were from “the last throes of equity as it was becoming a legal system” and, therefore, were not “typically equitable.” Katyal conceded the point regarding swollen assets but not substitutionary monetary decrees.

In rebuttal, Stris argued that, historically, substitutionary monetary relief is legal.

Reimbursement Sought

On Dec. 1, 2008, Montanile was seriously injured in an automobile accident. The National Elevator Industry Health Benefit Plan paid Montanile’s initial medical expenses of $121,044.22. Montanile sued the driver of the other car and eventually settled his claims for a total of $500,000. Out of that amount, Montanile paid his attorneys a $200,000 contingency fee and $63,788.48 in expenses.

The plan’s board of trustees, the plans’ named fiduciary and administrator asserted a right to be reimbursed the amount the plan had paid Montanile’s medical providers. The trustees sought reimbursement on the “first dollar” basis — i.e., without any adjustment for Montanile’s fees and expenses or for the fact that he was not made whole.

In doing so, the trustees relied on the following provision of the plan’s summary plan description:  “The Plan has a right to first reimbursement out of any recovery. Acceptance of benefits from the Plan for an injury or illness by a covered person, without any further action by the Plan and/or the covered person, constitutes an agreement that any amounts recovered from another party by award, judgment, settlement or otherwise, and regardless of how the proceeds are characterized, will promptly be applied first to reimburse the Plan in full for benefits advanced by the Plan due to the injury or illness and without reduction for attorneys’ fees, costs, expenses or damages claimed by the covered person, and regardless of whether the covered person is made whole or recovers only a part of his/her damages.”

Montanile tried to negotiate a settlement with the trustees for eight months. When the parties reached an impasse, Montanile’s attorney requested that the trustees accept his final offer or file suit. He further told them that he would release the remaining settlement funds to Montanile if they failed to respond within 14 days.

After one month passed with no response, Montanile requested and received the rest of the settlement funds. He used that money to pay his attorney and care for himself and his 12-year-old daughter.

Federal Suit

Several months later, when Montanile claims that his funds were less than the amount the trustees sought, the trustees sued Montanile in the U.S. District Court for the Southern District of Florida. They sought reimbursement of the benefits that the plan paid to his medical providers. The District Court, stating that it was following “the overwhelming majority of circuit courts,” granted summary judgment to the trustees.

Montanile appealed. He argued that Section 502(a)(3) authorizes equitable relief only to the extent available at common law. And, at common law, an equitable lien by agreement could be enforced against specific property within the current possession and control of the debtor, but not against his general assets. Montanile claimed that because his settlement fund was dissipated in good faith before the filing of the lawsuit, the District Court erred in granting summary judgment to the trustees.

The 11th Circuit U.S. Court of Appeals affirmed the District Court, noting that Montanile’s argument was foreclosed by AirTran Airways, Inc. v. Elem, 767 F.3d 1192 (11th Cir. 2014), in which a panel majority decided the same issue and adopted the position of the First, Second, Third, Sixth and Seventh Circuits and rejected the position of the Eighth and Ninth Circuits and the federal government [ | Lexis Advance].

The Supreme Court granted certiorari on March 30. The federal government, United Policyholders, AARP and The American Association for Justice filed amicus briefs supporting Montanile. Amicus briefs in support of the trustees were filed by National Association of Subrogation Professionals and the Self-Insurance Institute of America Inc. (collectively, NASP); IBEW-NECA Southwestern Health & Benefit Fund and the Chamber of Commerce of the United States of America (collectively, IBEW-NECA); and National Coordinating Committee for Multiemployer Plans (NCCMP).


Brendan S. Maher, Dana Berkowitz and Victor O’Connell of Stris & Maher, Radha A. Pathak of Whittier Law School in Costa Mesa, Calif., and Shaun P. Martin of the University of San Diego School of Law in San Diego also represent Montanile.

Jessica L. Ellsworth, Mary H. Wimberly and Sean Marotta of Hogan Lovells in Washington and John D. Kolb of Gibson & Sharps in Louisville, Ky., also represent the trustees.

The United States is also represented by Solicitor General Donald B. Verrilli Jr. and Deputy Solicitor General Edwin S. Kneedler of the DOJ and Solicitor of Labor M. Patricia Smith, Associate Solicitor G. William Scott, Counsel for Appellate and Special Litigation Elizabeth Hopkins and Attorney Anna O. Area of the U.S. Department of Labor. All are in Washington.

United Policyholders is represented by Mark D. DeBofsky and Martina B. Sherman of DeBofsky & Associates in Chicago, Tybe A. Brett of Feinstein Doyle Payne & Kravec in Pittsburgh and Amy Bach and Dan Wade of United Policyholders in San Francisco. AARP is represented by Mary Ellen Signorille of AARP Foundation Litigation in Washington. American Association for Justice is represented by Jeffrey R. White of Center for Constitutional Litigation in Washington.

NASP is represented by William S. Consovoy, Patrick Strawbridge and J. Michael Connolly of Conosovoy McCarthy Park in Arlington, Va.; Daran P. Kiefer of Kreiner & Peters Co. in Cleveland; Bryan B. Davenport of Law Offices of Bryan B. Davenport in Franklin, Ind.; and Laura D. Schmidt of Downs Stanford in Dallas. IBEW-NECA is represented by Aaron M. Streett and J. Mark Little of Baker Botts in Houston, David Schiller of Baker Botts in Dallas and Kate Comerford Todd and Warren Postman of U.S. Chamber Litigation Center Inc. in Washington. NCCMP is represented by John M. McIntire and Jennifer R. Simon of O’Donoghue & O’Donoghue in Washington.

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