South Carolina Lawyer
2006.
SC Lawyer, September 2006, #2.
Settling personal injury actions after Sereboff v. Med-Atlantic
South Carolina LawyerSeptember 2006Settling personal injury actions after Sereboff v. Med-AtlanticBy Roy F. Harmon IIIOne would think that, in the many years since the enactment of the Employee Retirement Income Security Act of 1974 (ERISA), the issue of plan rights to reimbursement from personal injury recoveries would have been worked out in thorough detail. After all, personal injury litigation cases have always represented an important part of the trial lawyers' practice, and resolution of liens and claims accompanies the settlement of most cases. Nonetheless, more than 30 years after ERISA's enactment, the U.S. Supreme Court still finds itself in Sereboff v. Mid-Atlantic, 126 S.Ct. 1869 (2006), exploring the reaches of ERISA in the important, albeit routine, matter of health plan subrogation and reimbursement.
Before addressing the details of that decision, it may be helpful to review some of the important crossroads that led to the most recent intervention of the Supreme Court in this area of the law. Afterwards, the reader will find discussion of the current law and a checklist presentation of considerations that may be helpful in evaluating and managing health plan reimbursement claims.
Applying equity in a statutory context-ERISA Section 502(a)
As noted in Scholastic Corp. v. Najah Kassem & Casper & De Toledo LLC, 389 F.Supp.2d 402 (D.Conn.,2005, "[i]n the 1930s most lawyers undoubtedly cheered when the drafters of the Federal Rules of Civil Procedure jettisoned the distinction between law and equity by fusing the two systems and seemingly ending the days of the divided bench. As was true with Mark Twain, however, rumors of the demise of the law/equity distinction appear to have been greatly exaggerated." Id., at 402.
If lawyers of that day were weary of the "subtleties of ancient writs," no doubt the court in the foregoing case was correct that today's lawyers and courts are even less prepared in training and experience to make the necessary distinctions in law versus equity required by decisions such as Sereboff. Beginning in 1993, however, the Supreme Court's growing emphasis upon a narrow reading of ERISA Section 502(a) forces careful attention to such historical antecedents.
ERISA Section 502(a) provides the civil enforcement provisions of the statute. 29 USC Sec. 1132. The provision provides that a civil action may be brought:
(A) to enjoin any act or practice that violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief
(i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.
See, ERISA § 502(a)(3); 29 USC Sec. 1132.
By 1985, the Supreme Court had already indicated a predilection toward a narrow interpretation of these provisions. In Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 105 S.Ct. 3085, 53 USLW 4938 (1985), the Court stated that "[t]he six carefully integrated civil enforcement provisions found in § 502(a) of the statute as finally enacted . provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly," Id., 473. U.S. 134, 148, (holding ERISA did not authorize extracontractual compensatory or punitive damages against fiduciary).
This exacting approach to interpretation of the civil enforcement provisions in general took on a more particular, but equally rigorous, aspect in the Court's exegesis of the phrase "other appropriate equitable relief" found in § 502(a)(3)(B). At first blush, the provision appears broad. Indeed, the Court itself once described the provision as a "catch all" that "act[s] as a safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy." See, Varity Corp. v. Howe, 516 U.S. 489, 512, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996).
Nevertheless, the decision in Mertens v. Hewitt Associates, 508 U.S. 248, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993), ultimately proved the more telling guide to the future application of the provision. In Mertens, the Court held that § 502(a)(3)(B) did not permit retirement plan beneficiaries to sue the plan actuary for damages when the actuary's negligence caused the plan to terminate underfunded. In reaching this decision, the Court held that "equitable relief" refers to those categories of relief that were typically available in equity, such as injunction, mandamus and restitution-but not compensatory damages. Id., at 508 U.S. 248, 113 S.Ct. 2063, 2069. This interpretation signaled an extremely important limitation as developed in subsequent cases.
Exploring the limits of "appropriate equitable relief"-Great-West Life & Annuity Ins. Co. v. Knudson
Though intervening cases added further examples of the application of what would constitute a proper suit for equitable relief, for purposes of health plan subrogation and reimbursement, the Court did not provide an explicit solution until Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002). See, e.g., Harris Trust and Sav. Bank v. Salomon Smith Barney Inc., 530 U.S. 238, 120 S.Ct. 2180, 147 L.Ed.2d 187 (2000) (action for restitution against a transferee of tainted plan assets" is "appropriate equitable relief"). In Knudson, Great-West attempted to recover funds paid towards an accident from a plan beneficiary based upon a claim it styled as "restitution." The critical deficiency in Great West's claims, however, lay in the fact that the settlement proceeds were not in the Knudsons' possession, but were rather in a trust for Janette Knudson's medical care.
While sounding equitable enough in its taxonomy, the Court determined that Great West's claim actually had as its object the recovery of money damages. As the personal injury settlement funds were not in the possession of the defendant plan beneficiary, the Court held that Great West's claim failed to meet the test of "appropriate equitable relief."
On the other hand, the Court did state that "a plaintiff could seek restitution in equity, ordinarily in the form of a constructive trust or an equitable lien, where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession." Id., 534 U.S. 204,...
