In March 2015, the U.S. Supreme Court granted certiorari in the Eleventh Circuit’s decision in Montanilev. National Elevator.1 A ruling is expected this fall. The writ stems from the Employee Retirement Income Security Act (ERISA) and equitable liens imposed by employer-sponsored benefit plans against plan members who receive benefits related to an injury caused by a third party and are later compensated through a related personal injury settlement.
The issue is rooted in continuing conflicting interpretations of the Supreme Court’s decision inSereboff v. Mid. Atl. Med. Servs., Inc., and whether an ERISA plan’s claim for equitable relief must comply with strict tracing rules requiring that a plan member be in possession and control of personal injury settlement funds at the time of an ERISA equitable lien claim.2
Specifically, the Eleventh Circuit affirmed in Montanile that National Elevator’s Summary Plan Description (SPD) document effectuating its equitable lien rights was an enforceable instrument under ERISA and the health plan could enforce its lien against recovered personal injury settlement funds even though the funds had already been dissipated by the plaintiff plan member.
Robert Montanile was a covered member of the National Elevator Industry Health Benefit Plan (the Plan) when he was involved in an automobile accident in 2008. He subsequently underwent surgery for related back injuries and received other medical care covered under the Plan. Montanile sued the driver of the other vehicle and eventually received a $500,000 settlement; he paid $263,788.48 to his attorney and spent the remaining funds without reimbursing the Plan for any of its medical expenditures on his injury-related care. After lien resolution negotiations between the Plan and Montanile’s attorney failed, National Elevator filed a single-count ERISA lawsuit to enforce the Plan’s lien provisions found in its SPD document in the amount of $122,044.02 (the full amount of its expenditures).
Equitable Lien Enforcement When Settlement Funds are Dissipated
In the district court, Montanile argued that even if the SPD created valid subrogation rights, the reimbursement sought by the plan was not “appropriate equitable relief” under ERISA 29 U.S.C. § 1132(a)(3)(B) because the funds on which the plan was asserting the lien had already been dissipated. Montanile’s argument regarding dissipation relied heavily upon a group of prior cases out of the Middle District of Florida which held that an equitable lien cannot exist where no funds remain. Despite this line of argument, the district court ruled against Montanile and granted National Elevator’s motion for summary judgment, effectively validating its lien.
Montanile then made the same argument regarding “appropriate equitable relief” on appeal. In response, the Eleventh Circuit relied on its recent holding in AirTran Airways, Inc. v. Elem,3 in which it ruled that for the purpose of equitable lien rights under ERISA, settlement funds were “specifically identifiable” even after they are no longer in the possession of the plaintiff-plan member; a plan member’s dissipation of the funds thus could not destroy the lien that attached before the dissipation.4
The Eleventh Circuit’s ruling reinforced its holding in Elem and falls in line with the opinions of six other circuit courts. Two circuits, however, currently take the opposite view, finding that ERISA does not provide for recovery of a plan’s equitable lien against dissipated settlement proceeds and at the time of an ERISA action a “strict tracing” of the funds from settlement to the plan member’s (or his/her attorney) actual or constructive possession is required.5 The Supreme Court will utilize Montanile to resolve the circuit split on this important issue and provide much-needed guidance to ERISA health plans, members and the lower courts.
While the Supreme Court’s review of Montanile is limited to the effect of ERISA liens on dissipated settlement proceeds, it is worth noting that the Eleventh Circuit’s decision relied heavily on finding that the SPD served as a governing plan document and its terms are enforceable.
Since the Supreme Court’s decision in CIGNA Corp. v. Amara,6 which held that an SPD did not create enforceable terms of an ERISA plan, there have been numerous lower court decisions regarding the enforceability of SPD provisions under ERISA. The Eleventh Circuit distinguished the circumstances inMontanile from those in Amara based on the fact that in Montanile the SPD was the sole written instrument which laid out the terms of the plan and therefore it could be treated as the plan itself.
Despite the singular focus of the Court’s forthcoming review, many readers will be looking to see whether the Court provides insight into the SPD issue and the Eleventh’s Circuit reasoning for finding the lien provisions of the SPD enforceable. The SPD issue remains a topic of lower court litigation, and any guidance in the Court’s forthcoming opinion, even if only provided as dicta, will be a matter of emphasis for interested ERISA parties.
Potential Impact of a SCOTUS Ruling on Montanile
Resolution of the equitable lien tracing issue will carry significant importance for both ERISA plans and plan members. If the Court upholds the majority view and finds dissipation of settlement proceeds is not a viable defense to an ERISA claim for reimbursement, plans with effective reimbursement provisions will continue to enjoy strong recovery rights and members must take such rights into account before, during, and after the pursuit of additional sources of compensation (including personal injury settlements and other disability income).
Alternatively, if the minority view is adopted and strict tracing (identifying a fund within the possession and control of the member) is required, ERISA plans will be tasked with implementing more aggressive methods of payment detection and/or seeking alternative means of granting conditional payments through coordination of benefits procedures.
Additionally, attorneys representing ERISA plan members in personal injury matters should pay close attention to the outcome in Montanile. While the Montanile case did not involve a claim against the plan member’s attorney, several of the Circuit decisions, including the Eleventh Circuit’s decision inElem, involved ERISA reimbursement claims where the member’s attorney was a named defendant. Should the Court deny the strict tracing requirement, the scope of potential ERISA liability will undoubtedly extend beyond a plan member and could include any party who possessed the funds subject to the equitable lien, including the plan member’s attorney. Such an outcome and the subsequent questions about equity and claim priority would then set the table for the next great ERISA debate.
For more information, contact Michael Russell or Nicholas D'Aquilla at 888.556.7526.