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Abstract: There has been a considerable amount of commentary among personal injury practitioners on Listservs regarding the Longaberger decision and what it means. The objective of this Practice Tip is to drill-down beneath the frustration and emotion to articulate three actionable steps for attorneys.
The recent Longaberger case has struck fear into the hearts of many PI attorneys across the states of the 6th circuit. The fear is that the strong arm of an ERISA plan will be able to reach not only a client’s settlement proceeds but the attorney’s fee as well. Has the general landscape of health insurance subrogation/reimbursement shifted dramatically or is this a cautionary tale limited to specific facts? In the Garretson Resolution Group’s (“GRG”) experience, Longaberger would fall into the latter category. While this case should not be taken lightly, there is no need to throw in the towel or cower in fear. This case must be examined and understood. Longaberger can tell us a lot about how lien resolution should be approached and how the fate of this particular attorney can be avoided.
Some of the main points of Longaberger v. Kolt, 2009 WL 3806079 (November 16, 2009):
- Attorney represented Client in a personal injury auto accident case.
- Client’s employer provided plan, the Longaberger Company Health Plan (“Plan”), was a self-funded ERISA plan whose language granted a first priority lien upon any third party recovery, to the extent of benefits provided.
- Attorney notified Plan of the settlement and his client’s intentions to resolve the lien.
- Attorney deposited total settlement proceeds of $135,000 into his IOLTA account.
- Attorney then disbursed settlement proceeds from IOLTA.
- Plan files suit against Attorney and Client and argues equitable lien by agreement under ERISA § 502(a)(3) and Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006).
- District Court rules that Attorney responsible for a third of the lien ($37,889.44).
- Attorney argues funds disbursed, thus suit for monetary damages and outside of ERISA’s scope of equitable remedy.
- Court of Appeals holds that according to Sereboff, the Plan, through its language, only needs to identify a particular fund and a particular share of that fund; an equitable lien by agreement does not require tracing or maintenance of a fund.
- Equitable lien attached when settlement was received and identified, thus disbursement was irrelevant, equitable lien prevails and has priority over everything including attorney’s fee.
Practice Tips: Three Actionable Steps
1) On Notice: No Ignorance Means No Bliss
The first step in lien resolution is determining a lien holder’s potential interest and whether or not notice has been provided by the lien holder. With hindsight to guide us, the most harmful facts working against the attorney in Longaberger comes from the fact that he was aware of the Plan’s asserted lien (possessed copy of the plan language) and he communicated his client’s willingness to resolve the lien. Interestingly, the Court did not discuss this in great detail but it almost certainly played a significant role in the decision. Prior to the settlement, the Attorney and Client were put notice of the lien and the terms of the Plan. If you represent a client and you receive notice of a potential lien, take heed and seriously address the matter. Plans rarely if ever just “go away”.
2) Language And Perfection: An ERISA Plan’s Right To Reimbursement Is Only As Strong As Its Language
From our perspective as a third-party provider of lien resolution services, the most pivotal step in resolving Private/ERISA liens is the plan evaluation. The language in a plan will dictate the contractual agreement between the participant and the provider, in essence identifying the scope of the lien’s perfection. A health insurance plan which provides benefits has a right of reimbursement which sounds in equity if the plan language imposes a constructive trust or equitable lien upon a third party recovery. To qualify as equitable the plan language MUST 1) specify that recovery will be made from an identifiable fund and 2) specify that recovery must be limited to a specific portion of said fund. A claim for specific performance of reimbursement (restitution) will not be deemed equitable relief and thus cannot be pursued by a plan. In Longaberger, the plan language provided for an equitable lien upon the proceeds recovered from a third party to the extent of benefits provided. By using such language, the Plan was seeking equitable relief under ERISA. There was an equitable lien and the parties had been put on notice, thus it is reasonable to conclude that the Plan had perfected its lien at the moment those funds hit the IOLTA account. Therefore, the fact that these funds were later disbursed is irrelevant. The Plan was seeking to enforce its equitable lien which had been created through contractual agreement. In addressing a potential health lien, it is important to understand the contractual agreement, the rights the Plan may be asserting, and when those rights take effect. Obtain a copy of the Summary Plan Description.
3) Proactive Approach to “Perfect” Plans
Indeed you may find yourself in the perfect storm (from the plan’s perspective). Your client has received benefits from their employer’s self-funded ERISA plan and thus state law is largely preempted. To make matters worse the plan language is extensive and provides for an equitable lien/constructive trust on any settlement proceeds. Not to mention the plan abrogates both the Made Whole Doctrine and Common Fund Doctrine. The outcome seems dire in the face of such “perfect” language but there MAY be hope. If the settlement has not been inked and the funds have not yet been received, there is no right to reimbursement. In our lien resolution practice, we can use this as a means of educating the lien holder on the front end. In many cases, the sheer size of a lien and strength of a plan can make pursuing a tort claim worthless for both the attorney and the client. In these cases, a meaningful reduction may be achieved if settlement has not been reached and the lien holder is properly educated. Be proactive and identify potential lien interests early in the lifecycle of the case. Also, once a settlement has been reached the lien will be perfected and opportunity for compromise is lost. We stress that an attorney should not settle until the lien has been negotiated and an amount or split has been agreed upon. If you have engaged GRG to resolve a lien based upon “perfect” language but settle before lien resolution, you may be eliminating the only opportunity for reduction.
The Longaberger decision is a cautionary tale. When a lien is asserted and an attorney is put on notice the matter should be taken seriously and dealt with immediately. If a lien is not properly addressed by identifying the scope of the lien’s perfection through plan evaluation the results can be disastrous. In anticipation of such issues, be proactive and understand that a lien will often be perfected upon settlement.
If you have any questions or comments, please do not hesitate to contact Michael Russell, GRG’s Lead Attorney in ERISA and Private Health Insurance matters, at mrussell@garretsongroup.com or (704) 559-4300.
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