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ERISA Subrogation Once Again Before The U.S. Supreme Court

On Monday November 9th, 2015 the United States Supreme Court heard arguments in the Montanile v. Bd. Of Trustees of the Nat. Elev. Health Benefit Plan, 135 S.Ct. 1700 (2015), Docket 14-723, which was an appeal that came out of the 11th Circuit.The issue the Supreme Court was presented with has significant implications on how a plaintiff in a personal injury action can handle and dissipate settlement funds.  The federal circuits have wrestled with this issue since the Supreme Court’s decision in Great-West Life & Annuity Ins. Co. v. Knudson, 534 US 204 (2002) expressly stated that ERISA Plans are limited to “appropriate equitable relief.”  The question presented to the U.S. Supreme Court for review asks:

Does a lawsuit by an ERISA fiduciary against a participant to recover an alleged overpayment by the plan seek “equitable relief” within the meaning of ERISA section 502(a)(3), 29 U.S.C. § 1132(a)(3), if the fiduciary has not identified a particular fund that is in the participant’s possession and control at the time the fiduciary asserts its claim?

In short, the Court is dealing with the question of can an ERISA Plan seek repayment from a plan member if the settlement funds from the personal injury action are spent, or no longer in the possession of the plan member/plaintiff.  The Circuits have split with the 1st, 2nd, 3rd, 6th, 7th and 11th holding that ERISA Plan’s claim attaches immediately to the settlement funds and even if the plaintiff no longer has possession of the funds, the Plan can still assert a subrogation/reimbursement demand.   Only the 8th & 9th Circuits hold to the equitable standards established by SCOTUS,  which in Synergy’s opinion makes it clear that if the plan member/plaintiff no longer has possession of the funds then the ERISA Plan cannot assert a repayment demand.

In this case the ERISA plan member, Robert Montanile, was involved in a serious car accident that resulted in significant injuries.  Mr. Montanile’s ERISA Plan provided over $120,000 in medical benefits as a result of the accident. Mr. Montanile engaged trial counsel and was able to obtain a $500,000.00 settlement. At this point, the ERISA Plan demanded repayment and despite attempts at negotiation, no agreement was reached. Subsequently, the Plan sued Montanile.  The trial court agreed with the Plan and ordered Mr. Montanile to repay the $120,000.00. Mr. Montanile appealed arguing that he no longer had possession of the settlement funds as they had been dissipated.  The 11th Circuit was unsympathetic agreeing with the trial court and once again Mr. Montanile was ordered to repay the ERISA Plan.

In an effort to find relief and clarity, Mr. Montaile filed a writ of certiorari that the U.S. Supreme Court granted.  Though the opinions and dicta of the Court in both Knudson and Sereboff seemed to clearly agree with Mr. Montanile’s position, the tone of oral arguments on Monday don’t bode well for him.  As Court watchers know, it is a dangerous proposition to try and divine from the Justice’s questions how they will eventually rule in a particular case.  However, the tone, tenor and focus of the Justice’s questions seemed to underscore the reality that it was these same nine (9) Justices who issued the incredibly anti-plaintiff pro-insurance industry ruling in U.S. Airways v. McCutchen, 133 S. Ct. 1537.

Mr. Montanile’s reasonable position was that ERISA Plan must limit its recovery to the amount of the settlement funds that are still in the plaintiff’s possession.  During an exchange with Justice Breyer, the example used was that if there was only $10.00 of the settlements funds left in the plan member/plaintiff’s account then the ERISA Plan was limited to that $10.00.  It was this exchange that began a shift in the tone of the questions so that Mr. Montanile’s counsel found himself on the defensive against the assertion by the ERISA Plan that Mr. Montanile was somehow a bad actor.

The Court began a discussion of remedies available to the Plan such as a fraud claim against the plaintiff, or the ability of the Plan to seek repayment directly from plaintiff’s counsel.  The Solicitor’s General’s office spoke on behalf of Mr. Montanile’s positon but upon questioning from the Court quickly conceded that perhaps the ERISA Plan’s repayment right was a superior claim to the attorney’s claim for fees.  Justice’s Scalia, Kennedy & Breyer expressed disbelief that an ERISA Plan’s claim could be superior with Scalia stating “if that was true you would never find an attorney who would take these cases.”  As welcome as those comments are, they do exemplify a fundamental misunderstanding of previous ERISA rulings.  In McCutchen, the Court ordered full repayment to U.S. Airways which meant that Mr. McCutchen did not have sufficient settlement funds to satisfy both the ERISA repayment demand and pay attorney fees.

Justice Breyer in particular seemed distressed that an attorney would take a fee from settlement when the ERISA Plan had a claim on those funds.  He argued that the plan member could not use funds due to another party (the ERISA Plan) to satisfy a debt (attorney fees) to another party.  The specter of an ERISA Plan making a claim for repayment directly against the attorney was raised, and remained a live topic through the rest of oral arguments.  This unfavorable tone increased as counsel for National Elevator continued to refer to Mr. Montainle’s dissipation of settlement funds as “the second bad act”.  This constant use of the term “second bad act” was unchallenged and was used repeatedly by National Elevator’s counsel.

The Court seemed especially sympathetic to the costs that would be incurred by ERISA Plans to prosecute their recovery rights if they had to assert reimbursement claims before funds were dissipated.  Despite Mr. Montanile’s counsel pointing out that the Plans already did this tracking and recovered over $1,000,0000,000.00 annually via subrogation/reimbursement,  the Court expressed concern over the continued viability of self-funded ERISA Plans.  At this point it became clear that the Court was far more concerned about the insurance industry’s bottom line than the welfare of injured individuals.

We should anticipate an opinion in spring 2016, but given the history of this Court, the tone of the oral arguments and the reality of the power of the insurance industry, Synergy does not expect the Court to provide relief for injured individuals who are participants in self-funded ERISA Plans.  Although, given the multitude of issues involved, there is a chance that the Court could provide some clarity on topics such as the priority of ERISA repayment obligations versus attorney fees. Only time will tell.


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