No.
04-1336
_____________________________________________________________ |
UNITED
STATES COURT OF APPEALS
FOR THE
FOURTH CIRCUIT
_____________________________________________________________ |
MID ATLANTIC MEDICAL SERVICES, INCORPORATED,
Plaintiff-Appellee,
v.
JOEL SEREBOFF; MARLENE SEREBOFF,
Defendants-Appellants.
____________________________________________________________________________ |
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
__________________________________________________ |
BRIEF OF THE SECRETARY OF LABOR AS
AMICUS CURIAE IN SUPPORT OF MID ATLANTIC
MEDICAL SERVICES, CORPORATED'S REPLY
___________________________________________________ |
HOWARD M. RADZELY
Solicitor of Labor
TIMOTHY D. HAUSER
Associate Solicitor
Plan Benefits Security Division
SALVADOR SIMAO
Trial Attorney
ELIZABETH HOPKINS
Counsel for Appellate and
Special Litigation
Plan Benefits Security Division
U.S. Department of Labor
Office of the Solicitor
P.O. Box 1914
Washington, D.C. 20013
(202) 693-5600
|
TABLE
OF CONTENTS
INTEREST OF THE SECRETARY OF LABOR
QUESTION PRESENTED
STATEMENT OF THE CASE
ARGUMENT
The District
Court's Order Directing Participants to Reimburse the Plan for Previously
Provided Medical Benefits from Specifically Identifiable Funds Obtained in
Settlement of Participants' Tort Action is Appropriate Equitable Relief under
ERISA and Consistent with the Supreme Court's Ruling in
Great West
and this Circuit Court's PRECEDENT
CONCLUSION
TABLE OF AUTHORITIES
Federal Cases:
Bombardier Aerospace
Employee Welfare Benefits Plan v. Ferrer, Poirot & WansBrough, et al., 354
F.3d 348, 356 (5th Cir. 2003), cert.
denied, 124 S. Ct. 2412 (2004)
In re Carpenters, 36 Fed. Appx. 80 (4th Cir. 2002)
Donovan v.
Cunningham, 716 F. 2d 1455, 1462-63 (5th Cir. 1983)
Great-West Life &
Annuity Ins. Co. v. Knudson, 534
U.S. 204 (2002)
Harris Trust & Sav.
Bank v. Salomon Smith Barney, Inc., 530
U.S. 238, 250-51 (2000)
Local 109 Retirement Fund v. First Union
Nat'l Bank, 57 Fed. Appx. 139 (4th Cir. 2003)
Mertens v. Hewitt
Assocs., 508
U.S. 248, 256 (1993)
Mid Atlantic Med.
Servs., Inc., v. Sereboff, 303
F. Supp. 2d 691, 697-701 (D. Md. 2004)
Primax Recoveries, Inc. v. Young, 83 Fed. Appx. 523 (4th Cir. 2003)
Provident Life &
Accident Ins. Co. v. Waller, 906 F.2d 985, 986-87 (4th Cir. 1990)
Rego v. Westvaco Corp., 319 F. 3d 140 (4th Cir. 2003)
Secretary of Labor v. Fitzsimmons,805 F.2d 682 (7th Cir. 1986)
State Cases:
Leyden v. Citicorp Indus. Bank,
782 P.2d 6 (Colo. 1989)
Middlebrooks v. Lonas,
246 Ga. 720, 272 S.E.2d 687 (1980)
Federal Statutes:
Employee Retirement
Income Security Act of 1974,
as
amended, 29 U.S.C. sec. 1001, et seq.
Section 502, 29 U.S.C. sec.
1132
Section 502(a)(2), 29 U.S.C.
sec. 1132(a)(2)
Section 502(a)(3), 29 U.S.C.
sec. 1132(a)(3)
Section 505, 29 U.S.C. sec.
1135
Miscellaneous:
1 Dan B. Dobbs,
Law of Remedies, (2d ed. 1993)
587
588
590
591
595
598
INTEREST OF THE SECRETARY OF LABOR
The
Secretary of Labor (the "Secretary") has primary authority to interpret and
enforce the provisions of Title I of ERISA and therefore has a strong interest
in ensuring that the fiduciary duties of loyalty and prudence in the
administration of plan assets are strictly applied. 29 U.S.C. §§ 1132, 1135.
See Donovan v. Cunningham, 716 F.2d 1455, 1462-63 (5th Cir.
1983). The Secretary's interests further include promoting the uniform
application of the Act, protecting plan participants and beneficiaries, and
ensuring the financial stability of plan assets. Secretary of Labor v.
Fitzsimmons, 805 F.2d 682 (7th Cir. 1986) (en banc). The plans' ability
to seek reimbursement of benefits from plan participants who have recovered
funds from third parties is important to plans' continued financial stability,
and so long as it is accomplished through specifically identifiable funds it
constitutes "appropriate equitable relief" under section 502(a)(3) of ERISA,
29 U.S.C. § 1132(a)(3).
QUESTION PRESENTED
This case
involves an ERISA subrogation claim brought by Mid Atlantic Medical Services,
Inc. ("Mid Atlantic" or "Plan") against Plan participants Joel and Marlene
Sereboff (collectively, the "Sereboffs" or "Participants") to be reimbursed
for medical benefits paid by the Plan from settlement funds recovered by the
Sereboffs from a third-party tortfeasor. In accordance with a court ordered
stipulation, the exact amount of the medical benefits the Plan seeks to
recover were partitioned from the Participants' settlement funds held within
their investment account, where the partitioned funds must remain until the
exhaustion of all appeals related to this matter. The primary issue on appeal
is whether the district court's order that Participants transfer the
partitioned funds held within their investment account to the Plan as
reimbursement for previously received Plan benefits in accordance with the
plain language of the plan, was appropriate "equitable" relief under section
502(a)(3) of ERISA.
STATEMENT OF THE CASE
The district court
based its holding upon the parties' stipulated facts, which the court attached
to its published opinion. See Mid Atlantic Med. Servs., Inc., v.
Sereboff, 303 F. Supp. 2d 691, 697-701 (D. Md. 2004) (Joint Appendix "J.A."
document 30). In June of 2000, appellants Joel and Marlene Sereboff were
injured in an automobile accident in California. Id. Both of the
Sereboffs were participants of the Plan at the time of the accident and were
paid a total of $74,869.37 in medical benefits for their accident related
injuries; specifically Marlene Sereboff was paid $73,778.26 and Joel Sereboff
was paid $1,091.11. Id. In January of 2003, the Sereboffs settled
their claims against their tortfeasors for $750,000. Id. The
settlement funds were deposited into an investment account controlled by the
Sereboffs. Id. In March of 2003, Mid Atlantic demanded reimbursement
from the Sereboffs from their settlement proceeds for the amount paid to them
as medical benefits, in accordance with the Plan's reimbursement and
subrogation clause. Id. The Sereboffs refused to comply with the
Plan's demand to transfer the amount of the previously paid medical benefits
from their settlement funds to the Plan. Id.
Mid Atlantic
initially sought a preliminary injunction against the Sereboffs to prevent the
transfer of the settlement funds until the Plan's claim was adjudicated. The
Plan withdrew its request for a preliminary injunction because the Sereboffs
stipulated that "Joel Sereboff and Marlene Sereboff shall preserve $74,869.37
of the settlement funds recovered because of injuries sustained on or about
June 22, 2000, which are currently held in investment accounts (and must keep
the settlement funds in those investment accounts) until the Court rules on
the merits of this case and all appeals, if any, are exhausted." See
ORDER GRANTING STIPULATION TO PRESERVE FUNDS, WITHDRAW MOTION FOR A
PRELIMINARY INJUNCTION, AND BRIEFING SCHEDULE (J.A. document 7).
The Plan
also filed a complaint under section 502(a)(3) of ERISA for equitable
reimbursement from the settlement funds for the benefits previously provided
to the Participants. In addition, the Plan requested that the Court not
prorate the reimbursement amount by the Participants' legal fees and court
costs. On January 26, 2004, the District Court granted Mid Atlantic's motion
for summary judgment and ordered the Sereboffs to transfer $74,869.37 plus
interest (6%) from the partitioned funds held within their investment account
to Mid Atlantic, minus Mid Atlantic's pro rata share of reasonable attorney
fees and court costs. On April 6, 2004, the Sereboffs filed a timely appeal
to the Fourth Circuit arguing that the relief granted by the District Court
violated the Supreme Court's holding in Great-West Life & Annuity Ins. Co.
v. Knudson, 534 U.S. 204 (2002).
ARGUMENT
The District Court's Order Directing Participants to Reimburse the Plan for
Previously Provided Medical Benefits from Specifically Identifiable Funds
Obtained in Settlement of Participants' Tort Action is Appropriate Equitable
Relief under ERISA and CoNSISTENT with the Supreme Court's Ruling in
Great West
and this Circuit Court's PRECEDENT
Section
502(a)(3) of ERISA authorizes a civil action "by a . . . fiduciary (A) to
enjoin any act or practice which violates…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 the . . . terms of the plan." 29 U.S.C. §
1132(a)(3). In Great-West, the Supreme Court held that "appropriate
equitable relief" under ERISA section 502(a)(3) refers to "'those categories
of relief that were typically available in equity.'" 534 U.S. at 210 (citing
Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993)). "[F]or
restitution to lie in equity," the Court explained, "the action generally must
seek not to impose personal liability on the defendant, but to restore to the
plaintiff particular funds or property in the defendant's possession." Id.
at 214. The question in this case is whether Mid Atlantic's action seeking
reimbursement of specifically identifiable settlement funds recovered by the
Sereboffs constitutes such equitable restitution under Great-West, and
is therefore "appropriate equitable relief" under section 502(a)(2).
The Secretary agrees with the District Court's
utilization of the Fifth Circuit's three-prong test, holding that
reimbursement is an appropriate equitable remedy under ERISA when the plan
seeks "to recover funds (1) that are specifically identifiable, (2) that
belong in good conscience to the plan, and (3) that are within the possession
and control of the" beneficiary or participant. Bombardier Aerospace
Employee Welfare Benefits Plan v. Ferrer, Poirot & WansBrough, et al., 354
F.3d 348, 356 (5th Cir. 2003), cert. denied, 124 S. Ct. 2412
(2004). The Fourth Circuit has expressly applied such an approach in two
unpublished decisions and agreed with this approach in the dicta of a third
published post-Great-West decision.
In In re Carpenters, this Court upheld
the bankruptcy and district courts' holdings that if the "plan administrator
had been seeking an equitable lien on particular property in the hands of the
plan beneficiaries, such a suit would sound in equity and would be authorized
by § 502(a)(3)." 36 Fed. Appx. 80, 82 (4th Cir. 2002) (unpublished). The
following year the Fourth Circuit held in Primax Recoveries, Inc. v. Young
that "a constructive trust on identifiable funds that [the Plan administrator]
claim[s] belong in good conscience to [the Plan], and those funds are in [the
participant's] possession" was appropriate equitable relief under ERISA. 83
Fed. Appx. 523, 525 (4th Cir. 2003) (unpublished). The Court also discussed
equitable restitution as relief under ERISA in dicta in Rego v. Westvaco
Corp., stating that "a claim for equitable restitution must seek 'not to
impose personal liability on the defendant, but to restore to the plaintiff
particular funds or property in the defendant's possession.' The plaintiff,
in other words, must argue that '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.' It is only under such
circumstances that plaintiffs can proceed in equity with a claim for
restitution." 319 F.3d 140, 145 (4th Cir. 2003). See also
Local 109 Retirement Fund v. First Union Nat'l Bank, 57 Fed. Appx. 139
(4th Cir. 2003) (unpublished) (holding that courts must look to remedy sought
and not the theory of recovery in evaluating appropriateness of equitable
restitution under ERISA). Moreover, this approach is consistent with a pre-Great-West
decision in the Fourth Circuit permitting a plan's subrogation claim for
unjust enrichment to recover previously provided benefits from participants
who subsequently received a tort award. See Provident Life &
Accident Ins. Co. v. Waller, 906 F.2d 985, 986-87 (4th Cir. 1990).
The relevant
treatises confirm the correctness of the Fourth Circuit's approach. Indeed,
Dobbs points out that the remedies of constructive trust and equitable lien
were created at equity precisely to remedy situations in which the defendant
held the legal title to an identifiable res (including a bank account), but
the plaintiff had a superior moral claim.
1 Dan Dobbs, Law of Remedies, 591, 591, 595 (2d ed. 1993); accord
Great-West, 534 U.S. at 213; Harris Trust & Sav. Bank v. Salomon
Smith Barney, Inc., 530 U.S. 238, 250-51 (2000) (noting that "[w]henever
the legal title to property is obtained through means or under circumstances
'which render it unconscientious for the holder of the legal title to retain
and enjoy the beneficial interest, equity impresses a constructive trust on
the property thus acquired in favor of the one who is truly and equitably
entitled to the same, although he may never, perhaps, have any legal estate
therein'") (citations omitted). Through these devices, equity stepped in with
a remedy – legal title to particular property – that courts of law could not
provide, thus compelling the defendant "to follow good conscience rather than
good title." Dobbs at 587. Thus, actions for nonpayment of a debt for
specific property, breach of a promise to repay a loan, and failure to pay on
a promissory note for which property was transferred, all could suffice to
warrant imposition of a constructive trust on the property transferred or
improved with the plaintiff's property. Dobbs at 598 & n.52 (citing
Middlebrooks v. Lonas, 246 Ga. 720, 272 S.E.2d 687 (1980); Leyden v.
Citicorp Indus. Bank, 782 P.2d 6 (Colo. 1989)).
The district
court's order to transfer the partitioned funds in the present case fits
within this understanding of equitable relief because the undisputed facts
evidence: (1) the funds belong in good conscience to the Plan; (2) the funds
are identifiable; and (3) the funds are within the defendants' control. The
$74,869.37 in dispute belongs in good conscience to the Plan because the
Sereboffs agreed to reimburse the Plan out of any third-party recoveries when
they accepted benefits under the Plan. Mid Atlantic Med. Servs., Inc. v.
Sereboff, 303 F. Supp. 2d at 695 (see paragraphs 8 through 11 of the Joint
Stipulation of facts). Unlike the money in Great-West, the money in
this case can "clearly be traced to particular funds or property in the
defendant's possession" because the Court Ordered Stipulation (J.A. document
7) required the Sereboffs to partition and remove the funds that represented
the benefits at issue from their settlement award and hold these funds within
their investment account until resolution of Mid Atlantic's claim and
exhaustion of all related appeals. Accordingly, under the Fourth Circuit's
interpretation of Great-West, the district court properly transferred
title of the $74,869.37 to Mid Atlantic as an equitable remedy under ERISA
section 502(a)(3).
CONCLUSION
For the
reasons discussed above, the court should deny the participants' appeal.
Respectfully
submitted this 8th day of July 2004.
HOWARD M. RADZELY
Solicitor of Labor
TIMOTHY D. HAUSER
Associate Solicitor
Plan Benefits Security Division
SALVADOR SIMAO
Trial Attorney
__________________________
ELIZABETH HOPKINS
Counsel for Appellate and
Special Litigation
Plan Benefits Security Division
U.S. Department of Labor
Office of the Solicitor
P.O. Box 1914
Washington, D.C. 20013
(202) 693-5600
Via Federal
Express
July 8, 2004
Ms. Patricia S. Connor, Clerk
U.S. Court of Appeals for
the Fourth Circuit
1100 East Main Street
Suite 501
Richmond, Virginia 23219-3517
Re: Re:
Mid Atlantic Medical Services, Incorporated v. Joel Sereboff; Marlene
Sereboff,
Case No. 04-1336
Dear Ms. Connor:
Enclosed for
filing, please find an original and 8 copies of the Brief of the Secretary
of Labor as Amicus Curiae in Support of Mid Atlantic Medical Services Inc.'s
Reply to the appeal filed in the above-referenced case. Also enclosed is an
extra copy to be file stamped and returned to me in the self-addressed,
prepaid envelope.
Also, two copies of the brief have been served on
opposing counsel as reflected on the Certificate of Service.
Sincerely,
Salvador Simao
Trial Attorney
Enclosures
cc: Counsel of record
CERTIFICATE OF COMPLIANCE
Case No. 04-1336
As required by Fed. R. App. P. 32(a)(7), I certify that the foregoing Brief
of the Secretary of Labor as Amicus Curiae in Support of Mid Atlantic
Medical Services, Incorporated's Reply is
proportionally spaced, using Times New Roman 14-point font size and contains
_________ words.
Dated: July 8, 2004 ____________________________
SALVADOR SIMAO
CERTIFICATE OF SERVICE
I hereby certify that two copies of the
foregoing Brief of the Secretary of Labor as Amicus Curiae in Support of Mid
Atlantic Medical Services, Incorporated's Reply were mailed to the following
by U.S. Mail, postage prepaid, this 8th day of July 2004:
Michelle Stawinski
Bouland & Brush, LLC
201 N. Charles Street
Suite 2400
Baltimore, Maryland 21201-4108
Thomas Lawerence
Lawerence & Russell, LLP
5050 Poplar Avenue Suite 1717
Memphis, Tennessee 38157
_____________________________
SALVADOR SIMAO
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