I.The Imposition of a Constructive Trust
Over Specifically Identifiable Funds in an Attorney's Trust Account Constitutes Appropriate
Equitable Relief Under ERISA Section 502(a)(3)
II.Plan Terms that Provide that Attorney
Fees are the Sole Responsibility of the Participant Override the Common Fund" Doctrine
1.Whether, pursuant to a subrogation/reimbursement
provision in the Bombardier Employee Welfare Benefit Plan (the Plan), the
district court properly imposed a constructive trust over funds obtained in the
settlement of a third-party tort claim, which currently are held in the trust account
of the plan participant's attorney.
2.Whether the district court properly enforced
Plan terms that make Plan participants liable for all attorney fees incurred in
pursuing third-party recoveries, and thus disallowed a setoff for these fees
from the amount recoverable by the Plan.
The
Secretary of the United States Department 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.SeeDonovan 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 ability of welfare plans to seek reimbursement of benefits from injured plan participants
who have recovered funds to compensate them for injuries from third parties is
important to the continued financial stability of these plans, and so long as
this is accomplished through the imposition of constructive trusts over
specifically identifiable funds, the Secretary believes that it constitutes
"appropriate equitable relief" under Section 502(a)(3) of ERISA, 29
U.S.C. § 1132(a)(3).
Appellant Stephen Mestemacher was an
employee of Bombardier Aerospace, and as such was a participant in the
Bombardier Aerospace Employee Welfare Plan ("Bombardier" or the
"Plan"), a self-funded employee welfare plan designed to provide
managed care and medical services for Bombardier Aerospace employees and their
dependents.Bombardier Aerospace
Employee Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, PC, No.
Civ. A. 3:02-CV-1982, 2003 WL 282443, at *1 (N.D. Tex. Feb. 4, 2003).After Mestemacher was injured in an
automobile accident in January 2002, Bombardier paid his medical bills totaling
$13,643.63.Id.In March 2002, Mestemacher settled his tort
claim against the third party responsible for the accident for $65,000.Id. at *2.Appellant Ferrer, Poirot, & Wansbrough, PC
("Ferrer") acted as Mestemacher's attorneys in the tort action.Id.Through an agreed order, Ferrer consented to hold $18,500
of the settlement monies in a trust account deposited in a Bank of America
account, pending resolution of Bombardier's claim.Id.Bombardier
then filed suit in federal court in the Northern District of Texas against
Mestemacher, Ferrer and Bank of America, seeking the imposition of a
constructive trust over the settlement funds held in Ferrer's trust
account.Id. at *3.
Bombardier claims a right to be reimbursed for the
$13,643.63 in benefits it had advanced to Mestemacher under the Plan, and seeks
injunctive and declaratory relief to enforce that right, asserting that
Mestemacher as the principal, and Ferrer as his agent, possess and control the
funds.2003 WL 282443, at *3.At the time of the accident, the Plan
provided not only for a right to be reimbursed 100% of the plan's expenditures
out of a plan participant or beneficiary's recovery in a third-party tort
action, but also provided that plan participants are required to cooperate in
seeking such tort recoveries and that any associated attorney fees are the sole
responsibility of the participant.[1]
On
February 4, 2003, the District Court granted Bombardier's motion for summary
judgment and ordered Ferrer to transfer $13,643.63 from the trust
account to Bombardier, without any
setoff for attorneys' fees or expenses.The court reasoned that the Plan's "clear and unambiguous
reimbursement provisions . . . combined with the fact that the Plan is not seeking
personal liability from Mestemacher and that the settlement funds are not . . .
in the registry of the court, entitle the Plan to the imposition of a
constructive trust."2003 WL
282443, at *4.Additionally, the court
relied on the Plan's express provision making attorney fees the responsibility
of Mestemacher and not the Plan.Id.The judgment has been executed and the
disputed funds have been turned over to Bombardier.
Building on its prior decision in Mertens
v. Hewitt Assocs., 508 U.S. 248, 256
(1993), the Supreme Court held in Great-West Life
& Annuity Ins. Co. v. Knudson, 534 U.S. 204, 214 (2002), that for an action
for restitution to lie in equity within the meaning of ERISA Section 502(a)(3),29 U.S.C. 1132(a)(3), it must seek to
restore to the plaintiff specifically identifiable funds or property in the
defendant's possession that belong in good conscience to the plaintiff.
Bombardier's
claim against Mestemacher and Ferrer for reimbursement under the terms of the
Plan of the amount of medical benefits it paid on account of Mestemacher's
injuries from funds recovered by Mestemacher in a tort action fits comfortably
within this common law construct.Because,
under the Plan language, Mestemacher agreed when he accepted
benefits under the Plan to reimburse the Plan out of any third-party
recoveries,the disputed amount
"belong[s] in good conscience" to Bombardier.Moreover, because the funds were specially
held in Mestemacher's attorney's trust account pending resolution of
Bombardier's claim, the amount sought by Bombardier under the Plan's
reimbursement provision can "clearly be traced to particular funds or
property in the defendant's possession."Great-West, 534 U.S. at 213. No more is required for equitable restitution to lie under Great-West,
and the Ninth Circuit decisional law to the contrary is based on a misreading
of Great-West and Mertens.
Nor
is Mestemacher entitled under the "common fund" doctrine to a
setoff for the amount he spent on attorney fees in obtaining the third-party recovery, given the clear Plan
language making him solely responsible for the payment of those fees.Indeed, this Court has held that the common
fund doctrine is inapplicable even in the absence of such a clear Plan
provision.Great-West, which did
not involve any attorney fee provision, is not to the contrary.Thus, as most courts have held, at least
where the language of the plan is clear, courts have no occasion to apply a
setoff for attorney fees under a common fund doctrine.
I.The
Imposition of a Constructive Trust Over Specifically Identifiable Funds in an
Attorney's Trust Account Constitutes Appropriate Equitable Relief Under ERISA
Section 502(a)(3)
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 this title or 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 (quotingMertens, 508 U.S. at 256)."[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."Great-West, 534 U.S. at 214.
In Great-West, Great-West
sought restitution of $411,157 in medical expenses it had paid on behalf of
beneficiary Janette Knudson after Knudson secured a $650,000 settlement from
the third parties responsible for her injuries.The settlement allocated $256,745.30 to a Special Needs Trust to
provide for Knudson's long-term medical care, $373,426 to attorney fees and
costs, $5000 to reimburse the California Medicaid Program, and $13,828.70 to
reimburse Great-West.The state
court approved the settlement and ordered the third parties to pay the amount
allocated to the Special Needs Trust directly to the trust.Knudson's attorney sent Great-West a check
for $13,828.70, but Great-West refused to cash it.Instead, Great-West sued Knudson in federal district court
seeking full reimbursement of the $411,157 it had paid on her behalf.The Supreme Court held that Great-West's
suit was not authorized by ERISA Section 502(a)(3).Great-West, 534 U.S. at 218.The Court observed that the money from the settlement was not in
Knudson's possession; it had been dispersed to the Special Needs Trust and her
attorney to pay for attorney fees.Id.
at 214.The Court found that
Great-West, therefore, was not trying to recover particular funds that
belonged to Great-West that happened to be in Knudson's possession, but rather
was trying to impose personal liability upon Knudson for any funds equal
to the benefits it had advanced to her.Id.The Court concluded
that Great-West sought legal restitution not authorized by ERISA.Id. at 218.
Great-West, however, does not foreclose the
ability of plans to seek equitable restitution.Rather, the Court in Great-West specified:
[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. . . .
A court of equity could then order a defendant to transfer title (in the case
of a constructive trust) or to give a security interest (in the case of the equitable lien) to a plaintiff
who was, in the eyes of equity, the true owner.
Id. at 213 (internal citations omitted).Moreover, the Court expressly left open the
question whether Great-West could have obtained equitable relief against
Knudson's attorney or the trustee of the Special Needs Trust.Id. at 220.
The Plan here seeks to enforce the
subrogation provision, or in statutory terms, "to enforce . . . the terms
of the plan."29 U.S.C.
1132(a)(3)(ii).[2]The District Court's imposition of a constructive trust to accomplish
this result fits within the bounds of equitable relief recognized by the
Supreme Court in Great-West.The
$13,643.63 in dispute "belong[s] in good conscience," 534 U.S. at
213, to Bombardier because Mestemacher agreed to reimburse the Plan out of any
third-party recoveries when he accepted benefits under the Plan.[3]
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
funds were specially held in Mestemacher's attorney's trust account pending
resolution of Bombardier's claim.Either defendant Ferrer had possession of the funds as the trustee of
the account, or Mestemacher had possession of the funds as the principal who
could authorize Ferrer to release the funds to Bombardier.Thus, the District Court properly imposed a
constructive trust over the $13,643.63 and transferred title to Bombardier as an equitable remedy under ERISA Section
502(a)(3).
A majority of courts presented with
ERISA subrogation/reimbursement claims after the Great-West decision
have concluded that Great-West permits the imposition of a constructive
trust over specifically identifiable funds in the defendant's possession.[4]Most recently, the Seventh Circuit affirmed the district court's
imposition of a constructive trust over settlement funds placed in a separate
"reserve account" in anticipation of litigation over the Plan's
reimbursement rights.Admin. Comm.
of the Wal-Mart Stores, Inc. v. Varco, 338 F.3d 680, 687 (7th Cir.
2003).The Seventh Circuit noted that
"[u]nlike the legal action addressed in Great-West Life, the funds
at issue here are identifiable, have not been dissipated, and are still in the
control of a Plan participant due to the fact that [the participant's attorney]
placed them in a reserve account in [the participant's] name when they were
disbursed."Id.Constructive trusts have also been imposed
in Forsling v. J.J. Keller & Assocs., Inc., 241 F. Supp. 2d 915 (E.D. Wis.
2003); Allison v. Wellmark, Inc., No. C00-3015-MWB, 2002 WL 31818946 (N.D. Iowa Oct. 15,
2002); IBEW-NECA Southwestern Health & Benefit Fund v. Douthitt, 211
F. Supp. 2d 812 (N.D. Tex. 2002); and Bauer v. Glyten, Nos. A3-00-161,
A3-02-27, 2002 WL 664034 (D.N.D. Apr. 22, 2002) (permitting plaintiffs to amend
their original complaint to include a request for the imposition of a
constructive trust, pursuant to the Supreme Court's recent decision in Great-West).
Other courts,
although not imposing a constructive trust, have also held that ERISA plan
fiduciaries state a valid claim for equitable reimbursement when the disputed
monies can clearly be traced to particular funds or property in the defendant's
possession.The D.C. District Court
held that a recovery agent's claim for restitution constitutes a claim for
equitable relief when a portion of the settlement funds are being held in trust
by the beneficiary's former attorney "for the precise purpose of
reimbursing the Plan."Primax
Recoveries, Inc. v. Lee, 260 F. Supp. 2d 43, 48 (D.D.C. 2003).Likewise, the District Court for the
Southern District of Iowa held that an insurer properly states a claim for
equitable restitution where the settlement funds are being held in an
attorney's trust account.Wellmark,
Inc. v. Deguara, 257 F. Supp. 2d 1209, 1216 (S.D. Iowa 2003) ("This
Court finds the possession theory is the correct read of Great-West.That is, attempts by an ERISA plan or insurer to recover settlement proceeds to
which it is entitled under a subrogation or reimbursement provision are only prohibited
under § 502(a)(3) if the insured is not in the possession of clearly
identifiable proceeds.").Other
courts have supported ERISA plans' rights to reimbursement by permitting a plan
to add the trustee of a beneficiary's revocable living trust as a defendant so
that the plan can state a valid claim for equitable restitution under Great-West,
Corporate Benefit Servs. of Am., Inc. v. Sempf, No. 03-C-0048-C, 2003 WL
21704145 (W.D. Wis. May 9, 2003); and by issuing a preliminary injunction to
enjoin a beneficiary from disposing of settlement funds against which an ERISA
plan has asserted a right of recovery, Great-West Life & Annuity Ins.
Co. v. Perkins, No. C:02-5294-FDB, 2002 WL 1816438 (W.D. Wash. July 9,
2002).
Nearly all of the cases in which an
ERISA plan's claim for reimbursement were denied involved monies which could not
clearly be traced to particular funds in the defendant's possession, and can
thus be distinguished from the present case.In some cases, the funds were no longer clearly identifiable because
they had been disbursed and dissipated.SeeMank v. Green, No. 03-42-P-C, 2003 WL 21250676 (D. Me.
May 30, 2003); Asbestos Workers Local No. 42 Welfare Fund v. Brewster,
227 F. Supp. 2d 226 (D. Del. 2002).In
other cases, the funds were not yet in the defendant's possession because the
beneficiary had not yet settled or won the suit against the third party tortfeasor.SeePrimax Recoveries, Inc. v.
Goss, 240 F. Supp. 2d 800 (N.D. Ill. 2002); Extendicare v. Crow,
No. Civ.A. 1:02-CV-109-C, 2002 WL 32079263 (N.D. Tex. Oct. 23, 2002); Primax
Recoveries, Inc. v. Carey, 247 F. Supp. 2d 337 (S.D.N.Y. 2002) ("[A]
constructive trust [is] an inappropriate remedy . . . when the 'settlement
proceeds' are in nobody's possession, because they are the entirely
hypothetical fruit of a potential future settlement that does not yet exist and
may never come into being at all.").[5]
This Court's decision in Bauhaus
USA, Inc. v. Copeland, 292 F.3d 439 (5th Cir. 2002) stands in the same
camp.In Bauhaus, this Court
held that the recovery there sought was not equitable because the disputed
funds were not in the defendant participant's possession or control because the
settlement proceeds had been placed into the registry of the Mississippi Chancery
Court.Id. at 445.Like Great-West, the decision in Bauhaus
implies that where, as here, the defendants do have possession and/or control
over funds that in good conscience are owed to the Plan, a cause of action for
equitable restitution lies.SeeBombardier,
2003 WL 282443, at *4 (reading Bauhaus to allow a claim for equitable
restitution where the defendant has possession of the disputed funds); IBEW-NECA
Southwestern Health & Benefit Fund, 211 F. Supp. 2d at 816 (same).
Only the Ninth Circuit has held that any
attempt by an ERISA plan to seek reimbursement/subrogation under the terms of
the plan constitutes a legal claim that is not authorized by ERISA Section
502(a)(3).SeeWellmark v.
Deguara, 257 F. Supp. 2d at 1215 (criticizing the Ninth Circuit's
approach).The Ninth Circuit has denied
recovery even in cases where the funds sought by the ERISA plan could clearly
be traced to particular funds or property in the defendant's possession.Great-West Life & Annuity Ins. Co. v.
Berlin, 45 Fed. Appx. 750, 2002WL 2017076 (9th Cir. 2002) ("The fact
the funds sought by Great-West have been placed in a trust account and are
specifically identifiable does not transform its action into one of equitable
relief."); Westaff (USA) Inc. v. Arce, 298 F.3d 1164, 1167 (9th
Cir. 2002) ("The escrow account was set up through an agreement with the
beneficiary to make it easier for Westaff to obtain the funds in the event it
is determined to be entitled to them. The beneficiary's cooperation should not now be used as a weapon
by the insurance company to force the beneficiary into a lawsuit in federal
court that Congress, in enacting ERISA, intended to bar.").[6]
These Ninth Circuit decisions are
inconsistent with the rule established in Great-West that
"appropriate equitable relief" under ERISA refers to "'those
categories of relief that were typically available in equity,'" 534
U.S. at 210 (emphasis in original).Even more obviously, they are inconsistent with the Court's recognition
in Great-West 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. at 213 (emphasis in original).In the words of the district court in Wellmark
v. Deguara, "[t]he Ninth Circuit follows the ultimate reasoning of Great-West
without noting the essential factual distinction Justice Scalia specifically
discussed when the '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.'That factual distinction has importance that cannot be
disregarded."257 F. Supp. 2d at 1215-16.We
therefore urge this Court to heed the factual distinction drawn by Justice
Scalia in Great-West, and to follow the majority of courts that have
held that the imposition of a constructive trust over specifically identifiable
funds in the defendant's possession is an appropriate equitable remedy under
ERISA.
II.Plan Terms that
Provide that Attorney Fees are the Sole Responsibility of the Participant
Override the "Common Fund" Doctrine
The "common fund" doctrine
operates at common law to spread the costs of litigation among all those who
benefit from a lawsuit.See, e.g.,Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991).In the subrogation context, it accomplishes
this cost-spreading by allowing a plan participant or beneficiary to offset the
amount he spent on attorney fees in obtaining a third-party recovery from the
amount the plan is entitled to recover.SeePalmerton v. Associates' Health & Welfare Plan,
659 N.W.2d 183, 188 (Wis. Ct. App. 2003) ("Normally, where an ERISA plan's
only participation in a personal injury suit was to assert its subrogation
claim . . . the plan has a common law obligation to pay its fair share of
attorney fees and costs.") (citation omitted).Whatever the applicability of this doctrine as a default rule of
federal common law where a plan does not expressly address the issue, ERISA
plan terms that expressly provide that participants are solely responsible for
the attorney fees and costs they incur in pursuit of a third-party
recovery override the common fund doctrine.
This Court has held that ERISA plans
can recover the full amount of benefits paid on behalf of a beneficiary,
without a setoff for the beneficiary's attorney fees, if the plan calls for
reimbursement from "any and all" third party recoveries.Walker v. Wal-Mart Stores, Inc., 159
F.3d 938, 940 (5th Cir. 1998).In Walker,
the Fifth Circuit ordered the beneficiary to reimburse the plan in full, even
though the text of the plan did not specifically mention attorney fees or
expenses.Id.Under this controlling precedent, there is
no occasion for this Court to fashion and apply a federal common law rule
allowing for a setoff of attorney fees.In this case, however, the argument for full reimbursement is
substantially stronger than in Walker, because the Bombardier Plan calls
for reimbursement of "100% of the Benefits paid" and expressly
provides that "Attorney fees and court costs are the responsibility of the
participant, not the Plan."[7]Indeed, ERISA expressly provides that plans must be administered
"in accordance with the documents and instruments governing the
plan."29 U.S.C. §
1104(a)(1)(D).
Appellants Ferrer and Mestemacher
suggest that Great-West now requires lower courts to conduct a "balancing of the
equities," and to reduce plans' recovery by a fair share of the attorney
fees and costs incurred by a beneficiary in the pursuit of a third party
recovery.Brief of Appellants, 28.Great-West, however, did not address
the issue of attorney fees.Even after Great-West,
courts have continued to refuse to apply the common fund doctrine in cases
where the terms of the plan clearly provide for full reimbursement without a
setoff for participants' attorneys' fees.Most recently, the Seventh Circuit refused to apply state or federal
common fund doctrine to reduce a plan's recovery where the terms of the plan
expressly provided that participants were responsible for all attorney
fees.Varco, 338 F.3d at 688-92.[8]The court found that the state common fund doctrine was preempted by
ERISA, since it "contradicts the terms of the Plan and therefore
contravenes ERISA's requirements that plans be administered, and
benefits be paid, in accordance with plan documents."Id. at 690.The court further found that the federal common fund doctrine
should not be applied because it is generally "inappropriate to fashion a
common law rule that would override the express terms of a private
plan."Id. at 692.Varco confirmed similar, earlier
decisions by district courts in the Seventh Circuit.SeeAdmin. Comm. of the Wal-Mart Stores, Inc. v. Hummel,
245 F. Supp. 2d 908, 912 (N.D. Ill. 2003) ("There is too much support for
the proposition that state law cannot void explicit and lawful provisions in
ERISA plans."); Forsling v. J.J. Keller & Assocs., 241 F. Supp.
2d at 921.SeealsoWausau
Benefits v. Progressive Ins. Co., No. CIV.A. 2:02-CV-107, 2003 WL 21648693
(S.D. Ohio July 9, 2003) (rejecting a common fund defense and distinguishing
the Sixth Circuit's application of the common fund doctrine in its unpublished
decision in Smith v. Wal-Mart Assocs. Group Health Plan, No. 99-6464,
2000 WL 1909387 (6th Cir. Dec. 27, 2000) on the grounds that the plan in the
earlier case did not specifically prohibit the equitable allocation of attorney
fees); Yerby v. United Healthcare Ins. Co., 846 So. 2d at 190; Palmerton
v. Associates' Health &Welfare Plan, 659 N.W.2d at 188.
Consistent
with these cases, once a court has determined that an ERISA plan has stated a
valid claim for equitable reimbursement under Great-West, the court should first look to the terms of the plan to determine the
amount that "belong[s] in good conscience" to the plan.If the terms of the plan expressly provide for full reimbursement
from third-party recoveries and disclaim responsibility for attorney fees and
costs incurred in the pursuit of those recoveries, the terms of the plan should
override any "common fund" doctrine that may otherwise be available
at state or federal common law.SeeGuidry v. Sheet Metal Workers' Nat'l Pension Fund, 493 U.S. 365, 376
(1990) ("courts should be loath to announce equitable exceptions to
legislative requirements or prohibitions that are unqualified by the statutory
text"). [9]
I hereby certify that a paper copy of
the Brief of Amicus Curiae Elaine L. Chao, Secretary of the United States
Department of Labor and a 3½ diskette containing a PDF version of brief, as
well as a copy of the Secretary's motion to accept the brief out of time, were
sent to counsel listed below by Federal Express overnight courier service, this
11th day of September 2003:
JOHN T. KIRTLEY
Ferrer, Poirot & Wansbrough
2603 Oak Lawn Ave., Suite 300
Dallas, TX 75219
NEAL MANNE, SUSAN
GODFREY, LLP
1000 Louisiana
Suite 5100
Houston, TX 77002
WILLIAM P. HUTTENBACH
MICHAEL D. CONNER
Hirsch &
Westheimer, P.C.
700 Louisiana,
25th Floor
Houston, TX
77002-2728
DANIEL W. JACKSON
Emmons &
Jackson, P.C.
3000 Essex Lane, Suite 1116
Houston, TX 77002
_
ELIZABETH HOPKINS
[1]Specifically, the Plan's reimbursement and
subrogation clause provides the following:
Refund to Us for Overpayment of
benefits If You or Your
dependent recover money for medical, Hospital, dental or vision expenses
incurred due to an Illness or Injury for which a Benefit has been paid under
this Plan, We will have the right to a refund from You or Your dependent. The
amount refunded to Us will be the lesser of: 1. the amount You or
Your dependent recover; 2. the amount of
Benefits We have paid. You or Your
dependent (or a parent or legal guardian, if required) will help Us do whatever
else may be reasonably needed to obtain this refund.
Right to Reduction,
Reimbursement and Subrogation The Plan has a right
to 1) reduce or deny Benefits otherwise payable by the Plan and 2) recover or
subrogate 100% of the Benefits paid or to be paid by the Plan for Covered
Persons to the extent of any and all of the following payments: • Any judgment,
settlement or payment made or to be made, because of an accident, including but
not limited to other insurance. • Any auto or
recreational vehicle insurance coverage or benefits including, but not limited
to, uninsurer/underinsured motorist coverage. • Business and
homeowners medical and/or liability insurance coverage or payments. • Attorney fees.
Cooperation Required The Plan requires
Covered Persons or their representatives to cooperate in order to guarantee
reimbursement to the Plan from third party benefits. Failure to comply with
this request will entitle the Plan to withhold Benefits due to Covered Persons
under the Plan Document. Covered Persons or their representatives may not do
anything to hinder reimbursement of overpayment to the Plan after You have
accepted benefits.
Attorney fees and court costs are the
responsibility of the participant, not the Plan.
Bombardier,
2003 WL 282443, at **1-2.
[2]The cases cited by Mestemacher and Ferrer, Brief of Appellants,
8-9, for the proposition that Ferrer owes no fiduciary duty to the Plan do not
establish, as they suggest, that Ferrer is not a proper defendant.Indeed, as the Supreme Court pointed out in Harris
Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000),
"§ 502(a)(3) admits of no limit . . . on the universe of possible
defendants," but instead authorizes "'appropriate equitable relief'
for the purpose of 'redress[ing any] violations or . . . enforc[ing] any
provisions' of ERISA or an ERISA plan." Id. at 246 (citations
omitted).Thus, to the extent that
Bombardier seeks a constructive trust against Ferrer to enforce the Plan's
subrogation provision, Ferrer would appear to be a proper defendant under
Section 502(a)(3).
[3]The
Supreme Court described the remedy of constructive trust in similar terms in Harris
Trust, 530 U.S. at 250-51, 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.'"QuotingMoore v. Crawford, 130
U.S. 122, 128 (1889), and 4 J. Pomeroy, Equity Jurisprudence § 1053, at
119-120 (5th ed. 1941).Mestemacher,
who is the legal owner of the settlement funds being held by Ferrer in a trust
account, received benefits from Bombardier pursuant to language that specified
that he would reimburse the Plan for any related tort recoveries.The disputed amount is thus owed in good
conscience to Bombardier.
Defendants
mistakenly rely on Texas law, see Brief of Appellants, 14-15, which
apparently limits constructive trust to cases of fraud, but which presumably is
preempted in its application to ERISA plans.SeeJamail, Inc. v. Carpenters Dist. Council of Houston
Pension & Welfare Trusts, 954 F.2d 299, 301, 303 (5th Cir. 1992)
(federal common law, and not state law, is applicable to ERISA plans).Contrary to this state law rule, the
"standard current works" to which Great-West generally directs
courts to look, 534 U.S. at 217, agree with what is implicit in Great-West,
id. at 213, that fraud or other wrongdoing is not required for the
imposition of a constructive trust, but that such trusts are property used to
prevent or remedy unjust enrichment.See,
e.g., Scott on Trusts § 462, at 303, § 462.2, at 313-14 (4th ed.
2001); 1 Dobbs Law of Remedies § 4.3(2), at 597 (2d ed. 1993)
(constructive trust may be "appropriate in any kind of unjust enrichment
case and is in no way limited to cases of wrongdoing").
[4]Many courts have also allowed plans to place liens on third-party
recoveries, the other form of equitable relief permitted under Great-West.SeeIn re Carpenter, 36 Fed.
Appx. 80, 2002 WL 1162277 (4th Cir. 2002) (affirming Bankruptcy Court's finding
that Wal-Mart Plan had an enforceable equitable lien on debtor's personal
injury settlements proceeds); Primax Recoveries, Inc. v. Duffy, 204 F.
Supp. 2d 1111 (N.D. Ill. 2002) (allowing lien on specific funds not yet
received from underinsurance coverage); Yerby v. United Healthcare Ins. Co.,
846 So. 2d 179 (Miss. Ct. App. 2002) (permitting plan to intervene in state
tort action and to place lien on settlement between beneficiary and
tortfeasor); Uber v. TIG Specialty Ins. Co., No. 232687, 2003 WL 231321
(Mich. Ct. App. Jan. 31, 2003); Brodzik v. Szpakowicz, No. CV000500564S,
2002 WL 31502353 (Conn. Super. Ct. Oct. 22, 2002).
[5]Several decisions have cited Great-West to preclude plans
from seeking reimbursement, without fully analyzing whether the monies sought
by the plans could "clearly be traced to particular funds or property in
the defendant's possession."SeeUnicare Life & Health Ins. Co. v. Saiter, 37 Fed. Appx. 171, 2002WL
1301574 (6th Cir. 2002); Great-West Life & Annuity Ins. Co. v. Unger,
No. CIV. 02-082-TUC-WBD, 2002 WL 2012528 (D. Ariz. July 24, 2002); Hotel
& Restaurant & Bar Employees Fringe Benefit Funds v. Truong, No.
CIV.01-873(MJD/RLE), 2002 WL 171725 (D. Minn. Jan. 31, 2002); cf. Community
Ins. Co. v. Morgan, 54 Fed. Appx. 828, 2002 WL 31870325 (6th Cir. 2002)
(plan administrator's claim against tortfeasor's insurer, which was not based
on equitable tracing principles, but instead sought a declaration that the plan
was entitled to proceeds of a settlement that had not yet been paid, was an
impermissible suit for legal relief) (unpublished).To the extent that these cases stand for the proposition that Great-West
precludes plans from seeking constructive trusts as an equitable remedy under
ERISA, we believe that they were wrongly decided.
[6]The Ninth Circuit also affirmed the award of attorney fees
against Westaff (USA) to Arce, because "when an ERISA plan administrator
brings a suit seeking non-equitable relief, dismissal is properly on the merits
for failure to state a claim," and the district court therefore has
jurisdiction to enter a fee award.Id.
[7]The Secretary does not take any position on whether the Fifth
Circuit is correct that, in the absence of express plan language, the
application of a common fund doctrine is inappropriate.Instead, the Secretary takes the position
that, at least where plan terms are clear, there is no occasion to fashion and
apply such a federal common law rule.
[8]Because the Seventh Circuit issued the Varco decision after the
briefs were filed by the parties in this case, the
defendants relied heavily on the district court decision in Varco.Admin. Comm. of the Wal-Mart Stores, Inc.
v. Varco, 2002 WL 31189717 (N.D. Ill. Oct. 2, 2002).There the district court applied a common
fund doctrine, despite clear plan language rejecting it, based on the Seventh
Circuit's prior decision in Blackburn v. Sundstrand Corp., 115 F.3d 493
(7th Cir. 1997). The Seventh Circuit reversed this portion of the district
court's decision on appeal, distinguishing Blackburn on the ground that
the plan in that case did not expressly require participants to pay their own
legal fees.Admin. Comm. of the
Wal-Mart Stores, Inc. v. Varco, 388 F.3d at 689.The Seventh Circuit's decision in Varco also appears
inconsistent with that court's prior decision in Primax Recoveries, Inc. v.
Sevilla, 324 F.3d 544 (7th Cir. 2003), which allowed a beneficiary's
attorney to assert state common fund claims against an ERISA plan even if the
plan language rejected the doctrine; seealsoBishop v.
Burgard, 764 N.E.2d 24 (Ill. App. Ct. 2002) (even specific plan language
cannot preempt application of common fund rules).
[9]We note, however, that if a state insurance regulation provided for a
setoff for attorney fees (or for that matter prohibited or limited an insurer's
subrogation rights), presumably this would be saved under ERISA Section
514(b)(2)(A), 29 U.S.C. § 1144(b)(2)(A) in its application to insured plans,
and would override even plain plan language to the contrary.SeeUNUM Life Ins. Co. of America
v. Ward, 526 U.S. 358, 375-76 (1999) (rejecting argument that insurers
could displace state insurance regulation by inserting contrary term in plan
document).