This just in….

A big debate was resolved today by the United States Supreme Court:

Can an ERISA plan sue to recover medical expenses paid on the participant’s behalf after the settlement funds have dissipated? Generally…NO.  The rule applies to “equitable liens by agreement,” too.

Here’s the case of Robert Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, case number 14-723 (U.S. Supreme Court January 20, 2016) PDF.

FACTS: The National Elevator Industry Health Benefit Plan [Plan] had paid ERISA plan participant Robert Montanile about $122,000 to cover medical expenses stemming from a car accident in which Montanile was injured by a drunken driver. Montanile later sued the driver and recovered a $500,000 settlement. The Plan brought suit against Montanile seeking reimbursement, but Montanile had spent the money before the plan could recover the medical expenses.

ISSUECan an ERISA plan sue to recover medical expenses paid on the participant’s behalf after the settlement funds have dissipated?

SUPREME COURT HELD (8-1 ruling): NO. If an Employee Retirement Income Security Act plan participant spends all of a third-party settlement on non-traceable items, the plan fiduciary may not sue to get at the participant’s additional assets.

  1. Section 502(a)(3) under ERISA authorizes plan fiduciaries to obtain “appropriate equitable relief…to enforce the terms of the plan.” Op. at 5.
  2. The Plan “had an equitable lien by agreement that attached to Montanile’s settlement fund when he obtained title to that fund.” Op. at 7.
  3. “In sum, at equity, a plaintiff ordinarily cannot enforce any type of equitable lien if the defendant once possessed a separate, identifiable fund to which the lien attached, but then dissipated it all…. This rule applied to equitable liens by agreement as well as other types of equitable liens.” Op. at 9 (Emphasis added).
  4. The Plan “protests that tracking and participating in legal proceedings is hard and costly, and that settlements are often shrouded in secrecy. The facts of this case undercut that argument. The [Plan] had sufficient notice of Montanile’s settlement to have taken various steps to preserve the funds. Most notably, when negotiations broke down and Montanile’s lawyer expressed his intent to disburse the remaining settlement funds to Montanile unless the plan objected within 14 days, the [Plan] could have but did not object.”  Op. at 14.
  5. “Moreover, the [Plan] could have filed suit immediately, rather than waiting half a year.”  Op. at 14.