Knowingly spending money that isn’t yours sounds like a no-no, but depending on how the Supreme Court rules in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (No. 14-723), certain ERISA plan participants may well have that perverse incentive, owing to obscure and arcane distinctions between legal and equitable relief.
On November 9, the Supreme Court held oral argument in Montanile, a case positioned to shake up accepted ERISA plan practices related to collection of third-party recoveries. The petitioner, (Robert Montanile) was injured in a car accident caused by a drunk driver and the respondent Plan (a multi-employer health and welfare plan) paid substantial amounts to cover related medical expenses. Montanile then sued the other driver involved in the accident and settled the case for $500,000.
Following the settlement (and a $200,000 payment to Montanile’s lawyer), the plan entered into negotiations to recover the $121,000 it had paid for Montanile’s medical expenses, based on its subrogation rights under the plan documents. In the ensuing ERISA action, filed after negotiations broke down, the district court found the settlement proceeds to be an identifiable fund and upon which it could impose an equitable lien in favor of the Plan Trustees. Bd. of Trustees of Nat. Elevator Indus. Health Ben. Plan v. Montanile, 593 F. App’x 903 (11th Cir. 2014)
But there was a catch. It turned out that Montanile had already deposited the money into his general bank accounts and spent it, so any recovery would have been out of his assets, not from the monies specifically obtained in the settlement. So what? Well, ERISA allows only equitable remedies in a case like this, and if the money was not an identifiable fund, there might not be an equitable way to get it.
This nicety of equity jurisprudence set the stage for an oral argument that traveled back in time to the days of the divided courts and the treatises of Justice Story. The key question confounding the Court was what relief was equitable – and when, in the development of equity, did that relief have to originate?
Montanile’s attorney, raising the specter of funds clawed back from innocent beneficiaries, argued for a strict tracing rule, under which the plan could only recover if it could trace settlement money to specific monies, using equity presumptions as to which funds were from the settlement and which were just general assets. This position would permit participants like Montanile to have a windfall from getting their benefits and keeping third-party recoveries for the underlying injuries. That position, also supported by the Solicitor General, seems an about-face from the (losing) position taken by the Solicitor General in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), where the government argued for a broad construction of what relief was equitableConversely, the plan’s attorney argued for a broad theory of recovery, but was repeatedly pressed on his apparent insistence that the plan could recover the funds under equitable remedies that may have developed too late to be among the remedies “traditionally available in equity” that are available under ERISA.
Administrators and fiduciaries of ERISA health and welfare plans are waiting with baited breath for the decision, which could take several months. In the interim, ERISA plans should keep a close eye on payouts made to beneficiaries who might recover in a subsequent tort suit – and particularly to any settlements received. It may be possible to recover payments even under Petitioner’s tracing theory, but it will require vigilance and quick action. And so we wait to see: what gems are buried in the history of equity?