The Employee Retirement Income Security Act of 1974 Section §502(a)(3), 29 U.S.C. §1132(a)(3) (ERISA) allows a fiduciary to seek an order in federal court “to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan,” but that injunctive relief is subject to certain limitations. In Trustees of Carpenters’ Health And Welfare Trust Fund of St. Louis v. Darr, 694 F.3d 803, (7th Cir), the plaintiff fund obtained an injunction, which the Seventh Circuit Court of Appeals found violated the Anti-Injunction Act because it sought to stay state court proceedings and the injunctive relief imposed by the district court was not expressly authorized by ERISA §502(a)(3).
In Darr, the employee welfare benefit fund had advanced health and disability benefits under an equitable lien agreement, where the participant agreed to return any overpayments that resulted if the participant recovered those amounts from the tortfeasor. The participant collected all of the healthcare benefits paid in a personal injury lawsuit and returned them to the fund. However, the participant’s lawyer believed he was entitled to keep $28,903.25 of the paid benefit amount as attorneys’ fees under his retainer agreement with the participant.
The participant’s counsel brought a lawsuit in Illinois state court under the common fund doctrine in order to pursue his claim for attorneys’ fees from the fund. The fund, in turn, commenced a lawsuit in U.S. District Court under ERISA §502(a)(3) seeking an injunction enjoining the state court from awarding the participant’s counsel’s fee application. The district court granted the fund’s motion for a permanent injunction against the participant and his lawyer, preventing both of them from pursuing any further claims against the fund. The participant’s counsel appealed.
On appeal, the Seventh Circuit considered whether the order enjoining the state court violated the Anti-Injunction Act, which provides, in relevant part, that a federal court “may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” 28 U.S.C. §2283. The Seventh Circuit ruled that in order for ERISA §502(a)(3) relief to be expressly authorized by an Act of Congress the state court suit would need to make it “impossible” for the fiduciary to carry out its obligations under the plan. The Seventh Circuit then found that the payment of benefits in violation of the plan terms would not make it impossible for the fund to carry out its responsibilities under the plan. The Seventh Circuit noted that the fund is not prevented from performing its “core ERISA duties,” i.e., defending its rights to the money based on federal defenses and plan terms. Accordingly, the Seventh Circuit ruled that “[w]hen a federal plaintiff can present its federal defenses in state court, and could recoup its damages either through the state court litigation or a separate federal suit, federal policies aren’t thwarted.” 694 F.3d at 809. The court explained that “federal law may displace conflicting state priorities, but that does not mean an injunction should issue in this case where the federal interest can be vindicated without it.” Id. at 810.
This decision does not end the story because the fund is entitled to defend its right to retain the funds based on the plan terms and the equitable lien. The ruling by the Seventh Circuit in Darr suggests that the better practice for defending a lawsuit for attorneys’ fees in state court is to remove the action to federal court rather than seeking to enjoin the state court action.