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.

ISSUE: Can 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.
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Photo of Mike Reilly Mike Reilly

Mike Reilly is a nationally recognized labor, employment and employee benefits attorney, named one of the “Top 100 Most Powerful Employment Attorneys in the Nation” for the past five consecutive years by Human Resource Executive®. He has decades of experience providing strategic employment…

Mike Reilly is a nationally recognized labor, employment and employee benefits attorney, named one of the “Top 100 Most Powerful Employment Attorneys in the Nation” for the past five consecutive years by Human Resource Executive®. He has decades of experience providing strategic employment advice, and has represented clients in more than 75 jury trials, arbitrations, bench trials and claims before the EEOC and Washington State Human Rights Commission.

Small and large employers retain Mike for his strategic advice and decades of experience in employment issues and litigation, business decisions and litigation avoidance. Mike provides advice in claims involving discrimination, retaliation, wrongful discharge, disability accommodation, ERISA and non-ERISA employee benefit claims, and wage/hour claims. He served as lead counsel in an employee raiding/trade secret case as reported in the Wall Street Journal, and defends employers in class action claims.

Mike’s remarks on employment issues have been quoted in NewsweekCorporate Legal TimesSeattle TimesEmployee Relations Law JournalPuget Sound Business JournalCFO.com, and other professional journals and management publications. Chambers USA’s Guide to America’s Leading Lawyers for Businessrates Mike in the top ranking (band one) for his work in labor and employment law, and has described him as “one of Seattle’s top-rate attorneys” who is “truly phenomenal [with] superb legal instincts” and “an amazingly assertive litigator.” His clients include Nordstrom, Seattle Seahawks, Home Depot, KeyBank, Starbucks, Fred Hutchinson Cancer Research Center, Red Robin and Seattle Chamber of Commerce, among others.