At first glance, the Supreme Court’s recent decision interpreting “appropriate equitable relief” as used in ERISA § 502(a)(3) is a victory for health plan participants. But upon closer scrutiny, Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 2016 U.S. LEXIS 843 (2016), is a mixed result for participants and plans.
The plan at issue paid $121,044.02 in medical expenses for a participant who was injured in a car accident caused by a drunk driver. The participant subsequently settled his claim against the drunk driver for $500,000. The plan contained a subrogation clause that provided the following: “[A]ny amounts [that a participant] recover[s] from another party by award, judgment, settlement or otherwise . . . will promptly be applied first to reimburse the Plan in full for benefits advanced by the Plan . . . and without reduction for attorneys’ fees, costs, expenses or damages claimed by the covered person.” Id. at *7 (internal quotations omitted). The plan further stated that “[a]mounts that have been recovered by a [participant] from another party are assets of the Plan . . . and are not distributable to any person or entity without the Plan’s written release of its subrogation interest.” Id. at *6-*7.
After the participant and the plan could not reach agreement regarding the plan’s entitlement to the funds recovered by the participant, the participant’s attorney distributed $240,000 (the amount remaining after payment of attorney’s fees and costs). The participant subsequently spent some or all of the $240,000 and the board of trustees asserted a claim under ERISA § 502(a)(3) against the participant to enforce the plan’s subrogation provision.
The Supreme Court reversed the Eleventh Circuit—which had reasoned that the board of trustees could enforce the subrogation provision—and held that “when a participant dissipates the whole settlement on nontraceable items, the fiduciary cannot bring a suit to attach the participant’s general assets under § 502(a)(3) because the suit is not one for ‘appropriate equitable relief.’” Id. at *6. As it had in previous decisions, the Court looked to “standard equity treatises.” Id. at *14. The Court explained the following:
[The standard equity treatises] make clear that a plaintiff could ordinarily enforce an equitable lien only against specifically identified funds that remain in the defendant’s possession or against traceable items that the defendant purchased with the funds (e.g., identifiable property like a car). A defendant’s expenditure of the entire identifiable fund on nontraceable items (like food or travel) destroys an equitable lien.
While the facts of Montanile are sympathetic to the participant, in other instances, the Court’s reliance on standard equity treatises will likely continue to create impediments for participants seeking to obtain relief against nonfiduciaries pursuant to ERISA § 502(a)(3). In her dissent, Justice Ginsburg referred to the Court’s holding as “bizarre” and reiterated her opinion expressed in another dissent that “the Court [has] erred profoundly . . . by reading the work product of a Congress sitting in 1974 as unravel[ling] forty years of fusion of law and equity, solely by employing the benign sounding word ‘equitable’ when authorizing ‘appropriate equitable relief.’” Id. at *25 (some internal quotations omitted). Notably, in her concurrence in Aetna Health Inc. v. Davila, 542 U.S. 200, 223-24 (2004), Justice Ginsburg accurately interpreted the scope of relief available against fiduciaries under ERISA § 502(a)(3) years before the Supreme Court confirmed such interpretation in CIGNA Corp. v. Amara, 563 U.S. 421 (2011). It remains to be seen whether the Court will come around to her interpretation of ERISA § 502(a)(3) as it pertains to nonfiduciaries.
Moreover, in addition to bringing suit under ERISA § 502(a)(3) before a participant dissipates funds potentially subject to subrogation, a trustee may be able to recover funds from a participant under the theory that such funds constitute plan assets when the participant receives the funds. The Eleventh Circuit has applied a documentary test when determining whether particular funds constitute plan assets. See ITPE Pension Fund v. Hall, 334 F.3d 1011, 1013 (11th Cir. 2003). The language of the plan in Montanile appears to support an argument that the participant was handling plan assets. The theory would be that the participant is exercising authority or control over the management or disposition of plan assets and is, therefore, a fiduciary within the meaning of ERISA § 3(21)(A)(i). A suit could then be asserted against the participant/fiduciary on behalf of the plan pursuant to ERISA § 502(a)(2).
Accordingly, there may be more than meets the eye with regard to issues implicated by Montanile.