The opinion of the court was delivered by: Honorable John A. Mendez Judge IN The United States
ORDER RE: HEARING ON THE PLAINTIFF AND DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES Date: December 9, 2009 Time: 9:00 a.m. Courtroom: 6
Opposing Motions for Summary Judgment, filed on behalf of both Plaintiff AC HOUSTON LUMBER COMPANY EMPLOYEE HEALTH PLAN and Defendants WILLIAM L. BERG and BERG INJURY LAWYERS were heard before the Honorable Judge John A. Mendez on December 9, 2009.
Plaintiff AC HOUSTON LUMBER COMPANY EMPLOYEE HEALTH PLAN was represented by James W. Rushford and Amanda R. Stevens of Rushford & Bonotto, LLP. Defendants were represented by Robert A. Dalby of the Law Offices of William L. Berg & Associates.
The Court, after full considerati on of the evidence, and the written papers and exhibits of each party, and the authority submitted by counsel as well as counsels' oral argument, HEREBY RULES as follows:
Under ERISA Section 502(a)(3)(B), 29 USC Section 1132, a fiduciary may bring an action to "(A) enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief to redress such violations or to enforce any provision of this subchapter or the terms of the plan." Citing from Sereboff v. Mid Atlantic Medical Services, 547 U.S. 356, a 2006 case. A plan's action to collect reimbursement on a medical lien in a case where the beneficiary has received compensation from a third party and the plan contained a reimbursement provision qualifies as an equitable action under Section 502(a)(3)(B). And there's no question, it's undisputed, that there was a clear reimbursement provision in the plan documents.
One of the features of equitable restitution is that it seeks to impose a constructive trust or equitable lien on particular funds or property in the defendant's possession. Citing Sereboff at 362. In Sereboff, the court found that when a plan contains a reimbursement provision which specifically identifies what funds it is imposing a lien on, an action to recover those funds qualifies as an equitable action under ERISA 502(a)(3)(B). The plan in Sereboff contained a provision titled "Acts of Third Parties" which applied when a beneficiary was sick or injured as a result of the act or omission of another person, and required a beneficiary who received benefits under the plan for such injuries to reimburse the plan from all recoveries from a third party, whether by lawsuit, settlement, or otherwise.
Thus, the court in Sereboff held that this description of funds in the plan, i.e., those received from a third party as compensation, constituted a specific identification of the funds sought for purposes of the equitable recovery under ERISA.
When funds received from a settlement are disbursed without reimbursing the plan, the plan may seek those specifically identifiable funds that are due. Because the reimbursement provision created an equitable lien or constructive trust on identifiable funds, the plan may follow that money as soon as a fund is identified. Thus, in Sereboff, as soon as a settlement was received, the plan had the right to follow their portion of the recovery, even once it had been disbursed.
The fact that settlement proceeds are no longer set aside is not necessarily a bar to granting equitable relief, because the Court may impose a constructive trust or an equitable lien on specific property that can be traced to the proceeds. Although a lien or trust is not available to the extent the funds have been dissipated so that no product remains, it does not appear that funds held in a constructive trust are dissipated when they are used to purchase property that remains in the possession of the trustee, even if the funds are first commingled with the trustee's assets. To the extent property is traceable back to the ill-gotten profits, it is properly subject to a constructive trust or equitable lien.
Board of Trustees for Laborers Health and Welfare Trust Fund for Northern California v. Hill, a Northern District of California case from 2008.
In this case, the plaintiffs have alleged that their "Subrogation, Reimbursement & Third Party Recovery" provision specifically identified funds which must be reimbursed with priority over any other claimants, including attorney's fees claims. Furthermore, Mark Freed signed a reimbursement agreement which agreed to provide plaintiff with a lien upon any and all funds recovered. Thus, neither Mark Freed nor defendants had any right to any of the funds recovered until the lien was paid in full. Defendants knew of the plan terms, the reimbursement agreement, and the existence of a li en. It is undisputed that defendants contacted plaintiff seeking to settle the lien once the settlement funds were received. Plaintiff has identified the amount they are seeking, which is $16,522.05 of the settlement funds received, and plaintiff argues that it does not matter that defendants already disbursed this money to themselves as attorney's fees. Pursuant to the Hill case, plaintiff also argues that it does not matter that the funds have been commingled with other assets in defendants' account. They are still recoverable under an equitable lien or constructive trust.
The Court finds that plaintiff's arguments have merit. Also, as indicated, the case cited in the reply brief, Longaberger Company v. Kolt, a 2009 case from the U.S. District Court for the Northern District of Ohio, 2009 Westlaw 3806079, also a case almost directly on point, and almost identical facts, leads this Court to the same conclusion that plaintiff's lawsuit in this case has merit and that summary judgment should be granted.
Defendants do cite Hotel Employees & Restaurant Employees
International Union Welfare Fund v. Gentner, 50 F.3d 719, a Ninth Circuit case 1995, which held that an attorney was not a fiduciary under ERISA and could not be held responsible even though he knew of a reimbursement agreement and did not follow it. In that case, the attorney had no contractual or professional duty to reimburse the plan. In this case, however, plaintiff does not sue on contractual grounds or professional duty grounds. It does not allege that defendants are fiduciaries. Rather, plaintiff is suing for ...