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Birmingham Bar Association Summer 2016

ERISA funds disbursed to him, the plan contended it was entitled to enforce its lien against Montanile’s general assets. The district court agreed and granted summary judgment to the Board, which the Eleventh Circuit subsequently affirmed. The Eleventh Circuit reasoned that after an equitable lien attaches, the plan may forever after enforce it, even after the specific fund to which the lien attached has dissipated. Not all the Circuits saw this issue the same way as the Eleventh Circuit’s Montanile panel, so the Supreme Court granted certiorari to resolve the resulting conflict over whether an ERISA fiduciary can enforce an equitable lien under these facts. In its discussion, the Supreme Court harkened back to the days of the divided bench to ascertain whether the precise relief the plan was requesting was indeed “typically available” in an equity court. After examining various treatises, the Court found that while the basis of the plan’s claim was equitable in its foundation, the remedy sought for that claim, which was the enforcement of an equitable lien by agreement against a participants’ general assets instead of the fund itself, was actually a legal remedy which falls outside § 1132(a)(3). The Court’s decision is the latest in a line of cases over the past ten years examining subrogation and reimbursement rights within ERISA plans. The first of these cases was Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S. Ct. 708, 151 L. Ed. 2d 635 (2002). In that case, the Court held that the enforcement of a constructive trust or equitable lien required that the fund at issue be traced to funds in the participant’s possession. Because the plan fiduciary in that case had sought strictly legal relief based on a contractual obligation to pay money instead of a recovery of an identifiable fund in the participant’s possession, the fiduciaries had not asserted a “relief typically available in equity” as § 1132(a)(3) requires. Then came Sereboff v. Mid-Atlantic Medical Services, Inc., 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006). In that case, the Court held that a plan had properly created an equitable “lien by agreement” within the plan document and that the plan fiduciary had properly sought recovery of specifically identifiable funds within the actual or constructive possession of the beneficiaries. There, the beneficiaries had placed the funds in a separate investment account. And finally, there was U.S. Airways v. McCutchen, __ U.S. __, 133 S. Ct. 1537, 185 L. Ed. 2d 659 (2013), where the Court reaffirmed and further explained its reasoning in Sereboff on its way again to finding an equitable lien by agreement to be enforceable against identifiable funds within the beneficiaries’ possession or control. In Montanile, however, the Court went beyond looking merely at the claim itself and instead examined the ultimate remedy sought. The Court explained that the plan’s remedy would have been equitable in nature if Montanile still possessed the settlement funds or if he had used the funds to purchase a traceable asset (like a boat, a car or real estate, for example). But because Montanile had spent the funds on non-traceable items such as travel, a recovery in equity was no longer possible. Now, the plan’s only means of recovery was against Montanile’s general assets. Unfortunately for the plan, the Court found this to be an inherently legal remedy beyond the scope of equity contemplated by § 1132(a)(3), which in turn means the remedy is unavailable under ERISA. The plan attempted to argue for certain exceptions to be made, noting among other things that that equity courts sometimes awarded money decrees as substitutes for equitable liens. The Court rejected the applicability of those exceptions. Although equity courts sometimes issued a money decree, this did not take away the fact that this remained a legal remedy (albeit one equity courts had ancillary jurisdiction to grant). The “swollen assets doctrine” likewise did not apply, because the funds in this particular case were never commingled with other funds. They were simply spent. Montanile is significant because it has brought the Eleventh Circuit – and also five other Circuits, including the First, Second, Third, Sixth and Seventh -- in line with the Eighth and the Ninth Circuits. While Montanile may seem particularly harsh at first glance to ERISA plans and their fiduciaries, importantly this case never would have reached the point it did if the plan had been quicker in protecting its lien; on that point, the Court notes at the end of its decision that the plan had plenty of notice and also a sufficient opportunity to object or otherwise protect the plan’s interests, yet failed to act timely. As the Court observed in closing, its decision in Montanile promotes ERISA’s purpose of “allocateing liability for planrelated misdeeds in reasonable proportion to respective actors’ power to control and prevent the misdeeds.” Montanile, 136 S. Ct. at 662 (quoting Mertens, supra, at 262, 113 S. Ct. 2063). The impact of Montanile remains to be seen and is still being sorted out by lower courts. G Birmingham-based M. Clayborn Williams practices with Tuscaloosa’s Martin Law Group, LLC Birmingham Bar Bulletin/ Summer 2016 17


Birmingham Bar Association Summer 2016
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