The ERISA Litigation Newsletter - August 2015

Editor's Overview As the summer draws to a close, this month's Newsletter previews three cases that the U.S. Supreme Court already has agreed to hear that ought to be of particular interest to ERISA plan sponsors and fiduciaries. Two of the cases involve claims under ERISA - one case involves a plan's ability to recoup medical expenses paid on behalf of a participant injured by a third party; the other case involves a claim of preemption concerning a state law creating a health claims database to facilitate healthcare and payment policy. The third case is a non-ERISA case with potentially significant consequences under ERISA. The Court will decide whether a plaintiff needs to have suffered individualized injury in order to assert a claim for statutory and regulatory violations.

As always, please be sure to review the Ruling, Filings, and Settlements of Interest where we review decisions involving ERISA section 510, ERISA stock-drop claims, damages, and disclosure claims. We also review 2016 open enrollment issues, SBC requirements, health coverage tax credit, and provide an ACA reporting update.

A Look Ahead at the Supreme Court's October 2015 Term and Petitions of Interest to ERISA Practitioners *

By Neil V. Shah

In its upcoming October term, the U.S. Supreme Court will hear three cases of particular interest to ERISA plan sponsors and fiduciaries. First, the Court will hear yet another case involving a plan's ability to recoup medical expenses paid on behalf of a participant injured by a third party. Second, the Court will decide whether a state law creating a health claims database to facilitate healthcare and payment policy is preempted by ERISA. Third, in a non-ERISA case with potentially significant consequences under ERISA, the Court will decide whether a plaintiff needs to have suffered individualized injury in order to assert a claim for statutory and regulatory violations.

Subrogation & Reimbursement Claims

In an effort to conserve plan assets, health and welfare plans often contain reimbursement and/or subrogation provisions that allow them to recoup medical expenses paid on behalf of plan participants. These provisions typically come into play when the participant obtains a monetary judgment from a collateral source. Over a decade ago, in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), the Supreme Court held that because ERISA § 502(a)(3) only allowed "categories of relief that were typically available in equity," a plan reimbursement provision could not be enforced against a defendant who did not have possession or control of the disputed funds, as that would amount to imposing personal liability for legal relief. The Court subsequently clarified, in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), that a plan document can create an enforceable equitable lien if it identifies a particular fund distinct from an individual's general assets and the corresponding share to which the plan is entitled. Because the defendant in Sereboff had deposited the disputed funds in escrow, the Court's decision left unresolved the issue of whether, under ERISA § 502(a)(3), an ERISA plan may recover pursuant to equitable lien payments made to a plan participant that are not traceable to an identifiable fund within a participant's possession and control.

The Supreme Court agreed to hear arguments on this issue in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, No. 14-723. In Montanile, an ERISA plan paid medical bills arising out of an automobile accident in which Robert Montanile, a participant in the plan, sustained injuries. Montanile settled with the other driver for $500,000, and the plan sought repayment of $121,000 in expenses it had paid on his behalf. Montanile claimed that he had already spent the proceeds, using more than half for his legal expenses in the personal injury action, and the remainder for his own personal care. In his motion for summary judgment, Mr. Montanile argued that because the funds were no longer in his possession or control, the plan's claim to enforce an equitable lien did not seek "appropriate equitable relief" under the Supreme Court's decision in Knudson.

Citing Sereboff, the district court rejected plaintiff's argument and held that "a beneficiary's dissipation of assets is immaterial when a fiduciary asserts an equitable lien by agreement." Bd. of Trs. of the Nat'l Elevator Indus. Health Ben. Plan v. Montanile, No. 12-80746, 2014 WL 8514011, at *10 (S.D. Fla. Apr. 18, 2014). In so holding, the court stated that a contrary decision would make ERISA's civil enforcement mechanism to "enforce plan terms" an "empty promise," and "would also open the door to the type of 'outrageous' conduct recently censured by the Seventh Circuit, to wit, dissipation of settlement proceeds by a lawyer and client in knowing and willful ignorance of an ERISA plan's lien against the settlement proceeds."

The Eleventh Circuit affirmed. Siding with a majority of circuits to have considered the issue (including the First, Second, Third, Sixth, and Seventh Circuits), the Eleventh Circuit held that "where a plan provision's unambiguous terms gave the plan a first-priority claim to all payments made by a third party," an equitable lien immediately attached to the settlement funds, and the plan's right to equitable relief could not be defeated simply because Montanile had spent the funds after the lien had attached.

The Eleventh Circuit's decision is in conflict with the Ninth and Eighth Circuits. The Ninth Circuit held that where "the 'particular fund' identified by the Plan has been dissipated, the Plan's only choice is to seek recovery from the participant's 'assets generally,'" and "such a recovery would be legal, not equitable, and thus unavailable under ERISA Section 502(a)(3)." Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083, 1094 (9th Cir. 2012). The Eighth Circuit reached a similar conclusion. See Treasurer, Trs. of Drury Indus., Inc. Health Care Plan & Trust v. Goding, 692 F.3d 888 (8th Cir. 2012) (holding that plan's subrogation action against participant sought legal, not equitable, relief because the participant no longer possessed the subject settlement funds).

The Department of Labor filed an amicus brief in support of Montanile. It argued that the plan sought relief that was legal, and not equitable in nature, and that the Supreme Court's decision in Sereboff requires that the funds be traced to the participant at the time suit is filed. The AARP also filed an amicus brief in support of Montanile. It argued that plan beneficiaries are "ill-equipped to have to pay back a portion of already received funds" and should be permitted to assert laches, changed circumstances, and other equitable defenses in response to reimbursement claims.

ERISA Preemption

Since 2003, a growing number of states have undertaken efforts to create "all-payer claims" databases, i.e., databases that contain information on all medical services paid for by third-parties, to study and improve the cost, quality, and utilization of medical care in their jurisdictions. These states require private and public payers to systematically provide information regarding patient demographics, the services being provided and the cost, and patient responsibility for care (e.g., copayments, deductibles, and coinsurance). However, some institutions have questioned whether such requirements as applied to self-funded plans are preempted by ERISA.

On appeal from the Second Circuit, the issue presented in Gobeille v. Liberty Mutual Insurance Company, No. 14-181, is whether ERISA preempts Vermont's law requiring the third-party administrator of a self-funded ERISA plan to file reports with the State containing this claims data. Vermont maintains a unified database that allows it to determine the efficacy of the State's existing healthcare resources and the effectiveness of various treatment approaches. In order to populate the database, the state promulgated regulations requiring health insurers to report various categories of claims data relating to healthcare provided to Vermont residents and by Vermont healthcare providers. The third-party administrator of a self-funded ERISA plan challenged the requirement, arguing that it was preempted by ERISA § 514 because it had a "connection with" or "reference to" an ERISA plan.

The district court agreed with the State of Vermont. After noting that healthcare-related statutes "receive the benefit of the presumption against preemption," the court held that Vermont's statute did not "make reference" to an ERISA plan because it did "not act immediately and exclusively upon ERISA plans, nor [was] the existence of ERISA plans essential to their operation." Liberty Mut. Ins. Co. v. Kimbell, No. 11-204, 2012 WL 5471225, at *9 (D. Vt. Nov. 9, 2012). It also determined that the statute did not have a "connection with" an ERISA plan, as it did "not seek to regulate the administration of Liberty Mutual's Plan, or its allocation of benefits," and any "administrative burden" resulting from the mandate was "peripheral" to "core ERISA functions and relationships."

The Second Circuit reversed. In finding the Vermont law preempted by ERISA, the Court observed that the Supreme Court has repeatedly held that "'reporting' and 'disclosure' are core ERISA functions subject to a uniform federal standard." Liberty Mut. Ins. Co. v. Donegan, 746 F.3d 497, 505 (2d Cir. 2009).

Following Vermont's filing of a petition for writ of certiorari, the Supreme Court invited the Solicitor General to file a brief expressing the views of the United States. The Solicitor General sided with the State and took the view that the reporting statute was not preempted. It reasoned that ERISA's reporting requirements were intended to secure plan funds, but that the Vermont...