ERISA Subrogation (Continued from page 8)
the terms of the MAMSI policy, any re- covery by MAMSI would be subject to a deduction for “reasonable attorney’s fees and costs.” The Fourth Circuit upheld enforce- ment of the lien under ERISA based on the following factors.
First, the funds have not been dissi- pated, and they are specifically identifiable. By the stipulation of Au- gust 11, 2003, between the Sereboffs and MAMSI, $74, 000 of the settle- ment proceeds are preserved by the
Sereboffs and MAMSI in their invest- ment accounts. Although the funds have been placed in accounts with the Sereboffs’ other monies, they can “clearly be traced to particular funds” covered in the California litigation. Knudson, 534 U.S. at 213, 122 S.Ct. 708. Second, the disputed funds belong in good conscience to MAMSI. The Plan contains express unambiguous re- imbursement provisions, according to MAMSI, the “right to recover” pay- ments made to Sereboffs by a third party. Third, the disputed funds are within the possession and control of the Sereboffs. They received those funds in the California litigation and held them
10 Trial Reporter
in their investment accounts pending resolution of this proceeding. In Knudson, by contrast, the funds were placed in a Special Needs Trust, out- side the possession and control of the beneficiary. Thus, the action pursued by MAMSI and resulting in the reim- bursement award is equitable in nature under Section 502 (a)(3) and the court properly granted the relief with respect to it.
See Sereboff 407 F.3d 218-19. See also Promax Recoveries Inc. v. Young, 83 Fed. Appx. 523 (4th
Cir. 2003) and Wal-Mart
Stores v. Carpenter, 2002 U.S. App. Lexis 10615 (4th
Cir. 2002).
As a result of these and other decisions, it was quite conceivable that a construc- tive trust or lien could be attached on an attorney’s escrow account containing settlement proceeds or the claimant’s own bank and other financial accounts. However, the Supreme Court granted a petition for a writ of certiorari in Sereboff, and scheduled oral argument on March 28, 2006. The critical issue before the Supreme Court is under what circum- stances, if any, may a health insurance plan enforce its lien pursuant to ERISA, Sec- tion 502 (a)(3), assuming that settlement proceeds are still traceable to the claim- ant or the claimant’s attorney? The Supreme Court in Sereboff will not decide or consider the validity of self-help mea- sures that health insurers may undertake, assuming that their liens are not enforce- able under ERISA. It is very unlikely that the Supreme
Court in Sereboff will reverse its previous decision in Great West, supra. However, the outcome in Sereboff is clouded be- cause two of the justices in the majority in Great West have been replaced. Their successors have issued no previous pub- lished or unpublished decisions on the issues of ERISA subrogation. However, the likelihood that the conservative ma- jority in Great West would totally bar health insurance plans from collecting their liens under ERISA seems problem- atical at best. The four dissenters in Great West have consistently taken the position that equitable remedies include monetary relief under ERISA, Section 502 (a)(3), and therefore, would be inclined to sup- port the Fourth Circuit’s decision. As a result, practitioners will have to navigate a minefield of potential malpractice issues with little guidance until Sereboff is finally disposed of by the Supreme Court. These potential malpractice issues and possible loss of fees are discussed as they now arise
(Continued on page 12) Winter 2006
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