Longaberger’s equitable lien attached to the settlement fund when it was identified and received in July 2004. Indeed, Kolt conceded at the district court’s February 9, 2005, hearing that he “probably” was aware at the time he wrote his August 4, 2004, letter to Longaberger, stating that “Mr. Billiter would like to try to amicabl[y] satisfy his subrogation obligation to [Longaberger],” that the Plan contained language that indicates the Plan has a first priority lien and first priority claim over funds recovered from third parties. . . .
The fact that Kolt chose to disregard Longaberger’s first
priority lien and commingle the settlement funds does not defeat Longaberger’s claim for equitable relief, because under Sereboff, Longaberger was free to follow a portion of the settlement funds into Kolt’s hands. We therefore hold that the Plan sought and was awarded “appropriate equitable relief” from Kolt.
Longaberger Co. v. Kolt, 2009 FED App. 0399P (6th Cir.) (6th Cir. Ohio Nov. 16, 2009)
The Sixth Circuit handed down a momentous ERISA health plan subrogation (reimbursement) case in Longaberger v. Kolt. Building on a foundation crafted from an excerpt from Sereboff and a form shaped by a recent Seventh Circuit recoupment decision, the Sixth Circuit all but eliminated any defense based upon commingling of funds.
Following the settlement of a personal injury claim, the Longaberger self funded ERISA health plan sought reimbursement from an employee for medical expenses paid. The employee, Billitzer, was represented by attorney Kolt. Kolt disbursed the settlement funds and the plan filed suit against both Kolt and Billitzer.
On February 4, 2005, Longaberger filed a complaint commencing suit against Kolt and Samuel Billiter alleging causes of action for constructive trust, equitable lien, and unjust enrichment. 3 Longaberger also sought a temporary restraining order and preliminary injunction to prevent Kolt from disbursing, commingling, or transferring settlement funds that were in Kolt’s IOLTA.
The District Court Ruling
After some addition of parties plaintff and defendant, and the intervening decision of the Supreme Court in Sereboff, the matter came before the court. Based on its interpretation of Serebof, the court ruled in favor of Longaberger and against Kolt in the amount of $ 37,889.44 and against Billiter in the amount of $ 75,778.87.
The Sixth Circuit Affirms
On appeal, the Sixth Circuit took an expansive view of Sereboff’s discussion of tracing rules, stating:
Kolt argues that “[b]ecause of Longaberger’s delay and inaction, there is no longer any specifically identifiable fund in Kolt’s possession on which Longaberger’s lien can be imposed.” Yet, an equitable lien by agreement does not require tracing or maintenance of a fund in order for equity to allow repayment.
Thus, the Court imposed liability on the Kolt even though he claimed disbursement and dissipation of the settlement funds.
Note: The authorities cited are instructive. They are as follows:
Gilchrest v. Unum Life Ins. Co. of Am., 255 F. App’x 38, 45 (6th Cir. 2007) (unpublished) (citing Sereboff, 547 U.S. at 364). [*16] See also Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614, 621 (7th Cir. 2008) (allowing a claim under “29 U.S.C. § 1132(a)(3) even if the benefits it paid [the beneficiary] are not specifically traceable to [the beneficiary’s] current assets because of commingling or dissipation.”); Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 350, 362 (5th Cir. 2003) (allowing an ERISA plan to recover the settlement proceeds that the plan beneficiary’s law firm had deposited into its trust account). But cf. Knudson, 534 U.S. at 214 (2002) (defendant never had collected a “tort” recovery because it was held by a California trustee, not by defendant).
Gutta definitely supports this decision – if Gutta itself properly interpreted Sereboff. That is debatable. On the other hand, Bombardier, though cited above, does not support the Longaberger result in the least. And when you have a “but cf.” to Knudson, another Supreme Court case, that should give one pause.
Fiduciary Status Unimportant – The question of attorney liability as a fiduciary often arises in these cases. Here, the Court viewed that issue as uninteresting, stating that:
To be sure, § 502(a)(3) limits the universe of potential plaintiffs who may bring a civil action for equitable relief to a “participant, beneficiary, or fiduciary” of an ERISA plan. The Act, however, does not contain a similar provision limiting the class of defendants in a § 502(a)(3) action. . . . Accordingly, there is no statutory barrier that prevents Kolt from being a defendant in a suit brought pursuant to § 502(a)(3) of ERISA, provided that the relief sought lies in equity.
Attorney Liable – Rejecting notions of “charging liens” and common fund doctrine, the Court placed liability squarely on the plaintiff’s counsel:
Here, the Longaberger Plan required full reimbursement of benefits paid when a Plan participant received a judgment or settlement. The district court was correct to not deduct attorney fees from the amount of reimbursement due to Longaberger. Thus, we conclude that Kolt is obligated to reimburse the Plan from the funds he received from liable third parties. Kolt’s decision to commingle these funds and not maintain them intact does not prevent enforcement of Longaberger’s equitable lien by agreement under the terms of its ERISA plan.
Comment – By bringing health plan subrogation caselaw closer to the outcomes in disability recoupment cases (like Gutta), this opinion greatly shortens the playing field for plaintiff’s counsel. Plan fiduciaries will do well to study the plan language and approach taken in this case. Plaintiff’s counsel would be wise to take a cautious approach to any suggestion that ERISA plan claims can be taken lightly – the money you disburse may well be your own.
Hat tip to Rob Hoskins, Esq., plaintiff’s counsel in ERISA cases, who called my attention to this decision in a post on ERISAboard.com.