As noted in Unit 1, many courts have migrated away from the apparent teaching of Knudson that the defendant must be in possession of specifically identifiable funds (a “res”). The first leaning away from the requirement occurred in some influential cases involving counterclaims by disability carriers against claimants that received SSD payments after having received LTD benefits.
The following is a collection of cases from the various circuits on this issue. (N.B – some of these cases are district court opinions).
“Central to [the Sereboff] holding was the Supreme Court’s determination that the third-party reimbursement provision “specifically identified a particular fund, distinct from the [beneficiaries’] general assets–all recoveries from a third party . . . –and a particular share of that fund to which [the fiduciary] was entitled–that portion of the total recovery which [was] due [the fiduciary] for benefits paid.”.
Cusson v. Liberty Life Assurance Co. of Bos., 592 F.3d 215, 231 (1st Cir. 2010).
Here, Thurber had possession and control of the overpaid benefits. That she spent the funds over which Aetna exerted an equitable lien is insufficient to void Aetna’s right to enforce the plan’s subrogation provision and the resulting equitable lien by agreement that Aetna entered into with Thurber.
Thurber v. Aetna Life Ins. Co., 712 F.3d 654 (2d Cir. N.Y. 2013)
“If, however, there was an equitable lien by agreement that attached to the Social Security award as soon as Funk received it, dissipation of the funds was immaterial.”
Funk v. CIGNA Group Ins., 648 F.3d 182 (3d Cir. N.J. 2011)
Carrier has a constructive lien against the SSD funds, even if defendant has dissipated the funds. Anderson v. Reliance Std. Life Ins. Co., 2013 U.S. Dist. LEXIS 41009 (D. Md. Mar. 21, 2013)
Cites Cusson v. Liberty Life Assurance Co. of Boston, 592 F.3d 215, 231 (1st Cir. 2010) favorably in ACS Recovery Servs. v. Griffin, 55 Employee Benefits Cas. (BNA) 1857 (5th Cir. Tex. May 7, 2013).
In Gilchrest v. Unum Life Ins. Co. of America, 255 F.App’x 38 (6th Cir. 2007), the Sixth Circuit applied Sereboff to an ERISA case in which the fiduciary filed a counterclaim under the terms of a plan against the plan participant seeking reimbursement of benefits allegedly overpaid due to the participant’s receipt of SSD benefits. The court concluded that the reimbursement counterclaim was properly brought under § 502(a)(3)(B) because the plan terms specifically permitted the fiduciary to recover overpaid benefits. Id. at 45-46. The court found that the applicable plan provisions satisfied the requirements for equitable relief in Sereboff because those provisions established “a right to recover from a specific fund distinct from Gilchrest’s general assets, the fund being the overpayments themselves, and a particular share of that fund to which the plan was entitled, i.e., all overpayments due to the receipt of Social Security benefits, but not to exceed the amount of benefits paid.” Id.
The Court concludes that the Policy provisions regarding the right to reimbursement of overpaid benefits enable Defendant to maintain its counterclaim to obtain equitable relief based upon those terms. See also, Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614, 621 (7th Cir. 2008) (holding that a counterclaim to recover overpaid benefits, based on a nearly identical reimbursement provision, is a claim for equitable relief under §502(a)(3)).
McCandless v. Std. Ins. Co., 765 F. Supp. 2d 943 ( E.D. Mich. 2011)
The Seventh Circuit, however, has rejected a possession requirement for an insurer’s overpayment claim, concluding that such claims are equitable in nature “even if the benefits it paid [the insured] are not specifically traceable to [the insured’s] current assets because of commingling or dissipation.” Gutta, 530 F.3d at 621. (Gutta v. Std. Select Ins. Plans, 530 F.3d 614, 621 (7th Cir. 2008))
O’Brien-Shure v. U.S. Labs., Inc. Health & Welfare Plan, 2013 U.S. Dist. LEXIS 91692 (N.D. Ill. July 1, 2013)
Section 207(a) provides that social security benefits shall not “be subject to execution, levy, attachment, garnishment, or other legal process.” Weitzenkamp argues that Unum’s counterclaim effectively seeks an equitable lien on her social security benefits. . . . [A]lthough the amount in question happens to be the same as the amount of Weitzenkamp’s retroactive social security payment, the funds Unum is targeting do not come from social security. Rather, they come from overpayments Unum paid to Weitzenkamp. Thus, § 207(a) does not bar recovery.
Weitzenkamp v. Unum Life Ins. Co. of Am., 661 F.3d 323 (7th Cir. Wis. 2011)
The present case is analogous to Sereboff in that Liberty seeks reimbursement for amounts paid to Bolton from a third-party source, the Social Security Administration. Liberty’s complaint states that it is a request for equitable relief, and Liberty seeks a particular share of a specifically identified fund–all overpayments resulting from the payment of social security benefits. Accordingly, Liberty’s complaint constitutes a request for equitable relief, and the district court did not err in exercising subject matter jurisdiction over Liberty’s third-party complaint.
We affirm the district court’s judgment on reimbursement for overpayments resulting from the receipt of social security benefits.
Dillard’s Inc. v. Liberty Life Assur. Co., 456 F.3d 894 (8th Cir. Ark. 2006)
Here, by contrast, Bilyeu asserts, and Unum has not refuted, that Bilyeu has spent the overpaid benefits.n5 Unum, therefore, is not seeking to recover a specified fund that is preserved and in Bilyeu’s possession. Instead, Unum is seeking a judgment requiring Bilyeu to pay money out of her general assets. In Sereboff‘s words,HN16 Unum is seeking “the imposition of personal liability,” rather than enforcement of an “equitable lien on particular property.” . . . This is quintessentially legal, rather than equitable, relief.
. . .
The tracing issue in Sereboff was whether Mid Atlantic could obtain an equitable lien against specifically identified funds when Mid Atlantic had never possessed those funds itself — an issue that has no relevance here. Nothing in Sereboff suggests that a fiduciary can enforce an equitable lien against a beneficiary’s general assets when specifically identified funds are no longer in a beneficiary’s possession.
Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F.3d 1083 (9th Cir. Ariz. 2012)
Courts have permitted equitable claims to be filed against claimants, seeking restitution of the overpayments under ERISA, 29 U.S.C. § 1132(a)(3). See, Cusson v. Liberty Life Assur. Co. of Boston, 592 F.3d 215, 230-232 (1st Cir. 2010); Dillard’s Inc. v. Liberty Life Assur. Co. of Boston, 456 F.3d 894, 900-901 (8th Cir. 2006); Gilcrest v. Unum Life Insurance Co. of America, 255 Fed. Appx. 38, 44-46, 2007 WL 3037239 (6th Cir. 2007). Courts have found these claims not to violate § 407(a) because the insurance company did not seek to recover the policyholder’s social security benefits (although the amount in question was the same as the amount of the claimant’s social security benefits), rather, the insurance company was seeking to recover in equity from funds the plan has already paid under the long term disability benefits plan. See, Cusson, 592 F.3d at 232; Parent v. Principal Life Ins. Co., F. Supp. , 763 F. Supp. 2d 257, 2011 U.S. Dist. LEXIS 10600, 2011 WL 3339218 *3 (D. Mass. Feb. 3, 2011); Schlenger v. Fidelity Employer Services Co., LLC, 785 F. Supp. 2d 317, 2011 U.S. Dist. LEXIS 35709, 2011 WL 1236156 *13 (S.D.N.Y. Mar. 31, 2011); Mugan v. Hartford Life Ins. Co., F. Supp. , 765 F. Supp. 2d 359, 2011 U.S. Dist. LEXIS 6961, 2011 WL 291851 *12-13 (S.D. N.Y. Jan. 20, 2011); [**51] Bosin v. Liberty Life Assur. Co. of Boston, 2007 U.S. Dist. LEXIS 26697, 2007 WL 1101187 *11 (W.D. Mich. April 11, 2007).
In addition, a district court has permitted recoupment of an overpayment by withholding future benefit payments under a long term disability plan, finding that such action did not violate § 407(a).
Fortelney v. Liberty Life Assur. Co., 790 F. Supp. 2d 1322 (W.D. Okla. 2011)
Reviewed in context, this Court does not read Sereboff’s holding with respect to tracing as broadly as the authorities cited above. Prudential is correct insofar as the Supreme Court did find that “strict tracing rules” do not apply to equitable liens by agreement. Sereboff, 547 U.S. at 364. However, the Sereboff Court was not considering tracing in the context of the imposition of an equitable lien over a fund that may have been dissipated since its identification. See Sereboff, 547 U.S. at 360-63. The Court discussed tracing in response to the insured’s argument that the insurer’s “suit would not have satisfied the conditions for ‘equitable restitution’ at common law, particularly the ‘strict tracing rules’ that allegedly accompanied this form of relief.” Id. at 364. Because the funds the insurer sought to recover were preserved due to a pre-trial stipulation, the insured’s argument was not that the fund had been dissipated since its identification and therefore could not be traced. Rather, the insured’s tracing argument was that because the insurer had not originally possessed the asset it sought to recover (the settlement fund), it could not trace the asset from its own possession to that of the insured as required to impose an equitable lien. See id. at 364. The Supreme Court rejected the “tracing requirement of the sort asserted by the [insured],” based on its reading of Barnes v. Alexander, 232 U.S. 117, 34 S. Ct. 276, 58 L. Ed. 530 (1914). Id. at 364-65 (alteration added). The Court noted that in Barnes, although the plaintiffs “could not identify an asset they originally possessed, which was improperly acquired and converted into property the defendant held,” they were nevertheless able to secure an equitable lien by agreement. Sereboff, 547 U.S. at 365. Accordingly, the Court made the limited finding that “[t]o the extent [the insurer’s] action is proper under Barnes, therefore, its asserted inability to satisfy the ‘strict tracing rules’ for ‘equitable restitution’ is of no consequence.” Id. at 365. As such, this Court does not find that the Supreme Court’s holding in Sereboff addresses the impact that dissipation of the identified fund would have on an insured’s ability to impose an equitable lien by agreement. See Admin. Comm. for the Wal-Mart Stores, Inc. Assocs’ Health & Welfare Plan v. Horton (Wal-Mart Stores), 513 F.3d 1223, 1227 n.3 (11th Cir. 2008) (explaining that the holding in Sereboff with respect to tracing means that “although the disputed funds had never actually been in possession of the plan, the plan could seek to ‘recover’ property that belonged to it in good conscience under the plan agreement”); see also Herman v. Metro. Life Ins. Co., 689 F. Supp. 2d 1316, 1317-18 (M.D. Fla. 2010); Popowski v. Parrott, No. 1:04-CV-0889-JOF, 2008 U.S. Dist. LEXIS 71615, 2008 WL 4372006, at*7 (N.D. Ga. Sept. 19, 2008); [**50] Unum Life Ins. Co. of Am. v. Wolf, No. 07-cv-00071-REB-KLM, 2008 U.S. Dist. LEXIS 43735, 2008 WL 2185889, at *5 (D. Colo. May 23, 2008); Unum Life Ins. Co. of Am. v. Epes, 715 F. Supp. 2d 837, 2010 U.S. Dist. LEXIS 41283, 2010 WL 1729707, at *5-8 (E.D. Ark. Apr. 27, 2010).
Moreover, the Supreme Court in Knudson instructed that “where ‘the property [sought to be recovered] or its proceeds have been dissipated so that no product remains, [the plaintiff’s] claim is only that of a general creditor,’ and the plaintiff ‘cannot enforce a constructive trust of or an equitable lien upon other property of the [defendant].'” Knudson, 534 U.S. at 213-14 (quoting Restatement of Restitution § 215, Comment a, at 867 (1936)). Nothing in Sereboff overruled this holding, nor did it alter the Knudson Court’s finding that “HN26for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant’s possession,” Knudson, 534 U.S. at 214 (emphasis added). See Sereboff, 547 U.S. at 362-67. Additionally, the Eleventh Circuit, although it has not addressed the specific issue before this Court, has instructed that “[u]nder Knudson, Sereboff, and the other authorities [cited in Wal-Mart Stores], the most important consideration is . . . that the settlement proceeds are still intact, and thus constitute an identifiable res that can be restored to its rightful recipient.” Wal-Mart Stores, 513 F.3d at 1229 (emphasis added). As such, in order to succeed in its claim for equitable relief, Prudential must identify a specific, intact, fund, in Epolito’s possession, belonging in good conscience to Prudential. See Knudson, 534 U.S. at 213 (“[A] plaintiff could seek restitution in equity, ordinarily in the form of . . . an equitable lien, where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant’s possession.”); Herman, 689 F. Supp. 2d at 1330-31 (“As there is no evidence . . . of the existence of an identifiable fund in [the insured’s] possession as to which [the insurer] can bring a claim under Section 1132(a)(3), [the insurer’s] motion for summary judgment should be denied as to its reimbursement counterclaim.”).
Epolito v. Prudential Ins. Co. of Am., 737 F. Supp. 2d 1364 (M.D. Fla. 2010)