Sereboff v. Mid Atlantic Medical Services, Inc.
126 S. Ct. 1869, 2006 U.S. LEXIS 3954, 164 L. Ed. 2d 612 (2006)
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Rule of Law:
An ERISA fiduciary's lawsuit to enforce a plan's reimbursement provision by seeking to impose a constructive trust or equitable lien on specifically identifiable funds from a tort recovery that are in the beneficiary's possession and control constitutes "appropriate equitable relief" under § 502(a)(3).
Facts:
- Marlene and Joel Sereboff were beneficiaries of an employer-sponsored health plan administered by Mid Atlantic Medical Services, Inc., which was covered by ERISA.
- The plan included an 'Acts of Third Parties' provision requiring beneficiaries to reimburse Mid Atlantic for benefits paid if they recovered money from a third party for their injuries.
- The Sereboffs were injured in an automobile accident.
- Mid Atlantic paid $74,869.37 for the Sereboffs' medical expenses resulting from the accident.
- The Sereboffs filed a tort lawsuit against the third parties responsible for the accident and eventually settled the case for $750,000.
- The Sereboffs received the settlement proceeds but did not reimburse Mid Atlantic for the medical expenses it had paid.
Procedural Posture:
- Mid Atlantic Medical Services, Inc. filed suit against the Sereboffs in the U.S. District Court for the District of Maryland, seeking reimbursement under ERISA § 502(a)(3).
- The parties stipulated that the Sereboffs would preserve $74,869.37 of the settlement funds in an investment account pending the litigation's outcome.
- The District Court, a court of first instance, entered summary judgment in favor of Mid Atlantic.
- The Sereboffs, as appellants, appealed to the U.S. Court of Appeals for the Fourth Circuit.
- The Court of Appeals affirmed the District Court's judgment in favor of Mid Atlantic, the appellee.
- The Sereboffs petitioned the U.S. Supreme Court for a writ of certiorari, which the Court granted.
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Issue:
Does an ERISA fiduciary's lawsuit seeking reimbursement from a beneficiary's third-party tort recovery, based on a plan provision that specifically identifies the funds to be recovered from that settlement, constitute a claim for 'appropriate equitable relief' under § 502(a)(3) of ERISA?
Opinions:
Majority - Chief Justice Roberts
Yes. A fiduciary's lawsuit to enforce a plan's reimbursement provision against specifically identifiable funds in a beneficiary's possession is a claim for 'appropriate equitable relief' under ERISA § 502(a)(3). The Court distinguished this case from Great-West Life & Annuity Ins. Co. v. Knudson, where the funds sought were not in the beneficiary's possession. Here, Mid Atlantic sought to recover from a specific, identifiable fund (a portion of the tort settlement) that was in the Sereboffs' control. This type of claim is for an equitable lien or constructive trust, which were remedies typically available in courts of equity. The Court relied on Barnes v. Alexander, which held that a contract promising a portion of a future monetary recovery creates an equitable lien on that recovery once the funds are identified and possessed by the promisor. The plan's 'Acts of Third Parties' provision functioned as such an agreement, identifying the specific fund (third-party recoveries) and the share due to Mid Atlantic. Therefore, the suit was not for legal relief (imposing general personal liability) but for equitable relief (enforcing a lien on a particular fund).
Analysis:
This decision significantly clarifies the scope of 'equitable relief' under ERISA § 502(a)(3) following the court's more restrictive holding in Knudson. By endorsing the 'equitable lien by agreement' theory, the Court provided a clear pathway for ERISA plans to recover medical costs from beneficiaries' third-party settlements. The ruling emphasizes the importance of plan language; for a reimbursement claim to be 'equitable,' the plan must specifically identify the fund from which recovery is sought. This holding strengthens the position of plan fiduciaries and incentivizes precise drafting of reimbursement and subrogation clauses in ERISA plan documents.
