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Sereboff v. Mid Atlantic Medical; law vs. equity
November 28, 2005 by Ross Runkel at LawMemo
The US Supreme Court once again has decided to resolve the question of an ERISA Plan's ability to get reimbursement from a participant who recovered a settlement from a third party. The Court announced November 28 that it will decide this issue in Sereboff v. Mid Atlantic Medical Services - a case from the Fourth Circuit Court of Appeals.
An ERISA Plan paid about $75,000 to Plan participants Joel and Marlene Sereboff for accident-related benefits. The Sereboffs then recovered $750,000 from the tortfeasors in settlement of a personal injury claim. The Plan then sued the Sereboffs to get reimbursed for the medical benefits it had paid.
The Plan sued the Sereboffs under ERISA Section 502(a)(3), which allows a Plan to recover "other equitable relief." The Sereboffs defended on the ground that the Plan was seeking "legal" relief which a Plan cannot recover under Section 502(a)(3).
The trial court held for the Plan, and the 4th Circuit affirmed. Mid Atlantic Medical v. Sereboff (4th Cir 05/04/2005).
It all goes back to Great-West Life & Annuity Insurance Co. v. Knudson, decided by the US Supreme Court in 2002. In Knudson, with somewhat similar facts, the Supreme Court characterized the Plan's claim as "legal" rather than "equitable," and therefore held that the Plan could not recover under 502(a)(3). Of particular importance was the Court's statement that "the term 'equitable relief' refers to those categories of relief that were typically available in equity."
Knudson facts: The Plan paid money to the Knudsons to cover medical expenses connected to an injury. The Knudsons recovered money from a tortfeasor. The settlement agreement provided that the proceeds would go into a trust for Janette Knudson’s medical care.
Sereboff facts: The Plan paid money to the Sereboffs to cover medical expenses connected to an injury. The Sereboffs recovered money from a tortfeasor. The settlement proceeds were disbursed to the Sereboffs, who placed them into their investment accounts.
The Fourth Circuit distinguished the Knudson case, which concluded that the Plan was really seeking to "impose personal liability" on the Knudsons "for a contractual obligation to pay money." The main points:
- The Plan seeks to recover funds that are specifically identifiable.
- The funds belong in good conscience to the Plan.
- The funds are within the possession and control of the Serboffs.
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