:: Equitable Liens In Restitution – An Alternative Under ERISA Section 502(a)(3)?

Werner also sought restitution, asking the district court to impose a constructive trust or an equitable lien on the $ 3895 that Primax obtained from Progressive. The court found that request to be moot, however, because Primax had returned those funds to Progressive nearly 20 months prior to Werner’s filing of this action. Werner argues that the district court erred by assuming that a specific res had to be identifiable before it could impose an equitable lien.

Werner v. Primax Recoveries, Inc
., 2010 FED App. 0112N (6th Cir.) (6th Cir. Ohio 2010)

The Sixth Circuit’s unpublished opinion in Werner v. Primax Recoveries touches on an interesting issue regarding the nature of “equitable liens by agreement” as distinguished from “equitable liens in restitution” and the scope of ERISA Section 502(a)(3). .

The Facts

Werner was involved in a traffic accident on June 28, 2002, and required medical treatment for his injuries.

In addition to coverage through an employer-sponsored health-insurance policy through Medical Mutual of Ohio he also had “medpay” coverage through his automobile insurance policy that covered up to $ 5000 in medical-expense benefits.

Some of his medical bills were submitted to his health plan and some were submitted against his medpay coverage. The health plan apparently paid the bills submitted to it, but then asserted a claim against Werner’s medpay coverage. This subrogation claim exhausted the $ 5000 medpay limit.

For reasons undisclosed, some of the providers ended up with their bills unpaid. In fact, one of Werner’s medical providers sued him for non-payment.

Demand On Progressive

Rather than pursue payment of the outstanding bills through the health plan, Werner demanded that Progressive seek a refund from the health plan’s recovery agent (Primax) of what had been previously paid to the health plan out of his medpay coverage. (The reasons for this approach are not clear from the opinion.)  The repayment would apparently restore the medpay coverage in sufficient amount to satisfy the health care provider’s claims.

Werner added claims against Primax in the course of the personal injury claim based upon its claim on the medpay coverage.  In an effort to settle the controversy, Primax refunded the money it had recovered to Progressive.

The matter did not end there, however.  Werner sought class action relief in an independent action in federal district court – a case which was ultimately dismissed.   The district court based its holding on a number of grounds, including standing, mootness, and preemption.

Appeal Of Denied ERISA Claims

Of the arguments asserted on appeal, the most interesting argument was Werner’s attempt to impose liability under ERISA in terms of equitable relief under ERISA Section 502(a)(3).  (We will ignore the standing and mootness problems with his claims for purposes of discussion.)

In the words of the Court:

Werner also sought restitution, asking the district court to impose a constructive trust or an equitable lien on the $ 3895 that Primax obtained from Progressive. The court found that request to be moot, however, because Primax had returned those funds to Progressive nearly 20 months prior to Werner’s filing of this action.

Werner argues that the district court erred by assuming that a specific res had to be identifiable before it could impose an equitable lien. He relies solely on a passage in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 126 S. Ct. 1869, 164 L. Ed. 2d 612 (2006), in which the Court explained that “strict tracing” of funds is not necessary when an equitable lien is established by an agreement. See id. at 364-65.

But that reliance is misplaced: Werner has no agreement with Primax that creates an equitable lien. Rather, he seeks an equitable lien in restitution, i.e., the return of something that he alleges Primax wrongfully took. Sereboff expressly distinguishes such claims.

The return of the funds by Progressive proved fatal to this claim:

Moreover, Sereboff still requires that a request for restitution under § 502(a)(3) target “‘particular funds or property in the defendant’s possession.’” Id. at 362 (quoting Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213, 122 S. Ct. 708, 151 L. Ed. 2d 635 (2002) (emphasis added)).

Werner does not dispute that Primax returned the $ 3895 to Progressive. We fail to see why that would not already amount to restitution here, thus mooting the request–unless what Werner actually seeks is possession of the $ 3895 for himself. But for that, presumably he may now file reimbursement claims with Progressive. Restitution certainly does not require that Primax pay twice.

Our review of Sereboff also leads us to conclude that Werner’s restitution claim is for relief that a court cannot grant under § 502(a)(3), because he seeks legal rather than equitable restitution. See id. at 361-62 (distinguishing the two types and explaining that only equitable restitution is available under § 502(a)(3)); Fed. R. Civ. Pro. 12(b)(6).

The district court properly granted summary judgment on this claim.

Note: The “agreement” required to impose a Sereboff-like remedy is an intriguing issue.  In Sereboff, of course, the Court did not based its finding of an “agreement” on any contractual document.  The “agreement” was implied from the terms of the plan which contained a reimbursement provision.

So when may such an agreement be implied?  When Primax recovered funds as the health plan’s recovery agent, it did no more than act under the terms of the plan.   The Court was correct in finding that no equitable lien by express or implied agreement supported Werner’s claims.

The Court goes further, however, and makes an observation that may have some value beyond a typical subrogation case.  The Court describes the relief sought by Werner as an “equitable lien in restitution”.  Note that the Court does not find that claim to be “legal” (and thus unavailable under (a)(3) as “other equitable relief”).  Rather, since the funds have been returned, the claim was legal inasmuch as no res remained upon which to impose an equitable remedy.

This notion of equitable relief in restitution may just the remedy that an ERISA plan should dial up when seeking refunds from recalcitrant health providers.  The troubling issue of whether an equitable lien by agreement can be found may perhaps by sidestepped by this arabesque.  What the plan asserts is simply an equitable lien in restitution.   The Werner opinion, though unpublished, should go in the desk file.