:: Personal Injury Attorneys Not Liable To Plan For Disbursement Of Recovered Funds

When negotiations between the attorney-defendants and the plaintiff concerning a possible settlement of plaintiff’s subrogation claim failed, Ms. DeBoer demanded her share of the settlement, and the attorney defendants paid over to her the amounts they had recovered, less their counsel fees and expenses. In doing so, they carefully notified Ms. DeBoer of her obligation to repay the plaintiff’s subrogation claim, and obtained from Ms. DeBoer an agreement to indemnify them against any claims which might ensue because they had paid over the proceeds to her. The present lawsuit followed.

UFCW Local 1776 v. Deboer, 2008 U.S. Dist. LEXIS 73499 (E.D. Pa. Sept. 25, 2008)

This decision will likely make the rounds among the plaintiff’s bar.  In it, the district court dismissed an ERISA plan’s claims against personal injury attorneys who had disbursed settlement funds at the behest of their client.

Other than the facts noted in the excerpt, the only additional facts of interest are (1) that the plan obtained a default against Ms. DeBoer, the personal injury plaintiff, who failed to respond to the complaint and (2) the defendant attorneys did not represent Ms. DeBoer in the dispute over recovery of the settlement funds.

 The district court saw the ERISA case as essentially a dispute between Deboer and the plan.

I have no difficulty in concluding that plaintiff’s claims against Ms. DeBoer are the only ones which arise under the ERISA statute itself. Plaintiff is alleging that the terms of the plan have been violated, but the defendant attorneys are not signatories to the plan and are not directly bound by its terms. Neither are they ERISA fiduciaries, since they do not hold, and have never held, any of the plan’s assets, and are not involved in its management.

The court went on to say that the plan’s claims against the defendant attorneys arose under state law.   Applying Pennsylvania law, the court held that the attorneys could not be held liable for interference with Ms. Deboers’ “contract” to repay the plan nor conversion.

The attorneys cannot properly be regarded as having willfully interfered with plaintiff’s rights under the contract, merely because they have not caused Ms. DeBoer to comply with her obligations. On this record, the attorneys’ obligations were to their client, Ms. DeBoer, not to the Fund. . . .

Nor can the attorneys be liable for conversion. Plaintiff’s entitlement to the money in question did not arise until Ms. DeBoer received the funds. The motion of the attorney-defendants will be granted.

Note:  The court distinguished a case in which the personal injury attorneys interfered with the recovery, stating:

This case is easily distinguishable from the case principally relied upon by the plaintiff, Greenwood Mills, Inc. v. Burris, et al., 130 F. Supp. 2d 949 (M.D. Tenn., 2001), where attorneys were held liable for non-recognition of a subrogation claim under Tennessee law. In that case, the attorneys had caused their client to lie about the third-party recovery, and had misrepresented it to the subrogation claimant. Moreover, the case was decided under Tennessee law, which apparently differs from the law of Pennsylvania.

Contrary Authority – For a contrary view on the fiduciary issue, see :: Attorneys Potentially Liable As ERISA Fiduciaries

Strategic Considerations – Plan administrators can successfully impose constructive trust remedies at an earlier stage in the proceedings to avoid this result.  Other appropriate equitable relief may also apply where personal injury attorneys hold funds in trust.  

Ethical Issues – These cases are fraught with ethical issues, such as the duties of counsel for the plan participant to health care providers and health plans.  See, e.g.,  SC Ethics Advisory Opinion 95-29 regarding Rule 1.15 where lawyer is aware of interest claimed by third party.