:: Subrogation Claims In Complex Litigation – The Whole Is Less Than The Sum Of Its Parts

As a threshold matter, the Court recognizes that it is possible, even likely, that a significant portion of the settlement funds do–or, perhaps more accurately, will at some point in the future–belong to some of the Plaintiff health plans. Whether those funds belong in good conscience to the Plaintiffs at this stage of the settlement proceedings, however, is doubtful. In addition, it is beyond dispute that the settlement funds of claimants who have not received benefits from the Plaintiffs do not–and will never–belong to the plans.

Avmed Inc. v. Browngreer PLC, 2008 U.S. App. LEXIS 23747 (Fifth Circuit) (November 17, 2008) (unpublished)

This recent order in the Vioxx Multidistrict Litigation demonstrates the problem inherent in health plan attempts to recoup expenditures associated with the plaintiffs’ injuries or sickness in such cases.

As the Fifth Circuit noted, it’s not that the plans, or some of them, did not suffer losses stemming from the claims against Merck in the primary case. The plans’ claims run aground on technical issues characteristic of asserting claims in a gross packaging without distinct articulation of individual plan status under ERISA, enabling plan provisions and certain other elements necessary to equitable relief post-Sereboff.

Relief Requested

The plans asserted a bold strategy for relief – a preliminary injunction:

[The Plaintiffs] requested preliminary injunctive relief pursuant to § 502(a)(3) of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. 1132(a)(3) (”ERISA”), (1) mandating the disclosures of the identities of the Vioxx claimants participating [*2] in the settlement; and (2) enjoining distribution of interim settlement funds until such time as the appellants are able to assert reimbursement rights against those claimants for whom they have paid medical expenses related to Vioxx.

Substantive Law

The court framed the issue in terms of its holding in Bombardier Aerospace Employee Welfare Benefits Plan v. Ferer, Poirot & Wansbrough, 354 F.3d 348 (5th Cir. 2003).

In Bombardier, the Fifth Circuit established three considerations for determining whether a plaintiff seeks appropriate equitable relief under § 502(a)(3) of ERISA: “Does the [plaintiff health plan] seek to recover funds (1) that are specifically identifiable, (2) that belong in good conscience to the [plaintiff], and (3) that are within the possession and control of the defendant beneficiary?” 354 F.3d at 356. Pursuant to this analysis, the Fifth Circuit held that the Bombardier health plan sought appropriate equitable relief under ERISA when it asserted an equitable lien against settlement funds held in a trust account by the beneficiary’s attorney. Id.

Failure Of Proof

The Fifth Circuit raised a number of issues with the plan’s case. For example:

At this early stage of the Vioxx Settlement proceedings, however, the Claims Administrator has not finished determining which claimants are eligible for funds or allocating points to individual claimants so as to determine the amount of recovery pursuant to a formula for translating points to dollar amounts. As a result, the Court has no reliable means of determining which claimants will even receive funds, much less the amount of money that they will receive . . .

That’s a substantial flaw.

Then there was a question as to the plan provisions:

Further, none of the exemplar health plans offered by the Plaintiffs designates an unallocated settlement fund like the one in the Vioxx Settlement as an “identifiable” fund from which the plan may collect, and this Court doubts very much whether such a provision would be enforceable. As a result, the Court finds that there is no “identifiable” fund against which the Plaintiffs may assert their liens.

And, of course, the prerequisites for injunctive relief raise the bar for the plaintiff:

Because the Plaintiffs are unable to tailor their proposed injunctions to apply to only those claimants for whom they have provided medical benefits, the Court finds that the Plaintiffs’ proposed injunctions will delay disbursement of funds that do not in good conscience belong to them.

Thus, the plaintiffs failed to satisfy the court that they had a substantial likelihood of success on the merits.

First, the wide discrepancies between some of the plans, including the threshold determination of whether the plans are governed by ERISA at all, raise serious doubts as to the enforceability of all plans at issue for equitable relief. Second, the Plaintiffs’ proposed injunction would delay distribution of interim payments to claimants against whom the Plaintiffs have no claim at all. Third, pursuant to the analysis set forth in Bombardier, there is no identifiable fund; the funds at this time do not belong in good conscience to the Plaintiffs; and individual claimants do not have possession or legal control over the lump, unallocated settlement fund.

Note: Any one of the plans may have had sufficient plan language, proof of paid expenses, and perhaps a claim to identifiable funds individually, but amalgamated into a large bundle of claims, the case foundered on specific requirements necessary to make out a claim for appropriate equitable relief under Section 502(a)(3).

Multidistrict litigation is time-consuming and tedious for the district courts. It is not really surprising that a court would be cold to the interjection of a new set of claims at the distribution phase of a settled case. On the other hand, as noted in the case, the plans did suffer damages, or at some of them did. The claims en masse were just too gross a cut at the apple.

Nevertheless, plans do have alternatives in these cases. Success will require refinement of the claims, greater specificity of facts and, likely, individual claims for relief. That, however, is a topic for another day.

Incidently, it was Aristotle who said the whole is greater than the sum of its parts. In ERISA litigation, as the post title suggests, I say it is often the opposite. Perhaps, better still, is Kurt Koffka’s comment: “It has been said: The whole is more than the sum of its parts It is more correct to say that the whole is something else than the sum of its parts, because summing up is a meaningless procedure, whereas the whole-part relationship is meaningful.”