:: Evaluating The Res Requirement For Benefit Overpayment Claims

Chevron and ACS seek equitable relief under section 1132(a)(3). Courts have acknowledged that a fiduciary may seek equitable relief under section 1132(a)(3) to recover amounts overpaid to a plan beneficiary.

Chevron Corp. v. Barrett, 2008 U.S. Dist. LEXIS 56825 (S.D. Tex. July 28, 2008)

In an effort to find a remedy for fiduciaries to recover allegedly overpaid benefits, several courts have construed the Supreme Court ’s holding in Sereboff v. Mid Atlantic as diminishing the requirement for a res to support a claim under section 1132(a)(3). This recent district court decision provides an opportunity to take a closer look at this reasoning.

The Facts

The stakes were high with the plan alleging a $ 445,372.99 overpayment. Here’s the plan’s version of how that happened:

During his career as an engineer, Barrett accrued pension benefits under several different retirement plans, each maintained by a different employer. When he retired in 2003, Barrett received a lump-sum payment of $ 469,446.47 from the Chevron Retirement Plan. This amount erroneously included benefits that Barrett had accrued for 22.9167 years of service under the Texas-New Mexico Retirement Plan. Barrett also received a lump-sum payment from the Shell Oil Company Retirement Plan that included benefits that accrued for his 22.9167 years of service under the Texas-New Mexico Retirement Plan. ACS asserts that Barrett “received double retirement benefits for his service” under the Texas-New Mexico Retirement Plan and seeks to recover the overpayment of $ 445,372.99.

Fiduciary Or Not

Despite citing authority to the effect that delegation of fiduciary authority must be accomplished through specific procedures specified in the plan document, the court took a forgiving approach to the requirement in the case at bar.

The court cited Lee v. MBNA Long Term Disability & Benefit Plan, 136 Fed. Appx. 734, 742 (6th Cir. 2006) (”It is well established that an ERISA fiduciary may delegate its fiduciary responsibilities to either another named fiduciary or a third party if the plan establishes procedures for such delegation.”). Yet, the court permitted ACS, apparently a non-fiduciary, to act as a “subrogee” under an agreement independent of the plan document, and that despite the fact that the task undertaken by ACS did not constitute subrogation in any legal sense.

The Constructive Trust Claim

In an amended complaint, Chevron and ACS asserted a claim in restitution and also sought to impose a constructive trust:

Chevron and ACS seek equitable relief under section 1132(a)(3). Courts have acknowledged that a fiduciary may seek equitable relief under section 1132(a)(3) to recover amounts overpaid to a plan beneficiary.

The court collects the following cases on this point:

  • Primax Recoveries, Inc. v. Sevilla, 324 F.3d 544, 547 (7th Cir. 2003) (noting that the Supreme Court “has now made clear that although an ERISA fiduciary . . . . may not sue a plan participant or plan beneficiary under ERISA unless it is seeking equitable relief, such relief includes . . . the imposition of a constructive trust claimed to be wrongfully withheld from the [fiduciary]” (internal citations omitted));
  • Fregeau v. Life Ins. Co. of N. Am., 490 F. Supp. 2d 928, 931 (N.D. Ill. 2007) (denying plaintiff beneficiary’s motion to dismiss defendant fiduciary’s counterclaim to recover overpayment of long-term disability benefits on the ground that the fiduciary sought to recover on a lien on funds “advanced directly to plaintiff by defendant in excess of what plaintiff would be ultimately entitled”);
  • Schultz v. Progress Health, Life, and Disability Benefits Plan, 481 F. Supp. 2d 594, 595 (S.D. Miss. 2007) (noting that “other courts of appeal have interpreted Sereboff to allow a plan fiduciary to pursue a claim to recover overpayments, even when the funds have been dissipated by the beneficiary” and finding that the fiduciary “has properly asserted a claim for equitable relief under ERISA” by “identif[ying] a fixed share of the assets to which it is equitably entitled”) (citing Dillard’s Inc. v. Liberty Life Assurance Co. of Boston, 456 F.3d 894 (8th Cir. 2006), Popowski v. Parrott, 461 F.3d 1367 (11th Cir. 2006));
  • IBEW-NECA Sw. Health and Benefit Fund v. Gurule, 337 F. Supp. 2d 845, 849 (N.D. Tex. 2004) (finding that fiduciary who sought to recover overpayments to beneficiary sought “equitable relief in the form of a constructive trust and equitable reimbursement,” such that “this action is therefore authorized under ERISA” and “the court has subject matter jurisdiction over this action”).

The Res Requirement

The citation to Schultz is troubling. The Schultz case suggests the Sereboff rejection of “strict tracing” as tantamount to an elimination of the res requirement as a prerequisite to (a)(3) relief. But was the holding in Sereboff this broad?

In Sereboff, the disputed funds were held in an investment account pending litigation. In fact, in Sereboff the Court observed:

[The] impediment to characterizing the relief in Knudson as equitable is not present here. As the Fourth Circuit explained below, in this case Mid Atlantic sought “specifically identifiable” funds that were “within the possession and control of the Sereboffs”–that portion of the tort settlement due Mid Atlantic under the terms of the ERISA plan, set aside and “preserved [in the Sereboffs’] investment accounts.” 407 F.3d, at 218. Unlike Great-West, Mid Atlantic did not simply seek “to impose personal liability . . . for a contractual obligation to pay money.” Knudson, 534 U.S., at 210, 122 S. Ct. 708, 151 L. Ed. 2d 635. It alleged breach of contract and sought money, to be sure, but it sought its recovery through a constructive trust or equitable lien on a specifically identified fund, not from the Sereboffs’ assets generally, as would be the case with a contract action at law.

This Court in Knudson did not reject Great-West’s suit out of hand because it alleged a breach of contract and sought money, but because Great-West did not seek to recover a particular fund from the defendant. Mid Atlantic does.

In view of this language, whatever the meaning one may take from the Court’s rejection of the “strict tracing” rules in equity, the Court clearly did not abrogate the Knudson requirement that a fund exist to which the equitable lien may attach.

Note: The Schultz court stated:

Schultz argues that she does not have a specific identifiable asset which can be recovered by Aetna because she spent all of the overpaid funds, and therefore the funds are no longer in her possession or control. In Sereboff, the court rejected a similar argument: that the relief sought by the plan was not equitable because the plan could not trace its property or monetary interest to particular funds or assets held by the beneficiaries. The court held that strict tracing rules do not apply to cases of equitable restitution when an equitable lien is imposed by agreement. Sereboff, 126 S.Ct. at 1875.

The Fifth Circuit has not yet had the opportunity to interpret Sereboff and determine its effect on existing precedent. However, other courts of appeal have interpreted Sereboff to allow a plan fiduciary to pursue a claim to recover overpayments, even when the funds have been dissipated by the beneficiary. See Dillard’s Inc. v. Liberty Life Assurance Co. of Boston, 456 F.3d 894, 2006 WL 1997146 (8th Cir., July 19, 2006) and Popowski v. Parrott, 461 F.3d 1367 (11th Cir. 2006). These cases provide persuasive authority for this Court’s assertion of subject matter jurisdiction, provided Aetna can show that the Plan terms specifically identified the funds Aetna seeks to recover.

Fifth Circuit Authority – The Fifth Circuit had an opportunity to discuss Sereboff in Amschwand v. Spherion Corp., 505 F.3d 342, 346 (5th Cir. Tex. 2007) where it stated:

Sereboff seems to confirm that the sine qua non of restitutionary recovery available under § 502(a)(3) is a defendant’s possession of the disputed res. See, e.g., Coan v. Kaufman, 457 F.3d 250, 264 (2d Cir. 2006) (restitutionary relief is deprived of its equitable character for purposes of § 502(a)(3) “when, as here, the defendants never possessed the funds in question and thus were not unjustly enriched”) (citation and internal quotation marks omitted); Knieriem v. Group Health Plan, Inc., 434 F.3d 1058, 1063 (8th Cir. 2006); Callery v. United States Life Ins. Co., 392 F.3d 401, 406 (10th Cir. 2004); Bast v. Prudential Ins. Co. of Am., 150 F.3d 1003, 1011 (9th Cir. 1998).

Despite the apparent current trend toward neglect of the res requirement in overpayment cases, the Supreme Court jurisprudence on (a)(3) does require possession of the disputed res (which may, of course, be identified subsequent to the lien agreement), as the Fifth Circuit says, as a sine qua non.