Because the lower courts erroneously held that the plan could recover out of Montanile’s general assets, they did not determine whether Montanile kept his settlement fund separate from his general assets or dissipated the entire fund on nontraceable assets. At oral argument, Montanile’s counsel acknowledged “a genuine issue of . . . material fact on how much dissipation there was” and a lack of record evidence as to whether Montanile mixed the settlement fund with his general assets. A remand is necessary so that the District Court can make that determination.

Montanile v. Bd. of Trs. of the Nat’l Elevator Indus. Health Ben. Plan, 136 S. Ct. 651, 662 (U.S. 2016)

The Court should never have had to decide this case.  The plan’s argument was patently wrong under prior Supreme Court precedent.  Nonetheless, careless reading of those prior cases by lower courts required the correction administered in Montanile which is very simple to understand.

1.  The plan argued that, while equity courts ordinarily required plaintiffs to trace a specific, identifiable fund in the defendant’s possession to which the lien attached, there is an exception for equitable liens by agreement.

2. The plan misread Sereboff, which left untouched the rule thatall types of equitable liens must be enforced against a specifically identified fund in the defendant’s possession.

3. Recovery out of general assets — in the absence of commingling — was not relief “typically available” in equity.

Thus, equitable liens by agreement do not upset the basic rule set forth in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U. S. 204 (2002).  In all events, the plan’s claim for relief must be directed at a specific, identifiable fund in the defendant’s possession.

Note:  The Court’s advice to ERISA plan administrators is succinctly conveyed in this excerpt:

The Board had sufficient notice of Montanile’s settlement to have taken various steps to preserve those funds. Most notably, when negotiations broke down and Montanile’s lawyer expressed his intent to disburse the remaining settlement funds to Montanile unless the plan objected within 14 days, the Board could have — but did not — object. Moreover, the Board could have filed suit immediately, rather than waiting half a year.