Category: ERISA Litigation

Supreme Court Rules ERISA Equitable Relief Can’t Reach Nontraceable Settlement Proceeds

Employee benefits plans regulated by the Employee Retirement Income Security Act of 1974 (ERISA or Act) often contain subrogation clauses requiring a plan participant to reimburse the plan for medical expenses if the participant later recovers money from a third party for his injuries.

On January 20, 2016, the US Supreme Court held, in MONTANILE v. BOARD OF TRUSTEES OF THE NATIONAL ELEVATOR INDUSTRY HEALTH BENEFIT PLAN that if an ERISA-plan participant wholly dissipates a third-party settlement on nontraceable items, the plan fiduciary may not rely on a subrogation provision in their health plan to bring suit under ERSA §502(a)(3) to attach the participant’s separate assets. Plan fiduciaries are limited by §502(a)(3) to filing suits “to obtain . . . equitable relief.” The Court previously held that whether the relief requested “is legal or equitable depends on [1] the basis for [the plaintiff’s] claim and [2] the nature of the underlying remedies sought.” Sereboff v. Mid Atlantic Medical Services, Inc., 547 U. S. 356, 363. In Montanile, the Court held that the Plan was not seeking equitable relief because it sought to recover against the defendant’s general assets, not specifically traceable assets. The lesson for Plan fiduciaries wishing to assert subrogation claims is to (1) put participants on specific notice of the subrogation claim as soon as the Plan learns of a significant incident of a type that might give rise to a subrogation claim (such as an accident); and (2) pursue the claim diligently before the participant receives settlement proceeds. We routinely include in our welfare wrap plan documents a vigorous subrogation reservation to protect Plans’ subrogation rights to the fullest extent practical.

More on the Montanile case…

Montanile was seriously injured by a drunk driver, and his ERISA plan paid more than $120,000 for his medical expenses. Montanile later sued the drunk driver, obtaining a 500,000 settlement. Pursuant to the plan’s subrogation clause, the plan administrator (the Board of Trustees of the National Elevator Industry Health Benefit Plan, or Board), sought reimbursement from the settlement. Montanile’s attorney refused that request and subsequently informed the Board that the fund would be transferred from a client trust account to Montanile unless the Board objected. The Board did not respond, and Montanile received the settlement.

Six months later, the Board sued Montanile in Federal District Court under §502(a)(3) of ERISA, which authorizes plan fiduciaries to file suit “to obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan.” 29 U. S. C. §1132(a)(3). The Board sought an equitable lien on any settlement funds or property in Montanile’s possession and an order enjoining Montanile from dissipating any such funds. Montanile argued that because he had already spent almost all of the settlement, no identifiable fund existed against which to enforce the lien. The District Court rejected Montanile’s argument, and the Eleventh Circuit affirmed, holding that even if Montanile had completely dissipated the fund, the plan was entitled to reimbursement from Montanile’s general assets. The Supreme Cour reversed for the reasons explained above.

icon Supreme Court Decision in Montanile

icon Supreme Court Decision in Sereboff

Class Action Lawsuit Accusing Employer of Reducing Employees’ Hours to Avoid Providing ACA Health Coverage

A May 8, 2015 class action lawsuit filed in New York alleges restaurant chain Dave & Buster’s, Inc. violated ERISA Section 510, which prohibits interfering with an employee’s attainment of an employee benefit under an ERISA benefit plan, when it converted up to 10,000 employees from full-time to part-time status in 2013 in an effort to right-sized its work force in response to the Affordable Care Act (ACA). This is one of the first lawsuits we are aware of making this allegation.

The Complaint alleges Dave & Buster’s made numerous public statements that the reason they reduced employees’ hours of employment was to avoid the increased costs of providing health benefits to their full-time employees after the ACA. If those allegations are proven true, the restaurant chain will have a difficult time defending their actions.

And worse is yet to come. As we began warning employers back in September 2013 and October 2013, the risk of lawsuits challenging workforce restructuring and reductions in force is greater since the employer mandate and the individual mandate went into effect, due to anti-retaliation provisions included in the ACA, which prohibit any adverse employment action in retaliation for receiving subsidized coverage through the Marketplace. As we explained back in 2013:

Imagine that Employee A … receives a federal subsidy for his marketplace coverage,…. [a few months later], your company determines it needs to conduct a reduction in force due to a business slowdown. Your HR manager works with senior management to carefully select RIF participants based on their skills, length of service with your company and the expected needs of your business.

The HR manager makes sure the RIF does not disproportionately impact people based on all of the protected classifications (race, nationality, sex, age, disability, etc.). …. Employee A is laid off ….

Employee A files a claim against your company with the Occupational Safety and Health Administration, alleging that your company chose Employee A for the RIF because he received subsidized coverage through the marketplace.

Employee A can establish a case of retaliation under the Affordable Care Act merely by providing evidence that his receipt of a subsidy was a “contributing factor” in the RIF decision. And under the OSHA rules that have been proposed to enforce the retaliation prohibition, Employee A will be able to meet his burden merely by showing that the HR manager knew he was receiving a subsidy at or near the time he was laid off.

The burden then shifts to your company to establish by clear and convincing evidence (which is a high bar to clear) that it would have laid Employee A off even if he had not received the subsidy.

Inside Tucson Business, October 25, 2013.

The lessons to draw from all of this include:

  • If you are planning a RIF (or any other adverse employment action), consider whether anyone making the employment decisions knows that any of the affected employees is or has received subsidized coverage through the marketplace.
    • If so, address it like you would for other protected classifications like age, race, sex, national origin and disability status (by documenting your reasons for the decision before you take the action).
    • If not, include that fact in the documentation you create before taking the adverse employment action.
  • And above all, don’t shoot yourself in the foot by proclaiming to the world that you are reducing employees’ hours because you are trying to reduce your risk of incurring the employer mandate.