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U.S. Supreme Court To Hear Case Addressing ERISA Provider Recoupment Requests

The United States Supreme Court recently decided to hear a case that may have important implications for health care providers facing recoupment requests from ERISA plans.

Numerous ERISA plans and administrators, like United, Aetna, Cigna, and Blue Cross, are currently pursuing recoupment actions against providers, seeking to recoup alleged overpayments to providers for a variety of reasons, including, but not limited to, the waiver of co-payments. By granting Certiorari in Robert Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, Case Number 14-723, the Court will clarify whether the plans can seek such recoupment against a provider's general assets if the funds are already spent.

Currently there is a split among circuit courts as to the recoupment of funds under ERISA Section 502(a)(3), which allows a plan to seek an equitable lien as appropriate equitable relief under ERISA. In Montanile, the Supreme Court is being asked to address whether a plan may enforce an equitable lien against a defendant's general assets, if specifically identified funds are no longer available. Five Circuit Court of Appeals have adopted the view that a plan pursuing an equitable lien under Section 502(a)(3) can assert such a claim even if the specifically identified funds have not been set aside. Two Circuits, including the Ninth Circuit in Bilyeu v. Morgan Stanley, 683 F.3d 1083 (9th Cir. 2012), have ruled that possession of the actual funds received or strict tracing to those funds is required for an equitable lien under Section 502(a)(3).

The facts in Montanile are as follows: Robert Montanile was ordered to reimburse more than $120,000 to The Board of Trustees of the National Elevator Industry Health Benefit Plan (the Benefit Plan) for medical benefits that had been paid on behalf of Montanile following an accident in which a drunk driver ran a stop sign and slammed into his vehicle. After Montanile reached a $500,000 settlement with the driver, the Benefit Plan demanded, pursuant to the summary plan documents, repayment for the medical expenses paid even though he had spent much of the settlement money on legal fees and caring for himself. When negotiations fell through, the Benefit Plan filed an ERISA suit to enforce its reimbursement provision.

In November 2014, the Eleventh Circuit upheld a district judge's order awarding the Benefit Plan summary judgment in the amount of $121,044.02. In doing so, the Eleventh Circuit ruled that the Benefit Plan's summary plan documents gave it a first-priority right to reimbursement. Therefore, the Benefit Plan's equitable lien against the settlement funds attached as soon as Montanile entered into the settlement and before Montanile had spent any of the funds.

At issue before the Supreme Court in Montanile will be interpretation of the statutory language of Section 502(a)(3), which authorizes a fiduciary to pursue a civil action to recover "appropriate equitable relief." This language has resulted in several decisions by the Supreme Court. A brief summary of those cases provides enlightenment into the potential significance of the Court granting Certiorari in the Montanile case.

In Mertens v. Hewitt, 508 U.S. 248 (1993), the Court interpreted the meaning of the words "appropriate equitable relief" and held that Congress intended the phrase to refer only to "those categories of relief that were typically available in equity." In 2002, the Court decided Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), in which a plan that had paid the medical bills of an injured participant sought "reimbursement" after the participant received a monetary settlement from the responsible tortfeasor. The proceeds were deposited directly into a special needs trust, which was not a party to the litigation and, for that reason, the Knudson Court held that the fiduciary had no recourse against the participant personally.

In 2006, the Court decided Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), which involved the same factual scenario as Knudson but with one key difference -- the funds sought by the fiduciary were segregated by agreement pending the resolution of litigation. The defendants argued that the "reimbursement" was not available as an equitable lien by agreement because such a contractual remedy was not typically available in courts of equity. The Supreme Court disagreed. The Sereboff Court did not, however, overrule Knudson. Because the settlement funds in Sereboff were being held in escrow pending resolution of the dispute, the Court reasoned that the equitable lien was being attached to specifically identified funds and not from the defendants' general assets.

In the wake of Mertens, Knudson, and Sereboff, recoupment litigation by ERISA fiduciaries turns on the question of whether a plan may enforce an equitable lien against a defendant's general assets when specifically identified funds are no longer in his possession. The Supreme Court's holding in Montanile may clarify whether plans will be foreclosed from seeking recoupment against funds received by health care providers that are put into the providers' general operating funds.

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