Equitable Relief under ERISA: Supreme Court Allows a Fiduciary to Recover Expenses Paid to a Beneficiary Who Subsequently Recovered Damages from a Third Party in a Tort Action Lawsuit - Sereboff V. Mid Atlantic Medical Services1

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Equitable Relief under ERISA: Supreme Court Allows a Fiduciary to Recover Expenses Paid to a Beneficiary Who Subsequently Recovered Damages from a Third Party in a Tort Action Lawsuit - Sereboff v. Mid Atlantic Medical Services1 - The Supreme Court unanimously held that a fiduciary's attempt to recover expenses paid to a beneficiary, who subsequently recovers damages from a third party in a tort action lawsuit, constitutes equitable relief under the Employee Retirement security Act of 1974 ("ERISA"),2 so long as the action is equivalent to the recovery of a contractually-created equitable lien on specifically identifiable funds in the beneficiary's possession.3

Marlene Sereboff and her husband, Joel, (the "Sereboffs") received health insurance under her employer-sponsored plan.4 The plan was administered by respondent Mid Atlantic Medical Services, Inc. ("Mid Atlantic") and covered by ERISA.5 The contract contained an "Acts of Third Parties" provision that applied when a third party's act or omission caused a beneficiary's illness or injury.6 In the event a beneficiary receives benefits under the plan for such injuries, the beneficiary must '"reimburse [Mid Atlantic]' for those benefits from '[a]ll recoveries from a third party (whether by lawsuit, settlement, or otherwise).'"7 Shortly after their involvement in an automobile accident, the Sereboffs filed a tort action lawsuit in California state court seeking compensatory damages for their resulting injuries.8 In accordance with the "Acts of Third Parties" provision in their contract, Mid Atlantic notified the Sereboffs repeatedly during the litigation of its intention to claim a lien on the Sereboffs' recovery equivalent to the $74,869.37 in benefit payments it previously issued to the couple.9 When the Sereboffs declined to pay Mid Atlantic after settling the litigation for $750,000, Mid Atlantic filed suit in District Court under ERISA § 502(a)(3).10

Because the Sereboffs had already received the proceeds from their settlement, Mid Atlantic requested a temporary restraining order and a preliminary injunction from the District Court requiring the couple to set aside the disputed amount." The Sereboffs complied and placed the money in an investment account pending the District Court's decision and all subsequent appeals.12 The District Court held in favor of Mid Atlantic and ordered the Sereboffs to pay the disputed amount plus interest, while allowing for the deduction of the Sereboffs' state court legal fees.13 The Fourth Circuit affirmed, in relevant part, on the Sereboffs' appeal.14 The Supreme Court granted certiorari to resolve the divide amongst the other Circuit Courts on the question of whether a fiduciary's action for reimbursement constitutes equitable relief under ERISA.15

Under ERISA § 502(a)(3), a fiduciary may "(A) enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan."16 The Court noted that several recent decisions had shaped the definition of equitable relief under these circumstances.17 In Mertens v. Hewitt Associates,18 the Court held that equitable relief included those categories of relief that were typically available in equity in the days of the divided bench, but did not include actions for mere compensatory damages.19 The Court expanded upon this definition in Great-West Life & Annuity Ins. Co. v. Knudson.20 In Knudson, the Court held that one aspect of equitable restitution was that it sought to impose a constructive trust or equitable lien on "particular funds or property in the defendant's possession."21 Here, the Court held that the nature of Mid Atlantic's claim could be characterized as equitable.22 Mid Atlantic sought its recovery through an equitable lien on a specifically identified fund, and not from the Sereboffs' assets generally, as would be the case with a mere contract action at law. …