100% of Proceeds – Including Attorney’s Fee Earned – Paid to Self-Funded ERISA Plan

October 11th, 2020

100% of Proceeds – Including Attorney’s Fee Earned – Paid to Self-Funded ERISA Plan

By: Paul K. Isaac, Esq., ChSNC  | Managing Partner, Precision Resolution, LLC  |  Click to Email Paul

“Defendants are directed to turn over the entire amount of the settlement recoveries, up to $38,262.19, to the plaintiff immediately upon receipt of this order or as soon as such funds become available.”

Trs. of the 1199SEIU Nat’l Ben. Fund for Health & Human Serv. Emples. v. Cotto, 2020 U.S. Dist. LEXIS 178207, *17, 2020 WL 5763942, *6 (E.D.N.Y. Sept. 28, 2020) (click to download the decision).

(Hereinafter, the use of the term “Plaintiff’ in my text refers to the injury victim in the state court action, even though the “Plaintiff” in the Federal court reimbursement action was the 1199SEIU Health Fund.)

THIS CASE IS DISTURBING FOR A NUMBER OF REASONS:

  • The court grants 100% recovery of a $25,000 (limits of coverage) automobile settlement to 1199SEIU Health Fund, on a case where shoulder surgery was performed, and a number of other serious injuries were inflicted on the Plaintiff.
  • Even though the injuries arose out of a New York automobile crash, and, where it appears that the large expenses associated with the shoulder surgery occurred two months after the accident, no-fault insurance coverage apparently was never extended. It appears that the vehicle which the plaintiff was operating was registered in Pennsylvania and may not have had NY coverage. In the Federal court case, Plaintiff’s counsel, who was also named as a defendant in the enforcement action, alleged in his Memorandum in opposition to the motion for summary judgment that no-fault coverage existed, and, therefore, the 1199SEIU Health Fund should not have paid these bills and did so improperly. Unfortunately, there does not appear to have been any resolution of the no-fault issues spelled out in the court documents.
  • In spite of the Plaintiff’s attorney’s relentless advocacy in the state court action in his 3-year pursuit of an exception to the Graves Amendment (49 U.S.C. § 30106), no doubt seeking to get more coverage for his client, the Federal Court decision denies recovery of attorney fees to plaintiff’s counsel altogether on the $25,000 settlement. Plaintiff’s counsel in his submission to Federal court, seeking at least a reduction in the lien to equate to his fees so that some proceeds would flow to the client, argued for the application of the “Common Fund Doctrine.” The Court rejected that argument stating:

“In other words, the plan expressly limits the common-fund doctrine by providing that the Fund’s recovery takes priority over the payment of the defendants’ attorneys’ fees. “Neither general principles of unjust enrichment nor specific doctrines reflecting those principles—such as the double-recovery or common-fund rules—can override the applicable contract.” McCutchen, 569 U.S. at 106. Therefore, the defendants are not entitled [*17] to recover their attorneys’ fees until the Fund is paid in full.” Cotto, 2020 U.S. Dist. LEXIS 178207 at *16-17.

  • Fourth, even though the case arose out of a 2015 auto accident, at the time of the decision granting summary judgment by United State District Court for the Eastern District of NY on September 28, 2020, over five years after the accident, the court still did not have a copy of the Plan Document. The court acknowledged that it had not reviewed the actual plan document. Ultimately, the court had no choice but to decide the case based on the Summary Plan Description (SPD), which, of course, purported to waive the Common Fund Doctrine.

“However, the parties have not put forth the actual ERISA plan in question here. Nor have they suggested that the terms of the SPD differ materially from those in the official plan. Thus, I analyze this dispute according to the language in the SPD.” Id. At *2, f.n. 2.

  • The court also took a swipe at the Plaintiff’s failure to exhaust administrative remedies but did not decide directly on that issue. “The Plan sets forth a procedure for disputing the amount of a lien, including bringing an ERISA action against the Fund once a party has exhausted his administrative remedies. Id. At *6.
  • Plaintiff and his attorney each get $0.00!

 

Best Practices:

Best Practices for Plan DocumentsWhen dealing with an ERISA plan, we recommend that you request a full set of plan documents from the plan administrator, including the plan document, SPD, trust agreement, amendments to the plan, and Forms 5500. Many times, the SPD will contain subrogation and reimbursement provisions that are different and stronger than the plan document; or, the SPD may contain provisions that the plan document is completely silent on. The purpose of the SPD is to provide plan beneficiaries with an explanation of their benefits and rights. It does not constitute the terms of the plan. It has been consistently held that the plan document contains the terms of the plan, especially when there is a conflict between the two documents. See, e.g., CIGNA Corp. v. Amara, 131 S. Ct. 1866, 1878 (2011); US Airways, Inc. v. McCutchen, 569 U.S. 88 (2013). Aside from ensuring that an ERISA plan is “self-funded,” the more documents you have that are related to the plan, the more opportunities there may be to attack deficiencies in any of the documents. 
Best Practices for ResolutionNever settle your case without a strategy for resolving an ERISA lien! ERISA plan provisions regarding reimbursement and attachment of a lien generally become effective upon settlement. Once the settlement is agreed to, the attorney can potentially become a named defendant in a constructive trust application or any application for an injunction. Our office deals with these cases on a daily basis, and it is our experience that, barring old and sloppy plan documents, we have far better leverage prior to settlement.

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