The Supreme Court of the United States issued its opinion today in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 577 U.S. ___ (2016). This ERISA reimbursement case was decided on the issue of whether or not dissipation of settlement funds by the plan participant defeated a plan’s claim for equitable relief under §502(a)(3). In an eight-to-one decision by the Supreme Court, Justice Thomas held that when a plan participant dissipates settlement funds on non-traceable assets, which would otherwise be subject to an equitable lien by agreement, the plan is not permitted to assert a claim against the participant’s general assets.
This case resolved a split among the Circuits, which were in disagreement over whether an equitable lien by agreement could be enforced when the person has dissipated the fund to which the lien attached. In Montanile, the defendant (the injured plaintiff in the underlying personal injury case) argued that the ERISA lien could not attach because the settlement money was distributed and the proceeds were expended. Therefore, the plan had no claim for equitable relief because there was no longer a specific fund from which to recover.
While the Supreme Court agreed that an equitable lien by agreement created a right to funds not yet in existence, and thereby attached as soon as the settlement funds were secured, the Justices could not overlook the requirement that the settlement funds be in the participant’s control and possession. Therefore, in keeping with the historical remedies typically available in equity, a plan cannot assert a claimed lien by agreement against a participant’s general assets.
The result in this case was a remand to the District Court for a decision consistent with the opinion. Here, it was noted that there is an open factual determination of whether the settlement money was fully spent, and spent on non-traceable assets. If a portion of the fund remained, it would be recoverable. Alternatively, if the settlement fund was spent on traceable assets, the plan’s lien could attach to those specific assets.
Obviously this is not a “get out of jail free card” with regard to the attorney’s respective state’s ethical obligations. You cannot ignore these obligations and simply disburse the settlement proceeds to your client. Although this issue was addressed in oral argument, the opinion in this case does not overrule the attorney’s ethical obligation to fully consider third-party claims against the plaintiff’s proceeds. However, in this case, prior to the plan’s commencement of its lawsuit, plaintiff’s counsel engaged the plan, tried to negotiate, held the proceeds in escrow, and advised the plan that since they could not reach any agreement plaintiff’s counsel was distributing the proceeds to the plaintiff if no objection was made within 14 days, which none was. This seems to be an important factor both in oral argument and in the decision as the plan took no action prior to the dissipation to enforce its claims. Rest assured that will change!