On January 20, 2016, the United States Supreme Court ruled in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, that an Employee Retirement Income Security Act of 1974 (ERISA) plan fiduciary is not entitled to the participant’s separate assets under Section 502(a)(3) as reimbursement of medical expense payments paid by the plan. 29 U. S. C. §1132(a)(3). The Supreme Court held that while Section 502(a)(3) of ERISA authorizes plan fiduciaries to file suit in order to “obtain…appropriate equitable relief…to enforce….terms of the plan,” fiduciaries are precluded from bringing suit to attach the participant’s separate assets, seeking to recover general funds, because doing so would not be seeking equitable relief.
In general, many ERISA benefit plans contain subrogation clauses which require a plan participant to reimburse the plan for medical expenses paid if and when the participant recovers money from a third party for his/her injuries. In Montanile, the petitioner participant, Montanile, was seriously injured by a drunk driver, and he received more than $120,000 for his medical expenses from his ERISA plan. Montanile subsequently filed suit against the drunk driver and obtained a settlement in the amount of $500,000. Upon receipt of the settlement funds, Montanile paid his attorneys $200,000 for their services, as well as an additional $60,000 that the attorneys had advanced to Montanile, leaving him with $240,000.
The respondent plan administrator, the Board of Trustees of the National Elevator Industry Health Benefit Plan (the Board), sought reimbursement from the settlement amount from Montanile’s attorneys, who refused the request, despite having sufficient funds to satisfy the ERISA lien of approximately $120,000. Montanile’s attorneys informed the Board that unless it objected, the settlement funds would be transferred from the client trust account to Montanile. The Board failed to object, and the settlement funds were issued to Montanile. Of note, Montanile alleges that he then spent the remainder of the money within the next six months on non-traceable assets, such as food and travel, and did not spend the money on traceable assets, such as cars or homes.
After six months, the Board brought suit against Montanile in Federal District Court under Section 502(a)(3) of ERISA, which authorizes plan fiduciaries to file suit in order to obtain appropriate equitable relief and to enforce the terms of the plan. Thus, the Board sought an equitable lien on Montanile’s settlement funds or property in Montanile’s possession, as well as an order enjoining Montanile from dissipating his settlement funds. Montanile argued that since he had spent nearly all of his settlement funds, that there was no longer an identifiable fund in existence upon which the Board could enforce the lien.
The District Court rejected Montanile’s argument that no identifiable fund existed due to his prior spending of the settlement fund, and the Eleventh Circuit affirmed the District Court’s decision, holding that the Board of Trustees was entitled to reimbursement of Montanile’s general asserts if he had previously spent his settlement money.
The United States Supreme Court disagreed, holding that when an ERISA-plan participant wholly dissipates a third-party settlement on nontraceable items, as was the case here, that the plan fiduciary, respondentmay not file suit under§502(a)(3) to attach the participant’s separate assets. The Court’s reasoned that had the Board enforced its lien immediately upon receipt of the settlement by Montanile, or even filed a lien once Montanile received the funds from his attorneys, both actions would have been equitable, and thus, the Board would have been entitled to reimbursement under §502(a)(3).
Here, however, due to the Board’s failure to object to the disbursement of the settlement money to Montanile, and failure to immediately file suit enforcing the lien upon receipt by Montanile’s attorneys, or subsequently, Montanile, once he dissipated the settlement funds, the relief sought by the Board, seeking recover out of his general assets, was no longer equitable. Therefore, due to the Board’s failure to pursue their subrogation rights in accordance with §502(a)(3) of ERISA, they were precluded from bringing suit to attach Montanile’s separate assets.