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Mid Atlantic Amicus Brief, in support of plaintiff-appellee

No. 04-1336
_____________________________________________________________

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

_____________________________________________________________

MID ATLANTIC MEDICAL SERVICES, INCORPORATED,

Plaintiff-Appellee,

v.

JOEL SEREBOFF; MARLENE SEREBOFF,

Defendants-Appellants.
_____________________________________________________________

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
_____________________________________________________________

BRIEF OF THE SECRETARY OF LABOR AS
AMICUS CURIAE IN SUPPORT OF MID ATLANTIC
MEDICAL SERVICES, INCORPORATED'S REPLY

_____________________________________________________________

HOWARD M. RADZELY
Solicitor of Labor

TIMOTHY D. HAUSER
Associate Solicitor
Plan Benefits Security Division

ELIZABETH HOPKINS
Counsel for Appellate and Special Litigation

SALVADOR SIMAO
Trial Attorney
Plan Benefits Security Division
U.S. Department of Labor
Office of the Solicitor
P.O. Box 1914
Washington, D.C. 20013
(202) 693-5600

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF THE SECRETARY OF LABOR

QUESTION PRESENTED

STATEMENT OF THE CASE

ARGUMENT

The District Court's Order Directing Participants to Reimburse the Plan for Previously Provided Medical Benefits from Specifically Identifiable Funds Obtained in Settlement of Participants' Tort Action is Appropriate Equitable Relief under ERISA and Consistent with the Supreme Court's Ruling in Great West and this Circuit Court's PRECEDENT

CONCLUSION

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE

ADDENDUM

TABLE OF AUTHORITIES

Federal Cases:

Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & WansBrough, et al., 354 F.3d 348, 356 (5th Cir. 2003), cert. denied, 124 S. Ct. 2412 (2004)

In re Carpenters, 36 Fed. Appx. 80 (4th Cir. 2002)

Donovan v. Cunningham, 716 F. 2d 1455, 1462-63 (5th Cir. 1983)

Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002)

Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 250-51 (2000)

Local 109 Retirement Fund v. First Union Nat'l Bank, 57 Fed. Appx. 139 (4th Cir. 2003)

Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993)

Mid Atlantic Med. Servs., Inc., v. Sereboff, 303 F. Supp. 2d 691, 697-701 (D. Md. 2004)

Primax Recoveries, Inc. v. Young, 83 Fed. Appx. 523 (4th Cir. 2003)

Provident Life & Accident Ins. Co. v. Waller, 906 F.2d 985, 986-87 (4th Cir. 1990)

Rego v. Westvaco Corp., 319 F. 3d 140 (4th Cir. 2003)

Secretary of Labor v. Fitzsimmons, 805 F.2d 682 (7th Cir. 1986)

State Cases:

Leyden v. Citicorp Indus. Bank, 782 P.2d 6 (Colo. 1989)

Middlebrooks v. Lonas, 246 Ga. 720, 272 S.E.2d 687 (1980)

Federal Statutes:

Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. sec. 1001, et seq.

Section 502, 29 U.S.C. sec. 1132
Section 502(a)(2), 29 U.S.C. sec. 1132(a)(2)
Section 502(a)(3), 29 U.S.C. sec. 1132(a)(3)
Section 505, 29 U.S.C. sec. 1135

Miscellaneous:

1 Dan B. Dobbs, Law of Remedies, (2d ed. 1993)

587
588
590
591
595
598

INTEREST OF THE SECRETARY OF LABOR

    The Secretary of Labor (the "Secretary") has primary authority to interpret and enforce the provisions of Title I of ERISA and therefore has a strong interest in ensuring that the fiduciary duties of loyalty and prudence in the administration of plan assets are strictly applied. 29 U.S.C. §§ 1132, 1135. See Donovan v. Cunningham, 716 F.2d 1455, 1462-63 (5th Cir. 1983). The Secretary's interests further include promoting the uniform application of the Act, protecting plan participants and beneficiaries, and ensuring the financial stability of plan assets. Secretary of Labor v. Fitzsimmons, 805 F.2d 682 (7th Cir. 1986) (en banc). The plans' ability to seek reimbursement of benefits from plan participants who have recovered funds from third parties is important to plans' continued financial stability, and so long as it is accomplished through specifically identifiable funds it constitutes "appropriate equitable relief" under section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3).

QUESTION PRESENTED

    This case involves an ERISA subrogation claim brought by Mid Atlantic Medical Services, Inc. ("Mid Atlantic" or "Plan") against Plan participants Joel and Marlene Sereboff (collectively, the "Sereboffs" or "Participants") to be reimbursed for medical benefits paid by the Plan from settlement funds recovered by the Sereboffs from a third-party tortfeasor. In accordance with a court ordered stipulation, the exact amount of the medical benefits the Plan seeks to recover were partitioned from the Participants' settlement funds held within their investment account, where the partitioned funds must remain until the exhaustion of all appeals related to this matter. The primary issue on appeal is whether the district court's order that Participants transfer the partitioned funds held within their investment account to the Plan as reimbursement for previously received Plan benefits in accordance with the plain language of the plan, was appropriate "equitable" relief under section 502(a)(3) of ERISA.

STATEMENT OF THE CASE

    The district court based its holding upon the parties' stipulated facts, which the court attached to its published opinion. See Mid Atlantic Med. Servs., Inc., v. Sereboff, 303 F. Supp. 2d 691, 697-701 (D. Md. 2004) (Joint Appendix "J.A." document 30). In June of 2000, appellants Joel and Marlene Sereboff were injured in an automobile accident in California. Id. Both of the Sereboffs were participants of the Plan at the time of the accident and were paid a total of $74,869.37 in medical benefits for their accident related injuries; specifically Marlene Sereboff was paid $73,778.26 and Joel Sereboff was paid $1,091.11. Id. In January of 2003, the Sereboffs settled their claims against their tortfeasors for $750,000. Id. The settlement funds were deposited into an investment account controlled by the Sereboffs. Id. In March of 2003, Mid Atlantic demanded reimbursement from the Sereboffs from their settlement proceeds for the amount paid to them as medical benefits, in accordance with the Plan's reimbursement and subrogation clause. Id. The Sereboffs refused to comply with the Plan's demand to transfer the amount of the previously paid medical benefits from their settlement funds to the Plan. Id.

    Mid Atlantic initially sought a preliminary injunction against the Sereboffs to prevent the transfer of the settlement funds until the Plan's claim was adjudicated. The Plan withdrew its request for a preliminary injunction because the Sereboffs stipulated that "Joel Sereboff and Marlene Sereboff shall preserve $74,869.37 of the settlement funds recovered because of injuries sustained on or about June 22, 2000, which are currently held in investment accounts (and must keep the settlement funds in those investment accounts) until the Court rules on the merits of this case and all appeals, if any, are exhausted." See ORDER GRANTING STIPULATION TO PRESERVE FUNDS, WITHDRAW MOTION FOR A PRELIMINARY INJUNCTION, AND BRIEFING SCHEDULE (J.A. document 7).

    The Plan also filed a complaint under section 502(a)(3) of ERISA for equitable reimbursement from the settlement funds for the benefits previously provided to the Participants. In addition, the Plan requested that the Court not prorate the reimbursement amount by the Participants' legal fees and court costs. On January 26, 2004, the District Court granted Mid Atlantic's motion for summary judgment and ordered the Sereboffs to transfer $74,869.37 plus interest (6%) from the partitioned funds held within their investment account to Mid Atlantic, minus Mid Atlantic's pro rata share of reasonable attorney fees and court costs. On April 6, 2004, the Sereboffs filed a timely appeal to the Fourth Circuit arguing that the relief granted by the District Court violated the Supreme Court's holding in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002).

ARGUMENT

The District Court's Order Directing Participants to Reimburse the Plan for Previously Provided Medical Benefits from Specifically Identifiable Funds Obtained in Settlement of Participants' Tort Action is Appropriate Equitable Relief under ERISA and Consistent with the Supreme Court's Ruling in Great West and this Circuit Court's Precedent

    Section 502(a)(3) of ERISA authorizes a civil action "by a . . . fiduciary (A) to enjoin any act or practice which violates…the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of the . . . terms of the plan." 29 U.S.C. § 1132(a)(3). In Great-West, the Supreme Court held that "appropriate equitable relief" under ERISA section 502(a)(3) refers to "'those categories of relief that were typically available in equity.'" 534 U.S. at 210 (citing Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993)). "[F]or restitution to lie in equity," the Court explained, "the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession." Id. at 214. The question in this case is whether Mid Atlantic's action seeking reimbursement of specifically identifiable settlement funds recovered by the Sereboffs constitutes such equitable restitution under Great-West, and is therefore "appropriate equitable relief" under section 502(a)(2).

    The Secretary agrees with the District Court's utilization of the Fifth Circuit's three-prong test, holding that reimbursement is an appropriate equitable remedy under ERISA when the plan seeks "to recover funds (1) that are specifically identifiable, (2) that belong in good conscience to the plan, and (3) that are within the possession and control of the" beneficiary or participant. Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & WansBrough, et al., 354 F.3d 348, 356 (5th Cir. 2003), cert. denied, 124 S. Ct. 2412 (2004). The Fourth Circuit has expressly applied such an approach in two unpublished decisions and agreed with this approach in the dicta of a third published post-Great-West decision.

    In In re Carpenters, this Court upheld the bankruptcy and district courts' holdings that if the "plan administrator had been seeking an equitable lien on particular property in the hands of the plan beneficiaries, such a suit would sound in equity and would be authorized by § 502(a)(3)." 36 Fed. Appx. 80, 82 (4th Cir. 2002) (unpublished). The following year the Fourth Circuit held in Primax Recoveries, Inc. v. Young that "a constructive trust on identifiable funds that [the Plan administrator] claim[s] belong in good conscience to [the Plan], and those funds are in [the participant's] possession" was appropriate equitable relief under ERISA. 83 Fed. Appx. 523, 525 (4th Cir. 2003) (unpublished). The Court also discussed equitable restitution as relief under ERISA in dicta in Rego v. Westvaco Corp., stating that "a claim for equitable restitution must seek 'not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession.' The plaintiff, in other words, must argue that 'money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession.' It is only under such circumstances that plaintiffs can proceed in equity with a claim for restitution." 319 F.3d 140, 145 (4th Cir. 2003). See also Local 109 Retirement Fund v. First Union Nat'l Bank, 57 Fed. Appx. 139 (4th Cir. 2003) (unpublished) (holding that courts must look to remedy sought and not the theory of recovery in evaluating appropriateness of equitable restitution under ERISA). Moreover, this approach is consistent with a pre-Great-West decision in the Fourth Circuit permitting a plan's subrogation claim for unjust enrichment to recover previously provided benefits from participants who subsequently received a tort award. See Provident Life & Accident Ins. Co. v. Waller, 906 F.2d 985, 986-87 (4th Cir. 1990).

    The relevant treatises confirm the correctness of the Fourth Circuit's approach. Indeed, Dobbs points out that the remedies of constructive trust and equitable lien were created at equity precisely to remedy situations in which the defendant held the legal title to an identifiable res (including a bank account), but the plaintiff had a superior moral claim. [1] 1 Dan Dobbs, Law of Remedies, 591, 591, 595 (2d ed. 1993); accord Great-West, 534 U.S. at 213; Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 250-51 (2000) (noting that "[w]henever the legal title to property is obtained through means or under circumstances 'which render it unconscientious for the holder of the legal title to retain and enjoy the beneficial interest, equity impresses a constructive trust on the property thus acquired in favor of the one who is truly and equitably entitled to the same, although he may never, perhaps, have any legal estate therein'") (citations omitted). Through these devices, equity stepped in with a remedy – legal title to particular property – that courts of law could not provide, thus compelling the defendant "to follow good conscience rather than good title." Dobbs at 587. Thus, actions for nonpayment of a debt for specific property, breach of a promise to repay a loan, and failure to pay on a promissory note for which property was transferred, all could suffice to warrant imposition of a constructive trust on the property transferred or improved with the plaintiff's property. Dobbs at 598 & n.52 (citing Middlebrooks v. Lonas, 246 Ga. 720, 272 S.E.2d 687 (1980); Leyden v. Citicorp Indus. Bank, 782 P.2d 6 (Colo. 1989)).

    The district court's order to transfer the partitioned funds in the present case fits within this understanding of equitable relief because the undisputed facts evidence: (1) the funds belong in good conscience to the Plan; (2) the funds are identifiable; and (3) the funds are within the defendants' control. The $74,869.37 in dispute belongs in good conscience to the Plan because the Sereboffs agreed to reimburse the Plan out of any third-party recoveries when they accepted benefits under the Plan. Mid Atlantic Med. Servs., Inc. v. Sereboff, 303 F. Supp. 2d at 695 (see paragraphs 8 through 11 of the Joint Stipulation of facts). Unlike the money in Great-West, the money in this case can "clearly be traced to particular funds or property in the defendant's possession" because the Court Ordered Stipulation (J.A. document 7) required the Sereboffs to partition and remove the funds that represented the benefits at issue from their settlement award and hold these funds within their investment account until resolution of Mid Atlantic's claim and exhaustion of all related appeals. Accordingly, under the Fourth Circuit's interpretation of Great-West, the district court properly transferred title of the $74,869.37 to Mid Atlantic as an equitable remedy under ERISA section 502(a)(3).

CONCLUSION

    For the reasons discussed above, the court should deny the participants' appeal.

    Respectfully submitted this 8th day of July 2004.

HOWARD M. RADZELY
Solicitor of Labor

TIMOTHY D. HAUSER
Associate Solicitor
Plan Benefits Security Division

ELIZABETH HOPKINS
Counsel for Appellate and Special Litigation

___signed_____________
SALVADOR SIMAO
Trial Attorney
Plan Benefits Security Division
U.S. Department of Labor
Office of the Solicitor
P.O. Box 1914
Washington, D.C. 20013
(202) 693-5600

CERTIFICATE OF COMPLIANCE

Case No. 04-1336

    As required by Fed. R. App. P. 32(a)(7), I certify that the foregoing Brief of the Secretary of Labor as Amicus Curiae in Support of Mid Atlantic Medical Services, Incorporated's Reply is proportionally spaced, using Times New Roman 14-point font size and contains 2010 words.

Dated: July 8, 2004

___signed__________
SALVADOR SIMAO

CERTIFICATE OF SERVICE

    I hereby certify that two copies of the foregoing Brief of the Secretary of Labor as Amicus Curiae in Support of Mid Atlantic Medical Services, Incorporated's Reply were mailed to the following by U.S. Mail, postage prepaid, this 8th day of July 2004:

Michelle Stawinski
Bouland & Brush, LLC
201 N. Charles Street
Suite 2400
Baltimore, Maryland 21201-4108

Thomas Lawerence
Lawerence & Russell, LLP
5050 Poplar Avenue Suite 1717
Memphis, Tennessee 38157

___signed___________
SALVADOR SIMAO


Footnotes

[1]    A constructive trust is an equitable device whereby the "defendant is . . . made to transfer title to the plaintiff who is, in the eyes of equity, the true owner." Dobbs at 587. The equitable lien "uses similar ideas to give the plaintiff a security interest in the property or to give the plaintiff only part of the property rather than all of it." Id. at 588.