Amicus Curiae Brief — Sereboff v. Mid Atlantic Medical Services, Inc.

y | FILED

FEB 23 2006

No. 05-260 OFFICE OF THE CLERK |

3n the

Supreme Court of the Gnited States

Jon. SEREBOFF AND MARLENE SEREBOFF,

Petiti

Vv.

Mip ATLANTIC MEDICAL SERVICES, INC.,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Fourth Circuit

AMICUS CURIAE BRIEF OF THE

NATIONAL ASSOCIATION OF SUBROGATION

PROFESSIONALS IN SUPPORT OF RESPONDENT

Daran P. Kisrer Joun D. Kors

Kreiner & PerersCo.L.P.A. Counsel of Record

2570 Superior AVENUE Suarps & Associates, PSC

Surre 401 1930 Bishop LANE

CLEVELAND, OH 44114 Surre 1600

(216) 771-6288 Louisvitte, KY 40218

(502) 515-6125

Tuomas H. Lawrence, III

LAWRENCE & RuSSELL

5050 Popcar Ave., Surre 1717

Mempuis, TN 38157

(901) 844-4434

Counsel for Amicus Curiae

ee

Becker Gallagher Legal Publishing, Inc. , 800.890.5001

TABLE OF CONTENTS

ee ee ee EE ok hed nik shan ccccee beds lil

STAT ETE CU UTED nw ccc cc ccc cc ccecess l

ot gee ch |) are 2

POE COE OT eT OEE TT TTT ree 3

I. THE RELIEF SOUGHT BY MAMSI WAS

TYPICALLY AVAILABLE IN EQUITY ........ 3

ih, SE SEE bd do Gus Cady aaveeplc¥ens 5

i ID ees cnbeacccuyeasueee ceues 8

C. Subrogation as Equitable Relief ............. 9

li. THE RELIEF AWARDED TO MAMSI IN THIS

CASE IS AVAILABLE UNDER ERISA’S CIVIL

ENFORCEMENT PROVISION ............... 12

A. The Lower Court’s Decision is Supported by

this Court’s Decisions in Harris Trust and

RD Sings es exh nbs ueusers owe wen Ans 12

B. The Majority of Circuits Have Correctly

Interpreted Knudson By Holding That The

Imposition of a Constructive Trust Is

13

Appropriate Equitable Relief Under ERISA ..

C. Equitable Relief To Enforce the Terms of an

ERISA Plan Is Clearly Contemplated in

ERISA’s Remedial Scheme ...............

lil. PUBLIC POLICY SUPPORTS ENFORCEMENT

OF SUBROGATION AND REIMBURSEMENT

PUPPET oneness becéshbveederaseeshe ax’ 16

A. Enforcement of Subrogation § and

Reimbursement Provisions Keeps Health Care

Ce ED oo on se necs dei vekines 17

B. Enforcement of Subrogation § and

Reimbursement Provisions Prevents Double

Recoveries on the Part of Tort Claimants .... 20

C. Elimination of Subrogation and Reimbursement

Remedies Is Not Necessary to Protect Severely

Injured Plan Participants ................. 22

D. State Laws Modifying the Collateral Source

Rule Supports Enforcement of Health Plan

Subrogation and Reimbursement ........... 23

E. Enforcement of Subrogation and

Reimbursement Provisions Promotes the

Coverage and Early Payment of Medical

Rpm y err ern ipennnas 24

GE unk deaenkesiveccencess cteeeeeeees 25

ill

TABLE OF AUTHORITIES

Cases

Admin. Comm. Of Wal-Mart Assoc. Health and Welfare

Plan v. Willard, 393 F.3d 1119 (10" Cir. 2004) ..... 14

Admin. Comm. Of the Wal-Mart Stores, Inc. Assoc.

Health and Welfare Plan v. Varco, 338 F.3d 680

i EN eed 14

Aetna Health, Inc. v. Davila, 542 U.S. 200 ............. 5

Barnes v. Independent Auto Dealers of California Health

Welfare Benefits Plan, 64 F.3d 1389 (9"Cir. 1996) .... 23

Bombardier Aerospace Employee Welfare Benefits Plan

v. Ferrer, 354 F.3d 348 (5™ Cir. 2003) .............. 14

B.P. Amoco Corp. v. Connell, 320 F.Supp.2d 1368 (M.D.

Ls hak aire bh bee BOS KE He RENN ew ede bh Ke 15

Cagle v. Bruner, 112 F.3d 1510 (11" Cir. 1997) ........ 23

Copeland Oaks v. Haupt, 209 F.3d 811 (6" Cir. 2000) . . . 23

Cutting v. Jerome Foods, Inc., 993 F.2d 1293 (7 Cir.

Pn cca chad pans ened dadec bs ce cab eiate anne 21

FMC Corp. v. Holliday, 498 U.S. 52 (1990) .......... 23

Great-West Life & Annuity Insurance Co. v. Knudson,

Sy CI So od bda kw ues oe eee euk ees passim

iV

Harris Trust v. Solomon Brothers,

Te eee 12, 13

Hibbs v. Winn, 124 S. Ct. 2276 (2004) ............... 16

Mass. Mut. Life Ins. Co. v. Russell,

GPP Was CID 40 doe v0 64904630 cheueddean 17

North Am. Coal Corp. Retirement Savings Plan v. Roth,

| gg pr errr 13

Qualchoice, Inc. v. Rowland, 367 F.3d 638

Pr: SOE wa 6s creseunéa¥seceeb bndeuees 15

Randal v. Cockran, | Ves. Sen. 98; 27 Eng. Rep. 916

CE COED 60 bod cd bdvdsdéneénsesatdeduesdaue 10, 11

Sunbeam-Oster Co. Group Benefit Plan v. Whitehurst,

fe ee Te Bo err 21

United States v. California, 507 U.S. 746 (1993) ....... 10

Statutes

Nt, rer passim

Po ee 24

Colo. Rev. Stat. Ann. § 13-12-111.6 ................. 24

Conn. Gen. Stat. Amm. § 52-2258 . 0. cc cece cen ccceces 24

. oS FF F i & eer epee tm et - 24

es RO OS Ree eee 24

Ee EG 6 bcde sd dndedvesscccdssaeenenaa 24

oe, Canes GE, GPSS oc cc nncnddancrvenssecodat 24

Me. Rev. Stat. Ann. tit 24 § 2906 ................... 24

Mich. Comp. Laws Ann. §600.6303 ...............4.. 24

Minn. Stat. Ann. § 548.36 ............ j(énnniwaonaan 24

ee Oe ED. cc cc ccecccebescusesees 24

oe oe an ei eee ean’ 24

ee os i eine wcencceteees 24

Other

Alan O. Sykes, Subrogation and Insolvency, vol. XXX

Journal of Legal Studies 383 (2001) ................ 19

Allen J. Sorbo, Actuarial Issues in the Fee-For-Service/

Prepaid Medical Group, 46 Center for Research in

Ambulatory Healthcare Admin. (2d ed. 1993) ......... 19

Dan B. Dobbs, LAW OF REMEDIES (2d ed. 1993) .... passim

George R. Palmer, THE LAW OF RESTITUTION

i 6tbb winks dneettdatsteeds eases 10

Health Economics Practice Barents Group. LLC, Impact

of Legislation Affecting Managed Care Consumers

1999-2003 (April 21, 1998)(prepared for the American

I i a a ne ews 18

Jeffrey A. Greenblatt, Insurance and Subrogation: Where

the Pie Isn't Big Enough, Who Eats Last?, 64 U. Chi. L.

EE ooo ia ddde tants cisndin ces 19, 20

John Norton Pomeroy, A TREATISE ON EQUITY

JURISPRUDENCE (5" ed. 1941) ...........000000- 10, 11

Maryland General Assembly Website, Fiscal Note ... 17-18

N. Singer, STATUTES AND STATUTORY CONSTRUCTION

IER EINE EN ae PUR ape ee a N 16

vi

Restatement of the Law of Restitution ............ passim

Robert Goff and Gareth Jones, The Law of Restitution

DS i ¢c0 din choad sean nek nsheenbdaeaee kas 4,10

STATEMENT OF INTEREST

The National Association of Subrogation Professionals

[“NASP”] respectfully submits this brief supporting the

Respondent as amicus curiae. The parties have filed blanket

letters of consent to the filing of amicus briefs with this Court.'

NASP is a non-profit trade association of insurance

companies, third party administrators, subrogation specialists,

and attorneys practicing in the field of subrogation and

recovery. NASP has approximately 2,000 members,

representing more than 150 insurance companies and self-

funded entities. The purpose of NASP is to “create a national

forum for the education, training, networking and sharing of

information and, ultimately, the most effective pursuit of

subrogation on an industry-wide basis.”

Through NASP, members are able to retrieve, organize,

exchange information, and expand the use of technology to

promote subrogation efforts on a cost effective basis. The

members of NASP recover hundreds of millions of dollars in

health care expenditures every year for insured and self-funded

employee benefit plans through subrogation and recovery

practices.

NASP has an interest in the issues presented in this case —

whether an employee benefit plan fiduciary is entitled to seek

to the imposition of a constructive trust. The Court's decision

will have a profound impact on employee benefit plans’

' Counsel certifies pursuant to Rule 87.6 that this brief was not

authored in whole or in part by counsel for a party and that no person

or entity, other than amicus curiae, its members or counsel made a

monetary contribution to the preparation or submission of this brief.

2

financial stability, which in turn will have far reaching

implications for the nation’s health care system.

SUMMARY OF THE ARGUMENT

The present action brought by MAMSI against the

Sereboffs fits squarely within the parameters of “appropriate

equitable relief” as set forth in ERISA §502(a)(3) as interpreted

in Great-West Life & Annuity Insurance v. Knudson, 524 U.S.

204 (2002). MAMSI’s action seeking to impose “equitable

restitution” upon the tort recovery fund would have been

allowed in courts of equity in the days of the divided bench.

The lower court properly awarded this fund to the Plaintiff to -

whom it belongs in good conscience and in order to prevent

unjust enrichment of the Sereboffs.

MAMSI’s enforcement of a written employee benefit plan

provision is proper under the statutory construction of

§502(a)(3) which marries plan enforcement with “equitable

relief”. Under the civil enforcement section, MAMSI’s action

must seek equitable relief when seeking enforcement of its

plan’s terms.

MAMSI’s action seeking return of the tort fund furthers

the policy goals of ERISA to ensure enforcement of the written

plan and conservation of plan assets. ERISA’s civil

enforcement section must be interpreted in a manner consistent

with the policy goals of ensuring that funds are available to pay

benefits to all participants.

3

ARGUMENT

I. THE RELIEF SOUGHT BY MAMSI WAS TYPICALLY

AVAILABLE IN EQUITY

Some money claims are not “damages” representing the

plaintiff's loss but “restitution” representing the defendant’s

unjust gains in a transaction.” 1 D. Dobbs. §2.6(3), pg. 157.

ERISA’s reference to “equitable relief” evidences Congress’

intent to limit such “equitable” restitution “to the forms of

restitution traditionally available at equity.” See Knudson, 534

U.S. at 216. Restitution at “equity” lies when a defendant takes

possession of money, property or an intangible that in good

conscience belongs to plaintiff. Knudson, 534 U.S. at 214. In

Knudson, this Court gave ERISA fiduciaries a road map to

follow in determining the scope and application of “other

appropriate equitable relief” as found in 502(a)(3).

As set forth in Knudson, ERISA lawyers need to examine

the Restatement of the Law of Restitution, Dobbs’s Law of

Remedies and G. Palmer’s The Law of Restitution to discern

the limits contained in 502(a)(3)’s reference to “equitable

relief”. Practitioners must not only formally plead remedies of

“restitution” but also present the substantive operative facts

required for application of the remedy by a court of “equity”.

This Court specifically limited 502(a)(3)’s “equitable relief” to

remedies which could be awarded based upon the substantive

facts by a court of equity in the days of the divided bench. See

Knudson, 534 U.S. at 214. In this section, Amicus will present

the substantive requirements for equitable “restitution” and

analyze three forms of “equitable restitution” in light of the

facts presented in this case.

Restitution can be either legal or equitable depending on

the nature and character of the relief sought. Restitution, as an

4

equitable remedy, “measures the remedy by the defendant's

gain and seeks to force disgorgement of that gain.” 1 Dobbs

§4.1(1), pg. 555. “[RJestitution is not damages: restitution is

a restoration required to prevent unjust enrichment.” /d. at pg.

557. The concept of “unjust enrichment” is the cornerstone of

the American Restatement’s approach to “restitution”. Robert

Goff and Gareth Jones, The Law of Restitution pg. 12 (Sweet

& Maxwell 1966). Restitution becomes legal when a party

seeks money damages for the loss created by the defendant.

The legal or equitable nature of “restitution” as relief turns on

the facts surrounding the relief being sought.

In the days of the divided bench, equity courts recognized

four main types of equitable restitution. They are: (1)

constructive trust, (2) equitable lien, (3) subrogation, and (4)

accounting for profits. See, Restatement of Restitution §160

pg. 640; 1 Dobbs §4.3(1) pg. 587; See also, Goff pg. 39. Such

“equitable” forms of restitution were sister remedies

resembling various applications of the concept of constructive

trust. Dobbs, /d. Restitution at equity was used by the courts

to address “unjust enrichment” when a party possessed

property, rights or money which in good conscience belonged

to the plaintiff. See Goff pg. 38.

Equity courts required specific facts to be present before

such remedies could be considered. Courts of equity required

that property, money or right to an intangible be possessed by

the defendant which in good conscience belongs to the

plaintiff. See Knudson, pg. 213-214. For example, a court in

equity could not attach a constructive trust upon a piece of

property unless the property was in the “possession” of the

defendant. Equity courts could not provide for subrogation

unless an injured party actually possessed a right to seek

redress from another individual or party.

5

Under ERISA’s limitation, restitution at “equity” is

characterized by the substantive nature of the relief and not the

form of relief asserted by a plaintiff. See Aetna Health Inc. v.

Davila, 542 U.S 200, 214-215 (2004) (substance over form in

application of ERISA). The substance of the relief requires

facts present that would allow an equity court during the day of

the divided bench to award such relief. MAMSI’s action,

which seeks return of the settlement funds that belong in good

conscience to plaintiff, satisfies the substantive nature of

“equitable restitution” as required in Knudson and courts of

equity.

A. Constructive Trust

The primary vehicle by which equity courts awarded

“restitution” was through the imposition of a “constructive

trust” on a possession, fund or right. A constructive trusts

arises:

Where a person holding title to property is subject to an

equitable duty to convey it to another on the ground

that he would be unjustly enriched if he were permitted

to retain it.

Restatement of Restitution §160, pg. 640-641. Equity courts

developed this restitution remedy to allow a plaintiff to recover

the specific property such as a “bank account, or rights in an

intangible”. 1 Dobbs, §4.3(2) pg. 589. Application of the

“constructive trust” requires the defendant to be in possession

of an identifiable asset, fund or intangible which belongs in

good conscience to the plaintiff. See Restatement of

Restitution §160 comment (1), pg. 648; | Dobbs, §4.3(2) pp.

589, 591.

6

Equity’s remedy of constructive trust results in an in

personam order for transfer of the asset, intangible or fund to

the plaintiff or one substituted for it. See 1 Dobbs, §4.3(2) pg.

590. Equity used “constructive trust” to compel a person to

transfer ownership rights to plaintiff over the property, fund,

right or substituted asset. Key to application of a constructive

trust was the identifiable asset, fund or right possessed by the

defendant.

The treatises make it clear that equitable restitution is not

limited to return of exact property provided to defendant. In

the case of a tort recovery, the property substituted for the

medical bills advanced by the plan is the tort money received

by the defendant. This substituted fund represents in part the

money previously advanced for the defendant’s medical care

arising from the tort committed by another party. At the time

of divided bench, a plaintiff could recover in constructive trust

against a substituted fund as well as the original payment by

the plaintiff. In fact, the substituted tort recovery includes

payment for the medical bills previously paid by the Plaintiff

plan for the Sereboffs’ behalf. As with substituted property,

plaintiff is entitled to a constructive trust on the substituted

fund, namely the tort recovery by the Sereboffs, which

represents recovery of the same medical bills previously paid

by MAMSI. As employed by the courts, “[nJeither remedy

[constructive trust or equitable lien] is limited to cases of

wrongdoing or dishonorable conduct by the defendant.” Scce |

Dobbs §4.3(3) pg. 602. In fact, a constructive trust was used

to convey title in a fund or property to the party plaintiff to

satisfy a debt. Unlike a legal action aimed at some violation of

duty or law, this remedy seeks return of the asset, funds or

intangible received by the defendant. See Jd. §4.3(2) pg. 598.

A court of equity employed the remedy of “constructive trust”

to compel transfer of legal title or ownership in a fund to the

party plaintiff.

J

The goal of a constructive trust is to put the plaintiff and

defendant back in the position they would have been in prior to

the acquisition of the property by the defendant. The

Restatement characterizes this goal as follows:

the result is to restore to the plaintiff property of which

he has been unjustly deprived and to take from the

defendant property the retention of which by him

would result in a corresponding unjust enrichment of

the defendant; in other words the effect is to prevent a

loss to the plaintiff and a corresponding gain to the

defendant;

See Restatement of Restitution §160 comment (d) pg. 643.

The effect of a constructive trust is to transfer the fund,

property or intangible to the plaintiff in order to prevent unjust

enrichment of the defendant.

As explained by this Court in Knudson, the absence of a

fund in the possession of the defendant prohibits “equitable”

restitution from substantively being applied. In fact, the

absence of the asset or fund made Great-West a simple creditor

at law. See Knudson, 534 U.S. at 214. As this Court noted, an

equity court could not impose a “constructive trust” as the

funds in question were not in the possession of the defendant.

Thus, the Knudson case must be characterized as legal

“restitution” for breach of contract.

In contrast, the present action by MAMSI seeks return of

an identifiable fund of money that the Defendants possess and

that belongs in good conscience to the Plaintiff. As outlined by

both lower courts, Defendants Sereboff agreed personally by

stipulation to hold in an investment account $74,869.37 for the

duration of this case. As in the days of the divided bench,

Defendants possess a fund of money that belongs in good

8

conscience to the Plaintiff who previously advanced such

expenses for Defendants. In order to prevent unjust

enrichment, Plaintiff-seeks ownership rights over this fund

from Defendants. Based upon the facts, MAMSI did properly

seek “equitable restitution” in accordance with 502(a)(3)’s

limitations on relief.

Unlike Knudson, this case falls squarely within the

substantive form of “equitable restitution” which is allowed

under ERISA. MAMST has proceeded against the Defendants

who possess an identifiable fund of money on which an equity

court could proceed in personam to order title to the fund

transferred to Plaintiff. Moreover, the fund of money belongs

to the plan as it represents compensation for medical bills of

Defendants which Plaintiff previously advanced on the

Sereboffs’ behalf. Factually, the Plaintiffs complaint

establishes the substantive elements of “equitable restitution”

as required in the days of the divided bench and as set forth

under ERISA through Knudson.

B. Equitable Lien

Equity courts developed an additional related restitution

remedy called “equitable lien” which mirrors the constructive

trust. An “equitable lien” provides the party plaintiff with a

“charge against property” or licen The Restatement defines

this remedy as follows:

Where property of one person can by a proceeding in

equity be reached by another as security for a claim on

the ground that otherwise the former would be unjustly

enriched, an equitable lien arises.

See Restatement of Restitution §161 pg. 650. This lien attaches

to the asset, fund, intangible or property standing “as security

———

9

for the debt owed.” See | Dobbs §4.3(3), pg. 600. Essentially,

the difference between equitable lien and constructive trust is

best described as the difference between a security interest and

title to the asset. Jd. pg. 603.

As with its sister remedy of constructive trust, equitable

lien is imposed by a court of equity to prevent unjust

enrichment of a defendant. Such a lien works in the same

manner as the trust but provides the plaintiff with a more

limited remedy. Instead of title to the fund, the court grants a

lien that results in only a monetary payment and not the return

of the asset. See 1 Dobbs §4.3(3) pg. 601. “Where the ~

equitable lien is on a fund, for example a bank deposit, it is

enforced by a direction to pay the claimant out of the fund.”

See Restatement of Restitution §161 comment (b) pg. 651.

Applying the Restatement to the present matter

demonstrates the “equitable” nature of the remedy sought by

MAMSL. In this case, the Plaintiff sought an order against the

Sereboffs directing them to pay a fund over to the Plaintiff.

This fund of money equals the amount of medical expenses

advanced by the Plaintiff. As such, equity courts would attach

a lien on the funds being held by the Defendants. As detailed

in Knudson, ERISA’s limitation on “equitable” relief. is

satisfied when the substantive nature of the relief is met.

Factually, the present case meets the criteria for application of

equity's lien upon the fund. As such, the relief sought by the

Plaintiff is proper under 502(a)(3) as interpreted in Knudson.

C. Subrogation as Equitable Relief

In addition, the Restatement, Dobbs and Palmer recognize

an additional claim of subrogation as an equitable remedy that

can be awarded. The Restatement of Restitution defines

subrogation as follows:

10

Where property of one person is used in discharging an

obligation owed by another or a lien upon the property

of ancther, under such circumstances that the other

would be unjustly enriched by the retention of the

benefit thus conferred, the former is entitled to be

subrogated to the position of the obligee or lien-holder.

See Restatement of Restitution §162, pg. 653. Like the

previous “equitable” remedies, subrogation grants to the

plaintiff restitution to prevent the unjust enrichment of the

defendant whose debt was satisfied. Jd. Restitution comes in

the form of taking over the right to any recovery which can be

had from a third party or received from a responsible

individual. This Court has previously recognized subrogation

as an equitable claim. See United States v. California, 507 U.S.

746, 757-758 (1993).

One of the most common examples of subrogation arises

from an insurance company paying a claim for damages caused

by a third party. See 1 Dobbs §4.3(4) pg. 605, George E.

Palmer, The Law of Restitution Vol. [V §23.11 pg. 404 (Little

Brown and Company 1978), Goff pg. 376, John Norton

Pomeroy, A Treatise on Equity Jurisprudence 5" Ed., Vol. IV

§ 1419 pg. 1073 (Bancroft-Whitney Co. 1941). An insurer

who pays a claim is entitled to restitution for the amounts paid

which are recovered from the third party.

Subrogation as an “equitable” remedy traces its origins to

maritime insurance decisions by equity courts of England. See

_ Randal v. Cockran, | Ves. Sen. 98, 27 Eng. Rep. 916 (Ch

1748); See also, Palmer, §23.11 pg. 406-408. The Reporter’s

summary regarding the Randal decision states as follows:

Insurer after satisfaction stands in the place of the

assured as to the goods, salvage and restitution for what

he paid.

See Randal, 27 Eng. Rep. 916.

In Randal, the insurer brought a bill claiming right to the

proceeds received by its insured from the King’s commission.

This bill sought to have the proceeds transferred to the insurer

instead of its injured insured. Lord Chancellor characterized

this relief as “the plainest equity that could be.” Jd. When the

insured recovers such proceeds, then the insurer is entitled to

“restitution” of such proceeds.

A subrogated insurer is an “equitable assignee” entitled to

“have the benefit of all securities which may at any time have

been put into the creditor’s hands by the principal debtor or

which the creditor may have obtained.” Pomeroy §1419 pg.

1072-1073. If an injured person recovers from the principal

debtor (i.e. tortfeasor), she has an obligation at equity to

transfer such recovery to the equitable assignee/subrogee such

as the ERISA health plan. This transfer of securities, funds and

goods represents restitution at equity to the insurer for the

discharge of the obligation.

The Restatement of Restitution imposes such an obligation

to pay “restitution” upon the person whose debts were satisfied.

See Restatement of Restitution § 162 comment (b) pg. 654-655.

This restitution obligation to transfer goods or funds recovered

is defined as follows:

On the other hand, where the plaintiff is not officious,

and he uses his property or his property is used in

discharging the obligation of another or a lien upon

another’s property, he is entitled to reimbursement and

12

is entitled to the remedy of subrogation to obtain

reimbursement.

See Restatement of Restitution §162 (b), pg. 654-655. A

subrogated insurer becomes the “equitable assignee” entitled

to restitution from the responsible party or any funds placed in

the hands of the injured party by the responsible party. This

type of “restitution” prevents unjust enrichment of the injured

party.

In the present case, MAMSI’s action seeks just such

“equitable restitution”. Defendant Sereboff collected money

from the principal debtor/tortfeasor for the amount previously

advanced by the Plaintiff. At equity, Plaintiff is entitled to

“restitution” from the Defendant as the Defendant’s recovery

would result in unjust enrichment. Such “restitution”

represents the plainest of equities to prevent unjust enrichment

of the Defendants.

Il. THE RELIEF AWARDED TO MAMSI IS APPROPRIATE

EQUITABLE RELIEF UNDER ERISA’S CIVIL ENFORCEMENT

PROVISION

A. The Lower Court’s Decision is Supported by this

Court’s Decisions in Harris Trust and Knudson

This Court’s decision in Harris Trust v. Salomon Brothers,

530 U.S. 238 (2000) supports interpreting ERISA §502(a)(3)

as: (1) providing a statutory cause of action to enforce Plan

terms; and (2) allowing a plan to obtain equitable relief once it

has proved the elements of the cause of action by establishing

a violation of the applicable plan terms. In Harris Trust, this

Court held that a plan fiduciary pursuing a cause of action

under ERISA §502(a)(3)(B) was not required to establish that

the cause of action was typically available. Instead, fiduciaries

13

are Only required to establish that the remedy sought was

typically available in equity. .

The Petitioner attempts to recast MAMSI’s cause of action

as breach of contract. In doing so, the Petitioners jump to the

baseless conclusion that no equitable relief is available to

enforce the terms of a plan. This Court rejected a similar

invitation to “tether” the cause of action to enforce plan terms

with the remedy sought. Specifically, this Court held that “we

reject Salomon’s unsupported suggestion that remedial

principles of common law are tethered to the precise contours

of common law duty.” Harris Trust, 530 U.S. at 252.

As noted in Harris, Congress joined equitable relief with

enforcement of a written plan. It is Congress who joined plan

enforcement with equitable relicf when creating ERISA. In

Knudson, this Court again specifically noted that Congress

chose to limit relief in plan enforcement to “equity”. As

established in Harris Trust and Knudson, the nature of the

relief sought and not the cause of action determine the proper

character of the action. Any approach which looks only at the

genesis of the claim and not the character of the “relief” sought

fails to follow this Court’s announced precedent.

B. The Majority of Circuits Have Correctly

Interpreted Knudson By Holding That The

Imposition of a Constructive Trust Is Appropriate

Equitable Relief Under ERISA

Under the rationale in Knudson and Harris Trust, the

Fourth Circuit's analysis is consistent with the analysis of the

Fifth, Seventh, Eighth, and Tenth Circuits.’ All of these courts

? North Am. Coal ¢ ‘orp. Retirement Savings Plan v. Roth, 395 F.3d

916 (8th Cir. 2005), cert. denied 126 S.Ct. 145 (2005); Admin.

14

correctly held that relief, similar to what MAMSI obtained, is

equitable in nature. Equity provides restitution when sought to

recover specifically identifiable funds that were in the

constructive possession and control of the defendant. Such

restitution seeks to return funds which belong to the Plan

pursuant to the plan terms.

The majority of circuits correctly interpreted Knudson’s

description of “equitable relief’. In Knudson, Plaintiff Great-

West had asked the Court to recognize the rights of ERISA

plans and their fiduciaries to file suit in federal court to enforce

reimbursement provisions. This Court agreed so long as the

monies over which the plan fiduciary seeks restitution or

constructive trust are being held by the defendant:

In contrast, plaintiff could seek restitution in equity,

ordinarily in the form of a constructive trust or an

equitable lien, where 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. [citations omitted}. A court of

equity could then order a defendant to transfer title (in

the case of the constructive trust) or to give a security

interest (in the case of the equitable lien) to a plaintiff

who was, in the eyes of equity, the true owner. But

where “the property [sought to be recovered] or its

proceeds have been dissipated so that no product

Comm. of the Wal-Mart Assocs. Health and Welfare Plan v. Willard,

393 F.3d 1119 (10th Cir. 2004); Bombardier Aerospace Employee

Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 ¥.3d

348 (Sth Cir. 2003), cert. denied, 541 U.S. 1072 (2004), Admin.

Comm. of the Wal-Mart Stores, Inc. Assocs. Health and Welfare Plan

v. Varco, 338 F.3d 680 (7th Cir. 2003), cert. denied, 542 U.S. 945

(2004).

15

remains, [the plaintiff's] claim is only that of a general

creditor,” and the plaintiff “cannot enforce a

constructive trust or an equitable lien upon other

property of the [defendant].” Restatement of

Restitution, supra, 215, Comment a, at 867. Thus for

restitution to lie in equity, 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.

Knudson, 534 U.S. at 213, 214 (emphasis added). ERISA

reimbursement enforcement is proper when restitution lies in

“equity” meaning the defendant possesses funds belonging in

good conscience to the plan.

In the present case, MAMSI sought only to restore to the

Plan particular funds in the Sereboffs’ possession that in good

conscience belong to the Plan. This is the essence of the

equitable remedy of restitution as announced in Knudson. See

Also B.P. Amoco Corp. v. Connell, 320 F. Supp. 2d 1368,

1371-72 (M.D. Ga. 2004). MAMSI seeks “equitable”

restitution as it seeks return of the unjust gains obtained by the

Sereboffs. The majority interpretation of Knudson clearly

allows for ERISA enforcement and gives full meaning to

“equitable relief”.

C. Equitable Relief To Enforce the Terms of an ERISA

Plan Is Clearly Contemplated in ERISA’s Remedial

Scheme

The Sixth Circuit's analysis in Qualchoice is also contrary

to the plain provisions of ERISA’s civil enforcement scheme.

Under the Sixth Circuit’s analysis, there would never be

“appropriate equitable relief’ to enforce the terms of an ERISA

plan because the plan is similar to a contract. Nevertheless,

16

§502(a)(3) provides that plan fiduciaries, participants and

beneficiaries may bring a civil action: (1) to enjoin any act or

practice that violates ERISA or the terms of the plan; and (2)

to seek “other appropriate equitable relief” to enforce the

provisions of ERISA or the terms of the plan. Thus, Congress

clearly contemplated that there would be some forms of

equitable relief, other than injunctions, available to enforce the

terms of an ERISA plan. The Sixth Circuit’s view violates the

rule against superfluities as outlined by this Court in Hibbs v.

Winn, 542 U.S. 88 (2004)(“A statute should be construed so

that effect is given to all provisions, so that no part will be

inoperative, or superfluous, void, or insignificant. ..)(citing 2A

N. Singer, Statutes and Statutory Construction §46.06 pp. 181-

86, rev. 6" ed. 2000). This minority view fails to appreciate

that Congress joined equitable relief with plan enforcement.

The minority approach incorrectly defines “equitable

relief” by limiting the examination to the cause of action. The

minority view fails to follow the direction set forth in Knudson

to examine the nature of the relief. Instead, the Sixth Circuit

defines the remedy by the cause of action without looking at

the nature of the relief sought. Such an approach renders

ERISA’s civil enforcement section superfluous in violation of

this Court’s precedent.

I1.PUBLIC POLICY SUPPORTS ENFORCEMENT OF

SUBROGATION AND REIMBURSEMENT PROVISIONS

Congress enacted ERISA to provide national uniformity

and solvency for business-provided health and welfare plans.

Congress’s intent under ERISA was to (1) provide for national

uniformity through enforcement of written plans, and (2) to

secure preservation of plan assets. Enforcement of subrogation

and reimbursement provisions helps accomplish Congress’ s

intended goals.

17

A. Enforcement of Subrogation and Reimbursement

Provisions Keeps Health Care Coverage Affordable

The Supreme Court has previously found that plan asset

protection was of critical importance in the policy underlying

the creation of ERISA. Specifically, this Court has stated that:

A fair contextual reading of the statute makes it

abundantly clear that its draftsmen were primarily

concerned with the possible misuse of plan assets, and

with remedies that would protect the entire plan, rather

than with the rights of an individual beneficiary.

Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142 (1985).

Enforcement of written plan reimbursement provisions

provides for the protection of all plan participants through

preservation of the plan’s assets. Pursuant to this Court’s

analysis in Russell, such a remedy protects the entire plan and

preserves assets as intended by Congress.

The importance of subrogation and reimbursement, as a

mechanism to preserve plan assets, can hardly be disputed. In

an era of rising health care expenses, cost control mechanisms

are critical to the ability of plans to keep premiums affordable.

Health plans rely heavily upon subrogation and reimbursement

for that purpose. For example, Trover Solutions, the nation’s

largest healthcare subrogation/recovery vendor, reports that it

has recovered more than $1 billion for its health plan clients

over the past five years. Elimination of these recoveries would

make health care coverage, which is already difficult for many

Americans to afford, even more expensive. The Maryland

General Assembly, for instance, has estimated that health

insurance premiums for state workers would rise between | %

and 2% if insurers’ ability to enforce subrogation and

18

reimbursement provisions were eliminated.’ For every 1%

increase in premiums there are 300,000 Americans that can no

longer afford health coverage. See Health Economics Practice

Barents Group, LLC, “Impact of Legislation Affecting

Managed Care Consumers: 1999-2003” (April 21,

1998)(Prepared for the American Associations of Health

Plans).

The primary purpose of health coverage is not to pay for

expenses caused by a third party’s tortious conduct, but rather

to pay for illness or injury not caused by the fault of anyone.

When health plan dollars come from a limited fund, the rights

of subrogation and reimbursement are important to the

financial stability of those plans. What public policy requires

the health plan and its non-injured participants to bear the

financial loss for an auto accident injury when the ERISA plan

provides otherwise? This Court should not force health insurers

and health plans to become the uninsured motorist, disability

and other loss insurers for all citizens who choose not to

purchase sufficient insurance for their own protection.

An inability to enforce subrogation or reimbursement

provisions under ERISA would impact the premiums charged

employers and their employees for such coverage. It is

necessary to understand how rates are set for health plans.‘

* “Fiscal Note” at http!//mlis.state.md.us/200rs/billfile/S B0903.htm

* “Insurance companies can take subrogation into account in setting

their rates, at Icast in setting health insurance rates....An insurance

company sets its rates based on historical net costs. Thus, if the

insurer had one hundred policyholders in the experience period, and

experienced a total of $ 20,000 in claim costs, it will set its actuarial

premiums at $ 200 per policy holder. If, on the other hand, the

insurance company experienced $ 20,000 in claim costs and received

$ 5,000 in subrogation, it will set its actuarial premiums at $ 150 per

19

Because the primary goal of a health pian is to spread risk

among its various members, plans use historical evidence or

actual experience data in setting the rates for a given group.

When one member of the group incurs a large loss that goes

unreimbursed, the effect of the loss will be passed on to the

other members of the group via higher rates and premiums.

The risk bearer should be determined by who is in the best

position to insure against a risk of loss from an accident or

third party claim. Several commentators and experts in law and

economics, applying optimal risk bearing rationales, have

concluded that the individual group member is in the best

position to bear the risk.” This is because individual members

policy holder. Thus, whether the insurer lists subrogation as a factor

in its actuarial calculations is irrelevant; it is implicitly included.”

See Jeffrey A. Greenblatt, /nsurance and Subrogation: Where the Pie

Isn't Big Enough, Who Eats Last? 64 U. Chi. L. Rev. 1337, 1355

(1997) citing Harry L. Sutton, Jr. and Allen J. Sorbo, Actuarial

Issues in the Fee-For-Service/Prepaid Medical Group 46 (Center for

Research in Ambulatory Healthcare Admin 2d ed 1993) ("An

adjustment to estimated total HMO expenses ... should be included

to project the impact of coordination of benefits, workers’

compensation, and subrogation.") and author’s Phone Interview and

Letter from Dean K. Lamb, Senior Actuary for Allstate Insurance

Company, to Jeffrey A. Greenblatt, Jan 30, 1997 ("Lamb letter") (on

file with U. Chi. L. Rev).

> After employing a mathematical model, one professor notes that

“(t}he made-whole doctrine seems seriously at odds with sound

policy. The analysis here suggests that the opposite rule--that the

insurer should be made whole first--will be best for insureds except

when the insured is unable to purchase efficient amounts of insurance

coverage.” See Alan O. Sykes, Subrogation and Insolvency vol. 30

Journal of Legal Studies 383, 396 (2001). Further it is more efficient

for the insured to bear the risk for three reasons. “First, it better

tracks the risk preferences of the parties. Second, it places the

20

of a health plan can insure themselves for catastrophic or fatal

injury through the purchase of uninsured/underinsured motorist

insurance, life insurance, and accident and disability insurance.

B. Enforcement of Subrogation and Reimbursement

Provisions Prevents Double Recovery on the Part of

Tort Claimants

Enforcement of subrogation and reimbursement provisions

prevents injured participants from recovering medical expenses

twice: once from the health plan who paid the medical

expenses, and once from the responsible party through a tort

claim. Recovery to the plan not only prevents a windfall to one

participant but ensures sufficient assets exists to pay medical

claims for other plan participants who may suffer heart attacks,

strokes, cancer or other significant medical claims not caused

by another person or entity.

Double recovery to the injured party occurs by virtue of

receiving compensation for accident medical expenses from -

two separate sources. The first recovery occurs when an

injured party has accident related medical expenses paid by a

health plan. The second recovery occurs when the injured

party receives compensation for those same medical expenses

from the tortfeasor. Contrary to the assertions of the amicus

curiae supporting the Petitioners, the fact that the insured pays

a premium does not impact the double recovery analysis. The

plan participant pays premiums for, and is entitled to, only

incentive to achieve the last dollar of recovery from a tortfeasor on

the party whose efforts matter most in achieving it: the insured.

Finally, it avoids the definitional problems of the made-whole

doctrine and the time and effort of a mini-tral.” See Jeffrey A.

Greenblatt, Insurance and Subrogation: Where the Pie Isn't Big

Enough, Who Eats Last? 64 U. Chi. L. Rev. 1337, 1366 (1997).

21

those benefits provided for in the policy. When the health plan

contains a subrogation or reimbursement provision, all benefits

are payable subject to those provisions. If the subrogation or

reimbursement provision is held unenforceable, then the

participant will unjustly profit by receiving more coverage than

was anticipated under the plan.

The equitable principle of subrogation was designed to

prevent this type of double recovery. See Sunbeam-Oster Co.

Group Benefit Plan v. Whitehurst, 102 F.2d 1368, 1376 n. 24

(5" Cir. 1996)(“Recognition and enforcement of a right of

subrogation for health insures is primarily premised on

precluding double recoveries.”) Without subrogation, plan

participants would recover twice for the same expenses and

thus would be left financially better off than if no accident had -

occurred. See Cutting v. Jerome Foods, Inc., 993 F.2d 1293,

1298 (7" Cir. 1993). Public policy disfavors double recovery

because it enccurages the insured to suffer the very type of loss

that is being insured against.

Most states allow a tort claimant to recover the full amount

billed by the medical provider though many times the health

plans pay the provider a lower negotiated rate. As such, most

tort claimants already recover more for medical expenses than

the amount subrogated by the health plan. If reimbursement is

prohibited, then plan participants will not only get the benefit

of the health plan’s negotiated rate, they get to keep 100% of

the amount recovered for medical expenses even though they

never personally paid any amount for such expenses. Public

policy favors that the amount paid by the plan to the providers

be returned for the benefit of all plan participants and

beneficiaries.

22

C. Elimination of Subrogation and Reimbursement

Remedies Is Not Necessary to Protect Severely

Injured Plan Participants

\

The amicus supporting the Petitioners makes unfounded

claims that the vast majority of tort actions result in settlements

inadequate to compensate the plan participant’s losses. In

support of this argument, the amicus cites two anecdotal cases

in which it maintains that enforcement of subrogation

provisions led to harsh results for severely injured plan

participants. The amicus asks this Court to interpret ERISA in

such a way as to eliminate the equitable relief provided to plan

fiduciaries in order to prevent what it considers the unfair

application of subrogation.

At best, the amicus’s attempt to paint such cases as

representing the typical subrogation claim is misleading.

NASP members report that the average healthcare subrogation

claim falls in the $6,000 - $8,000 range. Contrary to the

contention of the Petitioners’ amicus, claims with such minor

medical payments often settle within the available insurance

limits. Therefore, in most cases, there exists ample insurance

coverage with which to fully compensate the injured plan

participant.

Those few instances where there are insufficient third party

funds available do not justify this Court’s adoption of a

tortured interpretation of ERISA’s remedial scheme. This is

because states are free to enact insurance regulations that

would eliminate or ‘imit an insurer's right to subrogation in

cases of inadequate compensation. In fact, many states have

adopted the make-whole doctrine by common law or statute.

The make-whole doctrine, in its purest form, prohibits the

enforcement of subrogation or reimbursement provisions until

the insured has received full compensation for his or her loss.

23

To the extent that such laws regulate the insurance industry,

they are saved from preemption and will apply to the large

majority of employee benefit plans funded through insurance.

ERISA §514.

State make-whole laws are preempted when applied to

employee benefit plans funded through a trust or through the

general assets of the empioyer. FMC Corp. v. Holliday, 498

U.S. 52 (1990). Nevertheless, funds recovered on behalf of

these “self-funded plans” go directly back into the trust for the

benefit of all participants and beneficiaries. For self-funded

plans, the balance of the equities weighs in favor of

subrogation regardless of whether the plan participant has been

fully compensated. Accordingly, most federal jurisdictions

apply the make-whole doctrine only as a default rule in absence -

of clear plan provisions to the contrary. See Cagle v. Bruner,

112 F.3d 1510 (11" Cir. 1997); Copeland Oaks v. Haupt, 209

F.3d 811 (6" Cir. 2000); Barnes v. Independent Auto Dealers

of California Health Welfare Benefit Plan, 64 F.3d 1389 (9"

Cir. 1996).

In most cases, the third party recovery is adequate to fully

compensate the injured plan participant. When there is not

adequate compensation, state insurance regulations and federal

common law govern how the available funds will be divided.

Accordingly, the issue of full compensation should not be

considered when examining the scope of ERISA’s remedial

scheme.

D. State Laws Modifying the Collateral Source Rule

Support the Enforcement of Health Plan

Subrogation and Reimbursement Provisions

The common law collateral source rule requires tortfeasors

to compensate prevailing plaintiffs for medical expenses

24

regardless of whether those expenses were paid by a collateral

source, such as a health plan. Many states have modified this

rule to require that tort judgments be reduced by the amount of

collateral source payments, unless the collateral source has a

right of subrogation or reimbursement. Alaska Stat. §

09.17.070(a); Colo. Rev. Stat. Ann. § 13-21-111.6; Conn. Gen.

Stat. Ann. §52-225a; Fla. Stat. Ann. § 768.76(1); Haw. Rev.

Stat. §633-10; Idaho Code § 6-1606; 735 Ill. Comp. Stat. 5/2-

1205.1; Me. Rev. Stat. Ann. 24, §2906; Mich. Comp. Laws Ann.

§600.6303; Minn. Stat. Ann. §548.36; Mont. Code Ann. §27-1-

308; Ohio Rev. Code § 2315.20; Utah Code Ann. §78-14-4.5

(1953). Public policy so favors the prevention of double

recovery that these states enacted statutes to prevent a plaintiff

from obtaining a double recovery even in those instances

where the collateral source payor lacks the right of subrogation

or reimbursement. In these states, tortfeasors --not individual

plan participants-- will benefit from the abolishment of health

plan subrogation remedies.

EK. Enforcement of Subrogation and Reimbursement

Provisions Promotes the Coverage and Early

Payment of Medical Claims

In addition to subrogation and reimbursement provisions,

many employee benefit plans contain provisions that exclude

from coverage any expense that is also payable under liability

or automobile insurance. Plans typically agree to advance

benefits for accident-related medical expenses if the participant

acknowledges the plan's right of subrogation and

reimbursement. This practice allows the participant's medical

expenses to be paid prior to the determination of the

tortfeasor’s liability or the valuation of the injured participant’ s

damages. If denied the right to enforce their subrogation and

reimbursement provisions, health plans are likely to refuse to

advance benefits to their members for injuries caused by third

25

party liability — thereby potentially restricting an injured

participant’s access to medical care. In this. scenario, injured

participants may be forced to settle their tort claims quickly,

and for less money, in order to pay for necessary medical

treatment. Thus, the absence of subrogation and

reimbursement remedies would be to the detriment of injured

participants.

CONCLUSION

For these reasons, the Court should affirm the judgment of

the court of appeals.

Respectfully Submitted,

; JOHN D. KOLB

Counsel of Record

SHARPS & ASSOCIATES, PSC

1930 Bishop Lane, Suite 1600

Louisville, Kentucky 40218

(502) 515-6125

DARAN P. KIEFER

KRIENER & PETERS Co., L.P.A.

‘ 2570 Superior Avenue, Suite 401

Cleveland, Ohio 44114

(216) 771-6288

THOMAS H. LAWRENCE, Ill

LAWRENCE & RUSSELL

5050 Poplar Avenue, Suite 1717

Memphis, Tennessee 38157

(901) 844-4434

Counsel for Amicus Curiae