ERISA Liens

Question
I was wondering where Florida attorneys stand as to their liability for the payment/non-payment of clients ERISA liens? If a settlement is reached must we pay the lien? Are we required to hold it in trust? If we disburse to the client will we be liable to the plan? I am well aware of the Longaberger case in the 6th Circuit but was unable to find any controlling precedent in Florida. I am also aware of Florida's rule 5-1.1 regulating trust accounts (basically a copy of ABA MRPC 1.15) requiring disputed funds to be held in trust.

Also, if the plan language is well crafted what tools may I use to attempt to negotiate the lien down?

Answer
Thank you for the inquiry. Your questions hits upon several good points. First and foremost, if an ERISA plan is asserting a valid and legitimate reimbursement interest ("lien") in your client's settlement proceeds then arguably that interest should be satisfied. To have a valid and legitimate interest, the ERISA plan must have plan language which seeks an equitable right to reimbursement. ERISA plans are limited to seeking appropriate equitable relief. 29 U.S.C. § 1132(a)(3)(B). An ERISA plan has a right of reimbursement which sounds in equity if the plan language imposes a constructive trust or equitable lien upon a third party recovery. To qualify as equitable the plan language MUST 1) specify that recovery will be made from an identifiable fund and 2) specify that recovery must be limited to a specific portion of said fund. If either of these requirements are not met in the plan language, the plan does not have an equitable right to recovery and thus they do not have a reimbursement interest under ERISA. See Sereboff, 126 S.Ct. 1869 (2006). Thus it is important to make sure the plan is seeking an equitable remedy.

Some of the considerations for resolving this interest.

- Ethical Obligations. Florida Rule 5-1.1 and holding disputed funds in trust. An ERISA plan is no different than any other claimant.
- Client Contractual Considerations. If the interest is not resolved or the plan participant does not cooperate according to the terms of the plan, the participant may subject themselves to legal action and additionally they may face a future set off or complete loss of future benefits.
- Constructive Trust Consideration. The Longaberger case was not about imposing liability on the attorney as much as it was about the plan's equitable right. The Longaberger plan had a first priority right to the settlement proceeds. Because the attorney received a third of those proceeds the attorney was responsible for reimbursing the plan one third of its lien. The plan did not seek damages or a cause of action against the attorney but rather it sought the recovery of funds. While Longaberger is a sixth circuit case with very specific facts it certainly should serve as a cautionary tale to attorneys in every circuit.

In negotiating the reimbursement interest I would recommend a careful evaluation of the plan language. As mentioned above, the plan must have specific language to establish its right. Furthermore, equitable doctrines such as made whole and common fund may apply depending on the plan language and whether you are applying state or federal law (applicable law is based upon the funding of the plan; self-funded plans enjoy federal preemption while insured plans can be limited by state insurance law). Additionally, there can be other weaknesses in the plan language such as requiring third party liability or limiting the reimbursement to medicals recovered.

As a general matter I would encourage you to take a proactive approach and deal with the ERISA plan on the front end. It is important to remember that the plan's right of reimbursement does not come into existence until the settlement or verdict is reached. Prior to this time they only have a right to subrogate and this is the last thing that many of these plans and their agents want to get involved with. Because the interest is not "perfected" until settlement we take the approach that a case should not be settled unless the interest is resolved. If you were dealing with a self-funded ERISA plan with draconian language the only leverage you may have is the threat of walking away and thus the plan would receive nothing. If the case settles this opportunity is lost and the plan has an enforceable right.

As you can see this is a complex area of the law which is constantly changing. Because of this you may encounter a lien or a government benefits issue that demands experience and expertise not commonly available inside of a personal injury firm (such as healthcare billing and coding expertise). To ensure the proper evaluation and favorable resolution of such a matter, your client may require the consultation or retention of outside assistance to advise and address the issue. Your fee agreement should provide for this at your discretion, and stipulate that any reasonable costs may be passed along to the client. In this manner the cost can be placed on the client and both you and the client can be assured that the interest will be properly and efficiently resolved.

Thanks again and please let us know if you have any additional or follow up questions. Take care.

Michael D. Russell, Esq.