This article has been published in “The Advocate”, a bimonthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, July/August 2012 issue, @2012 by Steven J. Bruzonsky, Esq.
ERISA Liens – The Ninth Circuit in CGI v. Rose Applies Equity to ERISA Liens
CGI Technologies and Solutions, Inc. v. Rhonda Rose; Nelson Langer Engle PLLC, Case
11-35127 (9th Cir., 6-20-2012) is a landmark case in our fight for justice with ERISA lien claimants.
Rhonda Rose was severely injured in a car accident in 2003 with a drunk driver. The parties stipulated that her personal injury claim was worth at least $1,757,943. 08. She recovered a combined total of $376,906.84 from liability and underinsured motorist coverage. The parties stipulated that this recovery represents only 21.44% of her total damages. Rose’s employer, CGI, paid about $32,000 in accident-related medical expenses for her during 2007-2010. CGI’s ERISA plan required full reimbursement to CGI regardless of whether Rose was made whole and disclaimed the application of the common fund doctrine to require CGI to contribute to attorney’s fees incurred in recovering funds from a third party tortfeasor. After her recovery of her personal injury damages, the CGI ERISA plan asserted a first priority of payment (as set forth in the Plan) and demanded full reimbursement of the medical benefits paid by the Plan. Rose, through counsel, declined to reimburse the plan, with her counsel, NLE, placing the full disputed amount in Trust.
The district court granted partial summary judgment in favor of CGI, concluding that under
ERISA § 502(a)(3), per the express terms of the Plan, CGI was entitled to recover the full amount it had paid in medical expenses on Rose’s behalf; and despite the Plan’s language to the contrary, the district court also ruled that a proportional amount of the costs and attorney’s fees incurred by NLE would deducted from CGI’s recovery from Rose. Also, the district court granted partial summary judgment in favor of NLE, concluding that the Plan’s reimbursement provisions could not be enforced against NLE.
The Ninth Circuit vacated the district court’s partial summary judgment in favor of CGI and which required that CGI deduct attorney’s fees and costs from the reimbursement amount, as the Ninth Circuit states that as the district court fashioned “appropriate equitable relief) for CGI, there was no indication that the district court did more than interpret the plain terms of the reimbursement provision, and no indication that the district court considered traditional equitable principles in assigning responsibility to CGI for attorney’s fees and costs.
The Ninth Circuit remanded to the district court
“for such proceedings as are appropriate for the district court to determine what is
‘appropriate equitable relief’ in context here. In doing so the district court should
apply traditional equitable principles including consideration of traditional equitable
defenses. The amount to which CGI is entitled to recover under § 502(a)(3) and the
proportional amount of attorney’s fees and costs for which CGI is responsible under
§ 502(a)(3) must be consistent with principles of equity and not merely contract.”
The Ninth Circuit stated that the ERISA plan may not by contract deprive the district court of its power to act as a court in equity under ERISA § 502(a)(3); that contract terms should be considered by the court in assessing what is the proper scope of equitable relief; that notwithstanding the express terms of the plan disclaiming the application of the make-whole doctrine and the common fund doctrine, it is within the district court’s broad equitable powers under § 502(a)(3) not to give those provisions controlling weight in fashioning “appropriate equitable relief”. The Ninth Circuit expressed no opinion on what result the district court, in exercising these powers, should reach; stating that the district court isn’t restricted from holding further hearings and taking further evidence relevant to how the phrase “appropriate equitable relief” should be interpreted in § 502(a)(3) and applied to the claim of CGI against Rose.
The Ninth Circuit noted that they do not read the U.S. Supreme Court’s precedents to have clarified if in giving “appropriate equitable relief” a court must take into account all or some traditional equitable defenses and considerations, and that this question of ERISA interpretation had not been decided previously by the Ninth Circuit. The Ninth Circuit cites Cigna Corp. v. Amara, 131 S. Ct. 1866, 1880 (2011) as affirming that § “502(a)(3) invokes the equitable powers of the District Court,” including the power to reform plan terms).
The Ninth Circuit discussed Barnes v. Independent Auto Dealers’ Assoc., 64 F.3d 1389 (9th Cir., 1995). In Barnes, the Ninth Circuit stated that it would not apply the interpretive make-whole rule as a gap-filler if the Plan’s subrogation clause specifically allowed the Plan the right of first reimbursement out of any personal injury recover even if Barnes was not made whole. But in Barnes, the relief sought was purely legal in nature, as Barnes challenged the Plan’s denial of benefits, and the parties could contract out of the application of the make-whole doctrine. The district court is not bound by restrictive contract terms I its formulation of equitable relief.
Also, theNinth Circuit affirmed the district court’s grant of summary judgment in favor of NLE, dismissing NLE from the action.The Ninth Circuit held that CGI cannot maintain an action against Rose’s attorneys, NLE, under ERISA § 502(a)(3), where NLE placed the entire amount of the disputed funds in Trust pending resolution of the reimbursement (subrogation) claim by the court. However, the Court strongly suggests, citing Harris Trust and Savings Bank v. Salomon Smith Barney, 530 U.S. 238 (2000), that if the injured party’s attorney doesn’t place the entire amount of disputed funds in Trust, whether the attorney disburses funds to the client or to the attorney for attorney’s fees, then the ERISA plan would be able to maintain an action under ERISA § 502(a)(3) against the injured party’s attorneys.