Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_08-cv-02374/USCOURTS-caed-2_08-cv-02374-1/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 28:1132 E.R.I.S.A.

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PROPOSED] ORDER RE: HEARING ON THE PLAINTIFF AND DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT 

OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES

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JAMES W. RUSHFORD, ESQ. 

State Bar No. 88739 

RUSHFORD & BONOTTO, LLP 

2277 Fair Oaks Blvd., Suite 495 

Sacramento, California 95825 

Telephone: (916) 565-0590 

Facsimile: (916) 565-0599 

Email: jrushford@rushfordbonotto.com

Attorneys for Plaintiff, 

AC HOUSTON LUMBER COMPANY EMPLOYEE HEALTH PLAN 

UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF CALIFORNIA 

AC HOUSTON LUMBER COMPANY 

EMPLOYEE HEALTH PLAN, 

 Plaintiff, 

vs. 

WILLIAM L. BERG, BERG INJURY 

LAWYERS, MARK FREED, and ABC 

CORPORATION, 

 Defendants. 

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Case No.: 2:08-CV-02374-JAMGGH 

ORDER RE: HEARING ON THE 

PLAINTIFF AND DEFENDANTS’ 

MOTIONS FOR SUMMARY 

JUDGMENT OR IN THE 

ALTERNATIVE, SUMMARY 

ADJUDICATION OF ISSUES 

Date: December 9, 2009 

Time: 9:00 a.m. 

Courtroom: 6 

Opposing Motions for Summary Judgment, filed on behalf of both 

Plaintiff AC HOUSTON LUMBER COMPANY EMPLOYEE HEALTH PLAN and 

Defendants WILLIAM L. BERG and BERG INJURY LAWYERS were heard 

before the Honorable Judge John A. Mendez on December 9, 2009. 

Plaintiff AC HOUSTON LUMBER COMPANY EMPLOYEE HEALTH PLAN was 

represented by James W. Rushford and Amanda R. Stevens of Rushford & 

Bonotto, LLP. Defendants were represented by Robert A. Dalby of the Law 

Offices of William L. Berg & Associates. 

The Court, after full consideration of the evidence, and the written 

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Case 2:08-cv-02374-JAM -GGH Document 34 Filed 01/13/10 Page 1 of 6
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PROPOSED] ORDER RE: HEARING ON THE PLAINTIFF AND DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT 

OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES

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papers and exhibits of each party, and the authority submitted by counsel 

as well as counsels’ oral argument, HEREBY RULES as follows: 

Under ERISA Section 502(a)(3)(B), 29 USC Section 1132, a fiduciary 

may bring an action to "(A) enjoin any act or practice which violates any 

provision of this subchapter or the terms of the plan, or (B) to obtain other 

appropriate equitable relief to redress such violations or to enforce any 

provision of this subchapter or the terms of the plan." Citing from Sereboff 

vs. Mid Atlantic Medical Services, 547 U.S. 356, a 2006 case. A plan's 

action to collect reimbursement on a medical lien in a case where the 

beneficiary has received compensation from a third party and the plan 

contained a reimbursement provision qualifies as an equitable action under 

Section 502(a)(3)(B). And there's no question, it's undisputed, that there 

was a clear reimbursement provision in the plan documents. 

One of the features of equitable restitution is that it seeks to impose 

a constructive trust or equitable lien on particular funds or property in the 

defendant's possession. Citing Sereboff at 362. In Sereboff, the court found 

that when a plan contains a reimbursement provision which specifically 

identifies what funds it is imposing a lien on, an action to recover those 

funds qualifies as an equitable action under ERISA 502(a)(3)(B). The plan 

in Sereboff contained a provision titled "Acts of Third Parties" which 

applied when a beneficiary was sick or injured as a result of the act or 

omission of another person, and required a beneficiary who received 

benefits under the plan for such injuries to reimburse the plan from all 

recoveries from a third party, whether by lawsuit, settlement, or otherwise. 

Thus, the court in Sereboff held that this description of funds in the plan, 

i.e., those received from a third party as compensation, constituted a 

specific identification of the funds sought for purposes of the equitable 

recovery under ERISA. 

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PROPOSED] ORDER RE: HEARING ON THE PLAINTIFF AND DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT 

OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES

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When funds received from a settlement are disbursed without 

reimbursing the plan, the plan may seek those specifically identifiable 

funds that are due. Because the reimbursement provision created an 

equitable lien or constructive trust on identifiable funds, the plan may 

follow that money as soon as a fund is identified. Thus, in Sereboff, as 

soon as a settlement was received, the plan had the right to follow their 

portion of the recovery, even once it had been disbursed. 

The fact that settlement proceeds are no longer set 

aside is not necessarily a bar to granting equitable 

relief, because the Court may impose a constructive 

trust or an equitable lien on specific property that 

can be traced to the proceeds. Although a lien or 

trust is not available to the extent the funds have 

been dissipated so that no product remains, it does 

not appear that funds held in a constructive trust are 

dissipated when they are used to purchase property 

that remains in the possession of the trustee, even if 

the funds are first commingled with the trustee's 

assets. To the extent property is traceable back to 

the ill-gotten profits, it is properly subject to a 

constructive trust or equitable lien. 

Board of Trustees for Laborers Health and Welfare Trust Fund for 

Northern California vs. Hill, a Northern District of California case from 

2008. 

In this case, the plaintiffs have alleged that their "Subrogation, 

Reimbursement & Third Party Recovery" provision specifically identified 

funds which must be reimbursed with priority over any other claimants, 

including attorney's fees claims. Furthermore, Mark Freed signed a 

reimbursement agreement which agreed to provide plaintiff with a lien 

upon any and all funds recovered. Thus, neither Mark Freed nor 

defendants had any right to any of the funds recovered until the lien was 

paid in full. Defendants knew of the plan terms, the reimbursement 

agreement, and the existence of a lien. It is undisputed that defendants 

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PROPOSED] ORDER RE: HEARING ON THE PLAINTIFF AND DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT 

OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES

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contacted plaintiff seeking to settle the lien once the settlement funds were 

received. Plaintiff has identified the amount they are seeking, which is 

$16,522.05 of the settlement funds received, and plaintiff argues that it 

does not matter that defendants already disbursed this money to 

themselves as attorney's fees. Pursuant to the Hill case, plaintiff also 

argues that it does not matter that the funds have been commingled with 

other assets in defendants' account. They are still recoverable under an 

equitable lien or constructive trust. 

The Court finds that plaintiff's arguments have merit. Also, as 

indicated, the case cited in the reply brief, Longaberger Company vs. Kolt, 

a 2009 case from the U.S. District Court for the Northern District of Ohio, 

2009 Westlaw 3806079, also a case almost directly on point, and almost 

identical facts, leads this Court to the same conclusion that plaintiff's 

lawsuit in this case has merit and that summary judgment should be 

granted. 

Defendants do cite Hotel Employees & Restaurant Employees 

International Union Welfare Fund vs. Gentner, 50 F.3d 719, a Ninth Circuit 

case 1995, which held that an attorney was not a fiduciary under ERISA 

and could not be held responsible even though he knew of a 

reimbursement agreement and did not follow it. In that case, the attorney 

had no contractual or professional duty to reimburse the plan. In this case, 

however, plaintiff does not sue on contractual grounds or professional duty 

grounds. It does not allege that defendants are fiduciaries. Rather, 

plaintiff is suing for equitable relief as a fiduciary, like the benefit plan in 

Sereboff, and therefore the present case is distinguishable from Hotel 

Employees. 

Plaintiff has also cited Bombardier Aerospace Employee Welfare 

Benefits Plan vs. Ferrer, Poirot and Wansbrough, a Fifth Circuit case, 354 

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PROPOSED] ORDER RE: HEARING ON THE PLAINTIFF AND DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT 

OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES

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F.3d 348, which stated that a law firm, as counsel for the plan participant 

and stake holder of specifically identifiable settlement funds in a trust 

account, fits comfortably within the universe of possible defendants subject 

to suit under Section 502(a)(3). The court in Sereboff agreed with the 

Fifth Circuit in Bombardier, and with the Tenth Circuit and Seventh Circuits 

in similar cases, that ERISA Section 502(a)(3) authorized recovery in 

circumstances where settlement money was disbursed without 

reimbursement to satisfy a plan's medical lien. In reaching this holding, the 

Sereboff court overruled a case from the Sixth Circuit and the Ninth 

Circuit's decision in Westaff vs. Arce, 298 F.3d 1164. Accordingly, plaintiff 

argues that Hotel Employees is not controlling and the Court can, in fact, 

impose an equitable trust or constructive lien on the funds in defendants' 

possession that belong to plaintiff does have merit. 

Finally, defendants have argued that pursuant to California state law 

cases, attorney's fees would take priority over medical liens, and medical 

liens cannot be enforced against attorneys. However, as defendants 

acknowledge, these state cases are not binding on this Court. And plaintiff 

also concurs that they are not binding, but even if they are, they are 

distinguishable. 

For all those reasons, summary judgment is granted in plaintiff's 

favor because plaintiff had a primary right to specifically identified funds; 

any settlement funds received in the amount owed for reimbursement. 

These funds should have been given to plaintiff before any disbursement 

was paid to Mark Freed or as attorney's fees to defendants. That 

defendants disbursed and commingled the assets does not bar recovery by 

the plaintiff. Defendants knew of the lien and disbursed the funds 

specifically to avoid payment. The funds are traceable, and the Court is 

imposing an equitable lien or constructive trust over the $16,522.05 that 

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PROPOSED] ORDER RE: HEARING ON THE PLAINTIFF AND DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT 

OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION OF ISSUES

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defendants wrongfully claimed. 

IT IS THEREFORE ORDERED that the Plaintiff’s motion for summary 

judgment is granted. And the motion for summary judgment by defendant 

is denied. Judgment shall be entered forthwith in favor of plaintiff, AC 

HOUSTON LUMBER COMPANY EMPLOYEE HEALTH PLAN and against 

defendants, WILLIAM L. BERG and BERG INJURY LAWYERS. 

IT IS SO ORDERED. 

Dated: January 13, 2010 /s/ John A. Mendez_____________

 Honorable JOHN A. MENDEZ 

JUDGE IN THE UNITED STATES 

DISTRICT COURT FOR THE EASTERN 

DISTRICT OF CALIFORNIA 

Approved as to Form:

Dated: 

By: 

 Robert Dalby 

 Attorney for Defendants 

WILLIAM BERG and BERG INJURY 

LAWYERS 

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