IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

STEPHEN MILLS, JR., et al. : CIVIL ACTION

 :

v. :

 :

LONDON GROVE TOWNSHIP, et al. : NO. 05-00122-JF

MEMORANDUM AND ORDER

Fullam, Sr. J. July 19, 2007

Adult plaintiffs and their minor child suffered severe

and permanent injuries in an automobile accident. The accident

allegedly occurred because a stop-sign for which the defendant

Township was responsible was obscured by shrubbery. Plaintiffs

sued the Township, the owner of the property in question, and the

other driver, all of whom asserted claims against the wifeplaintiff. The wife-plaintiff was seven months pregnant at the

time of the accident, and her injuries caused the premature birth

of the plaintiff-minor (now aged 2 1/2 years). The minorplaintiff sustained serious head injuries which have resulted in

cerebral palsy, a permanent condition for which the minor will

require constant medical attention for the rest of her life.

Although each of the potentially liable parties could

properly assert that they were not at fault, all concerned – or,

more accurately, their liability insurance carriers – have agreed

to settle the case, by payments substantially equal to the total

of available liability insurance. Plaintiffs have now petitioned

for approval of the compromise settlement, insofar as the minor

Case 2:05-cv-00122-JF Document 55 Filed 07/19/07 Page 1 of 9
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is concerned. It is proposed that the minor’s portion of the

settlement be placed in a “self-funded special needs trust”

(under Maryland law, and approved by the Attorney General of

Maryland, where the plaintiffs now reside). Unless such a trust

is established and funded, the minor-plaintiff would not be

eligible to receive healthcare benefits from any governmental

source.

Under the terms of the settlement, the minor’s share

would be $500,000, her father’s share would be $125,000, and her

mother’s share would be $275,000. After deduction of attorneys’

fees (reduced to 25%) and the compromised amount of certain

liens, the net settlement payable to the special needs trust for

the minor would be $357,170.21.

All parties agree that the proposed settlement of the

minor’s claim is reasonable under the circumstances – doubtful

liability and limited insurance coverage. There is, however,

opposition to the proposed distribution of the settlement

proceeds. It appears that the plaintiffs were beneficiaries

under an ERISA health and welfare plan as a result of the

father’s employment. The Plan has made significant payments on

account of the minor’s medical expenses. The insurance company

which made those payments now asserts that the petitioners should

first reimburse it (ACS Recovery Services) in the amount of

Case 2:05-cv-00122-JF Document 55 Filed 07/19/07 Page 2 of 9
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$123,690.12 because of the benefits it paid on account of the

minor’s injuries. 

The pertinent language of the Plan is as follows:

“If you or a dependent are injured because of

the negligence or wrongdoing of someone else,

the Plan Administrator has the right, subject

to any applicable law, to recover benefits

paid by the third-party medical plan from any

amount you receive from the other person or

his or her insurance company, whether by

lawsuit, settlement or otherwise and without

regard to attorney fees you may have incurred

to collect such amounts. In this situation,

you must sign a reimbursement agreement

before benefits will be paid under the Wyeth

health care plans. You also are responsible

for taking any necessary actions to protect

the Wyeth health care plans’ right of

recovery.” (emphasis added)

At the hearing on the pending petition, counsel for

plaintiffs asserted, without contradiction, that the plaintiffs

have never been asked to sign any such reimbursement agreement,

and have not done so. Thus, it may be that ACS Recovery Services

should be deemed to have waived its right to assert a lien. 

Stated otherwise, it may be that, by paying the medical benefits

without first obtaining plaintiffs’ agreement to recognize the

lien now claimed, ACS Recovery Services may have impaired its

right to assert such a lien.

Be all that as it may, and assuming ACS Recovery

Services’ claim for reimbursement is clear, the complex legal

issues addressed by the Supreme Court in Great-West Life &

Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) and Sereboff v.

Case 2:05-cv-00122-JF Document 55 Filed 07/19/07 Page 3 of 9
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Mid Atlantic Medical Serv., Inc., 547 U.S. (2006) must be

addressed. ERISA fiduciaries are permitted to bring civil

actions under § 502(a)(3)(B) “to obtain ... appropriate equitable

relief ... to enforce ... the terms of the Plan.” The Great-West

case held that this did not authorize plan fiduciaries to bring

an action for specific performance of the reimbursement

provisions of the plan, and to compel a plan beneficiary who had

recovered from a third-party tortfeasor to make restitution. In

Sereboff, the Court held that the ERISA statute does permit plan

fiduciaries to bring an action to enforce an equitable lien upon

funds in the possession of the beneficiary. 

In the present case, the plan fiduciary had not brought

suit of any kind by the conclusion of the hearing, but had merely

objected to the proposed distribution of the settlement funds

which are still in the hands of the various liability insurers. 

Moreover, under the terms of the proposed compromise settlement,

the minor’s share of the settlement proceeds would go directly to

the “special needs trust.” The Great-West case seems to have

regarded that circumstance as dispositive. The Court stated:

“The basis for petitioners’ claim is not that

respondents hold particular funds that, in

good conscience, belong to petitioners, but

that petitioners are contractually entitled

to some funds for benefits that they

conferred. The kind of restitution that

petitioners seek, therefore, is not equitable

– the imposition of a constructive trust or

equitable lien on particular property – but

legal – the imposition of personal liability

Case 2:05-cv-00122-JF Document 55 Filed 07/19/07 Page 4 of 9
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for the benefits that they conferred upon

respondents.” 

534 U.S. 204, 214

The net effect of the two cited Supreme Court opinions,

as applied to the present case, is, in my view, as follows: the

parties to this litigation have a right to settle their

differences, and have done so. The only question before this

court is whether the proposed settlement is fair to the minor. I

conclude that it is. Nothing in the ERISA plan confers upon ACS

Recovery Services a right to control the conduct of this

litigation; it has no right to object to the proposed settlement.

The hearing on the petition for approval of the

compromise settlement was held on July 17, 2007. The next day,

July 18, 2007, counsel for ACS Recovery Services filed a document

entitled “Motion for Preliminary Injunction of ACS Recovery

Services in Opposition to Petition for Approval of Minor’s

Compromise.” The motion states that ACS “requests an Injunction

Order denying the Petition for Approval of Minor’s Compromise.” 

It states that, under the ERISA statute, a fiduciary may bring a

civil action to enjoin any act or practice which violates a

provision of the statute or the terms of the Plan; cites the

Sereboff case, and states “in further support of its motion, ACS

Recovery Services refers the Court to its attached Opposition

Brief and Exhibits.”

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Nowhere in the motion or the supporting documentation

does the movant seek to impose an equitable lien or constructive

trust upon any funds in the possession of any of the parties to

this action. Movant seeks merely to enjoin “the petitioners”

from transferring any funds to the “special needs trust” for the

minor-plaintiff. 

It is undisputed that movant was made aware of the

proposed compromise settlement and distribution several months

ago. Indeed, movant agreed to settle its claimed lien against

the funds being paid to the wife-plaintiff in settlement of her

individual claim. For reasons not disclosed on the record,

movant has apparently been unwilling to compromise its alleged

lien against the minor’s funds. Proponents of the pending

settlement have asserted a potentially meritorious defense of

laches.

In the unusual circumstances of this case, I conclude

that it is appropriate to require the dotting of all i’s and the

crossing of all t’s. ACS Recovery Services paid the medical

benefits without first obtaining a written reimbursement

agreement, as contemplated by the Plan. Assuming that its right

to assert a lien was not fatally impaired by that omission, its

lien would not come into existence until the Plan beneficiary

(the plaintiff-husband-employee) received funds reimbursing the

medical expenses in question. That has not yet occurred, and, if

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the proposed compromise settlement is effectuated in all its

terms, will not occur.

ACS Recovery Services’ belated request for injunctive

relief seeks to enjoin the transfer of funds to the “special

needs trust.” Since the adult plaintiffs will not receive any of

the funds in question, they are not proposing to transfer any

funds to the special needs trust. ACS Recovery Services has not

sought injunctive relief from anyone else.

Ordinarily, a court would be reluctant to rely upon the

technicalities discussed above. In this case, however, the

equities seem to favor such an approach. The damages suffered by

the minor-plaintiff are astronomical, and life-long. In the

final analysis, the real dispute generated by ACS’s opposition is

between ACS and the taxpayers who, in the future, will be called

upon to bear the minor’s medical expenses. ACS was paid premiums

for its coverage; the taxpayers have not been. 

An Order follows.

Case 2:05-cv-00122-JF Document 55 Filed 07/19/07 Page 7 of 9
IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

STEPHEN MILLS, JR., et al. : CIVIL ACTION

 :

v. :

 :

LONDON GROVE TOWNSHIP, et al. : NO. 05-00122-JF

ORDER

AND NOW, this 19 day of July 2007, upon consideration th

of the Petition to Approve a Minor’s Compromise, IT IS ORDERED:

1. The Petition is GRANTED. The claim of the minor shall

be settled for the sum of Five Hundred Thousand Dollars

($500,000). 

2. The attorney’s fees and costs as noted herein are

APPROVED.

3. The Township of London Grove shall pay the following:

a. $108,707.18 to Grace Mills Self-Funded Special

Trust;

b. $41,292.82 to Troiani/Kivitz, LLP for fees and

costs.

4. USAA shall pay the following:

a. $139,755.85 to Grace Mills Self-Funded Special

Needs Trust;

b. $60,244.15 to Troiani/Kivitz, LLP for fees and

costs. Of that amount, Troiani/Kivitz, LLP shall

remit $1,370 to Frank, Frank & Sherr, LLC and

$5,081.33 to the McAndrews Law Firm.

Case 2:05-cv-00122-JF Document 55 Filed 07/19/07 Page 8 of 9
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5. William Allman shall pay the following:

a. $108,707.18 to Grace Mills Self-Funded Special

Needs Trust;

b. $41,292.82 to Troiani/Kivitz, LLP for fees and

costs.

6. All disbursements are to occur no later than 20 days

from the date of this Order.

7. The Grace Mills Self-Funded Special Needs Trust

Agreement is APPROVED.

BY THE COURT:

/s/ John P. Fullam 

John P. Fullam, Sr. J.

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