Opinion ID: 204137
Heading Depth: 2
Heading Rank: 4

Heading: Whether Liberty's Counterclaim Is Allowed

Text: Liberty asserted a counterclaim to recover Cusson's SSDI benefits under 29 U.S.C. § 1132(a)(3), which states that a plan fiduciary can bring a civil action to obtain appropriate equitable relief ... to enforce ... the terms of the plan. Under the LTD Plan, if Cusson received an overpayment on her disability claim from any source, Liberty ha[d] the right to recovery of such overpayments from [Cusson] or [Cusson's] estate. Although Liberty terminated Cusson's LTD benefits before Cusson was awarded SSDI benefits, the SSA awarded benefits retroactive to March 15, 2002. Liberty argues that because it paid STD and LTD benefits from this date until December 8, 2004, the SSDI benefits Cusson received for this period are an overpayment, and hence that § 1132(a)(3) allows it to sue to enforce the right to recover the overpayment. Cusson argues that Liberty's counterclaim is a legal claim, rather than an equitable claim, and hence that it is not permitted under § 1132(a)(3). Cusson relies on Great-West Life & Annuity Insurance Co. v. Knudson, a case involving a similar overpayment provision in an ERISA plan, in which the Supreme Court held that the plan administrator could not use the overpayment provision to recover the proceeds from the plan beneficiaries' tort suit against a third party because the claim was a legal claim rather than an equitable claim. 534 U.S. 204, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002). However, the district court, in allowing Liberty's claim, relied on Sereboff v. Mid Atlantic Medical Services, Inc., in which the Court reached the opposite result and allowed a plan to recover for overpayment of medical expenses when the claimant received money from a third party in tort. 547 U.S. 356, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006). In Knudson, the funds recovered in the suit were not actually in the possession of the plan beneficiaries; rather, they had been placed into a Special Needs Trust under California law. 534 U.S. at 214, 122 S.Ct. 708. Thus, the Court held that the plan's monetary claim against the beneficiaries would effectively operate as the imposition of personal liability for the benefits that [the plan] conferred upon [the beneficiaries], which was a legal rather than equitable claim. Id. In contrast, in Sereboff, the beneficiaries had deposited the proceeds from the suit into their personal investment account, and the plan specifically asserted a claim for some portion of those funds. 547 U.S. at 360, 362-63, 126 S.Ct. 1869. Thus, the Court held that the claim was a type of equitable restitution because it was for specifically identifiable funds that were within the possession and control of the Sereboffs. Id. at 362-63, 126 S.Ct. 1869 (internal quotation marks omitted). We find that Sereboff, rather than Knudson, controls in this case. Here, like in Sereboff, the LTD Plan targets specific funds for recoveryCusson's LTD paymentsand identifies the specific portion to which Liberty is entitledthe amount of the overpayment while Cusson was receiving benefits under the LTD Plan. We are persuaded by the Eighth Circuit's holding in a similar case that a claim such as this is a claim for equitable relief. See Dillard's Inc. v. Liberty Life Assurance Co., 456 F.3d 894, 901 (8th Cir.2006) (finding that Liberty's claim was equitable when it sought a particular share of a specifically identified fund-all overpayments resulting from the payment of social security benefits). Moreover, unlike in Knudson, the SSDI benefit was paid to Cusson rather than into a separate trust over which she has no control. It is true that, unlike the insurer in Sereboff, Liberty has not identified a specific account in which the funds are kept or proven that they are still in Cusson's possession. However, the Court in Sereboff noted `the familiar rul[e] of equity that a contract to convey a specific object even before it is acquired will make the contractor a trustee as soon as he gets a title to the thing.' 547 U.S. at 363-64, 126 S.Ct. 1869 (quoting Barnes v. Alexander, 232 U.S. 117, 34 S.Ct. 276, 58 L.Ed. 530 (1914)). Here, the contract between Cusson and Liberty put Cusson on notice that she would be required to reimburse Liberty for an amount equal to what she might get from Social Security. We therefore find that Liberty's counterclaim is an equitable claim and is allowed under 29 U.S.C. § 1132(a)(3). Cusson further argues that Liberty's claim is barred under the Social Security Act, Title II, 47 U.S.C. §§ 401 et seq. The Act provides, in relevant part: The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law. 42 U.S.C. § 407(a). The district court held that this section of the Act only applies to future payments, and not to retroactive payments. However, Cusson argues that the reference to moneys paid or payable indicates that the statute's protections apply to all payments, whether future payments or retroactive payments. We agree with the district court that 42 U.S.C. § 407(a) does not bar Liberty's claim. However, we disagree with the district court's reasoning in reaching this conclusion. The district court held that because the statute bars the transfer or assignment of the right to future payment, it did not bar claims for retroactive payments. However, the statute clearly goes on to say that none of the moneys paid or payable ... shall be subject to execution, levy, attachment, garnishment, or other legal process. Id. Thus, the protections afforded by § 407(a) apply to retroactive SSDI payments. See Philpott v. Essex County Welfare Bd., 409 U.S. 413, 416, 93 S.Ct. 590, 34 L.Ed.2d 608 (1973) (holding that a state could not recover SSDI benefits paid because the protection afforded by § 407(a) is to `moneys paid'); Hoult v. Hoult, 373 F.3d 47, 56 (1st Cir.2004) (There is no question that § 407(a) ... applies to benefits after they have been distributed to beneficiaries.). Instead, we find that § 407(a) does not bar Liberty's claim because Liberty is not attempting to recover Cusson's SSDI benefits. Rather, Liberty seeks to recover in equity from funds Liberty itself already paid under the LTD plan. Although the amount in question happens to be the same as the amount of Cusson's retroactive SSDI payment, the funds Liberty is targeting do not come from SSDI, and thus § 407(a) does not prohibit Liberty's claim. See Holmstrom v. Metro. Life Ins. Co., 615 F.Supp.2d 722, 753 (N.D.Ill. 2009) (collecting cases in which courts have held that § 407(a) does not bar recovery for overpayment).