Opinion ID: 626472
Heading Depth: 1
Heading Rank: 6

Heading: The Trustee and the Trust

Text: The issue of whether FKI and ACS are entitled to a constructive trust on the funds received by the Trust and the Trustee from the annuity purchased by Hartford CEBSCO is more complicated. The Trust and the Trustee do not have actual possession of the funds, because, pursuant to the settlement agreement between Larry Griffin and the third-party tortfeasor, SAFECO assign[ed] its obligation to pay periodic payment to Hartford [CEBSCO] which purchased an annuity from Hartford Life Insurance Company and directed payments to be made to the Trust. Thus, Hartford CEBSCO  not the Trust and the Trustee  actually possesses the annuity. Indeed, the only attachment to the document establishing the Trust is a statement that the Trust's initial assets consist of [f]uture periodic payments within the meaning of Section 104(a)(2) of the Internal Revenue Code of 1986 .... Further complicating the matter, because of the way a special needs trust is structured, Larry Griffin  as the beneficiary  does not currently have possession or control over the funds. Thus, applying the third prong of our three-part test in Bombardier, ACS and FKI cannot impose a constructive trust on funds that the defendant beneficiary does not possess or control. 354 F.3d at 356. Here, the funds are not within the possession and control of the defendant beneficiary.  Id. (emphasis added). [4] FKI and ACS rely on Bombardier for the proposition that a benefit plan can recover from a third party that is holding the funds  on behalf of a plan-participant client who is a traditional ERISA party. Id. at 353. However, that is not the case here, because unlike the attorney in Bombardier, who was found to be subject to the client's control, the Trust in this case cannot be controlled by Larry Griffin. To get around Bombardier 's third element, ACS and FKI argue that Larry Griffin had fleeting possession and control over the money that went to the special needs trust when he signed the settlement agreement in the state court lawsuit. Thus, they argue that those funds were traceable to ... the Trust established for Larry's exclusive benefit. However, Bombardier 's third prong asks whether the plan seeks to recover funds ... that are within the possession and control of the defendant beneficiary[.] Id. at 356 (emphasis added). The test makes no mention of whether the funds ever were within the possession or control of the defendant beneficiary. Thus, even if we were to find that Larry Griffin had fleeting possession of the funds, we are still bound by our prior precedent, which requires the defendant beneficiary to have either possession or control of the funds at the time that the defendant is seeking equitable relief. Id. Therefore, we conclude that the district court properly dismissed FKI and ACS's claim for equitable relief against the Trust and the Trustee.