Opinion ID: 866907
Heading Depth: 2
Heading Rank: 1

Heading: Defendant’s Possession or Control

Text: The Supreme Court has not directly considered whether equitable relief under § 502(a)(3) allows a plan to recover against a special needs trust or its 29 Case: 11-40446 Document: 00512232754 Page: 30 Date Filed: 05/07/2013 No. 11-40446 trustee. The Court discussed the issue in Knudson where an ERISA plan’s stoploss insurer sued the Knudsons under § 502(a)(3) to recover medical benefits it had paid on the beneficiary’s behalf. Id. at 207. In accordance with the ERISA plan’s reimbursement provision, the insurer sought to recover from the funds the beneficiary received from the underlying tortfeasor, which she had placed in a special needs trust. Id. In denying relief, the Court explained that “for restitution to lie in equity, the action must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant’s possession.” Id. at 214 (emphasis added). Because the settlement order showed that the funds were paid to a special needs trust and to the Knudsons’ attorney—neither of whom were named as defendants—the court concluded that the claim was legal, not equitable. Id. Ultimately, while Knudson left open the question of “whether petitioners could have obtained equitable relief against . . . the trustee of the Special Needs Trust,” its reasoning (focusing on possession) is not supportive of recovery from the Trust. Id. at 220. The Supreme Court later elaborated on the availability of § 502(a)(3) relief in Sereboff v. Mid Atlantic Medical Services, 547 U.S. 356 (2006). In Sereboff, a plan successfully sought reimbursement for medical expenses paid on behalf of a beneficiary from the proceeds of the beneficiary’s settlement with a tortfeasor, which were held in an investment account. 547 U.S. at 359, 369. For its part, Sereboff set forth four significant elements for seeking equitable relief in § 502(a)(3) claims: (1) the funds must be specifically identified by the plaintiff, (2) the funds must be in the possession and control of the defendant, (3) commingling of funds will not prevent recovery, and (4) the plaintiff need not trace back to the exact same tainted funds and show that they were in existence 30 Case: 11-40446 Document: 00512232754 Page: 31 Date Filed: 05/07/2013 No. 11-40446 when the equitable lien agreement was entered into. Id. at 363-66.4 Importantly, the simple fact that a plan does not have to establish that the defendants possessed the original funds in question does not exempt the plan from having to show that the defendants actually possess the identified funds subject to the lien. Id. at 362-63.5 Our court, following Knudson, declined to expand the scope of relief for ERISA plans under alternative theories of recovery, such as unjust enrichment, because “ERISA’s civil enforcement provision specifically and clearly addresses [the scope of available relief], thereby eschewing any possibility that a ‘gap’ exists in the statutory text that would permit us to employ federal common law to create [remedies not provided for in the statute].” Coop. Benefit Adm’rs, Inc. v. Ogden, 367 F.3d 323, 330 (5th Cir. 2004). Instead, we established a three-part test for determining whether the relief sought is equitable and, therefore, available under ERISA. See Bombardier Aerospace Emp. Welfare Benefit Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 356 (5th Cir. 2003). It asks whether the plan seeks “to recover funds (1) that are specifically identifiable, (2) that belong in good conscience to the [p]lan, and (3) that are within the 4 The majority opinion notes that “[p]articularly significant here is [Sereboff’s] rejection of the [beneficiaries’] argument that [the plan’s] claim was not equitable because equitable restitution requires a strict tracing of the tainted assets.” Slip Op. at 11. Larry Griffin never had possession of the funds. Therefore, as discussed above, “strict” tracing is not the issue because there is nothing to trace. 5 The Supreme Court recently re-examined Sereboff in US Airways, Inc. v. McCutchen, 133 S. Ct. 1537, 1545-47 (2013). That case addressed neither the issue of possession nor a special needs trust. Instead, it holds that equitable defenses that are contrary to the terms of the ERISA plan cannot defeat the plan’s right to equitable reimbursement, a matter not at issue here. See id. at 1548. The opinion’s only mention of possession is as follows: “The suit requested an equitable lien on $66,866–the $41,500 in the escrow account [established by McCutchen’s attorney specifically in connection with the reimbursement lawsuit] and $25,366 more in McCutcheon’s possession.” Id. at 1543. 31 Case: 11-40446 Document: 00512232754 Page: 32 Date Filed: 05/07/2013 No. 11-40446 possession and control of the defendant beneficiary.” Id. (emphasis added). In Bombardier, the plan sued one of its beneficiaries and the beneficiary’s law firm—which held the proceeds from a third-party tort suit in trust on behalf of the beneficiary—to recover for medical expenses paid on the beneficiary’s behalf. Id. at 350. First, the court concluded that the law firm was a proper defendant because “Congress did not see fit . . . to include a . . . limitation on the set of proper defendants to a § 502(a)(3) action.” Id. at 354. Next, the court concluded that the suit was equitable in nature because all three elements of the test were met. Id. at 356. The plan sought (1) identifiable funds (2) that belonged in good conscience to the plan under the reimbursement provision. Id. The third element—that the beneficiary have control over and possession of the disputed funds—was met because the “Plan’s participant . . . ha[d] ultimate control over, and thus constructive possession of, the disputed funds” held in trust by his attorney on his behalf. Id. Because the “Plan [did] not seek to impose personal liability on either [the beneficiary] or his counsel,” the court concluded “that § 502(a)(3) authorize[d] the Plan’s claim for relief.” Id. at 358. In Bombardier, we distinguished our prior opinion in Bauhaus USA, Inc. v. Copeland, 292 F.3d 439 (5th Cir. 2002), in which we held that funds deposited in a state court’s registry in anticipation of an interpleader action were not in the defendant-beneficiary’s actual or constructive possession or control. Bombardier, 354 F.3d at 356 (discussing Bauhaus, 292 F.3d at 445). Because the funds in Bauhaus were in the court’s registry and thus outside of the defendant’s control, we concluded that the plan was trying to impose personal liability on the defendant-beneficiary, and the action could not proceed under § 502(a)(3). Bauhaus, 292 F.3d at 444-45. The Bombardier court also distinguished Knudson, noting in that case, “the funds had been placed in a 32 Case: 11-40446 Document: 00512232754 Page: 33 Date Filed: 05/07/2013 No. 11-40446 Special Needs Trust, as mandated by California law, to provide for the beneficiary’s care, and the trustee was totally independent of the plan beneficiary.” Bombardier, 354 F.3d at 356. Under Bauhaus and Bombardier, the panel correctly ruled that Larry Griffin did not have possession or “constructive possession” (and certainly not “control”) of the funds in the Trust. In sum, Bombardier and Sereboff do not support a finding that the Trust and Trustee can be held liable.6 In those cases, the money was actually in the defendant-beneficiary’s possession or control. Unlike here, the defendantbeneficiary in Bombardier had constructive possession and actual control of the settlement funds—a portion of which were placed in his lawyer’s IOLTA account. See 354 F.3d at 350-51. Similarly, in Sereboff, the funds were held in an investment account that was actually controlled by the plan’s beneficiary. 547 U.S. at 360. Thus, the facts of Sereboff and Bombardier are distinguishable from this case.