Nancy G. Ross is a partner in Mayer Brown’s Chicago office and a member of the firm’s Litigation & Dispute Resolution practice. She focuses her practice primarily on the area of employee benefits class action litigation and counseling under the Employee Retirement Income Security Act of 1974 (ERISA).

In a recent interview with PLANADVISER, Ross dug into a “potentially very important but widely unnoticed” Supreme Court case, Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan.  Strictly speaking the case falls outside of Ross’s normal focus of ERISA-covered retirement plans, but she believes the issues at hand could have a major impact on both defined contribution and defined benefit retirement plans.

Ross explains the Supreme Court heard additional oral arguments in the case in November, so the industry in currently waiting for its decision.  

Q: Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan touches more directly on the health plan area. But there are implications generally for employee benefits plans. Can you explain the background of the case and why it might be important for our readers?

A: Very broad sketch of the background is that Mr. Montanile was involved in a car accident and his health plan paid for his immediate treatments. As things typically transpire when you have an individual insurance policy or health insurance via the employer, very often there is a provision in there that, if the plan pays your costs for emergency medical treatment, but then you ultimately recover those costs in court—you must pay back the plan. This is pretty commonplace in employee benefit plans, especially health coverage.

So Mr. Montanile’s plan paid for his treatments needed as a result of his accident, but he subsequently recovered from the guy who caused the accident—referred to in law as the TORT user. Under plan terms, Mr. Montanile had a fairly clear obligation to reimburse the plan for his medical costs out of his recovery—but the plan did not immediately ask him to do so and he did not eventually do so. Of critical importance here, the plan waited a pretty substantial period of time to formally pursue the money it was owed.

So by the time the plan tried to go after the recovery that Mr. Montanile had received, he had spent the funds and had otherwise disseminated them elsewhere. So the legal issue at hand becomes, and it’s only something an ERISA litigator could love to look into, is whether the plan’s efforts to recover what Mr. Montanile had recovered constituted an effort to obtain legal damages to be collected from unsegregated assets (which ERISA does not allow) or whether it could be characterized as some kind of equitable recovery of the plan’s rightful assets (which the terms of ERISA do allow). 

Q: What else is relevant in understanding this case? Did any important lines of thinking or questioning come up during SCOTUS hearing in November? 

A: Historically there have been a couple prior cases where the courts have been asked a similar question, and they’ve mainly said some confusing things. Generally, the courts have said the money needs to still be segregated in order for the plan to recover it under the terms of ERISA. And so, the proper way to proceed is for the plan to put a lien on the money, hopefully very early in the process.

The plan actually did this in a timely way, it seems, in this case. But Mr. Montanile nevertheless spent the money—so there was not a distinct pool of property to support the lien when time came to collect. So the plan sued and claimed the plan terms clearly provide that it should be reimbursed for the cost of Mr. Montanile’s medical treatment. The defendant said no, your case has no merit because I don’t have the money, so you (i.e., the plan) are effectively seeking only legal damages that are not permitted by ERISA. 

Q: Does this give us a clear sense of where the SCOTUS justices may come down?

A: I’m not sure. The lawyers on each side had their arguments. National Elevator’s lawyers argued this is a ‘deficiency judgement,’ which fits within the realm of equitable relief under common law. But the court said, it may be equitable in common law, but it’s not necessarily equitable under ERISA.

What do we know about the court’s opinion? We know that Mr. Montanile does not technically deny that he owes the money to the plan under a strict interpretation of plan terms. But the outstanding question remains, how, if at all, does the plan have a right to recoup these basic advancements of money, given that the actual dollars have been spent and/or disseminated?

You have ‘subrogation’ cases like this all the time in fact, so the ramifications for this case, particularly in the private health insurance world but also for other ERISA plans, are tremendous. The Supreme Court is being asked to determine what steps, if any, can an employer and a plan legally take to protect itself and recoup assets in such cases?

It’s too soon to tell whether the court will give a very narrow ruling and limit it only to the situation at hand, involving this particular subrogation question, or whether they will open the question more broadly and ask how plans should be permitted to recoup payments that are not still being held in a specifically identifiable pot of money. 

Q: What are some potential implications of a broad ruling?

A: One worry that I have is that, if the court says the plan cannot recoup assets in a case like this, it will create a direct incentive for plan participants to go out and spend the recovered money very quickly. It’s kind of astonishing. Mr. Montanile apparently knew there was a lien but nevertheless spent the money! One could argue something like this should be criminally prosecutable.

The Department of Labor wrote a brief weighing in here. They suggested there was clearly malfeasance on the part of the participant, and so they said there is no need for the Supreme Court to act broadly here because there are already strong steps plans can take to recoup assets. I am not sure I am convinced by their arguments. For example, they said one major source of protection is immediately getting a lien on the money and finding a way to monitor this lien, perhaps through the participant’s attorney, and getting a formal pledge from this attorney or from the participant that the money won’t be spent besides to reimburse the plan—possibly even in the form of a restraining order if necessary, prohibiting the participant from spending the money. The theory being that, if you spend the money then under this temporary restraining order, you can be ruled in contempt of court.

It’s all a matter of timing, you can see. Another problem here in this case is that the plan waited what amount to be a fairly long time to move to collect the lien, so it has just made the question of whether Mr. Montanile improperly disseminated the funds even more difficult. It’s less clear of a question—did Mr. Montanile know there was in fact a lien on the money that would make his actions potentially illegal? How long would he be required to hold the money he legally collected? And did the plan fulfill its obligations to make this lien enforceable? It’s hard to prove something like this. 

Q: What else should we consider as we wait for a decision?

A: One of the justices asked whether the plan sponsors should have gotten a lien against the attorney’s fees in this case and collected it from the attorney—whom would therefore have a powerful incentive to make sure their client was doing the right thing with the money, i.e., not running out and spending it on a fancy new car to avoid reimbursing the plan.

You probably would not have to evoke ERISA if you did this—plans can sue non-ERISA entities outside of ERISA, as it were. So there would then be, perhaps, an opportunity for the case to proceed like that under common law, which again is important from the damages versus equitable relief question.

Depending on how this comes down, it could have tremendous implications for nullifying the lien as a recovery device for ERISA-covered plans. In this particular case it is applying in the case of a health plan, but retirement plans find themselves in fairly similar situations all the time as well. Frankly, that’s what I care about in this case. I don’t do a lot of health law litigation at all—but overpayments by benefit plans are a huge issue. It’s somewhat commonplace, in fact, just given the complexity of calculations and the fact that mistakes happen. There has frankly been an increase in those kinds of cases all up and down the court system and they’re going through similar arguments.

I just saw one example where a defined benefit plan beneficiary was being paid quite a higher amount than it turned out the participant was entitled to, but the plan didn’t notice for three years. So they wanted to offset the sizable overpayment against future benefits, and the guy sued. The district court said, we think the plan’s actions amounted to constructive fraud, because its consistent pattern of behavior over three years led this guy to believe he was entitled to this money. So in that case they employed one of the forms of equitable relief permitted by ERISA (reformation where there is fraud) to mandate a reform of the plan.

It becomes a real quagmire when you start actually weighing the question of, what bearing could this Montanile case have on a plan official trying to recover overpayments from pension funds or even from defined contribution plans? It’s of foundational importance for the distinction between damages and equitable relief under employee benefits law. When people are living on their retirement checks it’s often week-by-week and month-by-month, so the chances aren’t great to begin with that the money will even be there for you to recover.