ERISA Remedies
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It is fairly well settled that an action under ERISA is limited to seeking “equitable remedies.” [29 U.S.C. § 1132(a)(3): a civil action may be brought “to obtain appropriate equitable relief”]. In Cigna v. Amara, 131 S. Ct. 1866, 1878 (2011), the Court explained: “We have interpreted the term ‘appropriate equitable relief’ in § 502(a)(3) as referring to those categories of relief that, traditionally speaking, were typically available in equity.” Thus, a self-funded ERISA plan may only seek an equitable lien when attempting to enforce claimed reimbursement rights arising from a plan member’s liability settlement.
Much of the focus in litigation is directed at the controlling plan documents, and how they are drafted to confer reimbursement rights while stripping away equitable defenses—such as the Make Whole Rule and Common Fund Doctrine. It is unsurprising that administrators often draft these documents to exclude all potential equitable defenses and, in some cases, even deny coverage for necessary medical care related to a third-party liability claim—regardless of whether any recovery is ultimately made. See, e.g., Noecker v. Southern California Lumber Industry Welfare Fund, 9th Cir. No. 11-55593 (April 4, 2013) (unpublished).
At some point, the notion that “the contract says what the contract says” must be reconciled with the creation of grossly unjust outcomes. One example is when a plan demands full reimbursement of its lien—even when the liability recovery is less than the amount of the claimed lien. In such situations, an attorney retained by the plan member to obtain the recovery typically has a lien for attorney’s fees and costs—either established in the retainer agreement or by state law. Setting aside the issue of lien priority, if the plan recovers the full liability settlement to satisfy its lien, the member remains personally obligated to pay the attorney’s fees. That payment can only come from the member’s personal assets. The result: the member is forced to personally fund the effort to recover money for the benefit of the plan—while the plan pays nothing.
As Justice Kagan noted in US Airways v. McCutchen, 133 S. Ct. 1537 (2013):
“We think McCutchen would not have foreseen that result when he signed on to the plan. And we doubt if even US Airways should want it. When the next McCutchen comes along, he is not likely to relieve US Airways of the costs of recovery.”
This result also raises serious ethical concerns. A direct conflict of interest may arise for plaintiff’s counsel, who is retained to advocate solely for the plaintiff. If the attorney’s efforts and fees are being used to recover funds for the benefit of the plan, the fiduciary duty owed to the client is directly implicated. Similarly, the plan administrator’s fiduciary duty to the plan member must be considered.
Of course, a plan’s overreach in seeking to enforce reimbursement rights—especially when it seeks to recover from the entire settlement—often goes unchecked unless the member has a viable legal remedy. If a plan member’s equitable remedies are limited to declaratory or injunctive relief, the cost of litigation may render the issue economically unviable—even if the challenge could benefit other plan members in the future.
But the tide may be turning.
On June 22, 2020, the U.S. Supreme Court issued its opinion in Liu v SEC, 140 S. Ct. 1936 (2020), a Securities and Exchange Commission enforcement action in which the Court held that disgorgement of net profits—awarded to victims—is a form of equitable relief permissible under 15 U.S.C. § 78u(d)(5). While not an ERISA case, Liu provides valuable guidance on how disgorgement fits within the framework of equitable remedies. The Court observed that disgorgement could be analogized to a constructive trust or accounting, and is equitable in nature even when the term is not explicitly referenced in a statute. Notably, disgorgement is not limited to fiduciary breach cases.
The Court did outline limits to the remedy, such as requiring that the amount returned does not exceed the wrongdoer’s net profits and that the award is directed to those harmed by the wrongdoing. Still, the majority’s analysis supports the broader application of equitable remedies—even where statutory language is silent—and may open the door to remedies under ERISA that go beyond current limitations.
Justice Thomas, in dissent, referenced the Court’s own ERISA decisions to support his narrower interpretation of equitable relief. But in doing so, he emphasized the ongoing judicial conversation around what equitable remedies truly encompass.
In the ERISA context, applying Liu to plan overreach could support not only injunctive relief against improper lien enforcement but also claims for disgorgement of prior wrongful recoveries by the plan. This could be a powerful tool for plan members who have paid excessive or improperly asserted liens and are seeking a return of funds.
At a minimum, Liu gives plaintiffs and their counsel additional leverage when challenging aggressive recovery actions by ERISA plans or their recovery agents. It's another arrow in the quiver when addressing a plan’s lien claim—particularly where the plan has attempted to shield itself from all equitable defenses through broad, self-favoring plan language.
The Liu decision can be found HERE.
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