As the Supreme Court recently observed, “[p]eople make mistakes. Even administrators of ERISA plans.” Conkright v. Frommert, 130 S.Ct. 1640 (2010). Sometimes those mistakes result in erroneous payments to (or on behalf of) plan participants. Not surprisingly, plan administrators and service providers may seek to recover those mistaken payments through litigation. However, there is conflicting case law regarding the types of claims that can be brought to accomplish that goal. The recent court decisions discussed below illustrate some of the challenges facing parties who file suit to recover mistaken plan payments.
While some courts have permitted the use of state law to recover mistaken payments, others have held that state law causes of action are preempted by ERISA Section 514(a), which provides that (subject to exceptions not relevant here) ERISA supersedes all state laws that “relate to” a plan. For example, in ING Investment Plan Services, LLC v. Barrington, No. 09-cv-3788, 2010 WL 3385531 (N.D. Ill. Aug. 24, 2010), an administrative service provider for a pension plan miscalculated the lump sum value of a distribution due a participant, resulting in an overpayment of more than $143,000. After reimbursing the plan for the overpayment, the service provider sued the participant in federal district court, asserting state law claims of quantum meruit and money had and received. The participant moved to dismiss the complaint, arguing that these state law claims were preempted by ERISA. The district court agreed, holding that the state law causes of action were preempted because they implicated the relationship between two “principal ERISA entities,” the plan and the participant. The court also noted that adjudicating the service provider’s claims would necessarily require consulting the plan’s terms. However, the court granted the service provider leave to amend the complaint to add claims under ERISA.
The ability to bring a claim to recover plan overpayments under ERISA will depend on the specific facts of the case and the court’s view of the scope of the remedies available under the statute. The relevant statutory provision is ERISA Section 502(a)(3), which authorizes (among other claims) actions by plan fiduciaries for “appropriate equitable relief” to enforce plan terms. In Great West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), the Supreme Court indicated that a restitution action to recover a plan payment will be considered to be a claim for “equitable” relief within the meaning of ERISA Section 502(a)(3) only if it seeks recovery of a specific fund held by the defendant and traceable to payments made by the plan. However, in Sereboff v. Mid-Atlantic Medical Services, Inc., 527 U.S. 356 (2006), the court determined that a claim for recovery of a plan could be “equitable” for Section 502(a)(3) purposes – even if it was not a claim against assets specifically traceable to the plan payment – so long as the claim was based upon an “equitable lien by contract.” In Sereboff, the court held that such an equitable lien arose from provisions of a medical plan requiring a participant who had received plan benefits to reimburse the plan if he received payments from a third party (e.g., recovery from a tortfeasor with regard to an accident which resulted in the medical services for which the plan paid).
The lower courts have had to apply the lines drawn by Great West and Sereboff to varying fact patterns in cases seeking recovery of plan payments. For example, in Cusson v. Liberty Life Assurance Co. of Boston, 592 F.3d 215 (1st Cir. 2010), a participant in a long-term disability (LTD) program received a retroactive, lump-sum Social Security disability award that, under the plan terms, constituted an offset against plan payments he had already received. In an action filed in federal district court, the disability insurer relied on ERISA Section 502(a)(3) in seeking recovery of the amount of the previous plan payments subject to the retroactive offset.1 The participant, relying on Great West, argued that the insurer’s claim was not for “equitable” relief, within the meaning of Section 502(a)(3), because it did not seek recovery from a specific, identifiable fund. The district court rejected this argument and the First Circuit affirmed, holding that the case was controlled instead by Sereboff. The Cusson court decided that the relevant language of the LTD plan was sufficient to grant the insurer an equitable lien by contract in the amounts paid to the participant which should have been offset by the Social Security disability award.
Other claims for recovery of plan payments have been denied by courts – even where plan language granted the plan a right to recover – because, in the court’s view, the action fell outside the scope of Section 502(a)(3). For example, in Kolbe & Kolbe Health and Welfare Benefit Plan v. Medical College of Wisconsin, Inc., 09-cv-205, 2009 WL 3245108 (W.D. Wisc. Oct. 6, 2009), a medical plan sought recovery of $1.6 million it had paid to a hospital for services provided to a child. After it had made the payments, the plan determined the child was not eligible for coverage under the plan. The plan sued the hospital in federal district court under Section 502(a)(3), relying on Sereboff, and asserting that the plan language gave it the right to recover any payments made in error. The court, however, held that the plan language could not constitute a basis for an “equitable lien by contract” claim against the hospital, because the hospital was not a party to the relevant contract – i.e., the plan.
As illustrated by these cases, plan administrators and service providers seeking to recover mistaken plan payments must review closely the specific facts and circumstances to determine the proper basis for their claims.