ERISA (7th Cir.): Beneficiary and Attorney Who Ignore Subrogation Lien for Medical Bills Paid by ERISA Plan “Better Call Saul”

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You have seen this one before:  The ERISA plan pays hundreds of thousands of dollars in medical bills and secures an equitable lien.  Then, the ERISA plan beneficiary settles a tort claim, but refuses to reimburse the ERISA plan.

The beneficiary and her attorney both claim the funds have “dissipated.”  Does that argument trump the equitable lien?  

NO. The beneficiary and her attorney “better call Saul” (see Breaking Bad TV series) because jail time might be an option.

Here’s the remarkable case of Central States SE and SE Areas Health Welfare Fund and Bunte v. Lewis and Lashgari, __ F.3d __ (7th Cir. March 12, 2014)(PDF).

FACTS: Lewis was injured in an auto accident. Her ERISA-governed health plan paid $180,000 in medical expenses. Lewis later secured a $500,000 settlement from the tort suit brought by her attorney, Lashgari.  Lashgari also knew the ERISA plan had a subrogation lien against the proceeds of the settlement. But Lashgari refused to reimburse the plan claiming, among other things, that the settlement funds had dissipated. The Plan sued Lewis and Lashgari under ERISA 29 U.S.C. 1132(a)(3) to enforce the lien.

7th CIRCUIT HELD:

  1. The plan was not required to trace settlement proceeds. The equitable lien automatically gave rise to a constructive trust of the defendants’ assets.  Op. at 3.
  2. The district court issued an injunction against Lewis from disposing settlement proceeds until the plan received $180,000.
  3. Lewis claimed she couldn’t pay $180,000 because she spent the entire share of the settlement proceeds on a new house and a car. This argument is not a complete defense unless Lewis could not pay “any part of the $180,000.”  Op. at 3.
  4. The attorney for Lewis received 60% of the settlement–$298,000.  He claimed the money he received had been spent, too.
  5. Lewis and her attorney willfully ignored the plan’s lien.  “Even if [Lewis] spent every last cent of the settlement proceeds that she received, it does not follow that she is assetless—presumably she has the vehicle and the house.” Op. at 6.
  6. Lewis and her attorney “may think that a mere assertion of inability to pay…precludes a finding of contempt.  Not so.” Op. at 7. (Emph. added).
  7. The court “direct[s] the district court to determine whether the defendants should be jailed (a standard remedy for civil contempt…) until they comply with the order to deposit the settlement proceeds in a trust account.”  Op. at 9.

Topics:  Beneficiaries, ERISA, Liens, Subrogation

Published In: Civil Remedies Updates, Health Updates, Labor & Employment Updates, Personal Injury Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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