LIENS

Montanile v. Board of Trustees of National Elevator, 577 U.S. ____ (2016)

In the post McCutchen world wherein trial attorneys find themselves at the mercy of ERISA Plans, it was with a measure of dread that we anticipated another unfavorable ruling from the U.S. Supreme Court in Montanile. (See previous blog post). However, Justice Clarence Thomas who delivers the opinion in Montanile deals a serious blow to ERISA Plans and their overreaching recovery efforts against personal injury victims. In Montanile, the Court found that should the plaintiff fully exhaust the settlement funds so that they are no longer in the possession and control of the plaintiff, then the ERISA Plan cannot make a claim against the plaintiff since the subject of their claim, the settlement fund, is fully dissipated.

“We hold that, when a participant dissipates the whole settlement on nontraceable items, the fiduciary cannot bring a suit to attach the participant’s general assets under §502(a)(3) because the suit is not one for ‘appropriate equitable relief’.”
Id. at pg 2.

The facts of this case are tragic and typical of the kind of situation most plaintiff attorneys often find themselves dealing with in their cases. Mr. Montanile was severely injured when a drunk driver collided with his vehicle. Mr. Montanile incurred substantial medical bills, of which his ERISA Plan paid $121,044.02. During the course of litigation, Mr. Montanile executed an additional agreement reaffirming the reimbursement language contained in his ERISA Plan’s contract. Eventually the personal injury action was settled for $500,000 from all sources, including Mr. Montanile’s UIM coverage. After attorney fees and costs, Mr. Montanile was to net $240,000.00. Trial counsel began negotiations with the ERISA Plan but was unable to reach an agreement. Trial counsel then notified the ERISA Plan in writing that he would disburse the remainder of the funds to Mr. Montanile unless the Plan objected within fourteen days. The Plan failed to respond and the funds were disbursed. Six months later, the ERISA Plan filed suit in federal district court against Mr. Montanile by which time Mr. Montanile contends the settlement funds were spent. The ERISA Plan asserted that despite Mr. Montanile spending all the settlement funds, they can still recover the amount of their claim from his general assets. Appropriately, Justice Thomas writing for the majority reaffirmed that ERISA requires “appropriate equitable relief” and a claim against Mr. Montanile’s general assets is not authorized.

This well-reasoned and well written opinion makes clear the requirements and limitations placed on an ERISA Plan’s recovery efforts. As we noted in our previous blog, the Court was concerned with the cost ERISA Plan’s might incur if their recovery efforts were limited to funds “in the possession and control” of the plaintiff. Justice Thomas addressed that squarely and accurately characterizing the ERISA recovery industry.

“More than a decade has passed since we decided Great-West, and plans have developed safeguards against participants’ and beneficiaries’ efforts to evade reimbursement obligations. Plans that cover medical expenses know how much medical care that participants and beneficiaries require, and have the incentive to investigate and track expensive claims. Plan provisions—like the ones here—obligate participants and beneficiaries to notify the plan of legal process against third parties and to give the plan a right of subrogation.

The Board protests that tracking and participating in legal proceedings is hard and costly, and that settlements are often shrouded in secrecy. The facts of this case undercut that argument. The Board had sufficient notice of Montanile’s settlement to have taken various steps to preserve those funds. Most notably, when negotiations broke down and Montanile’s lawyer expressed his intent to disburse the remaining settlement funds to Montanile unless the plan objected within 14 days, the Board could have—but did not—object. Moreover, the Board could have filed suit immediately, rather than waiting half a year.”
Id. at pg 14.

It is important to note, as the Court does repeatedly, that Mr. Montanile’s counsel kept the ERISA Plan informed, cooperated with signing additional agreements, gave fourteen (14) days’ notice and even gave them an opportunity to object before he disbursed the remaining settlement funds.

This opinion is likely to encourage quicker action by the ERISA Plan’s and their recovery vendors. Though the Court is clear in stating:

“[D]efendant dissipat[ion] [of] the entire fund on nontraceable items … eliminated the lien. Even though the defendant’s conduct was wrongful, the plaintiff could not attach the defendant’s general assets instead. Absent specific exceptions not relevant here, “where a person wrongfully dispose[d] of the property of another but the property cannot be traced into any product, the other . . . cannot enforce a constructive trust or lien upon any part of the wrongdoer’s property.” Restatement §215(1), at 866 (emphasis added); see also Great- West, 534 U. S., at 213–214 (citing Restatement §160).”
Id. at pg 9

ERISA Plan Administrators and recovery vendors will also note that the Court made it clear that had they taken more aggressive action, and sooner, then their recovery rights may have been preserved.

“The Board had an equitable lien by agreement that attached to Montanile’s settlement fund when he obtained title to that fund. And the nature of the Board’s underlying remedy would have been equitable had it immediately sued to enforce the lien against the settlement fund then in Montanile’s possession.”
Id. at pg 7

This opinion finally provides some guidance to the trial bar on how to address ERISA subrogation claims. Here the Court recognizes that a plaintiff who honors the contractual obligations of their ERISA Plan but is unable to reach a final resolution regarding their subrogation/repayment demand is not stuck in perpetual limbo following resolution of the underlying personal injury action. If trial counsel provides a reasonable opportunity for the Plan to enforce its recovery rights, here the Court found fourteen days to be reasonable, then exhausting that separately identifiable settlement fund on nontraceable items prevents the ERISA Plan from seeking a recovery.

The term “nontraceable” is only defined in this opinion as items “like food or travel” whereas “traceable” items are defined as “identifiable property like a car.” (Id. at pg 8). However, the court does make it clear that simply comingling the settlement funds with general assets is not to be considered exhausting the fund on “nontraceable” assets (Id. at pg 13). Unfortunately, this does not provide much guidance for plaintiff’s who use their settlement funds to purchase a structured settlement annuity, or place the entirety of the settlement in a Special Needs Trust/settlement trust. However, given the clear requirement that the settlement funds be in the “possession” and under the “control” of the plaintiff, there is a good argument that both monies used to purchase a structured settlement as well as funds placed in a Special Needs Trust are “nontraceable”. These arguments are bolstered by the following passages from Justice Thomas’ opinion:

“[A]ll types of equitable liens must be enforced against a specifically identified fund in the defendant’s possession. See 1 Dobbs §4.3(3), at 601, 603.”
Id. at pg 10.

And when the Court wrote:

“[E]quitable liens by agreement … depend on “the notion . . . that the contract creates some right or interest in or over specific property,” and are enforceable only if “the decree of the court can lay hold of ” that specific property. 4 Pomeroy §1234, at 694–695.
Id. at pg 8

In this case, the majority held that it was unable to determine from the record how much of the subject settlement funds were dissipated by Mr. Montanile prior to the Plan’s suit. The case was remanded to the trial court to determine

“whether Montanile kept his settlement fund separate from his general assets or dissipated the entire fund on nontraceable assets.”
Id. at pg 14

To avoid this confusion, trial counsel should have the plaintiff keep the settlement funds in a separate account so when it is fully exhausted there is no uncertainty for the ERISA Plan to color. Though this SCOTUS opinion is quite clear on many points, it does illustrate the complex nature and exacting steps that must be taken by trial counsel in seeking to resolve reimbursement demands from ERISA Plans. Trial counsel is encouraged to seek the guidance of experts in the area of ERISA lien resolution so that their clients can take advantage of this encouraging clarification by the Court.

On November 9^th 2015 The Centers for Medicare & Medicaid Services (CMS) announced the much anticipated, and long overdue, start date for the new Medicare Secondary Payer Recovery Portal (MSPRP).  The new MSPRP will begin functioning on January 1, 2016.  The current the MSP Web portal permits authorized users to register through the Web portal in order to access MSP conditional payment amounts electronically and update certain case-specific information online.

CMS is adding functionality to the existing MSP Web portal that will permit users to notify them when the specified case is approaching settlement, download or otherwise obtain time and date stamped Final Conditional Payment Summary forms and amounts before reaching settlement.  Additionally, the new MSP Web portal will ensure that relatedness disputes and any other discrepancies are addressed within eleven (11) business days of receipt of dispute documentation.

The process is rather straight forward and will address many of the issues that have plagued the plaintiff’s bar in attempting to settle a personal injury action without any certainty of the repayment amount due Medicare.  The process will begin when the beneficiary, their attorney or other representative (SLRS) provides the required notice of pending liability insurance settlement to the appropriate Medicare contractor at least one hundred eighty five (185) days before the anticipated date of settlement.

If the beneficiary, their attorney or other representative (SLRS), believes that claims included in the most up-to-date Conditional Payment Summary form are unrelated to the pending liability insurance “settlement”, they may address discrepancies through a dispute process available through the MSP Web portal.  This dispute may be made once and only once.  Following the dispute CMS has only eleven (11) business days to resolve the dispute.

After disputes have been fully resolved, and a final claims refresh has been executed on the MSP Web portal, then a time and date stamped Final Conditional Payment Summary may be downloaded through the MSP Web portal. This form will constitute the Final Conditional Payment amount if settlement is reached within 3 days of the date on the Conditional Payment Summary.

The plaintiff attorney will complete the process by providing, within thirty (30) days settlement information to CMS via the MSP Web portal. This information will include, but is not limited to:

the date of “settlement”, the total “settlement” amount, the attorney fee amount or percentage, and additional costs borne by the beneficiary to obtain his or her “settlement”.  If this information is not provided within thirty (30) days the Final Conditional Payment amount obtained through the Web portal will expire.

In Humana Medical Plan, Inc. v. Western Heritage Insurance Co., No. 12-20123, 2015 U.S. Dist.  LEXIS 31875, the U.S. District Court for the Southern District of Florida granted Humana’s Motion for Summary Judgment and held that Humana’s right to reimbursement for the conditional payments it made on behalf of plan beneficiary under a Medicare Advantage Plan was enforceable and Humana was entitled to double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A). The 11^th Circuit will now have the opportunity to decide if this break from precedent is appropriate.

Under the MSP Act’s private cause of action, the Southern District of Florida found that Humana has a right to recover from Western Heritage the benefits it paid and is statutorily entitled to recover double damages. The Court concluded that after Western Heritage became aware of payments by the Humana Medicare Advantage Plan, it had an obligation to independently reimburse Humana.  The Court ruled that as a matter of law, Humana is entitled to maintain a private cause of action for double damages pursuant to 42 U.S.C. § 1395y(b)(3)(A) and was therefore, entitled to $38,310.82 in damages.

Western Heritage’s position is that the district court’s holding departed from the plain language of the Social Security Act giving a privately run Medicare Advantage Organizations (“MAOs”) a new cause of action for double damages against primary plans.   This holding is contrary to the decisions of several circuit courts and ignores the law’s carefully crafted scheme that permits MAOs to assert (state court) subrogation claims or otherwise bill providers or insurers for health care claims for which MAOs are “secondary,” but does not permit federal court claims, much less for double damages.

Western Heritage arguesthat there is a distinction between Medicare, which has a cause of action for double damages against parties who fail to reimburse conditional payments, and MAOs, who have no such cause of action.  This distinction is clearly reflected in the MAO statute, the Medicare Secondary Payer (MSP) Act, the SMART Act amendments to the MSP Act, and the implementing regulations promulgated by the Centers for Medicare and Medicaid Services (“CMS”).

The gist of this position is contained in the following four arguments.

• First, the secondary payor provisions that are specifically applicable to MAOs do not contain any direct cause of action by MAOs against primary payors, let alone an action for double damages.  (See, 42 U.S. § 1395w-22(a)(4)).   Had Congress intended to grant MAOs a right of action against primary payors, such right would have been included here.  However, the right simply does not exist in the MAO statute.

• Second, the provision of the MSP Act that does provide for a private right of action, on which the district court relies, makes no mention at all of MAOs. (Id. 1395y(b)(3)(A)).  Again, had Congress intended MAOs to have the right to sue, it could easily have included MAOs expressly in this provision, but did not.

• Third, it is also clear based on the mechanics of the overall MSP statutory and regulatory scheme that neither Congress nor CMS, in its implementation of the MSP Act, intended to grant MAOs a private right of action. Had Congress and CMS intended to bestow such a benefit on MAOs, either would have imposed upon MAOs the same disclosure obligations already imposed on CMS, without which, the MSP payment system does not work.  More specifically, CMS administers a program that permits settling parties to ascertain any potential reimbursement obligation following a settlement, judgment, award or other payment in which Medicare beneficiaries are involved.   However, no such program exists for MAOs.

• Fourth, under the newly enacted SMART Act amendments to the MSP Act, CMS is required to provide claims and repayment information to primary payors during settlement discussions so that they can account for Medicare reimbursement in their settlements with beneficiaries. In other words, the statute and regulations provide a mechanism to mitigate the possibility that a primary plan will be sued by Medicare for double damages as a result of entering into a settlement with a Medicare beneficiary.  However, neither Congress (in the statute) nor CMS (in regulation or guidance), imposed similar requirements on MAOs, or comparable protections for primary payors considering settling beneficiaries’ claims, clearly signaling that they did not intend a right of action in favor of MAOs.  With rights come obligations — given that Medicare has the right to sue primary payors for conditional payments, so Medicare has the obligation to inform primary payors of the claims and repayment information at and following settlement.   That MAOs have no such obligation further bolsters the conclusion that they have no right to anything more than a subrogation claim.

The district court’s decision permitting a cause of action by MAOs against primary payors, in addition to being incorrect as a matter of law, creates a severe impediment to settlement.  As the present case illustrates, primary plans are unable to ascertain whether the party with whom they are negotiating is an MAO plan member and to what extent payment was made to the plan member by the secondary payor, a private MAO.   As a result, if the underlying decision stands, primary plans will need to think twice before settling claims and thereby risking a double damages cause of action; even if, like Western Heritage here, they acted in the utmost good faith to learn of any reimbursement obligation. This impediment to settlement runs counter to the longstanding objectives of judicial economy and stands to harm Medicare beneficiaries, primary payors and the Medicare Advantage (“MAO”) plans, whose cases will now be more likely to proceed through trial.