LIENS

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. The United States District Court for the District of Arizona issued an order in Blood Systems, Inc. v. Roesler, et. al. which both time barred the subrogation/reimbursement claim and awarded attorney’s fees against the ERISA plan. This case revolves around the approximately $50,000 in medical benefits paid by the plaintiff’s self-funded ERISA qualified health plan arising from a serious motorcycle accident.

The plaintiff hired counsel and was eventually able to recover a policy limit settlement in the amount of $100,000. The self-funded ERISA plan filed suit against the plan participant and her attorneys seeking to recover the full amount of the medical benefits provided by the plan. The attorneys sought summary judgment and the court agreed finding that the self-funded ERISA plan can only look to the plan participant for repayment. Following that, the attorneys petitioned the Court to award attorney’s fees and costs associated with defending the claim asserted against them by the self-funded ERISA plan.

Along with the motion for attorney’s fees raised by plaintiff’s counsel, a statute of limitations defense was raised by the plaintiff himself against the subrogation/reimbursement claim being asserted by the ERISA plan. It is important to this argument that:

“ERISA itself does not contain a statute of limitations applicable to Plaintiffs’ claims. Therefore, the Court must borrow ‘the most analogous state statute of imitations.’  Wetzel v. Lou Ehlers Cadillac Group Long Term Disability Insurance, 222 F.3d 643, 646 (9th Cir. 2000). When borrowing a state statute of limitations, the task is to apply ‘the local time limitation most analogous to the case at hand.’ Lampf v. Gilberston, 501 U.S. 350, 355 (1991) (emphasis added).” Blood Systems, Inc. v. Roesler, et. al.

As ERISA is a federal law dealing with employer sponsored group welfare benefit plans, there is no perfectly analogous state level statute of limitations. However, the Court in this case well expresses the rule that is applied and the inability of the federal court to interpret a state statute of limitations.

“In other words, the issue is not which state statute of limitations is a “perfect” fit for the federal claim, but which statute of limitations is the 29 U.S.C. § 1002(1) (providing definition for ERISA-governed plans) closest fit. DelCostello v. Int’l Brotherhood of Teamsters, 462 U.S. 151, 171 (1983). And when picking the closest fit, a federal court must ‘accept[ ] the state’s interpretation of its own statutes of limitations.’  Barajas v. Bermudez, 43 F.3d 1251, 1258 (9th Cir. 1994) (quotation and citation omitted).”  Blood Systems, Inc. v. Roesler, et. al.

Typically courts have found that the most analogous state statute of limitations is one that controls written contacts.  (Barajas v. Bermudez, 43 F.3d 1251, 1258 (9th Cir. 1994); Blue Cross & Blue Shield of Alabama v. Sanders, 138 F.3d 1347, 1357 (11th Cir. 1998) ).  In this Arizona case there was choice of which limitations statute to use – either the six year statute that governs general written contracts, or the one year statute that controls certain employment disputes. (See, A.R.S. § 12-548, A.R.S. § 12-541).

For the Court the question was “whether an ERISA plan should be viewed as an ‘employment contract’”.  (Blood Systems, Inc. v. Roesler, et. al.).  Here the Court found that:

“Under the parties’ contract, Blood Systems agreed to provide Pauline Roesler additional compensation in the form of paying for medical care in return for Pauline Roesler’s  continued  employment.  Accordingly, … claims regarding benefits under an ERISA plan qualifies as claims under an “employment contract.”  Blood Systems, Inc. v. Roesler, et. al. 

In deciding to apply the one  year statute of limitations contained in A.R.S. § 12-541 the Court looked to the rationale of the Eight Circuit in Adamson v. Armco, Inc., 44 F.3d 650 (8th Cir. 1995).  In that case, the Eight Circuit “applied the two-year period to ‘all damages arising out of the employment relationship[]’”.  This court also looked to the Third Circuit who decided in Syed v. Hercules Inc., 214 F.3d 155 (3d Cir. 2000) that the appropriate statute of limitations was the one year statute.  In that case the Delaware one year statute of limitations controlled “claim[s] of wages, salary, or overtime for work, labor or personal services performed, . . . or for any other benefits arising from such work, labor or personal services performed.” (Blood Systems, Inc. v. Roesler, et. al.).

Though this is certainly very good news for the plaintiff it should be noted, as with other aspects of ERISA subrogation, plan language controls.  The District Court for Arizona expresses this principle clearly, and relies on previous Ninth Circuit holdings which state “[I]f [the self-funded ERISA plan] believe a one-year limitations period is too short, they likely can contract around it.” Wang Laboratories, Inc. v. Kagan, 990 F.2d 1126 (9th Cir. 1993) (enforcing choice of law provision in ERISA plan resulting in longer statute of limitations).

Having found that the self-funded ERISA plan’s claim for subrogation/reimbursement was time barred, the court moved onto an analysis of whether or not plaintiff’s counsel was entitled to an award of attorney’s fees. 

“ERISA authorizes an award of attorney’s fees to a party who achieves ‘some degree of success on the merits.’  Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149, 2158 (2010). Once a party achieves some success, the court should not ‘favor one side or the other’ when deciding whether to award attorneys’ fees. Estate of Shockley v. Alyeska Pipeline Service Co., 130 F.3d 403, 408 (9^th Cir. 1997).” Blood Systems, Inc. v. Roesler, et. al.

The Court employed a five part test to determine whether an award of fees is appropriate:

“1. [T]he degree of Plaintiffs’ culpability or bad faith,

  2. Plaintiffs’ ability to satisfy an award of fees,

  3. [W]hether an award of fees would deter others from acting in similar           

      circumstances,

  4. [W]hether [the attorneys] sought to benefit all participants and beneficiaries of an   

      ERISA plan or to resolve a significant legal question regarding ERISA, and

  5. [T]he relative merits of the parties’ positions.”

Cline v. Industrial Maintenance Engineering & Contracting Co., 200 F.3d 1223, 1235 (9^th Cir. 2000) (quoting Hummell v. S.E. Rykoff & Co., 634 F.2d 446, 453 (9th Cir. 1980)); Blood Systems, Inc. v. Roesler, et. al.)

In performing this analysis the court is cognizant that “no single . . . factor is necessarily decisive.”  Simonia v.Glendale Nissan/Infiniti Disability Plan, 608 F.3d 1118, 1122 (9th Cir. 2010). 

In this case the District Court for Arizona found that the subrogation/reimbursement claim of the self-funded ERISA plan could have been completely satisfied from the settlement proceeds disbursed to the plaintiff, yet despite this, the ERISA plan included counsel in the repayment demand which indicated a level of culpable conduct.  This along with the fact that awarding attorney’s fees would discourage this kind of behavior in the future, and the lack of merit to the ERISA plan’s claim against plaintiff’s counsel convinced the Court to award $30,700 in fees and $600.42 in costs.

This case, as well as the cases cited by this court, provides a sound basis for the wise plaintiff’s attorney to argue for a shortened statute of limitations period. Additionally, there are a myriad of cases which stand for the proposition that plaintiff’s counsel is not personally liable for repayment to the self-funded ERISA plan. If the ERISA plan or their recovery agent takes an aggressive and meritless approach as was employed here, remind them that they may become subject to a significant claim for attorney’s fees and costs.

Contact Synergy today to learn more about our lien resolution services.

By: Synergy’s Director of Lien Resolution

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans. As every plaintiff’s attorney knows, the rights of self-funded ERISA qualified plans are daunting. The strength of their recovery right arises from their ability to preempt state law and enforce the terms of the plan document. ERISA’s preemption clause states that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan….” (29 U.S.C. § 1144(a)).

The Northern District of Mississippi in the Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13) performs an in-depth analysis of the application of ERISA preemption to situations where a probate court has been empowered to oversee the settlement of a minor’s personal injury claim.  In this case, the minor’s parents were appointed guardians and eventually were able to settle the personal injury action for policy limits. They then petitioned the chancery court to approve the settlement adjudicating the alleged subrogation/reimbursement claim of the self-funded ERISA plan that had paid the minor’s medical bills. 

The self-funded ERISA plan moved the matter to federal court where it examined both procedural issues and the application of ERISA preemption over the chancery court’s adjudication of the minor’s issues. 

To determine whether a claim is preempted by ERISA, the Fifth Circuit has directed application of a two-prong test, which asks: “(1) whether the claim addresses areas of exclusive federal concern and not of traditional state authority, such as the right to receive benefits under the terms of an ERISA plan, and (2) whether the claim directly affects the relationship among traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries.”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13) (quoting Hobson v. Robinson, 75 F. App’x 949, 953, (5th Cir.2003)).

In the case of minors:

“Mississippi Code Section 93–13–59 grants authority to guardians “empowered by the Court” to compromise claims of minors. The Mississippi Constitution further gives full jurisdiction of minor’s business to the chancery courts of the State. See MISS.CODE art. 6, § 159(d).”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

In support of their position that despite 29 U.S.C. 1144(a), the chancery court retained the authority to oversee settlements involving minors. They cited previous Northern District of Mississippi cases.  In those cases “the court has affirmatively held that ERISA does not preempt Mississippi law requiring chancery court approval of minor’s settlements. (See, Clardy v. ATS, Inc. Employee Welfare Benefit Plan, 921 F.Supp. 394 (N.D.Miss.1996); Bauhaus USA, Inc. v. Copeland, 2001 WL 1524373 (N.D.Miss. Mar. 9, 2001); Estate of Ashmore v. Healthcare Recoveries, Inc., 1998 WL 211778 (N.D.Miss. Mar. 25, 1998).

“In Clardy the Court examined ERISA’s broad preemption clause, as well as United States Supreme Court precedence, and held that ‘Mississippi law requiring a Chancellor’s approval before a parent may contract away a minor’s legal rights is not preempted by ERISA in this case.’  Id. at 397–99, 401. The Court found that the area of domestic relations was an area traditionally governed by state law, and preemption of state laws concerning domestic relations was uncommon, even under ERISA. Id. at 398.”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

The Northern District of Mississippi continued to rely on the rationale of their previous decision in Clardy quoting that:

“’[t]he administration of a minor’s estate is entirely a matter of state law, and is law of general application which affects a broad range of matters entirely unrelated to ERISA plans….’ [Clardy] at 399. Therefore, the statute is but a ‘state law of general application which has only an incidental effect upon an ERISA plan.” 

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

Even in the face of specific plan language providing for a contractual right of subrogation, the court continued to stand by its previous rulings that chancery court approval of a minor’s settlement was not subject to ERISA preemption.

“[I]n Estate of Ashmore v. Healthcare Recoveries, Inc., 1998 WL 211778 (N.D. Mar. 25, 1998). , the court further opined that ‘[e]ven if the parties’ ERISA plan contained an express subrogation clause, Mississippi law requiring prior chancery court approval of assignment of a minor’s rights to insurance proceeds would not be preempted by ERISA.’ Id. (citing Methodist Hosp. of Memphis v. Marsh, 518 So.2d 1227, 1228 (Miss.1988)(written agreement executed by minor’s mother not enforceable without prior chancery court approval); Clardy, 921 F.Supp. at 399 (domestic relations are traditionally matters of state law)”

Matter of O.D. v. Ashley Healthcare Plan, 2013 WL 5430458 (9/27/13).

It is clear from this string of rulings that the courts, empowered to oversee settlement of minors’ claims, retain their authority even when faced with attempts by self-funded ERISA plans to overcome them with preemption. It is not uncommon for the plaintiff’s attorney, who is often responsible for protecting the rights of minors and those under incapacity, to seek authority from a chancery or probate court to settle personal injury action. The wise plaintiff’s counsel should petition this court to adjudicate the recovery rights of the self-funded ERISA plan. This case, as well as its predecessors, provide compelling arguments supporting that court’s overarching authority and ability to determine if, and how much an ERISA plan should be repaid.

– See more at: file:///Volumes/Design/Source%20Files/Synergy%20Settlement%20Services/Website%20Development/Site%20Backup%20Feb%202015/www.synergysettlements.com/blog/14238/index.html#sthash.dHShUEXB.dpuf

On March 17, 2014 the trial court in the infamous U.S. Airways v McCutchen entered an order allowing Mr. McCutchen to amend his answer to include affirmative defenses and a counter-claim.  The court allowed this unusually late amendment to pleadings as result of U.S. Airways’s failure to produce the Master Plan Document (MPD) until just before oral arguments at the U.S. Supreme Court. 

“[T]he Court [was] troubled by US Airways’ untimely production of the Plan documents and its disingenuous contention that Defendants failed to request the Plan document”

This is an example of how making a proper 29 U.S.C 1024(b)(4) request could have made a monumental difference. In this  seminal case, the plaintiff’s failed to properly and timely make their document request under 29 U.S.C. 1024(b)(4).  This failure allowed the ERISA plan to, at least temporarily, avoid producing the unfavorable Master Plan Document (MPD).  Just as in Cigna v. Amara, 131 S. Ct. 1866 (U.S. 2011), the benefits enumerated in the Summary Plan Description (SPD) were strikingly different from the plan participants benefits as defined in the MPD. 

In the McCutchen case the only recovery for the injured plaintiff was $10,000 from the tortfeasors Bodily Injury (BI) coverage and $100,000 from Mr. McCutchen’s own Under Insured Motorist (UIM) coverage.  After appeals to the 3^rd Circuit and the U.S. Supreme Court, Mr. McCutchen was required to repay the U.S. Airways ERISA plan over $66,866. This resulted in (after attorney fees and costs) Mr. McCutchen being $867.00 out of pocket.  What is significant is that the MPD in this instance does not allow for U.S. Airways to make a recovery from the UIM coverage, meaning that they should have only been able to look to the $10,000 in BI as a repayment source. 

Had Mr. McCutchen’s attorneys made a proper 29 U.S.C. 1024(b)(4) request this would have been discovered immediately and it is likely that U.S. Airways would have agreed with their own plan language avoiding the Supreme Court’s unfavorable decision.  ERISA plans are only able to enforce “the terms of the plan” (29 U.S. Code § 1132) and thus it is incumbent upon the plaintiff’s attorney to obtain the “terms of the plan.” 

This action by the trial court hopefully will result in Mr. McCutchen being able to retain at least some portion of the settlement proceeds.  However, the bad law of U.S. Airways v. McCutchen, 569 U.S. (2013) remains as a result of the failure to demand what every ERISA plan participant is allowed to review and every ERISA plan is required to produce. 

Unfortunately, as part of the budget signed by President Obama on the 26^th of December (Merry Xmas), a legislative fix for Ahlborn was made law.  Now, Medicaid liens are like Medicare liens in the sense that they are super liens.  Medicaid will be able to assert its lien against the entirety of the settlement instead of the portion attributable to past medical expenses.  The new provisions go into effect on 10/1/14.  The pertinent sections are found below.

– – – – – – – – – – – – – –

[From the Act as passed] 

SEC. 202. STRENGTHENING MEDICAID THIRD-PARTY LIABILITY.

…

(b) RECOVERY OF MEDICAID EXPENDITURES FROM  BENEFICIARY LIABILITY SETTLEMENTS.–

(1) STATE PLAN REQUIREMENTS.–Section 2 1902(a)(25) of the Social Security Act (42 U.S.C. 3 1396a(a)(25)) is amended–

(A) in subparagraph (B), by striking ”to the extent of such legal liability”; and

(B) in subparagraph (H), by striking ”payment by any other party for such health care items or services” and inserting ”any payments by such third party”.

(2) ASSIGNMENT OF RIGHTS OF PAYMENT.–Section 1912(a)(1)(A) of such Act (42 U.S.C.  1396k(a)(1)(A)) is amended by striking ”payment for  medical care from any third party” and inserting  ”any payment from a third party that has a legal liability to pay for care and services available under the plan”.

(3) LIENS.–Section 1917(a)(1)(A) of such Act (42 U.S.C. 1396p(a)(1)(A)) is amended to read as follows:

 ”(A) pursuant to–

”(i) the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or

”(ii) rights acquired by or assigned to the State in accordance with section 1902(a)(25)(H) or section 1912(a)(1)(A), or”.

 (c) EFFECTIVE DATE.–The amendments made by this section shall take effect on October 1, 2014.

In a message to its membership, the American Association for Justice had the following to say:

“The Bipartisan Budget Act (BBA) which was just approved by Congress and signed into law contains language damaging to plaintiffs covered by Medicaid … The provision in the new law overturns a unanimous 2006 United States Supreme Court decision in United States vs. Ahlborn. In Ahlborn, the Court ruled that only the portion of the settlement that represented payment for medical expenses could be claimed by the state Medicaid agency. The BBA allows a state to claim ALL of a settlement or judgment. The BBA also counters a 2013 Supreme Court decision (Wos vs. E.M.A.) that rejected (6-3) North Carolina’s lien on Medicaid claimants’ tort recoveries. We expect the result of the new law to be that plaintiffs who are Medicaid recipients will recover less and in many cases will be unable to pursue claims at all because any recovery would have to be reimbursed to Medicaid. … This provision was added because it was deemed to raise revenue by Congressional Budget Office economists, despite the fact that the provision will have the opposite effect.”

The end result of this legislation will be a chilling effect of suits brought on behalf of Medicaid recipients.  It also is fundamentally unfair given the realities of what is many times a limited recovery on behalf of the injury victim which is now ignored with this change.  Medicaid liens now become very similar to Medicare liens in terms of disregarding equity concerns. 

By Synergy’s Director of Lien Resolution Services

In the wake of the disastrous holding in U.S. Airways v. McCutchen, 569 U. S.        (2013) plaintiffs and their attorneys are crying out for an end to the Draconian tyranny of self-funded ERISA plans’ subrogation practices.  As you may recall, Mr. McCutchen was severely injured, incurring nearly $67,000.00 in medical damages, in a motor vehicle accident that killed or seriously injured three (3) other people.  Mr. McCutchen was able to recover $10,000.00 from the tortfeasor’s Bodily Injury coverage and another $100,000.00 from his own Under Insured Motorist coverage.  Despite this six figure recovery, Mr. McCutchen was $867.00 worse off from having brought a claim due to paying attorney fees, litigation costs, and repaying the U.S. Airways self-funded ERISA plan.   In light of this reality, the question being raised by so many is “will the Patient Protection and Affordable Care Act (“PPACA”) bring any relief?”

It may be that the “PPACA”, also often referred to as “Obamacare”, will end the ability of self-funded plans to call equity “beside the point”.  This was the phrase used by the U.S. Supreme Court in Sereboff v. Mid Atlantic Medical Services, Inc., 547 U. S. 356 and reiterated in U.S. Airways v. McCutchen when discussing the impact of “equity” on the express terms of a self-funded ERISA plan’s contract for health benefits.   That possibility has the insurance industry very concerned given the importance of self-funded insurance “products” to their bottom line.  According to report by Loyola University Professor John D. Blum 55% of all workers, 73 million, are in self-funded ERISA plans.  Moreover, he has found that 89% of employers with 5000 or more employees use self-funded ERISA plans.  The insurance industry fears that the “PPACA” may live up to its name and actually “protect” patients from the inequitable actions of the ERISA recovery vendor.

The fear of the insurance industry could have a basis in reality.  The Self-Insurance Institute of America (“SIIA”) has estimated that a migration from self-funded plans to the new federal and state exchanges under “PPACA” might be as high as 48%.  Professor Blum notes that this will make the self-funded pool much smaller and thus make those plans more costly.  Cost savings, and reduced premiums have been key marketing points for the insurance industry as they purvey their self-funded products.  In fact, in a letter to Congressman Henry Waxman the self-funded insurance lobby stated that “[r]ecoveries from subrogation and reimbursement reduce health plan costs and allow employer health plans to provide more benefits at a lower cost to their employees.” This letter was sent at a time when the House of Representatives was considering the America’s Affordable Health Choices Act of 2009 and specifically an amendment that expressly applied the “made whole” doctrine.  The “made whole” doctrine is an equitable axiom that the injured party must be “fully compensated” for his/her damages before any collateral source can assert a claim for subrogation/reimbursement.  The insurance lobby would rather that this common sense principle of fairness remain “beside the point.”

The possibility that their might be a way out for the plaintiff who formerly had group health insurance provided as a participant in his/her employer’s self-funded ERISA plan has the recovery vendors nervous as well.  As every experienced plaintiff’s attorney knows there is an entire industry that has emerged over the past quarter of a century to enforce the subrogation/reimbursement rights of self-funded ERISA plans.  These recovery vendors; such as Rawlings, HRI, Ingenix, and ACS participate in conferences, seminars and continuing education with their “in-house” colleagues to stay current on the developing trends in this specialized area of practice.  At its annual conference in November 2012 the National Association of Subrogation Professionals (“NASP”) had a presentation entitled “Will Obamacare and National Insurance Exchange Spell the End of ERISA Remedies?”.  This topic was of such a salient concern that it was Daran Kiefer, the “NASP” President, who delivered the presentation.

With just months left until “PPACA” begins opening exchanges it is still unclear what impact these exchanges will have on ERISA subrogation/reimbursement rights.  In the early stages of healthcare reform negotiations this issue was raised by two Democrats – Rep. John Barrow of Georgia and Rep. Bruce Braley of Iowa who introduced the Barrow/Braley Subrogation Amendment to HR 3200 America’s Affordable Health Choices Act of 2009.  As I explained above this amendment was immediately met with strong resistance from the insurance lobby.  The proposed amendment allowed for the application of both “made whole” and “common fund” to all Qualified Health Benefit Plans (“QHBP”):

“With respect to any qualified health benefits plan requiring an enrollee to reimburse the QHBP offering entity (health plan) for any amount recovered from any source relating to a personal injury or similar type of claim, subrogation or reimbursement is permitted only if the enrollee has been fully compensated for all damages arising out of such claim. Any plan provision to the contrary is not enforceable. Insofar as subrogation or reimbursement of benefits is permitted, the subrogation or reimbursement amount shall not exceed the amount allocated to the categories of damages for those benefits in the settlement or judgment, less a pro rata share of any fees and expenses incurred in securing the settlement or judgment.”

Despite the efforts of some, including the support of the American Association for Justice, the “PPACA” has no provision that deals with these rights. In the end neither this language, nor any language dealing with subrogation/reimbursement rights, was included in the final bill that became “Obamacare”.

In discussing this issue with some of the leading minds on ERISA subrogation/reimbursement the consensus seems clear, nobody knows what impact the “PPACA” will have in this area.  Professor Baron of South Dakota University School of Law is often on the forefront of developing ERISA issues and maintains a close circle of ERISA experts.  Professor Baron informs us that he too has heard similar conclusions from his cadre of ERISA gurus.  Despite this lack of guidance a few things are clear; the insurance industry is nervous, and just about anything would be an improvement over the 100% repayment standard of U.S. Airways v. McCutchen and its “beside the point” view of equity.

For help with resolving complicated lien issues, turn to Synergy.  Visit our lien resolution unit’s site at www.synergylienres.com  Try out our unique approach to resolving liens.