LIENS

By Vice President & Director of Lien Resolution

The uncertainty that exists regarding a self-funded ERISA plan’s ability to refuse reduction of their claim based upon equitable principles can be used to increase your client’s net recovery.   A gray area was created in ERSIA healthcare subrogation and reimbursement rights by the 11^th Circuit’s April 2010 ruling in Zurich American Insurance Co. v. O’Hara.  This opinion stated that with proper language an ERISA qualified health plan could avoid the “common fund” doctrine.  (See also, Admin. Comm. of Wal–Mart Stores, Inc. Associates’ Health & Welfare Plan v. Shank, 500 F.3d 834 (8th Cir.2007); Administrative Committee of Wal–Mart Stores, Inc. Assocs.’ Health & Welfare Plan v. Varco, 338 F.3d 680 (7th Cir.2003);  Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir.2003).  Normally this doctrine would require the plan to reduce their recovery to reflect the attorney fees that were incurred to create the “common fund” from which both the plaintiff and the self-funded ERSIA plan recover their monies.  For example if the injured plaintiff must pay a 33.3% contingency fee to his attorney for his efforts in obtaining the settlement or award, then the self-funded ERISA plan’s recovery should also be reduced by this percentage.

The gray area surfaced four months after Zurich American Insurance Co. v. O’Hara when the 3^rd Circuit ruled in U.S. Airways v. McCutchen that despite plan language to the contrary “US Airways’ claim for reimbursement under § 502(a)(3) of ERISA is subject to equitable limitations”.  This gray area intensified in late June 2012 when the 9^th Circuit weighed in on the side of the 3rd Circuit and ruled in  CGI Technolgies v. Rose  that a Court in Equity cannot have its powers limited by contract.  Therefore CGI Technologies’ attempt to have Ms. Rose contract away the equitable principles of “common fund” and “made whole” was not permissible.  At this point the gray area deepened into a full split in the Circuits and on the following Monday the U.S. Supreme Court granted a writ of certiorari in U.S. Airways v. McCutchen.

Now that this question about the superiority of plan language over equitable principles is before the Supreme Court, it is the perfect time to turn this gray area of case law into green for your injured client.  Before the week wherein CGI Technolgies v. Rose was decided and U.S. Airways v. McCutchen was granted certiorari, the recovery vendors for the self-funded ERISA groups thought themselves immune to equitable defenses.  They would direct any plaintiffs’ counsel or plan participant to the 5^th, 7^th, 8^th and 11^th Circuits when asked for reduction based upon “common fund” or “made whole”.  Those same vendors and recovery agents would counter the power of the 3^rd Circuit’s ruling in U.S. Airways v. McCutchen by saying that was only law in one Circuit.   Things have changed and so should the plaintiff lawyer’s negotiation tactics.

When attempting to obtain a reduction for your client be sure to raise the fact that Supreme Court is considering overriding express plan language with traditional equitable principles.  The self-funded groups and their recovery vendors are well aware that U.S. Airways v. McCutchen has been granted certiorari and that the influential 9^th Circuit has articulated support for this position in CGI Technolgies v. Rose.  Though they are aware of the status of these cases, they are more keenly aware that time may be running out for their practice of recovering 100% of their claim without regard to equity.  It is essential that a plaintiff‘s attorney place the self-funded ERISA plan or its agent on notice that they are also aware of this potential for significant shift in the power paradigm.

Plaintiff’s counsel should articulate that any demand by the self-funded ERISA qualified health plan for a 100% repayment without regard to equitable principles, especially “common fund” is a gamble.  It is key for the plaintiff’s attorney to remember that neither the self-funded ERISA group nor their recovery vendor has a business model based upon litigation.  The ERISA subrogation and reimbursement recovery business model is dependent on negotiation and compromise.  You should stress the time value of money to the ERISA group or its agent.  A two-thirds repayment today is better than a two-thirds repayment next summer.  This old concept is strengthened by the argument that by next summer it may very well be the law that the maximum a self-funded ERISA plan would be entitled to is less than two-thirds.

Uncertainty in how the U.S. Supreme Court will decide U.S. Airways v. McCutchen has created insecurity on the part of self-funded ERISA plans already.  The plaintiffs’ bar needs to leverage this uncertainty and insecurity into large reductions for their injured clients.

Reprinted with Permission of Roger Baron

In Ayers v. LINA, No. 6:08-cv-06287-AA, (D.Or. April 19, 2012), the court was adjudicating a dispute over LTD benefits under ERISA coverage.  The plaintiff sued alleging wrongful denial and the ERISA insurer counterclaimed for an alleged overpayment of $99,885.  This court ruled in favor of the plaintiff on coverage and then addressed whether the equitable defense of “unclean hands” is available as a defense to an action brought under ERISA § 1132(a)(3).  The court rejected LINA’s argument that “equitable theories do not apply to ERISA claims” by noting that LINA’s cited authorities merely stand for the proposition that “federal common law rules of contract interpretation cannot be applied to override the express terms of an ERISA plan.”   LINA’s cited authorities “do not address whether equitable defenses, such as unclean hands, are applicable to claims brought under section 1132(a)(3).”  The court then rules in favor of the participant, holding, “LINA cannot recover any overpaid amounts pursuant to 1132(a)(3) if Ayers can demonstrate that it was acting with unclean hands.”  As to whether or not “unclean hands” exists, the court holds that there is a “genuine issue of material fact,” overruling both parties’ motions for summary judgment on the counterclaim.

The discussion of “unclean hands” as an equitable defense to an action ERISA § 1132(a)(3) is found on pp. 36-47 of the court’s opinion.  To view the opinion click HERE

By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC

The purpose of this post is to inform Florida attorneys about the Florida Supreme Court’s rejection of the proposed amendment to Rule 4-1.5.  Before discussing the Florida Supreme Court’s rejection, I first want to give you some background.  In the early part of 2010, an ethics opinion was sought from the Florida Bar regarding a lien resolution attorney charging a reverse contingency fee on reduction of hospital liens.  The ethics opinion issued by the bar concluded it was impermissible because when you add the reverse contingency charged by the lien resolution attorney to the contingency fee charged by the PI attorney, it resulted in too large of a fee overall.  The bar ethics opinion concluded any attorney fee charged by a lien resolution attorney would be too much because PI attorneys customarily resolved the liens as part of the underlying case at no additional fee.  Since the PI attorney is already charging a max fee at 40%, any additional fee would be excessive.  The opinion would have precluded any fee for a lien resolution attorney if the PI attorney was already charging the maximum allowed contingency fee.

The Bar ethics opinion was appealed to the Board of Governors by the requesting attorney.  By rule, that appeal went first to the Board of Governors committee called the Board Review Committee on Ethics.  That review committee then recommended to the entire Board that the ethics opinion should be upheld.  When it went before the entire board, some PI lawyers on the Board of Governors raised some serious concerns about the ruling and its effect.  The ethics opinion was then tabled.  Subsequently, the President of the Florida Bar appointed a special committee to review the issue and propose a rule change to give guidance to the plaintiff’s bar and lien specialists on what was permissible.  The proposed amendment to Rule 4-1.5 came out of that committee.  The Bar approved the amendment and it was sent up to the Florida Supreme Court for approval.  When the rule was discussed at the Florida Supreme Court’s hearings, Floyd Faglie spoke on behalf of the rule.  Based upon the questioning of the Justices, it did not appear they really understood the current state of affairs as it pertained to lien resolution.  Subsequently, the Court opened up the rule to commentary.  There was only one comment filed regarding the rule and it was anti-adoption of the rule.  The comment was made by a plaintiff PI practitioner.

On April 12^th, the Florida Supreme Court ruled on the proposed amendment to rule 4-1.5.  Here is what the court said:

“With respect to rule 4-1.5 (Fees and Costs for Legal Services), the Bar proposes new subdivision (f)(4)(E) and related commentary addressing subrogation and lien resolution services in contingent fee cases. This subdivision would provide that a lawyer in a personal injury or wrongful death case charging a contingent fee must include in the fee contract information about the scope of the lawyer’s representation relating to subrogation and lien resolution services; the rule would also provide that some medical lien and subrogation claims may be referred to another attorney for resolution with the client’s informed consent. The Court received one comment addressed to this proposal. After considering the concerns raised in the comment and the discussion at oral argument, we decline to adopt new subdivision (f)(4)(E). Indeed, we take this opportunity to clarify that lawyers representing a client in a personal injury, wrongful death, or other such case charging a contingent fee should, as part of the representation, also represent the client in resolving medical liens and subrogation claims related to the underlying case. Other technical corrections to rule 4-1.5 are adopted as proposed.”[1]

Given all of the foregoing, the question is what now?  The answer is we default back to the rules pre-proposed amendment of 4-1.5.  What complicates matters is the fact that there is a negative outstanding ethics opinion regarding charging fees for lien resolution in addition to a standard maximum PI contingency fee.  In situations where a flat fee is being charged for lien resolution services, the lawyer can absorb the cost or make sure that when combined with the contingency fee that the total fees do not exceed the maximum contingency fee.  Another alternative is that the client can contract with a lien resolution provider or attorney directly to resolve the health care liens and arguably the issue is avoided.  There are problems with the latter approach as it may not completely resolve the conflict created by the Florida Supreme Court’s statements rejecting the proposed amendments to rule 4-1.5 and the negative ethics opinion of the Bar.

What is clear is that the Florida Supreme Court didn’t say that outsourcing of lien resolution to third party specialists was impermissible. The opinion only addressed the proposed amendment of rule 4-1.5 and focused on fees that were permissible related to resolution of medical liens.  So Florida attorneys will have to look to the current rule 4-1.5 and the opinion of the American Bar Association[2] when considering outsourcing of lien resolution. The rejection of the proposed amendments to rule 4-1.5 does not mean that Florida attorneys can no longer seek out third party lien resolution specialists to assist with complex healthcare lien resolution issues.  With the intricacies and nuances of healthcare lien resolution growing at an exponential rate, bringing in experts may be crucial to maximizing the client’s net recovery and preservation of future benefits.  Accordingly, attorneys in Florida must weigh all of these factors when making the decision whether to outsource healthcare lien resolution functions and we encourage this type of analysis.

Synergy’s lien resolution services group remains committed to assisting trial attorneys in the State of Florida.  If you have any questions about these issues, please contact Synergy at 877-242-0022.

Reprinted with permission from Roger Baron

“Subrogation on personal injury claims by a health insurer was universally prohibited by law when Congress enacted ERISA in 1974.  Seizing upon the notion of ERISA preemption, ERISA plans and related insurers have manufactured the right of reimbursement (or subrogation) without regard to the impact on the victims.  The unique history of this phenomenon and the need for judicial oversight are addressed in this article.  The recent decision by the 3rd Circuit in US Airways v. McCutchen is highlighted as providing a solid basis for other federal courts to follow.”

http://erisawithprofessorbaron.com/published-articles/

Roger Baron

School of Law

University of South Dakota

If you need help with ERISA lien resolution, turn to Synergy Lien Resolution Services

By Stacey N. Jiunto, Esq. – Staff Lien Counsel

Group health plan descriptions are carefully worded to protect the plan’s reimbursement interests and expand their right of reimbursement. This is often accomplished with provisions stating the plan is entitled to reimbursement from the beneficiary’s recovery without a reduction for procurement costs (the attorney’s fees and litigation costs incurred by the beneficiary to obtain a recovery).

Although most litigation has centered on what qualifies as “appropriate equitable relief,” [1] the U.S. Court of Appeals for the Third Circuit[2] in US Airways, Inc. v. McCutchen, 663 F.3d 671 (3d Cir. Pa. 2011), addressed whether such relief is limited by certain equitable defenses. While the Third Circuit’s approach may be considered novel (at least until adopted by other courts), it presently allows equitable principles to override express plan language when justified by the necessities of the particular case[3]. For attorneys in other jurisdictions representing severely injured beneficiaries against self-funded ERISA liens with strong plan language, referencing the Third Circuit’s logic may prove beneficial.

Facts and Procedural Background

Appellant, James McCutchen, sustained severe injuries as a result of a motor vehicle collision and, with the assistance of counsel, recovered $110,000 from the tortfeasors. Subsequently, US Airways (as administrator for the self-funded ERISA Plan) sought reimbursement for the $66,866 it paid for McCutchen’s medical expenses. The amount demanded did not reflect a reduction for procurement costs.

When McCutchen did not pay, US Airways filed suit in the District Court seeking “appropriate equitable relief” under §502(a)(3) of ERISA. Under the plan description, a beneficiary was required to “reimburse the Plan for amounts paid for claims out of any monies recovered from a third party.” McCutchen argued that US Airways would be unjustly enriched if it were to receive a reimbursement of the entire amount paid, without contributing to his attorney’s fees and expenses, while he failed to be fully compensated for his injuries, pain, and suffering. The District Court granted summary judgment to US Airways based on the language, “any monies recovered,” and ordered McCutchen to turn over the portion of his recovery held in trust ($41,500) and pay the additional $25,366 from his own funds. McCutchen appealed.

Analysis

Looking at ERISA’s legislative intent, it must be noted that §502(a) limits the available relief to “appropriate equitable relief.” Under Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 218 (2002), such a limitation requires the court to recognize the difference between legal and equitable forms of restitution. Thus, the Supreme Court has “interpreted the term ‘appropriate equitable relief’ in §502(a) as referring to those categories of relief that, traditionally speaking (i.e., prior to the merger of law and equity) were typically available in equity.” Cigna Corp. v. Amara, 131 S. Ct. 1866, 1878 (2011). The court in Sereboff v. Mid. Atlantic Medical Services, Inc., 547 U.S. 356 (2006), held that the plan administrator’s claim for reimbursement under the terms of the plan and §502(a)(3) could be based on an equitable lien by agreement but expressly reserved its decision on whether the term “appropriate” would make equitable principles and defenses applicable.

McCutchen argued that “appropriate equitable relief” meant the relief sought must be limited by what is “appropriate” under traditional equitable principles. The Third Circuit agreed, holding that “appropriate equitable relief” must be something less than all equitable belief. US Airways, 663 F.3d at 676. The Third Circuit further acknowledged that “it would be strange for Congress to have intended that relief under §502(a)(3) be limited to traditional equitable categories, but not limited by other equitable doctrines and defenses that were traditionally applicable to those categories.” Id. Specifically, the Third Circuit held that, absent any indication in the language or structure of §502(a)(3) to the contrary, “Congress intended to limit the equitable relief available under §502(a)(3) through the application of equitable defenses and principles that were typically available in equity.” Id.

Upon consulting standard works such as Dobbs, Palmer, Corbin, and the Restatements, the Third Circuit found support for McCutchen’s position that the principle of unjust enrichment is broadly applicable to claims for equitable relief. Id. at 677. US Airways, nevertheless, cited prior decisions (Ryan, Bollman Hat, and Gourley) in which the Third Circuit declined to implement a federal common law rule limiting an ERISA plan administrator’s right to reimbursement under the plan’s terms. However, these decisions came before the Supreme Court’s decisions in Knudson and Sereboff, which clarified the meaning of “appropriate equitable relief” in §502(a)(3) and undermined the reasoning and holdings of the prior decisions.

Moreover, the Third Circuit declared its disagreement with the cases US Airways cited from other Courts of Appeals (O’Hara, Shank, Bombardier Aerospace, and Varco) that refused to apply common law theories to override the express language of benefit plans. The Third Circuit maintained that the written benefit plan is subject to modification or equitable reformation under §502(a)(3). US Airways, 663 F.3d at 678; see Cigna, 131S. Ct. at 1879. Essentially, the notion that plan language can be overcome by equitable principles may serve as additional ammunition in an arsenal of lien reduction arguments.

Applying the principle of unjust enrichment, the Court held that the judgment requiring McCutchen to provide full reimbursement to US Airways constituted inappropriate and inequitable relief. Particularly, “[b]ecause the amount of the judgment exceeds the net amount of McCutchen’s third-party recovery, it leaves him with less than full payment for his emergency medical bills, thus undermining the entire purpose of the Plan. At the same time, it amounts to a windfall for US Airways, which did not exercise its subrogation rights or contribute to the cost of obtaining the third-party recovery.” Id. at 679.

Conclusion

The District Court’s final judgment was vacated and remanded for further proceedings to determine what would constitute appropriate equitable relief for US Airways based on full factual findings. Specifically, factors such as the distribution of the third-party recovery between McCutchen and his attorneys, the nature of their agreement, the work performed, and the allocation of costs and risks between the parties to the suit are pertinent to the determination of “appropriate equitable relief.”