From Roger Baron: 8th Circuit Exonerates Law Firm Doggedly Pursued for Liability on ERISA Reimbursement Claim

The 8^th Circuit Court of Appeals handed down its decision in Treasurer, Trustees of Drury Industries v. Sean Goding, No. 11-2885.  This is a situation where the ERISA plan doggedly pursued the law firm which had represented the ERISA beneficiary in securing a tort recovery.  The law firm had disbursed the settlement funds by paying its attorney fee to itself and releasing the remainder of the funds to the client (ERISA beneficiary) who eventually declared bankruptcy.  Because the reimbursement claim of $11,423.79 was uncollectible from the beneficiary (due to the bankruptcy), the ERISA plan sued the law firm in federal court “asserting theories of equitable lien by agreement, restitution, imposition of a constructive trust, tortious interference with contractual relations, and conversion.”  The federal trial court ruled against the plan.  The plan would not accept the ruling, however, and “stretched out the litigation more than a year after the initial decision for no legitimate reason.”  The trial court again ruled in favor of the law firm and assessed attorney fees against the plan.  The ERISA plan then brought this appeal.  This opinion “affirms the district court on all issues,” holding that

Although [the law firm] acknowledged the existence of the lien against the settlement proceedings, it never agreed with [the ERISA plan] and [ERISA beneficiary] to honor the Plan’s subrogation right. Because [the law firm] was not a party to the subrogation agreement, [the ERISA plan] cannot enforce that agreement against [the law firm].

Prior 8^th Circuit case law, the Ford case, had imposed liability on an attorney, but the Ford case was distinguished by virtue of the fact the attorney in Ford had agreed “to honor the plan’s subrogation right.”  In this case, there was no such agreement.  A mere acknowledgement of a lien assertion is not tantamount to an agreement to “honor the plan’s subrogation right.”  This decision lines up with the 9^th Circuit decision of Hotel Emps. & Rest. Emps. Int’l Union Welfare Fund v. Gentner, 50 F.3d 719, 721 (9th Cir. 1995).

As to the award of attorney fees in favor of the law firm, the ERISA Plan argued, “ERISA does not permit the award of attorneys’ fees to attorneys that act as counsel to their own firms.”  This opinion rejects that argument and finds that the trial court “did not abuse its discretion in awarding attorney’s fees in this case.”

Click HERE to view the opinion.