Mills Companies Employee Welfare Benefit Trust v. Russ : Federal court authorizes ERISA reimbursement claim for constructive trust where funds are identifiable and traceable

John M. Russell¹

In Mills Companies Employee Welfare Benefit Trust , Case No. 02-C-032-S (W.D. Wis. May 14, 2002), the federal court in Wisconsin ruled that an ERISA plan fiduciary may pursue a reimbursement claim in the form of a constructive trust where the funds at issue are identifiable and traceable. The covered person, Wayne Russ, was injured in an automobile accident and incurred medical expenses of $177,038, which were paid by the ERISA-covered plan. Russ pursued a claim against the third parties responsible for his injuries and recovered $250,000. The plan filed an action under ERISA to recover the amount of medical benefits paid on behalf of Russ out of his third-party settlement. The plan alleged claims for relief in equity, including a constructive trust upon the funds being held by Russ's attorney in a client trust account.

The court granted the plan's motion for summary judgment and ordered Russ to reimburse the plan. The court noted that the Supreme Court in Great-West Life & Annuity Ins. Co. v. Knudson , 534 U.S. 204 (2002), had authorized the relief sought by the plan: "Specifically addressing an action similar to the present case, Great-West noted that where an identifiable res existed a constructive trust or equitable lien could appropriately be granted. A claimant must be seeking to obtain possession of the res to which it rightfully claims possession, and not, as was plaintiff's claim in Great-West, to impose a personal liability upon a party as repayment for some benefit conferred. This is precisely the remedy plaintiff seeks."

The court also rejected Russ's argument that the money held in his attorney's trust account was not readily identifiable: "notwithstanding defendant's frivolous assertion that money held in the trust account is not readily identifiable, plaintiff is seeking to obtain possession of that sum placed on deposit from defendant's settlement. It is not seeking to place a general liability upon defendant to reimburse it for the insurance coverage it rendered." The court further noted that Russ's attorney was his agent and therefore the attorney "is merely holding the funds in escrow pursuant to an arrangement with defendant for purposes of this dispute."

The Mills court's decision highlights the importance of ensuring that the funds in question are preserved. As long as the funds are preserved by the defendant (or the defendant's attorney), the district courts since Knudson continue to authorize the imposition of a constructive trust as equitable relief under ERISA.

[1]John M. Russell is a partner in the Memphis, Tennessee law firm of Lawrence & Russell, LLP, and represents employers and health plans in subrogation and other employee benefits and employment matters and related litigation in state and federal courts throughout the United States. He represented BlueCross/BlueShield of Illinois in the Alleman case. He can be reached at johnr@lawrencerussell.com .