Great-West Life v. Randall Brown: Court Distinguishes Knudson and Holds That Great-West is Entitled to Restitution

Thomas H. Lawrence¹

The United States District Court for the Middle District of Georgia decided Great-West Life & Annuity Ins. Co. v. Randall Brown, No. 7:01-CV-40, on March 26, 2002.The Court distinguished Great-West Life & Annuity Ins. Co. v. Knudson , 122 S. Ct. 708 (2002), and held that, unlike Knudson , Great-West Life was entitled to equitable relief under ERISA because the funds at issue in Brown , having been placed by Brown's attorney in his trust account, "are identified and clearly traceable to the award from third parties." As such, the Court held that Great-West Life was entitled to restitution with respect to the funds.

On December 20, 1999, Brown was injured in a hit-and-run accident. The Chapparral Boats Employee Benefit Plan (the "Plan"), which was administered by Great-West Life, paid $20,136.30 on behalf of Brown because of these injuries. Brown recovered another $40,000 from other parties, including the liability insurance carrier for the party who caused his injuries and from Brown's uninsured motorist carrier.

The Plan required priority reimbursement, to the extent of benefits paid, from other party recoveries. The Plan also specifically disclaimed the make-whole rule and the common fund doctrine. Despite these provisions, Brown refused to turn over the $20,136.30 to Great-West.

Great-West initiated an action in federal court and filed a motion for summary judgment. While the summary judgment was pending, however, the Supreme Court decided Knudson

On March 21, 2002, the court granted Great-West's motion for summary judgment. The court, addressing the arguments raised by Brown, held that Great-West, as an assignee of the rights of the Plan, had standing to bring an action under ERISA. The Court also rejected Brown's contention that the action was brought in "bad faith" because, according to Brown, it was not the employer's policy to seek reimbursement. The court rejected this contention based upon the provision in the assignment which vested Great-West with "sole discretion" to seek reimbursement.

Brown also argued that he was not made whole. The Court again rejected this contention, holding that the plan provision, which stated that Great-West's first lien rights would not be reduced due to, among other things, the covered person not being "made whole," was sufficient under Cagle v. Bruner to disclaim the make-whole rule.

Brown also attempted to dispute the amount of medical expenses paid on his behalf. Again, the court rejected his argument, holding that Brown failed to controvert Great-West's summary judgment evidence.

Finally, the court addressed Knudson . The Court held that Knudson was distinguishable from this case because "[h]ere, Defendant has placed the amount in controversy, which came directly from the settlement, in a non-interest bearing trust account. Therefore, the funds are identified and clearly traceable to the award from third parties. Accordingly, Plaintiff may seek restitution in equity." The Court ordered that Defendant turn over to "Plaintiff the $20,136.30 that his attorney has held in trust."

This decision is significant because it is the first post- Knudson decision to recognize, on summary judgment, that an ERISA-covered plan may, as Justice Scalia made clear in Knudson , enforce a reimbursement provision under ERISA by seeking restitution from identifiable and traceable funds that are in the control of a party to the action.

[1]Thomas H. Lawrence is a partner in the Memphis, Tennessee law firm of Lawrence & Russell, LLP, and represents employers, health plans, and insurers in healthcare and property and casualty subrogation and other employee benefits and employment matters and related litigation in state and federal courts throughout the United States. He was one of the attorneys who represented Great-West Life in Knudson, and has been counsel of record in many of the otherpost-Knudson decisions that have clarified the scope of relief available under ERISA. He can be reached at toml@lawrencerussell.com