Mid Atlantic Medical v. Sereboff: The Fourth Circuit Holds That Health Plans May Bring Actions in Federal Court Under 502(a)(3) to Obtain Equitable Restitution From Funds held in an Investment Account.

Edwin (Win) L. Rawson¹

Joel and Marlene Sereboff, both Maryland residents, were injured in an automobile accident in California. For their injuries, the Sereboffs received approximately $75,000.00 from an ERISA-covered plan, which was administered in Maryland. The Sereboff’s filed suit in California and received a $750,000.00 settlement. Of the $750,000.00, an amount greater than the Plan’s lien went into a joint investment account for the benefit of the Sereboffs. The Plan contained a reimbursement provision that required covered persons to reimburse the plan to the extent of benefits paid when a covered person recovers from another party. The Plan requested that the Sereboffs reimburse the Plan as required under the terms of the plan, but they refused.

The Plan filed suit and the Sereboffs stipulated to hold an amount equal to the lien in their investment account until the litigation could be resolved. The district court held that the Plan was entitled to equitable relief against the funds in the investment account pursuant to Great-West v. Knudson. The Sereboffs appealed and the appellate court affirmed. Mid Atl. Med. Servs., LLC v. Sereboff, 2005 U.S. App. LEXIS 7699 (4th Cir. May 5, 2005).

In affirming, the Fourth Circuit held that the funds could be traced even though they had been placed in an account holding unrelated funds of the Sereboffs. The Court also held that the funds belonged in good conscience to the Plan.

Sereboff is an important decision because it further affirms that equitable relief, as contemplated by the Supreme Court in Great-West v. Knudson, and as properly applied by the Fifth, Seventh, Eighth, and Tenth Circuits, can be obtained by plans when properly pleaded.

[1]Edwin L. Rawson is an associate in the Memphis, Tennessee law firm of Lawrence & Russell, LLP, and represents employers, health plans, and insurers in healthcare subrogation and benefits and employment litigation in state and federal courts throughout the United States. He can be reached at winr@lawrencerussell.com.