Sereboff v. Mid Atlantic Medical Services, Inc.: The U.S. Supreme Court clarifies the holding of Great-West v. Knudson

Edwin (Win) L. Rawson¹

Joel and Marlene Sereboff were injured in an automobile accident for which their ERISA-covered health plan paid approximately $75,000.00 in benefits. The Sereboff’s filed suit against the responsible third-parties, and received a $750,000.00 settlement. A joint investment account was established for the benefit of the Sereboffs, and recovered funds exceeding the plan’s lien were placed into the account.

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 its terms, but they refused. The plan filed suit, and the Sereboffs agreed 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, 534 U.S. 204 (2002). Mid Atl. Med. Servs. v. Sereboff, 303 F. Supp. 2d 691 (D. Md. 2004). The Sereboffs appealed, and the Fourth Circuit Court of Appeals affirmed. Mid Atl. Med. Servs., LLC v. Sereboff, 407 F.3d 212 (4th Cir. 2005). In its opinion, the Fourth Circuit held that the funds belonged in good conscience to the plan, and that the funds could be traced even though they had been placed in an account that also contained funds unrelated to the Sereboffs third-party recovery. Thereafter, the Sereboffs petitioned for certiorari, which was granted.

In affirming the Fourth Circuit’s holding that an ERISA-plan can obtain equitable relief under § 502(a)(3) against identifiable funds held by a defendant, the Supreme Court distinguished the facts of Sereboff from Knudson, stating that:

This Court in Knudson did not reject Great-West’s suit out of hand because it alleged a breach of contract and sought money, but because Great-West did not seek to recover a particular fund from the defendant. [Here,] Mid Atlantic does.

Sereboff v. Mid Atlantic Medical Services, No. 05-250 (547 U.S. __), [at *5].

Sereboff is a major victory for ERISA-plans because it allows for equitable relief everywhere in the country, including in the Sixth and Ninth Circuits. Sereboff confirms, however, that ERISA plans need to closely monitor their claimant’s third-party matters, and be prepared to litigate in order to preserve identifiable funds before they are dissipated.

[1] Win Rawson and Kim Popilek are associates in the Memphis Tennessee law firm of Lawrence & Russell, LLP, and represent employers, health plans, and insurers in healthcare subrogation and benefits and employment litigation in state and federal courts throughout the United States. They may be reached at winr@lawrencerussell.com and kimp@lawrencerussell.com .