High COurt: ERISA Limits Suits By Plans

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The U.S. Supreme Court has ruled 5-4 against letting benefits companies sue plan members in federal court for most forms of cash damages.

The lead plaintiff in the case, Great-West Life & Annuity Insurance Company, wanted to tap settlement funds approved by a California state court to get back some of the money it spent on medical care for Janette Knudson, an insured who was injured in a 1992 car crash.

But the Supreme Court found that Great-West and the other plaintiffs should have tried harder to make their case while the state court negotiations were under way, and that the Employee Retirement Income Security Act of 1974 limits the ability of benefits companies to sue plan members for cash in federal court.

ERISA Section 502(a)(3) permits a benefit plan “participant, beneficiary, or fiduciary” to bring a federal civil suit for injunctions or “other appropriate equitable relief.”

Under the traditional rules governing equitable relief, restitution rights are so narrow that they apply mainly to tainted assets, Chief Justice Antonin Scalia writes in an opinion for the majority.

A health insurer or other benefits company might be able to sue a member for restitution if “money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendants possession,” Scalia writes.

But, if a member has no access to the plaintiffs money, has spent the plaintiffs money, or is simply involved in an ordinary contractual dispute, the plaintiff should seek a better-known form of relief, “restitution at law,” Scalia argues.

Scalia emphasizes the distinction that evolved in the English courts. There, judges handling matters involving the possibility of large cash awards had to stick closely to precedents and statutes. Judges handling matters of equity, or basic humanity and fairness, had more flexibility to come up with fair solutions, but little ability to award large sums of cash.

Scalia draws heavily in his opinion on Mertens vs. Hewitt Associates L.L.C., a 1993 Supreme Court ruling that also emphasizes the restrictions ERISA places on suits by and against plan fiduciaries and nonfiduciary plan advisors.

Chief Justice William Rehnquist and Justices Sandra Day OConnor, Arthur Kennedy and Clarence Thomas voted with Scalia and joined in his opinion.

Justice Ruth Bader Ginsburg wrote a dissenting opinion pointing out that the Federal Rules of Civil Procedure eliminated the distinction between equitable and legal relief in the federal courts more than 60 years ago.

Justices John Paul Stevens, David Souter and Stephen Breyer joined in the Ginsburg dissent. Stevens also wrote a second dissent to emphasize his support for Ginsburg.

James Jorden, a Washington lawyer who helped represent Great-West, says he is happy with the logic the court used to reach its decision.