ERISA-Ninth Circuit Rules That, Despite Express Plan Terms, Appropriate Equitable Relief Under Section 502(a)(3) Is Determined By Using Traditional Equitable Principles And Defenses

In CGI Technologies and Solutions Inc. v. Rose, Nos. 11-35127, 11-35128 (9th Cir. 2012), the defendant, Rhonda Rose (“Rose”), was appealing the district court’s grant of summary judgment to the plaintiff, CGI Technologies and Solutions Inc. (“CGI”), in its action seeking “appropriate equitable relief” under section 502(a)(3) of ERISA.

In this case, Rose was employed by CGI, which provides to its employees and their dependents a self-funded welfare benefits plan (“the Plan”) governed by ERISA. The Plan includes a subrogation and reimbursement clause that expressly: (1) gives to CGI the right to full reimbursement for medical expenses paid on behalf of the beneficiary from any funds recovered by the beneficiary from a third party tortfeasor, (2) exempts CGI from responsibility for attorneys’ fees paid in any such recovery, expressly disclaiming the application of the common fund doctrine; and (3) requires full reimbursement to CGI regardless of whether the beneficiary is made whole by the recovery. In 2003, Rose was seriously injured in a car accident with a drunk driver, and consequently she had nerve damage and neck and back injuries that required surgical intervention. From this accident Rose also suffered several types of damages including past and future medical expenses, past and future loss of wages, and pain and suffering. The parties stipulated that her personal injury claim was at least $1,757,943.08. Eventually, Rose recovered a combined total of $376,906.84 from an action against the third party tortfeasor and from her underinsured motorist claim with her automobile insurance provider. The parties stipulated that this recovery represents only 21.44% of Rose’s total damages.

Between 2007 and 2010, the Plan paid, on Rose’s behalf, about $32,000 in medical expenses incurred as a result of her injuries related to the accident. After Rose’s recovery of the damages partially compensating her for her injuries, CGI asserted a first priority of payment and demanded to be reimbursed for the full amount the Plan had paid in medical expenses on Rose’s behalf. Rose refused to make the reimbursement, and instead placed the disputed amount in trust. CGI then filed this suit in district court, seeking “appropriate equitable relief,” under § 502(a)(3) of ERISA in the form of a constructive trust and/or an equitable lien. The question for the Ninth Circuit Court of Appeals (the “Court”): is CGI entitled to this relief as to the $32,000 in benefits under the Plan’s subrogation and reimbursement clause, and is the relief reduced by Rose’s proportional attorney’s fees for collecting $32,0000 from the tortfeasor?

In analyzing the case, the Court said that, when granting “appropriate equitable relief” under § 502(a)(3), a court should apply traditional equitable principles and may consider traditional equitable defenses-such as the make-whole doctrine and the common fund doctrine- notwithstanding express terms in the Plan disclaiming the application of such defenses. The Court felt that this rule is consistent with a Third Circuit decision, but contrary to the Fifth, Seventh, Eighth and Eleventh Circuit decisions. The Court left it up to the district court to determine the dollar amount to which CGI would be entitled as appropriate equitable relief in this case, and therefore remanded the case back to the district court on this issue.

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