An employer-sponsored health plan was entitled to full recovery of more than $131,700 in funds, plus more than $149,000 in attorney’s fees, after it came to light that a plan participant and her attorneys tried to con the plan by lying about the size of a third-party settlement, the 11th U.S. Circuit Court of Appeals decided in AirTran Airways v. Elem, 2014 WL 4694776 (11th Cir., Sept. 23, 2014).
Background
Brenda Elem participated in the AirTran Airways self-funded health plan as an employee. In March 2007 she suffered injuries in a car accident and the plan paid $131,700 for her care. Elem sued the other driver.
The plan administrator provided Elem’s attorneys with a notice of its lien on any settlement proceeds, and asked repeatedly for updates on her lawsuit but it received no response.
Three years later, Elem’s attorney, Mark Link, told the plan Elem’s tort claim was settled for $25,000 but tried to conceal that she also secured a $475,000 settlement from the other driver’s insurer for the same accident. The employer learned of this when Link accidentally sent the plan a copy of the $475,000 settlement check. The plan administrator noticed this and demanded recovery from “all settlements and judgments,” but Elem refused.
The U.S. District Court for the Northern District of Georgia ruled (AirTran Airways, Inc. v. Elem, 2011 WL 1045583 (N.D. Ga., March 8, 2011)) that Elem, Link and Link’s law firm violated ERISA Section 502(a)(3); ordered it to pay back the $131,700; and awarded $145,700 in attorney’s fees and $3,700 in costs. They refused to pay.
AirTran filed a motion to enforce the judgment under federal rules, and the court granted that order. But again Elem and Link refused to pay. They finally paid after AirTran filed to hold Elem and Link in contempt, but appealed in order to get the money back.
On appeal, Elem and Link argued that: (1) AirTran failed to trace the funds correctly therefore ERISA’s conditions for equitable relief were not met; and (2) the district court abused its discretion when it awarded attorney’s fees.
The court agreed with AirTran: ERISA’s tracing rules were satisfied by the “equitable lien by agreement” that the plan created. The court said this case was distinguishable from Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), because in that case, the defendant never possessed the settlement fund; in this case Elem had a large chunk of it and so did Link.
Even though Elem and Link dissipated the funds into Elem’s general accounts to prevent the plan from meeting ERISA’s tracing requirements, the court said the money clearly belonged to the plan. There is not only one way such money must be traced back to the plan. Under Sereboff v. Mid Atlantic Med. Serv., Inc., 547 U.S. 356 (2006), a previous agreement can impose a plan lien over that fund as soon as it comes into existence. Therefore, the court held, the entire $131,700 belonged to the plan, regardless of how Elem and Link labeled, dissipated or divided it.
Attorney’s fees
And upholding the district court’s award of attorney’s fees, the appeals court said this was “a textbook example of bad faith.” Link “intentionally attempted to deceive Aetna when he sent the letter stating that $25,000 represented the entire settlement amount. And he coerced [the other driver’s insurer in its settlement with Elem] to draft two separate releases to effectuate his deception.” An award of fees would help protect plan assets. Finally, an award of attorney’s fees would have a deterrent effect on other would-be cheaters, the majority stated.
Comments
Here is an example where plans need to be cautious about what exactly they are being told, and to view it with suspicion. For example, at the conclusion of a case, if opposing counsel tells you he no longer represents the plan participant, that should be seen as a red flag that there was a settlement or resolution of the matter. The attorney must be pressed about the exact resolution of the case and there was no settlement of any kind before a file is closed.