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Subrogation of Claims against Third Parties: D. Kan.

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  • Subrogation of Claims against Third Parties: D. Kan.

    In a new case from Kansas, the court takes up the issue of subrogation, and how it affects the proceeds that a Plaintiff's firm receives from a third party. The facts of the case are rather straight forward: the individual Defendant was involved in a car accident and sustained injuries. As a plan beneficiary, he requested and received advance payments for medical expenses agreeing to reimburse the plan with any proceeds recovered from a third party. He subsequently retained council (that law firm becoming the second defendant in this case) and ultimately received a settlement payment. That agreement required the individual defendant as well as the firm that represented him to satisfy any liens on the settlement funds. Both defendants failed to do so and this suit followed.

    Plaintiffs filed suit against Bretz & Young and Fisher to enforce the Plan’s subrogation and reimbursement terms. Among other things, plaintiffs seek (1) a constructive trust and equitable lien over funds from the personal injury settlement pursuant to ERISA Section 502(a)(3) (Count 1); (2) a declaratory judgment stating that the Plan is entitled to first priority reimbursement from the personal injury settlement funds (Count 2); damages for (3) breach of contract (Count 4), (4) breach of fiduciary duty pursuant to ERISA Section 502(a)(2) (Count 5), (5) state and federal common law conversion (Counts 6 and 7) and (6) tortious interference (Count 8); and (7) attorneys’ fees pursuant to 29 U.S.C. § 1132(g) (Count 9).

    With respect to the first claim, the firm argued that it could not be sued for an equitable lien and constructive trust on the settlement funds because the firm never agreed to honor the plan terms; specifically the subrogation clause. The court, however, was not persuaded:

    Plaintiffs properly argue that Supreme Court precedent contradicts this argument. Plaintiffs’ Memorandum In Opposition To Defendant Bretz & Young LLC’s Motion To Dismiss (Doc. #38) filed January 10, 2018 at 9. The Supreme Court has recognized that Section 502(a)(3) limits plaintiffs to equitable relief but “admits no limit . . . on the universe of possible defendants.” Harris Trust and Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 246 (2000). Thus, the viability of plaintiffs’ Section 502(a)(3) claim against Bretz & Young does not hinge on whether it agreed to the Plan terms. In fact, the Supreme Court explicitly rejected the proposition that Section 502(a)(3) only extends to parties who agree to the terms of an ERISA plan. Id. at 245-47 (“We reject, [the] conclusion that, absent a substantive provision of ERISA expressly imposing a duty upon a nonfiduciary party in interest, the nonfiduciary party may not be held liable under § 502(a)(3) . . .”).
    Ultimately, the court sustained the Defendants' Motion to Dismiss only as to Counts 5 and 7, and overruled with respect to the remaining Counts. The opinion is attached below.
    Attached Files