Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (14-723)

ERISA governs the administration of private pension funds. ERISA section 502(a)(3) provides that “[a] civil action may be brought . . . by . . . [a] fiduciary . . . to obtain . . . appropriate equitable relief.” In this case, the Supreme Court will consider whether it is appropriate equitable relief for the Board, a fiduciary of the Plan, to enforce an “equitable lien by agreement” when Montanile’s funds (i.e., the settlement) are dissipated.

Montanile contends that the Court has prohibited fiduciaries from asserting equitable liens by agreement if the agreements do not identify specific funds to which the fiduciaries are entitled. Montanile explains that the Court has identified personal money judgment, and not equitable relief, as the proper relief in cases when specific property is not identified. However, the Board maintains that the Court’s decisions do not preclude liens by agreement in these situations. The Board argues that equity courts were historically able to award an equitable lien by agreement, which makes it an appropriate interpretation of “equitable relief” under ERISA.

INTERPRETING THE COURT’S ERISA JURISPRUDENCE REGARDING THE MEANING OF “EQUITABLE RELIEF”

Montanile points to the Court’s decision in Mertens v. Hewitt Associates, 509 U.S. 248 (1993), in which the Court limited “equitable relief” under section 502(a)(3) to “categories of relief that were typically available in equity (such as injunction, mandamus, and restitution, but not compensatory damages).” Montanile then considers the Court’s application of the Mertens standard in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002). Montanile explains that in Great-West, the Court held that “equitable relief” does not include the “imposition of personal liability on plan participants for breach of contract.” Accordingly, Montanile maintains that the Board’s remedy is inequitable because it is an imposition of personal liability on Montanile for breach of contract. Moreover, Montanile contends that the Board cannot assert a claim as a fiduciary because in Great-West, the Court stated that an equitable lien requires tracing the money to a specifically identifiable fund and in this case, the settlement funds no longer exist. Montanile distinguishes his case from Sereboff v. Mid-Atlantic Medical Services, 547 U.S. 356 (2006), in which an ERISA fiduciary successfully brought a section 502(a)(3) claim against a beneficiary for reimbursement from a tort recovery. Montanile differentiates Sereboff by explaining that Sereboff involved a specific fund that was set-aside in the beneficiary’s possession, against which an equitable lien could be asserted.

The Board claims that Montanile mischaracterizes the Court’s decisions in Mertens, Great-West, and Sereboff by articulating an overly broad interpretation of the ruling. Instead, the Board contends that the decisions were narrow, and only limited ERISA plaintiffs from pursuing a theory of equitable restitution, but not equitable liens by agreement. The Board explains that Great-West barred recovery under section 502(a)(3) for funds not in the beneficiary’s possession when the desired relief was equitable restitution. And the Board claims that Sereboff did not create a so-called “tracing” requirement for equitable liens by agreement. Accordingly, the Board concludes that “a plan fiduciary need not prove that the fund is presently in the defendant’s possession” to enforce an equitable lien by agreement. The Board maintains that the moment Montanile received the settlement funds, the equitable lien attached—regardless of the fund’s dissipating afterwards—because Montanile contractually promised to reimburse the Plan as part of his coverage .

DEFINING THE APPROPRIATE REMEDY UNDER HISTORICAL EQUITY PRACTICE

Montanile insists that the Board’s interpretation of Sereboff is incorrect, because it conflicts with historical equity practice, which limited enforcement of equitable liens by agreement to specific property or traceable product. Montanile argues that the mere fact that the desired funds were ever within the possession of Montanile is insufficient grounds to enforce the equitable lien; and that without a res to assert the lien against, the lien is merely an attempt to recover money from Montanile’s general assets. Montanile explains that using an equitable lien to recover money from his general assets would be pecuniary relief, but Montanile emphasizes that pecuniary recoveries are not part of traditional equitable remedies. To that end, Montanile maintains that the seeker of an equitable lien on a fund bears the burden of proving that it has not dissipated, and in cases in which it has, the plaintiff must trace the proceeds in order to properly uphold the lien.

The Board disagrees with Montanile’s explanation of equitable liens, arguing that Montanile’s dissipation of the fund before a claim could be brought against him did not destroy the full scope of the Board’s available remedies at equity. The Board maintains that a lien attached once Montanile made a promise to pay money out of a specific fund that came into his possession, even if the fund was later dissipated. The Board explains that in historical equity practice, “equity suffers not a right to be without a remedy”—that is, equity provides a remedy for every valid right. In this case, the Board explains that courts have allowed an individual’s general assets to be subjected to equitable liens. The Board maintains that it does not lose all equitable remedies simply because the funds have been dissipated. The Board asserts that many courts have adopted the “swollen-asset doctrine,” in which courts allow equitable liens against a defendant’s general assets because money is fungible (i.e., interchangeable) and a defendant’s assets are “augmented” by the “possession of the plaintiff’s money.” In the event that the equitable lien is unavailing, the Board claims that it is entitled to other equitable remedies in the form of a substitutionary monetary decree—a right to compensation if the desired fund is exhausted—or a deficiency judgment.

ADHERING TO THE CONGRESSIONAL INTENT INHERENT IN ERISA’S TEXT AND PURPOSE

Montanile maintains that if Congress wanted to enable fiduciaries to assert personal liability against beneficiaries, it would have done so explicitly in the statute. Montanile cites other ERISA provisions that draw explicit distinctions between legal and equitable remedies to support this notion, and argues that the decision to preclude legal relief in section 502(a)(3) was a deliberate policy choice to prevent participants from becoming insurers of plan negligence. Moreover, Montanile points to recent failed attempts by Congress to redefine the meaning of “appropriate equitable relief” as an indication that Congress accepts that certain ERISA stakeholders are remediless.

But the Board maintains that its actions comport with the limitations Congress placed on claims of “equitable relief” under section 502(a)(3), because the equitable lien by agreement targets a promised fund rather than the harm caused by a breach of contract. The Board defines this distinction as the difference between equitable and legal remedies respectively and asserts that since their remedy falls in the former category, the statute provides for it. As ERISA is “built around reliance on the face of written plan documents,” the Board also contends that Congress could not have intended the limitations in section 502(a)(3) to prevent fiduciaries from claiming relief of what was explicitly provided for in the agreement between the two parties. Accordingly, the Board considers Congress’ failure to amend the statute irrelevant, because the Board finds the remedy appropriate under the statute’s current language.