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By Guest Author Teresa Kenyon, Esq. – Director of Lien Resolution for Synergy Settlement Services

Who can be a defendant in an action brought under Section 502(a)(3) of ERISA?

ERISA self-funded plans are becoming more and more aggressive about asserting their reimbursement rights when one of their members has settled a personal injury claim.  These subrogation vendors are always on the look out for a chance to stake a claim on a client’s tort settlement.  They are paid bounty hunters and as subrogation bounty hunters they require bounties to hunt.

Since the pandemic, the vendors have shown a trend of increasingly hardline behavior.  As one can imagine, the vendors invariably took a hit to their revenue stream when the nation went into lockdown due to the COVID-19 pandemic. Because there were fewer people on the roads, there were less car accidents. Because there were fewer elective surgeries, less chances for instances of medical malpractice. As subrogation vendors searched claim data of their insurance company clients, they saw less and less traumatic treatment that they could pursue for possible subrogation. In addition, as experienced by plaintiff attorneys, with courts closed due to the pandemic, certain cases became harder to settle without the hammer of a trial.

For the last few years, the opportunities these vendors have had to drive their revenue and profits have been curtailed and many are trying to squeeze every dollar they can out of the opportunities left to them.   Unfortunately, this leaves injured persons and their advocates in the position of having to contend with these aggressive lienholders.

The risks of not dealing with ERISA self-funded liens is becoming an ever more crowded minefield for injured parties and their attorneys.  A recent case out of the Western District of North Carolina illustrates the risk that attorneys and their firms can bear if they fail to properly resolve ERISA self-funded liens.


An individual, who was covered under an ERISA self-funded plan, was injured in a motor vehicle accident. The Plan paid $18,295.88 in total medical benefits. The injured person hired a law firm to represent him in his tort claim. Prior to settlement of the of the injured party’s claim, the Plan placed the injured party’s attorney on notice that the benefits were paid by a self-funded ERISA qualified Plan and the Plan would be seeking reimbursement.

The plan language had two important provisions. First, it required full reimbursement under its terms; and second, it forbade the injured party from settling for less than an amount that would fully reimburse the plan, absent explicit written consent from the Plan.

While it’s unclear if there were any attempts at resolving the lien around the time of the settlement, the attorney eventually settled the tort claim without the Plan’s consent.  The attorney sent a letter to the Plan indicating that the case had been settled and all available funds had been proportionally distributed among the various lien holders as this was what had been requested by the injured party.  The letter also contained a check in the amount of $8,146.13 or approximately $10,000 less than the benefits expended by the Plan.   The letter went on to acknowledge that the check did not fully compensate the Plan’s lien but stated that any further obligation rested with the injured party alone and they had complied with the limited obligations the Firm had to the Plan.

The Plan not fully satisfied with this, continued its attempt for further reimbursement from the attorney.  The attorney responded to these attempts with a letter which stated, “We have closed the file and will not engage with any lien holder in any fashion or represent our client in this matter.” This second letter also indicated at least $4,603.87 had been allocated for payment to other lien holders.

The Plan filed suit against the injured party and the Firm for a constructive trust or equitable lien on the settlement proceeds with interest, a declaration of the Plan’s ownership of the settlement dollars equal to its payments, an order to turnover such proceeds and attorney’s fees and costs.  The Firm filed a motion to dismiss for failure to state a claim which resulted in the instant opinion.


The question presented by this case is essentially which parties can be a defendant in an action that arises under Section 502(a)(3) of ERISA.

The Firm relied on a series of opinions from a sister district court, the Eastern District of North Carolina, the most notable of which was Great-West Life & Annuity Ins. Co. v. Bullock, 202 F. Supp. 2d 461, 465 (E.D.N.C. 2002).  In Bullock, which contained similar facts, it was found that ERISA was silent to the issue of who can be a defendant in a Section 502(a)(3) action and turned to North Carolina state law to fill the gap.  After a review of North Carolina state law and absent bad faith or negligence on the part of the attorney, the Court found that the attorney could not be a defendant. The Bullock court rested its view on the theory that an attorney could not be sued because there exists no privity of contract between the attorney and a Plan fiduciary.

The Western District in the instant case found that the U.S. Supreme Court had resolved the question of who could be sued two years before Bullock in its decision in Harris Trust & Sav. Bank v. Salomon Smith, Inc., 530 U.S. 238, 246 (2000)Harris was notably not cited by the Eastern District.

The Western District found that the Eastern District’s attempt to gap fill from state law was unnecessary as ERISA, is in fact, not silent on the question who can be sued. The Western District quoted Harris and found that Section 502(a)(3) “admits of no limit … on the universe of, possible defendants.” The only real limitation under the section is that the ERISA fiduciary is “seeking appropriate equitable relief”.   If the fiduciary is seeking appropriate equitable relief than “anyone” including an attorney or firm could be a defendant.

Finding that the Plan was seeking a constructive trust or equitable lien (thus the Plan was seeking an equitable and not a legal remedy), the Western District made four findings when denying the Firm’s motion to dismiss:

  • The Plan had shown that it was plausibly entitled to full reimbursement;
  • The settlement funds were identifiable and in possession of the Firm;
  • The Firm was aware of the Plan’s right to full reimbursement;
  • Reimbursement was not made to the Plan.

While this case arguably shows a split within the Fourth Circuit, it is within the weight of authority on ERISA cases. When an attorney has notice or arguably has reason to know an ERISA self-funded plan has an equitable lien or constructive trust, an attorney cannot simply wash their hands of the lien without potentially exposing themselves or the Firm to liability.

This case also illustrates that an attorney’s duty to lien holders, under any relevant state law, will not serve as a defense when an ERISA qualified self-funded health plan pursues an action under Section 502(a)(3).

Synergy can assist you and your firm in resolving ERISA self-funded liens and avoid adverse results as such was found here.   This is especially true in the current environment as ERISA self-funded plans and their vendors are looking for opportunities to further extend the rights of these plans. The case is Mann+Hummel Filtration Technology US LLC v. Demayo Law Offices, LLP, Stephen Patterson.  CIVIL ACTION NO. 3:21-CV-00374-GCM-DSC.

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