Employer cannot use ERISA to gain portion of settlement not yet paid to benefit plan beneficiaries

Law Reporter, Sep 2002

Bauhaus USA Inc. v. Copeland, 292 RM 439 (5th Cir. 2002).

The Fifth Circuit Court of Appeals held that the Employee Retirement Income Security Act (ERISA), 29 U.S.C. (secs)1001 etseq., does not authorize a declaratory judgment action to enforce the terms of a benefit plan's reimbursement provision.

Here, the mother of a girl injured in an automobile crash requested that her employee benefit plan cover her daughter's medical expenses. The plan advanced her money to pay the expenses. The plan provided that beneficiaries must reimburse the plan out of any recovery against a third party. The mother sued the driver of the other vehicle, his employer, and the employer's insurer, and the parties reached a settlement that required the defendants to pay a portion of the settlement proceeds into the registry of the chancery court. This payment was made in compliance with a state law requiring court approval of the assignment of a minor's right to insurance proceeds.

The mother's employer sought a declaratory judgment under ERISA, claiming that the federal statute preempts the state law. The trial court dismissed the action on the ground that ERISA does not authorize such an action.

Affirming, the Fifth Circuit said ERISA authorizes such actions only to enjoin a practice that violates the plan or to "obtain other appropriate equitable relief" An injunction to compel payment of money past due under a contract, or specific performance of a past due monetary obligation, was not typically available in equity, the court noted.

Citing U.S. Supreme Court case law, the court defined restitution in equity as a form of constructive trust or equitable lien, where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession. In contrast, the court defined restitution at law as a remedy available to a plaintiff who could not assert title or right to possession of particular property, but in which the plaintiff might nevertheless be able to show just grounds for recovering money to pay for some benefit the defendant had received.

Here, the beneficiaries of the employee benefit plan are not in possession of the disputed funds. Rather, the plan is seeking money that is being held by the chancery court. Thus, the suit is really a claim for money due and owing under a contract, not an equitable remedy. As such, it is not authorized by ERISA.

Beneficiaries' Counsel

*Roy 0. Parker, Tupelo, Miss.