Supreme Court Provides Argument Against Post-Settlement Bass Boat Purchases

Commentary, Fraud, Medicare, Medicare Set-Aside Blog, MSP Litigation on January 20, 2016 | Posted by Jennifer Jordan, JD, MSCC

We joke quite regularly about how quickly settlement funds will disappear and what will be bought. Well the Supreme Court today may have just made that less amusing for plaintiffs. In an 8-1 decision, the United States Supreme Court prevented an ERISA plan from recovering from a plaintiff who settled a third-party claim for $500,000 spent most of his settlement on “nontraceable items” by the time it sued for recovery of $120,000 in medical expenses. The ERISA plan argued that it should have been entitled to recovery from the plaintiff’s general assets since the settlement funds were gone but the Court disagreed.

Under section 502(a)(3) of ERISA, a plan can only sue for “appropriate equitable relief” to enforce the terms of the plan. As the Court previously determined in US Air v. McCutchen in 2013, the basis for a plan’s claim can be equitable when it creates an equitable lien by agreement on a specifically identified third party settlement while within the plaintiff’s control. In US Air, the plan was entitled to full recovery per the plan’s terms and the funds were still available. Had the ERISA plan in this case established its claim earlier, it too would have fully recovered. However the plan waited six months to file suit and the money was gone by then so the issue is now whether it can seek an equitable remedy from the plan beneficiary’s general assets after the settlement funds were totally dissipated.

Upon consulting various legal treatises, the Court founds that a plaintiff could ordinarily enforce an equitable lien only against specifically identified funds that remain in his possession or against traceable items purchased with the funds. The plan could not attach the beneficiary’s general assets instead because those assets were not part of the specific thing to which the lien attached. The Court further inferred that because this plan failed to develop safeguards against beneficiary efforts to evade reimbursement and had received adequate notice and failed to timely respond, that the dissipation was of its own fault. However it did remand the case to determine if the settlement had been kept separated from his general assets or was dissipated entirely on nontraceable assets so there may still be some recovery to be had.

The moral of the story is that a bass boat, an 80” TV and a new Range Rover are all examples of traceable asset so beware if you still owe outstanding liens from your settlement proceeds.  Seriously though, we track such cases to evaluate what might happen under the MSP in similar circumstances since the Supreme Court refuses to take an MSP case. With regard to the MSP’s application to Medicare beneficiaries, 42 U.S.C. 1395y(b)(2)(B)(iii) states that “the United States may recover under this clause from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity.” This language could be interpreted as similar to the ERISA provision above to limit the recovery to direct settlement funds.  Of course that would not prevent actions taken directly against the primary payers as they may have an obligation to make reimbursement even if funds were already provided the beneficiary. If it is the case that the government couldn’t recover from a beneficiary if the funds were no longer available, that would certainly take the wind out of the argument we commonly hear from carriers that once they give the beneficiary the money, Medicare is their problem. Also makes self-administration of MSAs a questionable call. Things for primary payers to think about…


MONTANILE v. BOARD OF TRUSTEES OF THE

NATIONAL ELEVATOR INDUSTRY HEALTH BENEFIT PLAN

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE ELEVENTH CIRCUIT

No. 14–723. Argued November 9, 2015—Decided January 20, 2016