In Treas., Trustees of Drury Industries, Inc. Health Care Plan and Trust v. Goding, 692 F.3d 888 (8th Cir. 2012), Goding, a plan participant, received benefits under Drury’s health care plan after an accident; the Plan contained an express subrogation agreement. During the course of Goding’s litigation to collect damages for the accident, his attorneys repeatedly acknowledged the Plan’s subrogation rights. Goding settled his lawsuit, and his attorneys initially held in escrow funds necessary to reimburse the Plan, but then disbursed them to Goding. The Plan was unable to obtain reimbursement from Goding after he declared bankruptcy. The Plan then sued Goding’s attorneys, asserting various theories, including equitable lien, restitution and constructive trust.
The Court held that a subrogation agreement between a client and an ERISA plan is only enforceable against a client’s attorney if the attorney agrees with a client and a plan to honor the plan’s subrogation right. Goding’s attorneys had sent two letters to the Plan. The first said: “This will confirm that we do acknowledge Drury Inns, Inc.’s lien in this matter.” The second said: “we are not challenging your right to reimbursement/subrogation for payments made for the health care of Sean Goding relating [sic] the injuries caused by his fall at the Hilton.”
The Court held that these statements were insufficient to bind the attorneys to the subrogation agreement, holding: “These statements clearly acknowledge the validity and existence of a subrogation agreement between Goding and Drury. However, absent from these statements or any other communication identified by Drury is a promise by [the attorneys] to take any action to himself enforce the subrogation agreement or even to ensure that Goding abide by it.”
The Court also held that the Plan did not have an equitable remedy against the attorneys either, because equitable restitution is available only where a trustee wrongfully disposed of property but is still in possession of the property or its product. Here, even if the attorneys wrongfully disposed of the property at issue, because they no longer had possession of any money or property in which the Plan claimed an interest, the Plan’s claim was legal, not equitable, in nature.
The Court also held that the Plan’s conversion claim against the attorneys was preempted.