The 5th Circuit Court of Appeals rules that an ERISA plan can assert an equitable claim for recovery against a beneficiary's special needs trust that is funded with monthly structured settlement funds even though the trust never possessed the entire recovery. ACS Recovery Services, Inc. v. Griffin (5th Cir., No. 11-40446, May 7, 2013).
Larry Griffin received $50,076.19 in medical care from his employee health plan after being injured in a car crash. According to the plan's terms, it had a first lien upon any recovery that Mr. Griffin received as a result of his injury. When Mr. Griffin reached a settlement in a lawsuit related to the crash, he petitioned the court to establish a first-party special needs trust and then agreed to allow the defendant's insurance carrier to transfer the settlement funds directly to Hartford CEBSCO, a structured settlement provider. Hartford CEBSCO then purchased an annuity from Hartford Life and directed the monthly payments to Mr. Griffin's special needs trust, which passed them on to Mr. Griffin.
ACS Recovery Services, Mr. Griffin's ERISA plan administrator, filed suit against Mr. Griffin, his wife and the special needs trust seeking to impose a constructive trust upon "no less than $50,076.19." The trial court granted summary judgment against ACS, ruling that it could not enforce an equitable lien against the trust because the trust did not own the annuity and had no possession of the settlement funds. A panel of the 5th Circuit Court of Appeals upheld the trial court's decision, but the court agreed to hear the case en banc. On appeal, ACS argued that it could recover against the trust every time that it received payment from the annuity because the funds were traceable to Mr. Griffin's settlement.
The 5th Circuit upholds the trial court's decision and allows recovery against the trust. The court explains that under Supreme Court precedent, "[b]oth the annuity and its monthly payments to the Trust, which accrue to Larry's benefit, are an identifiable fund to which the Plan's lien attaches. The money belongs in good conscience to the Plan to the extent of the costs it incurred. Under [ERISA] 502(a)(3)(B), appropriate equitable relief demands the imposition of a constructive trust on the proceeds of the annuity as they accrue to the Special Needs Trust."
The 5th Circuit's opinion was far from unanimous. In one dissent, Justice Prado argues that because the trust did not possess all of the funds, "the underlying basis of the equitable remedy is lost." A second dissent, written by Justice Haynes and joined by Justices Reavley, Dennis and Elrod, made a similar argument, but also posited that "the Trust represents a congressionally sanctioned means of providing Larry Griffin with additional benefits without interfering with his entitlement to public benefits. The majority opinion's approach ignores this key distinction and raises the specter that all special needs trusts will be available for equitable relief to various creditors of beneficiaries of such trusts. Such a drastic approach should come from Congress, not the courts."
For the full text of this decision, go to: https://www.ca5.uscourts.gov/opinions%5Cpub%5C11/11-40446-CV2.wpd.pdf
Subscribe to the Knowledge Bank.
