Interestingly enough, the Supreme Court’s decision last week in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan is about the least complicated ERISA decision any court has issued in years. You know how I know that? The number of posts, tweets and articles published within days by law firms and others addressing it: there were so many, it could not have been a complicated decision to make sense of (for what its worth, I am partial to this post summing up the decision).

And it really isn’t, although partly that is because at this point we all have seen and digested a number of decisions, including out of the Supreme Court, addressing the odd question under ERISA of when a plan administrator can recoup monies from a participant, particularly out of a settlement fund paid to a participant. In Montanile, the plan had paid for the participant’s medical care; the participant thereafter received a settlement in a case he brought over the accident in which he was injured and that gave rise to the need for that medical care; the plan sought reimbursement of the amounts it paid for his medical bills from the settlement; and the participant refused to reimburse the plan and instead went out and spent all the money before the plan could get reimbursed. The Supreme Court, following its prior case law on equitable tracing in this type of a scenario, concluded that the plan was not entitled to reimbursement, because the general assets of the participant were the only funds available from which reimbursement could be obtained and reimbursement could not be obtained out of a dedicated settlement fund traceable to the settlement of the claim.

This outcome must seem silly to lawyers who practice personal injury law and are used to having to pay off workers compensation and other liens out of a settlement, but in the context of ERISA, it’s the natural outcome of the road taken by the Supreme Court in earlier cases in evaluating such claims, where it found that reimbursement constituted equitable relief for purposes of ERISA where the pot of money from which reimbursement was sought was independent of and segregated from the participant’s general assets; the natural corollary to that holding is the holding of Montanile, which is that, in turn, reimbursement isn’t available where there is no such independent fund, because this would mean that reimbursement would have had to come out of other funds and accounts held by the participant, which is not allowed.

I have three points that I want to emphasize about the decision in Montanile. First, as Mike Reilly hinted at in Boom, his blog on ERISA litigation, the practical impact of this decision is simple: if you are a plan administrator, never sit on your hands and instead pursue reimbursement before the participant can squander the settlement fund. This may mean, for instance, bringing an immediate action for reimbursement just as soon as the participant brings suit against a tortfeasor or starts discussing settlement with a tortfeasor, and may require seeking to have a constructive trust placed over the settlement fund -or other equitable relief preventing the dissipation of the settlement fund – until resolution of the plan administrator’s claim for reimbursement. This would maintain the sanctity of the independent settlement fund, from which reimbursement could be enforced, and preclude it from being intermingled with other assets or otherwise dissipated in a manner that would preclude a plan administrator from enforcing a right of reimbursement.

Second, in dissent, Justice Ginsburg pointed out that the decision was correct but, in layman’s terms, silly. (She didn’t actually say it was silly, and instead used fancy legal terminology to make the same point). Justice Ginsburg was driving at the fact that, as noted above, the Court’s ruling is the natural outcome of following prior precedent in this area of the law (namely, concerning equitable relief under ERISA), but that doing so results in the imposition of the wrong rule, one that can only serve to create (unearned) windfalls for participants, increased litigation costs for plan sponsors and administrators who now have to act aggressively through the court system to obtain reimbursement, and increased benefit costs as a result of sticking plans with health care costs that rightly should have been the responsibility of a tortfeasor (and yes, I know that the tortfeasor still ends up paying for them in this scenario when the case is settled, but the fact that those medical costs never get from the tortfeasor to the administrator – and instead get spent by the participant – means that the plan still ends up with health costs it should never have had to bear).

And the third is a personal note, something of which I am very proud but that only true ERISA geeks have understood in the past when I have discussed it. My bio on the firms’ web page, like most experienced lawyers’ web bios, has what I have come to call a humblebrag wall, where a representative sample of cases I have handled is discussed. Like me, you have probably noted over the years that these listings always describe successful outcomes as “representative” examples of the lawyer’s good work over the years, and never seem to include cases that went south on the lawyer. I am no different, and certainly plead guilty to that. But if you look at my representative past ERISA engagements, you will see that one of them is described as “Represented the retired general counsel of a publicly traded financial and insurance company in a dispute concerning claims for reimbursement of excessive pension payments due to company errors in calculation of benefits combined with dispute over interpretation of relevant plan terms.” This was many years ago, and I convinced the plan sponsor to give up on the demand for reimbursement by arguing that the funds had long since been spent or intermingled with other, general assets of the beneficiary, and that the natural outgrowth of the law on reimbursement under ERISA as it existed at that time had to be that there was no legal right on the part of the plan sponsor to enforce reimbursement in the courts under that circumstance. The Court’s opinion in Montanile makes clear, these many years later, that we were always right on this point, and that’s a very satisfying thing.