plaintiff-appellee defendants-appellants

Nos. 11-35127; 11-35128

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

CGI TECHNOLOGIES AND SOLUTIONS, INC., in its capacity as Sponsor and

Fiduciary for CGI TECHNOLOGIES AND SOLUTIONS, INC. WELFARE BENEFIT PLAN,

Plaintiff-Appellee,

v.

RHONDA ROSE, and NELSON LANGER ENGLE PLLC, Defendants-Appellants.

Appeal from the U.S. District Court for the Western District of Washington No. 2:20-cv-00298-RSM

APPELLANTS’ OPENING BRIEF

Matthew W.H. Wessler PUBLIC JUSTICE, P.C. 1825 K Street NW, Suite 200 Washington, DC 20006 (202) 797-8600 mwessler@publicjustice,net

Michael Nelson Nelson Langer Engle PLLC 1015 N.E. 113TH

STREET Seattle, WA 98125 (206) 623-7520

Leslie A. Brueckner PUBLIC JUSTICE, P.C. 555 12th Street, Suite 1620 Oakland, CA 94607 (510) 622-8150

Paul L. Stritmatter Stritmatter Kessler Whelan Coluccio 438-8th Street Hoquiam, WA 98550 (800) 540-7364

Counsel for Defendants-Appellants

Case: 11-35127 05/23/2011 Page: 1 of 57 ID: 7760953 DktEntry: 8

i

CORPORATE DISCLOSURE STATEMENT

Defendant-Appellant Nelson Langer Engle PLLC is a privately held

corporation. It has no parent corporation and does not issue stock.

Dated: May 23, 2011 Respectfully Submitted,

/s/ Matthew W.H. Wessler________

Matthew W.H. Wessler Public Justice, P.C. 1825 K Street NW, Suite 200 Washington, DC 20006 (202) 797-8600



ii

STATEMENT REGARDING ORAL ARGUMENT

Pursuant to Federal Rule of Appellate Procedure 34, Defendants-Appellants

Rhonda Rose and Nelson Langer Engle PLLC respectfully request that the Court

hear oral argument. This case presents an important and unresolved issue of first

impression for beneficiaries of Employee Retirement Income Security Act

(“ERISA”) health insurance plans: whether, under Section 502(a)(3) of ERISA, a

seriously injured tort victim who recovered only a fraction of her damages from a

third-party tortfeasor must pay 100% of a reimbursement claim made by a health

insurance plan sponsored through her employer simply because the plan language

so provides, or whether the insurance plan is limited to seeking “appropriate

equitable relief” pursuant to Section 502(a)(3).

This is an issue with enormous implications for the over 177 million

employees nationwide who receive health coverage through a self-funded

employee benefit plan. The lower court enforced the ERISA plan language as

written, granting the insurer 100% reimbursement notwithstanding the limiting

language of the statute. Under the district court’s reasoning, insured employees

would be categorically subject to whatever conditions insurers write into their

contracts, even if it means that an insurer will reap a profit by invading a

beneficiary’s compensation for unrelated damages, compensation that a beneficiary

often desperately requires for even the most basic life needs. In permitting this

result, the district court not only contravened the plain language of the statute, but

also violated ERISA’s core purpose, which is to protect the interests of

beneficiaries, not insurers.


iii

This case also has serious implications for personal-injury victims’ access to

justice. This suit was filed against both the beneficiary (who was seriously injured

in a car crash) and her attorney, and both have been required to mount a full-scaled

defense of her right to retain at least a fair share of the limited recovery she

obtained. By rewarding the insurer with 100% reimbursement of its medical

expenses, the lower court has increased the likelihood that future injury victims

will be unable to obtain representation to hold wrongdoers accountable for illegal

or tortious conduct. The likelihood that an attorney will become a defendant in a

federal lawsuit, and the accompanying consequences that flow therefrom, create a

powerful economic disincentive to take on the representation of a client who

received anything more than a trivial amount of medical insurance from an ERISA

plan. By chilling injury victims’ ability to obtain representation, this approach

would unavoidably exculpate tortfeasors from liability while denying injury

victims just compensation for their injuries.

In light of the important issues presented by this case and the complex nature

of the statutory interpretation question raised on appeal, Appellants respectfully

request that the Court hear oral argument.


iv

TABLE OF CONTENTS

STATEMENT REGARDING ORAL ARGUMENT ................................................ ii

TABLE OF AUTHORITES .................................................................................. vi-ix

JURISDICTIONAL STATEMENT ............................................................................ 1

STATEMENT OF THE ISSUES................................................................................. 2

STATEMENT OF PERTINENT STATUTORY PROVISIONS ............................... 3

STATEMENT OF THE CASE .................................................................................... 4

A. Introduction ............................................................................................. 4

B. Course of Proceedings and Disposition Below ....................................... 5

STATEMENT OF THE FACTS ................................................................................. 6

A. History of Subrogation/Reimbursement ................................................. 6

B. Rhonda Rose’s Accident and Injuries ...................................................11

C. CGI’s Employee Benefit Plan ...............................................................13

D. The Lawsuit ...........................................................................................13

E. The Decision Below ..............................................................................14

SUMMARY OF ARGUMENT ................................................................................. 16

STANDARD OF REVIEW ....................................................................................... 18

ARGUMENT ............................................................................................................. 19

I. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT TO CGI IS INCONSISTENT WITH THE PLAIN LANGUAGE OF THE STATUTE ............................................................................................... 19

A. The Use of the Term “Appropriate” in Section 502(a)(3) Vests Courts with Discretion to Fashion Equitable Relief. ............................19

B. CGI’s Right to Relief Is Controlled by Equitable Principles of Unjust Enrichment. ................................................................................20


v

C. Principles of Unjust Enrichment Restrict CGI to Recovering only the Portion of Ms. Rose’s Recovery that is Reasonably Allocable to Medical Expenses .............................................................23

D. The District Court’s Award of 100% Reimbursement Violated the Statutory Requirements of Section 502(a)(3) By Failing to Adhere to Equitable Principles of Unjust Enrichment. .........................28

1. Those Cases Categorically Prohibiting an Award Fashioned upon Equitable Limitations Are Not Controlling and, in any Event, Wrongly Decided. .....................28

2. The Lower Court Erred in Assuming that Sereboff Mandated an Award of 100% Reimbursement. ..........................30

II. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT TO CGI IS INCONSISTENT WITH BOTH THE STRUCTURE AND PURPOSES OF ERISA. ........................................................................ 34

III. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT IS CONTRARY TO PUBLIC POLICY.......................................................... 38

A. Permitting 100% Reimbursement Would Deter Tort Victims from Holding Wrongdoers Accountable. ..............................................39

B. The District Court’s Approach also Undermines the Public Policy in Favor of Settlements. .............................................................40

C. Permitting 100% Reimbursement Would Only Benefit Insurers, Not Other Beneficiaries. ........................................................................43

CONCLUSION .......................................................................................................... 43

STATEMENT OF RELATED CASES AND PROCEEDINGS .............................. 44

CERTIFICATES OF COMPLIANCE ....................................................................... 45

CERTIFICATE OF FILING AND SERVICE .......................................................... 46


vi

TABLE OF AUTHORITIES

Cases

A.C. Houston Lumber Co. v. William L. Berg, et al., 2010 WL 5439786 (9th Cir. Dec. 29, 2010) ...............................................................................................16

Adams v. Gov’t Emp. Ins. Co., 383 N.Y.S.2d 319 (N.Y.A.D. 1976) ......................26

Admin. Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Shank, 500 F.3d 834 (8th Cir. 2007) .......................................... 28, 29, 42

Aetna Life & Cas. Co. v. Nelson, 492 N.E.2d 386 (N.Y. 1986) ..............................25

Arkansas Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268 (2006) ........................................................................................................... passim

Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir. 2003) .................................................... 9

Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010) ...................................... passim

Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115 (9th Cir. 2010) ..........23

CIGNA v. Amara, -- U.S. --, 2011 WL 1832824 (U.S. May 16, 2011) ........... passim

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) .................................................19

Flanigan v. Dep’t of Labor and Inds., 869 P.2d 14 (1994) .....................................41

Florence County Sch. Dist. v. Carter, 510 U.S. 7 (1993) ........................................19

Frost v. Porter Leasing Corp., 436 N.E. 2d 387 (Mass. 1982) ............................... 24

Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) ........... passim

Harris Trust & Sav. Bank v. Solomon Smith Barney, Inc., 530 U.S. 238 (2000) ...................................................................................................................19

Harris v. Harvard Pilgrim Health Care, Inc., 208 F.3d 274 (1st Cir. 2000) ..........29

Hotel Employees & Restaurant Employees Int’l Union Welfare Fund v. Gentner, 50 F.3d 719 (9th Cir. 1995) ..................................................................16

Hudson v. Lazarus, 217 F.2d 344 (D.C. Cir. 1954) ................................................... 7


vii

Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127 (9th Cir. 1994) ...............18

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985) ....... 35, 36, 37, 38

Maxwell v. Allstate Ins. Cos., 728 P.2d 812 (Nev. 1986) .......................................... 8

McDermott, Inc. v. AmClyde, 511 U.S. 202 (1994) .................................................40

McKinney ex rel. Gage v. Philadelphia Housing Auth., 2010 WL 3364400 (E.D. Pa. Aug. 24, 2010) ......................................................................................26

Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008) ..................................35

Miller v. Liberty Mut. Fire Ins. Co., 264 N.Y.S. 2d 319 (1965), aff’d mem., 289 N.Y.S.2d 726 (1968) ..................................................................................... 25

Mills v. London Grove Twnshp., 2007 WL 2085365, *3 (E.D. Pa. July 19, 2007) ....................................................................................... 42

Qualchoice, Inc. v. Rowland, 367 F.3d 638 (6th Cir. 2004) ...................................... 9

Ryan by Capria-Ryan v. Fed. Express Corp., 78 F.3d 123 (3d Cir. 1996) .. 9, 29, 30

Sch. Comm. of Burlington v. Dep’t of Educ. of Mass., 471 U.S. 359 (1985) ..........20

Scroggins v. Red Lobster, 325 S.W.3d 389 (Mo. App. 2010) ...............................8, 9

Sereboff v. Mid Atlantic Medical Servs., Inc., 547 U.S. 356 (2006) ............... passim

Suttles v. Ry. Mail Ass’n, 141 N.Y.S. 1024 (N.Y. App. Div. 1913) .......................... 7

Thiringer v. Am. Motors Ins. Co., 588 P.2d 191 (Wash. 1978) ...........................9, 14

Tobin v. Dep’t of Labor & Indus., 239 P.3d 544 (Wash. 2010) ..............................25

United McGill Corp. v. Stinnett, 154 F.3d 168 (4th Cir. 1998) ...............................30

U.S. Healthcare, Inc. v. O’Brien, 868 F. Supp. 607 S.D.N.Y. (1994) .................... 24

Varity Corp. v. Howe, 516 U.S. 489 (1996) .................................................... passim

Wal-Mart Stores, Inc. Assocs. Health and Welfare Plan v. Wells, 213 F.3d 398 (7th Cir. 2000) ...............................................................................................39

Werner v. Latham, 752 A.2d 832, 835 (N.J. App. Div. 2000) ................................25


viii

Western Sur. Co. v. Bank of Southern Oregon, 257 F.3d 933 (9th Cir. 2001) ........18

Wilson v. Wall, 73 U.S. (6 Wall.) 83 (1867) ............................................................20

Zurich Amer. Ins. Co. v. O’Hara, 604 F.3d 1232 (11th Cir. 2010) ............ 28, 29, 42

Statutes

28 U.S.C. § 1291 ........................................................................................................ 1

28 U.S.C. § 1331 ........................................................................................................ 1

29 U.S.C. § 1001(a) .................................................................................................35

29 U.S.C. § 1132(a)(1)(B) ................................................................................ 17, 36

29 U.S.C. § 1132(a)(3) ..................................................................................... passim

29 U.S.C. § 1132(e)(1) ............................................................................................... 1

29 U.S.C. § 1132(e)(2) ............................................................................................... 1

Other Authorities

G. Palmer, Law of Restitution ......................................................................... passim

16 Couch on Ins. § 222:8 .........................................................................................23

46A C.J.S. Insurance § 1993 ....................................................................................23

73 Am. Jur. 2d Subrogation § 6 (2007) ..................................................................... 6

Andrew H. Koslow, “Appropriate Equitable Relief” in Wal-Mart v. Shank: Justice for Whom?, 12 Quinnipiac Health L.J. 277 (2009) .................................43

Brendan S. Maher & Radha A. Pathak, Understanding and Problematizing Contractual Tort Subrogation, 40 Loy. U. Chi. L.J. 49 (2008) ................... passim

D. Dobbs, Law of Remedies (2d ed. 1993) ..................................................... passim

Johnny C. Parker, The Made Whole Doctrine: Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation, 70 Mo. L. Rev. 723 (2005) ...................................................................................................................43


ix

Kristin L. Huffaker, Note, Where the Windfall Falls Short: “Appropriate Equitable Relief” After Sereboff v. Mid Atlantic Medical Services, Inc., 61 Okla. L. Rev. 233 (2008) .....................................................................................14

Mark Galanter, The Hundred-Year Decline of Trials and the Thirty Years War, 57 Stan. L. Rev. 1255 (2005) ......................................................................42

Restatement of Restitution § 160 .............................................................................23

Robert E. Keeton & Alan I. Widiss, Insurance Law § 3.10(7) (1988) ....................23

Roger M. Baron, Subrogation: A Pandora’s Box Awaiting Closure¸ 41 S.D. L. Rev. 237 (1996) ...........................................................................................7, 43

Vanessa Fuhrmans, Accident Victims Face Grab for Legal Winnings, Wall St. J., Nov. 20, 2007 .............................................................................................11

Rules

Federal Rule of Civil Procedure 56 ........................................................................... 1

Federal Rule of Appellate Procedure 4 ...................................................................... 1

Federal Rule of Appellate Procedure 34 ................................................................... ii


1

JURISDICTIONAL STATEMENT

This is an action under 29 U.S.C. § 1132(a)(3). The United States District

Court for the Western District of Washington had federal question jurisdiction

under 28 U.S.C. § 1331 and exclusive subject matter jurisdiction under 29 U.S.C. §

1132(e)(1). The district court was a proper venue for the action because it is where

the Defendants may be found. 29 U.S.C. § 1132(e)(2).

The Court of Appeals for the Ninth Circuit has jurisdiction under 28 U.S.C.

§ 1291 because this is an appeal from a final judgment granting in part Plaintiff’s

motion for summary judgment and granting in part Defendants’ motion for

summary judgment under Federal Rule of Civil Procedure 56. See Excerpts of

Record (“ER”) 3. The judgment was entered on January 19, 2011. ER3.

Defendants and Plaintiff filed their respective Notices of Appeal on February 11,

2011. ER1; Fed. R. App. P. 4(a)(1)(A).


2

STATEMENT OF THE ISSUES

1. Whether, under Section 502(a)(3) of the Employee Retirement Income

Security Act (“ERISA”), 29 U.S.C. § 1132(a)(3), a seriously injured tort

victim who recovered only 21.44% of her damages from a third-party

tortfeasor must pay 100% of a reimbursement claim made by a health

insurance plan sponsored through her employer simply because the plan

language so provides, or whether the insurance plan is limited to seeking

“appropriate equitable relief” pursuant to Section 502(a)(3).

2. Whether principles of equity limit the measure of an award for an equitable

claim for reimbursement to that portion of a beneficiary’s underlying

recovery that is reasonably allocable to the medical expenses paid by the

insurance plan.


3

STATEMENT OF PERTINENT STATUTORY PROVISIONS

29 U.S.C. § 1132(a)

(a) Persons empowered to bring a civil action

A civil action may be brought—

(1) by a participant or beneficiary—

(A) for the relief provided for in subsection (c) of this section, or

(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;

(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title;

(3) by a participant, beneficiary, or fiduciary

(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or

(B) to obtain other appropriate equitable relief

(i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan;

(4) by the Secretary, or by a participant, or beneficiary for appropriate relief in the case of a violation of 1025(c) of this title;

(5) except as otherwise provided in subsection (b) of this section, by the Secretary

(A) to enjoin any act or practice which violates any provision of this subchapter, or

(B) to obtain other appropriate equitable relief

(i) to redress such violation or (ii) to enforce any provision of this subchapter.


4

STATEMENT OF THE CASE

A. Introduction

The plaintiff in this particular case, CGI Technologies and Solutions Inc.

Employee Health Plan (“CGI” or the “Plan”), argues that it is entitled to 100%

reimbursement, without any reduction for collection costs, of all the medical

expenses it paid out to its beneficiary, defendant Rhonda Rose, even though (1)

Ms. Rose paid recurring premiums for that coverage, (2) has only been

compensated for, at most, 21.44% of her injuries, and (3) is not herself in

possession of the disputed funds.

CGI’s claim for relief rests on a fundamentally flawed premise: that an

ERISA plan’s subrogation/reimbursement provision must be enforced as written

under rules of contract law, without regard to principles of equity, ignoring the

extent to which a beneficiary has recovered for her injuries, and irrespective of the

location of the funds to which the ERISA plan claims it is entitled. This premise

ignores that the governing statutory provision under which CGI claims relief –

ERISA Section 502(a)(3) – limits an insurer to seeking “appropriate equitable

relief” from a plan beneficiary.1

Under the governing principle of unjust enrichment, CGI is limited, at most,

to recovering that portion of the underlying recovery reasonably allocable to the

1 A fiduciary, like CGI, may bring a civil action under Section 502(a)(3) of ERISA “(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” 29 U.S.C. § 1132(a)(3).


5

medical expenses paid by the Plan, minus its proportionate share of costs and fees.

This approach achieves an equal – and “equitable” – balance between CGI and Ms.

Rose, whereby each party both (1) recovers a proportion of the underlying

recovery that corresponds to their claims, and (2) contributes proportionally to the

costs of obtaining that recovery.

By granting CGI 100% of its advanced medical expenses based solely on the

terms of the plan, the district court allowed CGI to recover dollars that Ms. Rose

did not obtain and that CGI did not pay. Under the lower court’s enforce-the-plan

approach, an employer may reach into an injured employee’s pocket and take, by

claim of reimbursement, the employee’s own recovery for pain and suffering

damages, lost wages, and even medical bills paid for by the employee herself.

Such an invasion of an employee’s other tort entitlements violates both the plain

language of the statute and its overriding purposes, and should not be endorsed by

this Court.

B. Course of Proceedings and Disposition Below

This suit was filed against both Rhonda Rose and the law firm that

represented her, Nelson Langer Engle PLLC (“NLE”). ER45-46. CGI sought

summary judgment on the ground that its plan entitles it to 100% reimbursement of

the medical expenses it paid to Ms. Rose, without any deduction for costs or fees.

ER4. The district court granted CGI’s motion against Ms. Rose and awarded CGI

100% reimbursement, ER10, but the court denied CGI’s claim that it could take its

reimbursement without contributing to the costs of collection. ER8.


6

In its final order, the district court entered a judgment against Ms. Rose for

the total amount of CGI’s reimbursement claim, $31,581.09, but ordered NLE to

deduct its fees and costs from that amount before returning the difference to CGI.

ER3. This appeal followed (as did CGI’s appeal). ER1.

STATEMENT OF THE FACTS

A. History of Subrogation/Reimbursement. Because this case hinges on

the equitable principles governing subrogation/reimbursement, it is important to

understand both the historical underpinnings of, and the time-honored equitable

limitations on, these types of claims.2

Although ERISA is a modern statute, the equitable doctrines of subrogation

and reimbursement are as old as the law itself, with roots in Roman, Talmudic,

French, and, more recently, British law. See Brendan S. Maher & Radha A.

Pathak, Understanding and Problematizing Contractual Tort Subrogation, 40 Loy.

U. Chi. L.J. 49, 60 (2008) (hereinafter “Maher & Pathak, Understanding Tort

Subrogation”). At their most fundamental level, the doctrines embody a desire to

ensure parity between three related parties – a tortfeasor, an injured beneficiary,

and an insurer – by allowing the insurer to recoup money it paid out to its

beneficiary, either by suing the tortfeasor directly or (as in this case) seeking

2 Historically, “subrogation” allowed one party to “stand in the shoes” of another for the purpose of recovering money that the former had paid to the latter, while “reimbursement” allowed an insurer to directly pursue repayment against an insured. See 1 D. Dobbs, Law of Remedies § 4.3(4) (2d ed. 1993). Today, however, the two doctrines have become functionally intertwined, and, for purposes of this case, are governed by the same controlling principles. See 73 Am. Jur. 2d Subrogation § 6 (2007). Hereinafter, the terms are used interchangeably.


7

reimbursement from the beneficiary in the event s/he recovers damages from the

tortfeasor. The doctrines have twin purposes: to ensure that tortfeasors do not

escape liability, and to avoid “unjust enrichment” of beneficiaries vis-à-vis insurers

by preventing beneficiaries from recovering twice for one injury. Id. at 55.

Although subrogation and some forms of reimbursement are ancient

equitable remedies, the ability of insurers to bring claims for reimbursement

against insureds who are personal-injury victims is of only recent vintage.

Although frequently available in property insurance cases, before the mid-20th

century, courts almost universally prohibited this type of claim in the personal-

injury context, reasoning that personal-injury victims are never truly made whole

by money damages, let alone deemed to have obtained a double recovery. As one

court cogently observed, “[l]egal ‘compensation’ for personal injuries does not

actually compensate. Not many people would sell an arm for the average or even

the maximum amount that juries award for loss of an arm.” Hudson v. Lazarus,

217 F.2d 344, 346 (D.C. Cir. 1954); see also Suttles v. Ry. Mail Ass’n, 141 N.Y.S.

1024, 1027 (N.Y. App. Div. 1913).

In fact, because personal-injury victims have paid for their insurance

coverage and yet are never truly made whole by money damages, many critics of

insurer-based subrogation/reimbursement have argued that the practice actually

amounts to a windfall for the insurer, who gets to have its cake and eat it too. See,

e.g., Roger M. Baron, Subrogation: A Pandora’s Box Awaiting Closure, 41 S.D. L.

Rev. 237, 242 (1996) (concluding that the “double recovery” rationale is “flawed”

and “proven to be duplicitous” because, in most cases, “the insurer who asserts that


8

the insured will receive an unwarranted ‘double recovery’ is itself picking up a

windfall recovery if subrogation is permitted”).

Nevertheless, as World War II came to a close, medical insurance had

become a profitable and commonplace product, prompting insurers to begin

systematically including subrogation/reimbursement clauses in their insurance

agreements, and, in turn, aggressively pursuing recovery for advanced medical

expenses under a subrogation or reimbursement theory. See Maher & Pathak,

Understanding Tort Subrogation, 40 Loy. U. Chi. L.J. at 73 (noting that “litigation

regarding these contractual subrogation clauses proliferated” after the Second

World War).

Courts were initially dismissive of these efforts, routinely rejecting insurers’

claims for reimbursement on the ground that equitable principles limit or outright

prohibit any attempt to recover from an injured insured.3 But a key turn came

when insurers realized that, by repackaging their arguments for reimbursement as

based not on equitable grounds, but as rooted in “freedom of contract,” they could

convince courts that the basis of the claim was contractual in nature, and therefore

3 See, e.g., Scroggins v. Red Lobster, 325 S.W.3d 389 (Mo. App. 2010) (explaining that despite the fact that “the prohibition against the assignment of personal tort claims dates back to English Common law and the Middle Ages,” insurers “have repeatedly attempted to draft policy provisions or establish other requirements for the purposes of seeking reimbursement from the insured in such situations” and noting that “[s]uch provisions or other requirements have been regularly invalidated by appellate courts”); Maxwell v. Allstate Ins. Cos., 728 P.2d 812, 815 (Nev. 1986) (holding that subrogation “violates public policy” by ignoring ‘the fundamental principle that an insured is entitled to receive the insurance benefits for which he has paid a premium”).


9

governed by rules of contract law, not equity. See Maher & Pathak,

Understanding Tort Subrogation, 40 Loy. U. Chi. L.J. at 74. This shift, as recent

scholarship has explained, was the linchpin in the birth of these types of actions.

Id. at 74-75.

Still, not all courts accepted insurers’ attempts to refashion the law to their

liking, and many courts refused to permit reimbursement in the personal injury

context. See, e.g., Scroggins v. Red Lobster, 325 S.W.3d 389 (Mo. App. 2010).

Relevant to this case, debate arose among federal courts about whether

reimbursement actions by self-funded insurance plans are permitted under ERISA.4

Some courts saw these actions as arising under, and authorized by, general federal

common law, but not under any specific provision of ERISA. See Ryan by Capria-

Ryan v. Fed. Express Corp., 78 F.3d 123 (3d Cir. 1996). Courts that viewed

reimbursement claims this way tended to apply general rules of contract law to

resolve them; in their view, if the plan language was clear, it should be enforced.

See id. at 127-28. Other courts viewed these claims as equitable, and therefore

governed by Section 502(a)(3)’s reference to “other appropriate equitable relief.”

See, e.g., Qualchoice, Inc. v. Rowland, 367 F.3d 638 (6th Cir. 2004). Among these

latter courts, some held that reimbursement actions similar to CGI’s are not

4 For non self-funded insurance plans, ERISA’s “savings clause” ensures that state laws apply. See FMC Corp. v. Holliday, 498 U.S. 52, 61 (1990). In this case, were the CGI plan considered not to be self-funded for purposes of ERISA, it would have no right to reimbursement. See Thiringer v. Am. Motors Ins. Co., 588 P.2d 191, 194 (Wash. 1978).


10

“equitable” within the meaning of Section 502(a)(3) – and therefore not available

under ERISA – and other courts held to the contrary.5

Ultimately, that split led to the U.S. Supreme Court taking and deciding

Sereboff v. Mid Atlantic Medical Servs., Inc., where the question presented was

whether Section 502(a)(3) authorizes an ERISA plan to seek equitable

reimbursement from a beneficiary who has recovered from a third-party tortfeasor

and is in possession of the disputed funds. See 547 U.S. 356, 361 (2006) (granting

certiorari “to resolve the disagreement”). Sereboff held that an ERISA plan’s

action for reimbursement against a beneficiary who is in possession of the disputed

funds is equitable and therefore authorized by ERISA Section 502(a)(3). The

Supreme Court expressly declined, however, to reach the question of whether

Section 502(a)(3)’s reference to “appropriate” equitable relief places limitations

on the actual amount to which a plaintiff would be entitled for that reimbursement

remedy. See id. at 368 n.2 (“declin[ing] to consider” whether permitting 100%

reimbursement would be “appropriate” within the meaning of Section 502(a)(3)

because the issue had not been raised below).

This undecided question – which is now before this Court – has enormous

implications. Despite the fact that scholars and commentators (not to mention a

majority of states) have criticized the practice of insurance

5 Compare Qualchoice, 367 F.3d at 638 (holding that Section 502(a)(3) did not authorize a Plan’s action for reimbursement) with Bombardier Aerospace

Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir. 2003) (finding that Section 502(a)(3) did authorize recovery).


11

subrogation/reimbursement as both inequitable and producing perverse

consequences for settlement and tort law, the subrogation industry is now a $1

billion a year profit center for ERISA insurance plans. See Maher & Pathak,

Understanding Tort Subrogation 40 Loy. U. Chi. L.J. at 77 n.133, 82-90. And,

because a majority of Americans with private health insurance receive it through

an ERISA plan, over 177 million Americans find themselves the potential

defendant in a federal lawsuit like this one. See id. at 77 n.133. In some cases,

victims have even been rendered unable to care for themselves and their families

because the ERISA plan’s reimbursement action stripped them of any means of

support. Id.; see also Vanessa Fuhrmans, Accident Victims Face Grab for Legal

Winnings, Wall St. J., Nov. 20, 2007, at A1 (detailing the plight of several injured

beneficiaries suffering this consequence as a result of their insurance plans’ pursuit

of reimbursement).

B. Rhonda Rose’s Accident and Injuries. This case provides an object

lesson in how ERISA subrogation works in practice. In October 2003, Rhonda

Rose, a single mother with two teenage children, was seriously injured in a car

accident when the vehicle she was driving collided with another car that had

stopped perpendicularly in the road. ER19. The driver of that vehicle, who had

been drinking, had stopped his car across a lane of oncoming traffic as he tried to

make a U-turn. ER19. Although Ms. Rose was driving below the speed limit, the

force of the impact deployed the airbags and sent her vehicle crashing into a ditch.

ER19. Both she and her son, who was also in the vehicle when it crashed, required


12

emergency on-site medical treatment and were transported to a hospital for

emergency medical care. ER19.

Ms. Rose suffered serious nerve damage and neck and back trauma from the

accident, requiring multiple surgeries. ER19. Many of her injuries are persistent

and chronic: despite diligently pursuing physical therapy, she continues to

experience burning pain in her back that forces her to lie down frequently, and she

has been diagnosed with an accident-related sleep-disorder and depression that

causes her to wake several times each night from pain. ER20.

These injuries affect all aspects of her home life. At the time of the crash,

Ms. Rose was raising two children as a single parent. ER19. Her ability to

adequately handle this role has crumbled. ER20. Her depression and emotional

distress, brought on by her chronic pain, are incapacitating and lead to frequent

suicidal thoughts. ER20. She cannot complete even minor housekeeping chores,

and her relationship with her two sons has disintegrated. ER20

Ms. Rose’s injuries also adversely affect her ability to work. ER20. Before

the crash, she had worked full-time for CGI with positive reviews. ER21. She

believed it was the “perfect job.” ER21. But after the accident her work suffered

considerably. Her pain caused multiple absences and her performance declined,

which led to a warning that her excessive absenteeism would result in her firing.

ER21. In February of last year, she was terminated from CGI. ER22.

It is uncontested that, as a result of the accident, Ms. Rose suffered several

distinct categories of damages, including past and future care expenses, loss of

household services, past wage loss, future wage loss, and non-economic damages


13

of pain and suffering, disability, and loss of ability to enjoy life. ER23; ER39. It is

also undisputed that her past total medical expenses amounted to $169,652.74.

ER39. CGI’s health benefit plan paid portions of her medical costs totaling

$30,581.09. ER44.6

C. CGI’s Employee Benefit Plan. During her time at CGI, Ms. Rose

participated in the company’s ERISA employee and welfare benefit plan, which

contained a subrogation/reimbursement provision asserting a “first priority” claim

over any recovery from or settlement with a tortfeasor. ER31-33; ER42-43. The

terms of the Plan, which were offered to Ms. Rose on a take-it-or-leave-it basis, not

only obligated her to reimburse it 100% in the event of a third-party recovery

regardless of what she recovered, but also to pay all the costs and fees associated

with such a recovery. ER31-33.

D. The Lawsuit. After the accident, Ms. Rose retained a law firm, co-

defendant Nelson Langer Engle PLLC, to represent her in a claim against the

6 The parties stipulated to a series of facts regarding Ms. Rose’s injuries and her distinct damage elements. See ER38-40. Uncontroverted evidence established that the total value of Ms. Rose’s personal injury claim, including both economic and non-economic damages, is at least $1,757,943.08. ER39. Specifically, it is undisputed that Ms. Rose suffered future damages of $541,906; loss of non-market services of $199,000; past wage losses of $23,683.59; future wage loss/impaired earning capacity of $395,000; and non-economic damages of $450,000. ER23; ER38. The total third party and UIM insurance coverage available in the underlying case (which had been reduced by other claims) was $376,906.84 and there were no other assets that could be recovered from the tortfeasor. ER39. The parties agree that, by receiving only $376,906.84, Ms. Rose did not receive a full recovery of her damages and instead was only compensated for 21.44% of her damages. ER39.


14

driver who caused the accident. ER13. With the help of the NLE firm, she also

filed an insurance claim with her Underinsured Motorist Carrier, as the tortfeasor

had inadequate coverage. ER13. Both of these claims settled for the policy limits,

totaling $376,906.84. ER13. (A small portion of the available limits proceeded to

pay for Ms. Rose’s son’s injuries). It is stipulated that this amount represents only

21.44% of Ms. Rose’s total damages from the accident. ER13.

The money from these settlements came initially to NLE, who deposited it in

a trust account. ER13. Because Ms. Rose’s recovery was such a small fraction of

her total damages, NLE asked CGI to waive its asserted lien. CGI refused, and

demanded that it be reimbursed for 100% of the paid-for medical expenses. ER14.

NLE informed CGI that it would escrow the total dispute amount in its trust

account. The entire disputed amount remains in trust in NLE’s name. ER5.

CGI then sued both Ms. Rose and NLE in federal district court in the

Western District of Washington, seeking a “constructive trust or equitable lien”

over all of the money it had paid in medical expenses for Ms. Rose. ER46.

E. The Decision Below. The district court granted CGI’s request for 100%

reimbursement against Ms. Rose on the ground that the “language of the plan is

clear” in requiring 100% reimbursement. ER10. In so ruling, the court refused to

limit the amount of reimbursement “in the absence of any terms of language to the

contrary.” ER10.7

7 In response to a straw-man argument raised by CGI, the district court also rejected application of the so-called “make-whole” rule, which – under the laws of numerous states (including Washington) – bars insurers from obtaining any reimbursement in cases where the insured has not recovered 100% of her total


15

In reaching this conclusion, the district court followed a two-step approach.

First, based on Sereboff, the district court concluded that the Plan could assert an

“equitable lien” against its beneficiary, Ms. Rose. ER9-10. The district court then

turned its attention to the scope of relief to which CGI was entitled under its

reimbursement claim. See ER10. Ms. Rose and NLE had argued that equitable

principles limit CGI to recovering, at most, that portion of the underlying recovery

that corresponds with those medical expenses paid by CGI, less the proportionate

cost of collection (attorney’s fees and costs).

The court rejected this argument without any discussion, holding instead that

where the plan language is unambiguous, it must be enforced as written,

notwithstanding the limiting language of Section 502(a)(3). See ER10. As a

result, the district court concluded that, because “the language of [CGI’s] plan is

clear,” CGI is entitled to 100% reimbursement from Ms. Rose. ER10.

The district court agreed with Ms. Rose and NLE, however, that CGI is

obligated to contribute its proportionate share of the fees and costs of collection of

the underlying recovery. Noting that nothing in Sereboff establishes “that a plan’s

damages. See Thiringer v. Am. Motors Ins. Co., 588 P.2d 191, 194 (Wash. 1978); see also Kristin L. Huffaker, Note, Where the Windfall Falls Short: “Appropriate

Equitable Relief” After Sereboff v. Mid Atlantic Medical Services, Inc., 61 Okla. L. Rev. 233, 235-36 (2008). This ruling, however, was unnecessary dicta, because appellants have never sought application of the make-whole rule to this case; instead, appellants have always exclusively advocated the proportionality rule embraced by both (1) the equitable principles governing the type of equitable remedy at issue here and (2) those courts sitting in equity that fashion similar relief. Accordingly, this aspect of the lower court’s ruling is not at issue on this appeal.


16

equitable lien may be enforced against an attorney who is not a signatory to the

reimbursement agreement,” the district court found that controlling Ninth Circuit

authority “d[id] not favor allowing equitable relief to be sought against a

beneficiary’s attorney under § 502(a)(3)” where the attorney was not a signatory to

the reimbursement agreement. ER8 (citing Hotel Employees & Restaurant

Employees Int’l Union Welfare Fund v. Gentner, 50 F.3d 719 (9th Cir. 1995) and

A.C. Houston Lumber Co. v. William L. Berg, et al., 2010 WL 5439786 (9th Cir.

Dec. 29, 2010)). The district court authorized NLE to deduct this amount before

returning the balance to CGI. ER11.8

SUMMARY OF ARGUMENT

In reflexively enforcing CGI’s employee benefit plan as written, the district

court erected a rule that squarely contradicts both the plain language of Section

502(a)(3), which commands courts to apply equitable principles in fashioning

relief under the statute, and the purposes and policies of ERISA, which, at their

most basic, seek to protect the interests of participants and beneficiaries of

employee benefit plans.

ERISA Section 502(a)(3) limits self-funded insurance plans to seeking

“appropriate equitable relief” from plan beneficiaries. 29 U.S.C. § 1132(a)(3).

Under well-established equitable principles, appropriate equitable relief is limited

by principles of unjust enrichment. The most CGI is entitled to recover, therefore,

8 This aspect of the lower court’s ruling is the subject of CGI’s cross-appeal, and will be addressed in Appellants’ Response and Reply brief.


17

is the amount that Ms. Rose recovered for those medical expenses which CGI paid;

this is the only element of Ms. Rose’s damages paid for by CGI and the only

amount for which Ms. Rose has even arguably recovered twice. And, because it is

uncontroverted that Ms. Rose has only recovered for, at most, 21.44% of her total

damages, the portion of that recovery that is reasonably allocable to the medical

expenses paid by CGI is 21.44% of its total. Equity, therefore, demands that CGI’s

recovery be limited to recovering this portion of the medical expenses covered by

the Plan, less its proportional share of costs and attorneys’ fees.

Both the structure and purpose of ERISA confirm that CGI’s right to

reimbursement is subject to – and governed by – limiting principles of equity.

ERISA’s primary objective, as set forth in its “purpose clause,” is to protect the

interests of plan participants and beneficiaries against employer and fiduciary

abuses. As the Supreme Court has held, these objectives outweigh any other

subsidiary interests, including those associated with the enforcement of plan

documents. See Varity Corp. v. Howe, 516 U.S. 489 (1996). Allowing CGI to

enforce its plan’s terms without regard to the extent to which Ms. Rose has

recovered for her injuries would create a windfall for insurance plans at the direct

expense of beneficiaries, thereby undermining ERISA’s primary goal.

Categorically enforcing plan terms, even where doing so would

affirmatively harm beneficiaries, would also conflict with the structure of ERISA,

which excludes fiduciaries (like CGI) from the one statutory enforcement

provision in ERISA that affirmatively authorizes a plaintiff to “enforce his rights

under the terms of a plan.” 29 U.S.C. § 1132(a)(1)(B). Surely, if Congress had


18

wanted to permit insurers to “enforce [their] rights under the plan,” it would have

included them in the only provision in the statute that confers such a right.

Finally, the district court’s decision to allow 100% reimbursement runs

contrary to public policy, curtailing the tort rights of injury victims, blocking

access to justice, and undermining the strong public policy favoring settlement.

These policy concerns have, in similar circumstances, convinced courts – including

the U.S. Supreme Court – that any equitable award to reimburse an insurer must be

limited to the portion of the underlying recovery that proportionally corresponds to

the amount of its lien. See Arkansas Dep’t of Health & Human Servs. v. Ahlborn,

547 U.S. 268 (2006); Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010). In

allowing the insurer to share in damages for which it has provided no

compensation, the district court formulated a rule that is both “absurd and

fundamentally unjust.” Ahlborn, 547 U.S. at 288 n.19. It should not be permitted

to stand.

STANDARD OF REVIEW

The district court’s interpretation of 29 U.S.C. § 1132(a)(3) and grant of

summary judgment on that basis is subject to plenary review. See Western Sur.

Co. v. Bank of Southern Oregon, 257 F.3d 933, 935 (9th Cir. 2001); Jesinger v.

Nevada Federal Credit Union, 24 F.3d 1127, 1130-31 (9th Cir. 1994).


19

ARGUMENT

I. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT TO CGI IS INCONSISTENT WITH THE PLAIN LANGUAGE OF THE STATUTE.

A. The Use of the Term “Appropriate” in Section 502(a)(3) Vests Courts with Discretion to Fashion Equitable Relief.

“[I]n every case involving construction of a statute,” the U.S. Supreme Court

has said, the “starting point . . . is the language itself.” Ernst & Ernst v. Hochfelder,

425 U.S. 185, 197 (1976). With regard to ERISA, the Court has repeatedly held

that Congress’s use of the word “appropriate” in Section 502(a)(3) is a term of

limitation, restraining the availability of relief based upon traditional equitable

principles. Varity Corp. v. Howe, 516 U.S. 489, 515 (1996) (holding that equitable

relief under the statute is not automatic, but instead must be “fashion[ed]” and may

be refused where “appropriate”).9

The Supreme Court has further instructed that, when Congress uses the term

“appropriate” in connection with an equitable remedy, a court has “broad

discretion” to “fashion[] discretionary equitable relief” through the careful

consideration of relevant equitable factors. Florence County Sch. Dist. v. Carter,

9 See also CIGNA v. Amara, -- U.S. --, 2011 WL 1832824 (U.S. May 16, 2011) (holding that “Section 502(a)(3) invokes the equitable powers of the District Court” and remanding to allow the lower court to decide whether it is “appropriate to exercise its discretion under §502(a)(3) to impose [a] remedy”); Great-West Life

& Annuity Ins. Co. v. Knudson, 534 U.S. 204, 211 n.1 (2002) (holding that ERISA 502(a)(3) “contain[s] the limitations upon its availability that equity typically imposes”); Harris Trust & Sav. Bank v. Solomon Smith Barney, Inc., 530 U.S. 238, 252 (2000) (interpreting ERISA Section 502(a)(3) “to incorporate common-law remedial principles”).


20

510 U.S. 7, 16 (1993) (quoting Sch. Comm. of Burlington v. Dep’t of Educ. of

Mass., 471 U.S. 359, 374 (1985)). This Congressional command embodies the

fundamental principle that a district court, when sitting in equity, is a “court of

conscience” that enjoys broad discretion to afford a measure of equitable relief

where equity and justice demand. Wilson v. Wall, 73 U.S. (6 Wall.) 83, 90 (1867).

A district court’s task, then, when faced with an equitable reimbursement

claim under Section 502(a)(3), is to balance all the relevant equitable factors and

award only that relief that is “appropriate” in equity. Here, although the district

court acknowledged that CGI’s claim for reimbursement was governed by Section

502(a)(3), see ER6, it failed to apply any equitable principles in determining the

scope of the remedy. Instead, the court simply applied standard legal rules of

contract law, holding that CGI is entitled to enforce its plan as written without

regard to principles of equity. In so ruling, the lower court jettisoned its one

concrete responsibility required by Section 502(a)(3): to award only such relief as

is both “appropriate” and “equitable” within the meaning of the statute.

B. CGI’s Right to Relief Is Controlled by Equitable Principles of Unjust Enrichment.

Had the district court followed this express statutory command, it

necessarily would have concluded that the amount of relief afforded by CGI’s

equitable claim for reimbursement is based on – and governed by – the equitable

principles of unjust enrichment.

The Supreme Court’s decisions interpreting Section 502(a)(3) lead

inexorably to this result. In Sereboff, for example, the Court held that, when


21

determining the “scope of remedial power conferred on district courts” by Section

502(a)(3), courts must be guided by the law as it stood during “the days of the

divided bench.” 547 U.S. at 361-62 (quoting Great-West Life & Annuity Ins. Co.

v. Knudson, 534 U.S. 204, 212 (2002)). In particular, the Court looked to the

leading treatise on restitution – George Palmer’s Law of Restitution10 – in

construing Section 502(a)(3) to authorize the specific remedy sought by the

insurer. Sereboff, 547 U.S. at 368; see also Knudson, 534 U.S. at 217 (explaining

that, when construing Section 502(a)(3), a court must examine “standard current”

treatises in equity, “such as Dobbs, Palmer, Corbin, and the Restatements” to

“make the answer clear”). Although “[r]arely will there be need for” anything

more, “[l]ike it or not,” this much is required. Knudson, 534 U.S. at 217.11

These authoritative treatises all reveal that, in this case, any award must be

controlled by principles of unjust enrichment. The type of reimbursement claim

10 Dobbs so termed Palmer’s treatise in 1 D. Dobbs, Law of Remedies, § 4.1(1), at 550 n.1, observing that “[t]he leading contemporary work [on restitution] is Professor George Palmer’s four-volume treatise.” 11 The Supreme Court recently confirmed this approach in CIGNA v. Amara, holding that the remedies available to a plaintiff under Section 502(a)(3) are limited to those “traditionally considered equitable remedies.” 2011 WL 1832824, at *12. And in determining what remedies fall within this “category,” the Court again looked to equitable treaties. See id. The Court explained that these equitable treatises are relevant not just for determining the type of appropriate remedy (and whether it was traditionally equitable or not), but also for identifying the principles governing the award of any relief afforded by the remedy. See id. at *13 (explaining that “[e]quity courts possessed the power to provide relief in the form of monetary ‘compensation’ . . . to prevent [a defendant’s] unjust enrichment”) (citing treatises on equity).


22

sought by CGI is akin to a “constructive trust” or “equitable lien,” see Knudson,

534 U.S. at 213, both of which “are invoked for the same reasons, to prevent unjust

enrichment.” 1 D. Dobbs, Law of Remedies § 4.3(3), at 602 (emphasis added).

The leading equitable treatise relied on by the Court in Sereboff, Palmer’s Law of

Restitution, is equally clear that these remedies are “aimed at preventing unjust

enrichment.” 1 G. Palmer, Law of Restitution § 1.3 at 16-20.

Palmer goes on to explain why this is so. When “an insurer has a lien on the

proceeds of the insured’s recovery,” Palmer teaches, “principles of unjust

enrichment are controlling” because an “equitable lien is merely a remedy for

preventing unjust enrichment of the insured.” 4 G. Palmer, Law of Restitution §

23.18(d), at 470 (quoted in Sereboff, 547 U.S. at 368) (emphasis added). Similarly,

Dobbs explains that the “basis for restitution is that the defendant has been unjustly

enriched by receiving something, tangible or intangible, that properly belongs to

the plaintiff. Restitution rectifies unjust enrichment by forcing restoration to the

plaintiff.” 1 D. Dobbs, Law of Remedies § 4.1(2), at 557.

Importantly – as the treatises demonstrate – there is an important distinction

between an award measured by principles of a defendant’s unjust enrichment and

an award of money damages, “which measures the remedy by the plaintiff’s loss

and seeks to provide compensation for that loss.” 1 D. Dobbs, Law of Remedies at

§ 4.1(1), at 555. In other words, “restitution is not damages; restitution is a

restoration required to prevent unjust enrichment.” 1 D. Dobbs, Law of Remedies

at § 4.1(2), at 557 (internal emphasis omitted).


23

If CGI were seeking a legal remedy for money damages, the district court

would have been correct to award CGI 100% reimbursement, because that is what

the plan specifies. Under Section 502(a)(3), however, the most a plaintiff is

entitled to is an amount equal to the defendant’s “unjust” gain. See, e.g.,

Restatement of Restitution § 160 (explaining that the goal of an equitable remedy

is to afford a plaintiff relief in the amount of a defendant’s unjust gain). CGI is

therefore limited to recovering only that amount of Ms. Rose’s third-party recovery

that resulted in her “unjust enrichment”– an amount that, as explained below, is

equivalent to that portion of her third-party recovery attributable to the medical

expenses paid by CGI.

C. Principles of Unjust Enrichment Restrict CGI to Recovering Only the Portion of Ms. Rose’s Recovery that is Reasonably Allocable to Medical Expenses.

To determine the extent of “unjust enrichment” in the context of an

insurance reimbursement action, a court must determine the extent to which an

insured has obtained a “double recovery.”12 It is a bedrock principle, moreover,

that a “double recovery” has only occurred where an insured has recovered twice

for the same injury. See, e.g., Couch on Ins. §222:8 (“[s]ubrogation has the

objective of preventing the insured from recovering twice for the same harm”); see

12 See 46A C.J.S. Insurance § 1993 (explaining that, in the insurance context, subrogation/reimbursement “prevents . . . unjust enrichment to the insured that would result from double recovery”); Robert E. Keeton & Alan I. Widiss, Insurance Law § 3.10(7) (1988) (“Recognition and enforcement of a right to subrogation for health insurers is primarily premised on precluding duplicative recoveries”); see also Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1117-18 (9th Cir. 2010) (explaining that the purpose of subrogation is “to prevent the insured from obtaining a double recovery (and thus being unjustly enriched”).


24

also Maher & Pathak, Understanding Tort Subrogation, 40 Loy. U. Chi. L.J. at 58

n.32 (explaining that a double recovery occurs “where the insured receives a tort

recovery for medical damages while also collecting insurance for those damages”)

(emphasis added). Thus, when measuring an insurer’s equitable claim for

reimbursement, the critical question is how much of the underlying tort recovery is

allocable to the medical expenses paid by the insurer. See U.S. Healthcare, Inc. v.

O’Brien, 868 F. Supp. 607, 613-14 (S.D.N.Y. 1994) (explaining that, in order for

there to be double recovery and unjust enrichment, the underlying settlement must

“include recovery for medical expenses . . . for [the insured’s] health care

expenses”).

Palmer is unequivocal on this point: he teaches that an insurer has a “right .

. . to recover medical expense from the tortfeasor to the extent that the insurer has

paid such expense.” 4 G. Palmer, Law of Restitution § 23.18(d), at 470 (emphasis

added). And in a case where an “insured has recovered from the tortfeasor for

such expense, . . . this is the extent of the lien.” Id. at 470 (emphasis added); id. at

474 (“[T]he insurer’s claim should be limited to the net amount recovered by the

insured for medical expense”) (emphasis added). The italicized reference to “such

expense” is important: what Palmer is saying is that an insurer’s claim is limited to

only that portion of a recovery that is devoted to medical expenses and nothing

more.

The question, then, is what portion of Ms. Rose’s recovery is properly

allocable to the medical expenses paid by CGI. Although this amount is

sometimes difficult to measure, see, e.g., Frost v. Porter Leasing Corp., 436 N.E.


25

2d 387, 390 (Mass. 1982), in this case the parties stipulated that Ms. Rose only

recovered for 21.44% of her injuries. See ER39. Thus CGI is, at most, only

permitted to recover 21.44% of its medical expenses. This amount corresponds to

that portion of Ms. Rose’s settlement that is allocable to her past medical expenses

for which CGI paid. To allow any more would improperly invade other damage

elements (e.g., pain and suffering, lost wages), and contradict the basic equitable

principles of unjust enrichment.

Courts that regularly sit in equity confirm the soundness of this approach.

The highest court of the State of New York, for example, has held that, “in cases

where an injured person, who has obtained reimbursement for medical expenses

from an insurer, is subsequently reimbursed by the tort-feasor for the same injuries,

a lien attaches on behalf of the insurer to that portion of the recovery.” Aetna Life

& Cas. Co. v. Nelson, 492 N.E.2d 386, 390 (N.Y. 1986) (emphasis added).13

Limiting reimbursement in this fashion is essential to ensure that

beneficiaries are not stripped of compensation that has been awarded for damages

unrelated to their medical expenses, such as pain and suffering. As one court put

it, allowing an insurer to recover anything more than the portion of an underlying

13 See also Tobin v. Dep’t of Labor & Indus., 239 P.3d 544 (Wash. 2010) (applying this approach to worker’s compensation and pension benefit claims); Werner v.

Latham, 752 A.2d 832, 835 (N.J. App. Div. 2000) (limiting a health insurer’s right of reimbursement “to that portion of the judgment or settlement reasonably attributable to medical expenses only”); Miller v. Liberty Mut. Fire Ins. Co., 264 N.Y.S. 2d 319, 324 (1965), aff’d mem., 289 N.Y.S.2d 726 (1968) (awarding an insurer reimbursement “only to the extent that [the insured] receives” a recovery for “that portion of his claim arising out of the medical expenses for which he has received reimbursement”).


26

settlement that is allocable to medical expenses would “lead to the anomalous

result that the insured would be paying his own [insurance] benefits out of the

compensation for his pain and suffering, items specifically excluded from

[insurance] payments.” Adams v. Gov’t Emp. Ins. Co., 383 N.Y.S.2d 319, 321

(N.Y.A.D. 1976) (internal quotations omitted).

Federal courts, too, have increasingly adopted this approach. In fact, during

the very same term that Sereboff was decided, the U.S. Supreme Court followed

this approach in fashioning a measure of equitable relief under an equitable lien in

Arkansas Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268 (2006), which

involved a claim for reimbursement by Medicaid against an injured beneficiary.

There, the Court limited an insurer to recovering no more than “that portion of a

settlement that represents payments for medical care.” Id. at 282. In refusing to

allow the insurer to “lay claim” to anything more, the Court rejected “[a] rule of

absolute priority” that would have permitted recovery of 100% reimbursement

because, it said, such a rule runs the very real risk of “preclud[ing] settlement in a

large number of cases,” and works dramatic inequities “to the recipient in others.”

Id. at 280, 288. Furthermore, the Court made clear that allowing an entity to

“share in damages for which it has provided no compensation . . . would be absurd

and fundamentally unjust.” Id. at 288 n.19.14

14 See also Bradley v. Sebelius, 621F.3d 1330, 1333-34 (11th Cir. 2010) (affirming that where an underlying tort settlement involves several distinct damage elements, a health insurer’s equitable remedy should be calculated by the specific “component’s contribution to the total full value, if such value were collectible”); McKinney ex rel. Gage v. Philadelphia Housing Auth., 2010 WL 3364400 (E.D. Pa. Aug. 24, 2010) (applying a similar measure of relief).


27

Those concerns are equally applicable to reimbursement claims asserted

under ERISA. The controlling factor in the Ahlborn Court’s choice to adopt a

proportionality approach was not the language of the Medicaid statute, but rather

the perverse incentives encouraged by permitting 100% reimbursement. See

Ahlborn, 547 U.S. at 288. These concerns are just as relevant where, as here, the

plaintiff is a private insurer as opposed to the government. Just as in the Medicaid

context, endorsing the district court’s approach here would permit an insurer to

“share in damages for which it has provided no compensation.” Id. It would also

deter settlement, and permit dramatically inequitable results. Id. Indeed, even in

Ahlborn itself, the Court looked to contexts outside of Medicaid in reaching its

conclusion that a proportionality approach offers the fairest and most supported

method for measuring relief. See id. at 288 n.19 (looking to “cases involving the

recovery of workers’ compensation benefits”).

Neither CGI nor the lower court articulated any reason why the

proportionality approach should not control in the ERISA context, when it controls

in every other context that allows claims for equitable reimbursement. Indeed, the

argument for adopting this approach under ERISA is even more powerful than in

other contexts in light of Section 502(a)(3)’s explicit reference to “appropriate

equitable relief.” Language aside, the policy concerns motivating courts and

treatises to adopt proportionality in those contexts are the same in this ERISA

context: the risk of deterring settlement in a large number of cases and the

unfairness to the insured that flows from permitting an insurer to invade unrelated


28

damage elements poses no less of a threat, and the principles apply with no less

force, in reimbursement cases (like this one) brought under ERISA.

D. The District Court’s Award of 100% Reimbursement Violated the Statutory Requirements of Section 502(a)(3) By Failing to Adhere to Equitable Principles of Unjust Enrichment.

None of the foregoing statutory commands or equitable principles was

applied by the district court in rendering the decision below. Instead, the court

merely deferred to the plan language in determining the measure of relief, thereby

applying traditional contract law principles that measure an award of damages

based upon the plaintiff’s total loss (as opposed to the defendant’s “unjust

enrichment”). This enforce-the-plan-as-written approach for measuring relief

under an equitable remedy was grounded in several key errors of law that led the

lower court astray.

1. Those Cases Categorically Prohibiting an Award Fashioned upon Equitable Limitations Are Not Controlling and, in any Event, Wrongly Decided.

Aside from simply asserting that the plan language should govern, CGI

urged the district court to follow two post-Sereboff cases that granted insurers’

100% reimbursement, thereby erecting a per se bar against any reduction in award.

See Zurich Amer. Ins. Co. v. O’Hara, 604 F.3d 1232 (11th Cir. 2010); Admin.

Comm. of Wal-Mart Stores, Inc. Assocs.’ Health and Welfare Plan v. Shank, 500

F.3d 834 (8th Cir. 2007). This approach was based on these courts’ mistaken

conclusion that ERISA reimbursement actions are governed by “federal common

law” rather than Section 502(a)(3), and that “federal courts lack authority to

fashion a rule of federal common law that conflicts with the written plan and that is


29

unnecessary to achieve the purposes of ERISA.” Shank, 500 F.3d at 839

(emphasis added); see also O’Hara, 604 F.3d at 1237 (refusing to “[a]pply[]

federal common law to override the Plan’s controlling language”) (emphasis

added). This conclusion ignores that it is the statute itself, as opposed to some

floating body of federal common law, that requires a court to balance and apply the

relevant equitable limitations on a claim for reimbursement under Section

502(a)(3). Neither court, moreover, despite the explicit teachings of the U.S.

Supreme Court, cited even a single equitable treatise when determining the correct

measure of relief afforded under the statute. This too reveals the degree to which

these courts misconceived the nature of the inquiry.15

In holding that the measure of reimbursement must be based on plan

language, these courts perpetuated the analytical errors made by pre-Sereboff

cases. Before the Supreme Court decided Sereboff, the majority of courts believed

that ERISA reimbursement claims were contractual in nature, and therefore

governed by normal rules of contract law. See, e.g., Harris v. Harvard Pilgrim

Health Care, Inc., 208 F.3d 274 (1st Cir. 2000); Ryan by Capria-Ryan v. Fed.

15 Both O’Hara and Shank also relied on the unsupported factual conclusion that “[r]eimbursement inures to the benefit of all participants and beneficiaries by reducing the total cost of the Plan.” See, e.g., O’Hara, 604 F.3d at 1237-38. This assumption lacks any basis in fact. In O’Hara itself, for instance, the insurance plan had actually stipulated that subrogation recoveries do not reduce the premiums paid by the employees. See Joint Stipulation of Facts, Zurich Amer. Ins.

Co. v. O’Hara et al., 07-01580-CV-RLV-1, dkt. #51 (N.D. Ga. filed Aug. 13, 2008). The panel simply disregarded this evidence in favor of a demonstrably false set of assumptions.


30

Express Corp., 78 F.3d 123, 127 (3d Cir. 1996). These courts also held that, in the

absence of clear contractual language, federal common law could act as a “gap

filler,” supplying a rule where none could be discerned from the plan documents.

See, e.g., Ryan, 78 F.3d at 126. Importantly, however, this analytical framework

was based on the belief that ERISA plans’ claims for reimbursement under ERISA

were contractually – not equitably – governed. See United McGill Corp. v.

Stinnett, 154 F.3d 168 (4th Cir. 1998).

In Sereboff, however, the Supreme Court for the first time held that claims

for reimbursement are not free-floating contractual claims governed entirely by the

terms of the plan (or, to the extent the plan was ambiguous, “federal common

law.”). Rather, the Court explained, ERISA reimbursement actions are governed

by Section 502(a)(3), which contains the all-important reference to “appropriate

equitable relief.” See Sereboff, 547 U.S. at 369. Sereboff consequently overrode

the contract law approach taken by most courts and clarified that ERISA

reimbursement actions arise from, and are governed by, principles of equity.

2. The Lower Court Erred in Assuming that Sereboff Mandated an Award of 100% Reimbursement.

Not only did the district court fail to understand that Sereboff effected a sea

change in the law, it also appeared to be under the impression that, because the

Supreme Court held in Sereboff that the relief sought, though intended “to enforce

plan terms,” 547 U.S. at 363, was properly characterized as equitable in nature,

Sereboff itself authorized an award of 100% reimbursement. See ER9 (citing


31

Sereboff in support of its conclusion that CGI’s relief should be based on the

enforcement of the plan as written).

This conclusion, however, reflects a fundamental misunderstanding of what

the Court actually held in Sereboff. Contrary to the district court’s belief, Sereboff

held that the plan language is only relevant for determining whether CGI has a

right to seek relief under ERISA, i.e., whether the plan terms “establish” a basis for

a cognizable equitable claim under Section 502(a)(3). 547 U.S. at 363. In

Sereboff, the Court actually addressed two related questions and left open a third:

first, whether, based on the terms of a health insurance plan, the insurer (Mid

Atlantic) had adequately characterized the restitutionary relief it sought as

equitable; second, if so, whether the basis for that claim qualified as “equitable”

within the meaning of Section 502(a)(3); and third, what the “appropriate” measure

of relief is for those claims that fall within Section 502(a)(3). See id. at 362-64.

As to the first question, the Court contrasted Mid Atlantic’s plan with the

plan in an earlier Supreme Court case, Great-West Life & Annuity Ins. Co. v.

Knudson, 534 U.S. 204 (2002), which held that an insurer could not maintain a

claim for equitable relief within the meaning of Section 502(a)(3) because the

terms of the plan were deficient insofar as they did not “specifically identif[y]”

funds in the hands of the defendant. See Sereboff, 547 U.S. at 362-63. Mid

Atlantic’s plan, by contrast, did not suffer the same “impediment.” Id. Looking to

the specific terms of the plan, the Court held that because the insurer sought its

recovery through a “specifically identifiable fund,” the relief sought, though


32

intended “to enforce plan terms,” was properly characterized as equitable in nature.

Id. at 363.

The mere fact that the Plan in Sereboff adequately characterized the relief

sought as equitable, however, did not end the matter. As the Court went on to

explain, “[w]hile Mid Atlantic’s case for characterizing its relief as equitable thus

does not falter . . . [,] Mid Atlantic still must establish that the basis for its claim is

equitable” within the meaning of Section 502(a)(3). Id. at 363. This second

question, the Court held, hinged on whether the relief sought qualified as a

category of relief “typically available in equity,” the only type of relief authorized

under Section 502(a)(3). Id. at 362 (explaining that “we [have] construed [Section

502(a)(3)] to authorize only ‘those categories of relief that were typically available

in equity’”) (emphasis in original). Reviewing the “case law from the days of the

divided bench,” the Court determined that Mid Atlantic’s claim was equivalent to

an “equitable lien established by agreement,” a type of relief typically available in

equity and therefore authorized under Section 502(a)(3). See id. at 363-68.

The Court stopped short, however, of deciding the third and final question –

the “appropriate” measure of relief available for a specific equitable remedy –

because it had not been raised below. See id. at 368 n.2. Yet the Court did provide

explicit instructions as to how future courts should decide this question: by

applying principles of equity. This is because “statutory reference to [an equitable]

remedy must, absent other indication, be deemed to contain the limitations upon its

availability that equity typically imposes.” Knudson, 534 U.S. at 211 n.1.


33

Otherwise, “any claim for legal relief can, with lawyerly inventiveness, be phrased

in terms [of equity].” Id.

This is where the district court went astray. If, in fact, Sereboff had held that

the measure of relief was dictated by the terms of the plan, the Court would simply

have held, as to the third question, that the insurer was entitled to 100%

reimbursement (the plan in Sereboff was virtually identical to the plan in this case),

rather than expressly reserve for future decision the question of what relief is

“appropriate” under Section 502(a)(3). And the Court would not have bothered to

instruct future courts to consult equitable treatises when determining statutory

questions concerning the appropriate scope of the remedy under Section 502(a)(3).

These aspects of Sereboff further reveal that, contrary to the district court’s view,

Section 502(a)(3) requires a court to analyze reimbursement claims according to

principles of equity, rather than to categorically enforce the plan terms as written.

See also CIGNA, 2011 WL 1832824, at *14 (following Sereboff’s blueprint and

“looking to the law of equity” to identify the principles governing the application

of an equitable remedy).

Finally, and most fundamentally, the court’s reading of Sereboff as requiring

courts to measure equitable relief based solely on contractual language would

transform the basis of the remedy from equitable to legal, thereby contradicting the

fundamental limitation of Section 502(a)(3). The U.S. Supreme Court just

reaffirmed, in a case construing the exact same statute, that “[t]he power to reform

contracts (as contrasted with the power to enforce contracts as written) is a

traditional power of an equity court, not a court of law.” CIGNA, 2011 WL


34

1832824, at *12 (emphasis added). In other words, the “power to enforce

contracts” – which is precisely the relief sought by CGI here – is the traditional

province of a court of law, not a court of equity. If any doubt remained as to the

meaning of Section 502(a)(3) in the wake of Sereboff, the U.S. Supreme Court has

just definitively laid it to rest by stating that a court sitting in equity is not duty

bound to enforce a contract as written where equity demands otherwise.16

II. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT TO CGI IS INCONCISTENT WITH BOTH THE STRUCTURE AND PURPOSES OF ERISA.

The lower court’s conclusion that the plan language controls the measure of

relief is also inconsistent with ERISA’s overall statutory scheme. The Supreme

Court has instructed courts to look to ERISA’s “basic purposes,” embodied in its

“purpose clause,” when measuring whether an award would be “appropriate”

within the meaning of Section 502(a)(3). Varity Corp. v. Howe, 516 U.S. 489, 513

(1996). In particular, the Court has directed the lower courts to “keep in mind the

16 The treatises themselves buttress this point. Dobbs explains that the terms of a contract are relevant only for the “substantive question” of “whether the plaintiff has a right at all, that is, whether the defendant is unjustly enriched by legal standards.” 1 D. Dobbs, Law of Remedies § 4.1(1), at 552 (emphasis added). Those terms, however, do not govern the scope of permissible remedy. Where a contract’s terms would create an inequitable result, for example by forcing the insured to “bear the cost of recovering medical payments for the carrier’s benefit,” Palmer teaches that the principle of unjust enrichment steps in to “limit[] the effect of the contract provision.” 4 Palmer, Law of Restitution § 23.18(d), at 472-73 & n.56. “Th[is] same principle,” according to Palmer, “should serve to limit the effectiveness of contract provisions which in terms provide for reimbursement out of the insured’s tort recovery without regard to whether, or the extent to which, that recovery includes medical expense.” Id. at 473-74.


35

special nature and purpose of employee benefit plans, and [to] respect the policy

choices in the inclusion of certain remedies and the exclusion of others.” Id. at 515

(internal quotations omitted).

CGI’s bid for 100% reimbursement is directly contrary to the purposes and

“policy choices” underlying ERISA. In passing ERISA, “the crucible of

Congressional concern was misuse and mismanagement of plan assets by plan

administrators.” Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140 n.8

(1985). ERISA was designed to protect plan participants and beneficiaries against

two principle hazards that had revealed themselves in pre-ERISA practice: first,

the risk that an employer (or other plan sponsor) might default on the pension

promise; and second, the concern that an entity responsible for managing plan

assets would abuse its authority. The primary goal, then, was to “protect . . . the

interests of participants in employee benefit plans . . . [by] providing for

appropriate remedies . . . .” 29 U.S.C. § 1001(a). These objectives, embodied in

ERISA’s purpose clause, are determinative for purposes of construing Section

502(a)(3). See Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343, 2349 (2008)

(finding that “Congress’ desire to offer employees enhanced protection for their

benefits” “outweighed” other considerations including reduction of costs

associated with plan); Varity, 516 U.S. at 513 (holding that, when construing

Section 502(a)(3), ERISA’s “basic purposes” of “protect[ing] the interests of

participants and beneficiaries” trump “the need for a sensible administrative

system,” which was, at most, a “subsidiary congressional purpose”).


36

Given these objectives, it is difficult to imagine why Congress would want

to permit an approach affording relief that not only violates basic principles of

equity, but would also harm those individuals the statute was designed to protect.

See Varity, 516 U.S. at 513. Allowing CGI to enforce its plan’s terms without

regard to the extent to which Ms. Rose has recovered for her injury would foster

this result and undermine ERISA’s primary goals.

The argument that enforcing plan terms is categorically required, even where

doing so would affirmatively harm beneficiaries, is also contrary to Congress’s

decision to exclude fiduciaries (like CGI) from the one statutory enforcement

provision in the statute that affirmatively authorizes a plaintiff to “enforce his

rights under the terms of a plan.” 29 U.S.C. § 1132(a)(1)(B). ERISA includes a

set of “carefully integrated civil enforcement provisions,” whereby Congress

enumerated the universe of possible plaintiffs authorized to sue for violations of

the statute. Russell, 473 U.S. at 146. These enforcement provisions reflect a

“comprehensive scheme” that “deliberately target[s] specific problems with

specific solutions.” Varity, 516 U.S. at 519 (Thomas, J., dissenting). As the

Supreme Court has consistently held, this enforcement scheme “provide[s] strong

evidence that Congress did not intend to authorize other remedies that it simply

forgot to incorporate expressly.” Russell, 473 U.S. at 146 (emphasis in original).

Significantly, Congress included one express enforcement provision, 29

U.S.C. § 1132(a)(1)(B), designed specifically to remedy the precise harm CGI

claims it has suffered. This provision authorizes a plaintiff to, inter alia, “enforce


37

his rights under the terms of the plan.”17 But Congress foreclosed this type of

relief for Plans, instead deciding that the only parties who may obtain this relief,

consistent with ERISA’s primary objectives, are beneficiaries and participants. If

Congress had intended to allow a Plan to secure precisely the type of relief

authorized under this provision, surely it would have made that clear in Section

1132(a)(1)(B) itself, the provision specifically enacted to redress the type of breach

claimed here. See Knudson, 534 U.S. at 217-18 (instructing that, when interpreting

ERISA, a court’s job is to “avoid rendering what Congress has plainly done (here,

limit the available relief) devoid of reason and effect”); Russell, 473 U. S. at 146

(“The assumption of inadvertent omission is rendered especially suspect upon

close consideration of ERISA’s interlocking, interrelated and interdependent

remedial scheme.”).

This is not to say that CGI is precluded from receiving some measure of

relief, as discussed above. Indeed, as the Supreme Court has explained, the fact

that one provision in ERISA provides a specific remedy does not compel a

conclusion that Congress could not have “provided yet other remedies . . . in

another, ‘catchall’ remedial section.” Varity, 516 U.S. at 512. Interpreting Section

502(a)(3), however, to authorize a measure of relief based solely on the terms of

the contract would “render[] the statute’s limitation of relief” to “other appropriate

17 Specifically, Section 1132(a)(1)(B) provides that a civil action may be brought by a participant or beneficiary “to recover his benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his right to future benefits under the terms on the plan.”


38

equitable relief” “utterly pointless.” Knudson, 534 U.S. at 217. Section 502(a)(3)

is not a “catchall provision that authorizes all relief that is consistent with ERISA’s

purposes and is not explicitly provided elsewhere.” Id. at 221 n.5. Allowing a

fiduciary to achieve the functional equivalent of what Congress plainly said it

could not do would upset the “carefully crafted and detailed enforcement scheme

embodied in the text Congress has adopted.” Knudson, 534 U.S. at 221

Given the “evident care” with which ERISA was crafted, CGI’s end run

around this important limitation, by seeking the exact relief enjoyed by participants

and beneficiaries only under a different provision, is contrary to the structure and

purposes of ERISA. See Knudson, 534 U.S. at 218 (explaining that if Congress

had intended to exclude only damage awards from Section 502(a)(3), “it could

have simply said that”); Russell, 473 U.S. at 147 (holding that courts must be

“reluctant to tamper with [the] enforcement scheme” embodied in the statute). If

CGI is successful in obtaining the relief here that Congress specifically barred, this

prohibition will be perfectly obviated.

III. THE DISTRICT COURT’S GRANT OF 100% REIMBURSEMENT IS CONTRARY TO PUBLIC POLICY.

The district court’s decision to allow 100% reimbursement based solely on

the language of the Plan is also contrary to public policy and would not, contrary to

some insurers’ claim, inure to the benefit of other plan participants. See Varity,

516 U.S. at 514 (discussing the relevance of public policy concerns when

construing ERISA).


39

A. Permitting 100% Reimbursement Would Deter Tort Victims from Holding Wrongdoers Accountable.

To begin with, CGI’s position is nothing short of a full-scale assault on the

ability of injury victims to obtain adequate compensation for their injuries. It is

axiomatic that twin objectives animate tort recovery: restitution and deterrence.

CGI’ approach, which would automatically entitle insurers to complete first-dollar

reimbursement from any third-party recovery, would “gratuitously deter the

exercise of the tort rights of plan participants.” Wal-Mart Stores, Inc. Assocs.

Health and Welfare Plan v. Wells, 213 F.3d 398, 402 (7th Cir. 2000) (Posner, J.).

As Judge Posner explained, the prospect that a plan will be entitled to 100%

reimbursement irrespective of either the amount of the underlying settlement or the

portion of that settlement that is allocable to medical expenses “might well deter a

suit likely to result in a judgment or settlement not much larger than the benefits

available under the plan.” Id. This result, he warns, “would produce

undercompensation for harms that were unrelated to the type of harm to which the

benefits pertain.” Id.

The district court’s approach would also have the real world effect of

deterring lawyers from representing an injured victim whose recovery would be

subject to a claim for 100% reimbursement by an ERISA plan. The possibility that

any recovery would be usurped by an ERISA plan – preventing both the victim and

the attorney from being compensated – creates a powerful economic disincentive


40

to take on the representation of a client who received anything more than a trivial

amount of medical insurance from an ERISA plan. By chilling injury victims’

ability to obtain representation, this approach would unavoidably exculpate

tortfeasors from liability while denying injury victims just compensation for their

injuries. See Maher & Pathak, Understanding Tort Subrogation, 40 Loy. U. Chi.

L.J. at 86, 90 (noting that “first-dollar recovery provisions significantly undercut”

an insured’s incentive or ability to sue and “frustrate tort law’s goal of supplying

full compensation for tort victims”).

B. The District Court’s Approach also Undermines the Public Policy in Favor of Settlements.

Left to stand, the district court’s endorsement of CGI’s demand for 100%

reimbursement also threatens the strong public policy interest in the expeditious

resolution of lawsuits through settlement. See, e.g., McDermott, Inc. v. AmClyde,

511 U.S. 202, 215 (1994) (“public policy wisely encourages settlement”). Under

the district court’s view, an injury victim who acts reasonably to settle his tort

claim would automatically make himself liable for repayment of the total amount

of medical expenses irrespective of the actual amount of the settlement that is

allocable to those expenses. Under this regime, many injury victims would have

virtually no incentive to settle their claims. Instead, in many cases it would make

better economic sense to “roll the dice” in hopes of obtaining a sufficient recovery

through trial, thereby burdening the courts with cases that otherwise would have

settled.


41

There is perhaps no clearer way to see these implications than by looking to

analogous contexts. In similar circumstances involving reimbursement claims

made by insurers, the same policy concerns at issue here have universally

convinced courts that any equitable award to reimburse an insurer must be limited

to the portion of the underlying recovery that proportionally corresponds to the

amount of its lien. See Arkansas Dep’t of Health & Human Servs. v. Ahlborn, 547

U.S. 268 (2006); Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010). As the U.S.

Supreme Court explained in Ahlborn, “[a] rule of absolute priority” poses the very

real risk of “preclud[ing] settlement in a large number of cases,” and works

dramatic inequities “to the recipient in others.” Ahlborn, 547 U.S. at 288. Thus,

according to the Court, allowing an entity to “share in damages for which it has

provided no compensation . . . would be absurd and fundamentally unjust.” Id. at

288 n.19 (quoting Flanigan v. Dep’t of Labor and Inds., 869 P.2d 14, 17 (1994)).

The Eleventh Circuit reached a similar conclusion in Bradley, a very recent

case involving Medicare liens. There, the court held that where an underlying tort

settlement involves several distinct damage elements – medical expenses and costs

“along with” non-medical, tort damages – the measure of a health insurer’s

equitable lien under basic principles of equity should be calculated by the specific

“component’s contribution to the total full value, if such value were collectible.”

Bradley, 621 F.3d at 1334-37. In affirming an award based on these

considerations, the court observed that any approach to the contrary, i.e., one

allowing an insurer to obtain 100% reimbursement even in the face of an

underlying settlement representing a fraction of the total damages, “would have a


42

chilling effect on settlement.” Id. at 1339. The court admonished the insurer for

refusing to agree to a prorated portion of its asserted right to recovery, warning that

this hard-line position “would compel plaintiffs to force their tort claims to trial,

[thereby] burdening the court system,” and creating “a financial disincentive” to

settlement that would “allow tortfeasors to escape responsibility.” Id.

The Bradley court further observed that, given the myriad potential costs of

trial, including the inherent risk of litigation and the possibility that a defendant

might not be able to pay full compensation, the “vast majority of tort lawsuits are

resolved by settlement,” which are “often for less than the full value of the

damages suffered by plaintiffs.” Id. at 1339 n.20. Allowing an insurer to obtain

100% reimbursement would defeat the “strong public interest in the expeditious

resolution of lawsuits through settlement,” which “[t]hroughout history, our law

has encouraged.” Id. at 1339; see also Mark Galanter, The Hundred-Year Decline

of Trials and the Thirty Years War, 57 Stan. L. Rev. 1255, 1272-74 (2005). With

the single exception of ERISA insurance plans’ efforts to seek reimbursement, this

practice is either prohibited or strictly circumscribed. Neither ERISA nor equity

supports its continued endorsement.18

18 It is worth noting that CGI’s approach also threatens the health of state and Federal assistance programs. As one court recently put it, where the damages to an injury victim are significant and life-long, “the real dispute . . . is between [the Plan] and the taxpayers who, in the future, will be called upon to bear the [injury victim’s] medical expenses. [The Plan] was paid premiums for its coverage; the taxpayers have not been.” Mills v. London Grove Twnshp., 2007 WL 2085365, *3 (E.D. Pa. July 19, 2007).


43

C. Permitting 100% Reimbursement Would Only Benefit Insurers, Not Other Beneficiaries.

Nor could it be reasonably argued that 100% reimbursement is appropriate

because it benefits all the plan beneficiaries by reducing their costs in the form of

premium payments. This argument, which was adopted by both the Eighth and

Eleventh Circuits to justify enforcement of a plan’s claim for 100%

reimbursement, see O’Hara, 604 F.3d at 1237-38; Shank, 500 F.3d at 838, is

contrary to all available evidence. Numerous scholars and commentators have

concluded that insurance plans do not factor subrogation/reimbursement recoveries

into rate calculations, either historically or at present. See Maher & Pathak,

Understanding Tort Subrogation, 40 Loy. U. Chi. L.J. at 58 n.31 (“[I]t is likely that

insurers will not offer lower subrogation adjusted rates even though they will grant

themselves a subrogation right”); Johnny C. Parker, The Made Whole Doctrine:

Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation, 70 Mo.

L. Rev. 723, 737 (2005) (“[S]ubrogation has not led to lower premium costs for the

insured.”); see also Andrew H. Koslow, “Appropriate Equitable Relief” in Wal-

Mart v. Shank: Justice for Whom?, 12 Quinnipiac Health L.J. 277, 279 (2009);

Roger M. Baron, Subrogation: A Pandora’s Box Awaiting Closure¸ 41 S.D. L.

Rev. 237, 243-45 (1996).

In light of this authority, it is perhaps not surprising that CGI has not pressed

that argument in this case. This Court thus need not even address the specious

argument that ERISA reimbursement actions benefit beneficiaries – although it is


44

useful to understand that those courts concluding otherwise had no basis for doing

so.

CONCLUSION

For the foregoing reasons, the decision of the district court granting in part

plaintiff’s motion for summary judgment court should be reversed.

Respectfully Submitted,

Dated: May 23, 2011 Respectfully Submitted,

/s/ Matthew W.H. Wessler________

Matthew W.H. Wessler Public Justice, P.C. 1825 K Street NW, Suite 200 Washington, DC 20006 (202) 797-8600 Leslie A. Brueckner Public Justice, P.C. 555 12th Street, Suite 1620 Oakland, CA 94607 (510) 622-8205 Michael Nelson Nelson Langer Engle PLLC 1015 N.E. 113th Street Seattle, WA 98125 (206) 623-7520 Paul L. Stritmatter Stritmatter Kessler Whelan Coluccio 438-8th Street Hoquiam, WA 98550 (800) 540-7364



45

STATEMENT OF RELATED CASES AND PROCEEDINGS

This case has not been before this Court previously. Appellants are aware of no

other case or proceeding that is in any way related to this appeal.


46

CERTIFICATES OF COMPLIANCE

1. With respect to the type-volume limitations of Fed. R. App. P. 32(a)(7)(B),

this brief contains 11,688 words, excluding the parts of the brief exempted by

Fed. R. App. P. 32(a)(7)(B)(iii).

2. This brief complies with the typeface requirements of Fed. R. App. 32(a)(5)

and the type style requirements of Fed. R. App. P. 32(a)(6) because this brief

has been prepared in a proportionately spaced typeface using Microsoft Office

Word 2007 for Windows in Times New Roman 14-point font.

Dated: May 23, 2011 /s/ Matthew W.H. Wessler Matthew W.H. Wessler



47

CERTIFICATE OF FILING AND SERVICE

I hereby certify that, on this date, this Brief was filed electronically through

the Ninth Circuit’s CM/ECF system and served via the CM/ECF system.

I certify that all participants in the case are registered CM/ECF users and

that service will be accomplished using the appellate CM/ECF system.

Dated: Washington, D.C., May 23, 2011

/s/ Matthew W.H. Wessler Matthew W. H. Wessler



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