The only argument this Monday was an Employee Retirement Income Security Act case, Montanile v Board of Trustees of the National Elevator Industry Health Benefit Plan.  The case involves a commonplace fact situation.  After a driver is injured in an automobile accident, the driver’s insurer (in this case an ERISA plan) pays the driver’s medical expenses.  If the driver successfully sues the other driver, does the driver have to reimburse the insurer for medical expenses?  The reason that such a mundane question is difficult is that ERISA provides a detailed set of remedies for ERISA plans and generally preempts all other remedies.  This means that the plan can’t recover unless the remedy it seeks is included in the ERISA list.  In this context, the Court has held in earlier cases that ERISA provides “equitable” remedies but not “legal” remedies.

In the case before the Court on Monday, the settlement came from the defendant to the plaintiff’s lawyers.  All agree that the plan could have obtained reimbursement from the funds while they were identifiable in the hands of the lawyer; the Court held that remedy (an “equitable” lien) permissible in its 2006 decision in Sereboff v Mid-Atlantic Medical Services.  But in this case the attorney disbursed the funds to the driver before the plan recovered them; the question is whether the plan can recover now that the driver has spent the funds.  Because that action seeks recovery out of the driver’s general assets, it would be easy to characterize it as a damages remedy that is quintessentially legal.

The first thing you would expect is that the Justices would find the position of the driver unpalatable – the driver avoids reimbursing the plan solely because he spent the money instead.  And at least some of the Justices had that reaction.  Discussing the problem with Peter Stris, representing the injured driver Robert Montanile, Justice Samuel Alito quipped: “This may be where the law leads us.  But in your brief, you try to make the argument that this is ‘equitable’ in the ordinary sense of the word.  And I don’t understand that.”  In the same vein, Chief Justice John Roberts, discussing the problem with Assistant to the Solicitor General Ginger Anders (arguing on behalf of the federal government), worried about the administrative burdens on ERISA plans: “All of those things you say the plan can do are a lot more complicated than simply saying they should be able to recover that to which they are entitled under the agreement.”

For the most part, though, the Justices seemed to find Montanile’s analysis compelling.  Hence, Neal Katyal’s stint at the lectern on behalf of the ERISA plan, several Justices took turns rejecting his arguments.  Early on, for example, Justice Stephen Breyer concluded his summary of the problem by commenting: “Now, what I could not find was a case embodying the theory that you are now advancing, that he simply gets the damages even where he doesn’t have [one of the traditional equitable remedies].”  In the same vein, Justice Antonin Scalia (the author of the Court’s opinion in Great-West Life and Annuity Insurance Co. v. Knudson, holding that neither specific performance nor restitution are available to the plan) was skeptical of Katyal’s argument a few minutes later: “You’re saying even if you know the person has dissipated all the funds, you can sue for the equitable lien, even if you know the funds are all gone? … Do you have any cases?”

Katyal emphasized that there is a general right to recover from a defendant who “knowingly frustrates” an equitable right; in his view, Montanile’s spending amounts to “knowing frustration” of the plan’s equitable lien.  Responding to the argument that a right to recover out of a defendant’s general assets is the quintessential legal remedy, he repeatedly characterized it as an “urban legend” that the law would treat this as a damages remedy even “when someone acts wrongfully to dissipate a fund.”  When that line of argument led Katyal to suggest that the Court should prefer the traditional “flexibility” of equity to the “formalistic” distinctions that Montanile and the federal government offer, Scalia cut him off in mid-sentence: “Mr. Katyal, equity itself is a formalistic distinction.  To argue that we shouldn’t make formalistic distinctions in trying to figure out whether particular relief is equitable … that’s incomprehensible to me.”

The biggest problem Katyal faced was that the Court’s earlier cases had explained that the limitation of the ERISA regime to “traditional” equitable remedies excluded a group of “ancillary” damage-like remedies that were available in equity.  So pretty much every time he tried to argue that equity had permitted some particular remedy that looks like the remedy he seeks here, one of the Justices would break in to suggest it was only ancillary.  So, for example, Scalia responded to an early comment by suggesting that Katyal’s example “sounds like cleanup to me.”

Similarly, though more expansively, Justice Sonia Sotomayor (who joined the Court after it issued the most recent decision in this line of cases) commented with wry deprecation:

I don’t know if I’m reading [Great-West] rightly or not.  I’ll certainly be corrected by the author and dissenters if I’m not.  But it seemed to me that they’re basically saying, whatever remedy you have has to be an equitable remedy. … The most that I read about [your theories] is that it’s … ancillary jurisdiction.  Is that consistent with saying it’s equitable?  Isn’t it just a legal claim that equity sometimes permitted an equitable court to exercise but wouldn’t it still be legal … and not within the scope of ERISA?

Next in line, Justice Elena Kagan summarized her understanding of the situation with a lengthy comment that could have come straight out of the government’s brief:

It seems, Mr. Katyal, that you are relying on remedies that really developed very late in equity’s life.  In other words, equity was going along, and there were these very formal rules distinguishing it from the legal world.  And then as it progressed, there were people thought we need some cleanup authority or maybe even people just thought these rules aren’t working in the way that we want them to work.  So equity got a little less “equitable” as it approached the merger with law. But that, I think, is not really what we’ve meant when we’ve said we’re looking to things that are typically equitable [–] the last throes of equity as it was becoming a legal system.

My preview before the argument suggested that the Justices might see the case as a balance between the arguable unfairness of letting Montanile spend the plan’s funds against the stark – even formalistic – lines of the existing cases, and that the federal government’s willingness to support Montanile well could sound the death knell for the plan’s position here.  A colloquy between Anders and Justice Ruth Bader Ginsburg – one of the Great-West dissenters – suggests that the federal government’s position well might be important to Montanile.  The colloquy began with Ginsburg noting that in Great-West the “government filed on the side of the plan,” and asking “[w]hat led the government to shift its position?”  Anders explained that the government had “tak[en] a somewhat broader view of equitable relief than the Court ended up adopting in” Great West.  Justice Anthony Kennedy interjected, “So you took your position [here] because of Great-West?,” and Anders responded, “That’s absolutely right.”

As the Justices will recall, the government traditionally has taken a broad view of the remedies available under ERISA.  It argued unsuccessfully for a broad remedy in both Mertens v. Hewitt Associates (the first case on the topic) and Great-West.  So it seems likely that the government only reluctantly decided to argue for the narrower remedy here.  Indeed, the Justices well might think that the government searched for every plausible argument to distinguish Great-West before giving up and arguing for the narrow remedy.  I should add – perhaps some of those reading the post will think it relevant that I argued on behalf of the government in Mertens.

I come away from the argument thinking that the plan’s chances are even slimmer than they were based on the briefs, at least in part because the argument does not seem to have opened any hole in Montanile’s position.  The real question, though, will be what the Justices think when they go back to the treatises – the argument suggested several of them are independently engaged with the specific details of the old equitable doctrines.  At this point, I think that is the best shot for the plan to eke out a victory.

Posted in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, Analysis, Featured, Merits Cases

Recommended Citation: Ronald Mann, Argument analysis: Justices dubious of ERISA plan’s right to recover medical-reimbursement costs, SCOTUSblog (Nov. 11, 2015, 12:44 PM), http://www.scotusblog.com/2015/11/argument-analysis-justices-dubious-of-erisa-plans-right-to-recover-medical-reimbursement-costs/