In Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), an ERISA plan bought an action to recover funds paid to settle an MVA involving Janette Knudson. The plan spent $411,157.11 on Janette’s medical expenses; all but $75,000 was paid by Great-West under a stop loss agreement. The plan included a reimbursement clause. In late 1993, the Knudsons filed an action against Hyundai, the car manufacturer, and other tortfeasors. A $650,000 settlement was negotiated. Notice was sent to Great-West. The settlement allocated $256,745.30 to a special needs trust, $373,426 to attorney’s fees and costs, $5,000 to reimburse California’s Medicaid program and $13,828.70 to satisfy Great-West’s claim. The day before the settlement was approved, Great-West tried to remove the case to federal court where it tried to assert an ERISA claim. The case was remanded because Great-West was not a defendant and could not remove the case. The state court then approved the settlement and funds were paid directly from the defendant to the special needs trust; remaining amounts were tendered to the Knudson’s attorneys who paid Medicaid and Great-West directly. Great-West did not cash its check; instead it filed a separate action in federal court, invoking Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 891, 29 U.S.C. § 1132(a)(3) (1994 ed.), and seeking injunctive and declaratory relief to enforce the plan’s reimbursement provision. In reviewing the Statute, the Court found that only equitable relief was available and a claim to enforce a contractual obligation to pay money typically is not available in equity. Further, the type of restitution claim brought by Great-West was not equitable. The Knudsons were not in possession of specific funds that Great-West claimed; instead Great-West sought to impost personal liability because it claimed it was entitled to “some” funds in the hands of a the trustee of a special needs trust. In ruling that equitable relief was not available to Great-West, the Court expressed “no opinion as to whether petitioners could have intervened in the state-court tort action brought by respondents or whether a direct action by petitioners against respondents asserting state-law claims such as breach of contract would have been pre-empted by ERISA. Nor do we decide whether petitioners could have obtained equitable relief against respondents’ attorney and the trustee of the Special Needs Trust, since petitioners did not appeal the District Court’s denial of their motion to amend their complaint to add these individuals as codefendants.”

Following Great-West, several other circuits have addressed whether a plan administrator may maintain an action for “appropriate equitable relief” to enforce a reimbursement provision after a plan beneficiary has received compensation from a third party. Identifying the key facts discussed and relied upon in Great-West, courts have applied a three-part test: “Does the Plan seek to recover funds (1) that are specifically identifiable, (2) that belong in good conscience to the plan, and (3) that are within the possession and control of the defendant beneficiary?” Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348, 356 (5th Cir. 2003); see also Admin. Comm. of Wal-Mart Stores, Inc. Assocs. Health & Welfare Plan v. Varco, 338 F.3d 680, 687 (7th Cir. 2003).

See Admin. Comm. of the Wal-Mart Assocs. Health & Welfare Plan v. Willard, 393 F.3d 1119 (10th Cir. 2004) (applying the three tests described above to affirm decision in favor of the plan where funds were deposited into trial court’s registry); B. P. Amoco Corp. v. Connell, 320 F. Supp. 2d 1368 (M.D. Ga. 2004) (finding that funds placed into an SNT remained intact and were traceable and, therefore, subject to the plan’s claim). But see Qualchoice, Inc. v. Rowland, 367 F.3d 638 (6th Cir. 2004) (affirming dismissal of plan’s claim; “we hold that a plan fiduciary’s action to enforce a plan-reimbursement provision is a legal action, regardless of whether the plan participant or beneficiary recovered from another entity and possesses that recovery in an identifiable fund”); BlueCross BlueShield v. Carillo, 372 F. Supp. 2d 628 (N.D. Ga. 2005) (“[T]he Court concludes that Plaintiff’s claim, regardless of whether it is styled as a claim for a constructive trust, for equitable restitution, or for an equitable lien, simply seeks to enforce a provision of a plan document that would require Defendants to pay money… Such a claim is not equitable in nature, and is not “appropriate equitable relief” for purposes of § 1132(a)(3).”).

Popowski v. Parrott, 2008 U.S. Dist. LEXIS 71615 (N.D. Ga) is a Georgia federal case that follows Knudson. It concerned recovery of funds by an ERISA provider. The court granted a motion to add a party defendant, the entity holding funds allegedly belonging to the ERISA provider. Funds that were traceable to the settlement proceeds could be pursued under ERISA. Further discovery was permitted to determine whether a home was purchased with the settlement funds and, therefore, traceable.