O'Brien-Shure v. U.S. Laboratories, Inc. Health & Welfare Benefits Plan
1:12-cv-06101
| N.D. Ill. | Jul 1, 2013Background
- Plaintiff Kristen O’Brien-Shure received long-term disability (LTD) benefits from LINA from Sept. 21, 2008 to Feb. 7, 2011; policy allowed offset for Social Security Disability Insurance (SSDI) and permitted recovery of overpayments.
- O’Brien-Shure later received retroactive SSDI totaling $1,916/month for her and $980/month for a dependent; LINA alleges this produced an overpayment of ~$81,117.23.
- O’Brien-Shure had signed a reimbursement agreement promising to repay overpayments within 30 days of receiving offsetting benefits.
- LINA counterclaimed seeking recovery of the alleged overpayment via an equitable lien by agreement or restitution; O’Brien-Shure moved to dismiss under Rules 12(b)(1) and 12(b)(6).
- District court considered whether LINA’s counterclaim seeks equitable relief (permitting jurisdiction under ERISA § 502(a)(3)) despite the funds no longer being in plaintiff’s possession, and whether equitable defenses (unclean hands) bar recovery.
- Court denied O’Brien-Shure’s motion to dismiss and ordered her to answer the counterclaim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether LINA’s counterclaim is equitable (permitting jurisdiction under ERISA § 502(a)(3)) when the specific dollars are no longer in plaintiff’s possession | O’Brien-Shure: funds are not in her possession, so claim is legal not equitable and must be dismissed | LINA: policy and reimbursement agreement identify a specific fund (overpayments) and share recoverable; equitable lien by agreement applies even if funds were commingled/dissipated | Court: Held claim is equitable; possession/traceability not required per Seventh Circuit precedent (Gutta/Sereboff) |
| Whether 42 U.S.C. § 407(a) (protecting SSDI from legal process) bars LINA’s claim | O’Brien-Shure: SSDI protection prevents recovery | LINA: it seeks overpayments it made, not SSDI funds directly, so § 407(a) does not bar recovery | Court: § 407(a) does not bar the counterclaim |
| Whether the unclean hands (or other equitable) defenses preclude LINA’s equitable relief | O’Brien-Shure: clean hands should bar LINA’s recovery | LINA: plan terms and equitable lien govern; equitable defenses may not override plan terms | Court: Held unclean hands is not a valid basis to defeat an agreed equitable lien under controlling precedent (McCutchen) |
| Whether state-law restitution claim survives | O’Brien-Shure: (raised in reply) restitution claim should be dismissed | LINA: alternative restitution pleaded | Court: Plaintiff waived reply-only challenge; court notes state-law restitution claims are preempted by ERISA |
Key Cases Cited
- Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356 (2006) (equitable lien by agreement permissible under ERISA § 502(a)(3))
- Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) (distinguishes equitable relief from legal money judgment)
- Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614 (7th Cir. 2008) (no tracing/possession requirement; overpayment recovery equitable despite commingling)
- Weitzenkamp v. Unum Life Ins. Co. of Am., 661 F.3d 323 (7th Cir. 2011) (insurer may target overpayments rather than protected SSDI funds)
- US Airways, Inc. v. McCutchen, 133 S. Ct. 1537 (2013) (equitable defenses cannot override explicit plan terms in actions to enforce agreed equitable liens)