ACS RECOVERY SERVICES, INC.; FKI Industries, Inc., Plaintiffs-Appellants v. Larry GRIFFIN; Willie Earl Griffin; Larry Griffin Special Needs Trust; Judith Griffin, Defendants-Appellees.
No. 11-40446.
United States Court of Appeals, Fifth Circuit.
May 7, 2013.
723 F.3d 518
Nonetheless, in approving the use of a “reasonable likelihood” standard, the Fowler Court constricted a dictionary definition of likelihood—meaning a “probability,” Merriam-Webster‘s Collegiate Dictionary 721 (11th ed.2007)—and stated explicitly that in using the word likelihood, it did not mean “more likely than not.” Fowler, 131 S.Ct. at 2052. The Court‘s standard demands much less, requiring the government to show only that “the likelihood of communication to a federal officer was more than remote, outlandish, or simply hypothetical,” id., a relatively low bar.
Properly understood, therefore, the “reasonable likelihood” standard in Fowler requires that the government establish the federal nexus by presenting evidence showing that a communication with a federal officer was more than a possibility but less than a probability, so long as the chance of the communication was not remote, outlandish, or simply hypothetical.
In applying this standard to the record in this case, we conclude that the instructional error did not have “substantial and injurious effect or influence in determining the jury‘s verdict.” Brecht, 507 U.S. at 623, 113 S.Ct. 1710. The evidence satisfying the “reasonable likelihood” standard was substantial. McAbier was complaining about large scale gang activity and drug trafficking in her neighborhood. To be sure, the presence of drug trafficking alone might not be enough to satisfy the “reasonable likelihood” standard, but the federal nature of drug trafficking, plus “additional appropriate evidence” does meet the standard. United States v. Bell, 113 F.3d 1345, 1349 (3d Cir.1997) (noting that federal nexus in
Here, the government did put forth “additional appropriate evidence” showing the reasonable likelihood that McAbier‘s reports would have been brought to the attention of federal law enforcement officers. DEA Special Agent Brisolari testified that the DEA field office‘s “biggest source of information” was the Baltimore City Police Department and that the DEA worked in close cooperation with the Baltimore City Police Department, specifically mentioning its participation in six of nine task forces. Agent Brisolari also noted that even street level drug cases come to the attention of the DEA. This case also involved gang activity, elevating the profile of the drug trafficking.
In short, we conclude that the instructional error in this case was harmless as defined in Brecht. The district court‘s denial of Smith‘s
AFFIRMED.
IBEW-NECA Southwestern Health and Benefit Fund, as Amicus Curiae.
David Alan Belofsky, David A. Belofsky & Associates, Ltd., Chicago, IL, Jared Ross Barrett, Esq., Bull & Barrett, L.L.P., Longview, TX, for Plaintiff-Appellant.
Leland Alan Reinhard, Esq., Cleburne, TX, Gerald W. Livingston, Dallas, TX, for Defendant-Appellee.
David I. Schiller, James C. Ho, Daniel L. Geyser, Russell H. Falconer, Gibson, Dunn & Crutcher, L.L.P., Dallas, TX, for
EDITH H. JONES, Circuit Judge, joined by STEWART, Chief Judge, and JOLLY, DAVIS, SMITH, CLEMENT, OWEN, SOUTHWICK, GRAVES, and HIGGINSON, Circuit Judges:
BACKGROUND
While Griffin worked for FK Industries, he participated in the company‘s ERISA welfare benefit plan. The Plan paid over $50,000 in medical expenses for his treatment following a serious automobile accident in 2006. Larry and Judith sued Ashley E. Smith and J-Co Production Management, Inc., the company responsible for the accident, and reached a settlement to pay “cash and periodic payments with a present value sum” just over $294,000.
At the time of the settlement, the Plan provided it “will have a first lien upon any recovery, whether by settlement, judgment, arbitration or mediation” to repay the medical expenses, and it required Larry not to take action that might prejudice the Plan‘s right to reimbursement. ACS had notified Larry‘s attorney of these provisions shortly after he filed suit. Rather than help Larry comply with the Plan, his attorney devised an artful attempt to insulate the settlement proceeds from the reimbursement provision. His attorney admitted that he structured the settlement “in an effort to legally avoid any equitable lien asserted by the Group Medical Plan....” Accordingly, the settlement first segregated money for attorneys’ fees, some additional medical expenses, and for Judith Griffin pursuant to the couple‘s divorce settlement. The remaining funds (having a “present sum value” of about $148,000) were paid by SAFECO, the defendant‘s insurer, to Hartford CEBSCO, which was authorized to purchase an annuity from Hartford Life and therewith to make monthly payments of $843.42 for twenty years to a statutory Special Needs Trust,1 whose trustee is Willie Griffin, Larry‘s brother. The Trust is authorized to make monthly payments for Larry‘s benefit.
The settlement documents reflect Larry‘s approval of this arrangement. On October 24, 2008, the state court approved creating a tax-qualified Special Needs Trust pursuant to
The Order referenced the parties’ contemporaneously executed Compromise Settlement Agreement (“Agreement“), designated as being by and between “Larry Griffin and Judith Griffin as Plaintiffs . . . ,” and Larry signed it as well. Both the guardian ad litem and the parties’ attorneys signed the Agreement only “as to form.” This Agreement exchanged the plaintiffs’ release of claims for (in pertinent part) the defendants’ agreement to pay the Larry Griffin 142 Special Needs Trust (“Trust“) certain monthly payments “through annuity issuer, Hartford Life Insurance Company.” The Griffins and the Trust further agreed to an assignment of the defendants’ liability to make the periodic payments to Hartford CEBSCO, such
ACS and FKI, the Plan fiduciaries, were denied reimbursement by the design and intent of this settlement. They sued Larry Griffin, Judith Griffin, the Trust, and Willie Griffin as Trustee under
The district court, approving a magistrate judge‘s report and recommendation, rejected the fiduciaries’ claims for summary judgment and granted Larry Griffin‘s, Willie Griffin‘s, and the Trust‘s cross motions.3 A panel of this court expanded on the trial court rulings, but the fundamental analysis supporting the appellees rests on the following propositions. First, the Plan‘s claim seeks legal, not equitable relief as required by
DISCUSSION
1. Standard of Review
The panel decision adhered to our circuit precedent in concluding that ACS‘s failure to support a claim for equitable relief necessitated dismissal for lack of
We align with the majority rule and frame this appeal as requiring a decision whether the Plan stated a claim for equitable relief under
2. Section 502(a)(3).
Guided by Supreme Court decisions that have systematically refined the scope of “appropriate equitable relief,” the case law interpreting
The Court ruled that Great-West could not recover “restitution” from the Knudsons personally under
[A] plaintiff could seek restitution in equity, ordinarily in the form of a constructive trust or an equitable lien, where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant‘s possession. See 1 Dobbs § 4.3(1), at 587-588; Restatement of Restitution, supra, § 160, Comment a, at 641-642; 1 G. Palmer, Law of Restitution § 1.4, p. 17; § 3.7, p. 262 (1978). A court of equity could then order a defendant to transfer title (in the case of the constructive trust) or to give a security interest (in the case of the equitable lien) to a plaintiff who was, in the eyes of equity, the true owner. But where “the property [sought to be recovered] or its proceeds have been dissipated so that no product remains, [the plaintiff‘s] claim is only that of a general creditor,” and the plaintiff “cannot enforce a constructive trust or an equitable lien upon other property of the [defendant].” Restatement of Restitution, supra, § 215, Comment a, at 867. Thus, for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant‘s possession.
Id. at 213-14, 122 S.Ct. at 714-15. As the settlement funds were no longer in Knudson‘s possession, Great-West was seeking “some funds,” not necessarily the particular funds obtained from the third party. Significantly, the Court declined to decide whether the ERISA plan might have claimed equitable relief from either the special needs trust or the Knudsons’ attorney. Id. at 220, 122 S.Ct. at 718. Justice Ginsburg, in dissent, observed that under the majority‘s reasoning a “constructive trust claim would lie; hence, the outcome of this case would be different if Great-West had sued the trustee of the Special Needs Trust, who has ‘possession’ of the requested funds, instead of the Knudsons, who do not.” Id. at 225, 122 S.Ct. at 721 (Ginsburg, J., dissenting).
After Knudson, this court decided Bombardier, supra, and held that an ERISA plan was pursuing “appropriate equitable relief” against a law firm holding funds in its trust account on behalf of a client. The client-beneficiary owed his plan, according to its reimbursement terms, over $13,000 for medical expenses paid on his behalf following a car accident. His settlement with the tortfeasor was deposited in the firm‘s trust account. The plan sued the law firm and was met with two defenses: (1) the firm, neither a fiduciary nor a signatory to the plan, was not a proper defendant under ERISA, and (2) a constructive trust was improper because the funds were not in the possession of the beneficiary himself. Id. at 351. This court rejected both defenses to liability. First, we held that the law firm was a proper party pursuant to the Supreme Court‘s conclusions that
Three years after Bombardier, the Supreme Court decided Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006). In the wake of Knudson, a circuit split had developed about whether an ERISA plan seeking to enforce benefits reimbursement provisions could invoke “equitable relief” under
Mid Atlantic‘s additional burden, however, was to prove that the basis for its claim was equitable. See id. at 362, 126 S.Ct. at 1874 (whether the remedy “is legal or equitable depends on ‘the basis for [the plaintiff‘s] claim’ and the nature of the underlying remedies sought“) (quoting Knudson, 534 U.S. at 213, 122 S.Ct. at 708). The Court ascertained that Mid Atlantic‘s claim was equitable because it sought to enforce an “equitable lien by agreement.” Equitable liens by agreement are described in Barnes v. Alexander, 232 U.S. 117, 34 S.Ct. 276, 58 L.Ed. 530 (1914), where Justice Holmes wrote that they arise when an agreement identifies a specific fund, distinct from the obligor‘s general assets, and identifies a particular portion of the fund that is owed to a counter party. See Sereboff, 547 U.S. at 364, 126 S.Ct. at 1875. That the agreement is made before the fund comes into existence is of no moment, Sereboff reiterated. Id. at 366, 126 S.Ct. at 1876. Based on Barnes, Mid Atlantic could rely on the “familiar rule of equity,” which “allowed [it] to ‘follow’ a portion of the recovery ‘into the [Sereboffs‘] hands’ ‘as soon as [the settlement fund] was identified,’ and impose on that portion a constructive trust or equitable lien.” Id. at 363-64, 126 S.Ct. at 1875 (quoting Barnes, 232 U.S. at 123, 34 S.Ct. 276).
Particularly significant here is the Court‘s rejection of the Sereboffs’ argument that Mid Atlantic‘s claim was not equitable because equitable restitution requires a strict tracing of the tainted assets. First, the Court distinguished equitable restitution from equitable liens by agreement and affirmed that Barnes places no similar tracing requirement on the latter type of claim. The Court also refused to hold that Knudson crafted a new tracing requirement because Knudson described only “in general terms” a fiduciary‘s right to recover equitable restitution, and “[t]here was no need in Knudson to catalog all the circumstances in which equitable liens were available in equity. . . .” Id. at 365, 126 S.Ct. at 1876. Neither Knudson nor Sereboff, in other words, exhausts the universe of “appropriate equitable relief,” so long as both the claim and the relief sought sound in equity.
Following these decisions, other circuits have readily enforced ERISA plan reimbursement terms against third parties holding tort settlements achieved by plan beneficiaries. Constructive trusts have been imposed to enforce a plan‘s equitable lien by agreement on settlement proceeds held by a beneficiary‘s tort lawyer, Longaberger Co. v. Kolt, 586 F.3d 459 (6th Cir.2009); by a trustee of his wife‘s special needs trust, Admin. Comm. of Wal-Mart Stores, Inc., Assocs.’ Health & Welfare Plan v. Shank, 500 F.3d 834 (8th Cir.2007); and by a conservator acting as a trustee for a special needs trust. Admin. Comm. for Wal-Mart Stores, Inc. v. Horton, 513 F.3d 1223 (11th Cir.2008).7 In each of these cases, the courts held that, according to Knudson and Sereboff, an equitable lien for reimbursement attached to settlement proceeds as soon as a settlement fund arose from the injuries requiring plan payments. See, e.g. Longaberger, 586 F.3d at 467. The discussion in Horton, supra, quotes, inter alia, the Restatement of Restitution:
Where property is held by one person upon a constructive trust for another, and the former transfers the property to a third person who is not a bona fide purchaser, the interest of the beneficiary is not cut off. In such a case, he can maintain a suit in equity to recover the property from the third person, at least if his remedies at law are not adequate.
Id. at 1228 (quoting RESTATEMENT OF RESTITUTION § 160 cmt. g (1937)). Horton‘s salient conclusion is:
In the instant case, the Administrative Committee properly seeks equitable restitution of a specifically identifiable fund in possession of a defendant. As required by Knudson, the [Plan] asserts title and right to possession of particular property that is in the hands of Mrs.
Werber in her capacity as Joshua‘s conservator. The money Mrs. Werber holds in trust has been identified as belonging in good conscience to the [Plan] by virtue of the Plan‘s terms, and the money can clearly be traced to a particular fund in the defendant‘s possession. The fact that Mrs. Werber holds the funds as a third party does not defeat the [Plan‘s] claim. Under Knudson, Sereboff, and the other authorities cited above, the most important consideration is not the identity of the defendant, but rather that the settlement proceeds are still intact, and thus constitute an identifiable res that can be restored to its rightful recipient.
Id. at 1228-29 (emphasis added).
Most analogous to the present case is Shank, which, in one sentence, dispatched a trustee‘s defense that the plan‘s suit to place a constructive trust on his injured wife‘s special needs trust sought legal, not equitable relief. The court held:
The [plan‘s] claim meets Sereboff‘s requirements for equitable restitution: it seeks (1) the specific funds it is owed under the terms of the plan—i.e., the money it paid to cover Shank‘s medical expenses; (2) from a specifically identifiable fund that is distinct from the Shanks’ general assets—i.e., the special needs trust; and (3) that is controlled by defendant James Shank, the trustee.
Shank, 500 F.3d at 836. Analogous to Knudson and this case, Mrs. Shank did not have “possession” of the funds, yet the constructive trust claim was enforceable against the special needs trust.
Longaberger instructs on the lack of a tracing requirement in connection with the enforcement of an equitable lien by agreement. There, the ERISA plan sued a beneficiary and his lawyer for benefits reimbursement after a settlement had been reached with the tortfeasor.8 Kolt, the attorney, moved for summary judgment on the basis that the plan sought legal, not equitable relief because the settlement funds had already been disbursed from his Interest on Lawyer Trust Accounts (IOLTA) account before the plan filed suit. The Sixth Circuit affirmed summary judgment for the plan and against the attorney. The plan‘s equitable lien attached when the settlement funds were identified. As to tracing, the Court noted:
The fact that Kolt chose to disregard Longaberger‘s first priority lien and commingle the settlement funds does not defeat Longaberger‘s claim for equitable relief, because under Sereboff, Longaberger was free to follow a portion of the settlement funds into Kolt‘s hands.
Longaberger, 586 F.3d at 469 (emphasis added).
Longaberger is reminiscent of Bombardier‘s holding, even before Sereboff, that “[t]his pre-existing reimbursement obligation to the [p]lan precluded [the beneficiary] from contracting away to the law firm that which he did not own himself, namely, the right to all or any portion of the [sum] that rightfully belonged to the [p]lan.” Bombardier, 354 F.3d at 357. When the beneficiary accepted a settlement subject to the plan‘s prior lien, he could not transfer the proceeds, in any of the above cases, free and clear to a third party. Moreover, the third party‘s liability even after the disposition of tainted proceeds was held remediable in equity by a constructive trust because no strict tracing requirement existed in this situation.
From Knudson, Sereboff, and applicable circuit case law, the following conclusions seem inescapable. Larry Griffin
As to Larry‘s receipt of benefits from the Special Needs Trust, the situation is less clear. Confronted with an ERISA plan beneficiary who had received, but dissipated or commingled, disability benefits for which the plan claimed a setoff, the Seventh Circuit authorized the imposition of a constructive trust. Gutta v. Standard Select Trust Ins. Plans, 530 F.3d 614, 621 (7th Cir.2008). The court relied on Sereboff in holding that Gutta and the plan had formed an equitable lien by agreement, and because strict tracing is not required, a remedial trust could be imposed notwithstanding Gutta‘s dissipation or commingling of the fund. Id. at 620-21; see also Cusson v. Liberty Life Assurance Co., 592 F.3d 215, 231 (1st Cir.2010); Funk v. CIGNA Grp. Ins., 648 F.3d 182, 194-95 (3d Cir.2011). On the other hand, the facts in Knudson so closely parallel those of the instant case as to render a different outcome, even an outcome predicated on Sereboff, arguable. We do not reach a decision on Larry‘s liability to the Plan, because imposing a constructive trust on his Trust affects exactly the same proceeds and effects the same result as would an equitable remedy against Larry.
ACS must fail in its attempt to recover from Judith Griffin, however, because the fiduciaries did not demonstrate that the money she received from the settlement was attributable to Larry‘s injuries rather than her personal claims arising from the accident.
Several objections have been made against fastening equitable relief on the Trust. The principal one is that because the Trust receives proceeds from an annuity purchased by Hartford with the settlement fund, Larry lacks possession or control of the settlement money and stands in the same position as the Knudsons. This reasoning is flawed. First, unlike in Knudson, the Trust is a defendant. The Knudson majority expressly reserved this
Another objection is that Bombardier prescribed a three part “test” in which the beneficiary‘s possession and control are required at the time of suit. To the extent Bombardier embraced such a test, it must yield to the higher subsequent authority of Sereboff, which states that the funds only need to be in the possession of the defendant. Sereboff, 547 U.S. at 362, 126 S.Ct. at 1874.11 In any event, the Court‘s Bombardier description of the factors that led to the ERISA plan‘s successful suit for equitable relief may be viewed as neither a prescription for liability in all
Additionally, the bolder assertion that Larry “never” had possession or control of the settlement fund ignores the instant facts and the rationale of Sereboff. Without Larry‘s injury, there would have been no Plan payments for his medical costs nor a settlement. The settlement documents he signed fully explain his assent to the disposition of the fund. He had at least constructive possession and control of the fund to facilitate the settlement.12 He would not have agreed to indemnify the settling parties and Hartford for unpaid medical bills had he expected to receive nothing from the settlement. Griffin‘s attempt to divorce himself from the origin of the fund and its disposition is no more persuasive than if he had directed the money to a close relative. But the more important point, as Bombardier put it, is that he could not give away that which he did not possess. Sereboff authorized resort to the beneficiaries’ segregated account only after the Supreme Court concluded the plan had an equitable lien by agreement that attached at the fund‘s creation. So, here, a holding that no equitable lien by agreement arose would blink reality and elevate form over substance.
A final objection against holding the Trust liable as the recipient of the settlement fund or its proceeds is that statutory special needs trusts are “special.” They are vehicles for the support and care of disabled individuals whose primary purpose is to maintain the beneficiaries’ eligibility for public benefits like Medicaid. See 1 Stuart Zimring, Rebecca C. Morgan, Bradley J. Frigon & Craig C. Reaves, FUNDAMENTALS OF SPECIAL NEEDS TRUSTS, §§ 1.04, 1.05 (Matthew Bender 2012). Texas, like many states, authorizes such trusts.
Conclusion
Larry Griffin‘s Trust could have been funded by an annuity reduced to satisfy his reimbursement obligation to the Plan. He and his attorneys chose instead to disregard the Plan‘s equitable lien by agreement, as they attempted to divorce Larry and the Trust from possession and control of the settlement funds. Against this ruse, ACS asserts an equitable claim for restitution and seeks the equitable remedy of a constructive trust over the proceeds of the settlement fund as they come into the Trust‘s possession. As we have explained, this claim is well supported in law. For the foregoing reasons, we REVERSE IN PART, AFFIRM IN PART, and REMAND for the imposition of equitable relief upon the Trust through Willie Griffin, Trustee.
PRADO, Circuit Judge, concurring in part and dissenting in part:
I agree with much of the Court‘s analysis regarding the scope of “appropriate equitable relief” under
Section
But ACS must also show that its requested remedy is equitable rather than legal. “[A] judgment imposing a merely personal liability on the defendant to pay a sum of money” is a legal remedy. Knudson, 534 U.S. at 213, 122 S.Ct. 708. An equitable remedy, by contrast, seeks the return of “money or property [that is] identified as belonging in good conscience to the plaintiff [and can] clearly be traced to particular funds or property in the defendant‘s possession.” Id. Though it takes the form of a payment of money, the remedy of restoring to the plaintiff particular funds in the defendant‘s possession is equitable because it is as much a declaration
Given this emphasis on possession, it is curious that the Court today grants relief when none of the named defendants actually possesses the disputed funds.1 Reading the Court‘s opinion, one gets the impression that the funds reside in the Trust, waiting to be returned to their rightful owner. In reality, however, neither the Trust nor the Trustee possesses the settlement funds that ACS claims an entitlement to. Those funds were instead transferred to Hartford CEBSCO to fund the
Notes
All of this discussion, however, was in the context of whether
Since the date of the settlement, Mr. Griffin has received $843.00 per month in payments administered by [the Trust]. The [Trust] does not have and has not had a balance of funds held in it. Rather, periodic payments are made to it from Hartford Life Insurance Company at the direction of Hartford [CEBSCO] to fund monthly payments to [the Trust] which were then paid to Mr. Griffin.
(emphasis added). Thus, the only money in the Trust at any given time comes in the form of monthly payments, which are then funneled directly to Larry. This is reflected in the Court‘s remedy: “appropriate equitable relief demands the imposition of a constructive trust on the proceeds of the annuity as they accrue to the Special Needs Trust.” Slip Op. at 15 (emphasis added).
But ACS did not seek to satisfy its claim with a payment plan. Instead, ACS alleged that Larry and the Trust “now hold or shortly will hold for the benefit of the Plan proceeds of settlement in an amount no less than $50,076.19” and requested “[t]hat a constructive trust be impressed upon no less than $50,076.19 in funds intended to be paid to or received by the Defendants from any recovery made as compensation for injuries caused by the acts of a third party.” (emphasis added). Though ACS invoked the label “constructive trust,” it did not seek the return of any funds in a defendant‘s possession, nor did it, upon learning how the settlement fund was distributed, amend its complaint to seek the imposition of a constructive trust on the proceeds of the annuity or on the funds used by Hartford CEBSCO to purchase the annuity. ACS simply requested “[t]hat judgment be entered against the Defendants in the amount of no less than $50,076.19.” It is not enough that an equitable remedy can be conceived of on these facts. ACS must have sought “to restore to [itself] particular funds or property in the defendant‘s possession.” Knudson, 534 U.S. at 214, 122 S.Ct. 708. Because it did not, the remedy ACS sought was legal. Cf. CIGNA Corp. v. Amara, U.S., 131 S.Ct. 1866, 1878-79, 179 L.Ed.2d 843 (2011) (“We noted [in Knudson] that the fiduciary sought to obtain a lien attaching to (or a constructive trust imposed upon) money that the beneficiary had received from the tort-case defendant. But we noted that the money in question was not the particular money that the tort defendant had paid. And, traditionally speaking, relief that sought a lien or a constructive trust was legal relief, not equitable relief, unless the funds in question were particular funds or property in the defendant‘s possession.” (internal quotation marks omitted)).
The Court nonetheless crafts a remedy against the Trust but stops short of granting the same relief against Larry, reasoning that “the facts in Knudson so closely parallel those of the instant case as to render a different outcome [for Larry], even an outcome predicated on Sereboff, arguable.” Op. at 528. This reluctance reveals the flaw in the Court‘s approach. The Court is undoubtedly correct in seeing a conflict with Knudson because ACS‘s claim against Larry is identical to the claim rejected in Knudson. But why does the claim against the Trust not suffer the same fate? It is true that ACS included the Trust as a defendant where the plaintiff in Knudson did not, but that is a hollow distinction when the Trust is as empty as the beneficiary‘s pockets. The reason the outcome would have been dif-
I appreciate the Court‘s desire to provide a remedy in this case. Larry‘s attorney deliberately structured the settlement to avoid the undisputed obligation to reimburse ACS and, during oral argument, even went so far as to describe this undertaking as similar to money laundering. But it is not our duty to do ACS‘s work for it. It should be clear by now that a plan seeking to enforce a reimbursement provision must seek the return of particular funds from whatever party possesses them. Because ACS did not, I respectfully dissent.
HAYNES, Circuit Judge, joined by REAVLEY, DENNIS, and ELROD, Circuit Judges, concurring in part and dissenting in part:
I concur with the portion of the judgment affirming the district court‘s denial of relief against Judith Griffin and Larry Griffin.1 I part ways with the majority
opinion‘s reversal as to the Larry Griffin 142 Special Needs Trust (the “Trust“) and its trustee, Willie Earl Griffin (the “Trustee“). This appeal presents the narrow question of whether an ERISA plan, under
I. No Explicit “First Money” Right Exists Under ERISA
The majority opinion‘s focus on the existence of an equitable lien by agreement between the Plan and Larry Griffin overlooks a critical fact: Congress has not provided ERISA plans a “first money” right to funds recovered by a beneficiary from a third party. A “first money” right provides a statutory first right to any funds recovered by beneficiaries from third-party tortfeasors. Many states have created such a right in the context of workers’ compensation benefits. For example, the
With regard to ERISA, Congress could similarly have provided plans with a “first money” right to any payments from third parties recovered by a plan‘s beneficiaries.3 Instead of providing such relief, however, Congress simply provided a general right to equitable relief to redress violations of or to enforce a plan‘s terms, and specifically did not provide a contrac-
Allowing the Plan to reach through a special needs trust under
II. No “Possession” So No “Tracing”
The majority opinion posits that the Trust‘s argument is one of “strict tracing” and then rejects such a tracing argument. The majority opinion submits that the money can be traced from Larry Griffin to the Trust and the Trustee, thereby making them proper targets for equitable relief. However, this is not a question of tracing, “strict” or otherwise. The tracing argument is unavailing as to the Trust and the Trustee because it does not work as to Larry Griffin—there is nothing to “trace” from Larry Griffin into the Trust.
The tracing cases cited in the majority opinion address situations where the funds sought are all or partially within the possession or control of the defendant-beneficiary but they have been “commingled” or “dissipated” such that the exact funds are not identifiable. See, e.g., Longaberger Co. v. Kolt, 586 F.3d 459, 469 (6th Cir.2009) (noting that a lien applied when the funds became identifiable); Gutta v. Standard Select Ins. Plans, 530 F.3d 614, 621 (7th Cir.2008) (noting that strict tracing is not required, and a plan may bring a suit even if the money is not specifically traceable to current assets). The problem with relying on these cases is that the money was once in the direct possession or control of the defendant-beneficiary (i.e., there is something to “trace“). Indeed, in Longaberger the beneficiary had more than “fleeting possession and control“—the money sat in the IOLTA account for several months and was therefore directly in the defendant-beneficiary‘s constructive possession and control. 586 F.3d at 462. Here, as recognized in the settlement agreement and Trust documents, Larry Griffin never had possession of the funds. Because Knudson precludes a finding that the money could be traced from Larry Griffin into the Trust, there is nothing to “trace,” strictly or otherwise, in this case. See 534 U.S. at 214, 122 S.Ct. 708. Thus, neither Gutta nor Longaberger counsel in favor of liability for the Trust or the Trustee.
III. Supreme Court and Fifth Circuit Precedent Do Not Support Recovery from the Trust
A. Defendant‘s Possession or Control
The Supreme Court has not directly considered whether equitable relief under
The Supreme Court later elaborated on the availability of
Our court, following Knudson, declined to expand the scope of relief for ERISA plans under alternative theories of recovery, such as unjust enrichment, because “ERISA‘s civil enforcement provision specifically and clearly addresses [the scope of available relief], thereby eschewing any possibility that a ‘gap’ exists in the statutory text that would permit us to employ
In Bombardier, we distinguished our prior opinion in Bauhaus USA, Inc. v. Copeland, 292 F.3d 439 (5th Cir.2002), in which we held that funds deposited in a state court‘s registry in anticipation of an interpleader action were not in the defendant-beneficiary‘s actual or constructive possession or control. Bombardier, 354 F.3d at 356 (discussing Bauhaus, 292 F.3d at 445). Because the funds in Bauhaus were in the court‘s registry and thus outside of the defendant‘s control, we concluded that the plan was trying to impose personal liability on the defendant-beneficiary, and the action could not proceed under
In sum, Bombardier and Sereboff do not support a finding that the Trust and Trustee can be held liable.6 In those cases, the money was actually in the defendant-beneficiary‘s possession or control. Unlike here, the defendant-beneficiary in Bombardier had constructive possession and actual control of the settlement funds—a portion of which were placed in his lawyer‘s IOLTA account. See 354 F.3d at 350-51. Similarly, in Sereboff, the funds were held in an investment account that was actually controlled by the plan‘s beneficiary. 547 U.S. at 360, 126 S.Ct. 1869.
B. Failure to Join Hartford
An additional basis for concluding that the Appellants’ claim fails here rests on their failure to join Hartford CEBSCO as a defendant. Under Supreme Court and Fifth Circuit precedent, the Appellants must demonstrate that both the basis and nature of their claim are equitable. See Knudson, 534 U.S. at 213, 122 S.Ct. 708 (“[W]hether [a remedy] is legal or equitable depends on the basis for [the plaintiff‘s] claim and the nature of the underlying remedies sought.” (alteration in original) (emphasis added) (citation and internal quotation marks omitted)); see also Sereboff, 547 U.S. at 363, 126 S.Ct. 1869. Although the Appellants’ basis for relief—a constructive trust—is equitable, the nature of the Appellants’ relief does not lie in equity because Hartford CEBSCO—the entity that possesses and controls the annuity containing the funds at issue—was not joined as a defendant. Indeed, the Appellants’ remedy is legal in nature because it effectively seeks to impose personal liability on Larry Griffin, the Trust, and the Trustee “in an amount no less than $50,076.19,” regardless of the fact that none of these defendants has actual or constructive possession of the settlement funds. See Knudson, 534 U.S. at 214, 122 S.Ct. 708 (“The kind of restitution [sought], therefore, is not equitable—the imposition of a constructive trust or equitable lien on particular property—but legal—the imposition of personal liability for the benefits . . . conferred upon [the beneficiaries].” (emphasis added)); see also Restatement (Third) of Restitution and Unjust Enrichment § 55 cmt. h (2011) (“If the claimant cannot show an equitable entitlement to specific property in the hands of the defendant, the underlying basis of the remedy is lost.“). Therefore, the failure to join Hartford CEBSCO as a defendant precludes the Appellants from establishing the equitable nature of the relief they seek because they cannot demonstrate that any of the named defendants has possession of the settlement funds.
C. Summary
In the end, Bombardier‘s emphasis on a defendant-beneficiary‘s actual or constructive possession should continue to be the law of this circuit because it appropriately balances the availability of equitable relief for ERISA plans with the important protections afforded to special needs trusts by Congress and the states as a means of providing for disabled individuals. Indeed, continuing to follow our approach in Bombardier would align us with many of our sister circuits, which emphasize the importance of the defendant-beneficiary or defendant-conservator currently having either actual or constructive possession of the funds at issue. See, e.g., Hall v. Liberty Life Assur. Co. of Boston, 595 F.3d 270, 275 (6th Cir.2010) (concluding that a plan seeking reimbursement could not impose an equitable lien on a beneficiary‘s future social security disability benefits because the plan had no claim to the benefits until they were in the beneficiary‘s possession); Longaberger, 586 F.3d at 469 (funds at issue were held by beneficiary‘s attorney in an IOLTA account thereby giving defendant-beneficiary constructive possession and defendant-attorney actual possession of funds); Admin. Comm. for Wal-Mart Stores, Inc. v. Horton, 513 F.3d 1223, 1228-29 (11th Cir.2008) (disputed funds held in trust account over which defendant-conservator had possession and control); Dillard‘s Inc. v. Liberty Life Assurance, 456 F.3d 894, 901 (8th Cir.2006) (defendant-beneficiary had received disputed funds
IV. Special Needs Trusts
Finally, the majority opinion fails to account for a significant aspect of this case. The need to give effect to
A special needs trust is created for a disabled individual to allow a trustee to manage assets for the benefit of a disabled person. See 1 STUART D. ZIMRING, REBECCA C. MORGAN, BRADLEY J. FRIGON & CRAIG C. REAVES, FUNDAMENTALS OF SPECIAL NEEDS TRUSTS, § 1.04 (Matthew Bender ed., 2012). It has very specific requirements concerning its establishment, it is not available to everyone (for example, the beneficiary must be “disabled” under the definition provided in the Social Security Act), and disbursements from the trust may only be used for limited and specific purposes. See, e.g.,
The primary purpose of special needs trusts is to allow beneficiaries to maintain eligibility for public benefits—such as Medicaid—while supplementing those benefits so that the beneficiary enjoys a better quality of life. See ZIMRING ET AL., supra, § 1.05. Indeed, Congress and the states sanction the use of special needs trusts as a lawful means of protecting assets to
Here, regardless of Larry Griffin‘s motive, a special needs trust has been created. The Appellants do not dispute that Larry Griffin was adjudicated by the Texas courts to be disabled, and they do not dispute that a special needs trust was established pursuant to
If Larry Griffin had unfettered access to the money from the annuity, the Appellants could recover the money from Larry Griffin or the Trust as Larry Griffin would have possession and the right to control the money. However, under the law of special needs trusts, the Trust is structured in such a way that the funds are used for Larry Griffin‘s benefit, but Larry Griffin is not in possession of or control over the funds. Accordingly, in my view, this lack of possession renders the Appellants’ request for equitable relief under
Furthermore, the two decisions from our sister circuits supporting the majority opinion‘s holding do not give adequate consideration to the unique nature of special needs trusts. For example, the Eleventh Circuit in Horton provided that a plan could seek equitable relief against a beneficiary in her capacity as the trustee of her son‘s special needs trust.8 513 F.3d at
Moreover, the Eighth Circuit‘s opinion in Administrative Committee of Wal-Mart Stores, Inc. Associates’ Health & Welfare Plan v. Shank, 500 F.3d 834, 836 (8th Cir.2007), provides minimal guidance in this matter. Indeed, Shank addresses facts similar to those presented by this appeal and determines that equitable relief under
As explained above, this way of structuring a trust is sanctioned by Congress and the State of Texas as a way to provide a disabled individual with additional benefits while also permitting the individual to retain access to public benefits such as Medicaid. See, e.g.,
opinion‘s approach ignores this key distinction and raises the specter that all special needs trusts will be available for “equitable” relief to various creditors of beneficiaries of such trusts. Such a drastic approach should come from Congress, not the courts. From the majority opinion‘s contrary conclusion, I respectfully dissent.
UNITED STATES of America, Plaintiff-Appellee, v. Marcus D. HAMILTON, Defendant-Appellant.
No. 12-20250.
United States Court of Appeals, Fifth Circuit.
July 11, 2013.
The majority opinion concludes it is not necessary to reach a decision concerning Larry Griffin because it grants the Appellants the relief they seek against other defendants. In my view, the Supreme Court‘s holding in Great-W. Life & Annuity Insurance v. Knudson bars recovery against Larry Griffin in any event. See 534 U.S. 204, 214, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002) (holding that a plan‘s beneficiary—who was entitled to the benefits of a special needs trust—could not be held liable under