Restraining Order on Attorney Highlights ERISA Difficulties

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

May 16 —A temporary restraining order blocking a personal injury attorney from spending about $45,000 in fees highlights the legal entanglements that can arise among health plans, injured workers and the lawyers who represent them.

When workers with employer-provided health insurance get in car accidents—or, in the case of James C. Miller, fall from wobbly ladders—they sometimes receive personal injury settlements from those responsible for their injuries. Two legal questions frequently follow: (1) must the worker reimburse his health insurance plan for the medical care it previously covered; and (2) who pays the attorney who negotiated the personal injury settlement?

The U.S. Supreme Court largely answered the first question in 2013, holding in U.S. Airways, Inc. v. McCutchen that an injured worker with a personal injury settlement must respect a health plan's clear reimbursement requirement (74 PBD, 4/17/13).

The second question can be trickier. In McCutchen, the Supreme Court reasoned that when a health plan doesn't specifically indicate who must pay attorneys' fees in this instance, equitable principles like the common fund doctrine can apply. Under the common fund doctrine, each party who benefits from a monetary settlement or judgment—like a health plan that receives reimbursement from a personal injury settlement—must pay its fair share of the attorneys' fees involved in obtaining that settlement or judgment.

The Supreme Court added another wrinkle to this issue in January, when it held in Montanile v. Bd. of Trs. of Nat'l Elevator Indus. Health Benefit Plan that the Employee Retirement Income Security Act doesn't allow a health plan to seek reimbursement from a settlement that subsequently has been spent by the plan participant, beneficiary or attorney (13 PBD, 1/21/16).

This May 13 temporary restraining order—entered by Judge Staci M. Yandle of the U.S. District Court for the Southern District of Illinois—highlights the consequences of these two Supreme Court decisions. In particular, it shows the incentive health plans now have to quickly assert their right to payment before the disputed money can be spent.

Ladder, Then Lawsuit

In Miller's case, a carpenters' health plan paid $86,710 in medical expenses when Miller hurt himself falling from a ladder. He later hired Lanny H. Darr to sue the person responsible for holding the ladder, and they ultimately won a $500,000 settlement.

After the settlement, Miller's health plan demanded that he pay back the $86,710 in medical bills, which Miller did. Darr then argued that the Illinois common fund doctrine obligated the plan to pay a portion of his attorneys' fees out of the reimbursement amount.

A state court judge agreed with Darr and ordered the health plan to hand over $45,587. The health plan then asked a federal judge to block Darr from spending this money.

In particular, the health plan argued that the Supreme Court's decision in Montanile gives Darr and Miller the “ability to destroy” the plan's asserted lien “simply by dissipating the proceeds of their settlement.”

In issuing a temporary restraining order against Darr, the judge agreed that the health plan may be out of luck if Darr spent the money in question before the lawsuit was resolved.

“If not restrained, Defendants may well dispose of the settlement proceeds and all assets traceable to the proceeds without first fully resolving this litigation,” the judge reasoned. “In that event, there would be no fund from which the Plan could recover if successful.”

The judge will consider the plan's request for an injunction at a hearing on May 27.

James E. Robertson of Millar Schaefer Hoffmann & Robertson, St. Louis, Mo., represented the health plan. Darr represented himself, along with Alan S. Mandel of Schlueter Mandel & Mandel, St. Louis, Mo.

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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