On January 20, 2016, the U.S. Supreme Court ruled in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (136 S. Ct. 651, 2016 U.S. LEXIS 843) that a plan participant who had previously agreed to reimburse the plan from proceeds of a third party lawsuit can defeat the plan’s right to recovery by dissipating the proceeds on nontraceable items (such as food and travel). The Court held that that if an ERISA plan participant dissipates a third-party settlement on nontraceable items, then the plan fiduciary may not bring suit under Section 502(a)(3) to attach the participant’s own general assets.
We have analyzed the Montanile case and evaluated Boehm’s case handling processes in light of the holding of this case. The following are some of our observations.
Although the Court held that the dissipation of the settlement proceeds on nontraceable items prevented attachment against the participant’s general assets, the Court did clearly state that the Board of Trustees in that case would have avoided the unfortunate predicament it now faced had it timely availed itself of two remedies.
The first remedy would have been to object promptly to the plaintiff’s attorney’s stated plan to disburse all of the settlement proceeds to the plan participant by the end of the 14-day deadline for objection. Not only did the Board fail to object timely—it failed to object at all.
The second remedy would have been to bring suit under Section 502(a)(3) immediately, rather than waiting six months, as the Board had done in this case.
Under the facts of this case, the Board was clearly aware, even before the participant’s attorney gave notice of the intention to disburse all of the remaining settlement proceeds to his client, that negotiations to settle its lien had broken down. This state of affairs certainly should have inspired greater vigilance on the part of the Board, since allowing this breakdown to languish without further action on its part, as well as the failure to object to distribution of the settlement proceeds, led predictably to the dissipation of the fund.
Even under the unfortunate holding in this case, however, all was not lost. In Montanile, the Court remanded the case back down to the lower court to determine whether the participant had actually dissipated the entire fund of settlement proceeds on nontraceable items or whether the participant had mixed the settlement fund with his own general assets.
If any settlement proceeds remained, then those proceeds could still be available for recovery by the Board. If the participant had commingled the settlement proceeds with his own general assets, then this act might allow the Board to recover against “the entire pot of money” under the “swollen assets doctrine.” Additionally, if the settlement proceeds are clearly traceable to other items, such as particular funds or property, a trust fund might be able to enforce a “constructive trust” or equitable lien on the traceable items.
We have reviewed and discussed Boehm’s case handling process for its trust fund clients in light of this case, and we believe Boehm’s procedures avoid the type of predicament faced by the Board in the Montanile case. This is because Boehm’s staff is required to report timely to its clients situations where negotiations have completely broken down, or to forward to the client any correspondence or other written notice that the settlement proceeds are at risk of distribution without prior resolution of the trust fund’s lien in a case. Boehm has always taken seriously the necessity of notifying its clients of such developments. This open communication policy and procedure is in place specifically to avoid such unfortunate consequences.
Boehm also regularly monitors claim status and case status (when litigation is initiated), and reports status of all files to the Plan on a quarterly basis.
Prompt Board action would have avoided the unfortunate outcome of the Montanile case, and Boehm’s internal process mandates prompt action and open communication from file acceptance through file closure.