Oxendine was a participant in the Barnhill Contracting Company Employee Health Plan, an ERISA plan. She was injured in an automobile accident, and payments were made under the plan for her treatment. Oxendine retained attorney Bain, whose law firm sued the persons responsible for the accident.
Barnhill Contracting, as plan administrator and fiduciary, gave notice to Bain of its right to subrogation and reimbursement under the terms of the plan with respect to any monetary recovery received from the third-party tortfeasors. Nonetheless, without notice to the plan, Oxendine settled her claims against the tortfeasors. Bain did not acknowledge the plan's claim for reimbursement.
Barnhill Contracting brought an action against Oxendine and the Bain defendants under ERISA for a declaratory judgment as to the plan's right to reimbursement from the funds recovered from the tortfeasors. Barnhill Contracting also asserted state law claims for interference with contract and for conversion.
The Bain defendants filed a motion to dismiss all claims against them. The district court granted the motion in part and denied it in part.
As to the ERISA claim for equitable relief, the Bain defendants argued that "an attorney's disbursing of settlement funds to a plan participant, even where the attorney has knowledge of a plan's claim, is insufficient to state a claim for equitable relief under ERISA." The Bain defendants relied on two earlier cases from the Eastern District of North Carolina, T.A. Loving Co. v. Denton, 723 F. Supp. 2d 837 (E.D.N.C. 2010), and Great-West Life & Annuity Ins. Co. v. Bullock, 202 F. Supp. 2d 461 (E.D.N.C. 2002).
The district court declined to follow those decisions, noting that "defendants' suggestion that they deserve special treatment under ERISA because they are attorneys is misplaced." Rather, "[l]ike any other non-parties to an ERISA plan, they may be subject to an action for equitable relief where the requirements for such relief are met."
The district court also noted that several circuit courts of appeals have "uniformly allowed equitable relief against third parties in circumstances analogous to the present case." For example, in AirTran Airways, Inc. v. Elem, the Eleventh Circuit "allowed a plan to seek reimbursement against an attorney that held settlement funds subject to a plan's equitable lien, holding that when the plan trustee ‘transferred the trust property to [the attorney and his law firm], the attorneys took the property subject to the trust, unless they purchased the property for value and without notice of the fiduciary's breach of duty.'" Quoting Elem, 767 F.3d 1192, 1199 (11th Cir. 2014).
"In sum," the court held, "the overwhelming weight of Supreme Court and other circuit court authority supports the availability of a claim for equitable relief against the Bain defendants, where plaintiff seeks a declaration as to its reimbursement and recovery rights under the Plan for specifically identifiable funds – the settlement proceeds up to the amount of … medical benefits paid – in the possession and control of the Bain defendants, where it is alleged that the Bain defendants had notice of the plan's subrogation to defendant Oxendine's rights of recovery."
As a result, the court denied the Bain defendants' motion to dismiss the ERISA claim.
On state law grounds, the district court dismissed the interference with contract claim, finding that the complaint did not allege that the Bain defendants "directed or induced defendant Oxendine to withhold funds from plaintiff, attempted to conceal funds from plaintiff, or otherwise allege conduct that is intentionally tortious in nature." The court denied the motion as to the conversion claim because Oxendine's allegation that defendants had possession of the funds was "contrary to plaintiff's asserted equitable lien over a portion of such funds, and thus unauthorized …"