Great-West Life v Knudson, 99-1786

• Court: United States Supreme Court
• Writing for the Court: Scalia
• Citation: 534 U.S. 204,151 L.Ed.2d 635,122 S.Ct. 708
• Parties: LIFE & ANNUITY INSURANCE COMPANY, et al., PETITIONERS v. JANETTE KNUDSON and ERIC KNUDSONSUPREME COURT OF THE UNITED STATES
• Docket Number: 99-1786
• Decision Date: 08 January 2002

534 U.S. 204
122 S.Ct. 708
151 L.Ed.2d 635

NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.

GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY, et al., PETITIONERS
v.
JANETTE KNUDSON and ERIC KNUDSON

No. 99-1786.

SUPREME COURT OF THE UNITED STATES

Argued October 1, 2001
Decided January 8, 2002

Syllabus

When respondent Janette Knudson was injured in a car accident, the health plan (Plan) of petitioner Earth Systems, Inc., the employer of Janette's then-husband, respondent Eric Knudson, covered $411,157.11 of her medical expenses, most of which was paid by petitioner Great-West Life & Annuity Insurance Co. The Plan's reimbursement provision gives it the right to recover from a beneficiary any payment for benefits paid by the Plan that the beneficiary is entitled to recover from a third party. A separate agreement assigns Great-West the Plan's rights to any reimbursement provision claim. After the Knudsons filed a state-court tort action to recover from the manufacturer of their car and others, they negotiated a settlement which allocated the bulk of the recovery to attorney's fees and to a trust for Janette's medical care, and earmarked $13,828.70 (the portion of the settlement attributable to past medical expenses) to satisfy Great-West's reimbursement claim. Approving the settlement, the state court ordered the defendants to pay the trust amount directly and the remainder to respondents' attorney, who, in turn, would tender checks to Great-West and other creditors. Instead of cashing its check, Great-West filed this federal action under §502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA) to enforce the Plan's reimbursement provision by requiring the Knudsons to pay the Plan $411,157.11 of any proceeds recovered from third parties. The District Court granted the Knudsons summary judgment, holding that the terms of the Plan limited its right of reimbursement to the $13,828.70 determined by the state court. The Ninth Circuit affirmed on different grounds, holding that judicially decreed reimbursement for payments made to a beneficiary of an insurance plan by a third party is not "equitable relief" authorized by §502(a)(3).

Held: Because petitioners are seeking legal relief the imposition of personal liability on respondents for a contractual obligation to pay money §502(a)(3) does not authorize this action. Pp. 4-17.

(a) Under §502(a)(3) which authorizes a civil action "to enjoin any act or practice which violates the terms of the plan, or to obtain other appropriate equitable relief" the term "equitable relief" refers to those categories of relief that were typically available in equity. Mertens v. Hewitt Associates, 508 U.S. 248 , 256. Here, petitioners seek, in essence, to impose personal contractual liability on respondents relief that was not typically available in equity, but is the classic form of legal relief. Id., at 255. Petitioners' and the Government's efforts to characterize the relief sought as "equitable" are not persuasive. Pp. 4-5.

(b) The Court rejects petitioners' argument that they are entitled to relief under §502(a)(3)(A) because they seek "to enjoin a[n] act or practice" respondents' failure to reimburse the Plan "which violates the [plan's] terms." An injunction to compel the payment of money past due under a contract, or specific performance of a past due monetary obligation, was not typically available in equity. Those rare cases in which an equity court would decree specific performance of a contract to transfer funds were suits that, unlike the present case, sought to prevent future losses that were either incalculable or would be greater than the sum awarded. Bowen v. Massachusetts, 487 U.S. 879 , distinguished. Pp. 5-7.

(c) Also rejected is petitioners' argument that their suit is authorized by §502(a)(3)(B) because they seek restitution, which they characterize as a form of equitable relief. Restitution is a legal remedy when ordered in a case at law and an equitable remedy when ordered in an equity case, and whether it is legal or equitable depends on the basis for the plaintiff's claim and the nature of the underlying remedies sought. 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. Here, the basis for petitioners' claim is not that respondents hold particular funds that, in good conscience, belong to petitioners, but that petitioners are contractually entitled to some funds for benefits that they conferred. The kind of restitution that petitioners seek, therefore, is not equitable, but legal. Mertens, supra, at 256, and Harris Trust and Sav. Bank v. Salomon Smith Barney Inc., 530 U.S. 238 , 253, distinguished. Pp. 7-14.

(d) Finally, the Court rejects the Government's argument that the common law of trusts provides petitioners with equitable remedies that allow them to bring this action under §502(a)(3). Such trust remedies are simply inapposite, see Mertens, supra, at 256, and, in any event, do not give a trustee a separate equitable cause of action for payment from moneys other than the beneficiary's interest in the trust. Pp. 14-15. 208 F.3d 221, affirmed.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Scalia, J., delivered the opinion of the Court, in which Rehnquist, C. J., and O'Connor, Kennedy, and Thomas, JJ., joined.

Opinion of the Court

Justice Scalia delivered the opinion of the Court.

The question presented is whether §502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 891, 29 U.S.C. § 1132 (a)(3) (1994 ed.), authorizes this action by petitioners to enforce a reimbursement provision of an ERISA plan.

I

Respondent Janette Knudson was rendered quadriplegic by a car accident in June 1992. Because her then-husband, respondent Eric Knudson, was employed by petitioner Earth Systems, Inc., Janette was covered by the Health and Welfare Plan for Employees and Dependents of Earth Systems, Inc. (Plan). The Plan covered $411,157.11 of Janette's medical expenses, of which all except $75,000 was paid by petitioner Great-West Life & Annuity Insurance Co. pursuant to a "stop-loss" insurance agreement with the Plan.

The Plan includes a reimbursement provision that is the basis for the present lawsuit. This provides that the Plan shall have "the right to recover from the [beneficiary] any payment for benefits" paid by the Plan that the beneficiary is entitled to recover from a third party. App. 58. Specifically, the Plan has "a first lien upon any recovery, whether by settlement, judgment or otherwise," that the beneficiary receives from the third party, not to exceed "the amount of benefits paid [by the Plan] [or] the amount received by the [beneficiary] for such medical treatment ." Id., at 58-59. If the beneficiary recovers from a third party and fails to reimburse the Plan, "then he will be personally liable to [the Plan] up to the amount of the first lien." Id., at 59. Pursuant to an agreement between the Plan and Great-West, the Plan "assign[ed] to Great-West all of its rights to make, litigate, negotiate, settle, compromise, release or waive" any claim under the reimbursement provision. Id., at 45.

In late 1993, the Knudsons filed a tort action in California state court seeking to recover from Hyundai Motor Company, the manufacturer of the car they were riding in at the time of the accident, and other alleged tortfeasors. The parties to that action negotiated a $650,000 settlement, a notice of which was mailed to Great-West. This allocated $256,745.30 to a Special Needs Trust under Cal. Prob. Code Ann. §3611 (West 1991 and Supp. 1993) to provide for Janette's medical care; $373,426 to attorney's fees and costs; $5,000 to reimburse the California Medicaid program (Medi-Cal); and $13,828.70 (the portion of the settlement attributable to past medical expenses) to satisfy Great-West's claim under the reimbursement provision of the Plan.

The day before the hearing scheduled for judicial approval of the settlement, Great-West, calling itself a defendant and asserting that the state-court action involved federal claims related to ERISA, filed in the United States District Court for the Central District of California a notice of removal pursuant to 28 U.S.C. § 1441 (1994 ed.). That court concluded that Great-West was not a defendant and could not remove the case, and therefore remanded to the state court, which approved the settlement. The state court's order provided that the defendants would pay the settlement amount allocated to the Special Needs Trust directly to the trust, and the remaining amounts to respondents' attorney, who, in turn, would tender checks to Medi-Cal and Great-West.

Great-West, however, never cashed the check it received from respondents' attorney. Instead, at the same time that Great-West sought to remove the state-law tort action, it filed this action in the same federal court (the United States District Court for the Central District of California), seeking injunctive and declaratory relief under §502(a)(3) to enforce the reimbursement provision of the Plan by requiring the Knudsons to pay the Plan $411,157.11 of any proceeds recovered from third parties. Great-West subsequently filed an amended complaint adding Earth Systems and the Plan as plaintiffs and seeking a temporary restraining order against continuation of the state-court proceedings for approval of the settlement. The District Court denied the temporary restraining order, a ruling that...