8th Circuit: Law Firm Cannot Be Sued For Failure to Hold Money to Satisfy ERISA Subrogation Interest

The United States Court of Appeals for the Eighth Circuit has ruled that a law firm that was admittedly aware of an ERISA subrogation interest and disbursed settlement  funds from a third-party claim  to its client could not be held personally liable for failure to pay the funds to an ERISA plan.

In Treasurer, Trustees of Drury Industries, Inc. Health Care Plan v. Goding , No. 11-2885 (8th Cir. Sept. 7, 2012), Goding was hurt in a slip and fall accident.  He received medical insurance benefits from an employer-sponsored health insurance plan.  He also brought a third-party claim and settled the case. Goding’s attorneys, Casey and DeVoti, P.C. ("Casey"), were aware of the subrogation interest but distributed all of the proceeds of the settlement (after deduction for attorney’s fees and expenses) to Goding.  The Plan pursued collection efforts against Goding, but he declared bankruptcy and the obligation to the Plan was discharged.  The Plan then pursued a recovery against Casey, asserting multiple theories of recovery.

The trial judge and appellate court rejected all theories.  The ERISA claims were rejected because the Plan had the right to seek equitable remedies only and, since Casey no longer had the money, no equitable claim could be asserted against it.  The Court noted that Casey never agreed to protect the subrogation interest – it only acknowledged the existence of it, The state law claims were rejected because they were preempted by ERISA.