How NOT to Handle an ERISA Subrogation Lien

Georgia lawyer David T. Lashgari thought it was a good idea to distribute $500,000 in personal injury settlement proceeds knowing that there was an ERISA-protected subrogation interest for $180,000. 

Then he thought it was a good idea to fight an effort by the subrogee to get the money from him and his client. 

Then he thought it was a good idea not to obey a court order that required him and his client to put $180,000 into his trust fund pending final judgment in the case.  (He said he and his client didn’t have the money.)

After a year of waiting for the money to be deposited, the district judge held both Lashgari and his client in civil contempt, ordered them to produce financial records that would establish their financial situation, and ordered Lashgari to report himself to the State Bar of Georgia. 

The records produced were, in the opinion of the Seventh Circuit Court of Appeals, "absurdly inadequate."

Then, Lashgari thought an appeal was a good idea. The  appeal brief filed on behalf of him and his former client was a "gaunt, pathetic document," their appeal to be deemed frivolous, and their conduct called "outrageous."

The remand requires the district court to determine whether Lashgari and his client should be jailed until they comply with the order to deposit the funds in a trust account.

And briefing is being held on sanctions for a frivolous appeal.

One must ask – could this situation have been handled any worse?  Lashgari tried to argue that the settlement did not cover injuries in the original car wreck but only post-accident tortious conduct by the defendant.  I do not know enough about the facts to say whether such an argument could be plausibly made or not.  I do know that it is poor judgment to disburse money claimed by a subrogee before resolving the matter.  How do you bring the issue to a head assuming that it cannot be negotiated?  Keep the disputed money in your trust account and file declaratory judgment action.

The case is Central States, Southeast and Southwest Areas Health and Welfare Fund v. Lewis, No. 13-2214  (7th Cir. Mar. 4, 2014).