Affirmed by Supreme Court, May 15, 2006
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MID ATLANTIC MEDICAL SERVICES,
LLC,
Plaintiff-Appellee,
v.
JOEL SEREBOFF; MARLENE SEREBOFF, No. 04-1336
Defendants-Appellants.
SECRETARY OF LABOR,
Amicus Supporting Appellee.
MID ATLANTIC MEDICAL SERVICES,
LLC,
Plaintiff-Appellant,
v. No. 04-1403
JOEL SEREBOFF; MARLENE SEREBOFF,
Defendants-Appellees.
MID ATLANTIC MEDICAL SERVICES,
LLC,
Plaintiff-Appellee,
v. No. 04-1722
JOEL SEREBOFF; MARLENE SEREBOFF,
Defendants-Appellants.
2 MID ATLANTIC MEDICAL v. SEREBOFF
Appeals from the United States District Court
for the District of Maryland, at Baltimore.
Andre M. Davis, District Judge.
(CA-03-2269-AMD-1)
Argued: December 2, 2004
Decided: May 4, 2005
Before WIDENER and KING, Circuit Judges,
and Henry F. FLOYD, United States District Judge
for the District of South Carolina, sitting by designation.
Affirmed in part, vacated in part, and remanded by published opinion.
Judge King wrote the opinion, in which Judge Widener and Judge
Floyd joined.
COUNSEL
ARGUED: John Charles Stein, THE BOCCARDO LAW FIRM,
L.L.P., San Jose, California, for Appellants. Thomas Humphrey Law-
rence, III, LAWRENCE AND RUSSELL, L.L.P., Memphis, Tennes-
see, for Appellee. Salvador P. Simao, UNITED STATES
DEPARTMENT OF LABOR, Plan Benefits Security Division, Wash-
ington, D.C., for Amicus Supporting Appellee. ON BRIEF: Howard
M. Radzely, Solicitor of Labor, Timothy D. Hauser, Associate Solici-
tor, Plan Benefits Security Division, Elizabeth Hopkins, Counsel for
Appellate and Special Litigation, UNITED STATES DEPARTMENT
OF LABOR, Office of the Solicitor, Washington, D.C., for Amicus
Supporting Appellee.
OPINION
KING, Circuit Judge:
These appeals emanate from a civil action initiated in the District
of Maryland under § 502(a)(3) of the Employee Retirement Income
MID ATLANTIC MEDICAL v. SEREBOFF 3
Security Act of 1974 ("ERISA"). After Mid Atlantic Medical Ser-
vices, Inc. ("MAMSI"), an ERISA plan fiduciary, had paid nearly
$75,000 for accident-related benefits to Joel and Marlene Sereboff
(the "Sereboffs"), the Sereboffs recovered $750,000 from the offend-
ing tortfeasors in a personal injury action in California state court (the
"California litigation"). When the Sereboffs failed to reimburse
MAMSI for the medical benefits it had paid, MAMSI sued, asserting
that, as plan beneficiaries, they had failed to comply with their subro-
gation obligations to reimburse it for benefits paid on their behalf. By
Order of January 27, 2004, the district court awarded summary judg-
ment to MAMSI, deeming the relief sought to be equitable in nature
under § 502(a)(3) and requiring the Sereboffs to reimburse MAMSI
for the payments it had made (the "Reimbursement Award"). The
court then reduced the Reimbursement Award to account for
MAMSI’s share of the expenses incurred by the Sereboffs in pursuing
the California litigation (the "Deduction Ruling"). Thereafter, by
Order of May 10, 2004, the court awarded MAMSI the fees and costs
it had incurred in securing the Reimbursement Award (the "Attor-
ney’s Fee Ruling").
The Sereboffs have appealed the Reimbursement Award and the
Attorney’s Fee Ruling, and MAMSI has cross-appealed on the
Deduction Ruling. The primary issue on appeal involves application
of the Supreme Court’s decision in Great-West Life & Annuity Insur-
ance Co. v. Knudson, 534 U.S. 204 (2002), and it is one on which our
sister circuits are split: whether a plan fiduciary asserting a subroga-
tion right to reimbursement from a plan beneficiary who has received
payments from a third party, and who possesses that recovery in an
identifiable fund, is seeking "equitable relief" under § 502(a)(3) of
ERISA. We agree with the district court that MAMSI’s claim for
reimbursement seeks equitable relief under § 502(a)(3) and, as
explained below, we affirm the Reimbursement Award and the
Deduction Ruling. We vacate and remand, however, on the Attor-
ney’s Fee Ruling.
I.
MAMSI serves as fiduciary of an ERISA-covered employee wel-
fare benefit plan, the MAMSI Life and Health Insurance PPO Plan
(the "Plan"). The Sereboffs, who live in Owings Mills, Maryland,
4 MID ATLANTIC MEDICAL v. SEREBOFF
were beneficiaries of the Plan, participating through Mrs. Sereboff’s
employer, the Katzen Eye Group. On June 22, 2000, the Sereboffs
were injured in an automobile accident in California, and the Plan
paid their medical expenses in the sum of $74,869.37.1 The Plan con-
tains an "Acts of Third Parties" subrogation provision, which accords
MAMSI, as Plan fiduciary, the "right to recover any payments" made
to beneficiaries by third parties for costs associated with an injury
resulting from the acts of "another person or party." Plan at 29 ("Acts
of Third Parties" provision). Under the Plan, any recovery by MAMSI
from such payments is subject to a deduction for "reasonable attorney
fees and court costs" incurred by the beneficiaries in securing the
third-party payments, "prorated to reflect that portion of the total
recovery" reimbursed to MAMSI for the benefits it had paid. Id.
On August 11, 2000, the Sereboffs initiated the California litigation
in the Superior Court of Santa Clara County. In late 2000 and early
2001, MAMSI informed the Sereboffs and their lawyer, in multiple
writings, that it had paid medical benefits on behalf of the Sereboffs
and that, pursuant to the Plan, MAMSI was entitled to reimbursement
for those expenditures should the California litigation be successful.
MAMSI requested that the Sereboffs and their attorney execute sub-
rogation lien agreements acknowledging the Sereboffs’ obligations
under the Plan. MAMSI also offered the attorney, Mr. Stein, the
opportunity to represent it in connection with its subrogation claim,
on a contingency fee basis. Neither the Sereboffs nor Stein executed
the proposed agreements, and Stein did not initially respond to
MAMSI’s offer that he represent MAMSI in its subrogation claim.
On April 13, 2001, MAMSI made what it called a "formal demand"
that the Sereboffs cooperate in connection with its subrogation efforts
under the Plan. On April 24, 2001, Stein informed MAMSI that it was
not entitled to reimbursement from the Sereboffs, because subroga-
tion liens such as those being pursued by MAMSI are not recoverable
under decisions of the Ninth Circuit.2 On May 23, 2001, in respond-
1
In connection with the injuries suffered by Mrs. Sereboff, the Plan
paid benefits of $73,778.26. In connection with Mr. Sereboff’s injuries,
the Plan paid benefits of $1,091.11.
2
In his April 24, 2001 letter to MAMSI, Stein relied on Reynolds Met-
als Co. v. Ellis, 202 F.3d 1246 (9th Cir. 2000); Cement Masons Health
MID ATLANTIC MEDICAL v. SEREBOFF 5
ing to Stein, MAMSI reasserted its request that the subrogation lien
agreements be executed. MAMSI contended that the Plan was a
Maryland contract subject to the law of that State, and that California
law was inapplicable.3 On May 30, 2001, Stein advised MAMSI that
it should retain California counsel to protect its subrogation rights in
the California litigation, because he could not properly represent the
interests of both the Sereboffs and MAMSI.
On January 23, 2003, the Sereboffs settled the California litigation
for the sum of $750,000. Upon receipt of the settlement funds, how-
ever, they declined to recognize MAMSI’s position on subrogation
and reimburse it for the benefits it had paid on their behalf. Instead,
Stein disbursed the funds to the Sereboffs and his law firm, pursuant
to their representation agreement in the California litigation. The
Sereboffs then placed the funds into their investment accounts.
On August 5, 2003, MAMSI instituted this proceeding in the Dis-
trict of Maryland, pursuant to § 502(a)(3) of ERISA, which authorizes
a civil action by an ERISA participant or fiduciary to enjoin any act
which violates the terms of an ERISA plan, or to "obtain other appro-
priate equitable relief" to enforce the plan’s provisions. 29 U.S.C.
§ 1132(a)(3). MAMSI thereby sought, inter alia, restitution of the
funds held by the Sereboffs in their investment accounts. It also
sought emergency relief in the district court, seeking to enjoin the
Sereboffs and Stein from disposing of the settlement funds until
MAMSI’s claims for reimbursement could be resolved. On August
11, 2003, the Sereboffs agreed, by stipulation filed with the court, to
"preserve $74,869.37 of the settlement funds" until it ruled on the
merits of the dispute.4
& Welfare Trust Fund v. Stone, 197 F.3d 1003 (9th Cir. 1999); and FMC
Medical Plan v. Owens, 122 F.3d 1258 (9th Cir. 1997), to support the
proposition that MAMSI was not entitled to reimbursement from his cli-
ents.
3
In contrast to the assertion in MAMSI’s May 23, 2001 letter that
Maryland law governs the issues here, the parties, by their Joint Stipula-
tion of Facts, have agreed that this proceeding is governed by the legal
principles applicable under ERISA.
4
The August 11, 2003 stipulation is separate and distinct from the Joint
Stipulation of Facts.
6 MID ATLANTIC MEDICAL v. SEREBOFF
On September 16, 2003, MAMSI moved for summary judgment
against the Sereboffs, asserting that it was "entitled to recover the dis-
puted proceeds under the terms of the Plan," and maintaining that it
was seeking "equitable relief" authorized under § 502(a)(3) of
ERISA. On September 25, 2003, the Sereboffs sought dismissal of the
district court action, asserting that MAMSI was "seeking monetary
damages which [were] not permissible" under ERISA. On January 27,
2004, the district court denied the Sereboffs’ motion to dismiss. It
granted in part MAMSI’s motion for summary judgment, agreeing
that MAMSI sought relief under § 502(a)(3) and that it was entitled
to reimbursement of the $74,869.37, plus interest (the Reimbursement
Award). The court then reduced the Reimbursement Award to
account for MAMSI’s "prorated" share of the "reasonable attorney
fees and court costs" incurred by the Sereboffs in pursuing the Cali-
fornia litigation (the Deduction Ruling).
On February 9, 2004, MAMSI sought an award requiring the Sere-
boffs to pay the expenses it had incurred in securing the Reimburse-
ment Award. On May 10, 2004, the district court granted that request,
and it entered judgment for MAMSI in the sum of $19,044.75, plus
interest (the Attorney’s Fee Ruling). As noted, the Sereboffs have
appealed the Reimbursement Award and the Attorney’s Fee Ruling,
and MAMSI has cross-appealed on the Deduction Ruling. We possess
jurisdiction pursuant to 28 U.S.C. § 1291.
II.
We review de novo a district court’s award of summary judgment,
viewing the facts and inferences drawn therefrom in the light most
favorable to the non-moving party. Seabulk Offshore, Ltd. v. Am.
Home Assurance Co., 377 F.3d 408, 418 (4th Cir. 2004). In this pro-
ceeding, the Sereboffs’ challenge to summary judgment on the Reim-
bursement Award and MAMSI’s contention of error with regard to
the Deduction Ruling present questions of law to be reviewed de
novo. See Johannssen v. Dist. No. 1—Pac. Coast Dist., 292 F.3d 159,
168 (4th Cir. 2002). On the other hand, we review for abuse of discre-
tion the Sereboffs’ challenge to the Attorney’s Fee Ruling. See id. at
178.
MID ATLANTIC MEDICAL v. SEREBOFF 7
III.
Turning to the contentions of the parties, we first assess the pri-
mary issue raised here — the Sereboffs’ challenge to the Reimburse-
ment Award — which turns on whether MAMSI sought relief that is
properly characterized as "other appropriate equitable relief" under
§ 502(a)(3) of ERISA. We then assess MAMSI’s challenge to the
Deduction Ruling and the Sereboffs’ appeal of the Attorney’s Fee
Ruling.
A.
The Sereboffs first contend that the Reimbursement Award was
erroneously made, asserting that the relief MAMSI sought was legal,
rather than equitable, in nature. In determining whether the district
court properly granted the Reimbursement Award, we first assess
whether § 502(a)(3) authorizes MAMSI to seek restitution of the dis-
puted funds held in the Sereboffs’ investment accounts. Section
502(a)(3) is the civil enforcement mechanism available to ERISA
fiduciaries seeking to recover benefits paid under an ERISA plan. 29
U.S.C. § 1132(a)(3). It authorizes the pursuit of a civil action by an
ERISA fiduciary to enjoin any act which violates the terms of a plan,
or to "obtain other appropriate equitable relief" to enforce a plan’s
provisions. Hyperlink Id. (emphasis added). In disputes where
§ 502(a)(3) does not expressly authorize relief, the federal courts are
not empowered to award it. See Mertens v. Hewitt Assocs., 508 U.S.
248, 254 (1993) (emphasizing Court’s "unwillingness to infer causes
of action in the ERISA context").5 Thus, the availability of relief to
5
In asserting that the Reimbursement Award was erroneously made,
the Sereboffs contend that the district court lacked "jurisdiction" to enter
judgment in favor of MAMSI. Certain of the courts to have assessed the
question presented by the Reimbursement Award have characterized the
issue as whether they (the courts) possessed subject matter jurisdiction
over the fiduciary’s reimbursement action. See infra Part III.A.2 (citing
Qualchoice, Inc. v. Rowland, 367 F.3d 638 (6th Cir. 2004); Bombardier
Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot & Wans-
brough, 354 F.3d 348 (5th Cir. 2003); Admin. Comm. of the Wal-Mart
Stores, Inc. Assocs.’ Health & Welfare Plan v. Varco, 338 F.3d 680 (7th
Cir. 2003)). We do not, however, view the Sereboffs’ appeal of the
8 MID ATLANTIC MEDICAL v. SEREBOFF
MAMSI turns on the proper characterization of MAMSI’s action, as
lying in law or in equity.
In assessing whether MAMSI’s civil action seeks equitable or legal
relief, we are guided (as was the district court) by the Supreme
Court’s decision in Great-West Life & Annuity Insurance Co. v.
Knudson, 534 U.S. 204 (2002). In Knudson, the Court explained that
§ 502(a)(3) does not authorize all types of relief that a court of equity
might award; it only authorizes those remedies "‘that were typically
available in equity.’" 534 U.S. at 210 (quoting Mertens, 508 U.S. at
256). In that dispute, Janette Knudson, an ERISA plan beneficiary,
was injured in an automobile accident; she was advanced money by
the plan to cover her medical expenses; and she then recovered for her
injuries in a lawsuit against the tortfeasor. Id. at 207. The settlement
funds received from the tortfeasor did not enter into Knudson’s pos-
session, however, but instead were placed in a Special Needs Trust to
provide for her ongoing medical care. Id. at 207-08. The plan fidu-
ciary then sought declaratory and injunctive relief to require Knudson
and her husband, the plan participant, to reimburse the plan from the
litigation proceeds she had received. Id. at 208.
The Court denied the relief sought by the fiduciary, concluding that
it was not claiming "particular funds that, in good conscience, belong
Reimbursement Award as calling federal court jurisdiction into question.
Section 1331 of Title 28 provides the federal courts with jurisdiction
over "all civil actions arising under the Constitution, laws, or treaties of
the United States." A case arises under the laws of the United States
within § 1331 only if it is apparent from the face of a well-pleaded com-
plaint that the plaintiff’s cause of action was created by federal law, "un-
aided by anything alleged in anticipation or avoidance of defenses which
it is thought the defendant may interpose." Taylor v. Anderson, 234 U.S.
74, 75-76 (1914). In this dispute, MAMSI’s complaint seeks "equitable
relief," and § 502(a)(3) of ERISA authorizes an action for "other appro-
priate equitable relief." As a result, the face of MAMSI’s complaint
reveals that its cause of action — for equitable relief under ERISA —
was created by federal law. See Westaff (USA) Inc. v. Arce, 298 F.3d
1164, 1167 (9th Cir. 2002) (concluding that when an ERISA plan fidu-
ciary "brings a suit seeking non-equitable relief, dismissal is properly on
the merits for failure to state a claim, rather than for lack of subject mat-
ter jurisdiction").
MID ATLANTIC MEDICAL v. SEREBOFF 9
to [it]," Knudson, 534 U.S. at 214, but instead was seeking "to impose
personal liability on [the Knudsons] for a contractual obligation to
pay money — relief that was not typically available in equity," id. at
210. The Court explained that an ERISA plan fiduciary may seek
equitable restitution in the form of an equitable lien where "money or
property identified as belonging in good conscience to the [fiduciary]
could clearly be traced to particular funds or property in the [benefi-
ciary’s] possession." Id. at 213. By contrast, the Court reasoned that
where the property sought to be recovered has been "‘dissipated so
that no product remains,’ the [fiduciary’s] ‘claim is only that of a gen-
eral creditor.’" Id. (quoting Restatement of Restitution § 215 cmt. a,
at 867 (1936)). In that circumstance, the fiduciary is seeking a legal
remedy — the "imposition of personal liability" on the beneficiary to
pay a sum of money owed to the plan — and its action falls outside
the jurisdictional ambit of § 502(a)(3). Id. at 214.
1.
We agree with the district court that, in this dispute, MAMSI’s
action seeks equitable restitution, as that term is used in Knudson,
because MAMSI seeks to recover funds that are specifically identifi-
able, belong in good conscience to MAMSI, and are within the pos-
session and control of the Sereboffs. First, the funds have not been
dissipated, and they are specifically identifiable. By the stipulation of
August 11, 2003, between the Sereboffs and MAMSI, $74,869.37 of
the settlement funds are preserved by the Sereboffs in their invest-
ment accounts. Although the funds have been placed in accounts with
the Sereboffs’ other monies, they can "clearly be traced to particular
funds" recovered in the California litigation. Knudson, 534 U.S. at
213. Second, the disputed funds belong in good conscience to
MAMSI. The Plan contains express, unambiguous reimbursement
provisions, according MAMSI the "right to recover any payments"
made to the Sereboffs by a third party. Third, the disputed funds are
within the possession and control of the Sereboffs. They received
those funds in the California litigation and held them in their invest-
ment accounts pending resolution of this proceeding. In Knudson, by
contrast, the funds received from the tortfeasor were placed in a Spe-
cial Needs Trust, outside the possession or control of the beneficiary.
Thus, the action pursued by MAMSI, and resulting in the Reimburse-
10 MID ATLANTIC MEDICAL v. SEREBOFF
ment Award, is equitable in nature under § 502(a)(3), and the court
properly granted relief with respect to it.
2.
Recent decisions by the Fifth, Seventh, and Tenth Circuits support
our determination that MAMSI’s reimbursement proceeding lies in
equity. Most recently, the Tenth Circuit, in Administrative Committee
of the Wal-Mart Asssociates Health & Welfare Plan v. Willard, 393
F.3d 1119, 1122 (10th Cir. 2004), concluded that a plan fiduciary may
maintain an action for equitable relief if the plan is seeking to recover
funds that are specifically identifiable, belong in good conscience to
the fiduciary, and are within the possession and control of the benefi-
ciary. In Willard, an ERISA fiduciary sought to enforce a subrogation
clause against a beneficiary through imposition of a constructive trust
on settlement funds received from a third party tortfeasor. Id. at 1120.
The district court allowed the fiduciary to intervene and deposit a por-
tion of the settlement proceeds equivalent to the medical expenses
into the court registry. Id. at 1120-21. On appeal, the Tenth Circuit
agreed that the fiduciary’s effort to secure imposition of an equitable
lien fell within the ambit of § 502(a)(3). See id. at 1125.6
The Fifth and Seventh Circuits followed a similar approach for
assessing whether an ERISA plan fiduciary may maintain an action
for equitable relief. See Bombardier Aerospace Employee Welfare
Benefits Plan v. Ferrer, Poirot & Wansbrough, 354 F.3d 348 (5th Cir.
2003); Admin. Comm. of the Wal-Mart Stores, Inc. Assocs.’ Health &
Welfare Plan v. Varco, 338 F.3d 680 (7th Cir. 2003). In both Bombar-
dier and Varco, as in this proceeding, the beneficiaries’ attorneys had
accepted payment from the tortfeasors on behalf of their clients, and
6
The Sereboffs correctly note that the intervention by the fiduciary in
Willard — to deposit a portion of the settlement proceeds into the court
registry — differs from the factual predicate underlying this dispute.
Here, seven months elapsed between settlement of the California litiga-
tion and MAMSI’s initiation of this proceeding seeking restitution of the
funds held by the Sereboffs in their investment accounts. Regardless of
any time lapse, however, as in Willard, the funds sought by the fiduciary
were clearly traceable to particular funds in the possession of the benefi-
ciaries.
MID ATLANTIC MEDICAL v. SEREBOFF 11
placed the funds into accounts over which the beneficiaries had con-
structive possession. In those proceedings, the courts held that the
fiduciaries were seeking "equitable relief" under § 502(a)(3). Here,
the elements of equitable restitution are satisfied, and the district court
properly awarded reimbursement to MAMSI.7
B.
After making its Reimbursement Award to MAMSI, the district
court reduced the Award to account for MAMSI’s prorated share of
the Sereboffs’ attorney’s fees and costs associated with the California
litigation (the Deduction Ruling). MAMSI contends that the Deduc-
tion Ruling was erroneous, asserting that such a deduction is not
appropriate where the plan is compelled to retain counsel to protect
its reimbursement interests, and when the beneficiary fails to abide by
the plan’s provisions.
7
We recognize that our ruling today appears to be at variance with
recent decisions by the Sixth and Ninth Circuits. See Qualchoice, Inc. v.
Rowland, 367 F.3d 638 (6th Cir. 2004); Westaff (USA) Inc. v. Arce, 298
F.3d 1164 (9th Cir. 2002). In those decisions, the courts held that a plan
fiduciary’s assertion of a subrogation right to reimbursement from a plan
beneficiary who has received payments from a third party is legal in
nature, regardless of whether the beneficiary possesses that recovery in
an identifiable fund. See Qualchoice, 367 F.3d at 650; Westaff, 298 F.3d
at 1167. In Westaff, the Ninth Circuit acknowledged that the funds at
issue — which were placed in an escrow account in the beneficiary’s
name pending a determination of their ownership — were "specifically
identifiable." 298 F.3d at 1167. Nevertheless, the court held that the
funds were a "legitimate personal injury settlement to which the benefi-
ciary is entitled" and that the fiduciary’s action was "one for money dam-
ages" falling outside the jurisdictional grant of § 502(a)(3). Id. Similarly,
in Qualchoice, the Sixth Circuit concluded that a plan fiduciary’s action
for reimbursement was legal in nature, even though the beneficiary pos-
sessed the funds recovered from a third party in an identifiable fund. 367
F.3d at 649. We perceive, as did the Tenth Circuit in Willard and the
Fifth Circuit in Bombardier, that the Qualchoice and Westaff decisions
depart from the Court’s decision in Knudson, and we decline to follow
their more restrictive view of what constitutes "other appropriate equita-
ble relief" under § 502(a)(3). See Willard, 393 F.3d at 1125; Bombardier,
354 F.3d at 358 n.43.
12 MID ATLANTIC MEDICAL v. SEREBOFF
A primary purpose of ERISA is to "ensure the integrity of written,
bargained-for benefit plans." United McGill Corp. v. Stinnett, 154
F.3d 168, 172 (4th Cir. 1998). To achieve this objective, the "plain
language of an ERISA plan must be enforced in accordance with ‘its
literal and natural meaning.’" Id. (quoting Health Cost Controls v.
Isbell, 139 F.3d 1070, 1072 (6th Cir. 1997)). In this dispute, the provi-
sions of the Plan mandate that any reimbursement to MAMSI of pay-
ments made to the Sereboffs by a third party is subject to a deduction
for "reasonable attorney fees and court costs prorated to reflect that
portion of the total recovery which is due [MAMSI] for benefits
paid." Plan at 29.
Under the terms of the Plan, a prorated portion of the Sereboffs’
attorney’s fees and costs associated with the California litigation
should be deducted from the Reimbursement Award. The Reimburse-
ment Award grants reimbursement to MAMSI in the sum of
$74,869.37, which represents the amount being held in the Sereboffs’
investment accounts that the Plan paid for their medical expenses. As
that sum is roughly ten percent of the $750,000 settlement agreement,
the district court appropriately reduced the Reimbursement Award by
that proportion of the Sereboffs’ litigation expenses.
In contending otherwise, MAMSI relies on court decisions that did
not involve agreements regarding the deduction of attorney’s fees
from reimbursement awards. See Waller v. Hormel Foods Corp., 120
F.3d 138 (8th Cir. 1997); United States v. Tobias, 935 F.2d 666 (4th
Cir. 1991). In fact, each of those decisions suggests that the inclusion
of such a provision in the ERISA plan would have altered the ruling.
See Waller, 120 F.3d at 141 (basing amount of deduction on value of
plan beneficiary’s legal service to plan because "the Plan’s subroga-
tion clause contains no provision regarding attorney’s fees"); Tobias,
935 F.2d at 669 (observing that general rule against "common fund"
reimbursement has exception for "express or implied agreements"
regarding attorney’s fees). In these circumstances, we must affirm the
Deduction Ruling.
C.
Finally, the Sereboffs challenge the Attorney’s Fee Ruling made by
the district court, in which MAMSI was awarded the attorney’s fees
MID ATLANTIC MEDICAL v. SEREBOFF 13
and costs it had incurred in litigating the Reimbursement Award.
Because ERISA authorizes a district court to exercise its discretion to
award a "‘reasonable attorney’s fee and costs of action to either
party,’" we review the Attorney’s Fee Ruling for abuse of discretion.
Johannssen v. Dist. No. 1—Pac. Coast Dist., 292 F.3d 159, 178 (4th
Cir. 2002) (quoting 29 U.S.C. § 1132(g)(1)). In reviewing such dis-
cretionary rulings, we have adhered to the proposition that discretion
has been abused if a court has failed adequately to consider "judicially
recognized factors constraining its exercise" of discretion, or in rely-
ing on "erroneous factual or legal premises." James v. Jacobson, 6
F.3d 233, 239 (4th Cir. 1993). Because this principle was contra-
vened, we are constrained to vacate and remand on the Attorney’s Fee
Ruling.
In making its Attorney’s Fee Ruling, the district court was obliged,
pursuant to our decision in Johannssen, to consider each of five fac-
tors:
(1) the degree of the opposing party’s culpability or bad
faith;
(2) the ability of the opposing party to satisfy an award of
attorney’s fees;
(3) whether an award of attorney’s fees against the opposing
party would deter other persons acting under similar circum-
stances;
(4) whether the party requesting attorney’s fees sought to
benefit all participants and beneficiaries of an ERISA plan
or to resolve a significant legal question regarding ERISA
itself; and
(5) the relative merits of the parties’ positions.
See Johannssen, 292 F.3d at 179. As we observed in Johannssen, it
is essential, in "order to ensure an adequate basis for review," for the
trial court to have addressed each factor. Id.
14 MID ATLANTIC MEDICAL v. SEREBOFF
In making the Attorney’s Fee Ruling, the district court addressed
three of the five factors specified by Johannssen — the first, second,
and fifth.8 First, the court found that the Sereboffs (and Stein) had not
acted in bad faith under the first Johannssen factor. This finding on
the first factor was, of course, supportive of the Sereboffs’ position
in opposition to MAMSI’s fee request. Next, the court concluded that,
despite the Sereboffs’ lack of bad faith, their position on the Reim-
bursement Award "swam against a heavy current of legal precedent,"
rendering their position under the fifth factor to be meritless.
Although the court did not identify or explain the "heavy current" of
precedent that the Sereboffs’ position contravened, it was apparently
referring to the decisions on which its Reimbursement Award had
relied: Knudson, Bombardier, Varco, and our unpublished decision in
Primax Recoveries, Inc. v. Young, No. 02-2115, 2003 WL 22973630
(4th Cir. Dec. 18, 2003). In assessing the fifth Johannssen factor,
however, the court failed to consider that the Ninth Circuit’s decision
in Westaff had created a circuit split on the question presented by the
Reimbursement Award (a question that was not addressed by Knud-
son’s holding): whether a plan fiduciary asserting a subrogation right
to reimbursement from a plan beneficiary who has received payments
from a third party, and who possesses that recovery in an identifiable
fund, is seeking "equitable relief" under § 502(a)(3) of ERISA.
Finally, the district court addressed the second Johannssen factor
and determined that the Sereboffs would have sufficient funds avail-
able to satisfy an attorney’s fee award to MAMSI. In so ruling, the
court presumed that the Sereboffs’ lawyer, Mr. Stein, would "credit
the award [of attorney’s fees and costs] against his contingent fee col-
lected" in the underlying personal injury suit. It identified no record
support, however, for the proposition that Stein would so act. In any
event, the court concluded that the Sereboffs would be able to satisfy
the Attorney’s Fee Ruling from the $750,000 they recovered in the
California litigation.
In sum, the district court’s assessment of the Johannssen factors
was incomplete. On one hand, the court’s analysis of the second fac-
8
Although the court, in making its Attorney’s Fee Ruling, observed
that the second, fourth, and fifth of the Johannssen factors favor an
award of fees, its ruling did not analyze the fourth factor.
MID ATLANTIC MEDICAL v. SEREBOFF 15
tor favored a fee award to MAMSI. On the other, its analysis of the
first factor mitigated against any award at all, and the court did not
assess either the third or the fourth factor. Finally, the court’s exami-
nation of the fifth factor failed to recognize the existing circuit split
on the issue raised by the Reimbursement Award. As a result, the
court erred in making the Attorney’s Fee Ruling, and we are con-
strained to vacate the Ruling and remand for a further assessment
under Johannssen.
IV.
Pursuant to the foregoing, we affirm the Reimbursement Award
and the Deduction Ruling, and we vacate and remand on the Attor-
ney’s Fee Ruling.
AFFIRMED IN PART,
VACATED IN PART, AND REMANDED