11th Circuit: "Be Sure Your Sin Will Catch Up with You"

A few days ago, the 11th Circuit  Court of Appeals issued its decision in the case of Airtran Airways, Inc., v. Brenda Elem, et al., case 13-11738 (11th Cir. Sept. 23, 2014). This case involved a situation in which a Georgia attorney misrepresented to Airtran that the recovery on a vehicle accident for its employee was only $25,000. The actual recovery was $500,000 (one check for $25,000 and another for $475,000). Airtran was due a reimbursement of the medical costs it had paid under its employee welfare benefit plan.
Bad KarmaBut the Court stated that the attorney's "sin then found him out" (Bible, Numbers 32:23)  when he accidentally sent Airtan a copy of the the $475,000 check instead of the $25,000 settlement check.  The District Court entered summary judgment against the employee and the Georgia lawyer.  On appeal, the 11th Circuit affirmed.

Legal or Equitable Relief?One of the grounds of the appeal it was the argument that Airtran was seeking a legal remedy, ie. a money judgment and not equitable relief  that was permitted under the civil enforcement provisions of ERISA.   Airtran argued that it was seeking equitable relief as its suit sought to recover "specifically identifiable funds" in the "possession and control" of the employee and attorney, and that the employee welfare benefit plan created  an equitable lien on the funds.

The Court held that the relief sought Airtran "sounds in equity" and sought to enforce the equitable lien created by the plain terms of the employee welfare benefit plan agreement.  The Court explained the distinction that the remedy of money damages "is quintessentially a remedy at law" and that for this reason, the employee welfare benefit plan could not "file suit against a beneficiary and seek recovery from 'assets generally' of that beneficiary." But the Court found that the relief sought was equitable in nature as it sought "specifically identifiable funds" in the "possession and control" of the beneficiary.
Equitable Lien Not DestroyedThe Court rejected the argument that Airtran was not pursuing equitable relief as the settlement funds had already been divided between the employee and her attorney. The Court held that "as soon as the settlement fund was identified, the plan imposed an equitable lien over that fund even though it was in the hands of the beneficiaries." The Court agreed with other circuit courts that held that [p]roperty to which the lien attached may be converted into other property without affecting the efficacy of that lien." In short, the Court explained the employee as a "constructive trustee could not destroy the lien that attached before . . . [the employee] divided the funds with her attorney"  and that the specifically identifiable funds "did not disappear when they divided the money."

The Court rejected the remaining arguments of the employee and her attorney and upheld the District Court's summary judgment.

Jordan E. Bublick is a Miami Bankruptcy Lawyer with over 25 years of experience in filing Chapter 13 and Chapter 7 Bankruptcy Cases and Mortgage Modifications (305) 891-4055