The Supreme Court in a five to four split decision recently upheld the Ninth Circuit Court of Appeals in dismissing an action seeking restitution under 29 U.S.C. §1132(a)(3) for lack of jurisdiction. See Great-West Life & Annuity Ins. v. Knudson, 2002 WL 15399 (Jan. 8, 2002) Justice Scalia, writing for the majority, held that an ERISA fiduciary could not seek breach of contract money damages under ERISA. The Supreme Court held that “[b]ecause 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.” Knudson at pg 9. The Supreme Court has interpreted the terms “appropriate equitable relief” in the ERISA enforcement section as limited to only viable remedies available from a court at equity.

The personal injury attorneys already are championing this case as prohibiting any action by an ERISA fiduciary to enforce a reimbursement provision. However, neither the Supreme Court’s ruling nor the facts of the case support such a claim. In Knudson, the ERISA fiduciary sued the injured party who was recovering money from Hyundai motors for an accident in 1992. The recovered money was placed in a Special Needs Trust under California Law to cover the medical expenses of the injured party, Janet Knudson. The Knudsons actually had not recovered personally one cent of the settlement. Instead, the settlement was held by a trustee. This fact was critical to the majority’s view of the action and rejection of 1132(a)(3).

In order for “restitution” to be equitable, “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.” Knudson, at pg 6 Under the majority’s ruling, 502(a)(3) would authorize an action against the party who has the “fund” of money which in part belongs to the plan. In Knudson, the ERISA fiduciary sued a party who had not recovered any “fund” of money from which restitution could be sought.

The impact of this case on ERISA subrogation and reimbursement is not known. The Knudson case does expand the individuals or entities who can be sued under ERISA. If the ERISA participant’s attorney has the settlement fund, you may have to sue the attorney or the bank holding the account. As for handling of subrogation and reimbursement matter, the Knudson case clearly supports involvement of the ERISA fiduciary as soon as possible to avoid the need for such “equitable” actions.