The US Court of Appeals for the Seventh Circuit in Chicago issued an opinion on March 12, 2014 (Central States Welfare Fund v. Lewis) which enforces a contempt order entered against defendants subject to an ERISA subrogation lien.
The defendants (a Georgia lawyer and his client, who had recovered $500,000 in an auto accident settlement and then refused to make any payment on the Plan’s subrogation claim for $180,000 in medical expense reimbursements) argued that the money had been spent and that they were unable to tender the claimed amount. The Court rejected the defendants’ arguments as irrelevant because the Plan’s subrogation claim attached to ANY of the defendants’ assets, not just the specific amount of their settlement recovery.
The trial court had ordered the defendants to tender the $180,000 payment and, as a result of the defendants’ failure to do so without adequate justification, the Court of Appeals, in ruling on the defendants’ “frivolous” appeal, denied the appeal and remanded the case for the trial court to JAIL the defendants for civil contempt until they tendered the required payment. The Court of Appeals also issued an order for the defendants to show cause why they should not be sanctioned and required to pay the Plan’s legal fees because of their “nonsense” arguments and “pathetic” appeal brief.
The Court went on to characterize the Georgia lawyer as “untrustworthy” and suggested that the trial court also refer the matter to the Department of Justice and the Georgia Bar for possible disciplinary proceedings.
This decision not only confirms that the plan’s subrogation lien extends to all of a defendant’s assets (including the house and car owned by the participant), but also puts some “teeth” into the remedies. Participants, and their lawyers, who ignore their obligations under a plan’s subrogation provisions can even be jailed for contempt and sanctioned for the “outrageous” conduct cited in the Court’s opinion.