Sereboff v. Mid Atlantic Medical Services, Inc.


Does the limitation of remedies to “appropriate equitable relief” create a blanket prohibition against a claim for money owed in breach of a contract because such relief is traditionally not characterized as an equitable remedy?

Oral argument: 
March 28, 2006

With the passage of the Employee Retirement Security Act of 1974 (ERISA), Congress sought to regulate employee benefit plans, including employer-provided health care benefits. However, the particular scheme of remedies Congress created for both plan participants and plan providers has been a source of mischief for courts hearing claims of ERISA violations. Traditionally, the Supreme Court has held Congress to their particular word choice as to the remedies available to aggrieved parties, sometimes creating results that do not seem particularly fair to the lay observer. In Sereboff, the Court will again take up the issue of what remedies Congress contemplated when it envisioned “appropriate equitable relief” under ERISA.

Questions as Framed for the Court by the Parties 

Can a plan fiduciary bring a civil action against a plan participant to obtain “appropriate equitable relief” under Section 502(a)(3) of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132 (a)(3), where a term of the plan requires the participant to reimburse medical expenses advanced by the plan if the participant recovers money from a third party tortfeasor and possesses such payments in an identifiable fund?


Joel and Marlene Sereboff were injured in a car accident in the summer of 2000. They received almost $74,869.37 in payments for medical services from Mid Atlantic Medical Services, Inc. (“MAMSI”), their healthcare insurer under a plan provided through Marlene’s employer. 407 F.3d 212, 215 (4th Cir. 2005). Later, the Sereboffs recovered $750,000 from a third party they claimed was responsible for the accident. Id. at 216. MAMSI repeatedly informed the Sereboffs as they sought this money that the Sereboffs were under a contractual obligation with MAMSI to reimburse the $74,869.37 MAMSI had paid for them should they successfully recover from the third party. Id. at 215.

Believing that federal law as interpreted by the Ninth Circuit Court of Appeals (whose jurisdiction includes the area where the Sereboffs sought the $750,000) did not require them to execute a lien on MAMSI’s behalf in this situation, the Sereboffs refused to take any steps to include MAMSI in the litigation against the third party. Id. at 215–16. Eventually, MAMSI sued the Sereboffs in Federal District Court in Maryland in an attempt to recover the money it believed the Sereboffs owed them under their health insurance policy. 216. Because the policy was part of an employment benefits package, it is governed by the Employee Retirement Income Security Act of 1974 (ERISA). 214.

ERISA “comprehensively regulates, among other things, employee welfare benefit plans that, through the purchase of insurance or otherwise, provide medical, surgical, or hospital care, or benefits in the event of sickness, accident, disability, or death.” Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41 (1987) (quotations omitted). ERISA § 502(a)(3) authorizes a party to an ERISA-regulated insurance plan to obtain “appropriate equitable relief” to enforce a provision of the plan. 29 U.S.C. §1132(a)(3)(b).

MAMSI’s original claim sought restitution of the $74,869.37 it believed the Sereboffs owed it. 407 F.3d at 214. The Sereboffs, however, argued that what MAMSI sought was not really equitable relief in the form of restitution, but rather money damages for breach of contract. Id. According to the Sereboffs, such a claim falls outside of the “appropriate equitable relief” sanctioned by ERISA. Id. MAMSI argued that the remedy they sought was not foreclosed by ERISA, and both the trial court and the Fourth Circuit Court of Appeals agreed. Id.

As other circuits have reached the opposite conclusion on similar facts, the Supreme Court has agreed to hear this case in order to resolve the split among the circuits. See Id. at 217.


Independent of the complexities of the ERISA statute, this litigation is largely about the characterization of a remedy as either “legal” or “equitable.” Legal relief was historically awarded in the form of money damages while a remedy in “equity” provided relief to a plaintiff that could not be gained in traditional legal channels. Equitable relief, which typically involved an effort to force someone to act or to stop them from acting, included things like injunctions. Here, we have a statute that explicitly limits available remedies to “equitable relief.” § 502 (a)(3). Thus, the question becomes: did Congress mean what Congress said? That is, when Congress said “equitable relief” did it mean only equitable relief and only in the historical definition of the phrase? And further, is the relief sought here that kind of equitable relief that Congress specifically intended to exclude in drafting the statute?

The Sereboffs argue that MAMSI seeks relief that falls squarely within the prohibited remedies of the statute, and therefore should not recover. They assert two major points, and we shall address each in turn.

First, the Sereboffs assert that money is (and has always been) a legal remedy, not an equitable one. Petitioner’s Brief at 9. Despite the fact that MAMSI tries to couch the relief sought as “restitution by constructive trust” or an “equitable lien” neither characterization changes the reality that ultimately, MAMSI wants money, and money damages are the classic form of legal relief. Indeed, the Sereboffs insist that MAMSI’S claim “is nothing more than artful pleading.” Petitioner’s Brief at 11.

In interpreting the meaning of the term “equitable relief” as used in § 502(a)(3), the Sereboffs turn to an earlier Court decision: Mertens. 508 U.S. 258 (1993). According to Mertens, it is not enough that a form of relief might possibly be classified as “equitable.” Instead, the test requires that it was historically classified as such. Petitioner’s Brief at 13-14. A later Court decision further codified this requirement, “[i]n sum, Knudson makes clear that, in assessing whether a claim is remediable under §502 (a)(3), a federal court must look not only at the category of relief sought but also at the historical context in which such a remedy would have been available.” Petitioner’s Brief at 16; Great-West Life v. Knudson, 534 U.S. 204, 216 (2002). In light of the Supreme Court precedent, the Sereboffs contend that the lower court erred in characterizing the relief sought as “equitable.” Petitioner’s Brief at 17. They insist, fairly simply, that money damages are a form of “legal” relief, and to characterize the money that MAMSI seeks as “equitable” is pure farce.

Second, after asserting that what MAMSI actually seeks is “legal,” not “equitable” relief, the Sereboffs contend that “legal relief” is strictly forbidden by the plain language of the statute. Indeed, the statute reads, “A civil action may be brought . . . to obtain other appropriate equitable relief.§ 502(a)(3) (emphasis added). The Sereboffs opine that there is simply no other correct way to read this statute than to say that when Congress said “equitable relief” it meant “equitable relief” and “equitable relief alone.” Citing Mertens again, the Sereboffs invoke the Court’s own verbiage in denying a claim for money damages under the very same statute, “[b]ecause petitioners are seeking legal relief . . . 502(a)(3) does not authorize this action.” Knudson, 534 U.S. 204 at 221 (citing Mertens). As such, the Sereboffs contend that MAMSI’s claim must be denied.

MAMSI attacks the Sereboff’s position on the first prong of their argument: namely, MAMSI insists that the relief it seeks is in fact equitable, not legal. This, of course, is the easier argument to make. MAMSI must recognize that to challenge the plain language of the statute by asserting that when Congress said “equitable” it meant something more than “equitable” would be a difficult, if not impossible, task.

As the cornerstone of its argument, MAMSI asserts that the lower court correctly assessed its desired relief of a subrogation right, in the form of a reimbursement action, as a form of “equitable” relief allowed under the statute. Rather than seeking “legal relief” in the form of money damages, MAMSI insists that it is seeking an enforcement of a right in the form of a “constructive trust” or “equitable lien” and goes so far as to call these two “quintessential equitable responses.” Respondent’s Brief at 7. It argues that the Sereboff’s characterization of this subrogation right as purely legal rests on the “fundamentally unsound premise” that an action to enforce a subrogation right is merely a contractual action for money damages. Id. at 2.

Moreover, MAMSI insists that the Sereboffs have misread both Mertens and Knudson, which MAMSI asserts hold that “equitable restitution,” even in the form of money damages, is one type of equitable remedy. In fact, MAMSI contends that any other reading would be contrary to the very purpose of the statute, “[i]f §502(a)(3) categorically bans the enforcement of plan subrogation and reimbursement terms because actions to enforce them inherently seek legal relief, then the phrase ‘enforce . . . the plan’ is effectively read out of the statute, an outcome directly at odds with the Court’s long-expressed ‘duty to give effect . . . to every word of a statute.’” Respondent’s Brief at 11. As such, MAMSI’s argument proceeds in three parts. First, that the remedy it seeks is plainly equitable. Second, that any other characterization of the remedy would be at odds with the Court’s purpose to give the statute effect. And finally, that since the remedy is equitable, it is clearly recoverable under the plain language of the statute.

Moreover, in Knudson, the Court said in dicta that, money could be sought in restitution (thus an equitable relief) only if the claim was for “return of identifiable funds . . . belonging to the plaintiff and held by the defendant—that is, to limit restitution to the form of restitution traditionally available in equity.” 534 U.S. at 216. Since the Sereboffs did indeed set aside the disputed funds in a separate account—thus making them “identifiable,”—the Court could seize upon this language inKnudson to allow for money damages as equitable relief under these circumstances.


In the 2004 case of Aetna Health, Inc. v. Davila, Justice Ginsburg expressed a desire to “join ‘the rising judicial chorus urging that Congress and [this] Court revisit what is an unjust and increasingly tangled ERISA regime.’” 542 U.S. 200, 222 (2004) (citation omitted). While Congress has not yet made a move, perhaps the Court has granted Justice Ginsburg’s plea to restore more predictability and fairness to the ERISA scheme.

ERISA is a “comprehensive and reticulated statute” that provides a “carefully crafted and detailed enforcement scheme” to protect workers’ benefits. 534 U.S. 204, 209 (2002). It is the principal federal statute regulating all employee benefits, not just employee health insurance; however, as one scholar has noted, “. . . ERISA’s purpose has turned out to be to address employment-based health care plans (as distinguished, for example, from pensions). . . .” Kenneth S. Abraham, Insurance Law and Regulation 372 (4th ed. 2005).

So, why was Justice Ginsburg so unhappy with ERISA in Davila? Through the years, many courts, including the Supreme Court, have interpreted the remedies articulated in § 502 of ERISA to eliminate the kinds of traditional money damages that would be available to a party who was the victim of a breach of contract. See, e.g., Knudson, 534 U.S. 204. This is because § 502 speaks only of “appropriate equitable relief” and not money damages, which are generally not considered a form of equitable relief. See id. at 209. The difference between relief “at law” and relief “in equity” goes back to the common law system of England, where separate equity courts were set up to handle matters where the common law was inadequate for providing suitable remedies. See Kevin M. Clermont, Civil Procedure 55–60 (7th ed. 2004).

While courts of law and courts of equity were merged in the United States with the passage of the Federal Rules of Civil Procedure in 1938, the distinction between some forms of remedy as available either at law or in equity is still relevant. Seeid. at 63. The problem arises where money damages for failure to perform a contract are more desirable than any sort of equitable relief, and yet the court refuses to order the payment of such money damages because they are not authorized under § 502. See, e.g., Davila, 542 U.S. 200.

A series of the Court’s decisions has yielded a host of situations in which persons adversely affected by ERISA-proscribed wrongdoing cannot gain make-whole relief. First, in Massachusetts Mut. Life Ins. Co. v. Russell, the Court stated, in dicta: “[T]here is a stark absence—in [ERISA] itself and in its legislative history—of any reference to an intention to authorize the recovery of extracontractual damages” for consequential injuries. Then, in Mertens v. Hewitt Associates, the Court held that § 502(a)(3)’s term “‘equitable relief’ . . . refer[s] to those categories of relief that were typically available in equity (such as injunction, mandamus, and restitution, but not compensatory damages).”. Most recently, in [, theCourt ruled that, as “§ 502(a)(3), by its terms, only allows for equitable relief,” the provision excludes “the imposition of personal liability . . . for a contractual obligation to pay money.”

Id. at 222–23 (Ginsburg J., concurring) (citations omitted).

Ironically, the limitations on remedies in § 502 are almost universally applied by courts to deny plan participants (i.e. the individual insureds) from collecting against health care providers for those providers’ wrongdoing. (Knudson, mentioned by Justice Ginsburg above, is a noteworthy exception; the ruling prevented an insurance company from collecting on an award similar to the one in this case but under very different circumstances. See 534 U.S. at 207–08.)

As Judge Becker has pointed out, the availability of only equitable relief—such as injunctions to stop an insurance provider from engaging in a damaging practice or a declaratory judgment affirming an insurance provider’s duty to provide coverage for a specific treatment or procedure—generally limits individual insureds in two noteworthy ways. See DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442 (3rd Cir. 2004) (concurring). First, parties who are sick and injured are burdened with engaging in litigation during their injury or illness to get the coverage they believe they are entitled to instead of being able to wait until they are well and then sue for any damages caused by the wrongful denial of services. Id, at 459. Second, there may be little economic incentive for insurance companies to provide services of questionable contractual validity where they cannot be penalized by a court beyond an order to perform the services. Id.Any rational HMO will recognize that if it acts in good faith, it will pay for far more procedures than if it acts otherwise, and punitive damages, which might otherwise guard against such profiteering, are no obstacle at all.” Id.

In short, then, it appears that insurance companies are trying to win on both sides of this equity/law distinction: they argue that their claims for money payments for breach of contract are equitable claims for restitution, but at the same time they don’t want to disturb precedent that patients’ claims for damages when insurers fail to provide services in violation of ERISAare not equitable claims and are therefore barred. See Petitioner’s Brief; see also Analysis Section infra. Perhaps this means we will once again hear Justice Ginsburg striking up the “rising judicial chorus” of dissatisfaction with ERISA?


In writing § 502(a)(3), Congress clearly called for ERISA remedies in the form of “appropriate equitable relief.” But what, exactly, constitutes “equitable relief?” Is a subrogation right equitable relief? Is a constructive trust equitable relief? Is an equitable lien constructive relief? Although the Court has previously addressed these issues in the Mertens and Knudsoncases, sufficient confusion remains in the lower courts as to the precise contours of this relief analysis to warrant re-visitation of this issue. Moreover, to the extent that Congress said “equitable relief,” did it mean only equitable relief and only in the traditional sense of that phrase? Thus, in addition to further clarifying its previous holdings on §502(a)(3) in Mertens and Knudson, this case provides the Supreme Court with yet another opportunity to answer the age-old question: did Congress mean what it said?

Written by: Micaela McMurrough & Craig Newton


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