The comments below are from the SCOTUS blog:
Counsel for Sereboff argued that Knudson imposed a strict “tracing requirement” on all recoveries – i.e., that the funds the plan sought to recover must be directly traceable to those the plan had advanced.
Justice Roberts, however, distinguished between an “equitable lien sought as a matter of restitution” and an “equitable lien imposed by agreement.” Only the former requires strict tracing. The Sereboffs had argued that an equitable lien could not be imposed by agreement in a case such as theirs, because when the beneficiary agrees to such a provision “‘no third-party recovery’ exists which the beneficiary ‘can place … beyond his control and grant [the fiduciary] a complete and present right therein.’”
Justice Roberts concluded that, under long-standing Supreme Court precedent, the fund over which the lien is asserted need not be in existence when the contract containing the lien provision is executed. Thus, for a plan fiduciary to obtain recovery, as a threshold matter the plan document (as well as, presumably, the summary plan description) must clearly obligate the participant to reimburse the plan from specifically identifiable funds. Notably, Justice Roberts began his opinion by quoting the plan provision in question.
Sereboff argued before the Court that, if the participant receives less than a full recovery, the relief cannot be characterized as “truly equitable.” These objections were brushed aside in this case on another basis. The Court, however, declined to consider the question of whether the equitable relief the fiduciary sought was “appropriate,” as the statute requires, on the basis that it had not been timely raised.
It is not clear whether the existence of the agreement (the plan provision governing the “Acts of Third Parties”) is sufficient in and of itself to create an equitable lien established by agreement, or whether the equitable lien was permitted by the fact that the District Court approved a stipulation by the parties agreeing to preserve a specified amount in an investment account until the District Court ruled on the merits and all appeals were exhausted. The key aspect of the Court’s reasoning in the case was based on the fact that the plan fiduciary sought:
“[S]pecifically identifiable” funds that were “within the possession and control of the Sereboffs”—that portion of the tort settlement due Mid Atlantic under the terms of the ERISA plan, set aside and “preserved [in the Sereboffs’] investment accounts.”
The potential arguments and factual distinctions are readily apparent in situations where a segregated investment account does not exist or where the participant does not continue to hold the money."