12-370-cv(L)
     Thurber v. Aetna Life Ins. Co.
 1
 2                    UNITED STATES COURT OF APPEALS
 3
 4                         FOR THE SECOND CIRCUIT
 5
 6
 7
 8                           August Term, 2012
 9
10   (Argued: December 14, 2012             Decided: March 13, 2013)
11
12             Docket Nos. 12-370-cv (Lead), 12-521-cv (XAP)
13
14
15                           SHARON THURBER,
16
17        Plaintiff-Counter-Defendant-Appellant-Cross-Appellee,
18
19                                 -v.-
20
21                    AETNA LIFE INSURANCE COMPANY,
22
23         Defendant-Counter-Claimant-Appellee-Cross-Appellant,
24
25          QUEST DIAGNOSTICS, INCORPORATED WELFARE PLAN,
26            AKA THE QUEST DIAGNOSTICS' AETNA LONGTERM
27              DISABILITY BENEFIT PLAN, AKA THE QUEST
28             DIAGNOSTICS' MANAGED DISABILITY BENEFITS
29                 PLAN, THE QUEST EMPLOYEE BENEFITS
30        ADMINISTRATION COMMITTEE, AS PLAN ADMINISTRATOR,
31
32                           Defendants-Appellees-Cross-Appellants.
33
34
35
36
37   Before:
38                   WESLEY, HALL, LYNCH, Circuit Judges.
39

40        Plaintiff-Counter-Defendant-Appellant-Cross-Appellee
41   Sharon Thurber appeals from a January 6, 2012 Decision and
42   Order by the United States District Court for the Western
43   District of New York (Skretny, J.) granting Defendant-
44   Counter-Claimant-Appellee-Cross-Appellant Aetna Life
 1   Insurance Company’s motion for summary judgment on the issue
 2   of whether the insurer improperly denied Thurber long-term
 3   disability benefits under ERISA. Thurber argues that the
 4   district court used the wrong standard of review and further
 5   erred by upholding Aetna’s decision denying her long-term
 6   disability benefits. Because Aetna’s reservation of
 7   discretion was sufficient to compel use of the arbitrary and
 8   capricious standard of review, we AFFIRM the district
 9   court’s grant of summary judgment to Aetna on its denial of
10   benefits.
11        Aetna cross-appeals the portion of the district court’s
12   Decision and Order denying Aetna’s motion for summary
13   judgment on its counterclaim for equitable restitution of
14   overpaid short-term disability benefits. Aetna argues that
15   the plan language gave it the right to seek reimbursement of
16   overpaid benefits pursuant to 29 U.S.C. § 1132(a)(3). What
17   qualifies as “appropriate equitable relief” under ERISA is
18   an open question in this Circuit. We now hold that Aetna’s
19   action seeking return of overpaid benefits was properly
20   brought under 29 U.S.C. § 1132(a)(3) as an equitable
21   counterclaim. We REVERSE the district court’s denial of
22   summary judgment on the counterclaim.

23   AFFIRMED IN PART AND REVERSED IN PART.

24
25
26
27            LISA BALL (Christen Archer Pierrot, Andrew P.
28                 Fleming, on the brief) Chiacchia & Fleming,
29                 Hamburg, NY, for Plaintiff-Counter-Defendant-
30                 Appellant-Cross-Appellee.
31
32            MICHAEL H. BERNSTEIN (John T. Seyberg, on the
33                 brief), Sedgwick LLP, New York, NY, for
34                 Defendant-Counter-Claimant-Appellee-Cross-
35                 Appellant and Defendants-Appellees-Cross-
36                 Appellants.

37

38

39


                                  2
 1   WESLEY, Circuit Judge:

 2                              Background

 3       Sharon Thurber worked at Quest Diagnostics (“Quest”) as

 4   a client services representative from 1993 through August

 5   15, 2007.    As a full-time Quest employee, Thurber was

 6   enrolled in Quest’s Employee Retirement Income Security Act

 7   (ERISA) disability benefits plan, administered by Aetna Life

 8   Insurance Company (“Aetna”).     Under the plan, Thurber was

 9   entitled to long-term disability benefits if a disabling

10   condition rendered her unable to perform the material and

11   substantial duties of her occupation.     According to

12   Thurber’s supervisor, her position as a client services

13   representative consisted of sitting for approximately 80% of

14   her shift and alternately standing and walking a short

15   distance for the remaining 20% of the time.

16       In 1983, Thurber broke both of her legs in a car

17   accident; her right leg is shorter than her left leg as a

18   result.     On or about August 17, 2007, Thurber was involved

19   in another car accident, in which she hit a cement barrier

20   twice while driving on the New York State Thruway.       She has

21   not worked since that accident.     Aetna approved Thurber’s

22   initial claim for short-term disability benefits for


                                     3
 1   “traumatic arthritis in both knees.”    She received short-

 2   term disability benefits for six months, ending on February

 3   20, 2008.

 4       Thurber then submitted a claim for long-term disability

 5   benefits.   At this time, she informed Aetna that she had

 6   received “other income” in the form of no-fault insurance

 7   payments of $1,202.32 per month while receiving short-term

 8   disability benefits from Aetna.   Under the plan, Aetna “may”

 9   reduce short- or long-term disability benefits if a

10   beneficiary receives “Other Income Benefits,” including no-

11   fault insurance payments.   (AR 198.)   In addition, any

12   “[i]ncome earned from a part-time return to work at Quest .

13   . . will result in a reduction” of benefits.    (Id.)   The

14   plan also authorizes Aetna to: (1) require the return of

15   overpayments; (2) cease paying benefits until overpayments

16   are recovered; (3) pursue legal action to recover

17   overpayments; or (4) “[p]lace a lien . . . in the amount of

18   the overpayment on the proceeds of any other income.”      (Id.

19   at 201.)

20       In support of Thurber’s claim for long-term disability

21   benefits based on her “intermittent, unpredictable pain,”

22   Thurber’s orthopedist, Dr. Michael T. Grant, completed a


                                   4
 1   Capabilities and Limitations Worksheet (“CLW”) in November

 2   2007.   Dr. Grant indicated that Thurber could engage in

 3   occasional sitting and occasional walking, but not in

 4   standing, stooping, climbing, crawling, kneeling or

 5   twisting, among other limitations.   In January 2008, Dr.

 6   Grant opined that Thurber “remains totally disabled” due to

 7   being “persistently symptomatic in regards to severe post-

 8   traumatic arthritis of her knees bilaterally.”   (Id. at

 9   878.)   Two months later, another of Thurber’s physicians,

10   Dr. Anthony J. Bianchi, completed a second CLW and found

11   that Thurber could frequently (34%-66% of an eight-hour day)

12   sit, stand and walk.   Dr. Bianchi noted that Thurber was

13   “still very symptomatic at times,” but recommended that she

14   “slowly work up to an 8 hour work day.”   (Id. at 916.)

15       Based on this information, Aetna denied Thurber’s claim

16   for long-term disability benefits on March 31, 2008.

17   Aetna’s denial letter summarized the medical reports

18   provided by Thurber’s doctors before concluding that the

19   information did not demonstrate that Thurber was unable to

20   perform the functions of her position as a client services

21   representative.   Aetna informed Thurber that she could

22   submit any additional information she desired and gave a


                                   5
 1   list of the types of tests and records that might prove

 2   helpful.    Thurber appealed the denial of benefits in April

 3   2008.

 4       On April 28, 2008, Thurber underwent arthroscopic knee

 5   surgery, as suggested by Dr. Grant.        Aetna then forwarded

 6   Thurber’s claim file for an independent medical review by

 7   Dr. Lawrence Blumberg, a Board Certified orthopedic surgeon.

 8   Dr. Blumberg summarized the medical information provided by

 9   Thurber’s physicians, but his report wrongly attributed the

10   March 3, 2008 CLW to Dr. Grant, rather than to Dr. Bianchi.

11   Dr. Blumberg determined that “[i]n spite of claimant’s

12   subjective complaints, she has an adequate range of motion

13   to perform sedentary activities,” as required by her job,

14   because “[t]here is no evidence that she cannot stand, sit,

15   or ambulate.”    (Id. at 951.)   In late May, Aetna denied

16   Thurber’s claim on appeal and upheld its original decision.

17       Although the internal appeals process offers only one

18   level of review, Thurber requested reconsideration of her

19   appeal.    She subsequently   submitted medical information

20   regarding spinal problems in October 2008, specifically, the

21   results of a static EMG scan.        Aetna forwarded Thurber’s

22   claim file for two additional independent medical reviews,


                                      6
 1   both conducted by Board Certified orthopedic surgeons.     The

 2   second independent review physician, Dr. James Wallquist,

 3   reviewed Thurber’s medical reports and correctly attributed

 4   the March 3, 2008 CLW to Dr. Bianchi.    Both Dr. Wallquist

 5   and Dr. Leela Rangaswamy, Aetna’s third independent review

 6   physician, concluded that Thurber was functionally impaired

 7   from the date of her arthroscopic surgery and for six weeks

 8   of recovery thereafter, but not during the periods prior or

 9   subsequent.   On December 6, 2008, Aetna completed the re-

10   review of its denial of Thurber’s claim for benefits and re-

11   affirmed its initial denial.

12       Thurber filed a complaint in the United States District

13   Court for the Western District of New York (Skretny, J.)

14   challenging Aetna’s denial of benefits under ERISA, 29

15   U.S.C. § 1132(a)(1)(B).    Aetna counterclaimed for equitable

16   restitution of $7,213.92 in overpaid plan benefits under 29

17   U.S.C. § 1132(a)(3).    Aetna moved for summary judgment on

18   Thurber’s claim and its counterclaim.    On January 6, 2012,

19   the district court granted Aetna’s motion for summary

20   judgment with respect to Thurber’s claims but denied and

21   dismissed Aetna’s counterclaim for lack of subject matter

22   jurisdiction under ERISA because it was legal, rather than

23   equitable, in nature.

                                    7
 1       Thurber appeals from the district court’s grant of

 2   summary judgment to Aetna on Thurber’s claim for disability

 3   benefits; Aetna cross-appeals from the district court’s

 4   denial of its counterclaim.

 5

 6                              Discussion

 7   I. Standard of Review

 8       Thurber argues that the district court should have

 9   reviewed her claim de novo because she allegedly never

10   received the plan documents that clearly reserved Aetna’s

11   discretion to assess her eligibility for long-term

12   disability benefits.    We disagree.

13       When an ERISA plan participant challenges a denial of

14   benefits, the proper standard of review is de novo “unless

15   the benefit plan gives the administrator or fiduciary

16   discretionary authority” to assess a participant’s

17   eligibility.   Firestone Tire & Rubber Co. v. Bruch, 

   101, 115 (1989).   If the plan does reserve discretion, the

19   denial is subject to arbitrary and capricious review and

20   will be overturned only if it is “‘without reason,

21   unsupported by substantial evidence or erroneous as a matter

22   of law.’”   Kinstler v. First Reliance Standard Life Ins.


                                    8
 1   Co., 

, 249 (2d Cir. 1999) (quoting Pagan v.

 2   NYNEX Pension Plan, 

, 442 (2d Cir. 1995)).

 3   Although we do not require the plan to employ any particular

 4   language to reserve discretion, the chosen words must

 5   clearly convey the administrator’s intent.     See Nichols v.

 6   Prudential Ins. Co. of Am., 

, 108 (2d Cir. 2005);

 7   Kinstler, 181 F.3d at 251-52.

 8        Thurber conceded at oral argument that the plan itself

 9   and the Summary Plan Description (“SPD”) both include

10   language that is sufficient to reserve discretion to Aetna

11   to assess participants’ eligibility for benefits.1     Thurber

12   argues, however, that there is no evidence in the record

13   showing that she actually received either of these plan

14   documents and that, therefore, she cannot be bound by

15   language contained therein.     According to Thurber, the only

16   plan document that she received (the “Booklet”) does not

17   clearly reserve discretion to Aetna.2


          1
            The plan provides Aetna with “discretionary authority to:
     determine whether and to what extent employees and beneficiaries
     are entitled to benefits.” (AR 54.) Likewise, the SPD states
     that “[Aetna] has the discretionary authority to determine
     eligibility for benefits, decide claim appeals, and to interpret
     provisions of the plan.” (Id. at 305.)
          2
            The Booklet states that “[a] period of disability will be
     certified by Aetna if, and for only as long as, Aetna determines
     that you are disabled . . . .” (Doc. #40, Ex. A, 3.) Because we

                                     9
 1        Thurber relies on the Seventh Circuit’s decision in

 2   Herzberger v. Standard Insurance Co., 

 (7th Cir.

 3   2000), for her assertion that she must have received actual

 4   notice of Aetna’s reservation of discretion before Aetna’s

 5   denial of benefits is entitled to deferential review.      In

 6   Herzberger, the Seventh Circuit reversed and remanded two

 7   district court decisions granting summary judgment to plan

 8   administrators after the lower courts reviewed eligibility

 9   determinations under the arbitrary and capricious standard.

10   See id. at 333.   The court held that neither plan at issue

11   clearly reserved discretion to the respective plan

12   administrators.   Id.   The court’s analysis rested fully on

13   the language of the plan itself, and concluded that language

14   that simply provided that the administrator had to determine

15   eligibility did not imbue the administrator with discretion.

16   See id.   In explicating this holding, the court further

17   noted that “[t]he employees are entitled to know what

18   they’re getting into, and so if the employer is going to



     find that the plan’s reservation of discretion to Aetna was
     sufficient regardless of whether Thurber had actual notice of the
     plan’s language, we need not decide the controversial question of
     whether use of the word “determines” in the Booklet is clear
     enough to reserve discretion under Firestone. See Fay v. Oxford
     Health Plan, 

, 104 (2d Cir. 2002); cf. Nichols, 406
     F.3d at 108-09.

                                    10
 1   reserve a broad, unchanneled discretion to deny claims, the

 2   employees should be told about this, and told clearly.”      Id.

 3       Contrary to Thurber’s reading, the case did not in any

 4   way involve, and the court’s language did not address, a

 5   situation in which the plan’s language did unambiguously

 6   provide for discretion (as did the SPD), but the employee

 7   seeking benefits had not received a copy of either document.

 8   That a court will review benefits determinations de novo

 9   unless the plan documents clearly specify a reservation of

10   discretion does not imply that such a reservation must be

11   specifically conveyed to all members of the plan.   In any

12   event, to the extent that the language in Herzberger could

13   be read to require actual notice of the insurer’s purported

14   reservation of discretion, we cannot detect any basis in law

15   or the statute to support this position.   Indeed, the

16   Supreme Court’s decision in Firestone merely establishes

17   that review under the arbitrary and capricious standard will

18   be inappropriate “unless the benefit plan gives the

19   administrator or fiduciary discretionary authority to

20   determine eligibility.”   489 U.S. at 115 (emphasis added).

21   Firestone says nothing about whether the SPD or other plan

22   documents must contain language clearly reserving discretion


                                   11
 1   - Firestone refers to the plan itself.   Although plan

 2   participants are entitled to receive copies of the SPD,

 3   pursuant to 29 U.S.C. §§ 1021, 1022 and 1024, the

 4   administrator of an ERISA plan has no obligation to ensure

 5   that participants receive copies of the plan itself.

 6       Thus, unless ERISA requires the SPD to contain language

 7   setting the standard of review, we see no reason why a plan

 8   administrator must actually notify a participant of its

 9   reservation of discretion.   ERISA contains no such edict.

10   See 29 U.S.C. § 1022(b); 29 C.F.R. § 2520.102–3.

11   Accordingly, to the extent that the Seventh Circuit has

12   articulated an actual notice requirement, we disagree that

13   ERISA imposes such an obligation on an insurer that

14   endeavors to reserve discretion.

15       Here, the language contained in Aetna’s plan and the

16   SPD clearly reserves discretion to Aetna for determining

17   participants’ eligibility for disability benefits.     That

18   Thurber did not have actual notice of Aetna’s reservation of

19   discretion is of no consequence.   There may be strong

20   arguments that plan provisions that affect the basic terms

21   of the plan, or ones that affect what an applicant must do

22   to become eligible for benefits, should be conveyed directly


                                   12
 1   to plan beneficiaries and not buried in a lengthy and

 2   technical contract.   However, those arguments do not apply

 3   to a provision that is effectively addressed not to the

 4   beneficiary, but only to a reviewing court that must act

 5   only after an application has been denied.   Moreover, a

 6   standard that focuses on the language of the plan raises a

 7   purely legal standard of review for all participants in the

 8   same plan.   In contrast, an actual notice standard would

 9   make the standard of review different for each individual

10   applicant, based on resolution by reviewing courts of

11   factual disputes – which will frequently pit a participant’s

12   fallible and self-interested memory against a plan

13   administrator’s reliance on evidence of standard practice –

14   about whether the particular participant received a copy of

15   the relevant documents.

16       As a result, we conclude that the district court

17   correctly utilized the arbitrary and capricious standard of

18   review.   We review the district court’s grant of summary

19   judgment to Aetna de novo, see Pagan, 52 F.3d at 441, and

20   thus will review Aetna’s denial of long-term disability

21   benefits under the same arbitrary and capricious standard

22   properly used by the district court.


                                   13
 1   II. The Merits of Thurber’s Claim for Benefits

 2       Thurber makes several arguments on appeal for why Aetna

 3   acted arbitrarily and capriciously in denying her long-term

 4   disability benefits under the plan.      Only some of these

 5   arguments have sufficient merit to require discussion.        We

 6   agree with the district court that Aetna’s determination of

 7   Thurber’s eligibility for long-term benefits was supported

 8   by substantial evidence.     Accordingly, we affirm the

 9   district court’s grant of summary judgment to Aetna.

10       First, Thurber argues that Aetna failed to give enough

11   weight to her subjective complaints of pain.      Although

12   subjective complaints “if found credible . . . could [be]

13   legally sufficient evidence of disability,” Krizek v. Cigna

14   Group Insurance, 

, 102 (2d Cir. 2003), we agree

15   with the district court that Aetna gave sufficient attention

16   to Thurber’s subjective complaints of pain before

17   determining that they were not supported by objective

18   evidence.   In Aetna’s first denial letter, the insurer

19   “noted that [Thurber] complain[ed] of recurrent discomfort

20   about the right knee.”     (AR 925.)   In its May 2008 denial of

21   benefits on appeal, Aetna commented that “Dr. Blumberg found

22   that in spite of your subjective complaints, you had


                                     14
 1   adequate range of motion to perform sedentary activities.”

 2   (Id. at 947.)    Finally, in Aetna’s December 2008 final

 3   denial on re-review, the letter confirmed that “[t]he

 4   consultant noted that Ms. Thurber had had previous knee

 5   pain” and the consultant was aware that “[s]he claimed to

 6   have pain, stiffness, and ‘fatiguability’” on June 10, 2008.

 7   (Id. at 1118.)    Aetna did not abuse its discretion in

 8   concluding either that Thurber’s subjective complaints of

 9   pain standing alone did not warrant finding her eligible for

10   long-term disability benefits, or that objective evidence

11   did not support finding otherwise.

12       Second, Thurber argues that Dr. Blumberg’s error

13   attributing the March 3, 2008 CLW to Dr. Grant, instead of

14   to Dr. Bianchi, is a “critical mistake” because Dr. Blumberg

15   “believed that Dr. Grant found Ms. Thurber to have

16   improved.”   (Appellant’s Br. at 65.)   Even if Dr. Blumberg

17   erroneously believed that Dr. Grant had authored the March

18   2008 CLW, his recommendation to Aetna was based on the

19   substance of the report – which was the most recent CLW

20   available at the time of his review.    Moreover, after Dr.

21   Blumberg’s review and Aetna’s denial of Thurber’s appeal,

22   Aetna retained two additional independent physicians to


                                    15
 1   review Thurber’s file and subsequently affirmed its prior

 2   denial based on their (correct) reports.

 3       Third, Thurber claims that Aetna did not give

 4   sufficient consideration to the total impact of the medical

 5   evidence she submitted to support her claim for disability

 6   benefits.   As the district court correctly determined, the

 7   facts prove otherwise.     Each of Aetna’s three denial

 8   letters, along with the reports from three independent Board

 9   Certified physicians, explained why Aetna found Thurber’s

10   submissions to be insufficient.      In addition, Thurber’s

11   claim that Aetna failed to credit the objective medical

12   evidence she submitted regarding her neck and spinal

13   problems also fails.     Thurber’s initial disability claim and

14   all of the supporting documentation from her care providers

15   up until the fall of 2008 focused on injuries to her knees

16   caused by her August 2007 car accident in conjunction with

17   her 1983 car accident.     But, even if Thurber’s claim

18   extended beyond disabling knee pain, the third independent

19   physician’s review and Aetna’s subsequent final denial

20   letter both discuss the tests performed on Thurber’s spine,

21   demonstrating that Aetna did not arbitrarily ignore this

22   evidence for purposes of assessing her eligibility for

23   benefits.

                                     16
 1       We have considered Thurber’s additional arguments that

 2   the rejection of her claim was arbitrary and capricious and

 3   find them without merit.    We affirm the district court’s

 4   conclusion that Aetna’s eligibility determination was

 5   supported by substantial evidence.

 6

 7   III. Aetna’s Counterclaim

 8       Aetna brought a counterclaim seeking the return of

 9   overpaid short-term benefits pursuant to ERISA, 29 U.S.C. §

10   1132(a)(3), which authorizes civil actions brought “by a

11   participant, beneficiary, or fiduciary . . . to obtain . . .

12   appropriate equitable relief . . . to enforce any provisions

13   of this subchapter or the terms of the plan.”    29 U.S.C. §

14   1132(a)(3).   What qualifies as “appropriate equitable

15   relief” is an issue that continues to perplex courts despite

16   efforts by the Supreme Court during the past decade to shed

17   some light on the matter.    See Sereboff v. Mid Atl. Med.

18   Servs., Inc., 

 (2006); Great-West Life & Annuity

19   Ins. Co. v. Knudson, 

 (2002).    Here, the

20   district court determined that it did not have subject

21   matter jurisdiction over Aetna’s counterclaim because Aetna

22   sought legal, rather than equitable, relief.    Because we are

23   convinced that Aetna’s counterclaim seeking the return of

                                    17
 1   overpaid benefits constituted an action for “appropriate

 2   equitable relief,” we reverse.

 3          The Supreme Court first tackled the question of whether

 4   29 U.S.C. § 1132(a)(3) authorizes subrogation-like actions

 5   by insurers under an ERISA plan in Great-West Life & Annuity

 6   Insurance Company v. Knudson.        There, the insurer paid

 7   approximately $350,000 for the participant’s medical

 8   expenses under her husband’s ERISA plan after a car

 9   accident.    See Knudson, 534 U.S. at 207.      The Knudsons

10   subsequently settled their state court tort suit against the

11   car manufacturer and other tortfeasors.        Id.   The state

12   court approved the settlement and directed the distribution

13   of approximately $250,000 into a Special Needs Trust that,

14   under California law, would provide for medical care.          In

15   addition, the state court allotted nearly $375,000 for

16   attorney’s fees and costs; $5,000 to reimburse the

17   California Medicaid program; and approximately $14,000 “to

18   satisfy” Great-West’s claim.     Id. at 207-08.      Great-West

19   received notice of the proposed settlement and, “calling

20   itself a defendant,” unsuccessfully attempted to remove the

21   state action to federal court on the grounds that the state

22   action “involved federal claims related to ERISA.”         Id. at

23   208.

                                     18
 1       Great-West simultaneously sought to block the state

 2   court settlement in federal court under 29 U.S.C. §

 3   1132(a)(3), claiming that the plan’s subrogation provision

 4   required the Knudsons to reimburse Great-West from any

 5   third-party payments for plan-covered expenses and precluded

 6   the state court from limiting Great-West’s recovery to the

 7   past medical expenses portion of the settlement.    The

 8   district court denied Great-West’s request for a temporary

 9   restraining order and Great-West did not appeal.     Id.     The

10   district court ultimately dismissed Great-West’s action

11   after the state court approved the settlement.     See id.

12        The Ninth Circuit affirmed the dismissal of Great-

13   West’s claim, holding “that judicially decreed reimbursement

14   for payments made to a beneficiary of an insurance plan by a

15   third party is not equitable relief and is therefore not

16   authorized” by the statute.   Id. at 209.   On appeal, the

17   Supreme Court explained that it had previously determined

18   that the statute provided only equitable and not legal

19   remedies to plan administrators to redress violations of the

20   plan or to seek enforcement of plan provisions.     Id.    The

21   Knudsons had not retained any moneys recovered in the state

22   action as those funds were sequestered in the Special Needs

23   Trust pursuant to the state court order.    Consequently,

                                   19
 1   Great-West was really trying to enforce its plan provision

 2   authorizing the imposition of personal liability if a

 3   beneficiary failed to reimburse the insurer after receiving

 4   a third-party settlement.      See id. at 207, 210-12.     The

 5   Supreme Court saw this as an action at law, for breach of

 6   contract, rather than an action at equity, to enjoin the

 7   Knudsons from violating the terms of the plan by failing to

 8   reimburse Great-West.      “[F]or restitution to lie in equity,

 9   the action generally must seek not to impose personal

10   liability on the defendant, but to restore to the plaintiff

11   particular funds or property in the defendant’s possession.”

12   Id. at 214.

13       By contrast, in Sereboff v. Mid Atlantic Medical

14   Services, Inc., the insurer sought “specifically

15   identifiable funds that were within the possession and

16   control of the Sereboffs.”      547 U.S. at 362-63 (internal

17   quotation marks omitted).      Like in Knudson, the plan

18   participants in Sereboff were injured in a car accident and

19   the insurer paid a sum of money, approximately $75,000, to

20   cover medical expenses under their ERISA plan.      Id. at 360.

21   Subsequently, the Sereboffs settled a tort suit arising out

22   of their accident.   Id.     Mid Atlantic brought an action

23   under ERISA to enforce a plan provision requiring the

                                      20
 1   beneficiary to reimburse the insurer from third-party

 2   recoveries.    Id.   The Sereboffs agreed to set aside a sum of

 3   money from their settlement and put it into an investment

 4   account until the case had been decided.     Id.

 5       First, the Court determined that the nature of the

 6   relief desired in Sereboff was equitable because Mid

 7   Atlantic sought a specific portion (approximately $75,000)

 8   of specifically identified funds (the third-party recovery).

 9   See id. at 362-63.    Second, the Court concluded that Mid

10   Atlantic established that the basis for its claim was

11   equitable.    See id. at 363.   The Court discussed the 1914

12   case (from the time of the divided bench) of Barnes v.

13   Alexander, 

 (1914), in which Justice Holmes

14   described

15               the familiar rul[e] of equity that a
16               contract to convey a specific object even
17               before it is acquired will make the
18               contractor a trustee as soon as he gets a
19               title to the thing.
20
21   Sereboff, 547 U.S. at 363-64 (quoting Barnes, 232 U.S. at

22   121).

23       Because the Sereboffs’ ERISA plan specifically

24   identified a particular share of particular funds subject to

25   return, Mid Atlantic “could rely on [this] familiar rul[e]

26   of equity to collect for the medical bills it had paid.”

                                     21
 1   Id. at 364 (internal quotation marks omitted).       “This rule

 2   allowed them to ‘follow’ a portion of the recovery ‘into the

 3   [Sereboffs’] hands’ ‘as soon as [the settlement fund] was

 4   identified,’ and impose on that portion a constructive trust

 5   or equitable lien.”     Id. (quoting Barnes, 232 U.S. at 123)

 6   (alterations in original).     Moreover, the Supreme Court

 7   rebuffed the Sereboffs’ contention that Mid Atlantic needed

 8   to satisfy “strict tracing rules” before equitable relief

 9   was appropriate.    Id. at 364-65.   Instead, the Court

10   confirmed that tracing rules have no import in the context

11   of an equitable lien by agreement.     Id. at 365.

12       The Court reached different results in Knudson and

13   Sereboff because Great-West could not assert an equitable

14   lien on settlement funds contained in a separate entity –

15   the restrictive trust – while Mid Atlantic did not face a

16   similar obstacle.     The Sereboffs had possession and control

17   over the specific funds sought by their insurer.       As a

18   result, the Court found that the Sereboffs held these funds

19   in constructive trust for Mid Atlantic.

20       Here, the nature of Aetna’s claim is equitable: the

21   insurer seeks specific funds (overpayments resulting from

22   Thurber’s simultaneous receipt of no-fault insurance

23   benefits and short-term disability benefits) in a specific

                                     22
 1   amount (the total overpayment, $7,213.92) as authorized by

 2   the plan.   These funds were entrusted to Thurber.

 3       However, this case differs from Sereboff in two ways.

 4   First, the “particular fund” (from which Aetna seeks a

 5   specific portion of money) is not the actual third-party

 6   income Thurber received; instead, it is the benefits

 7   rendered overpayments as a result of Thurber’s receipt of

 8   no-fault insurance benefits.   Second, these overpayments

 9   have since dissipated.   We do not believe either of these

10   distinctions requires labeling Aetna’s claim as one in law,

11   though we recognize the existence of a Circuit split on the

12   issue.   Compare Funk v. CIGNA Grp. Ins., 

, 194-

13   95 (3d Cir. 2011) (finding that “dissipation of the funds

14   [is] immaterial” if an equitable lien by agreement is in

15   place), and Cusson v. Liberty Life Assurance Co. of Boston,

16   

, 231 (1st Cir. 2010) (determining that an

17   insurer need not identify a “specific account in which the

18   funds are kept or prove[] that they are still in [the

19   beneficiary’s] possession”), with Bilyeu v. Morgan Stanley

20   Long Term Disability Plan, 

, 1093-95 (9th Cir.

21   2012) (holding that “fiduciar[ies] must recover from

22   specifically identified funds in the beneficiary’s

23   possession” (emphasis in original)).

                                    23
 1          With respect to the first distinction, Aetna seeks a

 2   specific portion (all) of a particular fund (the subset of

 3   disability benefits that became overpayments when Thurber

 4   received no-fault insurance benefits).    Not surprisingly,

 5   these overpayments were not segregated from the total

 6   disability payments.    The Ninth Circuit recently held that

 7   an action for the return of “overpaid long-term disability

 8   benefits” does not seek “a particular fund, but a specific

 9   amount of money encompassed within a particular fund – the

10   long-term disability benefits [the insurer] paid to [the

11   beneficiary].”    Bilyeu, 683 F.3d at 1093 (emphases in

12   original).    But the beneficiary’s literal segregation of

13   funds is irrelevant when the terms of the ERISA plan “put

14   [the beneficiary] on notice that she would be required to

15   reimburse [the insurer] for an amount equal to what she

16   might get from” third-party sources.     Cusson, 592 F.3d at

17   231.

18          We do not see a basis for distinguishing between

19   certain “funds” identified by ERISA plans – i.e., between

20   “third-party recoveries” and benefits that become

21   “overpayments” as a result of third-party recoveries.     Both

22   constitute particular, identifiable sums over which an

23   insurer may assert an equitable lien authorized by its plan.

                                    24
 1   For this reason, we take issue with the Ninth Circuit’s view

 2   that the “particular fund” (overpayments) sought lacks

 3   sufficient specificity by virtue of being an

 4   “undifferentiated component of a larger fund” (total

 5   benefits).     Bilyeu, 683 F.3d at 1093.

 6       Regarding the second distinction, Thurber argues that

 7   Aetna may not seek return of the overpayments under 29

 8   U.S.C. § 1132(a)(3) because Thurber has spent the no-fault

 9   monies she was required under the plan to deliver to Aetna.

10   This, Thurber argues, makes Aetna akin to a general creditor

11   seeking a sum of money.     The Third Circuit takes the

12   position that if “there was an equitable lien by agreement

13   that attached to the [third-party benefits] as soon as [the

14   beneficiary] received it, dissipation of the funds [is]

15   immaterial.”     Funk, 648 F.3d at 194.    We believe that this

16   strikes the right balance, and we therefore reject the Ninth

17   Circuit’s contrary view that insurers may not reach

18   specifically identified assets that have dissipated.       See

19   Bilyeu, 683 F.3d at 1094-96.     If the reason the insurer’s

20   claim is equitable is because it is seeking return of

21   property over which it asserts a lien (the overpayments),

22   whether or not the beneficiary remains in possession of

23   those particular dollars is not relevant as long as she was

                                     25
 1   on notice that the funds under her control belonged to the

 2   insurer; she held the money in a constructive trust.

 3       When an ERISA plan creates an equitable lien by

 4   agreement between the insurer and the beneficiary, the

 5   insurer’s ownership of the overpaid funds is established

 6   regardless of whether the insurer can satisfy strict tracing

 7   rules.   See Sereboff, 547 U.S. at 364-65; Bilyeu, 

   at 1102 (Rawlinson, J., dissenting).   In the context of an

 9   equitable lien by agreement, rather than an equitable lien

10   sought as a matter of restitution, all that matters is that

11   the beneficiary did, at some point, have possession and

12   control of the specific portion of the particular fund

13   sought by the insurer.   See Sereboff, 547 U.S. at 364-65.

14   This is not a case like Knudson, in which the beneficiaries

15   never had possession or control of the funds identified for

16   recovery (the settlement).   Here, Thurber had possession and

17   control of the overpaid benefits.   That she spent the funds

18   over which Aetna exerted an equitable lien is insufficient

19   to void Aetna’s right to enforce the plan’s subrogation

20   provision and the resulting equitable lien by agreement that

21   Aetna entered into with Thurber.

22       The basis of Aetna’s claim is equitable.   The insurer

23   seeks to enforce an equitable lien by agreement on its

                                   26
 1   property – the overpaid funds that Thurber received.      For

 2   this reason, Thurber’s reliance on Fehn v. Group Long Term

 3   Disability Plan for Employees of JP Morgan Chase Bank, No.

 4   07 Civ. 8321(WCC), 

 (S.D.N.Y. June 30, 2008),

 5   is misplaced.   In Fehn, the plaintiff received disability

 6   benefits that erroneously contained salary-continuation

 7   payments, for which the plaintiff was not eligible,

 8   resulting in a significant overpayment.     

, at

 9   *1.   Unlike the insurer in Sereboff, because JP Morgan Chase

10   paid the excess funds in error (believing that the plaintiff

11   was entitled to salary-continuation benefits when, in fact,

12   she was not), the company was asserting a contract claim for

13   money paid by the plan in excess of its terms.      It was not

14   seeking recovery of funds held by the defendant that

15   replicated proper plan payments from third parties.3      Id. at

16   *4.   Thus, the action was legal, rather than equitable.

17         The district court’s conclusion that it lacked subject

18   matter jurisdiction over Aetna’s counterclaim rested in part

19   on its belief that the language contained in Aetna’s SPD



           3
            To the extent that the district court in Fehn rested its
     decision on the insurer’s inability to “identify segregated funds
     in plaintiff’s possession,” 

, at *4, we disagree.
     See supra our discussion of Cusson, 592 F.3d at 230, and Funk,
     648 F.3d at 194-95.

                                    27
 1   substantively differed from language in the plans at issue

 2   in Sereboff and Cusson.    Aetna’s SPD provides that the

 3   insurer “may” reduce benefits if a beneficiary receives

 4   other income, and “may” require the beneficiary to return

 5   any benefits subsequently rendered overpayments.      The

 6   district court emphasized that the SPD’s use of the word

 7   “may” “implies a discretionary act, not a conclusive right

 8   to the funds.”    According to the court, this converts

 9   Aetna’s right to restitution of overpaid benefits into a

10   contractual and legal right, rather than an equitable one.

11   This strikes us as being overly formalistic.

12       In Sereboff, the plan’s subrogation language specified

13   the insurer’s “right to recover any payments made to you or

14   your dependent by a third party.”    Mid Atl. Med. Servs.,

15   Inc. v. Sereboff, 

, 698 (D. Md. 2004).

16   In Cusson, the plan gave the insurer “the right to recovery

17   of such overpayments” if a participant received an

18   overpayment on her claim from any source.    Cusson, 

   at 230.   The district court here cited to these plans as

20   “requir[ing]” beneficiaries to reimburse overpayments to

21   their insurers.   But whether the plan “requires” a

22   participant to reimburse an insurer or “may[] [r]equire [the

23   beneficiary] to return the overpayment,” as one of four

                                    28
 1   options the insurer “may” pursue, is an immaterial

 2   distinction.    Under either scenario, reimbursement remains

 3   dependent on an act committed to the insurer’s discretion,

 4   namely, requesting or suing for the return of its property.

 5   The insurer must still elect to assert its “right to

 6   recover.”   Or, it may opt not to pursue this right.

 7       Likewise, a plan that “may” reduce payments if the

 8   beneficiary receives income from other sources adequately

 9   reserves the insurer’s right to lessen the beneficiary’s

10   entitlement to benefits.    Here, had Aetna been aware that

11   Thurber was receiving no-fault insurance income while Aetna

12   was still paying short-term disability benefits, the insurer

13   would have had the right to reduce its payments to Thurber,

14   just as it now has the authority to seek return of those

15   overpayments.

16       We are not persuaded that a different result is

17   compelled by language in Aetna’s SPD distinguishing between

18   benefits that “may” be reduced following receipt of “Other

19   Income Benefits” and benefits that “will” be reduced

20   following receipt of income from a part-time return to work.

21   Although we note that Aetna’s decision to use two different

22   phrases could signify a meaningful difference, we believe

23   that the insurer’s election here is sensible in light of the

                                    29
 1   purpose behind disability benefits: supporting individuals

 2   who are unable to work by reason of their impairment.

 3   Receiving income from a part-time return to work undermines

 4   the very basis for receiving disability benefits; the

 5   benefits should never have been paid.     Benefits that are

 6   overpaid by virtue of the beneficiary receiving additional

 7   payments from a third party simply render some portion of

 8   the ERISA benefits unnecessary after the fact.      Because

 9   Aetna had the right to reduce Thurber’s short-term

10   disability benefits at the time she received them, Aetna now

11   retains the right under its subrogation provision to compel

12   return of the overpayments.

13        Thus, the language in Aetna’s plan puts a beneficiary

14   on notice that any overpayments she receives belong to Aetna

15   by virtue of an equitable lien by agreement.4     That the

16   participant takes immediate possession of the overpayments

17   (and perhaps even keeps possession for a certain period of

18   time) has no bearing on Aetna’s right to the property nor on

19   its ability to seek return of the overpayments.      We note in



          4
            Although Thurber did not raise this point in connection
     with Aetna’s counterclaim, even if she never received the SPD,
     Thurber admitted to possessing the Booklet containing the
     following language: “[o]ther income benefits . . . will reduce
     the benefit actually payable.” (Doc. #40, Ex. A, 5.)

                                    30
 1    closing that the distinction between claims based in law and

 2    those sounding in equity is often fine.   In close cases, our

 3    inclination is to favor judicial efficiency by allowing

 4    ERISA insurers to bring responsive claims in ongoing federal

 5    actions, rather than forcing the parties to litigate two

 6    actions, one in federal court and one in state court,

 7    unnecessarily.   Here, because we find that Aetna’s plan

 8    established an equitable lien by agreement, we hold that

 9    Aetna presented a claim for “appropriate equitable relief”

10    under 29 U.S.C. § 1132(a)(3) over which the district court

11    had subject matter jurisdiction.   We therefore reverse the

12    district court’s dismissal of Aetna’s counterclaim and

13    remand to the district court with instructions to enter

14    judgment in favor of Aetna.

15

16                              Conclusion

17       For the foregoing reasons, the order of the district

18   court is hereby AFFIRMED IN PART and REVERSED IN PART.

19




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