Verizon Sickness and Accident Disability Benefit Plan for New England Associates v. Rogers et al

1
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
__________________________________________
)
VERIZON SICKNESS AND ACCIDENT 	)
DISABILITY BENEFIT PLAN FOR NEW 	)
ENGLAND ASSOC., 	)
Plaintiff, 	)
)
v. 	) 	No. 1:21-CV-00110-MSM-PAS
)
JACQUELINE ROGERS, and AFFILIATED )
LAW OFFICES OF RICHARD M. SANDS, 	)
Defendants and Third-Party Plaintiffs,)
)
v. 	)
)
VERIZON COMMUNICATIONS, INC. 	)
And EQUIAN, LLC., 	)
Third-Party Defendants. 	)
__________________________________________)
DECISION
Mary S. McElroy, United States District Judge.
I. 	INTRODUCTION
Verizon Sickness and Accident Disability Benefit Plan (“Plan” or “Verizon”)
seeks reimbursement of $44,962.40 it paid in disability benefits to Jacqueline Rogers
(“Rogers”), a participant in the disability plan who recovered damages in settlement
from a third party following an automobile accident. 	Ms. Rogers, however, after
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receiving her $62,001.44 share of the settlement proceeds, apparently disappeared.1
The Plan therefore seeks its recovery from Ms. Rogers’ lawyer, Affiliated Law Offices
of Richard Sands (“Sands”) which retained $31,617.60 of the $100,000 settlement as
its fee. 	This Court denied summary judgment, ECF No. 49, and the case was tried
without a jury. It is now ripe for decision.
Several issues were resolved by summary judgment2 and what remains to be
decided is a question of law on what are essentially undisputed facts. Indeed, at trial,
brief legal arguments were made, but the only evidence presented to the court
consisted of nine exhibits introduced by Verizon and one by Sands.
II. 	ANALYSIS
Verizon seeks to enforce an equitable lien created by the terms of the Plan,3
which provide for the Plan’s recovery of disability benefits when the participant has
recovered damages from a third party. The lien lies against the settlement proceeds.
The cause of action is created by the Employees’ Retirement Securities Act (“ERISA”),
29 U.S.C. § 1132(a)(3)(B)(ii), which allows a Plan to pursue
equitable remedies to
1 Ms. Rogers was an employee of Verizon, Inc., covered by the disability plan.
According to Verizon, her whereabouts became unknown after the payout, and she
was never served. (ECF No. 76, at 1 n.1.)
2
Verizon Sickness and Accident Disability Benefit Plan for N.E. Assoc. v. Rogers, No.
1:21-cv-00110-MSM-PAS, 2023 WL 2525208 (D.R.I., March 15, 2023). 	Among the
issues resolved were that Sands is an appropriate person against whom an equitable
lien can be enforced under the Employees’ Retirement Securities Act (“ERISA”), 29
U.S.C. § 1132(a).
Id. at *5 and cases cited therein.
3 The terms of the Plan are spelled out by both the Master Plan (“MP”) and the
Summary Plan Description (“SPD”) which is specifically incorporated by reference
into it. They are Plaintiff’s Exhibits 2 and 3, respectively,
see ECF No. 27.
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enforce Plan provisions. 	ERISA does not authorize a cause of action for a Plan to
pursue
legal remedies, 29 U.S.C. § 1132(a)(3)(B) and this distinction is critical to the
resolution of this case. 	Even though the lien may be an equitable one, the
enforcement mechanism must be equitable as well.
	Montanile v. Bd. of Trustees of
the Nat’l Elevator Industry Health Benefit Plan, 577 U.S. 136, 145 (2016).
An
equitable remedy involves recovery from a specific, identifiable pool of
funds to which the plaintiff has established an entitlement: in this case, the specific
identifiable pool of funds is the money received by Sands in settlement for the car
crash. 	A
legal remedy involves satisfaction of a personal obligation, an owing of
money generally. Reimbursement to Verizon from
settlement funds, therefore, would
be an
equitable remedy authorized by ERISA; reimbursement to Verizon from Sands’
general assets would be a
legal remedy not authorized by ERISA and therefore not
achievable in this lawsuit. The essence of an equitable recovery is transfer of “money
or property identified as belonging in good conscience to the plaintiff [that can] clearly
be traced to particular funds or property in the defendant’s possession.”
	Id. at 143.
If the funds or property are not in the defendant’s possession, and the plaintiff simply
seeks compensation from the defendant’s assets, the recovery is a legal one, not an
equitable one.
Id. at 145.
This principle that distinguishes an equitable remedy from a legal one – and,
as a result, one allowable under ERISA or not -- is the critical issue remaining in this
case. Sands claims the settlement funds have been dissipated by being used to pay
his operating expenses and, therefore, since they are no longer in his possession, there
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can be no equitable recovery. 	Equitable recovery depends on the principle that a
court can “lay hold of” the property,
id., and there is no dispute here that dissipation
does, indeed, eliminate an equitable lien. Verizon agreed at oral argument that if the
$31,617.60 were dissipated, “there would be no equitable claim.” (ECF No. 75, at 13.)
But who has the burden of proof on whether the funds have been dissipated?
That is the question before the Court. At oral argument, the parties agreed that each
stands or falls on the resolution of where the burden of proof lies. 	Verizon candidly
acknowledged that if
it has the burden, it loses. Sands takes the position that Verizon
has the burden but that even if the law firm has it, it was met by Richard Sands’
affidavit. 	The parties agree that the only evidence of dissipation is the affidavit
executed by Sands asserting that the settlement proceeds were spent.
	See Plt. Exh.
4. 	Whether funds have been dissipated is a question of fact, and it is the only
significant factual dispute in this case.
Montanile, 577 U.S. at 151 (unresolved issues
of fact concerning dissipation and commingling required remand).
Before discussing where the burden of proof lies, the Court sets forth the facts
it has found to which that burden will be applied:
1. 	Verizon 	knew 	Ms. 	Rogers 	was 	represented 	by 	Sands 	as 	early 	as
September 2018, when Sands requested payroll records from Verizon,
explaining that it was representing her regarding the injuries she
sustained in the 2016 automobile accident. 	Verizon insisted on a
subpoena before it would confirm her employment. Plt. Exh. 5.
2. 	Verizon had paid benefits to Ms. Rogers in the amount of $42,962.40 in
disability benefits arising out of the that injury.
3. 	The $100,000 settlement funds, paid by a third party, came into Sands’
possession on October 21, 2019. 	The following day, Sands paid out
$62,001.44 to Ms. Rogers, $5,573.40 in satisfaction of an $8,360.10
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healthcare lien to Verizon’s subrogation vendor, Equian, LLC, and it
retained $31,617.60 in its client fund ($31,333.33 in fees plus $284.27 in
costs). 	It then transferred the $31,617.60 to its general operating
account where it was commingled with the firm’s other cash.
	See
Settlement Sheet, Plt. Exh. 6.
4. 	At least $31,617.60 was thereafter spent on operating expenses of the
law firm. Plt. Exh. 4.
5. 	Verizon demanded reimbursement from Sands, which was declined, but
it took no legal action to pursue reimbursement until it filed this lawsuit
on March 5, 2021, nearly six months after the settlement funds were
paid out.
6. 	Verizon has not received reimbursement of the disability benefits it
paid.
7. 	The 	Terms 	of 	the 	Plan 	are 	set 	forth 	in 	the 	Master 	Plan, 	which
incorporates by reference the terms of the Summary Plan Description
(“SPD”).
A. Burden of Proof
One would think that this question would be easily answered, but one would
be wrong. 	The Court has not found, and the parties have not cited, any controlling
authority clearly stating where the burden of proof lies on the dissipation issue. But
both logic and language from the Supreme Court impel the conclusion that the burden
is on the plaintiff, and the Court so concludes.4
4 Verizon argues that the Court in its denial of summary judgment already decided
that Sands had the burden, by labeling dissipation a “defense.” 	While the Court
called dissipation Sands’ “most promising avenue of defense,” it used the word
“defense” to mean a position that would negate Verizon’s ability to show entitlement
to an equitable remedy,
see merriam-webster.com/dictionary/defense (denial, answer,
or plea); it did not, even by implication, rule dissipation an “affirmative defense,”
which is a category of defense that generally imposes a burden of proof on its
proponent. 	https://www.law.cornell.edu/wex/affirmative_defense. 	Indeed, 	the
Court’s decision specifically noted the parties’ conflicting positions on the burden and
did not address the issue.
Verizon Sickness, 2023 WL 2525208, at *6.
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Placing 	the 	burden 	on 	the 	plaintiff 	logically 	results 	from 	the 	claim 	of
entitlement to an equitable remedy. 	By definition, an equitable remedy is a claim
against one who holds an
existing asset by one who claims entitlement to it. 	To prove
a right to recovery, the plaintiff must prove the asset exists. In this case, the asset is
the settlement funds. 	Placing the burden on the plaintiff is consistent with the
language of the Supreme Court that “the plaintiff must still identify a specific fund
in the defendant’s possession to enforce the lien.”
	Montanile, 577 U.S. at 146,
referring to
Sereboff v. Mid Atl. Med. Serv., Inc., 547 U.S. 356, 362 (2006) (“equitable
restitution [seeks] to impose a constructive trust or equitable lien on ‘particular funds
or property in the defendant’s possession’”) (emphasis supplied).
Accord, Sheet Metal
Workers Hlth. and Welfare Fund of N.C. v. Law Off. of Michael A. DeMayo, LLP, 21
F.4th 350, 355 (6th Cir. 2021) (affirming, where district court had precluded an
equitable remedy “because the Fund could not point to specific recoverable funds
held
by the Firm”) (emphasis supplied).
Placing the burden on the plaintiff is consistent with cases that have spoken
directly to the issue. 	In
Bilyeu v. Morgan Stanley Long Term Disability Plan, 683
F.3d 1083 (9th Cir. 2012), the Plan sued to recover overpayments in benefits. 	The
Circuit noted the burden of proof on the Fund to show the overspent funds were still
in the participant’s possession.
Id. at 1094, n.5.
Accord, Central States, SE and SW
Areas Pension Fund v. Rodriguez, No. 18-cv-7226, 2021 WL 131419, at *3 (N.D. Ill.
Jan. 14, 2021) (plaintiffs not entitled to judgment as a matter of law because they did
not put forth evidence “that defendant did not dissipate the overpayment”);
Epolito
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v. Prudential Ins. Co. of Am., 737 F. Supp. 2d 1364, 1382 (M.D. Fla. 2010)
(Prudential’s burden to 	show “not only that Epolito ‘once had property legally or
equitably belonging to [Prudential], but that [she] still holds the property or property
which is in whole or in part its product.’”
Id., citing Restatement of Restitution § 215
cmt. A (1936).
Crawford & Co. Med. Benefit Trust v. Repp, No. 11 C 50155, 2012 WL
716921, at *3 (N.D. Ill. March 6, 2012), held that a plaintiff seeking equitable relief
must “plead and prove” that the funds were still in the defendant’s possession and
had not been dissipated. And the United States District of Maine implied as much in
a decision rejecting dismissal because “it is premature to dismiss these claims without
providing Plaintiff the opportunity to conduct discovery
to determine whether there
remain identifiable proceeds from the settlement in the possession of Defendants.”
Mank ex rel. Hannaford Health Plan v. Green, No. Civ. 03-42-PC, 2003 WL 22078667,
at *1 (D. Me. July 30, 2003) (emphasis supplied).
If ERISA entitles Verizon only to an equitable remedy, and if equitable
enforcement requires identifiable funds in the defendant’s possession, then the
conclusion is inescapable that Verizon bears the burden of proving the continued
existence of those funds. That burden then, in turn, includes proving that the funds
have not been dissipated.
B. Commingling
A second burden lies with Verizon as well. When funds have been commingled,
as they have been here, a plaintiff can show lack of dissipation by using a method
called lowest intermediate balance. 	That method looks at the cash in the bank
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account into which the settlement funds were deposited and at the running balance
of the account between the time of the deposit and the time of the claim against them.
If the account has at any time during that period shown a balance of $0, it means
that all the settlement funds were spent, as well as the funds in the account at the
time of commingling. 	If the balance has never dropped to $0 or below, complete
dissipation has not been shown.5 Using this method,
a court will follow the trust fund and decree restitution from an account
where the amount on deposit has at all times since the commingling of
the funds equaled or exceeded the amount of the trust fund. … Should
the amount on deposit be reduced below the amount of the trust fund
but not depleted, the claimant is entitled to the lowest intermediate
balance in the account.
Conn. Gen. Life Inc. Co. v. Universal Inc. Co., 838 F.2d 612, 619 (1st Cir. 1988).
Verizon has the burden of proof on lowest intermediate balance as well.
Sheet
Metal Workers, 21 F.4th at 356 (to make argument based on lowest intermediate
balance in trial court, it was incumbent on the Fund “to offer evidence supporting its
proposed application of the lowest intermediate balance test.”)
. Verizon has failed to
prove by this method that there has not been complete dissipation of the funds.
Nation-Wide Check Corp v. Forest Hills Distributors, 692 F.2d 214 (1st Cir. 2014), a
case cited by Verizon, supports this allocation of the burden. There, in discussing the
application of the “lowest intermediate balance” calculation, the Court noted Nation-
Wide’s ability to present only limited evidence tracing the disputed funds, implying
5 If the balance has dropped below the claimed amount, which here is $31,617.60, the
plaintiff’s recovery would be limited to that amount – the lowest intermediate
balance.
	Nation-Wide Check Corp. v. Forest Hills Distributors, 692 F.2d 214, 216
(1st Cir. 1993).
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that Nation-Wide carried the burden of proving lack of dissipation using the lowest
intermediate balance method.
	Id. at 216. 	And in
Connecticut General, the Court
faulted the plaintiff for failing to show where “any particular asset of the hotel
corporation where the alleged trust fund remains, even partially, intact.” 	838 F.2d
at 620. 	Both these First Circuit cases are consistent with placing the burden of
proving the application of the lowest intermediate balance test on Verizon.
Requiring Verizon to shoulder this burden is not unfair. 	It could have made
use of discovery to subpoena Sands’ bank statements, or it could have taken a
deposition on that issue. Verizon made little to no attempt to discover any records of
the operating fund until April 17, 2023 – more than two years after the action was
filed and 15 months after factual discovery closed – when it filed a motion to pursue
further discovery “concerning applicability of the dissipation defense.” 	(ECF No.
56.)6 	Verizon claimed that Sands argued dissipation “for the first time” at the
summary judgment stage and that it had therefore not pursued bank account records
in earlier discovery.
	Id. at 2. 	The Court denied Verizon’s motion, pointing to the
announcement in Sands’ Rule 16 Statement filed on June 17, 2021, that it intended
to rely on dissipation, citing
Montanile. 	Verizon was on fair notice that dissipation
6 When Sands, in response to a Request for Production concerning disbursement of
the settlement proceeds, produced only a Settlement Sheet, Verizon could have moved
to compel more complete production, but did not.
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was a critical factual issue and it had ample time to secure evidence to meet its
burden of proof.7
III. 	CONCLUSION
Verizon has failed to carry its burden of proving that settlement funds still
existed against which its lien could be enforced. Judgment shall enter for Sands.
IT IS SO ORDERED:
____________________________________
Mary S. McElroy,
United States District Judge
Date: January 	29, 2024
7 Verizon could have been more proactive in safeguarding its ability to recover from
the settlement proceeds. 	It knew Ms. Rogers was pursuing an action against the
party responsible for her injuries, and it knew Sands was representing her. It could
have moved to enjoin Sands from disbursing settlement funds completely.
	See e.g.,
Sheet Metal Workers, 21 F.4th at 354 (noting district court’s issuance of a restraining
order requiring the law firm to maintain a certain amount of funds in its operating
account). It waited six months before filing its action – six months during which any
remaining settlement proceeds were presumably being spent.
	See Montanile, 577
U.S. at 151 (Board should have sued immediately upon receipt of the settlement funds
instead of waiting six months to file its action).
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