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Following Settlement of Class Action Over Defective Birth Control Patch Claims

Blogs, Erisa

Following Settlement of Class Action Over Defective Birth Control Patch Claims, Court Rules There Is No Need to Allege Fraud for ERISA Plan to Seek Constructive Trust Over Settlement Proceeds

Darlene Mairena worked for Enterprise Rent-A-Car until 2006, when a blood clot caused her serious brain damage and quadriplegia. During her employment, she was a participant and beneficiary in the Enterprise Rent-A-Car Hospital Insurance Plan, which – since the injury that left her mentally incompetent and unable to care for herself – has paid more than $1 million for her full-time nursing care. The blood clot was caused by Mairena’s use of a defective birth control patch. A class-action lawsuit on behalf of her and others who used such patches led to a settlement with the manufacturer of the patches. The Plan informed the class action plaintiff’s attorneys that it had potential subrogation and reimbursement rights against any settlement.

Mairena and the Plan sued each other over the Plan’s claims to $1.3 million from the settlement proceeds. Mairena moved to dismiss, and the United States District Court for the Northern District of California recently ruled on the motion, denying the dismissal in Mairena v. Enterprise Rent-A-Car Hosp. Ins. Plan, No. C 09-4420 MEJ, 2010 WL 3931098 (N.D. Cal. Oct. 6, 2010) (available here). For the most part, the court said that Mairena’s arguments were better addressed via summary judgment motions. These arguments included the claim that the summary plan description’s reimbursement and subrogation provision violated federal statutory and regulatory drafting requirements (in 29 U.S.C. § 1022 and 29 C.F.R. § 2510.102-2). One issue that the court did reach, however, was Mairena’s claim that the Plan’s counterclaim for a constructive trust over the settlement proceeds should fail because the Plan cannot establish fraud or wrongful conduct by Mairena. Mairena cited several Ninth Circuit Court of Appeals cases in support of the principle that the imposition of a constructive trust is available under ERISA only if fraud or wrong-doing are established. The District Court said that these cases pre-dated Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), where the U.S. Supreme Court “expressly outlined what a plan fiduciary must establish in order to be entitled to a constructive trust or equitable lien by agreement pursuant to a reimbursement or subrogation provision in an ERISA plan.” Sereboff, the District Court said, “did not indicate that a plan fiduciary may only be entitled to this remedy if it is able to show fraud or wrong-doing by the beneficiary.” Thus, the District Court concluded that the Plan’s allegations – without any claims of fraud or other wrong-doing – were sufficient to state a claim.