12-370-cv L Thurber v. Aetna Life Ins. Co. 1 UNITED STATES COURT OF APPEALS 2 3 FOR THE SECOND CIRCUIT 4 5…

12-370-cv(L)
Thurber v. Aetna Life Ins. Co.
1
UNITED STATES COURT OF APPEALS 2
3
FOR THE SECOND CIRCUIT 4
5
6
7
August Term, 2012 8
9
(Argued: December 14, 2012 Decided: March 13, 2013) 10
11
Docket Nos. 12-370-cv (Lead), 12-521-cv (XAP) 12
13
14
SHARON THURBER, 15
16
Plaintiff-Counter-Defendant-Appellant-Cross-Appellee, 17
18
-v.- 19
20
AETNA LIFE INSURANCE COMPANY, 21
22
Defendant-Counter-Claimant-Appellee-Cross-Appellant, 23
24
QUEST DIAGNOSTICS, INCORPORATED WELFARE PLAN, 25
AKA THE QUEST DIAGNOSTICS' AETNA LONGTERM 26
DISABILITY BENEFIT PLAN, AKA THE QUEST 27
DIAGNOSTICS' MANAGED DISABILITY BENEFITS 28
PLAN, THE QUEST EMPLOYEE BENEFITS 29
ADMINISTRATION COMMITTEE, AS PLAN ADMINISTRATOR, 30
31
Defendants-Appellees-Cross-Appellants. 32
33
34
35
36
Before: 37
W ESLEY , H ALL , L YNCH , Circuit Judges. 38
39
Plaintiff-Counter-Defendant-Appellant-Cross-Appellee 40
Sharon Thurber appeals from a January 6, 2012 Decision and 41
Order by the United States District Court for the Western 42
District of New York (Skretny, J.) granting Defendant- 43
Counter-Claimant-Appellee-Cross-Appellant Aetna Life 44

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Insurance Company’s motion for summary judgment on the issue 1
of whether the insurer improperly denied Thurber long-term 2
disability benefits under ERISA. Thurber argues that the 3
district court used the wrong standard of review and further 4
erred by upholding Aetna’s decision denying her long-term 5
disability benefits. Because Aetna’s reservation of 6
discretion was sufficient to compel use of the arbitrary and 7
capricious standard of review, we AFFIRM the district 8
court’s grant of summary judgment to Aetna on its denial of 9
benefits. 10
Aetna cross-appeals the portion of the district court’s 11
Decision and Order denying Aetna’s motion for summary 12
judgment on its counterclaim for equitable restitution of 13
overpaid short-term disability benefits. Aetna argues that 14
the plan language gave it the right to seek reimbursement of 15
overpaid benefits pursuant to 29 U.S.C. § 1132(a)(3). What 16
qualifies as “appropriate equitable relief” under ERISA is 17
an open question in this Circuit. We now hold that Aetna’s 18
action seeking return of overpaid benefits was properly 19
brought under 29 U.S.C. § 1132(a)(3) as an equitable 20
counterclaim. We REVERSE the district court’s denial of 21
summary judgment on the counterclaim. 22
AFFIRMED IN PART AND REVERSED IN PART. 23
24
25
26
LISA BALL (Christen Archer Pierrot, Andrew P. 27
Fleming, on the brief) Chiacchia & Fleming, 28
Hamburg, NY, for Plaintiff-Counter-Defendant- 29
Appellant-Cross-Appellee. 30
31
MICHAEL H. BERNSTEIN (John T. Seyberg, on the 32
brief), Sedgwick LLP, New York, NY, for 33
Defendant-Counter-Claimant-Appellee-Cross- 34
Appellant and Defendants-Appellees-Cross- 35
Appellants. 36
37
38
39
2

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W ESLEY , Circuit Judge: 1
Background 2
Sharon Thurber worked at Quest Diagnostics (“Quest”) as 3
a client services representative from 1993 through August 4
15, 2007. As a full-time Quest employee, Thurber was 5
enrolled in Quest’s Employee Retirement Income Security Act 6
(ERISA) disability benefits plan, administered by Aetna Life 7
Insurance Company (“Aetna”). Under the plan, Thurber was 8
entitled to long-term disability benefits if a disabling 9
condition rendered her unable to perform the material and 10
substantial duties of her occupation. According to 11
Thurber’s supervisor, her position as a client services 12
representative consisted of sitting for approximately 80% of 13
her shift and alternately standing and walking a short 14
distance for the remaining 20% of the time. 15
In 1983, Thurber broke both of her legs in a car 16
accident; her right leg is shorter than her left leg as a 17
result. On or about August 17, 2007, Thurber was involved 18
in another car accident, in which she hit a cement barrier 19
twice while driving on the New York State Thruway. She has 20
not worked since that accident. Aetna approved Thurber’s 21
initial claim for short-term disability benefits for 22
3

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“traumatic arthritis in both knees.” She received short- 1
term disability benefits for six months, ending on February 2
20, 2008. 3
Thurber then submitted a claim for long-term disability 4
benefits. At this time, she informed Aetna that she had 5
received “other income” in the form of no-fault insurance 6
payments of $1,202.32 per month while receiving short-term 7
disability benefits from Aetna. Under the plan, Aetna “may” 8
reduce short- or long-term disability benefits if a 9
beneficiary receives “Other Income Benefits,” including no- 10
fault insurance payments. (AR 198.) In addition, any 11
“[i]ncome earned from a part-time return to work at Quest . 12
. . will result in a reduction” of benefits. (Id.) The 13
plan also authorizes Aetna to: (1) require the return of 14
overpayments; (2) cease paying benefits until overpayments 15
are recovered; (3) pursue legal action to recover 16
overpayments; or (4) “[p]lace a lien . . . in the amount of 17
the overpayment on the proceeds of any other income.” (Id. 18
at 201.) 19
In support of Thurber’s claim for long-term disability 20
benefits based on her “intermittent, unpredictable pain,” 21
Thurber’s orthopedist, Dr. Michael T. Grant, completed a 22
4

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Capabilities and Limitations Worksheet (“CLW”) in November 1
2007. Dr. Grant indicated that Thurber could engage in 2
occasional sitting and occasional walking, but not in 3
standing, stooping, climbing, crawling, kneeling or 4
twisting, among other limitations. In January 2008, Dr. 5
Grant opined that Thurber “remains totally disabled” due to 6
being “persistently symptomatic in regards to severe post- 7
traumatic arthritis of her knees bilaterally.” (Id. at 8
878.) Two months later, another of Thurber’s physicians, 9
Dr. Anthony J. Bianchi, completed a second CLW and found 10
that Thurber could frequently (34%-66% of an eight-hour day) 11
sit, stand and walk. Dr. Bianchi noted that Thurber was 12
“still very symptomatic at times,” but recommended that she 13
“slowly work up to an 8 hour work day.” (Id. at 916.) 14
Based on this information, Aetna denied Thurber’s claim 15
for long-term disability benefits on March 31, 2008. 16
Aetna’s denial letter summarized the medical reports 17
provided by Thurber’s doctors before concluding that the 18
information did not demonstrate that Thurber was unable to 19
perform the functions of her position as a client services 20
representative. Aetna informed Thurber that she could 21
submit any additional information she desired and gave a 22
5

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list of the types of tests and records that might prove 1
helpful. Thurber appealed the denial of benefits in April 2
2008. 3
On April 28, 2008, Thurber underwent arthroscopic knee 4
surgery, as suggested by Dr. Grant. Aetna then forwarded 5
Thurber’s claim file for an independent medical review by 6
Dr. Lawrence Blumberg, a Board Certified orthopedic surgeon. 7
Dr. Blumberg summarized the medical information provided by 8
Thurber’s physicians, but his report wrongly attributed the 9
March 3, 2008 CLW to Dr. Grant, rather than to Dr. Bianchi. 10
Dr. Blumberg determined that “[i]n spite of claimant’s 11
subjective complaints, she has an adequate range of motion 12
to perform sedentary activities,” as required by her job, 13
because “[t]here is no evidence that she cannot stand, sit, 14
or ambulate.” (Id. at 951.) In late May, Aetna denied 15
Thurber’s claim on appeal and upheld its original decision. 16
Although the internal appeals process offers only one 17
level of review, Thurber requested reconsideration of her 18
appeal. She subsequently submitted medical information 19
regarding spinal problems in October 2008, specifically, the 20
results of a static EMG scan. Aetna forwarded Thurber’s 21
claim file for two additional independent medical reviews, 22
6

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both conducted by Board Certified orthopedic surgeons. The 1
second independent review physician, Dr. James Wallquist, 2
reviewed Thurber’s medical reports and correctly attributed 3
the March 3, 2008 CLW to Dr. Bianchi. Both Dr. Wallquist 4
and Dr. Leela Rangaswamy, Aetna’s third independent review 5
physician, concluded that Thurber was functionally impaired 6
from the date of her arthroscopic surgery and for six weeks 7
of recovery thereafter, but not during the periods prior or 8
subsequent. On December 6, 2008, Aetna completed the re- 9
review of its denial of Thurber’s claim for benefits and re- 10
affirmed its initial denial. 11
Thurber filed a complaint in the United States District 12
Court for the Western District of New York (Skretny, J.) 13
challenging Aetna’s denial of benefits under ERISA, 29 14
U.S.C. § 1132(a)(1)(B). Aetna counterclaimed for equitable 15
restitution of $7,213.92 in overpaid plan benefits under 29 16
U.S.C. § 1132(a)(3). Aetna moved for summary judgment on 17
Thurber’s claim and its counterclaim. On January 6, 2012, 18
the district court granted Aetna’s motion for summary 19
judgment with respect to Thurber’s claims but denied and 20
dismissed Aetna’s counterclaim for lack of subject matter 21
jurisdiction under ERISA because it was legal, rather than 22
equitable, in nature. 23
7

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Thurber appeals from the district court’s grant of 1
summary judgment to Aetna on Thurber’s claim for disability 2
benefits; Aetna cross-appeals from the district court’s 3
denial of its counterclaim. 4
5
Discussion 6
I. Standard of Review 7
Thurber argues that the district court should have 8
reviewed her claim de novo because she allegedly never 9
received the plan documents that clearly reserved Aetna’s 10
discretion to assess her eligibility for long-term 11
disability benefits. We disagree. 12
When an ERISA plan participant challenges a denial of 13
benefits, the proper standard of review is de novo “unless 14
the benefit plan gives the administrator or fiduciary 15
discretionary authority” to assess a participant’s 16
eligibility. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 17
101, 115 (1989). If the plan does reserve discretion, the 18
denial is subject to arbitrary and capricious review and 19
will be overturned only if it is “‘without reason, 20
unsupported by substantial evidence or erroneous as a matter 21
of law.’” Kinstler v. First Reliance Standard Life Ins. 22
8

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Co., 181 F.3d 243, 249 (2d Cir. 1999) (quoting Pagan v. 1
NYNEX Pension Plan, 52 F.3d 438, 442 (2d Cir. 1995)). 2
Although we do not require the plan to employ any particular 3
language to reserve discretion, the chosen words must 4
clearly convey the administrator’s intent. See Nichols v. 5
Prudential Ins. Co. of Am., 406 F.3d 98, 108 (2d Cir. 2005); 6
Kinstler, 181 F.3d at 251-52. 7
Thurber conceded at oral argument that the plan itself 8
and the Summary Plan Description (“SPD”) both include 9
language that is sufficient to reserve discretion to Aetna 10
to assess participants’ eligibility for benefits. 1 Thurber 11
argues, however, that there is no evidence in the record 12
showing that she actually received either of these plan 13
documents and that, therefore, she cannot be bound by 14
language contained therein. According to Thurber, the only 15
plan document that she received (the “Booklet”) does not 16
clearly reserve discretion to Aetna. 2
17
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

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Thurber relies on the Seventh Circuit’s decision in 1
Herzberger v. Standard Insurance Co., 205 F.3d 327 (7th Cir. 2
2000), for her assertion that she must have received actual 3
notice of Aetna’s reservation of discretion before Aetna’s 4
denial of benefits is entitled to deferential review. In 5
Herzberger, the Seventh Circuit reversed and remanded two 6
district court decisions granting summary judgment to plan 7
administrators after the lower courts reviewed eligibility 8
determinations under the arbitrary and capricious standard. 9
See id. at 333. The court held that neither plan at issue 10
clearly reserved discretion to the respective plan 11
administrators. Id. The court’s analysis rested fully on 12
the language of the plan itself, and concluded that language 13
that simply provided that the administrator had to determine 14
eligibility did not imbue the administrator with discretion. 15
See id. In explicating this holding, the court further 16
noted that “[t]he employees are entitled to know what 17
they’re getting into, and so if the employer is going to 18
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, 287 F.3d 96, 104 (2d Cir. 2002); cf. Nichols, 406
F.3d at 108-09.
10

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reserve a broad, unchanneled discretion to deny claims, the 1
employees should be told about this, and told clearly.” Id. 2
Contrary to Thurber’s reading, the case did not in any 3
way involve, and the court’s language did not address, a 4
situation in which the plan’s language did unambiguously 5
provide for discretion (as did the SPD), but the employee 6
seeking benefits had not received a copy of either document. 7
That a court will review benefits determinations de novo 8
unless the plan documents clearly specify a reservation of 9
discretion does not imply that such a reservation must be 10
specifically conveyed to all members of the plan. In any 11
event, to the extent that the language in Herzberger could 12
be read to require actual notice of the insurer’s purported 13
reservation of discretion, we cannot detect any basis in law 14
or the statute to support this position. Indeed, the 15
Supreme Court’s decision in Firestone merely establishes 16
that review under the arbitrary and capricious standard will 17
be inappropriate “unless the benefit plan gives the 18
administrator or fiduciary discretionary authority to 19
determine eligibility.” 489 U.S. at 115 (emphasis added). 20
Firestone says nothing about whether the SPD or other plan 21
documents must contain language clearly reserving discretion 22
11

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- Firestone refers to the plan itself. Although plan 1
participants are entitled to receive copies of the SPD, 2
pursuant to 29 U.S.C. §§ 1021, 1022 and 1024, the 3
administrator of an ERISA plan has no obligation to ensure 4
that participants receive copies of the plan itself. 5
Thus, unless ERISA requires the SPD to contain language 6
setting the standard of review, we see no reason why a plan 7
administrator must actually notify a participant of its 8
reservation of discretion. ERISA contains no such edict. 9
See 29 U.S.C. § 1022(b); 29 C.F.R. § 2520.102–3. 10
Accordingly, to the extent that the Seventh Circuit has 11
articulated an actual notice requirement, we disagree that 12
ERISA imposes such an obligation on an insurer that 13
endeavors to reserve discretion. 14
Here, the language contained in Aetna’s plan and the 15
SPD clearly reserves discretion to Aetna for determining 16
participants’ eligibility for disability benefits. That 17
Thurber did not have actual notice of Aetna’s reservation of 18
discretion is of no consequence. There may be strong 19
arguments that plan provisions that affect the basic terms 20
of the plan, or ones that affect what an applicant must do 21
to become eligible for benefits, should be conveyed directly 22
12

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to plan beneficiaries and not buried in a lengthy and 1
technical contract. However, those arguments do not apply 2
to a provision that is effectively addressed not to the 3
beneficiary, but only to a reviewing court that must act 4
only after an application has been denied. Moreover, a 5
standard that focuses on the language of the plan raises a 6
purely legal standard of review for all participants in the 7
same plan. In contrast, an actual notice standard would 8
make the standard of review different for each individual 9
applicant, based on resolution by reviewing courts of 10
factual disputes – which will frequently pit a participant’s 11
fallible and self-interested memory against a plan 12
administrator’s reliance on evidence of standard practice – 13
about whether the particular participant received a copy of 14
the relevant documents. 15
As a result, we conclude that the district court 16
correctly utilized the arbitrary and capricious standard of 17
review. We review the district court’s grant of summary 18
judgment to Aetna de novo, see Pagan, 52 F.3d at 441, and 19
thus will review Aetna’s denial of long-term disability 20
benefits under the same arbitrary and capricious standard 21
properly used by the district court. 22
13

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II. The Merits of Thurber’s Claim for Benefits 1
Thurber makes several arguments on appeal for why Aetna 2
acted arbitrarily and capriciously in denying her long-term 3
disability benefits under the plan. Only some of these 4
arguments have sufficient merit to require discussion. We 5
agree with the district court that Aetna’s determination of 6
Thurber’s eligibility for long-term benefits was supported 7
by substantial evidence. Accordingly, we affirm the 8
district court’s grant of summary judgment to Aetna. 9
First, Thurber argues that Aetna failed to give enough 10
weight to her subjective complaints of pain. Although 11
subjective complaints “if found credible . . . could [be] 12
legally sufficient evidence of disability,” Krizek v. Cigna 13
Group Insurance, 345 F.3d 91, 102 (2d Cir. 2003), we agree 14
with the district court that Aetna gave sufficient attention 15
to Thurber’s subjective complaints of pain before 16
determining that they were not supported by objective 17
evidence. In Aetna’s first denial letter, the insurer 18
“noted that [Thurber] complain[ed] of recurrent discomfort 19
about the right knee.” (AR 925.) In its May 2008 denial of 20
benefits on appeal, Aetna commented that “Dr. Blumberg found 21
that in spite of your subjective complaints, you had 22
14

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adequate range of motion to perform sedentary activities.” 1
(Id. at 947.) Finally, in Aetna’s December 2008 final 2
denial on re-review, the letter confirmed that “[t]he 3
consultant noted that Ms. Thurber had had previous knee 4
pain” and the consultant was aware that “[s]he claimed to 5
have pain, stiffness, and ‘fatiguability’” on June 10, 2008. 6
(Id. at 1118.) Aetna did not abuse its discretion in 7
concluding either that Thurber’s subjective complaints of 8
pain standing alone did not warrant finding her eligible for 9
long-term disability benefits, or that objective evidence 10
did not support finding otherwise. 11
Second, Thurber argues that Dr. Blumberg’s error 12
attributing the March 3, 2008 CLW to Dr. Grant, instead of 13
to Dr. Bianchi, is a “critical mistake” because Dr. Blumberg 14
“believed that Dr. Grant found Ms. Thurber to have 15
improved.” (Appellant’s Br. at 65.) Even if Dr. Blumberg 16
erroneously believed that Dr. Grant had authored the March 17
2008 CLW, his recommendation to Aetna was based on the 18
substance of the report – which was the most recent CLW 19
available at the time of his review. Moreover, after Dr. 20
Blumberg’s review and Aetna’s denial of Thurber’s appeal, 21
Aetna retained two additional independent physicians to 22
15

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review Thurber’s file and subsequently affirmed its prior 1
denial based on their (correct) reports. 2
Third, Thurber claims that Aetna did not give 3
sufficient consideration to the total impact of the medical 4
evidence she submitted to support her claim for disability 5
benefits. As the district court correctly determined, the 6
facts prove otherwise. Each of Aetna’s three denial 7
letters, along with the reports from three independent Board 8
Certified physicians, explained why Aetna found Thurber’s 9
submissions to be insufficient. In addition, Thurber’s 10
claim that Aetna failed to credit the objective medical 11
evidence she submitted regarding her neck and spinal 12
problems also fails. Thurber’s initial disability claim and 13
all of the supporting documentation from her care providers 14
up until the fall of 2008 focused on injuries to her knees 15
caused by her August 2007 car accident in conjunction with 16
her 1983 car accident. But, even if Thurber’s claim 17
extended beyond disabling knee pain, the third independent 18
physician’s review and Aetna’s subsequent final denial 19
letter both discuss the tests performed on Thurber’s spine, 20
demonstrating that Aetna did not arbitrarily ignore this 21
evidence for purposes of assessing her eligibility for 22
benefits. 23
16

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We have considered Thurber’s additional arguments that 1
the rejection of her claim was arbitrary and capricious and 2
find them without merit. We affirm the district court’s 3
conclusion that Aetna’s eligibility determination was 4
supported by substantial evidence. 5
6
III. Aetna’s Counterclaim 7
Aetna brought a counterclaim seeking the return of 8
overpaid short-term benefits pursuant to ERISA, 29 U.S.C. § 9
1132(a)(3), which authorizes civil actions brought “by a 10
participant, beneficiary, or fiduciary . . . to obtain . . . 11
appropriate equitable relief . . . to enforce any provisions 12
of this subchapter or the terms of the plan.” 29 U.S.C. § 13
1132(a)(3). What qualifies as “appropriate equitable 14
relief” is an issue that continues to perplex courts despite 15
efforts by the Supreme Court during the past decade to shed 16
some light on the matter. See Sereboff v. Mid Atl. Med. 17
Servs., Inc., 547 U.S. 356 (2006); Great-West Life & Annuity 18
Ins. Co. v. Knudson, 534 U.S. 204 (2002). Here, the 19
district court determined that it did not have subject 20
matter jurisdiction over Aetna’s counterclaim because Aetna 21
sought legal, rather than equitable, relief. Because we are 22
convinced that Aetna’s counterclaim seeking the return of 23
17

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overpaid benefits constituted an action for “appropriate 1
equitable relief,” we reverse. 2
The Supreme Court first tackled the question of whether 3
29 U.S.C. § 1132(a)(3) authorizes subrogation-like actions 4
by insurers under an ERISA plan in Great-West Life & Annuity 5
Insurance Company v. Knudson. There, the insurer paid 6
approximately $350,000 for the participant’s medical 7
expenses under her husband’s ERISA plan after a car 8
accident. See Knudson, 534 U.S. at 207. The Knudsons 9
subsequently settled their state court tort suit against the 10
car manufacturer and other tortfeasors. Id. The state 11
court approved the settlement and directed the distribution 12
of approximately $250,000 into a Special Needs Trust that, 13
under California law, would provide for medical care. In 14
addition, the state court allotted nearly $375,000 for 15
attorney’s fees and costs; $5,000 to reimburse the 16
California Medicaid program; and approximately $14,000 “to 17
satisfy” Great-West’s claim. Id. at 207-08. Great-West 18
received notice of the proposed settlement and, “calling 19
itself a defendant,” unsuccessfully attempted to remove the 20
state action to federal court on the grounds that the state 21
action “involved federal claims related to ERISA.” Id. at 22
208. 23
18

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Great-West simultaneously sought to block the state 1
court settlement in federal court under 29 U.S.C. § 2
1132(a)(3), claiming that the plan’s subrogation provision 3
required the Knudsons to reimburse Great-West from any 4
third-party payments for plan-covered expenses and precluded 5
the state court from limiting Great-West’s recovery to the 6
past medical expenses portion of the settlement. The 7
district court denied Great-West’s request for a temporary 8
restraining order and Great-West did not appeal. Id. The 9
district court ultimately dismissed Great-West’s action 10
after the state court approved the settlement. See id. 11
The Ninth Circuit affirmed the dismissal of Great- 12
West’s claim, holding “that judicially decreed reimbursement 13
for payments made to a beneficiary of an insurance plan by a 14
third party is not equitable relief and is therefore not 15
authorized” by the statute. Id. at 209. On appeal, the 16
Supreme Court explained that it had previously determined 17
that the statute provided only equitable and not legal 18
remedies to plan administrators to redress violations of the 19
plan or to seek enforcement of plan provisions. Id. The 20
Knudsons had not retained any moneys recovered in the state 21
action as those funds were sequestered in the Special Needs 22
Trust pursuant to the state court order. Consequently, 23
19

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Great-West was really trying to enforce its plan provision 1
authorizing the imposition of personal liability if a 2
beneficiary failed to reimburse the insurer after receiving 3
a third-party settlement. See id. at 207, 210-12. The 4
Supreme Court saw this as an action at law, for breach of 5
contract, rather than an action at equity, to enjoin the 6
Knudsons from violating the terms of the plan by failing to 7
reimburse Great-West. “[F]or restitution to lie in equity, 8
the action generally must seek not to impose personal 9
liability on the defendant, but to restore to the plaintiff 10
particular funds or property in the defendant’s possession.” 11
Id. at 214. 12
By contrast, in Sereboff v. Mid Atlantic Medical 13
Services, Inc., the insurer sought “specifically 14
identifiable funds that were within the possession and 15
control of the Sereboffs.” 547 U.S. at 362-63 (internal 16
quotation marks omitted). Like in Knudson, the plan 17
participants in Sereboff were injured in a car accident and 18
the insurer paid a sum of money, approximately $75,000, to 19
cover medical expenses under their ERISA plan. Id. at 360. 20
Subsequently, the Sereboffs settled a tort suit arising out 21
of their accident. Id. Mid Atlantic brought an action 22
under ERISA to enforce a plan provision requiring the 23
20

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beneficiary to reimburse the insurer from third-party 1
recoveries. Id. The Sereboffs agreed to set aside a sum of 2
money from their settlement and put it into an investment 3
account until the case had been decided. Id. 4
First, the Court determined that the nature of the 5
relief desired in Sereboff was equitable because Mid 6
Atlantic sought a specific portion (approximately $75,000) 7
of specifically identified funds (the third-party recovery). 8
See id. at 362-63. Second, the Court concluded that Mid 9
Atlantic established that the basis for its claim was 10
equitable. See id. at 363. The Court discussed the 1914 11
case (from the time of the divided bench) of Barnes v. 12
Alexander, 232 U.S. 117 (1914), in which Justice Holmes 13
described 14
the familiar rul[e] of equity that a 15
contract to convey a specific object even 16
before it is acquired will make the 17
contractor a trustee as soon as he gets a 18
title to the thing. 19
20
Sereboff, 547 U.S. at 363-64 (quoting Barnes, 232 U.S. at 21
121). 22
Because the Sereboffs’ ERISA plan specifically 23
identified a particular share of particular funds subject to 24
return, Mid Atlantic “could rely on [this] familiar rul[e] 25
of equity to collect for the medical bills it had paid.” 26
21

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Id. at 364 (internal quotation marks omitted). “This rule 1
allowed them to ‘follow’ a portion of the recovery ‘into the 2
[Sereboffs’] hands’ ‘as soon as [the settlement fund] was 3
identified,’ and impose on that portion a constructive trust 4
or equitable lien.” Id. (quoting Barnes, 232 U.S. at 123) 5
(alterations in original). Moreover, the Supreme Court 6
rebuffed the Sereboffs’ contention that Mid Atlantic needed 7
to satisfy “strict tracing rules” before equitable relief 8
was appropriate. Id. at 364-65. Instead, the Court 9
confirmed that tracing rules have no import in the context 10
of an equitable lien by agreement. Id. at 365. 11
The Court reached different results in Knudson and 12
Sereboff because Great-West could not assert an equitable 13
lien on settlement funds contained in a separate entity – 14
the restrictive trust – while Mid Atlantic did not face a 15
similar obstacle. The Sereboffs had possession and control 16
over the specific funds sought by their insurer. As a 17
result, the Court found that the Sereboffs held these funds 18
in constructive trust for Mid Atlantic. 19
Here, the nature of Aetna’s claim is equitable: the 20
insurer seeks specific funds (overpayments resulting from 21
Thurber’s simultaneous receipt of no-fault insurance 22
benefits and short-term disability benefits) in a specific 23
22

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amount (the total overpayment, $7,213.92) as authorized by 1
the plan. These funds were entrusted to Thurber. 2
However, this case differs from Sereboff in two ways. 3
First, the “particular fund” (from which Aetna seeks a 4
specific portion of money) is not the actual third-party 5
income Thurber received; instead, it is the benefits 6
rendered overpayments as a result of Thurber’s receipt of 7
no-fault insurance benefits. Second, these overpayments 8
have since dissipated. We do not believe either of these 9
distinctions requires labeling Aetna’s claim as one in law, 10
though we recognize the existence of a Circuit split on the 11
issue. Compare Funk v. CIGNA Grp. Ins., 648 F.3d 182, 194- 12
95 (3d Cir. 2011) (finding that “dissipation of the funds 13
[is] immaterial” if an equitable lien by agreement is in 14
place), and Cusson v. Liberty Life Assurance Co. of Boston, 15
592 F.3d 215, 231 (1st Cir. 2010) (determining that an 16
insurer need not identify a “specific account in which the 17
funds are kept or prove[] that they are still in [the 18
beneficiary’s] possession”), with Bilyeu v. Morgan Stanley 19
Long Term Disability Plan, 683 F.3d 1083, 1093-95 (9th Cir. 20
2012) (holding that “fiduciar[ies] must recover from 21
specifically identified funds in the beneficiary’s 22
possession” (emphasis in original)). 23
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With respect to the first distinction, Aetna seeks a 1
specific portion (all) of a particular fund (the subset of 2
disability benefits that became overpayments when Thurber 3
received no-fault insurance benefits). Not surprisingly, 4
these overpayments were not segregated from the total 5
disability payments. The Ninth Circuit recently held that 6
an action for the return of “overpaid long-term disability 7
benefits” does not seek “a particular fund, but a specific 8
amount of money encompassed within a particular fund – the 9
long-term disability benefits [the insurer] paid to [the 10
beneficiary].” Bilyeu, 683 F.3d at 1093 (emphases in 11
original). But the beneficiary’s literal segregation of 12
funds is irrelevant when the terms of the ERISA plan “put 13
[the beneficiary] on notice that she would be required to 14
reimburse [the insurer] for an amount equal to what she 15
might get from” third-party sources. Cusson, 592 F.3d at 16
231. 17
We do not see a basis for distinguishing between 18
certain “funds” identified by ERISA plans – i.e., between 19
“third-party recoveries” and benefits that become 20
“overpayments” as a result of third-party recoveries. Both 21
constitute particular, identifiable sums over which an 22
insurer may assert an equitable lien authorized by its plan. 23
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For this reason, we take issue with the Ninth Circuit’s view 1
that the “particular fund” (overpayments) sought lacks 2
sufficient specificity by virtue of being an 3
“undifferentiated component of a larger fund” (total 4
benefits). Bilyeu, 683 F.3d at 1093. 5
Regarding the second distinction, Thurber argues that 6
Aetna may not seek return of the overpayments under 29 7
U.S.C. § 1132(a)(3) because Thurber has spent the no-fault 8
monies she was required under the plan to deliver to Aetna. 9
This, Thurber argues, makes Aetna akin to a general creditor 10
seeking a sum of money. The Third Circuit takes the 11
position that if “there was an equitable lien by agreement 12
that attached to the [third-party benefits] as soon as [the 13
beneficiary] received it, dissipation of the funds [is] 14
immaterial.” Funk, 648 F.3d at 194. We believe that this 15
strikes the right balance, and we therefore reject the Ninth 16
Circuit’s contrary view that insurers may not reach 17
specifically identified assets that have dissipated. See 18
Bilyeu, 683 F.3d at 1094-96. If the reason the insurer’s 19
claim is equitable is because it is seeking return of 20
property over which it asserts a lien (the overpayments), 21
whether or not the beneficiary remains in possession of 22
those particular dollars is not relevant as long as she was 23
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on notice that the funds under her control belonged to the 1
insurer; she held the money in a constructive trust. 2
When an ERISA plan creates an equitable lien by 3
agreement between the insurer and the beneficiary, the 4
insurer’s ownership of the overpaid funds is established 5
regardless of whether the insurer can satisfy strict tracing 6
rules. See Sereboff, 547 U.S. at 364-65; Bilyeu, 683 F.3d 7
at 1102 (Rawlinson, J., dissenting). In the context of an 8
equitable lien by agreement, rather than an equitable lien 9
sought as a matter of restitution, all that matters is that 10
the beneficiary did, at some point, have possession and 11
control of the specific portion of the particular fund 12
sought by the insurer. See Sereboff, 547 U.S. at 364-65. 13
This is not a case like Knudson, in which the beneficiaries 14
never had possession or control of the funds identified for 15
recovery (the settlement). Here, Thurber had possession and 16
control of the overpaid benefits. That she spent the funds 17
over which Aetna exerted an equitable lien is insufficient 18
to void Aetna’s right to enforce the plan’s subrogation 19
provision and the resulting equitable lien by agreement that 20
Aetna entered into with Thurber. 21
The basis of Aetna’s claim is equitable. The insurer 22
seeks to enforce an equitable lien by agreement on its 23
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property – the overpaid funds that Thurber received. For 1
this reason, Thurber’s reliance on Fehn v. Group Long Term 2
Disability Plan for Employees of JP Morgan Chase Bank, No. 3
07 Civ. 8321(WCC), 2008 WL 2754069 (S.D.N.Y. June 30, 2008), 4
is misplaced. In Fehn, the plaintiff received disability 5
benefits that erroneously contained salary-continuation 6
payments, for which the plaintiff was not eligible, 7
resulting in a significant overpayment. 2008 WL 2754069, at 8
*1. Unlike the insurer in Sereboff, because JP Morgan Chase 9
paid the excess funds in error (believing that the plaintiff 10
was entitled to salary-continuation benefits when, in fact, 11
she was not), the company was asserting a contract claim for 12
money paid by the plan in excess of its terms. It was not 13
seeking recovery of funds held by the defendant that 14
replicated proper plan payments from third parties. 3 Id. at 15
*4. Thus, the action was legal, rather than equitable. 16
The district court’s conclusion that it lacked subject 17
matter jurisdiction over Aetna’s counterclaim rested in part 18
on its belief that the language contained in Aetna’s SPD 19
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,” 2008 WL 2754069, at *4, we disagree.
See supra our discussion of Cusson, 592 F.3d at 230, and Funk,
648 F.3d at 194-95.
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substantively differed from language in the plans at issue 1
in Sereboff and Cusson. Aetna’s SPD provides that the 2
insurer “may” reduce benefits if a beneficiary receives 3
other income, and “may” require the beneficiary to return 4
any benefits subsequently rendered overpayments. The 5
district court emphasized that the SPD’s use of the word 6
“may” “implies a discretionary act, not a conclusive right 7
to the funds.” According to the court, this converts 8
Aetna’s right to restitution of overpaid benefits into a 9
contractual and legal right, rather than an equitable one. 10
This strikes us as being overly formalistic. 11
In Sereboff, the plan’s subrogation language specified 12
the insurer’s “right to recover any payments made to you or 13
your dependent by a third party.” Mid Atl. Med. Servs., 14
Inc. v. Sereboff, 303 F. Supp. 2d 691, 698 (D. Md. 2004). 15
In Cusson, the plan gave the insurer “the right to recovery 16
of such overpayments” if a participant received an 17
overpayment on her claim from any source. Cusson, 592 F.3d 18
at 230. The district court here cited to these plans as 19
“requir[ing]” beneficiaries to reimburse overpayments to 20
their insurers. But whether the plan “requires” a 21
participant to reimburse an insurer or “may[] [r]equire [the 22
beneficiary] to return the overpayment,” as one of four 23
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options the insurer “may” pursue, is an immaterial 1
distinction. Under either scenario, reimbursement remains 2
dependent on an act committed to the insurer’s discretion, 3
namely, requesting or suing for the return of its property. 4
The insurer must still elect to assert its “right to 5
recover.” Or, it may opt not to pursue this right. 6
Likewise, a plan that “may” reduce payments if the 7
beneficiary receives income from other sources adequately 8
reserves the insurer’s right to lessen the beneficiary’s 9
entitlement to benefits. Here, had Aetna been aware that 10
Thurber was receiving no-fault insurance income while Aetna 11
was still paying short-term disability benefits, the insurer 12
would have had the right to reduce its payments to Thurber, 13
just as it now has the authority to seek return of those 14
overpayments. 15
We are not persuaded that a different result is 16
compelled by language in Aetna’s SPD distinguishing between 17
benefits that “may” be reduced following receipt of “Other 18
Income Benefits” and benefits that “will” be reduced 19
following receipt of income from a part-time return to work. 20
Although we note that Aetna’s decision to use two different 21
phrases could signify a meaningful difference, we believe 22
that the insurer’s election here is sensible in light of the 23
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purpose behind disability benefits: supporting individuals 1
who are unable to work by reason of their impairment. 2
Receiving income from a part-time return to work undermines 3
the very basis for receiving disability benefits; the 4
benefits should never have been paid. Benefits that are 5
overpaid by virtue of the beneficiary receiving additional 6
payments from a third party simply render some portion of 7
the ERISA benefits unnecessary after the fact. Because 8
Aetna had the right to reduce Thurber’s short-term 9
disability benefits at the time she received them, Aetna now 10
retains the right under its subrogation provision to compel 11
return of the overpayments. 12
Thus, the language in Aetna’s plan puts a beneficiary 13
on notice that any overpayments she receives belong to Aetna 14
by virtue of an equitable lien by agreement. 4 That the 15
participant takes immediate possession of the overpayments 16
(and perhaps even keeps possession for a certain period of 17
time) has no bearing on Aetna’s right to the property nor on 18
its ability to seek return of the overpayments. We note in 19
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.)
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closing that the distinction between claims based in law and 1
those sounding in equity is often fine. In close cases, our 2
inclination is to favor judicial efficiency by allowing 3
ERISA insurers to bring responsive claims in ongoing federal 4
actions, rather than forcing the parties to litigate two 5
actions, one in federal court and one in state court, 6
unnecessarily. Here, because we find that Aetna’s plan 7
established an equitable lien by agreement, we hold that 8
Aetna presented a claim for “appropriate equitable relief” 9
under 29 U.S.C. § 1132(a)(3) over which the district court 10
had subject matter jurisdiction. We therefore reverse the 11
district court’s dismissal of Aetna’s counterclaim and 12
remand to the district court with instructions to enter 13
judgment in favor of Aetna. 14
15
Conclusion 16
For the foregoing reasons, the order of the district 17
court is hereby AFFIRMED IN PART and REVERSED IN PART. 18
19
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