Sixth Circuit Upholds Application of Probate Exception to Medical Plan’s ERISA Suit Seeking Equitable Lien on Settlement Proceeds

American Electric Power Service Corporation v. John K. Fitch et al., No. 22-3005, 2022 WL 3794841 (6th Cir. Aug. 30, 2022) (Before: Guy, Moore, and Clay, Circuit Judges).

American Electric Power Services Corporation (AEP), as a fiduciary of the American Electric Power System Comprehensive Medical Plan (Plan) brought an ERISA § 502(a)(3) claim for an equitable lien by agreement over third-party settlement funds in the possession of the estate of a now deceased Plan beneficiary, and the beneficiary’s mother who is a Plan participant, to recover approximately $101,000 the Plan paid for the beneficiary’s accident-related medical treatment. The district court dismissed the complaint after finding the “probate exception” deprived the federal court of subject-matter jurisdiction. The majority of the Sixth Circuit panel agreed with defendants that AEP forfeited any challenge to the district court’s conclusion that federal courts lack jurisdiction to hear its claims. Judge Guy issued a dissenting opinion.

Defendant Glori Fitch was employed by AEP and enrolled in the Plan. Glori Fitch’s son, Jack Fitch, was enrolled as a beneficiary of the Plan. Jack was critically injured in a car accident and died the next day. The Plan paid medical benefits of roughly $101,000 for Jack’s care before his death. The Plan contains a provision requiring that it be repaid from a recovery in the amount of benefits paid on a beneficiary’s behalf. The administrator of Jack’s estate, John K. Fitch (Administrator) obtained a $500,000 settlement from the at-fault driver’s insurance on a wrongful-death liability claim and a $100,000 settlement from the Fitches’ own automobile policy on a medical-payments claim. Anthem Blue Cross and Blue Shield sent the Administrator a letter asserting the Plan’s right to subrogation. In Probate Court, the Administrator filed an Application to Approve Settlement and Distribution of Wrongful Death and Survivor Claims where the Administrator proposed that the $600,000 in settlement proceeds be allocated to the wrongful-death claims of Jack’s surviving parents and brother. The court approved the settlement and allocated $250,750 to each of Jack’s parents and $88,500 to Jack’s brother.

Two lawsuits followed concerning the settlement proceeds. At issue on this appeal is whether the district court correctly dismissed AEP’s claim for an equitable lien against the wrongful-death proceeds in the possession of Glori Fitch. The Sixth Circuit analyzed the probate exception applied by the district court. “The question then is simply whether this action seeks to reach the same res over which the probate court has custody.” The court determined that the ERISA action is in rem rather than in personam since a claim for reimbursement under ERISA § 502(a)(3)(B) is one for restitution in equity, not restitution at law. A federal court may exercise subject-matter jurisdiction over these proceeds unless the relief sought would impose upon the Probate Court’s jurisdiction over the Administrator’s account or distribution of the estate and require that the court dispose of property in a manner inconsistent with the Probate Court’s judgment. The district court concluded that the settlement proceeds were in the custody of the probate court when the federal action was filed. The Sixth Circuit found that AEP did not address on appeal the reasons the district court’s conclusion was flawed. As such, AEP forfeited the argument that the district court erred in applying the probate exception.