Eleventh Circuit Affirms Summary Judgment in Favor of AirTran Airways to Receive Equitable Redress of Unfaithfully Hidden Employee Benefit Reimbursement Funds

In AirTran Airways, Inc. v. Elem, Nos. 13-11738 & 13-14912 (Sept. 23, 2014), the Eleventh Circuit affirmed summary judgment in favor of AirTran to enforce equitable restitution of costs that it spent on behalf of an employee welfare benefit plan beneficiary after she and her attorney unfaithfully hid settlement funds. Because the Court rarely “see[s] such a textbook example of ‘bad faith[,]’” it also affirmed the district court’s award to AirTran of all costs and attorney’s fees. Id. AT 19.

As an employee of AirTran and a participant in its employee welfare benefit plan, Brenda Elem received $131,704.28 to cover the medical costs she sustained in a car accident. As part of the plan, Elem agreed that AirTran was entitled to reimbursement by having a first priority claim to all payments made to Elem by a third party. Elem retained counsel, Mark Link, to file suit based on her injuries. They settled the case with AIG for $500,000. Before receiving the funds, Link requested that AIG release two separate check payouts, one for $25,000 and one for $475,000. Link knew that Elem owed AirTran an equitable lien for the amount of benefits paid to her under the plan, so he informed AirTran that Elem was able to settle for only $25,000, AIG’s policy limit, and therefore was only able to reimburse the company for that amount. Link intended to send AirTran a copy of the check for $25,000 but accidentally sent the check for $475,000. AirTran brought suit to recover all reimbursement funds after seeing the check for $475,000. The district court granted summary judgment in favor of AirTran, as well as an award for costs and attorney’s fees.

On appeal, Elem and Link contested summary judgment by presenting three arguments to the Eleventh Circuit. First, they argued that AirTran failed to satisfy the rules of equitable restitution by seeking money damages, rather than “appropriate equitable relief.” Id. at 8. Second, they argued that the district court abused its discretion by unjustly awarding AirTran’s costs and attorney’s fees. Finally, they argued that the district court misapplied Federal Rule of Civil Procedure 70 when the court ordered enforcement of the judgment.

The Eleventh Circuit dismissed all three arguments and affirmed summary judgment. First, the Court found AirTran’s suit to enforce its equitable lien over “specifically identifiable funds” that Elem had in her possession qualified as appropriate equitable redress. Id. at 9. Second, the Court applied the five Freeman factors to find that the district court had the authority to sanction Elem and Link for their bad faith by awarding costs and attorney’s fees. Finally, the Court found the allegedly misapplied Federal Rule of Civil Procedure 70 became moot when Link complied with the order.

Judge Martin dissented by rejecting the majority’s finding that AirTran appropriately brought a suit in equity. He argued that AirTran failed to make a critical showing that Elem and Link remained in possession of the disputed property because it did not trace the settlement funds after Elem divided them with her attorney. However, the majority rejected Martin’s argument by showing that the Supreme Court has recognized that a settlement fund does not have to be traced back in order to be enforceable. Rather, as soon as the settlement fund was identified, the plan imposed an equitable lien over that fund even though it was in the hands of the beneficiaries. Therefore, AirTran was entitled to reimbursement of all funds that it paid to Elem under its plan.

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