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Case Summary: Distribution to ERISA Lien Holders


ERISA Reimbursement and the Acts of Third Parties

Admin. Comm. Of the Wal-Mart Stores, Inc. v. Shank
500 F.3d 834 (D. Ariz. 2007)

United States Court of Appeals for the Eight Circuit


This case arose out of severe injuries sustained by Deborah Shank (Shank) as the result of an automobile accident. The accident was caused by a third party, and eventually resulted in the adjudication of Shank to be incompetent. Under the terms of the plan, the Administrative Committee of the Wal-Mart Associates’ Health and Welfare Plan paid for the full amount of Shank’s medical expenses related to the accident, which totaled $469,216.00. The defendant in this case was Deborah’s husband, James Shank, who was acting in his official capacity as trustee of Deborah’s irrevocable trust.

Procedural History

At the trial court, the United States District Court for the Eastern District of Missouri granted summary judgment in favor of Wal-Mart, on Wal-Mart’s claims brought pursuant to § 502(a)(3) of the Employee Retirement Income Security Act (ERISA). The plaintiff, Shank, appealed that judgment, alleging that Wal-Mart’s claim for full reimbursement was not appropriate equitable relief, under ERISA.


Following the automobile accident, Shank’s resulting medical expenses, which were paid for by Wal-Mart, were in the amount of $469,216.00. Shank later filed a lawsuit against the responsible parties for her injuries, obtaining a settlement of $700,000.00. Once attorney’s fees and costs were deducted, the remaining $417,477.00 from the settlement was placed into a special needs trust, with Shank as beneficiary and her husband as trustee.

The terms of the plan contained a subrogation and reimbursement clause, which would grant Wal-Mart first priority over any judgment or settlement that Shank received as a result of the accident. This clause essentially provided Wal-Mart with the ability to recover the full amount it paid for medical expenses on Shank’s behalf. Once Wal-Mart discovered that a settlement had been reached, it sought to enforce the reimbursement provision, under § 502(a)(3) of ERISA.

The district court granted summary judgment in favor of Wal-Mart, which imposed a constructive trust on the funds in the special needs trust, for $469,216.00.

Governing Law

The specific statute at issue in this case is contained in § 502(a)(3) of ERISA. This section of ERISA has been codified at 29 U.S.C. § 1132(a)(3) which authorizes a civil action by a plan “participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief to (i) redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.”

The Supreme Court held in Sereboff that a claim under § 502 of ERISA “includes a claim for restitution, in the form of a constructive trust or equitable lien, where the plaintiff seeks to recover “specifically identifiable” funds, that are due plaintiff under the terms of the plan, and under the defendant’s possession and control.”

In this case, Wal-Mart’s claim meets the three requirements enunciated in Sereboff. First, the specific funds that Wal-Mart claims it is owed are those medical expenses paid on Shank’s behalf related to her automobile accident. Second, the fund was a specifically identifiable fund, which is distinct from Shank’s general assets, and consisted of the constructive needs trust. Finally, the defendant, James Shank, was in control of the constructive trust, in his official capacity as trustee of the irrevocable trust.


The Supreme Court, in analyzing the Plan as agreed upon between both the Shanks and Wal-Mart, used the plain meaning of the contractual language to determine the Shank’s obligation to repay Wal-Mart for the acts of the third party. The written plan conferred benefits to both parties and Shank was required to contribute premium payments. In accepting the terms of the health insurance plan, Shank agreed to reimburse Wal-Mart for medical expenses in the event that she was injured and received a judgment or settlement from a third party. In exchange for these benefits Shank conferred to Wal-Mart, she had the peace of mind in knowing that Wal-Mart would pay her medical bills if she were injured.

The Shanks sought the Court to apply either the pro-rata theory or the make-whole theory. The pro-rata theory would allow for a partial reimbursement equal to the share of Shank’s settlement that compensated her for medical expenses. The make-whole doctrine would not permit Wal-Mart to enforce its contractual right of reimbursement unless Shank were fully compensated for her injuries.

The Supreme Court stated that both of these theories fail to apply to this situation, since federal courts lack authority to fashion a federal common law rule that conflicts with the written plan. Thus, the Court affirmed the district court’s ruling, and held that Wal-Mart was entitled to reimbursement for medical expenses paid on Shank’s behalf.

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