Estate of Charles T. Close v. CIGNA Health and Life Insurance Corporation

Background

The Estate of Charles T. Close sued Cigna Health and Life Insurance Corporation under the Employee Retirement Income Security Act (ERISA), seeking at least $686,723.14 for health-insurance claims that it alleged Cigna wrongly denied. Cigna administered and acted as fiduciary of Mr. Close’s ERISA-governed health insurance plan.

Cigna alleged that it had over-reimbursed Mr. Close by $357,683.98 for services that did not qualify under the plan. It characterized the disputed home-health claims as custodial services rather than medically necessary care and asserted a counterclaim under ERISA Section 502(a)(3), which permits a plan fiduciary to seek an injunction or other appropriate equitable relief. The Estate moved to dismiss that counterclaim under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing that the court lacked subject-matter jurisdiction and that Cigna had failed to state a legally sufficient claim.

Subject-Matter Jurisdiction

The court rejected the Estate’s argument that the probate exception barred federal jurisdiction. That exception prevents federal courts from probating or annulling a will, administering an estate, or disposing of property in the custody of a state probate court. The court found that Cigna was not asking it to perform any of those functions. It also found no plausible allegation that the money Cigna had paid between 2015 and 2017 was in the custody of a state probate court. The court therefore held that it had jurisdiction over the counterclaim.

The court also noted that the counterclaim and the Estate’s claim arose from the same plan, the same federal statute, and the same factual question—whether the services were medically necessary or custodial. The court stated that this provided a basis for jurisdiction whether Cigna’s counterclaim was compulsory or permissive.

Equitable Relief Under ERISA

The court agreed with the Estate that Cigna failed to state a claim under ERISA Section 502(a)(3). Under that provision, a fiduciary may seek equitable remedies such as a constructive trust or equitable lien on a specifically identified fund. It may not use the provision to impose personal liability for a general obligation to pay money, because that is legal relief rather than equitable relief.

The court identified several requirements for an equitable recovery: the fiduciary must identify a particular fund; the participant must have been required to segregate the funds or must have kept them in a separate account; and the funds must remain in the defendant’s possession or be traceable into specific property purchased with them.

Cigna alleged that the Estate received specific payment amounts and that the plan created an equitable lien by agreement. But Cigna did not allege whether the Estate had segregated the funds, whether it had any obligation to segregate them, where the funds were, or whether they could be traced to the Estate. The court held that identifying payment amounts from several years was not enough to identify a particular fund separate from the Estate’s general assets.

The court therefore determined that Cigna’s counterclaim sought monetary compensation and personal liability, rather than equitable relief. Because Cigna had not plausibly pleaded the existence of an identifiable or traceable fund, it failed to state a claim under Section 502(a)(3). The court did not reach the Estate’s alternative arguments that the counterclaim was time-barred or barred by ERISA regulations.

Disposition

The court granted the Estate’s motion to dismiss Cigna’s counterclaim without prejudice. Cigna could file an amended counterclaim no later than January 22, 2024. The court declined to strike Cigna’s affirmative defenses concerning its asserted right to recover or offset the alleged overpayments. Judge Ronnie Abrams directed the Clerk of Court to terminate the pending motion.