In US Airways, Inc. v. McCutchen, the United States
Supreme Court has again addressed the proper scope of relief
available under section 502(a)(3) of the Employment Retirement
Income Security Act (ERISA) of 1974, 29 U.S.C. § 1001, et seq.
Its decision underscores the importance of clear and unambiguous
plan language and holds that traditional equitable principles
cannot be used to trump clear plan provisions.
James McCutchen, an employee of US Airways, was injured in an
accident by a third party. His employer-sponsored health care plan
paid his medical expenses related to the accident, which totaled
$66,866. McCutchen filed suit against the third party, seeking
damages for his injuries, including damages representing his health
care costs. The case ultimately settled for the sum of $110,000.
After deducting attorney fees and costs, McCutchen took home
$66,000.
Like most health care plans, US Airways' plan contained a
reimbursement provision that required participants to reimburse it
should a participant recover damages from a third party. The clause
stated that participants must reimburse the plan for all expenses
paid, regardless of whether the participant was made whole through
his or her settlement. The plan did not address whether it would be
responsible for attorney fees incurred in pursuing recovery from
the third party.
When McCutchen refused to reimburse his plan from his $66,000
recovery, the plan administrator filed suit against him pursuant to
ERISA § 502(a)(3). That section states that a plan fiduciary
may file a civil suit to "obtain ... appropriate equitable
relief ... to enforce ... the terms of the plan." Through the
suit, the plan sought imposition of an equitable lien upon the
settlement funds and an order enforcing the reimbursement
provision.
McCutchen raised two equitable defenses to the plan's claim
for reimbursement. First, he claimed that, absent double recovery
by him, the plan's right to reimbursement was barred by
principles of equity. Second, he asserted that the equitable
"common fund" doctrine applied, requiring the plan to pay
a fair share of attorney fees and costs incurred in recovering from
the third party wrongdoer.
The district court rejected both arguments, holding that the
reimbursement provision was enforceable as written and ordered
McCutchen to pay the disputed amount.The US Court of Appeals for
the Third Circuit vacated the district court's decision,
holding that traditional equitable principles applied to suits
brought under § 502(a)(3). The appellate court held that
principles of unjust enrichment overrode the plan's
reimbursement clause because enforcing the clause would leave
McCutchen with less than full payment for his medical bills and
would also give US Airways a windfall.
The US Supreme Court, in an opinion authored by Justice Kagan,
vacated the Third Circuit's decision and remanded the case to
the district court. In its opinion, the court framed the issue as
whether, in a suit for reimbursement brought under §
502(a)(3), a participant may raise equitable defenses deriving from
principles of unjust enrichment. The court held that such defenses
were unavailable to contradict the plain terms of a health care
plan.
Relying on its past precedent, the court noted that the plan's
suit was the equivalent of an "equitable lien by
agreement." The court noted that equitable remedies such as
this were designed to "carry out a contract's
provisions," not contradict those provisions. The court noted
that by enforcing such a lien, equity was merely "holding the
parties to their mutual promises." In the court's
analysis, whether such plan terms are fair, or resulted in the
plan's unjust enrichment, were "beside the point."
Instead, the plan language controls and equity is not harmed by
holding each party to the benefit of the bargain clearly described
in the plan.
A different result was reached with regard to whether the
"common fund" doctrine applied to limit the plan's
ability to enforce its reimbursement provision. That doctrine
generally provides that a litigant who recovers a common fund for
the benefit of persons other than himself is entitled to a
reasonable attorney's fee from the fund as a whole. The US
Airways plan was silent on allocation of attorney fees.
Accordingly, the court held that no clear plan language resolved
this issue, and this traditional equitable principle could be used
to fill in "gaps" in the parties' agreement. The
court implied that if the plan had clearly disclaimed application
of that doctrine, a different result would be required.
The McCutchen opinion notes that the court's decision is
rooted in its long-standing precedent stating that ERISA's
principal function is to protect contractually defined benefits,
and that its statutory scheme is "built around reliance on the
face of written plan documents." As the opinion notes,
"The plan, in short, is at the center of ERISA." Where
the plan language clearly defines rights and obligations of the
parties, principles of equity cannot be used to limit those rights
and obligations.
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