High Court Will Consider Equitable Remedies Available Under ERISA

WASHINGTON, D.C. - The U.S. Supreme Court today agreed to review a Third Circuit U.S. Court of Appeals ruling that a health plan administrator's claim for reimbursement against a plan participant is subject to equitable limitations, including unjust enrichment, under Employee Retirement Income Security Act Section 502(a)(3) (U.S. Airways, Inc. v. James McCutchen, et al., No. 11-1285, U.S. Sup.; See May 2012, Page 21).

On Nov. 16, the Third Circuit vacated the U.S. District Court for the Western District of Pennsylvania's order requiring James McCutchen, a participant in the U.S. Airways, Inc. Employee Benefits Plan, to reimburse the health plan for the entire amount that it paid on McCutchen's behalf without allowing for the legal costs McCutchen expended in obtaining a third-party settlement.

The Third Circuit said that "[t]his case squarely presents the question that Sereboff [v. Mid Atlantic Medical Servs., Inc. (547 U.S. 356 [2006])] left open:  whether § 502(a)(3)'s requirement that equitable relief be 'appropriate' means that a fiduciary . . . is limited in its recovery from a beneficiary . . . by the equitable defenses and principles that were 'typically available in equity.'"

In its petition for a writ of certiorari, US Airways Inc. argued that the Third Circuit ruling authorizes courts to use equitable principles to rewrite contractual language, even where the plan's terms give the plan an absolute right to full reimbursement, and that the ruling conflicts with the Fifth, Seventh, Eighth, 11th and District of Columbia Circuits.

US Airways contended that the Third Circuit ruling "endangers employer provided health plans - and the tens of millions of American workers who participate in those plans - by cutting into reimbursement revenues on which they rely to remain financially viable."

Reimbursement Clause

McCutchen suffered serious injuries in an automobile accident.  The health plan administered by McCutcheon's employer, US Airways, paid $66,866 in medical expenses on McCutcheon's behalf.

McCutchen recovered $110,000 from third parties.  After paying a 40 percent contingency attorney fee and expenses, McCutchen's net recovery was less than $66,000.  US Airways, which had not sought to enforce its subrogation rights, demanded reimbursement for the entire amount it paid for McCutchen's medical bills.  McCutchen's attorney placed $41,500 in a trust account.

The benefits plan contained a subrogation and right of reimbursement clause that required a beneficiary to reimburse the plan "out of any monies recovered from a third party."

US Airways sued McCutchen and his attorney under Section 502(a)(3), seeking "appropriate equitable relief" in the form of a constructive trust or an equitable lien on the $41,500 held in trust and the remaining $25,366 personally from McCutchen.  The District Court granted summary judgment to US Airways.

'Appropriate Equitable Relief'

In vacating the judgment, the Third Circuit concluded that US Airways' claim for reimbursement under Section 502(a)(3) was subject to equitable limitations, specifically the principle of unjust enrichment.

"[I]t would be strange for Congress to have intended that relief under § 502(a)(3) be limited to traditional equitable categories, but not limited by other equitable doctrines and defenses that were traditionally applicable to those categories," the panel reasoned.

In addition, the Third Circuit said that the Supreme Court found in Cigna Corp. v. Amara (131 S.Ct. 1866 [2011]; See May 2011, Page 4) that "the importance of the written benefit plan is not inviolable, but is subject-based upon equitable doctrines and principles-to modification and, indeed, even equitable reformation under § 502(a)(3)."

Windfall

The Third Circuit concluded that under "the traditional equitable principle of unjust enrichment," the District Court's judgment requiring McCutchen to provide full reimbursement to US Airways without allowance for McCutchen's legal costs "constitutes inappropriate and inequitable relief."

"Because the amount of the judgment exceeds the net amount of McCutchen's third-party recovery, it leaves him with less than full payment for his emergency medical bills, thus undermining the entire purpose of the Plan.  At the same time, it amounts to a windfall for U.S. Airways, which did not exercise its subrogation rights or contribute to the cost of obtaining the third-party recovery.  Equity abhors a windfall," the panel said.

The petition was filed by Neal Kumar Katyal, Catherine E. Stetson, Dominic F. Perella and Mary Helen Wimberly of Hogan Lovells US in Washington, Noah G. Lipschultz of Littler Mendelson in Minneapolis and Susan Katz Hoffman of Littler Mendelson in Philadelphia.

McCutchen is represented by Matthew W.H. Wessler of Public Justice in Washington, Leslie A. Brueckner of Public Justice in Oakland, Calif., and Neil R. Rosen, Jon R. Perry and Paul A. Hilko of Rosen, Louik & Perry in Pittsburgh.

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