WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court today agreed to review
a Third Circuit U.S. Court of Appeals ruling [enhanced version available to lexis.com subscribers] 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 [enhanced version available to lexis.com subscribers] 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
The Third Circuit said that "[t]his case squarely presents the
question that Sereboff [v. Mid Atlantic Medical Servs., Inc. (547
U.S. 356 ) [enhanced version available to lexis.com subscribers]] 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."
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  [enhanced version available to lexis.com subscribers]; 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)."
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
"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.
Mealey's is now
available in eBook format!
Sign in with your Lexis.com ID to access LEXIS.com Estates, Gifts & Trusts and Elder Law resources
Discover the features and benefits of LexisNexis® Tax Center
View the LexisNexis
Catalog of Legal and Professional Publications
here for a list of available LexisNexis eBooks.
Click here to learn more about
For more information about LexisNexis products and solutions connect with us through our corporate site.