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Thursday, April 18, 2013

U.S. Airways v. McCutchen: SCOTUS Decides ERISA Plan Reimbursement Case

On April 16, the Supreme Court of the United States issued its decision in U.S. Airways v. McCutchen, which presents the following issue:
Whether the Third Circuit correctly held -- in conflict with the Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits -- that Section 502(a)(3) of the Employee Retirement Income Security Act (ERISA) authorizes courts to use equitable principles to rewrite contractual language and refuse to order participants to reimburse their plan for benefits paid, even where the plan’s terms give it an absolute right to full reimbursement.
In a 5-4 decision written by Justice Kagan, the Court held that the Third Circuit improperly resorted to equitable principles in deciding the issue. I am not an ERISA lawyer and I am taking the easy way out on this one by just re-printing the decision's syllabus: 
The health benefits plan established by petitioner US Airways paid $66,866 in medical expenses for injuries suffered by respondent McCutchen, a US Airways employee, in a car accident caused by a third party. The plan entitled US Airways to reimbursement if McCutchen later recovered money from the third party. McCutchen’s attorneys secured $110,000 in payments, and McCutchen received $66,000 after deducting the lawyers’ 40% contingency fee. US Airways demanded reimbursement of the full $66,866 it had paid. When McCutchen did not comply, US Airways filed suit under §502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), which authorizes health-plan administrators to bring a civil action “to obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan.” McCutchen raised two defenses to US Airways’ request for an equitable lien on the $66,866 it demanded: that, absent overrecovery on his part, US Airways’ right to reimbursement did not kick in; and that US Airways had to contribute its fair share to the costs he incurred to get his recovery, so any reimbursement had to be reduced by 40%, to cover the contingency fee. Rejecting both arguments, the District Court granted summary judgment to US Airways.  
The Third Circuit vacated. Reasoning that traditional “equitable doctrines and defenses” applied to §502(a)(3) suits, it held that the principle of unjust enrichment overrode US Airways’ reimbursement clause because the clause would leave McCutchen with less than full payment for his medical bills and would give US Airways a windfall.  
1. In a §502(a)(3) action based on an equitable lien by agreement—like this one—the ERISA plan’s terms govern. Neither general unjust enrichment principles nor specific doctrines reflecting those principles—such as the double-recovery or common-fund rules invoked by McCutchen—can override the applicable contract. Pp. 5–11.  
(a) Section 502(a)(3) authorizes the kinds of relief “typically available in equity” before the merger of law and equity. Mertens v. Hewitt Associates, 508 U. S. 248, 256. In Sereboff v. Mid Atlantic Medical Services, Inc., 547 U. S. 356, the Court permitted a healthplan administrator to bring a suit just like this one. The administrator’s claim to enforce its reimbursement clause, the Court explained, was the modern-day equivalent of an action in equity to enforce a contract-based lien—called an “equitable lien ‘by agreement.’ ” Id., at 364–365. Accordingly, the administrator could use §502(a)(3) to obtain funds that its beneficiaries had promised to turn over. The parties agree that US Airways can do the same here. Pp. 5–6.  
(b) Sereboff’s logic dooms McCutchen’s argument that two equitable doctrines meant to prevent unjust enrichment—the double recovery rule and common-fund doctrine—can override the terms of an ERISA plan in such a suit. As in Sereboff, US Airways is seeking to enforce the modern-day equivalent of an equitable lien by agreement. Such a lien both arises from and serves to carry out a contract’s provisions. See 547 U. S., at 363–364. Thus, enforcing the lien means holding the parties to their mutual promises and declining to apply rules—even if they would be “equitable” absent a contract—at odds with the parties’ expressed commitments. The Court has found nothing to the contrary in the historic practice of equity courts. McCutchen identifies a slew of cases in which courts applied the equitable doctrines invoked here, but none in which they did so to override a clear contract that provided otherwise. This result comports with ERISA’s focus on what a plan provides: §502(a)(3) does not “authorize ‘appropriate equitable relief’ at large,” Mertens, 508 U. S., at 253, but countenances only such relief as will enforce “the terms of the plan” or the statute. Pp. 6–11.  
2. While McCutchen’s equitable rules cannot trump a reimbursement provision, they may aid in properly construing it. US Airways’ plan is silent on the allocation of attorney’s fees, and the common fund doctrine provides the appropriate default rule to fill that gap. Pp. 12–16. 
(a) Ordinary contract interpretation principles support this conclusion. Courts construe ERISA plans, as they do other contracts, by “looking to the terms of the plan” as well as to “other manifestations of the parties’ intent.” Firestone Tire & Rubber Co. v. Bruch, 489 U. S. 101, 113. Where the terms of a plan leave gaps, courts must “look outside the plan’s written language” to decide the agreement’s meaning, CIGNA Corp. v. Amara, 563 U. S. ___, ___, and they properly take account of the doctrines that typically or traditionally have governed a given situation when no agreement states otherwise. Pp. 12–13.  
(b) US Airways’ reimbursement provision precludes looking to the double-recovery rule in this manner because it provides an allocation formula that expressly contradicts the equitable rule. By contrast, the plan says nothing specific about how to pay for the costs of recovery. Given that contractual gap, the common-fund doctrine provides the best indication of the parties’ intent. This Court’s cases make clear that the doctrine would govern here in the absence of a contrary agreement. See, e.g., Boeing Co. v. Van Gemert, 444 U. S. 472, 478. Because a party would not typically expect or intend a plan saying nothing about attorney’s fees to abrogate so strong and uniform a background rule, a court should be loath to read the plan in that way. The common-fund rule’s rationale reinforces this conclusion: Without the rule, the insurer can free ride on the beneficiary’s efforts, and the beneficiary, as in this case, may be made worse off for having pursued a third party. A contract should not be read to produce these strange results unless it specifically provides as much. Pp. 13–16. 
The opinion is available here.  SCOTUSblog's page for McCutchen is here.  SCOTUSblog has an interesting analysis here

The State Bar of California's Labor and Employment Law Section will present a Watch List webinar on McCutchen within the next two weeks.  The speakers are Noah Lipschultz of Littler Mendelson in Minneapolis, who represents U.S. Airways as plan administrator, and Matthew Wessler of Public Justice in Washington, D.C., who argued in the Supreme Court for  the respondent, James McCutchen.  I will post once I know the date of the webinar.  

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