RESPONDENT:James E. McCutchen
LOCATION: U.S. District Court for the Western District of Pennsylvania
DOCKET NO.: 11-1285
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Third Circuit
CITATION: 569 US (2013)
GRANTED: Jun 25, 2012
ARGUED: Nov 27, 2012
DECIDED: Apr 16, 2013
Joseph R. Palmore – Assistant to the Solicitor General, Department of Justice, for the United States, as amicus curiae, supporting the petitioner
Matthew W.H. Wessler – for the respondents
Neal Kumar Katyal – for the petitioner
Facts of the case
After James E. McCutchen suffered a serious injury in a car accident, a benefit plan administered by US Airways paid $66,866 to cover his medical expenses. The plan requires the beneficiary to pay back the medical expenses out of any amount recovered from third parties. Once McCutchen recovered over $100,000 from third parties in a separate suit, the plan demanded that McCutchen reimburse them for the full amount they paid out. McCutchen argued that US Airways did not take into account his legal fees, which reduced his recovery amount from third parties to less than the amount demanded. US Airways then filed suit for “appropriate equitable relief” under the Employment Retirement Security Income Act (ERISA). The district court ordered McCutchen to pay the full $66,866.
The U.S. Court of Appeals for the Third Circuit vacated the district court’s judgment, holding that ERISA is subject to equitable limitations. To determine appropriate equitable relief, the district court must take into account the distribution of the amount recovered from third parties between McCutchen and his attorneys.
Did the Third Circuit correctly hold that ERISA Section 502(a)(3) authorizes courts to use equitable principles to determine appropriate equitable relief?
Media for US Airways v. McCutchen
Audio Transcription for Opinion Announcement – April 16, 2013 in US Airways v. McCutchen
John G. Roberts, Jr.:
Justice Kagan has our opinion this morning in case 11-1285, U.S. Airways versus McCutchen.
James McCutchen received health benefits through a plan established by his employer, US Airways.
When McCutchen was injured in a car accident caused by a negligent driver, US Airways paid his medical bills as the plan provided.
Sometime later, McCutchen sued the other driver and secured a modest recovery.
US Airways demanded reimbursement from that recovery in accordance with the terms of the plan.
So, US Airways filed suit asking for a lien on the funds he had obtained.
US Airways relied on section 502(a)(3) of the Employee Retirement Income Security Act called ERISA, which allows health-plan administrators to seek what’s called appropriate equitable relief to enforce their plans.
The question here is whether McCutchen can raise either of two equitable defenses to US Airways suit.
One, would limit US Airways’ claim to the amount McCutchen received for medical expenses and let him keep all the money he got for his pain and suffering or other kinds of loss.
The other, which is called the Common Fund Doctrine, would require U.S. Airways at least to pay a fair share of the attorney’s fees that McCutchen expended to obtain his recovery.
McCutchen contends that those defenses apply, irrespective of whether US Airways plan, which is a kind of contract provides otherwise.
The Third Circuit agreed.
Today, we vacate that decision in an opinion that has two parts – One, favoring US Airways and the other, McCutchen.
We have held in the past that a health plan administrator can sue to enforce a reimbursement clause in its plan under ERISA’s section 502(a)(3).
We reasoned then that such a suit sought equitable relief as the statute requires, because it demands something called an equitable lien by agreement.
That’s a — that’s a fancy name for a fairly simple idea.
The beneficiary has made a contract to reimburse the health plan administrator and equity, therefore, imposes a lien on the money he agreed to turn over.
We think it follows that in a suit like this one, the plain terms of the contract controlled.
McCutchen’s equitable defenses cannot override them.
As I’d just said, the equitable lien by agreement that US Airways seeks to enforce is a creature of contract.
It arises from the party’s agreement and serves to carry it out.
Enforcing that kind of contract based lien, means holding the parties to their mutual promises and conversely, it means declining to apply principles that are at odds with the parties expressed commitments.
So, US Airways is right that the contract governs.
But McCutchen’s arguments are not all for nothing.
Even if equitable principles of the kind he raises cannot trump a contract, they may aid in properly construing it.
ERISA plans like other contracts don’t always speak clearly.
Sometimes they leave gaps, and when that happens, courts routinely consider background legal principles to fill in the contract.
Here, US Airways plan is silent on how to allocate attorney’s fees, and in that circumstance, the Common Fund Doctrine provides the appropriate default rule.
We discussed in the opinion why that is so, how well established the rule is and how strong the basis for it.
Without any sharing of attorney’s fees, a health plan administrator would free ride on a beneficiary’s efforts getting all its money back while contributing nothing to the costs of obtaining the recovery, and possibly, as in this case, leaving the beneficiary worse off than if he had not sought the recovery in the first instance.
We do not think that a contracting party would expect or intend a plan that does not address attorney’s fees to negate the equitable principle preventing this result.
And we, therefore, read US Airways plan to incorporate the common fund doctrine.
Justice Scalia has filed a dissenting opinion in which the Chief Justice and Justices Thomas and Alito joined.