By Jo-el J. Meyer
The U.S. Supreme Court announced June 25 that, in its next term, it will be
taking up yet another case that looks at the contours of equitable remedies
under Section 502(a)(3) of the Employee Retirement Income Security Act (U.S.
Airways Inc. v. McCutchen, U.S., No. 11-1285, cert. granted
The equitable remedies provision of ERISA Section 502(a)(3) has been a hot
topic for many years with the Supreme Court, and every few years, the court
takes up another case that examines this provision of ERISA in the context of
plans' ability to seek reimbursement from plan participants who receive personal
The case at hand comes out of the U.S. Court of Appeals for the Third
Circuit. In November 2011, the Third Circuit created a circuit split when it ruled that a health
plan's attempt to obtain reimbursement from a plan participant's personal injury
settlement was not allowed under ERISA because it would not amount to
“appropriate equitable relief” (222 PBD, 11/17/11; 38 BPR 2143, 11/22/11).
In so ruling, the Third Circuit overruled a lower court's decision that had
held that US Airways Inc. had the right to seek reimbursement from the
settlement proceeds received by James E. McCutchen.
McCutchen participated in US Airways' self-funded health benefit plan.
McCutchen was severely injured in a serious car accident that left him
functionally disabled, and US Airways paid nearly $67,000 for McCutchen's
medical expenses. McCutchen received $110,000 from third-party insurance
companies but retained less than $66,000 after attorneys' fees and expenses.
US Airways, as administrator of the plan, demanded reimbursement for the
entire amount it had paid for McCutchen's medical bills and filed a lawsuit in
the U.S. District Court for the Western District of Pennsylvania against both
McCutchen and his attorneys when McCutchen did not pay.
McCutchen's attorneys then placed their fees, totaling $41,500, in a trust
account. The district court granted summary judgment to US Airways for the
entire amount in the trust account and more than $25,000 from McCutchen, ruling
that the plan language required reimbursement from “any monies recovered.”
The Third Circuit reversed. It ruled that “Congress purposefully limited the
relief available to fiduciaries under [ERISA] Section 502(a)(3) to appropriate
equitable relief." The appeals court concluded that it would be inequitable for
US Airways to be fully reimbursed when McCutchen received less than full payment
for his medical expenses.
US Airways filed a petition in April
seeking Supreme Court review. It argued that review of the Third Circuit's
decision was warranted because the Third Circuit decision conflicted with those
of at least five other federal appeals courts. US Airways also asserted that the
Third Circuit's ruling “flies in the face” of Supreme Court precedent on ERISA
US Airways argued that the Third Circuit erred in ignoring the language in
its plan that required participants to reimburse the plan. The Third Circuit's
decision “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,” the petition
In addition, US Airways argued that nothing in ERISA Section 502(a)(3)'s
equitable remedies provision gave the Third Circuit the authority to rewrite
reimbursement provisions in an effort to obtain what courts would view as an
Among other things, US Airways argued that the Third Circuit's approach
renders it impossible for plans to rely on their reimbursement rights. US
Airways contended that, if the Third Circuit's decision stands, it could lead to
increased costs for employer-sponsored health plans. “Reimbursement from
third-party recoveries is essential for the solvency of many ERISA plans,” the
Three industry groups filed a joint amicus brief in support
of US Airways.
The three groups--the National Association of Subrogation Professionals, the
Self-Insurance Institute of America, and the Western Pennsylvania Teamsters and
Employers Welfare Fund--argued that the Third Circuit's decision would make it
more difficult and expensive to sponsor and maintain affordable health care
In addition, the groups said the Third Circuit's decision, if left standing,
would create uncertainty and burdens that ERISA was created to avoid.
In his brief
opposing U.S. Airways' petition for review, McCutchen argued that review was not
warranted because the Third Circuit's approach was consistent with Supreme Court
precedent on Section 502(a)(3).
The Supreme Court “has consistently held that the principal object of
ERISA is to protect plan beneficiaries, not to enforce plan terms. The lower
court's ruling effectuates that purpose by ensuring that ERISA reimbursement
actions do not yield 'a windfall' for ERISA plans at beneficiaries' expense,”
McCutchen said in the brief.
McCutchen further argued that US Airways' “hyperbolic claims that the lower
court's ruling would destroy the ERISA healthcare system, to the ultimate
detriment of ERISA plans and beneficiaries alike, has no basis in reality, lacks
any support in the record, and disserves the lower court's careful, narrowly
tailored ruling and the plain language of Section 502(a)(3) itself.”
US Airways is represented by Noah G. Lipschultz of Littler Mendelson,
Minneapolis; Susan Katz Hoffman of Littler Mendelson, Philadelphia; and Neal
Kumar Katyal, Catherine E. Stetson, Dominic F. Perella, and Mary Helen Wimberly
of Hogan Lovells, Washington.
McCutchen is represented by Matthew W.H. Wessler of Public Justice,
Washington; Leslie A. Brueckner of Public Justice, Oakland, Calif.; and Neil R.
Rosen, Jon R. Perry, and Paul A. Hilko of Rosen Louik & Perry,
The full text of the Third Circuit's opinion is at http://op.bna.com/pen.nsf/r?Open=amby-8nnpt2.
The full text of US Airways' petition for review is at http://op.bna.com/pen.nsf/r?Open=jmer-8vln23.
The full text of McCutchen's opposition to the petition for review is at http://op.bna.com/pen.nsf/r?Open=jmer-8vlnp5.
The full text of the amicus brief in support of review is at http://op.bna.com/pen.nsf/r?Open=jmer-8vlnww.
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