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A federal district court March 15 declined to rule on the equitable defenses available to a health plan participant attempting to reduce a plan lien on his third-party tort recovery, opting instead to await the U.S. Supreme Court's upcoming ruling in US Airways v. McCutchen (Cavanagh v. Northern New England Benefit Trust, D.N.H., No. 1:12-cv-00394-LM, 3/15/13).
After receiving notice that his health plan intended to assert a lien on his third-party recovery to obtain reimbursement of benefits previously paid, the participant sought a judicial declaration reducing the lien amount to account for attorneys' fees incurred in obtaining the recovery.
Judge Landya McCafferty of the U.S. District Court for the District of New Hampshire found that the participant's ability to assert equitable defenses to the plan's lien necessarily depended on the Supreme Court's ruling in McCutchen (U.S., No. 11-1285, cert. granted 6/25/12), expected later this term.
After Robert Cavanagh sustained injuries in a motorcycle accident in July 2011, his employer-sponsored health plan--administered by Northern New England Benefit Trust (NNEBT)--paid about $46,000 in medical and disability benefits. Cavanagh later recovered $200,000 from the driver who caused his injuries, and NNEBT informed him of its intent to assert a lien against his recovery pursuant to the plan's subrogation provision.
Cavanagh filed an action in state court for a declaratory judgment limiting the amount of the lien, alleging that NNEBT “refused” to accept the “standard New Hampshire practice of reducing the lien by one-third to recover the lienor's share of attorney's fees.”
After NNEBT removed the action to federal court, Cavanagh attempted to remand the case back to state court. The district court closed off this effort, saying that the plan was governed by the Employee Retirement Income Security Act, which preempted Cavanagh's claims (224 PBD, 11/21/12; 39 BPR 2272, 11/27/12).
In the instant order, the court began by noting that Cavanagh sought a declaration giving him “a legal right to reimburse NNEBT in some amount less than the full amount of the benefits Cavanagh received from NNEBT.”
According to Cavanagh, NNEBT based its claim for full reimbursement on the U.S. Court of Appeals for the First Circuit's 2000 decision in Harris v. Harvard Pilgrim Health Care Inc., 208 F.3d 274, 24 EBC 1432 (1st Cir. 2000) (27 BPR 971, 4/11/00), which Cavanagh maintained had been “effectively overruled” by three subsequent decisions of the U.S. Supreme Court: Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204, 27 EBC 1065 (2002) (6 PBD, 1/9/02; 29 BPR 217, 1/15/02); Sereboff v. Mid Atlantic Medical Services Inc., 547 U.S. 356, 37 EBC 1929 (2006) (94 PBD, 5/16/06; 33 BPR 1297, 5/23/06); and CIGNA Corp. v. Amara, 131 S. Ct. 1866, 50 EBC 2569 (2011) (95 PBD, 5/17/11; 38 BPR 990, 5/24/11).
According to the district court, the First Circuit's Harris decision rejected the notion that federal common law under ERISA provided for the “common-fund, fee-shifting doctrine” allowing a plan lien to be reduced for attorneys' fees. This holding was not overruled by Knudson, Sereboff, or Amara, the district court said, because those cases concerned the equitable remedies provision of ERISA Section 502(a)(3), rather than the federal common law at issue in Harris.
Finding that Harris still controlled, the district court denied Cavanagh's request to raise equitable defenses to NNEBT's claim for reimbursement “to the extent that request is based on the federal common law under ERISA.” However, with respect to any equitable defenses Cavanagh may raise under ERISA Section 502(a)(3), the district court noted that the federal circuits remain split on this issue, with the Supreme Court set to weigh in later this term.
As the district court noted, the Supreme Court recently agreed to review the scope of ERISA's equitable remedies provision, hearing oral arguments in US Airways v. McCutchen, in November 2012 (227 PBD, 11/28/12; 39 BPR 2305, 12/4/12).
The McCutchen case created a circuit split in 2011, with the U.S. Court of Appeals for the Third Circuit breaking from the Fifth, Seventh, Eighth, and Eleventh circuits to rule 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” under ERISA Section 502(a)(3) (222 PBD, 11/17/11; 38 BPR 2143, 11/22/11).
Finding that the “current circuit split on this issue is likely to be resolved” when the Supreme Court issues its opinion in McCutchen, the district found that “the sensible course of action is to deny [Cavanagh's] motion for summary judgment and await the Supreme Court's decision.” According to the district court, if the Supreme Court affirms the Third Circuit's McCutchen ruling, Cavanagh would be free to assert equitable defenses against NNEBT. However, a reversal of McCutchen “would seem to be fatal to the requests for relief the Cavanaghs make in their petition.”
The court denied both Cavanagh's motion for partial summary judgment and NNEBT's motion for judgment on the administrative record.
Cavanagh was represented by Kenneth M. Brown of Brown Law Office, Nashua, N.H. NNEBT was represented by William R. Cahill Jr. of Dumont Morris & Burke, Boston.
The full text of the opinion is at http://www.bloomberglaw.com/public/document/Cavanagh_et_al_v_Northern_New_England_Benefit_Trust_Docket_No_112.
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