High Court Agrees to Take Another Look At ERISA's Equitable Remedies Provision

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

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 6/25/12).

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 injury settlements.

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.

Plan Calls for Reimbursement.

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 Sees Circuit Split.

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 Section 502(a)(3).

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 said.

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 “equitable” remedy.

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 petition said.

Amicus Brief.

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 plans.

In addition, the groups said the Third Circuit's decision, if left standing, would create uncertainty and burdens that ERISA was created to avoid.

McCutchen: Ruling Is Consistent With Precedent.

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, Pittsburgh.

By Jo-el J. Meyer  

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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