U.S. Supreme Court Grants Certiorari, Vacates Appeals Court Based on McCutchen

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

The U.S. Supreme Court vacated April 22 an appeals court decision that a welfare benefit plan could not restrict a court's traditionally broad equitable powers to determine what constitutes “appropriate equitable relief” under Section 502(a)(3) of the Employee Retirement Income Security Act(CGI Technologies and Solutions Inc. v. Rose, U.S., 12-240, cert. granted 4/22/13).

In June 2012, the U.S. Court of Appeals for the Ninth Circuit determined that a plan administrator was not entitled to full reimbursement under ERISA Section 502(a)(3) for medical benefits paid to a participant. The Ninth Circuit concluded that “appropriate equitable relief” under Section 502(a)(3) allowed it to fashion an equitable remedy that included equitable defenses the plan expressly disclaimed.

The Supreme Court granted certiorari, vacated, and remanded the Ninth Circuit's decision in light of the court's April 16 decision in US Airways Inc. v. McCutchen, U.S., No. 11-1285 (2013) (74 PBD, 4/17/13). In McCutchen, the Supreme Court determined that equitable principles cannot override a plan's clear reimbursement provisions, but may be used to construe ambiguous or absent plan terms.

Plan Administrator Demands Reimbursement

Rhonda Rose was employed by CGI Technologies and participated in its ERISA-governed self-funded welfare benefit plan. The plan's subrogation and reimbursement clause provided CGI with a right to full reimbursement for medical expenses paid to a participant from any funds recovered from a third-party tortfeasor, exempted CGI from any responsibility for attorneys' fees paid for any recovery, and required full reimbursement regardless of whether the participant was made whole by the recovery.

Rose was seriously injured in a car accident in 2003 and received $32,000 in medical expenses from the plan. Rose, with the assistance of counsel, filed a $1.76 million personal injury claim against a third party and eventually recovered $376,907. CGI demanded reimbursement following the personal injury recovery.

Rose refused to reimburse the plan and her attorneys placed the disputed funds in trust. CGI then filed a lawsuit in the U.S. District Court for the Western District of Washington seeking “appropriate equitable relief” under ERISA Section 502(a)(3). The parties filed cross-motions for summary judgment.

Lower Courts Applied Equitable Defenses

The district court granted partial summary judgment to CGI after determining that it was entitled to full reimbursement of the medical expenses it paid under the plan. However, the district court also determined that CGI was responsible for a proportional share of Rose's legal fees. The parties appealed.

The Ninth Circuit examined the district court's decision that CGI was entitled to full reimbursement. The appeals court found that it had broad powers under ERISA Section 502(a)(3) and that it “need not honor the express terms of the Plan where traditional notions of equitable relief so require.”

The appeals court went on to vacate the district court's decision granting CGI full reimbursement for its medical expenses, According to the Ninth Circuit, the district court should have determined “appropriate equitable relief” by applying traditional equitable principles, including equitable defenses such as the make-whole and common-fund doctrines.

McCutchen Decision Resolves Issues

CGI filed a petition for writ of certiorari in August 2012 and asked the Supreme Court to resolve whether the Ninth Circuit erred by holding that courts may use equitable principles to rewrite contractual language and refuse to apply provisions requiring participants to fully reimburse plans.

Rather than addressing CGI's specific question, the Supreme Court granted certiorari, vacated, and remanded the Ninth Circuit's decision following Supreme Court's McCutchen decision, which prevented equitable principles from overriding the plan's clear reimbursement provision. The McCutchen decision will also prevent the Ninth Circuit from directing the district court to apply the make-whole and common-fund doctrines, which the plan expressly disclaimed.

The petition for certiorari was filed by Noah G. Lipschultz of Littler Mendelson, Minneapolis.

The full text of the Ninth Circuit's opinion is at http://www.bloomberglaw.com/public/document/CGI_Technologies_and_Solutions_v_Rhonda_Rose_et_al_Docket_No_1135. The full text of McCutchen is at http://op.bna.com/pen.nsf/r?Open=jwie-96tk5t.

Request Pension & Benefits Daily™