April 16, 2013

Supreme Court Decides US Airways, Inc., in its capacity as fiduciary and plan administrator of the US Airways, Inc. Employee Benefits Plan v. McCutchen et al.

On April 16, 2013, the U.S. Supreme Court decided US Airways, Inc. v. McCutchen (No. 11-1285), holding that ERISA plan terms govern plan interpretation and cannot be overridden by equitable doctrines such as unjust enrichment or the common fund doctrine, though equitable doctrines can aid in the interpretation of plan provisions.

James McCutchen, an employee of US Airways and participant in US Airways' ERISA health benefits plan, was injured in a car accident. The plan obligated US Airways to pay any medical expenses McCutchen incurred as a result of a third party's actions, and the plan entitled US Airways to reimbursement if McCutchen later recovered money from that third party. The plan paid $66,866 in medical expenses on McCutchen's behalf. McCutchen's attorneys initiated a lawsuit and secured payments of $10,000 from the driver and $100,000 from McCutchen's own automobile insurer. After deducting a 40 percent contingency for his attorneys' fees, McCutchen recovered $66,000. US Airways then demanded reimbursement for all the medical expenses it had paid on McCutchen's behalf, but McCutchen denied that US Airways was entitled to reimbursement.

US Airways filed a claim under ERISA § 502(a)(3) seeking appropriate equitable relief to enforce the plan's reimbursement provision. McCutchen raised two defenses: (1) that his recovery included only a portion of his damages, and absent over-recovery, US Airways had no right to reimbursement; and (2) that any reimbursement had to be reduced by 40% to cover the attorney contingency fee. The district court rejected his defenses and ordered full reimbursement. The Third Circuit reversed, finding that equitable doctrines and defenses applied to "limit the effectiveness" of the plan's reimbursement provision.

The U.S. Supreme Court reversed the Third Circuit. Following the reasoning in Sereboff v. Mid Atlantic Medical Services. 347 U.S. 356 (2006), the nature of US Airways' suit was "an equitable lien by agreement," which "arises from and serves to carry out a contract's provisions." Thus, enforcing the lien requires "holding the parties to their mutual promises," and equitable doctrines cannot trump a reimbursement provision. However, equitable principles can aid in construing plan provisions. Because the US Airways plan was silent on allocation of attorney's fees, the equitable common-fund doctrine provides the appropriate default and "the best indication of the parties' intent" to allocate the costs of obtaining third-party recoveries between insurers and beneficiaries.

Justice Kagan delivered the Court's opinion, which was joined by Justices Kennedy, Ginsburg, Breyer, and Sotomayor. Justice Scalia filed a dissenting opinion, in which Chief Justice Roberts and Justices Thomas and Alito joined.

Download Opinion of the Court

The Faegre Drinker Biddle & Reath LLP website uses cookies to make your browsing experience as useful as possible. In order to have the full site experience, keep cookies enabled on your web browser. By browsing our site with cookies enabled, you are agreeing to their use. Review Faegre Drinker Biddle & Reath LLP's cookies information for more details.