On Tuesday, the United States Supreme Court heard argument on an important question affecting all sponsors and administrators of ERISA health benefit plans: whether a court may rewrite plan language to eliminate a plan’s right to seek reimbursement from beneficiaries out of third-party recoveries. Neal Katyal of Hogan Lovells argued, on behalf of our client US Airways, the plan sponsor, that the Court should answer that question in the negative; courts should not rewrite the plain terms of an ERISA plan to accommodate late-breaking “equitable” adjustments to the plan’s clear reimbursement right. He was joined on the briefs by a team of Hogan Lovells lawyers that included Cate Stetson, Dominic Perella, Mary Helen Wimberly, and Sean Marotta.
The US Airways benefit plan paid about $67,000 to cover an employee’s medical expenses after a car accident. The employee, James E. McCutchen, recovered $110,000 from the people responsible for (or responsible to pay for) the accident. US Airways in turn sought reimbursement of the money it had paid for medical expenses, citing the plan’s reimbursement provision. When McCutchen refused, US Airways brought suit under ERISA Section 502(a)(3), which allows plans “to obtain other appropriate equitable relief . . . to enforce . . . the terms of the plan.”
The district court enforced the provision as written and ordered McCutchen to reimburse the plan. But the Third Circuit reversed, holding that Section 502(a)(3)’s reference to “appropriate equitable relief” must mean that Congress intended not only to confine plans to equitable remedies, but also to let employees raise equitable defenses. The effect of this decision is to read into every ERISA plan—no matter however plainly worded to the contrary—an implicit limitation on the plan’s rights: Full reimbursement is permitted only where, in the court’s view, it is equitable under the facts of a particular case.
Hogan Lovells successfully sought Supreme Court review of the Third Circuit’s decision, which created a split among the federal courts of appeal. Argument was heard on November 27. At oral argument, Mr. Katyal emphasized that the Third Circuit’s rule—which permits courts after the fact to adjust plans’ recoveries in the event they determine full reimbursement would constitute “unjust enrichment” of some sort—was inconsistent with Supreme Court precedent and basic principles of equity. The plan was seeking to enforce its reimbursement rights. And because the Court had held in a previous opinion, Sereboff v. Mid Atlantic Medical Services, Inc. (2006), that reimbursement rights are enforced through an “equitable lien by agreement,” that agreement displaces any inquiry into “unjust enrichment.”
A decision in US Airways’ favor in this case will promote the predictability and uniformity that ERISA was intended to provide to those administering employee benefits plans. A plan would be able to enforce its reimbursement provision as written, without running the risk of a court reformulating plan terms based on one jurist’s notions of fairness and equity. And a decision in US Airways’ favor will allow plans, who are in the best position to determine how their benefits should be administered, to determine for themselves what incentives they wish to create for beneficiaries to pursue third-party recoveries.