Briefs have been filed, the date for oral argument is rapidly approaching, and the parties are gearing up to face the Supreme Court in this year’s hot ERISA reimbursement case of US Airways, Inc. v. McCutchen. To briefly recap the facts, in McCutchen the plan sued under ERISA § 502(a)(3) for full reimbursement of medical expenses after a participant recovered limited damages related to injuries sustained in a car accident. The District Court granted summary judgment to US Airways, as plan administrator, based on language in the plan allowing full reimbursement of any monies recovered by the participant. No. 2:08-CV-1593, 2010 WL 3420951 (W.D. Pa. Aug. 30, 2010). On appeal, the Third Circuit vacated and remanded. 663 F.3d 671 (3d Cir. 2011). Citing Amara, the Third Circuit rejected the plan’s claim for full reimbursement by finding that ERISA § 502(a)(3) incorporates traditional equitable defenses. Id. at 678-79. Looking at the facts of the case, the Third Circuit concluded that requiring the participant to provide full reimbursement to the plan (without allowing offset for his attorneys’ fees and expenses) would be “inappropriate and inequitable relief.” Id. at 679.
The Supreme Court granted US Airways’ petition for certiorari on June 25, 2012. The question presented is: “Whether the Third Circuit correctly held--in conflict with the Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits--that ERISA Section 502(a)(3) authorizes courts to use equitable principles to rewrite contractual language and refuse to order participants to reimburse their plan for benefits paid, even where the plan’s terms give it an absolute right to full reimbursement.”
On August 29, 2012, US Airways filed its brief on the merits, arguing “Section 502(a)(3) does not empower courts to use free-floating equitable principles to rewrite benefit plans.” (Pet’r’s Brief p. 4.) US Airways gives three rationales for its position. First, § 502(a)(3) only authorizes appropriate equitable relief to “enforce . . . the terms of the plan” and McCutchen’s approach would improperly “obliterate” the plan terms. (Id.) Second, the equitable relief sought by US Airways (an equitable lien by agreement) requires a court to enforce the actual agreement of the parties, which allows full reimbursement, rather than rewrite the parties’ agreement. (Id.) Third, US Airways argues that McCutchen’s approach conflicts with the goals of ERISA by making liabilities unpredictable. (Id.) The Third Circuit’s decision is characterized as a threat to the stability of self-funded ERISA plans, as it would discourage employers from offering benefits yet encourage gamesmanship by plan participants in the structuring of settlements. (Id. at pp. 42-50.)
Respondents address these arguments and others in their brief on the merits filed on October 18, 2012. They argue that U.S. Airways’ approach is “neither ‘appropriate’ nor ‘equitable’” as it ignores principles of unjust enrichment in favor of “rote enforcement of contract terms.” (Resp’ts’ Brief p. 2.) Respondents maintain that the Third Circuit’s approach is consistent with how courts would have treated US Airways’ claim in the days of the divided bench, where an insurer’s subrogation claims were limited to a pro rata share of a recovery. (Id. at pp. 13-25.) Further, in equity, Respondents argue that the common fund rule requires that US Airways pay its proportional share of the fees and costs incurred in obtaining the damages recovery. (Id. at pp. 26-32.)
Responding to policy concerns, Respondents argue “the plans have not offered a scintilla of actual evidence that their apocalyptic vision of life under the Third Circuit’s approach will come to pass.” (Id. at p. 48.) “If anything, there is every reason to believe that Petitioner’s full-reimbursement approach would increase litigation costs by making it less likely that tort claimants would be willing to settle cases.” (Id. at p. 54.)
These contentious briefs confirm that this is a Supreme Court case worth following. Many ERISA plans contain “subrogation” or “reimbursement” provisions, and how the Supreme Court resolves the question of whether “equitable defenses” can limit a plan’s recovery under § 502(a)(3) is likely to have a far-reaching impact on related reimbursement and underlying tort litigation.
Oral argument in this case is set for Tuesday, November 27, 2012.