U.S. Airways, Inc. v. McCutchen
185 L. Ed. 2d 654, 569 U.S. 88, 2013 U.S. LEXIS 3156 (2013)
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Rule of Law:
In a suit for reimbursement under § 502(a)(3) of ERISA based on an equitable lien by agreement, the plain terms of the health plan govern and cannot be overridden by equitable defenses such as the double-recovery rule. However, if the plan is silent on an issue like the allocation of attorney's fees, the common-fund doctrine applies as a default rule to interpret the contract.
Facts:
- James McCutchen, an employee of U.S. Airways, participated in the company's self-funded health plan governed by ERISA.
- In January 2007, McCutchen was seriously injured in a car accident caused by another driver.
- The U.S. Airways health plan paid $66,866 for McCutchen's medical expenses resulting from the accident.
- The plan's summary description required participants to reimburse the plan for amounts paid for claims out of "any monies recovered from [a] third party."
- McCutchen retained attorneys on a 40% contingency fee basis and recovered a total of $110,000 from the at-fault driver's insurer and his own automobile insurer.
- After paying his attorneys their $44,000 fee, McCutchen's net recovery was $66,000.
- U.S. Airways demanded reimbursement for the full $66,866 it had paid in medical expenses.
Procedural Posture:
- U.S. Airways filed an action under ERISA § 502(a)(3) against McCutchen in the U.S. District Court, seeking full reimbursement of the medical expenses it paid.
- The District Court granted summary judgment in favor of U.S. Airways, holding that the plan's clear and unambiguous terms required full reimbursement.
- McCutchen, as appellant, appealed the decision to the U.S. Court of Appeals for the Third Circuit.
- The Third Circuit, with U.S. Airways as appellee, vacated the District Court's order, holding that traditional equitable doctrines, based on principles of unjust enrichment, could limit the plan's reimbursement right.
- The U.S. Supreme Court granted certiorari to resolve a circuit split on whether equitable defenses can override an ERISA plan's reimbursement provision.
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Issue:
Does § 502(a)(3) of ERISA permit a plan participant to use equitable principles, such as the double-recovery rule or the common-fund doctrine, to prevent an ERISA plan from obtaining full reimbursement as specified in the plan's terms?
Opinions:
Majority - Justice Kagan
No, a plan participant cannot use equitable principles to override the clear terms of an ERISA plan's reimbursement provision, but such principles can be used to interpret the plan where it is silent. The suit is to enforce an 'equitable lien by agreement,' which arises from and serves to carry out a contract's provisions. Therefore, principles of unjust enrichment, which underlie both the double-recovery and common-fund doctrines, are 'beside the point' when a valid contract governs the dispute. The plan's terms must be enforced as written, consistent with ERISA's focus on written plan documents. However, the U.S. Airways plan, while giving it first claim to 'any monies recovered,' was silent on the allocation of attorney's fees. This contractual gap is filled by the common-fund doctrine, a well-established background legal principle, which dictates that a party who creates, discovers, or recovers a fund for the benefit of another is entitled to have the costs of litigation, including attorney's fees, paid out of that fund. Thus, the plan's reimbursement is limited to the settlement funds recovered less a proportionate share of the attorney's fees required to obtain that recovery.
Dissenting - Justice Scalia
No, equitable principles cannot override the plain terms of the contract. The dissent agrees with the majority's conclusion that the contract's terms govern. However, the dissent argues that the Court should not have reached the issue of contract interpretation regarding the common-fund doctrine. The question presented for certiorari presumed the contract's terms were unambiguous and gave U.S. Airways an absolute right to full reimbursement. The respondent, McCutchen, had conceded in the lower court proceedings that the plan required full reimbursement without contribution to attorney's fees. Therefore, the issue of whether the contract was ambiguous was not preserved for the Court's review and was outside the scope of the question presented. The Court should have simply reversed the Third Circuit's judgment based on the conclusion that equitable defenses cannot override the plan's terms.
Analysis:
This decision solidifies the primacy of the written plan document in ERISA reimbursement disputes, holding that clear contractual language trumps equitable defenses. However, it significantly impacts plan drafting and interpretation by establishing that background equitable principles, like the common-fund doctrine, function as default rules to fill gaps in plans that are silent on specific issues. The ruling places a clear burden on plan administrators to draft explicit language if they wish to opt out of default rules like cost-sharing for attorney's fees. In effect, silence on the issue of attorney's fees will be construed against the plan administrator, protecting beneficiaries from bearing the full cost of litigation that benefits the plan.
