Case Summary: Limitations of ERISA Liens



US Airways, Inc. v. McCutchen
133 S. Ct. 1537 (2013)

United States Supreme Court

Background

This case arose out of an automobile accident in which the respondent, McCutchen, a US Airways employee, was injured by a third party. The third party was underinsured, and the accident severely injured and/or killed 3 other people. McCutchen, whose injuries were severe, had a health insurance plan provided by his employer, US Airways, which paid $66,866.00 in medical expenses for treatment related to the accident.

Procedural History

In the U.S. District Court, “summary judgment was granted in favor of US Airways on the grounds that the plan clearly and unambiguously provided for full reimbursement of the medical expenses paid.” (App. to Pet. for Cert. 30a). McCutchen appealed to the Court of Appeals for the Third Circuit, which vacated the District Court’s Order. The Third Circuit, using reasoning of equitable doctrines and defenses, held that ERISA is subject to equitable limitations.

Facts

McCutchen was seriously injured when another driver collided with McCutchen’s vehicle. According to the specific health insurance plan that McCutchen held, US Airways would be provided reimbursement if McCutchen were to recover any money from a third party for his injuries. The attorneys representing McCutchen, who worked for a 40% contingency fee, negotiated a settlement of $10,000.00 from the at-fault driver’s insurance company. The at-fault driver had limited automobile insurance coverage, and since the accident also killed or seriously injured three others, the funds had to be distributed amongst all parties. McCutchen’s attorneys also accepted a $100,000.00 settlement from McCutchen’s personal automobile insurer, and McCutchen was left with $66,000.00 after the attorneys deducted $44,000.00 in fees.

When US Airways learned of McCutchen’s recovery, they demanded reimbursement for the amount paid in medical expenses. The specific provision of the plan that US Airways relied upon was the following:

“If [US Airways] pays benefits for any claim you incur as the result of negligence, willful misconduct, or other actions of a third party, you will be required to reimburse [US Airways] for amounts paid for claims out of any monies recovered from [the] third party, including but not limited, your own insurance company as the result of judgment, settlement, or otherwise”. US Airways, Inc. v. McCutchen, No. 11-1285 (U.S. Apr. 16, 2013).

Governing Law

The specific statute at issue in this case is contained in § 502(a)(3) of ERISA, which provides that:
“A fiduciary may bring a civil action (A) to enjoin any act or practice which violates any provision of this subchapter in terms of the plan or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” 29 U.S.C. Section 1132(a)(3).

This statute authorizes the kind of equitable relief that such a contract provides. Under the plan’s provisions, an action in equity may be brought to enforce a contract-based lien as an ‘equitable lien by agreement.’

Conclusion

The Supreme Court ultimately vacated the Third Circuit’s decision and held that US Airways was entitled to an equitable remedy in which the amount of the lien should be reimbursed by McCutchen. The Court found that the language of the applicable contract imposed an equitable lien on a recovery received on the part of a plan beneficiary.

In following the reasoning of the Sereboff case, the Supreme Court found that McCutchen’s argument of the two equitable doctrines of the double recovery rule and the common-fund doctrine could not override the terms of an ERISA plan. However, because the plan was silent as to the allocation of attorney’s fees, those doctrines could be used in construing the reimbursement provision. See Sereboff v. Mid Atlantic Medical Services, Inc. (2006) for more information.

The Court issued a two-part holding, the first part of which favored US Airways in enforcing an action brought based on equitable lien by agreement and the second, which favored McCutchen and construed the reimbursement provision as retaining the common-fund doctrine. The ruling for McCutchen ultimately reduces the amount that US Airways can recover, as McCutchen bore the cost of the hiring an attorney and procuring a recovery and US Airways did not incur these associated expenses.



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