THE U.S. SUPREME COURT IS REVIEWING EQUITABLE REMEDIES UNDER ERISA

Many attorneys are anxiously awaiting the decision of the United States Supreme Court in the case of U.S. Airways, Inc. v. McCutchen, a case which will presumably define the scope of equitable remedies available to plan participants.  In the this case, McCutchen’s employer, U.S. Airways, sought reimbursement of medical benefits it had paid for McCutchen’s treatment (a plan beneficiary who was injured in a motor vehicle accident).  The monies sought by U.S. Airways were those received as part of McCutchen’s settlement in a related personal injury lawsuit.  In a claim pursued by the employer’s plan against McCutchen, McCutchen asserted equitable defenses – such as the common fund and unjust enrichment doctrines – which provide that the claimed subrogated interest of the employer for payment of medical expenses should not be honored until the plan participant is made whole (receives all recovery) before the subrogated interest is entitled to share in the funds from the settlement, or, at a minimum, that the plan’s recovery be reduced by the attorney’s fees and costs paid by the beneficiary in pursuing the personal injury matter which resulted in the recovery of those medical expenses.  In the case, U.S. Airways argued that it had an equitable lien by agreement which allows it full reimbursement of all paid medical expenses, regardless of the actual net recovery to the plan participant who was injured.  The essential issue before the U.S. Supreme Court is whether ERISA authorizes courts to use equitable principals to re-write 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.

A ruling in favor of the plan participant (McCutchen) in this case will dramatically impact the net recovery of injured persons who are able to obtain a settlement of their claim or a judgment against the responsible party.  If this occurs, the plan paying medical benefits on behalf of the injured person will be required to share in the costs of (common fund) attorney’s fees paid by the participant to obtain the recovery in the personal injury action or perhaps even allow the plan participant to argue that the plan is not entitled to any recovery if the injured plan participant has not been made whole or fully reimbursed by the settlement or judgment in the personal injury action. 

A decision from the U.S. Supreme Court on this case is expected in the summer of 2013. To review the transcript of the November 27, 2012 oral argument before the Supreme Court, please click here.