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Please note that Attorney Bruzonsky has been doing this regular “Liens Corner” column since April 2006. His last “Liens Corner” article was for the November/December 2017 issue of The Advocate, having stepped down from this regular column, as he now works part-time (and is part-time retired) exclusively handling large subrogation/lien claims in very large personal injury and medical malpractice cases for other attorneys. However, attorney Bruzonsky may add notes to this website under the subject lien article headers from time to time. (Please keep in mind that this site contains general information for educational purposes only. It is not intended to provide legal advise, which can only come from a qualified attorney who is familiair with all the facts and circumstances of your specific case and relevant law.) 

 

 

2013-07/08: McCutchen Another Landmark U.S. Supreme Court ERISA Lien Case

June 25th, 2016 11:54:33 am


This article has been published in “The Advocate”, a publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, July – August 2013 issue,

 @2013 by Steven J. Bruzonsky, Esq.

 

 

McCutchen – Another Landmark U.S. Supreme Court ERISA Lien Case

 

In U.S. Airways v. McCutchen, ___U.S. ___, ___ S.Ct. ___ (4-16-2013), the U.S. Supreme Court reversed the Third Circuit’s decision in U.S. Airways v. McCutchen, 663 F.3d 671 (3RD Cir., 2011), and abrogates the Ninth Circuit’s similar decision in CGI Technologies and Solutions, Inc. v. Rose,  683 F.3d 1113 (2012). Both of these decisions required that the district court fashion “appropriate equitable relief” in ERISA lien cases brought by the ERISA plan fiduciary under § 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), seeking reimbursement from their insured’s personal injury settlement.

 

The ERISA participant, McCutchen was “grievously injured” in a car accident, after surviving emergency surgery, requiring months of physical therapy and a hip replacement. Due to multiple injured claimants and one wrongful death, McCutchen settled with the adverse driver’s liability insurance for $10,000, and also obtained his $100,000 Uninsured Motorist policy limits, for a total of $110,000. After paying a 40% contingency attorneys’ fee and expenses, his recovery was less than $66,000. His attorney held $41,500.00 in Trust (after reducing the lien for procurement costs), and the ERISA plan claimed a constructive trust or equitable lien on the $41,500 held in Trust, and sought the remaining $25,366.00 personally from McCutchen. The district court granted summary judgment for the ERISA plan for the full amount of the claimed lien of $66,866, requiring  McCutchen to sign over the $41,500 held inTrust,  and requiring him to pay the remaining $25,366 from his own funds.   

 

The Third Circuit stated that it considered the question that the U.S. Supreme Court in Sereboff (2006) left open, whether ERISA § 502(a)(3)’s requirement that equitable relief be “appropriate” means that an ERISA plan fiduciary, like U.S. Airways in this case, is limited in its recovery from a plan beneficiary, like McCutchen in this case, by the equitable defense and principles that were “typically available in equity”. Or put another way, whether equitable principles limit the scope of an ERISA plan administrator's right to reimbursement as a question of whether federal common law can override the express language of ERISA benefit plans.

 

The Third Circuit three judge panel unanimously vacated the district court’s order, which had required full payment of the U.S. Airways ERISA health plan lien, and remanded the case for the district court to fashion “appropriate equitable relief”  for U.S. Airways, because  under § 502(a)(3) of ERISA U.S. Airways claim for reimbursement is subject to “equitable limitations”.

 

InU.S. Airways v. McCutchen:

(1) The U.S. Supreme Court (9-0) reversed the Third Circuit, holding that equitable principles, such as the made whole doctrine, do not override clear terms of an ERISA plan requiring reimbursement, as the ERISA plan terms control because the terms created an equitable lien by agreement; and that the plan in McCutchen clearly required reimbursement regardless of whether the member was receiving a double recovery such that the made-whole doctrine does not apply.

McCutchen contended that U.S. Airways could recoup no more than the insured’s “double recovery”, the amount that the insured had received from the third party to compensate for the same loss covered by the health insurance, and that rule would limit U.S. Airways’ reimbursement to the share of McCutchen’s settlements paying for medical expenses, and McCutchen would keep the rest, e.g., damages for loss of future earnings or pain and suffering.

 

“If the agreement governs, the agreement governs - - -The result we reach, based upon the historical analysis our prior cases prescribe, fits lock and key with ERISA’s focus on what a plan provides. - - -  The plan, in short,, is at the center of ERISA. And precluding McCutchen’s equitable defenses from overriding plain contract terms helps it to remain there.” (slip opinion, pages 10-11)     

 

“The section under which this suit is brought “does not, after all, authorize ‘appropriate equitable relief ’ at large,” Mertens, 508 U. S., at 253 (quoting §1132(a)(3)); rather, it countenances only such relief as will enforce “the terms of the plan” or the statute, §1132(a)(3) (emphasis added). That limitation reflects ERISA’s principal function: to “protect contractually defined benefits.” Massachusetts Mut. Life Ins. Co. v. Rus­sell, 473 U. S. 134, 148 (1985). The statutory scheme, we have often noted, “is built around reliance on the face of written plan documents.” Curtiss-Wright Corp. v. Schoonejongen, 514 U. S. 73, 83 (1995). “Every employee benefit plan shall be established and maintained pursuant to a written instrument,” §1102(a)(1), and an administrator must act “in accordance with the documents and instruments governing the plan” insofar as they accord with the statute, §1104(a)(1)(D). The plan, in short, is at the center of ERISA. And precluding McCutchen’s equitable defenses from overriding plain contract terms helps it to remain there. (slip opinion, page 11) 

 

“ - - - in an action brought under §502(a)(3) based on an equitable lien by agreement, the           terms of the ERISA plan govern. Neither general principles of unjust enrichment nor specific doctrines reflecting those principles—such as the double-recovery or common-fund rules—can override the applicable contract. We therefore reject the Third Circuit’s decision.” (slip opinion, pages 16-17)  

 

The U.S. Supreme Court discusses that they rejected a similar claim in Sereboff  v. Mid Atlantic Medical Services, Inc.,547 U.S. 356, 126 S. Ct. 1869 (2006). In Sereboff, the Sereboffs contended that a variant of the double-recovery rule, called the make-whole doctrine, trumpted the plan’s terms. The Court states that in both Sereboff and McCutchen, the ERISA plans seek

 

           “to enforce the modern-day equivalent of an “equitable lien by agreement.” And         

            that kind of lien- -as its name announces—both arises from and serves to carry out          

            a contract’s provisions. - - - So enforcing the lien means holding the parties to

            their mutual promises. - - - Conversely, it means declining to apply rules—even if

            they would be “equitable” in a contract’s absence—at odds with the parties’

            expresses commitments. McCutchen therefore cannot rely on theories of unjust

            enrichment to defeat US Airways’ appeal to the plan’s clear terms. Those

            principles, as we said in Sereboff, are “beside the point” when parties emand what

            they bargained for in a valid agreement. - - - In those circumstances, hewing to the

            parties’ exchange yields “appropriate” as well as “equitable” relief.”

            (slip opinion, pages 8-9)

 

Note that both Sereboff and McCutchen leave open the question of whether equitable defenses may be applied if the plan language only speaks of “subrogation”, without separately granting a “right of reimbursement”. The Court discusses in footnote 6 that “U.S. Airways suggested at oral argument that McCutchen’s case would get a lot stronger if the plan here spoke only of subrogation, without separately granting a right of reimbursement”, and that the Court “need not consider that question because US Airways seeks to enforce a reimbursement provision, of the same kind we considered in Sereboff.” (slip opinion, page 8)

 

(2) However, the U.S. Supreme Court (5-4) also held that the plan language in McCutchen was not clear regarding the common fund doctrine, and that in the absence of clear language, the court may apply equitable principles to “fill the gap” when the plan language is silent or ambiguous; and the case was remanded to the district court to determine the amount of attorney fee reduction.          

           “ - - - if US Airways wished to depart from the well-established common-fund rule,

            it had to draft its contract to say so—and here it did not.” (slip opinion, page 12) 

 

           “But second, the common-fund rule informs interpretation of US Airways’

             reimbursement provision. Because that term does not advert to the costs of

             recovery, it is properly read to retain the common-fund doctrine.” (slip opinion,

             page 17)       

 

(3) The U.S. Supreme Court clearly reiterates [what was previously discussed in Cigna Corp. v. Amara, No. 09-804, 563 U.S. ___  , 130 S. Ct. 1754 (5-16-2011)] that the SPDs do not themselves constitute the terms of the ERISA plan, and that the contractual plan terms are set forth in the official “written instrument” adopted by authorized plan officials.

 

In McCutchen, the U.S. Supreme Court does not consider whether the SPD’s subrogation provision is not legally enforceable because there is no official “written instrument” or plan document with a subrogation provision (and no document signed by authorized plan officials incorporating by reference the SPD and its subrogation provision as part of the “written instrument” required by ERISA) because this issue wasn’t raised and briefed in the lower courts. However, the U.S. Supreme Court clearly reiterates that the SPDs are only “communication” with plan participants summarizing plan terms, that the only the official “written instrument”, adopted by authorized plan officials, is the contract between the ERISA plan and its plan participants. 

 

“1We have made clear that the statements in a summary plan description “communicat[e] with beneficiaries about the plan, but . . . do not themselves constitute the terms of the plan.” CIGNA Corp. v. Amara, 563 U. S. ___, ___ (2011) (slip op., at 15). Nonetheless, the parties litigated this case, and both lower courts decided it, based solely on the language quoted above. See 663 F. 3d 671, 673 (CA3 2011); App. to Pet. for Cert. 26a. Only in this Court, in response to a request from the Solicitor General, did the plan itself come to light. See Letter from Matthew W. H. Wessler to William K. Suter, Clerk of Court (Nov. 19,2012) (available in Clerk of Court’s case file). That is too late to affect what happens here: Because everyone in this case has treated the language from the summary description as though it came from the plan, we do so as well.” (footnote 1, slip opinion, page 3)

 

The Court further discusses the “written instrument” vs SPD issue by stating that:

 

“The section under which this suit is brought “does not, after all, authorize ‘appropriate equitable relief ’ at large,” Mertens, 508 U. S., at 253 (quoting §1132(a)(3)); rather, it countenances only such relief as will enforce “the terms of the plan” or the statute, §1132(a)(3) (emphasis added). That limitation reflects ERISA’s principal function: to “protect contractually defined benefits.” Massachusetts Mut. Life Ins. Co. v. Rus­sell, 473 U. S. 134, 148 (1985). The statutory scheme, we have often noted, “is built around reliance on the face of written plan documents.” Curtiss-Wright Corp. v. Schoonejongen, 514 U. S. 73, 83 (1995). “Every employee benefit plan shall be established and maintained pursuant to a written instrument,” §1102(a)(1), and an administrator must act “in accordance with the documents and instruments governing the plan” insofar as they accord with the statute, §1104(a)(1)(D). The plan, in short, is at the center of ERISA. And precluding McCutchen’s equitable defenses from overriding plain contract terms helps it to remain there. (slip opinion, page 11)



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