It is somewhat rare for a trial and appellate court to disagree and, upon appeal to the United States Supreme Court, find out they were both wrong. It is even rarer for both parties in this action to win and lose simultaneously in a decision. And yet, on Tuesday, April 16, 2013, the scenario described above happened in US Airways v. McCutchen. The ruling from Justice Elena Kagan was a mixed bag. On one hand, the court ruled that clear policy terms in an employer provided health care plan trump unjust enrichment and other equitable remedies. However, in the absence of a clear provision otherwise, employees who must reimburse their employers for medical expenses can deduct attorney’s fees.
James McCutchen, an employee of U.S. Airways was injured by a third party. The company medical plan paid his medical expenses to the tune of $66,866. However, a clause in the plan allowed U.S. Airways to seek reimbursement if the employee received any money from the third party. In this case, the third party paid the employee $110,000. McCutchen took home $66,000 after the 40 percent attorney contingency fee was deducted. US Airways sued under ERISA § 502(a)(3) for reimbursement. §502(a)(3) states that an employer may file a civil suit to “obtain … appropriate equitable relief … to enforce … the terms of the plan.”
The court’s decision focused on whether “equitable defenses” “can override the clear terms of the plan. The court looked at two specific equitable doctrines. First, could reimbursement be limited to the amount that would constitute “double recovery” for the insured? Second, should the party seeking reimbursement from a judgment against a third party be forced to contribute to the attorney’s fees “incurred in securing the funds from that third party”?
Justice Kagan’s decision was a win of sorts for both parties. On one hand, the court held that when an action is commenced under §502(a)(3), “the terms of the ERISA plan govern” and these types of defenses cannot override the contract. However, because the language of the allocation rules associated with this plan did not discuss attorney’s fees, Justice Kagan applied the “common-fund rule”. The “common-fund rule” states that someone who recovers [money] for the benefit of persons other than himself [] is due a reasonable attorney’s fee from the fund as a whole.” In short, because the contract did not expressly state that attorney’s fees are out, McCutchen could have claim to attorney’s fees. To allow otherwise would be to turn the employee into a “collections agent” for the company. McCutchen probably would not have pursued the third-party claim if that was the case.
In short, both parties are flying just a little high but both are also probably feeling just a bit grounded.