(CN) – The Supreme Court agreed Monday to determine whether an employee benefits plan is subject to equitable limitations when it demands reimbursement of benefits paid a covered employee who recovers money from third parties.
James McCutchen, a 51-year-old U.S. Airways employee, was seriously injured in an automobile accident when a young driver lost control of her vehicle and struck the car he was driving. As a result of that crash, a truck traveling behind McCutchen slammed into his car. When it was all over, one person was dead and two others were left with severe brain injuries.
According to his original complaint, McCutchen himself was grievously injured and survived only after emergency surgery. He spent several months in physical therapy and ultimately underwent a complete him replacement.
Since the accident, McCutchen has undergone a series of back surgeries, suffers from chronic pain, and has, by his own description, been rendered functionally disabled.
In the aftermath of the crash, U.S. Airways, through its ERISA benefits plan, paid $66,866 to cover McCutchen’s medical expenses.
In the meantime, McCutchen sued the driver that caused the accident, settling the case for $10,000. Then, at his lawyers’ assistance, he and his wife received another $100,000 in underinsured motorist coverage for a total third-party recovery of $110,000. After paying a 40 percent contingency attorney’s fee and expenses, McCutchen’s net recovery was less than $66,000.
It was then that U.S. Airways sought reimbursement for the entire $66,866. McCutchen’s attorneys responded by placing $41,500 in trust anticipating a potential reimbursement, but when McCutchen did not pay, the airline, as administrator of the ERISA benefits plan, sued.
U.S. Airways claims the language in its benefits plan permits it to recoup the $66,866 it provided for McCutchen’s medical care out of the total he recovered, regardless of his legal costs.
McCutchen contends this would be unfair and inequitable because U.S. Airways, which made no contribution to his attorneys’ fees and expenses, would be unjustly enriched if it were now permitted to recover from him without any allowance for those costs.
Indeed, he has argued, if legal costs were not taken into account, U.S. Airways, would effectively be reaching into its beneficiary’s pocket, putting him in a worse position than if he had not pursued a third-party recovery at all.
The District Court rejected McCutchen’s arguments and granted summary judgment to U.S. Airways and ordering the injured man to sign over the $41,500 in trust and to pay the plan $25,366 from his own funds.
On appeal, the 3rd Circuit concluded that US Airways’ claim for reimbursement is subject to equitable limitations, and vacated the District Court’s judgment, remanding the case for further proceedings.
The decision put it at odds with other circuits that had previously held that it would be pioneering federal common law to apply equitable limitations on an equitable claim.