January 5th, 2012

Third Circuit makes a u-turn in US Airways v. McCutcheon

In an illogical panel decision that has many scratching their heads and preparing to fight back, the Third Circuit Court of Appeals refused to follow its own earlier decisions and agreed that certain lien reduction principles may be “appropriate” regardless of the ERISA plan’s subrogation language.

 

The US Airways’ self-funded plan paid out $66,866 in a case that settled for two policy amounts totaling $110,000. After attorney’s fees, McCutchen was left with $66,000. US Airways demanded 100% reimbursement and McCutcheon refused. The District court, relying on prior 3rd Circuit cases (See Bollman Hat Co. v. Root, 112 F.3d 113 (3d Cir.1997) and Ryan v. Federal Express, 78 F.3d 123 (3rd Cir., 1996)) as well as the plan’s subrogation provision, found for US Airways in entirety.  McCutcheon appealed.  At issue with the 3rd Circuit Court of Appeals was the meaning of “appropriate equitable relief” (29 U.S.C. 502(A) left open by Sereboff.  In reversing the District Court’s opinion, the panel found in its November, 2011 decision that it would be a windfall for US Airways to recover their entire lien without paying a share of attorney’s fees. The court reasoned that through the use of the term “appropriate equitable relief” Congress intended to allow the defenses typically available in equity, i.e., unjust enrichment. The case was remanded to the district court for a determination of how attorney’s fees should be apportioned.

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