For Immediate Release
Washington, DC – The ERISA Industry Committee (ERIC), along with the American Benefits Council, the Society for Human Resource Management, and the U.S. Chamber of Commerce on September 5 filed with the U.S. Supreme Court an amicus curiae (“friend of the court”) brief urging the Court to reverse an appeals court ruling overriding the terms of a benefit plan in addressing appropriate equitable relief under the Employee Retirement Income Security Act (ERISA). The case is U.S. Airways, Inc. v. McCutchen. The U.S. Supreme Court granted certiorari on June 25, 2012.
Jonathan Hacker and Brianne Gorod of O’Melveny & Myers LLP, and Robin Conrad and Shane Kawka of the National Chamber Litigation Center, Inc., drafted the brief.
The case arose when the U.S. Court of Appeals for the Third Circuit in November 2011 overruled a lower court’s decision, creating a split with other circuit courts, when it found that a health plan’s attempt to obtain reimbursement from a plan participant’s personal injury settlement was not allowed under ERISA because it would not amount to “appropriate equitable relief.”
The Court will consider whether the Third Circuit correctly held that ERISA Section 502(a)(3) authorizes courts to use equitable principles (including equitable defenses to claims) to rewrite 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. The Third Circuit ruled that such defenses can be used to override clear and specific plan provisions that set forth the subrogation rights.
The brief argues, among other things, that “[a]llowing individual courts to decide for themselves, under the guise of equity, which plan provisions will be enforced and under what circumstances, is squarely at odds with ERISA’s objective of establishing uniformity, certainty, and predictability. Plan benefits are not established by equity but by plan terms, which should not be overridden because a court might have provided for different plan benefits and terms.”
In addition, the brief argues that subrogation provisions have long been recognized under ERISA (including by the Supreme Court) and that allowing equitable defenses to take precedence over plan provisions would undermine the uniform application and administration of plans and increase plan costs.
“Allowing individual courts to decide for themselves, under the guise of equity, which plan provisions will be enforced and under what circumstances, is squarely at odds with ERISA’s objective of establishing uniformity, certainty, and predictability,” the brief argues. “Plan benefits are not established by equity but by plan terms, which should not be overridden because a court might have provided for different plan benefits and terms.”
“Indeed, if the Third Circuit ruling is allowed to stand, this will open the door to an influx of litigation from participants using equitable defense claims to rewrite the clear terms of a plan, and thus undermine the principles of ERISA,” ERIC President & CEO Scott Macey added. Macey further stated that plan benefits are set by plan terms not equitable arguments or defenses.
By upsetting the parties’ contractually-defined expectations, the Third Circuit decision is plainly inconsistent with ERISA’s text and purpose, the brief further contends. Section 502(a)(3) of ERISA authorizes courts to grant “appropriate equitable relief” only to enforce the provisions of ERISA or the terms of the benefit plan. Instead of granting equitable relief that was an “appropriate” means to enforce the terms of the plan, the court below granted equitable relief to rewrite the terms of the plan, the brief explains.
The brief warns that if the Third Circuit decision is affirmed, and “courts begin opening equitable escape hatches to the enforcement of unambiguous reimbursement provisions and other plan terms, there is little doubt that premiums will increase, or benefits will be reduced, or both.”
Finally, the brief argues that enforcing plan reimbursement provisions does not produce unjust results, and reflects a rational and fair contractual bargain. “When an employer sponsors an employee benefits plan, it is agreeing to provide only those benefits that are specified in the text of the governing documents, and only on such terms as those documents provide,” the brief says. “Here, the governing documents could hardly be more clear that the plan would be entitled to reimbursement to the full extent of any third-party recovery.”
The brief can be accessed by clicking on the link below: