US Airways v. McCutchen

James McCutchen (defendant) was an employee of US Airways, Inc. (plaintiff) and participated in his employer’s health-benefits plan established under the Employee Retirement Income Security Act (ERISA). The plan included a reimbursement clause providing that if McCutchen was injured by a third party, the plan would cover the expenses, and McCutchen would reimburse the plan from any recovery he received from third parties, whether by lawsuit or from his own outside insurance. The plan did not address recovery costs. McCutchen was injured in a car accident and filed suit against the other driver. McCutchen received only a fraction of his medical-expenses total from the lawsuit settlement, but his lawyers secured additional funds from McCutchen’s auto insurer. McCutchen’s lawyers were contractually entitled to a 40 percent contingency fee on his total recovery. US Airways demanded reimbursement for the medical expenses it covered, and McCutchen refused. With the full recovery reduced by the attorney’s fees, McCutchen would have owed several hundred dollars to US Airways out-of-pocket to fully cover the reimbursement claim. Until the dispute could be settled, McCutchen’s attorneys placed a portion of the recovery funds in an escrow account to cover US Airways’ reimbursement amount, reduced by their allotted attorney’s fees. US Airways filed suit in federal district court for the full medical reimbursement on ERISA § 502(a)(3) grounds. The district court granted summary judgment to US Airways, and McCutchen appealed to the Third Circuit. McCutchen argued, among other things, that US Airways was required to share the litigation costs of his third-party recovery efforts. The court of appeals vacated the district court’s order, stating that the reimbursement provision was not equitable. US Airways appealed to the United States Supreme Court.