Although the question presented in U.S. Airways v. McCutchen is facially one of statutory interpretation, the case fundamentally turns on which traditional theory of liability is most analogous to an ERISA reimbursement claim.  Thus, it is unsurprising that many of the questions during Tuesday’s oral argument required the parties’ counsel to explain how those theories were historically treated by courts of equity – or, as Justice Breyer put it, what “Lord Cooke or someone said” about them “in the 18th century.” [We have quoted the transcript, but are advised that the correct spelling is "Coke."] What is perhaps more surprising is the extent to which the Justices focused on the specific circumstances of this case – including the question of whether U.S. Airways’ ERISA plan actually says what the lower courts assumed it did.

Arguing for U.S. Airways, Neal Katyal quickly faced questioning from Justices Ginsburg, Kennedy, and Sotomayor about a procedural anomaly in this case: the document that the lower courts treated as the airline’s ERISA plan (and thus the basis for its Section 502(a)(3) claim) is not in fact the company’s plan.  Instead, it is a document entitled “Summary Plan Description,” which was provided to employees in lieu of the actual plan.  The plan itself was not part of the record below, and McCutchen provided a copy to the Supreme Court only days before the argument.  Noting that the plan controls in the event of a discrepancy, Justice Ginsburg contended that the Court should look to the plan, not the summary, to determine the scope of the parties’ contractual rights.  And the plan itself, she noted, does not contain an express “reimbursement” clause and does not clearly abrogate the common fund doctrine.

Katyal responded by arguing that McCutchen had waived any argument that the plan differs materially from the summary.  He noted that the district court had deemed the parties’ agreement unambiguous with respect to abrogating the common fund doctrine, and McCutchen never challenged that finding before the court of appeals or the Supreme Court.  Justice Kennedy seemed unpersuaded, asking Katyal, “[Y]ou want us to decide a case without looking at the plan?”  Justice Scalia, however, clearly agreed with the waiver argument, observing that the Court did not take the case to decide “what this particular individual plan said” and would not have granted certiorari had there been any dispute on that issue.

On the merits, Justice Kagan sought to clarify the distinctions between the competing equitable theories in the case, asking Katyal, “[H]ow do you know whether you have a reimbursement agreement or a subrogation agreement and what follows from that categorization?”  Katyal responded that if the contract in this case were a subrogation agreement, McCutchen’s case would “get[] a lot stronger,” because such agreements are vicarious in nature, meaning that the insurer agrees “to inherit all of the benefits and burdens of the insured in bringing an action.”  He argued, however, that under the Court’s 2006 decision in Sereboff v. Mid Atlantic Medical Services, Inc., the airline’s plan is properly characterized as a reimbursement agreement.  In Sereboff, the Court held that a Section 502(a)(3) action involving reimbursement language similar to that at issue here was “indistinguishable from an action to enforce an equitable lien by agreement,” and therefore was not subject to the “parcel of equitable defenses” that accompany “a freestanding action for equitable subrogation.”

Next to argue was Assistant to the Solicitor General Joseph Palmore on behalf of the United States.  Palmore faced difficult questions from Justices Breyer and Scalia about the legal basis for the rule advanced by the government – namely, that courts may reduce an insurer’s reimbursement on the basis of the common fund doctrine but may not do so under other equitable theories.  Justice Scalia in particular seemed skeptical that such a distinction could be drawn, telling Palmore, “you either say that the agreement can be overcome by equity, or else you say the agreement prevails.”  In response, Palmore argued that the common fund doctrine is rooted in a different line of authority from that of unjust enrichment.  The former, he argued, arose out of principles of trust law that gave equity courts “broad reformation powers” over agreements in order to ensure that the trustee was fairly reimbursed for securing a benefit for the beneficiaries.

Toward the end of Palmore’s argument, the Chief Justice provided something of a rebuke to the Solicitor General’s office for its handling of situations in which the government changes its position on a particular issue.  In its brief in this case, the government noted that in 2003, the Secretary of Labor had taken the position that the common fund doctrine could not alter the written terms of a plan.  The government’s brief explained the change in position by stating that “[u]pon further reflection . . . the Secretary is now of the view” that the common fund doctrine does in fact apply to these cases.  At oral argument, the Chief Justice described that explanation as “a little disingenuous”:  the actual reason for the change, he contended, is not that “the secretary has reviewed the matter further,” but rather that “[w]e have a new secretary now under a new administration.”  In such circumstances, he advised Palmore, “[i]t would be more candid for your office to tell us” that the government’s new position is the result of the change in administrations.

Representing the respondents, Matthew Wessler was pressed by Justice Kagan about how this case can be distinguished from Sereboff.  Wessler responded that Sereboff said only that the equitable defenses associated with a free-standing, or implied, subrogation claim were barred in a Section 502(a)(3) action.  By contrast, he argued, the claim here is based on an express agreement.  Justice Sotomayor then asked what the difference between the two types of claims is, and Wessler responded, “When it comes to the rules that govern relief, there is no difference.  The same principle of unjust enrichment controls . . . .”  Justice Sotomayor appeared unwilling to accept that conclusion: “It’s a bit unsettling that you’ve got two kinds of rights, one implied and one express, and there’s no difference between the two? . . . [Y]ou’ve got to give them a little bit more body to have a persuasive argument.”

Other Justices appeared to take a dim view of the respondents’ contention that U.S. Airways would be unjustly enriched by receiving full reimbursement of its payment.  Justice Ginsburg asked Wessler, “Why is the plan unjustly enriched by receiving exactly what the plan entitles it to receive?”  Similarly, Justice Breyer observed that parties in McCutchen’s position are “free to sue; it’s just your lawyer who’s going to come at the end of the queue . . . . [W]hy is that unfair?”  Wessler responded by distinguishing between the rules that applied to equitable claims and those governing legal claims in the days of the divided bench.  A plaintiff who brought a claim in equity, he argued, “could not defeat the rules that typically apply” in such cases.  Upon questioning by Justice Kagan, however, Wessler acknowledged that this issue “did not arise that frequently in courts of equity.”

Overall, it would appear that there are likely at least five votes to reverse the Third Circuit’s decision to remand the case for application of unjust enrichment principles.  What is less clear is whether the Court will accept the government’s proposal to carve out an exception for the common fund doctrine in these cases, or will instead adopt a more restrictive rule that permits a court to exercise equitable power under Section 502(a)(3) only to enforce the terms of a plan.

Posted in U.S. Airways v. McCutchen, Merits Cases

Recommended Citation: Kevin Amer, Argument recap: What would Lord Coke do?, SCOTUSblog (Nov. 30, 2012, 12:16 PM), http://www.scotusblog.com/2012/11/argument-recap-what-would-lord-cooke-do/