NOTICE: This opinion is subject to
formal revision before publication in the preliminary print of the
United States Reports. Readers are requested to notify the Reporter
of Decisions, Supreme Court of the United States, Washington,
D. C. 20543, of any typographical or other formal errors, in
order that corrections may be made before the preliminary print
goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 11–1285
_________________
US AIRWAYS, INC., in its capacity as fiduciary
and plan administrator of the US AIRWAYS, INC. EMPLOYEE BENEFITS
PLAN, PETITIONER
v. JAMES E. McCUTCHEN et al.
on writ of certiorari to the united states
court of appeals for the third circuit
[April 16, 2013]
Justice Kagan delivered the opinion of the
Court.
Respondent James McCutchen participated in a
health benefits plan that his employer, petitioner US Airways,
established under the Employee Retirement Income Security Act of
1974 (ERISA), 29 U. S. C. §1001
et seq. That
plan obliged US Airways to pay any medical ex- penses McCutchen
incurred as a result of a third party’s actions—for example,
another person’s negligent driving. The plan in turn entitled US
Airways to reimbursement if McCutchen later recovered money from
the third party.
This Court has held that a health-plan
administrator like US Airways may enforce such a reimbursement
provision by filing suit under §502(a)(3) of ERISA, 88Stat. 891, 29
U. S. C. §1132(a)(3). See
Sereboff v.
Mid
Atlantic Medical Services, Inc.,
547 U.S.
356 (2006). That section authorizes a civil action “to obtain
. . . appropriate equitable relief . . . to
enforce . . . the terms of the plan.” We here consider
whether in that kind of suit, a plan participant like McCutchen may
raise certain equitable defenses deriving from principles of unjust
enrichment. In particular, we address one equitable doctrine
limiting reimbursement to the amount of an insured’s “double
recovery” and another requiring the party seeking reimbursement to
pay a share of the attorney’s fees incurred in securing funds from
the third party. We hold that neither of those equitable rules can
override the clear terms of a plan. But we explain that the latter,
usually called the common-fund doctrine, plays a role in
interpreting US Airways’ plan because the plan is silent about
allocating the costs of recovery.
I
In January 2007, McCutchen suffered serious
injuries when another driver lost control of her car and collided
with McCutchen’s. At the time, McCutchen was an employee of US
Airways and a participant in its self-funded health plan. The plan
paid $66,866 in medical expenses arising from the accident on
McCutchen’s behalf.
McCutchen retained attorneys, in exchange for a
40% contingency fee, to seek recovery of all his accident-related
damages, estimated to exceed $1 million. The attorneys sued the
driver responsible for the crash, but settled for only $10,000
because she had limited insurance coverage and the accident had
killed or seriously injured three other people. Counsel also
secured a payment from McCutchen’s own automobile insurer of
$100,000, the maximum amount available under his policy. McCutchen
thus received $110,000—and after deducting $44,000 for the lawyer’s
fee, $66,000.
On learning of McCutchen’s recovery, US Airways
demanded reimbursement of the $66,866 it had paid in medical
expenses. In support of that claim, US Airways relied on the
following statement in its summary plan description:
“If [US Airways] pays benefits for any
claim you incur as the result of negligence, willful misconduct, or
other actions of a third party, . . . [y]ou will be
required to reimburse [US Airways] for amounts paid for claims out
of any monies recovered from [the] third party, including, but not
limited to, your own insurance company as the result of judgment,
settlement, or otherwise.” App. 20.[
1]
McCutchen denied that US Airways was entitled to
any reimbursement, but his attorneys placed $41,500 in an escrow
account pending resolution of the dispute. That amount represented
US Airways’ full claim minus a proportionate share of the promised
attorney’s fees.
US Airways then filed this action under
§502(a)(3), seeking “appropriate equitable relief” to enforce the
plan’s reimbursement provision. The suit requested an equitable
lien on $66,866—the $41,500 in the escrow account and $25,366 more
in McCutchen’s possession. McCutchen countered by raising two
defenses relevant here. First, he maintained that US Airways could
not receive the relief it sought because he had recovered only a
small portion of his total damages; absent over-recovery on his
part, US Airways’ right to reimbursement did not kick in. Second,
he contended that US Airways at least had to contribute its fair
share to the costs he incurred to get his recovery; any
reimbursement therefore had to be marked down by 40%, to cover the
promised contingency fee. The District Court rejected both
arguments, granting summary judgment to US Airways on the ground
that the plan “clear[ly] and unambiguous[ly]” provided for full
reimbursement of the medical expenses paid. App. to Pet. for Cert.
30a; see
id., at 32a.
The Court of Appeals for the Third Circuit
vacated the District Court’s order. The Third Circuit reasoned that
in a suit for “appropriate equitable relief” under §502(a)(3), a
court must apply any “equitable doctrines and defenses” that
traditionally limited the relief requested. 663 F.3d 671, 676 (CA3
2011). And here, the court continued, “ ‘the principle of
unjust enrichment’ ” should “ ‘serve to limit the
effectiveness’ ” of the plan’s reimbursement provision. See
id., at 677 (quoting 4 G. Palmer, Law of Restitution §23.18,
p. 472–473 (1978)). Full reimbursement, the Third Circuit thought,
would “leav[e] [McCutchen] with less than full payment” for his
medical bills; at the same time, it would provide a “windfall” to
US Airways given its failure to “contribute to the cost of
obtaining the third-party recovery.” 663 F. 3d, at 679. The
Third Circuit then instructed the District Court to determine what
amount, shy of the entire $66,866, would qualify as “appropriate
equitable relief.”
Ibid.
We granted certiorari, 567 U. S. ___
(2012), to resolve a circuit split on whether equitable defenses
can so override an ERISA plan’s reimbursement provision.[
2] We now vacate the Third Circuit’s
decision.
II
A health-plan administrator like US Airways
may bring suit under §502(a)(3) for “appropriate equitable relief
. . . to enforce . . . the terms of the
plan.”[
3] That provision, we
have held, authorizes the kinds of relief “typically available in
equity” in the days of “the divided bench,” before law and equity
merged.
Mertens v.
Hewitt Associates,
508 U.S.
248, 256 (1993) (emphasis deleted).
In
Sereboff v.
Mid Atlantic Medical
Services, we allowed a health-plan administrator to bring a
suit just like this one under §502(a)(3). Mid Atlantic had paid
medical expenses for the Sereboffs after they were injured in a car
crash. When they settled a tort suit against the other driver, Mid
Atlantic claimed a share of the proceeds, invoking the plan’s
reimbursement clause. We held that Mid Atlantic’s action sought
“equitable relief,” as §502(a)(3) requires. See 547 U. S., at
369. The “nature of the recovery” requested was equitable because
Mid Atlantic claimed “specifically identifiable funds” within the
Sereboffs’ control—that is, a portion of the settlement they had
gotten.
Id., at 362–363 (internal quotation marks omitted).
And the “basis for [the] claim” was equitable too, because Mid
Atlantic relied on “ ‘the familiar rul[e] of equity that a
contract to convey a specific object’ ” not yet acquired
“ ‘create[s] a lien’ ” on that object as soon as
“ ‘the contractor . . . gets a title to the
thing.’ ”
Id., at 363–364 (quoting
Barnes v.
Alexander,
232 U.S.
117, 121 (1914)). Mid Atlantic’s claim for reimbursement, we
determined, was the modern-day equivalent of an action in equity to
enforce such a contract-based lien—called an “equitable lien by
agreement.” 547 U. S., at 364–365 (internal quotation marks
omitted). Accordingly, Mid Atlantic could bring an action under
§502(a)(3) seeking the funds that its beneficiaries had promised to
turn over. And here, as all parties agree, US Airways can do the
same thing.
The question in this case concerns the role that
equitable defenses alleging unjust enrichment can play in such a
suit. As earlier noted, the Third Circuit held that “the principle
of unjust enrichment” overrides US Airways’ reimbursement clause if
and when they come into conflict. 663 F. 3d, at 677. McCutchen
offers a more refined version of that view, alleging that two
specific equitable doctrines meant to “prevent unjust enrichment”
defeat the reimbursement provision. Brief for Respondents i. First,
he contends that in equity, an insurer in US Airways’ position
could recoup no more than an insured’s “double recovery”—the amount
the insured has received from a third party to compensate for the
same loss the insurance covered. That rule would limit US Airways’
reimbursement to the share of McCutchen’s settlements paying for
medical expenses; McCutchen would keep the rest (
e.g.,
damages for loss of future earnings or pain and suffering), even
though the plan gives US Airways first claim on the whole
third-party recovery. Second, McCutchen claims that in equity the
common-fund doctrine would have operated to reduce any award to US
Airways. Under that rule, “a litigant or a lawyer who recovers a
common fund for the benefit of persons other than himself or his
client is entitled to a reasonable attorney’s fee from the fund as
a whole.”
Boeing Co. v.
Van Gemert,
444 U.S.
472, 478 (1980). McCutchen urges that this doctrine, which is
designed to prevent freeloading, enables him to pass on a share of
his lawyer’s fees to US Airways, no matter what the plan
provides.[
4]
We rejected a similar claim in
Sereboff,
though without altogether foreclosing McCutchen’s position. The
Sereboffs argued, among other things, that the lower courts erred
in enforcing Mid Atlantic’s reimbursement clause “without imposing
various limitations” that would “apply to truly equitable relief
grounded in principles of subrogation.”[
5] 547 U. S., at 368 (internal quotation marks
omitted). In particular, the Sereboffs contended that a variant of
the double-recovery rule, called the make-whole doctrine, trumped
the plan’s terms. We rebuffed that argument, explaining that the
Sereboffs were improperly mixing and matching rules from different
equitable boxes. The Sereboffs asserted a “parcel of equitable
defenses” available when an out-of-pocket insurer brought a
“freestanding action for equitable subrogation,” not founded on a
contract, to succeed to an insured’s judgment against a third
party.
Ibid. But Mid Atlantic’s reimbursement claim was
“considered equitable,” we replied, because it sought to enforce a
“ lien based on agreement ”—
not a lien imposed
independent of contract by virtue of equitable
subrogation.[
6]
Ibid.
(internal quotation marks omitted). In light of that fact, we
viewed the Sereboffs’ equitable defenses—which again, closely
resemble McCutchen’s—as “beside the point.”
Ibid. And yet,
we left a narrow opening for future litigants in the Sereboffs’
position to make a like claim. In a footnote, we observed that the
Sereboffs had forfeited a “distinct assertion” that the
contract-based relief Mid Atlantic requested, although “equitable,”
was not “appropriate” under §502(a)(3) because “it contravened
principles like the make-whole doctrine.”
Id., at 368–369 n.
2. Enter McCutchen, to make that basic argument.
In the end, however,
Sereboff’s logic
dooms McCutchen’s effort. US Airways, like Mid Atlantic, is seeking
to enforce the modern-day equivalent of an “equitable lien by
agreement.” And that kind of lien—as its name announces—both arises
from and serves to carry out a contract’s provisions. See
id., at 363–364; 4 S. Symons, Pomeroy’s Equity Jurisprudence
§1234, p. 695 (5th ed. 1941). So enforcing the lien means holding
the parties to their mutual promises. See,
e.g.,
Barnes, 232 U. S., at 121;
Walker v.
Brown,
165 U.S.
654, 664 (1897). Conversely, it means declining to apply
rules—even if they would be “equitable” in a contract’s absence—at
odds with the parties’ expressed commitments. McCutchen therefore
cannot rely on theories of unjust enrichment to defeat US Airways’
appeal to the plan’s clear terms. Those principles, as we said in
Sereboff, are “beside the point” when parties demand what
they bargained for in a valid agreement. See Restatement (Third) of
Restitution and Unjust Enrichment §2(2), p. 15 (2010) (“A valid
contract defines the obligations of the parties as to matters
within its scope, displacing to that extent any inquiry into unjust
enrichment”). In those circumstances, hewing to the parties’
exchange yields “appropriate” as well as “equitable” relief.
We have found nothing to the contrary in the
historic practice of equity courts. McCutchen offers us a slew of
cases in which those courts applied the double-recovery or
common-fund rule to limit insurers’ efforts to recoup funds from
their beneficiaries’ tort judgments. See Brief for Respondents
21–25. But his citations are not on point. In some of McCutchen’s
cases, courts apparently applied equitable doctrines in the absence
of any relevant contract provision. See,
e.g., Washtenaw Mut.
Fire Ins. Co. v.
Budd, 208 Mich. 483, 486–487, 175 N.W.
231, 232 (1919);
Fire Assn. of Philadelphia v.
Wells,
84 N. J. Eq. 484, 487, 94 A. 619, 621 (1915). In others,
courts found those rules to comport with the applicable contract
term. For example, in
Svea Assurance Co. v.
Packham,
92 Md. 464, 48 A. 359 (1901)—the case McCutchen calls his best, see
Tr. of Oral Arg. 47–48—the court viewed the double-recovery rule as
according with “the intention” of the contracting parties; “[b]road
as [the] language is,” the court explained, the agreement “cannot
be construed to” give the insurer any greater recovery. 92 Md., at
478, 48 A., at 362; see also
Knaffl v.
Knoxville Banking
& Trust Co., 133 Tenn. 655, 661, 182 S.W. 232, 233 (1916);
Camden Fire Ins. Assn. v.
Prezioso, 93 N. J. Eq.
318, 319–320, 116 A. 694, 694 (Ch. Div. 1922). But in none of these
cases—nor in any other we can find—did an equity court apply the
double-recovery or common-fund rule to override a plain contract
term. That is, in none did an equity court do what McCutchen asks
of us.
Nevertheless, the United States, appearing as
amicus curiae, claims that the common-fund rule has a
special capacity to trump a conflicting contract. The Government
begins its brief foursquare with our (and
Sereboff’s)
analysis: In a suit like this one, to enforce an equitable lien by
agreement, “the agreement, not general restitutionary principles of
unjust enrichment, provides the measure of relief due.” Brief for
United States 6. Because that is so, the Government (naturally
enough) concludes, McCutchen cannot invoke the double-recovery rule
to defeat the plan. But then the Government takes an unexpected
turn. “When it comes to the costs incurred” by a beneficiary to
obtain money from a third party, “the terms of the plan do not
control.”
Id., at 21. An equity court, the Government
contends, has “inherent authority” to apportion litigation costs in
accord with the “longstanding equitable common-fund doctrine,” even
if that conflicts with the parties’ contract.
Id., at
22.
But if the agreement governs, the agreement
governs: The reasons we have given (and the Government mostly ac-
cepts) for looking to the contract’s terms do not permit an
attorney’s-fees exception. We have no doubt that the common-fund
doctrine has deep roots in equity. See
Sprague v.
Ticonic
Nat. Bank,
307 U.S.
161, 164 (1939) (tracing equity courts’ authority over fees to
the First Judiciary Act). Those roots, however, are set in the soil
of unjust enrichment: To allow “others to obtain full benefit from
the plaintiff’s efforts without contributing . . . to the
litigation expenses,” we have often noted, “would be to enrich the
others unjustly at the plaintiff’s expense.”
Mills v.
Electric Auto-Lite Co.,
396 U.S.
375, 392 (1970); see
Boeing, 444 U. S., at 478;
Trustees v.
Greenough,
105 U.S.
527, 532 (1882);
supra, at 6–7 and n. 4. And as we have
just explained, principles of unjust enrichment give way when a
court enforces an equitable lien by agreement. See
supra, at
8–9. The agreement itself becomes the measure of the parties’
equities; so if a contract abrogates the common-fund doctrine, the
insurer is not unjustly enriched by claiming the benefit of its
bargain. That is why the Government, like McCutchen, fails to
produce a single case in which an equity court applied the
common-fund rule (any more than the double-recovery rule) when a
contract provided to the contrary. Even in equity, when a party
sought to enforce a lien by agreement, all provisions of that
agreement controlled. So too, then, in a suit like this one.
The result we reach, based on the historical
analysis our prior cases prescribe, fits lock and key with ERISA’s
focus on what a plan provides. The section under which this suit is
brought “does not, after all, authorize ‘appropriate equitable
relief’
at large,”
Mertens, 508 U. S., at 253
(quoting §1132(a)(3)); rather, it countenances only such relief as
will enforce “
the terms of the plan” or the statute,
§1132(a)(3) (emphasis added). That limitation reflects ERISA’s
principal function: to “protect contractually defined benefits.”
Massachusetts Mut. Life Ins. Co. v.
Russell,
473 U.S.
134, 148 (1985). The statutory scheme, we have often noted, “is
built around reliance on the face of written plan documents.”
Curtiss-Wright Corp. v.
Schoonejongen,
514 U.S.
73, 83 (1995). “Every employee benefit plan shall be
established and maintained pursuant to a written instrument,”
§1102(a)(1), and an administrator must act “in accordance with the
documents and instruments governing the plan” insofar as they
accord with the statute, §1104(a)(1)(D). The plan, in short, is at
the center of ERISA. And precluding McCutchen’s equitable defenses
from overriding plain contract terms helps it to remain there.
III
Yet McCutchen’s arguments are not all for
naught. If the equitable rules he describes cannot trump a
reimbursement provision, they still might aid in properly
construing it. And for US Airways’ plan, the common-fund doctrine
(though not the double-recovery rule) serves that function. The
plan is silent on the allocation of attorney’s fees, and in those
circumstances, the common-fund doctrine provides the appropriate
default. In other words, if US Airways wished to depart from the
well-established common-fund rule, it had to draft its contract to
say so—and here it did not.[
7]
Ordinary principles of contract interpretation
point toward this conclusion. Courts construe ERISA plans, as they
do other contracts, by “looking to the terms of the plan” as well
as to “other manifestations of the parties’ intent.”
Firestone
Tire & Rubber Co. v.
Bruch,
489
U.S. 101, 113 (1989). The words of a plan may speak clearly,
but they may also leave gaps. And so a court must often “look
outside the plan’s written language” to decide what an agreement
means.
CIGNA Corp. v.
Amara, 563 U. S. ___, ___
(slip op., at 13); see
Curtiss-Wright, 514 U. S., at
80–81. In undertaking that task, a court properly takes account of
background legal rules—the doctrines that typically or
traditionally have governed a given situation when no agreement
states otherwise. See
Wal-Mart Stores, Inc. Assoc. Health
& Welfare Plan v.
Wells,
213 F.3d 398, 402 (CA7 2000) (Posner, J.) (“[C]ontracts
. . . are enacted against a background of common-sense
understandings and legal principles that the parties may not have
bothered to incorporate expressly but that operate as default rules
to govern in the absence of a clear expression of the parties’
[contrary] intent”); 11 R. Lord, Williston on Contracts §31:7 (4th
ed. 2012); Restatement (Second) of Contracts §221 (1979). Indeed,
ignoring those rules is likely to frustrate the parties’ intent and
produce perverse consequences.
The reimbursement provision at issue here
precludes looking to the double-recovery rule in this manner. Both
the contract term and the equitable principle address the same
problem: how to apportion, as between an insurer and a beneficiary,
a third party’s payment to recompense an injury. But the allocation
formulas they prescribe differ markedly. According to the plan, US
Airways has first claim on the entire recovery—as the plan
description states, on “any monies recovered from [the] third
party”; McCutchen receives only whatever is left over (if
anything). See
supra, at 3. By contrast, the double-recovery
rule would give
McCutchen first dibs on the portion of the
recovery compensating for losses that the plan did not cover
(
e.g., future earnings or pain and suffering); US Airways’
claim would attach only to the share of the recovery for medical
expenses. See
supra, at 6–7. The express contract term, in
short, contradicts the background equitable rule; and where that is
so, for all the reasons we have given, the agreement must
govern.
By contrast, the plan provision here leaves
space for the common-fund rule to operate. That equitable doctrine,
as earlier noted, addresses not how to allocate a third-party
recovery, but instead how to pay for the costs of obtaining it. See
supra, at 7. And the contract, for its part, says nothing
specific about that issue. The District Court below thus erred when
it found that the plan clearly repudiated the common-fund rule. See
supra, at 4. To be sure, the plan’s allocation formula—first
claim on the recovery goes to US Airways—
might operate on
every dollar received from a third party, even those covering the
beneficiary’s litigation costs. But alternatively, that formula
could apply to only the true recovery, after the costs of obtaining
it are deducted. (Consider, for comparative purposes, how an income
tax is levied on net, not gross, receipts.) See Dawson, Lawyers and
Involuntary Clients: Attorney Fees From Funds, 87 Harv.
L. Rev. 1597, 1606–1607 (1974) (“[T]he claim for legal
services is a first charge on the fund and must be satisfied before
any distribution occurs”). The plan’s terms fail to select between
these two alternatives: whether the recovery to which US Airways
has first claim is every cent the third party paid or, instead, the
money the beneficiary took away.
Given that contractual gap, the common-fund
doctrine provides the best indication of the parties’ intent. No
one can doubt that the common-fund rule would govern here in the
absence of a contrary agreement. This Court has “recognized
consistently” that someone “who recovers a common fund for the
benefit of persons other than himself” is due “a reasonable
attorney’s fee from the fund as whole.”
Boeing Co., 444
U. S., at 478. We have understood that rule as “reflect[ing]
the traditional practice in courts of equity.”
Ibid.; see
Sprague, 307 U. S., at 164–166;
supra, at 11.
And we have applied it in a wide range of circumstances as part of
our inherent authority. See
Boeing Co., 444 U. S., at
474, 478;
Hall v.
Cole,
412 U.S.
1, 6–7 and n. 7 (1973);
Mills, 396 U. S., at
389–390, 392;
Sprague, 307 U. S., at 166;
Central
Railroad & Banking Co. of Ga. v.
Pettus,
113 U.S.
116, 126–127 (1885);
Greenough, 105 U. S., at 528,
531–533. State courts have done the same; the “overwhelming
majority” routinely use the common-fund rule to allocate the costs
of third-party recoveries between insurers and beneficiaries. 8A
Appleman §4903.85, at 335 (1981); see Annot., 2 A. L. R.
3d 1441, §§2–3 (1965 and Supp. 2012). A party would not typically
expect or intend a plan saying nothing about attorney’s fees to
abrogate so strong and uniform a background rule. And that means a
court should be loath to read such a plan in that way.[
8]
The rationale for the common-fund rule
reinforces that conclusion. Third-party recoveries do not often
come free: To get one, an insured must incur lawyer’s fees and
expenses. Without cost sharing, the insurer free rides on its
beneficiary’s efforts—taking the fruits while contributing nothing
to the labor. Odder still, in some cases—indeed, in this case—the
beneficiary is made worse off by pursuing a third party. Recall
that McCutchen spent $44,000 (representing a 40% contingency fee)
to get $110,000, leaving him with a real recovery of $66,000. But
US Airways claimed $66,866 in medical expenses. That would put
McCutchen $866 in the hole; in effect, he would pay for the
privilege of serving as US Airways’ collection agent. We think
McCutchen would not have foreseen that result when he signed on to
the plan. And we doubt if even US Airways should want it. When the
next McCutchen comes along, he is not likely to relieve US Airways
of the costs of recovery. See
Blackburn v.
Sundstrand
Corp.,
115 F.3d 493,
496 (CA7 1997) (Easterbrook, J.) (“[I]f . . . injured
persons could not charge legal costs against recoveries, people
like [McCutchen] would in the future have every reason” to make
different judgments about bringing suit, “throwing on plans the
burden and expense of collection”). The prospect of generating
those strange results again militates against reading a general
reimbursement provision—like the one here—for more than it is
worth. Only if US Airways’ plan expressly addressed the costs of
recovery would it alter the common-fund doctrine.
IV
Our holding today has two parts, one favoring
US Airways, the other McCutchen. First, in an action brought under
§502(a)(3) based on an equitable lien by agreement, the terms of
the ERISA plan govern. Neither general principles of unjust
enrichment nor specific doctrines reflecting those principles—such
as the double-recovery or common-fund rules—can override the
applicable contract. We therefore reject the Third Circuit’s
decision. But second, the common-fund rule informs interpretation
of US Airways’ reimbursement provision. Because that term does not
advert to the costs of recovery, it is properly read to retain the
common-fund doctrine. We therefore also disagree with the District
Court’s decision. In light of these rulings, we vacate the judgment
below and re- mand the case for further proceedings consistent with
this opinion.
It is so ordered.