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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.