“Appropriate Equitable Relief” Under ERISA is Qualified by Equitable Defenses and Limitations

US Airways, Inc. v. McCutchen, 663 F.3d 671 (3d Cir. 2011).  After defendant McCutchen suffered a serious auto accident, a benefit plan administered by plaintiff US Airways paid him nearly $67,000 for his medical expenses.  When McCutchen recovered a larger sum than that from third parties, US Airways demanded reimbursement of the amount that it had paid McCutchen, without any deduction for the legal costs that McCutchen had incurred in obtaining his recovery.  That would have resulted in McCutchen realizing less than full payment for his medical bills, and would have effectively penalized him for pursuing recovery from third parties. 

US Airways sued under section 502(a)(3) of the Employee Retirement Income Security Act of 1974, 29 U.S.C. §1132(a)(3)(B), for “appropriate equitable relief.”  McCutchen asserted that he should be able to assert equitable concepts, such as unjust enrichment, in defense of that claim.  In an opinion by Judge Fuentes, the Third Circuit agreed.

The panel noted that Congress had carefully given benefit plan beneficiaries greater rights than plan fiduciaries to enforce the terms of a benefit plan.  Beneficiaries have a general ability to enforce their “rights under the plan,” while fiduciaries are limited to seeking “appropriate equitable relief.”  Judge Fuentes cited United States Supreme Court precedent that had construed “appropriate equitable relief” as meaning “something less than all relief” (emphasis in original).  “By the same logic, ‘appropriate equitable relief’ must be something less than all equitable relief” (emphasis in original).  Judge Fuentes observed that “it would be strange for Congress to have intended that relief under § 502(a)(3) be limited to traditional equitable categories, but not limited by other equitable doctrines and defenses that were traditionally applicable to those categories.”

US Airways cited cases from other Circuit Courts of Appeal that had reached the opposite conclusion.  Judge Fuentes declined to follow those cases, stating that those cases “depart from the text of ERISA” by not “asking whether the relief sought in the action is ‘appropriate’ under traditional equitable principles and doctrines.”  The panel remanded to the district court to apply equitable principles and determine how much US Airways could recover from McCutchen, while cautioning that any ultimate award should not constitute a windfall to US Airways.

This ruling is in the best spirit of classic Equity.  A party that seeks “appropriate equitable relief” must take the bitter with the sweet, and be subjected to appropriate equitable defenses to that “appropriate equitable relief.”