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JUSTICE SERVED! McCutchen Gets Final Victory Over the ERISA Plan

On March 16, 2016, the Western District of Pennsylvania sounded the final note in the saga that was the McCutchen case. Thankfully it vindicated the now deceased James McCutchen. The Western District Courts’ ruling spoke to several points raised by the parties, but the “common fund” issue is of particular importance. The court ruled, much as Synergy has been arguing for two years, that the plan language must be exceedingly clear to abrogate “common fund.” In fact, Synergy’s position is that the words “common fund” are near magic words that must appear in the plan language. Without those two magic words, it is Synergy’s position that a reduction for attorney’s fees and costs must be applied against the ERISA Plan’s claim.

The standard the U.S. Supreme Court articulated in U.S. Airways v. McCutchen, 133 S.Ct. 1537 (2013), to overcome the equitable principle of “common fund” is a high one. Justice Kagan wrote “common fund” is a “strong and uniform [ ] back-ground rule.” Certainly the Court does allow plan language to overcome “common fund” with clear, precise plan language, but they also said federal courts “should be loath to read [ ] a plan that way.”

In explaining why the lower courts should be so unwilling to find unclear plan language abrogating common fund, the Court wrote:

“The rationale for the common-fund rule reinforces [the] conclusion [that] [t]hird-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.”
U.S. Airways v. McCutchen, 133 S.Ct. 1537 (2013).

“[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.”
Id. at 1551 (quoting Blackburn v. Sundstrand Corp., 115 F.3d 493, 496 (7th Cir. 1997)).

Language that addresses attorney’s fees and expenses is quite distinguishable from language that uses the term “common fund.” In McCutchen, the Court found the language addressing “common fund” to be unclear and imprecise, ordering a remand. The remand was issued despite the stipulations of the parties that are referenced in Scalia’s dissent. In his brief dissent in McCutchen, Justice Scalia references the fact that at the lower court level all the parties conceded that the Plan language addressed attorney fees.

“In their brief in opposition to the petition they conceded that, under the contract, ‘a beneficiary is required to reimburse the Plan for any amounts it has paid out of any monies the beneficiary recovers from a third-party, without any contribution to attorney’s fees and expenses.’”
U.S. Airways v. McCutchen, 133 S.Ct. 157(2013) Scalia’s dissent citing Brief in Opposition 5 (emphasis added); See Brief for Petitioner 18, and n. 6; Brief for Respondents 29; Brief for United State as Amicus Curiae 21.

Even in light of the posture of this issue, which was the clear basis for Scalia’s dissent, the majority believed the language to be so unclear that a remand to the Western District of Pennsylvania was ordered.

Acting upon the clear direction of the United States Supreme Court the Western District of Pennsylvania found that the “common fund” doctrine had not been overcome.

“Under the common-fund doctrine ‘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.’ US Airways, Inc. v. McCutchen, 133 S. Ct. at 1551 (quoting Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980)). … Accordingly, McCutchen is entitled to deduct his proportional fees and expenses that resulted in the recovery of the $10,000.00.
U.S. Airways v. McCutchen, Case 2:08-cv-01593-DSC
(W.D. PA. March 16, 2016).

The recovery vendors are already responding to this ruling by advancing the position that this opinion addresses only the question of priority. Asserting that applying “common fund” means that the gross settlement is reduced by attorney fees, and then the ERISA Plan can claim the balance of the settlement. Though this argument is not without merit, it is splitting a very fine hair for the Plan Administrators and their recovery vendors.

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