On April 16, 2013, the United States Supreme Court clarified how equitable principles interact with the plan language of self-funded ERISA health plans.  The question presented to the Court was: Should the principles of “common fund,” often referred to as a reduction for attorney fees, and “made whole,” the principle requiring full compensation to the injured party before subrogating parties are allowed to recover, overcome express plan language abrogating those principles? Sadly, the Court has ruled that they should not.  This ruling effectively turns back the clock on the rights of the ERISA plans to their status from 2006 (Sereboff v. Mid Atlantic Medical Services, Inc., 126 S. Ct. 1869 (2006) until 2011 (US Airways v. McCutchen, 663 F.3d 671 (3^rdCir. 2011).  With clear, express plan language, the ERISA plan can demand a full repayment for medical benefits it has paid on behalf of the injured plaintiff.  (U.S. Airways v. McCutchen, 569 U. S.              (2013);  See, Zurich American Insurance Co. v. O’Hara 604 F .3d 1232 (11^th Cir. 2010), Admin. Comm. of Wal–Mart Stores, Inc. Associates’ Health & Welfare Plan v. Shank, 500 F.3d 834 (8th Cir.2007); Administrative Committee of Wal–Mart Stores, Inc. Assocs.’ Health & Welfare Plan v. Varco, 338 F.3d 680 (7th Cir.2003);  Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348 (5th Cir.2003)).

The ruling in this case unifies the Circuits and will likely empower recovery vendors to press for larger recoveries and many may cease to reduce their demands even in the most inequitable circumstance.  This ruling makes addressing and resolving self-funded ERISA liens a significant issue for the plaintiff’s bar.  The argument raised by Mr. McCutchen, and the circumstance in which he found himself are ones which many plaintiff’s attorney have experienced.

“In January 2007, McCutchen suffered serious injuries when another driver lost control of her car and collided with McCutchen’s…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.”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 2).

“[] US Airways paid $66,866 in medical expenses for injuries suffered by [] McCutchen … The plan entitled US Airways to reimbursement if McCutchen later recovered money from the third party [including his own insurance] …  US Air-ways demanded reimbursement of the full $66,866 it had paid.  When McCutchen did not comply, US Airways filed suit under ERISA [requesting the $41,500 being held in an escrow account and $25,366 more in McCutchen’s possession].”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., syllabus).

Counsel for McCutchen raised the arguments that every plaintiff attorney raises with logic and equity on their side.

“McCutchen rais[ed] two defenses… 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 [read as “made whole” doctrine].  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 [read as “common fund doctrine].”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 4).

Though it is not addressed by the court, I think most plaintiff’s attorneys would note the extra sting of repayment in this case where 90% of the settlement funds come from the plaintiff’s own first party insurance.

The Court ruled that the terms of the plan control since the contract for health benefits between an ERISA plan and its participants is a “bargained for exchanged” and equitable principles will not trump express plan language.

“McCutchen [] cannot rely on theories of unjust enrichment to defeat US Airways [] 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.”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 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.”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 11).

“[If] [t]he express contract term … contradicts the background equitable rule … the agreement must govern.

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 14).

These are dire words for the plaintiff’s attorney as the insurance industry has spent the years since Sereboff drafting plan language to address just these specific equitable principles. However, there is a glimmer of hope in that the court has made it clear that the language abrogating these doctrines must be clear and express.

“[If] the plan is silent on the allocation of attorney’s fees, []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 …”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 12).

“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.”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 13).

“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 … [b]ut alternatively that formula could apply to only the true recovery, after the costs of obtaining  it  are  deducted.”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 14).

The Court significantly bolsters the argument that absent plan language the “common fund” doctrine applies.

“A party would not typically expect or intend a plan saying nothing about attorney’s fees to abrogate so strong and uniform a back­ ground rule.  And that means a court should be loath to read such a plan in that way”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 15).

“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, 569 U. S.        (2013)(slip op., at 16).

Yet despite their clear support and understanding of the need for the equitable principle of the “common fund” doctrine, they impose a Draconian result on Mr. McCutchen and all plaintiffs who are participating in self-funded ERISA plans.  The result is so self-evident that the Court acknowledges it themselves.

“[I]n some cases—indeed, in this case—the beneficiary is made worse off by pursuing a third party.  Recall that McCutchen spent $44,000 (rep­ resenting 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.”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 16).

The lesson for the wise plaintiff’s lawyer is to address resolution of your client’s self-funded ERISA plan early on in the case.  It would be an unhappy client who spent years in litigation, depositions, hearings, mediations, and even trials to learn that it had all been for the benefit of the “health insurance company” they had been paying “premiums” to for potentially years prior and during the litigation. The plaintiff’s attorney must now evaluate accepting cases at all that have large self-funded ERISA liens and limited recovery potential.

“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”).”

U.S. Airways v. McCutchen, 569 U. S.        (2013)(slip op., at 16).

The plaintiff’s bar is now thrust back to the future and must forego arguments of equity and return to the contract based arguments that were fashioned pre-McCutchen.  Remember that the burden is on the ERISA plan to be clear in its plan language, the requirements of Sereboff still are enforceable, and the Plan Administrator must still comply with the demands of 29 U.S. 1024(b)(4). These and other statutory and contractual arguments remain for the plaintiff’s attorney who must confront a subrogation/reimbursement claim from a self-funded ERISA plan.  However, the luxury of dealing with “lien issues” at the close of litigation is one that can no longer be enjoyed by the wise plaintiff’s attorney.

By Director of Lien Resolution

Families and individuals injured by Vioxx may still have lien claims to resolve despite the Lien Resolution Administrator’s attempt to manage these claims.  In a December 4, 2012 ruling the United States District Court, E.D. Louisiana denied the motion of approximately forty six (46) insurance companies to have their lien claims resolved from the Vioxx settlement fund.  These companies sought to have their ERISA, Medicare Advantage, and FEHBA claims for reimbursement added to the multi-jurisdiction litigation taking place in the Eastern District of Louisiana. Though nearly twenty five thousand (25,000) liens were resolved under the Court’s management of the litigation, there are still several thousand outstanding reimbursement claims that must be satisfied before the Vioxx plaintiffs can realize their net settlements.

This case relates to the multidistrict products liability litigation for the prescription drug Vioxx.   On May 20, 1999, the Food and Drug Administration approved Vioxx for sale in the United States. It is estimated that 105 million prescriptions for Vioxx were written in the United States between May 20, 1999 and September 30, 2004. Based on this estimate, it is thought that approximately 20 million patients have taken Vioxx in the United States.  Vioxx remained publicly available until September 30, 2004, when Merck withdrew it from the market after data from a clinical trial indicated that the use of Vioxx increased the risk of cardiovascular thrombolytic events such as myocardial infarction (heart attack) and ischemic stroke.

Consequently, thousands of individual suits and numerous class actions were filed against Merck, the maker of Vioxx, in state and federal courts throughout the country alleging various products liability, tort, fraud, and warranty claims. On November 9, 2007, Merck formally announced that they had reached a Settlement Agreement for an overall amount of $4.85 billion. Pursuant to the requirements of federal and state laws creating statutory liens under the Medicare and Medicaid programs, the Settlement Agreement provided that a “Lien Resolution Administrator” establish “procedures and protocols . . . to identify and resolve Governmental Authority Third Party Payor/Provider Statutory Liens.”

On April 14, 2008, approximately forty-six (46) insurance companies (the “Plan Plaintiffs”) filed suit against settlement fund (among others) asserting claims for reimbursement under ERISA, and asking for an injunction to stop the disbursal of settlement funds.  The Court found that the prerequisites for an injunction were lacking in all respects. The Plan Plaintiffs sought review at the Fifth Circuit, which affirmed the lower court’s denial of an injunctionl. Avmed Inc. v. BrownGreer PLC, 300 Fed. App’x 261 (5th Cir. 2008) (“AvMed III“).  Despite this ruling, the court remained aware of the ERISA reimbursement issue and on January 22, 2009, the parties announced at the monthly status conference an agreement establishing a program to assist with resolving private Vioxx-related lien issues (“the Private Lien Resolution Program” or “PLRP”).  The Court authorized a nationally known private company to administer the program as Lien Resolution Administrator.

Despite their best efforts, the Lien Resolution Administrator did not address all the claims for reimbursement that could be brought against the class members.  Thus, Plan Plaintiffs sought leave to amend their complaint to add members of ERISA plans who did not participate in the Private Lien Resolution Program and to add claims for reimbursement under the Medicare Secondary Payer Act and the Federal Employee Health Benefits Act

The court denied the motion to add these claims since the Plan Plaintiffs’ brought different claims pursuant to different health benefit plan language in different factual circumstances. This diversity between the claims of the individual Plan Plaintiffs means that the rights to relief asserted did not arise out of the same transactions or occurrences and did not present common questions of law or fact. (AvMed II, 2008 WL 4681368, at *5-8).  The Court recognized the risk of “transform[ing] this litigation into an action against approximately 15,000 defendants, each of whom has entered into a separately negotiated health plan contract and each of whom has received medical benefits under highly individualized factual circumstances.” (Id. At 8).  The court concluded that “the proposed amendment is procedurally unworkable, for the same reasons set forth in AvMed II, and again poses the risk of expanding this litigation into a procedural morass.”

The court continued with the analysis of their denial of the motion by pointing out that pursuant to 29 U.S.C. § 1132(e)(2), ERISA claims may be brought “in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found.” The proposed amendments would add a dozen defendants from different districts, none of them located in the Eastern District of Louisiana. It was also not clear from the record that any of Plaintiffs’ plans were administered in the Eastern District of Louisiana.  Finally, the alleged breaches, if any, were centered on the location of the defendants. Though the Court supervised the PLRP with respect to active cases, the personal injury actions underlying the proposed amendment had been resolved and stipulations of dismissal filed in the Court. Thus, the opportunities for economies of scale were no longer as apparent. In short, the Court found that considerations of “judicial economy and the most expeditious way to dispose of the merits of the litigation” counsel against hosting these disputes in the MDL.

According to this ruling, plaintiff’s who recover funds from the $4.85 billion dollar settlement may need to resolve outstanding reimbursement claims before for they can realize their individual settlement.  Thousands of plaintiffs must now confront plan administrators, third party administrators, and recovery agents in order to resolve outstanding ERISA, Medicare Advantage and FEHBA claims for reimbursement.  Though judicial economy weighs against handing these matters as part of the Vioxx multiple district litigation, it leaves many plaintiffs in a troubling, and possibly inequitable situation.  The result of failing to anticipate lien issues may leave some Vioxx plaintiffs in a far less advantageous position than others. If the Vioxx plaintiff lives in jurisdictions where defenses to these claims exist then the portion of the settlement apportioned to this claimant is greater than and equal apportionment to a plaintiff living in a jurisdiction where repayment to these plans will be mandatory.