Supreme Court Update: US Airways v. McCutcheon (11-1285) and Marshall v. Rodgers (12-382)

April 23, 2013 Supreme Court Update

Greetings, Court fans!

It's time to get up to speed on some recent decisions. In this edition, we have US Airways v. McCutchen [11-1285], in which the Court held that equitable doctrines did not trump an ERISA plan's terms, and Marshall v. Rodgers [12-382], which reversed habeas relief granted by the Ninth Circuit.

Justice Kagan took the pen in US Airways v. McCutchen [11-1285], writing for herself and Justices Kennedy, Ginsburg, Breyer, and Sotomayor and addressing the enforcement of reimbursement provisions in ERISA plans. James McCutchen participated in an ERISA health plan that required his employer, US Airways, to pay any medical expenses he incurred as a result of a third party's action. In turn, the plan entitled US Airways to reimbursement if McCutchen recovered any money from the third party – a type of provision the Supreme Court has previously deemed enforceable.

McCutchen was seriously injured when another driver lost control of her car and collided with his. The US Airways plan paid $66,866 in expenses arising out of McCutchen's injuries. McCutchen's lawyers – working pursuant to a 40% contingency fee agreement – secured a settlement with the driver for $10,000 and with McCutchen's auto insurance company for $100,000. From McCutchen's total $110,000 recovery, the contingency fee took $44,000, leaving him with $66,000. US Airways demanded reimbursement for the full $66,866 it had paid, citing the plan's terms. The company sued pursuant to § 502(a)(3) of ERISA, which authorizes suit to obtain "appropriate equitable relief" to enforce plan terms. Although McCutchen raised two equitable defenses, the District Court granted summary judgment to US Airways, finding that the plan unambiguously entitled the company to full reimbursement. The Third Circuit reversed, holding that a court must apply equitable doctrines and defenses to suits for "appropriate equitable relief" under § 502(a)(3) and determining that US Airways would be unjustly enriched if it were allowed to obtain McCutchen's full recovery without making any contribution to the costs he incurred to obtain it.

Resolving a circuit split, the Court vacated the Third Circuit decision. The Court explained that prior case law had determined that the type of action US Airways initiated here was one for "appropriate equitable relief," in the sense that it is the modern day equivalent to an action in equity to enforce a contract-based lien. The issue before the Court, however, was the role equitable defenses alleging unjust enrichment can play in such suits. McCutchen contended that, in equity, an insurer could recover only any "double recovery" received by the insured. He reasoned, therefore, that US Airways was only plausibly entitled to the portion of his recovery that paid for medical expenses (rather than loss of future earnings, pain and suffering, or other damages). He also claimed that, in equity, the common-fund doctrine would reduce any award to US Airways by its portion of the attorney's fees paid to obtain the recovery. Following the logic of its decision in Sereboff v. Mid Atlantic Medical Services, Inc. [2006], the Court rejected McCutchen's position. The kind of "equitable lien" US Airways sought to enforce "both arises from and serves to carry out a contract's provisions," such that enforcing the lien "means holding the parties to their mutual promises," and refusing to enforce "equitable" rules "at odds with the parties' expressed commitments." Unjust enrichment and similar equitable claims are thus "beside the point" when a court faces an express contract. Nor do the rules change – as the United States, appearing as amicus, claimed – where litigation costs are concerned; the common-fund doctrine has no more force than any other equitable doctrine when it conflicts with a contract provision. "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."

But all was not lost for McCutchen. In a surprising twist deep into the opinion, the majority shifted its tone, explaining that though equitable rules "cannot trump a reimbursement provision, they still might aid in properly construing it." The Justices found that because the US Airways plan was silent on the allocation of attorney's fees, the common-fund doctrine provided the applicable default rule. "[I]f 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. . . . 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."

Justice Scalia, joined by the Chief and Justices Thomas and Alito, dissented in part. These four agreed with the majority's conclusion that equitable doctrines cannot override plain contract terms. But they disagreed with the portion of the majority opinion that filled the "contractual gap" failing to address attorney's fees. The dissenters noted that the Court granted cert on a question that presumed that the contract's terms were unambiguous, and argued that McCutchen had conceded in his brief to the Court that the plan required a beneficiary to reimburse US Airways out of "any monies the beneficiary recovers from a third-party, without any contribution to attorney's fees and expenses." To the dissenters, the Court "has no business deploying against petitioner an argument that was neither preserved . . . nor fairly included within the question presented."

Next, the Court issued a per curiam opinion in Marshall v. Rodgers [12-382]. Before his arraignment on various criminal charges, Otis Lee Rodgers executed a valid waiver of his Sixth Amendment right to counsel, choosing instead to defend himself. He changed his mind soon thereafter, hiring counsel, and then changed it again two months later, firing his lawyer and again waiving his Sixth Amendment rights. Another two months down the road, Rodgers changed his mind again and asked the California trial court for appointed counsel. The court obliged, but Rodgers eventually fired this attorney as well and represented himself pro se at trial. After he was convicted, Rodgers asked the trial court – both orally and in writing – to appoint an attorney to help him file a new trial motion. After Rodgers declined to explain the reasons in support of his motion, the court denied his request for counsel, as well as his pro se motion for a new trial. The state appellate court affirmed Rodgers' conviction and sentence, finding that the trial court was justified in denying the post-trial request for counsel. Rodgers then sought federal habeas relief, eventually finding it with the Ninth Circuit, which determined that the trial court violated his right to counsel when it denied his timely request for representation in connection with his new trial motion. In so doing, that court deemed two principles "clearly established" under Supreme Court precedent: (1) that a defendant's waiver of the right to trial counsel doesn't bar him from electing to receive the assistance of counsel at a later, critical stage of the prosecution, and (2) that a new trial motion is such a critical stage.

The Supreme Court reversed. The Court assumed, without deciding the issue, that a new trial motion represents a critical stage in a prosecution. It focused, instead, on the second issue: whether, as the Ninth Circuit found, it was clearly established under Supreme Court precedent that, after a defendant's valid waiver of counsel, a trial judge cannot deny the defendant's later request for reappointment of counsel. The justices described California's framework, which affords judges discretion when they consider post-waiver requests for counsel, requiring them to base their decisions on the totality of the circumstances. While the state appellate court applied that standard in upholding Rodgers' conviction, the Ninth Circuit followed its own "strong presumption that a defendant's post-trial request for the assistance of an attorney should not be refused" and a default rule that a post-trial revocation of the waiver of the right to counsel should be allowed unless the government can demonstrate that it is made in bad faith. The Supreme Court declined to state whether the Sixth Amendment required either of these approaches or some other. Instead, in light of the tension between the right to counsel on one hand and the right of a defendant to choose knowingly and voluntarily to represent himself, the Court determined that the Ninth Circuit was wrong to conclude that California's approach is "contrary to or an unreasonable application of" the Supreme Court's jurisprudence – the prerequisite for granting habeas relief.

We will be back with the next edition soon. Thanks for reading!

Kim, Jenny & Julie

From the Appellate and Complex Legal Issues Practice Group at Wiggin and Dana. For more information, contact Kim Rinehart or any other member of the Practice Group at 203-498-4400