PHILADELPHIA (Legal Newsline) - US Airways has lost an appeal at the U.S. Court of Appeals for the Third Circuit as it sought to recover medical expenses paid to an employee.

Its lawsuit, US Airways, Inc. v McCutchen, involved an attempt by the airline to recover $66,866 paid to one of its workers after the employee recovered $110,000, with assistance of counsel, from third parties.

US Airways, which had not sought to enforce its subrogation rights, demanded reimbursement of the entire amount it paid without allowance for the employee's legal costs, which had reduced his net recovery to less than the amount the airline demanded.

US Airways filed this suit for "appropriate equitable relief" citing the Employee Retirement Income Security Act of 1974.

A three-judge panel determined that the issue was whether the employee may assert certain equitable limitations on US Airways' equitable claim. They concluded that the employee did, and vacated the District Court's order requiring payment to US Airways for the entire $66,866 and remanded the case for that Court to fashion "appropriate equitable relief."

US Airways claimed that it could recover the funds regardless of the legal costs. The company argued that "[t]he Plan language specifically authorized reimbursement in the amount of benefits paid, out of any recovery."

The employee claimed that it would be unfair and inequitable to reimburse US Airways in full. The employee argued that US Airways, which made no contribution for legal fees and expenses, would be unjustly enriched if it were now permitted to recover without any allowance for those costs.

The judges thought that if legal costs are not taken into account, US Airways will effectively be reaching into its beneficiary's pocket, putting him in a worse position than if he had not pursued a third-party recovery at all.

District Judge Julio Fuentes, writing the unanimous opinion, said that Congress designed ERISA to protect employee pensions and benefits by providing pension insurance, enumerating certain specific characteristics of pension and benefit plans, and setting forth fiduciary duties for the managers of both pension and nonpension plans.

The Supreme Court has repeatedly observed that "ERISA is a comprehensive and reticulated statute, the product of a decade of congressional study of the Nation's private employee benefit system," he wrote.

The appeals judges rejected US Airways' claim that the application of equitable principles will increase plan costs and premiums.

"US Airways cannot plausibly claim it charged lower premiums because it anticipated a windfall," the opinion stated.