Supreme Court: Even Partially Prevailing Parties Can Win Attorneys Fees in ERISA Litigation

On Monday, an almost unanimous United States Supreme Court held that certain parties can be awarded attorney fees from the opposing party even if they are not "prevailing parties" in the litigation. Hardt v. Reliance Standard Life Ins. Co., No. No.09-448 (5/14/10). In that case, the plaintiff sued the defendant insurance company when it denied her LTD benefits for carpal tunnel syndrome. The trial court found that she had presented compelling evidence that she was totally disabled and that the defendant had acted on incomplete medical evidence. Instead of granting her summary judgment, however, the trial court remanded the case to the insurance company to reconsider its prior decision within 30 days. Not surprisingly under the circumstances, the defendant reversed its decision and awarded the plaintiff benefits. The trial court then awarded her attorney fees under ERISA §1131(g)(1). The Fourth Circuit Court of Appeals reversed on the grounds that the plaintiff had never obtained an enforceable court judgment and, thus, was not a "prevailing party." With Justice Thomas writing the majority opinion, the Supreme Court reversed on the grounds that the specific statutory provision permits the trial court discretion to award attorney fees to either party, not merely prevailing parties. Justice Stevens concurred separately.

The insurance company initial denied the LTD claim based on its evaluation of the results of her functional capacity evaluation (showing she was capable of some sedentary work). After she appealed, it reversed itself and found she was totally disabled from her current occupation (clerical) and could have benefits for 24 months. In the meantime, the plaintiff was diagnosed with "small-fiber neuropathy, a condition that increased her pain and decreased her physical capabilities over the ensuing months." She applied for and received social security benefits on the grounds that she was completely disabled from working. The insurance company notified her that her LTD benefits were about to run out and demanded repayment for about $14K because of her receipt of SSA benefits. She appealed and provided updated medical information. The insurance company again asked for a capacity evaluation, but did not ask the evaluator to consider her neuropathy problems. The evaluators requested two evaluations and complained that the plaintiff was refusing to try out of fear of pain. The defendant then hired a physician and vocational counselor to resolve her appeal, but the physician concluded that she might improve after reviewing only some of her medical records and the counselor opined that there were 8 jobs she was capable of performing based on her 2003 medical condition (before the neuropathy was diagnosed). Thus, the insurance company terminated her benefits in 2006.

After exhausting her administrative remedies, the plaintiff filed suit in federal court. The court denied cross-motions for summary judgment. However, the court found compelling evidence that the plaintiff was completely disabled and the defendant had failed to properly review her medical records. Thus, it remanded the case for 30 days to the insurance company to reconsider its prior decision. After the insurance company reversed itself again, the plaintiff requested to be awarded attorney fees.

ERISA's section 1132(g)(1) provides: "In any action under this subchapter (other than an action described in paragraph (2)[i.e, recovering delinquent contributions on behalf of a multi-employer plan]) by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party." Based on the plain text of the statute, the Supreme Court found that it was erroneous to limit the recovery fees to a prevailing party and, instead, held that it is within the trial court's discretion to award fees "as long as the fee claimant has achieved 'some degree of success on the merits.'" Unlike §1132(g)(2) which limits fees to a party who obtains a judgment for the plan, there is no mention of "prevailing party" in that section of the statute.

To guide courts faced with this decision in the future, the court then analyzed when it would be appropriate to award attorney fees under §1132(g)(1). The basic principle of the "American Rule" is that each party pays their own attorney unless provided otherwise by statute or contract. Statutory standards vary widely from prevailing party, to substantially successful litigant, to when appropriate to the court's discretion. The Court found the most analogous situation to involve a similar statute under the Clean Air Act which permits an award of fees "when appropriate." Even in that situation, the Court found that Congress did not intend to completely abandon the American Rule and would still require some success by the party to obtain its aims in the litigation before it would be awarded fees. Thus, fees are available to partially prevailing parties who achieved some success.

A claimant does not satisfy that requirement by achieving "trivial success on the merits" or a "purely procedural victor[y]," but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a "lengthy inquir[y] into the question whether a particular party's success was 'substantial' or occurred on a 'central issue.'"

In this case, the plaintiff convinced the court that the defendant insurance company had failed to comply with ERISA in reviewing her request for benefits. Summary judgment in her favor was only denied in order to give the insurance company another chance to evaluate her application – something it had already done several times before she initiate the litigation. Only because of the trial court's instruction did the insurance company reverse itself. Thus, the plaintiff achieved victory even without a court order.

These facts establish that [the plaintiff] has achieved far more than "trivial success on the merits" or a "purely procedural victory." Accordingly, she has achieved "some success on the merits," and the District Court properly exercised its discretion to award [the plaintiff] attorney's fees in this case.

No further remand was deemed necessary.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Finds FLSA Overtime Claim of Gas Station Manager to be Empty

Earlier today, the Sixth Circuit Court of Appeals in Cincinnati affirmed the dismissal on summary judgment of a FLSA overtime claim brought by a former store manager for Speedway SuperAmerica on the grounds that she was an exempt managerial employee. Thomas v. Speedway SuperAmerica LLC, No. 06-3768 (10/30/07). The manager (terminated in 2003 before the new FLSA exempt regulations were promulgated in August 2004) testified that she generally worked more than 50 hours each week and met with her own supervisor only once every 4-14 days.

She also testified that she “spent approximately sixty percent of her work time performing non-managerial tasks, such as stocking merchandise, sweeping floors, cleaning bathrooms, operating the register, and performing routine clerical duties. Even though [she] devoted a majority of her time to nonmanagerial activities, she testified that her “primary duty was to manage [her] store,” which required her to perform many management functions. She supervised, interviewed, hired, trained, and disciplined employees; she prepared weekly work schedule for her employees; she resolved employee complaints; she monitored her employees’ performance with formal evaluations; she recommended salary or merit increases for her employees (most of which were accepted by her district manager); she frequently recommended employee terminations to her district manager; and she even terminated some employees without prior approval from her district manager (although she would later notify her district manager of these unilateral termination decisions).

Because the plaintiff earned a base salary of $522 per week, the court applied the “short test” under the old FLSA regulations to determine whether she was a bona fide executive employee. “An employee qualifies for the executive exemption under the short test if: (1) her “primary duty consists of the management of the enterprise” and (2) her primary duty “includes the customary and regular direction of the work of two or more other employees.”

The central issue in the case was whether the plaintiff “had management as her primary duty. Numerous courts have addressed this issue in factually similar cases, and all have held that the plaintiff’s primary duty consisted of management.” In reviewing prior cases, the court stressed that it could not simply “rely upon the plaintiff’s or the employer’s description of the plaintiff’s position or authority; instead we must “look at the plaintiff’s actual duties” to determine whether she qualifies for the executive exemption.” “’Primary duty’ does not mean the most time-consuming duty; it instead connotes the “principal” or ‘chief’ — meaning the most important — duty performed by the employee. . . . Nevertheless, “[t]he amount of time spent in performance of . . . managerial duties is a useful guide in determining whether management is the primary duty of an employee.”

“[I]n situations where the employee does not spend over 50 percent of [her] time in managerial duties, [she] might nevertheless have management as [her] primary duty if the other pertinent [factors] support such a conclusion.” 29 C.F.R. § 541.103 (2003). These factors include: (1) “the relative importance of the managerial duties as compared with other types of duties”; (2) “the frequency with which the employee exercises discretionary powers”; (3) “[the employee’s] relative freedom from supervision”; and (4) “the relationship between [the employee’s] salary and the wages paid other employees for the kind of nonexempt work performed by [her].”

Under the first factor, the court “compare[d] the importance of the plaintiff’s managerial duties with the importance of her non-managerial duties, keeping in mind the end goal of achieving the overall success of the company.” In analyzing that first factor, the court compared the plaintiff’s non-managerial duties (which included stocking merchandise, sweeping floors, and cleaning bathrooms) with her managerial duties (which include hiring employees, training employees, and assigning the weekly work schedule) . The court observed that if the plaintiff failed to perform her nonmanagerial duties, the station would still function, albeit much less effectively. If, on the other hand, she failed to perform her managerial duties, the station would not function at all because no one else would perform these essential tasks.

The second factor examines “the frequency with which the employee exercises discretionary powers” or “the prevalence or regularity of the plaintiff’s discretionary decisions.” The court noted that an “employee’s exercise of discretion over matters of importance strengthens the employer’s showing under the second factor.” Even though her district manager was available by phone and frequently visited, he was not present enough to remove the plaintiff’s regular discretion in managing the station.

“The third factor considers the employee’s ‘relative freedom from supervision.’ [The plaintiff] was the most senior employee at her station; no other on-site employee was her equal. Thus, on a day-today basis, she generally operated without a supervisor looking over her shoulder, monitoring her every move.” “A ‘local store manager’s job is [no] less managerial for FLSA purposes simply because . . . she has an active [district manager].’” Only where the district manager was present virtually every day for several hours have courts found this factor to weigh in the employee’s favor.

The court compared the plaintiff’s salary to her subordinate employee’s wage rate in the fourth factor. Even considering the number of hours she worked, her regular salary equated to approximately 30% more than her subordinate employees without factoring in her eligibility for a monthly bonus or how much overtime the subordinates earned. Even if the subordinate’s overtime were considered, the plaintiff earned more than $7,000 more than the next highest paid employee at the store in the prior seven months. The court found that pay difference to be significant.

Finally, the court dismissed the plaintiff's claim for overtime wages under Ohio law because Ohio's overtime wage statute explicitly incorporates the FLSA exemptions. Ohio Rev. Code § 4111.03(A) (“An employer shall pay an employee for overtime at a wage rate of one and one-half times the employee’s wage rate for hours worked in excess of forty hours in one workweek, in the manner and methods provided in and subject to the exemptions of . . . the ‘Fair Labor Standards Act of 1938’”).

Insomniacs may read the full opinion at http://caselaw.lp.findlaw.com/data2/circs/6th/063768p.pdf

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with an attorney.