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.

Supreme Court Upholds Less Deferential Standard of ERISA Review Against TPA Insurance Company.

On June 19, 2008, the Supreme Court affirmed the Sixth Circuit Court of Appeals in Metropolitan Life Ins. Co. v. Glenn, No.. 06-923. In that case, Sears purchased long-term disability insurance from MetLife and appointed MetLife as the Third Party Administrator of the LTD claims of Sears’ employees. Sears’ LTD Plan also gave MetLife discretionary authority to determine employees’ eligibility for benefits. When the plaintiff applied for LTD, MetLife initially granted her application for 24 months of benefits. However, after encouraging her to apply for SSI benefits (which she obtained), it then determined that she was ineligible for extended benefits in that one of the medial reports submitted indicated that she was capable of performing sedentary work.

The Supreme Court had previously noted in Firestone Tire & Rubber Co. v. Bruch, 489 U. S. 101, the proper judicial standard of review for ERISA benefit claims under §1132(a)(1)(B). First, courts should be "guided by principles of trust law," analogizing a plan administrator to a trustee and considering a benefit determination a fiduciary act. Next, the principles of trust law require that de novo review be utilized unless the terms of a benefits plan provide otherwise. Finally, if the terms of the benefit plan grant the administrator or fiduciary discretionary to determine the participant’s eligibility for benefits, the court should utilize a deferential standard of review as appropriate. However, if the administrator or fiduciary with such discretion "is operating under a conflict of interest, that conflict must be weighed as a 'facto[r] in determining whether there is an abuse of discretion.’”

In Glenn, the Court determined that this analysis from Firestone applied equally to an insurance company acting as both the insurer and the TPA and not just an employer who acts as both the fiduciary evaluating the claims and the employer which funds the benefits. That "[e]very dollar provided in benefits is a dollar spent by ... the employer; and every dollar saved ... is a dollar in [the employer's] pocket" is equally applicable to this situation. Nonetheless, the Court reiterated that the TPA was still entitled to a deferential standard of review pursuant to the terms of the LTD plan, but that – in light of the conflict of interest inherent in an insurance company deciding for itself whether to award benefits out of its own accounts -- the reviewing court was permitted to consider a number of factors, including ”(1) the conflict of interest; (2) MetLife's failure to reconcile its own conclusion that Glenn could work in other jobs with the Social Security Administration's conclusion that she could not; (3) MetLife's focus upon one treating physician report suggesting that Glenn could work in other jobs at the expense of other, more detailed treating physician reports indicating that she could not; (4) MetLife's failure to provide all of the treating physician reports to its own hired experts; and (5) MetLife's failure to take account of evidence indicating that stress aggravated Glenn's condition.”

Insomniacs can read the full decision at http://www.supremecourtus.gov/opinions/07pdf/06-923.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. 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.

Supreme Court: Individual Participants Can Sue for Breaches of Fiduciary Duty in 401(k) Accounts.

Last week, the Supreme Court issued a much anticipated decision involving the right of an individual benefit plan participant (i.e., an employee) to sue the plan administrator (i.e., the plaintiff’s employer) for breaches of fiduciary duty involving the participant’s individual defined contribution plan – (i.e., 401(k) account). LaRue v. DeWolff, Boberg & Associates, Inc., No. 06-856 (2/20/08). In that case, the plaintiff employee alleged that the failure of the employer to follow the plaintiff’s investment instructions “depleted” (or caused a loss in) his 401(k) account of approximately $150,000 and that this failure constituted a breach of fiduciary duty under ERISA. The Supreme Court agreed that ERISA would govern the plaintiff’s claim and could provide him with a remedy if he were to ultimately prevail at trial.

In Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134 (1985), the Court had previously indicated that § 502(a)(2) of ERISA does not provide a remedy for individual injuries apart from injuries to the benefit plan, although the statute authorized recovery for breaches of fiduciary duties which impair the value of plan assets in a participant’s individual account. However, the Russell case involved a disability plan -- defined benefit plan – which was typical at the time – and LaRue raised questions about a defined contribution plan. The Russell plaintiff also eventually received her full contractual benefits under the benefit plan and sought through her lawsuit only consequential damages for the delay in processing her claim. When faced with a defined benefit plan, the participants are promised a fixed benefit. Remedying any breach of fiduciary duty involving a defined benefit plan will not affect an individual’s entitlement to the fixed benefit since the remedy to the plan will benefit all participants equally. However, in a defined contribution plan, breaches of fiduciary duties could reduce an individual’s benefits without threatening the solvency of the entire plan. As observed by the Court:

“Russell’s emphasis on protecting the “entire plan” from fiduciary misconduct reflects the former landscape of employee benefit plans. That landscape has changed. Defined contribution plans dominate the retirement plan scene today. In contrast, when ERISA was enacted, and when Russell was decided, ‘the [defined benefit] plan was the norm of American pension practice.’ . . . Unlike the defined contribution plan in this case, the disability plan at issue in Russell did not have individual accounts; it paid a fixed benefit based on a percentage of the employee’s salary. “

“For defined contribution plans, however, fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive. Whether a fiduciary breach diminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individual accounts, it creates the kind of harms that concerned the draftsmen of §409. Consequently, our references to the “entire plan” in Russell, which accurately reflect the operation of §409 in the defined benefit context, are beside the point in the defined contribution context.”

“We therefore hold that although §502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.”

Insomniacs may read the decision in full at: http://www.supremecourtus.gov/opinions/07pdf/06-856.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. 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.