Diamond Post

In most ERISA actions, successful parties can petition, pursuant to 29 U.S.C. Section 1132(g)(1), for their attorneys' fees.  Until quite recently, however, most litigants simply assumed that successful parties were those in whose favor judgment was rendered.  In the Fourth Circuit, such fee petitions were historically met with a three part test.  See Martin v. Blue Cross & Blue Shield of Virginia, Inc, 115 F.3d 1201, 1210 (4th Cir. 1997).   First, the court asked whether the fee claimant was the prevailing party.  If the answer to that question was "yes," the court next asked whether an award of fees was appropriate, in light of five factors geared more toward the merits of the opposing party's conduct and the strength of the claimant's case.  Third, the court reviewed the attorneys' fees to determine if they were reasonable.  That framework has been changed by the Hardt decision.

Bridget Hardt stopped working in January of 2003 due to pain resulting from carpal tunnel syndrome.  In August of that year, Hardt sought LTD benefits under a plan insured by Reliance.  Reliance provisionally approved her claim but, after an FCE revealed Hardt could perform sedentary work, denied her claim.  After an appeal, Reliance reversed itself in part, granting Hardt benefits during the initial 24 month period under the plan. 

During the pendency of the appeal, Hardt developed neuropathy in her feet.  In part relying on this new diagnosis, she applied for and was awarded Social Security disability benefits in 2005.  Two months after that award, however, Reliance terminated Hardt's benefits at the test change - - it determined that, on the strength of the earlier FCE, she was not disabled from all occupations. 

Hardt appealed the decision.  Reliance obtained two new FCEs, but did not ask the evaluators to review Hardt for neuropathic pain.  Both FCEs were deemed invalid since Hardt gave submaximal effort and refused tests "for fear of nausea/illness/further pain complaints."  In the absence of a valid FCE, Reliance obtained a medical review and a vocation rehabilitation assessment.  The medical review, which did not mention the neuropathic pain or the support for her SSDI application, determined she would improve. The vocational rehabilitation consultant determined Hardt could work.  Accordingly, Reliance upheld its decision on appeal.  Hardt filed suit shortly thereafter.

The District Court denied both parties' motions for summary judgment.  It determined that, on the one hand, Reliance's medical review was "incomplete," "extremely vague and conclusory," failed to address the neuropathic complaints, and Reliance's denial  therefore was not based on substantial evidence.  On the other hand, the Court could not determine Reliance's decision was unreasonable as a matter of law.  While the Court was "inclined to rule in Hardt's favor," it remanded the case to Reliance for a more thorough medical assessment.  Reliance did so, found Hardt eligible for LTD, and paid her $55,250 in past-due benefits.

Hardt then sought attorneys' fees.  In analyzing that request under the Martin factors, the District Court found Hardt was a prevailing party because the remand order "sanctioned a material change in the legal relationship of the parties by ordering Reliance to conduct the type of review to which Hardt was entitled."  It noted the trial court's inclination to rule for Hardt in support of this view.  The District court reviewed the remaining Martin factors and awarded Hardt $39,140 in fees and costs.

Reliance appealed and the Fourth Circuit reversed.  It found that Hardt failed the first step of the Martin test.  In short, she was not a prevailing party because the court's remand order had not mandated Reliance pay her benefits.  336 Fed. Appx. 332, 336 (4th Cir. 2009).  Hardt appealed to the Supreme Court to resolve the issue not only in the Fourth Circuit, but in the divided Courts of Appeals across the country.

The Supreme Court started with the statute itself.  It noted that Section 1132(g)(1) allows fees for "either party," while Section 1132(g)(2), concerning fee petitions for cases involving delinquent employer contributions in a multi-employer plan, allows fees only to plaintiffs who obtain "a judgment in favor of the plan."  The Court determined that this distinction clearly indicated Congress knew "how to impose express limits on the availability of attorney's fees in ERISA cases."  Because Congress did not limit Section 1132(g)(1) attorney's fees only to the prevailing party, the Court held a fee claimant need not be a prevailing party to claim fees.

The Court noted the "American rule" calls for both sides to pay their own attorney's fees, regardless of result.  It acknowledged most statutory schemes departing from American rule were "prevailing party" statutes.  The Court noted, however, a line of cases, culminating with Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983), where Congress had not expressly abolished the American rule, but had also not limited the award of attorney's fees to the "prevailing party."  In that case, the Court held "that, absent some degree of success on the merits by the claimant, it is not appropriate for a federal court to award attorney's fees."  Id. at 694.  It found this rule applicable to Section 1132(g)(1) claims, and added:

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

Reliance conceded this test was appropriate, but argued Hardt hadn't met it because a remand for further consideration cannot constitute "some success on the merits."  The Court disagreed.  It felt Reliance "misse[d] the point," noting Hardt convinced the District Court that Reliance didn't conduct the review it should have conducted, and that the plan administrator had failed to comply with ERISA guidelines.  The Supreme Court also recognized the District Court's "inclination" to rule for Hardt, and noted the court's remand order stated that if Reliance did not consider all evidence in its review, judgment would be issued for Hardt.  Thus, it held Hardt had sufficient success on the merits to get her fees.

Hardt certainly did not "win" her case in the traditional sense of obtaining a judgment in her favor.  According to the Supreme Court, however, she won enough to get a trophy.  It is worth noting the Court found it need not decide whether a remand order, on its own, constituted success on the merits - - that will no doubt be another issue litigated in this arena.  While the Court has not (yet) held that all ties go to the claimant, careful insurers and plan administrators should be vigilant in their efforts to ensure they consider all of the information available to them in adjudicating ERISA claims to avoid a similar result.

Post-Hardt Decisions

Obviously, the Hardt decision has the potential to significantly impact the way the parties view potential claims for attorneys' fees in ERISA cases; however, aside from expanding the number of litigants who may be entitled to recover their fees, not much has changed in the way courts analyze entitlement to fees.  For instance, the Fourth Circuit, in Williams v. Metropolitan Life Ins. Co., --- F.3d. ---, 2010 WL 2599676 (4th Cir. June 30, 2010), affirmed an award of attorneys' fees after affirming the district court's ruling that MetLife's termination of plaintiff's long term disability benefits was an abuse of discretion.  In doing so, the Court observed that under Hardt, "the category of litigants eligible for an attorneys' fees award in an ERISA action is broader than under our prior standard."  The Court held, however, that the Supreme Court's decision in Hardt does not preclude the continued use of the five-factor approach it previously employed under Quesinberry.  "The Supreme Court simply cautioned against employing these five factors in the first step of the analysis, namely, in determining whether a party has satisfied the requirement of achieving 'some degree of success on the merits.'"

As an aside, Williams is also noteworthy because the Court found that MetLife's structural conflict of interest did not play a significant role in its analysis of MetLife's termination of benefits because "MetLife's initial finding of disability, its payment of long term disability benefits for almost two years, and its referral of its termination decision to two independent doctors, suggests that MetLife was not inherently biased in making its decision."  Nonetheless, the Court held that MetLife's decision, which appeared to be based on one office visit during which the plaintiff reported that her pain had recently improved and conclusions by MetLife's consulting physician which were deemed "inaccurate," was not supported by substantial evidence where MetLife failed to address overwhelming evidence from plaintiff's treating physicians concerning her "continued pain and difficulty in attempting to use her hands and wrists." 

In another post-Hardt decision, the Eighth Circuit, in Rote v. Titan Tire Corp., --- F.3d ---, 2010 WL 2925712 (8th Cir. July 28, 2010), affirmed an award of attorneys' fees to plaintiff after affirming judgment in her favor on her claim for long term disability benefits.  The attorneys' fees award included fees incurred during a prior lawsuit and administrative proceedings necessitated by the district court's remand of the matter to the plan administrator for reevaluation of plaintiff's claim, notwithstanding defendant's argument that the fees were incurred "pre-litigation" and therefore, should not have been awarded under 29 U.S.C. Section 1132(g)(1).

Other Cases of Interest

Administrator's Calculation of Benefits Owed

Conkright v. Frommert, --- U.S. ---, 130 S.Ct. 1640 (April 21, 2010): The United States Supreme Court held that the district court's decision not to afford any deference to the plan administrator's decision on remand, because of the administrator's earlier error in the interpretation of a plan provision and resulting calculation of benefits, was inconsistent with the plan's general grant of discretionary authority to construe the terms of the Plan, as well as the underlying purposes of ERISA "to promote efficiency, predictability and uniformity."  Noting that even ERISA plan administrators make mistakes, the Court concluded that "a single honest mistake in plan interpretation" does not justify stripping the administrator of the deference to which it is entitled under Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) "for subsequent related interpretations of the plan."

Young v. Verizon's Bell Atlantic Cash Balance Plan, --- F.3d ---, 2010 WL 3122795 (7th Cir. Aug. 10, 2010): The Seventh Circuit, inspired by the Conkright court's recognition that even ERISA plan administers are bound to make mistakes, affirmed the district court's judgment granting Verizon equitable reformation to correct a "scrivener's error" in its plan - an error that, if enforced, would have provided numerous plan participants greater pension benefits than intended or expected. 

Khoury v. Group Health Plan, Inc., --- F.3d ---, 2010 WL 3119894 (8th Cir. Aug. 10, 2010):  The Eighth Circuit affirmed the grant of summary judgment to an insurer who based its calculation of residual disability benefits payable under the Plan on the base compensation rate contained in the plaintiff's employment contract, notwithstanding that plaintiff regularly received additional pay for mandatory on-call shifts he worked in excess of that required in the contract.  The plan at issue provided that an employee's basic monthly earnings do not include overtime pay, but the term "overtime" was not defined in the plan. 

Conflict of Interest and Treatment of Contrary SSA Findings

Schexnayder v. Hartford Life and Accident Insurance Company, 600 F.3d 465 (5th Cir. Mar. 12, 2010): The plan administrator appealed the district court's award of attorneys' fees, as well as its determination that Hartford improperly terminated plaintiff's long term disability benefits under the plan provision requiring that plaintiff be disabled not just from his own occupation, but any occupation, after 24 months, based on Hartford's failure to acknowledge and/or distinguish the contrary findings of the Social Security Administration and plaintiff's treating physicians, who concluded that plaintiff was unable to perform even sedentary work.  The Fifth Circuit affirmed the ruling that Hartford abused its discretion based on the rationale that "[a]lthough substantial evidence supported Hartford's decision, the method by which it made the decision was unreasonable, and [Hartford's conflict of interest], because it is more important under the circumstances, acts as a tiebreaker..."  In this pre-Hardt decision, the Court overturned the award of attorneys' fees explaining that a finding of bad faith, which requires more than simply establishing that there was a conflict of interest, was necessary to justify an award of attorneys' fees under the five-factor test employed by the Fifth Circuit.

Reliance on DOT Definition of Occupation Instead of Actual Job Description

Darvell v. Life Insurance Company of North America, 597 F.3d 929 (8th Cir. Mar. 10, 2010):  The Eighth Circuit affirmed the district court's grant of summary judgment to LINA.  The Court held that LINA's determination was reasonable, notwithstanding LINA's presumed conflict of interest (which the Court gave "some weight"), conflicting medical evidence regarding plaintiff's alleged disability, and LINA's reliance on the definition of plaintiff's regular occupation contained in the Department of Labor's Dictionary of Occupational Titles ("DOT"), and not plaintiff's actual job description.

AD&D Claims Where Insured was Driving Under the Influence

LaAsmar v. Phelps Dodge Corp. Life, Accidental Death &Dismemberment and Dependent Life Ins. Plan, 605 F.3d 789 (10th Cir. May 6, 2010): The Tenth Circuit, applying a de novo standard of review, affirmed the district court's decision overturning MetLife's denial of accidental death benefits where the insured died in a single car accident in which he was driving twenty miles over the speed limit with a blood alcohol level almost three times the limit permitted under Colorado law.  In doing so, the Court declined to adopt a per se rule that all wrecks occurring while the driver has a blood alcohol level in excess of the legal limit are not accidents (absent an exclusion to this effect in the policy).  It also rejected arguments by both parties that the term accident should be defined in terms of "reasonable foreseeability" or "high likelihood."  Rather, it concluded that because the term "accident" was undefined and ambiguous, the loss should be covered because a person in the insured's position would have understood the term "accident" to include the wreck at issue.  Interestingly, although the district court had already concluded that MetLife did not have discretionary authority under the Plan, the Court included a lengthy discussion regarding the applicability of a de novo standard of review as a result of certain "procedural irregularities," namely MetLife's failure to make a decision on plaintiffs' administrative appeal within the deadline set forth in 29 C.F.R. Section 2560.503-1(1). 

Davis v. Life Ins. Co. of North America, 2010 WL 2102040 (5th Circuit May 26, 2010) (unreported):  That same month, the Fifth Circuit affirmed an administrator's denial of accidental death benefits where the insured died as the result of a motorcycle accident while driving with a blood alcohol level of between three and four times the legal limit.  In Davis, however, the Court reviewed the denial under an abuse of discretion standard of review and determined that "it was reasonable to decide that a foreseeable consequence of riding a motorcycle in that condition would be a serious accident," and thus, the loss was not a "Covered Accident" under the Plan, which was defined as a "sudden, unforeseeable, external event that results, directly and independently of all other causes, in a Covered Injury or Covered Loss..."