California ERISA case makes attorney’s success (and fees) one and the same

This article was published in the Chicago Daily Law Bulletin on February 18, 2016.

By Mark D. DeBofsky
Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari, PC. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage . He can be reached at mdebofsky@debofsky.com.

In a case factually reminiscent of Booton v. Lockheed Medical Benefits Plan, 110 F.3d 1461, 1463 (9th Cir. 1997), as both cases involved claims for extensive dental reconstruction following accidents, a federal court in California found an abuse of discretion in a benefit plan’s denial of dental benefits.

In Dragu v. Motion Picture Industry Health Plan for Active Participants, 2015 WL 7274202 (N.D. Calif., Nov. 16, 2015) and 2016 WL 454066 (N.D. Calif., Feb. 5, 2016), plaintiff Elise Dragu suffered multiple injuries to her mouth, teeth and gums when she fell while hiking. The issue in the case turned on whether she was entitled to coverage for dental implants, including crowns and abutments.

Despite plan language that triggered a deferential standard of review requiring the court to affirm the plan’s determination so long as it was reasonable, the court observed that an abuse of discretion exists if a plan renders a decision without explanation, construes plan provisions in a manner that contradict the plain language of the plan or when a plan renders clearly erroneous factual determinations.

An abuse of discretion is also found where the decision is illogical, implausible or without support in inferences that may be drawn from the facts in the record.

Although the court rejected several of the plaintiff’s arguments, Dragu ultimately won when the court found that the plan administrator had misread the plan terms and that all of the claimed services were covered. The court also found an abuse of discretion in the reimbursement rate paid to one of Dragu’s treaters.

After the issuance of this ruling, the court awarded fees to the plaintiff in a separate ruling that commended her attorney’s "enviable success" in achieving all of the requested relief. Thus, pursuant to 29 U.S.C. Section 1132(g) and Hardt v. Reliance Standard Life Insurance Co., 560 U.S. 242, 255, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010), which deems an attorney eligible to receive fees in Employee Retirement Income Security Act cases upon the achievement of "some degree of success on the merits," the court awarded fees to the plaintiff’s counsel at the claimed rate of $600 per hour.

The court began its discussion by noting, "[A] prevailing beneficiary in an ERISA action" should ordinarily receive reasonable "attorneys’ fees and costs, absent special circumstances cautioning against it." Boston Mutual Insurance v. Murphree, 242 F.3d 899, 904 (9th Cir. 2001).

The court then examined a familiar set of five factors that courts apply to determine whether fees should be awarded in ERISA matters: "‘(1) The degree of the opposing parties’ culpability or bad faith’; (2) the opposing party’s ability to pay the award; ‘(3) whether an award of fees would deter others from acting under similar circumstances; (4) whether the parties requesting fees sought to benefit all plan participants or resolve a significant legal question; and (5) the relative merits of the parties’ positions.’ McElwaine v. US W., Inc., 176 F.3d 1167, 1172 (9th Cir. 1999) (quoting Hummell v. Rykoff & Co., 634 F.2d 446, 453 (9th Cir. 1980))."

Despite the use of the terms "bad faith" and "culpability," the court found that subjective bad faith was not required since culpability exists when the plan administrator interprets the plan terms arbitrarily and capriciously in violation of ERISA. The court ruled the other factors were met as well, finding a refusal to pay fees "would undermine the enforcement mechanism Congress created."

The court also dismissed the defendant’s argument that many of Dragu’s arguments had been rejected, finding "the result is what matters" and observing she received everything she wanted out of this litigation (citing Hensley v. Eckerhart, 461 U.S. 424, 435, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)).

The court turned to the reasonableness of the fees sought. Echoing the theme of Hensley, the court overruled the defendant’s challenge to the number of hours claimed by pointing out that the plaintiff’s attorneys were entitled to compensation "for their efforts contributing to ultimate victory."

The plan was able to chip away at some of the time sought by claiming excessive or unnecessary time was spent on certain tasks; however, the vast bulk of the fees claimed were approved after the court rejected the plan’s final argument that fees should be limited in proportion to the amount recovered.

The court cited abundant authority for the proposition that proportionality is not required, including Building Service Local 47 Cleaning Contractors Pension Plan v. Grandview Raceway, 46 F.3d 1392, 1401 (6th Cir. 1995) ("[W]e also adopt the rule that in ERISA cases, there is no requirement that the amount of an award of attorneys’ fees be proportional to the amount of the underlying award of damages.").

Another case rejecting proportionality that was not cited was Anderson v. AB Painting and Sandblasting Inc., 578 F.3d 542 (7th Cir. 2009), where the court found the ERISA fee-shifting statute was intended to redress "petty tyranny."

The court made a number of critical points. First, as to the merits, the court’s discussion of when an abuse of discretion may be found presented a concise menu of grounds for challenging a plan administrator’s determination despite the plan administrator’s broad deferential authority.

The Booton case also deserves mention because both that ruling and this one impose a burden on the parties to engage in a meaningful dialog with one another during the claim process.

Both cases involved situations where benefit plans failed to grasp the scope of the trauma and what services would be necessary to achieve functional restoration. The Booton case also cited the memorable words from the movie, "Cool Hand Luke" — "what we have here is a failure to communicate" — to illustrate that critical point.

The fee award was also instructive on the key issue that subjective bad faith is not a predicate to a fee award in an ERISA case. So long as the plan administrator fails to administer a claim in accordance with the benefit plan’s language, a fee award should be made.

Likewise, the ruling in Hensley is of critical importance — failing to win every motion or procedural point should not result in a reduction in fees for time spent on the losing issues. It is the ultimate victory that counts and complete success means the winning attorney should be compensated in full.

Employee benefits are critical to employees’ health and well-being — both their economic wherewithal as well as their physical health. Plans that provide benefits should not be meaningless pieces of paper. Promises need to be kept. And the only way to recruit attorneys to hold plans accountable when they err is to provide them with appropriate compensation for their services.