Courts deal with issue of ERISA attorney fees
Chicago Daily Law Bulletin
January 18, 2010
by MARK D. DEBOFSKY
The saga of Fitts v. Unum Life Ins.Co. of America, 2010 U.S.Dist.LEXIS 2529 (D.D.C. Jan. 13, 2010), which has spanned more than 10 years, has finally come to an end.
The case went to the Court of Appeals twice on the issue of whether Unum's limitation on the duration of benefits for mental and nervous disorders applied to bipolar disorder suffered by Jane Fitts. After the most recent appellate ruling, which I wrote about in an earlier article ("Struggle over 'mental illness' exclusions," Chicago Daily Law Bulletin , March 31, 2008), the parties finally reached a settlement. However, the parties left it to the court to decide the amount of attorneys' fees payable pursuant to ERISA's fee-shifting statute, 29 U.S.C. § 1132(g). The opinions in this case are: Fitts v. Federal National Mortgage Association, 191 F. Supp. 2d 67 (D.D.C. 2002), Fitts v. Unum Life Insurance Company of America, 2006 U.S. Dist. LEXIS 9235, 2006 WL 449299 (D.D.C. Feb. 23, 2006), and Fitts v. Unum Life Insurance Company of America, 2007 U.S. Dist. LEXIS 33397, 2007 WL 1334974 (D.D.C. May 7, 2007), as well as the opinions of the D.C. Circuit, Fitts v. Federal National Mortgage Association, 236 F.3d 1, 344 U.S. App. D.C. 310 (D.C. Cir. 2001), and Fitts v. Unum Life Insurance Company of America, 520 F.3d 499, 380 U.S. App. D.C. 292 (D.C. Cir. 2008).
The court ruled that fees and costs are due in the amount of $ 1,176,508.62. Unum agreed that fees were payable and also agreed as to the hourly rates sought, but disagreed with the number of hours claimed and sought a 50 percent reduction. Unum argued that it, not Fitts, was the prevailing party as to most of the claims. The court disagreed, though, remarking that while Unum's argument might be relevant to a claim under civil rights statutes ( see Farrar v. Hobby, 506 U.S. 103, 114, 113 S. Ct. 566, 121 L. Ed. 2d 494 (1992) (stating that the "degree of success obtained" is relevant to reasonable fees following civil rights litigation (quoting Hensley v. Eckerhart, 461 U.S. 424, 436, 103 S. Ct. 1933, 76 L. Ed. 2d 40 (1983)), ERISA fees are different and the analysis is distinct from civil rights statutes. Nor did the court consider a comparison to the fees paid to Unum's counsel a relevant consideration. Although Unum claimed it paid its attorneys $400,000 less in fees, the court determined that because Unum regularly engages in litigation while the plaintiff does not is a factor that kept Unum's fees lower; and the court refused to lower Fitts's fees based on that argument.
The court did, however, reduce the fees sought by 15 percent - in part due to block billing (i.e., lumping various tasks together into a single entry). The court also found a reduction was due on account of inadequate detail of certain entries, along with some duplication, inclusion of secretarial tasks, and non-reduction of fees for travel time which is the prevailing practice in the D.C. Circuit.
The issue of ERISA attorney fees is now before the Supreme Court. In the case of Hardt v. Reliance Standard Life Ins.Co.,No. 09-448 (cert. granted January 15, 2010), the 4th Circuit had denied fees to a plaintiff whose claim was initially remanded to the insurer by the district court and then subsequently paid following remand. 336 Fed.Appx. 332 (4th Cir. July 19, 2009). The court ruled that fees are not payable because the prior court order did not render Hardt the prevailing party. The 7th Circuit has taken the same position which is outlined in detail in Jacobson v. SLM Corp., 2009 U.S.Dist.LEXIS 105043 (S.D.Ind. November 10, 2009), which is on appeal. The rationale for denying fees is that ERISA fees are not payable to a party who has not achieved a judicial award of benefits, and that awarding fees upon a remand would be premature.
The ERISA fee-shifting statute simply states in relevant part: "In any action under this title ... 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."
Courts that have allowed fee awards on remand, though, have advanced the rationale that even if there is a prevailing party requirement before fees are shifted under ERISA, "a prevailing party is one who achieves a judicially sanctioned and material change in the legal relationship between the parties." 276 Fed.Appx. at 616 (citing Buckhannon Bd. & Care Home, Inc. v. W. Virginia Dep't of Health & Human Res., 532 U.S. 598, 604-05, 121 S. Ct. 1835, 149 L. Ed. 2d 855 (2001)). Thus, one can be a prevailing party even if the ultimate remedy sought is not necessarily achieved. The court added that a remand to a plan administrator is analogous to a remand to an administrative agency, and that such a "remand can provide the judicial imprimatur necessary for a party to become a prevailing party" for the purposes of a fee award. Id.Referencing the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1)(A), the court added:
For example, an alien may be a prevailing party under the Equal Access to Justice Act when the court remands his case to the Board of Immigration Appeals, regardless of the fact that the court does not decide the merits of the underlying claim. Rueda-Menicucci v. I.N.S., 132 F.3d 493, 495 (9th Cir. 1997); see also Li v. Keisler, 505 F.3d 913, 917-18 (9th Cir. 2007); and Johnson v. Gonzales, 416 F.3d 205, 208-10 (3rd Cir. 2005) (joining the 9th and 7th Circuits in concluding that an alien who prevails on a petition for review and whose case is remanded to the BIA is a "prevailing party"). Similarly, when a court remands a claimant's case seeking Social Security benefits to the agency pursuant to "sentence four," the claimant is a prevailing party even though the court's only action is to remand the case. See Shalala v. Schaefer, 509 U.S. 292, 300-02, 113 S. Ct. 2625, 125 L. Ed. 2d 239 (1993).
Flom v. Holly Corp., 276 Fed. Appx. 615, 616-17 (9th Cir. 2008). The reference to the Equal Access to Judgment Act is crucial based on the Supreme Court's ruling in Shalala v. Schaefer, 509 U.S. 292, 113 S.Ct. 2625 (1993), that prevailing party status is achieved by virtue of a remand. There, the Supreme Court ruled: "No holding of this Court has ever denied prevailing party status (under 28 U.S.C. § 2412(d)(1)(B)) to a plaintiff who won a remand order pursuant to sentence four of § 405(g)." Shalala, 509 U.S. at 302.
A district court ruling that collected cases on this issue is also instructive. In Colby v. Assurant Employee Benefit, 635 F.Supp. 2d 88 (D. Mass. 2009), the court explained that even after a remand, the plaintiff received "at least some relief on the merits of her claim," especially since the court's finding that defendant had acted arbitrarily in denying Colby's disability benefit claim constituted a substantive violation of ERISA. 635 F.Supp.2d at 96.
The court also noted that even though an outright award of benefits was not achieved, the result "materially alter[ed] the legal relationship between the parties by modifying the defendant's behavior" as defendant then had a legal obligation to reexamine Colby's claim for benefits. Id., citing Farrar v. Hobby, 506 U.S. at 111-112. Finally, although remand was not Colby's preferred form of relief, she did achieve some of the benefit she sought in bringing suit. Id., citing Hensley v. Eckerhart, 461 U.S. at 433. Thus, the Court held that by obtaining a remand, Colby was the "prevailing party" entitled to a fee award. Id.
There is also a significant policy rationale supporting fee awards following remands. The "premature" reasoning could encourage insurers to deny benefits in the hope that at worst the court will grant a "do-over" since prior court rulings have made it clear that the plaintiff may not recover damages or penalties under ERISA. Fee awards may also exceed the amount of benefits due since the 7th Circuit recently recognized in Anderson v. AB Painting & Sandblasting Inc., 578 F.3d 542 (7th Cir. 2009) that ERISA fees may be disproportionate to the recovery achieved. In disability benefit cases, the amount of past-due benefits that the court may potentially award is often quite small, and the fees could easily eclipse the amount of benefits payable. And in health benefits cases, the claimant often recovers nothing other than a judicial order that a certain procedure be allowed under the terms of a plan.
Further, when courts remand ERISA claims to benefit plans, the paradigm is quite different than when an appellate court remands to a lower court, or a district or circuit court remands to an administrative agency. Instead of a neutral party conducting the remand, in ERISA cases, the decision as to whether to pay benefits on remand is usually being made by a profit-minded insurer that has already been found to have acted in an arbitrary and capricious manner, thus arguably akin to returning a chicken to a henhouse guarded by a fox. If plans were on notice that they could be required to pay fees even if benefits were not awarded outright, it would create an incentive to decide the claim properly in the first instance. Thus, fee awards should be made to claimants who receive remands for the identical reason cited in Anderson; i.e., to "discourage petty tyranny ."
Note: I am counsel of record in the Jacobson v. SLM appeal.