The 6th U.S. Circuit Court of Appeals’ ruling in Moon v. Unum Provident Corp., 2006 U.S. App. LEXIS 22321 (June 29) (published), has tremendous instructive value with respect to awards of attorneys’ fees following a Court of Appeals reversal of benefit denial.
Following the 6th Circuit’s reversal of the district court’s ruling in Moon v. Unum Provident Corp., 405 F.3d 373 (6th Cir. 2005), the plaintiff was unsuccessful in seeking an award of fees in addition to the benefit payment ordered by the Court of Appeals.
However, the plaintiff appealed, arguing that the district judge abused his discretion (”an abuse of discretion exists only when the court has the definite and firm conviction that the district court made a clear error of judgment in its conclusion upon weighing relevant factors.”) in refusing a fee award. Once again, the Court of Appeals sided with the plaintiff.
Citing the availability of fees in ERISA cases, pursuant to 29 U.S.C. § 1132(g)(1), and pointing out there is no presumption that fees should be awarded, the court first discussed the factors that must be considered in deciding on a fee award:
”(1) The degree of the opposing party’s culpability or bad faith; (2) the opposing party’s ability to satisfy an award of attorney’s fees; (3) the deterrent effect of an award on other persons under similar circumstances; (4) whether the party requesting fees sought to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and (5) the relative merits of the parties’ positions. See First Trust Corp. v. Bryant, 410 F.3d 842, 851 (6th Cir. 2005).”
No single factor is determinative, however, and the court stated that a ”flexible approach” is to be used. Nonetheless, because the district judge focused solely on the five factors, the Court of Appeals did as well. First, the court found the district judge abused discretion in rejecting a conclusion that Unum was culpable or acted in bad faith. The court went back to its decision on the merits and noted its prior conclusion that Unum failed to offer a reasonable explanation that supported its conclusion; instead, it engaged in a selective review of the record.
”Thus, UNUM engaged in culpable conduct and this factor should be weighed in Moon’s favor and against UNUM,” the opinion stated. ”Not only did UNUM deny Moon’s claims based solely on the opinion of a physician in its employ, but they also repeatedly denied her claims even though this physician ignored substantial evidence in the administrative record indicating she was disabled and the physician never examined Moon. Therefore, we must reject the district court’s conclusion that ‘Defendants pursued their position in good faith and did not engage in any misconduct during the investigation or proceedings before this Court or on appeal.’ Moon II, 408 F.Supp.2d at 465.
”Without question, UNUM’s wholesale adoption of the opinion of an interested physician, who based his findings on selective information in the administrative record and did not examine Moon, is misconduct that supports our decision to weigh this factor against UNUM. (citation omitted).”
The court also provided an alternative explanation for rejecting the district court’s conclusion.
The court noted, ”In the alternative, even if we assume arguendo that the district court correctly found that UNUM did not engage in culpable conduct, the district court still incorrectly weighed this factor in UNUM’s favor based upon its own flawed conclusion. Specifically, the district court stated, ‘moreover, it is difficult to conclude that Defendant acted in a culpable manner in this close case, where two of the four judges who reviewed this case concluded that Defendant provided a reasoned explanation for the denial of benefits that was not arbitrary and capricious.’ Moon II, 408 F.Supp.2d at 466 (emphasis added). In reaching its ‘two out of four judges’ conclusion, the district court relied upon its own overturned decision in the underlying action brought by Moon to recover her LTD benefits and the dissent in Moon I. This reasoning is an abuse of discretion. This was not a close case. Not only was the underlying judgment in Moon I – which formed the basis for Moon’s request for attorney’s fees – decided by a majority panel of this Court, but the en banc court also considered whether to grant rehearing in this published case, and elected not to do so. In addition, even the dissent in Moon I, upon whom the district court relies, expressed doubt about the propriety of the district court’s decision, stating, ‘were we to view the matter under a de novo standard, I might very well decide otherwise.’ Moon I, 405 F.3d at 382.
As a result, the Court of Appeals deemed it ”an affront to our system of justice for the district court to heavily and repeatedly rely on its incorrect decision to support its conclusion that Moon was not entitled to attorney’s fees.” Nor did any of the other fee factors support a denial; and the court singled out the deterrent value of a fee award for additional comment finding the facts were not unique and that the initial appellate ruling ”articulated important principles that all plan administrators should heed.” Specifically, those principles include the requirement that ”before terminating a plan participant’s benefits, a plan administrator should ensure that the opinions upon which they rely to make their decisions to terminate are based on a thorough review of the administrative record. In addition, under certain circumstances, the opining physician’s opinion should also be based upon an actual examination of the claimant.
”Thus, the published decision in the underlying case should deter other insurance companies from making the same arbitrary decisions as UNUM in the instant case.”
Consequently, the court directed the district court to assess the fee request.
Just as the prior appellate ruling was instructive, this case presents several important principles and also invites an examination of other points that are not fully articulated in the decision. For example, the question of whether the insurer engaged in ”bad faith” or ”culpable conduct” as a trigger to a fee award brings to mind Production & Maintenance Employees’ Local 504, Laborers’ Int’l Union v. Roadmaster Corp., 954 F.2d 1397, 1405 (7th Cir. 1992) which made the crucial finding:
”Despite the references to ‘good faith’ and ‘harassment,’ we do not read [Meredith v. Navistar Int’l Transp. Co., 935 F.2d 124, 129 (7th Cir. 1991)] to mean that a party must actually show subjective bad faith to justify a fee award – because of the difficulty of proving subjective bad faith. Attorney’s fee litigation is time-consuming and tedious enough without adding subjective inquiries into litigants’ and attorneys’ good or bad faith. Instead, we take Meredith’s reference to ‘good faith’ and ‘harassment’ simply to mean that a party who pursues a position that is not substantially justified – that is, a position without a ‘solid basis’ – has, in an objective sense, really done nothing more than harass his opponent by putting him through the expense and bother of litigation for no good reason.”
It is plainly evident from the court’s discussion that the Roadmaster standard was met here and that fees were therefore appropriate.
Another key but related point that the 6th Circuit made is that the district court may not utilize its own prior decision in analyzing the propriety of a fee reward and finding that the initial determination was ”substantially justified.” Both Crosby v. Halter, 152 F.Supp.2d 955 (N.D.Ill. 2001), and Smith v. Apfel, 2001 U.S.Dist.LEXIS 2095 (N.D.Ill.), cite United States v. Paisley, 957 F.2d 1161 (4th Cir. 1992) and United States v. Hallmark, 200 F.3d 1076 (7th Cir. 2000), for the proposition that the ultimate decision in the litigation determines whether a party’s position was substantially justified.
Thus, after an appellate reversal fees may not be declined on the basis that the district court initially deemed the benefit plan’s determination substantially justified. Just as the initial Moon decision was issued as unpublished but was subsequently published after the important lessons taught in the ruling were pointed out to the 6th Circuit, the importance of this ruling cannot be overlooked.
This article was initially published in the Chicago Daily Law Bulletin.