Attorney fee awards available under ERISA are a means of providing an incentive to counsel to agree to represent benefit claimants, while at the same time, fee awards create a deterrent against unjustified denials by benefit plan administrators.  In Fontaine v. Metro.Life Ins.Co., 2014 U.S.Dist.LEXIS 75012, 2014 WL 2511091 (N.D.Ill. June 3, 2014)(copy available at /What-s-New.shtml), DeBofsky, Sherman & Casciari convinced a federal judge to reconsider her prior denial of fees in a case involving disability insurance benefits. Although an earlier ruling found the plaintiff was entitled judgment (2014 U.S.Dist.LEXIS 41253, 2014 WL 1258353 (N.D.Ill. March 27, 2014), the court had previously denied an award of fees, finding the defendant’s position was “substantially justified.”  On reconsideration, the court acknowledged that it had originally applied the wrong standard and determined that the plaintiff was indeed entitled to fees.

Although the court pointed out that the standards for reconsideration are daunting, when a court commits a “manifest error,” reconsideration is appropriate.  The court found this to be such a case.  The court focused on the plaintiff’s argument that the “substantial justification” test for fee awards was properly stated in a prior appellate ruling that foreclosed the interpretation relied on in the earlier ruling.  In Production & Maintenance Employees’ Local 504, Laborers’ Int’l Union v. Roadmaster Corp., 954 F.2d 1397, 1404 (7th Cir. 1992), the court of appeals explained that “[e]ven if not frivolous, a party’s position still may not be substantially justified; substantial justification means ‘more than merely not frivolous, but less than meritorious.'” Id. (quoting Bittner v. Sadoff & Rudoy Indus., 728 F.2d 820, 830 (7th Cir. 1984)).  The court thus acknowledged, “The court agrees with Fontaine that, by equating a substantially justified position with a nonfrivolous position, the court misapplied the substantial justification test to this case.”

Hence, upon reconsideration the fee request anew, the court turned to Hardt v. Reliance Standard Life Insurance Co., 560 U.S. 242, 254, 130 S. Ct. 2149, 176 L. Ed. 2d 998 (2010) and found that so long as a party achieves “some degree of success on the merits,” a fee award was appropriate.  The court pointed out that it was “undisputed” that Fontaine met that standard.

The court next turned to other caselaw that limits the court’s discretion and found that instruction could be drawn from another court ruling involving ERISA fee awards, Holmstrom v. Metro. Life Ins., Co., No. 07-CV-6044, 2011 U.S. Dist. LEXIS 58766, 2011 WL 2149353, at *3 (N.D. Ill. May 31, 2011).  There, the court found the key factors were the defendant’s ability to pay, the deterrent value of a fee award, and the relative merit of the parties’ positions.  The court here agreed that those factors also favored Fontaine’s request for fees based on similarities between the two cases:

As in Holmstrom, MetLife has failed to adequately explain why it disagreed with the Social Security Administration’s determination that Fontaine was disabled under a far more stringent definition of disability. MetLife ignored key findings of one of its own doctors, Dr. Eliott, who concluded that “over time [Fontaine] likely developed some reduction in reading speed [which] may impact her job performance due to the high visual need required for her job.” Fontaine, 2014 U.S. Dist. LEXIS 41253, 2014 WL 1258353, at *9. And many of MetLife’s arguments “lack[ed] substance and reflect[ed] arbitrary action,” Holmstrom, 615 F.3d at 771, such as its argument that Fontaine was able to do her job because she had good visual acuity, when Fontaine never suggested that she was unable to do her job for this reason.

The court went even further, though, and suggested that Fontaine had an even stronger claim to fees, finding:
While the court in Holmstrom found that MetLife’s degree of culpability or bad faith was slight, here the court has already criticized MetLife for (i) relying on a non treating physician’s conclusion that Fontaine was suffering from “anxiety” or “burn out” when the physician had no expertise in psychiatry, Fontaine, 2014 U.S. Dist.LEXIS 41253, 2014 WL 1258353, at *14; (ii) relying on a non treating physician’s conclusion about what Fontaine’s past job performance suggested about her present ability to do her job when the physician had no special training qualifying him to opine on that subject, id.; and (iii) failing to appreciate the demands of Fontaine’s job responsibilities  as a structured finance partner, 2014 U.S. Dist. LEXIS 41253, [WL] at *16. In these respects, MetLife failed to treat Fontaine’s claim with due seriousness, allowing unfounded speculation to substitute for reliable evidence. The court thus concludes that the first factor–the degree of culpability or bad faith of the offending party–favors Fontaine. See also Anderson v. Hartford Life & Accident Ins., 772 F. Supp. 2d 1025, 1027 (S.D. Ind. 2011) (finding that the first factor weighed in favor of the plaintiff where the plan administrator’s reviewing physicians “unreasonably discounted the [p]laintiff’s subjective complaints of pain and the resulting limitation on her activities,” which was erroneous “especially given that none of the [d]efendant’s physicians ever examined the [p]laintiff”).

The court likewise found other factors favored Fontaine.  In addition to MetLife having the ability to pay, the court found a deterrent value in awarding fees to prevent unjustifiable denials.

Discussion:    Courts are reluctant to grant reconsideration.  However, Judge Joan Gottschall forthrightly acknowledged that the court had originally applied a subjective bad faith standard when such a showing is not required.  But the court of appeals has yet to determine whether the “substantial justification” test for ERISA fee awards remains viable after Hardt.  The lesson of the Supreme Court’s Hardt ruling was that courts should not read standards into a statute that are unstated by Congress.  The substantial justification test is not found in 29 U.S.C. Sec. 1132(g).  Instead, it is derived from a different statute altogether, the Equal Access to Justice Act, 28 U.S.C. Sec. 2412.  That law permits an individual with a limited net worth to collect fees from the United States if litigation with the government in disputes such as those involving Social Security disability benefits results in a judgment in favor of the individual and the court finds the government’s position was not substantially justified.  The courts have rejected a test that would require a showing that the government’s position was frivolous.  Instead, fees are awarded so long as the rationale advanced by the government  is inadequate to satisfy a reasonable mind.  However, despite the attractiveness of employing such a familiar standard, because the Supreme Court took such a strong position in Hardt to reject the importation of unstated standards, it is time to reconsider and then reject the substantial justification test in deciding a litigant’s entitlement to fees in the ERISA context.

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