In civil actions brought under statutes that permit the winning party to recover attorney fees, fee litigation can take on a life of its own as illustrated by a recent ruling issued by a U.S. District Court in Connecticut.

In an earlier opinion, the court entered judgment in favor of the plaintiff, Paige Fairbaugh, who had been denied disability benefits despite evidence showing the severity of her multiple sclerosis. Then, in Fairbaugh v. Life Ins.Co. of North America, 2012 WL 1925565 (D.Conn. May 29, 2012), the court tackled the plaintiff’s fee request seeking reimbursement pursuant to Employee Retirement Income Security Act’s (ERISA) fee-shifting statute, 29 U.S.C. Section 1132(g) for approximately 175 hours of attorney time. The court easily determined that the plaintiff met the standard set forth in Hardt v. Reliance Standard, 130 S.Ct. 2149 (2010) by achieving success on the merits; thus, a fee award was deemed appropriate.

However, the court limited the fee award in two key respects. First, the court rejected an upward adjustment from the “lodestar” calculated by multiplying the number of hours reasonably incurred by a reasonable hourly rate. Citing Perdue v. Kenny A., 130 S.Ct. 1662 (2010), the court determined that upward adjustments are limited to the rarest cases.

The court also reduced the hourly fee sought after questioning whether the requested hourly fees were consistent with prevailing rates in the relevant community. The court pointed out that U.S. Supreme Court standards require the submission of evidence, in addition to counsel’s own affidavit, “that the requested rates are in line with those prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation.” (emphasis in original). The court relied heavily on Blajei v. Sedgwick Claims Management Services, Inc. Civil No. 09-13232, 2010 WL 3855239 (E.D.Mich. Sept. 28, 2010), which also involved a fee request in a disability benefit claim brought under ERISA. The court agreed with that ruling, explaining:

“As the trial judge in Blajei sensibly observed, an established attorney’s relatively high hourly rate may be acceptable generally, but not in the particular and specialized field of practice forming the boundaries of a fee application. Blajei also holds, with equal good sense, that particular sub-specialities of legal practice (ERISA benefit litigation) trump for fee application purposes the more general concept of labor law.”

Based on that rationale, the court found the claimed hourly rate excessive and reduced the fees by 5 percent.

However, the court overruled the defendant’s other criticisms of the fee request, finding:

“LINA’s shotgun blast against the Durant firm’s fee structure invites, nay requires, consideration of the wrongful manner in which this insurance company treated Paige Fairbaugh, the multiple sclerosis-stricken and vulnerable beneficiary of the disability plan LINA issued, and the legal steps Ms. Fairbaugh had to take to redress that wrong. For the reasons stated in Fairbaugh I and not here repeated, the court concluded that LINA acted in an arbitrary and capricious manner when it began paying Fairbaugh disability benefits and then abruptly terminated them. The court’s award of Fairbaugh’s attorney’s fees was intended, inter alia, to “have the effect of deterring the defendant and others similarly situated from arbitrarily terminating the benefits of other disability plan participants in like circumstances.” Fairbaugh I, 737 F.Supp.2d at 89. It comes with a certain lack of grace for the company to quarrel with so many aspects of the Durant firm’s fee.”

The court agreed with the plaintiff’s counsel that substantial attorney resources needed to be mustered “when confronted with an insurance company’s refusal to pay contracted-for benefits, purportedly based upon a 970-page, company-generated medical, vocational and legal administrative record.” Further, citing Hensley v. Eckerhart, 461 U .S. 424, 436-37 (1983), the court rejected the insurer’s argument that fees should not be awarded for the time spent on issues that were decided in the defendant’s favor. The court utilized a wonderful metaphor:

“To downgrade the plaintiff’s success on that core claim because of her counsel’s initial embrace of the wrong standard of review would be as inequitable as giving an unfavorable review to a magnificently staged, sung, acted and played performance of Gounod’s “Faust” because the first clarinet muffed his entrance during the overture.”

Finally, the court addressed the defendant’s argument that the fees should not exceed the amount recovered. The court found the logic of that argument was explicitly rejected in Quaratino v. Tiffany & Co., 166 F.3d 422, 426 (2d Cir.1998), a civil rights action, where the court rejected proportionality. The court added:

“In a real sense, ERISA’s remedial provisions define and protect the ‘civil rights’ of disability plan beneficiaries like Paige Fairbaugh, who require all the protection they can get in a world seemingly populated by numerous insurance companies who prefer not to pay benefits. Limiting the attorney fees of successful ERISA plaintiffs to a portion of the amount recovered could encourage companies to think that the lower the amount at stake, the more outrageous their conduct can be without the risk of being held accountable at law. That is not an appealing concept.”

Although the ruling in Fairbaugh highlighted the need to establish a community rate for the fees charged, there have been rulings applying a “nationwide” rate in view of the limited number of experienced ERISA plaintiffs’ counsel and the frequency with which such lawyers litigate nationwide –Torgeson v. Unum Life Insur.Co. of America. 2007 U.S.Dist.LEXIS 9332 (N.D.Iowa 2/5/2007); Dobson v. Hartford Fin.Svcs. Group. 2002 U.S.Dist. LEXIS 17682 (D.Conn. August 2, 2002). However, not all courts have accepted a nationwide rate.

On the issue of whether ERISA fees should be proportional to the amount recovered, another key ruling is Anderson v. AB Painting and Sandblasting Inc., 578 F.3d 572 (7th Cir. 2009) where the court explained the purpose of fees is to redress “petty tyranny” and rejected a proportionality standard for many of the same reasons as those cited in the Fairbaugh opinion.

Note: I was counsel for the plaintiff in Torgeson and also participated in the Dobson litigation.

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