Are attorney fees payable in long term disability insurance cases governed by ERISA?
Imagine a disability claimant has their long-term disability claim denied, files an appeal which is denied, then files a lawsuit to recover disability insurance benefits. After 2 years since the first denial and hundreds of hours of litigation, the court says the disability carrier needs to reconsider their claim denial. The disability carriers argues that the court sending the claim back for another review is not a victory by the claimant and the claimant’s attorney is not entitled to collect attorney fees.
This is the exact argument that Reliance Standard has made in a further effort to make it more difficult for claimants with ERISA governed long-term disability policies to collect benefits. Most disability case victories result in the court remanding the case back to the company for an additional review. If a court’s remand of the case back to the disability company is not considered to be a victory, then there will be very few cases in which the disability carriers will be responsible for attorney fees.
Due to the complex nature of ERISA disability claims and the difficulty of winning there are very few law firms around the country that can afford to take the risk of handling an ERISA governed long-term disability cases. Attorneys Dell & Schaefer battle the disability insurance companies every day and will never give up the fight.
On April 26, 2010 the United States Supreme Court heard Argument in the case of Hardt v. Reliance Standard Life Insurance Co. (No. 09-448). Kyle Maurer of Stanford Law School attended the hearing at the US Supreme court and has provided the following summary:
At issue in the case is whether the “prevailing party” standard used to award attorney’s fees applies to ERISA, which – unlike other statutes containing fee-shifting provisions – provides only that “the court in its discretion may allow a reasonable attorney’s fee and costs of the action to either party.”
After developing debilitating carpal-tunnel syndrome, petitioner Bridget Hardt applied for long-term disability (LTD) benefits under her employer’s group insurance plan. The insurer, Respondent Reliance Standard Life Insurance Company, initially approved benefits but then subsequently terminated them. After exhausting her administrative appeals, Hardt filed suit against Reliance, arguing that the insurer’s wrongful denial of benefits violated ERISA.
Finding “compelling evidence” that Hardt was totally disabled, the district court determined that she had not received “the kind of review to which she was entitled under applicable law.” The court thus remanded the case to Reliance, cautioning the insurer that if it did not reassess Hardt’s claim “by adequately considering all the evidence” within thirty days, “judgment will be issued in favor of Ms. Hardt.” On remand, Reliance paid long-term disability benefits to Hardt.
Hardt then asked the district court to award attorney’s fees pursuant to Section 502(g)(1) of ERISA, and the district court granted the motion.
On appeal, the Fourth Circuit vacated the award of attorney’s fees. In its view, Hardt could not establish that she was a “prevailing party” under the Supreme Court’s decision in Buckhannon Board and Care Home v. West Virginia (2002), because that standard can only be satisfied when a party has obtained either an “enforceable judgment on the merits [or a]court-ordered consent decree[.]”
Oral Argument Recap
At oral argument yesterday, the Court attempted to fill the void in the ERISA fee-shifting provision – that is, the absence of language explicitly referring to a “prevailing party” – with the “success on the merits” standard established in Ruckleshaus v. Sierra Club (1983). Justice Sotomayor led off the questioning, asking John Ates (representing petitioner Hardt) how he would define “success on the merits.” Explaining that the “heart of ERISA is the full and fair review process,” Ates characterized the district court’s remand as “an equitable-type relief” that constituted “success on the merits” under ERISA. When asked by Justice Sotomayor about “Chief Justice Rehnquist’s footnote in Ruckleshaus, [in which he] said a procedural victory is not some success on the merits,” Ates distinguished his case from a purely procedural victory, arguing that “here we have a violation of ERISA, a violation of a fiduciary obligation by the plan administrator. The relief accorded for that violation was a remand back to the plan administrator to get it right.”
Justice Ginsburg next posed a hypothetical in which “total disability was not proved” on remand. Ates responded that Hardt would still be eligible for fees in such a scenario “based on the violation by Reliance in bad faith.” Justice Kennedy then extended the hypothetical by asking whether attorney’s fees should still be awarded if on remand Reliance determined that the case was “patently frivolous, close to a fraud.” Ates answered that “the only way it’s going back [down on remand] is from a violation of law. So in that regard, she has succeeded on the merits by proving a violation regardless of the outcome at the end of the day.”
Arguing on behalf of the United States in support of the petitioner, Assistant to the Solicitor General Pratik Shah faced questions from Justice Scalia, who asked about the potential tension between the government’s position in this case and the case’s implications for other fee-shifting statutes that similarly lack an “prevailing party” standard. Shah countered that ERISA is “unique in that it is informed explicitly by trust law principles,” which “depart from the American Rule.” (Shah’s heavy reliance on trust law principles and precedent throughout the argument may stem from last week’s decision in Conkright v. Frommert, which looked to trust law principles to determine whether deference to a retirement plan administrator was appropriate when the text of ERISA was inconclusive.) Unlike ERISA, Shah continued, other similar statutes lacking the “prevailing party” language “are premised on the background of the American rule.” However, Justice Scalia did not seem to agree with the distinction, deeming it “very artificial.” Justice Kennedy was similarly skeptical. He noted that “there are many statutes that are not prevailing party statutes”; although this is one is “unique in the sense it’s in ERISA… it’s very close to many of the statutes with [similar] language.”
When Nicholas Rosenkranz began his argument on behalf of Reliance, members of the Court pressed him on his argument that the district court’s order was purely procedural. In response to Justice Ginsburg’s observation that the district court seemed “inclined to rule for Hardt” but was willing to give Reliance “an opportunity to respond,” Rosenkranz warned that “it would be an utterly unadministrable rule to attempt to weigh the inclinations of judges in their opinions.” Justice Breyer next characterized the remand as “a big victory for the other side”; Rosenkranz countered that, to the contrary, Hardt’s motion for summary judgment was denied. Thus, he continued, “rather than giving her the judgment she sought, the district court employed a particular procedural maneuver, which was to remand the case.” And when Justice Sotomayor reiterated Hardt’s argument that the case did involve an ERISA violation, with the remand simply a remedy, Rosenkranz responded that “[t]his was not a decision on the merits. This was a purely interlocutory order.”
Chief Justice Roberts then shifted the tone of the argument by turning to Conkright. In the typical ERISA case, the Chief Justice noted, “the likely relief is going to be sending [the case] back rather than making a judicial decision” – which, under Reliance’s reading, would “severely limit the circumstances under which Plaintiffs are entitled to fees.” After Rosenkranz agreed that “under circumstances like this… there would be fewer opportunities for district courts to award fees,” the Chief Justice asked whether Reliance’s reasoning would apply “[e]ven though… this was a very, very significant victory for the claimant to get it sent back under those circumstances.” Rosenkranz reiterated, however, that this case “should not be characterized as a victory. The plaintiff asked for summary judgment and her summary judgment motion was denied.”
The Court continued to press Rosenkranz on the question of what would constitute a victory for purposes of obtaining attorney’s fees. Justice Scalia, for example, asked what would happen “if all [petitioner] asked for was a remand, and he got a remand”; Rosenkranz responded that “a properly framed complaint under ERISA should still be a claim for benefits.” Justice Ginsburg next asked whether a plaintiff would be entitled to attorney’s fees based on a successful request to turn over documents. After some back and forth (which did not ultimately seem to satisfy Justice Ginsburg), Rosenkranz conceded that “it might be proper to frame a complaint under ERISA for a purely procedural remedy like some documents,” but he emphasized that such a case would not be “the main run of ERISA cases.” Finally, Justice Breyer sought to push back on Rosenkranz’s continued assertions that the order was procedural by instead characterizing the district court’s order as a “conditional judgment in [Hardt’s] favor.” Although Rosenkranz attempted to resist this characterization by returning to his formalism argument, Justice Breyer turned the formalism argument on its head: “[i]f we are going to be formal and we are going to look to certain words included in certain papers irrespective of what really happened, don’t we have those words in the paper that’s relevant here?”
On rebuttal, Ates used his four minutes without interruption.
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