Michigan Court determines Sedgwick wrongly terminated woman's disability benefits and awards Michigan disability attorney his fees

A recent opinion from the United States District Court in the Eastern District of Michigan shows how difficult it can be get a court to award disability benefits instead of just remanding a wrongful termination decision back to the plan administrator. Although the Court in this action remanded the case back to the plan administrator for a new review, it did award the claimant’s Michigan disability attorney partial attorney’s fees. To understand the Court’s decision, lets take a closer look at the case of Luda Blajei.

Luda Blajei worked as a project engineer for General Motors from 1994 through 2005. As an employee of GM, Blajei was covered by a Long Term Disability Plan which was funded by GM and administered by Sedgwick. Suffering from, among other things, back pain and degenerative disc disease, which, according to her treating physicians, precluded her from engaging in even sedentary employment, Blajei applied for and received long-term disability benefits from 2005 through 2007. In 2007, Sedgwick and GM terminated Blajei’s benefits. Blajei then brought an ERISA lawsuit to reverse the decision.

The Court concluded that Sedgwick and GM acted arbitrarily and capriciously in terminating Blajei’s long-term disability benefits. The Court found that Sedgiwck inappropriately relied on a conclusory independent medical examination report by Dr. A.N. Sinha which failed to adequately discuss, let alone rebut, the contrary diagnoses of Blajei’s treating physicians. The Court further found that a subsequent file review report by Dr. Robert Pick was similarly conclusory and strongly suggested that he cherry-picked certain favorable portions of Blajei’s medical records and omitted unfavorable records from his review. Finally, the file review physician produced no written report, and moreover, the Court found that Sedgwick’s ultimate decision appeared to have been based primarily, if not exclusively, on a four page report that did not include Blajei’s medical records or the report of Drs. Sinha and Pick.

Although the Court concluded that the decision to terminate Blajei’s long-term disability benefits was arbitrary and capricious, and that Blajei’s due process rights under ERISA had been violated, the Judge determined that the appropriate remedy was to remand to the plan administrator for full and fair review. The Court did this because it determined that it was not clear that Blajei was entitled to benefits. Although the Court did not award her disability benefits and remanded the case for a new review by Sedgwick, Blajei filed a motion with the court for Attorney Fees.

Sedgwick Argues that Blajei’s Motion for Atorney Fees is Premature

ERISA 502(g)(1) provides that:

In any action under this subchapter 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.

Sedgwick argued that, because they have not yet conducted the review of Blajei’s claim as ordered by the court, Blajei’s motion for attorney fees is premature. Sedgwick’s also argued that if after the review is conducted and a decision again is made to deny Blajei, then Blajei will not have achieved the requisite success on the merits that warrants attorney’s fees.

The Court disagreed with Sedgwick. The Court cited to a recent United States Supreme Court opinion that stated that a district court may exercise its discretion to award attorney’s fees and costs “as long as the fee claimant has achieved some degree of success on the merits. See, Hardt v. Reliance Standard Life Ins. Co. Because the Court found that Sedgwick’s decision to terminate was arbitrary and because the Court ordered a fresh review of her claim, the Court determined that Blajei achieved some degree of success on the merits. Accordingly, the court concluded that Blajei’s motion was not premature and that the Court must determine if Blajei qualifies for attorney’s fees under the five-factor test set forth in Sec’y of the Dep’t of Labor v. King.

The Five-Factor Test of King

In the King case, the governing Sixth Circuit Court of Appeals set forth a five factor test that guides a district court’s decision of discretion under ERISA 1332(g)(1):

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.

Factor 1: Defendant’s Culpability or Bad Faith:

The Court stated that it is unnecessary to find bad faith to conclude that this factor favors an award of attorney’s fees. Rather, the Court stated, if a plan administrator’s conduct is culpable, i.e., blameworthy, this factor favors an award of fees.

The Court found that Sedgwick and GM’s conduct was highly culpable and bordered on bad faith. First, they gave credit to, without explanation, questionable independent medical consultants reports over the contrary findings of Blajei’s treating physicians. Second, they credited conclusory independent medical consultant reports which was magnified by failing to adequately explain why those reports were being credited over her treating physician’s diagnoses. Third, they sought to terminate Blajei’s benefits because she missed an Independent Medical Examination that she could not have received notice of until the day before the exam.

The Court concluded that Sedgwick and GM’s conduct painted a picture of a plan administrator grasping for reasons to deny Blajei’s benefits. The Court stated that this weighed heavily in favor of awarding attorney’s fees.

Factor 2: Defendant’s Ability to Satisfy an Award for Attorney’s Fees:

Sedgwick and GM admitted that they did have the ability to satisfy a fee award.

Factor 3: The Deterrent Effect of an Award on Other Persons Under Similar Circumstances:

The Court stated that the facts of this case are often typical ofl facts arising out of ERISA litigation. As a result, the Court found that there would be a deterrent effect on other plan administrators if an award was given. For instance, it would deter other plan administrators from relying on conclusory independent medical consultant reports that fail to adequately address contrary medical evidence. Also, it would teach other plan administrators to have all independent medical consultants prepare a written report detain the consultant’s findings so that the report becomes a part of the administrative record. As such, the Court determined that this was a factor in favor of award attorney’s fees.

Factor 4: Whether Blajei Requested Fees to Confer a Common Benefit on All Participants of an ERISA Plan or to Resolve Significant Legal Questions Regarding ERISA:

The Court found that the legal issues were not novel and that Blajei was attempting to redress the personal injustice that occurred when her benefits were denied. Accordingly, the Court ruled that his factor weighed against award attorney’s fees.

Factor 5: The Relative Merits of the Parties’ Positions:

While some lower courts have said that a claimant’s position had more merit when a claimant overcomes an arbitrary and capricious standard of review and obtains a remand to the plan administrator, the Sixth Circuit Court of Appeals has suggested that it is also appropriate to look ahead to the likely outcome of the remand when evaluating this factor. See, Gaeth v. Hartford Life Ins. Co.

The Court here noted that a MRI and a report of a doctor who performed an IME for Sedgwick both confirmed that Blajei suffered from degenerative disc disease. Accordingly, the Court found that Blajei’s position on remand has substantial merit and is not at best questionable as compared to Sedgwick’s. The Court concluded that this factor slightly favored Blajei.

Upon consideration of all the five King Factors, the Court determined that Blajei should be awarded attorney’s fees.

Determining the Award Amount

Blajei requested $26,547.50 in attorney’s fees. The Court stated that it is its duty to independently determine whether Blajei’s request is reasonable. In order to accomplish this, the Court stated that it needed to determine Blajei’s “lodestar.” The “lodestar” is the proven number of hours reasonably expended on this case by an attorney, multiplied by the court’s ascertained hourly rate. Additionally, once the lodestar has been determined, the Court may then adjust the “lodestar” to reflect relevant considerations peculiar to the subject litigation.

Lodestar #1: Number of Hours Expended:

Blajei’s counsel claims that it spent 59.5 hours reviewing the 2,500 page Administrative record and drafting a motion for summary judgment. Additionally, they claim 51.3 hours spent corresponding with their client, opposing counsel and the court. The Court determined that this request of 110.8 hours was reasonable.

Lodestar #2: The Prevailing Market Rate in the Relevant Community:

To determine whether a fee applicant’s requested hourly rate is appropriate, a Court must assess the prevailing market rate in the relevant community. The relevant community is the legal community within the court’s territorial jurisdiction. The party asking for attorney’s fees has the burden to establish that the hourly rate they requested is comparable to rates in the local community.

Here, the Court found Blajei’s motion to be deficient. Although the motion stated that both the attorneys had been “practicing ERISA law for a number of years,” it did not specify the number of years or cases litigated. More importantly, Blajei’s motion failed to provide any information that would aid the Court in determining the prevailing market rate of competent ERISA counsel in Michigan.

The Court’s Adjustment of the Lodestar and the Final Result:

A court may adjust a fee applicant’s lodestar upward or downward after considering other factors, including “results obtained.” Courts have previously stated that where a fee applicant achieves only partial success, “the product of hours reasonably expended on the litigation as a whole times a reasonably hourly rate may be an excessive amount.” See, Hensley v. Eckerhart. The Court here noted that Blajei sought an award of the reinstatement of long-term disability benefits, not a remand to the plan administrator. Because Blajei was only partially successful in this respect, the Court reduced her lodestar by fifty percent and awarded Blajei only $12,396.25 in attorney’s fees.