From the Bench
SIIA, www.siia.org
By Thomas A. Croft, Esq.
I. The Supreme Court Clarifies ERISA Attorney Fee Provision
We have two reasons for reviewing Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149 (2010). First, it is the latest ERISA decision from the Supreme Court cases define ERISA jurisprudence, they cannot be ignored. Second, the case addresses an issue near and dear to our hearts – attorneys’ fees.
On its facts, Hardt is something of a plain vanilla disability case. Hardt was an executive assistant to the president of Dan River, Inc., a textile manufacturer. After being diagnosed with carpal tunnel syndrome, Hardt applied for long term disability (“LTD”) benefits. Her claim was denied by Reliance Standard Life Insurance Company (“Reliance”), Dan Rivers’ LTD insurer. On appeal, Reliance reversed itself in part and determined that Hardt was totally disabled from performing her current job, thus entitling her to 24 months of coverage.
Hardt’s condition worsened, however, and she developed new symptoms. She applied for Social Security benefits during her appeal process, and was awarded those benefits. Shortly, thereafter Reliance informed Hardt that her LTD benefits would expire at the end of the 24-month period and asked that she reimburse Reliance approximately $15,000 to offset the benefits she received from The Social Security Administration. Hardt paid the money and filed appeal, submitting updated medical records and vocational capacity evaluations. Hardt sought to have the 24-month limit on her LTD benefits lifted. Reliance denied her appeal, again. Hardt sued.
The District Court found that Reliance had ignored key medical evidence, had relied on its own physician’s report which the Court found to be “vague and conclusory” and had ignored Hardt’s evidence regarding her substantial pain. While the Court found “compelling evidence” in the record that “Ms. Hardt [wa]s totally disabled due to her neuropathy,” it nevertheless, remanded the case back to Reliance to give it a chance to address the “deficiencies in its approach.” Reliance did that, and on remand, awarded Hardt full LTD benefits and paid het $55,250 in accrued, past-due benefits.
Hardt then sued for attorneys’ fees under ERISA § 1132(g)(l). The Court followed the three step framework established by the Fourth Circuit. First, the Court asked if Hardt had been a “prevailing party.” Second, the Court determined whether an award was appropriate under the five factor test used in the Fourth Circuit. These five factors are (similar tests apply in other circuits): (i) the degree of bad faith, if any, (ii) ability of party to satisfy the award, (iii) would an award of attorneys’ fees deter other persons acting in similar circumstances, (iv) whether the award would provide a common benefit to similarly situated parties positions. Finally, if an award is appropriate, the Court must review the attorneys’ fee requested and limit them to a reasonable amount. Applying that framework, the Court awarded Hardt attorney fees.
Reliance appealed the award of attorneys’ fees, and the Fourth Circuit reversed. It determined that Hardt was not a prevailing party. Relying on the U.S. Supreme Court decision in Buckhannon Board & Care Home, Inc. v W. Va. Dept of Health and Human Resources, 532 U.S. 603 (2001), which held that a fee claimant was a prevailing party only if he has obtained an “enforceable judgment on the merits” or a “court-ordered consent decree.” The Fourth Circuit reasoned that because the District Court did not order Reliance to award benefits to Hardt, its order did not constitute an “enforceable judgment on the merits.”
The Supreme Court reversed the Fourth Circuit. Following its strict statutory construction approach, Justice Thomas, writing for a near-unanimous court (Justice Stevens concurred in the judgment and the preponderance of the Court’s rationale, but felt the opinion was too glib when comparing other federal statutes that provided doe awarding attorneys’ fees), looked at ERISA § 1132 (g)(l), and noted that the words “prevailing party” do not appear anywhere in the text, and nothing else in that provision purport to limit the award of attorneys’ fees to a “prevailing party.” “Instead, § 1132 (g)(l) expressly grants district courts ‘discretion’ to award attorneys’ fees ‘to either party [emphasis in original].’”
Emphasizing that the American Rule requires that each side must pay its own attorney’ fees, unless a statute expressly decides otherwise, the Court realized that case law construing statutes that granted fee awards to prevailing parties could not provide the rule of decision in this instance. Instead, it looked to a line of cases that interpreted statutes that awarded fees on a different basis, and looked to Ruckleshaus v. Sierra Club, 463 U.S. 680 (1983), which construed the fee award provisions of the Clean Air Act, and which also had granted to district courts the discretion to award attorneys’ fees.
Under Ruckleshaus, the standard articulated was that attorney fees should not be awarded “absent some degree of success on the merits by the claimant,” but a claimant does not satisfy this requirement by achieving “trivial success on the merits” or a “purely procedural victor[y].” Noting that the District Court here had applied the five-factor test, the Supreme Court found that this test bore “no relation to the ERISA test nor to its prior fee-shifting jurisprudence; hence, they are not required for “channeling a court’s discretion when awarding fees under this section [i.e., ERISA § 1132 (g)(l)].”
Thus, under ERISA, a claimant must show “some degree of success on the merits” to be awarded attorneys’ fees under § 1132 (g)(l). Here, Hardt had persuaded the District Court that Reliance had failed to give her a full and fair review as required under ERISA and the Court had found compelling evidence that Hardt was totally disabled. Though she did not win summary judgment, she had obtained a judicial order instructing Reliance to adequately review all the evidence within 30 days. She thus achieved far more than a “trivial success on the merits” or a “purely procedural victory.” Thus, she was entitled to the attorneys’ fees awarded by the District Court.
While the Hardt decision is likely to be enthusiastically received by the plaintiffs bar for establishing a more clearly attainable standard for an award of attorneys’ fees, it must be noted that ERISA provides for an award of attorneys’ fees “to either party.” While defense counsel may have a more difficult time convincing courts for a level playing field in that regard. We will have to see how these new standards play out in the various circuit courts.
II. The Ninth Circuit Applies Hardt: Were They Listening?
It did not take long for a circuit to be confronted with an attorneys’ fee case following the Supreme Court’s Hardt decision. In Simonia v. Glendale Nissan//Infiniti Disability Plan and The Hartford Insurance Company, 2010 WL 2521036 (9th Cir.), th Ninth Circuit had reason to apply the Supreme Court’s new ERISA attorneys’ fee jurisprudence as set for in Hardt. The Simonia decision came exactly 30 days after the Hardt decision.
Conscious of that recent Supreme Court decision, the Ninth Circuit understood that it must assess the award of attorneys’ fees based on the new “some degree of success on the merits” standard articulated in Hardt, rather than the traditional “prevailing party” rationale. But in reviewing the Supreme Court’s discretion under § 1132 (g) (l) – “Because these five factors bear no obvious relation to § 1132 (g) (l)’s text or to our fee-shifting jurisprudence, they are not required for channeling a court’s discretion when awarding fees under this section.” – the Ninth Circuit read it in a somewhat expansive manner.
“But the Supreme Court expressly declined to foreclose the possibility that, once a court has determined that a litigant has achieved some degree of success on the merits, it may then evaluate the traditional five factors under Hummer v. S.E. Rykoff & Co., 634 F.2d 446 (9th Cir. 1980), before exercising it discretion to grant fees. Because we continue to believe that ‘district courts should have guidelines to apply in the exercise of their discretion under § 1132 (g) ‘ Hummell, 634 F.2 at 453, we hold that district courts must consider the Hummell factors after they have determined that a litigant has achieved ‘some degree of success on the merits.’”
The factors before the Ninth Circuit tracked the dispute in Hardt in many respects, but here in the issue in dispute was the amount the claimant was required to repay the insurer based on a favorable determination of disability by the Social Security Administration. Simonia had challenged Hartford’s decision to limit his LTD benefits to a disability based on nn-physical factors; Hartford had countersued for reimbursement of its prior from payments from Simonia’s Social Security Award. Simonia did not prevail in his claim for benefits, but settled the counterclaim. He sought $63,745 in attorneys’ fees finding that the District Court had not abused its discretion in applying these factors.
Following the Ninth Circuit, Hardt may simply mean that the door a party must go through is labeled “some degree of success on the merits” instead of “prevailing party,” and while it may be easier to walk through that door, claimants still must wend their way through the five-factor test applicable in his or her circuit. If this becomes the majority rule, Hardt may not as disruptive to ERISA fee award jurisprudence as might have been expected. Of course, if other circuits disagree with the Ninth Circuit’s rationale here, the issue may well come before the Supreme Court again and we will learn if its discussion on the connection between the five-factor test and the ERISA text was a permissive as the Ninth Circuit believed it to be. We would expect that under the Supreme Court’s strict reading of the statutory text, the current court might be comfortable dispensing with the five-factor test altogether, though the might have qualms about untethering the discretion of the lower courts altogether. It is not likely, however, that the Supreme Court will entertain another ERISA attorneys’ fee case in the near future, so until then, a lot more litigation of attorneys’ fees in ERISA cases should be expected.
III. Eighth Circuit Finds SPD’s Grant of Discretion Inadequate When Plan Document Is Silent
In Jobe v. Medical Life Ins. Co. n/k/a Ft. Dearborn Life Ins. Co., 598 F.3d 478 (8th Cir. 2010), the Eighth Circuit refused to apply a deferential standard of review to a plan administrator’s final claim determination when the plan document (here, the insurance policy) did not expressly grant the administrator discretion, and was silent on the issue, but the SPD (here, a certificate of coverage that included an “ERISA” Information Statement” and referred to the two together as the SPD) expressly granted such discretion. The SPD also stated that in case of a conflict between the policy and the SPD, the policy would control. The issue arose in a dispute over the denial of Jobe’s application for long term disability benefits.
Jobe contended that the SPD was an impermissible amendment to the plan document, and so should not be given credence. Ft. Dearborn argued that the SPD is part of the ERISA required documentation and so no formal amendment was needed. It also argued that Eighth Circuit precedent was clear that where the terms of an SPD conflicted with those of the plan document, the SPD controlled. The District Court agreed with Ft. Dearborn and decided against Jobe. The Eighth Circuit did not agree, reversed, and remanded the case back to the District Court to review the administrator’s decision de novo.
Reviewing its prior jurisprudence as to when an SPD trumps a plan document, the Court noted that the prior cases were based on ERISA’s policy of adequate disclosure to plan participants, but found that the application of this policy required a more nuanced approach.
“The disclosure purpose will not always be advanced, however, but holding that the summary plan description prevails over the policy in all circumstances. Where the entity seeking enforcement of the summary provision drafted the more detailed policy and can be presumed to know its terms, allowing that party to rely on the summary plan description – which it also drafted – would do little to enhance either party’s understanding of their legal rights and responsibilities.”
The Court’s explanation here to some extent tracks the traditional rule of construction for insurance policies that ambiguities are to be construed against the drafter. In addition, because the SPD here contained the two documents conflict, the terms of the policy control, the Court found that a conscientious participant, reading both documents carefully, would be led back to reliance on the policy language, which contains no grant or discretion. Moreover, and the Eighth Circuit emphasized this concern, if the terms of a policy or plan could negated simply including contrary provisions in an SPD, then ERISA’s requirement for a clearly identifiable amendment procedure and the Supreme Court decision in Curtis Wright Corp v. Schooneongen (1995) clarifying that requirement would be seriously undermined.
While noting that this issue of discretionary authority only being granted in an SPD was one of first impression in the Eighth Circuit, the Court noted that three other circuits have held that a grant of discretion to a plan administrator, appearing only in an SPD does not vest the administrator with discretion, where the underlying insurance policy provides a mechanism for amendment and disclaims the power of the SPD to alter the terms of the policy. The key issue for these courts, as well as for the Eighth Circuit, was that an SPD was intended to accurately reflect the terms of the policy, and could not result in an “unnegotiated enlargement of the administrator’s authority.”
It is a fair question as to how this holding might apply to self-funded plans. One advantage self-funded plans may have here is that it is possible to draft the plan document and summary plan description as a single document, thus avoiding the potential for conflict between two separate documents and avoiding which document controls in case of conflict. Where both plan documents and SPDs are drafted for a self-funded plan, however, the drafter will need to take pains to ensure that the provisions addressing the grant of discretion is consistent, or at least, be sure not to expressly state that the document that is silent on the matter controls.
We would also note that for both insured and self-funded plans the requirements of the Affordable Care Act (“ACA”) that will require plans to provide, in addition to an SPD and/or a plan document, a four page, 12-point type “summary of benefits and coverage (required by March 23, 2012), and that will require notice of material modifications to plan 60 days before they become effective (required for plan years beginning on or after September 30, 2010) is certainly likely to complicate these plan documentation issues going forward.
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