Appealed from the United States Court of Appeals for the Fourth Circuit (July 14, 2009)
Oral argument: April 26, 2010
ERISA, PREVAILING PARTY, ATTORNEY’S FEES, DISABILTY BENEFITS, INSURANCE
Petitioner, Bridget Hardt (“Hardt”), a former employee of Dan River Inc., brought suit against Respondent, Reliance Insurance Co. (“Reliance”), the insurance provider for Dan River Inc., in an attempt to recover attorney’s fees for a previous suit Hardt had brought in the Eastern District of Virginia to recover benefits pursuant to Dan River Inc.’s Group Long-Term Disability Insurance Program Plan (“the Plan”). The Eastern District remanded the case to Reliance, which, under ERISA, not only administers the Plan, but also decides whether an applicant is entitled to benefits. On remand, Reliance provided Hardt with the requested benefits. Hardt now sues seeking attorney’s fees under ERISA § 502(g)(1). Reliance counters that Hardt did succeed on the merits in the lower court and, therefore, cannot satisfy ERISA’s definition of “prevailing party.” Hardt, on the other hand, argues that the text of the statute does not include a prevailing party standard as a prerequisite to recovering attorney fees. In this case, the Supreme Court will decide whether ERISA § 502(g)(1) requires a party to succeed on the merits before attorney’s fees may be awarded and, if so, whether Hardt satisfies that requirement.
1. Whether the Fourth Circuit erred in holding that ERISA § 502(g)(1) provides a district court discretion to award reasonable attorney's fees only to a prevailing party?
2. Whether a party is entitled to attorney's fees pursuant to § 502(g)(1) when she persuades a district court that a violation of ERISA has occurred, successfully secures a judicially-ordered remand requiring a redetermination of entitlement to benefits and subsequently receives the benefits sought on remand?
Whether ERISA § 502(g)(1) requires a party to be a prevailing party before a court can award attorney fees, and if so, whether Hardt satisfies that standard.
Bridget Hardt, worked as an executive assistant to the president of a textile manufacturer, Dan River Inc.; in 2000, she was diagnosed with carpal tunnel syndrome (“CTS”) and had surgery on both wrists to relieve the pain. See Hardt v. Reliance Standard Life Ins. Co., 336 Fed. Appx. 332, 3 (4th Cir. 2009). Due to continued pain, in 2003, Hardt stopped working and requested long-term disability benefits from Reliance Insurance Co. (“Reliance”), which has the dual role of administering and deciding whether an applicant is entitled to benefits under the terms of Dan River Inc.’s Group Long-Term Disability Insurance Program Plan (“the Plan”) See id.
Reliance gave provisional approval but mandated that Hardt submit a functional capacities evaluation (“FCE”). Hardt, 336 Fed. Appx. at 3–4. Reliance concluded that notwithstanding Hardt’s detailed limitations, including “neck and upper extremity pain, restricted overhead reach....and decreased lift, carrying, and push and pull capabilities,” she did not meet the definition of total disability under the Plan and denied her claim. Id. at 4. Hardt appealed to Reliance which, though still finding her not totally disabled, partly reversed its decision, awarding her temporary disability benefits for twenty-four months. See id.
During this period, Hardt was diagnosed with hereditarily small-fiber neuropathy, which increased her pain and disability. Hardt, 336 Fed. Appx. at 4–5. Hardt applied for and received disability insurance from the Social Security Administration (“SSA”). See id. at 5. SSA, like Hardt’s treating physicians, concluded that Hardt was disabled and that her physical condition rendered her unable to work. See id. Reliance, however, determined that Hardt was not “totally” disabled, i.e. unable to work, and declined to extend Hardt’s disability benefits beyond the twenty-four month mark. See id.
Hardt appealed Reliance’s decision and, in support of her appeal, submitted documents from her physicians which reaffirmed her inability to work. See Hardt, 336 Fed. Appx. at 5. Reliance had Hardt undergo two more FCEs, but both times the examiner ruled the results invalid due to submaximal effort. See id. at 5-6. Reliance also hired its own experts, who concluded that Hardt’s health would likely improve and identified jobs that she could work. See id. In 2006, Reliance notified Hardt that she was still ineligible to receive long-term disability benefits. See id.
After exhausting all administrative remedies, Hardt filed a complaint in the United States District Court for the Eastern District of Virginia, alleging that Reliance had violated ERISA by unreasonably denying her long-term disability benefits. See Hardt, 336 Fed. Appx. at 5; Hardt v. Reliance Standard Life Ins. Co., 540 F. Supp. 2d 656 (E.D. Va., 2008). The district court remanded Hardt’s clam to Reliance for reconsideration and instructed Reliance to adequately consider all evidence within 30 days; failing to do so would result in a judgment in Hardt’s favor. See id. at 7. On remand, Reliance reversed its earlier decision and awarded Hardt long-term disability benefits through the age of sixty-five; it also awarded her retroactive benefits. See id.
Hardt filed a motion with the district court for attorney’s fees and costs pursuant to ERISA, 29 U.S.C. § 1132(g)(1), which provides that the court, in its discretion, may award reasonable attorney’s fee and costs in actions involving delinquent contributions. Hardt, 336 Fed. Appx. at 7. The district court granted Hardt’s motion and awarded $39,149 for her attorney’s fees. See id. at 7-8. The Fourth Circuit Court of Appeals, however, vacated the decision, holding that Hardt was not a “prevailing party,” because Reliance’s decision on remand was not an “enforceable judgment on the merits.” Id. at 12-13. The Supreme Court granted certiorari in this case to resolve a circuit court split and to decide if “prevailing party” status is a prerequisite for recovering attorney’s fees under 29 U.S.C. § 1132(g)(1).
This case will resolve a split in the circuit courts on the question of whether 29 U.S.C. § 1132(g)(1), ERISA §502(g)(1), requires prevailing party status for an award of attorney’s fees. Petitioner Bridget Hardt (“Hardt”) argues that attorney’s fees may be granted when a claimant prevails upon remand by the court to his or her insurer, while Respondent Reliance Insurance Co. (“Reliance”) counters that a claimant must win in court, on the merits, in order to be awarded attorney’s fees.
Hardt and amicus, the United States, argue that if the Supreme Court upholds the Fourth Circuit’s decision, the Court would undercut the fundamental purpose of ERISA to protect beneficiaries. See Brief of Amicus Curiae the United States of America in Support of Petitioner at 13, 31. Imposing attorney’s fees generally serves two purposes: (1) it protects the plaintiff from losing money on a successful suit and (2) acts as a penalty the court can give for a party’s bad-faith actions. Hardt argues that the Fourth Circuit’s decision will create an incentive for plan administrators to deny meritorious claims and only award benefits when forced to reconsider their decisions by a court, undermining ERISA’s purpose. See id. at 31. She contends that absent the possibility of the attorney’s fees penalty, there is little reason for plan administrators to put forward an initial good-faith determination. See id. The AARP and the National Employment Lawyers Association further support this point by adding that the Fourth Circuit’s decision would discourage beneficiaries’ attempts to enforce their rights. See Brief of Amici Curiae AARP and the National Employment Lawyers Association in Support of Petitioner at 21. Amici point out that benefit amounts are small compared to the entire costs of litigation; therefore, if a beneficiary must bear litigation costs, then a successful suit could result in a loss of money. See id. at 23. They also argue that even now, lawyers are unlikely to take cases on a contingency fee basis because of small recoveries, thus, adding to claimants’ costs. See id. They contend that beneficiaries may consider themselves better off foregoing their right to recover than shouldering the cost of litigation, a result contrary to the congressional goal of protecting beneficiaries. See id. at 21-23.
Following this line of reasoning, amici contend that currently, the possibility of attorney’s fees encourages lawyers for plan administrators to settle cases where claimants have good claims. See Brief of AARP, et al. at 26. They conclude that the fee-shifting policy thus encourages plan administrators to comply with ERISA by raising the cost of their non-compliance. See id. Because ERISA does not provide for punitive damages, amici contend that, without the ability to award attorney’s fees, courts will be severely limited in punishing administrators’ bad faith denials of benefits. See id. at 27.
Conversely, Reliance argues that Hardt’s “focus on the administrator’s subjective rationale for awarding benefits on remand’ would create, as it did [in this case]... a ‘second major litigation.’” Brief for Respondent Reliance Standard Life Insurance Company at 50. Reliance contends that an investigation into and trial regarding whether an insurance company’s rationale for changing its decision would be intensely fact-driven, with a ruling based on inferences from the nature and timing of the insurance company’s actions. See id. (discussing Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S. 598, 609-610 (2001)). Reliance also argues that awarding attorney’s fees may deter plan administrators from awarding benefits in cases that are not strongly in favor of the beneficiaries. See id. at 51. Reliance suggests that plan administrators may rule against such beneficiaries in close cases due to the high cumulative costs of attorney’s fees and benefits; thus, a ruling for Hardt may actually harm beneficiaries. See id.
Reliance also argues that a reversal of the Fourth Circuit’s decision may result in employers reducing benefits to counter increased costs from attorneys’ fees. See Brief for Respondent at 51. Amicus, DRI, the Voice of the Defense Bar, adds that balanced regulation is important, because at bottom, employers voluntarily offer these benefits; they are not required to do so. See Brief of Amicus Curiae DRI - The Voice of The Defense Bar in Support of Respondent at 6. Therefore, DRI contends that overly plaintiff-friendly awards may help individual plaintiffs but, overall, hurt employees by creating a disincentive for employers to provide benefits. See id.
Additionally, DRI argues that without requiring a party to prevail on the merits, a defendant may win on the merits, yet still face an additional suit over the losing plaintiff’s attorney’s fees. See Brief of DRI at 16. DRI contends that plaintiffs know that, under ERISA, they will not have to pay defendants’ attorneys’ fees and, thus, have little to lose by filing requests for their own attorneys’ fees; defendants will have to expend more to litigate such claims. See id.
In this case the Supreme Court will determine whether §502(g)(1) of the Employment Retirement Investment Security Act (“ERISA”), 29 U.S.C. §1132(g), authorizes district courts to award attorney’s fees exclusively to a “prevailing party” or, alternatively, whether a party must achieve “some success on the merits” as a precondition to receiving such an award.
Petitioner Bridget Hardt (“Hardt”) looks to the plain meaning of §502(g)(1) of ERISA for authority that attorney’s fees may be awarded. See Brief for Petitioner, Bridget Hardt at 16. Section 502(g) allows a court to award fees and costs “in its discretion . . . to either party.” Id. Hardt notes the statute’s discretionary language to argue that a court may award fees and costs to a party regardless of whether the party prevailed in litigation; in fact, Congress did not use the term “prevailing party” in the statute. See id. Hardt claims that the phrase “prevailing party” is a legal term of art that “has clear meaning.” Id. at 17. To support this argument Hardt cites Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health and Human Res., 532 U.S. 598, 605 (2002): “A defendant’s voluntary change in conduct, although perhaps accomplishing what the plaintiff sought to achieve by the lawsuit, lacks the necessary judicial imprimatur on the change. Our precedents thus counsel against holding that the term “prevailing party” authorizes an award of attorney's fees without a corresponding alteration in the legal relationship of the parties.” Id. at 16?17 (emphasis in the original). Where, as here, Congress did not use the “prevailing party” language in a fee-shifting statute, Hardt contends that Congress rejected the applicability of such a standard. See id. at 17. Hence, in Hardt’s view, the Court should broadly construe §502(g)(1) to award such fees even to a non-prevailing party. See id. at 19. According to Hardt, this reading of §502(g)(1) also best achieves ERISA’s goal “to protect . . . participants in employee benefit plans and their beneficiaries” by “providing for appropriate remedies, sanctions, and ready access to the Federal courts.” Id. at 29 (citing 29 U.S.C. § 1001(b)).
Respondent Reliance Standard Life Insurance Company (“Reliance”) counters that a party must achieve “some success on the merits” before the Court can award attorneys fees under §502(g)(1). See Brief for Respondent, Reliance Standard Life Insurance Company at 14. Reliance points to Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983), a case where the Court considered the attorney’s fees provision of the Clean Air Act allowing “[the court to] determine [whether] such an award [was] appropriate.” Id. at 10. In Ruckelshaus, the Court held that in the absence of express statutory provision by Congress allowing courts to award attorney’s fees to a non-prevailing party, a party must achieve “some success on the merits” before receiving the award. Id. at 16?18 (citing Ruckelshaus, 463 U.S. at 688, 694). In Reliance’s view, Hardt fails the requirement of “some success on the merits” under the Ruckelshaus precedent, because Hardt only obtained procedural relief and not substantive success on any of her legal claims. See id. at 10?11.
Notwithstanding these arguments, Hardt contends that had Congress intended to incorporate the “prevailing party” standard, it would have done so; however, there is no such indication in §502(g)(1). See Brief for Petitioner at 20. Hardt claims that Congress rejected limiting attorney’s fees and costs to prevailing parties in precursor bills to ERISA. See id. at 21 (citing H.R. Rep. 90?1867 at 27 (Sept. 5, 1968). The precursor bill H.R. 6498 stated: “The court in such action may in its discretion, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.” Id. at 21 (emphasis added). Moreover, Hardt also notes that when Congress amended §502(g)(1) and created §502(g)(2) in 1980, it retained the broad statutory language authorizing courts to award fees and costs in its own discretion without the “prevailing party” requirement. See id. at 24, 26.
Despite these arguments, Reliance notes that there is no legislative history indicating that §502(g)(1) should be read expansively. See Brief for Respondent at 27?28. While recognizing that §502(g)(1) does not explicitly have a “success” requirement, Reliance claims that there are a number of plausible explanations for why Congress chose to replace the Welfare and Pension Plans Disclosure Act with §502(g)(1). See id. at 18, 20. For example, one possible reason why Congress might have enacted §502(g)(1), in Reliance’s view, was so that courts could award both plaintiffs’ and defendants’ attorneys’ fees rather than solely plaintiffs’, as was historically the case. See id. at 21 (emphasis added). In other words, Reliance does not interpret Congress’s intent in enacting §502(g)(1) as affording the courts unbridled discretion in awarding attorneys fees to any party regardless of success on the merits. See id.
To counter this argument, Hardt cites case law holding that courts should analogize to trust law in interpreting ERISA. See Brief for Petitioner Hardt at 32 (citing Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570 (1985)). Hardt notes that in trust law, courts are authorized to award fees to either party without using the “prevailing party” standard. See id. at 33. Hardt believes that §502(g)(1) should be broadly construed to enable courts to award fees and costs “to either party” and that the Court should not be guided by an unwritten “prevailing party” standard. See id. at 35.
Hardt also contends that there is no need for courts to impose a tighter “prevailing party” standard since the five-factor test that lower courts use under ERISA already takes into account the relative merits of parties’ positions. See Brief for Petitioner Hardt at 35. In Hardt’s view, the five-factor test sufficiently enables courts to use broad discretion in awarding fees under §502(g)(1) by allowing it to determine the culpability of the parties. See id. at 37. Hence, according to Hardt, because the five-factor test already considers the relative merits of the parties’ positions, it is unnecessary for the Court to employ a narrower “prevailing party” step in lieu of this test. See id. at 35.
In response to this point, Reliance maintains that the five-factor test is inconsistent with Ruckelshaus and the purpose and history of ERISA. See Brief for Respondent at 60. Moreover, Reliance counters Hardt’s assertion that the five-factor test closely mirrors trust law concepts. See id. at 62. In Reliance’s view, if the Court decides to address the standard that should govern beyond the Ruckelshaus’ “some success on the merits” criteria, the Court should turn to common law equity principles. See id. at 63?64. However, Reliance believes that even these principles are not intended to allow equity courts to award attorney fees to parties who have not prevailed at least partially on the merits. See id. at 63?64. Finally, Reliance claims that reading §502(g)(1) to allow a non-prevailing party to obtain attorneys fees would conflict with other federal statutes. See id. at 31. If, for instance, the Court were to interpret §502(g)(1) as expansively as Hardt advocates, Reliance believes that such an interpretation would affect at least 40 other fee-shifting statutes, including the Clean Air Act, which was at issue in Ruckelshaus. See id. at 32.
In this case the Court will determine whether §502(g)(1) of ERISA mandates that the Court award attorney fees only to a “prevailing party” or, alternatively, whether it can award such fees to either party regardless of success on the merits. The parties offer differing accounts of the statutory language and proper legislative history of the statute. Additionally, the parties each point to court precedent to support their positions on whether the “prevailing party” standard should apply.
Prepared by: Catherine Suh and Andrew Kaplan
Edited by: Lara Haddad
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· Department of Labor: Health Plans & ERISA