Saturday, October 25, 2014 DRI ERISA Report   VOLUME 3 ISSUE 2  
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ERISA Update
When Can Plaintiffs (and Even Defendants) Recover Attorney’s Fees in ERISA Cases?
by Nikole M. Crow


Under the “American Rule” regarding attorney’s fees, “the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys’ fee from the loser.”  Alyeska Pipeline Service Co. v. Wilderness Soc’y, 421 U.S. 240, 247 (1975).  Of course, as with any “strict” rule, there are multiple exceptions, including where a controlling statute contains a “fee-shifting” provision.

 

ERISA’s fee-shifting provision is found at 29 U.S.C. § 1132(g)(1), which provides:

 

In any action under this subchapter (other than an action described in paragraph (2)) 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.

 

Although either party can recover under this provision, attorney’s fees generally have been limited to those incurred for work performed during litigation, not fees incurred in connection with administrative proceedings.  See Hahnemann Univ. Hosp. v. All Shore, Inc., 514 F.3d 300, 313 (3d Cir. 2008) (“Five Circuit Courts have considered this question, and all five have concluded that ERISA does not allow for the recovery of attorney’s fees incurred during pre-litigation administrative proceedings.”).

 

Some courts presume that a “prevailing party” is entitled to recover fees, while others have held that no such presumption exists.  Either way, when deciding whether to award attorney’s fees under ERISA, courts generally apply a five-factor test to the specific facts of the case.  Once a court decides to award fees, it likely will use the lodestar method or some variation thereof to calculate the amount of the award.  Courts remain generally unwilling to impose fee awards against unsuccessful ERISA plaintiffs.

 

Prevailing Party Status

 

Although ERISA allows a court to award attorney’s fees or costs to either party, the Seventh Circuit requires that one must be a “prevailing party” in order to recover fees.  GE Group Life Assurance Co. v. Kurczak, 483 F.Supp.2d 671, 674 (N.D. Ill. 2007) (citing, e.g., Bender v. Freed, 436 F.3d 747, 749 (7th Cir. 2006)).  In that regard, the Seventh Circuit recognizes a “‘modest’ and rebuttable presumption in favor of awarding fees to the prevailing party.”  Id.; see also Herman v. Central States, Southeast and Southwest Areas Pension Fund, 423 F.3d 684, 695-96 (7th Cir. 2005); Hackett v. Xerox Corp. Long-Term Disability Income Plan, 355 F.Supp.2d 931, 934 (N.D. Ill. 2005).

 
Awards of attorney’s fees in ERISA cases therefore are not automatic in the Seventh Circuit.  Hackett, 355 F.Supp.2d at 934; Lowe v. McGraw-Hill, 361 F.3d 335, 339 (7th Cir. 2004); Schmidt v. Sheet Metal Workers’ Nat’l Pension Fund, 128 F.3d 541, 548 (7th Cir. 1997); Bittner v. Sadoff & Rudoy Indus., 728 F.2d 820, 830 (7th Cir. 1984) (“It does not follow that whoever wins, plaintiff or defendant, is entitled to attorney’s fees as a matter of course under section 1132(g)(1).  If that was the legislators’ intention, they expressed it very badly by giving the district court ‘discretion’ to award or not to award fees.”).  Moreover, attorney’s fees are not awarded automatically to prevailing parties in ERISA cases, as they are in civil rights cases, “[b]ecause the award will be paid out of plan assets, to the possible harm of the other participants and beneficiaries . . . .”  Id. (quoting Lowe, 361 F.3d at 339).

 

The more liberal Ninth Circuit has held that a successful ERISA participant who “prevails in his suit . . . to enforce his rights under his plan should ordinarily recover an attorney’s fee unless special circumstances would render such an award unjust.”  Mardirossian v. Guardian Life Ins. Co. of Am., 457 F.Supp.2d 1038, 1041 (C.D. Cal. 2006) (citing Smith v. CMTA-IAM Pension Trust, 746 F.2d 587, 589 (9th Cir. 1984)).

 

Thus, courts in the Ninth Circuit must determine first whether the plaintiff was a “prevailing party.”  Generally, ERISA plaintiffs are prevailing parties for the purpose of an award of attorney’s fees “if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing the suit.”  Id. at 1041-42 (quoting Smith, 746 F.2d at 589; Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)).  In other words, a “prevailing party” is one that achieves “a material alteration of the legal relationship of the parties.”  Id. at 1042 (quoting Frei v. Hartford Life Ins. Co., 2006 WL 1409360, *1 (N.D. Cal. May 23, 2006).  Such plaintiffs also may obtain interim fees by prevailing on the merits of at least some of their claims.  Id.

  

Conversely, the Eleventh Circuit has held that “[t]he law provides no presumption in favor of granting attorney’s fees to a prevailing claimant in an ERISA action.”  Florence Nightingale Nursing Serv., Inc. v. BlueCross BlueShield of Ala., 41 F.3d 1476, 1485 (11th Cir. 1995) (citations and punctuation omitted). 

 

Likewise, in the Sixth Circuit, “there is no presumption of [an] award of attorneys’ fees to the prevailing party in an ERISA action.”  Moore v. LaFayette Life Ins. Co., 458 F.3d 416, 446 (6th Cir. 2006). 

 

The First Circuit also has held that “in an ERISA case, a prevailing plaintiff does not, merely by prevailing, create a presumption that he or she is entitled to a fee-shifting award.”  Cottrill v. Sparrow, Johnson & Ursillo, Inc., 100 F.3d 220, 226 (1st Cir. 1996).

           

As the court noted in Satterwhite v. Metropolitan Life Ins. Co., 2008 WL 2952473, *3 (E.D. Tenn. July 29, 2008), “[t]he ERISA attorneys fee provision does not limit its application to ‘prevailing’ parties.”  However, the Sixth and Seventh Circuits have specifically stated that it would be “an abuse of discretion for the district court to award attorney’s fees to a losing party.” Cattin v. General Motors Corp., 955 F.2d 416, 427 (6th Cir. 1992) (quoting Bittner v. Sadoff & Rudoy Indus., 728 F.2d 820, 829 (7th Cir. 1984)).

 

Although it found no presumption in favor of attorney’s fees for a prevailing party, the Eighth Circuit held that the district court abused its discretion by not permitting the prevailing party to submit a motion for attorney’s fees.  West v. Local 710 Int’l Bro. of Teamsters Pension Plan, 528 F.3d 1082, 1086-87 (8th Cir. 2008).  In that case, “[t]he district court, when ruling on the cross-motions for summary judgment, also ruled on the issue of attorney fees before [the plaintiff] filed its motion requesting and documenting its attorney fees.”  Id. at 1087.  According to the Eighth Circuit, “[w]hile it is clear that the district court has discretion in determining whether or not to award attorney fees or costs, denying [the plaintiff] the opportunity to present its motion is an abuse of discretion.”  Id. 

 

The Five-Factor Test

 

Federal circuit courts have been fairly uniform with respect to the requirement that district courts, when exercising their discretion to award attorney’s fees under § 1132(g), should consider the following factors as guidelines:

 

(1) the degree of the opposing parties’ culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of attorney’s fees; (3) whether an award of attorney’s fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorney’s fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; (5) [and] the relative merits of the parties’ positions.

 

Wright v. Hanna Steel Corp., 270 F.3d 1336, 1344 (11th Cir. 2001); see also Deboard v. Sunshine Mining & Mfg. Co., 208 F.3d 1228 (10th Cir. 2000); Maune v. Internat’l Brotherhood of Elec. Workers, 83 F.3d 959 (8th Cir. 1996); Denzler v. Questech, Inc., 80 F.3d 97 (4th Cir. 1996); Wells v. U.S. Steel & Carnegie Pension Fund, 76 F.3d 731 (6th Cir. 1996); Brewer v. Protexall, Inc., 50 F.3d 453, 458 (7th Cir. 1995); Chambless v. Masters, Mates & Pilots Pension Plan, 815 F.2d 869, 871 (2d Cir. 1987); Gray v. New England Tel. & Tel., 792 F.2d 251 (1st Cir. 1986); Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir. 1983); Hummell v. S.E. Rykoff & Co., 634 F.2d 446, 453 (9th Cir. 1980); Iron Workers Local No. 272 v. Bowen, 624 F.2d 1255, 1266 (5th Cir. 1980).

 

As the Eleventh Circuit explained in Freeman v. Continental Ins. Co., “no one of these factors is necessarily decisive, and some may not be apropos in a given case, but together they are the nuclei of concerns that a court should address . . . .  In particular types of cases, or in any individual case, however, other considerations may be relevant as well.”  996 F.2d 1116, 1119 (11th Cir. 1993) (citations and punctuation omitted); see also First Trust Corp. v. Bryant, 410 F.3d 842, 851 (6th Cir. 2005) (“These factors are not statutory and therefore not dispositive.”); Credit Mtgs. Ass’n of Southern Cal. v. Kennesaw Life & Accident Ins. Co., 25 F.3d 743, 749 (9th Cir. 1994) (“These factors are intended to guide the court’s exercise of its discretion . . . , but none is necessarily decisive; various permutations and combinations can support an award of attorney fees.”) (citations and punctuation omitted).

 

Culpability or Bad Faith

 

Regarding the first factor, “[g]enerally, courts will not find bad faith where the party had valid grounds on which to deny the claim.”  Clarke v. Unum Life Ins. Co. of Am., 14 F.Supp.2d 1351, 1357 (S.D. Ga. 1998).  Similarly, “in order to avoid a finding of bad faith under [the five-factor analysis], plaintiffs must have a reasonable belief that they could prove an actionable ERISA claim.”  Cline v. Industrial Maintenance Eng. & Contracting Co., 200 F.3d 1223, 1236 (9th Cir. 2000).

 

Ability to Pay

 

With respect to the second factor, “the fact that [a party] is capable of paying an attorney’s fee cannot, by itself, justify such an award.”  Yarde v. Pan Am. Life Ins., 67 F.3d 298 (Table), 1995 WL 539736, *13 (4th Cir. Sept. 12, 1995).  Of course, this factor generally weighs in favor of a fee award when the losing party is a defendant insurance company, as it generally is undisputed that such companies can satisfy a fee award.  See, e.g., Zurndorfer v. Unum Life Ins. Co. of Am., 2008 WL 857759, *18 (S.D.N.Y. Mar. 31, 2008) (“[T]here is no question that defendant is capable of satisfying an award of fees.”); Gullidge v. Hartford Life & Accident Ins. Co., 501 F.Supp.2d 1280 (C.D. Cal. 2007) (defendant conceded ability to pay).

 

Deterring Others   

 

The third factor – deterrence – has been thoroughly litigated in ERISA cases.  Defendants often argue that individual disability benefits determinations are fact-specific, and that such decisions are based on the medical and other evidence submitted by or on behalf of a particular claimant, such that a fee award could not provide deterrence in “similar situations.”  In fact, one court held in a pension benefits case that “[f]actor 3 (deterrence) is empty because while a practice of awarding fees to a winning party will tend to deter the filing of groundless suits and the interposing of groundless defenses to meritorious suits, whether the award of fees in a particular case will have a deterrent effect cannot be determined.” Sullivan v. William A. Randolph, Inc., 504 F.3d 665, 671 (7th Cir. 2007).

 

Moreover, some courts have held that the deterrence factor is tied to a finding of bad faith or culpability under the first factor.  In that regard, the court in Bush v. Humana Health Plan of Ala., Inc., held that “because the Plaintiff has failed to show any fraud, wantoness, deceit, active concealment, or bad faith by any of the Defendants, an award of attorney’s fees would not deter others involved in similar circumstances.”  973 F.Supp. 1376, 1386 (M.D. Ala. 1997).

 

Benefit to the Plan

 

When considering the fourth factor, courts generally do not find that a plaintiff has sought to benefit all participants and beneficiaries of the plan.  For example, in Freeman v. Continental Ins. Co., 996 F.2d 1116 (11th Cir. 1993), the plaintiff argued that an award of fees would benefit other plan beneficiaries “by deterring insurers from ‘challeng[ing] benefits without a strong case,’” and because “‘the suit resolved a contract interpretation question regarding the application of the policy's 180-day time limit for onset of disability.’”  Id. at 1120-21.  However, the court noted that the district court’s decision was based on the plaintiff’s “unique medical and employment history,” such that “[a]ny benefit flowing from this lawsuit to other beneficiaries of this plan or other ERISA plans is merely speculative.”  Id. at 1121.

 

In Perrin v. Hartford Life Ins. Co., 2008 WL 2705451 (E.D. Ky. July 7, 2008), the plaintiff argued that this factor should be weighed in her favor because “award of attorney’s fees would benefit other similarly situated employees whose benefits were denied without a reasoned basis for denial.”  Id. at *4 (citation omitted).  The court rejected that argument, reasoning that “the defendant’s denial without a reasoned basis has already been taken into account and should not be double-counted against the defendant.”  Id.

 

Relative Merits of the Positions

 

According to the Seventh Circuit in Sullivan:

 

Factors 4 and 5 go to the merits of the claim or defense . . . .  If the ERISA plaintiff prevails, but obtains meager relief, this either indicates that the defendant had a substantial justification for opposing the suit (the defendant was successful in getting the amount sought by the plaintiff cut down), or disentitles the plaintiff to a generous award because attorneys’ fee awards should be proportional to the degree of success that the suit achieves.  Finally, the “relative merits of the parties’ positions” is an oblique way of asking whether the losing party was substantially justified in contesting his opponent’s claim or defense.

 

504 F.3d at 671-72.

 

The Amount of the Award

 

Once a party has established that he is entitled to attorneys’ fees, “[i]t remains for the district court to determine what fee is ‘reasonable.’”  Hensley v. Eckerhart, 461 U.S. 424, 433 (1983).  In City of Burlington v. Dague, 505 U.S. 557 (1992), the Supreme Court discussed the reasonableness of attorney’s fees under federal fee-shifting statutes.  The Court explained:

 

The “lodestar” figure has, as its name suggests, become the guiding light of our fee-shifting jurisprudence.  We have established a “strong presumption” that the lodestar represents the “reasonable” fee, . . . and have placed upon the fee applicant who seeks more than that the burden of showing that “such an adjustment is necessary to the determination of a reasonable fee.”

 

Id. at 562 (emphasis in original).  A lodestar award is reached by multiplying the reasonable hourly rate by the number of hours reasonably spent.  See Hensley, 461 U.S. at 433.

 

Of course, a district court is “not required to undertake a line-by-line analysis of a party’s fee application.”  Hackett v. Xerox Corp. Long-Term Disability Income Plan, 355 F.Supp.2d 931, 935 (N.D. Ill. 2005).  Rather, district courts may, “in recognition of the impracticalities of requiring courts to do an item-by-item accounting[,] reduce the proposed fee by a reasonable percentage.”  Harper v. City of Chicago Heights, 223 F.3d 593, 605 (7th Cir. 2000).  In determining what is reasonable, many courts have applied the following factors:

 

(1) the time and labor required;

 

(2) the novelty and difficulty of the questions;

 

(3) the level of skill required to perform the legal service properly;

 

(4) the preclusion of employment by the attorney due to acceptance of the case;

 

(5) the attorney’s customary hourly rate;

 

(6) whether the fee is fixed or contingent;

 

(7) the time limitations imposed by the client or the circumstances;

 

(8) the amount involved in the case and the results obtained;

 

(9) the experience, reputation, and ability of the attorneys;

 

(10) the “undesirability” of the case;

 

(11) the nature and length of the professional relationship with the client; and

 

(12) awards in similar cases.

 

See Genworth Life and Health Ins. Co. v. Beverly, 2008 WL 565572, *2 (N.D.N.Y. Feb. 28, 2008) (citing Arbor Hill Concerned Citizens Neighborhood Ass’n v. County of Albany, 493 F.3d 110, 114 n.3 (2d Cir. 2007); Johnson v. Georgia Highway Exp., Inc., 488 F.2d 714, 717-19 (5th Cir. 1974), abrogated on other grounds, Blanchard v. Bergeron, 489 U.S. 87 (1989).

           

In Blum v. Stenson, 465 U.S. 891 (1984), however, the Supreme Court held that certain of the factors enumerated above are subsumed by the initial lodestar calculation.  Specifically, the Court noted that “[t]he novelty and complexity of the issues presumably were fully reflected in the number of billable hours recorded by counsel” and “the special skill and experience of counsel should be reflected in the reasonableness of the hourly rates.”  Id. at 898.  Further, the Court reasoned that the “quality of representation” factor “generally is reflected in the reasonable hourly rate.”  Id. at 899.  Likewise, “[b]ecause acknowledgment of the ‘results obtained generally will be subsumed within other factors used to calculate a reasonable fee, it normally should not provide an independent basis for increasing the fee award.”  Id. at 900.    

 

Recovering Fees for an ERISA Defendant

 

In Estate of Shockley v. Alyeska Pipeline Service Co., the Ninth Circuit purported to “disabuse the district court of the suggestion that we favor one side or the other in ERISA fee cases.”  130 F.3d 403, 408 (9th Cir. 1997).  This clarification came in response to the district court’s statement that it had “significantly deferred to what it believes to be the circuit court’s strong signal that it disfavors awards of attorney’s fees against ERISA plaintiffs who seek pension benefits despite the express statutory authority therefor.”  Id. 

 

In practice, although the language of § 1132(g)(1) contemplates awards of fees to either party – including defendant employers, insurers, or plan administrators – many courts have been reluctant to approve fee awards to ERISA defendants.

 

For example, courts in the Second Circuit have held that the five-factor test “very frequently suggest[s] that attorney’s fees should not be charged against ERISA plaintiffs.”  King v. Tadco Construction Corp., 2005 WL 1311929, *2 (E.D.N.Y. May 26, 2005) (citations omitted); see also Anita Founds., Inc. v. ILGWU Nat’l Ret. Fund, 902 F.2d 185, 188-89 (2d Cir. 1990); Marquardt v. N. Am. Car Corp., 652 F.2d 715, 720-21 (7th Cir. 1981); Carpenters Southern Cal. Administrative Corp. v. Russell, 726 F.2d 1410, 1416 (9th Cir. 1984).  Moreover, a denial of fees to an ERISA defendant is “rarely” held to be an abuse of discretion.  See Nichol v. Pullman Standard, Inc., 889 F.2d 115, 122 (7th Cir. 1989); Trustees of the Twin City Bricklayers v. McArthur Tile Corp., 2005 WL 1140610, *1 (D. Minn. May 11, 2005).

 

This issue was discussed in Louderback v. Litton Industries, Inc., 2008 WL 144690, *2 (D. Kan. Jan. 15, 2008).  There, the court noted that, although the Tenth Circuit’s five-factor test was not limited to petitions by prevailing plaintiffs, “only rarely and reluctantly have courts awarded fees under this test against unsuccessful plaintiffs.”  Id. (citing Herring v. Oak Park Bank, 1997 WL 458417, *2 (D. Kan. July 3, 1997)). 

 

The court in Louderback relied on Marquardt, supra, in which the Seventh Circuit explained in detail why “consideration of these factors will seldom dictate an assessment of attorney’s fees against ERISA plaintiffs.”  Id. at *1 (citing Marquardt, 652 F.2d at 720); see also Trustees of the Twin City Bricklayers, 2005 WL 1140610 at *1; McKeown v. Blue Cross Blue Shield of Ala., 497 F.Supp.2d 1328, 1332-33 (M.D. Ala. 2007) (quoting 4 Alba Conte, Attorney Fee Awards, § 27:4, at 301 (3d ed. 2004), for the proposition that “[t]hough the guidelines developed by the courts determine whether a party is entitled to a fee award do not explicitly differentiate between plaintiffs and defendants, consideration of these factors will seldom result in an assessment of fees against ERISA plaintiffs.”).

 

The rationale for seldom awarding attorney’s fees to prevailing defendants was detailed within the framework of the five-factor analysis in Marquardt.  First, the court explained that “the ‘culpability’ of a losing plaintiff significantly differs from that of a losing defendant.”  Id. at 720.  While “[a] losing defendant must have violated ERISA, thereby depriving plaintiffs of rights under a pension plan and violating a Congressional mandate,” a losing plaintiff “may be only in error or unable to prove his case.”  Id. 

 

Second, the court noted that “when an employee sues an employer, the employer often will be in a position to pay its own legal fees while the employee will be hard pressed to pay both his own and the employer’s fees,” such that “the ‘ability to pay’ factor will rarely weigh in favor of an award of attorneys’ fees to a defendant.” Id. at 720-21. Similarly, according to the court in Marquardt, “the third factor, deterrence, generally will not justify an award of attorneys’ fees to defendants,” because “[a]lthough an assessment of attorneys’ fees against a plaintiff certainly would be a strong deterrent against bringing a frivolous action, it generally is sufficient that plaintiff bears his own attorneys’ fees and costs to deter institution of a frivolous or baseless suit.”  Id. at 721.

 

Finally, the court considered the factor of whether the suit was a benefit to all plan participants or whether a significant ERISA legal question was addressed, and found that this factor “is also primarily relevant only to whether plaintiffs should be awarded attorneys’ fees,” because “[p]laintiffs will have added incentive to bring suits that benefit all plan beneficiaries and to enforce the policies behind ERISA if their attorneys’ fees will be paid by defendants.”  Id.  Thus, the court concluded that “although § 1132(g)(1) does not explicitly differentiate between plaintiffs and defendants, a court will seldom abuse its discretion by refusing to award attorneys’ fees and costs to a defendant.”  Id.

 

The court in Louderback agreed with the analysis in Marquardt, and concluded that the Tenth Circuit would have reached similar conclusions concerning the five-factor test.  2008 WL 144690 at *3. 

 

Other courts, including the First, Eighth, and Eleventh Circuits, have determined that denying fees to defendants dovetails with ERISA’s function of protecting beneficiaries of employee benefit plans.  “Adherence to this policy often counsels against charging fees against ERISA beneficiaries since private actions by beneficiaries seeking in good faith to secure their rights under employee benefit plans are important mechanisms for furthering ERISA’s remedial purpose.”  McKeown, 497 F.Supp.2d at 1332 (quoting Nachwalter v. Christie, 805 F.2d 956, 962 (11th Cir. 1986)); Rhode Island Carpenters Annuity Fund v. Trevi Icos Corp., 533 F.Supp.2d 246, 250 (D.R.I. 2008); see also Salovaara v. Eckert, 222 F.3d 19, 27-32 (2d Cir. 2000) (reversing  fee award to prevailing defendant and warning that applying five-factor test often results in denial of fees to defendants).

 

In King, supra, the plaintiffs were trustees of a teamsters pension plan who sought to recover money allegedly owed by the employer to the fund under a collective bargaining agreement pursuant to ERISA.  When the plaintiffs voluntarily dismissed the suit, the defendant employer petitioned for attorney’s fees.

 

The district court noted that the third factor – deterrence – weighed strongly against an award of attorney’s fees against ERISA fiduciaries.  Id. at *3 (citing, e.g., Russell, 726 F.2d at 1416; Marquardt, 652 F.2d at 720-21); see also Salovaara, 222 F.3d at 31 (“Where . . . an ERISA plaintiff has pursued a colorable (albeit unsuccessful) claim, the third . . . factor likely is not merely neutral, but weighs strongly against granting fees to the prevailing defendant,” because “[a]warding fees in such a case would likely deter beneficiaries and trustees from bringing suits in good faith for fear that they would be saddled with their adversary’s fees in addition to their own in the event that they failed to prevail; this, in turn, would undermine ERISA’s essential remedial purpose of protecting beneficiaries of pension plans.”).  Further, in King the court reasoned that plaintiff-trustees, unlike employers or employees, generally would be deterred from vexatious litigation by the absence of personal gain from such suits.

           

Although the court in King determined that the five factors did not weigh heavily in either party’s favor, it nevertheless concluded that the employer had not met its burden of demonstrating entitlement to attorney’s fees.  Id. at *3.  Specifically, the court noted that an award of fees was not necessary to provide substantial deterrence against filing frivolous suits.  Id.  Moreover, there was no evidence that the lawsuit was filed for an improper purpose; at most it was the result of negligent failure to adequately investigate the plaintiffs’ claims.  Id.

 

In the Seventh Circuit, a court may deny fees to a successful defendant if “the plaintiff’s position was both substantially justified – meaning something more than non-frivolous, but something less than meritorious – and taken in good faith, or if special circumstances make an award unjust.”  Id. (internal quotations omitted); see also Hackett, 355 F.Supp.2d at 934-35 (quoting Pierce v. Underwood, 487 U.S. 552, 565 (1988), for the proposition that “substantially justified” means “justified in substance or in the main – that is, justified to a degree that could satisfy a reasonable person”). 

 

According to the Second Circuit, “The deterrence factor should be used as a shield, to protect beneficiaries from the fear of having to pay to pursue an important ERISA claim in the event of failing to prevail, and not as a sword to discourage beneficiaries from pursuing certain meritless claims.”  Seitzman v. Sun Life Assurance Co. of Canada, Inc., 311 F.3d 477, 486 (2d Cir. 2002) (citations and punctuation omitted).  In line with this reasoning, the court in Gill v. Plan Administrator of Chubb Group of Ins. Long Term Disability Plan, 2008 WL 2301578 (D.N.J. May 29, 2008), denied the prevailing defendant’s motion for attorney’s fees based on a review of the five factors and a finding that “Plaintiff's Complaint was not brought against Defendant in bad faith.”  Id. at *10.

 

Defendants Sometimes Do Recover Fees

 

Despite the foregoing analysis, defendants have been able to recover fees under some circumstances, and an appellate court will not overturn such an award unless the district court abused its discretion.  See, e.g., Moore v. LaFayette Life Ins. Co., 458 F.3d 416, 446 (6th Cir. 2006) (upholding fee award to defendant where the court was “not left with a ‘definite and firm conviction that the district court made a clear error of judgment’”).  In Moore, the Sixth Circuit upheld a fee award to the defendant insurance company, and explained:

 

The district court found, first and foremost, that Plaintiff did not litigate in good faith.  While Plaintiff presented a colorable claim for benefits, Plaintiff asserted a number of “near frivolous” claims against both Defendants, Plaintiff refused to dismiss claims against one Defendant or another once it became clear which was the proper Defendant for that claim, and Plaintiff unnecessarily prolonged litigation by filing unreliable briefs and pursuing arguments even after their rejection by the court.  In addition, the district court found that Plaintiff “improperly took quotations out of context and made strained arguments based upon such misinterpreted citations.”

 

Id. at 445 (citation omitted).

 

In addition, the court in Moore agreed that the district court properly found that the plaintiff could afford to pay the fee award, based on his reported income of approximately half a million dollars in 1998 and 1998, and noted that “[p]laintiff presented no evidence to the district court, and indeed presents no evidence to this Court, in support of his contention that he cannot pay the fees.”  Id.

 

Moreover, the court disagreed with the plaintiff’s argument that the district court was “improperly deterring colorable claims for benefits by awarding partial attorneys’ fees against Plaintiff,” and instead found that “the district court’s objective was not to deter plaintiffs from bringing colorable claims for benefits, but from unnecessarily expanding the scope and complexity of litigation.”  Id. at 446.

 

Similarly, in Raber v. Southern Ohio Coal Co. Severance Pay Plan, 106 F.3d 391 (Table), 1997 WL 56883 (4th Cir. Feb. 12, 1997), the court upheld an award of attorney’s fees to an ERISA defendant.  In Raber, “[t]he district court based its decision primarily on its inability ‘to find some reason in law why [the] suit could be supported.’”  Id. at *4.

 

Notably, in Chisholm v. Pousto Corp., 921 F.2d 279 (Table), 1990 WL 208787, *9 (9th Cir. Dec. 12. 1990), the Ninth Circuit upheld the award of attorney’s fees to the defendant, but remanded for reconsideration of the amount of the award, which it found excessive.  Specifically, the court reasoned:

 

The fact that [the plaintiff’s] claims were essentially frivolous suggests that several of the factors weigh toward a lesser award: the action did not warrant much time and labor; the legal issues were not novel or difficult; a great level of skill was not required to perform the legal service properly; and the likelihood of success in the case indicates that it was not undesirable, but rather quite desirable. 

 

Id.

 

* * * *

Nikole M. Crow is an associate in the Atlanta, Georgia, office of Smith Moore Leatherwood LLP, where her practice is focused on the representation of defendants in actions to recover benefits under ERISA plans and non-ERISA life, health, and disability insurance policies.  Ms. Crow is a magna cum laude graduate of the Georgia State University College of Law and is a member of DRI’s Life, Health and Disability Committee.  She may be contacted at nikole.crow@smithmoorelaw.com.


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