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June 2010

Hardt v. Reliance Standard Life Insurance Co. ? ERISA Claimant May Seek Attorney's Fees Even If Not a "Prevailing Party" Per Se

United States Supreme Court holds courts have discretion under ERISA fee-shifting statute to award reasonable attorney fees if claimant achieves "some degree of success on the merits"

(May 24, 2010) 560 U.S. ___; 08 C.D.O.S 6279

The United States Supreme Court reversed a Fourth Circuit Court of Appeals decision vacating an order from the Eastern District of Virginia awarding statutory attorney's fees and costs to an ERISA benefits claimant.  The Supreme Court held that ERISA section 502(g)(1) did not require a claimant to be a "prevailing party" to qualify for an attorney's fees award under the statute.  The Supreme Court interpreted 502(g)(1) to unambiguously grant courts discretion to award fees to either party in an ERISA benefits dispute, as long as the party had achieved "some degree of success on the merits."

Plaintiff Bridget Hardt applied for long-term disability benefits under her employer's LTD plan after medical problems forced her to stop working.  After exhausting her administrative remedies, Hardt sued Reliance Standard Life Insurance Company ("Reliance"), her employer's disability insurance carrier, for the alleged wrongful denial of her claim for LTD benefits.

Both parties filed cross-motions for summary judgment.  The district court denied Reliance's motion, finding its denial of benefits was not "based on substantial evidence" but on "incomplete medical information."  The district court also denied Hardt's motion.  However, the district court found the record contained "compelling evidence" Hardt was "totally disabled," that Reliance failed to comply with ERISA guidelines, and Hardt had not received "the kind of review ? she was entitled [to] under [the] law."  The district court concluded it was "inclined to rule in ? Hardt's favor," but that doing so would be "unwise" without first giving Reliance a chance to remedy the deficiencies in its review of Hardt's claim.

The district court remanded to Reliance and ordered it to re-review Hardt's application, "adequately considering all the evidence," within 30 days, or else the court would enter judgment in Hardt's favor.  Reliance did so and awarded Hardt over $55,000 in past-due benefits.

Hardt then filed a motion for attorney's fees and costs under 502(g)(1), which states, "the court in its discretion may allow a reasonable attorney's fee and costs ? to either party."  The district court granted the motion, in part, concluding Hardt was a "prevailing party" as required under the Fourth Circuit's framework governing attorney fee awards in ERISA cases.  The district court awarded Hardt nearly $40,000 in fees and costs.  Reliance appealed.

The Fourth Circuit vacated the fees award, holding Hardt failed to establish she was a "prevailing party" as construed by Buckhannon Board & Care Home, Inc. v. West Wa. Dept. of Health & Human Res., 532 U.S. 598 (2001), a Supreme Court decision which defined "prevailing party" as one who has obtained an "enforceable judgment on the merits" or a "court-ordered consent decree."  (Brackets omitted.)  The Court of Appeals reasoned the remand order did not constitute an enforceable judgment on the merits, because it did not require Reliance award Hardt benefits.  Hardt appealed to the United States Supreme Court.

The Supreme Court reversed, holding a fee claimant need not be a "prevailing party" to qualify for attorney's fees under 502(g)(1), and to so interpret the section would be contrary to the statute's plain text.  The provision did not contain the term "prevailing party" or any other language limiting the availability of attorney's fees to a "prevailing party."  Rather, 502(g)(1) expressly grants district courts "discretion" to award attorney's fees "to either party." 

The Supreme Court contrasted the language of 502(g)(1) with 502(g)(2), which governs the availability of attorney's fees in ERISA actions to recover delinquent employer contributions to a multi-employer plan.  In such cases, only plaintiffs who obtain "a judgment in favor of the plan" may seek attorney's fees.  502(g)(2)(D).

The Supreme Court found the sharp contrast between these two paragraphs indicated "Congress knows how to impose express limits on the availability of attorney's fees in ERISA cases."  Because Congress failed to include an express "prevailing party" requirement in 502(g)(1), the Fourth Circuit's decision to add that language more closely resembled "inventing a statute rather than interpreting one."  (Brackets omitted.)

Further, the Supreme Court interpreted the statute as requiring the fee claimant achieve "some degree of success on the merits" before a court may award fees and costs.  In reaching this conclusion, the Supreme Court set out to interpret how 502(g)(1) attempted to deviate from the "American Rule," whereby each litigant pays her or his own attorney's fees, win or lose, unless a statute or contract provides otherwise.

The Fourth Circuit improperly applied the Supreme Court's "prevailing party" precedent, Buckhannon, which did not apply, because 502(g)(1) does not contain the "prevailing party" language.  The applicable standard was set out in Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983), a case analyzing a statute (42 U.S.C. § 7607(f)) that authorized fee awards where the court "determines that such an award is appropriate."

Applying Ruckelshaus, the Supreme Court pointed to the language of 502(g)(1), which unambiguously allows a court to award attorney's fees "in its discretion ? to either party."  As in Ruckelshaus, here Congress had not clearly indicated it "meant to abandon historic fee-shifting principles and intuitive notions of fairness" in enacting 502(g)(1).  Accordingly, the Supreme Court held a fee claimant must show "some degree of success on the merits" to qualify for an attorney's fees award under 502(g)(1).

The Supreme Court held Hardt satisfied that standard.  Though Hardt failed to win summary judgment on her benefits claim, she obtained a remand order resulting in an award of benefits.  Further, the district court found "compelling evidence" Hardt was totally disabled and stated it was "inclined to rule in her favor."  The Supreme Court determined the district court properly exercised its discretion awarding Hardt attorney's fees under ERISA 502(g)(1)

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