Supreme Court Rules on Awarding Attorney’s Fees in ERISA Cases, and on the Deferential Standard of Review

In its second significant ERISA decision in as many months, the U.S. Supreme Court ruled in May that a court may award an ERISA litigant attorney’s fees even if it does not actually “prevail” in its case. Earlier, in an April decision, the Court reaffirmed the vitality of the deferential standard of review that ERISA plan administrators’ determinations of benefit claims generally enjoy when challenged in court.

Hardt v. Reliance Standard Ins. Co.

In the May decision, Hardt v. Reliance Standard Ins. Co., the Court ruled that a plan participant seeking disability benefits who had only succeeded in persuading the district court to remand for a more thorough review by the plan administrator, instead of obtaining a judgment awarding her benefits, had nevertheless achieved sufficient success to justify the district court’s award of attorney’s fees.

The participant, Ms. Hardt, an executive assistant, suffered from carpal tunnel syndrome and neck pain, and received long-term disability benefits from her employer’s insured plan for about two years before the insurance company, Reliance, concluded that she was no longer totally disabled under the terms of the plan. When Ms. Hardt appealed the termination of her benefits, Reliance referred Ms. Hardt for a functional capacities evaluation, had a physician review her records, and sought input from a vocational rehabilitation counselor, but ultimately concluded that the decision to terminate her benefits was correct.

When Ms. Hardt sued, the district court found that each of the reviews conducted by Reliance was flawed in some fashion. The functional capacities evaluator was not informed of the full extent of Hardt’s diagnosis, which at that point included small-fiber neuropathy; the physician reviewed only some of Hardt’s records, and the vocational rehabilitation counselor’s study was based on outdated information. Although it found “compelling evidence” that Ms. Hardt was in fact totally disabled, the court did not award her benefits. Instead, citing Reliance’s inadequate review, it remanded the case to Reliance and instructed the insurance company “to act on Ms. Hardt’s application by adequately considering all the evidence” within 30 days. Otherwise, the court warned, it would enter judgment for Ms. Hardt.

Reliance dutifully performed the review and found that Ms. Hardt was in fact disabled. Ms. Hardt then moved for an award of attorney’s fees and costs under ERISA section 502(g)(1), 29 U.S.C. section 1132(g)(1), which by its terms authorizes a court to award, in its discretion, “a reasonable attorney’s fee and costs of action to either party” in most types of ERISA cases. The district court, relying on Fourth Circuit precedent, concluded that Ms. Hardt was in fact a prevailing party because the remand order materially changed the relationship between Ms. Hardt and Reliance, and went on to find that an award of fees and costs in the amount of $39,149 was appropriate.

Reliance appealed, and argued that Ms. Hardt was not a prevailing party, and was therefore not entitled to fees. The Fourth Circuit agreed, ruling that a party must receive an “enforceable judgment on the merits” or a “court- ordered consent decree” to be considered a prevailing party entitled to attorney’s fees.

Ms. Hardt then petitioned the Supreme Court for relief. Writing for a nearly unanimous Court, Justice Thomas quickly noted that the plain language of ERISA section 502 does not require a party to “prevail” to receive a fee award, but instead allows a court to award fees to either party, in its discretion. Thus, the Court held, a court may not introduce a “prevailing party” requirement in deciding whether to award attorney’s fees in an ERISA case. Instead, the Court held, a court should look to principles that have developed under other fee-shifting statutes that do not require prevailing party status. A fees claimant, the Court continued, must show “some degree of success on the merits,” a requirement that is not satisfied by a “trivial success” or a “purely procedural victory.” In the case at hand, although Ms. Hardt’s motion for summary judgment on the merits of her benefits claim was not successful, she did obtain a judicial order instructing Reliance to consider all evidence within 30 days, and the court had stated it found “compelling evidence” of her disability. Thus, the Court held, Ms. Hardt’s successes were neither trivial nor purely procedural, and the district court’s award of attorney’s fees was a proper exercise of discretion.

While Hardt v. Reliance Standard Ins. Co. will change the course of ERISA fee award decisions in circuits that have imposed a prevailing-party requirement, the fact that the Court did not specifically set forth criteria for satisfying the “some success on the merits” standard leaves room for substantial differences between the circuits in future decisions. In fact, just last week in Simonia v. Glendale Nissan/Infiniti Disability Plan the Ninth Circuit re-adopted its five-factor test for evaluation of fee requests; there is no certainty that other circuits will follow.

Conkright v. Frommert

The Supreme Court’s April decision, Conkright v. Frommert, involved a complex case concerning the proper interpretation of a provision in the Xerox Pension Plan that the Plan Administrator contended allowed it to impute earnings to earlier lump-sum distributions in calculating offsets for employees who returned to employment and earned additional benefits after receiving the distributions. The district court initially affirmed the Plan Administrator’s interpretation, but the Second Circuit Court of Appeals reversed, holding that the interpretation was unreasonable. On remand, the Plan Administrator presented a new interpretation of the provision to the district court, but the court gave it no deference and rejected it, adopting the employees’ proposed approach instead. The Second Circuit affirmed the district court’s refusal to review the Plan Administrator’s new approach under a deferential standard, because the Plan Administrator had already abused its discretion in interpreting the provision in the first instance, according to the court.

The Supreme Court, however, rejected the Second Circuit’s ruling, holding that the robust standard of deference enunciated in Firestone Tire & Rubber Co. v. Bruch and Metropolitan Life Ins. Co. v. Glenn does not evaporate simply because a plan administrator mistakenly interprets a plan provision. Thus, the Court held, the district court should have reviewed the Plan Administrator’s second proposed interpretation of the plan provision at issue under a deferential standard of review, rather than substituting its own judgment for that of the Plan Administrator. The decision is good news for plan administrators, as it demonstrates the continued vitality of the deferential standard of review, at least in the absence of bad faith on the part of the plan administrator.