This decision will likely result in an increase in fee petition filings under ERISA Section 502(g)(1) because claimants will now ask district courts to examine whether they achieved “some degree of success” under the Supreme Court’s new test.

In Hardt v. Reliance Standard Life Insurance Co., 560 U.S. ____ (2010), the Supreme Court of the United States resolved the question of whether a claimant must be a “prevailing party” in order to be eligible for an award of attorneys’ fees under ERISA Section 502(g)(1). The Supreme Court held that ERISA Section 502(g)(1) does not contain a “prevailing party” requirement, and that a district court has discretion to award attorneys’ fees to any party so long as the party has achieved “some degree of success on the merits.” The decision resolved a split among the circuits and will likely result in an increase in fee petition filings under ERISA Section 502(g)(1) because claimants will now ask district courts around the United States to examine whether they achieved “some degree of success” under the Supreme Court’s new test.

Background

The petitioner, Bridget Hardt, worked as an executive assistant at a textile manufacturer before developing carpal tunnel syndrome. This condition eventually led her to stop working and apply for long-term disability benefits under her employer’s long-term disability plan. Appellant Reliance Standard Life Insurance Company (Reliance) served as the plan’s claims administrator and, after several rounds of internal evaluations, denied Hardt’s claim for long-term disability benefits. After exhausting her administrative remedies, Hardt then sued Reliance in federal court under ERISA.

The district court determined that there was “compelling evidence” indicating that Hardt was totally disabled and that Reliance had failed to provide her with a full and fair review of her benefit claim in violation of ERISA. Consequently, the district court remanded the claim to Reliance, cautioning that if Reliance did not consider all of the relevant evidence, “judgment [would] be issued in favor of Ms. Hardt.” After conducting another review, Reliance decided to award Hardt long-term disability benefits under the plan.

Hardt then successfully petitioned the district court for attorneys’ fees under ERISA Section 502(g)(1). As required under U.S. Court of Appeals for the Fourth Circuit precedent, the district court first determined that Hardt was a “prevailing party” because of the district court’s remand order. The district court next applied a five-factor test to determine whether an award of attorneys’ fees was appropriate and concluded that a reasonable attorneys’ fee should be awarded to Hardt.

On appeal, the Fourth Circuit vacated the district court’s fee award. Relying on Supreme Court precedent, the Fourth Circuit found that Hardt had failed to establish that she was a “prevailing party” under ERISA because the remand order did not qualify as an “enforceable judgment on the merits.”

Supreme Court’s Decision

The Supreme Court unanimously rejected the Fourth Circuit’s decision, both in terms of the result and in terms of the framework that the Fourth Circuit applied in deciding the fee issue. In the process, the Supreme Court resolved a split among the Circuits, holding that ERISA Section 502(g)(1) does not limit an award of attorneys’ fees to a “prevailing party,” but instead permits a district court in its discretion to award fees to any party that has achieved “some success on the merits.”

The Supreme Court first noted that, unlike numerous other statutory fee-shifting provisions, the language of ERISA Section 502(g)(1) does not contain any “prevailing party” requirement for an award of attorneys’ fees. To the contrary, the Supreme Court instructed that a district court may in its discretion award fees to “either party” under ERISA Section 502(g)(1).

The Supreme Court next announced the appropriate test for district courts to apply in exercising their discretion on an attorneys’ fees petition under ERISA Section 502(g)(1). Writing for the Supreme Court, Justice Thomas first observed that any analysis of the construction of a fee-shifting statute must start with the “American Rule,” which instructs that each party pay its own attorneys’ fees unless a statute or contract otherwise provides. Justice Thomas found that ERISA Section 502(g)(1) indicates a general departure from this rule. Therefore, attorneys’ fees requests under this section should be analyzed according to Supreme Court precedent under other fee-shifting statutes that do not limit attorneys’ fees to a “prevailing party.”

The Supreme Court found that the central case in this line of precedent was Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983). In Ruckelshaus, the Supreme Court addressed a fee-shifting provision of the federal Clean Air Act that permitted an award of attorneys’ fees “whenever [a district court] determines that such award is appropriate.” The Supreme Court in Ruckelshaus held that this provision, when analyzed in light of the underlying American Rule, permitted an award of fees to “parties achieving some success, even if not major success.”

As applied to ERISA Section 502(g)(1), the Supreme Court held that Ruckelshaus meant that a court need not use the Fourth Circuit’s five-factor test when determining whether to award fees. Instead, a district court must decide whether the party seeking fees has demonstrated “some degree of success on the merits” of the underlying claim. The Supreme Court wrote that this must be more than “trivial success on the merits” or a “purely procedural victory,” but that a district court need not engage in a “lengthy inquir[y] into the question whether a particular party’s success was ‘substantial’ or occurred on a ‘central issue.’”

According to the Supreme Court, the district court found that Hardt had not received a full and fair review under ERISA and that there was sufficient evidence in the record for the district court to decide in her favor. Moreover, she had obtained an order compelling Reliance to reevaluate her claim for long-term disability benefits, and after receiving this order, Reliance ultimately awarded her the sought-after benefits. The Supreme Court held that these facts demonstrated “some success on the merits,” and that the district court had properly exercised its discretion in awarding Hardt attorneys’ fees under the facts of her case.

Justice Stevens added a concurring opinion, in which he agreed that ERISA Section 502(g)(1) did not impose a prevailing party requirement and that the district court had properly exercised its discretion in awarding attorneys’ fees under the facts of this case. However, he disagreed that the Ruckelshaus opinion, which involved a 5-4 split among the justices, should be relied on in deciding the proper interpretation of any statutory provision.

Impact

The Supreme Court’s decision in Hardt may have inadvertently created more issues than it resolved. Importantly, the Supreme Court did not decide the question of whether a remand order to a plan administrator for further consideration qualifies, without more, as “some success on the merits” that entitles a claimant to fees under ERISA Section 502(g)(1). In addition, the Supreme Court left open the possibility that a district court may still consider the multi-factor tests in awarding attorneys’ fees that exist in most circuit courts of appeal after the district court has concluded that the claimant has shown “some success on the merits.” Finally, the Supreme Court’s opinion provides little guidance as to what “some success on the merits” may look like under facts dissimilar to those in Hardt. This ambiguity may well lead to an increase in fee motions by parties on both sides of an ERISA dispute. It may also necessitate future guidance from the Supreme Court to clarify its new fee standards.

The Supreme Court’s decision could also serve as a disincentive for plan administrators to grant benefits voluntarily on remand in the absence of clear language that the reviewing court finds the determination incorrect on the merits. This is because the Supreme Court specifically stated that it did not reach that issue. Moreover, this ruling also is not likely to increase the chance that defendant plans and plan administrators will be awarded attorneys fees under ERISA Section 502(g)(1), since most courts are disinclined to award fees to such parties absent egregious circumstances.