On January 15, 2010, the U.S. Supreme Court granted certiorari in Hardt v. Reliance Standard Life Ins. Co., No. 09-448, and agreed to consider the question of whether a party in an ERISA action must be a “prevailing party” to be entitled to an award of attorney’s fees and costs under Section 502(g)(1), 29 U.S.C. § 1132(g)(1). Although the Supreme Court also agreed to consider whether a court-ordered remand of a benefits claim to an ERISA plan for further consideration is sufficient to allow for the recovery of attorney’s fees and costs, this issue may only be relevant, as discussed below, if the Court concludes that there is a “prevailing party” requirement under the statute.
Bridget Hardt was an employee of Dan River, Inc., which offered benefits to qualified participants in its Group Long-Term Disability Insurance Program Plan (the “Plan”). Dan River administered the Plan, but Reliance Standard Life Insurance Company (“Reliance”) decided whether a particular individual was entitled to benefits and, if so, paid for such benefits. After Hardt underwent surgery for carpal tunnel syndrome, Reliance agreed to provide Hardt with long-term disability (“LTD”) benefits under the Plan for twenty-four months based on her inability to perform her current position. During the twenty-four-month period, Hardt was diagnosed with a separate condition called hereditary small-fiber neuropathy, and was awarded disability insurance benefits from the Social Security Administration based on its finding that she could not return to gainful employment due to her neuropathy and other ailments. A few months later, Reliance notified Hardt that it was terminating her LTD benefits at the end of the twenty-four-month period because it concluded that she was no longer totally disabled as defined by the Plan. Hardt appealed and Reliance denied her appeal. After exhausting her administrative remedies, Hardt filed a complaint in the U.S. District Court for the Eastern District of Virginia, alleging that Reliance violated ERISA by wrongfully denying her LTD benefits and requested that the court award her LTD benefits under the Plan.
Both parties moved for summary judgment, and both motions were denied by the district court. The district court first observed that the administrative record provided compelling evidence that Hardt was totally disabled due to her neuropathy, and, on this basis, was inclined to rule in Hardt’s favor. The court also observed, however, that the record demonstrated that Hardt did not get the kind of review to which she was entitled under ERISA. Thus, the court determined that it would be “unwise” to rule in Hardt’s favor in the first instance and remanded the case to Reliance to fully and adequately assess her claim. In remanding the claim, the district court instructed Reliance that if it did not adequately consider all of the evidence discussed in the court’s opinion within thirty days, then the court would issue judgment in favor of Hardt. On remand, Hardt provided additional medical records to Reliance for its consideration, and Reliance reversed its earlier decision and awarded Hardt LTD benefits until she reached age 66, along with retroactive benefits for the time already elapsed.
Hardt subsequently filed a motion with the district court seeking attorney’s fees and costs pursuant to ERISA § 502(g)(1). Section 502(g)(1) provides: “In any action under this subchapter … by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney’s fee and costs of the action to either party.” The district court granted Hardt’s motion and awarded her $39,149.00 in fees. In so ruling, the district court explained that “[t]he defendant, under threat of judgment against it, reversed its decision and chose to award the plaintiff the precise relief she was seeking.” In the district court’s view, this “[c]learly” constituted “judicially sanctioned relief” entitling Hardt to an attorney’s fee award as the “prevailing party.”
Reliance appealed the district court’s award of attorney’s fees to the Fourth Circuit, arguing that the district court’s remand of Hardt’s claim for LTD benefits to the Plan for further consideration was not tantamount to a “judgment on the merits” or “judicially sanctioned relief.” Instead, Reliance argued that this was at best a case of “tactical mooting” and that there was no enforceable judgment on the merits or judicially sanctioned relief. In an unpublished opinion, the Fourth Circuit agreed with Reliance and vacated Hardt’s attorney’s fees award. See Hardt v. Reliance Standard Life Ins. Co., 2009 WL 2038759 (4th Cir. July 14, 2009).
The Fourth Circuit began its analysis of the fee award by observing that, in the Fourth Circuit “[i]t is well settled that ‘only a prevailing party is entitled to consideration for attorney’s fees in an ERISA action.’ To be a prevailing party, ‘a plaintiff [must] receive at least some relief on the merits of his [or her] claim.’” As discussed below, some Circuits contemplate the award of attorney’s fees even to nonprevailing parties.
Citing the Supreme Court’s decision in Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S. 598 (2001), for what constitutes “relief on the merits” of a particular claim, the court stated that only “enforceable judgments on the merits and court-ordered consent decrees create the material alteration of the legal relationship of the parties necessary to permit an award of attorney’s fees.” The court also added that there is no exception to this “bright-line boundary” for “tactical mooting” — that is, the situation where a defendant chooses to settle rather than risk an award of attorney’s fees. This is because “tactical mooting concerns are simply insufficient to overcome the statutory requirement that a party applying for a fees and costs award must first have been accorded some relief in the district court.”
Applying this reasoning to the district court’s remand of the claim to the Plan for additional consideration, the Fourth Circuit found that no court had entered judgment in favor of Hardt awarding her benefits. Instead, it was Reliance that concluded that Hardt was eligible for benefits during the remand. Because the district court did not require Reliance to award benefits to Hardt (which was the only relief Hardt requested), the Fourth Circuit concluded that the remand to Reliance to provide Hardt with an appropriate review of her claim (which Hardt did not request as relief) did not constitute an “enforceable judgment on the merits” as required to qualify Hardt as a “prevailing party” eligible for an award of attorney’s fees.
Hardt thereafter petitioned for certiorari before the Supreme Court. Hardt argued that the petition should be granted to resolve two important issues. First, Hardt requested that the Court resolve “a widely acknowledged, long-standing and frequently recurring circuit division on an important question of law — whether § 502(g)(1) requires prevailing party status for an award of attorney’s fees.” In Hardt’s view, the Fourth Circuit's decision that “only a prevailing party is entitled to consideration for attorney’s fees in an ERISA action” is incorrect and directly conflicts with the rulings of other circuits. Second, Hardt asked the Court to determine whether a claimant is entitled to attorney’s fees under § 502(g)(1) where she secures a remand to her plan administrator for reconsideration of her benefits claim after persuading the district court that the plan administrator violated ERISA. After granting certiorari, the Court set an expedited briefing schedule. Hardt’s brief is due by February 25, 2010, and Reliance’s brief is due by March 25, 2010.
It would appear that a ruling by the Supreme Court will only substantially impact current practice among the Circuit Courts if it were to affirm the Fourth Circuit’s ruling and hold both that attorney’s fees are limited to prevailing parties and that the plaintiff is not a prevailing party merely by obtaining an order from the district court that her case should be remanded to the plan administrator. Whether or not they require a party to prevail on her claim, most courts presently apply a multi-factored test in their fee determination, which includes consideration of: (i) the degree of the offending party’s bad faith or culpability; (ii) the ability of the offending party to satisfy an award of attorney’s fees; (iii) whether an award of fees would deter other persons from acting similarly under like circumstances; (iv) the relative merits of the parties’ positions; and (v) whether the action conferred a common benefit on a group of pension plan participants. If the Supreme Court were to apply a “prevailing party” standard, then plaintiffs, like Hardt will lose the opportunity to recover attorney’s fees under this test, unless the Court also determines that a remand order qualifies a plaintiff as a prevailing party..
On the other hand, a ruling in favor of Hardt could have the unintended effect of discouraging plans from awarding benefits in claims that are remanded for further consideration for fear that doing so could entitle the participant to attorney’s fees. One could argue, therefore, that ERISA’s goal of encouraging administrative resolution of benefit claims would be better served by a ruling that strictly limited recovery of attorney’s fees to participants who obtain an award of benefits in district court.