THE SUPREME COURT RELAXES THE STANDARD FOR AWARDS OF ATTORNEYS’ FEES IN ERISA CASES. BUT DOES IT REALLY MATTER?

As a general rule, under what is called “the American Rule” each party to a lawsuit pays his own attorney’s fees, win or lose, unless a statute or a contract provides otherwise.  The Employee Retirement Income Security Act (“ERISA”) authorizes courts to award attorneys’ fees and costs to either party.  Such “fee-shifting” is not automatic in ERISA cases.  It’s up to the trial judge to determine whether an award of fees is appropriate on a case-by-case basis.

The possibility of a fee award is an incentive for plaintiffs’ lawyers to take on these cases, which may not involved large sums of money.  Challenges to a plan’s denial of benefits in particular, which represent the majority of ERISA disputes that end up in court, typically are not big money claims such that the plaintiff’s attorney could be adequately compensated out of the plaintiff’s potential recovery.

Historically, the U.S. Court of Appeals for the Fourth Circuit, whose decisions are binding on West Virginia’s federal trial courts, has held that only a “prevailing party” was eligible for such an award of fees.  That meant that unless the plaintiff secured a final judgment in his favor, fees could not be awarded.  It wasn’t enough that the trial court reversed the decision of the plan administrator as an abuse of discretion and remanded the matter to the administrator for further consideration.

Last year, however, the U.S. Supreme Court in Hardt v. Reliance Standard Life Ins. Co. held that the “prevailing party” standard did not apply in ERISA cases.  Instead, a party that obtained “some degree of success on the merits” of his claim was eligible for a fee award.  Taking the example of a court remanding a benefits dispute to the plan’s administrator, the remand order itself means that the plan administrator didn’t get it right the first time.  But before Hardt a remand did not mean that the claimant had “prevailed” and might be awarded his attorney’s fees.  Hardt changed that – a remand might be “some degree of success on the merits”; that is, enough to trigger eligibility for a fee award.

Even after Hardt, an award of fees is not automatic.  Once it is determined that a plaintiff is eligible for such an award (by having achieved some degree of success on the merits), courts apply a number of factors in deciding whether to award fees in a particular case.  They are:  (1) the degree of opposing parties’ culpability or bad faith; (2) the ability of opposing parties to satisfy an award of attorneys’ fees; (3) whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties’ positions.

Those five factors have been in use for purposes of evaluating whether an ERISA plaintiff should be awarded attorney’s fees for many years, and they are still applicable in light of Hardt.  So did Hardt really change anything?  Maybe.  Hardt lowered the bar for fee eligibility from “prevailing party” to “some degree of success on the merits.”  That change could provide additional incentive for plaintiffs’ lawyers to litigate benefits disputes on behalf of disappointed claimants.  Prior to Hardt, an outright win for the plaintiff was required before the court would even consider awarding attorney’s fees.  Now, a remand to the plan administrator could be enough.  Federal trial courts in West Virginia have decided the issue both ways in the past few weeks.

It will be interesting to see whether and how Hardt impacts the inclination of trial courts to award attorney’s fees to plaintiffs that have achieved less than a final judgment in their favor.

With an emphasis on litigation, Sara Hauptfuehrer’s practice focuses on Title I of the Employee Retirement Income Security Act of 1974 (ERISA). She also handles employment discrimination litigation and counsels on a number of employee benefits-related issues.
 
» See more articles by Sara E. Hauptfuehrer
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