What's New
Impact of Fee-Shifting Awards for Partial Success
Chicago Daily Law Bulletin
November 15, 2010
by MARK D. DEBOFSKY
The "American rule" relating to attorney fees provides that each party is to pay its own fees, in contrast to the "English rule," where the loser pays.
The Employee Retirement Income Security Act (ERISA) law, however, contains a statutory provision that is an exception to the American rule and allows the fee burden to be shifted. 29 U.S.C. § 1132(g).
That provision states that "the court in its discretion may allow a reasonable attorney's fee and costs of action to either party."
The recent Supreme Court ruling in Hardt v. Reliance Standard Life Insurance Co., 130 S. Ct. 2149 (2010), has changed the landscape with respect to ERISA fee awards; an even more recent ruling issued by Magistrate Judge Morton Denlow in the Northern District of Illinois thoughtfully analyzes the impact of the Hardt ruling.
In Young v. Verizon Bell Atlantic Cash Balance Plan, 2010 U.S.Dist.LEXIS 111719 (N.D.Ill. Oct. 20, 2010), the court was called upon to decide whether a plaintiff in an ERISA dispute who only partially prevailed was entitled to fees.
After experiencing partial success in a pension benefit claim, the plaintiffs in Young asserted that the achievement of some success on the merits entitled them to fees. The court agreed that a partial fee award was due based on Hardt.
The court ruled that Hardt created a new standard for awarding fees that substantially departs from the prior standard that first required an examination as to whether the plaintiff was a "prevailing party," and then assessed the entitlement to fees either under a five-factor test or whether the loser's position was substantially justified.
The five factors are (1) the degree of the offending parties' culpability or bad faith; (2) the ability of the offending parties to satisfy personally an award of attorney fees; (3) whether or not an award of attorney fees against the offending parties would deter other persons acting under similar circumstances; (4) the amount of benefit conferred on members of the pension plan as a whole; and (5) the relative merits of the parties' positions. Sullivan v. Randolph, Inc., 504 F.3d 665, 671 (7th Cir. 2007).
The court determined that Hardt expressly overruled the prevailing party standard and substituted a requirement that fees may be due when the claimant has achieved 'some degree of success on the merits." 130 S. Ct. at 2152 (quoting Ruckelshaus v. Sierra Club, 463 U.S. 680, 694 (1983)).
However, neither a "trivial success on the merits" nor a "purely procedural victory" suffices. Id. at 2158. Instead, the standard is met so long as a court can "fairly call the outcome of the litigation some success on the merits without conducting a lengthy inquiry into the question whether a particular party's success was substantial or occurred on a central issue." Id. (citation and internal quotation marks omitted).
Hardt ruled its new standard was met because the plaintiff "persuaded the District Court to find that the plan administrator [had] failed to comply with the ERISA guidelines and that Ms. Hardt did not get the kind of review to which she was entitled under applicable law." 130 S. Ct. 2158-59 (citation and internal quotation marks omitted).
Hardt also determined that continued use of the five-factor test was no longer necessary, but was also not foreclosed. In addition, although Hardt expressly left open the question of whether a remand alone, without a further recovery of benefits, would constitute "some success on the merits" (Id. at 2159), the court noted that two courts have subsequently ruled that a remand alone was sufficient: Blajei v. Sedgwick Claims Mgmt. Servs., Inc., No. 09-13232, 2010 WL 3855239, at *3-4 (E.D. Mich. Sept. 28, 2010); Richards v. Johnson & Johnson, No. 2:08-CV-279, 2010 WL 3219133, at *3 (E.D. Tenn. Aug. 12, 2010).
In setting the stage for the court's ruling, Denlow described the purpose of ERISA's fee-shifting statute: "that meritorious claims should be pursued and violations of the law redressed." *18 (citing Anderson v. AB Painting and Sandblasting Inc., 578 F.3d 542, 545-46 (7th Cir. 2009). The court also pointed to the deterrent value of fee awards in forcing an abandonment of illegal conduct.
Turning to the merits of the case, the court held the plaintiffs did achieve "some success" even though the defendant did as well by prevailing on a counterclaim. In reaching that conclusion, however, the court questioned the continuing viability of either the substantial justification or of the five-factor test. The court explained:
If one party has experienced only some success, then the opposing party, almost by definition, has also achieved some success. If so, the opposing party's position will often be nonfrivolous — that is, substantially justified. Applying a substantial justification test where the threshold for fee eligibility is only some success undermines the broader eligibility for fees that should exist when the fee provision lacks a "prevailing party" requirement. *29.
The court further noted as to the five-factor test:
The first factor (bad faith or culpability) does not necessarily correlate to whether a party's litigation position was justified; a party could have a colorable position and yet litigate in bad faith. Moreover, this factor has relevance beyond the course of litigation. Courts may also wish to ask whether the conduct that gave rise to litigation was culpable, even if the party has a substantially justified legal argument.
The second factor (ability to pay) has little to do with a party's litigation position. Of course, at least in the realm of awarding fees to plaintiffs, it may be a somewhat empty factor, given that ERISA defendants will almost always have the ability to pay attorney fees. See Sullivan, 504 F.3d at 671.
The third factor (deterrence) seems closely related to the first, insofar as culpable behavior or bad faith is generally the sort of conduct that can be deterred.
The fourth factor (benefit to members of the pension plan) is similar to the "some success" threshold inquiry, because it asks the court to look at the plaintiff's bottom-line success as it relates to other members of the pension plan. Nevertheless, the factor remains useful insofar as draws it attention to a particularly important type of success.
The 7th Circuit has also suggested that this factor directs that the award of fees should be proportional to the degree of damages awarded, see id. at 672, but that use of the factor seems questionable in light of the new "some success" threshold standard. The new standard suggests that courts may sometimes award fees even where the court awards no damages.
Finally, the fifth factor (relative merits) "is an oblique way of asking whether the losing party was substantially justified." Id. As such, this factor alone equates to the substantial justification test and should be treated as irrelevant in light of Hardt.
In place of those tests, the court suggested other relevant considerations: Fees should be awarded if the litigation "serve[s] the public interest by assisting in the proper interpretation, or implementation of the statute." Yet another consideration expressed by the court is that fees should be due if a plaintiff's suit set an important precedent.
Hardt is an important precedent; and the Young ruling focuses on specific factors that help explain the meaning of "some success on the merits." The court's citation to the 7th Circuit's Anderson ruling is particularly apt, based on rationale for fee awards expressed by the court:
Because Congress wants even small violations of certain laws to be checked through private litigation and because litigation is expensive, it is no surprise that the cost to pursue a contested claim will often exceed the amount in controversy. Tuf Racing Products, Inc. v. American Suzuki Motor Corp., 223 F.3d 585, 592 (7th Cir. 2000).
That is the whole point of fee-shifting — it allows plaintiffs to bring those types of cases because it makes no difference to an attorney whether she receives $20,000 for pursuing a $10,000 claim or $20,000 for pursuing a $100,000 claim. See id. Fee-shifting would not "discourage petty tyranny" if attorney fees were capped or measured by the amount in controversy. 578 F.3d at 545 (citations omitted).
Another ruling that has cited a similar rationale is National Cos. Health Benefit Plan v. St. Joseph's Hosp., 929 F.2d 1558, 1575 (11th Cir. 1991), which explained: With nothing to lose but their own litigation costs, other ERISA-plan sponsors might find it worthwhile to force under-financed beneficiaries to sue them to gain their benefits or accept undervalued settlements."
Sound policy reasons therefore offer good reason to allow fee awards even if a complete victory is not achieved.
