In Hardt v. Reliance Standard Life Ins. Co., 560 U.S. _____ (May 24, 2010), the Supreme Court decided that an ERISA litigant need not be a “prevailing party” to be eligible for an attorney’s fee award under ERISA §502(g)(1), 29 U.S.C. §1132(g)(1). Under Hardt, a court has discretion to award attorney’s fees and costs under §1132(g)(1) as long as the party seeking fees has achieved “some degree of success on the merits.”
Background
Hardt dealt with a common situation in ERISA benefit claims litigation. A plaintiff challenging the denial of an ERISA benefit generally must exhaust the plan’s internal claims procedure before filing suit. In court, plaintiffs invariably claim that the plan’s claims procedure failed to provide a “full and fair review” of the benefit denial under ERISA §503, 29 U.S.C. §1133, and Department of Labor regulations, 29 C.F.R. §2560.503-1, et seq., which define “the minimum requirements for employee benefit plan procedures pertaining to claims for benefits.”
If the plan failed to meet these minimum procedural requirements, the court often suspends review of the merits of the claim and remands the claim to the plan administrator for further proceedings. If, after remand, the plan administrator awards benefits to the plaintiff, the question arises whether the plaintiff can claim attorney’s fees under §1132(g)(2), which provides that “a reasonable attorney’s fee and costs” may be allowed “to either party” at the court’s “discretion.”
Facts
Bridget Hardt filed a claim for benefits under her employer’s long-term disability plan, and after exhausting her administrative remedies, she sued Reliance, the insurance company that provided the benefits under the plan. The district court remanded Hardt’s claim to Reliance because of deficiencies in Reliance’s administrative procedures. After Reliance awarded benefits to Hardt following remand, the district court awarded attorney’s fees to Hardt, concluding that Hardt was a “prevailing party” in the litigation.
On appeal, the Court of Appeals for the 4th Circuit vacated the attorney’s fee award. The court of appeals held that Hardt was not a “prevailing party” because Hardt had not obtained an “enforceable judgment on the merits,” since the district court’s remand order did not require Reliance to pay benefits.
Supreme Court Opinion
The Supreme Court unanimously reversed the court of appeals and held that the district court properly exercised its discretion to award attorney’s fees. In writing for the Supreme Court, Justice Thomas noted that the words “prevailing party” do not appear in §1132(g)(1), which expressly grants district courts “discretion” to award attorney’s fees “to either party.”
Although the Supreme Court held there was no “prevailing party” requirement in §1132(g)(1), the Supreme Court held that an attorney’s fee claimant under §1132(g)(1) must still show “some degree of success on the merits” before a court may award attorney’s fees, analogizing the ERISA fee statute to other federal statutes where courts have discretion to award fees, citing Ruckelshaus v. Sierra Club, 463 U.S. 680, 694 (1983).
The Supreme Court found that Hardt had shown sufficient “success on the merits” to be eligible for an award of attorney’s fees. The district court had found “compelling evidence that Ms. Hardt is totally disabled,” and stated it was “inclined to rule in Ms. Hardt’s favor,” but declined to do so before “first giving Reliance the chance to address the deficiencies in its approach” to Hardt’s claim. Moreover, the district court had ordered Reliance to consider “all the evidence” within 30 days “[o]therwise, judgment will be entered in favor of Ms. Hardt.” The Supreme Court reserved the question whether remand to the plan administrator, without more, constitutes sufficient “success on the merits” to make a plaintiff eligible for attorney’s fees under §1132(g)(1).
Observations
The Hardt decision significantly changes the law in the 1st, 4th, 7th and 10th Circuits, all of which had adopted same version of the “prevailing party” requirement for attorney’s fees under §1132(g)(1). Under Hardt, a plan’s compliance with ERISA claims procedures is more important than ever. If the plan fails to follow proper procedures, and the plaintiff obtains remand and ultimately receives benefits, the plan is exposed to potential attorney’s fees claims.
Hardt also impacts a plan’s decision to offer remand to a plaintiff who failed to properly develop evidence in the administrative claims procedure. Many plans voluntarily offer remand to the plan administrator during litigation where a plaintiff demonstrates probative evidence that was not submitted in the original claims record. Such offers may now expose plans to attorney’s fee claims if remand results in an award of benefits.
In light of Hardt, plan administrators should take care that their claims procedures fully address all evidence supporting the benefit claim. In Hardt, the district court remanded in part because Reliance had failed to consider evidence of Hardt’s neuropathic pain or ask Reliance’s medical evaluator to consider such evidence. Reliance might have avoided an award of attorney’s fees if these issues had been fully addressed in the administrative proceedings before suit was filed.
For more information, contact one of the authors or any member of the Employee Benefits or Labor and Employment practice groups.