The U.S. Supreme Court in Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010), held that ERISA plan participants who must sue to obtain review of a benefit denial can be awarded attorney's fees under 29 U.S.C. § 1132(g)(1) by achieving "some degree of success on the merits," regardless of whether they ultimately win the whole case. The First Circuit today, in a 2-1 decision, issues the first precedential appellate-level opinion in holding that fees may be awarded even if the participants' entire victory is having their cases remanded back to the plan administrator for reweighing under the correct standard of review.
Gross v. Sun Life Assurance Co. of Canada, No. 12-1175 (1st Cir. Aug. 14, 2014): In this case, the participant challenged denial of long-term disability coverage. The coverage was denied in part because the plan relied on videotape surveillance of Ms. Gross, which it interpreted as showing that she was not disabled under the plan definition.
In her original appeal to the First Circuit, Ms. Gross persuaded the court to overrule a prior decision and hold that policy language "requiring proof of disability 'satisfactory to us' is inadequate to confer the discretionary authority that
would trigger deferential review." Gross v. Sun Life Assurance Co. of Can., 734 F.3d 1, 3 (1st Cir. 2013). This meant on remand, the participant would obtain de novo (non-deferential) review of the administrator's denial of benefits.
Ms. Gross then applied to the First Circuit for $252,125 in legal fees and some $10,000 in compensable expenses on the basis of the remand. The plan contended that without entry of some relief, she was not entitled to any fees, calling the remand a "purely procedural victory."
The panel majority rejects the plan's argument against an award of fees. The court observes initially that the issue was one expressly reserved by the Supreme Court, i.e., "whether a remand order, without more, constitutes 'some success on the merits' sufficient to make a party eligible for attorney's fees under § 1132(g)(1)." Hardt, 560 U.S. at 256.
Citing the Sixth Circuit in an unpublished order, and several district courts, the panel majority holds that "a remand to the plan administrator for review of a claimant's entitlement to benefits, even without guidance favoring an award of benefits or an actual grant of benefits, is sufficient success on the merits to establish eligibility for fees under section 1132(g)(1)."
The panel majority summarizes that:
"these courts treat such a remand as sufficient 'success' under Hardt based on the two positive outcomes inherent in such an order: (1) a finding that the administrative assessment of the claim was in some way deficient, and (2) the plaintifff's renewed opportunity to obtain benefits or compensation ... A remand to the claims administrator for reconsideration of benefits entitlement ordinarily will reflect the court's judgment that the plaintifff's claim is sufficiently meritorious that it must be reevaluated fairly and fully."
Indeed, the panel majority holds that Ms. Gross's entitlement to seek fees would not change even if, on remand, she ultimately lost her claim for benefits once again. "[T]here is nothing incongruous about rewarding only the successful portion of a mixed decision. We do it all the time in the context of attorney's fees. [Citation omitted.] Thus, even if we had reviewed the record ourselves and concluded that Gross is not entitled to disability benefits, we still would have found her eligible for a fee award based on the success she did achieve." Should Ms. Gross prevail on the benefits on remand, that positive result "will be a factor in any post-remand request for fees, and it may be considered by the district court in considering a reasonable fee for the pre-remand legal work."
The panel majority further holds - once again, in the first precedential appellate decision to so rule - that Ms. Gross need not wait until the end of all proceedings to collect a fee award:
"Our discussion above demonstrates that Sun Life's ripeness argument, relying in large part on the fact that no disability benefits have yet been awarded, is off the mark. As we have explained, the remand for reconsideration of her entitlement to benefits, in combination with a less deferential standard of review, means that Gross already has achieved the success that makes her eligible for fees. Our judgment in this appeal is now
final, and the outcome of the supplemental proceedings ordered by our remand will not change Gross's eligibility for fees for the phase of the case that concluded with that judgment." [Footnote omitted.]
The panel majority finally goes on to hold that Ms. Gross should in fact be awarded fees, based on the five-factor test favored by many circuits:
"(1) the degree of culpability or bad faith attributable to the losing party; (2) the depth of the losing party's pocket, i.e., his or her capacity to pay an award; (3) the extent (if at all) to which such an award would deter other persons acting under similar circumstances; (4) the benefit (if any) that the successful suit confers on plan participants or beneficiaries generally; and
(5) the relative merit of the parties' positions."
The panel finds that on four factors (other than number 5), Ms. Gross prevails. (1) The plan willfully ignored facts that favored Ms. Gross's claim, and that explained or gave context to facts that appeared unfavorable at first. In particular, the plan had caught Ms. Gross on tape on a long car ride, but turned out that the ride was due to her mother's medical emergency. (2) The plan could afford to pay fees. (3) An award of fees might deter future "gotcha" surveillance of claimants. (4) The change in First Circuit precedent might benefit future claimants. The panel remands the case to the district court to determine the amount of fees and costs to be awarded.
In dissent, Judge Selya scolds the majority for "giv[ing] its imprimatur to an award under 29 U.S.C. § 1132(g)(1) despite the fact that the plaintifff has
achieved nothing more than a purely procedural victory ... Surviving to fight
another day is not the same as winning the war (or even the same as
winning a significant battle)."