First of all, happy Memorial Day to everyone, and thank you to our active and retired service men and women and their families for the sacrifices they have made and continue to make for all of us.

As we reach the end of May, it has been a good month for federal court plaintiffs seeking attorney’s fees. A few days ago, I wrote about In re Abrams & Abrams, P.A.; St. Martin, Williams and Bourque, in which the Fourth Circuit addressed the reasonableness of — and implicitly upheld — a substantial contingency fee in a personal injury case. Then, last week, the Supreme Court decided Hardt v. Reliance Standard Life Ins. Co., 2010 WL 2025127 (U.S.), dealing with awards of attorney’s fees in ERISA cases.

For additional discussion of Hardt, I refer you to SCOTUSBlog, which discussed the decision here,  to this post by Scott Calvert at Barger & Wolen LLP’s Life, Health and Disability Insurance Blog, and to this one by Stephen Rosenberg at Boston ERISA and Insurance Litigation Blog.

Readers of this blog know that I have complained about discussed the restrictions presented by  ERISA: its broad preemptive scope; lack of remedies; and deferential standard of review (often) applicable to plan administrator’s actions. And until Hardt, you could have added limited availability of attorney’s fees. Of course, fees could be awarded at the discretion of the court "to either party" under 29 U.S.C.§ 1132(g)(1), but, as you will read, the Fourth Circuit interpreted that statute to mean to "the prevailing party."

Here are the facts: Reliance denied Hardt’s claim for long-term disability benefits, even though it appeared that Reliance disregarded evidence of Hardt’s neuropathy, which would have entitled her to continued benefits. She filed suit, and the parties ultimately filed cross-motions for summary judgment. The court for the Eastern District of Virginia denied both parties’ motions, and explained that even though it was "inclined to rule in Ms. Hardt’s favor," it concluded that it should remand the claim so that Reliance could consider Hardt’s evidence. Following its review and consideration of Hardt’s evidence regarding her neuropathy, Reliance found that she was entitled to LTD benefits, and paid her $55,250 in accrued, past-due benefits.

Hardt then moved for attorney’s fees, which the court considered under the three-step analysis established by Martin v. Blue Cross & Blue Shield of Virginia, Inc., 115 F.3d 1201 (4th Cir. 1997). Under Martin, the district court first determines whether the party seeking fees is a "prevailing party." If so, the court determines whether a fee award is appropriate by looking at another five factors. Then, if those factors weigh in favor of the party seeking fees, the court must review the actual amount of the fees and costs requested, and "limit them to a reasonable amount."

Using Martin‘s framework, the district court awarded attorney’s fees and costs of $39,149 to Hardt. Although Hardt did not secure a reversal of Reliance’s denial of her claim, the district court "’quite clearly expressed the consequences to [Reliance] were it to fail to complete its reconsideration in an expeditious manner."

But on appeal by Reliance, the Fourth Circuit reversed the district court’s decision. The court found that Hardt had failed to establish that she was a "prevailing party," because, relying on the Supreme Court’s decision in Buckhannon Bd. and Care Home, Inc. v. West Virginia Dept. of Health and Human Resources, 532 U.S. 598 (2001), (which originated in the Northern District of West Virginia), a party prevailed only it obtained an "enforceable judgmen[t] on the merits"or a "court-ordered consent decre[e]." Because the district court did not order Reliance to award benefits to Hardt (but only strongly suggested that it do so), its order was not an "enforceable judgment on the merits," and did not entitle Hardt to attorney’s fees.

Hardt petitioned for certiorari on two issues: did the Fourth Circuit "correctly conclude that § 1132(g)(1) permits courts to award attorney’s fees only to a ‘prevailing party?’"; and did the Fourth Circuit "correctly identify the circumstances under which a fee claimant is entitled to attorney’s fees under § 1132(g)(1)?" The Court noted in a footnote that the First, Seventh, and Tenth Circuits agree with the Fourth Circuit’s approach, while the Second, Fifth, and Eleventh disagree.

In a unanimous opinion by Justice Thomas, with which Justice Stevens concurred in part and concurred in the judgment, the Court dispensed with the first issue quickly. It found that the words "prevailing party" do not appear in § 1132(g)(1), nor is there any other indication from the text that fees are available only to the prevailing party. The Court contrasted § 1132(g)(1) with § 1132(g)(2), which governs the availability of attorney’s fees in actions under § 1145 to recover delinquent contributions to a multiemployer plan. In those cases, a plaintiff must obtain "a judgment in favor of the plan" in order to seek fees. That difference led the Court to conclude that "Congress knows how to impose express limits on the availability of attorney’s fees in ERISA cases." Thus, the Fourth Circuit’s "decision adding that term of art to a fee-shifting statute from which it is conspicuously absent more closely resembles ‘invent[ing a statute rather than interpret[ing] one.’"

Regarding the second issue, the Court noted that the "bedrock principle" known as the "American Rule" provides that each party, win or lose, pays its own attorney’s fees, unless a statute or contract provides otherwise. Deviations from the American Rule have typically involved a "prevailing party" requirement.

But because § 1132(g)(1) did not limit attorney’s fees to the "prevailing party," the Court looked to Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983), which addressed the availability of attorney’s fees in actions under the Clean Air Act. The Court explained that as in that case, "Congress failed to indicate clearly in § 1132(g)(1) that it ‘meant to abandon historic fee-shifting principles and intuitive notions of fairness[,]’" and concluded that likewise,"a fees claimant must show ‘some degree of success on the merits’ before a court may award attorney’s fees under § 1132(g)(1)[.]"

Here is my assessment of where Hardt is going to generate litigation regarding attorney’s fees. The Court attempted to clarify its "some degree of success on the merits" standard by explaining that:

A claimant does not satisfy that requirement by achieving "trivial success on the merits" or a "purely procedural victor[y]," but does satisfy it if the court can fairly call the outcome of the litigation some success on the merits without conducting a "lengthy inquir[y] into the question whether a particular party’s success was ‘substantial’ or occurred on a ‘central issue.’"

Despite that clarification, you can rest assured that plenty of litigants in ERISA cases will be arguing over exactly what constitutes "real" as opposed to "trivial" success on the merits, and when is a victory "purely" procedural versus a combination of procedure and substance.

And a secondary issue, which the Court identified but did not resolve, is "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)." 

The Court found that Hardt had achieved "some success on the merits," and reversed the Fourth Circuit’s decision. But the opinion strongly suggests that a remand, without more, may be a procedural victory, but will not entitle the party seeking remand to an award of attorney’s fees.