MEALEY S 1 LITIGATION REPORT ERISA To Fee, Or Not To Fee. That Is The Question: In Certain Cases, Arbitrating ERISA Benefits Cases May Enable Plan Fiduciaries To Avoid Paying Plaintiffs Attorney s Fees by Ian S. Linker Rivkin Radler LLP Hackensack, New Jersey A commentary article reprinted from the February 2018 issue of Mealey s Litigation Report: ERISA
MEALEY S 1 LITIGATION REPORT: ERISA Vol. 16, #10 February 2018 Commentary To Fee, Or Not To Fee. That Is The Question: In Certain Cases, Arbitrating ERISA Benefits Cases May Enable Plan Fiduciaries To Avoid Paying Plaintiffs Attorney s Fees By Ian S. Linker [Editor s Note: Ian S. Linker is a partner in Rivkin Radler LLP s Insurance Coverage Practice Group. Prior to joining Rivkin Radler, Mr. Linker worked as in-house counsel for MetLife s litigation department, where he acquired significant appellate experience and a nationwide expertise in ERISA-benefits litigation. In that role, Mr. Linker managed ERISA litigation matters, counseled clients, and trained and supervised attorneys handling ERISA litigation. Mr. Linker also led MetLife s appellate practice group. Mr. Linker can be reached at ian.linker@rivkin. com. Any commentary or opinions do not reflect the opinions of Rivkin Radler LLP or LexisNexis1, Mealey Publicationsä. Copyright# 2018 by Rivkin Radler LLP. Responses are welcome.] In-house counsel managing benefits litigation governed by the Employee Retirement Income Security Act of 1974 ( ERISA ) consider many factors in assessing risk and the value of a case. One of the primary factors counsel consider is the likely impact of ERISA s feeshifting provision. But what if an ERISA plan fiduciary could avoid paying attorney s fees to a plan participant or beneficiary when he or she is awarded benefits? A recent decision by the U.S. Court of Appeals for the Ninth Circuit may provide a strategic option. There, the court recognized that arbitrating benefit disputes, instead of litigating them, may enable fiduciaries to avoid paying fees. Background 29 U.S.C. 1132(g)(1) states in pertinent part: In any action under this subchapter... by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney s fee and costs of action to either party. In deciding whether a party is eligible to seek reimbursement of its attorney s fees under this section, the U.S. Supreme Court in Hardt v. Reliance Standard Life Ins. Co. 1 held that courts must first consider a threshold question: whether the party seeking fees achieved some success on the merits. In Hardt, the plaintiff initially sued Reliance Standard after the latter denied her claim for long-term disability benefits under her employer s ERISA-governed benefits plan. Although the district court held Reliance failed to comply with ERISA s guidelines and the plaintiff did not get the kind of review to which she was entitled under applicable law, the court denied the plaintiff s motion for summary judgment on her benefit claim and remanded her claim to Reliance for further administrative review. After conducting its remand review, Reliance reversed and paid the plaintiff past-due benefits and reinstated her into the plan. The plaintiff then moved for fees. The district court applied a prevailing party test and awarded the plaintiff fees. The Fourth Circuit reversed on the grounds that the plaintiff was not a prevailing party, in that she had not obtained an enforceable judgment or a court-ordered benefits award. The Supreme Court reversed and held that parties to ERISA benefits litigation are eligible to seek 1
Vol. 16, #10 February 2018 MEALEY S 1 LITIGATION REPORT: ERISA reimbursement of their attorney s fees if they achieve some success on the merits. The Multifactor Test Once a party is eligible to seek fees, the Supreme Court stated in Hardt that lower courts may proceed with applying a multifactor test to determine whether it is appropriate to award fees. The lower courts generally consider the following five factors, among others, in deciding whether it is appropriate to award fees: 1. Degree of culpability or bad faith; 2. Ability to satisfy a fees award; 3. A fees award s deterrent effect; 4. Whether the party seeking fees sought to confer a benefit on all participants or beneficiaries or to resolve significant legal questions; and 5. Relative merits of the parties positions. 2 In its discretion, however, a district court will typically order a losing plan fiduciary defendant to reimburse the plaintiff for his or her reasonable attorney s fees. But what if a plan fiduciary could avoid paying fees even when benefits are awarded? The Ninth Circuit s decision in DeLeon v. Int l Longshoremen s & Warehousemen s Union 3 is instructive and may provide in-house counsel another arrow in their quiver of strategic options in managing ERISA benefits litigation. The Ninth Circuit s DeLeon Decision In DeLeon, the court held the word action in 29 U.S.C. 1132(g) means lawsuit. Thus, the court concluded the district court had properly denied the plaintiff s request for fees because he was awarded benefits notbyacourt,butinanarbitrationproceeding. Shortly after the plaintiff in DeLeon filed his complaint in court, which he had done before exhausting the ERISA plan s administrative remedies, the plaintiff voluntarily agreed to stay the case before the defendant filed its responsive pleading. The parties stipulated to arbitration and the district court entered the stipulation. The arbitrators awarded the plaintiff benefits. The district court confirmed the benefits award. And the plaintiff sought reimbursement of his attorney s fees under ERISA. The district court found that the arbitration proceedings did not constitute an action within the meaning of [29 U.S.C. 1132(g)], and concluded that the plaintiff s litigation efforts were not responsible for his success, but were instead trivial and purely procedural. Accordingly, the district court denied the plaintiff s fees request. In affirming the district court s decision, the Ninth Circuit held that the district court did not err in concluding that arbitration was not an action. The district court, which merely stayed the plaintiff s case and confirmed the arbitration award, played largely a passive role. Although the Ninth Circuit acknowledged that fees might be recoverable after a court-ordered remand, the facts in DeLeon were distinguishable because the district court did not compel arbitration in the case. The plaintiff nevertheless argued that arbitration, whether or not associated with litigation, should constitute an action under 29 U.S.C. 1132(g). The court disagreed because [s]uch an interpretation would be inconsistent with the court s decision in Cann v. Carpenters Pension Trust Fund. 4 Accordingly, the court rejected the plaintiff s argument that arbitration was an action under ERISA; thus, the court held the district court did not abuse its discretion in denying the plaintiff s request for his attorney s fees. The Cann Case Given DeLeon s reliance on Cann, it is worthwhile to discuss the latter decision. In Cann, the Ninth Circuit considered whether a plaintiff could recover attorney s fees under ERISA incurred during an administrative process. The plaintiff s attorneys had spent considerable time representing the plaintiff in his efforts to win pension benefits from one of the unions in which he was a member before he filed suit. The district court awarded the plaintiff attorney s fees, but carved out those fees incurred during the administrative process. Quoting Black s Law Dictionary s definition of action, the Ninth Circuit construe[d] the statute as limiting the award to fees incurred in the litigation in court. Black s defines action as: a suit brought in a court; a formal complaint within the jurisdiction of a court of law, [and] includes all the formal proceedings in a court of justice attendant upon the demand of a right... in such court. 5 2
MEALEY S 1 LITIGATION REPORT: ERISA Vol. 16, #10 February 2018 The court, however, did not limit its analysis to the definition found in Black s. Instead, the court also looked to ERISA s civil enforcement provision as well as Title VII of the 1964 Civil Rights Act for guidance. The court explained that in one section of ERISA, 29 U.S.C. 1132(e), for instance, Congress used action to give district courts exclusive jurisdiction of civil actions under this subchapter, and refers to an [ERISA] action brought in a district court. The court noted that in New York Gaslight Club, Inc. v. Carey, 6 the Supreme Court construed action or proceeding in Title VII of the Civil Rights Act of 1964 as disjunctive, to provide for awards for administrative proceedings which are not court actions. The Supreme Court in New York Gaslight stated that the language of the statute leaves little doubt that fee awards are authorized for legal work done in proceedings other than court actions. As such, the court in Cann recognized that Congress knows how to specify which parts of attorneys work were subject to the English rule of fee shifting instead of the usual American rule, and has done so repeatedly. Accordingly, the court limited action in 29 U.S.C. 1132(g) to litigation in court and held that the district court correctly excluded from its fees award the attorney s fees incurred during the administrative process. Practical Considerations So what can we take away from DeLeon and Cann? Arbitrating an ERISA benefits case may enable plan fiduciaries to avoid paying plaintiffs attorney s fees. To arbitrate an ERISA benefits case, fiduciaries have two options. First, stipulating to arbitration early in a case, as did the parties in DeLeon, may make sense. Second, plan administrators could add mandatory arbitration provisions to governing plan documents. This latter option may not be advantageous for fiduciaries of certain types of plans, however, because U.S. Department of Labor regulations require disability and medical benefit plans containing a mandatory arbitration provision to include arbitration as part of the administrative process. 7 In other words, participants in these plans would still have a right to sue plan fiduciaries in court after participating in plan-mandated arbitration. Arbitration has its advantages, particularly in light of DeLeon. If the fiduciary prevails, arbitration decisions are extremely difficult to reverse on appeal. And if the fiduciary loses, the plaintiff may not be entitled to attorney s fees under ERISA. DeLeon is not necessarily a game changer, but because ERISA s fee-shifting provision is a factor in nearly every case, and frequently a significant factor, considering early arbitration in benefits cases is a potential way to significantly reduce the costs of defending these matters. Endnotes 1. 560 U.S. 242 (2010). 2. Gray v. New England Tel. & Tel. Co., 792 F.2d 251, 257-58 (1st Cir. 1986); Miles v. New York State Teamsters Conference, 698 F.2d 593 (2nd Cir. 1983); Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3rd Cir. 1983); Reinking v. Philadelphia American Life Insurance Co., 910 F.2d 1210, 1217-18 (4th Cir. 1990); Ironworkers Local No. 272 v. Bowen,624 F.2d 1255 (5th Cir. 1980); Sec. of Dept. of Labor v. King, 775 F.2d 666, 669 (6th Cir. 1985); Marquardt v. North American Car Corp., 652 F.2d 715, 717 (7th Cir. 1981); Lawrence v. Westerhaus, 749 F.2d 494 (8th Cir. 1984); Hummell v. S.E. Rykoff & Co., 634 F.2d 446, 452 (9th Cir. 1980); Gordon v. U.S. Steel Corp., 724 F.2d 106, 109 (10th Cir. 1983); Fine v. Semet, 699 F.2d 1091 (11th Cir. 1983). 3. No. 16-55364, 2017 U.S. App. LEXIS 23918 (9th Cir. Nov. 27, 2017). 4. 989 F.2d 313 (9th Cir. 1993). 5. Black s Law Dictionary 26 (5th ed. 1983). 6. 447 U.S. 54, 61 (1980). 7. 29 C.F.R. 2560.503-1(c)(4)(i). 3
MEALEY S LITIGATION REPORT: ERISA edited by Joan Grossman, Esq. The Report is produced monthly by 1600 John F. Kennedy Blvd., Suite 1655, Philadelphia, PA 19103, USA Telephone: (215)564-1788 1-800-MEALEYS (1-800-632-5397) Email: mealeyinfo@lexisnexis.com Web site: http://www.lexisnexis.com/mealeys ISSN 1540-3629