Benefits & ERISA Law

When Does Little Recovery Justify a Large Fee Award?

This is a little item about a large award of attorney's fees in an ERISA case to a prevailing plaintiff in a case involving only several hundred dollars in actual recovered damages, but it caught my eye for a couple of reasons. Factually, as the story goes, the court awarded some $45,000 in attorney's fees in a case in which the claimant recovered just over $600, raising the issue of whether the fee award was too disproportionate to the recovery to be justified. Even speaking predominately as a defense lawyer, I don't think there is any problem with the large gap between the fee and the recovery, nor do I think that proportionality is an appropriate consideration to graft onto the standard for determining fee awards in these types of situations. To be more nuanced, if proportionality is an appropriate consideration for a fee award, then the level at which fees become deemed disproportionate must be a lot higher than in the case at hand; I can foresee the immediate objection as to whether an award of $450,000 to recover a few hundred dollars is too disproportionate, and the answer to that question would probably be yes. However, it is worth noting that in that hypothetical situation, the more salient question is not proportionality, but value of the legal services - it is simply unrealistic to belief that the legal work needed to bring about such a recovery costs or should cost that much. That is not something that is true of $45,000 of legal work to recover an award - of however much - on an ERISA claim; that doesn't seem out of line with the work needed to win such a case under many typical circumstances.

But proportionality itself is not an appropriate factor, nor an appropriate lens through which to view this issue. To an individual plan participant, a 5, 10 or 15 thousand dollar recovery of additional benefits can be a very significant recovery, one absolutely worth fighting for, but the legal work needed to recover that will almost always cost significantly more. The very purpose of shifting fees under ERISA on participant claims is to allow for that dynamic, and ensure that participants can recover unpaid benefits, even where the cost of suing would exceed the value of the benefits at issue. Worrying about the proportionality of the legal fees to the recovery, under most normal scenarios, undermines that, because in many typical situations, the fees needed to recover the amounts at issue can often exceed the value of the benefits if the participant must litigate the issue to a conclusion to recover the benefits.

The other reason the story caught my eye is that, at the end of the day, the dispute over the several hundred dollars was a dispute between two lawyers who had formerly worked together, and the litigation appears to have been very contentious. Its unclear to me from the story whether the cause of that excessive contentiousness - given the amounts actually at stake - was personal or work related enmity, or simply what inevitably happens when two lawyers sue each other. From a broader perspective, however, it is worth noting that you see similar dynamics time and again with small plans run by small businesses, in which there is often a great deal of informality with regard to benefit plans, leading to highly contentious litigation - often personal in nature - over one partner's handling of the benefit plan, once the business comes to an end. Compliance, structure, outside management of a plan - all the things that one would hope would be in place and which could diffuse such strife are often missing in that scenario, resulting in ERISA litigation that would never have arisen in a bigger operation with more controls.

Full post as published by Boston ERISA Law Blog on March 18, 2010 (boomark / email).