Benefits & ERISA Law

Hardt, A Unanimous Supreme Court, and the Perfect Example of Why Remand Is Enough of a Win to Support an Award of Attorneys' Fees

I posted recently on the Supreme Court's consideration in Hardt v. Reliance Standard Life Insurance of the question of just how much success on the merits is necessary to trigger a plan participant's right to an award of attorneys' fees, and discussed the fact that requiring an outright and complete win by the plan participant is likely too high of a standard for a fair and equitable system. In a case mostly remarkeable for its unanimaty, the Supreme Court ruled to this effect today, upholding, in essence, the approach to this issue taken by those courts that find some substantive success by the plan participant to be enough to trigger an award of attorneys' fees.

A decision a week or so ago, Gelumbaukskas v. USG Corporation Retirement Plan Pension and Investment Committee, out of the United States District Court for the District of Maryland provides a perfect example of why this is the correct rule. As the case reflects, the plan participant in that case was never provided with a substantively and procedurally compliant internal appeal process, leaving a record in place from which the court could not pass on the question of whether, in fact, the decision denying benefits was arbitrary and thus should be overturned, which would have resulted in an award of benefits by the court to the plan participant. Rather, the court found that the matter had to be remanded to the plan administrator to redo the appeal process in a manner that would comply with its obligations under ERISA and would create the necessary record for the court to pass on the ultimate question of whether or not the plan participant was actually entitled to the benefits after application of the arbitrary and capricious standard.

Certainly, this is a significant enough win for the plan participant that it should allow an award of attorney's fees, in that the remand is likely to either end in: (1) a settlement or an award of benefits to him, to avoid the court passing on the question again after having already found deficiencies in the record and having noted potential substantive problems with the record in its opinion; or (2) in the creation of a record that the plan participant can actually use to challenge the denial. In that first possible outcome, the remand order in essence becomes a victory for the plan participant, and it is hard to justify, other than as form over function, the idea that the plan participant should not be entitled to attorney's fees for that result, when the outcome ends up substantively comparable to an actual outright victory at the courthouse. In the second potential outcome, it is clear that the procedural victory by the plan participant was, at a minimum, a necessary counterweight to the administrator's control of the appeal process and, simultaneously, the necessary prerequisite to the court ever ruling on the substantive claim for recovery of the actual benefits in dispute; should the plan participant thereafter prevail in court, that initial procedural victory becomes a necessary prerequisite to overturning the substantive denial of benefits, thus warranting treating the remand decision as a necessary part of the court process in litigating the case and one that is therefore capable of supporting an award of fees.

Of course, one can point out the other possible outcome after the administrative appeal process is concluded after the remand by the court, which is that the benefits are still denied on remand, and the court eventually upholds that denial. But even then, the original win served the purpose of enforcing ERISA's procedural regulations and mandates, which the court found were violated by the administrator. ERISA imposes those procedural obligations on plan administrators for a reason, which is to guarantee the type of fair process that is supposed to stand in for a quick trip to the courthouse clerk's office; recall that ERISA is interpreted to disfavor litigation for the resolution of disputes, in favor of an administrative handling of disputes outside of the court system, so as to lower plan expenses, encourage the adoption of benefit plans, and make use of the administrator's expertise in deciding claims for benefits. It is the plan participant in this third potential outcome who has vindicated those underlying principles, and thus has, in essence, scored a win, which should be the predicate for an award of attorney's fees.

Full post as published by Boston ERISA Law Blog on May 24, 2010 (boomark / email).