“Some Degree of Success On the Merits” Enough For Claimant

In most lawsuits seeking relief under §1132(g)(1) of ERISA, “a reasonable attorney’s fee and costs” are available “to either party” at the court’s “discretion.” In this case, the U.S. Court of Appeals for the Fourth Circuit interpreted §1132(g)(1) to require that a fee claimant be a “prevailing party” before the claimant may seek a fee award. The U.S. Supreme Court has now rejected this interpretation, instead holding that a court “in its discretion” may award fees and costs “to either party” under §1132(g)(1) as long as the fee claimant has achieved “some degree of success on the merits.”

The case arose in 2000, when the plaintiff, while working for Dan River, Inc., began experiencing neck and shoulder pain. Her doctors eventually diagnosed her with carpal tunnel syndrome. Because surgeries on both her wrists failed to alleviate her pain, she stopped working in January 2003.

In August 2003, the plaintiff sought long term disability benefits from Dan River’s Group Long Term Disability Insurance Program Plan. Reliance Standard Life Insurance Company provisionally approved the plaintiff’s claim, telling her that final approval hinged on her performance in a functional capacities evaluation (FCE) intended to assess the impact of her carpal tunnel syndrome and neck pain on her ability to work.

The plaintiff completed the FCE in October 2003 and the evaluator found that she could perform some amount of sedentary work. Based on this finding, Reliance concluded that the plaintiff was not totally disabled within the meaning of the plan and denied her claim for disability benefits. The plaintiff filed an administrative appeal and Reliance reversed itself in part, finding that the plaintiff was totally disabled from her regular occupation and therefore was entitled to temporary disability benefits for 24 months.

While her administrative appeal was pending, the plaintiff began experiencing new symptoms in her feet and calves, including tingling, pain, and numbness. One of her physicians diagnosed her with small fiber neuropathy, a condition that increased her pain and decreased her physical capabilities over the ensuing months.

The plaintiff eventually applied to the Social Security Administration for disability benefits. In February 2005, the Social Security Administration awarded the plaintiff disability benefits.

About two months later, Reliance told the plaintiff that her plan benefits would expire at the end of the 24 month period. Reliance explained that under the plan’s terms, only individuals who were “totally disabled from all occupations” were eligible for benefits beyond that period, and it adhered to its conclusion that the plaintiff was not “totally disabled” as defined by the plan. The plaintiff then filed another administrative appeal. After consulting a physician and vocation rehabilitation counselor, Reliance concluded that its decision to terminate the plaintiff’s benefits was correct, and the plaintiff brought suit.

The parties filed cross-motions for summary judgment, both of which the district court denied. It first rejected Reliance’s request for summary judgment affirming the denial of benefits, finding that “Reliance’s decision to deny benefits was based on incomplete information.” It then denied the plaintiff’s motion for summary judgment, but found “compelling evidence” in the record that the plaintiff was “totally disabled due to her neuropathy.” Although it said it was “inclined to rule” in the plaintiff’s favor, the district court concluded that “it would be unwise to take this step without first giving Reliance the chance to address the deficiencies in its approach.” Accordingly, the district court instructed Reliance to act on the plaintiff’s application “by adequately considering all the evidence” within 30 days; “[o]therwise,” it warned, “judgment will be issued in favor of [the plaintiff].”

Reliance did as instructed. After conducting that review, Reliance found the plaintiff eligible for long term disability benefits and paid her $55,250 in accrued, past due benefits.

The plaintiff then moved for attorney’s fees and costs. The district court found that the plaintiff was a “prevailing party” because its remand order “sanctioned a material change in the legal relationship of the parties” by ordering Reliance to conduct the type of review to which the plaintiff was entitled. The district court awarded the plaintiff $39,149 in fees and costs, and Reliance appealed. The court of appeals vacated the district court’s order, and the dispute reached the U.S. Supreme Court.

In its decision reversing the judgment of the court of appeals, the Supreme Court pointed out that §1132(g)(1) of ERISA did not limit the availability of attorney’s fees to “prevailing parties,” but rather granted discretion to district courts to award attorney’s fees “to either party.” Accordingly, it held, a fee claimant need not be a “prevailing party” to be eligible for an attorney’s fees award under that section of the law.

In addition, the Supreme Court decided that 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, the Supreme Court found that the plaintiff in this case had achieved far more than “trivial success on the merits” or a “purely procedural victory.” Indeed, it decided, she had achieved at least “some success on the merits.” The Supreme Court therefore concluded that the district court had properly exercised its discretion when it had decided to award the plaintiff attorney’s fees. [Hardt v. Reliance Standard Life Ins. Co., 2010 U.S. Lexis 4164 (May 24, 2010).]

Comment: The Supreme Court specifically noted that, given the facts of this case, it need not decide 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).

Divorced Husband May Bring ERISA Claim For Benefits Due Former Wife

The plaintiff in this case sued Unicare Life & Health Insurance Company to recover $28,000 he had paid for medical treatment for his former wife, who was covered by a health benefits plan issued by Unicare. According to the complaint, the plaintiff and his father paid for the plaintiff’s former wife’s treatment because Unicare had wrongfully denied her benefits. The divorce decree between the plaintiff and his former wife awarded the plaintiff “the claim for hospitalization expenses for [her] treatment” and ordered her “to fully cooperate in furtherance of [the] claim.” The plaintiff’s former wife signed releases, authorizing Unicare to provide the administrative record for her claim and her personal medical records to the plaintiff’s attorney so that the plaintiff could pursue reimbursement of her hospitalization costs.

Unicare filed a motion to dismiss the complaint, arguing that the plaintiff lacked standing to assert a claim for benefits. Unicare pointed out that ERISA permits a suit for enforcement by a plan participant or a beneficiary, and that the plaintiff was neither a plan participant nor a beneficiary under the plan. In addition, Unicare argued that the plan only recognized assignments of claims to medical providers.

A magistrate judge rejected Unicare’s argument. The magistrate judge explained that ERISA was silent on whether an assignee may seek enforcement of benefits, and that unlike ERISA-governed pension plans, Congress did not include an anti-assignment provision for health care benefits.

Moreover, the magistrate judge continued, although the Unicare plan contained an assignment provision, it did not preclude assignments. Instead, the provision explained the circumstances under which the insurer would recognize an assignment by a provider licensed and practicing within the U.S. The magistrate judge observed that Unicare recognized that courts often allowed assignments to medical providers to encourage providers to accept plan participants who were unable to pay up front, but that Unicare characterized the plaintiff as a “random individual” seeking enforcement of plan benefits. In the magistrate judge’s view, the plaintiff was not a “random individual” seeking enforcement of plan benefits – rather, it pointed out, he was an individual who claimed to have paid for treatment that should have been paid for by Unicare. Because the plan did not “explicitly preclude” the plaintiff’s former wife from assigning her claim to the plaintiff and considering the Supreme Court’s recent observation that historically courts have found ways to allow assignees to bring suit, the magistrate judge recommended that the court deny Unicare’s motion. [Harwood v. Unicare Life & Health Ins. Co., 2010 U.S. Dist. Lexis 38788 (W.D. Tex. Apr. 19, 2010).]

HIV Positive Manager May Proceed With ADA Claims

In this case, the plaintiff had been diagnosed as HIV positive for 10 years, but kept his status confidential, disclosing his medical condition only to his close friends. In February 2001, he began working for Morgan Services, Inc., a linen and uniform rental services company, as a sales manager in Los Angeles. In January 2008, Morgan promoted him to General Manager of the Chicago facility. The plaintiff claimed that his HIV positive status never interfered with his ability to perform the essential functions of his job and that he “always met or exceeded Morgan’s legitimate expectations.”

The plaintiff alleged that, on July 15, 2009, Morgan’s president asked to meet with him for what he termed a “social visit.” During their visit, the plaintiff alleged that the president “told plaintiff that he was really worried about him.” The plaintiff responded by discussing his work performance, but the plaintiff claimed that the president cut him off, saying “this is not about results.” The plaintiff alleged that the president then “demanded” to know what was going on with him, telling the plaintiff that “if there was something medical going on, [he] needed to know.” The plaintiff insisted that there was nothing that affected his ability to work. However, the plaintiff claimed that the president “continued to insist there was something physical or mental that was affecting [the plaintiff].” The plaintiff claimed he felt that he was “compelled to tell [the president] that he was HIV positive.” The plaintiff did so, and said that he assured the president that his HIV positive status did not affect his ability to do his job.

The plaintiff alleged that the president then asked him about his prognosis. The plaintiff responded that “he had been HIV positive for a long time and that the condition was under control and that his T-cell count was over 300.” The plaintiff alleged that the president then asked “what would happen if his T-cell count went below 200,” and the plaintiff replied that he would then have AIDS. After the president urged the plaintiff to inform his family about his condition, the plaintiff alleged that the president asked him “how he could ever perform his job with his HIV positive condition and how he could continue to work with a terminal illness.” Additionally, the plaintiff claimed that the president told him “that a general manager needs to be respected by the employees and have the ability to lead,” and indicated that he “did not know how [the plaintiff] could lead if the employees knew about his condition.”

The president allegedly ended the meeting by telling the plaintiff that he needed “to recover” and that he should “go on vacation” and “leave the plant immediately.” The president then allegedly told the plaintiff that he would discuss the situation with the company’s owner. The next day, the plaintiff alleged that he received a copy of an email sent to all general managers and corporate staff indicating that “effective immediately” the plaintiff was “no longer a member of Morgan.” The plaintiff brought suit against the company, alleging that he had been terminated because of his disability in violation of the Americans with Disabilities Act and that the president’s July 15, 2009 questioning had been an impermissible medical inquiry in violation of the ADA.

The defendants moved to dismiss plaintiff’s complaint. They acknowledged that being HIV positive was a physical impairment, but argued that the plaintiff had not pleaded “a limitation of a major life activity,” and thus had failed to state a claim of disability under the ADA.

The court rejected that argument. It explained that, effective January 1, 2009, Congress amended the ADA to “[reinstate] a broad scope of protection.” The ADA Amendments Act of 2008 (ADAAA) clarified that the operation of “major bodily functions,” including “functions of the immune system,” constituted major life activities under the ADA’s first definition of disability. In addition, the court explained, an impairment that was episodic or in remission was a disability if it would “substantially limit a major life activity when active.” Congress also instructed that “[t]he term ‘substantially limits’ shall be interpreted consistently with the findings and purposes of the [ADAAA].” Noting that courts had “created an inappropriately high level of limitation,” the court added that the ADAAA stated that it was the intent of Congress “that the primary object of attention in cases brought under the ADA should be whether entities covered under the ADA have complied with their obligations.” The court then ruled that, particularly under the amended ADA, the plaintiff’s HIV positive status substantially limited a major life activity: the function of his immune system.

The defendants also alleged that the medical-related inquiry was not prohibited because it was “job-related and consistent with business necessity.” The court rejected the defendants’ argument on this issue, too, finding that the president’s questioning constituted an inquiry as to whether the plaintiff had a disability and the nature and severity of the disability, and thus was “prohibited by the ADA.”

The defendants argued that after the plaintiff disclosed his HIV positive status, they were “entitled to ask questions about the stage to which the virus had progressed because it related to [the plaintiff’s] possible fitness to work both presently and in the future,” and that such questioning was “job-related and consistent with business necessity.” The court was not persuaded by these arguments, either. It explained that the plaintiff alleged that he was “compelled to tell Simmons that he was HIV positive,” and that he disclosed this information only after an impermissible inquiry under the ADA. Further, the plaintiff’s allegation that he repeatedly insisted that nothing (including his HIV status) affected his ability to perform his duties directly rebutted the defendants’ assertion that the questioning was necessary to discern whether the plaintiff could “cope with the demands and responsibilities of his job.”

Thus, the court concluded, the plaintiff had sufficiently pleaded a claim for unlawful termination and for an impermissible inquiry under the ADA and the defendants’ motion to dismiss had to be denied. [Horgan v. Simmons, 2010 U.S. Dist. Lexis 36915 (N.D. Ill. Apr. 12, 2010).]

Court Upholds Plaintiffs’ Pay Claims Under New York State Labor Law

In many instances, plaintiffs assert wage claims exclusively, or primarily, under the federal Fair Labor Standards Act (FLSA). The plaintiffs in this case, which was certified as a class action, asserted FLSA claims, but also pressed claims under the New York Labor Laws (NYLL). The court’s recent decision focused on the NYLL claims, and demonstrates that violation of applicable state pay and benefits laws can be costly to employers.

Here, the plaintiffs alleged that the defendant construction companies failed to pay them (i) overtime wages; (ii) minimum wage during certain workweeks, and (iii) wages in a timely fashion, in violation of the NYLL. The complaint also alleged that the defendants failed to pay “spread of hours” wages – an extra hour of pay at the state minimum wage for workdays exceeding 10 hours – in violation of the NYLL. The plaintiffs moved for summary judgment on each of their NYLL claims.

With respect to the plaintiffs’ claims for overtime compensation, the court noted that the NYLL provides that, “An employer shall pay an employee for overtime at a wage rate of one and one-half times the employee’s regular rate in the manner and methods provided in … the Fair Labor Standards Act.” The court noted that it had concluded that the defendants violated the overtime provisions of the FLSA by failing to pay the plaintiffs overtime compensation. In reaching that conclusion, the court rejected the defendants’ argument that the plaintiffs’ regular hourly wages included overtime wages. Moreover, the court stated, the defendants conceded that they paid all their workers in the same fashion. Accordingly, the court granted summary judgment in favor of the plaintiffs on their NYLL overtime compensation claim.

The plaintiffs claimed that the defendants failed to reimburse them for the cost of tools, thereby resulting in certain plaintiffs being paid less than the minimum wage. The court noted that the NYLL protects an employee’s right to a minimum wage from improper deductions for the cost of required tools. Because the defendants did not reimburse the plaintiffs, or any of its employees, for the cost of required tools, the court granted summary judgment in favor of the plaintiffs and members of the certified class on their NYLL minimum wage claim.

With respect to the plaintiffs’ claim for “timely payment of wages,” the court noted that the NYLL requires that “manual workers” be “paid weekly and not later than seven calendar days after the end of the week in which wages are earned.” The plaintiffs and members of the certified class – construction and carpentry workers – appeared to fit squarely within the definition of “manual worker” as that term was used in the NYLL, the court declared. It then determined that the defendants did not pay wages as often as the law required, and did not pay wages as early as the law required. In particular, the court found that the defendants paid wages every two weeks (rather than weekly) and paid these wages no earlier than two weeks after the end of the period in which those wages were earned. Therefore, the court held, the plaintiffs and members of the certified class were entitled to summary judgment on their claims that the defendants had violated the timely payment provisions of the NYLL.

Finally, the court examined the plaintiffs’ “spread of hours” claim. Under the NYLL, if an employee’s workday exceeds 10 hours, the employee must receive one additional hour’s pay “at the basic minimum hourly wage rate.” The court found that the defendants did not pay the plaintiffs and members of the certified class an extra of hour of pay when their “spread of hours” – defined as the “interval between the beginning and end of an employee’s workday” – exceeded 10 hours. Thus, the court concluded, the plaintiffs and members of the certified class were entitled to summary judgment on their claims for unpaid “spread of hours” wages.

The court referred the case to a magistrate judge for an inquest into the damages for the defendants’ violations of the overtime, minimum wage, late payment, and spread of hours provisions of the NYLL. [Cuzco v. Orion Builders Inc., 06 Civ. 2789 (S.D.N.Y. May 26, 2010).] 

Reprinted with permission from the August 2010 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.