Five Factors Govern Attorney’s Fees Awards To Party Who Had “Some Degree of Success On the Merits,” Ninth Circuit Says

October 31, 2010 | Appeals | Insurance Coverage

Section 1132(g)(1) of ERISA states that in an action under ERISA, such as one by an employee to obtain benefits pursuant to an employer’s disability income insurance plan, the court, in its discretion, may allow reasonable attorney’s fees and costs of action to either party. This past May, in Hardt v. Reliance Standard Life Ins. Co., the U.S. Supreme Court held that a party asking a court to award it attorney’s fees under Section 1132(g)(1) need not be a “prevailing party” to be eligible. Instead, the Court ruled that a fees claimant must show “some degree of success on the merits” before a court may award attorney’s fees under Section 1132(g)(1). The Court pointed out in Hardt that a claimant did not satisfy that requirement by achieving a “trivial success on the merits” or a “purely procedural victor[y].”

Under Hardt, it is clear, therefore, that only after passing through the “some degree of success on the merits” door will a fee claimant be entitled to a district court’s discretionary grant of fees under Section 1132(g)(1).  But, what else must a claimant demonstrate?

In Hardt, the Supreme Court said, “We do not foreclose the possibility that once a claimant has satisfied this requirement, and thus becomes eligible for a fees award under § 1132(g)(1), a court may consider the five factors adopted by the [Fourth Circuit] Court of Appeals . . . in deciding whether to award attorney’s fees.” Now, the U.S. Court of Appeals for the Ninth Circuit has issued a decision setting forth its standard for an award of attorney’s fees under Hardt. The Ninth Circuit has ruled that a discretionary decision to award fees should be governed by the following five factors (which mirror the Fourth Circuit’s factors):

(1) the degree of the opposing parties’ culpability or bad faith;

(2) the ability of the opposing parties to satisfy an award of fees;

(3) whether an award of fees against the opposing parties would deter others from acting under similar circumstances;

(4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and

(5) the relative merits of the parties’ positions.

The rule in the Ninth Circuit, therefore, is that, after determining that a litigant has achieved some degree of success on the merits, district courts must consider these factors before exercising their discretion to award fees under § 1132(g)(1). [Simonia v. Glendale Nissan/Infiniti Disability Plan, 608 F.3d 1118 (9th Cir. 2010).]

Comment:  It should be noted that the Ninth Circuit, in Simonia, affirmed the decision of the district court denying attorney’s fees to the claimant in that case. There, the district court granted summary judgment to the defendants and the court of appeals affirmed. The defendants had asserted a counterclaim to recover alleged overpayment of benefits. The parties settled the overpayment claim and stipulated to its dismissal. For purposes of reaching its decision, the court of appeals emphasized that “we assume without deciding” that plaintiff had achieved some degree of success on the merits in settling the counterclaim. The circuit court concluded that, even assuming that the plaintiff had achieved “some degree of success on the merits,” after applying the five factors, the district court had not abused its discretion in holding that attorney’s fees should not be awarded to the plaintiff here.

Employee’s Failure To Meet “Rigorous Notice Standard” Dooms FMLA Claim

The plaintiff in this case worked as a service technician for Kansas City Freightliner Sales (KCF) from April 2000 to October 2007. In both June and August 2007, the plaintiff allegedly injured his back at work. After the June incident, the plaintiff completed an injury incident form, visited the occupational doctor, and was released to work that same day with no restrictions. The record indicated that the plaintiff’s injury was a lumbar sprain or strain. After the August incident, the plaintiff again submitted a written injury report, and the injury was diagnosed as a lumbar strain. He was prescribed medication and was released back to work immediately, but with certain activity restrictions. He followed up with doctor visits and, on September 21, 2007, he was released with no restrictions to “work as tolerated.”

On Wednesday, September 26, the plaintiff verbally reported to his supervisor that he had hurt his back again and that he wanted to go home. He did not submit a written injury report and he refused medical treatment. The plaintiff left work for the day after this verbal report and was then absent from work Thursday, Friday, Monday and Tuesday, September 27 through October 2, 2007. On each of these days, either the plaintiff or his wife called him in sick but provided no other information. The plaintiff did not seek medical treatment during this time. Instead, he alleged that he was able to manage his pain with medications remaining from the previous injury.

Prior to September 26, the plaintiff already had used up all of his authorized sick and vacation leave. When he returned to work on October 3, 2007, his employment was terminated. Subsequently, the plaintiff had several medical appointments in October and November 2007, at which time he was eventually diagnosed with degenerating and protruding cervical discs. The medical evidence from those visits indicated that the plaintiff had an injury to his cervical spine, including numbness and tingling in his upper extremities. On April 25, 2008, the plaintiff underwent surgery in the C4 through C7 cervical spine region. His medical records from October 12, 2007 though the date of surgery in April 2008 did not reference an injury or accident occurring from September 26 through October 2, nor did they mention a previous lumbar injury, other than in the general patient history section.

The plaintiff sued KCF for failure to reinstate and wrongful discharge in violation of the Family and Medical Leave Act (FMLA). The district court granted summary judgment in favor of KCF, finding that the plaintiff had failed to give KCF adequate (or any) notice that he was seeking FMLA leave for the September 27 through October 2 absence, rather than simply taking sick leave. The plaintiff appealed.

In its decision affirming the district court’s order, the U.S. Court of Appeals for the Eighth Circuit noted that in order for the plaintiff to be entitled to FLMA leave, he must show that he gave KCF adequate notice that he was seeking FLMA leave during the disputed time period. Absent the required notice, the employer’s duty to provide FLMA leave was not triggered.  The appellate court then noted that it had imposed a “rigorous notice standard” for employees seeking to use FMLA leave for absences. According to the Eighth Circuit, employees have “an affirmative duty to indicate both the need and the reason for the leave, and must let employers know when they anticipate returning to their position.” In one case, it explained, it had ruled that the employee’s notice was lacking, even though the employee had been in contact with his employer on several occasions during his absence. Indeed, the employee in that case had called his employer various times during his several day work absence, but told his employer, while intoxicated, that he was having a nervous breakdown. The circuit court decided that, although that employee had been in contact with his employer, his failure to provide the employer with a reason to differentiate the absence from ordinary sick days, or even possibly malingering, proved fatal to his FMLA claim.

The Eighth Circuit rejected the plaintiff’s appeal in the KCF case. It noted that the plaintiff apparently became injured on September 26 while at work, and therefore had “ample opportunity” to inform his employer that his condition was more serious than his previous back injuries, which had involved little, if any, time off from work. It pointed out that the plaintiff did not fill out a written injury report, despite having done so previously. Moreover, when asked whether he needed medical attention before he left work, the plaintiff stated that he did not. Indeed, the circuit court continued, when the plaintiff called in sick the next four work days, he offered no other information than that he was sick and would not be coming to work.

The circuit court acknowledged that the plaintiff had two previous documented back injuries, and that subsequent to his September 27 to October 2 absence, he went to several doctor appointments. However, it found, there was a “disconnect” between the prior back injuries – which were in the lumbar region – and the subsequent back condition in the cervical spine area. The Eighth Circuit declared that there was “no evidence” in the record that there was any connection between the lumbar and cervical impairments, adding that the plaintiff’s physicians did not seem to connect the prior and latter injuries, as various diagnostic tests were run to discover the source of the plaintiff’s extremity numbness. In light of this lack of connection, the Eighth Circuit ruled that KCF did not have notice of the plaintiff’s cervical distress purportedly connected to the earlier lumbar injury. At the time of his absences in late September and early October 2007, KCF only knew that the plaintiff had recently suffered a lumbar injury that had necessitated receipt of medical attention and the taking of minimal time off work. KCF was not informed of a cervical problem that would ultimately lead to the plaintiff’s surgery. The Eighth Circuit concluded that, even if there were a connection between the injuries, the information the plaintiff gave to KCF from September 26 through October 2, 2007 did not apprise KCF of his reason or need for FMLA leave. Accordingly, his FMLA notice was inadequate, KCF’s FMLA duties were not triggered, and the district court’s grant of summary judgment was appropriate. [Brown v. Kansas City Freightliner Sales, Inc., 2010 U.S. App. Lexis 17257 (8th Cir. Aug. 19, 2010).]

Seventh Circuit Reverses $1 Million Judgment Against American Airlines For Alleged Workers’ Compensation Retaliation

After American Airlines terminated the plaintiff’s employment as a baggage handler, the plaintiff brought suit, contending that the airline had retaliated against him for claiming workers’ compensation benefits. A jury returned a verdict in the plaintiff’s favor of more than $1 million: $112,000 for lost wages, $250,000 for emotional injury, and $724,000 for punitive damages. The district court upheld the jury’s decision, and the airline appealed.

The U.S. Court of Appeals for the Seventh Circuit pointed out that the plaintiff asserted that he had sprained his left arm (or perhaps had torn a muscle in his left shoulder) on a Friday when lifting a golf bag. The next Monday, toward the end of his shift, he reported this injury to a supervisor, who sent him to the firm’s medical center at O’Hare International Airport, which instructed the plaintiff not to use his left arm pending a further evaluation. The supervisor also reported this injury to Specialty Risk Services, which handled all injury and workers’ compensation matters on the airline’s behalf. The report to SRS was the foundation for the plaintiff’s contention that his discharge was a form of anticipatory retaliation for the compensation claim that was likely to ensue.

The airline’s supervisor was skeptical of the plaintiff’s assertions because he told her that he was in too much pain to participate in the airline’s standard post-injury debriefing (it needed to know what happened so that repetition could be prevented) yet had waited three days to report the injury and had worked most of a shift between the injury and the report. According to the supervisor, the plaintiff answered a phone call with his left hand, without any apparent discomfort. Other supervisory personnel at American Airlines decided that the plaintiff should be placed under surveillance to see whether he used his left arm. The two persons who watched the plaintiff reported that he did, frequently, and that he also drove his car even though his physician had instructed him not to drive until the injury healed.

The pictures they took of these events led the airline to direct the plaintiff to participate in an “Article 29F hearing,” which referred to the part of the collective bargaining agreement that permitted American Airlines to require its employees to appear and answer questions. The plaintiff, the circuit court stated, did not cooperate. Managers asked him about the injury and his activities and he usually replied, “I don’t recall.” He could not recall where or how he had hefted the golf bag, or what flight it had been on. He could not recall any of his activities during the days after he had reported the injury. When asked whether “I don’t recall” would be his complete statement about the events, the plaintiff said, “I don’t recall.” He did, however, give concrete answers to several questions. When he was asked whether he had used his left arm at all during the days after the injury, he replied: “No.” At trial, he admitted that this was a lie, which he justified by telling the jurors that he just did not care what answers he was giving, because he was distraught and wanted the hearing to end.

After the oral part of the procedure, the next step was a written statement. Managers directed the plaintiff to narrate in writing how the injury had occurred and what had happened later. The plaintiff refused. Eventually, the Seventh Circuit stated, he produced two handwritten pages, but they “did not contain any relevant information.” Instead they protested the airline’s decision to hold an Article 29F inquiry and asserted that subjecting him to questions had “inflicted severe emotional distress upon me. . . . The procedures that American Airlines uses are harassing and intimidating.” Managers told the plaintiff that this statement did not meet the requirements of the collective bargaining agreement; he declined to add anything, asserting that oral responses should suffice. He was fired that afternoon for lying during the hearing (the “I don’t recall” responses) and insubordination (refusal to prepare a written narrative).

The circuit court decided that the plaintiff’s discharge was “amply supported by undisputed facts.” It noted that the plaintiff had conceded lying and feigning forgetfulness, and that his written statement, which did not mention the injury and its aftermath, was part of the record.

The Seventh Circuit added that “[t]housands of employees receive workers’ compensation benefits” from American Airlines every year without being fired, and that the plaintiff himself had received benefits several times yet remained an employee in good standing. Some baggage handlers have made 10 or more compensation claims, returning to active duty after each injury healed. Therefore, it found, a claim of workers’ compensation benefits did not lead to discharge at American Airlines; what did – what was the sufficient cause of the plaintiff’s discharge – was “dissembling and insubordination.” American Airlines had a zero-tolerance policy for material lies by its workers and, the appellate court observed, the plaintiff had not identified any other worker who behaved in a similar fashion at and after an Article 29F hearing and was not fired. Indeed, the Seventh Circuit stated, it was “almost impossible to conceive that any employee who conducted himself in this fashion would not be fired, by American Airlines or any other employer that wants to maintain the respect and obedience of its labor force.” In the circuit court’s opinion, if the plaintiff had been retained on the payroll, “American Airlines could have kissed the Article 29F procedure goodbye.” It therefore held that the case never should have gone to the jury and reversed the judgment in the plaintiff’s favor and ruled that American Airlines was entitled to judgment as a matter of law. [Casanova v. American Airlines, Inc., 2010 U.S. App. Lexis 16193 (7th Cir. Aug. 5, 2010).]

Post-Katrina Telephone Splicer Was An Independent Contractor Not Entitled To Overtime, Courts Rule

BellSouth Telecommunications Inc.’s telephone infrastructure suffered serious damage as a result of Hurricane Katrina. BellSouth undertook the project of rewiring its entire New Orleans Area telecommunications grid. To complete this project, BellSouth employed “splicers,” who are workers who install, cut, repair, and test various high voltage cables. Because of Katrina, BellSouth could not, by itself, restore phone services to the region. Accordingly, it contracted with Directional Road Boring, Inc. to provide assistance with the project. Directional also employed its own splicers. But even Directional’s additional splicers did not suffice. Directional therefore contracted with Parker Communications LLC to provide additional splicers for the project.

Parker contacted Bill Peek, a splicer in Delaware and informed him about the job, and he told his best friend, the plaintiff of the job opportunity. The plaintiff was not a splicer by profession, but rather owned and operated his own business in Delaware which sold picnic tables, storage buildings and golf carts.  The plaintiff decided to accept the offer and was taught the basics of splicing by Mr. Peek and was able to learn the rest on the job.

From October 4, 2005 to January 6, 2006, the plaintiff worked as a splicer in New Orleans. In that time, he made $51,628. Every day, the plaintiff was required to report to Kenner Yard, a property rented by BellSouth. At the first meeting, the plaintiff claimed that a Parker supervisor informed him that he would be paid $68 an hour, would work at least 84 hours a week and would get a per diem and a place to park his motor home. Every day, the plaintiff showed up to Kenner Yard and was assigned a specific splicing job in New Orleans. BellSouth engineers created the overall rewiring plan for New Orleans. BellSouth supervisors designated the specific jobs to be done daily, and assigned Directional supervisors to distribute the assignments. When the plaintiff received his assignment, he was required to take his truck to the job and work on the problem he was assigned. When completed, the plaintiff would return to Kenner Yard and would be assigned another splicing job. He worked in 13 day intervals with a one day break in between. While Parker paid the plaintiff, BellSouth had to approve all vacation and break time. On January 6, Parker laid off the plaintiff. Directional offered him a job as a splicer, working directly for Directional, but he declined. Instead, he returned to his business in Delaware and brought suit against Parker, Directional, and BellSouth for overtime pay under the Fair Labor Standards Act (FLSA).

The plaintiff contended that he was entitled to overtime compensation for hours worked in excess of 40 hours per week under the FLSA.  In response, the defendants contended that the plaintiff was not an employee, but an independent contractor. The trial court dismissed the claims, and the plaintiff appealed.

In its decision, the U.S. Court of Appeals for the Fifth Circuit pointed out that the plaintiff had not worked exclusively for the defendants, but had his own business in his home state of Delaware. He also had provided his own bucket truck, cable splicer, pump, ventilator, ladder, climbing belt, harness, hard hat, safety vest and other miscellaneous tools (such as wrenches, hammers, screwdrivers and other items one would usually find in a toolbox). In fact, the Fifth Circuit noted, the record contained a list of over 100 different tools that splicers were expected to have for the job. The plaintiff had his own motor home, which he had driven to Louisiana to live in and which he had stocked with water and food.

In addition, the circuit court noted, the circumstances of the plaintiff’s employment reflected that he was not economically dependent on the defendants but was a sophisticated, intelligent businessman who had entered into a contractual relationship to perform a specific job for the defendants. The plaintiff “worked for three months and his relationship to the defendants centered solely around the specific project.” After splicing in New Orleans, the plaintiff returned to his business in Delaware and no longer worked as a splicer.

The Fifth Circuit concluded that because the record did not contain sufficient evidence to support a finding that the plaintiff was an FLSA employee while performing splicer services, he was not entitled to claim overtime pay under that law.  The circuit court therefore affirmed the judgment dismissing the plaintiff’s FLSA claims. [Thibault v. BellSouth Telecommunications Inc., 2010 U.S. App. Lexis 15267 (5th Cir. July 26, 2010).]

Court Upholds Termination Of Long Term Disability Benefits Based On Mental Illness Limitation

The plaintiff in this case was employed by the Westerly Community Credit Union as the vice president of operations. As a benefit of her employment, the plaintiff was covered under the credit union’s long term disability insurance plan. Plan benefits were paid under a long term disability insurance policy issued by CUNA Mutual Insurance Society, which also administered the ERISA-governed plan. Among other things, the policy provided that it would pay an insured monthly benefits if the insured was “Disabled due to Sickness or Injury.” The CUNA policy defined sickness as an illness or disease, but also contained a mental illness limitation. This limitation stated that an insured who was disabled due to a mental illness could receive a maximum of two years of disability benefits.

In March 2000, work-related stress led the plaintiff to see a therapist. During her session with the therapist, the plaintiff expressed fears that the new president at the credit union was trying to take responsibilities away from her and to “get me out of there.” Shortly thereafter, the plaintiff met with her psychiatrist, whom she informed that work-related stress had caused her to become depressed. In addition to depression, the plaintiff complained of “anxiety, sleep disturbance, poor energy, difficulty focusing, crying spells, and [the] ‘inability to think clearly.'” After evaluating the plaintiff, the psychiatrist diagnosed her with recurrent major depression and excused her from work. In his evaluation, the psychiatrist observed that the plaintiff had a history of depression.

In June 2000, the plaintiff submitted a claim for long term benefits under her policy. Filed along with her claim was a required attending physician statement. This statement, completed by the psychiatrist, listed recurrent major depressive disorder as the diagnosis. The psychiatrist further indicated that the plaintiff had a “Class 4” mental impairment, which meant that she was “unable to engage in stress situations or engage in interpersonal relations (marked limitations).” No cardiac or physical impairments were identified by the doctor.

In August 2000, CUNA approved the plaintiff’s claim for disability benefits. In the approval letter, CUNA prominently excerpted the mental illness limitation. Then, in April 2002, CUNA sent the plaintiff a letter informing her that, because of the mental illness limitation, her benefits would end in July 2002. When CUNA stopped paying benefits in July 2002, the plaintiff appealed, claiming that the two year mental illness cap on benefits did not apply to her because her disability at that point stemmed from a physical condition, specifically Lyme disease. According to the plaintiff, approximately one year after CUNA started paying her monthly disability benefits (roughly June 2001), a tick bit her, infecting her with Lyme disease. CUNA asked another psychiatrist to review the plaintiff’s medical records; this psychiatrist concluded that the plaintiff was “psychiatrically impaired” and that the “medical records as a whole do not document specific criteria to suggest that there are other disabling medical conditions.” CUNA denied the plaintiff’s appeal.

From November 2002 to March 2006, the plaintiff appealed the adverse benefits determination five more times. Throughout the appeals process, both the plaintiff and CUNA supplemented the administrative record with medical opinions from various doctors. These doctors came to divergent conclusions, with some opining that the plaintiff was disabled by Lyme disease and others that the plaintiff, if disabled, was disabled by a depressive disorder. CUNA rejected four of these five appeals and declined to consider her fifth, the sixth overall, on administrative exhaustion grounds. The plaintiff brought suit, the district court granted summary judgment to CUNA, upholding the termination of disability benefits, and the plaintiff appealed to the U.S. Court of Appeals for the First Circuit.

The First Circuit affirmed the district court’s decision in favor of CUNA. The appellate court noted that both the plaintiff and CUNA had produced copious, albeit conflicting evidence, but found that CUNA’s evidence was stronger than the plaintiff’s evidence. It determined that, taking all the evidence into account, CUNA’s argument that the plaintiff’s disability was not caused by Lyme disease was the better-supported position.

First, it pointed out, the laboratory data lined up “almost uniformly” against such a diagnosis. Second, the plaintiff’s “history of depression” made the Lyme disease diagnosis “more susceptible to questioning.” The First Circuit explained that, before claiming disability due to Lyme disease, the plaintiff had filed (and CUNA had approved) a disability claim based on recurrent major depressive disorder. Symptoms of this disorder (including fatigue, difficulty concentrating, and sleep disturbance) overlapped with symptoms of Lyme disease, the appellate court noted. Simply put, the circuit court concluded, the evidence did not establish the plaintiff’s claim that her illness was caused by Lyme disease (or by additional suspects Meniere’s disease and drug toxicity). [Gent v. CUNA Mutual Ins. Society, 611 F.3d 79 (1st Cir. 2010).]

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

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