High Court Ruling Helps the Little Guy Collect Attorney Fees

Decision muddies legal waters even as it sides with people with small claims

by Holly Yeager, AARP Bulletin, June 2, 2010 | Comments: 0

Bridget Hardt’s medical troubles started a decade ago, when the Chesapeake, Va., woman was working as an executive assistant at Dan River Inc., a textile company. She suffered from neck and shoulder pain and, after being diagnosed with carpal tunnel syndrome, had surgery on both her wrists—but the pain didn’t go away.

Hardt applied for long-term disability benefits, and Reliance Standard Life Insurance Co., which handled Dan River’s insurance plan, agreed to pay her disability for two years. During that time, her condition worsened and Hardt was awarded Social Security disability benefits.

“I went to the doctor’s when this all started, and I’m still going to the doctor’s,” says Hardt, now 65. “Some of the pain I’m going to have for the rest of my life.” But at the end of the agreed two years, Reliance terminated her benefits, saying she wasn’t “totally disabled.”

Hardt went to court, charging that Reliance had wrongfully denied her claim and violated the Employee Retirement Income Security Act (ERISA), the federal law that governs the administration of most private health, pension and other employee benefit plans. A court sent her case back to the insurer with instructions to review her medical record and said that if Hardt’s claim wasn’t reconsidered within 30 days, it would rule in her favor. Reliance then declared Hardt eligible for long-term disability coverage and paid her the past benefits she was owed.

An ERISA provision allows individuals who win such cases to have their legal costs paid by their opponent, and a court ordered Reliance to pay Hardt almost $40,000 in attorneys’ fees. But an appeals court ruled that the ERISA provision did not apply because the decision came from the insurance company rather than a courtroom, and Reliance was not required to pay her attorneys’ fees.

The U.S. Supreme Court sided with Hardt on May 24, ruling that the appeals court had misread the law and she was eligible to collect attorneys’ fees. But the unanimous opinion, written by Justice Clarence Thomas, also raises new questions about the standards that judges should use for determining when people with such claims should have their attorneys’ fees paid by their opponents, leaving analysts uncertain about the ruling’s ultimate impact.

A triumph for advocates

By any measure, the high court’s decision in Hardt’s case marks a victory for advocates for older Americans, the disabled and others. Those public interest activists worried that a decision in favor of the insurance company would have made it more difficult for people with relatively low-value claims like Hardt’s to find attorneys willing to represent them.

AARP wrote in a friend-of-the-court brief filed on Hardt’s behalf that most participants in employee benefit plans “have limited means, and thus are unable to retain a qualified attorney.” That’s because the benefits in dispute are typically modest amounts, which makes lawyers unwilling to rely on contingency fee agreements. AARP argued that a ruling that agreed with the appeals court, and sided with Reliance, would have done more to dissuade attorneys from taking on these cases.

It’s a calculation that Hardt knows firsthand. The past-due benefits she finally collected were $55,250. She told the court that her attorneys’ fees and costs totaled $58,920.73, even more than she collected in back benefits.

“It’s hard enough to find an attorney who can represent you in an ERISA case,” says Hardt. But if you can’t recoup their fees, she says, it would be nearly impossible.

Wrestling with attorneys’ fees

Her case, Hardt v. Reliance Standard Life Insurance Co., is one of three involving attorneys’ fees that the Supreme Court took up this term. In most legal disputes in the United States, each side pays its own lawyers for their work. But the cases before the Supreme Court all involve “fee shifting,” an approach designed to ensure lawyers are paid for work on certain kinds of cases, even if the dollar value of the disputes is small. Under more than 100 federal laws, the attorney fees of a prevailing plaintiff in a lawsuit are paid by the opponent.

In Perdue v. Kenny A., a case brought by advocates for children in Atlanta’s troubled foster care system, the justices made it more difficult for lawyers working on such public interest cases to receive bonus payments for exceptional performance—bonuses that are even now only paid occasionally. In another case, still to be decided, the justices are weighing whether the money due to attorneys can instead be kept by the government and applied to a client’s outstanding government debt.

Taken together, the cases could make it more difficult to find attorneys willing to take on less-lucrative cases in a wide range of areas, from disability coverage, veterans benefits and consumer issues to civil rights and employee benefit plans. As Brian Wolfman, codirector of the Institute for Public Representation at the Georgetown University Law Center, explains, “If the law of attorneys’ fees is relatively restricted, there will be less inducement for lawyers to take these cases.”

While the court’s decision in Hardt’s case appears to favor those with such low-dollar claims, experts on both sides of the argument say the meaning of the ruling is only clear in relatively rare situations like hers—where a court came very close to ruling in the plaintiff’s favor, but sent the case back to the insurance plan and gave it a final chance to act.

In his opinion, Justice Thomas noted that the appeals court had ruled that Hardt did not meet the definition of a “prevailing party”—a standard found in an earlier court case that required a claimant to win in court in order to have attorneys’ fees paid by the losing side. But in remarkably plain language, Thomas rejected that approach. “The words ‘prevailing party’ do not appear in this [ERISA] provision,” he wrote.

Defining success

Instead, the Supreme Court’s opinion said that the law gives judges “discretion” to award attorneys’ fees, and those who try to collect those fees must only show “some degree of success on the merits.” To the frustration of those working in this area of law, however, the opinion fails to define “some degree of success.” It also explicitly leaves open the question of what must happen beyond a “remand,” in which a court sends a case back to a plan administrator for further action, in order for a plaintiff to be eligible for attorneys’ fees.

Myron Rumeld, an attorney with Proskauer, a law firm that represents companies and benefits plans in ERISA cases, says Hardt’s case was unusual, and “as close as could be” to a court declaring victory for the plaintiff. Still, he says, “there is a whole panoply of circumstances under which a district court might remand a case, but under much less extreme circumstances.” After the court’s ruling, “the question is, what does ‘some success’ mean?”

The opinion “opens up a lot of potential issues,” says Mary Ellen Signorille, senior attorney with AARP. But she argues that there are cases in which a court’s decision to send a case back for review should be considered a degree of success, even if a plaintiff does not get the benefits that he or she is seeking.

“If the [benefits] process is broken and a case gets remanded, I would say that’s a win,” say Signorille. But, she adds, it is “unclear from the court’s decision” whether the justices see it that way.

Power shifts toward plans

That uncertainty takes on added significance in light of another recent Supreme Court ruling. In that case, Conkright v. Frommert, stemming from a dispute over pension payouts to former Xerox employees, the court ruled that judges should defer to plan administrators and the decisions they make—even if an administrator has already made a mistake in interpreting a plan.

The ruling is likely to decrease the portion of ERISA cases that are decided in the courts and boost the share that are sent back to plan administrators—further increasing the stakes of what counts as “some degree of success” in the eyes of the court. “The uncertainty is bad for everybody,” says Rumeld.

For example, if a case is remanded back to a plan for review, a plan administrator might be inclined to pay the disputed benefits. But an administrator who fears a decision to pay benefits could count as a success for the plaintiff—and thus force the plan to pay attorneys’ fees as well—could hesitate, or even reverse course.

Unsettled law

The decision in Hardt’s case also opens another avenue of uncertainty. Courts have generally relied on what’s known as the “five-factor test” to determine whether attorneys’ fees should be awarded to parties who win their ERISA cases. Those factors include the degree of the opposing party’s bad faith, the opposing party’s ability to pay the fees, and the chance that such an award would discourage other plan administrators from similar wrongful behavior. While acknowledging that test, the ruling by Thomas also says—without much explanation or elaboration—that it is not part of the text of ERISA and is “not required” when a court is making a decision about awarding attorneys’ fees.

AARP’s Signorille says this part of the decision also creates questions for future cases. “It may mean that the lower courts will come up with different tests. It may mean they will deny attorneys’ fees,” she says. “No one knows what it means, and then what ends up happening is that claimants have to litigate this issue in areas where everybody thought the law was settled.”

Holly Yeager lives in Washington, D.C.