Alert June 30, 2010

U.S. Supreme Court Rules That a Party Need Not Be a “Prevailing” Party to Be Eligible for an Award of Attorneys’ Fees Under ERISA Section 502(g)(1)

Section 502(g)(1) of ERISA provides that, in any action brought under ERISA’s enforcement provisions (other than actions by multi-employer plans to collect employer contributions or those brought by the Department of Labor), “the court in its discretion may allow a reasonable attorney’s fee and costs to either party.”  In Hardt v. Reliance Standard Life Insurance Co., No. 09-448, 2010 WL 2025127 (U.S. May 24, 2010), the U.S. Supreme Court held that, to be eligible for an attorney’s fee award under ERISA Section 502(g)(1), the fee claimant need not show that he was a “prevailing party” in the case, but need only demonstrate that he had achieved “some degree of success on the merits.”

In Hardt, an insurance company denied the plaintiff’s claim for long-term disability benefits under an ERISA-covered plan.  After exhausting her administrative remedies under the plan, the plaintiff sued the insurer under ERISA in federal district court in Virginia.  Although the district court stated that it was “inclined to rule” for the plaintiff, it denied her motion for summary judgment and remanded the case back to the insurance company.  Finding that the insurer had not complied with ERISA’s requirements regarding the review of benefit claims, the district court indicated that, in its view, there was “compelling evidence” supporting the plaintiff’s claim that the insurance company had failed to consider adequately, and that the remand would give the insurer “the chance to address the deficiencies” of its claim review.  The remand order stated that judgment would be entered in the plaintiff’s favor unless the insurance company made a decision on her claim within 30 days, after adequately considering all of the evidence.  Upon remand, the insurance company determined that the plaintiff was entitled to benefits.

Having received a favorable benefit determination upon remand, the plaintiff moved for attorney’s fees under ERISA Section 502(g)(1).  The district court awarded the plaintiff her fees, but on appeal, the Fourth Circuit reversed that award, holding that the plaintiff was not a “prevailing party” and therefore was not eligible for a fee award under Section 502(g)(1).  In the Fourth Circuit’s view, a fee claimant could qualify as a prevailing party for this purpose only if she obtained an enforceable judgment on the merits or a court-ordered consent decree.

The Supreme Court reversed.  In a decision written by Justice Thomas, the court noted that, unlike certain other statutory fee award provisions, ERISA Section 502(g)(1) does not expressly impose a “prevailing party” standard.  Borrowing a standard from its prior interpretations of statutory fee award provisions that do not require prevailing party status, the court held that a party could be eligible for attorney’s fees under Section 502(g)(1) if it has had “some degree of success on the merits.”  To satisfy this standard, the party must achieve more than “trivial success on the merits” or a “purely procedural victory.”  Based on its review of the district court order, the court concluded that the plaintiff had satisfied this standard.

Notably, in a footnote, the Supreme Court indicated that, in deciding Hardt, it was not foreclosing the possibility that a court which determines that a fee claimant is eligible for an award under the Hardt standard could consider other factors (such as the five-factor test applied by a number of courts in the ERISA fee award context1) in deciding whether to award attorney’s fees.