ERISA Fee Awards in Remanded Cases Continues in the Sixth Circuit

Based on recent trends, ERISA fiduciaries, administrators and practitioners defending cases in the Sixth Circuit should be prepared for plaintiffs who have their cases simply remanded back to the claims administrator for further review to seek and be awarded attorneys fees, especially if the benefit denial is reviewed under the arbitrary and capricious standard of review. The latest case is Groth v. Centurylink Disability Plan, No. 2:13-cv-01238, 2015 WL 1396380 (S.D. Ohio Mar. 25, 2015) but the recent cases all trace their lineage back to Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010). In Hardt, the Supreme Court held that in an action by an ERISA plan participant, the trial court has discretion to award attorneys fees and costs as long as the party seeking fees achieved “some degree of success on the merits.”

The Sixth Circuit has interpreted “some degree of success on the merits” to include a remand requiring the plan administrator to address deficiencies in the original review of the plaintiff’s claim, even if the district court made no determination regarding the plaintiffs disability status.” See Bowers v Hartford Life  & Acc. Ins. Co. No. 2:09-cv-290, 2010 WL 4117515 (S.D. Ohio Oct. 19, 2010). Once the claimant clears this rather low threshold, the court applies the five-part McKay test, that examines: (1) the degree of the opposing party’s culpability or bad faith; (2) the opposing party’s ability to satisfy an award of attorney’s fees; (3) the deterrent effect of an award on other persons under similar circumstances; (4) whether the party requesting fees sought to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and (5) the relative merits of the parties’ positions. No one factor is dispositive and the court is supposed to weigh all the factors. 

In Groth, plaintiff sued after being denied short-term disability benefits and the court, reviewing the denial under the arbitrary and capricious standard, determined that the plan’s third-party administrator arbitrarily disregarded medical evidence, failed to offer a reasoned explanation based on the evidence for its decision and failed to discuss and resolve conflicts between the reviewing doctors’ opinions. The court said, however, that it did not believe the record clearly established that plaintiff was entitled to benefits and simply remanded the case back to the administrator for further review.

Nonetheless, Groth sought attorney fees. In reviewing the request, the court spent little time on the second and fourth McKay factors, quickly determining both that the plan had the ability to pay any fees awarded and that the plaintiff had not sought to confer a common benefit. As to the bad faith/culpability prong, the court stated that the Sixth Circuit had “found the culpability requirement met where a ‘plan administrator engages in an inadequate review of the beneficiary’s claim or otherwise acts improperly in denying benefits.’” It would appear that this low bar would be met in nearly every time a case is remanded for “inadequate review.”

The court’s analysis of the deterrent effect prong is cause for further concern. The court determined that that the deterrent effect here would be that an award “will warn other plan administrators of important principles that all plan administrators should heed” regarding the review of the medical evidence and opinions and providing an explanation for the denial. As a full and fair review of the record by the administrator is a basic requirement under ERISA, it is hard to understand how a fee award would make such a review more certain.

Similarly, regarding the “relative merits” prong, the court determined that even though she was not awarded benefits and did not prevail on a number of claims, she “was able to overcome the highly deferential arbitrary and capricious standard to achieve a remand.”

Therein may lie the rub. A review of these post-Hardt Sixth Circuit cases shows that a large majority of them involve a remand when the review was under the arbitrary and capricious standard. It is as if the courts are saying that if a plaintiff can overcome the arbitrary and capricious standard and simply achieve a remand, they deserve fees.

Unfortunately, it does not look like this trend will end any time soon in the Sixth Circuit so administrators and practitioners should be prepared for this fight. In fact, it appears that they should seriously consider settling once the fee request is filed if the fees sought are reasonable. If they are not, they should concentrate most of their efforts on fighting the reasonableness and amount of the fees.

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