The ERISA Report Volume 16 Issue 1 | Recent Cases of Interest

Third Circuit

Court Reverses Decisions for and against ESOP Sponsor

In Dansko Holdings, Inc. v. Benefit Trust Co., 2021 WL 969473 (3d Cir. 2021), Dansko, as sponsor of an Employee Stock Ownership Plan (ESOP), retained Benefit Trust as its replacement ESOP trustee with non-discretionary functions under an existing trust agreement. But, Dansko later pursued debt restructuring which required the services of a discretionary trustee. After discussions, Benefit Trust decided not to serve as discretionary trustee for the refinancing. Dansko then sued Benefit Trust for damages allegedly suffered as a result of a delay in the refinancing. These claims included breach of contract and the duty of good faith and fair dealing, breach of oral contract, promissory estoppel, and fraudulent inducement. In turn, Benefit Trust sought its fees under an indemnification clause the trust agreement. The district court dismissed both parties' claims.

On appeal, the Third Circuit reversed both decisions. While the Third Circuit addressed a number of claims, relevant here is its conclusion that while Dansko's contract claim involved an ERISA plan, the claims were remote from the concerns of ERISA, such as reporting, disclosure and fiduciary responsibility. Therefore, the state law claims were not preempted. The court’s decision on this subject is short and without much discussion. As a result of this and other rulings, the contract and estoppel claims were reinstated.

The Third Circuit also reversed the district court’s dismissal of Benefit Trust's counterclaim for costs of defending the lawsuit. The court concluded that "the agreement unambiguously requires Dansko to indemnify and reimburse Benefit Trust for the costs of defending this suit." Dansko argued that Benefit Trust never signed the trust agreement. But Dansko "accepted its appointment as Trustee." The court also held that Dansko was estopped from raising the argument because of its claim that Benefit Trust breached the same agreement. Finally, the Third Circuit stated that "[t]he indemnification clause is broad but clear." While certain claims were carved out of the indemnification clause, first party claims were not. Therefore, the indemnification claim was also reinstated.

Joshua Bachrach
Wilson Elser Moskowitz Edelman & Dicker, LLP
Philadelphia, PA

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Fourth Circuit

Court Holds an ERISA Claimant Need Not Present All Future Potential Issues during the Administrative Process and Is Merely Required to Exhaust Administrative Remedies Prior to Filing Action

In Morris v. Lincoln Nat'l Life Ins. Co., 2021 WL 1199005 (4th Cir. 2021), the appellant, Stephanie Morris ("Appellant") brought an ERISA action against appellee, Lincoln National Life Insurance Company ("LNLIC"), alleging wrongful denial of her claim for life insurance benefits after the death of her husband, Stephen Morris. The United States District Court for the Eastern District of Virginia initially found that LNLIC abused its discretion and remanded the matter. Following the remand, LNLIC again denied benefits and the parties filed cross-motions for summary judgment. The district court granted summary judgment in favor of LNLIC, concluding that it did not abuse its discretion in denying the claim on the ground that Mr. Morris was not covered under basic and supplemental life insurance policies as he was not actively at work and was totally disabled as of the effective date of the policies on January 1, 2015. On appeal, the Fourth Circuit affirmed the district court’s judgment in part, reversed in part, and remanded.

Mr. Morris purchased coverage under a basic and supplemental life insurance policies issued by LNLIC. He was diagnosed with acute myeloid leukemia in October 2014 and never returned to work from that time until his death in September 2015. It was uncontested that Mr. Morris was not actively at work on January 1, 2015, originally a requirement for coverage under the policies. However, both policies were retroactively amended to include a Prior Insurance Credit ("PIC") provision which provided that someone like Mr. Morris, who was not actively at work when he transitioned from coverage under a different insurance provider to the LNLIC policies, could still meet the coverage requirements without satisfying the active work requirement as long as the PIC provisions were satisfied as of the policies’ effective date. In this case, if Mr. Morris was totally disabled on January 1, 2015, he would have been ineligible for coverage under the PIC provisions.

The Fourth Circuit, applying the discretionary standard of review, concluded that the district court did not reversibly err in granting summary judgment to LNLIC with respect to the claim under the basic policy. It found LNLIC did not abuse its discretion in denying benefits on the ground that Mr. Morris was totally disabled on the date the policy took effect and further found that any inherent conflict of interest on the part of LNLIC in serving as both the insurer and ERISA plan administrator was not itself sufficient to render its entire decision-making process unreasonable. Accordingly, the Fourth Circuit affirmed that portion of the district court's decision.

With regard to the claim under the supplemental insurance policy, the district court's order relied on its conclusion that "totally disabled" was defined under the PIC provisions of both policies to mean that "an employee must not be able to engage in any employment or occupation for which they are qualified." However, the Fourth Circuit highlighted an additional unambiguous definitional term under the supplemental insurance policy that was not present in the basic policy —for an employee to be totally disabled under the PIC provision of the supplemental policy, the employee must be "unable, due to sickness or injury, to perform the material and substantial duties of any employment or occupation for which you are or became qualified by reason of education, training, or experience" and that status must have continued for a period of at least 180 days prior to the effective date of the new policy on January 1, 2015.

In that regard, the Court held that Appellant was entitled to summary judgment on the supplemental insurance policy claim because LNLIC abused its discretion by denying benefits in a manner inconsistent with the plain terms of the policy. The evidence established that Mr. Morris' condition first prevented him from working at his place of employment in October 2014, when he began experiencing symptoms of leukemia, just over 60 days before the policy took effect on January 1, 2015. Because he was not unable to work for a period of at least 180 days before the policy took effect, he was not totally disabled under the PIC provision of the supplemental policy and was, therefore, eligible for coverage under that policy. The Court further disagreed with LNLIC's argument that Appellant forfeited the supplemental policy claim by failing to raise it to LNLIC on remand from the district court or by raising it for the first time on appeal. The Court held an ERISA claimant is merely required to exhaust administrative remedies prior to filing a lawsuit and noted there is no requirement for a claimant to present all future potential issues during the administrative process. The Court further noted the Appellant twice raised the claim at the district court hearing. The Court, therefore, reversed the district court's grant of summary judgment on the supplemental policy claim and remanded for entry of summary judgment in favor of Appellant.

Scott M. Trager
Funk & Bolton, P.A.
Baltimore, MD

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Fifth Circuit

ExclusioFifth Circuit Rules that ERISA Does Not Govern Project-Related Severance Plan

In Atkins v. CB&I, LLC, 2021 WL 1085807 (5th Cir. 2021) the court considered whether ERISA governed an incentive-based severance plan for employees working on a project. The court found that it did not.

In Atkins, the defendant construction company established a Project Completion Incentive Plan ("PCIP") that would pay eligible employees a bonus of 5% of their earnings while they worked on a particular construction project if they stayed on the project until their work there was completed. The plaintiffs, who acknowledged that they were not eligible for bonuses because they quit before their work on the project ended, sued in Louisiana state court, arguing that the PCIP involved a wage forfeiture that was illegal under Louisiana law. The employer removed the case to federal court on the grounds of ERISA complete preemption, and the district court agreed that ERISA governed. As the Fifth Circuit noted, "[t]hat jurisdictional determination also resolved the merits" because, if ERISA governs, "then everyone agrees the Plaintiffs do not have a claim" because ERISA preempts Louisiana law, and because the plaintiffs "are not eligible for the bonus under the terms of the plan."

The court began its analysis by noting that severance plans are particularly troublesome when considering whether ERISA governs: "[a]s the answer depends on the particulars of each plan, some severance plans have qualified while others have not."

The court then stated that the "key Supreme Court case" is Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987), which "addresses a state law requiring one-time severance payments to employees if their plant closed." In Fort Halifax, the Court held that ERISA does not govern a severance plan that required only a "one-time, lump-sum payment triggered by a single event [which] requires no administrative scheme whatsoever." Id. at 12, 107 S.Ct. 2211. Instead, ERISA governs only a severance plan that requires an "ongoing administrative program," requiring "complex administrative activities" such as "determining the eligibility of claimants, calculating benefit levels, making disbursements, monitoring the availability of fund for benefit payments, and keeping appropriate records in order to comply with applicable reporting requirements." Id. at 9, 11, 107 S.Ct. 2211.

The Fifth Circuit analyzed these factors, and held that there was insufficient complexity in the PCIP to give rise to an ERISA plan. Among the factors that the court evaluated were:

• The PCIP calls for only a single payment. "A one-time payment usually does not require an ongoing administrative scheme because the 'employer assumes no responsibility to pay benefits on a regular basis, and thus faces no periodic demands on its assets that create a need for financial coordination and control.'" Quoting Fort Halifax, 482 U.S. at 12.
• The PCIP does not provide for additional benefits, such as COBRA insurance coverage.
• Calculating the one-time payment—5% of the employee’s project-related pay – involves "a single arithmetic calculation" that "is not the type of complex determination ERISA plans often make."

The court noted that "mixed signals" were sent by the fact that different employees would have different project completion dates (unlike the plan in Fort Halifax, which was tied to a plant closure). However, "the fact that eligibility is tied to workers' completion of their duties on a discrete project makes this Plan different from most ERISA plans."

The court had the most difficultly evaluating whether the PCIP required the employer to exercise discretion to a sufficient degree to justify ERISA governance. The court noted that ERISA might govern where a plan requires the employer to determine whether an employee had “good reason” to stop working, or whether a termination was for "good cause;" though such a requirement is not alone sufficient. The court acknowledged that there was no "clear dividing line on when cause-type determinations involve the requisite level of discretion," but held that it was not necessary to consider that further, because the PCIP does not require a "for cause" determination. Instead, the bonus is earned when a worker's role in the project is "complete," which "does not seem to require a significant degree of discretion." Moreover, "some eligibility determinations under the Plan will be clear as day."

Summing up, the court explained:

Consistent with the lack of complexity needed to answer the "who" and "how much" questions about the bonus, we do not see any special administrative apparatus dedicated to overseeing the Plan. A plan is more likely to be governed by ERISA when it includes administrative procedures, such as procedures for handling claims and appeals, is administered on a large-scale to many employees, requires continuous monitoring of payees, or requires additional oversight once the benefit has been paid, either because of continuing insurance benefits or the possibility of clawing back severance payments if the employee returns to work, The record shows none of that here. [citations omitted].

In sum, the Project Completion Incentive Plan involves a single and simple payment. Determining eligibility might require the exercise of some discretion, but not much. An administrative structure is not devoted to overseeing the Plan. The Plan thus lacks the complexity and longevity that result in the type of “ongoing administrative scheme” ERISA covers.

Accordingly, the court remanded the case to state court, where the plaintiffs will be permitted to litigate their state wage-forfeiture claim.

Patrick W. Begos
Robinson & Cole, LLP
Stamford, CT

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Ninth Circuit

Breach of Fiduciary Duty Claim Against Employer for Failing to Notify Terminally Ill Employee of Loss of Life Insurance Coverage Revived

In the Est. of Foster through Foster v. Am. Marine SVS Grp. Benefit Plan, 840 F. App'x 170 (9th Cir. 2021), the plaintiff. Kelly Foster brought an ERISA claim under her husband, Kirk Foster’s life insurance policy against the defendants, American Marine SVS Group Benefit Plan, American Marine Corporation and United of Omaha Life Insurance Company. Kirk died of esophageal cancer in June 2016. Kelly filed a claim, which was denied. Suit followed. The district court dismissed two counts, and granted summary judgment to the defendants on the remaining three—(Count III) failure to give notice that life insurance benefits were ending; (Count V) failure to provide notice of conversion right under Hawaii state law; and (Count VI) American Marine’s breach of fiduciary duty to the decedent. The Ninth Circuit affirmed as to United but affirmed in part, reversed and remanded in part as to American Marine on the third and sixth counts.

Kirk was laid off in February 2016 following a March 2015 diagnosis of terminal esophageal cancer. But even after he was laid off, American Marine continued to "work with" him to file a LTD claim and to exhaust his vacation/sick days, allowing him to stay on the payroll until April 15. American Marine closed Kirk's email account on April 21, but reopened it after Kirk volunteered to keep training his replacement. He stopped providing this service on April 26 due to ill health, but received LTD benefits until he died on June 24.

United denied Kelly's claim for life insurance benefits because American Marine had stopped paying premiums on Kirk’s behalf on April 30, effectively ending his coverage; he had not converted by May 31; and the death did not occur during the conversion period. United also determined that Kirk did not qualify for LWOP because he had not completed the disability elimination period.

The Ninth Circuit assessed whether Kirk received sufficient notice of the termination of coverage barring conversion. It was undisputed that Kirk had a copy of the Life Certificate/SPSD indicating the termination of insurance coverage and exception language.

American Marine argued that it had satisfied its ERISA fiduciary obligations by providing the Life Certificate/SPSD, relying on Stahl v. Tony’s Bldg. Materials, Inc., 875 F.2d 1404 (9th Cir. 1989). But the Ninth Circuit rejected this, noting that Stahl did not hold an employer-fiduciary can automatically avoid liability by publishing a summary plan description. Instead, the Ninth Circuit held that the satisfaction of fiduciary duty should be factually evaluated on a case-by-case basis. In this particular situation, the court found that American Marine should have provided "further explanation under the circumstances" because the Life Certificate/SPD was ambiguous as to the exact date that the 31-day conversion clock started.  American Marine's continuing to pay life insurance and LTD premiums following the February termination likely contributed to the confusion. American Marine knew exactly when benefits would expire because it controlled when it would stop making premium payments, and therefore had an obligation to provide Kirk with a more complete picture. The Ninth Circuit also noted that American Marine's continuing relationship with Kirk following termination of employment was evidence of the company’s awareness of his circumstances. American Marine should have realized that Kirk would be interested in maintaining life insurance and would need precise instructions.

The Ninth Circuit reversed the district court’s finding that American Marine had no duty to notify Kirk that his life insurance coverage would end on April 30, 2016, beyond sending the Life Certificate/SPD. While evidence "strongly suggested" that Kirk knew he would stop receiving salary payments by April 15, these facts did not compel a conclusion that he also knew American Marine would stop paying his life insurance premiums. A genuine dispute of material fact remained as to whether he knew his coverage would expire. Summary judgment was confirmed as to United because the issue was not "not whether United correctly interpreted the policy when it denied Kelly’s claim in July 2016, but whether Kirk was properly notified of his rights by American Marine before they expired."

Karen Tsui
Burke, Williams and Sorensen, LLP
Los Angeles, CA

Application of Occupational Standard Without Remand to the Plan Administrator Affirmed

In Luzzi v. Unum Life Ins. Co. of Am., 836 F. App'x 570 (9th Cir. 2021), the plaintiff, James Luzzi, appealed the district court’s finding that he was not totally disabled because he could perform "light work," as defined by an ERISA plan funded by a policy issued by Unum Life Insurance Company of America. The Ninth Circuit found that the district court did not err in failing to remand the case to Unum to apply the correct occupation standard, because under a de novo standard of review, the district court determines if the claimant has adequately established disability and does not give deference to the administrator’s decision. The district court therefore appropriately applied the "light" work standard in finding Luzzi was not totally disabled.

Given Luzzi’s doctor's "inconsistent medical conclusions," the Ninth Circuit was not left with “a definite and firm conviction” that the district court committed a mistake.

Karen Tsui
Burke, Williams and Sorensen, LLP
Los Angeles, CA

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Tenth Circuit

Court Finds That "Active" Can Mean Simply "Currently Employed" If Not Defined By An LTD Plan

In Carlile v. Reliance Standard Life Ins. Co., 988 F.3d 1217 (10th Cir. 2021), the Tenth Circuit held that an employee who had been terminated due to a reduction in force and was no longer required to work was still eligible for long-term disability benefits. Mr. Carlile received notice that his employment was being terminated and was paid for the notice period from March 31, 2016 to June 20, 2016 in one lump-sum payment. Mr. Carlile was informed he was not required to work after March 31, 2016, but he continued to come to the office occasionally and do work. However, his time was not tracked because he was an exempt employee. Mr. Carlile stopped working on June 7, 2016 due to disability caused by prostate cancer and submitted a claim for short term disability benefits which Reliance approved. He later submitted his claim for long-term disability benefits. Reliance denied Mr. Carlile’s claim for LTD benefits based on the determination that he was no longer eligible for coverage as of the end of March 2016 because he was no longer an active employee as there was no documentation or confirmation that he was working 30 hours per week.

The district court, on cross-motions for summary judgment, held in favor of Mr. Carlile. The district court concluded the LTD Plan was ambiguous in its use of the term "active," construed the term against Reliance, and held that because Mr. Carlile was a full-time employee until his termination became effective on June 20, 2016, he was eligible for coverage. Reliance appealed.

The Tenth Circuit affirmed the district court’s decision after de novo review. The court of appeals explained that the LTD Plan provided that "Eligible Classes" was defined as "Each active, Full-time Employee, except any person employed on a temporary or seasonal basis." Further, the LTD Plan defined "Actively at Work" and "Active Work" to mean "actually performing on a Full-time basis the material duties pertaining to his/her job in the place where and the manner in which the job is normally performed. This includes approved time off such as vacation, jury duty[,] and funeral leave, but does not include time off as a result of an Injury or Sickness." "Full-time" was defined as working for a minimum of 30 hours during a person's regular work week. The Plan stated that coverage terminates on "the last day of the Policy month in which the Insured ceases to meet the Eligibility Requirements."

Reliance argued that because Mr. Carlile did not work 30 hours per week in June 2016, he was not eligible for LTD benefits. Mr. Carlile argued that because the Plan used the term "active," to describe the employees who qualify for benefits, and not the defined terms "Actively at Work" and "Active Work," those definitions did not apply and the term "active" was ambiguous. The Tenth Circuit agreed with Mr. Carlile, finding that because "active" was not defined it was ambiguous and did not have to mean "actually working" and could mean that someone is simply "currently employed." The Tenth Circuit further held that the Plan's definition of Full-time as working a minimum of 30 hours during a person's regular work week did not change the analysis. Rather, the court of appeals explained that a "regular work week" is established by employment terms and practices and is not an eligibility requirement that must be re-established with each passing month or for every week. Therefore, the Tenth Circuit affirmed the district court’s finding that Carlile was eligible for LTD benefits under the Plan.

Leasa M. Stewart
GableGotwals
Oklahoma City, OK

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Eleventh Circuit

ERISA Plans' Anti-Assignment Clauses, as well as Limitations in Assignments Themselves, Barred Provider’s Claim for In-Network Compensation

In Griffin v. Coca-Cola Refreshments USA, Inc., et al, 989 F.3d 923 (11th Cir. 2021) Dr. Wakitha Griffin treated two patients who were covered under separate ERISA governed healthcare plans administered by UnitedHealthcare.

Patients are reimbursed at lower rates when receiving healthcare services from out-of-network providers. Dr. Griffin was an out-of-network provider. Consequently, United paid her for her services as an out-of-network provider. Determined to receive the higher in-network rate, Dr. Griffin obtained assignments from the two patients in lieu of payment.

Relying upon the assignments, Dr. Griffin submitted claims for in-network reimbursement rates for treating the two patients. UnitedHealthcare denied the claims. Dr. Griffin's claims and subsequent appeals requested UnitedHealthcare to disclose the plans’ anti-assignment provisions, to provide copies of the plan documents, and identify the plan administrators. UnitedHealthcare explained that she was not reimbursed the full amount of her charges because of the relevant provisions regarding out-of-network coverage and deductibles in the plans without addressing her specific requests. Dr. Griffin submitted a second appeal and again United denied the appeal without addressing Dr. Griffin’s requests.

Dr. Griffin filed separate lawsuits against Coca-Cola and UnitedHealthcare and against Delta and UnitedHealthcare for ERISA violations, including failure to pay plan benefits under 29 U.S.C. § 1132, breach of fiduciary duty under 29 U.S.C. § 1104, failure to provide plan documents under 29 U.S.C. § 1024(b), 1104, and 1132(2), and breach of co-fiduciary duties under 29 U.S.C. § 1105(a)(2). The Northern District of Georgia dismissed the case for failure to state a claim because the plans’ anti-assignment clauses prevented Dr. Griffin from obtaining statutory standing under ERISA. The Eleventh Circuit consolidated Dr. Griffin’s appeals.

Dr. Griffin argued on appeal that the assignments provided the right to bring claims for unpaid obligations and non-payment related claims. Dr. Griffin presented three issues on appeal: (1) Did the patients legally assign the right to bring breach of fiduciary duty and statutory penalties claims (the "non-payment-related claims") as well as benefit claims; (2) Whether the anti-assignment provisions applied to Dr. Griffin’s claims for underpayment of benefits and/or the non-payment claims; and, (3) If the anti-assignment provisions did apply, were the defendants estopped from relying on the anti-assignment provisions or had they waived the right to assert the anti-assignment provisions. Dr. Griffin submitted that by not disclosing them earlier, the defendants waived reliance on the anti-assignment provisions in defense of their lawsuit.

Coca-Cola’s anti-assignment provision provided in relevant part that "an Enrolled Person may not assign or alienate any payment with respect to any Benefit which an Enrolled Person is entitled to receive from the Plan." Delta’s plan provided in relevant part that "the participant shall not have any right to alienate, commute, anticipate or assign (either at law or in equity) all or any portion of any benefit, payment or distribution under the Plan."

Reviewing de novo, the Court of Appeals affirmed. The assignments delineated their scope but did not mention of breach of fiduciary duty or statutory penalty claims. Therefore, the assignments did not provide Dr. Griffin with the right to bring claims for non-payment.

The Eleventh Circuit also found both anti-assignment provisions unambiguous and thus enforceable, declining to follow the Fifth Circuit’s decision in Hermann Hospital v. MEBA Medical and Benefits Plan, 959 F.2d 569 (5th Cir. 1992).

Determining whether defendants were estopped to enforce, or had waived, the anti-assignment provisions required the Eleventh Circuit to decide whether those clauses rendered the assignments void or only voidable. If the assignments were only voidable, they were effective unless and until challenged. Because neither federal courts applying it, nor ERISA itself, discuss the distinction between void and voidable in the ERISA context, the court looked to Georgia state law to fill ERISA’s gaps. The Georgia Code renders as void only contracts to do immoral or illegal things, contracts against public policy, and gambling contracts. O.C.G.A. §§ 13-8-1, 13-8-3. The Eleventh Circuit found Dr. Griffin’s assignments voidable, and thus that estoppel and waiver were available defenses to the voidable assignments.

Dr. Griffin maintained that the defendants waived their right to rely on the anti-assignment provisions because they did not give notice of their existence prior to litigation. The Eleventh Circuit rejected this notion, reasoning that evidence that an insurance plan’s claims administrator ignored a third party’s pre-litigation request for information about a contract with another party is insufficient to show that the claims administrator or provider voluntarily or intentionally abandoned a contractual defense to litigation.

Similarly, Dr. Griffin argued that the defendants by not responding to her pre-litigation requests were now equitably stopped from relying on the anti-assignment provisions. The Eleventh Circuit again found the two anti-assignment provisions unambiguous. And just because the defendants did not provide the requested information pre-litigation to Dr. Griffin did not mean they were now equitably estopped from using the anti-assignment provisions as a defense.

Finally, the Eleventh Circuit concluded that even if the plans did not have enforceable anti-assignment provisions and Dr. Griffin had standing under ERISA, she still failed to state a claim because Dr. Griffin was not entitled to more compensation than she had already received as an out-of-network provider. Noting that Dr. Griffin’s managed care network participation status was critical, the Court observed that the patients themselves would not have a right to full reimbursement for the charged services according to their policies for out-of-network providers. Dr. Griffin was simply not entitled to more compensation than what was entitled to the assignors.

Joshua D. Lerner
Andres Pino
Rumberger, Kirk & Caldwell, P.A.
Miami, FL

Attorney’s Fees Not Recoverable from a Party’s Attorney Under ERISA

In Peer v. Liberty Life Assurance Co. of Boston, 2021 WL 1257440 (11th Cir. 2021), answering a question of first impression, the Eleventh Circuit Court held that ERISA’s fee shifting provision, 29 U.S.C. § 1132(g)(1), does not authorize an award of fees against counsel. The United States District Court for the Southern District of Florida had ordered the plaintiff’s counsel, but not the plaintiff herself, to pay the defendant’s attorney's fees.

The plaintiff's policy provided for a waiver of premiums for insureds who are disabled, for the duration of their disability. After Liberty Life determined the plaintiff was not disabled from any occupation and therefore not entitled to a waiver of the policy premiums, the plaintiff filed suit seeking "(1) a waiver of premium, (2) clarification of her rights to future benefits, and (3) a reasonable claims procedure going forward." Five months after the plaintiff filed suit, Liberty Life reinstated her coverage and the waiver of premium benefit retroactive to the original termination date.

Determining the reinstatement rendered the plaintiff's claims moot, the district court dismissed the complaint but allowed leave to amend. The trial court dismissed the plaintiff’s amended complaint for violating local rules disallowing incorporation of previous pleadings without restating the averments. The second amended complaint quoted in full the original complaint's allegations as Count I, and for Count II recited the procedural history of the case and rephrased the claims for relief that had previously been declared moot. The district court dismissed Count I as moot and entered judgment on the pleadings on Count II stating that the claim was not ripe. In the appeal on the merits, the Eleventh affirmed, stating the plaintiff had already received the relief that she seeks, and that the claim regarding future benefits was not ripe.

On remand, both sides moved for attorney's fees. The district court granted the plaintiff fees for work performed from the commencement of her suit until the policy was reinstated. The life insurer was awarded fees for work performed after the reinstatement of the policy.  The district court ordered the plaintiff’s counsel, not the plaintiff, to pay the fees awarded to the insurer, reasoning that the claims lacked clarity, prolonged the litigation, and caused a systemic state of confusion, and that counsel had thirty years of ERISA experience and should have known when the plaintiff’s case was moot. On appeal from that order, the Eleventh Circuit applied the abuse of discretion standard.

The Eleventh Circuit held that ERISA's fee-shifting provision, 29 U.S.C. § 1132(g)(1), is not meant to sanction attorney misconduct. The provision, which states "the court in its discretion may allow a reasonable attorney's fee and costs of action to either party," does not specify who is supposed to pay a fee award. However, when the statute does not explicitly allow an award of fees against counsel, the presumption is that such are prohibited. This interpretation, per the Eleventh Circuit, accords with the American rule principle that each party will pay its own attorney's fees. For guidance, the Eleventh Circuit looked to Title VII of the Civil Rights Act where the Court previously held a fee award against counsel was not allowed. See Durrett v. Jenkins Brickyard, Inc., 678 F.2d 911, 915 (11th Cir. 1982).

The panel further reasoned that permitting fees against attorneys under ERISA’s fee shifting provision would not further ERISA's goal to protect the interests of employees and beneficiaries under employee benefit plans and apply uniformity in the administration of employee benefit plans. The panel also considered ERISA’s five-factor test used to determine whether to award fees, noting all of the factors focus on the parties and not on their attorneys. See Freeman v. Continental Inc. Co., 996 F2d 1116, 1119 (11th Cir. 1993).

Furthermore, the Eleventh Circuit sought to minimize disruption to the lawyer-client relationship from probable friction caused by spinoff fee litigation.  The court noted that its decision comported with the longstanding rule that clients are responsible for the actions of their lawyers, not the other way around. Last, the Eleventh Circuit concluded that a fee award against counsel under ERISA would circumvent existing procedures to sanction attorney misconduct under 28 U.S.C. § 1927 or Federal Rule of Civil Procedure 11(c).

The court vacated the fee award against counsel, directed the district court to consider whether the fee award should be made against the plaintiff, and noted the district court could consider sanctions against the attorney under different authority such as 28 U.S.C. Section 1927 or Federal Rule of Civil Procedure 11(c).

Joshua D. Lerner
Andres Pino
Rumberger, Kirk & Caldwell, P.A.
Miami, FL

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