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Supreme Court Overturns Fourth Circuit Decision Finding that Prevailing Party Status Not Necessary for Award of Attorney's Fees under ERISA

    Client Alerts
  • June 04, 2010

Settling a split among circuit courts, in Hardt v. Reliance Standard Life Insurance Company, the U.S. Supreme Court recently found that a party need not be the "prevailing party" in order to receive an award of attorney's fees under ERISA section 1132(g)(1) (the "Fee Shifting Statute").  Instead, a party must demonstrate "some degree of success on the merits" of the case in order to receive attorney's fees under ERISA.

The plaintiff in the case was forced to stop working after experiencing medical issues. She filed for long-term disability benefits under her employer's long-term disability plan and the carrier denied the claim for benefits. She then sued Reliance, alleging that it violated ERISA by wrongfully denying her benefit claim. At trial, the district court found "compelling evidence" that Ms. Hardt was totally disabled, but did not order Reliance to award Ms. Hardt benefits. Instead, the district court gave Reliance thirty days to reevaluate Ms. Hardt's application for benefits, or it would enter judgment for her. After reviewing the claim for benefits, Reliance paid Ms. Hardt accrued, past-due benefits. 

After receiving the benefits, Ms. Hardt sought recovery of her attorney's fees under the Fee Shifting Statute, under which "the court in its discretion may allow a reasonable attorney's fee and costs... to either party." After reviewing her motion, the district court awarded attorney's fees. Later, on appeal, the Fourth Circuit overturned the district court's decision to award attorney's fees to Ms. Hardt because she was not a "prevailing party" under the district court's ruling. The Fourth Circuit stated in its decision that since the district court did not require Reliance to award Ms. Hardt benefits, and instead merely required Reliance to reexamine her application for benefits, Ms. Hardt did not have an enforceable judgment against Reliance, and thus was not a prevailing party.

Ms. Hardt appealed the Fourth Circuit's decision denying her motion for attorney's fees and the Supreme Court, upon review, overturned the Fourth Circuit's decision, finding that a party claiming attorney's fees under the Fee Shifting Statute need not be the prevailing party to receive an award of attorney's fees. The Court stated that the words "prevailing party" do not appear in the statute's text and nothing in the statute implies that an award may only be given to a prevailing party. Instead, the Supreme Court held that the Fee Shifting Statute explicitly gives the court discretion to award attorney's fees to either party. 

The Supreme Court stated a party must achieve "some degree of success on the merits" in order to qualify for attorney's fees under the Fee Shifting Statute. Under this new standard, a claimant will not satisfy "some degree of success on the merits" by achieving "trivial success on the merits" or a "purely procedural victory" but will satisfy it if the court can fairly call the outcome of the litigation "some success on the merits" without conducting a lengthy inquiry into the question of whether a particular party's success was "substantial" or "occurred on a central issue." In the case at hand, the Supreme Court concluded that this standard was met because the district court found "compelling evidence" that Ms. Hardt was disabled and therefore, the award of attorney's fees was proper. Interestingly, the Supreme Court left open the possibility that a district court may still consider multi-factor tests in awarding attorney's fees that exist in most circuit courts after the district court has concluded that the claimant has shown "some success on the merits."

In light of the Supreme Court's ruling, plan sponsors involved in litigation regarding attorney's fees under ERISA should be aware of this new, lower threshold requirement for awarding attorney's fees and of the ambiguity as to what "some success on the merits" may look like under facts dissimilar to those in the Hardt decision.