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Precedential First Circuit Decision on Attorneys’ Fees in ERISA Litigation

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In the aftermath of an earlier decision, the 1st Circuit U.S. Court of Appeals recently held that attorney’s fees may be awarded after an order of remand even if the Court chooses not to award underlying benefits. The First Circuit had decided a 2013 appeal in favor of Diahann L. Gross, an applicant for long-term disability benefits under a Sun Life Assurance Company of Canada policy. It found that policy language requiring proof of disability “satisfactory to us” did not give Sun Life discretionary authority and, therefore, the court was not limited to examining whether the insurance company’s benefit decision had been “arbitrary and capricious.” Because the existing record was “inadequate to allow a full and fair assessment of Gross’s entitlement to disability benefits,” the case was remanded to the District Court with instructions to remand the claim to Sun Life for consideration consistent with the First Circuit’s opinion.

Gross then requested an award of attorney’s fees, and Sun Life opposed the request. Under 29 U.S.C. § 1132(g), “the court in its discretion may allow a reasonable attorney’s fee … to either party” in a civil action under ERISA. In Hardt v. Reliance Standard Life ins. Co., the Supreme Court had interpreted this statute to mean that the party seeking attorney’s fees must “show ‘some degree of success on the merits.”

Attorneys Michael D. Grabhorn and Jonathan M. Feigenbaum argued that Gross was entitled to the award of attorney’s fees, because she established that Sun Life “violated her fundamental ERISA rights” and that the wrong standard of review had been applied. Sun Life argued that a remand, by itself, was not enough to demonstrate a degree of success on the merits and that the ruling on the standard of review was merely a “procedural victory.”

In a 2-1 opinion the First Circuit held: “A remand to the claims administrator for reconsideration of benefits entitlement ordinarily will reflect the court’s judgment that the plaintiff’s claim is sufficiently meritorious that it must be reevaluated fairly and fully.” The change in standard of review also “increased the likelihood of a favorable benefits determination-perhaps from Sun Life, and certainly from a reviewing court in the event Gross’s claim is again denied by the claims administrator-because Sun Life’s judgment will no longer be insulated from full judicial review.” The purpose of the attorney’s fee statute is to prevent the abandonment of meritorious claims solely “because of the financial imperatives surrounding the hiring of competent counsel.” Therefore, the fact that all of the evidence may not favor the plaintiff and that she “may fall short of meeting her burden to prove that she is totally disabled,” is not enough to defeat her request. After balancing all the relevant factors, the court found that Gross should be awarded attorneys’ fees. Of significance the majority opinion addressed each of the substantive arguments raised by the dissenting Circuit Judge. Given that the majority rejected each point, those arguments are now foreclosed from further consideration. On September 5, 2014, the full First Circuit Court of Appeals denied Reliance Standard’s petition for en banc review by the entire Court., or panel rehearing.

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