Oct 142013

In 2010, the Supreme Court clarified in Hardt v. Reliance Standard Life Ins. Co. that an ERISA litigant need not be a “prevailing party” in order to recover attorney’s fees; rather, to be eligible for an award of attorney’s fees, a party need only demonstrate that it achieved “some degree of success on the merits.” This standard is not met, said the Court, when a party achieves only “trivial success on the merits or a purely procedural victory.” It is satisfied, however, when a “court can fairly call the outcome of the litigation some success on the merits without conducting a lengthy inquiry into the question whether a particular party’s success was substantial or occurred on a central issue.”

Flash forward to September 2013, when the Second Circuit evaluated a District Court’s handling of an ERISA fee claim, ultimately concluding that the District Court failed to apply Hardt correctly. The case centered on a dispute over coverage for medical expenses incurred by the wife of an insured employee, with the insurer contending that the employee and his wife should not have been covered, that the subject policy should be rescinded and/or reformed to reflect the lack of coverage, and that it should be allowed to recover in “restitution” the funds that it had previously disbursed to the employee’s wife’s medical providers.

In its only decision on the merits, the District Court dismissed the insurer’s restitution claim, while denying summary relief to either side on the other claims. Thereafter, the claims were settled, leaving only the dispute over attorney’s fees. The District Court, purporting to follow Hardt, denied the application for fees, deeming the dismissal of the restitution claim merely “procedural,” and deciding that everything else that resulted was derivative of the parties’ voluntary settlement (which, according to the District Court, cannot be used to underpin a fee claim for lack of a “judicial imprimatur needed to qualify as litigation success”). The Second Circuit, however, disagreed, calling the demise of the insurer’s restitution claim akin to a judgment on the merits, and also deeming the subsequent withdrawal of the remaining claims potentially a success in and of itself because, in the Second Circuit’s view, there exists a question of fact as to whether the withdrawal was precipitated by the District Court’s expressions of skeptism in relation to the insurer’s claims in general (which would bring it in-line with so-called “catalyst theory”).

Scarangella v. Group Health, Inc., 731 F.3d 146 (2d Cir. 2013)

  One Response to “Second Circuit Finds Error in District Court’s Handling of ERISA Fee Claim”

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