Source: http://www.engagemediation.com/pg7.cfm
Timestamp: 2019-04-21 18:56:28+00:00

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The Employment Retirement Income Security Act (“ERISA”) (29 U.S. C. Section 1001et. seq.) is a comprehensive federal statute that regulates a “plan, fund, or program . . . established or maintained by an employer or by an employee organization, . . ., for the purpose of providing for its participants or their beneficiaries, . . . medical, surgical, or hospital care, or benefits in the event of sickness, accident, disability, death, unemployment or vacation benefits, . . . , prepaid legal services or severance benefits to participants or their beneficiaries “…directly or through insurance, reimbursement, or otherwise.” ERISA also defines covered pension plans is those providing retirement income or deferral of income to employees.
ERISA requires that every employee benefit plan shall be established and maintained pursuant to a written instrument which shall provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan. The statute imposes participation, funding and vesting requirements on pension plans as well as reporting, disclosure and fiduciary responsibilities for both pension and welfare plans.
Although there is a large body of case law seeking to determine whether a particular employee welfare benefit plan or pension plan meets these technical requirements, the issue of whether a benefit plan is subject to ERISA usually is resolved prior to mediation.
Where ERISA applies, the district courts of the United States have exclusive jurisdiction without respect to the amount in controversy or the citizenship of the parties. In Shaw v. Delta Air Lines, 463 U.S. 85 (1983), the Supreme Court opined that ERISA preempts virtually any and all state laws insofar as they “relate “to employment benefit plans. Cases like Rutledge v. Seyfarth, Shaw, Fairweather & Geraldson, 201 F.3d 1212, 1217 (9th Cir. 2002) sought to narrow the scope of preemption. There, the Ninth Circuit held that the test for whether state law claims are preempted by ERISA is “where the claim bears on the ERISA-related relationship”. However, Aetna Health, Inc. v. Davila, 124 S.Ct. 2488 (2004) reestablished the reach of the ERISA preemption.
Where ERISA is found to apply, a case must be removed from state court, and all state law claims, whether sounding in negligence, breach of contract, in tort for bad faith, intentional infliction of emotional distress, or fraud, will be dismissed. Thus, ERISA has shifted many former insurance claims to federal court for handling under the statute.
damages are recoverable for “all detriment caused whether it could have been anticipated or not.” Accordingly, an award can include compensatory damages for broad elements of economic loss; damages for emotional distress; for future benefits reasonably likely to be incurred; and for punitive damages, upon proof of malice, oppression, or fraud by clear and convincing evidence. The prevailing party is entitled to recover costs and interest on the past due benefits. Case law also supports an award of attorney’s fees for that portion of the case related to the recovery of policy benefits. The standard of review on appeal is whether there is substantial evidence to support the verdict.
Under ERISA, discovery is extremely limited as is the presentation of evidence. Although an injunction is possible, only past due benefits are recoverable; no additional compensatory or punitive damages can be obtained; the scope of review is extremely limited; and deference is generally accorded to the decision of the plan administrator. Recovery of costs, interest, and attorney’s fees are within the discretion of the court. Recognizing the Federal protection thus granted, insurers and employers have been quick to establish ERISA denominated plans when providing for employee welfare benefits such as medical, disability or pension rights.
For a comprehensive discussion of Bad Faith Insurance Law, as well as more details on ERISA, see Insurance Bad Faith Litigation by Shernoff, Gage and Levine published by Matthew Bender/Lexis Nexis. Also see ERISA Litigation edited by Zanglein and Stabile, published by The Bureau of National Affairs, Inc.
The United States District Court for the Central District of California has established an Alternative Dispute Resolution Pilot Program for assignment of certain actions to Attorney Settlement Officers, including ERISA claims. Experienced Panel Members agree to provide at least 3 hours of mediation services without charge. They can be located under ADR through www.cacd.uscourts.gov.
Mediating ERISA cases is challenging because the statute has a great number of technical provisions and there is a substantial body of case law that has developed that is far from consistent. This article will discuss some general principals and trends, and then focus on issues that arise when seeking to recover costs, attorney’s fees, and statutory penalties. Hopefully this material will assist attorneys preparing to handle ERISA cases so that they can mediate such claims more successfully.
Plan fiduciaries have a duty to make reasonable efforts to obtain evidence bearing on a participant’s claims and to consider such evidence in the decision making process. Where it is alleged that a benefit claim has been wrongfully granted or denied, the district court has to resolve two procedural issues at the outset. The first is to determine the applicable Standard of Review and the second is to ascertain the Scope of Review which governs what evidence can be received at trial .These two issues are inextricably interwoven. The determination of the applicable standard is reviewed de novo by the trial and appellate courts.
Furthermore, “[A] denial of benefits challenged under [ERISA] is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.” Firestone Tire & Rubber Co. V. Bruch, 489 U.S. 101, 115 (1989). Under this approach, the district court makes an independent factual determination as to what the plan’s terms mean and how they should be applied. In such cases, the court is not limited to the record from the plan administrator but can examine other relevant evidence.
On the other hand, where the plan “unambiguously” grants the administrator wide discretionary authority to interpret the terms of the plan or its application regarding the eligibility for benefits, cases have held that such discretion should not lightly be disturbed by the courts. Furthermore, since ERISA was designed to provide a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously, it has been held that in reviewing the decision of plan administrators the district court is limited to reviewing the record before the administrator when the decision was made and cannot consider additional evidence from either party that was not presented to the plan administrator. Furthermore, it can only overturn the decision by finding that it was arbitrary and capricious or an abuse of discretion.
Where the administrator has wide discretion, it has been held that only the record of the proceedings before the plan administrator, the completeness of the record, and the propriety of the procedures that the plan administrator followed in reaching a decision were relevant to the district court’s review. Accordingly, in such cases, discovery is likely to be denied, except to ascertain if the administrator fulfilled his fiduciary duty to obtain information necessary to make an informed decision to deny benefits; whether the administrator followed proper procedures; and whether the record accurately reflects the presentation of the matter to the administrator.
Where a party seeks to demonstrate the existence of a conflict of interest, limited discovery has been granted, and some cases have allowed a party to conduct discovery as to all facts known to the administrator at the time the decision at issue was made.
The weight of authority is against allowing a jury trial in ERISA matters. Courts have reached this conclusion by finding that the statute created a right that essentially is equitable in nature.
The civil enforcement provisions of ERISA Section 1132 regarding available remedies include the following: Statutory Penalties for a plan administrator’s refusal to supply requested information; the recovery of benefits due; enforcement of rights under the terms of the plan; the clarification of rights to future benefits; appropriate relief for breach of fiduciary duty; an injunction or other appropriate equitable relief against violating any provisions of ERISA or plan terms or to redress violations.
Additionally, the statute also provides that the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party. Case law has developed that generally allows for the discretionary award of prejudgment interest, as well.
Among other notice requirements, ERISA requires that every plan provide for participants to receive written notice of the denial of a claim and be provided with a reasonable opportunity for a full and fair review of the denial.
Statutory Penalties for withholding information that an administrator is required to furnish to a participant or beneficiary are recoverable, in the discretion of the court. The fiduciary has 30 days to comply with an appropriate written request for specific information required to be furnished pursuant to ERISA. Thereafter, the administrator can be liable for “up to $110 a day from the date of such failure or refusal”.
There are a number of cases upholding a substantial penalty in such cases. On the other hand, because the award of such penalties is discretionary, some courts have denied recovery altogether or granted only a nominal award where there was no evidence of bad faith; no evidence the employee was prejudiced by the delay; and/or no evidence the beneficiary suffered any ongoing financial hardship rather than just irritation and frustration.
In Sandlin v. Iron Workers Dist. Council of Tennessee Valley and Vicinity Pension Plan, (N.D. Ala. 1988), 716 F.Supp 571, affd. 884 F.2d 585, the trial judge found that the conduct of the administrator in withholding the requested information from the pensioner for 402 days amounted to stonewalling and was cavalier, and indifferent. Despite that analysis, he concluded that an award of approximately ½ of the maximum allowable, which amounted to $15,000, was “adequate to accomplish the salutary purpose of the statute”.
The relief granted regarding benefits due is to require the plan to pay what it should have paid in the first place, including any retroactive benefits. Although the statute provides for clarification of rights to future benefits, such benefits themselves are not recoverable. This is in contrast to bad faith tort law where future benefits can be recovered.
In Halpin v. W.W. Grainger, Inc., 1962 F.2d 685, 688 (CA 7th 1992), the LTD plan gave the administrator discretionary authority. Nonetheless, the district court agreed with the trial judge who held that the termination of benefits had been arbitrary and capricious and ordered the reinstatement of benefits. In finding that the administrator violated the provisions of ERISA, the court stated that “ERISA requires that ‘specific reasons for denial be communicated to the claimant’ and that the claimant be afforded an opportunity for ‘full and fair review’ by the administrator.” The court stated that the core requirements of a full and fair claim review include (1) informing the claimant about the evidence on which the decision maker relied, (2) allowing the claimant to have an opportunity to address the accuracy and reliability of that evidence, and (3) having the decision maker consider the evidence presented by both parties before reaching and rendering a decision. However, the court permitted the employer to retain the right to initiate further review of the employee’s continuing eligibility for benefits.
In Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993), despite a vigorous dissent, a divided court held that equitable relief under ERISA includes all “categories of relief that were typically available in equity, but not compensatory damages”. This would limit relief to include injunction, mandamus, and restitution as well as a declaration of rights for future benefits or an injunction to prevent a future denial of benefits.
Illustratively, in Mattive v. Healthsource of Savannah, Inc., (S.D. Ga. 1995), 893 F.Supp 1559, upon a showing that the denial of treatment for high dose chemotherapy with peripheral cell rescue to treat breast cancer risked irreparable harm, the court granted a preliminary injunction against the insurer’s contention that such treatment was experimental and not covered under the plan.
Cf. Martin v. Blue Cross and Blue Shield of Virginia, Inc., (4th Cir. 1997), 115 F3d 1201, cert. den. 118 S.CT 629 where the claimant sought a declaratory judgment that the employer’s insurer was obligated to provide coverage for autologous bone marrow transplant procedure she underwent for treatment of her epithelial ovarian cancer. The district judge found for the plaintiff, but the court of appeal reversed, denied the claim in full, and held that the insurer did not abuse its discretion in determining that the treatment was excluded from coverage as experimental or investigative.
Section 409(a) provides that any fiduciary who breaches any responsibilities “shall be personally liable” to make good to such plan any loses to the plan resulting from each such breach and to restore to such plan any profits of such fiduciary which have been made through the use of plan assets.” Although some earlier cases indicated that the beneficiary only sues as a representative of the plan, the Supreme Court held in certain circumstances ,an individual plan participant or beneficiary can sue in his or her individual capacity to recover “appropriate” equitable relief for breach of a fiduciary duty. Varity v. Howe, 516 U.S. 489 (1996).
A fiduciary is required to discharge his duties “solely for the interests of the participants and beneficiaries.” Furthermore, he is required to administer the plan “with the skill, prudence and diligence” of a prudent man and to diversify the investments.
There have been considerable reported cases regarding ascertaining precisely who is a fiduciary. Firestone, cited infra, p. 113 observed that a party”. . . is a fiduciary if he exercises any discretionary control” over the plan assets. Moreover, in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238,246 (2000) the Court also held that suits for an injunction “admits of no limit…on the universe of possible defendants.” Accordingly, there has been litigation directed against plan administrators, plan advisors, employers, brokers, financial consultants, insurers, corporate directors, board members, unions, actuaries, banks, HMO’s, and even law firms.
The mere sale of an insurance product to an ERISA plan does not make the salesperson an ERISA fiduciary; but if the insurer has discretion over the plan assets or acts as a third party claims administrator and has discretion to accept or deny claims, it may become a fiduciary.
But beware suing the wrong entity. In Schelter v. Prudential-Bache Securities, Inc., (E.D. Cal. 1988), 695 F. Supp. 1077, 1083-4 the court held that the trustee of the pension plan demonstrated bad faith in pursing an ERISA claim against the brokerage firm for breach of fiduciary duty and awarded attorneys’ fees of $35,000 to the defendant.
Although the issue is not entirely free from doubt, most courts have held that they have discretion to award prejudgment interest in cases under ERISA. Where awarded, interest on unpaid contributions is to be determined by using the rate provided for under the plan, or, if none, at a rate determined within the discretion of the court. Typically, courts use the 1 year Treasury bill rate but other measurements have been applied.
In Amalgamated Ins. Fund v. Sheldon Hall Clothing, ( E.D. Pa. 1988) , 683 F. Supp. 986, reconsideration denied, affirmed 862 F. 2d. 1020 (3rd Cir. 1988), rehearing denied, cert. denied, 490 U.S. 1082, the plan brought suit for “withdrawal liability” of $238,198.75. The court entered judgment for the plaintiff in that amount and added 10 % interest as provided by the plan and an additional 10% per annum in damages, thus increasing the award by 20 % to $490,643.65, plus costs and attorney’s fees.
Cf. Shaw v. IAM Pension Plan, 750 F.2d 1458 (9th Cir. 1985), cert. denied, 471 U.S. 1137, where the court denied any prejudgment interest holding that the award of $25 million dollars was adequate and finding that there was a genuine issue in dispute and no bad faith or ill will.
In Conner v. Mid South Ins. Agency, Inc (W.D. La 1996), 943 F.Supp. 663, the court found a breach of fiduciary duty and awarded interest at the rate of 12.6% finding that that was the rate the plan assets should have earned but for the misconduct. The court also approved attorney’s fees of $124,336.23 and costs of $27,494.37.
This article will address the issue of recovery of costs and attorney’s fees in some detail because of its fundamental importance to those who handle ERISA claims.
Customary costs are recoverable, within the discretion of the court, and are generally awarded to the prevailing party. Expert witness fees frequently are not included.
“(1) the degree of the opposing party’s culpability or bad faith;(2) the ability of the opposing party to satisfy an award of fees;(3) whether an award of fees against the opposing party would deter others from acting in similar circumstances;(4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA and (5) the relative merits of the parties’ positions.” Subsequent cases have held that these factors are not exclusive.
In McElvaine v. U.S. West, Inc., 176 F.3d 1167, 1172 (9th Cir. 1999) the California court stated that “when we apply the Hummell factors, we must keep at the forefront ERISA’s remedial purposes that should be liberally construed in favor of protecting participants in employee benefit plans… We also apply a ‘special circumstances’ rule in which a successful ERISA participant ‘should ordinarily recover an attorney’s fee unless special circumstances would render such an award unjust’”. The claimant established that the company had made a calculating error that shortchanged approximately 3,000 retirees out of nearly $20,000,000. Accordingly, the court found an abuse of discretion by the trial court in it’s denial of attorney’s fees.
Likewise, in Terpinas v. Seafarer’s Int’l Union of N. America, 722 F.2d 1445, 1448 (9th Cir. 1984) the trial judge found for the plaintiff but denied attorney’s fees finding no bad faith. The appellate court reversed, holding that “Bad Faith” is only one factor to be considered among several. Refusal to award attorney’s fees on this ground is a mistake of the applicable law and required reversal and remand for further consideration by the trial judge.
Although West v. Greyhound Corp. 813 F.2d 951, 956 (9th Cir. 1983) states that an award to a successful defendant is disfavored and Flanagan v. Inland Empire Elec. Workers Pension Plan, 3 F. 3d 1246 (9th Cir. 1993) held that attorney’s fees should not be charged against ERISA plaintiffs, nonetheless, an occasional court has been willing to award them to the defendant as well as to the plaintiff, depending upon the circumstances. See, eg. Estate of Shockley v. Alyeska Pipeline Svc. Co, 130 F.3d 403,408 (9th Cir.1997) where the court stated; “We first disabuse the district court of the suggestion that we favor one side or the other in ERISA fee cases. The statute is clear on its face—the playing field is level.” The court concluded that the plaintiff litigated “in bad faith, vexatiously, wantonly, and for oppressive reasons” and affirmed an award of attorneys fees to the plan against the plaintiff for 10% of the amount claimed.
Bittner v. Sadoff & Rudoy Industries, 728 F.2d 820,829-30 (7th Cir. 1984) held that the prevailing ERISA litigant should recover fees “unless the court finds that the position of the [losing party] was substantially justified or that special circumstances would make an award unjust.” (emphasis added).
In further reviewing the standard, the court in Hooper v. Demco, Inc., 37 F. 3d 287, 294 (7th Cir. 1994) denied an award of attorney’s fees to the prevailing plaintiff, finding that the defendant’s position in denying coverage for experimental medical treatment was substantially justified.” It further held: “We need not concern ourselves with choosing between the [Hummell] multi-factor approach and Bittners’ ‘substantially justified’ standard because both tests beget the same result, and it is difficult to imagine a situation in which an application of one model rather than the other would alter our decision concerning the propriety of an award of costs or fees.” [bracketed material supplied].
An award is only appropriate to “a participant, beneficiary, or fiduciary” so it does not apply to an insurance company. Generally, but not universally, courts do not allow recovery of fees for the administrative proceedings themselves, since the statute applies to “actions”, although pre-litigation legal work will be compensable.
“(1) The time and labor required ; (2) the novelty and the complication of the issues ; (3)the skill required to perform the legal services ; (4) preclusion of other employment by the attorney due to acceptance of the case; (5) the fee customary in the community for similar work ; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) amount involved and the results obtained; (9) the experience, reputation and ability of the attorneys; (10) the “undesirability” of the case;(11) the nature and length of professional relationship with the client; and (12) awards in similar cases.” After setting forth that criteria, the court concluded that it would not make an upward or downward adjustment, and commented that it appeared that neither party had pursued settlement seriously.
Cases regarding the award of attorney’s fees and costs make it clear that careful, accurate, and contemporaneous records are essential. Block billing and office conferences with numerous associates will be looked at askance. Marginally relevant matters likely will be disregarded. On the other hand, efforts to negotiate a settlement or streamline the litigation will be looked upon favorably.
Illustratively, in Skretvedt v. E.I. DuPont De Nemours, (D.Del 2003), 262 F.Supp.2d 366, the court placed the burden on the party seeking fees to prove the reasonable rate and number of hours. The court commented that the attorney did not provide contemporaneous bills to support the time entries; that his record keeping was “sloppy, unprofessional and inexcusable” as well as inherently unreliable and slashed his hours from 973.1 to 765.5 and reduced his claimed hourly rate of $320 to $235.
Mogck v. Unum Life Ins. Co of America, (S.D. Cal. 2003),289 F.Supp 2d 1181 involved a Long Term Disability Plan. The court upheld the hourly rates of $325/350 per hour but without upward enhancement. However, the court reduced the total request by 10% finding an inordinate amount of inter office conferences; vague billing entries; and similar flaws in the record submitted.
In contrast to Bad Faith Insurance Law, the exclusive remedy scheme of ERISA has been held to preclude the recovery of extracontractual damages (such as damages for emotional distress, or for other economic losses) per Massachusetts Mut. Life Ins., Co. v. Russell, 473 U.S. 134 (1985) or for punitive damages. See, eg., Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987). In Mertens v. Hewitt Associates, 508 U. S. 248 (1993), a divided court (5 to 4) recognized that punitive damages in fact were available in Equity under the Common Law, but nonetheless refused to authorize them under ERISA.
Cf.. United States v. Martinson, 809 F.2d 1364 (9th Cir 1987).
Despite the considerable number of U.S. Supreme Court decisions providing guidance, there is a great deal of volatility in the results of the many cases decided nationwide under ERISA. Lack of uniformity in decisions suggests that it is quite difficult to predict how a particular trial judge or appellate court will rule upon any given set of facts. This uncertainty clearly indicates the benefit of reaching a negotiated settlement. Mediation provides that opportunity and also allows the parties to fashion a variety of creative solutions that may not be available through trial of the lawsuit.

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