Summary
declining to decide whether Buckhannon applied to ERISA fee awards
Summary of this case from Mardirossian v. Guardian Life Ins. Co. of AmericaOpinion
CASE NO. 8:01CV435
August 12, 2002
MEMORANDUM OPINION
This matter is before the court on plaintiff Vivian Reed's motion for attorney fees, Filing No. 46, and on defendant/third-party plaintiff Shenandoah Memorial Hospital's request for oral argument, Filing No. 47.
This is an action under the Employee Retirement Income Security Act, 29 U.S.C. § 1101, et seq. (ERISA). Vivian Reed filed this action for damages alleging that Shenandoah Memorial Hospital, Corporate Diversified Services, Inc., and Ohio National Life Ins. Co. breached fiduciary duties to her by denying payment for a bilateral prophylactic mastectomy and resulting breast reconstruction procedures. The parties have settled, reserving the issue of attorney fees. The court finds oral argument is not necessary and the request will be denied.
I. Facts
Vivian Reed was employed by Shenandoah Memorial Hospital (Shenandoah) and was covered by its self-funded ERISA employee benefits plan (the Plan). Filing No. 48, Ex. SMC-1. The Plan specifies that Shenandoah is the Plan's sponsor and its administrator. Id. at 54. The Plan lists Corporate Diversified Services, Inc. (CDSI) as "Claims Paying Agent" and refers to CDSI as its "Third-Party Administrator," noting that the Plan is responsible for "assisting the Third-Party Administrator with the determination of the eligibility of individual claimants for receipt of benefits." Id. The Plan further states that Shenandoah will review and decide disputed claims. Id. at 55. Shenandoah contracted with CDSI to process claims under the Plan, and also contracted with Ohio National Life Ins. Co. (Ohio) for excess loss coverage. Id., Exs. SMC-1 and SMC-2. Shenandoah's contract with CDSI provides that Shenandoah has the "authority, power and duty to administer the Plan" and engaged CDSI as "the claims processor for the Plan, agreeing to "grant CDSI the discretionary authority to determine . . . questions of eligibility and interpretation of Plan provisions . . . to the extent that CDSI is a fiduciary for claims processing purposes." Id., Ex. SMC-1 at 3. Shenandoah also agreed to indemnify CDSI. Id. at 2. The excess loss contract with Ohio provides Shenandoah with excess loss coverage subject to an individual annual deductible of $15,000.00. Id., Ex. SMC-2. The Plan is self-funded, that is, all claims were to be paid by Shenandoah, subject to the excess loss contract with Ohio. Id., Ex. SMC-28.
Reed underwent a bilateral prophylactic mastectomy in May 2000, and her physicians began the multistage breast reconstruction process at that time. Id. Reed sought Plan benefits for the mastectomy and the initial reconstruction procedures and her claims were denied because a prophylactic mastectomy was not "treatment of an illness or injury." Filing No. 46, Ex. B. Reed appealed the determination and submitted medical evidence showing that she had a family history of breast cancer, a breast cancer risk five-to-six times that of the general population, and a 91% chance that a genetic alteration was responsible for the breast cancer in the family. Filing No. 48, Ex. SMC-12. Reed also submitted medical evidence showing that she had severe fibrocystic disease that made it difficult to detect early breast cancer and that she had undergone numerous biopsies. Filing No. 46, Exs. K, L, M, and N. Reed's physicians stated that the bilateral mastectomy was medically necessary. Id. In connection with her appeal of the denial of benefits, Reed submitted legal authority that severe genetic risk of breast cancer has been found to be an illness. Filing No. 46, Ex. I. CDSI's claims administration handbook indicates that a prophylactic mastectomy should be covered for women at high risk of developing breast cancer. Exhibit 16 at 15-173 (noting "prophylactic mastectomy is a medically accepted option for women who are in defined high-risk categories" and "whenever a prophylactic mastectomy meets requirements for coverage, subsequent reconstruction should be covered to the same extent it would be for a therapeutic mastectomy.")
In her complaint Reed sought as damages: (1) the reasonable cost of the mastectomy and breast reconstruction procedures performed before January 1, 2002; (2) a declaratory judgment that the Plan is liable for the reasonable cost of completing the breast reconstruction procedures in the future; and (3) attorney fees and costs. Under the settlement agreement, Shenandoah has agreed to pay the sums necessary to cover charges for the mastectomy and Ohio National has agreed to pay Shenandoah the charges that exceeded the deductible. Reed withdrew her demand for payment of the costs of reconstructive surgery because those costs have been covered by her new employer. The parties agree that Ohio National is not liable for attorney fees.
Reed seeks fees in the amount of $19,280.00, representing 180.5 hours at hourly rates of $50.00 per hour for law clerks and paralegals, and $105.00 to $160.00 for attorneys. Reed also seeks costs in the amount of $655.73. In opposition to the motion, CDSI and Shenandoah contend that Reed is not entitled to an award of fees because she is not a prevailing party. Shenandoah further agues that it cannot be held liable for attorney fees because it did not make the decision to deny benefits. Both defendants dispute the amount.
II. Discussion A. Entitlement to fees
Under ERISA, a court is authorized, in its discretion, to award a reasonable attorney fee and costs to either party. 29 U.S.C. § 1132 (g)(1). In exercising its discretion, the court should consider: (1) the degree of the opposing parties' culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of attorney fees; (3) whether an award of attorney fees against the opposing parties could deter other persons acting under similar circumstances; (4) whether the parties requesting attorney fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties' positions. Lawrence v. Westerhaus, 749 F.2d 494, 496 (8th Cir. 1984). Under ERISA, a prevailing plan participant "should ordinarily recover an attorney's fee unless special circumstances render such an award unjust." Landro v. Glendenning Motorways, Inc., 625 F.2d 1344, 1356 (8th Cir. 1980).
The validity of the Landro presumption is at issue in a case presently pending before the Eighth Circuit en banc. See Martin v. Blue Cross and Blue Shield, 270 F.3d 673 (8th Cir. 2001), ( per curiam, with Bye, J., concurring, and Beam, J., dissenting), vacated, reh'g en banc granted (8th Cir. Dec. 7, 2001). At this time, however, both the Lawrence five-factor test and the Landro presumption are the law of the Circuit. The issue is of no real consequence to this decision, since the court finds that application of the Lawrence five-factor test would result in an award of fees, even without the benefit of the Landro presumption.
Defendants argue that Reed should not recover fees because she is not a "prevailing party." Although the ERISA attorney fee statute does not use the term "prevailing party," the concept has essentially been incorporated in Eighth Circuit ERISA attorney fees cases. See, e.g., Griffin v. Jim Jamison, Inc., 188 F.3d 996, 997 (8th Cir. 1999) (approving award to prevailing party); Brown v. Seitz Foods, Inc. Disability Ben. Plan, 140 F.3d1198, 1200 (8th Cir. 1998) (vacating award of fees after reversal because plaintiff was "no longer the prevailing party"). The Supreme Court recently disapproved an award of attorney fees "where there is no judicially sanctioned change in the legal relationship of the parties." Buckhannon Bd. and Care Home, Inc. v. West Virginia Dep't of Health and Human Res., 532 U.S. 598, 609, (2001) (rejecting "catalyst theory" that plaintiff is "prevailing party" if desired result is achieved through voluntary change in defendant's conduct). The court need not decide whether Buckhannon is now binding authority for interpreting the ERISA attorney fee provision because Buckhannon's constraints would not be applicable to this case in any event.
To qualify as a "prevailing party," a plaintiff must obtain "actual relief on the merits of his claim [that] materially alters the legal relationship between the parties by modifying the defendant's behavior in a way that directly benefits the plaintiff." Farrar v. Hobby, 506 U.S. 103, 111-12 (1992). Enforceable judgments on the merits and court-ordered consent decrees create the material alteration of the legal relationship between the parties necessary to permit an award of fees. Buckhannon, 532 U.S. at 604. The essential test requires the plaintiff to achieve a "judicially sanctioned change in the legal relationship of the parties." Id. at 605. Thus, a court-approved settlement can also be the basis of an award of fees. Id. at 618 (J. Scalia, concurring) (noting "even if there has been no judicial determination on the merits, the outcome is at least the product of, and bears the sanction of, judicial action in the lawsuit" and "there is some basis for saying that the party favored in the settlement or decree prevailed in the suit") (emphasis in original); id. at 623 (J. Ginsburg, dissenting) (noting"[a] court-approved settlement is enough"). A district court approval of a private settlement along with explicit retention of jurisdiction to enforce the settlement terms makes a settlement the functional equivalent of a consent decree, providing the necessary judicial imprimatur on the change in conduct. Id. at 604 n. 7; Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 381 (1994) (finding no jurisdiction to enforce private settlement but noting "[t]he situation would be quite different if the parties' obligation to comply with the terms of the settlement agreement had been made part of the order of dismissal — either by separate provision (such as a provision `retaining jurisdiction' over the settlement agreement) or by incorporating the terms of the settlement agreement in the order.")
The court finds that the degree of success obtained by Reed in the settlement makes her a prevailing party. Reed has obtained all the relief she sought. The settlement agreement in this case is the functional equivalent of a consent decree although it does not include an admission of liability, it is a court-ordered change in the relationship between the parties. See Filing No. 41, Order (staying action pending presentation of settlement documents); Filing No. 44, Order (ordering parties to provide the court with executed copy of settlement agreement). The settlement agreement came about as a result of the lawsuit, and cannot be characterized as a voluntary change in conduct by defendants. See Buckhannon, 532 U.S. at 605. This court is authorized to retain jurisdiction to enforce its orders, Kokkonen, 511 U.S. at 375, and will do so in this case. See, e.g., Parham v. Southwestern Bell, 433 F.2d 421, 429-30 (8th Cir. 1970). Accordingly, Reed's fees application is properly reviewed under the Lawrence five-factor test.
The court is not persuaded that Reed's withdrawal of her demand for coverage of the reconstructive surgery means that she was not successful on that component of her claim. The record supports the finding that the demand was withdrawn for reasons outside the control of defendants. The court does not agree that Reed "persisted in advancing a claim that, at best, was very poorly supported by the facts and existing caselaw." Shenandoah's Brief in Opposition to Motion for Attorneys' Fees at 24. To the contrary, the court finds that Reed's position on that claim, at the least, created a close question. See infra at 9 n. 6.
With respect to the first factor, the degree of CDSI's and Shenandoah's culpability or bad faith, the court finds the factor weighs in favor of Reed. The court cannot find bad faith on this record, but nevertheless finds a degree of culpability by defendants that warrants a fee award. The evidence before the court shows that CDSI and Shenandoah improperly denied the claim, gave inconsistent reasons for doing so, and acted in contravention of their own policies. The defendants' reliance on technical defenses in this litigation is also troubling. Without fully deciding the merits, let it suffice to say Reed has made a strong showing that Shenandoah and CDSI improperly denied her claim.
Shenandoah asserts that it cannot be held liable because it did not make the decision to deny coverage. This argument has no merit. The evidence establishes that Shenandoah (or, more properly, its Plan) was the ERISA fiduciary and that CDSI was its agent for purposes of claim processing and review. That Shenandoah may have recourse against CDSI for any alleged deficiencies in its processing of the claim does nothing to alter Shenandoah's position vis-a-vis Reed. See, e.g., Harold Ives Trucking Co. v. Spradley Coker, Inc., 178 F.3d 523, 525-26 (8th Cir. 1999) (allowing civil action by a plan against third-party administrator for breach of fiduciary duty under ERISA).
With respect to the second factor, ability to pay, there is no dispute that defendants can afford the fees and costs. The third factor, the deterrent effect on others, also weighs in favor of plaintiff. A fee award would deter ERISA fiduciaries from wrongful denial of claims and would further the remedial goals of the statute. The fourth factor has no significant impact on the case. With respect to the fifth factor, the court finds the relative merits of Reed's case outweigh those of the defendants. As noted, Reed made a strong showing that Shenandoah and CDSI breached their fiduciary duties in denying her claim. Accordingly, the court will assess fees and cost against both Shenandoah and CDSI, jointly and severally. Apportionment between those parties is not at issue.
B. Amount of fees
Reed seeks attorney fees in the amount of $19,280.00 and costs of $655.43. That amount represents 180.50 hours of work at hourly rates of $50.00 per hour for law clerks and paralegals and $105.00 to $160.00 per hour for attorneys. Shenandoah and CDSI contend that the court should disallow: (1) fees sought in connection with Reed's later-dismissed claim against Healthcare Partners of MidAmerica, a successor third-party administrator (Healthcare Partners); (2) fees in connection with Reed's administrative appeal; and (3) fees for services after Reed rejected Shenandoah's settlement proposal of November 2001. Defendants also seek a significant reduction of fees contending that Reed did not prevail on her claim for costs of reconstructive surgery.
The court first finds that Reed's claim against Healthcare Partners was provoked by correspondence from CDSI indicating that Healthcare Partners was responsible for claims administration as the new third-party administrator. Filing No. 46, Ex. Q. After Healthcare Partners moved to dismiss, Reed confessed the motion. The court finds that the claim against Healthcare Partners was intricately connected to the claim at issue and Reed's actions in connection with that claim were appropriate under the circumstances. See, e.g., Griffin v. Jim Jamison, Inc., 188 F.3d 996, 997 (8th Cir. 1999) (approving award of fees in similar circumstances). Defendants have not shown that the fees sought in connection with the claim are excessive. Accordingly, the court will not reduce the fee award for work performed in connection with that claim.
Section 1132(g)(1) authorizes a district court to award fees incurred only after a district court has assumed jurisdiction over a case. Peterson v. Continental Cas. Co., 282 F.3d 112, 119 (2d Cir. 2002). Accordingly, Reed is not entitled to attorney fees for work performed prior to the filing of the action and $5,417.00 will be deducted from the award. CDSI and Shenandoah argue that Reed obtained the same relief in the final settlement that they had offered her in November 2001. The evidence shows that coverage for the reconstructive surgery was still at issue in November 2001. That issue was resolved through no efforts of CDSI and Shenandoah. The court cannot say that Reed would have been unsuccessful on that claim; in fact, her position was arguably strong. These defendants should not benefit by another entity's assumption of obligations for the reconstructive surgery. Accordingly, the court will not discount fees for any perceived lack of success on the reconstructive surgery claim.
Reed is entitled to collect a reasonable amount for fees and costs incurred in initiating the suit, i.e., time spent drafting the complaint. Peterson, 282 F.3d at 121 n. 5.
The Women's Health and Cancer Rights Act of 1998 (the Act) was "intended to `ban drive-through mastectomies' and to require that insurance plans cover the costs of breast reconstruction surgeries." Howard v. Coventry Health Care, of Iowa, Inc., 293 F.3d 442, 444 (8th Cir. 2002) ( quoting Proceedings and Debates on Women's Health and Cancer Rights Act, 1998 WL 235685 (Cong. Rec.), 144 Cong. Rec. S4644-01 at *S4646 (May 12, 1998). The Act provides:
[a] group health plan, and a health insurance issuer providing health insurance coverage in connection with a group health plan, that provides medical and surgical benefits with respect to a mastectomy shall provide, in a case of a participant or beneficiary who is receiving benefits in connection with a mastectomy and who elects breast reconstruction in connection with such mastectomy, coverage for-
(1) all stages of reconstruction of the breast on which the mastectomy has been performed.
29 U.S.C. § 185b(a). This provision was specifically set forth in Shenandoah's Plan, Filing No. 48, Ex. SMC-1 at 41, and was also cited in the Claims Administration Manual, Filing No. 48, Ex. SMC-16.
The starting point in determining the amount of attorney fees is the "lodestar," which is calculated by multiplying the number of hours reasonably expended by reasonable hourly rates. Hensley v. Eckerhart, 461 U.S. 424, 433 (1983); Emery v. Hunt, 272 F.3d 1042, 1046 (8th Cir. 2001). The court should also take into account the amount of the recovery and the results obtained by the lawsuit. See Griffin v. Jim Jamison, Inc., 188 F.3d 996, 997 (8th Cir. 1999) (ERISA case, noting that these are "certainly relevant factors" in an ERISA case). In determining a reasonable attorney fee, the district court should consider the factors set forth in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir. 1984), though it need not exhaustively address every factor. Id. A reasonable hourly rate is usually the ordinary rate for similar work in the community where the case has been litigated. Id. at 272 F.3d at 1048.
The Johnson factors are: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the 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 the professional relationship with the client; and (12) awards in similar cases. Johnson, 488 F.2d at 717-19.
The court finds the hours and labor expended on the case were reasonable. Although this is a fairly straightforward ERISA case, it involved several issues that could be characterized as complex. Plaintiff underwent discovery and trial preparation and was required to research and respond to a number of motions. Reed has submitted an affidavit showing that the hourly rate sought by Reed is reasonable in this community. Based on the affidavit and on the court's familiarity with fees in the community, the court finds the hourly rate is reasonable. Additionally, the award is in line with awards in similar cases. See, e.g., Milone v. Exclusive Health Care, Inc., 244 F.3d 615, 619 (8th Cir. 2001) (affirming $11,442 award). Accordingly, fees in the amount of $13,863.00 will be assessed.
Reed also seeks costs in the amount of $655.43. The award will be reduced by the amount of $67.05 for costs for expenses that predated the filing of this action. Accordingly, costs in the amount of $588.38 will be assessed.
IT IS THEREFORE ORDERED:
1. Shenandoah's request for oral argument is denied.
2. Plaintiff's motion for an award of attorney fees is granted; Reed will be awarded $13,863.00 in attorney fees and $588.38 in costs.
3. A separate order and judgment will issue.
JUDGMENT
This matter is before the court on the settlement agreement of the parties. Filing No. 48, Ex. __. The court hereby approves and incorporates the provisions of that agreement and retains jurisdiction to enforce its provisions. Accordingly,
IT IS HEREBY ORDERED that judgment in entered in accordance with the settlement agreement; this action is dismissed; the court retains jurisdiction to enforce the agreement.