Ninth Circuit Applies New Hardt Decision to Deny ERISA Participant Attorney’s Fees

Last month, the U.S. Supreme Court handed ERISA plan participants a big victory when they decided the important ERISA disability case of Hardt v. Reliance Standard Life Insurance, __ U.S. __ (Decided May 24, 2010)(see our blog discussion here) holding that an ERISA plan participant may be able to collect attorneys’ fees from a plan or claim administrator without obtaining a judgment in the action.  It did not take long for the Ninth Circuit Court of Appeals to apply Hardt.  In Simonia v. Glendale Nissan/Infiniti Disability Plan, __ F.3d __ (9th Cir. June 24, 2010), the court rejected a plan participant’s claim for attorney’s fees. In Simonia, Aleck Simonia became physically disabled due to a herniated disc.  He had disability insurance under his employer’s group insurance plan, which was ultimately insured by the Hartford Insurance Co.  Hartford concluded that Simonia was no longer physically disabled but had a mental disorder subject to his ERISA plan’s twelve-month payment limit.  Hartford also learned that Simonia had been awarded $1,551 per month in Social Security Disability Insurance (“SSDI”) benefits retroactively, which should have been offset against his payments from Hartford.  Thus, Hartford informed Simonia he would be receiving payments subject to the plan’s twelve-month mental disorder limit and that he owed Hartford $22,310. Simonia sued Hartford for improperly reclassifying his disability as a mental disorder.  Hartford filed a  counterclaim to recover its overpayment.  Simonia informed Hartford that the Social Security Administration had retroactively reduced his SSDI award, and he requested that Hartford recalculate the alleged overpayment.  The parties later settled the counterclaim and stipulated to its dismissal. Simonia did not prevail in his claims against Hartford for continuing benefits.  Simonia thereafter filed a motion seeking $63,745 in attorney’s fees because he “was successful as a counter-defendant in that the defendant dismissed its counterclaim.” The district court, applying the five factors in Hummell v. S.E. Rykoff & Co., 634 F.2d 446 (9th Cir. 1980), denied the motion for fees.  Simonia appealed.  The Ninth Circuit affirmed. The court initially explained that the Supreme Court in Hardt expressly declined to foreclose the possibility that, once a court has determined that a litigant has achieved some degree of success on the merits, it may then evaluate the traditional five factors under Hummell, before exercising its discretion to award attorney’s fees.  Thus, once a court has found that a litigant has made the Hardt showing, it must consider, under Hummell,  the opposing parties’ culpability and ability to pay fees, whether an award would deter similar conduct, whether the claimant sought to benefit all beneficiaries or resolve a significant issue, and the merits of the parties’ positions.  The court held that even assuming Simonia achieved some degree of success on the merits, fees would be inappropriate according to the relevant factors.  The court explained its rationale:

First, there is no “culpability” or “bad faith” evidenced by Hartford’s actions. Simonia began receiving retroactive SSDI benefits in 2006.  Under Simonia’s policy, these benefits –when combined with certain forms of income–offset his award from Hartford.  At the time Hartford filed its counterclaim, it had a good faith belief that Simonia had been overpaid by $22,309.51, and that the deduction of Simonia’s remaining mental disorder benefits would result in a balance due of $8,589. Hartford was then informed that Simonia’s SSDI benefits had been retroactively reduced. Hartford thereafter stipulated to a dismissal of the counterclaim.  These actions evidence good faith. Second, Hartford undoubtedly has the ability to satisfy an award of fees. However, no single Hummell factor is necessarily decisive.  See Carpenters S. Cal. Admin. Corp. v. Russell, 726 F.2d 1410, 1416 (9th Cir. 1984).  Third, given Hartford’s good faith actions, we do not wish to deter others from acting in the same manner. Fourth, in seeking to settle the counterclaim following the Social Security Administration’s retroactive reduction in benefits, Simonia did not seek “to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA.” Hummell, 634 F.2d at 453.  Instead, as the district court found, Simonia sought to benefit only himself.  Finally, the district court correctly noted that the counterclaim was meritorious when it was filed. When the Social Security Administration’s adjustment allegedly deprived the counterclaim of merit, Hartford settled and voluntarily dismissed.  The district court did not exceed the permissible bounds of its discretion in determining that the Hummell factors weigh against an award of attorney’s fees. Even assuming that, as Simonia argues, Hartford mistakenly calculated the amount of overpayment and the counterclaim was of questionable merit when filed, there is no evidence in the record to indicate that Hartford acted in bad faith.  On the contrary, Hartford’s subsequent voluntary dismissal is indicative of its good faith in this matter.  Simonia’s claim would therefore still fail after considering all of the factors.

This was an easy decision for the Ninth Circuit as there was not a good basis for the plaintiff to argue for attorney’s fees here.  However, it is also a rare case where ERISA claimants applied for and do not receive an award of attorney’s fees in an ERISA action.

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