Labor & Employment Law Daily Under ERISA, attorney’s fees cannot be imposed on opposing counsel
Friday, April 9, 2021

Under ERISA, attorney’s fees cannot be imposed on opposing counsel

By Wayne D. Garris Jr., J.D.

The district court charged attorney’s fees to the plaintiff’s attorney after finding that he kept the court in a “systemic state of confusion” by repeatedly raising moot issues.

The Eleventh Circuit reversed, vacated, and remanded a district court’s decision to impose attorneys’ fee award against a plaintiff’s counsel after finding the he engaged in misconduct during the course of litigation with an insurance company. Noting that this was an issue of first impression, the court held that ERISA’s fee-shifting provision did not explicitly provide for imposing fee awards on attorneys; thus the court could not add this requirement to the statute. Further, the court held, making an ERISA attorney face liability for attorney’s fees would damage the attorney-client relationship and circumvent the due process afforded to attorneys facing sanctions (Peer v. Liberty Life Assurance Company of Boston, April 6, 2021, Brasher, A.).

The plaintiff hired an attorney to appeal an adverse benefits determination, but the decision was upheld on administrative appeal. The plaintiff then filed a lawsuit against Liberty Life, seeking (1) a waiver of premium, (2) clarification of her right to future benefits, and (3) a reasonable claims procedure going forward. Five months after the plaintiff filed her lawsuit, Liberty Life reinstated her coverage and the waiver of premium benefit retroactive to the original termination date.

District court proceedings. Liberty Life advised the district court that it had mooted the only issue in the plaintiff’s pending motion for summary judgment. The court denied the motion as moot and also dismissed as moot the plaintiff’s claim for waiver of premium. The court then directed the plaintiff to identify any remaining issues. After reviewing the plaintiff’s response, the court held that each issue identified was either rendered moot by the reinstatement of coverage under a waiver of premium or was “confusingly intertwined” with the mooted issues. The court closed the case but granted the plaintiff leave to amend her complaint.

The plaintiff amended her complaint twice but did not identify any new issues and continued to try to incorporate her previously dismissed claims. The district court, in response, issued interrogatories directly to the plaintiff’s attorney. The district court asked “whether the case presented questions of law, capable of resolution on summary judgment, or whether only factual issues remained.” The attorney asserted that the legal issues remained, so the district court set a status conference.

After the status conference, the district court dismissed the claims in Count I and granted judgment on the pleadings as to Count II of the plaintiff’s complaint. The plaintiff appealed and the Eleventh Circuit affirmed. Both parties then moved for attorneys’ fees.

Attorney’s fee award. The district court granted both motions in part. It awarded the plaintiff attorney’s fees for work performed from the commencement of her suit until her policy was reinstated. It awarded Liberty Life attorney’s fees incurred for work performed after the reinstatement of the plaintiff’s policy, including fees for litigating the appeal. However, the district court directed the plaintiff’s attorney, not the plaintiff, to pay Liberty Life’s attorney’s fees. The district court concluded that the attorney kept the court in a “systemic state of confusion” and caused Liberty Life to expend “considerable resources”; and (2) the attorney had 30 years of ERISA experience and should have known the plaintiff’s claims were moot. The plaintiff filed a motion to alter the judgment, which the district court denied. The attorney appealed.

Fee-shifting. ERISA’s fee-shifting statute provides that “the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party.” The issue before the court on appeal was whether it had discretion under ERISA to require an attorney to pay another party’s fees.

American rule. The common law rule, known as the American rule, holds that parties pay their own attorney’s fees. Thus, fee shifting statutes must be explicit. The appeals court explained that Title VII’s fee-shifting provision is similar to ERISA’s in that it provides for fee-shifting but does not explicitly permit fee awards against counsel. In its Title VII cases, the appeals court has held that Title VII did not allow fee awards against counsel for this reason. “The proper presumption is that when a fee-shifting statute does not explicitly permit a fee award against counsel, it prohibits it,” the court stated. Because ERISA does not explicitly permit a fee award against counsel, the district court should not have charged fees to the plaintiff’s counsel.

ERISA. The court also noted that its decision was consistent with its view of ERISA generally. “Where ERISA is silent on an issue, Congress intended for courts to fashion a federal common law governing employee benefit plans,” the appeals court said.

The appeals court asserted that ERISA is not primarily about punishing misconduct and there would be no benefit to employees or uniformity in creating a special sanctions for ERISA lawyers. In fact, imposing such sanctions on lawyers would make it more difficult for beneficiaries and insurance plans to hire qualified counsel if attorneys had to assume heightened personal risk.

Case law. Further, the appeals court noted that its ERISA fee-shifting case law focuses on the conduct of the parties, not attorneys. In Freeman v. Continental Ins. Co, the court outlined five factors to be considered when determining whether to award fees: “(1) the degree of the opposing parties’ culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of attorney’s fees; (3) whether an award of attorney’s fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorney’s fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; (5) the relative merits of the parties’ positions.” None of those factors indicate that an attorney should be liable for an opposing party’s fees.

Attorney-client relationship. Next, the court’s decision would minimize disruption to the lawyer-client relationship. Allowing an attorney to be liable for fees can place an attorney in an ethical dilemma. For example, in this case, the plaintiff and the attorney severed their relationship after the district court issued its decision on fees. On appeal, the attorney argued that the plaintiff should be liable; but the plaintiff no longer had counsel to argue on her behalf. Further, the plaintiff had no counsel to argue against Liberty Life’s cross-appeal seeking to expand the fee award to include her. We would have to live with these consequences if ERISA’s fee-shifting statute expressly applied to attorneys. But we should not create them for ourselves.

Current sanction regime. Lastly, the court explained that allowing an award of fees against a lawyer would circumvent procedures to sanction attorney misconduct. The law places a “high bar” to sanction an attorney for his or her decisions in litigation. When an attorney does engage is misconduct or conduct a sanctionable offense, the attorney must be afforded due process. By altering the fee-shifting statute, the court would be sidestepping these requirements.

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