As reported by SCOTUSBLOG, the U.S. Supreme Court granted cert yesterday in a case arising out of the 4th Circuit: Hardt v. Reliance Standard Life Insurance Company.

This is a very important case to attorneys handling denial of benefit claims governed by ERISA. At issue is whether a party must “prevail” in court in order to be awarded attorney’s fees under ERISA’s attorney’s fee provision, which is found at 29 U.S.C. 1132(g)(1).

Frequently, courts “remand” cases for further review by the claim’s administrator rather than reversing the denial decision outright. In such a case, the claimant has certainly acheived a significant measure of success although not a victory in the sense of a final judgment in the claimant’s favor. Should the claimant’s attorney be awarded fees in this instance of a remand? Many courts interpreting ERISA’s attorney’s fee provision have said yes, see, e.g., Miller v. United Welfare Fund, 72 F.3d 1066, 1074 (2d Cir. 1995), but others such as the 4th Circuit Court of Appeals in the Hardt case have said no.

Since typical “prevailing party” language found in most federal law attorney’s fee provisions, such as Title VII’s attorney’s fee provision at 42 U.S.C. 2000e-5(k) (click here), is not found in ERISA’s attorney’s fee provision, I believe that the 4th Circuit’s holding, that claimants are not entitled to an award of attorney’s fees where a court remands the claim for further review, will be reversed.

ERISA’s attorney’s fee provision does not contain a “prevailing party requirement”; it simply provides that “the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party.” Click here.

Thus, I believe that the plain language of ERISA’s attorney’s fee provision will persuade a majority of justices to find that a court does not abuse discretion by awarding attorney’s fees to a claimant who merely achieves a remand rather than a final judgment. Hopefully, this will be the result. Because if the 4th Circuit result is allowed to stand, claims administrators will be perversely incentivized to deny claims and if the claimant acheives a remand, then claims administrator can simply reverse its decision and foreclose any an award of attorney’s fees to the claimant.

Occasionally I will work on a case for one of my clients with an attorney associated with another firm. I do this to benefit my client by providing the best representation possible. This is because many attorneys specialize in a discrete or obscure area of the law and they have special talent and knowledge that can benefit my client. Of course, the client usually wonders how the attorneys fees will be paid and divided in this situation.

Tennessee’s Rules of Professional Conduct contain an express provision concerning the splitting of fees among attorneys who do not work in the same firm. Click here.

Under RPC 1.5(e), a division of a fee between lawyers who are not in the same firm may be made only if:

(1) the division is in proportion to the services performed by each lawyer or, by written consent of the client, each lawyer assumes joint responsibility for the representation;

(2) the client is advised of and does not object to the participation of all the lawyers involved; and,

(3) the total fee is reasonable.

As Comment [5] to RPC 1.5 provides, “[a] division of fee facilitates association of more than one lawyer in a matter in which neither alone could serve the client as well, and most often is used when the fee is contingent and the division is between a referring lawyer and a trial specialist.” Interestingly, Comment [5] also states that RPC 1.5 “does not require disclosure to the client of the share that each lawyer is to receive.” But as a practical matter, I see no reason to refuse to disclose the fee division if asked for this information by a client.

April 15 is around the corner. It’s a good time to remember that 26 U.S.C. 62(a)(20) permits employees to fully deduct attorney’s fees and court costs paid by, or on behalf of, the employee in connection with any action involving a claim of “unlawful discrimination”. Click here.

What constitutes “unlawful discrimination”? The term is defined at 26 U.S.C. 62(e) and includes virtually all of the laws that are used by employees when suing their employers such as Title VII; ADEA; ADA; Rehabilitation Act; FMLA; FLSA; NLRA; ERISA; WARN; Federal laws governing members of the uniformed services; Federal Whistleblower Protection laws; and any “Federal, State, or local law, or common law claims permitted under Federal, State, or local law (i) providing for the enforcement of civil rights, or (ii) regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits, or prohibiting the discharge of any employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.

Bottom line: under federal tax law an employee gets an “above the line” deduction for all attorney’s fees and costs paid by the employee to his/her attorney in cases involving unlawful discrimination.

A Tennessee attorney who is doing some great work representing plaintiff’s in the area of long term disability benefits is Eric Buchanan is Chattanooga. click here. Most long term disability plans are governed by the federal law known as ERISA, which covers employer provided benefit plans, including long term disability plans. Individually purchased long term disability plans are generally governed by the law of the state where the contract was made and entered into.

Eric and his associate Amanda Scales recently obtained a nice decision concerning an award of attorney’s fees in McKay v. Reliance Standard Life Ins. Co., 2009 WL 537197 (E.D.Tenn. March 03, 2009). In this case, the plaintiff persuaded the court to remand the case to the plan administrator to consider evidence and information not properly considered in the first instance. Thereafter, the plaintiff sought an award of attorney’s fees arguing that success in getting the case remanded to the plan administrator justified an award of attorney’s fees. Over the defendant’s objections, the court agreed.

As an initial matter, the court rejected the defendant’s argument that the plaintiff was not entitled to an award of attorney’s fees merely because he had obtained a remand to the plan administrator. The court held that even though the plaintiff had not yet experienced ultimate success in the sense of winning his benefits claim against defendant, he had received another shot at those benefits by achieving a remand. Therefore, the plaintiff could properly be considered a prevailing party for attorney’s fees purposes because he had succeeded on a significant issue in litigation which achieved some of the benefit he sought in bringing suit. The court found that the plaintiff, even if he ultimately does not receive LTD benefits, had still seen success on the merits because his case was remanded to the plan administrator for further consideration. Id. at **2-5.

The court then applied the five factor test adopted by the 6th Circuit Court of Appeals in determining whether to award attorney’s fees in an ERISA case. The factors considered by the court include: (1) the degree of the opposing party’s culpability or bad faith; (2) the opposing party’s ability to satisfy an award of attorney’s fees; (3) the deterrent effect of an award on other persons under similar circumstances; (4) whether the party requesting fees sought to confer a common benefit on all participants and beneficiaries of an ERISA plan or resolve significant legal questions regarding ERISA; and (5) the relative merits of the parties’ positions. Applying these factors, the court determined that the plaintiff was entitled to an award of attorney’s fees under ERISA’s attorney’s fee provision, 29 U.S.C. 1132(g)(1). Id. at **5-8.

Any attorney that has ever handled a long term disability case governed by ERISA on behalf of a plaintiff knows that the deck is heavily stacked in favor of the employer, plan sponsor and/or plan administrator. Basically, a denial of a claim for LTD benefits is going to be upheld by a reviewing court in the great majority of instances. It is nice to see an attorney who will go to battle for his clients in this area of the law. Great lawyering Buchanan & Associates. It’s an attorney’s fee that is well deserved in my opinion.

Here are some questions that I am frequently asked by prospective employment clients involving attorney’s fees:

Q. If I win my case, can the defendant be made to pay my attorney’s fees?

A. It depends on the kind of case. In the U.S., the general rule is that a prevailing litigant is not entitled to collect a reasonable attorney’s fee from the losing party. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247 (1975). This is called the “American Rule”, which stands in contrast to the “English Rule”. In England, prevailing litigants are able to recover attorney’s fees from the losing party. But there are two important exceptions to the “American Rule” that are recognized by courts in the U.S. First, if the parties contractually agree that the loser shall pay the prevailing party’s attorney’s fees then such fees may be recovered against the losing party. Travelers Cas. and Sur. of America v. Pacific Gas and Elec. Co., 549 U.S. 443, 448 (2007). Second, if the statute giving rise to the claim/lawsuit provides for a recover of attorney’s fees by the prevailing party then the prevailing party may recover a reasonable attorney’s fees. Id. Virtually every federal employment related statute authorizes a recovery of attorney’s fees. See, e.g., Title VII, the ADA, the FMLA, and the ADEA. Additionally, many state employment related statutes authorize the recovery of a reasonable attorney’s fee by the prevailing party.

Q. Can I be made to pay the defendant’s attorney’s fees if I lose my employment related case at trial or it is dismissed?

A. Possibly. For example, a prevailing party, which includes defendants as well as plaintiffs, can recover attorney’s fees under Title VII. But a recovery of attorney’s fees may only occur if the court finds that the plaintiff’s claim was frivolous, unreasonable or groundless or the plaintiff continued to litigate after the claim clearly became so. Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421-22 (1978); Wayne v. Village of Sebring, 36 F.3d 517, 530 (6th Cir. 1994). Therefore, it is unlikely that a defendant can recover attorney’s fees against a plaintiff unless the plaintiff’s claim truly lacked merit.