Julie Parke v. First Reliance ( 2004 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
__________
No. 03-1294
__________
Julie Parke, *
*
Plaintiff - Appellee, *
*
v. *
*
First Reliance Standard Life Insurance *
Company, *
*
Defendant - Appellant. *
__________
Appeals from the United States
No. 03-1437 District Court for the
__________ District of Minnesota.
Julie Parke, *
*
Plaintiff - Appellant, *
*
v. *
*
First Reliance Standard Life Insurance *
Company, *
*
Defendant - Appellee. *
___________
Submitted: December 15, 2003
Filed: May 24, 2004
___________
Before WOLLMAN, JOHN R. GIBSON, and RILEY, Circuit Judges.
___________
JOHN R. GIBSON, Circuit Judge.
The district court held that First Reliance Standard Life Insurance Company
was liable to Julie Parke under the Employment Retirement Income Security Act of
1974, or ERISA, for prejudgment interest during the period in which Parke's benefits
were wrongfully delayed. The district court denied Parke's request for certification
of a class but awarded her attorney's fees.1 Both parties appeal portions of the district
court's order and judgment. First Reliance argues: 1) the district court erred in
awarding prejudgment interest to Parke based on First Reliance's delay in starting
payments; 2) the district court erred in awarding Parke the attorney's fees she incurred
during administrative review proceedings related to her claim; and 3) the district court
erred in awarding Parke approximately $96,000 in attorney's fees. For her part, Parke
appeals two issues2: 1) the district court's denial of class certification; and 2) the
1
First Reliance's obligation to pay benefits is not at issue and has not been
disputed since early in the litigation.
2
Parke also contends that we lack jurisdiction to hear this appeal because First
Reliance waited to file its notice of appeal until more than 30 days after the district
court's September 25, 2002 judgment was entered. Because we have already denied
Parke's motion to dismiss the appeal on this ground, we will simply point out that
jurisdiction is proper when an appeal is filed within 30 days after a final decision is
rendered by the district court. See 28 U.S.C. § 1291 (2003) ("The courts of appeal
. . . shall have jurisdiction of appeals from all final decisions of the district courts of
the United States.") (emphasis added). The Order for Judgment dated September 25,
2002, was not a final decision because the district court explicitly reserved its
determination of the amount of attorney's fees and interest owed by First Reliance.
See Hill v. St. Louis Univ., 123 F.3d 1114, 1120 (8th Cir. 1997) ("[W]e have held
that a judgment awarding attorney fees for bad faith damages, but not fixing the
amount of the fees, is not a final, appealable order."). The decision became final
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district court's decision to allow First Reliance to offset the gross, rather than net,
social security benefits Parke received in calculating her benefits. We affirm the
district court in all respects except its award of attorney's fees incurred during Parke's
administrative review proceedings, which we reverse.
FACTS
Julie Parke suffers from insulin-dependent diabetes and a variety of severe
diabetic complications. In 1998, these ailments forced her to resign from her position
as an account executive with Petry Media Corporation. She subsequently applied for
long-term disability benefits from First Reliance Standard Life Insurance Company,
which provided such benefits to Petry employees under a group policy. First
Reliance denied her claim on November 6, 1998, because it concluded that her job
was "sedentary" and could be performed despite her health problems. Parke, with the
help of counsel, requested administrative review of this denial on February 3, 1999.
First Reliance reversed its decision on June 4, 1999, and retroactively awarded
Parke long-term disability benefits through January 30, 1999. However, First
Reliance suspended ongoing benefits to Parke because it contended that Parke had
not submitted adequate medical records to demonstrate the permanent nature of her
disability. Parke filed this action on July 7, 1999, seeking in part to force First
Reliance to reinstate her benefits. On October 14, 1999, First Reliance voluntarily
reinstated Parke's benefits, effective retroactively to February 1, 1999.
when the district court issued its order on January 8, 2003. Jurisdiction is proper
because First Reliance filed its notice of appeal within 30 days after January 8, 2003.
See Maristuen v. Nat'l States Ins. Co., 57 F.3d 673, 678-79 (8th Cir. 1995) (holding
that an order granting unquantified attorney's fees was not a final decision; thus, the
award of fees was appealable until 30 days after the sum was calculated).
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The reinstatement of benefits did not completely resolve the dispute. Parke
asserted that she was entitled to interest and attorney's fees in connection with her
efforts to have her benefits resumed. She also claimed that First Reliance had
incorrectly calculated an offset under the policy for Parke's social security benefits.
She moved for certification of her complaint as a class action, and both parties filed
cross motions for summary judgment. The district court denied all three motions.
Parke's claims ultimately were tried to the district court. The district court
determined that: Parke is entitled to interest during the time her benefits were denied
and suspended in violation of First Reliance's fiduciary duty; First Reliance correctly
calculated the social security offset; and Parke is entitled to attorney's fees and costs.
The district court awarded more than $96,000 in attorney's fees, which included fees
incurred by Parke during the administrative proceedings. The parties appeal most
aspects of the district court's order.
I.
Parke argues that the district court erred by denying her motion for class
certification insofar as it sought injunctive relief for other members of the putative
class . Parke sought an order enjoining First Reliance from suspending or terminating
long-term disability benefits of a claimant until after it receives evidence that the
claimant is no longer disabled or until after the claimant unreasonably refuses to
provide current evidence of disability. In essence, Parke's claim is that First Reliance
engages in a practice of awarding long-term disability benefits to a claimant, then
terminating or suspending those benefits without asking for or receiving evidence that
the claimant's condition has changed.
Parke may sue on behalf of a class only if she meets four threshold
requirements: 1) the class is so numerous that joinder of all members is impracticable;
2) there are questions of law or fact common to the class; 3) the claims or defenses
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of the representative parties are typical of the claims or defenses of the class; and 4)
the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a) (2003). If these four requirements are met, Parke still must
satisfy at least one of the requirements contained in Fed. R. Civ. P. 23(b). The
district court denied the motion for class certification because it concluded that Parke
could not meet the threshold requirement of typicality. The district court determined
that the Petry Media disability plan permits First Reliance to terminate benefits prior
to receiving proof that the claimant's disability status has changed. Thus, even if First
Reliance had breached its duties under the plan in the particular context of Parke's
claim, the propriety of terminating any other claimant's benefits remains dependent
on the facts of the individual case and the terms of any other disability plans under
which First Reliance may review claims.3
We review a district court's denial of class certification for abuse of discretion.
Owner-Operator Indep. Drivers Ass'n, Inc. v. New Prime, Inc., 339 F.3d 1001, 1011
(8th Cir. 2003), cert. denied, 124 S. Ct. 1878 (2004). The record shows that the
district court did not abuse its discretion by refusing to certify a class for injunctive
relief. The Petry Media plan states that "monthly benefits are terminated on the
earliest of . . . 2) the date the Insured ceases to meet the Eligibility Requirements."
3
Parke originally sought to certify what would effectively be a second class of
long-term disability claimants, those who had received benefits that were later
suspended or whose claims were denied and then reversed, to obtain interest
payments and attorney's fees on their behalf. The district court refused to certify the
class for monetary relief for the same reason that it refused to certify the class for
injunctive relief: because Parke could not meet the threshold requirement of
typicality. The district court concluded that the question of whether a particular
claimant's benefits were wrongfully denied or suspended was highly dependent on
individual facts. Parke acknowledges in her brief that "that is a correct ruling," but
nonetheless considers the claim for injunctive relief to be independently appropriate
for class certification.
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To be eligible for benefits, a claimant must provide medical documentation showing
that the claimant is totally disabled. However, the evidence of total disability is not
always sufficient to show that the disability is permanent or long-term. Thus, while
Parke may be correct in her argument that First Reliance's termination of benefits
before asking for or receiving updated medical records would often constitute a
breach of First Reliance's obligations, the question of whether a breach occurred
remains a case-by-case determination. See Holmes v. Pension Plan of Bethlehem
Steel Corp., 213 F.3d 124, 137-38 (3d Cir. 2000) (affirming district court's denial of
class certification for class of beneficiaries whose benefits were wrongfully delayed
because "the issue of liability itself requires an individualized inquiry into the equities
of each claim."). Moreover, although the district court never directly considered the
merits of the injunction request itself, Parke's lawsuit itself suggests the adequacy of
remedies at law. See United States v. Grand Labs., Inc., 174 F.3d 960, 965 (8th Cir.
1999) ("Injunctive relief is generally appropriate when there is no adequate remedy
at law. Probably the most common method of demonstrating that a legal remedy is
inadequate is by showing that irreparable harm will result.") (internal citations and
quotation omitted).
III.
Parke argues that the district court erred in calculating the extent to which the
social security benefits she receives reduce her monthly benefits from First Reliance.
Parke's disability policy obligates First Reliance to provide her with 60% of her pre-
disability earnings. However, the policy also contains an integration provision
allowing First Reliance to reduce the amount payable to Parke each month by the
amount of benefits she receives from other defined sources:
OTHER INCOME BENEFITS: Other Income Benefits are benefits
resulting from the same Total Disability for which a Monthly Benefit is
payable under this Policy. These Other Income Benefits are:
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***
(7) disability or Retirement Benefits under the United States
Social Security Act . . . for which:
(a) an Insured is eligible to receive because of his/her
Total Disability.
Parke does not contest First Reliance's right to reduce her disability benefits as a
result of her social security benefits, but she does dispute the amount of the offset.
The parties agree that Parke is entitled to $1,500 per month in gross social
security benefits. However, she elected to have taxes withheld on these benefits, and
therefore receives net benefits of only $1,123.30 each month.4 First Reliance
nonetheless offset its obligation to her by $1,500 because it concluded that she was
"eligible to receive" the full $1,500 each month. The district court denied Parke's
claim to modify the offset.
Because First Reliance has discretionary authority under the policy to
determine eligibility for benefits, we review its decision for an abuse of discretion.
See Woo v. Deluxe Corp., 144 F.3d 1157, 1160 (8th Cir. 1998).
We conclude that First Reliance did not abuse its discretion in offsetting its
obligation to Parke by the full $1,500 each month. The policy permits First Reliance
to offset its obligation by the amount of social security benefits Parke is "eligible to
receive." Although Parke elected to have taxes withheld on her social security
4
This was the amount calculated by the district court. Parke's brief claims that
she receives only $1,012.17 each month after taxes are withheld, but fails to explain
the discrepancy between her figure and that found by the district court. Because we
conclude that First Reliance is entitled to offset the full $1,500 each month, this
discrepancy is immaterial.
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benefits, First Reliance acted well within its discretion by concluding that she is
eligible to receive the full $1,500 each month. Parke could, for example, choose to
receive the full $1,500 and then pay taxes at the end of the year. Cf. Trujillo v.
Cyprus Amax Minerals Co. Ret. Plan Comm., 203 F.3d 733, 736-38 (10th Cir. 2000)
(affirming district court's conclusion that the plan could offset the entire amount of
worker's compensation benefits awarded to the beneficiary even though a portion of
those benefits went immediately to his attorney). We affirm the district court's refusal
to modify the offset.
IV.
First Reliance raises two issues on appeal. First, it argues that the district court
erred in awarding prejudgment interest to Parke. The court found that First Reliance's
actions in initially denying and later suspending Parke's benefits constituted a breach
of its obligations under the plan and its statutory duties under ERISA. Relying on 29
U.S.C. § 1132 (a)(3)(B), which authorizes courts to award "other appropriate
equitable relief" for ERISA violations, the district court ordered First Reliance to pay
"prejudgment interest" for the period during which benefit payments were wrongfully
denied and suspended. The district court made this award under the equitable theory
of accounting for profits.5 First Reliance appeals the award of interest but not the
district court's holding that it violated its fiduciary duties under ERISA. Because the
district court's award depended upon its interpretation of ERISA, we review the
award de novo. Ross v. Rail Car Am. Group Disability Income Plan, 285 F.3d 735,
741 (8th Cir. 2002).
5
The district court actually stated that it was "disgorg[ing] the interest" First
Reliance earned on the money due to Parke. Disgorgement of profits results from a
court's determination that an accounting for profits is an appropriate equitable
remedy. 1 Dan B. Dobbs, Law of Remedies § 4.3(5), at 610 (2d ed. 1993).
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We have already held that courts may award prejudgment interest as "other
appropriate equitable relief" under § 1132(a)(3)(B) when benefits are wrongfully
delayed. In Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208, 1219 (8th Cir.
1981), we concluded that an award of prejudgment interest was both permissible
under ERISA and appropriate where the plaintiffs had been wrongfully denied their
contractual benefits for approximately four years before final judgment was rendered.
"Under these circumstances, an award of prejudgment interest is necessary in order
that the plan participants obtain 'appropriate equitable relief.'" Id. (citing 29 U.S.C.
§ 1132(a)(3)(B)). See also Kerr v. Charles F. Vatterott & Co., 184 F.3d 938, 945 (8th
Cir. 1999) ("Prejudgment interest awards are permitted under ERISA where necessary
to afford the plaintiff 'other appropriate equitable relief' under section
1132(a)(3)(B)."). Several other courts have also held that prejudgment interest is a
permissible "equitable" remedy under § 1132(a)(3)(B). See Dunnigan v. Metro. Life
Ins. Co., 277 F.3d 223, 228-29 (2d Cir. 2002); Clair v. Harris Trust & Sav. Bank, 190
F.3d 495, 498-99 (7th Cir. 1999); Fotta v. Trs. of United Mine Workers of Am., 165
F.3d 209, 212 (3d Cir. 1998) (Fotta I).
First Reliance attempts to overcome this precedent in two ways. First, it
contends that the instant situation is not governed by our prior case law because First
Reliance's voluntary reinstatement of benefits meant there was no underlying
judgment upon which the district court could make an award of "prejudgment"
interest. Second, it argues that a recent Supreme Court case, Great-West Life &
Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), narrows ERISA's definition of
"other appropriate equitable relief"to the point where interest on delayed benefits is
no longer a permissible remedy.
We are not persuaded by First Reliance's formalistic attempt to create a
distinction between instances where an ERISA-governed plan provider begins paying
wrongfully denied benefits after a judgment is obtained and those instances where the
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provider begins paying wrongfully denied benefits without a judgment. If interest is
an appropriate remedy under § 1132(a)(3)(B) to avoid unjust enrichment of a plan
provider who wrongfully delays the payment of benefits, the award is appropriate
whether a judgment is obtained or not. "The principles justifying prejudgment
interest also justify an award of interest where benefits are delayed but paid without
the beneficiary's having obtained a judgment." Fotta I, 165 F.3d at 212. See also
Kerr, 184 F.3d at 946 ("[T]he wrongdoer should not be allowed to use the withheld
benefits or retain interest earned on the funds during the time of the dispute."). At
most, First Reliance has merely established that the district court improperly labeled
an otherwise appropriate award.
The closer question is whether interest on wrongfully delayed or suspended
benefits remains a viable remedy under § 1132(a)(3)(B) following the Supreme
Court's decision in Knudson. It appears that no appellate court has considered this
question.6
In Knudson, a health insurance plan covered $411,157.11 in medical expenses
incurred by one of its beneficiaries following her injury in a car accident. 534 U.S.
at 207. The beneficiary later filed a state-court tort action against the manufacturer
of the car and others, which resulted in a $650,000 settlement. The beneficiary never
had actual possession of this money; instead, the bulk of the settlement went to
attorney's fees and into a trust for the beneficiary's medical care. Her health insurance
plan contained a provision entitling the plan to reimbursement of any expense for
6
A case from the Third Circuit, Fotta v. Trs. of United Mine Workers of Am.,
319 F.3d 612, 616 (3d Cir.), cert. denied, 124 S. Ct. 468 (2003) (Fotta II), was decided
after Knudson and reiterated that circuit's earlier holding that interest on delayed
payments was permissible as "other appropriate equitable relief." However, it
appears that the defendant in that case did not raise the issue before us here; the
dispute in Fotta II centered on whether a plaintiff could recover interest without
proving that the plan acted wrongfully, and Knudson was not even mentioned.
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which the beneficiary received a payment from a third party. Thus, Great-West,
which had paid most of the medical expenses on behalf of the plan and was assigned
the rights of the plan, filed a federal action under ERISA to recover $411,157.11 from
the beneficiary. Great-West attempted to characterize the action for reimbursement
as "other appropriate equitable relief" under § 1132(a)(3)(B).
The Supreme Court held that the relief sought by Great-West was essentially
legal and therefore could not be awarded under § 1132(a)(3)(B). The Court explained
that the term "other appropriate equitable relief" referred to "those categories of relief
that were typically available in equity . . . ." Id. at 210 (quoting Mertens v. Hewitt
Associates, 508 U.S. 248, 256 (1993)). Great-West's claim, whether labeled as an
injunction to compel the payment of money past due under a contract, specific
performance of a past due monetary obligation, or restitution, did not constitute the
type of relief that was typically available in equity. Knudson, 534 U.S. at 210-18.
First Reliance argues that the relief requested by Parke is in all relevant
respects indistinguishable from the relief sought in Knudson. In its view, Parke is
simply using equitable terms to describe legal relief, and Knudson forecloses this type
of recovery. See Knudson, 534 U.S. at 221 ("Because petitioners are seeking legal
relief–the imposition of personal liability on respondents for a contractual obligation
to pay money–[§ 1132(a)(3)(B)] does not authorize this action.").
It is undisputed that an accounting for profits–the remedy that allows for the
disgorgement of profits awarded by the district court–is a type of relief that was
typically available in equity and therefore is appropriate under § 1132(a)(3)(B). See
Knudson, 534 U.S. at 214 n.2 (describing accounting for profits as "a form of
equitable restitution"). The question is whether the award of interest made by the
district court can actually be considered an accounting for profits, or whether it
instead represents a legal claim disguised in equitable terms. See Flint v. ABB, Inc.,
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337 F.3d 1326, 1331 (11th Cir. 2003), cert. denied, 124 S. Ct. 1507 (2004) ("The
Court's decision in Knudson, therefore, raises the question whether [§ 1132(a)(3)]
ever allows an award of interest for delayed benefits or whether such a claim is an
impermissible attempt to dress an essentially legal claim in the language of equity.").
To resolve this question, we first must establish exactly what is meant by the
term "accounting for profits." An accounting for profits is one of a category of
traditionally restitutionary remedies in equity, and is often invoked in conjunction
with a constructive trust. A constructive trust is imposed when a defendant has
possession of particular funds or property that in good conscience belong to the
plaintiff. 1 Dan B. Dobbs, Law of Remedies § 4.3(1), at 587 (2d ed. 1993). The
plaintiff must specifically identify the particular funds or property in order to obtain
the constructive trust; it is not enough that the defendant merely owes the plaintiff
some money. Id. § 4.3(2), at 589-91; Knudson, 534 U.S. at 214 & n.2. An
accounting is imposed when the property subject to the constructive trust produces
profits while in the defendant's possession. The defendant is forced to disgorge those
profits, although it is not necessary for the plaintiff to identify any particular res or
fund of money holding the profits. See 1 Dobbs § 4.3(1), at 588 ("Unlike the
[constructive] trust, however, accounting does not seek any particular res or fund of
money; the defendant will be forced to yield up profits, but the defendant can pay
from any monies he might have, not some special account.").
First Reliance argues that Parke is not entitled to an accounting for profits
because she cannot establish any property upon which an underlying constructive
trust could have been imposed. However, the availability of an accounting for profits
is not limited to situations in which a constructive trust is imposed over specifically
identifiable property. Under traditional rules of equity, a defendant who owes a
fiduciary duty to a plaintiff may be forced to disgorge any profits made by breaching
that duty, even if the defendant's breach was simply a failure to perform its
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obligations under a contract. See 1 Dobbs § 4.3(5), at 611 n.16 ("If the 'breacher' [of
a contract] also breaches a fiduciary duty, . . . the breacher-fiduciary may be made to
disgorge his profits from the wrong. . . . The important ingredient added by the
fiduciary status, however, is not that status in itself; what is added is wrongdoing as
distinct from contract breach."); see also Valdes v. Larrinaga, 233 U.S. 705, 709
(1914) (holding that a "proper case for equitable relief" existed where the defendant
breached a fiduciary duty to the plaintiff by failing to pay money owing under the
contract).
We have precisely such a situation here. The district court concluded that First
Reliance owed a fiduciary duty to Parke and that it breached that duty. First Reliance
has not appealed that issue. Thus, First Reliance can be forced under § 1132(a)(3)(B)
to disgorge any profits it earned as a result of that conduct. This is a remedy
"typically available in equity" and therefore permissible after Knudson. See, e.g.,
Tull v. United States, 481 U.S. 412, 424 (1987) (describing disgorgement of improper
profits as being "traditionally considered an equitable remedy").
Nonetheless, First Reliance points out that Parke has requested interest on the
delayed benefits without presenting evidence that First Reliance made a profit during
the period of withholding. First Reliance asserts that Parke cannot be awarded
interest without submitting evidence of some specific profit that First Reliance earned
by breaching its fiduciary duty.
In the particular context of withheld benefits under ERISA, we conclude that
interest is an appropriate measure of the profits made by a defendant who breaches
its fiduciary duty to a beneficiary. The purpose of an accounting for profits is to
"disgorge gains received from improper use of the plaintiff's property or
entitlements." 1 Dobbs § 4.3(5), at 610. A defendant like First Reliance "gains" from
the wrongful withholding of the plaintiff's benefits even if the plaintiff does not prove
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specific financial profit. In particular, the defendant receives a benefit from having
control over the money. See id. § 3.6(2), at 344 n.22 ("[U]ntil the plaintiff is paid, the
defendant has the use of funds that ought to go to the discharge of his obligation of
the plaintiff. That is a benefit. The defendant may not use the funds or collect
interest on them. Nevertheless, he has a benefit found in his power to do so.").
Interest is, in many respects, the only way to account for this gain and therefore is an
appropriate measure of the extent to which First Reliance was unjustly enriched.
We emphasize that the purpose of this award is to prevent First Reliance from
profiting by its breach of fiduciary duty and not to compensate Parke for the delay in
payment. See id. §4.3(5), at 608 ("In its most important meaning, [accounting for
profits] is a restitutionary remedy based upon avoiding unjust enrichment."); In re
Leasing Consultants Inc., 592 F.2d 103, 107 (2d Cir. 1979) ("[A]n equitable
accounting is designed to prevent unjust enrichment by requiring the disgorgement
of any benefits or profits received as a result of a fiduciary's breach of the duty of
loyalty."). The fact that this equitable remedy produces the same damages that might
be awarded in a breach of contract case at law is of no consequence. See Reich v.
Cont'l Cas. Co., 33 F.3d 754, 756 (7th Cir. 1994) (explaining that an accounting for
profits of a fiduciary "if ordered would be ordered in a suit in equity, and the remedy
thus would be equitable, while a suit seeking identical relief against a nonfiduciary
would normally be a suit at law and the relief sought therefore legal").
In sum, we hold that an award of interest on wrongfully delayed benefits
remains permissible under § 1132(a)(3)(B) after Knudson as a remedy for a breach
of a fiduciary duty to a beneficiary. Thus, we affirm the district court's award of
interest in the amount of $687.68.
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V.
The district court awarded Parke $96,448.77 for attorney's fees, which includes
those fees incurred during First Reliance's internal administrative review process.
First Reliance argues that ERISA does not permit the award of attorney's fees
incurred during administrative review of a beneficiary's claim and that the overall
award of over $96,000 was unreasonable in a situation where the actual damages
were only $687.68.
The district court's award of attorney's fees under ERISA is ordinarily reviewed
for abuse of discretion. Martin v. Arkansas Blue Cross & Blue Shield, 299 F.3d 966,
969 (8th Cir. 2002). However, the question of whether ERISA permits the award of
attorney's fees incurred during administrative proceedings is one of statutory
interpretation, which we review de novo. See Ross v. Rail Car Am. Group Disability
Income Plan, 285 F.3d 735, 741 (8th Cir. 2002), cert. denied, 537 U.S. 1159 (2003)
(reviewing de novo the district court's interpretation of ERISA). Thus, we will review
de novo the threshold question of whether ERISA permits recovery of attorney's fees
incurred during the administrative review of a beneficiary's claim, then review the
reasonableness of the award under an abuse of discretion standard.
A.
ERISA contains a fee-shifting provision, 29 U.S.C. § 1132(g)(1), which states:
"In any action under this subchapter (other than an action described in paragraph (2))
by a participant, beneficiary, or fiduciary, the court in its discretion may allow a
reasonable attorney's fee and costs of action to either party." The question before us
is whether the phrase "any action" refers only to formal judicial actions, or whether
we should interpret it more broadly to encompass administrative proceedings that take
place beforehand. Four circuits have considered this question, and all four have held
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that ERISA does not allow recovery of attorney's fees incurred during pre-litigation
administrative proceedings. See Peterson v. Cont'l Cas. Co., 282 F.3d 112, 118-21
(2d Cir. 2002); Rego v. Westvaco Corp., 319 F.3d 140, 149-50 (4th Cir. 2003);
Anderson v. Procter & Gamble Co., 220 F.3d 449, 452-56 (6th Cir. 2000); Cann v.
Carpenters' Pension Trust Fund, 989 F.2d 313, 315-17 (9th Cir. 1993).
The district court disagreed with these holdings because it concluded they were
at odds with two Supreme Court cases authorizing the award of attorney's fees for
certain administrative proceedings even when the fee-shifting provisions of the
relevant statutes referred only to "actions." See Pennsylvania v. Delaware Valley
Citizens' Council for Clean Air, 478 U.S. 546 (1986); Sullivan v. Hudson, 490 U.S.
877 (1989). In Delaware Valley, the Court interpreted the phrase "any action" under
the Clean Air Act broadly enough to permit the award of attorney's fees incurred
during post-litigation administrative proceedings. 478 U.S. at 557-61. Similarly, the
Court in Sullivan held that the phrase "any civil action" in the Equal Access to Justice
Act allowed the prevailing party to recover fees incurred during post-litigation
administrative proceedings. 490 U.S. at 883-93. Delaware Valley and Sullivan
stopped far short of holding that the term "action" always should be interpreted to
allow the award of fees for administrative proceedings. Instead, such an award is
appropriate only "where administrative proceedings are intimately tied to the
resolution of the judicial action and necessary to the attainment of the results
Congress sought to promote by providing for fees. . . ." Id. at 888. See also New
York Gaslight Club, Inc. v. Carey, 447 U.S. 54, 60-62 (1980) (placing critical
importance on Congress's use of the disjunctive "action or proceeding" in Title VII
of the Civil Rights Act of 1964 in concluding that the prevailing party could recover
fees incurred during state administrative proceedings).
The Sixth and Ninth circuits, in particular, carefully distinguished the holdings
in Sullivan and Delaware Valley from the question of whether an attorney's fee award
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under ERISA may include fees incurred during the administrative review process.
See Anderson, 220 F.3d at 453-54; Cann, 989 F.2d at 316-17. Those courts noted
that the Supreme Court authorized the award of fees in Sullivan and Delaware Valley
only when the administrative proceedings occurred after the litigation and where the
administrative proceedings were necessary to enforce a final judgment that had
already been obtained. See Anderson, 220 F.3d at 453 ("[I]t is clear from the Court's
reasoning [in Sullivan] that fees for administrative proceedings under 29 U.S.C. §
1132(g) should be recoverable only when the final judgment (or enforcement thereof)
in the prevailing party's suit depends on the administrative proceedings for which fees
are being claimed.") (emphasis in original); Cann, 989 F.2d at 317.
We are persuaded by their reasoning. The administrative proceedings in
Sullivan and Delaware Valley were intertwined with the judicial actions in those
cases to an extent that is simply not present in the context of pre-litigation
administrative proceedings under ERISA. See Sullivan, 490 U.S. at 885 (explaining
that the close relationship between the judicial action and subsequent administrative
proceedings in that case "suggest[s] a degree of direct interaction between a federal
court and an administrative agency alien to traditional review of agency action under
the Administrative Procedure Act"); Delaware Valley, 478 U.S. at 558-59 ("In a case
of this kind, measures necessary to enforce the remedy ordered by the District Court
cannot be divorced from the matters upon which Delaware Valley prevailed in
securing the consent decree."). The administrative proceedings related to Parke's
claim, though mandatory in a claim for benefits under ERISA's exhaustion
requirement, are neither necessary for enforcement of a judicial decree nor so closely
connected to the resolution of the judicial action as to fall within the scope of
Sullivan and Delaware Valley. In fact, if an ERISA plan beneficiary prevails at the
administrative level, there will be no judicial action at all. We cannot conclude that
administrative proceedings are "intimately tied to the resolution of the judicial
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action," Sullivan, 490 U.S. at 888, when judicial action often will not even be
necessary.
We join the Second, Fourth, Sixth, and Ninth Circuits in holding that the term
"any action" in 29 U.S.C. § 1132(g)(1) does not extend to pre-litigation
administrative proceedings. Thus, we reverse the portion of the district court's fee
award attributable to the administrative review of Parke's claim and remand to the
district court with instructions to limit the fee award to fees incurred in the judicial
action.7
B.
First Reliance contends that the remainder of the fee award is unreasonable in
light of the small size of the interest award itself and the fact that First Reliance made
a significant offer of judgment early in the litigation. We conclude that, with the
exception of the portion of the award attributable to the administrative proceedings,
the district court did not abuse its discretion in making the award.
The district court specifically considered each of the five factors set out in
Lawrence v. Westerhaus, 749 F.2d 494, 495-96 (8th Cir. 1984), for determining the
propriety of an award of attorney's fees under ERISA. These factors include: 1) the
degree of culpability or bad faith which can be assigned to the opposing party, 2) its
ability to pay, 3) the potential for deterring others in similar circumstances, 4)
whether the moving party sought to benefit all plan participants or beneficiaries or to
7
First Reliance contends that $20,320.20 is attributable to the administrative
review process and urges us to reduce the fee award accordingly. Parke neither
admits nor challenges this amount, although counsel did state during oral argument
that he believed the amount to be in the in the range of $17,000-18,000. The
calculation of the actual amount is more appropriately left to the district court.
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resolve a significant legal question regarding ERISA, and 5) the relative merits of the
parties' positions. Id. We review the district court's award for abuse of discretion,
which "occurs when the district court commits a clear error of judgment in weighing
the relevant factors." Maune v. IBEW, Local No.1, Health & Welfare Fund, 83 F.3d
959, 964 (8th Cir. 1996) (internal quotation and citation omitted).
First Reliance does not focus on the five factors themselves, but rather on the
district court’s alleged failure to adequately weigh the offer of judgment made by
First Reliance in March of 2000.8 First Reliance offered to have a $25,000 judgment
taken against it under Rule 68 of the Federal Rules of Civil Procedure, "based on the
claims in the complaint and based on the purported class action claims." Parke’s
counsel rejected the offer. First Reliance argues that the district court should not have
awarded fees incurred after the offer because the offer exceeded the amount to which
Parke was entitled at the time it was made. See Fed. R. Civ. P. 68 ("If the judgment
finally obtained by the offeree is not more favorable than the offer, the offeree must
pay the costs incurred after the making of the offer."); Moriarty v. Svec, 233 F.3d
955, 967 (7th Cir. 2000) ("Substantial settlement offers should be considered by the
district court as a factor in determining an award of reasonable attorney's fees, even
where Rule 68 does not apply."). Parke's counsel responds by arguing that he could
not justifiably have accepted an offer on behalf of an entire class that had not yet been
(and never would be) certified; thus, the offer of judgment should not affect the
district court's award. For its part, the district court concluded that First Reliance's
failure to specifically include attorney's fees in the offer meant that Rule 68 did not
per se preclude the award of post-offer fees. Nonetheless, the district court believed
that Parke's rejection of the offer of judgment should be considered in deciding
8
First Reliance did argue that Parke failed to raise a “significant legal question
regarding ERISA,” but we believe the question of whether interest on wrongfully
withheld or delayed benefits remains a permissible legal remedy under
§ 1132(a)(3)(B) after Knudson clearly meets this description.
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whether to award fees and in what amount. The district court ultimately awarded
Parke almost all of the fees she requested.
We conclude that the district court did not abuse its discretion by awarding
attorney's fees to Parke even though she rejected First Reliance's offer of judgment.
By its own language, the offer was intended to settle the putative class action claims
in addition to Parke's individual claim. However, First Reliance did not apportion the
$25,000 offer between the settlement of Parke's individual claim and the putative
class claim. Thus, it is impossible to determine whether Parke ultimately recovered
more than the amount offered by First Reliance with respect to her individual claim.
See Moriarty, 233 F.3d at 967 ("[A]n offer is substantial if. . . the offered amount
appears to be roughly equal to or more than the total damages recovered by the
prevailing party.").
The fact that Parke had not yet attempted to certify the class at the time of the
offer is irrelevant. First Reliance clearly recognized the imminence of the class action
claim and adjusted its offer accordingly. We see no reason why First Reliance would
include the "purported class action claims" in its offer if it valued Parke's individual
claim at $25,000.
Parke's ultimate failure to certify a class also does not affect our conclusion.
The district court refused to award fees Parke incurred in her pursuit of the class
claim. If First Reliance intended for its Rule 68 offer to have legal consequences
related to her individual claim, it should have written its offer letter accordingly.
The proportion of attorney's fees to the judgment also does not persuade us to
reverse the district court's award. The parties blame each other for the amount of time
and resources expended in the lawsuit, and the district court was in the best position
to evaluate the relative roles of the parties in extending the litigation. See Griffin v.
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Jim Jamison, Inc., 188 F.3d 996, 997 (8th Cir. 1999) ("[District] courts are necessarily
more familiar than we are with the members of their own bar and with the course of
litigation before them, including what lawyers may have done that was unnecessary
and what may have taken up more time than it needed to."). While we are concerned
with the significant discrepancy between the damage award and attorney's fees, we
cannot conclude that the district court abused its discretion in making such an award.
VI.
We affirm the district court in all respects except its award of attorney's fees
incurred during the administrative review of Parke's claim. We reverse on this issue
and remand to the district court with instructions to deduct these fees from its
judgment.
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