Martin v. Arkansas Blue Cross & Blue Shield ( 2002 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 00-3420
___________
Brian Martin, Individually *
and as the Administrator *
of the Estate of Norma *
Martin, deceased, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the Eastern
* District of Arkansas.
Arkansas Blue Cross and *
Blue Shield, a Mutual *
Insurance Company, *
*
Appellee. *
___________
Submitted: January 15, 2002
Filed: August 16, 2002
___________
Before WOLLMAN,1 Chief Judge, McMILLIAN, BOWMAN, BEAM, LOKEN,
HANSEN,2 MORRIS SHEPPARD ARNOLD, MURPHY, BYE, and RILEY,
Circuit Judges.
1
The Honorable Roger L. Wollman stepped down as Chief Judge of the United
States Court of Appeals for the Eighth Circuit at the close of business on January 31,
2002. He has been succeeded by the Honorable David R. Hansen.
2
The Honorable David R. Hansen became Chief Judge of the United States
Court of Appeals for the Eighth Circuit on February 1, 2002.
___________
BEAM, Circuit Judge.
Brian Martin appeals the district court's denial of attorney fees in this case
under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et
seq. We affirm.
I. BACKGROUND
Norma Martin asked Arkansas Blue Cross and Blue Shield (the Plan) to certify
benefits for a lung transplant pursuant to an ERISA employee welfare benefit plan in
which she participated. After the Plan denied benefits, Martin sued, alleging that
benefits had been wrongfully denied.
The district court held that a procedural irregularity rendered the Plan's denial
unreasonable and ordered the Plan to certify coverage for the lung transplant. Martin
then petitioned for attorney fees, and asked for a contingent fee based on the cost of
the lung transplant surgery (one-third of $125,000, or $41,666.67). The district court
denied the petition for fees. The district court applied the five-factor test set forth in
Lawrence v. Westerhaus, 749 F.2d 494, 495-96 (8th Cir. 1984), and determined that
the factors weighed in favor of the Plan. The district court acknowledged the Landro
v. Glendenning Motorways, Inc., 625 F.2d 1344, 1356 (8th Cir. 1980), presumption
in favor of awarding fees absent special circumstances, and concluded that
"consideration of the Lawrence factors leads the Court to believe that plaintiffs are
not entitled to shift their attorneys' fee onto the shoulders of defendant in this matter."
The district court also denied the fee petition on the alternative ground that
Martin had not offered evidence concerning the number of hours reasonably spent on
the litigation, or the reasonable hourly rate for such services, holding that a
contingent fee award was inappropriate in an ERISA case. Martin filed a motion for
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reconsideration, setting forth an hourly fee request in the amount of $11,091. Martin
brought this appeal after the district court denied the motion for reconsideration.3
II. DISCUSSION
ERISA's fee-shifting provision unambiguously gives the district court
discretion to award attorney fees to "either party." 29 U.S.C. § 1132(g). In making
this determination, a district court abuses its discretion when there is a lack of factual
support for its decision, or when it fails to follow applicable law. Richards v.
Aramark Servs., Inc., 108 F.3d 925, 927 (8th Cir. 1997).
This case involves the conundrum of what, exactly, is the applicable law for
ERISA attorney fee applications in this circuit. On one hand, our circuit was one of
the first to apply the presumption in favor of prevailing ERISA plaintiffs. In Landro,
we held that the prevailing plaintiff was entitled to a presumption in favor of a fee
award–limited by the losing defendant's ability to show special circumstances in
support of denying an award. 625 F.2d at 1356. We noted that the losing defendant
had the burden of proving those special circumstances. Id. at 1356 n.19. Then, in
Westerhaus, 749 F.2d at 496, we identified a five-factor test4 designed to aid the
3
At oral argument, Martin's counsel clarified that he no longer seeks a
contingency fee, but simply appeals the denial of the fee requested on
reconsideration.
4
Those factors are: (1) the degree of culpability or bad faith of the opposing
party; (2) the ability of the opposing party to pay attorney fees; (3) whether an award
of attorney fees against the opposing party might have a future deterrent effect under
similar circumstances; (4) whether the parties requesting attorney fees sought to
benefit all participants and beneficiaries of a plan or to resolve a significant legal
question regarding ERISA itself; and (5) the relative merits of the parties' positions.
Westerhaus, 749 F.2d at 496. The Westerhaus court quoted these factors from the
Fifth Circuit's opinion in Iron Workers Local No. 272 v. Bowen, 624 F.2d 1255, 1266
(5th Cir. 1980).
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district court in making its discretionary determination regarding fees, but failed to
mention the presumption. See also Jacobs v. Pickands Mather & Co., 933 F.2d 652,
659 (8th Cir. 1991) (stating that court should consider the enumerated Westerhaus
factors in exercising its discretion concerning whether to award attorney fees).
Lutheran Medical Center v. Contractors, Laborers, Teamsters and Engineers
Health and Welfare Plan, 25 F.3d 616, 623-24 (8th Cir. 1994) appears to be the first
case in which we referred to the five-factor test and the presumption in the same
analysis. In Lutheran Medical we affirmed the district court's decision to award fees
to the plaintiff, and noted that "the Plan has not shown any special circumstances.
Moreover, the district court exhaustively considered all five factors set forth in
Jacobs." Id. at 624. Also, in affirming the district court's award of attorney fees in
Stanton v. Larry Fowler Trucking, Inc., 52 F.3d 723, 730 (8th Cir. 1995), we noted
that the defendant bore the burden of showing special circumstances to preclude an
attorney fees award, and credited the district court's consideration of the five-factor
test in its decision to award fees to the plaintiff. Id. at 729-30. See also Milone v.
Exclusive Healthcare, Inc., 244 F.3d 615, 620 (8th Cir. 2001) (referring to both the
presumption and five-factor test).
A review of our sister circuits indicates that the First, Third, Fourth, Fifth,
Sixth, Eleventh,5 and D.C. circuits have all considered the presumption and expressly
rejected its application. E.g., Cottrill v. Sparrow, Johnson & Ursillo, Inc., 100 F.3d
220, 226 (1st Cir. 1996); Eddy v. Colonial Life Ins. Co. of Am., 59 F.3d 201, 205-06
(D.C. Cir. 1995); Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1030 (4th
5
While the Eleventh Circuit has not considered and rejected the presumption,
the Fifth Circuit case that did, Bowen, 624 F.2d 1255, was decided in 1980 before the
Eleventh Circuit was created by splitting apart the Fifth Circuit, and thus is
considered binding precedent on the Eleventh Circuit. See Bonner v. City of
Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc) (Eleventh Circuit adopted
as binding precedent all decisions of the former Fifth Circuit handed down prior to
October 1, 1981).
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Cir. 1993); Ellison v. Shenango Inc. Pension Bd., 956 F.2d 1268, 1274 (3d Cir.
1992); Armistead v. Vernitron Corp., 944 F.2d 1287, 1302 (6th Cir. 1991); Iron
Workers Local No. 272 v. Bowen, 624 F.2d 1255, 1266 (5th Cir. 1980).
The Second and Tenth circuits do not use the presumption, but have not
considered and expressly rejected it. E.g., Chambless v. Masters, Mates & Pilots
Pension Plan, 815 F.2d 869, 871 (2d Cir. 1987); Gordon v. United States Steel Corp.,
724 F.2d 106, 109 (10th Cir. 1983).6 In fact, the Tenth Circuit is the genesis of the
five-factor test, as first enunciated in Eaves v. Penn, 587 F.2d 453, 465 (10th Cir.
1978).
Finally, the Seventh and Ninth Circuits appear to utilize some version of both
the five-factor test and a presumption in conducting the discretionary attorney fee
analysis. See McElwaine v. US West, Inc., 176 F.3d 1167, 1172 (9th Cir. 1999)
(spelling out the five-factor test and stating that court should also apply the special
circumstances rule); Little v. Cox's Supermarkets, 71 F.3d 637, 644 (7th Cir. 1995)
(noting that courts can use either the five-factor test or a "modest presumption" and
that under either formulation, "the 'bottom-line question' is the same: was the losing
party's position substantially justified and taken in good faith, or was that party
simply out to harass its opponent").
In the cases that expressly rejected the presumption, the proponent of the
presumption generally analogized the ERISA fee-shifting structure to the similar fee-
shifting statute in civil rights cases, citing particularly to Hensley v. Eckerhart, 461
U.S. 424 (1983). Hensley clarified the standards for attorney fees in civil rights
6
An unpublished per curiam opinion from the Tenth Circuit does cite Landro
and refers to the presumption. See Jenkins v. Green Bay Packaging, Inc., No. 93-
5038, 1994 WL 609387, at *2 (10th Cir. Nov. 7, 1994). However, because it is
unpublished, that case is not considered precedent in the Tenth Circuit, see Tenth Cir.
R. 36.3(A), and no other Tenth Circuit case mentions the presumption.
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cases, and the Court noted that prevailing plaintiffs may ordinarily recover attorney
fees unless special circumstances make an award unjust. Id. at 429 (citing Newman
v. Piggie Park Enters., Inc., 390 U.S. 400, 402 (1968) (per curiam)). The cases
rejecting the Newman and Hensley approach in ERISA cases reason that despite
similar language in the civil rights fee-shifting statutes and ERISA's fee-shifting
provision,7 the overall aims of the civil rights statutes are quite different from
ERISA's purpose. E.g., Eddy, 59 F.3d at 204-05. ERISA protects statutorily-created
economic interests, while the civil rights statutes protect constitutionally-based
dignitary and individual economic interests, which are uniquely important to our
nation as a whole. Id. The Eddy court also reasoned that it would belittle the stature
accorded civil rights cases to apply the fee-shifting presumption in other types of
cases. Id. at 205. And, while the legislative history of the civil rights statutes
indicated a presumption is warranted in those case, ERISA lacks similar legislative
history. Id.
We agree with the reasoning in Eddy and find that ERISA does not closely
correspond with the fee-shifting scheme in the civil rights statutes. Instead, ERISA's
language is neutral in its reference to fees, similar to the statute construed by the
Supreme Court in Fogerty v. Fantasy, Inc., 510 U.S. 517, 533 (1994). In Fogerty, the
Court considered whether the Copyright Act's fee-shifting provision, 17 U.S.C. § 505,
was analogous to the civil rights fee-shifting statutes. 510 U.S. at 522. The plaintiff
in Fogerty asserted there should be a dual standard (treating prevailing plaintiffs more
favorably) for Copyright Act fee determinations as established in Christiansburg
Garment Co. v. EEOC, 434 U.S. 412, 421 (1978), for Title VII cases. The Court
rejected this analogy, despite similar language in the statutes. 510 U.S. at 523-25.
The Court credited the "important policy objectives of the Civil Rights statutes," and
7
Though the statutes are similar, there is a fundamental difference between the
civil rights fee-shifting statute, which provides for attorney fees to the "prevailing
party," 42 U.S.C. §§ 1988(b) & 2000e-5(k), and the ERISA statute, which allows the
district court to award fees to "either party," 29 U.S.C. § 1132(g)(1).
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noted that these objectives were absent in a case involving the Copyright Act. Id. at
523.
Like the Copyright Act as construed in Fogerty, ERISA involves vindication
of statutory, economic rights. Also like the Copyright Act, and as admitted by
counsel at argument, there is a dearth of legislative history on ERISA, and certainly
none which suggests that it was enacted to further important societal goals or
"'"polic[ies] that Congress considered of the highest priority."'" Id. (quoting
Christiansburg, 434 U.S. at 418, quoting Piggie Park, 390 U.S. at 402.). Instead, both
the Copyright Act and ERISA have neutral, discretionary attorney fee language, and
equally neutral (or sparse) legislative history concerning attorney fees.
Finally, the "American Rule" that each party normally bears the cost of the
litigation unless Congress provides otherwise, Fogerty, 510 U.S. at 533, pervades our
analysis. While Congress did provide for fee shifting at the district court's discretion
in ERISA cases, the operation of a presumption in favor of fees undermines the
"American Rule" and should be employed only in extraordinary cases, such as civil
rights litigation. In Fogerty, the Court noted that Congress "legislates against the
strong background of the American Rule" and pointed out that the fee-shifting
statute's use of the word "'may' clearly connotes discretion. The automatic awarding
of attorney's fees to the prevailing party would pretermit the exercise of that
discretion." Id. The Court rejected the argument that Congress's modification of the
American Rule by providing for fees in the Copyright Act meant that it intended to
adopt the "British Rule" that the prevailing party be awarded attorney fees as a matter
of course, absent exceptional circumstances. The Court stated, "[s]uch a bold
departure from traditional practice would have surely drawn more explicit statutory
language and legislative comment." Id. at 534.
For all of these reasons, we agree with the overwhelming majority of circuits
that have considered this issue and concluded that the presumption should not be
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employed in ERISA cases. Although our circuit was the first to apply the
presumption in ERISA fee-shifting cases, we now find that use of several non-
exclusive factors best facilitates the exercise of the district court's discretion in
ERISA cases. We overrule Landro's holding to the contrary. However, we caution
that the "five factors" set forth by Westerhaus are by no means exclusive or to be
mechanically applied. The Eddy court noted that a mechanical application of the
factors may serve to undermine "both the substantive purpose of ERISA and the
discretion vested in the courts to carry out that purpose." 59 F.3d at 207. Instead, the
district courts should use the factors and other relevant considerations as general
guidelines for determining when a fee is appropriate.
For instance, when considering "ability to pay," the district court should keep
in mind fundamental differences in plan funding mechanisms. Ordering large fee
payments from an employee-funded plan might actually hurt the plan participants by
increasing costs, contrary to the statutory purpose of ERISA. Martin advances the
argument that the district court should consider the "results obtained" when
determining whether to award fees, and, in that analysis, consider the kind of results
obtained. According to Martin, if the benefits awarded are non-monetary in nature–as
here where the benefit awarded was a lung–the district court should deem this
especially important because the participant is not receiving a pool of money from
which fees can be paid. While it is true that the district court may consider this
information, because it may consider any and all facts it deems relevant, to the extent
that this particular factor is truly a "result obtained," it is more prudently considered
when determining the amount of the judgment, once the district court has already
decided a fee should be awarded. Cf. Hensley, 461 U.S. at 429 & 430 n.3 (once it
decides a fee should be awarded, the district court may take into consideration all of
the usual factors a court considers when determining the amount of a fee, including
the "results obtained" and the "novelty and difficulty of the questions"). See also
Fogerty, 510 U.S. at 534 n.19 (expressly condoning the use of "several nonexclusive
factors that courts should consider in making awards of attorney's fees to any
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prevailing party. . . . so long as such factors are faithful to the purposes" of the act in
question).
The bottom line is, district courts are not obligated to regurgitate, rote, the
Westerhaus factors. They are well-recognized general guidelines which provide
direction to the district court, while also facilitating "meaningful appellate review."
Eddy, 59 F.3d at 206. As the Eddy court noted, "[w]hile a particular application of
the . . . factors may be subject to criticism, the factors are reasonable and have been
widely accepted by the courts." Id. Indeed, Martin admitted at oral argument that
few, if any, fee awards have been denied a prevailing plaintiff in ERISA cases
nationwide. This is true even though nine of the circuit courts of appeals do not
employ any kind of presumption in favor of fees. Thus, the absence of a presumption
has obviously not doomed ERISA plaintiffs' attorney fee requests, and will not do so
in this circuit either.
The district court used the factors and considered the presumption, but it is
clear that the court's analysis of factors in deciding not to award a fee to Martin
comports with our holding today. The court cited Landro and its presumption but
then analyzed the Plan's actions according to the following factors: the Plan fully
cooperated by expediting the exhaustion of plan administrative remedies, by
presenting a stipulated record to the district court, by agreeing to a simultaneous
briefing schedule, and finally, by not appealing the district court's adverse ruling.
Instead, the Plan immediately complied with the district court's mandate and certified
coverage–resulting in Norma Martin's lung being transplanted within six months after
her case was first filed. The district court also noted that Martin would not have
prevailed but for a procedural irregularity in the Plan's decision-making process.
The district court was faithful to the substantive purpose of ERISA in analyzing
the case as it did. While ERISA's purpose is remedial, it was enacted to protect,
among other things, "the interests of participants in employee benefit plans and their
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beneficiaries." 29 U.S.C. § 1001(b). In this instance, the Plan did nothing to hinder
the interests of a participant in an employee benefit plan. It denied, as experimental,
benefits for a lung transplant. A good faith denial of benefits due to a fair
disagreement over the extent to which a prospective procedure is covered by a plan
does not necessarily endanger participants in the plan. While it may thwart the
particular participant who wishes to receive the procedure, the good faith denial may
well better serve the remaining plan participants by keeping costs at a reasonable
level. If the factors are to have any force and effect, a plan cannot presumptively be
charged with attorney fees every time it is reversed in its decision to deny benefits.
Cf. Fogerty, 510 U.S. at 533 ("The automatic awarding of attorney's fees to the
prevailing party would pretermit the exercise of that discretion."). On the other hand,
encouraging a plan to act expeditiously and appropriately once benefits have been
ordered will ultimately best promote the "interests of participants in employee benefit
plans and their beneficiaries." 29 U.S.C. § 1001(b). A plan that understands it may
avoid attorney fees if it acts appropriately and quickly is more likely to do so.
III. CONCLUSION
Finding no abuse of discretion by the district court, the judgment is affirmed.
BYE, Circuit Judge, with whom McMillian, Circuit Judge, joins, concurring in part
and dissenting in part.
I agree with the majority's decision to abandon the use of the presumption when
considering ERISA attorney fee applications under 29 U.S.C. § 1132(g). I disagree
with two other aspects of the majority opinion.
First, the majority re-affirms a district court's use of the five-factor test when
deciding whether to award fees to a successful ERISA plaintiff. Ante at 8-9. The
five-factor test has been criticized as "an unhelpful method for determining the
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appropriateness of awards to prevailing plaintiffs in ERISA actions." Mark Berlind,
Attorney's Fees under ERISA: When is an Award Appropriate?, 71 Cornell L. Rev.
1037, 1058 (1986). Criticisms of the five-factor test include (a) the superfluous
nature of the first factor, since courts already have the inherent ability to shift fees
because of bad faith, (b) the fact that the second factor does not apply to most ERISA
situations because an ERISA plan typically pays the fees of a prevailing party rather
than the plan administrators personally, and (c) ERISA already provides strict
fiduciary standards that accomplish the goals of the third factor, deterrence. See id.
at 1058-61; see also Cent. States S.E. & S.W. Areas Pension Fund v. Hitchings
Trucking, Inc., 492 F. Supp. 906, 909 (E.D. Mich. 1980) ("[I]t is difficult to
determine the relationship of ERISA to each of these factors."). I believe we should
develop a better test.
I would abandon the first three factors and replace them with one—"whether
a reasonable plaintiff would have brought suit if no award of attorney's fees was
possible." 71 Cornell L. Rev. at 1062. In this case, Norma Martin sued to obtain a
lung from the Plan, not monetary benefits from which a portion could be used to pay
an attorney. In all similar cases where success means the recovery of non-monetary
benefits, plaintiffs will have difficulty obtaining legal representation but for the
possibility of recovering fees under § 1132(g). If participants who seek non-
monetary benefits cannot retain attorneys, ERISA's provisions will not be effectively
enforced. Such suits will only be filed, and ERISA's provisions will only be
effectively enforced, if success on the merits portends a likely recovery of fees under
§ 1132(g). In exercising discretion to award fees, a district court should therefore
consider whether a suit will result in a monetary recovery from which adequate fees
can be paid. If not, fees should probably be awarded under § 1132(g).
Second, in denying fees, the district court noted that Martin would not have
prevailed but for a procedural irregularity in the Plan's decision-making process. The
majority apparently approves the district court's consideration of that factor in
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denying fees, ante at 9, but I am greatly troubled by this factor because it often leads
to the imposition of liability in the first place.
In ERISA cases in which the Plan administrator funds the plan, the conflict
triggers a less-deferential standard when "(1) a palpable conflict of interest or a
serious procedural irregularity exist[s], which (2) cause[s] a serious breach of the
plan administrator's fiduciary duty." Woo v. Deluxe Corp., 144 F.3d 1157, 1160 (8th
Cir. 1998) (emphasis added). In other words, we heighten our review of a Plan's
denial of benefits precisely because of procedural irregularities in its decision-making
process, and our heightened standard of review is often outcome-determinative. See
Barnhart v. UNUM Life Ins. Co. of Am., 179 F.3d 583, 589 (8th Cir. 1999)
("Logically, a plaintiff who can show that a conflict of interest or serious procedural
irregularity caused a serious breach of the administrator's fiduciary duty will more
than likely have substantial evidence showing that the fiduciary’s decision was
arbitrary and capricious."). The majority's discussion will have the incongruous
effect of justifying a denial of fees when that is the very reason a plaintiff prevails.
ERISA plans now have less incentive to avoid procedural blunders because they will
not be responsible for paying attorney fees when they occur.
* * *
Because the district court improperly considered the existence of a procedural
irregularity as a factor that justified its denial of fees, and in my view gave too little
consideration to the fact that Norma Martin's successful suit yielded no monetary
benefits from which fees could be paid, I would reverse and remand with instructions
to award fees at a reasonable hourly rate.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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