Supreme Court News Flash
ERISA Litigation Alert
On June 28, 2010, the U.S. Supreme Court denied a petition for certiorari in Golden Gate Restaurant Association (GGRA) v. City and County of San Francisco, 2010 U.S. LEXIS 5478 (June 28, 2010). The Court’s denial puts to rest any hope that it would reverse the Ninth Circuit and rule that a San Francisco local ordinance requiring employers to make available health care to their employees or pay the City money is preempted by ERISA. This case is interesting for two reasons: (1) it leaves undisturbed a split in the Circuits; and (2) it underscores how a political shift in the executive branch can affect agency policy.
On September 30, 2008, the U.S. Court of Appeals for the Ninth Circuit ruled that ERISA does not preempt the employer spending requirement of the San Francisco Health Care Security Ordinance. (Golden Gate Rest. Ass’n v. City & County of San Francisco, 546 F.3d 639 (9th Cir. 2008)). The unanimous three-judge panel reversed the district court’s decision and rejected the arguments of the plaintiff, GGRA, and numerous friends of the court briefs or amici, including the Department of Labor (DOL). The Ninth Circuit rejected GGRA’s arguments that ERISA preempted the Ordinance because it either required the creation of an ERISA plan or related to employers’ existing plans, thereby thwarting ERISA’s goal of ensuring that plan sponsors are subject to a uniform regulatory regime.
The Ninth Circuit’s decision arguably clashes with the Fourth Circuit’s decision in Retail Industry Leaders Ass’n v. Fielder, 475 F.3d 180 (4th Cir. 2007). The Ninth Circuit attempted to position its ruling as not inconsistent with the Fourth Circuit’s decision in Fielder, which held Maryland’s “fair share” employer mandate preempted by ERISA. Fielder, also known as the “Wal-Mart Case,” involved a Maryland law requiring that employers with at least 10,000 Maryland employees spend at least eight percent of their total payroll on employees’ health benefits. If an employer’s spending fell short of eight percent, the employer was required to pay the difference to the state. Wal-Mart was the only employer in Maryland affected by this minimum spending requirement.
The Ninth Circuit distinguished Fielder, stating that employers had no choice but to increase benefits, because an employer that did not meet the spending requirement had to pay the difference to the state and received nothing in return – the quintessential “Hobson’s Choice.” In contrast, the Court opined, the San Francisco Ordinance offers employers a “meaningful alternative;” instead of increasing benefits, an employer may elect to pay the difference to the City, making its employees eligible for free or discounted enrollment in the Health Access Program, or for medical reimbursement accounts. The Court reiterated that this “realistic alternative” means that the Ordinance does not require employers to offer a certain level of benefits. This distinction may be a legally insufficient difference to shield the Circuits from a split in the preemption argument of “pay or play” state laws.
As noted above, the DOL, under the Bush administration, had submitted a friend of the court brief to the Ninth Circuit in favor of preemption and submitted a second brief in support of an en banc review of the Ninth Circuit’s decision. In its second brief, the DOL urged the full panel of the Ninth Circuit to rehear the case because DOL considered that permitting state or local governments to impose health care requirements on employers was a “question of exceptional importance due to the significant, disruptive consequences of a ruling that undermines the federal ERISA scheme by exposing employers to the complexity of complying with a potential myriad of state and local laws similar but not identical.” The Ninth Circuit decline to review the case en banc and the GGRA petitioned the Supreme Court for certiorari.
Around the Fall of 2009, the Supreme Court asked the DOL to opine on whether it should grant or deny the petition. The DOL initially side stepped the question, noting that health care reform, if enacted, might moot it. When health care reform looked like it might die on the Hill, DOL issued regulations that were never made public, but were under review by the Office of Management and Budget. The regulation would have clarified when state or local health care programs resulted in the creation of ERISA plans for purposes of ERISA preemption.
As we all are now keenly aware, the Obama Administration passed health care reform. Last month, the DOL finally responded to the Supreme Court’s request and urged the Court to deny certiorari. In its brief, the DOL argued that the newly enacted health care reform “significantly reduces the potential that state or local governments will choose to enact health care programs like” the San Francisco Ordinance and “ may also affect whether such programs are preempted by Federal law. For the same reasons, the DOL decided that any regulatory action was premature and appears to have decided not to pursue the regulations clarifying when state or local health care programs are ERISA preempted.
At this time, it is very difficult to predict how health care reform is going to impact ERISA preemption. The Patient Protection and Affordable Care Act (PPACA) has numerous preemption provisions sprinkled throughout it. For the most part, the provisions set a floor below which any similar state law cannot fall, but allows similar state laws that set higher standards to survive ERISA preemption. Notably, many PPACA provisions seem to incorporate aspects of state law that previously might otherwise have been preempted. Thus, PPACA potentially expands the application of state law provisions to the world of self-funded plans where preemption dominated. Understanding how PPACA affects ERISA preemption will evolve as all of PPACA’s provisions become effective and employee benefit plans grapple with the practical realities of integrating and implementing those provisions in their plans.
On May 24, 2010, in a decision unusual because it was unanimous, the Supreme Court decided that a party seeking fees under ERISA’s fee-shifting provision need not be a “prevailing party.” In Hardt v. Reliance Standard Life Ins. Co., No. 09-448, 2010 U.S. LEXIS 4164 (U.S. May 24, 2010), the Court ruled that a party may be entitled to fees if the party attains some degree of success on the merits, even if there was no final judgment clearly evincing prevailing party status.
The plaintiff, Bridget Hardt, a former administrative assistant for textile manufacturer Dan River Inc., stopped working in 2003 after surgery for carpal tunnel syndrome failed to resolve pain in her neck and shoulders. After an initial denial followed by an appeal, Reliance awarded Hardt 24-months of temporary disability. During the pendency of her initial appeal with Reliance, Hardt was diagnosed with hereditary small-fiber neuropathy. The neuropathy progressively worsened and the Social Security Administration eventually determined that she was permanently disabled and unable to perform any future work for her employer. At the end of the Reliance approved 24-month temporary disability period, Reliance terminated her benefits. She appealed and Reliance denied the appeal. Hardt sued in federal district court.
The district court denied summary judgment for both parties and remanded the case for further review to Reliance. In the court’s view remand was warranted because Reliance had failed to comply with the ERISA guidelines for appeals. The court instructed "Reliance to act on Ms. Hardt's application by adequately considering all the evidence" within 30 days; "[o]therwise," it warned, "judgment will be issued in favor of Ms. Hardt." Seeing the handwriting on the wall, on remand, Reliance approved Hardt’s long-term disability benefits until her 66th birthday. Thereafter, Hardt moved for attorneys fees under Section 1132(g)(1).
ERISA Section 1132(g)(1), with exceptions not relevant here, provides:
[i]n any action under this subchapter . . . 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.
In the words of the Court, "prevailing party" does not appear in the provision or anywhere else in the text of Section 1132(g)(1). Instead, the Court noted that Section 1132(g)(1) “expressly grants district courts ‘discretion’ to award attorney's fees ‘to either party.’" Given the language of Section 1132(g)(1), it is not too surprising that the Court issued a unanimous decision.
The Court, however, recognized that fee-shifting statutes are a deviation from the American Rule, which obligates each party to pay their respective fees in litigation. The Court stated that its interpretation of Section 1132(g)(1) was made in light of its precedents addressing statutory deviations from the American Rule that do not limit attorney's fees awards to the "prevailing party." It noted that Ruckelshaus v. Sierra Club, 463 U.S. 680, 694 (1983) was the seminal case in this line of precedent. In these types of cases, Ruckelshaus authorizes a court to award fees "whenever it determines that such an award is appropriate." Thus, even after a court determines that a party has attained some degree of success on the merits, a court is still free to exercise discretion to grant or deny the fee request.
Ruckelshaus sets forth five factors for courts to consider in the exercise of that discretion. These factors are: “(1) the degree of opposing parties' culpability or bad faith; (2) ability of opposing parties to satisfy an award of attorneys' fees; (3) whether an award of attorneys' fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorneys' fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties' positions.” The Court neither endorsed nor rejected the use of the five-factors. It acknowledged that the factors might aid a court in deciding whether a claimant was entitled to fees, but left open other methods for making the determination.
This case resolves a split among the Circuits, but it will not necessarily lead to more courts awarding fees. Courts have discretion to consider many factors in deciding whether to order a litigant to pay another’s litigation fees. The cultural value that supports the American Rule dominates the jurisprudence in this country. In perhaps the first case decided after Hardt, the Ninth Circuit in Simonia v. Glendale Nissan/Infiniti Disability Plan, No. 09-56025, (9th Cir., June 17, 2010), applied the five-factor Ruckelshaus test and affirmed a district court’s decision to deny a request for fees by a prevailing party.
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