I am quoted in an excellent article in Pensions & Investments by Robert Steyer on the use of independent fiduciaries when providing employer stock in company retirement plans. As many of you probably know, the Supreme Court’s decision a few years back in Fifth Third Bancorp vs. Dudenhoeffer raised the pleading bar substantially for plaintiffs seeking to recover under ERISA from plan fiduciaries when the value of employer stock drops dramatically due to a downturn in corporate fortunes. Interestingly, when Dudenhoeffer was decided, it wasn’t immediately clear to what extent the decision was good or instead bad for the plaintiffs’ class action bar and, in a mirror image, bad or instead good for plan sponsors. Over time and as fleshed out in further litigation in the lower courts, it became clear that the decision, and the increased pleading standard it adopted for these types of cases, was overwhelmingly good for plan sponsors and simply terrible for plaintiffs.

A recent decision by the Seventh Circuit concerning employer stock held by participants in a Boeing retirement plan gives an excellent overview of the issue and its history. As I noted in the Pensions & Investments article, the decision “almost reads like a law review article” on the subject. The article focuses on one particular aspect of the decision, which is the weight given by the Seventh Circuit to the fact that Boeing delegated decision making authority with regard to that employer stock to an independent fiduciary, who was walled off from the internal dynamics of Boeing and from any potentially relevant inside information that could affect the market price of those stock holdings. The decision, consistent with other case law, makes clear that plan sponsors who use an independent fiduciary in this way effectively insulate themselves from these types of claims.

In my view, the biggest value to using an independent fiduciary in this context is that it dramatically increases the likelihood that a plan fiduciary, sued for the drop in value of employer stock held by employees in a benefit plan, can end the case at the motion to dismiss stage. As I discussed in the article:

The appeals court’s ruling plus the Supreme Court’s Dudenhoeffer decision build an even tougher defense against stock-drop lawsuits, improving the odds that a complaint will be dismissed, he said. “After you get past the dismissal stage, you can spend a fortune in discovery — or you settle,” said Mr. Rosenberg, referring to the data-gathering and data-sharing process that is necessary if a judge rejects a motion to dismiss.

In class action defense, particularly with excessive fee, stock drop or other types of suits against ERISA plan sponsors and fiduciaries, the key is to end the case at the motion to dismiss stage – otherwise, the cost of litigation, combined with the potentially sizable exposure if the plaintiffs prevail at either summary judgment or trial, almost always makes settlement the best option for defendants. As a result, for a defendant, anything that increases the likelihood of ending the case at the motion to dismiss stage is significant and, as the Seventh Circuit has made clear, using an independent fiduciary in a retirement plan dramatically increases that possibility.

This is a great article by Chris Carosa in Forbes, on the history of developing business by inventing a new subcategory in an existing field and then filling it. Although the article is in Forbes, Chris is probably better known as the force behind the retirement industry publication Fiduciary News, which to my recollection, he founded sometime around when I first launched this blog sixteen years ago.

The article is worth a read, partly for the substance and partly for the fun of it – who doesn’t want to read an article that includes the invention of the hamburger and the first entrepreneurs to sell gas grilled sausages at carnivals – but I can sum up its central thesis for my purposes. Chris explains that the key to developing a business isn’t to invent a whole new area and attract buyers into it (as Chris nicely puts it, that’s a hill too high for most of us to climb) but to instead go where the money already is and create a new subcategory in that market that hasn’t been mined yet. In other words, find a business area where there is already a lot of money and fill an open niche in it. As Chris nicely puts it, everyone knows where the money is in a particular marketplace and “there will no doubt be a long line waiting to get to that money. That’s why it’s critical that you find the void.”

So why I am writing about this on a blog about ERISA and insurance? It’s because you should think about this every time someone wants to bring a new financial product or investment option or other alleged breakthrough to 401(k) plans and immediately complains about regulatory or other barriers to entry. I am thinking of the complaints about the Department of Labor pushing back on the rush to include crypto in plans, but also of older events, like the push to add target date funds to plans. Some, like target date funds, turn out fine; I have my doubts whether the same will be true about crypto.

But my point isn’t to forecast whether a particular new product in this area will or won’t bear fruit. Instead, it is to be a gentle reminder that no one is pushing new investments or products or innovations into the retirement market except because it gives them a new void to fill in a market where there is already massive amounts of money being spent by customers, and the provider of the new product is looking for a way to get some of that money. It’s a perfect match for Chris’ discussion in his article – only here, we are talking about large investment providers, not sausage makers, looking to create and fill a new niche. It’s worth remembering what is really going on when a new product or innovation is pressed into the defined contribution market in particular, to not just blindly accept claims that the new development is a boon for participants, and to instead bring a healthy skepticism to any new product that is chasing the investment dollars of plan participants or the distribution dollars of retiring participants.

There is nothing wrong with this dynamic – that’s how capitalism is supposed to work. But it’s also not wrong for regulators, plaintiffs’ lawyers or others to push back against new products, and to insist that their role in the defined contribution space actually be to the benefit of the participants.

Not long after I first started writing this blog, the Seventh Circuit began trying to preemptively squelch excessive fee litigation by, at heart, insisting that the invisible hand of the market would never have allowed the type of overcharging of fees claimed by the plaintiffs in those cases and that plan fiduciaries therefore could not have acted imprudently if they offered market rate products in a plan. At the time, I took objection to this line of thinking (see here, here and here, for instance) and eventually the world would move on from the belief that, somehow, the invisible hand was all that was necessary to protect plan participants from paying far too much for the privilege of buying mutual funds in a 401(k) plan.

But although then and still now – as you can see – I make some fun of the premise, the Court was on to something, although it would require more nuance and the further refinement of judicial thinking on the excessive fee theory to get there. I pointed out at the time that the problem with the Court’s thesis was that it needed to be tested by the evidence, by the clash of experts, and by what – to quote a cliché – Wigmore called “the greatest legal engine ever invented for the discovery of truth,” cross-examination. My point was that it might actually have been the case that the investment products at issue were not overpriced because the market had acted upon them already, but one could only learn whether that was true by testing the thesis through discovery and, if necessary, testimony at trial: you could not properly do it simply by relying on blind faith in the alleged power of markets, as the Court did initially.

Since that time, discovery and trials have established that sometimes, the pricing of 401(k) investment options is appropriate, even when it was only marketplace pressures that were holding down the price rather than any thoughtful engagement by a plan’s fiduciaries, but that other times, plan fiduciaries should have acted to get a better price and that in those instances it was imprudent not to have done so. There is no blanket rule one way or the other, as the earliest judicial rulings in this area suggested that there might or should be, and instead time has shown that fiduciaries do sometimes act imprudently because a better priced product that would serve the same investment purpose was available and the fiduciary failed to learn and act upon that knowledge.

I think of this today because one of the themes of many excessive fee suits is that the inclusion of particular products in plans is, in and of itself, evidence of a fiduciary breach, when the real question in such a suit, even if a product was overpriced, should be whether it was imprudent for the fiduciary to have included that product. As the cliché goes, you get what you pay for, and a plan fiduciary’s job is to assemble a prudent collection of investment options, not to just assemble the cheapest one possible.

The Fid Guru blog has a detailed analysis of whether, as recent cases have begun alleging, it was a fiduciary breach to include BlackRock LifePath target-date funds in plans, arguing that allegations to that effect should not be enough to sustain a plaintiff’s burden. What I like about the post is that it relies on a deep dive into the evidence to make a detailed case to that effect, which I have long advocated is the only proper way to determine whether a fiduciary erred by including a particular product in a plan’s investment options.

Anyway, I like both the approach and the thoughtful conclusions reached by the post for that reason, and recommend it to anyone interested in the sort of broader question of what is and is not an actionable fiduciary breach in the area of investment selection.

Here’s an excellent client alert, out of Holland and Knight, on the question of mandatory arbitration provisions in ERISA benefit plans. The alert discusses a recent federal district court decision out of Arizona requiring the participant in an ESOP to arbitrate her claim, rather than bring a putative class action case in federal court, based on a mandatory arbitration clause in the plan document. What’s interesting to me about the decision and the alert is the manner in which the discussion focuses on hyper-technical, almost granular issues to conclude that the arbitration clause is enforceable.

We saw essentially this same approach in the development of the jurisprudence over the propriety of including contractual statutes of limitations in benefit plans, which had the effect of substantially reducing the window for participants to litigate, as well as over venue selection clauses in ERISA governed plans, which often have the effect of forcing employees in one part of the country to only bring suit in an entirely different part of the country. These issues, when litigated, were also addressed by means of technical legal doctrines, such as, for instance, applying, to the specific situation of ERISA governed benefit plans, general standards for allowing contracting parties to select forums.

In each instance – contractual statutes of limitations, venue selection clauses and arbitration clauses – courts have often approached the issue as though it were just another instance of private contracting and applied doctrinal approaches developed in the context of private contracts entered into at arm’s length by the contracting counterparties. But to see the parties to an ERISA plan in that light requires imposing an extensive legal fiction. Employees have effectively no say in the terms of ERISA plans or the details of the benefits (leaving aside executives operating under top hat plans and similar scenarios). Furthermore, they cannot even realistically opt not to participate, without effectively surrendering a substantial part of their compensation, their ability to invest for or afford retirement, or their ability to access health care.

Under those circumstances, it is not necessarily reasonable for courts to think about these types of issues in the hyper-technical ways of contract lawyers, rather than approaching the questions from the broader perspective of whether they represent appropriate outcomes in the ERISA context. For instance, I have made the case time and again on this blog (and I do not claim that this is a novel idea) that ERISA has to be understood as invoking a private attorney general regime, in which the plaintiffs’ bar, and class action lawyers in particular, serve as the means to enforce its goals and requirements. Certainly, government regulators do so as well, but the breadth of ERISA plans across the scope of the massive United States economy makes it impossible to rely solely or even primarily upon regulatory enforcement action to protect participants and beneficiaries. While defenders of including these types of clauses in ERISA plans can provide a variety of different justifications for doing so – many of them entirely legitimate – it would be disingenuous to argue that making it harder for plaintiffs’ lawyers to access the court system is not one of them.

I would argue that under those circumstances, analyzing the propriety of venue selection, contractual limitations periods or arbitration clauses in ERISA plans by means of doctrines developed in the context of the realm of private contracting is the wrong prism for viewing these issues, and that the right prism is to instead ask whether those types of barriers to judicial access fit properly with both the contract of adhesion nature of ERISA plans as well as the private attorney general format for the enforcement of rights under ERISA.

This doesn’t necessarily mean that they should not be valid under ERISA, or that they should in fact be allowed to restrict participants’ access to the court system. It does, however, mean that the validity of such terms should be considered by comparing the legitimate rationales for their inclusion in plans against the harm to the private attorney general model they engender, rather than by simply considering whether such clauses are legal when analyzed under traditional doctrines developed in the private contracting model.

One of my partners, Mark Poerio, an expert on executive compensation, has written a client alert discussing what companies can consider doing proactively to encourage executives to stick around rather than move onto greener pastures. In short, they are all different ways to make the current position “greener,” so to speak, than competing pastures. (I promise – no more of this extended metaphor, which I have already stretched much farther than I should have). They are predominately compensation based efforts, such as retention bonuses and deferred compensation awards that require what one might consider “long termism” in the executive ranks to collect, and similar ideas.

Unlike Mark, who gets to stay on the sunny side of the street by typically addressing executive compensation issues proactively, when the company and the executives are still looking for ways to maintain – and in fact guarantee – their continuing relationship, I typically see these same issues – and these same efforts at retention – only after the fact, when an executive has left and the question of payout, and any disputes over it, has arisen.

For instance, Mark rightly notes the important role that deferred compensation or equity-based awards can play in encouraging long-term employment. Both, however, can lead to disputes later, often dependent, in my experience, more on the good faith of the company after the executive’s departure than on anything the departing executive did or did not do. I have had multiple cases where, after departure, the value of the equity grant turned out to be different than the executive believed it was and, sometimes, different than it was represented while the executive was being wooed to stay.

Mark also references the role of using claw backs for disloyal or corrupt employees, something that I have often seen tied to deferred compensation and top hat payouts so as to control executive behavior both during and after departure. The obvious rub here is that what looks disloyal – for instance, wrongful competition after departure – to one side doesn’t look that way to the other, often leading to litigation over whether the payout is required.

Likewise, Mark discusses one of the most – to me, anyway – interesting aspects of executive loyalty, which is the use of severance and change in control agreements to encourage executives to remain in place in uncertain corporate environments. In concept, these types of agreements work well for these purposes, although I think it is fair to say that they can sometimes encourage executives to stay only so long as is necessary to trigger payouts under such agreements, which to some extent at least undercuts their purpose. The sort of mirror image problem exists as well, which is that I have also seen companies suddenly become very grudging on the question of whether payment under those agreements is triggered once it becomes clear that a relatively sizable number of executives may have had their rights to payout under the agreements triggered by the same set of circumstances.

All of this is a long way of saying that probably the most important suggestion in Mark’s piece – from a litigator’s perspective – is his recommendation that companies proactively “refine plan documents and agreements in a manner that defuses litigation risks.”  All of the (real life) examples of disputes that I mentioned above had more than one precipitating cause, but each also had a similarity without which no dispute would have been possible: a poorly written agreement that left room for the parties to later argue over its meaning. Pay attention to avoiding that problem, and the odds of any litigation at all related to an executive’s departure fall dramatically.

There is an interesting new decision by the Massachusetts Appeals Court concerning the liability of insurers under Massachusetts law for wrongful failure to settle a claim. Under the Massachusetts rubric, an insurer has an obligation to make at least reasonable efforts to settle a claim against its insured once the insured’s liability has become reasonably clear, and the failure to have done so can expose the insurer to an award of multiple damages of as much as three times the amount of the judgment awarded against the insured in the underlying tort action. Overall, insurers sued on such claims typically argue some combination or variation of the following defenses: the disputed facts about the incident precluded liability from becoming reasonably clear, and therefore no duty to settle ever came into existence; the insurer’s investigation established that the insured was likely to prevail; and the amount offered in settlement, even though it did not resolve the claim, was sufficiently reasonable to preclude bad faith liability. Interestingly, over the years, decisions by the Commonwealth’s appellate courts have zeroed in on these defenses, fine tuning the circumstances in which they are useful and those in which they are not, in ways that, in my opinion, have made it harder to rely on any of those arguments. To be clear, they are all still valid defenses and defense strategies for insurers, but my point is simply that developments in this area of the law have reduced them from the proverbial “get out of jail free” cards for insurers facing such claims that they once were to fact intensive strategies that require subtlety in deploying them.

The new decision, Terry v. Hospitality Mutual Insurance Company, discusses each of these defenses, and applies very nuanced bases to reject them, with the Court then affirming the underlying multiple damages judgment against the insurer for having failed to settle the underlying action. What’s somewhat new, however, in the development of the doctrines in this area of the law, is the Court’s focus on and nuanced discussion of the insurer’s investigation into the claim, and the central role the Court’s criticism of that investigation plays in the Court’s holding. Massachusetts law imposes on insurers not just a duty to settle where liability is reasonably clear, but also a duty to reasonably investigate claims before making a settlement decision. For many years, the question of the propriety of the insurer’s investigation was but a poor stepchild to the question of whether the insurer had failed to settle where liability was reasonably clear – the courts and litigants focused on the latter in addressing whether liability should be imposed on the insurer for bad faith failure to settle, without much focus on whether the insurer’s investigation of the claim was appropriate.

Over the past few years, this has changed somewhat, as litigants and judges began focusing on the relationship between an insurer’s investigation of a claim and the insurer’s determination of whether to settle and how much to offer in settlement. In Terry, the Court closes the circle on this issue, with the duty to investigate serving as the key element in deciding whether to impose liability on the insurer for bad faith failure to settle. The Court found that the insurer’s investigation, upon which its settlement decisions were based, was not objective and was essentially self-serving; the Court found that the settlement offer made by the insurer, which was based upon that investigation, was, under that circumstance, unreasonable and gave rise to liability for bad faith failure to settle. It is hard not to conclude, when reading the opinion, that the Court would have found the exact same offer to have not been in bad faith if the preceding investigation, upon which the offer was premised, had not itself been conducted in bad faith.

Of interest, the Court goes to some length in its discussion to explain what constitutes a proper investigation and what instead constitutes an investigation that violates the insurer’s good faith claims handling obligations. The Court found that the insurer had breached its obligations with regard to investigation, leading to bad faith settlement decisions, because its investigation focused on disproving the insured’s liability rather than on an objective discovery into and evaluation of the events giving rise to the claim. The Court made clear that the former is a violation and supports liability for bad faith failure to settle where that deficient investigation is linked with an inappropriately low settlement offer, and that an insurer who wants to defend against a bad faith claim by citing its investigation and relying on the fact that its decisions were made in reliance on that investigation can only do so if its investigation was, in fact, an objective study of the circumstances of the claim.

There are two interesting and practical takeaways from the decision. The first is that any good plaintiff’s lawyer suing an insurer for bad faith failure to settle in Massachusetts will focus both his case and her discovery on the details of the insurer’s investigation, as a flawed investigation will now be an easy hook for arguing that the insurer did not act reasonably in its settlement decisions. The second is that insurers need to, and will eventually if they haven’t already, make it a best practice to document in their files an objective and evenhanded investigation into a claim, recording both the good and bad learned in the investigation in the file, and to clearly tie their settlement offers to the findings of that investigation. Many insurers already do objectively investigate claims, but even for those carriers, the decision is a reminder that not only do they have to do so, they also have to make sure that objectivity is reflected in their claim files.

Well, this is something. I think the partner who mentored me as a junior associate and I started reserving insurers’ rights to recover defense costs back from insureds if the claim at issue turned out to be uncovered thirty years ago – and someone has finally convinced a Massachusetts court to order an insured to repay defense costs to an insurer under those circumstances, as pointed out in this Massachusetts Lawyers Weekly article (it’s behind a paywall, so if you are not a subscriber, here is the decision itself). The idea behind this issue is that an insurer’s duty to defend its insured against lawsuits is so broad at the outset of a case that insurers inevitably end up paying to defend insureds against innumerable claims that, once the facts are learned, clearly were actually never covered. The equitable solution sought by insurers in many circumstances and in many jurisdictions has been the recovery from the insured of the defense costs paid by it on those claims. Whether insurers can or should have this right is a pretty contentious point just about anywhere and anytime it is broached, and it is fascinating to see a federal court in Massachusetts – where the law, from bad faith standards to policy interpretation rules to the interpretation of the claims handling statute, has long armed insureds for battle against their carriers – find so powerfully in favor of insurers on this issue.

In a way, the decision, Berkley National Insurance v. Granite Telecommunications, is of a piece with a handful of recent Massachusetts state court cases concerning interpretation of insurance policies which, in my view, reflect the pendulum swinging back away from insureds on disputes over the extent of coverage granted by policies. In those circumstances and cases – which is a topic for another day – the courts appear to be cutting back on the long standing, almost kneejerk belief that, if an insurance policy is unclear at all, it must be deemed ambiguous and the dispute decided in favor of the insured, in favor of a more nuanced, evidence-based inquiry into the meaning of the language in the policy. A continuation of that trend would go far towards placing insurers and insureds on a more neutral playing field in the context of coverage disputes in Massachusetts, and the ruling in Berkley concerning defense costs would add still more to that shift.

In this regard, though, it is worth noting that the Court made clear in Berkley that its ruling in favor of the insurer on reimbursement to the insurer of defense costs was fact specific, and the decision and its reasoning can easily be distinguished by the typical insured consumer in the typical duty to defend type of case – such as a homeowner sued for a slip and fall or the driver sued for an auto accident, which are circumstances where the insurer pretty much acts unilaterally in defending the insured. In Berkley, in contrast, the insured aggressively pressed the carrier for coverage in a way that the Court viewed as having a “flavor of extortion,” which the Court clearly considered central to its ruling. Given this, the decision is probably best understood as simply adjusting the relationship between insureds and insurers a little bit in the direction of insurers, and not as the sea change one might otherwise think was occurring. Either way, I still see it, when combined with other recent decisions, as part of an overall, perhaps unintentional, recalibrating of the legal relationship between insurers and insureds in Massachusetts.

I have an interesting relationship with ESOPs, both as a matter of my personal preference for corporate designs that place at least some of the value of a company in the hands of those who create that value, and from the perspective of a lawyer who has spent many years litigating ESOP disputes. The two perspectives I hold tend to run counter to each other, or at least to not overlap, because while a well-run ESOP tends to by definition involve the former, it is typically a poorly – or even an intentionally deceptively – run ESOP that ends up the target of litigation (not to suggest, however, that only bad actors in the ESOP space get sued, as obviously that is not the case with ESOPs or anything else).

I often try to capture this dichotomy in the comment that ESOPs are only as good as the good faith of those who run them. By this, I mean that the inherent structure provides many opportunities for insiders and advisors to profit at the expense of participants. When those running an ESOP are acting in good faith, mistakes may happen, but overall, the goals of the ESOP structure (a fair exit for selling insiders and wealth creation for employees) are accomplished. Otherwise, questionable occurrences and actionable misconduct tend to occur.

One of the central aspects of the ESOP undertaking is valuation of the company stock (I am discussing here private company ESOPs), which is central to operating an ESOP for many reasons. Valuation is a regulated activity in this regard, but it also is, in many ways, subject to the honor system – with much of the litigation involving ESOPs originating from someone trying to manipulate valuation under those circumstances.

The central role of valuing private company stock, and doing it in a manner satisfactory to the Department of Labor, is discussed by Rick Pearl of Faegre Drinker in this excellent piece, “Thinking ESOPs: Amicus Brief Argues that DOL has been Misinterpreting the Adequate Consideration Exemption.” Right there, in that question of the central concept of how company stock in an ESOP needs to be valued, is the primary issue both in most ESOP litigation and in avoiding litigation in the first place by properly running an ESOP. As you see in the article, there are many factors to consider in analyzing a valuation and that should be thought about in considering whether a challenged valuation has been done correctly. For almost every one of those factors, there is both a way to look at it which can justify litigation and a way to do it that will decrease the likelihood of litigation arising – but so much of the process is amorphous, and the propriety of different considerations so often in the eye of the beholder, that seeing which one is which isn’t always obvious.

And that, in a nutshell, is why the key to a well-run ESOP rests in the unadulterated good faith of those in charge. That amorphousness means it is easy for a plan to run off kilter, and in particular for stock to be unfairly valued, and the only real protection against that is the desire of those running the ESOP to get it right, for the benefit of both exiting company founders/owners and the employees taking on an ownership interest in the company.

I didn’t want July to pass without commenting on The Fid Guru’s excellent blog post reviewing excessive fee litigation over the first half of the year and the corresponding state of the fiduciary liability insurance market. I particularly appreciated the extensive discussion of the history of the market for fiduciary liability coverage, as it gives excellent context to the commentary that is out there on the internet and elsewhere about changes in the availability and pricing of fiduciary liability insurance. As many of you likely know, there has been much internal discussion among lawyers and plan sponsors concerning the availability of fiduciary liability coverage. The post explains that – subject to exceptions – coverage generally remains available but policy limits have become – pun intended – limited, and the use of substantial retentions or sub-retentions has increased substantially, all to control the level of risk taken on by insurers in light of the dramatic rise in class action litigation against plans.

I have defended a few clients over the years against lawsuits who didn’t have fiduciary liability coverage (either because they chose not to purchase it or tried to but couldn’t obtain it) and who regretted not having the coverage after being sued. Whatever the terms were for the coverage when they could have purchased it, it was less expensive than the cost of fully funding the defense of the litigation itself and the settlement in full, from dollar zero, as they were required to do in the absence of any coverage at all. Even with a high retention, they still would have significantly reduced their liability in each case by having had fiduciary liability coverage in place.

Twenty years or so ago, I represented an insurer in a $20 million insurance bad faith and Chapter 93A claim in which one of the key issues was whether the insurer was right to rely on the advice of a terrific lawyer, Tom Burns (the Burns in the Boston firm Burns and Levinson), who had defended the insured in a substantial personal injury case. Judge van Gestel, a former Goodwin trial partner who was the founding judge of Massachusetts’ well-regarded business litigation court, found after a bench trial in favor of the insurer and, by inference, of Burns’ original advice as well.

What I most often think about from that case is one particular question from the plaintiff’s counsel to Burns and his one answer. In an attempt to show that Burns’ advice should have been disregarded, plaintiff’s counsel tried to show that he was overly dependent on the insurance industry by characterizing him as an insurance defense lawyer; the question caused Burns to explain that in his 40 plus years as a trial lawyer he had tried everything from securities fraud cases to wrongful death claims and countless types of claims in-between. From a courtroom tactics perspective, one of the great things about that answer was that it put an end with only one thoughtful answer to what otherwise undoubtedly would have been a long line of hostile questioning on the subject of whether counsel was overly connected to the insurance industry.

I often think of this because, while I am predominately at this point in my career an ERISA and insurance bad faith litigator, I have litigated and tried many other types of cases over the years, ranging from patent infringement cases to business disputes to construction accident cases and a host of others. One of the more interesting things to me, probably as a result, is when a decision in one area of my practice is instructive for another area, as long as you see, and are prepared to make use of, the overlap.

A couple of weeks ago, in Vermont Mutual Insurance Company v. Poirier, the Massachusetts Supreme Judicial Court addressed a number of issues related to attorney fee awards in Chapter 93A cases. One of the commonalities between ERISA litigation on the one hand and insurance bad faith litigation in Massachusetts on the other is that each is an exception to the American rule on attorney’s fees, with each statute containing a fee shifting provision. Two aspects of the Court’s discussion in Vermont Mutual are, I think, of particular value to lawyers litigating fee disputes in both contexts, and are easily transferable to briefing of fee disputes in the ERISA context.

There are two common arguments in defending fee requests, and you see them particularly often in ERISA cases. One is that the work of plaintiffs’ counsel doesn’t justify the amount of the request. It isn’t always easy to find a succinct statement in the case law of how a court should think about whether the amount being sought is justified, and lawyers often respond by instead writing far more on that subject in a brief than they should. In Vermont Mutual, though, the Supreme Judicial Court provided a pithy explanation of the right way to analyze this question, explaining that:

What constitutes reasonable attorney’s fees “is a multifactor assessment of ‘the nature of the case and the issues presented, the time and labor required, the amount of damages involved, the result obtained, the experience, reputation and ability of the attorney, the usual price charged for similar services by other attorneys in the same area, and the amount of awards in similar cases.’”

I would venture that, in 99% of cases where fees are sought, a court could settle on the right amount to award simply by applying this framework.

Second, defense lawyers always complain in fee disputes (particularly in ERISA cases, where cases can take many years and the incurred fees can therefore be substantial) that the amount sought is too high, and sometimes that is true – all lawyers working in these areas have seen fee requests that appear to be an attempt to gouge a losing defendant. Many times, however, the truth of the matter is that the real reason the fee request is large is because the defense team did an excellent job, forcing plaintiff’s counsel to invest many hours to win the case. In a footnote in Vermont Mutual, the Supreme Judicial Court addressed exactly this point, noting that “[d]ue in no small part to the very capable defense presented by defendants’ counsel, the plaintiffs’ counsel had to work long and hard to overcome numerous hurdles and to build their case,” with the Court acknowledging that this should be considered “[i]n evaluating the work done by the prevailing attorneys.” To me, the quality of the defense team’s work is always an important point that should be considered when a court passes on a fee request, because it often can explain the size of a particular request and is often the key issue in evaluating whether what appears to be a particularly high fee request is actually not when viewed in context.