This is something you don’t see every day, namely an award of significant attorney’s fees to the prevailing defendant in an ERISA governed action. In R.I. Carpenters Annuity Fund v. Trevi Icos Corp., just decided by the United States District Court for the District of Rhode Island (but not yet up on its website), the court entered such an award against the losing plaintiff, a union provided employee benefit plan, on a claim brought by it under ERISA, even though the court acknowledged that ERISA’s fee shifting provisions are seldom used to require a losing plaintiff to pay attorney’s fees to a prevailing defendant. Here, however, the plaintiff had used ERISA as an alternative mechanism for litigating a jurisdictional dispute with another union over a project, apparently for tactical reasons related to adverse rulings against it before the National Labor Relations Board in other, similar circumstances. The court provides a nice review of the factors in the First Circuit that govern the decision whether to award attorney’s fees to a prevailing party, and noted that the key issue in the case before it was whether the plaintiff’s decision to use ERISA as a tactical tool for litigation strategy constituted a misuse of the statute, warranting an award of attorney’s fees in favor of the prevailing defendant. The court explained:

The Court should consider five factors in deciding whether to award fees and costs to a party: (1) the degree of culpability or bad faith attributable to the losing party; (2) the depth of the losing party’s pocket, i.e., his or her capacity to pay an award; (3) the extent (if at all) to which such an award would deter other persons acting under similar circumstances; (4) the benefit (if any) that the successful suit confers on plan participants or beneficiaries generally; and (5) the relative merit of the parties’ positions. Cottrill v. Sparrow, Johnson & Ursillo, Inc., 100 F.3d 220, 225 (1st Cir. 1996); see also Beauvais v. Citizens Fin. Group, Inc., 418 F. Supp. 2d 22, 33 (D.R.I. 2006). These so-called Cottrill factors are guidelines and do not preclude the Court from consideration of other factors. Cook, 334 F.3d at 124. Rather, the Court may – and should – consider "additional criteria that seem apropos." Cottrill, 100 F.3d at 225. Ultimately, the test for granting or denying attorney’s fees and costs in an ERISA case is, in a word, "flexible." Id.; see also Gray v. New England Tel. & Tel. Co., 792 F.2d 251, 258 (1st Cir. 1986).ERISA’s broad language permits the Court to award fees and costs to "either" party. However, the substantive purpose of ERISA is remedial, i.e., it is designed to protect "the interests of participants in employee benefit plans and their beneficiaries." 29 U.S.C. § 1001(b). Consequently, some courts have noted that fees or costs seldom should be assessed against unsuccessful ERISA plaintiffs. See, e.g., Operating Eng’rs Pension Trust v. Gilliam, 737 F.2d 1501, 1505-06 (9th Cir. 1984); Marquardt v. N. Am. Car Corp., 652 F.2d 715, 719-20 (7th Cir. 1981). Before the Court tackles the individual Cottrill factors it should be noted that this is not a typical ERISA case. As was discussed in the Court’s decision denying summary judgment, the driving force behind this action seems to be a jurisdictional dispute between two labor unions — the Carpenters Union Local 94 and the Laborers Union, both of which claimed the right to represent the workers on the "front-end" of the CM-120. R. I. Carpenters Annuity Fund v. Trevi Icos Corp., 474 F. Supp. 2d 326, 331 (D.R.I. 2007). Whether fees should be awarded turns on the question of whether it is appropriate to use ERISA litigation as a vehicle to pursue Local 94’s claim of jurisdiction. If it is legitimate to use ERISA in this way, then even an unsuccessful Plaintiff might not be "culpable" under the Cottrill factors. If it is not, then to use ERISA this way (at the expense of an innocent employer) more likely evidences culpability under the Cottrill analysis.

The court then concluded that the plaintiff’s strategic use of ERISA in this manner was not appropriate, and justified an award of attorney’s fees to the defendant.

It is a fascinating decision for at least two reasons. The first is the relative rarity of a court granting attorney’s fees to the prevailing defendant, and the case presents a road map as to one particular line of argument that a defendant can pursue to seek such an award. The second is that the case drives home the need to consider the rationale for including an ERISA claim in a case, and suggests that there are risks to using ERISA in situations where other statutes or theories of liability are better suited to targeting the specific mischief at issue.

Well, it’s finally Super Bowl weekend, so how do we tie that into the issues covered by this blog? Easy. Here’s a terrific article in this week’s Sports Illustrated (hey, we can’t get all our reading from Aspen Publishers) on the problem of disability and health benefits – and the fact that there effectively aren’t any – for long retired NFL players. The article isn’t about the legal issues, obviously, although it does touch on the distinction between the current retirement and disability plan, which is generous in this regard, that the union has negotiated for modern era players, and the plight of the players I, and probably many of you too, grew up watching in the seventies and earlier, who were never covered under any even marginally generous union negotiated benefit plan. Of the hundreds of posts I have written on this blog, probably none has had longer legs than this one, on the long legal struggle of former Steelers’ center Mike Webster to obtain benefits from the NFL under the applicable plan. The Sports Illustrated piece is a fine story of the people behind these issues, and presents a sympathetic portrait of them all.

And this, I note, is the first time I have ever linked to Sports Illustrated on this blog, and it wouldn’t surprise me if it turned out to be the last time, too.

In an opinion it issued on Monday, the United States Court of Appeals for the Sixth Circuit confronted essentially the exact same facts and issues as are at play in the LaRue case currently pending before the Supreme Court, and effectively entered its own prediction as to how the Supreme Court will rule in LaRue. Tackling the same arguments that were presented to the Supreme Court in LaRue, the Sixth Circuit concluded that individual participants could recover on their own behalf for losses solely to their accounts in the plan, and that breach of fiduciary duty claims under ERISA are not limited to actions brought on behalf of the plan as a whole or for recovery benefiting the entire class of plan participants as a whole. This, of course, is the primary issue presented to the Supreme Court by the LaRue case.

Interestingly, the Sixth Circuit even borrowed and relied upon Justice Breyer’s diamond hypothetical that he posed to the plan’s counsel in LaRue in reaching its ruling in favor of the participants, a hypothetical that clearly caught many lawyers’ fancy after it was offered up by the justice during oral argument.

The decision is Tullis v. UMB Bank, N.A.

I’ve noted in the past that the problem with state health care reform acts mandating health insurance is that they don’t tackle the issue that is deterring employers from providing broader health insurance benefits, namely the ever increasing and rapidly escalating cost of health insurance. In response, Massachusetts lawyer David Harlow argues on his blog that incremental steps towards resolving this problem are moving forward on their own schedule, separate from state legislation mandating employer provided health benefits, and cost control will come in time. Personally, I am skeptical that governments can actually control these costs, or even significantly reduce their annual rate of increase, but I would be happy to be wrong.

There’s a lot to be said about the preemption issues raised by state health insurance mandates and the assumptions that underlie the beliefs of those who argue that ERISA preemption should not be allowed to prevent states from experimenting with acts intended to remedy the problem of the uninsured. Articles like this one here, however, suggest the naivety of some of those assumptions, such as the idea that states are likely to really manage the problem in a more effective way than employers, operating under ERISA preemption, have managed to do so to date. Moreover, the article, in its discussion of the huge and apparently unexpected, or at least unplanned for, increase in the cost of insuring the uninsured under the Massachusetts Health Care Reform Act, really drives home a point I have made in other posts, that the problem with these statutes is that they do nothing to address the real problem affecting employer provision of health benefits, namely the extraordinary cost of providing those benefits; as the article reflects, Massachusetts’ much lauded experiment doesn’t target that at all, but simply shifts the pockets that will have to fund those extraordinary and ever increasing costs. And finally, if you look closely at some of the numbers discussed in the article, you come to understand the answer I have given to people who have wanted to know why no one has yet challenged the Massachusetts act as preempted; as I have told people, it’s not because the act isn’t preempted, it is instead because the financial costs to employers have yet to warrant such a challenge. The article explains that the state is anticipating some 400 million dollars in additional costs to provide health insurance under the statute to the uninsured, costs to be assumed by the taxpayers rather than by businesses through any obligation under the mandate to provide insurance; in this way, the Massachusetts statute is much more a mechanism – Trojan horse, some might say – to transfer the costs of the uninsured onto the tax rolls, rather than, by employer mandates, onto the business community. I think it is a safe bet that, had the act been drafted to transfer more of the health insurance costs onto the business community rather than onto the state taxpayers, you would have quickly seen a preemption challenge mounted. And finally in this regard, note the article’s reference to the amount of money that employers have paid to date for not providing the health insurance required by the statute, which is the underwhelming amount of 5 million dollars. I suspect Wal-Mart spent not too much less in legal fees to get the Maryland Fair Share Act overturned, and those aren’t numbers, spread across an entire business community, that are likely to provoke any economically rational business person to want to fund litigation over the act. Start to see those numbers creep up substantially, however, and you can safely plan for a preemption challenge.

At long last and after much effort, I think we may have succeeded in converting S.COTUS, the anonymous blogger on all things First Circuit at Appellate Law & Practice, into an ERISA hobbyist. How else to explain his (her?) expansive and insightful post yesterday on the First Circuit’s analysis of top hat plans in the decision the court issued yesterday in Alexander v. Brigham and Women’s Physicians Organization? As some of you may recall from our post on the district court ruling in that case, the dispute centered around a surgeon who was leaving the institution and a large amount of funds, attributable to services rendered by him while with the hospital that were not sufficiently exceeded by revenue brought in by him, that were deducted from his accounts in certain deferred compensation plans operated by the medical group. The central issue before the First Circuit was whether the deferred compensation plans constituted top hat plans for purposes of ERISA, and the First Circuit concluded that they did, because they involved only a small percentage of the defendant’s employees, each of whom was highly compensated from both an absolute and relative point of view. To the extent there is a takeaway from the First Circuit’s ruling, it really isn’t in the legal analysis, in that the court really simply applied the express language of the relevant provision of ERISA to the facts of the matter; what is of more interest and value is the manner in which the court did so, relying on a quantitative analysis of the number of physicians participating in the plan versus the employee base as a whole, as well as of the compensation of those individuals in comparison to the employee population as a whole. The case can certainly be cited for the proposition that this is the appropriate approach to determining whether the requirements for top hat status are satisfied in any particular case, and provides support for a litigant to delve into actual statistical data to prove or disprove such status.

Fellow blogger Susan Mangiero and I are quoted extensively in a very interesting article, available here, in the January issue of the Institutional Real Estate Letter. The article, titled Investing in Good Governance, focuses on one of – if not the only – potential silver linings in the whole subprime mortgage mess, namely the possibility that it will help to focus pension plan fiduciaries on the fiduciary obligations, particularly as related to protecting plan assets from ill advised and ill informed investments, that they owe to the plan itself and to plan participants.

I suggested some time ago that the Supreme Court looked poised to weigh in on some of the more tempestuous ERISA issues floating around the circuit courts of appeal, and there is probably no single issue that has raised more hackles than the question of so-called structural conflicts of interest, which exists when the administrator who decides a claim for benefits under ERISA is also the party who will have to pay the benefits if the claim is allowed. The lower courts have created a wide range of rules as to how, and when, such a conflict can alter the standard of review that a district court is to apply when passing on a benefit determination made by such an administrator.

SCOTUSBlog reported on Friday that the Supreme Court has now accepted cert on a case presenting this exact issue. To quote SCOTUS:

An ERISA case added to the docket tests whether the manager of an employee benefit plan has an illegal conflict of interest if the plan gives that individual the authority both to pay benefits and to rule on eligibility for benefits (MetLife v. Glenn, 06-923). In addition to that question, the Court added a second issue to be addressed: if that is a conflict of interest, how should that be taken into account by a court reviewing a specific benefit decision. The Sixth Circuit Court, in conflict with some federal appeals courts but in agreement with others, ruled that the dual role of funding and decider for plan administrators is a potential conflict of interest that must be weighed in judging a plan manager’s benefit eligibility ruling.

There is certainly benefit to the Court weighing in on this issue and hopefully adding some conformity across the federal courts on this issue; as I have discussed in other posts, such as here, different rules apply to this type of situation in different circuits, and it obviously makes no sense for a federal statute to be interpreted and applied differently dependent simply on the state in which a lawsuit over the issue is filed. However, as I have argued before in these digital pages, I think the whole issue of this so-called structural conflict of interest is something of a tempest in a teapot, and I do not agree with those, such as the Workplace Prof in his post on this same subject, who think that the mere existence of such a dual role on the part of the administrator warrants treating the decision maker as suspect and the decision as unworthy of the deference normally granted to an administrator operating under the appropriate grant of discretionary authority. Rather, either there is evidence before a court from which it can be determined or at least inferred that the administrator’s dual role affected the outcome, or there isn’t. While it may make sense to take that conflict into account in the former instance, where evidence exists that the administrator actually acted in a conflicted manner, there is no logical basis to do so in the latter instance; in the absence of evidence that the dual role actually affected the outcome, changing the standard of review constitutes nothing more than punishing the administrator simply based on its status, and not on evidence of misconduct. Last I looked, that’s not generally how we do things in the courts of this country.

I had two different, perhaps more substantive things in line to talk about today, but I think I am going to push them back to later in the week, to instead pass along a highly entertaining article (at least to people who really like the ins and outs and oddities of the insurance industry) that showed up on my doorstep in yesterday’s New York Times. I have talked before about a number of themes in insurance coverage, including niche coverages and the difficulty for individuals of funding their own defense against complicated lawsuits; both of these themes came together right here, in this recent post about directors and officers coverage and in particular concerning a niche product targeted solely at protecting former directors and officers.

This story here out of the New York Times is perhaps one of the more remarkable tales of niche insurance coverage, and tells the tale of a specialty insurance agency that exists solely to sell insurance to CIA, FBI and similar government employees that covers them against lawsuits and government investigations arising from their work. I have to admit, I have always wondered about this a little bit, as congressional investigations and government prosecutions of a variety of federal law enforcement and similar employees have piled up over the years, a curiosity that may have begun all the way back when I used to see Robert McFarlane, implicated in the Iran Contra affair, in the hallways of the office building where I had one of my first post-collegiate jobs. The article explains that the policy covers tens of thousands of government employees, is relatively inexpensive and provides “up to $200,000 in legal fees for administrative matters like investigations by Congress or an inspector general, or cases involving demotion or dismissal [plus] [a]n additional $100,000 is available for legal fees in criminal investigations, and the policy pays up to $1 million in damages in a civil suit.”

An insurance/business note that you should not overlook in the article is that the product really drives home the impact of risk sharing across a broad insured population. The coverage, which provides a fair amount of dollars of protection (although, as the article points out, probably nowhere near enough to cover the legal costs generated in the highest profile cases), costs each insured only a few hundred dollars, a pretty big gap between premium and the potential payout. However, when you note that the policy is purchased by tens of thousands of employees but only a tiny handful ever end up needing the specialized coverage it provides, you can see how the numbers work out to allow the insurer to provide such coverage at such a low and manageable cost for the insureds.