The Ninth Circuit Court of Appeals affirmed the California Central District Court's decision denying plaintiff's request for attorney's fees under ERISA.
Plaintiff Aleck Simonia ("Simonia") became physically disabled on April 8, 2003 and began receiving disability insurance benefits under his employer's ERISA governed benefits plan ("Plan"). The Plan was insured by Continental Casualty Company. Simonia's policy was then bought by Hartford Insurance Company ("Hartford"). Hartford also acted as the Plan administrator.
On April 19, 2007, Hartford determined Simonia was no longer disabled based on a physical disability, but rather, was disabled based on a mental disorder, subject to the Plan's twelve month payment limit.
On April 27, 2007, Hartford discovered that Simonia had been awarded Social Security Disability Insurance ("SSDI") benefits, effective October 1, 2004. Hartford determined Simonia's disability payments from Hartford should have been offset by his SSDI benefits. Hartford re-calculated Simonia's benefits and determined he had been overpaid $22,309.51.
On May 18, 2007, Hartford advised Simonia that he would no longer receive payments for physical disability, and instead would get disability benefits subject to the Plan's twelve month mental limit. Hartford also advised Simonia he had been overpaid $22,309.51 and would not receive any further benefits until Hartford received a personal check or money order for the overpayment.
On December 12, 2007, Simonia filed an action for declaratory relief, contesting Hartford's classification of his disability as a mental disorder subject to the twelve month payment limit. Hartford counterclaimed for $8,589.00, which was the overpayment, minus twelve months of mental disorder payments.
On October 16, 2008, Simonia informed Hartford the Social Security Administration had retroactively reduced his SSDI award. He asked Hartford to re-calculate its overpayment. On December 5, 2008, the parties settled the counterclaim and stipulated to its dismissal. Simonia did not prevail in his claims against Hartford for continuing benefits. He then filed a motion seeking $63,745.00 in attorney's fees because he "was successful as a counter-defendant in that the defendant dismissed its counterclaim."
The Central District Court applied the five factor test set forth in Hummell v. Rykoss & Co., 634 F.2d 446, 453 (9th Cir. 1980), and denied Simonia's motion for fees. Simonia appealed and the Ninth Circuit Court of Appeals affirmed the lower court's decision.
The Court of Appeals, relying on the recent United States Supreme Court decision in Hardt v. Reliance Standard Life Ins. Co., __ S.Ct._____, No. 09-448, 2010 WL 2025127 at *3 (May 24, 2010), held that courts must first determine whether a litigant has achieved some degree of success on the merits and if so, it must then determine whether the Hummell factors weigh in favor of awarding that litigant attorney's fees, and that both of these conditions must be met before the courts award fees under ERISA 502(g).
The Hummell factors are:
(1) the degree of the opposing parties' culpability or bad faith; (2) the ability of the opposing parties to satisfy an award of fees; (3) whether an award of fees against the opposing parties would deter others from acting under similar circumstances; (4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and (5) the relative merits of the parties' positions.
The Court of Appeals held that the district court had denied Simonia's motion for fees before the Supreme Court issued its opinion in Hardt. The district court applied the Hummell analysis without deciding if Simonia had achieved some degree of success on the merits. The Court of Appeals assumed, without deciding, Simonia has satisfied this requirement and Hartford's voluntary dismissal of its counterclaim qualified as some degree of success on the merits for Simonia.
The Court of Appeals held the district court did not abuse its discretion in its application of the Hummell factors. Hartford had a good faith belief Simonia had been overpaid by $22,309.51 at the time it filed its counterclaim, and deducting his remaining mental disorder benefits resulted in a balance of $8,589.00. After Hartford was informed Simonia's SSDI benefits had been retroactively reduced, Hartford stipulated to dismiss its counterclaim. The Court of Appeals found Hartford's actions evidenced its good faith.
The Court of Appeals indicated that although Hartford could "undoubtedly" satisfy an award of fees, no single Hummell factor is necessarily decisive. The Court of Appeals stated it did not want to deter others from acting in the same good faith manner as Hartford and Simonia's effort to settle the counterclaim did not seek "to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA," but only sought to benefit himself. The counterclaim was meritorious when filed and when the SSA's "adjustment allegedly deprived the counterclaim of merit, Hartford settled and voluntarily dismissed." Considering all of the Hummell factors, the Court of Appeals upheld the Central District Court's decision denying Simonia's request for fees under ERISA 502(g).
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This opinion is not final. Though it has been certified for publication, it may be modified on rehearing, or granted review by the United States Supreme Court. If any of these events occur, the opinion would be unavailable for use as authority in other cases.
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