ERISA Plan Administrators Beware! Failure to Provide Plan Documents May Result in Substantial Penalties - Part Two

            In part one of this series, we reviewed how a simple mistake, such as misplacing a request for plan documents, can result in substantial monetary penalties – up to $110 per day.  Unfortunately for plan administrators, that is not the end of the story.  In addition to monetary penalties, the plan also may be liable for the attorney’s fees for the participant who requested the plan documents. 

            A court has discretion to award attorneys’ fees to either party under 29 U.S.C. §1132(g).  In Hardt v. Reliance Ins. Co., 560 U.S. 242, 130 S. Ct. 2149 (2010), the Supreme Court expressly rejected the Fourth Circuit’s “prevailing party” requirement for an award of attorneys’ fees under ERISA.  560 U.S. at ___, 130 S. Ct. at 2158.  The Supreme Court held that a party is eligible for an attorneys’ fees award in an ERISA case if the party has achieved “some degree of success on the merits.”  560 U.S. at ___, 130 S. Ct. at 2158, 2159.

            Assuming some degree of success on the merits, the court would then consider five factors in deciding whether to award attorneys’ fees in an ERISA case.  Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1029 (4th Cir. 1993) (en banc):

(1) the degree of the opposing parties’ culpability or bad faith;

(2) the ability of the 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.

987 F.2d at 1029.  The Fourth Circuit cautioned that this five-factor approach is not a “rigid test,” but instead provides “general guidelines.”  Id.  Moreover, even a successful party enjoys no presumption in favor of an attorneys’ fees award.  Id

            In Quesinberry, the district court found that only the second factor weighed in favor of an attorneys’ fee award, and consequently denied the request.  The Fourth Circuit affirmed.  By contrast, in Williams v. Metropolitan Life Ins. Co., 609 F.3d 622, 635-36 (4th Cir. 2010), four of the five factors weighed in favor of an attorneys’ fees award.  The District Court (E.D.N.C.) made such an award ($18,240), and the Fourth Circuit affirmed.  Here are summaries of a few additional cases:

            •           Frye v. Metropolitan Life Ins. Co., No. 3:10-0107, 2010 WL 534287 at *17 (S.D. W. Va. Dec. 20, 2010).  Four of the five factors were in the plaintiff’s favor, and again an award was made.

            •           Sedlack v. Braswell Services Group, Inc., 134 F.3d 219, 227 (4th Cir. 1998).  Fourth Circuit affirmed District Court’s refusal to award attorneys’ fees.  Three of the five factors weighed against a fee award, including no evidence of bad faith; relief sought was purely personal, rather than seeking to benefit all participants and beneficiaries of an ERISA plan or resolve significant legal question regarding ERISA; and denial of benefits was colorable, so there was merit to the defendant’s position.

            •           Frye v. Metropolitan Life Ins. Co., No. 3:10-0107, 2010 WL 5343287 at *17 (S.D. W. Va. Dec. 20, 2010).  Attorneys’ fees awarded where four of five factors weighed in favor of an award (evidence of bad faith in handling benefits; award of attorneys’ fees would make other companies aware of the importance of the SPD giving claimants a detailed and easy to understand explanation of their rights under ERISA plans; defendant was capable of paying an award; and plaintiff was successful on the merits of her claim for STP benefits).

            The moral of the story is that plan administrators must pay careful attention to any request by a plan participant for plan documents.  The statute is set up so that even a minor oversight may result in substantial costs to the plan.

About the Author

Alan M. Ruley

Alan Ruley is a seasoned civil trial and appellate lawyer. He represents clients in a wide variety of disputes in federal and state court, focusing primarily on business litigation, intellectual property, insurance, banking and employment.
Email Alan

More Reading