In Donachie v. Liberty Life Assurance Company of Boston, Nos. 12-2996-cv (Lead), 12-3031 (XAP) (2nd Cir. 2014), the plaintiff (“Donachie”) suffered anxiety stemming from the noise made by a prosthetic valve inserted into him through surgery. Donachie submitted a claim for LTD benefits to defendant Liberty Life Assurance Company of Boston (“Liberty”), the administrator of his employer’s LTD plan. On the basis of it’s own doctor’s recommendation, Liberty denied Donachie’s claim. Ultimately, this suit ensued.
The district court granted summary judgment to Donachie on his claim for the LTD benefits, and the Second Circuit Court of Appeals (the “Court”) affirmed this decision. But what about Donachie’s request for attorney’s fees, which the district court denied? Here is what the Court said:
This Court reviews a district court’s denial of an application for attorneys’ fees under ERISA for abuse of discretion. ERISA’s fee shifting statute provides that the court in its discretion may allow a reasonable attorney’s fee and costs to either party. 29 U.S.C. § 1132(g)(1). The Supreme Court has said that a district court’s discretion to award attorneys’ fees under ERISA is not unlimited, inasmuch as it may only award attorneys’ fees to a beneficiary who has obtained some degree of success on the merits. In addition to this standard, the Supreme Court said that a court may use a test, when deciding whether or not to grant attorney’s fees, based on the 5 following factors, called the “Chambless Factors” in the Second Circuit:
(1) the degree of the 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 said that, in this case, there is no question that, as the prevailing party, Donachie was eligible for an award of attorneys’ fees. Although the district court had discretion to consider whether the Chambles Factors provided a particular justification for denying Donachie attorneys’ fees, it misapplied that framework. It originally denied attorneys’ fees on the sole basis that Liberty had not acted in bad faith. But the Court has explained that a party need not prove that the offending party acted in bad faith in order to be entitled to attorneys’ fees. The district court also did not address Liberty’s degree of culpability or the relative merits of the party’s positions. The Court has also explained that while the degree of culpability and the relative merits are not dispositive under the Chambless Factors, they do weigh heavily. By inadequately addressing these two important factors and, instead, treating the absence of bad faith as the most salient factor, the district court committed an error of law, and, therefore, abused its discretion.
The Court said that its review of the record reveals no particular justification for denying Donachie’s request for attorneys’ fees, and the Court is persuaded that awarding attorneys’ fees in the circumstances presented furthers a policy interest of vindicating the rights secured by ERISA. Accordingly, the Court vacated the district court’s denial of an award of attorneys’ fees to Donachie, and remanded the case back to the district court with directions to award Donachie reasonable attorneys’ fees in an amount to be calculated on remand.