Hahnemann Univ Hosp v. All Shore Inc ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
1-29-2008
Hahnemann Univ Hosp v. All Shore Inc
Precedential or Non-Precedential: Precedential
Docket No. 05-4628
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 05-4628 & 06-1825
HAHNEMANN UNIVERSITY HOSPITAL
v.
ALL SHORE, INC.;
ALL SHORE, INC. HEALTH PLAN;
ALL SHORE, INC. EMPLOYEE BENEFIT PLAN,
ALL SHORE, INC.;
ALL SHORE, INC. HEALTH PLAN,
Defendants/Third-Party Plaintiffs
v.
PLAN VISTA SOLUTION, formerly NPPN,
Third Party Defendant
All Shore, Inc. and *All Shore, Inc. Employee Benefit Plan,
Appellants
*Amended pursuant to Clerk's Order of 11/23/05
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 03-cv-04406)
District Judge: Hon. Clifford Scott Green
Argued October 23, 2007
BEFORE: FISHER, STAPLETON
and COWEN, Circuit Judges
(Filed: January 29, 2008)
William P. Marshall, Esq. (Argued)
3101 Trewigtown Road
P.O. Box 267
Colmar, PA 18915
Counsel for Appellants
Mark D. Herbert, Esq. (Argued)
Law Offices of Mark Douglas Herbert
2215 Ford Street
Golden, CO 80401-9931
Counsel for Appellee
OPINION
COWEN, Circuit Judge.
Defendants-Appellants, Allshore, Inc. Employee Benefit
Plan (“Allshore Plan”) and Allshore, Inc., appeal from the
District Court’s grant of summary judgment in favor of Plaintiff-
Appellee, Hahnemann University Hospital (“Hahnemann”). The
Appellants also appeal the District Court’s order granting
Hahnemann’s motion for attorney’s fees and costs. For the
following reasons, we will affirm the District Court’s grant of
summary judgment in favor of Hahnemann. However, we will
vacate and remand the order granting attorney’s fees and costs to
Hahnemann.
I. BACKGROUND
This case arises out of the medical treatment of a patient
at Hahnemann in March 1999. The patient was covered under
2
the Allshore Plan. The Allshore Plan was a health benefit plan
administered by Allshore, Inc., and regulated by the Employee
Retirement Income Security Act (“ERISA”). Under the terms of
the Allshore Plan, Allshore, Inc. exercised all discretionary
authority and control over the administration of the Allshore
Plan as well as the management and disposition of plan assets.
The plan document gave Allshore, Inc. the ability to hire another
agency to perform claims processing and other specified services
in relation to the Allshore Plan. However, the plan document
stated that if such an agency was hired, it would not be
considered a fiduciary of the Allshore Plan. If such an agency
was hired, it would not exercise any discretionary authority or
responsibility held by Allshore, Inc. Allshore, Inc. hired Benefit
Concepts, Inc. (“BCI”) to act as claims administrator for the
Allshore Plan.
In April 1999, Hahnemann submitted a medical bill to the
Allshore Plan for approximately $250,000 for the costs incurred
with treating the patient at Hahnemann. Hahnemann submitted
its bill rather than the patient because the patient assigned her
claims for benefits under the Allshore Plan to Hahnemann. BCI
received Hahnemann’s claim because it was the claims
administrator of the Allshore Plan. Under the terms of the
Allshore Plan, the patient paid a $200 deductible. The Allshore
Plan would then pay 80 % of the first $10,000 in charges, and
100% of the charges thereafter.
Upon receiving Hahnemann’s claim for benefits, BCI
sought to determine whether a preferred provider organization
(“PPO”) option applied to the claim. As a third-party claims
administrator, BCI entered into contracts with various PPOs
which allowed a health benefit plan access to the PPOs’ price
discounts, even though there might not have been an agreement
between the health benefit plan and the PPO itself. These are
called passive PPOs. Upon analyzing Hahnemann’s claim for
benefits, BCI determined that a 10 % discount might apply to
Hahnemann’s claim based upon a PPO established by MultiPlan,
Inc. (“MultiPlan”).
Hahnemann did not receive a check for the amount it
requested, or even an amount applying a 10 % discount. Instead,
3
the managing general underwriter concluded that a 40 %
discount was applicable to Hahnemann’s charges through a
different PPO. Specifically, the underwriter determined that the
National Preferred Provider Network (“NPPN”) PPO applied.
Thus, Hahnemann only received 60 % (or approximately
$150,000) of the charges it originally submitted. Hahnemann
received this payment in September 1999.
After receiving payment, Hahnemann questioned the
applicability of the 40 % discount because it did not have a
contract with NPPN. However, Hahnemann did not know how
to question the payment because the explanation of benefits it
received accompanying the payment did not state where to
submit its claims for administrative review. Eventually,
Hahnemann’s counsel requested review from BCI in April 2000.
Hahnemann sought review over whether the 40 % NPPN
discount was appropriate for the charges it submitted.
In March 2003, NPPN advised BCI that the discount
should not have been applied to Hahnemann’s claim. After
waiting several more months without receiving the balance
owed, Hahnemann filed this action against the Allshore Plan and
Allshore, Inc. in July 2003. Hahnemann filed its complaint to
recover benefits owed pursuant to 29 U.S.C. § 1132(a)(1)(B) of
ERISA.
After the close of discovery, the parties filed dueling
motions for summary judgment. The District Court heard oral
argument on the motions on September 14, 2005. On September
15, 2005, the District Court granted Hahnemann’s motion for
summary judgment and denied the Appellants’ motion. It
deferred entry of final judgment so that Hahnemann could file a
motion regarding attorney’s fees and costs.
The Appellants subsequently filed a motion for
reconsideration and Hahnemann filed a motion for attorney’s
fees and costs. On February 9, 2006, the District Court
conducted a hearing on the motion for reconsideration as well as
the motion for attorney’s fees and costs. On February 10, 2006,
the District Court granted in part the motion for reconsideration,
4
only to change the judgment amount.1 It denied the motion for
reconsideration in all other respects. Also, the District Court
granted Hahnemann’s motion for attorney’s fees and costs. It
awarded Hahnemann $136,182.50 in attorney’s fees as well as
Court costs in the amount of $4,017.26 and $3,372.72 in travel
and expense costs.
The Defendants filed a motion to alter or amend
judgment. The District Court denied the motion on March 6,
2006. Subsequently, on March 8, 2006, the Defendants filed this
appeal.2
II. APPELLATE JURISDICTION
AND STANDARD OF REVIEW
We have appellate jurisdiction pursuant to 28 U.S.C.
§ 1291. Our review over the District Court’s grant of summary
judgment in favor of Hahnemann is plenary. See Post v.
Hartford Ins. Co., 501 F.3d 154, 160 (3d Cir. 2007). We apply
the same standard as the District Court; specifically, “[s]ummary
judgment is appropriate only where, drawing all reasonable
inferences in favor of the nonmoving party, there is no genuine
issue as to any material fact and . . . the moving party is entitled
to judgment as a matter of law.” Lexington Ins. Co. v. W. Pa.
Hosp., 423 F.3d 318, 322 n.2 (3d Cir. 2005)(internal quotation
marks and citations omitted). “‘An award of . . . attorneys’ fees
to a prevailing plaintiff in an ERISA case is within the discretion
of the district court and may only be reversed for abuse of
1
The District Court initially awarded Hahnemann
$101,082.36 in its September 15, 2005 order. However, in its final
order of judgment, the District Court reduced the judgment award
to $100,982.29.
2
Initially, the Appellants filed their notice of appeal on
October 14, 2005, C.A. No. 05-4628, in response to the District
Court’s initial entry of summary judgment in favor of Hahnemann.
However, a final entry of judgment was not entered until February
10, 2006. Subsequently, Appellants filed a second notice of
appeal, C.A. No. 06-1825.
5
discretion.’” McPherson v. Employees Pension Plan of Am. Re-
Ins. Co., 33 F.3d 253, 256 (3d Cir. 1994)(quoting Schake v. Colt
Indus. Operating Corp. Severance Plan, 960 F.2d 1187, 1190 (3d
Cir. 1992)). We review the District Court’s factual
determinations, “including [the court’s] determination of an
attorney’s reasonable hourly rate and the number of hours he or
she reasonably worked on the case, for clear error.” United
Auto. Workers Local 259 v. Metro Auto Ctr., 501 F.3d 283, 290
(3d Cir. 2007)(internal quotation marks and citation omitted).
We exercise plenary review over the legal standards employed
by the District Court used in calculating the award.
See id. (citations omitted).
III. DISCUSSION
On appeal, Appellants raise several issues. First, they
assert that the District Court erred in granting summary
judgment in favor of Hahnemann because its claim was time-
barred. Second, they argue that Hahnemann failed to timely file
its claim for administrative review. Third, they assert that
material issues of fact precluded the District Court’s entry of
summary judgment because a 10 % discount applied to
Hahnemann’s charges. Fourth, they argue that the entry of a
monetary judgment against Allshore, Inc. was improper.
Finally, the Appellants make several arguments objecting to the
District Court’s award of attorney fees and costs. Each of these
arguments will be considered in turn.
A. Statute of Limitations
Hahnemann claims that it is entitled to recover unpaid
benefits pursuant to 29 U.S.C. § 1132(a)(1)(B) of ERISA. This
section allows a plan participant or a beneficiary “to recover
benefits due to him under the terms of the plan, to enforce his
rights under the terms of the plan, or to clarify his rights to future
benefits under the terms of the plan.” Id. ERISA does not
include a specific statute of limitations for claims brought under
this statutory provision. However, we have stated that, “[a]s a
general rule, when Congress omits a statute of limitations for a
federal cause of action, courts ‘borrow’ the local time limitation
most analogous to the case at hand.” Gluck v. Unisys Corp., 960
6
F.2d 1168, 1179 (3d Cir. 1992)(internal quotation marks and
citations omitted). The statutory limitation most applicable to a
claim for benefits under Section 1132(a)(1)(B) is a breach of
contract claim. See id. at 1181. In Pennsylvania, a breach of
contract claim has a statute of limitations of four years. 42 Pa.
Cons. Stat. Ann. § 5525(a)(8). The parties are allowed to
contract for a shorter limitation period, so long as the contractual
period is not manifestly unreasonable. See, e.g., Hosp. Support
Servs., Ltd. v. Kemper Group, Inc., 889 F.2d 1311 (3d Cir.
1989).
The Appellants argue that the plan document contained a
one-year limitation period. They assert that this period barred
Hahnemann’s July 2003 complaint, which was filed almost four
years after Hahnemann received the improper payment. The
Appellants rely on Article X of the plan document entitled,
“Filing a Claim.” Section 7 of that article states that “[a]ll
claims must be filed with the Plan within the twelve (12) month
period from the date of the expense.”
We reject Appellants’ assertion that this clause created a
contractual statute of limitations on Hahnemann’s cause of
action for benefits under Section 1132(a)(1)(B). This provision
in the plan document only applied to the filing of “claims” to the
plan. It did not constitute the establishment of a contractual
statute of limitations for a beneficiary of the plan to bring a
§ 1132(a)(1)(B) action under ERISA. Furthermore, we note that
Hahnemann complied with the provision by submitting its claim
for benefits to the Allshore Plan in April 1999, one month after
the expenses were incurred in March 1999.
Next, Appellants allude to the possibility that a three-year
statute of limitations barred Hahnemann’s action. Specifically,
they assert that the statute of limitations set forth in 29 U.S.C. §
1113 of ERISA applies. That section states that:
No action may be commenced under
this subchapter with respect to a
fiduciary’s breach of any
responsibility, duty, or obligation
under this part, or with respect to a
7
violation of this part, after the earlier
of -
(1) six years after (A) the date of the
last action which constituted a part of
the breach or violation, or (B) in the
case of an omission the latest date on
which the fiduciary could have cured
the breach or violation, or
(2) three years after the earliest date
on which the plaintiff had actual
knowledge of the breach or violation.
29 U.S.C. § 1113. Appellants assert that Hahnemann’s action is
untimely under this section because Hahnemann filed its
complaint in July 2003, more than three years after it was aware
of the improper payment. However, Appellants’ argument
overlooks the fact that Hahnemann filed its complaint to receive
benefits pursuant to Section 1132(a)(1)(B). As previously
explained, a four-year statute of limitations applies under the
circumstances of this case in light of Pennsylvania’s breach of
contract statute of limitations. Hahnemann filed the complaint in
July 2003, less than four years after it was aware of the improper
payment. Therefore, the complaint is timely because it was filed
within the applicable four-year statute of limitations period.3
B. Time to File Administrative Review
Second, Appellants assert that Hahnemann failed to
timely file its request for administrative review under the terms
of the Allshore Plan. Hahnemann filed its request for
administrative review in April 2000. This review resulted in
3
Additionally, the District Court factually determined that
Hahnemann’s claim would satisfy the three-year statute of
limitations set forth in Section 1113(2). To the extent that this
three-year period applies, it would only apply to the claim against
Allshore, Inc. Furthermore, we would conclude that the District
Court’s factual determination was not clearly erroneous based upon
the lack of actual knowledge of the breach of fiduciary duty. See
Gluck v. Unisys Corp., 960 F.2d 1168, 1177 (3d Cir. 1992).
8
NPPN concluding that the 40 % discount did not apply to
Hahnemann’s claim for benefits.
The Allshore Plan states that if one believed that a claim
was improperly settled, the following process was available:
“[w]ithin sixty (60) days of receiving notice of the claim
settlement, request a review of the processed claim by written
request to the Plan. The Plan will review the processed claim
and inform you whether or not an error was made.” The
Appellants assert that because Hahnemann did not submit its
request for administrative review until April 2000
(approximately seven months after receiving the improper
payment applying the 40 % discount), it did not comply with the
sixty-day time period set out in the Allshore Plan. Hahnemann
responds that the document which accompanied the payment
applying the 40 % discount fell short of complying with
ERISA’s statutory and regulatory requirements. Thus,
Hahnemann asserts that the sixty-day window to apply for
administrative review was never triggered.
ERISA states that:
In accordance with regulations of the
Secretary, every employee benefit
plan shall -
(1) provide adequate notice in
writing to any participant or
beneficiary whose claim for benefits
under the plan has been denied,
setting forth the specific reasons for
such denial, written in a manner
calculated to be understood by the
participant, and
(2) afford a reasonable opportunity to any
participant whose claim for benefits has been
denied for a full and fair review by the appropriate
named fiduciary of the decision denying the claim.
29 U.S.C. § 1133. Furthermore, the regulations in 1999
provided that a notice of a claim denial must state:
9
(1) The specific reason for the
denial;
(2) Specific reference to pertinent
plan provisions on which the denial
is based;
(3) A description of any additional
material or information necessary for
the claimant to perfect a claim and
an explanation why such material or
information is necessary; and
(4) Appropriate information as to the
steps to be taken if the participant or
beneficiary wishes to submit his or
her claim for review.
29 C.F.R. § 2560.503-1(f)(1999).4 The Appellants do not
contest that the notice to Hahnemann accompanying the
September 1999 payment failed to comply with these
regulations. Indeed, the accompanying document did not state
any information to put Hahnemann on notice regarding how to
submit a claim for administrative review. Because the letter to
Hahnemann did not state the appropriate steps for administrative
review, the sixty-day time bar to seek administrative review was
never triggered. See, e.g., Epright v. Envtl. Res. Mgmt., Inc.
Health & Welfare Plan, 81 F.3d 335, 342 (3d Cir. 1996)(citing
White v. Jacobs Eng’g Group Long Term Disability Plan, 896
F.2d 344, 350 (9th Cir. 1989)).5 Accordingly, Hahnemann’s
4
The regulation has since been amended.
5
Unlike Epright, Hahnemann was not the plan participant.
Rather, the patient who received the treatment at Hahnemann was
the plan participant. However, the Appellants do not contest that
Hahnemann is a beneficiary of the Allshore Plan. See 29 C.F.R.
§ 2560.503-1(f)(4)(stating that notice must state appropriate steps
if beneficiary wishes to submit claim for review). Furthermore,
Appellants do not contest that the plan participant assigned her
claims to Hahnemann. See, e.g., Principal Mutual Life Ins. Co. v.
Charter Barclay Hosp., Inc., 81 F.3d 53, 55-56 (7th Cir.
1996)(stating that if there is a valid assignment, the hospital
10
request for review seven months after actually receiving the
payment applying the improper 40 % discount was timely
because the sixty-day window set out in the Allshore Plan was
never triggered. The fact that Hahnemann correctly guessed to
submit its claim to BCI for review is of no consequence because
the letter which accompanied the improper payment failed to
state the proper steps that Hahnemann could take in seeking
administrative review.6
C. Applicability of a 10 % Discount
Third, Appellants assert that the District Court erred in
granting summary judgment in favor of Hahnemann because
material issues of fact existed regarding the applicability of
whether a 10 % discount applied to Hahnemann’s claim.
Specifically, the Appellants allude to contracts between
MultiPlan and BCI as well as Donald Rubin, Inc. and BCI. The
two MultiPlan agreements relied on by Appellants on appeal
were applicable to practitioners. These agreements were not
applicable to Hahnemann’s claim for benefits. Indeed, Mr.
Christopher Moyer, the PPO Manager designated by BCI,
testified during his deposition that these contracts did not apply
to Hahnemann’s claims.7 Furthermore, Appellants cannot rely
becomes the only claimant because the original claimant gives up
her claim by the assignment).
6
Additionally, we note that the review proceeded as if
Hahnemann’s request for administrative review was timely. This
resulted in NPPN concluding that the 40 % discount was improper.
7
We note that Appellants cited to a facility agreement
between Hahnemann and MultiPlan during the District Court
proceedings (but not on appeal). However, even if the Appellants
did rely on this agreement on appeal, we note that the agreement
stated that payment needed to be made within thirty (30) days from
receipt of the bill for any discount to apply. Otherwise, any
payment received after thirty days would be paid at billed charges.
Hahnemann was paid well after this time period expired.
Additionally, it was not even paid an amount that applied a 10 %
11
on their conclusory statements that Hahnemann had a contract
under the Rubin PPO to extend a discount to the charges in this
case. See Ridgewood Bd. of Educ. v. N.E. ex rel. M.E., 172
F.3d 238, 252 (3d Cir. 1999)(noting that conclusory allegations
do not satisfy a nonmoving party’s duty to show that a material
issue of fact exists once the moving party points to evidence
demonstrating that there is no issue of material fact). Thus, there
was no material issue of fact with respect to this issue.
D. Judgment Against Allshore, Inc.
Next, Allshore, Inc. asserts that the District Court should
not have entered judgment against it as an entity. Recently, we
stated that when a plaintiff seeks recovery of benefits pursuant to
Section 1132(a)(1)(B), “the defendant is the plan itself (or plan
administrators in their official capacities only).” Graden v.
Conexant Systems, 496 F.3d 291, 301 (3d Cir. 2007)(emphasis
added). Thus, if entitlement to benefits is established, the court
can direct the plan administrator to pay them from the assets of
the plan, much as a trustee may be compelled to satisfy a trust
obligation from trust assets. See, e.g., Hall v. Nat’l Gypsum Co.,
105 F.3d 225, 229-30 (5th Cir. 1997).
However, Hahnemann did not sue Allshore, Inc. seeking
benefits from the Allshore Plan’s assets. Rather, it sued both the
Allshore Plan and Allshore, Inc., and requested that it “recover
of and from Allshore [Inc.] and the [Allshore] Plan, jointly and
severally.” Therefore, the judgment Hahnemann secured against
Allshore, Inc. was not in its official capacity. The mere fact that
Hahnemann established that it was entitled to benefits from the
Allshore Plan did not make Allshore, Inc. liable in an individual
capacity. Indeed, ERISA states that, “[a]ny money judgment
under this subchapter against an employee benefit plan shall be
enforceable only against the plan as an entity and shall not be
enforceable against any other person unless liability against such
person is established in his individual capacity under this
subchapter.” 29 U.S.C. § 1132(d)(2). Nevertheless, this does
discount. Thus, any discount under this agreement could not have
applied based on these circumstances.
12
not necessarily mean that Allshore, Inc. cannot be held
individually liable. Allshore, Inc. can be held liable if the facts
established an individual basis against it. See id. Two possible
bases appeared to arise in this case for Allshore, Inc.’s liability:
(1) that Allshore, Inc. agreed to be financially liable for the
medical expenses the patient incurred at Hahnemann; and (2)
that Allshore, Inc., as plan administrator, owed a fiduciary duty
which it breached by refusing to pay the claim without any
justification. It appeared that the District Court accepted both of
these theories of liability. For the following reasons, we will
affirm the judgment against Allshore, Inc., based upon this
second rationale.
When a denial of “benefits due” arises from a plan
administrator’s breach of its fiduciary obligations to the
claimant, Sections 1132(a)(1)(B) and (d) permit the beneficiary
to seek redress for the breach directly from the plan
administrator as a fiduciary. Indeed, as the Supreme Court has
noted:
a fiduciary has obligations other
than, and in addition to, managing
plan assets . . . . For example . . . a
plan administrator engages in a
fiduciary act when making a
discretionary determination about
whether a claimant is entitled to
benefits under the terms of plan
documents . . . . ERISA specifically
provides a remedy for breaches of
fiduciary duty with respect to the
interpretation of plan documents and
the payment of claims, one that is
outside the framework of the second
subsection . . . and one that runs
directly to the injured beneficiary. §
502(a)(1)(B).
Varity Corp. v. Howe, 516 U.S. 489, 511-12 (1996)(internal
citations omitted and emphasis added). Thus, a breach of these
fiduciary obligations will satisfy the limitations set forth in
13
Section 1132(d) because there is an individual basis for
recovery.
As previously noted, Allshore, Inc. was the plan
administrator and exercised all discretionary authority and
control over the administration of the Allshore Plan as well as
the management and disposition of plan assets. Thus, Allshore,
Inc. was clearly a fiduciary to the plan. See 29 U.S.C. §
1002(21)(A)(stating that a person is a fiduciary with respect to
the plan if he exercises any discretionary authority or
discretionary control respecting management of the plan or has
authority or discretionary responsibility in the administration of
the plan). ERISA requires that a fiduciary “discharge his duties
with respect to a plan solely in the interest of the participants and
beneficiaries.” 29 U.S.C. § 1104(a)(1). Furthermore, a fiduciary
must discharge his duties “with the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters
would use.” 29 U.S.C. § 1104(a)(1)(B).
Upon reviewing the record with respect to the
circumstances surrounding the payment (or lack thereof) of
benefits to Hahnemann, there is ample evidence to support the
finding that Allshore, Inc. breached a fiduciary duty that it owed
to Hahnemann as assignee of the patient in this case. See 29
U.S.C. § 1104 (discussing obligations fiduciary owes to plan
participants and beneficiaries); cf. Varity Corp., 516 U.S. at 506(illustrating conduct by a plan administrator that amounts to a
breach of fiduciary duty). Therefore, the District Court did not
err in entering judgment against Allshore, Inc.8
E. Attorney’s Fees and Costs
8
Additionally, we note that during the February 9, 2006
oral argument before the District Court, Allshore, Inc.
acknowledged that it was a proper party. Indeed, Allshore, Inc.
noted that the only question with respect to its liability was whether
the statute of limitations against it as an entity expired before
Hahnemann filed suit.
14
Finally, Appellants contest the District Court’s award of
attorney’s fees and costs to Hahnemann. The District Court had
discretion to award attorney’s fees to Hahnemann in this ERISA
suit. See 29 U.S.C. § 1132(g)(1). ERISA allows a prevailing
party to recover “a reasonable attorney’s fee and costs of
action.” Id. Before awarding fees, a District Court must
consider several factors.
These include: (1) the offending
party’s culpability or bad faith; (2)
the ability of the offending parties to
satisfy the award of attorney’s fees;
(3) the deterrent effect of an award
of attorney’s fees; (4) the benefit
conferred upon members of the
[health benefit] plan as a whole; and
(5) the relative merits of the parties’
positions.
Martorana v. Bd. Trs. of Steamfitters Local Union 420 Health,
Welfare & Pension Fund, 404 F.3d 797, 804 (3d Cir.
2005)(citing Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d
Cir. 1983)). The Appellants do not argue on appeal that the
District Court improperly applied these factors in deciding to
award attorney’s fees. Instead, they make several arguments
seeking to reduce the fee award.
A useful starting point for determining the reasonableness
of the fee is the lodestar calculation. See United Auto. Workers,
501 F.3d at 290 (citing Hensley v. Eckerhart, 461 U.S. 424, 433
(1983)). Under the lodestar approach, a court determines the
reasonable number of hours expended on the litigation
multiplied by a reasonable hourly rate. See id. The product of
this calculation “is a presumptively reasonable fee, but it may
still require subsequent adjustment.” Id. (citations omitted).
In this case, with one minor exception, the Appellants do
not challenge the hourly rate charged. Instead, Appellants assert
that the time spent by Hahnemann’s counsel on certain things
should not have been included in the fee award. First, the
Appellants assert that the fee award should be proportional to the
15
damage award. Second, they assert that Hahnemann should not
have been awarded attorney’s fees for certain “secretarial
services” performed by Hahnemann’s counsel. This marks
Appellants’ only argument with respect to the reasonableness of
the hourly rate (and only applies to certain hours alleged by
Hahnemann). Third, Appellants assert that the fee award should
be reduced because Hahnemann’s counsel was from Colorado.
They argue that had Hahnemann chosen local counsel, certain
fees including researching local rules would not have been
incurred. On a related issue, the Appellants also argue that they
should not be responsible for Hahnemann counsel’s travel costs.
They assert that had Hahnemann chosen local counsel, these
travel expense costs would not have been incurred. Fourth,
Appellants assert that Hahnemann paid its counsel on a
contingent fee basis, which would have resulted in a
substantially reduced fee award. Finally, the Appellants argue
that the District Court improperly awarded Hahnemann
attorney’s fees for fees incurred by counsel during the pre-
litigation administrative process. We consider each of these
arguments in turn.
i. A “proportional” fee award
First, the Appellants argue that the District Court erred by
awarding Hahnemann approximately $136,000 in attorney’s fees
when the summary judgment award was only approximately
$100,000. They assert that an attorney’s fees award in an
ERISA case such as this should be approximately one-third of
the damage award. We reject this theory. Recently, this Court
joined several other Courts in rejecting a proportionality rule for
attorney’s fees awarded under ERISA. See United Auto.
Workers, 501 F.3d at 295 (citing Bldg. Serv. Local 47 v.
Grandview Raceway, 46 F.3d 1392, 1401 (6th Cir. 1995);
Operating Eng’rs Pension Trusts v. B & E Backhoe, Inc., 911
F.2d 1347, 1355 (9th Cir. 1990); Bd. of Trs. of the Hotel & Rest.
Employees, Local 25 v. Madison Hotel, Inc., 43 F. Supp. 2d 8,
14 (D.D.C. 1999)). Thus, we will not disturb the fee award
based on this argument.
ii. Fees for certain “secretarial services”
16
Next, the Appellants assert that the District Court abused
its discretion in awarding Hahnemann attorney’s fees for
“secretarial services” at the same rate as applied to “legal
services.” Appellants argue that the District Court awarded
Hahnemann fees at a legal rate when counsel was only
performing secretarial functions, such as typing. However,
Hahnemann’s counsel testified that he does not dictate or
handwrite a document and then submit it to his secretary for
typing. Rather, he testified that his work is a simultaneous
process where a word processor replaces dictation or
handwriting. He testified that this process is faster than actually
dictating a document, giving it to his secretary for typing, then
reviewing and editing the typewritten document. In light of this
testimony, we will not disturb the fee award based on this
argument.
iii. Attorney’s fees for time spent researching local rules and for
travel costs incurred by Colorado counsel
Third, Appellants argue that they should not have to pay
Hahnemann for the time its counsel spent reviewing local rules.
Hahnemann’s counsel was from Colorado. Appellants assert
that had Hahnemann chosen local counsel, he would not have
had to review the local rules. Upon considering this assertion,
we conclude that we will not disturb the fee award based on this
argument.
Additionally, Appellants argue that the award to
Hahnemann for its Colorado counsel’s travel and associated
expenses was improper. Appellants assert that “if Hahnemann
retained an equally competent local counsel, these expenses
would never have been incurred.”9 Section 1132(g)(1) of
9
We note that this is the only issue Appellants raise on
appeal with respect to the District Court’s award of costs.
Therefore, we decline to address the issue of the award of Court
costs to the extent that some of these costs might have fallen
outside of 28 U.S.C. § 1920. See, e.g., Agredano v. Mut. of Omaha
Cos., 75 F.3d 541, 544 (9th Cir. 1996)(holding that Section
1132(g)(1)’s “allowance for ‘costs of action’ empowers courts to
17
ERISA gives a District Court discretion to award “costs” in
addition to attorney’s fees. We have stated that “under normal
circumstances, a party that hires counsel from outside of the
forum of the litigation may not be compensated for travel time,
travel costs, or the costs of local counsel.” Interfaith Cmty. Org.
v. Honeywell Int’l, Inc., 426 F.3d 694, 710 (3d Cir. 2005).
“However, where forum counsel are unwilling to represent
plaintiff, such costs are compensable.” Id. In this case, there is
nothing in the record to suggest that counsel from within the
forum was unwilling to represent Hahnemann in this straight
forward, albeit lengthy Section 1132(a)(1)(B) action. Therefore,
we will vacate and remand the District Court’s award of travel
and expense costs. On remand, the District Court can determine
whether counsel in the forum would have been unwilling to
represent Hahnemann. If so, then including these travel costs
and expenses was proper. If not, then they should be stricken
from the judgment.
iv. The lodestar approach versus the contingency fee approach
Fourth, Appellants assert that the evidence demonstrates
that Hahnemann’s counsel charged Hahnemann on a contingent
fee basis. Appellants assert that “the evidence in this case
reflects a contingent fee agreement which would have awarded
the Plaintiff’s attorney substantially less amount.” While this
statement might be true, it does not provide a basis for this Court
to vacate the attorney’s fee award.
In City of Burlington v. Dague, 505 U.S. 557, 565-66
award only the types of ‘costs’ allowed by 28 U.S.C. § 1920, and
only in the amounts allowed by section 1920 itself, by 28 U.S.C.
§ 1821 or by similar such provisions.”)(citation omitted); see also,
Anderson v. Unum Life Ins. Co. of Am., Civ. No. 01-894, 2007
WL 604728, at *15-16 (M.D. Ala. Feb. 22, 2007)(noting that costs
are taxable only if they are specified by statute and that costs not
enumerated under 28 U.S.C. § 1920 are not allowed under Section
1132(g)(1) of ERISA)(citations omitted); Neyer, Tiseo & Hindo,
Ltd. v. Russell, Civ. No. 92-2983, 1994 WL 158917, at *3-4 (E.D.
Pa. Apr. 29, 1994).
18
(1992), the Supreme Court noted that it has “generally turned
away from the contingent-fee model - which would make the fee
award a percentage of the value of the relief awarded in the
primary action - to the lodestar model.” This is true even though
the lodestar model often results in a larger fee award. See id. at
566. Indeed, in Blanchard v. Bergeron, 489 U.S. 87 (1989), the
Supreme Court reviewed an attorney fee award under 42 U.S.C.
§ 1988. However, in that case, the Supreme Court approved of
the lodestar approach, “even though it produced a fee that
substantially exceeded the amount provided in the contingent-fee
agreement between plaintiff and his counsel.” City of
Burlington, 505 U.S. at 566 (citing Blanchard, 489 U.S. at 96).
Thus, the District Court’s application of the lodestar approach,
as opposed to a contingency fee approach, was plainly
appropriate.
v. Attorney’s fees during the pre-litigation administrative
process under ERISA
Finally, Appellants assert that the District Court erred in
awarding attorney’s fees to Hahnemann for those fees incurred
during the pre-litigation administrative process. ERISA’s
attorney’s fee provision states that, “[i]n any action under this
subchapter (other than an action described in paragraph (2)) by a
participant, beneficiary, or fiduciary, the court in its discretion
may allow a reasonable attorney’s fee and costs of action to
either party.” 29 U.S.C. § 1132(g)(1). The question presented in
this appeal, and one of first impression in this Circuit, is whether
ERISA’s attorney’s fee provision limits a District Court to award
only those fees incurred in formal judicial actions, or whether it
also covers the fees incurred during the pre-litigation
administrative process. Five Circuit Courts have considered this
question, and all five have concluded that ERISA does not allow
for the recovery of attorney’s fees incurred during pre-litigation
administrative proceedings. See Parke v. First Reliance
Standard Life Ins. Co., 368 F.3d 999, 1010-11 (8th Cir. 2004);
Rego v. Westvaco Corp., 319 F.3d 140, 150 (4th Cir. 2003);
Peterson v. Cont’l Cas. Co., 282 F.3d 112, 119-21 (2d Cir.
2002); Anderson v. Procter & Gamble Co., 220 F.3d 449, 452-
456 (6th Cir. 2000); Cann v. Carpenters’ Pension Trust Fund for
N. Cal., 989 F.2d 313, 315-17 (9th Cir. 1993). For the following
19
reasons, we agree with our sister circuits, and conclude that the
fees incurred during administrative proceedings prior to filing
suit are unavailable under 29 U.S.C. § 1132(g)(1).
As previously noted, Section 1132(g)(1) allows a District
Court to award attorney’s fees and costs incurred in “any action
under this subchapter.” We must determine whether Congress
intended the term “action” to include administrative review
proceedings related to the judicial action. “Used in a statute, the
term ‘action’ traditionally connotes a formal adversarial
proceeding under the jurisdiction of a court of law.” Peterson,
282 F.3d at 119 (citations omitted).
While the Supreme Court has not reached the issue of
whether the ERISA attorney’s fee statutory provision allows for
the award of fees incurred during pre-litigation administrative
proceedings, its decisions interpreting other fee statutes support
our holding today. For example, the Supreme Court has
construed the phrase “action or proceeding” under Title VII to
provide for fee awards for administrative proceedings which are
not court actions. See N.Y. Gaslight Club, Inc. v. Carey, 447
U.S. 54, 61 (1980); see also, Peterson, 282 F.3d at 121(comparing the statutory language of Title VII as interpreted by
the Supreme Court in N.Y. Gaslight Club, and noting that the
ERISA attorney’s fee statutory provision does not contain the
word “or proceedings”); Cann, 989 F.2d 316 (same). As noted
by the Supreme Court, “Congress’ use of the broadly inclusive
disjunctive phrase “action or proceeding’ indicates an intent to
subject the losing party to an award of attorney’s fees and costs
that includes expenses incurred for administrative proceedings.”
N.Y. Gaslight Club, 447 U.S. at 61. Unlike Title VII, “the text
of ERISA contains no similar reference to ‘proceedings,’
providing strong evidence that Congress did not intend ERISA
to have as broad a reach as Title VII.” Peterson, 282 F.3d at
121.
Hahnemann cites to Pennsylvania v. Delaware Valley
Citizens’ Council for Clean Air, 478 U.S. 546 (1986), to support
its position that the award of pre-litigation fees was proper. In
that case, the Supreme Court “held that, in interpreting a
statutory provision authorizing attorneys’ fees, reference to an
20
‘action,’ rather than an ‘action or proceeding,’ is ‘not a sufficient
indication that Congress intended [the fee-shifting provision] to
apply only to judicial, and not administrative, proceedings.’”
Anderson, 220 F.3d at 453 (citing Del. Valley, 478 U.S. at 559).
However, the Sixth, Eighth and Ninth Circuits have all
distinguished Delaware Valley because the Supreme Court
authorized the award of attorney’s fees “only when the
administrative proceedings occurred after the litigation and
where the administrative proceedings were necessary to enforce
a final judgment that had been already obtained.” Parke, 368
F.3d at 1011 (citing Anderson, 220 F.3d at 453; Cann, 989 F.2d
at 317). We agree with these Courts that Delaware Valley is
distinguishable. Unlike the administrative proceedings in
Delaware Valley, the administrative proceedings related to
Hahnemann’s claim, while mandatory in its claim for benefits
under ERISA, were not “necessary for enforcement of a judicial
decree nor so closely connected to the resolution of the judicial
action as to fall within the scope of . . . Delaware Valley.” Id.Therefore, Hahnemann’s reliance on Delaware Valley is
misplaced.
Finally, Hahnemann asks us to apply a “modified rule”
as stated in Peterson and Seal v. John Alden Life Insurance Co.,
437 F. Supp. 2d 674 (E.D. Mich. 2006). In both cases, the
prevailing party was awarded attorney’s fees for the
administrative review fees incurred during a court-ordered
remand. See Peterson, 282 F.3d at 122; Seal, 437 F. Supp. 2d at
683-87. However, unlike Peterson and Seal, there was never a
court-ordered remand for further administrative proceedings in
this case. Therefore, we need not reach the issue of whether
Hahnemann’s so-called “modified rule” should apply. That
issue, is best left to be decided by another court.
In sum, today we join our sister Circuits and hold that
awarding a prevailing party attorney’s fees for pre-litigation
administrative proceedings under ERISA is inappropriate.
Therefore, we will vacate and remand the District Court’s
attorney’s fees award so that it can be recalculated in light of this
21
opinion.10
IV. CONCLUSION
In conclusion, we affirm the grant of summary judgment
in favor of Hahnemann. However, because the District Court
improperly included the amount of time spent by Hahnemann’s
counsel during the pre-litigation administrative process, we
vacate and remand the award of attorney’s fees for further
proceedings consistent with this opinion. The award of travel
and expense costs is also vacated and remanded for further
proceedings because the District Court awarded travel and
related expenses to Hahnemann for its counsel located outside of
the forum, even though there was no finding that forum counsel
would have been unwilling or unable to represent Hahnemann.
Finally, because the District Court separately awarded Court
costs, as well as and travel and expense costs in its judgment,
and the Appellants did not object on appeal to any part of the
award of Court costs, we will not disturb the District Court’s
award of Court costs.
10
In recalculating the attorney’s fees on remand, the
District Court should note that Hahnemann “is entitled collect a
reasonable amount for fees and costs incurred in initiating suit in
the District Court.” Peterson, 282 F.3d at 121 n.5. Thus, we agree
with the Second Circuit that the time spent drafting the complaint
is properly considered as part of the litigation in the District Court,
even though it occurred prior to filing. See id.22