Brian Martin v. AR Blue Cross & Blue ( 2001 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 00-3420
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Norma Martin, Brian Martin, *
*
Appellants, *
* Appeal from the United States
v. * District Court for the Western
* District of Arkansas
Arkansas Blue Cross and Blue Shield, *
a Mutual Insurance Company, * [TO BE PUBLISHED]
*
Appellee. *
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Submitted: April 11, 2001
Filed: October 26, 2001
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Before BYE and BEAM, Circuit Judges, and MELLOY,1 District Judge.
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PER CURIAM.
Norma and Brian Martin appeal the district court's denial of attorney's fees
following their successful suit to certify benefits for Norma's lung transplant
operation under a plan governed by the Employment Retirement Income Security Act
(ERISA). The Martins also appeal the district court's determination that ERISA fee
1
The Honorable Michael J. Melloy, United States District Judge for the
Northern District of Iowa, sitting by designation.
awards cannot be calculated on a contingency basis. We affirm in part, reverse in
part, and remand.
When Norma Martin lost a lung because of bonchoalveolar cell carcinoma, her
treating physicians recommended that she have her remaining lung transplanted with
a healthy one. Martin asked Arkansas Blue Cross & Blue Shield (the Plan) to certify
benefits for the transplant pursuant to an ERISA employee welfare benefit plan in
which she participated. After the Plan denied benefits, Martin and her husband sued,
alleging that benefits had been wrongfully denied.
The district court held that a procedural irregularity rendered the Plan's denial
unreasonable, ordered the Plan to certify coverage for the lung transplant, and invited
the Martins to file a petition for attorney's fees. The Martins' petition asked for a
contingent fee based on the cost of the lung transplant surgery (1/3 of $125,000, or
$41,666.67). The Plan resisted the petition, but without presenting any evidence of
special circumstances that would render the award unjust. See Landro v.
Glendenning Motorways, Inc., 625 F.2d 1344, 1356 (8th Cir. 1980) (holding that a
prevailing plan participant "should ordinarily recover an attorney's fee unless special
circumstances would render such an award unjust.").
The district court denied the petition for fees. The district court applied the
five-factor test for awarding ERISA fees set forth in Lawrence v. Westerhaus, 749
F.2d 494, 495-96 (8th Cir. 1984), and determined that the factors weighed in favor
of the Plan. The district court acknowledged the Landro presumption in favor of
awarding fees absent special circumstances, but did not find any special
circumstances. Instead, the district court merely concluded that "on balance,
however, consideration of the Lawrence factors leads the Court to believe that
plaintiffs are not entitled to shift their attorneys' fee onto the shoulders of the
defendant in this matter."
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The district court also denied the fee petition on the alternative ground that the
Martins had not offered any information concerning the number of hours reasonably
spent on the litigation, or the reasonable hourly rate for such services. The district
court held that a contingent fee award was inappropriate in an ERISA case. The
Martins immediately filed a motion for reconsideration, setting forth an hourly fee
request in the amount of $11,091. The Martins brought this appeal after the district
court denied their motion for reconsideration.
We review a district court's determination regarding an ERISA fee award for
abuse of discretion. Stanton v. Larry Fowler Trucking, Inc., 52 F.3d 723, 729 (8th
Cir. 1995). A district court abuses its discretion when it improperly evaluates the
considerations relevant to an award of fees. Welsh v. Burlington Northern, Inc.,
Employee Benefits Plan, 54 F.3d 1331, 1342, 1343 (8th Cir. 1995).
This appeal raises the question whether a district court abuses its discretion
when it denies an ERISA fee award by applying the Lawrence factors, without
considering the Landro presumption. We conclude that the district court improperly
evaluated the fee petition when it failed to apply the presumption in favor of awarding
fees absent special circumstances, and therefore abused its discretion. See
McConnell v. MEBA Med. & Benefits Plan, 778 F.2d 521, 525 (9th Cir. 1985)
(holding that a district court abused its discretion in denying fees where there were
no special circumstances present that would make an award unjust); cf. Walke v.
Group Long Term Disability Ins., 256 F.3d 835, 842 (8th Cir. 2001) (affirming an
award of fees where an ERISA plan failed to cite any special circumstances that
would make an award unjust). A proper consideration of the five factors will usually
lead to the conclusion that a prevailing plan participant or beneficiary should recover
attorneys' fees. In those circumstances where it does not, merely finding that the five
factors favor the Plan does not amount to special circumstances that would make an
award unjust.
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The Martins argue that the district court should have awarded a contingent fee
award based on 1/3 the value of Norma's lung transplant operation. We disagree.
The Supreme Court has "generally turned away from the contingent-fee model" in fee
shifting cases. City of Burlington v. Dague, 505 U.S. 557, 566-67 (1992). We follow
the lead of other circuits that have concluded, in light of Burlington, that contingent
fee awards are inappropriate in ERISA cases. Elmore v. Cone Mills Corp., 23 F.3d
855, 863 (4th Cir. 1994); Cann v. Carpenters' Pension Trust Fund for N. Cal., 989
F.2d 313, 318 (9th Cir. 1993).
Finally, the Martins contend that the district court abused its discretion when
it denied their motion for reconsideration, in which they supplied the court with an
hourly fee request. The district court denied the original request for fees, as well as
the motion for reconsideration, primarily because it had already determined that the
Lawrence five-factor test weighed in the Plan's favor. Having reversed on that issue,
we must decide whether the district court acted within its discretion in denying the
fee request solely on the basis that the Martins initially failed to request fees on an
hourly basis.
We conclude that the district court should consider the request for hourly fees
on remand. See Johnston v. Comerica Mortg. Corp., 83 F.3d 241, 246-47 (8th Cir.
1996) (reversing a denial of a motion for reconsideration where counsel in a class
action immediately moved for leave to submit time records after the district court
announced that it would only consider an award on an hourly basis); cf. In re Stauffer
Seeds, Inc., 817 F.2d 47, 50 (8th Cir. 1987) (addressing a request for fees under Fed.
R. Civ. P. 37, and holding that, unless initial fee request is "manifestly inadequate,"
district court should request additional information or hold a hearing before denying
fees in toto).
We affirm the district court's denial of the request for contingent fees, but
reverse and remand for consideration of the Martins' request for hourly fees.
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BYE, Circuit Judge, concurring.
I agree with the majority opinion in all respects. I write separately to discuss
what I believe is an incompatibility between the five-factor test and the special
circumstances presumption, both of which have been adopted by this circuit.
I begin by recounting the history of our adoption of both the special
circumstances presumption, and the five-factor test. Congress enacted ERISA with
a fee-shifting provision, see 29 U.S.C. § 1132(g)(1) ("the court in its discretion may
allow a reasonable attorney's fee and costs of action to either party"), that
unfortunately provided little guidance to courts on how to exercise their discretion in
awarding fees. Faced with this problem, the Tenth Circuit created a balancing test for
deciding whether prevailing ERISA plaintiffs should receive attorney's fees. The test
considers:
(1) the degree of the offending parties' culpability or bad faith;
(2) the degree of the ability of the offending parties to
personally satisfy an award of attorneys fees;
(3) whether or not an award of attorneys fees against the
offending parties would deter other persons acting under
similar circumstances;
(4) the amount of benefit conferred on members of the pension
plan as a whole; and
(5) the relative merits of the parties' position.
Eaves v. Penn, 587 F.2d 453, 465 (10th Cir. 1978) (the Eaves five-factor test).
The Eaves five-factor test has been criticized as being "an unhelpful method
for determining the appropriateness of awards to prevailing plaintiffs in ERISA
actions." Mark Berlind, Attorney's Fees under ERISA: When is an Award
Appropriate?, 71 Cornell L. Rev. 1037, 1058 (1986). Various criticisms of the five-
factor test include (a) the superfluous nature of the first factor, since courts already
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have the inherent ability to shift fees because of bad faith, (b) the fact that the second
factor does not apply to most ERISA situations, because an ERISA plan typically
pays the fees of a prevailing party rather than the plan administrators personally, and
(c) ERISA already provides strict fiduciary standards that accomplish the goals of the
third factor, deterrence. See id. at 1058-61; see also Cent. States S.E. & S.W. Areas
Pension Fund v. Hitchings Trucking, Inc., 492 F. Supp. 906, 909 (E.D. Mich. 1980)
("[I]t is difficult to determine the relationship of ERISA to each of these factors.").
Even though the five factors provide little guidance, almost every circuit,
including this one, subsequently adopted the test for determining whether district
courts should, in their discretion, award attorney fees to a prevailing plaintiff in an
ERISA suit. See Lawrence v. Westerhaus, 749 F.2d 494, 495-96 (8th Cir. 1984);
Berlind, 71 Cornell L. Rev. at 1042 (noting that "[n]early all circuits have adopted the
five-factor test or a similar approach.").
The ERISA fee-shifting provision is like the fee provisions in the civil rights
statutes. See 42 U.S.C. § 1988 (§§ 1981, 1983 actions); 42 U.S.C. 2000a-3(b) (Title
II actions); 42 U.S.C. § 2000e-5(k) (Title VII actions). The Supreme Court first
articulated a presumption in favor of awarding fees under those statutes in Newman
v. Piggie Park Enter., Inc., 309 U.S. 400 (1968), a Title II case. The Supreme Court
held that prevailing plaintiffs "should ordinarily recover an attorney's fee unless
special circumstances would render such an award unjust." Id. at 402. This Newman
presumption (sometimes referred to as the Hensley standard, see Hensley v.
Eckerhart, 461 U.S. 424, 429 (1983) (applying the presumption in a case involving
§ 1988)) has been described as a "less demanding" standard for awarding fees, while
the five-factor test has been described as "more exacting." See Eddy v. Colonial Life
Ins. Co. of Am., 59 F.3d 201, 203 (D.C. Cir. 1995).
This circuit appears to have been the first one to apply the Newman
presumption to ERISA cases. See Landro v. Glendenning Motorways, Inc., 625 F.2d
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1344, 1356 (8th Cir. 1980). The Ninth and Fourth Circuits followed suit. See Smith
v. CMTA-IAM Pension Trust, 746 F.2d 587, 589 (9th Cir. 1984); Reinking v.
Philadelphia Am. Life Ins. Co., 910 F.2d 1210, 1218 (4th Cir. 1990). But the Fourth
Circuit soon switched positions and rejected the Newman presumption in ERISA
cases, concluding that ERISA is not a remedial statute on the same plane as the civil
rights statutes. Quesinberry v. Life Ins. Co. of N. Am., 987 F.2d 1017, 1030 (4th Cir.
1993) (en banc) (overruling Reinking to the extent that it adopted a mandatory
presumption in favor of granting fees). Most other circuits have rejected the Newman
presumption in ERISA cases for the same reason. See Eddy, 59 F.3d at 209-10;
Ellison v. Shenango Inc. Pension Bd., 956 F.2d 1268, 1274 (3d Cir. 1992); Armistead
v. Vernitron Corp., 944 F.2d 1287, 1301-04 (6th Cir. 1991); Iron Workers Local No.
272 v. Bowen, 624 F.2d 1255, 1265-66 (5th Cir. 1980).
We continue to apply both the "less demanding" Newman presumption in
ERISA cases, as well as the "more exacting" five-factor test. See, e.g., Lutheran Med.
Ctr. of Omaha v. Contractors, Laborers, Teamsters & Eng'rs Health & Welfare Plan,
25 F.3d 616, 623-24 (8th Cir. 1994) (referring to both the five-factor test as well as
the "special circumstances" presumption); Stanton v. Larry Fowler Trucking, Inc., 52
F.3d 723, 729 (8th Cir. 1999) (same); Welsh v. Burlington Northern, Inc., Employee
Benefits Plan, 54 F.3d 1331, 1342 (8th Cir. 1995) (same). But curiously, we have
never questioned the compatibility of the two tests, even though it has been suggested
that the tests are decidedly incompatible:
If the jurisdiction has [adopted the Newman presumption but] also
adopted the Eaves test, the five factors are reduced to mere formalities
recited to justify an almost automatic award for every prevailing
plaintiff. In McConnell v. MEBA Medical & Benefits Plan, [759 F.2d
1401, 1406 (9th Cir.), opinion superseded by, 778 F.2d 521 (9th Cir.
1985)] the Ninth Circuit recognized this phenomenon, stating that
'proper consideration of the five factors will invariably lead to the
conclusion that a prevailing plan participant or beneficiary should
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recover attorneys' fees.' The court held that the district court abused its
discretion in denying the plaintiff's request for fees, because 'no special
circumstances existed warranting the denial.' Thus, the court held the
district court's balancing of the Eaves factors in favor of the defendant
irrelevant absent unusual circumstances demonstrating an improper
award.
...
This statement assumes that the courts seriously apply the Newman
presumption. It is possible that the Eaves test can overcome the
Newman presumption by considering any of the five factors that
mitigate against the plaintiff as special circumstances rendering an
award unjust. Thus, if the district court balances the Eaves factors and
determines that an award is unwarranted, it can deny the request using
the machinery of the presumption. However, this approach would
practically nullify the Newman presumption, just as a serious application
of the presumption reduces the vitality of the five-factor analysis.
Berlind, 71 Cornell L. Rev. at 1044 & n.56 (internal citations omitted).
We have not had to address the apparent incompatibility that exists between the
tests because we have mostly reviewed decisions awarding fees that have been
supported both by the presumption and the five factors. On one occasion, however,
we upheld a denial of attorney fees because the defendant had shown special
circumstances sufficient to overcome the presumption. Hechenberger v. W. Elec. Co.
Inc., 786 F.2d 347, 348-49 (8th Cir. 1986) (upholding the denial of fees where
plaintiffs continued to pursue an appeal even though their action had been mooted by
an amendment of a Missouri statute that abolished the practice they challenged, and
the ERISA plan abandoned the challenged practice).
The district court denied the Martins' fee request in reliance on the five-factor
test, but in the absence of any special circumstances that would overcome the
presumption in favor of awarding fees. Thus, this appears to be the first time that the
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two tests butt up against one another. Adding to the confusion is the fact that we
have referred to the defendant's burden of overcoming the presumption both as one
of persuasion, see Stanton, 52 F.3d at 729, and as one of production, see Gunderson
v. W.R. Grace & Co. Long Term Disability Income Plan, 874 F.2d 496, 500 (8th Cir.
1989). The district court denied the Martins' fee request despite the Plan's failure to
produce any evidence of special circumstances, perhaps persuaded solely by the
Plan's arguments that the five-factor test weighed in its favor.
Faced with this quandary, we are nevertheless unable, as a panel, to disregard
either Landro or Lawrence without review by the en banc court. Under these
circumstances, I agree with the majority's decision to hold, as the Ninth Circuit did,
that a district court abuses its discretion when it denies fees in the absence of special
circumstances. See McConnell v. MEBA Med. & Benefits Plan, 778 F.2d 521, 525
(9th Cir. 1985).
BEAM, Circuit Judge, dissenting.
There being no abuse of discretion on the part of the district court, I
respectfully dissent. I also respectfully dissent from the reasoning of the concurrence
that finds an incompatibility between the five-factor test this circuit adopted in
Lawrence v. Westerhaus, 749 F.2d 494, 495-96 (8th Cir. 1984) (per curiam) and the
fee-awarding presumption the court earlier adopted in Landro v. Glendenning
Motorways, Inc., 625 F.2d 1344, 1356 (8th Cir. 1980). Indeed, it seems to me that
this case demonstrates perceptible compatibility. In spite of this, if the matter were
presently open for decision, I would reject the Landro presumption for the reasons
stated by the District of Columbia Circuit in Eddy v. Colonial Life Insurance Co., 59
F.3d 201, 206-07 (D.C. Cir. 1995), although I agree with Eddy that in assessing the
discretion vested in the district court we should "necessarily seek to focus decision-
making on the underlying statutory purpose [of ERISA] while affording appropriate
leeway for the district court's case-by-case determinations." Id. at 207.
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ERISA's fee-shifting provision unambiguously gives the district court
discretion whether or not to award attorney fees to a prevailing plaintiff. 29 U.S.C.
§ 1132(g). A district court abuses its discretion when there is a lack of factual
support for its decision, or when it fails to follow applicable law. Richards v.
Aramark Servs. Inc., 108 F.3d 925, 927 (8th Cir. 1997). Nothing of the sort occurred
in this case.
In Landro, we acknowledged that the prevailing plaintiff was entitled to a
presumption in favor of a fee award–limited by the losing defendant's ability to show
special circumstances in support of denying an award. 625 F.2d at 1356. We noted
that the losing defendant had the burden of proving those special circumstances. Id.at 1356 n.19. Then in Westerhaus we identified a five-factor test designed to aid the
district court in making its determinations. 749 F.2d at 495-96. See also Jacobs v.
Pickands Mather & Co., 933 F.2d 652, 659 (8th Cir. 1991) (stating that court should
consider the enumerated Westerhaus factors in exercising its discretion concerning
whether to award attorney fees).
Lutheran Medical Center v. Contractors, Laborers, Teamsters and Engineers
Health and Welfare Plan, 25 F.3d 616, 623-24 (8th Cir. 1994), appears to be the first
case in which we referred to the five-factor test and the presumption in the same
analysis. In Lutheran we affirmed the district court's decision to award fees, and
noted that "the Plan has not shown any special circumstances. Moreover, the district
court exhaustively considered all five factors set forth in Jacobs." Id. at 624. Also,
in Stanton v. Larry Fowler Trucking, Inc., 52 F.3d 723, 730 (8th Cir. 1995), we held
that the district court did not abuse its discretion in awarding attorney fees to the
prevailing plaintiff. In Stanton, we again noted that the defendant bore the burden
of showing special circumstances to preclude an attorney fees award, and credited the
district court's consideration of the five-factor test in its decision to award fees to the
plaintiff. Id. at 729-30. See also Milone v. Exclusive Healthcare, Inc., 244 F.3d 615,
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620 (8th Cir. 2001) (referring to both the special circumstances presumption and five-
factor test).2
Here the district court clearly recognized the Landro presumption and then
found that the plan fully cooperated in expediting the exhaustion of plan
administrative remedies, the presentation of a stipulated record to the district court,
agreeing to a simultaneous briefing schedule, and finally, did not appeal the district
court's adverse position, but instead complied and certified coverage–resulting in
Martin's lung being transplanted within six months after her case was filed. The
district court also noted that Martin would not have prevailed but for a procedural
irregularity in the plan's decision-making process. Thus, to summarize, the court
noted the operative presumption, applied the five-factor test and found that an award
was not merited under the circumstances. There is factual support for this decision.
Thus, the district court fully followed the applicable law of this circuit that the
defendant must show special circumstances to preclude an attorney's fee by utilizing
the five-factor test to guide such determination. See, e.g., Lutheran Med. Ctr., 25
F.3d at 624 (recognizing the special circumstances presumption and utilizing the five-
factor test in making fee determination). Accordingly, I fail to see how the district
court abused its discretion.
Likewise, I fail to see any inherent incompatibility in the two formulations.
The concurring opinion states that the district court relied upon the five-factor test,
but failed to find special circumstances to overcome the presumption. I disagree with
that reading of the district court's opinion. It seems to me the district court's opinion
2
I note that the Seventh and Ninth Circuits utilize both the five-factor test and
the special circumstances presumption in conducting the discretionary attorney fee
analysis without questioning the compatibility of the two tests. See S.A. McElwaine
v. US West, Inc., 176 F.3d 1167, 1172 (9th Cir. 1999); Little v. Cox's Supermarkets,
71 F.3d 637, 644 (7th Cir. 1995).
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can just as easily be read to say that in light of its findings under the five-factor test,
special circumstances did exist, warranting the denial of the fee request.3
I particularly disagree with the concurrence, quoting the Cornell Law Review
article, that applying the five-factor test to determine if special circumstances exist
will "practically nullify" the presumption. Instead, what applying the five-factor test
will do is ensure that in the unusual situation where there are special circumstances
(as we have here), the losing defendant will not automatically be charged with paying
the plan participant's attorney fees. The article, and the concurring opinion by
incorporation, seem to suggest that there should be a presumption of almost
irrebuttable status. I disagree that this is, or should be, the law of this circuit.
Accordingly, I would affirm the district court's decision to deny fees in this
case because special circumstances were established by the defendant.
3
The record discloses the following statement by the presiding judge:
The Court is mindful that ERISA is remedial legislation, to be broadly
construed, and that a plan participant or beneficiary who prevails should
ordinarily recover an attorneys' fee unless special circumstances would
render such an award unjust. Landro v. Glendenning Motorways, Inc.,
625 F.2d 1344 (8th Cir. 1980). On balance, however, consideration of
the Lawrence factors leads the Court to believe that plaintiffs are not
entitled to shift their attorneys' fee onto the shoulders of defendant in
this matter.
Martin v. Arkansas Blue Cross and Blue Shield, No. 00-5035, order at 3 (W.D. Ark.
filed Sept. 5, 2000).
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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