Free Order on Motion for Attorney Fees - District Court of Arizona - Arizona

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

) ) ) ) Plaintiffs, ) ) vs. ) ) FORTIS BENEFITS INSURANCE COMPANY, ) a Minnesota corporation; and ) AV CONCEPTS, INC., an Arizona ) corporation, ) ) Defendants. ) ___________________________________)

ALLAN La MAGNA, a married man, and CACTUS PRODUCTIONS AV, INC., an Arizona corporation,

CV-02-02104 PHX (HRH)

O R D E R Motion for Attorney's Fees and Non-taxable Expenses Plaintiffs move for an award of attorney's fees and nontaxable expenses.1 This motion is opposed.2 Oral argument has

not been requested and is not deemed necessary. Background This is an ERISA action involving the denial of long-term disability benefits to plaintiff Allan La Magna under two group insurance policies issued by defendant Fortis Benefits Insurance
1

Clerk's Docket No. 116. Clerk's Docket No. 122. - 1 -

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Company. One policy was issued to plaintiff Cactus Productions AV, Inc. The other policy was issued to AV Concepts, Inc. Each

insurance policy constituted a separate and distinct ERISA plan. Plaintiffs' original complaint was filed in state court and asserted state law causes of actions. Defendant removed the

action to this court, after which, pursuant to a stipulation, plaintiffs filed an amended complaint. Plaintiffs' amended

complaint asserted four claims.

Count I asserted a claim for Count II

unpaid benefits based on the Cactus Productions plan.

asserted a claim seeking the return of any premiums paid by Cactus Productions for La Magna's coverage, if defendant were entitled to rescind La Magna's coverage. Count III asserted a claim for unpaid long-term disability benefits based on the AV Concepts plan. Count IV asserted a claim seeking a declaration that the AV Concepts policy was a valid and enforceable contract between defendant and La Magna. Again, the claims asserted by plaintiffs arose out of Although the two plans were similar in

two different ERISA plans.

terms, the facts and circumstances surrounding the denial of benefits decision as to each plan were different. For the first two years of this case, the parties' time was primarily devoted to disagreements over the extent of discovery allowed in an ERISA case and what standard of review would govern the AV Concepts benefits decision. After the standard of review

issue was resolved and the administrative record finally submitted to the court, the parties filed motions for summary judgment.

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On June 2, 2005, the court entered a final judgment3 1) granting summary judgment in favor of defendant on Count I and dismissing Count I with prejudice; 2) granting summary judgment in favor of Cactus Productions on Count II and awarding damages against defendant in the amount of $7,675.90; 3) granting summary

judgment in favor of Allan La Magna on Count III and awarding damages against defendant in the amount of $191,153.00; and 4) dismissing Count IV with prejudice on the grounds that it had been rendered moot by the other rulings of the court. Plaintiff La

Magna was also awarded pre- and post-judgment interest.4 Plaintiffs now move for an award of attorney's fees and non-taxable expenses in the amount of $120,250.74. Discussion Section 1132(g)(1) of title 29 of the United States Code provides that in an ERISA benefits action, "the court in its discretion may allow a reasonable attorney's fee and costs of action to either party." The Ninth Circuit applies "a five-factor

test to determine whether an ERISA fee award is appropriate." McElwaine v. US West, Inc., 176 F.3d 1167, 1172 (9th Cir. 1999). These five factors, called 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 would deter others from acting under similar circumstances; (4) whether the parties re3

Clerk's Docket No. 115. Id. at 2. - 3 -

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questing fees sought to benefit all plan participants or resolve a significant legal question; and (5) the relative merits of the parties' positions. Id. In applying the Hummell factors, the court "must keep at the

forefront ERISA's remedial purposes that 'should be liberally construed in favor of protecting participants in employee benefit plans.'" Id. (quoting Smith v. CMTA-IAM Pension Trust, 746 F.2d A plan participant need not be a

587, 589 (9th Cir. 1984)).

"prevailing party" in order to be entitled to an award of fees. Flanagan v. Inland Empire Elec. Workers Pension Plan & Trust, 3 F.3d 1246, 1253 (9th Cir. 1993). "As a general rule, ERISA

employee plaintiffs should be entitled to a reasonable attorney's fee 'if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.'" Smith, 746 F.2d at 589 (quoting Hensley v. Eckerhart, 461 U.S. 424, 433 (1983)). A straightforward application of the Hummell factors leaves considerable doubt as to whether an award of attorney's fees is appropriate here. The ability to pay factor is the only factor Although plaintiffs

that plainly weighs in favor of a fee award.

argue that defendant is culpable for the extensive attorneys' fees that were incurred in this case, the primary reason this case took over four years to reach a conclusion is that plaintiffs' counsel appeared to lack experience in handling ERISA claims. As for

deterrence, although plaintiffs contend that defendant needs to be deterred because defendant routinely challenges its insureds'

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claims in an effort to keep payments low, plaintiffs offer no evidence to support this contention. It is the court's opinion

that defendant did nothing in connection with this case from which it needs to be deterred. All defendant did was refuse to pay As for the Cactus

claims for benefits that it found suspect.

claim, defendant's refusal to pay proved to be correct. As for the AV Concepts claim, defendant agreed to pay benefits because of a procedural problem, not because it was ever determined that La Magna was qualified for benefits under the terms of the plan. Plaintiffs were not suing to benefit the plan nor did this case involve any significant legal questions. Although

plaintiffs argue that the waiver issue was significant because it had not been addressed by the Ninth Circuit, the law of waiver is neither significant nor complex. As for the relative merits

factor, plaintiffs contend that two of the four counts asserted in their amended complaint were decided in their favor (Counts II and III). However, Count II was virtually a no-contest once the court

ruled in defendant's favor on Count I. All that said, each plaintiff succeeded on one significant issue and achieved the benefits being sought as to that issue. Cactus Productions succeeded on its claim to have its insurance premiums refunded and La Magna succeeded on his claim that he was entitled to disability benefits under the AV Concepts plan. The

Hummell factors must be viewed in light of the remedial purposes of ERISA and the general rule is that employee plaintiffs in ERISA actions should be awarded reasonable fees if they succeed on one - 5 -

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significant

issue.

Because

each

plaintiff

succeeded

on

one

significant issue, an award of attorney's fees to plaintiffs is appropriate. Defendant argues that a fee award would be unjust because of the special circumstances in this case. "[A] successful ERISA

participant 'should ordinarily recover an attorney's fee unless special circumstances would render such an award unjust.'"

McElwaine, 176 F.3d at 1172 (quoting Smith, 746 F.2d at 589) (emphasis added). Defendant emphasizes the fact that the court

determined that La Magna was not entitled to benefits under the Cactus policy because La Magna made material misrepresentations on his application. plaintiff is not Defendant appears to be suggesting that such a entitled to an award of attorney's fees.

Defendant also emphasizes the fact that it voluntarily agreed to pay benefits under the AV Concepts plan. Defendant argues that the strong public policy of encouraging settlement agreements presents the court with a "special circumstance" which would make a fee award unjust. Defendant contends that a party would have no

incentive to attempt to settle a claim if it were still going to be subject to an award of fees. Defendant's last minute concession on Count III does not count as a special circumstance. "settlement." Although This was not a case involving a voluntarily agreed to pay

defendant

benefits under the AV Concepts plan, it did so only because it was faced with losing a motion for summary judgment due to the

procedural problems in the handling of La Magna's claim under the - 6 -

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AV Concepts plan.

There are no special circumstances in this case

that would make an award of fees unjust. A reasonable successful fees. ERISA plaintiff request is only entitled in to

Plaintiffs

$117,254.00

fees.

"[A]ttorney fees under § 1132(g)(1) are calculated using a hybrid lodestar/multiplier approach." McElwaine, 176 F.3d at 1173. To

calculate the 'lodestar' amount, the court multiplies the number of hours reasonably expended by the attorneys on the litigation by a reasonable hourly rate. Id. The "court should exclude from the

lodestar amount hours that are not reasonably expended because they are 'excessive, redundant, or otherwise unnecessary.'" Van Gerwen

v. Guarantee Mut. Life Co., 214 F.3d 1041, 1045 (9th Cir. 2000) (quoting Hensley, 461 U.S. at 434). Plaintiffs calculate the lodestar amount by multiplying the actual hours expended on this case by the rate actually charged by each attorney and paralegal. Plaintiffs' counsel avers that

419.3 attorney hours and 77.00 paralegal hours were devoted to this case.5 The attorneys billed at a rate of $225.00 per hour up to being billed at a

$325.00 per hour, with the bulk of the hours rate of $275.00 per hour.6

The total amount of fees billed by the The paralegals billed at

attorneys in this case was $110,437.50.

Affidavit of Joseph A. Schenk at 3, ¶ 15, Clerk's Docket No. 117 and Supplemental Affidavit of Joseph A. Schenk at 2, ¶ 5, attached to Plaintiffs' Reply in Support of Plaintiffs' Motion for Attorneys' Fees and Non-taxable Expenses, Clerk's Docket No. 124.
6

5

Schenk Affidavit at 3, ¶ 15, Clerk's Docket No. 117. - 7 -

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rates of $85.00 per hour and $100.00 per hour.7

The total amount

of fees billed by the paralegals in this case was $6816.50. Although defendant questions whether the rates charged by plaintiffs' counsel were reasonable, the court is persuaded that the rates charged by the attorneys who worked on this case were reasonable. $275.00 per hour has been determined to be a reason-

able rate for attorneys performing similar work in the Phoenix area. See Morgan v. Administrative Committee of the Wal-Mart

Stores, Inc. Associates' Health and Welfare Plan, 214 F. Supp. 2d 1047, 1053-54 (D. Ariz. 2002). The court also finds the rates

charged by the paralegals to be reasonable. Plaintiffs contend that the almost 500 hours spent on this case were reasonable because the case was contested for more than two years; the questions presented to the court were both fact-intensive and involved novel legal questions which required extensive legal research and analysis; and there was extensive factual investigation further the as well that as the other discovery of work conducted. performed insist is

Plaintiffs justified

argue

amount

recovery

obtained,

which

plaintiffs

potentially more than $575,000.00.

Plaintiffs also ask the court

to keep in mind that La Magna is a disabled individual who was seeking disability benefits in order to have an income on which to live. Lastly, plaintiffs assert that there is no way to separate

out time spent on different claims and maintain that even though

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Id. - 8 -

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there were two separate ERISA plans, most of the issues were common to both plans. The hours plaintiffs' counsel expended on this case were not reasonable. Plaintiffs' counsel spent far too much time

litigating matters that were of little importance or irrelevant to an ERISA case. By way of example, plaintiffs' counsel billed over

$12,000.00 for matters related to discovery. Discovery in an ERISA case is limited, even when a de novo review standard applies as it did here, because the court's review is limited to the administrative record, with few exceptions. It is also not reasonable to

award plaintiffs fees for the separate Cactus Productions claim on which La Magna was unsuccessful. Contrary to plaintiffs' conten-

tion, the facts and legal issues surrounding each ERISA plan were very different. expended expended. by the The court finds that forty percent of the hours attorneys in this case were not reasonably

As noted above, the attorneys in this case billed

$110,437.50 in fees. This amount shall, in the court's discretion, be reduced by forty percent. A similar reduction will not be made The use of paralegals is

for the hours billed by the paralegals.

encouraged as a means for keeping fees reasonable. Thus, the lodestar amount of attorney's fees to which plaintiffs are entitled is $73,079.00.8 Given the nature of the

claims on which La Magna and Cactus Productions prevailed, this

The lodestar (time x various rates) sought by plaintiffs for attorney hours is $110,437.50 x .60 = $66,262.50 plus $6816.50 in paralegal fees. - 9 -

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amount is divided 85/15 between the plaintiffs.

Of the $73,079.00

reasonable attorney's fee, $62,117.15 is awarded to plaintiff La Magna and $10,961.85 is awarded to plaintiff Cactus Productions. The "court may adjust the lodestar upward or downward using a 'multiplier' based on factors not subsumed in the initial calculation of the lodestar." Van Gerwen, 214 F.3d at 1045. These factors, known as the Kerr factors, include: (1) the time and labor required, (2) the novelty and difficulty of the questions involved, (3) the skill requisite to perform the legal service properly, (4) the preclusion of other employment by the attorney due to acceptance of the case, (5) the customary fee, (6) whether the fee is fixed or contingent, (7) time limitations imposed by the client or the circumstances, (8) the amount involved and the results obtained, (9) the experience, reputation, and ability of the attorneys, (10) the 'undesirability' of the case, (11) the nature and length of the professional relationship with the client, and (12) awards in similar cases. Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 70 (9th Cir. 1975). The parties have not requested a departure from the lodestar amount, and the court finds that no departure is warranted in this case. Plaintiffs also seek to recover $2,996.74 in costs. The

costs of an ERISA action are recoverable pursuant to 29 U.S.C. § 1132(g)(1). Here, plaintiffs seek $7.24 for long distance

telephone charges; $193.34 for postage; $2048.00 for photocopies; $490.20 for fax charges; and $257.96 for delivery expenses. The Ninth Circuit has held that section 1132 only See

encompasses those costs available under 28 U.S.C. § 1920. - 10 -

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Agredano v. Mutual of Omaha Companies, 75 F.3d 541, 543 (9th Cir. 1996). Of the costs plaintiffs seek, only photocopying costs are $124.75 of the photocopying costs

recoverable under section 1920.

were incurred before this case was filed and presumably have to do with the administrative part of plaintiffs' case. claimant may not recover costs incurred for An ERISA his

exhausting

administrative remedies.

See Cann v. Carpenters' Pension Trust

Fund for Northern California, 989 F.2d 313, 316 (9th Cir. 1993). Plaintiffs are entitled to an award of $1923.25 in costs. Conclusion Plaintiffs' motion for an award of fees and costs is granted.9 Plaintiff Allan La Magna is awarded fees in the amount Plaintiff Cactus Productions AV, Inc. is awarded Plaintiffs are jointly awarded

of $62,117.15.

fees in the amount of $10,961.85. $1923.25 in costs.

The clerk of court shall enter judgment

accordingly in favor of plaintiffs and against defendant Fortis Benefits Insurance Company. DATED at Anchorage, Alaska, this 2005. 18th day of August,

/s/ H. Russel Holland United States District Judge

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