Circuit Clarifies Fee Awards in ERISA Context
A fuel oil company that won dismissal of a single restitution claim in a dispute with its health insurer over one employee's benefits may be entitled to attorney fees, even though the insurer later dropped the rest of its suit after settling with the employee, a unanimous federal appeals panel ruled Tuesday.
The Second Circuit panel in Scarangella v. Group Health, 12-2750, vacated Southern District Judge Richard Sullivan's (See Profile) decision denying attorney fees. Sullivan ruled that the now-defunct Long Island-based fuel oil company, Village Fuel, was not entitled to fees because it was not a party to the settlement and because the dismissal of the restitution claim was merely procedural.
The underlying dispute arose when Group Health Inc. (GHI), which provided health insurance to Village Fuel's employees and their families, refused to cover healthcare for the wife of one employee, Nicholas Scarangella. GHI claimed that Scarangella was not eligible for benefits and in fact that its insurance contract with Village Fuel was invalid.
Scarangella sued Village Fuel and GHI, alleging violation of the Employee Retirement Income Security Act. GHI and Village Fuel then filed cross-claims against each other. GHI sought rescission of the insurance agreement and restitution for benefits it had already paid out. Village Fuel sought restitution from GHI for any damages it was ordered to pay Scarangella.
GHI and Village Fuel moved for summary judgment. In 2009, Sullivan dismissed their restitution claims, ruling that ERISA does not allow for restitution. He also noted that GHI's rescission claim could end up amounting to a restitution claim in practice, making it unlikely to succeed, though he did not dismiss it.
Subsequently, GHI and Scarangella settled, making the dispute moot. GHI voluntarily dropped its claims against Village Fuel, which had gone out of business in 2007.
Village Fuel then sought an award of over $300,000 in attorney fees from GHI, arguing that it had prevailed on the merits.
Sullivan denied the fee request, ruling that the dismissal of its restitution claim was merely procedural, and that the settlement between GHI and Scarangella was not a victory for Village Fuel, which was not a party. Because Village Fuel is not the "prevailing party," it is not entitled to fees, Sullivan wrote.
In vacating that decision, Restani said that Sullivan had incorrectly applied a "prevailing party" standard in an ERISA case. The Supreme Court's 2010 decision in Hardt v. Reliance Std. Life Ins., 130 S. Ct. 2149, established that a party need not be the prevailing party to get fees in a case brought under ERISA, she said.