ERISA has a fee-shifting provision found at 29 U.S.C. § 1132(g)(1). It provides that “the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.” Every time our firm files an ERISA action, we explain to the client that the court can award attorney's fees to either party. If the client prevails, there is the possibility of a fee award, and if our client loses, there is also the possibility of a fee award against the client. Many ERISA attorneys, including our firm, handle cases on a contingent fee basis as the vast majority of individuals cannot afford hourly fee representation.
But does contingent fee representation mean that the law firm becomes a party to the litigation? As ERISA disability attorneys, we represent the client in the same manner whether the representation is hourly or contingent fee. The means of payment should not convert the attorney to a party.
Some courts however have used the fee-shifting statute to impose fees on the attorneys. Their reasoning is that the statute is vague as to who pays the fees. The court may well assume that the client is not financially able to pay the opposing party's attorney's fees.
In a recent Eleventh Circuit case, Peer v. Liberty Life Assurance Company of Boston, there was an appeal by both the client and the client's attorney, challenging the Southern District of Florida's award of attorney's fees against the attorney. The lower court relied on the ERISA fee-shifting statute to impose the fees on the attorney. The court noted that the function of ERISA's fee-shifting statute was not to punish any misconduct. Any punishment due for misconduct belonged to other provisions such as 28 U.S.C. § 1927 and Federal Rule of Civil Procedure 11(c).
Liberty Life argued that the statute was silent as to who pays the fees, and therefore, it was permissible for the district court to award fees against the plaintiff's counsel. The Eleventh Circuit disagreed.
It found that if Congress does not make such an intent clear in the statute, then such an award was not permissible. The Court then noted that the goals of ERISA were to protect the interests of employees and their beneficiaries in employee benefit plans and to assure the uniform administration of employee benefit plans. A fee award against counsel would not further either of those goals. Furthermore, there would be disruption to the attorney-client relationship and privilege. The Court also found that clients were responsible for their case. If a lawyer is not acting appropriately it is up to the client to discharge the lawyer. The court summarized its ruling: “We hold that ERISA's fee-shifting statute, 29 U.S.C. § 1132(g)(1), does not allow a court to impose a fee award against a party's lawyer. Our precedent, common sense, and principles of statutory interpretation establish that the statute allows a fee award against parties, not their counsel.”
That is not to say that counsel could not be sanctioned for misconduct under 28 U.S.C. § 1927 or Federal Rule of Civil Procedure 11(c). However, the standards for such misconduct must be met. A court merely finding for an insurer as a prevailing party under ERISA is not grounds to award attorney's fees against a client's attorney. If fees could be awarded against counsel, insurers would be much more likely to run roughshod over the rights of participants and beneficiaries. Counsel would be most reluctant to take on a case that must be handled on a contingent fee basis with the added risk of fees being assessed against counsel.