Graham v. Hartford Life and Accident Ins. Co.

Citations: 501 F.3d 1153; 42 Employee Benefits Cas. (BNA) 1712; 2007 U.S. App. LEXIS 20222; 2007 WL 2405264Docket: 06-5054, 06-5142

Court: Court of Appeals for the Tenth Circuit; August 24, 2007; Federal Appellate Court

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Shirley A. Graham filed a lawsuit against Hartford Life and Accident Insurance Company after being denied long-term disability benefits. The District Court for the Northern District of Oklahoma found Hartford's denial to be arbitrary and capricious under the Employment Retirement Income Security Act (ERISA) but chose not to award benefits, instead remanding the claim for a "full and fair redetermination." Graham is appealing both the remand decision and the court's ruling that ERISA preempted her state law claim (case No. 06-5054). In a related case (No. 06-5142), she is also appealing the denial of her attorney’s fees. The Tenth Circuit concluded that the remand order is not a final decision, thus lacking jurisdiction to hear the appeal, and dismissed it. Additionally, the court found Graham's request for attorney’s fees was not ripe, vacating the denial and remanding it for dismissal without prejudice.

Background information reveals that Graham worked as a mail carrier for the U.S. Postal Service since 1976 and was a member of the National Rural Letter Carriers’ Association (NRLCA). After an incident in 1994 involving a dog, she suffered a knee injury that led to surgery and subsequent health issues. Although she attempted to work in a sedentary position, her health deteriorated, and she eventually applied for and received disability retirement in 2000. Graham became insured under the NRLCA’s long-term disability plan in 1997 and filed a claim with Hartford in October 2000, which was denied in early 2001 based on her not meeting the plan's definition of "totally" disabled.

Hartford determined that Graham's most recent job was sedentary and that she had not demonstrated an inability to perform such work. After submitting additional evidence from Dr. Emel, who claimed Graham could not drive or sit for more than an hour, Hartford again denied her claim. Graham then made a final internal appeal, which was also rejected, as Hartford asserted that a suitable job was available for her. Subsequently, Graham filed a lawsuit in federal court on February 27, 2003, asserting that Hartford breached its duty of good faith and fair dealing under Oklahoma law and alleging that Hartford's actions caused her severe emotional distress and financial losses. Graham sought actual and punitive damages, without reference to ERISA, which limits remedies to benefit recovery and enforcement of plan rights and does not allow punitive damages.

The district court determined that the NRLCA plan was ERISA-governed and that ERISA preempted Graham's state law claim, as the plan did not qualify for the “governmental plan” exception. The court dismissed the state law claim and ordered the parties to submit an administrative record for review under ERISA, effectively converting Graham’s claim. Eight months later, the court found Hartford's denial of benefits to be arbitrary and capricious, citing insufficient evidentiary support for its decision. The court criticized Hartford for relying on outdated job accommodation information, overvaluing a single inconsistent physician statement, and failing to conduct an independent medical review amidst conflicting evidence. While the court did not award benefits, it remanded the claim to Hartford for a full and fair reassessment. The court's docket entries suggested that the case was being dismissed or terminated. Graham later requested attorney’s fees, which can be granted at the court's discretion under ERISA.

The court referenced 29 U.S.C. 1132(g)(1) and applied a five-factor standard from Gordon v. U.S. Steel Corp. to conclude that awarding attorney fees would be inappropriate. It found no evidence of bad faith by Hartford and deemed the plaintiff's claim for benefits not particularly strong. On appeal, Graham aims to reinstate her state law claim, arguing that NRLCA’s disability insurance qualifies as a governmental plan exempt from ERISA due to its recognition as a collective-bargaining union by the Postal Service. She contends the court should have granted her disability benefits instead of remanding the claim to Hartford and claims attorney fees are warranted due to Hartford's alleged bad faith.

Hartford did not contest the district court's finding of arbitrary and capricious conduct but argued that the court’s remand decision is not final and thus not appealable under 28 U.S.C. 1291. The jurisdictional analysis emphasizes that only final decisions, which conclude litigation on the merits, are subject to appeal. The Tenth Circuit has not established a strict rule regarding the finality of remand orders to plan administrators, opting instead for a case-by-case evaluation based on established finality principles. The court noted that previous rulings have treated remands similarly to administrative agency remands, which are generally considered nonfinal and not immediately reviewable. This approach aligns with the court's prior decision in Rekstad, where a remand for further benefits determination was deemed nonfinal.

The "practical finality rule" allows for jurisdiction over appeals of remand decisions under certain conditions, specifically when the lack of immediate review would violate fundamental judicial principles. Jurisdiction is appropriate if the issues involved are both urgent and important, leading the court to apply a balancing test to determine if the risk of injustice from delaying appellate review outweighs the drawbacks of piecemeal review. This rule is particularly relevant in cases involving administrative remands, as administrative agencies may be restricted from seeking judicial review of their own decisions. The practical finality rule has been inconsistently applied in various courts, raising questions about its viability, yet it remains more robust in the context of agency reviews.

The practical finality rule shares similarities with the collateral order doctrine, which allows for the appeal of certain non-final orders if they conclusively determine a disputed issue, address an important matter separate from the case's merits, and are effectively unreviewable following a final judgment. However, the requirements of 28 U.S.C. § 1291 do not strictly need to align with the collateral order doctrine if immediate review is necessary for justice.

In the case at hand, the district court's order remanding Graham's claim to Hartford is deemed non-final since it did not determine her eligibility for benefits but only indicated that Hartford's previous denial was arbitrary and capricious. Graham failed to present arguments that her case falls under the practical finality exception. The court found no urgent issues or risk of injustice in waiting for Hartford's de novo redetermination of her claim, which could potentially result in benefit approval for Graham.

Graham may contest Hartford's benefits determination in district court if found ineligible again, as Hartford acknowledges her right to reopen the case or file an amended complaint. Graham argues the remand decision is final due to an earlier dismissal of her state law claim for punitive damages, which cannot be pursued under ERISA. However, this does not preclude appellate review of the district court's finding that ERISA preempts her state law claim. If successful on appeal, Graham could seek punitive damages. The court clarifies that the remand does not render previous decisions unreviewable. Graham's assertion that non-finality allows plan administrators to deny benefits without consequence is dismissed; the lack of statutory penalties for initial denials does not affect judicial finality. Various circuits have differing views on finality regarding ERISA remand orders, with most considering such decisions interlocutory and not immediately appealable, particularly if the district court retains jurisdiction. The Sixth Circuit has ruled similarly, emphasizing unresolved damages or relief. Other circuits apply a strict collateral order doctrine, maintaining that remand orders to private ERISA plan administrators are not final. Conversely, the Seventh Circuit takes a minority stance, treating ERISA remand orders as final and appealable, likening them to remands to the Commissioner of Social Security for jurisdictional purposes.

In Perlman v. Swiss Bank Corp. Comprehensive Disability Protection Plan, the court examined the jurisdictional issues surrounding remand orders under ERISA in comparison to the Social Security Act. The court noted that while the Federal Arbitration Act allows appeals from certain remand orders, this approach has not been adopted by the circuit, nor supported by other circuits, particularly the Sixth Circuit, which emphasized that 42 U.S.C. 405(g) explicitly grants appellate jurisdiction for Social Security remands, a provision absent in ERISA. The court rejected the argument that a district court's remand order constitutes a final decision, asserting that the determination of finality should focus on the substance of the decision rather than its labeling. Citing precedent, the court concluded that such remand orders are interlocutory, leading to a dismissal of the appeal for lack of jurisdiction under 28 U.S.C. 1291.

Regarding Graham's request for attorney's fees, the court found that the motion was not ripe for adjudication. It vacated the district court's decision on the fees and remanded with instructions to dismiss the motion without prejudice, referencing 29 U.S.C. 1132(g)(1) which allows discretionary attorney's fees in ERISA actions. The court highlighted the ripeness doctrine as a mechanism to avoid premature adjudication, ensuring that courts do not engage in abstract disputes.

Ripeness in legal terms assesses whether the claimed harm has developed sufficiently to justify court intervention. The evaluation involves determining the suitability of the issues for judicial review and the hardship of delaying court involvement for the parties. Courts may vacate decisions on attorney’s fees if ongoing litigation prevents a clear assessment of entitlement to those fees.

In ERISA cases, five key factors influence the award of attorney’s fees: the culpability or bad faith of the parties, the ability to satisfy a fees award, the deterrent effect of the award, the significance of the legal question and its impact on plan participants, and the relative merits of the parties’ positions. Although the ERISA attorney’s fees provision does not explicitly favor prevailing parties, their status can influence decisions, and cases may be remanded when fee denials are made without adequate justification.

In the current case, the district court denied Graham's motion for attorney’s fees, reasoning that finding Hartford acted arbitrarily did not equate to bad faith, and other factors regarding significant legal questions and the merits of her claim were not met. Attorney’s fees decisions are typically reviewed for abuse of discretion, but here, the determination is considered premature as Graham’s benefit eligibility remains unresolved. Hartford will reassess Graham’s eligibility, allowing her to contest any further denial in court. The dismissal of the fee motion is based on ripeness, without establishing a blanket rule against fee awards during remands to plan administrators. ERISA includes protections for participants regarding claims and appeals procedures.

A claimant can potentially file a suit for serious violations of ERISA’s procedural protections and still not secure benefits after the plan administrator's remand. Under 29 U.S.C. 1132(g)(1) and the Gordon test, courts may reward plaintiffs for holding plans accountable under ERISA. However, Graham did not allege systemic violations of ERISA by Hartford nor provide specific instances of regulatory or procedural breaches that would justify a claim for attorney's fees. Consequently, since the district court addressed the attorney's fees issue prematurely, that decision is vacated and remanded for dismissal of Graham’s fee claim without prejudice.

Hartford contended that the appeal regarding attorney's fees lacked jurisdiction because the remand order was not a final decision as per 28 U.S.C. 1291. Nonetheless, a petition for attorney's fees is treated as separate from the merits of the case. The guidance on awarding attorney's fees under ERISA does not exclude the possibility of such an award after remand. The district court’s order remanding Graham’s claim for benefits is not a final decision, leading to the dismissal of appeal No. 06-5054 due to lack of jurisdiction. Additionally, the action for attorney's fees, No. 06-5142, is not ripe, as determining several relevant factors depends on Hartford's reassessment of Graham’s benefits eligibility. Thus, the court vacates the denial of attorney's fees and remands the case with instructions to dismiss the motion without prejudice.