Mondry v. American Family Mutual Insurance

Citation: 497 F. App'x 603Docket: Nos. 10-3409, 11-1750

Court: Court of Appeals for the Seventh Circuit; November 27, 2012; Federal Appellate Court

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Sharon Mondry appeals the damages and fees awarded to her in a lawsuit under the Employee Retirement Income Security Act (ERISA). The court affirms the district court's decisions, finding no clear error or abuse of discretion. Mondry was employed by American Family Mutual Insurance Company until September 2003 and participated in the AmeriPreferred PPO Plan, which American Family offered. CIGNA was contracted as the Plan's third-party claims administrator. Mondry's son, Zev, required speech therapy, which initially took place through Wisconsin’s Birth to Three program. After Zev aged out, Mondry arranged for therapy at the Communication Development Center (CDC), which submitted reimbursement claims to the Plan that CIGNA denied, citing that the therapy was not medically necessary.

CIGNA based its denial on the Benefit Interpretation Resource Tool for Speech Therapy (BIRT) and the Clinical Resource Tool for Speech Therapy (CRT), neither of which were official Plan documents and both inconsistent with the Plan's terms. Eventually, after considerable delay, CIGNA recognized its mistake and granted the claim, but only after Mondry's counsel obtained the necessary documents, taking over two years for the initial denial reversal and more than four years for complete reimbursement. Mondry's lawsuit against CIGNA and American Family included claims for violation of 29 U.S.C. 1024(b)(4), which mandates timely production of Plan documents, and for breaches of fiduciary duty due to the withholding of necessary documents. 

In a prior decision, the court partially upheld Mondry's claims, determining that CIGNA's reliance on the BIRT and CRT rendered these internal documents subject to production under section 1024(b)(4). The court noted that CIGNA's citation of these documents as authoritative effectively transformed them into governing documents of the Plan, thus obligating their disclosure to Mondry.

The claims administration agreement between American Family and CIGNA was determined to qualify as a Plan document, outlining their respective obligations in administering the Plan. However, only American Family, as the Plan administrator, had the responsibility to produce Plan documents per section 1024(b)(4). Despite CIGNA holding the BIRT and CRT, American Family was solely liable for any failure to produce these documents, and it was within its power to access them. Additionally, American Family was found liable for breaching its fiduciary duty to Mondry, specifically regarding the out-of-pocket expenses incurred for her son’s speech therapy while she awaited the necessary documents to appeal CIGNA’s denial of benefits.

The court remanded to the district court to enter summary judgment in favor of Mondry for the document production claim and to assess penalties under 29 U.S.C. 1132(c)(1). On remand, the district court awarded Mondry $9,270 in statutory damages for the late production of Plan documents and $603.25 for the breach of fiduciary duty. The court established that penalties for failing to produce a document only began accruing after Mondry’s counsel notified American Family of the request. Specifically, the CRT penalties commenced following a letter dated October 30, 2003, resulting in 215 days of penalties, while the BIRT penalties began after an April 21, 2004, fax, leading to 94 days of penalties. The court denied penalties for the General Services Agreement since Mondry did not directly request it from American Family. In total, American Family faced penalties for 309 days of delay in producing the CRT and BIRT. The court rejected Mondry’s request to stack penalties for multiple requests for the same document and determined that a penalty of $30 per day was appropriate, rather than the requested maximum of $110 per day.

Mondry's breach of fiduciary duty claim against American Family was upheld by the court, which found that while American Family made efforts to assist her in reversing CIGNA’s adverse benefits decision, it could have provided more support, particularly in accessing the interpretive tools CIGNA misused to deny her claim. Consequently, Mondry was awarded $603.25 in stipulated damages, reflecting the lost time value of her money during the appeal process. The court also granted her attorney's fees and costs under 29 U.S.C. 1132(g)(1), but the awarded amount was significantly less than her request. The court ruled that it could not cover fees for costs incurred during her successful attempts to obtain benefits from CIGNA prior to filing the suit against both defendants, as those efforts fell outside the scope of section 1132(g)(1). Additionally, since American Family's position was deemed substantially justified before the court's decision in Mondry I, the award of fees was limited to the litigation phase following that decision. Although Mondry achieved success in Mondry I, establishing her right to certain Plan documents, the court emphasized that a successful ERISA litigant must demonstrate that the opponent's position was not substantially justified. The court evaluated five factors relevant to attorney's fees entitlement and found no evidence of bad faith from American Family, determined that the capability to pay fees alone was insufficient, and noted the lack of necessity for a fee award to deter future misconduct. The court also viewed the hours claimed by Mondry’s counsel in the post-Mondry I phase as excessive, suggesting that the logged hours indicated an implausible commitment for a small public-interest law firm, particularly for a straightforward matter with no discovery.

The court found that the submitted fee records lacked a "careful and candid explanation" of the tasks performed, prompting it to offer counsel a choice: accept a total of $37,500 for trial-related work or submit a revised fee petition. Counsel chose to submit a revised petition requesting $245,820.63 for 1,528 hours of work, which the court deemed better documented but still unreasonable, particularly noting the excessive hours claimed for a relatively small case. The court, finding the high fee request to imply acceptance of the earlier offered amount, awarded Mondry $37,500 and costs of $1,917.83. 

The court then examined the statutory penalties owed to Mondry due to American Family’s failure to timely produce requested Plan documents. It awarded her $30 per day for 309 days of delay regarding the BIRT and CRT documents, but imposed no penalties for the GSA, determining that Mondry had not specifically requested it. Mondry contested this exclusion, arguing the court imposed a too modest penalty and that she had adequately requested the GSA, but the court upheld its assessment, emphasizing the need for "clear notice" from participants regarding document requests.

The district court correctly determined the dates when statutory penalties began to accrue due to American Family's failure to produce the CRT and BIRT documents. The obligation to produce the CRT was triggered by an October 30, 2008 letter from Mondry’s counsel, which noted CIGNA's previous citation of the CRT in denying Mondry’s claim. For the BIRT, an April 21, 2004 fax from Mondry’s counsel was interpreted as an implicit request for the document, as it asked for the rules or guidelines used in the denial of services.

Mondry argued that two earlier correspondences, dated June 30 and July 28, 2003, should have sufficed to trigger American Family's obligation. The June 30 letter requested a complete set of Plan documents and referenced CIGNA’s denial letter mentioning the BIRT. The July 28 letter reiterated the request for Plan documents and included a denial letter referencing the CRT. However, the district court found that these earlier letters did not explicitly request the CRT or BIRT, merely asking for "plan documents." The CRT and BIRT were not considered traditional Plan documents but rather interpretive guides, which courts previously deemed not subject to production under the relevant statute.

While the June 30 and July 28 letters may have alerted American Family to CIGNA's reliance on the CRT and BIRT, they did not clearly specify those documents as requested. American Family, understanding the Summary Plan Description to be the governing document, properly directed Mondry to it, as interpretive guides do not override the Plan terms. It was only after subsequent correspondence clearly identified the CRT and BIRT that American Family became responsible for producing those documents.

American Family had no prior understanding that a general request for "plan documents" included interpretive guides like the BIRT and CRT before the Mondry I decision. Mondry asserted that the court incorrectly concentrated on her document requests to American Family, as she had also directed requests to CIGNA, which had relied on interpretive tools in processing her claim—tools unavailable in American Family's insurance plan. In Mondry I, it was determined that CIGNA's reliance on these interpretive guidelines made them Plan documents that American Family was required to produce, as CIGNA acted on behalf of American Family for claims administration. Mondry sought to extend this reasoning to hold American Family accountable for CIGNA’s delays in document production, but the court found that CIGNA was only an agent for claims administration and thus, American Family was not vicariously liable for CIGNA’s delays.

The district court appropriately imposed a statutory penalty of $30 per day for the 309 days American Family failed to produce the BIRT and CRT on time. Mondry argued for stacking penalties for each request, but the court found her argument unsupported and determined that stacking was unnecessary for a fair penalty. The district court considered factors such as the prejudice Mondry experienced due to the delays, the ambiguous legal obligations regarding document production at the time, and American Family's belief that the Plan’s terms negated the need for those documents. The imposed penalty of $9,270 was deemed substantial and adequate to prevent future violations, reflecting that American Family acted without bad faith, with any shortcomings being negligent rather than egregious. The judge thoroughly assessed the circumstances, and the penalty was not considered an abuse of discretion.

Mondry argues that the district court incorrectly applied the standard for awarding attorney's fees, contending that it should have used the five-factor test from Eaves v. Penn instead of the substantial justification standard from Bittner v. Sadoff. The district court determined that American Family had substantial justification for not producing certain documents prior to the decision in Mondry I, and thus Mondry was not entitled to fees for that period. Despite some success in her litigation, the court maintained discretion in determining fee appropriateness under section 1132(g)(1). The Bittner test remains relevant, as subsequent decisions have upheld its application post-Hardt v. Reliance Standard Life Ins. Co. The district court's ruling did not entirely deny fees to Mondry; it limited the award to litigation after Mondry I, acknowledging that American Family's defense was justified before that ruling while considering factors from both tests.

The court applied a five-factor test to determine whether attorney fees should be awarded for the litigation phase leading up to Mondry I, ultimately concluding that fees should not be granted. This aligns with prior rulings that the five-factor test serves to implement the ‘substantially justified’ standard rather than contradict it. The inquiry centers on whether the losing party’s position was substantially justified and taken in good faith, or if it was intended to harass the opponent. Despite Mondry's claim that American Family’s position was unjustified, the court found merit in American Family's defense, as the legal landscape was uncertain and the company had support from existing case law. Additionally, while the district court recognized American Family's culpability in failing to provide timely documents, it determined that this did not reflect bad faith, as American Family made some efforts to assist Mondry and lacked possession of the documents in question. The court found no clear error in how the five-factor test was applied.

Bad faith is not necessary for a fee award following the Hardt decision. The district court found that, although American Family's conduct was not blameworthy, this was relevant to Mondry's fee entitlement. The court was confident in American Family’s ability to pay the awarded fees, despite Mondry's argument that the court mistakenly believed the fees would be drawn from Plan funds. The court highlighted this point mainly to clarify the substantial justification rule, not as a reason against the fee award, which it ultimately granted.

The court also noted that Mondry I would serve as a significant deterrent against similar future misconduct, and while a larger fee might enhance this deterrence, the existing award was deemed sufficient. Additionally, Mondry’s lawsuit was acknowledged as beneficial to other plan participants facing similar issues. Although Mondry won on the argument for document production, her victory was not guaranteed given the legal support for American Family’s position prior to Mondry I.

The district court concluded that American Family's pre-Mondry I actions were reasonable due to limited precedent regarding document production. While American Family could have been more helpful in document procurement, it was less culpable than CIGNA, which bore greater responsibility. Mondry contended that the district court’s $37,500 fee award lacked sufficient legal and factual support and argued for the lodestar method of calculating fees per established case law.

The court did not abuse its discretion in awarding attorney fees, as it was well-positioned to evaluate a reasonable fee based on its trial oversight. The district court provided a clear rationale for its decision, ensuring it did not arbitrarily reduce the fee request. While no single formula governs fee determinations, the assessment typically begins with the number of hours reasonably spent by counsel. In this case, Mondry’s counsel initially submitted an unreasonable number of hours for a two-day trial involving straightforward issues. Although given a chance to revise, counsel only minimally adjusted the hours, primarily eliminating those attributed to student interns without reducing attorney hours. On appeal, Mondry’s counsel failed to justify the excessive hours claimed. The court exercised its discretion to depart from the standard lodestar approach and awarded a fixed fee of $35,000, equating to 140 hours at an hourly rate of $250, which the court deemed reasonable. The court affirmed this decision, noting no evidence suggested CIGNA had a history of misusing certain interpretive guides in claims decisions, indicating that CIGNA's reliance on them in denying Mondry’s claim was an isolated incident.