RESTANI, Judge:
Appellant Village Fuel appeals the district court's denial of attorney's fees in this ERISA action. The district court held that Village Fuel was ineligible for attorney's fees because it "was not the `prevailing party,' and ... it did not obtain any success on the merits." Although the district court appeared to rely upon the Supreme Court's standard for determining eligibility for an award of attorney's fees, as set out in Hardt v. Reliance Std. Life Ins. Co., 560 U.S. 242, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010), it erred in interpreting that standard and applying it in this case. As a result, we vacate the court's decision and remand for the district court to apply the appropriate standard and to exercise its discretion in determining to what extent, if any, Village Fuel is entitled to an award of reasonable attorney's fees.
This long, contentious litigation stems from a benefits dispute under an employee benefits plan (the "Plan") insured by Defendant-Counter Claimant-Cross Defendant-Appellee Group Health Insurance, Inc. ("GHI") and administered by Village Fuel. Plaintiff Nicholas Scarangella ("Scarangella") was provided insurance under the Plan as an employee of Village Fuel. The Plan provided family coverage, which applied to Scarangella's wife. After Scarangella's wife incurred substantial medical expenses, GHI initiated an investigation into whether Scarangella was an eligible employee under the Plan.
In response to Scarangella's complaint, GHI asserted three counterclaims seeking rescission and/or reformation of the Plan so as to exclude Scarangella and his dependents from coverage in addition to restitution of previously conferred benefits. GHI also cross-claimed against Village Fuel for rescission/reformation of its policy to exclude Scarangella from the Plan as well as restitution for previously conferred benefits.
Following summary judgment, GHI continued settlement negotiations with Scarangella. After briefing and a hearing addressing which remaining issues would be tried, GHI and Scarangella settled their respective claims. The settlement paid a confidential sum to resolve the claims brought by Scarangella in his complaint. As a result, GHI and Scarangella voluntarily dismissed with prejudice their remaining claims against each other, and Scarangella dismissed its outstanding claims against Village Fuel. GHI also dismissed its remaining claims against Village Fuel, and the district court entered an order dismissing the action with prejudice but without costs. Subsequently, Village Fuel moved for attorney's fees, and the
In its application for attorney's fees from GHI, Village Fuel contended that it was entitled to fees as a "prevailing party," although it claimed that a lower standard applied in ERISA cases. GHI contended that Village Fuel was not a prevailing party, both because Village Fuel had lost its own cross-claim on summary judgment and also because Village Fuel could not claim success based on the settlement between GHI and Scarangella, to which Village Fuel was not a party. The magistrate judge found that under Hardt,
Village Fuel appealed, contending that the district court erred in its interpretation of the appropriate standard for an award of attorney's fees in ERISA cases. It urges us to reverse the district court and award it attorney's fees, and to adopt the analysis of the Chambless factors as set forth in the report and recommendation of the magistrate judge. GHI argues that the district court properly determined that Village Fuel had not achieved any success on the merits and therefore correctly denied attorney's fees. It further contends that a proper application of the Chambless factors results in no fee award, especially when combined with other
The district court had jurisdiction over this ERISA-matter pursuant to 29 U.S.C. § 1132(e). We have jurisdiction over this appeal under 28 U.S.C. § 1291, because it is an appeal from a final order of the district court. See Farbotko v. Clinton Cnty., 433 F.3d 204, 205 (2d Cir.2005). In reviewing the district court's denial of an application for attorney's fees, our review is for abuse of discretion. Id. at 208. A court necessarily abuses its discretion when it applies an incorrect legal standard. Sims v. Blot, 534 F.3d 117, 132 (2d Cir. 2008). We review questions of law regarding the appropriate legal standard in granting or denying attorney's fees de novo. See Perez v. Westchester Cnty. Dep't of Corr., 587 F.3d 143, 149 (2d Cir. 2009) (reviewing legal question of prevailing party status de novo).
Under ERISA, "[i]n any action under this title ... by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party." 29 U.S.C. § 1132(g)(1). The Supreme Court recently resolved a conflict among the Circuit Courts of Appeal interpreting this broad clause. See Hardt, 130 S.Ct. at 2156 n. 2 (collecting conflicting cases from the Circuit Courts of Appeal). Prior to Hardt, some circuits permitted only "prevailing parties" to recover attorney's fees. Id. Other circuits, including ours, recognized that ERISA does not contain a prevailing party standard and instead provides district courts with broader discretion in determining when and to whom attorney's fees should be awarded. See id. (citing Miller v. United Welfare Fund, 72 F.3d 1066 (2d Cir.1995)). In Hardt, the Supreme Court ultimately agreed with our interpretation of the threshold legal standard for determining whether a party is eligible for attorney's fees in an ERISA case. See id. at 2157-58.
In Hardt, the plaintiff sued the benefit administrator and underwriter of her long-term disability insurance plan to recover benefits that she claimed were wrongly denied. Id. at 2152-54. In evaluating cross-motions for summary judgment, the district court found that the insurance company had failed to comply with the requirements of ERISA in evaluating Hardt's claim, such that its determination was unreasonable as a matter of law, in the light of compelling evidence of Hardt's disability. Id. at 2154. Instead of awarding Hardt the benefits she claimed, however, the district court employed the often-used procedural remedy of a remand to the insurance company for it to reevaluate Hardt's claim in compliance with ERISA. Id. In its remand order, the court highlighted the merits of Hardt's claim, warning the insurance company that judgment would be entered in favor of Hardt if it failed to properly consider all record evidence on remand. Id. After reevaluating Hardt's application for benefits, the insurance company paid all of Hardt's claimed expenses, and Hardt moved for attorney's fees. Id. The district court granted Hardt's motion, finding that she was a prevailing party and eligible for fees under the Fourth Circuit's five-factor test for exercising discretion in awarding a reasonable fee. Id. at 2155. The Fourth Circuit reversed on the grounds that Hardt was not a prevailing party because she lacked a
On appeal, the Supreme Court reversed the Fourth Circuit, finding that it had improperly applied a prevailing party standard that was not contained within the text of the statute. Id. at 2156. In particular, the Supreme Court rejected the Fourth Circuit's reliance on Buckhannon, noting that the statutes analyzed in that case — the Americans with Disabilities Act ("ADA") and the Fair Housing Amendments Act ("FHAA") — had provisions awarding attorney's fees to prevailing parties only. See id. at 2157. As a result, the Court held that the proper standard for finding a party eligible for attorney's fees in ERISA cases is "some degree of success on the merits." Id. at 2158 (quoting Ruckelshaus v. Sierra Club, 463 U.S. 680, 694, 103 S.Ct. 3274, 77 L.Ed.2d 938 (1983)). A party does not meet this standard "by achieving trivial success on the merits or a purely procedural victory," but it does meet the standard "if the court can fairly call the outcome of the litigation some success on the merits without conducting a lengthy inquiry into the question whether a particular party's success was substantial or occurred on a central issue." Id. (internal quotation marks and brackets omitted). The Court ultimately decided that Hardt had "achieved far more than `trivial success on the merits' or a `purely procedural victory'" and therefore was eligible for attorney's fees. Id. at 2159 (quoting Ruckelshaus, 463 U.S. at 688 n. 9, 103 S.Ct. 3274). Notably, the Court did not reach the question of whether a remand order, without more, is sufficient to show some degree of success on the merits. Id. at 2159 (explaining that the district court's remand order made clear findings that the insurance company had failed to comply with ERISA and that Hardt was likely totally disabled based on compelling evidence). Hardt also permitted the use of the five-factor tests adopted by most Circuit Courts of Appeals to channel discretion in awarding reasonable fees to eligible parties, but held that courts were not required to use them. Id. at 2158 n. 8.
The present case raises the question, in part, that the Supreme Court did not resolve in Hardt: what must a party achieve or obtain to show some degree of success on the merits. GHI argues that the Court's standard in Hardt merely requires less of a showing of success by a party, i.e. a party may prevail only partially on its claims and yet be eligible for fees, but Hardt does not alter the substance of what a party must achieve: favorable judicial action on the merits. Village Fuel contends that Hardt rejected the application of Buckhannon in its entirety with respect to ERISA cases. Accordingly, Village Fuel argues that neither Buckhannon's prevailing party requirement nor its judicial imprimatur requirement are applicable here, and success on the merits may come in a variety of forms, including some instances of voluntary dismissal. The Supreme Court in Hardt appears to have left room for many factual scenarios to satisfy the standard of some success on the merits. We agree that here Village Fuel has demonstrated some degree of success on the merits as the result of court action, and the district court applied the statutory threshold inconsistently with Hardt and Ruckelshaus.
Turning to the present case, one of GHI's three cross-claims against Village
The Supreme Court has held previously that a dismissal for failing to state a legally cognizable claim is a "judgment on the merits." See Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 399 n. 3, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981); see also Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 501-02, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001) ("The original connotation of an `on the merits' adjudication is one that actually `passes directly on the substance of [a particular] claim' before the court." (quoting Restatement (Second) of Judgments § 19, Comment a, at 161) (alterations in original)). In the context of ERISA, the Seventh Circuit held that defendants had "met their initial burden of establishing `some degree of success on the merits'" under Hardt when the district court dismissed some of plaintiff's claims for failure to state a claim. Kolbe & Kolbe Health & Welfare Benefit Plan v. Medical Coll. of Wisc., 657 F.3d 496, 501, 506 (7th Cir.2011). We find this conclusion consistent with traditional notions of adjudication on the merits.
In its summary judgment order, the district court found that GHI's restitution claim against Village Fuel sought legal money damages that were not available under ERISA as a matter of law. As a result, the district court dismissed the cause of action because GHI had failed to state a legally cognizable claim. This is analogous to the dismissal of an action for failure to state a claim upon which relief may be granted under Fed.R.Civ.P. 12(b)(6). While the district court suggested that this dismissal was merely procedural in nature, we find that conclusion difficult to square with case law distinguishing a decision on the merits from a procedural decision.
Additionally, the district court's consideration of Village Fuel's defeat on its own restitution claim at this stage was erroneous. First, Village Fuel's claim was essentially one for indemnification, and it was likely to be mooted given the district court's skepticism of GHI's ability to recover money damages from Scarangella under any legal theory. Second, application of the "some degree of success on the merits" standard indicates that both GHI and Village Fuel obtained some degree of success by defeating the other's claim, not that neither party did. This conclusion is consistent with the Supreme Court's direction to engage in a limited review at this threshold stage in the attorney's fees analysis, examining only whether a party obtained some success on some issue, independent of other claims in the case.
As to the two remaining GHI claims against Village Fuel that were voluntarily dismissed with prejudice by GHI after its settlement with Scarangella, we hold that the district court again improperly relied upon pre-Hardt jurisprudence in requiring Village Fuel to show that the relief it obtained was the result of a court judgment or consent decree.
Hardt established that the lead case for ERISA attorney's fee applications is Ruckelshaus, not Buckhannon. Hardt, 130 S.Ct. at 2157. Albeit in dicta, the Supreme Court in Ruckelshaus noted that Congress intended the broader attorney's fees provision in the analogous Clean Air Act to permit an award of attorney's fees even in "suits that forced defendants to abandon illegal conduct, although without a formal court order." Ruckelshaus, 463 U.S. at 687 n. 8, 103 S.Ct. 3274. Additionally, the Court explained that the more expansive provision within the Clean Air Act was intended "to eliminate both the restrictive readings of `prevailing party' adopted in some [cases] ... and the necessity for case-by-case scrutiny by federal courts into whether plaintiffs prevailed `essentially' on `central issues.'" Id. at 688, 103 S.Ct. 3274 (referring in part to the "minority" of courts that had "denied fees to plaintiffs who lacked a formal court order granting relief"). By contrast in Buckhannon, the Supreme Court restricted the ability of a party to obtain prevailing party status, where the statute mandates such status, by requiring a party to demonstrate that its success bore judicial imprimatur, such as through a final judgment or consent decree. 532 U.S. at 604, 121 S.Ct. 1835 ("These decisions, taken together, establish that enforceable judgments on the merits and court-ordered consent decrees create the `material alteration of the legal relationship of the parties' necessary to permit an award of attorney's fees.").
Even after Buckhannon, however, we have permitted a party to meet the higher prevailing party standard even when success did not come in the form of a court judgment, but rather through an out of court agreement, even one disclaiming liability, caused in some way by court action. See Perez, 587 F.3d at 150-51 (noting that although Buckhannon rejected the "catalyst theory"
Certainly, a party that obtains relief due to the voluntary conduct of another party after minimal litigation in the district court is unlikely to succeed in demonstrating that the impetus for the relief was some action by the court related to the merits of the case. Where, however, the parties already have received a tentative analysis of their legal claims within the context of summary judgment, a party may be able to show that the court's discussion of the pending claims resulted in the party obtaining relief. This is in line with the underlying policy considerations of ERISA that we are to construe broadly. Slupinski v. First Unum Life Ins. Co., 554 F.3d 38, 47 (2d Cir.2009) ("`ERISA's attorney's fee provisions must be liberally construed to protect the statutory purpose of vindicating' employee benefits rights....") (quoting Chambless, 815 F.2d at 872). This also appears compelled by the facts and holding in Hardt, which although reserving judgment on whether a remand order without more amounts to success on the merits, clearly held that a remand order opining positively on the merits of the plaintiff's claim was sufficient. 130 S.Ct. at 2159. Further, while we are mindful of the Supreme Court's admonition that we should avoid a "lengthy inquir[y] into the question [of] whether a particular party's success was `substantial' or occurred on a `central issue,'" id. at 2158 (alterations in original), we are also hesitant to create an extra-statutory rule requiring success be obtained only by court order. See also id. at 2156 (critiquing the Court of Appeals for the Fourth Circuit because its "decision adding that term of art[, prevailing party,] to a fee-shifting statute from which it is conspicuously absent more closely resembles `invent[ing] a statute rather than interpret[ing] one.'") (quoting Pasquantino v. United States, 544 U.S. 349, 359, 125 S.Ct. 1766, 161 L.Ed.2d 619 (2005)). Doing so also could have the adverse impact of discouraging settlement where a plan beneficiary is forced to bring potentially expensive litigation in order to obtain the benefits or process rightfully owed to them, only to be denied the right to seek attorney's fees.
Applying this standard to the present case,
Village Fuel argues that should we agree with its arguments that it achieved some degree of success on the merits, we need not remand because the record already contains an analysis of the Chambless factors within the report and recommendation of the magistrate judge. Because we remand to the district court, which did not previously review this aspect of the magistrate judge's report and recommendation, we believe the more prudent route is to remand for the district court to consider these factors in the first instance.
For the reasons discussed above, the decision of the district court is VACATED, and this matter is REMANDED to the district court for further proceedings to determine a reasonable amount of attorney's fees, if any, to be awarded to Village Fuel. The clerk is directed to refer any further appeal following remand to this panel.
Chambless v. Masters, Mates & Pilots Pension Plan, 815 F.2d 869, 871 (2d Cir.1987).