McKeown v. Blue Cross Blue Shield of Alabama

Decision Date23 July 2007
Docket NumberCivil Action No. 1:04cv255-MHT.
PartiesDouglas McKEOWN, Plaintiff, v. BLUE CROSS BLUE SHIELD OF ALABAMA, Defendant.
CourtU.S. District Court — Middle District of Alabama

Maurice John Steensland, III, Richard Martin Adams, James W. Parkman, III, Parkman & Associates, Dothan, AL, for Plaintiff.

Cavender Crosby Kimble, James J. Goodman, Jr., Balch & Bingham, Birmingham, AL, Joclaudia Moore, Balch & Bingham, Montgomery, AL, for Defendant.

OPINION AND ORDER

MYRON H. THOMPSON, District Judge.

After a non jury trial in this ERISA case, this court entered judgment in favor of defendant Blue Cross Blue Shield of Alabama and against plaintiff Douglas McKeown. Now before the court is Blue Cross's motion for a limited award of attorney's fees. For the reasons that follow, that motion will be denied.

I. BACKGROUND

McKeown initially filed this lawsuit in state court on February 6, 2004, asserting, in a verified complaint, state-law claims against Blue Cross for its refusal to provide coverage for a procedure to treat McKeown's sleep disorder. Pursuant to 28 U.S.C. § 1441(b), Blue Cross removed the case to federal court, invoking subject-matter jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e).1 According to Blue Cross, because McKeown's claims related to the administration of an employee group health plan, his state-law claims were preempted by the Employee Retirement Income Security Act of 1974 (ERISA).

On April 5, McKeown filed a motion to remand. According to McKeown, his state-law claims were not preempted by ERISA because he was an independent contractor, not an employee, of Pathway, Inc., the employer that contracted with Blue Cross for the group health plan. Only employees, not independent contractors, have standing as plaintiffs under ERISA. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 112 S.Ct. 1344, 117 L.E d.2d 581 (1992). McKeown filed an affidavit in support of his motion to remand in which he stated that he was an independent contractor, not an employee.

Following jurisdictional discovery in April and May, 2004, Blue Cross opposed the motion to remand. Blue Cross noted that in McKeown's verified complaint, he referred to himself as an employee of Pathway and never stated that he was an independent contractor. Blue Cross acknowledged that discovery revealed McKeown to be, in fact, an independent contractor, not an employee. However, the terms of Blue Cross's agreement with Pathway provide that only employees are eligible to enroll in the group health plan. When McKeown enrolled, Blue Cross alleged, he and Pathway falsely represented to Blue Cross that McKeown was an employee. Therefore, Blue Cross argued, McKeown's allegations are governed by ERISA and remand was not warranted. Additionally, because McKeown's affidavit in support of his motion to remand directly contradicted statements regarding his employment status in his verified complaint, Blue Cross filed a motion to strike McKeown's affidavit.

The court never ruled on the motion to remand. Instead, on June 24, McKeown moved to withdraw his motion to remand and consented to the striking of his affidavit. The court granted McKeown's motion and the case proceeded in federal court. On August 28, McKeown amended his complaint to seek relief available under ERISA. Blue Cross, meanwhile, filed counterclaims against McKeown, alleging that he fraudulently misrepresented his employment status when he enrolled in the group health plan available only to Pathway employees and seeking rescission of the coverage it had already provided to McKeown based on the fact that he was an independent contractor and therefore ineligible for such coverage.

This court received evidence in a one-day non jury trial on August 26, 2005. The court found that McKeown did not engage in intentional misrepresentation when he enrolled in Pathway's group health plan. The court did find, however, that as an independent contractor McKeown was ineligible for coverage under the group health plan; the court therefore found in favor of Blue Cross on its counterclaim for rescission. As to McKeown's underlying claim regarding Blue Cross's refusal to cover certain treatment for his sleep disorder, the court found against him on that claim, both because he was not eligible for coverage generally and because Blue Cross's decision to deny him coverage for that particular treatment was not unlawful under ERISA. By stipulation, the court awarded damages to Blue Cross in the amount of $ 12,804.05, which the parties represented was the difference between the claims already paid out by Blue Cross for McKeown's medical treatment and the premiums paid by McKeown under the now-rescinded policy.

On September 9, 2005, Blue Cross filed the pending motion for a limited award of attorney's fees. Specifically, Blue Cross seeks attorney's fees incurred prior to the resolution of McKeown's unsuccessful motion to remand. Blue Cross, while acknowledging that defendant insurers do not often recover attorney's fees in ERISA cases, argues that the court should exercise its discretion to award such fees in this instance because of McKeown's unreasonable position in his motion to remand. Blue Cross seeks fees in the amount of $ 21,773.00 and has submitted an itemized billing statement for work done by its attorneys, paralegal and summer law clerk.2

II. DISCUSSION

There is no presumption in favor of awarding attorney's fees to the prevailing party in an ERISA case. Freeman v. Continental Ins. Co., 996 F.2d 1116, 1119 (11th Cir.1993). Rather, "the court in its discretion may allow a reasonable attorney's fee ... to either party." 29 U.S.C. § 1132(g)(1).

In deciding whether to award attorney's fees, the court is required to consider the following five factors: (1) the degree of the opposing party's culpability or bad faith; (2) the ability of the opposing party to satisfy an award of attorney's fees; (3) whether an award of attorney's fees against the opposing party would deter other persons acting under similar circumstances; (4) whether the party requesting attorney's fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of each party's position. Iron Workers Local No. 272 v. Bowen, 624 F.2d 1255, 1266 (5th Cir.1980)3 ; see Freeman, 996 F.2d at 1119; Curry v. Contract Fabricators Inc. Profit Sharing Plan, 744 F.Supp. 1061, 1067 (M.D.Ala. 1988) (Thompson, J.). As the court considers the five Iron Workers factors, it must also bear in mind what Blue Cross has acknowledged is an unusual aspect of its request: that the party seeking attorney's fees is the defendant. See Iron Workers, 624 F.2d at 1266 ("other considerations may be present as well"). While such awards are not disallowed, the Eleventh Circuit Court of Appeals has warned that

"courts should bear in mind ERISA's essential remedial purpose: to protect the beneficiaries of [employee benefit] plans. Adherence to this policy often counsels against charging fees against ERISA beneficiaries since private actions by beneficiaries seeking in good faith to secure their rights under employee benefit plans are important mechanisms for furthering ERISA's remedial purpose."

Nachwalter v. Christie, 805 F.2d 956, 962 (11th Cir.1986) (citation omitted). See also Salovaara v. Eckert, 222 F.3d 19, 27-32 (2d Cir.2000) (reversing district court's award of fees to prevailing ERISA defendant and warning that the five-factor test frequently balances against the defendant obtaining such fees); 4 Alba Conte, Attorney Fee Awards § 27:4, at 301 (3d ed. 2004) ("Though the guidelines developed by the courts to determine whether a party is entitled to a fee award do not explicitly differentiate between plaintiffs and defendants, consideration of these factors will seldom result in an assessment of fees against ERISA plaintiffs.") (footnote omitted).

1. McKeown's Culpability or Bad Faith

The first Iron Workers factor the court is required to consider is the degree of the opposing party's culpability or bad faith. Blue Cross argues that under this factor it is required to show culpability or bad faith, not both. See Wright v. Hanna Steel Corp., 270 F.3d 1336, 1345 (11th Cir. 2001) (emphasizing that this requirement is in the disjunctive). Blue Cross expressly declines to argue that McKeown acted in bad faith; "rather, he was culpable in his litigation strategy." Def. Mot. (doc. no. 82-1) at 4. According to Blue Cross,

"McKeown's culpability lies in his (1) filing a verified complaint in which he stated nine times that he was an employee of Pathway, Inc., and then (2) filing a Motion to Remand supported by an affidavit that contradicted his prior sworn testimony without any explanation whatsoever, (3) then proceeding to argue against this Court's jurisdiction, only to (4) withdraw his Motion to Remand and (5) consent to the striking of his affidavit, but not until Blue Cross had incurred $ 21,733 in legal expenses in defending this Court's removal jurisdiction."

Id. at 5.

The court must state at the outset that Blue Cross's case for attorney's fees is weakened considerably by its concession that McKeown did not act in bad faith. Notwithstanding language to the contrary in Wright, the Eleventh Circuit in at least one case has considered the lack of bad faith "dispositive." Andrews v. Employees' Retirement Plan of First Ala. Bancshares, Inc., 938 F.2d 1245, 1248 (11th Cir.1991) (reversing the district court's award of attorney's fees to the prevailing plaintiffs on that basis); see also Florence Nightingale Nursing Sera, Inc. v. Blue Cross/Blue Shield of Ala., 41 F.3d 1476, 1485 (11th Cir.1995) (declining to reverse district court's denial of attorney's fee award where district court's opinion below discussed only the fee opponent's lack of bad faith).

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