Pruitt v. Burwell Ruling Unlikely to have Major Impact on Employers in Near Term

On Tuesday, September 30, federal Judge Ronald White of the Eastern District of Oklahoma ruled in Pruitt v. Burwell that the plain text of the Patient Protection and Affordable Care Act (“PPACA”) does not allow for the provision of subsidies to individuals purchasing health coverage through a federally-facilitated exchange. The court ruled that the Internal Revenue Service (“IRS”) rule allowing for the disbursement of subsidies to enrollees in all exchanges, not just those established by a state, was an abuse of discretion and invalid. The ruling has no immediate effect, however, as it is stayed pending an expected appeal from the federal government.

Judge White’s opinion follows two rulings, from different circuits, issued this past summer. In the case King v. Burwell, a three judge panel from the U.S. Court of Appeals for the Fourth Circuit unanimously held that the PPACA does allow for subsidies for policies purchased through federally facilitated exchanges. On the same day, a three judge panel for the U.S. Court of Appeals for the District of Columbia Circuit reached the opposite conclusion in a 2-to-1 ruling in the case Halbig v. Burwell, ruling that subsidies are only available through state-established exchanges.

On September 4, the D.C. Circuit announced that the entire court would rehear Halbig v. Burwell, with new arguments scheduled for December 17, 2014. Judges appointed by Democrats outnumber those appointed by Republicans on the D.C. Circuit, thus some commenters have suggested that the entire court will overrule the decision of the three judge panel.

In response to the Halbig and King decisions, the IRS released a statement saying that the rulings would not impact the availability of subsidies to individuals through both federal and state exchanges. Judge White’s new ruling is not anticipated to alter the IRS’s position.

It is unlikely that Judge White’s ruling will have any impact on the operation of the exchanges or PPACA implementation in the near term. The Pruitt decision will likely be appealed to the U.S. Courts of Appeals for the Tenth Circuit. Seven of the twelve active judges on the Tenth Circuit bench were appointed by Democrats, leading some pundits to opine that the appeals court will overturn Judge White’s ruling.

Judge White’s ruling also does not markedly increase the likelihood that the United States Supreme Court will hear a case challenging the provision of premium tax credits on federally facilitated exchanges. The Supreme Court generally takes cases when there is a split among the federal appeals courts. If the rulings proceed as expected, the Tenth, Fourth, and D.C. Circuits will likely uphold the provision of premium tax credits and no circuit split will exist. However, the Supreme Court can decide to hear a case even in the absence of a circuit split, and the plaintiffs in the King case have petitioned for Supreme Court review.

The bottom line for employers is that as challenges to the IRS rule allowing subsidies to enrollees on state and federal exchanges work their way through the courts, nothing is likely to change and employers should continue to implement strategies to comply with the Employer Shared Responsibility (“Play or Pay”) rules. The IRS is expected to continue to offer subsidies to individuals in all states, meaning the same triggers for the Employer Shared Responsibility penalties remain in place.

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Plaintiff’s Attorney Fees Denied — Filing Of Lawsuit Was Not Reason Why Benefits Were Granted

You already know that in ERISA cases a court may, in its discretion, award attorney fees if a party achieved “some degree of success on the merits.”

Is the mere filing of a lawsuit,  before Plaintiff’s ERISA-governed disability benefit claim is granted, sufficient to win an award attorney fees?  NO.

Here’s the case of Koloff v. MetLife Ins. Co, 2014 WL 3420990 (E. D. Cal. July 14, 2014) [PDF].

FACTS: Koloff brought suit seeking disability benefits under an ERISA-governed plan. The Court dismissed the case (without prejudice) because Koloff had failed to exhaust administrative remedies. On December 5, 2013, MetLife informed Plaintiff’s counsel it was sending payment on benefits and asked for information to the net amounts, because of the offset for Social Security benefits. On December 17, 2013, Koloff brought a second lawsuit seeking disability benefits. On December 20, 2013, MetLife sent Koloff the letter approving her disability claim.

Koloff then moved for attorney fees, contending she achieved “some success on the merits.”

DISTRICT COURT HELD:  Plaintiff’s Motion for Attorney Fees Denied.

  1. The Plaintiff’s attorney’s time records strongly suggest that “he knew of MetLife’s intention to approve the claim prior to the filing of the complaint on December 17, 2013….”  The administrative record corroborates this, noting the December 5, 2013 conversation in which MetLife advised that it was “getting a check out.”  Op. at 7.
  2. “[T]he Court finds MetLife made the decision to approve plaintiff’s long term disability benefits by December 5, 2013 and, more importantly, made clear to plaintiff’s counsel that the only thing to do was determine the net amount to be paid which would occur once counsel provided MetLife the SSDI and EDD [offset] figures.”  Op. at 8.
  3. “Because there was no dispute as to the merits of the action before the complaint was filed, Plaintiff has shown no “injury in fact.”  Op. at 8-9.
  4. Under ERISA, “fees and costs may be awarded to any party ‘who has achieved some degree of success on the merits.’”  A claimant “does not satisfy that requirement by achieving ‘trivial success on the merits’ or a ‘purely procedural victory[.]’”  Op. at 10.
  5. Plaintiff’s counsel should not get attorney fees in her first lawsuit, which was dismissed without prejudice. “[W]hen an individual fails to exhaust administrative remedies, ‘the proper remedy is dismissal without prejudice.’” The dismissal here was not analogous to a remand.  Op. at 10.
  6. “[F]ees expended during administrative processes are not recoverable.”  Op. at 12, Fn. 13
  7. “T]he Ninth Circuit has not yet determined whether the catalyst theory [for seeking attorney fees] is viable in an ERISA action in light of Buckhannon[.]”  Op. at 12.
  8. [T]he facts do not demonstrate that the suit was [a catalyst] or linked to the decision to approve plaintiff’s benefits….Plaintiff’s counsel was informed that benefits would be paid before the litigation was initiated.”  Op. at 13-14.
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