In Gross v. Sun Life Assur. Co. of Can., No. 09-11678-RWZ, 2018 U.S. Dist. LEXIS 107918 (D. Mass. June 28, 2018), a District Court decided the appropriate prejudgment interest rate for a Kentucky resident was the Massachusetts prejudgment rate (12 percent) rather than the federal rate at the time (.37 percent). The District Court awarded attorney’s fees in the amount of $625 per hour for Plaintiff’s Boston lawyer but refused to increase the rate for Plaintiff’s Kentucky lawyer in accordance with the Boston market rate. The Court also refused to compensate the Kentucky lawyer for work performed during the phases of litigation “infected” by misconduct.
Plaintiff, an optician and office manager for Pinnacle Eye Care LLC in Lexington, Kentucky, was placed on disability leave in early August 2006, when she was 34 years old. She complained of severe pain, weakness and numbness in her legs and arms, and recurring headaches that had been worsening since early 2004. Plaintiff’s treating physician concluded that she had reflex sympathetic dystrophy, fibromyalgia, migraines, and chronic fatigue. In a report signed in September 2006, the doctor wrote that Plaintiff “cannot work.”
In April 2007, Sun Life notified Plaintiff that it had denied her request for benefits because of “insufficient objective evidence to substantiate” a disability. In so concluding, the insurer relied, inter alia, on its video surveillance and the opinions of consulting physicians. Sun Life upheld its determination on administrative appeal, emphasizing the discrepancy between Plaintiff’s activities while under surveillance and her appearance and behavior during medical visits.
In 2012, the District Court granted Sun Life’s motion for summary judgment. Gross v. Sun Life Assur. Co., No. 09-11678-RWZ, 2012 U.S. Dist. LEXIS 1595 (D. Mass. Jan. 6, 2012). In 2013 the First Circuit remanded this case to the District Court with instructions to remand to Sun Life. See Gross v. Sun Life Assurance Co. of Can., 734 F.3d 1 (1st Cir. 2013). This decision, along with a 2016 First Circuit ruling that the remand justified an award of fees, are discussed in more detail here and here.
After additional administrative proceedings, Sun Life again denied her claim and Plaintiff again challenged the denial. This time, the District Court ruled in Plaintiff’s favor, finding that Sun Life should have awarded Plaintiff benefits because the surveillance record as developed did not undermine the Court’s prior assessment of the medical evidence. Gross v. Sun Life Assur. Co., No. 09-11678-RWZ, 2016 U.S. Dist. LEXIS 192505 (D. Mass. June 24, 2016).
Sun Life appealed to the First Circuit, arguing that Plaintiff failed to adduce medical evidence to offset the contradictory surveillance. Gross v. Sun Life Assur. Co. of Can., 880 F.3d 1 (1st Cir. 2018). Sun Life also claimed the District Court abused its discretion in failing to impose sanctions on one of Plaintiff’s attorneys. Id. In a cross-appeal, Plaintiff challenged the District Court’s calculations of prejudgment interest and attorney’s fees. The First Circuit affirmed the District Court’s rulings on the disability claim and sanctions. However, the First Circuit vacated the prejudgment interest award and remanded for consideration of the appropriate rate of interest. The First Circuit also affirmed the District Court’s attorney’s fee calculation in all but two respects.
The District Court was ordered on remand to consider the appropriate prejudgment interest rate, particularly whether the federal rate should apply or the Massachusetts rate (12 percent) should apply. The District Court was also instructed to consider the dual objective of awarding prejudgment interest: “first, to make the plan participant whole, and second, to prevent unjust enrichment.” Gross v. Sun Life Assur. Co. of Can., No. 09-11678-RWZ, 2018 U.S. Dist. LEXIS 107918, *1 (D. Mass. June 28, 2018).The District Court found that “[b]alancing the equities requires a more generous rate” than the federal rate which was only .37 percent at the time of the filing of the complaint. Id. at *2. The Court also found that the “historically low rate” did not adequately compensate Plaintiff as it represented a completely risk-free rate of return. Id.
The District Court found that although the cost of making Plaintiff whole was not entirely clear, the record was better established on the rate needed to prevent unjust enrichment. Id. The Plaintiff submitted financial reports showing Sun Life’s return on equity in 2012 was 9.5 percent, in 2013 was 18.9 percent, in 2014 was 12.2 percent, in 2015 was 12.6 percent, in 2016 was 12.4 percent and through the third quarter of 2017 was 12.8 percent. Id. at *3. The Court noted that it must avoid punitively high rates but that awarding interest at a rate that does not recapture the lost value of the money during the period it was withheld would create a perverse incentive for defendants to delay payments while it earned interest on those funds. Id. The Court further explained:
Given ERISA’s silence on prejudgment interest rates, the Court of Appeals has endorsed judicial use of “outside sources, including state law, for guidance.” Id. (quoting Cottrill, 100 F.3d at 224-25). See Gallagher v. Park W. Bank and Trust Co., 951 F. Supp. 10, 14 (D. Mass.1997) (“This court will adopt the 12 percent rate of Mass. Gen. L. ch. 231, § 6C. As plaintiffs have argued, it would be inequitable for a breach of an obligation to pay funds owed under a pension contract in Massachusetts to generate less interest than a breach of a simple contract.”). Though a Canadian corporation, defendant’s principal United States place of business is in Massachusetts. “The state rate reflects the Massachusetts legislature’s considered view of the likely rate of return on invested capital and the cost of borrowing money, under the particular economic conditions of this state.” Radford Tr. v. First Unum Life Ins. Co. of Am., 321 F. Supp. 2d 226, 257-58 (D. Mass. 2004), rev’d in part, appeal dismissed in part, 491 F.3d 21 (1st Cir. 2007).
Id. at *4. The Court ultimately found that the state rate of 12 percent prevents unjust enrichment without amounting to punishment, consistent with ERISA.
Plaintiff’s two lawyers – one from Boston and one from Kentucky – sought to recover fees at a rate of $500 per hour. The First Circuit found that rate reasonable for the Boston lawyer, noting that Boston “hourly legal fees are among the highest in the country.” Gross v. Sun Life Assur. Co. of Can., 880 F.3d 1, 23 (1st Cir. 2018). The First Circuit concluded that the District Court did not abuse its discretion in finding that the Kentucky lawyer’s compensation should reflect his “normal hourly rate” in Kentucky ($375 per hour), despite the fact that rates normally should be set by reference to rates in the court’s vicinage rather than the lawyer’s region of origin. The First Circuit relied on precedent which allows a court to conclude that the prevailing rate in the court’s locale is not the appropriate benchmark. Id.
On remand, the District Court reduced the Kentucky lawyer’s fees on the grounds that “it would be inequitable to fully compensate [him] for work the Court of Appeals has deemed ‘worthy of reproach.’” Gross v. Sun Life Assur. Co. of Can., No. 09-11678-RWZ, 2018 U.S. Dist. LEXIS 107918, at *6 (D. Mass. June 28, 2018). Specifically, he had threatened Sun Life’s witness in an attempt to obtain a medical opinion favorable for his client. The District Court noted that although the attorney “had the good sense not to bill for the specific misconduct in question” he should not be “fully rewarded for phases of litigation infected by that misconduct and related misrepresentations.” Id. at *7.