Rappaport v. Guardian Life Insurance Company of America

Background

Jason Rappaport, a beneficiary of Guardian’s long-term disability benefits plan, sued under the Employee Retirement Income Security Act (ERISA). He sought unpaid benefits and a change to the plan’s definition of “insured earnings” so that it would include his K-1 partnership income. Guardian asserted counterclaims seeking recovery of an overpayment and a setoff, meaning a reduction of future amounts owed to Rappaport to account for money Guardian had allegedly overpaid.

After an earlier summary-judgment proceeding and a first bench trial, the court ruled that the plan’s insured-earnings definition included Rappaport’s K-1 earnings. In the alternative, the court ruled that the plan should be changed to include those earnings. The court sent the matter back to Guardian to calculate the benefits owed and any overpayment. The parties could not agree on the resulting calculations, so the court held a second bench trial on the stipulated administrative record.

Benefits Calculations

The court upheld Guardian’s calculation of Rappaport’s insured earnings as of March 1, 2015, at $47,013.17 per month. It concluded that Guardian properly relied on Rappaport’s 2014 tax returns rather than estimating his January and February 2015 K-1 income. The court found that the plan sponsor had not reported updated earnings and that Rappaport had not provided reliable evidence showing the amount of K-1 income earned in those two months.

The court also upheld Guardian’s method for indexing insured earnings. The plan required use of the change in the Consumer Price Index for Urban Wage Earners and Clerical Workers for the prior calendar year. The court interpreted “calendar year” as January 1 through December 31 and concluded that Guardian properly used average annual index data rather than a January-to-January comparison.

For October through December 2015, the court found that Guardian properly treated Rappaport as having been overpaid $10,000 per month because his income, including K-1 income, exceeded the plan’s limit. For 2020, the court upheld Guardian’s calculation of monthly disability income at $12,797 and its finding of a $26,782 net overpayment. For January 1 through January 12, 2021, the court found that Guardian properly used 2020 earnings information. For January 13 through January 21, 2021, however, Guardian had not completed the required calculation. The court calculated a $3,000 underpayment for that period.

The court therefore found a total overpayment of $97,297.72 before January 22, 2021. Because Rappaport did not dispute that a setoff would be available if an overpayment existed, the court entered judgment for Guardian on its setoff counterclaim in that amount, to be applied against future benefits owed to Rappaport. The court declined to award Guardian prejudgment or postjudgment interest on the setoff.

Motion to Strike

Rappaport moved to strike a second certified-public-accountant report submitted by Guardian. The court denied the motion. It found that Rappaport had not shown that Guardian was required to produce the report earlier, and that he had a fair opportunity to respond to it before and during the second bench trial.

Attorneys’ Fees and Costs

Rappaport sought $461,402.78 in attorneys’ fees, $3,144 in costs, and interest. Under ERISA, a court may award reasonable fees and costs to either party, but a beneficiary must have achieved some degree of success on the merits. The court found that Rappaport met that requirement because he won on the central issue at the first bench trial, succeeded on parts of summary judgment, defeated Guardian’s summary-judgment motion, and obtained a remand requiring Guardian to recalculate benefits.

The court concluded that the relevant fee-award factors, considered together, supported an award. It found that some factors favored Rappaport, one favored Guardian, and one was neutral. The court approved Rappaport’s requested fee calculation after an across-the-board 10 percent reduction and found the claimed hours reasonable. It granted $461,402.78 in attorneys’ fees.

As to costs, the court found that Rappaport adequately documented only the $402 filing fee for the complaint. It granted that amount but otherwise denied the requested costs. Thus, the court granted in part Rappaport’s motion for attorneys’ fees and costs.

Disposition

The court directed entry of judgment for Rappaport on his claims that the plan’s insured-earnings definition included his K-1 earnings and, alternatively, that the plan should be reformed to say so. It awarded Rappaport $461,402.78 in attorneys’ fees and $402 in costs. It entered judgment for Guardian on its setoff counterclaim for $97,297.72, denied Rappaport’s motion to strike, terminated the relevant motions, and closed the case.