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An ERISA plaintiff whose lawsuit was put on hold to allow her to exhaust administrative remedies with an insurer cannot later return to court seeking an award of attorney fees, an Eastern District of Pennsylvania judge has ruled in a case of first impression within the 3rd Circuit. In his nine-page memorandum in Schaffer v. Prudential Insurance Co., U.S. District Judge Michael M. Baylson concluded that the federal courts have no jurisdiction over such a case. Baylson found that plaintiff Beth A. Schaffer filed her original lawsuit “prematurely” since she had not yet pursued all of her internal appeals with Prudential. As a result, Baylson said, the lawsuit never presented any justiciable cause of action. Although the original order said Schaffer could return to court if the appeals failed, Baylson found that, having succeeded in those appeals, Schaffer cannot return to court for the sole purpose of seeking fees for her lawyer’s work. “Where a plaintiff’s claim has been fully resolved at the administrative level, such as in the case at hand, courts may not make an award of attorney fees and costs,” Baylson wrote. The ruling is a victory for attorneys Kenneth M. Kolaski and Elizabeth F. Abrams of Reed Smith who argued that Schaffer’s federal case was rendered completely moot when she succeeded in her administrative appeal. According to court papers, Schaffer was an employee of MBNA Corp. and was covered by a long-term disability employee benefit plan. Schaffer claims that she became totally disabled in February 2001, but that Prudential denied her claim for benefits. Following the denial of her claim, Schaffer filed an administrative appeal, but the denial of benefits was upheld. Under the policy, Schaffer was required to pursue a second appeal and had the right to pursue a third appeal before going to court. But before pursuing the second appeal, Schaffer’s lawyer, Daniel J. Zucker, filed suit in U.S. District Court. Both sides then stipulated that the case would be stayed to allow Schaffer to pursue an additional appeal before Prudential. The order staying the suit said “the court shall retain jurisdiction over the case, and the case may be returned to the court’s active docket depending on the outcome of plaintiff’s final administrative appeal of the denial of her claim.” In June 2003, Prudential said it would grant Schaffer limited mental illness disability benefits — payable for two years at 50 percent of her salary. But Schaffer rejected the offer and requested that the court return the case to the active trial docket. Both sides then conferred with Baylson and Prudential agreed to confirm its decision in writing by Aug. 11, 2003. Zucker said in a court brief that, just three days before the deadline, Prudential “finally performed its first and only IME [independent medical exam],” and soon after granted Schaffer disability benefits at 60 percent of her salary payable up to age 65. As a result, Zucker argued that “but for the pending lawsuit and this court expressly retaining jurisdiction and ordering a determination on or before August 11, 2003, [Prudential] would never have ordered the IME and would have continued to capriciously and arbitrarily ignore the medical records and social security determination evidencing long term disability due to physical impairment.” But Prudential’s lawyers argued that since all of Schaffer’s success came through administrative appeals, she cannot seek any award of fees. “As Ms. Schaffer has conceded, her dispute with Prudential was resolved administratively. Therefore, no current controversy exists for the court to adjudicate,” Kolaski and Abrams wrote. The court has no jurisdiction, the defense lawyers argued, because Schaffer’s complaint “was jurisdictionally defective from the time of its filing because her failure to exhaust her administrative remedies under the terms of the Plan precluded her assertion of a legal claim for ERISA benefits.” Baylson agreed, finding that since Schaffer had not pursued her mandatory second appeal prior to filing the suit, the court “did not possess the requisite subject matter jurisdiction to assume control of the case and to enter the … order staying the case.” Zucker argued that the wording of the stipulation shows that Prudential conceded that the court had jurisdiction. But Baylson found that it was irrelevant that Prudential’s current position is inconsistent with the stipulation since the issue was one of subject matter jurisdiction. Even if the court were to construe Schaffer’s request for attorney fees and costs as a new cause of action, Baylson found that the case would fail. “Where a matter has been resolved through administrative proceedings before a plaintiff files a valid cause of action, courts cannot award attorney fees and costs pursuant to ERISA,” Baylson wrote.

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