Attorney Fees Under ERISA

After broaching the issue in a nonprecedential opinion released last summer, the U.S. Court of Appeals for the Third Circuit suggested during arguments on Oct. 21 that it might soon answer definitively whether the catalyst theory for recovering attorney fees applies in ERISA cases.

“I'm trying to sort out the law here … on the catalyst theory,” Judge Thomas L. Ambro told Mark Oberstaedt of Archer & Greiner in Haddonfield, NJ, who argued on behalf of CareFirst, a member of the Blue Cross and Blue Shield Association and a defendant in the case. The catalyst theory allows plaintiffs to collect fees when the pressure of legal action causes a defendant to voluntarily change its conduct.

Background

The case, Templin v. Independence Blue Cross, was initially filed as an Employee Retirement Income Security Act (ERISA) action in 2009 by hemophilia patients seeking reimbursement for their medication. The insurance companies agreed to pay $2.2 million in claims, according to court papers. The plaintiffs then moved to collect the interest that had accrued on those claims, which settled in 2013. They are now seeking to recover attorney fees for that part of the litigation.

In 2010, the U.S. Supreme Court ruled in Hardt v. Reliance Standard Life Insurance that the ERISA statute gives district courts broad discretion to award attorney fees to plaintiffs. The high court ruled the statute doesn't limit attorney fee awards to only prevailing parties, but allows parties who show “some degree of success on the merits” to recover attorney fees.

U.S. District Judge Joel Slomsky of the Eastern District of Pennsylvania had rejected the plaintiffs' bid to collect attorney fees in the hemophilia case because the interest they collected came from a settlement rather than a judgment and the amount of interest they had won was small. The plaintiffs got $68,000 in interest through a settlement.

Third Circuit Decision

“The district court erred in holding that appellees' payment did not constitute 'success on the merits' because it was obtained in out-of-court settlement discussions rather than by means of a judgment or judicial decision,” the plaintiffs argued in their brief to the Third Circuit.

“This may be the problem, at least that I personally have, with what Judge Slomsky does ' it sounds like it has to be judicial activity in his world, whereas it could be litigation activity in other worlds,” Ambro said during arguments, citing to the Second Circuit's 2013 opinion in Scarangella v. Group Health, which Slomsky had read as requiring that some kind of judicial activity must spur the ultimate outcome in order for the catalyst theory to apply. “But other circuits, the Fourth, the Eleventh, and the D.C. Circuit seem to think it's litigation activity,” Ambro said to Blue Cross' lawyer, Katherine Katchen of Akin Gump Strauss Hauer & Feld. “Don't we need to weigh in on that legal issue?” he asked.

“I think this is not the case to do that,” Katchen said.

A Nonprecedential Ruling

In August, the appeals court issued a nonprecedential ruling in a case captioned Boyle v. International Brotherhood of Teamsters Local 863 Welfare Fund, in which a panel led by Judge Jane Richards Roth, and including Judges Thomas I. Vanaskie and Joseph A. Greenaway Jr., reversed a New Jersey district judge's ruling that the ERISA statute does not permit attorney fee awards under the catalyst theory.

In that case, the court held that while the plaintiffs ultimately did not prevail, they still achieved some success with their lawsuit by prompting their former employer to voluntarily offer to retroactively reinstate benefits to early retirees and to reimburse them for any alternative coverage they might have purchased during the four-month period in 2011 when benefits ceased.

During arguments in October, Judge Julio Fuentes referred to Slomsky's comments at a hearing about the amount of interest due in the case several weeks before it settled, discrediting two of the three bases on which the plaintiffs had argued that interest was owed ' they were the two state statutes from Pennsylvania and Maryland that the plaintiffs had cited in addition to ERISA itself.

“Slomsky said, 'You have a Treasury note that would amount to $68,000.' Within six or seven weeks, the case is settled after years of litigation,” Fuentes said, summarizing the plaintiffs' argument that “that comment spurred the settlement.”

Katchen responded by saying Slomsky's comment catalyzed the plaintiffs to act, not the defendants.

“They were seeking $1.5 million going in to that hearing. They took 4% of that,” Katchen said.

You do “agree that catalyst theory can be adopted in the ERISA context?” Fuentes asked her.

“I don't think it can,” Katchen said. “By definition, I think, a catalyst theory requires analysis of a defendant's subjective motivations for settling a case,” she explained. “I think the ramifications of that could be endless.”

“Are you asking us to create a circuit split?” Ambro asked. “You've got 2002, the Eleventh Circuit says that the catalyst theory applies; 2003, the D.C. Circuit says that; 2007, the Fourth Circuit says that; and then Scarangella from the Second Circuit says it, albeit with judicial activity,” Ambro said.

Senior Judge Richard L. Nygaard was also on the panel.

Saranac Hale Spencer is a reporter for The Legal Intelligencer, an ALM sister publication of this newsletter in which this article also appeared.

After broaching the issue in a nonprecedential opinion released last summer, the U.S. Court of Appeals for the Third Circuit suggested during arguments on Oct. 21 that it might soon answer definitively whether the catalyst theory for recovering attorney fees applies in ERISA cases.

“I'm trying to sort out the law here … on the catalyst theory,” Judge Thomas L. Ambro told Mark Oberstaedt of Archer & Greiner in Haddonfield, NJ, who argued on behalf of CareFirst, a member of the Blue Cross and Blue Shield Association and a defendant in the case. The catalyst theory allows plaintiffs to collect fees when the pressure of legal action causes a defendant to voluntarily change its conduct.

Background

The case, Templin v. Independence Blue Cross, was initially filed as an Employee Retirement Income Security Act (ERISA) action in 2009 by hemophilia patients seeking reimbursement for their medication. The insurance companies agreed to pay $2.2 million in claims, according to court papers. The plaintiffs then moved to collect the interest that had accrued on those claims, which settled in 2013. They are now seeking to recover attorney fees for that part of the litigation.

In 2010, the U.S. Supreme Court ruled in Hardt v. Reliance Standard Life Insurance that the ERISA statute gives district courts broad discretion to award attorney fees to plaintiffs. The high court ruled the statute doesn't limit attorney fee awards to only prevailing parties, but allows parties who show “some degree of success on the merits” to recover attorney fees.

U.S. District Judge Joel Slomsky of the Eastern District of Pennsylvania had rejected the plaintiffs' bid to collect attorney fees in the hemophilia case because the interest they collected came from a settlement rather than a judgment and the amount of interest they had won was small. The plaintiffs got $68,000 in interest through a settlement.

Third Circuit Decision

“The district court erred in holding that appellees' payment did not constitute 'success on the merits' because it was obtained in out-of-court settlement discussions rather than by means of a judgment or judicial decision,” the plaintiffs argued in their brief to the Third Circuit.

“This may be the problem, at least that I personally have, with what Judge Slomsky does ' it sounds like it has to be judicial activity in his world, whereas it could be litigation activity in other worlds,” Ambro said during arguments, citing to the Second Circuit's 2013 opinion in Scarangella v. Group Health, which Slomsky had read as requiring that some kind of judicial activity must spur the ultimate outcome in order for the catalyst theory to apply. “But other circuits, the Fourth, the Eleventh, and the D.C. Circuit seem to think it's litigation activity,” Ambro said to Blue Cross' lawyer, Katherine Katchen of Akin Gump Strauss Hauer & Feld. “Don't we need to weigh in on that legal issue?” he asked.

“I think this is not the case to do that,” Katchen said.

A Nonprecedential Ruling

In August, the appeals court issued a nonprecedential ruling in a case captioned Boyle v. International Brotherhood of Teamsters Local 863 Welfare Fund, in which a panel led by Judge Jane Richards Roth, and including Judges Thomas I. Vanaskie and Joseph A. Greenaway Jr., reversed a New Jersey district judge's ruling that the ERISA statute does not permit attorney fee awards under the catalyst theory.

In that case, the court held that while the plaintiffs ultimately did not prevail, they still achieved some success with their lawsuit by prompting their former employer to voluntarily offer to retroactively reinstate benefits to early retirees and to reimburse them for any alternative coverage they might have purchased during the four-month period in 2011 when benefits ceased.

During arguments in October, Judge Julio Fuentes referred to Slomsky's comments at a hearing about the amount of interest due in the case several weeks before it settled, discrediting two of the three bases on which the plaintiffs had argued that interest was owed ' they were the two state statutes from Pennsylvania and Maryland that the plaintiffs had cited in addition to ERISA itself.

“Slomsky said, 'You have a Treasury note that would amount to $68,000.' Within six or seven weeks, the case is settled after years of litigation,” Fuentes said, summarizing the plaintiffs' argument that “that comment spurred the settlement.”

Katchen responded by saying Slomsky's comment catalyzed the plaintiffs to act, not the defendants.

“They were seeking $1.5 million going in to that hearing. They took 4% of that,” Katchen said.

You do “agree that catalyst theory can be adopted in the ERISA context?” Fuentes asked her.

“I don't think it can,” Katchen said. “By definition, I think, a catalyst theory requires analysis of a defendant's subjective motivations for settling a case,” she explained. “I think the ramifications of that could be endless.”

“Are you asking us to create a circuit split?” Ambro asked. “You've got 2002, the Eleventh Circuit says that the catalyst theory applies; 2003, the D.C. Circuit says that; 2007, the Fourth Circuit says that; and then Scarangella from the Second Circuit says it, albeit with judicial activity,” Ambro said.

Senior Judge Richard L. Nygaard was also on the panel.

Saranac Hale Spencer is a reporter for The Legal Intelligencer, an ALM sister publication of this newsletter in which this article also appeared.