• Third Circuit Adopts Catalyst Theory in ERISA Cases for Attorney Fee Awards
  • May 27, 2015 | Author: Joshua Bachrach
  • Law Firm: Wilson Elser Moskowitz Edelman & Dicker LLP - Philadelphia Office
  • Under the Employee Retirement Income Security Act of 1974 (ERISA), “the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party.” The discretion of a court to award fees is not unfettered. Reviewing the language in the ERISA statute, the Supreme Court in Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010), held that a party does not need to be a prevailing party to be eligible for an award of fees. Still, a party must achieve “some degree of success on the merits.” To satisfy this requirement, a claimant must achieve more than just a “purely procedural victory.”

    In Templin v. Independence Blue Cross, No. 13-4493 (3d Cir. May 8, 2015), the Third Circuit opened the door to fee recoveries in ERISA cases in a way not contemplated by Hardt. The court decided that a party can achieve success on the merits without any judicial action. In Templin, the court decided that the defendants’ voluntary payment of interest was sufficient to make the claimants eligible for attorney fees under Hardt.


    By way of background, the plaintiffs in Templin brought claims under ERISA based on the refusal of the defendants-insurers to pay claims for certain medical products. After the lawsuit was filed and the court denied a motion to dismiss based on failure to exhaust, the defendants approved the claims and the court dismissed the complaint. Both parties then filed motions for attorney fees, which were denied. In an earlier appeal, the Third Circuit affirmed the denial of fees but concluded that the case had to be remanded to the lower court to determine whether the claimants were entitled to interest on the delayed payment of benefits.

    On remand, the claimants sought interest between $1.5 and $1.8 million. Eventually the parties settled the interest claim for only $68,000. Afterward, the claimants sought attorney fees of nearly $350,000. The district court denied the motion for fees based on its conclusion that the question of whether the claimants were entitled to interest “was settled among the parties outside the courtroom and without a judgment from the Court.” The claimants then appealed, arguing that they were entitled to fees under a catalyst theory.


    The Third Circuit agreed with the claimants that they were eligible for fees because the filing of the lawsuit was the catalyst to their recovery of interest. The court distinguished the Supreme Court decision in Buckhannon Board & Care Home v. West Virginia Dept. of Health and Human Services, 532 U.S. 598 (2001), which rejected the catalyst theory under a different fee-shifting statute. The court explained that the fee statute at issue in Buckhannon included a prevailing party requirement that is not included in the ERISA statute. On this basis, the court refused to apply Buckhannon. Accordingly, the catalyst theory is available in ERISA cases.

    According to the Third Circuit in Templin, all “that is necessary is that litigation activity pressured a defendant to settle or render to a plaintiff the requested relief.” The court, however, said that to be eligible for fees, the litigation result must be “non-trivial, and more than a procedural victory....” Under this standard, the court concluded that the claimants were eligible for an award of attorney fees because the settlement for $68,000 in interest was a “substantive victory.”

    It is difficult to reconcile the Third Circuit’s holding in Templin with the decision in Hardt. In Hardt the defendant voluntarily paid the benefits claimed by the ERISA plan participant but only after the district court issued an order denying the defendant’s motion for summary judgment and remanding the claim for further review. The district court also made favorable comments about the claimant’s eligibility and said that if the defendant did not make its remand decision within the time included in the order, judgment would automatically be entered for the claimant.

    The Supreme Court concluded that Hardt achieved some degree of success on the merits and was eligible for an award of fees. The conclusion was not based on the voluntary payment of benefits, however. It was not even based on the remand alone. The Court recognized that there was more than just a remand. In addition to the remand, the district court made comments favorable to the claimant regarding the merits of her claim. As noted above, the district court also stated that judgment would automatically be entered in favor of the claimant if the remand decision were not made on time. Under these facts, the Supreme Court concluded that Hardt achieved more than just a procedural victory. The claimant achieved some degree of success on the merits. The Court reserved for another day the question of whether a remand “without more” is enough to be eligible for fees.

    Nowhere in Hardt did the Supreme Court even suggest that a defendant’s voluntary payment of benefits, a fact present in the case, is sufficient to become eligible for fees. To the contrary, the Court described in detail the judicial actions taken by the district court, which supported the award of fees to Hardt. If a “purely procedural” victory is not enough under Hardt, why should a claimant who does not even achieve that be permitted to recover fees under the ERISA statute as permitted in Templin?

    While Buckhannon involved a fee claim under a different federal fee-shifting statute that requires prevailing party status, there is language in the decision that seemingly applies equally to the ERISA statute. For example, the Buckhannon court held that a “defendant’s voluntary change in conduct” while providing the relief requested “lacks the necessary judicial imprimatur on the change.” Absent any “judicial imprimatur,” an ERISA litigant also does not achieve any “success on the merits.” Such success necessarily requires some form of action by a court, which was lacking in Templin.

    There is additional language in Buckhannon that raises doubts as to the applicability of the catalyst theory in ERISA cases. The Court recognized “the disincentive that the ‘catalyst theory’ may have upon a defendant's decision to voluntarily change its conduct, conduct that may not be illegal.” As the Court explained, the “defendants’ potential liability for fees in this kind of litigation can be as significant as, and sometimes even more significant than, their potential liability on the merits and the possibility of being assessed attorney’s fees may well deter a defendant from altering its conduct.”


    The Third Circuit failed to recognize the chilling effect its ruling will likely have on settlement of ERISA claims once a lawsuit is filed. Also lost on the court is the potential increase in lawsuits involving questionable ERISA claims by attorneys hoping to secure a nominal settlement and then demand fees as a result.

    A primary goal of ERISA was to provide a forum for employers and employees to resolve disputes over benefits inexpensively and expeditiously. Perry v. Simplicity Engineering, 900 F.2d 963, 966-67 (6th Cir.1990). Recognition of the catalyst theory in ERISA cases can only prolong the resolution of disputes as it provides a disincentive to settlement. In turn, this will result in more-expensive litigation. Hopefully, the Third Circuit’s position in Templin will not be followed in other circuits.