Under ERISA, “Some Success,” Even Via Settlement, Permits an Attorneys’ Fee Award

Templin v. Independence Blue Cross, 785 F.3d 861 (3d Cir. 2015).  “A party seeking attorney’s fees under ERISA [the Employees Retirement Income Security Act] must show ‘some success’ on the merits.  Here, the District Court incorrectly defined ‘some success’ by requiring evidence of judicial action.”  So began Judge Nygaard’s opinion for the Third Circuit in this case.  The panel reversed the denial of attorneys’ fees to plaintiff and remanded to the District Court for consideration of the fee application under the proper criteria.

Plaintiffs (two individuals and two pharmacies) sued the defendant insurance companies for improper denial of benefits under ERISA.  After the District Court denied defendants’ motion to dismiss, defendants paid the claims and the case was dismissed.  Both sides sought attorneys’ fees, but both the District Court and the Third Circuit denied both fee requests.  The Third Circuit left one issue to be resolved: whether plaintiffs were entitled to interest on the delayed payment of benefits.  The case was remanded to the District Court on that issue.

On remand, plaintiffs sought $1.5-1.8 million in interest under a Maryland statute, and $68,000 in interest based on the federal Treasury bill rate.  The District Court indicated that it would award the $68,000 but not the larger amount.  Defendants then agreed to pay the $68,000.  The case was dismissed, and plaintiffs again sought attorneys’ fees.  The District Court denied fees, ruling that plaintiffs had not achieved “some success” because the parties settled rather than obtaining a judicial determination, and because the $68,000 payment was “trivial” compared to the larger sum that plaintiffs had sought.  Plaintiffs appealed.  The Third Circuit reversed, applying plenary review to the legal issue of what constitutes “some success” in an ERISA action.

Judge Nygaard stated that “[i]n effect, the Appellants were pursuing a catalyst theory of recovery.”  In Buckhannon Board & Care Home v. West Virginia Dep’t of Health & Human Services, 532 U.S. 598 (2001), the Supreme Court held that fee applicants under statutes that shift fees in favor of a “prevailing party” must “secure a judgment on the merits or a court-ordered consent decree” in order to win fees.  The catalyst theory, which previously applied in favor of “prevailing parties,” no longer could be invoked under such fee-shifting statutes.

But ERISA is different, since it does not limit to “prevailing parties” the ability to obtain fees.  Rather, the Supreme Court of the United States had said that ERISA fee claimants need only show “some success on the merits,” and there can be such success even “without a formal court order.”  Judge Nygaard cited decisions from other Circuits, including a Second Circuit opinion under ERISA, in support of the panel’s conclusion.  He rejected defendants’ reliance on Buckhannon.  The distinction between statutes that limit fee-shifting to “prevailing parties” and those, like ERISA, that do not, was dispositive.

Under ERISA, “[t]o succeed under a catalyst theory of recovery, evidence that judicial activity encouraged the defendants to settle is not necessary.  All that is necessary is that litigation activity pressured a defendant to settle or render to a plaintiff the requested relief.”  That occurred here.  Moreover, though the catalyst theory requires a “non-trivial, and more than procedural victory,” the District Court’s characterization of the $68,000 payment as trivial was error.  Judge Nygaard observed that that sum represented “interest at 100% of the federal interest rate.”  Since “[t]he standard for establishing ‘some success’ is a low one,” plaintiffs had achieved a non-trivial success.

None of this meant that the District Court was bound to award fees.  The decision whether to award fees was governed by the District Court’s discretion in applying a five-part test.  But since the District Court had gone awry in doing that, the panel remanded the case for further consideration.

The Buckhannon doctrine, the result of a 5-4 Supreme Court vote that overturned the use of the catalyst theory under “prevailing party” fee-shifting statutes by virtually every Circuit, was gravely mistaken.  It allows defendants in fee-shifting cases to “voluntarily” provide the relief sought by the plaintiffs but avoid paying fees to the plaintiffs’ counsel even though the plaintiffs had prevailed, merely because those plaintiffs achieved their success via settlement rather than judgment or consent order.  Lower federal courts have had to deal with the fallout from Buckhannon ever since, and this case is an example of that.

In contrast, the Supreme Court of New Jersey, in Mason v. Hoboken, 196 N.J. 51 (2008), declined to follow Buckhannon and instead adhered to its previous use of the catalyst doctrine in favor of prevailing parties.  [Disclosure:  I represented an amicus curiae in Mason, advocating for rejection of Buckhannon].  A number of other states have also rejected Buckhannon.  In this context, as in a number of others, the Supreme Court of New Jersey got it right in deviating from the approach adopted by the narrowest majority of the Supreme Court of the United States.