Court Awards ERISA Plaintiff Attorney Fees – Case Settled After Suit Filed

ERISA (Employee Retirement Income Security Act of 1974) provides that “the court in its discretion may allow a reasonable attorney’s fee and costs of action to either party.” In a 2010 case, the Supreme Court held that a party does not need to be a “prevailing party” (usually thought of as the party who won the case on the merits after trial or other court ordered disposition) to be eligible for an award of fees. Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010)

The Supreme court noted that in most fee shifting statutes, the wording of the statute itself included language that fees can be awarded only to a prevailing party. Hardt also noted the absence of such language in the ERISA statutes. Finding that the omission of “prevailing party” language was significant, the Court specifically held that fees could be awarded to either party, under proper circumstances. However to be eligible for an award of attorney’s fees a party must achieve “some degree of success on the merits” Which is more than just a “purely procedural victory.”

But, what about a case in which the ERISA defendant pays the claim only after suit is filed? Is that “some success on the merits?” It seems fair to me, considering that in most cases, the defendant had to have acted in an arbitrary and capricious manner before it could be liable for any benefits. It seems apparent that when a defendant pays a claim after suit is filed that it only does so because it is sure that it cannot prevail at trial. This is very close to a judicial admission of arbitrary and capricious claims handling. Or put another way, the claims administrator practically admits that it was unfair in its treatment of the Claimant. So, is it fair to make the Claimant pay his attorney’s fees?

The Third Circuit Court of Appeals may have answered that question in Templin v. Independence Blue Cross, No. 13-4493 (3d Cir. May 8, 2015). The court awarded attorney fees in a case where the administrator had paid all the benefits due after suit was filed but refused to pay any interest or attorney fees. The Claimant appealed to the Third Circuit, which denied attorney’s fees but sent the case back to the trial court for rehearing on the issue of prejudgment interest.

During the pendency of the subsequent trial court proceedings, the parties settled the interest claim for $68,000. The claimant demanded attorney fees and the court denied them because the claimants entitlement to interest “was settled among the parties outside the courtroom and without a judgment from the Court.” The claimants then appealed again to the Third Circuit, arguing that they were entitled to fees under a catalyst theory. The catalyst theory is that the defendant only paid because the suit was filed, and that therefore the filing of the suit was the “catalyst” that led to the settlement.

In awarding fees, 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 Third Circuit properly distinguished that case because in Buckhannon the statute at issue provided that attorney’s fees were only available to a prevailing party, but that requirement was not present in the ERISA statute. On this basis, the court refused to apply Buckhannon. Therefore, it would seem that the catalyst theory is available in ERISA cases.

The Third Circuit in Templin, specifically held that all “that is necessary is that litigation activity pressured a defendant to settle or render to a plaintiff the requested relief.” But, the “some success on the merits” must be “…non-trivial, and more than a procedural victory…” The court found that the settlement for $68,000 in interest was a “substantive victory.”

Occasionally a court realizes just how unfair ERISA can be to the very people it was enacted to protect. It doesn’t happen very often, and unfortunately, when it does many other courts refuse to follow the lead. Let’s hope that other courts will see the wisdom and inherent fairness of the Third Circuit’s Templin decision and adopt its reasoning.

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