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3rd Cir. Adopts Catalyst Theory for Attorneys' Fees in ERISA Cases

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By Casey C. Sullivan, Esq. on May 13, 2015 3:57 PM

Three insurance companies were sued by two patients and their pharmacies after the companies had refused to pay for blood-clotting-factor products under ERISA health plans. Eventually, the insurance companies paid them in full, including interest. Each time, the patients recovered through settlement, not court order.

The patients filed for attorneys' fees under ERISA, which allows for recovery of attorneys' fees when there has been "some success" on the merits. The settlements were success enough, the First Circuit reasoned, deciding for the first time that the catalyst theory allows recovery of fees in ERISA cases. ERISA attorneys, now's the time to pop the champagne.

Third Circuit Embraces the Catalyst Theory

After the patients received their blood-clotting-factor products, they then sought interest on the delayed payment of benefits, settling with the insurance companies for $68,000, after initially seeking over $1.5 million. When they moved for attorneys' fees, the district court denied them. They hadn't shown "some success" on the merits, since the court had never made a substantive determination about the patients' claims -- everything in conflict had been resolved through settlements. Further, the $68,000 recovered for interest was "trivial" when compared to the amount originally sought.

The patients had argued that they deserved recovery under a catalyst theory. While the court never ruled on their claims, they argued, their lawsuit prompted a voluntary change and thus constituted legal success. The Third Circuit has awarded fees under a catalyst theory for some statutes, but never ERISA. Here the court did, for the first time.

Unlike Supreme Court rulings that had rejected the catalyst theory, ERISA does not limit attorneys' fees to the "prevailing party." Rather, the "some degree of success" standard does not require a judicial determination on substantial issues. That means that a catalyst theory of success is enough to allow recovery of fees.

A Wider Eligibility Than the Second Circuit

The district court acknowledged that the catalyst theory may apply, but still denied fees, relying on precedent from the Second Circuit. In that case, the Second Circuit allowed recovery as long as a settlement was caused by court action. Court action is not necessary, the Third Circuit said -- just the litigation itself.

The ruling is good news for plaintiffs, and their lawyers, who will now be able to recover fees without having to go to trial.

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