Christopher Templin v. Independence Blue Cross

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
__________
No. 13-4493
__________
CHRISTOPHER TEMPLIN; VIOLA HENDRICKS;
FELDMANS MEDICAL CENTER PHARMACY, INC.;
FCS PHARMACY LLC,
Appellant
v.
INDEPENDENCE BLUE CROSS; QCC INSURANCE
COMPANY; CAREFIRST, INC.
__________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 5-09-cv-04092)
District Judge: Honorable Joel H. Slomsky
ARGUED
OCTOBER 21, 2014
BEFORE: AMBRO, FUENTES, and NYGAARD,
Circuit Judges
(Opinion Filed May 8, 2015)
Timothy S. Cole, Esq.
MantaCole
500 Office Center Drive, Suite 400
Fort Washington, PA 19034
Anthony J. Pauduano, Esq. [Argued]
Paduano & Weintraub
1251 Avenue of the Americas, 9th Floor
New York, NY 10020
Counsel for Appellants
David L. Comerford, Esq.
Katherine M. Katchen, Esq. [Argued]
Matthew R. Varzally, Esq.
Akin, Gump, Strauss, Hauer & Feld
2001 Market Street
Two Commerce Square, Suite 4100
Philadelphia, PA 19103
Counsel for Appellees Independence Blue Cross and
QCC Insurance Co.
John P. Kahn, Esq.
Duane Morris
1940 Route 70 East, Suite 200
Cherry Hill, NJ 08003
Jeffrey M. Kolansky, Esq.
Archer & Greiner
1650 Market Street
One Liberty Place, 32nd Floor
Philadelphia, PA 19103
2
Mark J. Oberstaedt, Esq. [Argued]
Archer & Greiner
One Centennial Square
33 East Euclid Avenue
Haddonfield, NJ 08033
Counsel for Appellee Carefirst Inc.
__________
OPINION OF THE COURT
__________
NYGAARD, Circuit Judge.
A party seeking attorney’s fees under ERISA must
show “some success” on the merits. Here, the District Court
incorrectly defined “some success” by requiring evidence of
judicial action. We will reverse.
I.
The Appellants, two individuals and two pharmacies,
originally brought a denial of benefits action under the
Employees Retirement Income Security Act (ERISA) and two
state law causes of action. The Appellees are insurance
companies. The underlying claims in this dispute concerned
the Appellees’ alleged refusal to honor Appellants’ claims for
payment of blood-clotting-factor products. The original
complaint was filed in 2009. The insurance companies
moved to dismiss, arguing that the Appellants failed to
exhaust their administrative remedies.
The District Court denied the motion to dismiss and
ordered the Appellees to review the Appellants’ claims for
benefits. The Appellees then paid the claims in full and the
3
District Court dismissed the complaint as a result of the
Appellees’ payments. Following dismissal, both the
Appellants and the Appellees filed for attorney’s fees and
costs, which the District Court denied. The parties appealed
and we affirmed the District Court’s decision to deny fees.
Templin v. Independent Blue Cross, 487 F. App’x. 6 (3d Cir.
2012). We remanded, however, on one issue: whether the
Appellants were entitled to interest on the delayed payment of
benefits. Id.
On remand, Appellants sought interest ranging from
approximately $1.5 to $1.8 million. While most of this
interest was sought under the Maryland Code, Appellants also
demanded approximately $68,000 based on the federal
Treasury bill rate. The District Court convened a hearing in
January of 2013 at which it made comments suggesting that,
in its view, interest at the federal rate was likely appropriate,
but that interest under the Maryland statute would be
improper. Based on these parameters, the District Court
encouraged the parties to reach a settlement. Unable to do so,
the Appellants filed their Third Amended Complaint. At a
pre-trial hearing in March of 2013, the Appellees agreed to
pay $68,000.00 in interest to the Appellants. As a result of
this settlement, the District Court dismissed the case. After
the matter had been dismissed, the Appellants filed a motion
for attorney’s fees and costs. They sought $349,385.15 for
work performed from November 1, 2010 until August 4,
2013. The District Court denied the motion.
The District Court believed that the Appellants had
failed to achieve “some degree of success on the merits.”
Hardt v. Reliance Standard Life Ins., 560 U.S. 242, 255
(2010) (citation omitted). The Court noted that it had never
4
made a substantive determination on the question of whether
Appellants were entitled to receive interest under the ERISA
statute, and that the issue “was settled among the parties
outside the courtroom and without a judgment from the
Court.” J.A. at 15. It also thought that the Appellants failed
to achieve success on the merits because the amount of
interest they actually received—$68,000.00—was “trivial”
when compared to the millions of dollars they originally
sought. Id. at 18.
The District Court had jurisdiction pursuant to 28
U.S.C. § 1331 and 29 U.S.C. § 1132(e)(1), and we have
jurisdiction to review its orders pursuant to 28 U.S.C. § 1291.
We review a district court’s decision on attorney’s fees and
costs for an abuse of discretion. Hahnemann Univ. Hosp. v.
All Shore, Inc., 514 F.3d 300, 305 (2008). “[O]ur review of
the legal standards a district court applies in the exercise of its
discretion is . . . plenary.” Ellison v. Shenango Inc. Pension
Bd., 956 F.2d 1268, 1273 (3d Cir. 1992) (citation omitted).
II.
The decision whether to award fees and costs usually
involves two steps. First, a court must determine whether the
moving party is eligible for such an award. If so, then courts
evaluate the five factors we set out in Ursic v. Bethlehem
Mines, 719 F.2d 670, 673 (3d Cir. 1983), to determine
whether to exercise their discretion and order an award. As
noted previously, eligibility for an award of fees and costs in
ERISA cases depends on whether the moving party has
shown some degree of success on the merits, not on whether
the moving party is the prevailing party in the litigation.
Hardt, 560 U.S. at 254. The Appellants argued to the District
Court that they achieved a level of success because, after the
5
hearing in January of 2013 and after the filing of the amended
complaint, the Appellees voluntarily changed their position
and agreed to pay interest. In effect, the Appellants were
pursuing a catalyst theory of recovery. The District Court
acknowledged the applicability of this theory in ERISA cases
(even though we, to date, have not), but denied recovery
because it believed that judicial action of some type was
needed to serve as the catalyst, not the activities of litigation
itself.
A.
We begin with the larger question whether the catalyst
theory can be used to show some success under the ERISA
statute. In our legal system, each litigant typically pays his or
her own attorney’s fees, whether they win or lose. See Brytus
v. Spang & Co., 203 F.3d 238, 241 (3d Cir. 2000). However,
some statutes provide an exception that shifts payment of one
party’s legal fees to the other. Id. at 242. ERISA is one such
statute, providing that “the court in its discretion may allow a
reasonable attorney’s fee and costs of action to either party.”
29 U.S.C. § 1132(g)(1). Most fee-shifting provisions give
courts the discretion to award fees only to the “prevailing
party.” See, e.g., 42 U.S.C. § 1988. Prior to 2001, a
“prevailing party” had to satisfy two requirements. First, it
had to “succeed on any significant issue in litigation which
achieves some of the benefit the parties sought in bringing
suit.” Farrar v. Hobby, 506 U.S. 103, 109 (1992). Second, a
prevailing party had to achieve its desired result through a
court judgment. We permitted a prevailing party to be
awarded fees under a “catalyst theory” provided that the
lawsuit brought about a voluntary change in the defendant’s
conduct. See, e.g., Baumgartner v. Harrisburg Housing
Auth., 21 F.3d 541, 546, 549 (3d Cir. 1994) (allowing catalyst
6
theory under 42 U.S.C. § 1988, the Civil Rights Attorney Fee
Award Act, “where … the pressure of the lawsuit was a
material contributing factor in bringing about extrajudicial
relief.”).
In Buckhannon Board & Care Home v. West Virginia
Dept. of Health & Human Services, the Supreme Court
rejected the use of a “catalyst theory” where a request for
fees had been made under the Fair Housing Amendments Act
of 1988 (FHAA) and the Americans with Disabilities Act of
1990 (ADA). 532 U.S. 598, 605 (2001). The Supreme Court
explained that a “prevailing party” must “secure a judgment
on the merits or a court-ordered consent decree.” Id. at 600.
We have not yet specifically determined whether, post-
Buckhannon, the catalyst theory of recovery remains
available under ERISA. We have little difficulty concluding
that it does.
To begin, the ERISA statute does not limit fee awards
to the prevailing party. The Supreme Court specifically held
that a claimant need not be a ‘prevailing party’ to be eligible
for an attorney’s fees award under ERISA. Hardt, 506 U.S.
at 254. Instead, “a fees claimant must show some degree of
success on the merits before a court may award attorney’s
fees under § 1132(g)(1).” Id. A party satisfies this
requirement if a “court can fairly call the outcome of the
litigation some success on the merits without conducting a
‘lengthy inquir[y] into the question whether a particular
party’s success was ‘substantial’ or occurred on a ‘central
issue’.” Id. Conversely, “[a] claimant does not satisfy that
requirement by achieving trivial success on the merits or a
purely procedural victory....” Id. (internal quotation marks
omitted).
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Additionally, the Supreme Court has specifically
acknowledged that attorney’s fees are available even “without
a formal court order.” Ruckelshaus v. Sierra Club, 463 U.S.
680, 687 n. 8 (1983). Ruckelshaus “lays down the proper
markers to guide a court in exercising the discretion that §
1132(g)(1) grants.” Hardt, 560 U.S. at 255. Further, at least
four other Courts of Appeal have applied, post-Buckhannon,
the catalyst theory to statutes that lack prevailing-party
requirements, and the Court of Appeals for the Second Circuit
has specifically done so under the ERISA statute. See
Scarangella v. Group Health, Inc., 731 F.3d 146, 154-55 (2d
Cir. 2013); see also Ohio River Valley Env’l Coalition, Inc. v.
Green Valley Coal, 511 F.3d 407, 414 (4th Cir. 2007); Sierra
Club v. Env’l Protection Agency, 322 F.3d 718, 726 (D.C.
Cir. 2003); Loggerhead Turtle v. Cty. Council, 307 F.3d
1318, 1325 (11th Cir. 2002).
The Appellees urge us not to endorse this theory.
They rely on the Supreme Court’s decision in Buckhannon, in
which the Supreme Court narrowed the use of the catalyst
theory, finding that the defendant’s voluntary change of
conduct did not establish the plaintiff as the “prevailing
party” required for an award of attorney’s fees under the FHA
and the ADA. Appellees’ reliance on Buckhannon is
misplaced. In Hardt, the Supreme Court held that ERISA
includes no “prevailing party” requirement and instead vests
district courts with broader discretion to award attorney’s
fees. 560 U.S. at 252. The Supreme Court also drew a clear
distinction in Hardt between statutes that require a prevailing
party (like those at issue in Buckhannon) and statutes (like
ERISA) that do not impose that requirement in order to
collect fees. We, therefore, have no trouble concluding that
8
the catalyst theory of recovery of attorney’s fees is available
under the ERISA statute.
B.
Although it acknowledged the likely applicability of
the catalyst theory of recovery, the District Court nonetheless
declined to award attorney’s fees. Relying on the Court of
Appeals for the Second Circuit’s decision in Scarangella,
supra., the District Court held that the Appellants “cannot
demonstrate that the out of court agreement resolving the
issue of interest was caused by Court action.” Templin v.
Independence Blue Cross, No. 09-4092, 2013 WL 6050667,
at *8 (E.D. Pa. Nov. 14, 2013) (citing Scarangella, 731 F.3d
at 154-55). This was error.1 To 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. To hold otherwise
1
We have no particular quarrel with Scarangella. In that
case, the Second Circuit permits an award of attorney’s fees
to parties (including ‘prevailing parties’ under such statutes)
who have obtained relief without a court judgment as long as
the settlement was “caused in some way by court action.”
731 F.3d at 154. Therefore, attorney’s fees must be available
under those circumstances for ERISA, which does not even
have a prevailing-party requirement. Put another way, that
fees are available under ERISA for settlements spurred by
judicial activity does not mean that they are unavailable in a
broader set of circumstances (e.g., settlement spurred by
litigation activity).
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ignores the distinction the Supreme Court drew in Hardt
between statutes that award fees only to a prevailing party
(which require some type of judicial action for an award of
fees) and statutes, like ERISA, that do not limit the award in
such a way. See 560 U.S. at 254.
Furthermore, the Supreme Court’s decision in Hardt
specifically answers the question “how much success” is
required for ERISA fee recoveries: “some degree of
success.” 560 U.S. at 255 (emphasis added). Nothing in
Hardt requires that this success be the result of a judicial
decision. Instead, Hardt sets out a rather easily traversed
threshold. That is to say, under the catalyst theory, a party is
eligible for attorney’s fees where his or her litigation efforts
resulted in a voluntary, non-trivial, and more than procedural
victory that is apparent to the court without the need to
conduct a lengthy inquiry into whether that success was
substantial or occurred on a central issue.2
2
The District Court additionally concluded that the
Appellants were ineligible for attorney's fees because the
$68,000.00 in prejudgment interest they received was only a
“trivial success.” See Hardt, 560 U.S. at 255. Specifically,
the Court believed that because the Appellants originally
sought $1.5 million in post-judgment interest and only
received $68,000.00, their success was trivial in terms of the
total amount sought. We disagree. The standard for
establishing “some success” is a low one. Here, the relief
Appellants received was sufficient for an award of attorney’s
fees. Indeed, the amount of recovery is not as important as is
the fact that they did recover interest at 100% of the federal
interest rate. Put another way, although the Appellants did
not obtain their desired amount of interest, they did accept the
10
Under this standard, the Appellants here are eligible
for such an award. The record shows that the Appellants
achieved some degree of success on the merits. At the
hearing in January of 2013, the District Court indicated that
Appellants were likely entitled to interest at the federal rate.
Less than two months later, after Appellants filed their Third
Amended Complaint, the parties settled for $68,000, which
represented 100% of the interest sought under the federal
statute. Applying the catalyst theory, we find that the
pressure of the lawsuit caused Appellees to change their
position and provide Appellants with the interest they
demanded. Nor was the Appellants’ success a purely
procedural achievement. See id., at 255. Such an
accomplishment contemplates success on a procedural as
opposed to a substantive issue, the winning of a motion for
class certification, or a motion to intervene, for example.3
That is not what happened here. Appellants received what
they asked for in their complaint, clearly a substantive
victory. Put another way, because the Appellants settled this
matter with the Appellees for the full interest amount they
sought, they have easily achieved some degree of success on
the merits. See Maher v. Gagne, 448 U.S. 122, 129 (1980)
total amount that was available under the federal interest rate:
$68,000.00. Given this, we cannot agree that the Appellants’
success in pushing the Appellees to pay interest was trivial.
3
A victory on such motions is procedural in nature because
such success does not bring the winning party any closer to its
desired relief. As the Court of Appeals for the Seventh
Circuit has noted, a “procedural victory that may be a way
station to utter substantive defeat creates no right to fees.”
Richardson v. Penfold, 900 F.2d 116, 119 (7th Cir. 1990).
11
(“the fact that [a party] prevailed through a settlement rather
than through litigation does not weaken her claim to fees.”).
See also Truesdell v. Phila. Housing Auth., 290 F.3d 159, 164
n.4 (3d Cir. 2002).
III.
However, even where a party can show some success
on the merits, as the Appellants have done here, a court still
has the discretion to grant or deny fees. See Hardt, 560 U.S.
at 255 n. 8. In deciding whether to exercise such discretion,
we have instructed that a district court must consider the
following factors:
(1) the offending parties'
culpability or bad faith;
(2) the ability of the offending
parties to satisfy an award of
attorney's fees;
(3) the deterrent effect of an
award of attorney’s fees;
(4) the benefit conferred upon
members of the pension plan as a
whole; and
(5) the relative merits of the
parties' positions.
Ursic, 719 F.2d at 673 (3d Cir. 1983). “Our case law makes
clear that . . . the amount of a fee award is within the district
court’s discretion so long as it employs correct standards and
procedures and makes findings of fact not clearly erroneous.”
Sullivan v. DB Investments, Inc., 667 F.3d 273, 329 (3d Cir.
2011) (en banc). Here, because the District Court misapplied
12
the first Ursic factor and failed to apply the fifth, its overall
analysis of all the factors was tainted.4 This was an abuse of
the District Court’s discretion.
The first Ursic factor concerns the offending party’s
culpability or bad faith. A party is culpable if it is “blamable;
censurable[or] at fault.” McPherson v. Employees’ Pension
Plan of American Re-Insurance Co. Inc., 33 F.3d 253, 257
(3d Cir. 1994). Culpable conduct is “reprehensible or wrong”
but need not involve “malice or a guilty purpose.” Id. The
Court concluded that this factor cuts against an award of
attorney’s fees because the Appellees were not “solely
culpable for delays in the litigation.” J.A. at 20-21. That
rationale is insufficient as a basis to deny fees. This factor
concerns the culpability of the offending party, that is, the
party against whom fees are sought. Whether the Appellants
are also culpable, on its own, does not cut against an award of
attorney’s fees. Indeed, the District Court here would have
needed, at a minimum, to weigh the parties’ culpability
against each other to support its holding, an inquiry it did not
undertake. Also, the District Court noted that the Appellees
did not act culpably for refusing to “originally pay [ ] the
claims.” J.A. at 20-21. This determination is not dispositive.
Even if the Appellees did not act culpably in the merits phase
of the litigation, this does not answer the question whether
they acted culpably in the second phase by refusing to pay
pre-judgment interest. That is the more important inquiry
4
The second factor, ability of the Appellants to pay, supports
an award of attorney’s fees here. The District Court
determined that both Appellees can pay Appellants' attorney
fees. J.A. at 21. Neither party disputes this finding on
appeal.
13
because the Appellants are only seeking compensation for
attorney’s fees which accrued in pursuit of pre-judgment
interest, not fees accrued in pursuit of the underlying claims
for reimbursement. And the Appellants specifically argued
that Appellees were culpable because they refused to pay
interest for over two years after paying the underlying
reimbursement claims. The District Court cannot properly
hold that the Appellees were not culpable without deciding
whether they were culpable during the most relevant period of
the litigation.
The District Court also failed to apply the fifth Ursic
factor, which focuses on the relative merits of the parties’
positions. The Court did not include this factor in its analysis
because “the Defendants paid the interest through a
settlement process, [and] the Court never adjudicated the
merits of the parties’ positions.” J.A. at 22. This conclusion
was erroneous. District courts are required to consider each
of the Ursic factors. Anthius v. Colt Ind. Operating Corp.,
971 F.2d 999, 1011 (3d Cir. 1992) (“[O]ur requirement that
district courts consider and analyze [Ursic] factors [is] a
mandatory requirement.”); see also Hardt, 560 U.S. at 255 n.
8. Appellee CareFirst argues that the District Court found
this factor to be of neutral application, but that misconstrues
the record. The Court did not consider this factor to be
neutral but instead failed to analyze the factor at all. Further,
its failure to do so may have also tainted its analysis of the
first factor. If it had, the District Court could have concluded
that the Appellees’ legal position was meritless and then
concluded that the Appellees were culpable under the first
Ursic factor.
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Because of the close relationship between culpability
(factor 1), the relative merits (factor 5), and deterrence (factor
3), we are concerned that the Court’s misapplication of the
first and fifth factor tainted its analysis of the third. Further,
the Court’s analysis of the fourth factor raises similar
concerns as it focused on deterrence. See McPherson, 33
F.3d at 255-56. Thus, we conclude that the District Court
misapplied the Ursic factors when it declined to grant
attorney’s fees.
IV.
Today, we hold that the District Court used an
incorrect legal standard to evaluate the Appellants’ eligibility
for attorney’s fees and misapplied the Ursic factors, errors
which tainted the District Court’s assessment of an award of
attorney’s fees and its evaluation of the merits of the parties’
positions. The ‘catalyst theory’ of recovery is available to the
Appellants, and judicial action is not required under that
theory in order to establish some degree of success. Here, the
Appellants have crossed this threshold and are eligible for an
award of fees and costs.
However, being eligible for an award and receiving
that award are not the same thing. We express no opinion as
to whether attorney’s fees should be awarded to the
Appellants on remand. That will be for the District Court to
decide based upon the exercise of its discretion and a correct
analysis of the Ursic factors. We will reverse the District
Court’s order denying attorney’s fees and costs and will
remand for further proceedings consistent with this opinion.
15