Third Circuit OKs ERISA Attorney Fees Under Catalyst Theory

Third Circuit OKs ERISA Attorney Fees Under Catalyst Theory Roberto Westbrook Judge Jane R. Roth, Third Circuit Judge and Chair of the Committee on Facilities and Security for the Judicial Conference of the United States testifies about protecting judges before the Senate Judiciary Committee. Credit: Roberto Westbrook. 5/18/05

The U.S. Court of Appeals for the Third Circuit has ruled that attorney fees may be awarded in Employee Retirement Income Security Act cases under the catalyst theory, which entitles plaintiffs to fees where the pressure of a lawsuit causes a defendant to voluntarily change its conduct.

In a nonprecedential ruling in Boyle v. International Brotherhood of Teamsters Local 863 Welfare Fund, a panel led by Judge Jane Richards Roth, and including Judges Thomas I. Vanaskie and Joseph A. Greenaway Jr., reversed a New Jersey district judge’s ruling that the ERISA statute does not permit attorney fee awards under the catalyst theory.

In doing so, the court awarded attorney fees to plaintiffs Allen Boyle and Michael Luongo, despite upholding the lower court’s ruling granting summary judgment to the defendants.

Roth pointed to the U.S. Supreme Court’s 2010 ruling in Hardt v. Reliance Standard Life Insurance, in which it found that the ERISA statute gives district courts broad discretion to award attorney fees to plaintiffs.

The Hardt court said the ERISA statute does not limit attorney fee awards to “‘prevailing parties,’” but instead allows parties that show “‘some degree of success on the merits’” beyond a “‘trivial success on the merits or purely procedural victory’” to recoup fees, according to Roth.

Roth found that while Boyle and Luongo ultimately did not prevail in the case, they achieved some success with their lawsuit by prompting their former employer to voluntarily offer to retroactively reinstate benefits to early retirees and to reimburse them for any alternative coverage they may have purchased during the four-month period in 2011 when benefits ceased.

“We hold that in light of the Supreme Court’s clear rejection of the ‘prevailing party’ standard in Hardt, the catalyst theory remains viable under ERISA,” Roth said.

Boyle and Luongo, both early retirees of C&S Whole Grocers and its subsidiary Woodbridge Logistics, filed a putative class action against the International Brotherhood of Teamsters Local 863 Welfare Fund, alleging that between February 2011 and June 2011, after C&S closed all of its warehouses in New Jersey and fired 1,000 employees, the fund ceased covering medical expenses for all of its active and former employees, including 67 early retirees.

It wasn’t until 10 days after Boyle and Luongo filed their ERISA suit in the U.S. District Court for the District of New Jersey on June 3, 2011, that the fund retroactively reinstated benefits, later offering to reimburse, with interest, the early retirees for any substitute insurance policies or uncovered medical expenses, according to Roth.

But U.S. District Judge Stanley Chesler of the District of New Jersey found Boyle’s claim for breach of fiduciary duty was moot because he accepted full reimbursement, with interest, from the fund for alternative coverage he had purchased when benefits ceased.

Roth agreed, but said Boyle’s claim for attorney fees was not rendered moot by his agreement to accept reimbursement.

Luongo, meanwhile, has repeatedly refused to accept reimbursement, according to Roth.

While the defendants argued that the mere offer of reimbursement was enough to moot Luongo’s claims, Roth disagreed, saying that a justiciable controversy remains between Luongo and the fund because the fund failed to offer to pay Luongo’s attorney fees and costs.

“We believe that a unilateral offer of relief that fails to cover the entire claim does not render moot a plaintiff’s claim,” Roth said, adding, “If an offer of attorney fees is made, Luongo’s whole claim will become moot, since an offer of relief has already been made on the remainder of the claim.”

Roth did, however, uphold Chesler’s ruling denying class certification in the case because the plaintiffs did not seek declaratory or injunctive relief under Fed. R. Civ. P. 23(b)(2).

Roth said the plaintiffs’ amended complaint sought reinstatement of medical benefits—which has since occurred—and various forms of individualized monetary relief that, by their nature, bar class certification.

Roth also upheld Chesler’s grant of the defendants’ cross-motion for summary judgment on the grounds that there was no genuine dispute as to any material fact regarding whether the fund breached its fiduciary duties under ERISA.

Roth said the fund met the standard set forth in Section 1104(a)(1)(B) of the ERISA statute, which requires fiduciary duties to be carried out “‘with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use.’”

According to the opinion, after C&S shut down its New Jersey facilities and briefly lapsed in its payments to the fund, there was confusion over the allocation of benefits payments to the company’s former employees.

“Given the confusion and uncertainty, we agree with the district court that the fund’s decision to reinstate benefits once it could receive clarification was consistent with ERISA’s prudent person standard,” Roth said.

Counsel for the plaintiffs, Colin Page of Mountain Lakes, N.J., said he and his clients were “disappointed” by the court’s decision to dismiss the case but noted that the allowance of fee-shifting in ERISA cases under the catalyst theory was an important ruling.

Without that finding, Page said, fiduciaries that don’t change their conduct until faced with litigation would incur “no penalty for failing to meet their obligations.”

Counsel for the fund, Kenneth I. Nowak of Zazzali, Fagella, Nowak, Kleinbaum & Friedman in Newark, could not be reached for comment.

Contact the reporter at zneedles@alm.com.

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