Binder & Binder Pc v. Barnhart

• Decision Date: 27 March 2007
• Docket Number: Docket No. 05-6794-cv.
• Citation: 481 F.3d 141
• Parties: BINDER & BINDER PC, Plaintiff-Appellant, v. Jo Anne B. BARNHART, Commissioner of the Social Security Administration, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

481 F.3d 141

BINDER & BINDER PC, Plaintiff-Appellant, v. Jo Anne B. BARNHART, Commissioner of the Social Security Administration, Defendant-Appellee.

Docket No. 05-6794-cv.

United States Court of Appeals, Second Circuit.

Argued: September 13, 2006.

Decided: March 27, 2007.

Jeffrey Herzberg, Zinker & Herzberg, LLP, Smithtown, NY, for Plaintiff-Appellant.

Vincent Lipari, Assistant United States Attorney for the Eastern District of New York (for Roslynn R. Mauskopf, United States Attorney, Eastern District of New York; Kathleen A. Mahoney & Varuni Nelson, Assistant United States Attorneys, on the brief), Central Islip, NY, for Defendant-Appellee.

Before: MINER, McLAUGHLIN, and KATZMANN, Circuit Judges.

MINER, Circuit Judge:

Plaintiff-appellant Binder & Binder, PC ("Binder") appeals from a judgment entered on August 22, 2005 in the United States District Court for the Eastern District of New York (Platt, J.) dismissing for lack of jurisdiction its action against defendant-appellee Jo Anne Barnhart, as the Commissioner of the Social Security Administration (the "SSA"). Binder brought this action to secure a judgment declaring that it was entitled to keep attorneys' fees paid to it by the SSA in connection with its representation of Gail S. Delnegro ("Delnegro"), who had applied for and received Social Security disability benefits. The SSA had certified and later distributed payment to Binder in the amount of $1,200, which had been withheld from Delnegro's past-due benefits pursuant to the Social Security Act. Delnegro objected to the certified payment because she claimed that her debt to Binder had been discharged in bankruptcy. Informed of Delnegro's discharge in bankruptcy, the SSA then demanded back the payment made to Binder, explaining that any debt owed to Binder had been discharged by the bankruptcy order. Binder refused to return the money and brought this declaratory judgment action in the District Court.

Following the parties' motions for summary judgment, the District Court granted summary judgment to the SSA, the court having found that (i) Binder was not entitled to attorneys' fees under the Social Security Act in connection with its representation of Delnegro; and (ii) any attorneys' fees owed had been extinguished by discharge order granted to Delnegro by the bankruptcy court. Following entry of judgment, Binder appealed to this Court, and we remanded to the District Court for a determination as to whether there was subject matter jurisdiction over Binder's claims. See Binder & Binder, P.C. v. Barnhart, 399 F.3d 128, 133-34 (2d Cir. 2005). The District Court then dismissed the action for lack of subject matter jurisdiction, concluding that Binder's claims did not arise under the Social Security Act.

For the reasons that follow, we find that subject matter jurisdiction lies and that the SSA lacked the authority to demand back the payment made to Binder. We vacate the judgment of the District Court and remand for proceedings consistent with this opinion.

BACKGROUND

Delnegro's application for disability benefits under the Social Security Act (the "Act") was denied on July 21, 1998. She thereafter retained Binder to pursue her claim. On August 25, 1998, Delnegro executed and submitted to the SSA (i) a Social Security Retainer Agreement; and (ii) an Appointment of Representative. Also on August 25, 1998, Delnegro and Binder executed an Expedited Fee Agreement in accordance with 42 U.S.C. § 406 (the "Agreement"). That Agreement provided:

The claimant and the firm of Binder and Binder . . . agree that if claimant receives a fully or partially favorable decision, the legal fee owed by the claimant is equal to the lesser of 25% of the past-due benefits or $4,000. Under Social Security Regulations, "past-due benefits" is the total amount of retroactive money to which the claimant and all family members become entitled. . . . This fee agreement is only valid if a fully or partially favorable decision is rendered prior to oral testimony being taken at an administrative hearing before an administrative law judge.

By a request for reconsideration submitted by Binder on September 17, 1998, Binder requested that the SSA reconsider its July 21, 1998 denial of Delnegro's application for SSA disability benefits. The SSA responded by Notice of Reconsideration, dated September 28, 1999, and granted Delnegro's request for reconsideration but then adhered to its July 21, 1998 determination denying Delnegro's application. By letter dated November 30, 1999, Delnegro discharged Binder and advised that she had retained Joseph Puzzarella ("Puzzarella") to represent her in her continued efforts to obtain Social Security disability benefits. She also advised the SSA of the change in representation, and Puzzarella provided the SSA with a copy of the retainer agreement that he and Delnegro had executed.

By letter dated December 30, 1999, Binder notified both the SSA and Delnegro of its intent to petition the SSA for its legal fees in the event that Delnegro's application for benefits were granted. Binder also requested that the SSA notify it in the event that the benefits were awarded.

Puzzarella's efforts on behalf of Delnegro eventually proved successful. The SSA, by notice dated February 25, 2000, advised Delnegro that it had awarded the sought-after Social Security disability benefits. The SSA also approved Delnegro's fee agreement with Puzzarella as to form. By letter to the SSA dated March 24, 2000, Puzzarella submitted a petition for attorneys' fees in the amount of $250. He also enclosed a copy of an undated letter from Delnegro, in which she objected to any payment of fees to Binder because of her dissatisfaction with Binder's services.

The SSA notified Binder, by letter dated April 7, 2000, that Delnegro had been awarded SSA disability benefits. Enclosed with the letter was a copy of the notice of award sent to Puzzarella and Delnegro. Pursuant to 42 U.S.C. § 406(a)(4), if the SSA determines that the claimant is entitled to past-due benefits, and the claimant is represented by an attorney, the SSA "shall . . . certify for payment out of such past-due benefits (as determined before any applicable reduction . . .) to such attorney an amount equal to so much of the maximum fee as does not exceed 25 percent of such past-due benefits." Accordingly, the notice sent to Puzzarella and Delnegro stated that because Delnegro was represented by an attorney, the SSA had retained $4,116.75 or 25% of the past-due benefits owed to Delnegro to pay for legal fees in the event that her attorney(s) claimed legal fees up to the statutory maximum.

Informed of Delnegro's award, Binder submitted a petition dated July 5, 2000 to the SSA requesting that the SSA approve attorneys' fees in the amount of $1,200 for services provided to Delnegro. Binder's petition was supported by a contemporaneous time account, which detailed 22.75 hours of work expended on Delnegro's behalf to obtain benefits.

On September 20, 2001, both Delnegro and her husband filed a voluntary petition under Chapter 7 of the bankruptcy laws in the United States Bankruptcy Court for the District of New Jersey. Delnegro listed Binder's fee of $1,200 on Schedule F of her bankruptcy petition as an unsecured, nonpriority claim that she "disputed." On January 3, 2002, the Bankruptcy Court granted Delnegro a discharge pursuant to 11 U.S.C. § 727.

After the Bankruptcy Court granted a discharge in bankruptcy to Delnegro, the SSA provided notice to both Binder and Delnegro, by letter dated January 11, 2002, that it had approved Binder's petition for attorneys' fees in the amount that Binder had claimed. The SSA advised both Binder and Delnegro that they could contest the fee amount within thirty days.

By letter to the SSA, dated January 12, 2002, Delnegro objected to the award of attorneys' fees in any amount to Binder and reiterated her dissatisfaction with Binder's services. She also advised the SSA that she had previously filed a petition seeking relief under Chapter 7 of the Bankruptcy Code and had listed Binder's claim for fees as an unsecured, nonpriority claim that she disputed. Delnegro further advised the SSA that on January 3, 2002, she had received a discharge from the Bankruptcy Court relieving her of her personal debts.

Administrative Law Judge Stephen Wright (the "ALJ") of the SSA Office of Hearings and Appeals (Region II) then notified Binder, by letter dated February 4, 2002, that Delnegro had objected to Binder's fee of $1,200 and that Binder's fees would be reviewed. The February 4 letter from the ALJ included a copy of Delnegro's January 12, 2002 letter in which Delnegro set forth her objections to Binder's petition for attorneys' fees. After receiving notice of Delnegro's objection from the ALJ, Binder responded to the ALJ, by letter dated February 11, 2002, stating that the $1,200 in fees was reasonable based on 22.75 hours of work and that the fee should be paid.

Despite Delnegro's objection and the then-pending fee dispute, Binder received its fee of $1,200 from the SSA on March 21, 2002. Then, on March 29, 2002, the SSA demanded that Binder relinquish and return the $1,200 to Delnegro. In making this demand, the SSA explained that since Delnegro had filed for bankruptcy protection, and had received a discharge, the $1,200 had been paid to Binder by the SSA in error.

On April 19, 2002, the SSA sent Binder an "Order Vacating Authorization to Charge and Collect Fee." The SSA based the decision giving rise to this order on a document designated Program Circular OCO 98-050 (the "Program Circular") and entitled "Bankruptcy and Attorneys Fees," dated March 13, 1998. It provides that where a bankruptcy court discharges all of a claimant's debts, including the representative's fee, no fee may be authorized or paid by the SSA. The Program Circular is an internal document of the SSA that "was prepared by a former Reconsideration Reviewer for use in...