Gisbrecht v. Barnhart

Citation535 U.S. 789
Decision Date28 May 2002
Docket NumberNo. 01-131.,01-131.
PartiesGISBRECHT ET AL. <I>v.</I> BARNHART, COMMISSIONER OF SOCIAL SECURITY
CourtUnited States Supreme Court

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

An attorney who successfully represents a Social Security benefits claimant in court may be awarded as part of the judgment "a reasonable fee ... not in excess of 25 percent of the ... past-due benefits" awarded to the claimant. 42 U. S. C. § 406(b)(1)(A). The fee is payable "out of, and not in addition to, the amount of [the] past-due benefits." Ibid. In many cases, as in the instant case, the Equal Access to Justice Act (EAJA) effectively increases the portion of past-due benefits the successful Social Security claimant may pocket. Under EAJA, a party prevailing against the United States in court may be awarded fees payable by the United States if the Government's position in the litigation was not "substantially justified." 28 U. S. C. § 2412(d)(1)(A). Congress harmonized fees payable by the Government under EAJA with fees payable under § 406(b) out of the Social Security claimant's past-due benefits: Fee awards may be made under both prescriptions, but the claimant's attorney must refund to the claimant the amount of the smaller fee, up to the point the claimant receives 100 percent of the past-due benefits.

Petitioners Gisbrecht, Miller, and Sandine brought separate actions in the District Court seeking Social Security disability benefits under Title II of the Social Security Act. All three were represented by the same attorneys and prevailed on the merits of their claims. Each petitioner then successfully sought attorneys' fees under EAJA. Pursuant to contingent-fee agreements standard for Social Security claimant representation, each petitioner had agreed to pay counsel 25 percent of all past-due benefits recovered. Their attorneys accordingly requested $7,091.50 from Gisbrecht's recovery, $7,514 from Miller's, and $13,988 from Sandine's. Given the EAJA offsets, the amounts in fact payable from each client's past-due benefits recovery would have been $3,752.39 from Gisbrecht's recovery, $2,349.25 from Miller's, and $7,151.90 from Sandine's. Following Ninth Circuit precedent, the District Court in each case declined to give effect to the attorney-client fee agreement, instead employing a "lodestar" method, under which the number of hours reasonably devoted to each case was multiplied by the reasonable hourly fee. This method yielded as § 406(b) fees $3,135 from Gisbrecht's recovery, $5,461.50 from Miller's, and $6,550 from Sandine's. Offsetting the EAJA awards against the lodestar determinations, the court determined that no portion of Gisbrecht's or Sandine's past-due benefits was payable to counsel, and that only $296.75 of Miller's recovery was payable to her counsel. The Ninth Circuit consolidated the cases and affirmed.

Held: Section 406(b) does not displace contingent-fee agreements within the statutory ceiling; instead, § 406(b) instructs courts to review for reasonableness fees yielded by those agreements. Pp. 799-809.

(a) Section 406(b)'s words, read in isolation, could be construed to allow either the Ninth Circuit's lodestar approach or petitioners' position that the attorney-client fee agreement should control, if not "in excess of 25 percent of ... the past-due benefits." Because the statute's text is inconclusive, this Court takes into account, as interpretive guides, the origin and standard application of the proffered approaches. Pp. 799-800.

(b) The lodestar method, though rooted in accounting practices adopted in the 1940's, did not gain a firm foothold in the federal courts until the mid-1970's. The lodestar method today holds sway in federalcourt adjudication of disputes over the amount of fees properly shifted to the loser in the litigation. Fees shifted to the losing party, however, are not at issue here. Pp. 800-802.

(c) Section 406(b) authorizes fees payable from the successful party's recovery. Characteristically in Social Security benefits cases, attorneys and clients enter into contingent-fee agreements specifying that the attorney's fee will be 25 percent of any past-due benefits to which the claimant becomes entitled. Contingent-fee arrangements, though problematic, particularly when not exposed to court review, are common in the United States in many settings, and Social Security representation operates largely on a contingent-fee basis. Before 1965, the Social Security Act imposed no limits on contingent-fee agreements drawn by counsel and signed by benefits claimants. Arrangements yielding exorbitant fees reserved for lawyers one-third to one-half of the accrued benefits; the longer the litigation persisted, the greater the buildup of past-due benefits and, correspondingly, of legal fees awardable from those benefits if the claimant prevailed. Attending to these realities, Congress provided for a reasonable fee, not in excess of 25 percent of accrued benefits, as part of the court's judgment, and specified that no other fee would be payable. Violation of these limitations was made a criminal offense. In addition to protecting claimants against inordinately large fees, Congress sought to ensure that attorneys successfully representing Social Security claimants would not risk nonpayment by their clients. Congress therefore authorized agency payment of fees directly to counsel from funds withheld from the claimant's past-due benefits. But nothing in § 406(b)'s text or history reveals a design to prohibit or discourage attorneys and claimants from entering into contingent-fee agreements. Given the prevalence of such agreements between attorneys and Social Security benefits claimants, it is unlikely that Congress, simply by prescribing "reasonable fees," meant to outlaw, rather than to contain, the fee agreements. Pp. 802-805.

(d) This conclusion is bolstered by Congress' 1990 authorization of contingent-fee agreements under § 406(a), which governs fees for agency-level representation. It would be anomalous if contract-based fees expressly authorized by § 406(a)(2) at the administrative level were disallowed for court representation under § 406(b). It is also unlikely that Congress, legislating in 1965, intended to install a lodestar method that courts did not develop and employ until years later. Furthermore, the lodestar method was designed to govern imposition of fees on the losing party. In such cases, nothing prevents the attorney for the prevailing party from gaining additional fees, pursuant to contract, from his own client. But § 406(b) governs the total fee a successful Social Security claimant's attorney may receive for court representation. Nothing more may be demanded or received from the benefits claimant. Pp. 805-807.

(e) Most plausibly read, § 406(b) does not displace contingent-fee agreements as the primary means by which fees are set for successfully representing Social Security benefits claimants in court. Rather, § 406(b) calls for court review of such arrangements to assure that they yield reasonable results in particular cases. Within the 25 percent boundary Congress provided, the attorney for the successful claimant must show that the fee sought is reasonable for the services rendered. Courts have reduced the attorney's recovery based on the character of the representation and the results the representative achieved. If the attorney is responsible for delay, for example, a reduction is in order so that the attorney will not profit from the accumulation of benefits during the pendency of the case in court. And if the benefits are large in comparison to the amount of time counsel spent on the case, a downward adjustment is similarly in order. Pp. 807-808.

238 F. 3d 1196, reversed and remanded.

GINSBURG, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and STEVENS, O'CONNOR, KENNEDY, SOUTER, THOMAS, and BREYER, JJ., joined. SCALIA, J., filed a dissenting opinion, post, p. 809.

Eric Schnaufer argued the cause for petitioners. With him on the briefs were Eric Schnapper and Tim Wilborn.

David B. Salmons argued the cause pro hac vice for respondent. With him on the brief were Solicitor General Olson, Assistant Attorney General McCallum, Deputy Solicitor General Clement, William Kanter, and Frank A. Rosenfeld.*

JUSTICE GINSBURG delivered the opinion of the Court.

This case concerns the fees that may be awarded attorneys who successfully represent Social Security benefits claimants in court. Under 42 U. S. C. § 406(b) (1994 ed. and Supp. V),1 a prevailing claimant's fees are payable only out of the benefits recovered; in amount, such fees may not exceed 25 percent of past-due benefits. At issue is a question that has sharply divided the Federal Courts of Appeals: What is the appropriate starting point for judicial determinations of "a reasonable fee for [representation before the court]"? See ibid. Is the contingent-fee agreement between claimant and counsel, if not in excess of 25 percent of past-due benefits, presumptively reasonable? Or should courts begin with a lodestar calculation (hours reasonably spent on the case times reasonable hourly rate) of the kind we have approved under statutes that shift the obligation to pay to the loser in the litigation? See Hensley v. Eckerhart, 461 U. S. 424, 426 (1983) (interpreting Civil Rights Attorney's Fees Awards Act of 1976, 42 U. S. C. § 1988, which allows a "prevailing party" to recover from his adversary "a reasonable attorney's fee as part of the costs" (internal quotation marks omitted)).

Congress, we conclude, designed § 406(b) to control, not to displace, fee agreements between Social Security benefits claimants and their counsel. Because the decision before us for review rests on lodestar calculations and rejects the primacy of lawful attorney-client fee agreements, we reverse the judgment below and remand for recalculation of ...

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