Allen v. Shalala

• Decision Date: 16 September 1994
• Docket Number: No. 93-35124,93-35124
• Parties: , 47 Soc.Sec.Rep.Ser. 34, Unempl.Ins.Rep. (CCH) P 14536B Plas M. ALLEN, Plaintiff-Appellant, v. Donna E. SHALALA, Secretary of Health and Human Services, * Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 456

48 F.3d 456

63 USLW 2541, 47 Soc.Sec.Rep.Ser. 34,

Unempl.Ins.Rep. (CCH) P 14536B

Plas M. ALLEN, Plaintiff-Appellant, v. Donna E. SHALALA, Secretary of Health and Human Services,

^*

Defendant-Appellee.

No. 93-35124.

United States Court of Appeals, Ninth Circuit.

Submitted Sept. 16, 1994 ^**.

Decided Feb. 24, 1995.

Ralph Wilborn, Eugene, OR, for plaintiff-appellant.

Ernest J. Ishem, Assistant Regional Counsel, Seattle, WA, for defendant-appellee.

Appeal from the United States District Court for the District of Oregon.

Before: THOMPSON and LEAVY, Circuit Judges, and A. WALLACE TASHIMA, District Judge. ^***

Opinion by Judge TASHIMA; Dissent by Judge LEAVY.

A. WALLACE TASHIMA, District Judge:

This is an appeal from the district court's decision awarding to the attorney for appellant Plas M. Allen (Allen or appellant) attorney's fees far lower than the fees provided under the 25 percent contingent fee agreement between appellant and his attorney. Appellant argues that the district court erred by computing the fee under the lodestar method, with no weight given to the contingent fee agreement. We have jurisdiction to review the district court's decision pursuant to 28 U.S.C. Sec. 1291.

BACKGROUND

Allen applied for Social Security disability benefits in 1985. His initial application was denied. He subsequently refiled and, following numerous hearings and reviews, including an appeal to the district court, the Appeals Council found Allen to be disabled.

Appellant then moved in the district court for a fee award, pursuant to 42 U.S.C. Sec. 406(b)(1), which provides:

Whenever a court renders a judgment favorable to a claimant under this subchapter who was represented before the court by an attorney, the court may determine and allow as part of its judgment a reasonable fee for such representation, not in excess of 25 percent of the total of the past-due benefits to which the claimant is entitled by reason of such judgment.

42 U.S.C. Sec. 406(b)(1). The district court awarded fees at an hourly lodestar rate of $150, giving no weight to the contingent fee agreement between Allen and his attorney. ¹ This appeal followed.

STANDARD OF REVIEW

We review the amount of attorney's fees awarded by the district court for an abuse of discretion. Drucker v. O'Brien's Moving and Storage, 963 F.2d 1171, 1173 (9th Cir.1992). An abuse of discretion occurs if the district court does not apply the correct law or rests its decision on a clearly erroneous finding of fact. United States v. Plainbull, 957 F.2d 724, 725 (9th Cir.1992), citing Hunt v. National Broadcasting Co., 872 F.2d 289, 292 (9th Cir.1989). Interpretation of a statute is a question of law subject to de novo review. United States v. McConney, 728 F.2d 1195, 1201 (9th Cir.) (en banc), cert. denied, 469 U.S. 824, 105 S.Ct. 101, 83 L.Ed.2d 46 (1984).

DISCUSSION

Appellant challenges the district court's decision on two bases. First, he contends

that our decision in Starr v. Bowen, 831 F.2d 872 (9th Cir.1987), upon which the district court relied, is no longer binding in light of the Supreme Court's intervening decision in Venegas v. Mitchell, 495 U.S. 82, 110 S.Ct. 1679, 109 L.Ed.2d 74 (1992). Second, he argues that even if Starr is still binding precedent, the district court erred in refusing to apply a multiplier to the lodestar figure, in light of the contingent fee contract between him and his attorney. We examine these issues seriatim.

A. Use of the Lodestar Method

The circuits have split on the proper method of calculating attorney's fees under Sec. 406(b)(1). The Second, Sixth, and Seventh Circuits have adopted the "contingency" method, under which the court uses the contingent fee contract as the basis for the award, treating it, in effect, as presumptively reasonable. Wells v. Sullivan, 907 F.2d 367 (2d Cir.1990); Rodriguez v. Bowen, 865 F.2d 739 (6th Cir.1989) (en banc ); McGuire v. Sullivan, 873 F.2d 974, 980-83 (7th Cir.1989).

This Circuit, along with the Fourth, Fifth, and Eighth Circuits, has rejected the contingency method in favor of the "lodestar" method of calculating fees. Craig v. Department of Health and Human Serv., 864 F.2d 324 (4th Cir.1989); Brown v. Sullivan, 917 F.2d 189 (5th Cir.1990); Cotter v. Bowen, 879 F.2d 359 (8th Cir.1989). ² Under the lodestar approach, the court first determines a reasonable hourly rate. Then it multiplies that rate by the number of hours reasonably expended on the litigation to arrive at a presumptively reasonable fee. This lodestar amount may then be adjusted by considering the twelve factors set forth in Kerr v. Screen Extras Guild, Inc., 526 F.2d 67 (9th Cir.1975), cert. denied, 425 U.S. 951, 96 S.Ct. 1726, 48 L.Ed.2d 195 (1976), ³ one of which is the fact that the attorney accepted employment on a contingency basis.

We first applied the lodestar method in a Sec. 406(b)(1) case in Starr. In that case, we vacated a fee award where the district court gave "great weight" to a 25% contingent fee agreement between the plaintiff and his attorney. We rejected arguments that the district court should treat a contingent fee arrangement as presumptively fair and reasonable, noting that "[t]he district court does not sit to approve routinely a contingent fee contract between social security claimants and their counsel." 831 F.2d at 874. Instead, we instructed the district court to begin its inquiry "with the Supreme Court's directive that '[t]he most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate.' " 831 F.2d at 874, citing Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 1939, 76 L.Ed.2d 40 (1988). This lodestar amount may then be adjusted by considering the Kerr factors.

We reaffirmed the Starr approach two years later in Straw v. Bowen, 866 F.2d 1167 (9th Cir.1989). Central to our analysis in both Starr and Straw was a recognition that in the peculiar context of Social Security claims, "while the attorney's compensation must be sufficient to encourage members of the bar to undertake representation of disability claimants, the disability award, from which the attorney's fee is paid, is normally Nevertheless, appellant argues that in light of the Supreme Court's decision in Venegas we must now abandon the lodestar approach and adopt the contingency approach in Sec. 406(b)(1) cases. We disagree.

an already-inadequate stipend for the support and maintenance of the claimant and his dependents." Starr, 831 F.2d at 873, quoting MacDonald v. Weinberger, 512 F.2d 144, 146 (9th Cir.1975); Straw, 866 F.2d at 1169. ⁴

In Venegas, the plaintiff in a civil rights action obtained a favorable judgment at trial. The trial court, using the lodestar method, calculated reasonable attorney's fees and awarded that sum to the plaintiff, pursuant to 42 U.S.C. Sec. 1988, a fee-shifting statute. The plaintiff's attorney then attempted to collect fees in excess of the statutory award, pursuant to a contingency contract with the plaintiff. The trial court ruled that Sec. 1988 did not prohibit the attorney from collecting fees in excess of the statutory award, and the Supreme Court upheld that decision.

There are several reasons why Venegas does not affect our adoption of the lodestar method in Starr and Straw.

First, Venegas did not explicitly deal with the proper method of calculating reasonable fees, and it nowhere disapproved of the lodestar method used by the district court in arriving at a reasonable attorney's fee award. What the Court held was that once reasonable attorney's fees have been calculated--using the lodestar approach--a successful plaintiff may nevertheless be obligated to pay his or her attorney more under the terms of a separately negotiated contingent fee contract. 495 U.S. at 90, 110 S.Ct. at 1684. Venegas does not suggest that the lodestar method was an inappropriate means of determining reasonable fees under Sec. 1988 or any other statute; it provides no basis for departing from the lodestar approach established in this Circuit.

Second, Venegas deals with a fee-shifting statute, Sec. 1988, which differs both in language and in purpose from Sec. 406(b)(1). As a fee-shifting statute, Sec. 1988 does not attempt to regulate what prevailing parties must pay their attorneys. As the Court noted in Venegas, "Sec. 1988 controls what the losing defendant must pay, not what the prevailing plaintiff must pay his lawyer." Id. Section 406(b)(1), on the other hand, speaks directly to what a plaintiff must pay his or her own lawyer.

In spite of the inapplicability of Venegas to Sec. 406(b)(1) analysis, appellant argues that because the Second Circuit relied on Venegas in rejecting the lodestar method, we should do the same. In Wells, the Second Circuit considered for the first time the proper method of calculating reasonable attorney's fees under Sec. 406(b)(1). Relying on opinions from the Sixth and Seventh Circuits, Wells adopted the contingency rather than the lodestar method. 907 F.2d at 370-71. In addition, Wells cited Venegas as authority for its rejection of the lodestar method. Id. at 369-70. Because we do not write on a clean slate, whether we agree with the analysis of Venegas contained in Wells is a moot point.

Venegas does not hold, or even suggest, that a district court should look first to a contingent fee contract when determining a reasonable attorney's fee. Rather, the Court implicitly reaffirmed the principle that a court must use the lodestar method when computing reasonable attorney's fee awards under Sec. 1988. 495 U.S. at 87, 110 S.Ct. at 1682-83. In sum, nothing in Venegas suggests that our interpretation of Sec. 406(b)(1) in Straw and Starr was incorrect.

Consequently, we are not free to reject the lodestar method and follow Wells. Starr and Straw continue to be binding precedent. Thus, we hold that the trial court did not err in calculating reasonable...