Binder & Binder Pc v. Barnhart

• Decision Date: 17 February 2005
• Docket Number: Docket No. 03-6191.
• Citation: 399 F.3d 128
• Parties: BINDER & BINDER PC, Plaintiff-Appellant, v. Jo Anne B. BARNHART, Commissioner of Social Security Administration, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

399 F.3d 128

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

Docket No. 03-6191.

United States Court of Appeals, Second Circuit.

Argued August 25, 2004.

Decided February 17, 2005.

Jeffrey Herzberg, Smithtown, N.Y. (Zinker, Gelfand & Herzberg, Smithtown, NY, of counsel), for Appellant.

Vincent Lipari, Assistant United States Attorney, Eastern District of New York, Central Islip, N.Y. (Roslynn R. Mauskopf, United States Attorney for the Eastern District of New York, Varuni Nelson, Kathleen A. Mahoney, Assistant United States Attorneys, Eastern District of New York, Central Islip, NY, of counsel), for Appellee.

Before: MESKILL, MINER and KATZMANN, Circuit Judges.

MESKILL, Circuit Judge.

This appeal from the United States District Court for the Eastern District of New York, Platt, J., ostensibly concerns whether the law firm of Binder & Binder P.C. is entitled to $1,200 in attorney's fees that it earned representing a Social Security claimant or whether Binder's recovery is barred by the claimant's subsequent bankruptcy. Because we have serious questions about the source of federal jurisdiction over this case, however, we decline to reach the merits. Instead, we remand to the district court to consider the jurisdictional issue.

I.

On August 25, 1998, Gail S. Delnegro hired Binder to help her pursue disability benefits. After the Social Security Administration (SSA) denied her claim, Delnegro fired Binder and retained another lawyer, Joseph Puzzarella. Puzzarella subsequently obtained a fully favorable decision for Delnegro and received his requested fee of $250. By statute, the SSA withheld $4,116.75 (25% of Delnegro's past due benefits) in the event that Binder claimed a fee, see 42 U.S.C. § 406(a)(2)(A); 20 C.F.R. § 404.1720(b)(4), which of course it did.

On July 5, 2000, Binder petitioned the SSA to approve $1,200 in fees for 22.75 hours of work. Delnegro opposed the petition. Slightly more than a year later, Delnegro and her husband filed for bankruptcy in the District of New Jersey. On January 3, 2002, Delnegro received a discharge from the bankruptcy court, extinguishing all of her outstanding personal liabilities. See 11 U.S.C. § 727(b).

SSA "Program Circular 98-050" provides that when a bankruptcy court discharges a claimant's debts, the SSA is forbidden to authorize or pay attorney's fees. Notwithstanding the discharge in bankruptcy, on March 21, 2002, the SSA disbursed $1,200 in fees to Binder. A week later, however, the SSA realized that it had made a mistake; it demanded that Binder turn the $1,200 over to Delnegro because of the bankruptcy discharge. On April 19, 2002, the SSA formally vacated its decision to authorize Binder's fees, citing SSA Program Circular 98-050. Binder never remitted the fees to either the SSA or Delnegro and is currently holding the money in escrow pending a final disposition in this case.

In May 2002, Binder commenced an action in the United States District Court for the Eastern District of New York seeking a declaration that it is entitled to retain the fees. According to Binder, the Social Security Act created a vested property right in its fees that survived the discharge. The district court ordered Binder to seek guidance from the New Jersey bankruptcy court, which reiterated that the discharge had extinguished all of Delnegro's personal debts. This ruling effectively determined that Binder only was entitled to fees if it could demonstrate that it had an "attorney charging lien." Under the Bankruptcy Code, such a lien would survive the discharge. See 11 U.S.C. § 522(c)(2).

Section 407 of the Social Security Act (the Act), however, forbids SSA benefits from being subject to "execution, levy, attachment, garnishment, or other legal process." 42 U.S.C. § 407(a). The district court determined that an attorney charging lien is a form of "other legal process" barred by section 407, and so granted summary judgment to the SSA. See Binder & Binder, P.C. v. Barnhart, 281 F.Supp.2d 574 (E.D.N.Y.2003). This appeal followed.

II.

Although Binder's complaint lists five causes of action, it raises what are in essence only two claims: one under the Due Process Clause of the Constitution, the other under the Social Security Act. The constitutional claim alleges that Binder was denied notice and an opportunity to be heard in the New Jersey bankruptcy court before Delnegro was granted her discharge. The statutory claim asserts that, notwithstanding questions about the validity of Delnegro's discharge, the Social Security Act created a vested property right in the fees, in the form of an attorney charging lien.

Accordingly, Binder's complaint asserts that the district court had federal question jurisdiction over these claims because "this is a civil action arising under the Social Security Act and the Due Process Clause of the Fifth Amendment to the United States Constitution." See 28 U.S.C. § 1331. Section 405(h) of the Social Security Act, however, ordinarily bars federal question jurisdiction over suits brought under that Act. See 42 U.S.C. § 405(h) ("No action against the United States, the Commissioner of Social Security, or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter."). Given Binder's facially dubious jurisdictional claim, we undertook sua sponte to examine potential sources of federal jurisdiction. See United States v. Leon, 203 F.3d 162, 164 n. 2 (2d Cir.2000) (per curiam).

A.

The most obvious source of jurisdiction over Social Security claims is section 405(g) of the Act, which provides in pertinent part that "[a]ny individual, after any final decision of the Commissioner of Social Security made after a hearing to which he was a party ... may obtain a review of such decision by a civil action" brought in federal district court. 42 U.S.C. § 405(g). But section 405(g) is seemingly inapplicable to Binder's suit because that section limits judicial review to those decisions involving "a party." See Cordoba v. Massanari, 256 F.3d 1044, 1047 (10th Cir.2001); see also Guadamuz v. Bowen, 859 F.2d 762, 767-68 (9th Cir.1988).

As noted, section 405(h) of the Act typically bars suits brought under our general federal question jurisdiction. See, e.g., Shalala v. Illinois Council on Long Term Care, 529 U.S. 1, 10-15, 120 S.Ct. 1084, 146 L.Ed.2d 1 (2000); Heckler v. Ringer, 466 U.S. 602, 614-16, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984); Mathews v. Eldridge, 424 U.S. 319, 326-32, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976); Weinberger v. Salfi, 422 U.S. 749, 760-61, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975). As with most rules of law, however, there is an exception: judicial review is available under section 1331 when there is no alternative.

Typically, all cases arising under the Social Security Act are channeled through the appropriate administrative fora before they reach federal court; section 405(h) forbids federal suits that have not been administratively reviewed first. But where there is no appropriate administrative forum, it makes no sense to bar federal suit. We presume, after all, that Congress did not intend to foreclose all avenues of judicial review. See Buchanan v. Apfel, 249 F.3d 485, 490 (6th Cir.2001). Thus, section 405(h)'s bar to federal question jurisdiction "does not apply ... where application of § 405(h) would not simply channel review through the agency, but would mean no review at all." Illinois Council, 529 U.S. at 19, 120 S.Ct. 1084. See generally Fanning v. United States, 346 F.3d 386, 393-400 (3d Cir.2003).

If we were to conceive of Binder's claims as arising under the Social Security Act, then section 405(h) would appear to foreclose all judicial review of the agency's policy because Binder, as a non-party in the administrative proceedings, likely cannot seek review under section 405(g). Thus, under the Illinois Council rule, federal question jurisdiction under section 1331 may be available after all.

B.

This line of reasoning presumes, however, that Binder's claims "arise under" the Social Security Act. Whether that is really the case is not clear.

Normally, the assertion in Binder's complaint that its claims arise under federal law would be enough to invoke federal question jurisdiction. However, "a suit may sometimes be dismissed for want of jurisdiction where the alleged claim ... clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous." Bell v. Hood, 327 U.S. 678, 682-83, 66 S.Ct. 773, 90 L.Ed. 939 (1946). Thus, Binder's allegation that its claims arise under federal law is not wholly dispositive. See, e.g., Local Div. 732, Amalgamated Transit Union v. Metropolitan Atlanta Rapid Transit Auth., 667 F.2d 1327, 1342 (11th Cir.1982) (finding no federal jurisdiction even though complaint alleged a claim under the Urban Mass Transportation Act of 1964, 49 U.S.C. § 1602, because "the alleged statutory violation purport[ed] to add to the Union's complaint nothing but a predicate for federal jurisdiction"). See generally Carlson v. Principal Fin. Group, 320 F.3d 301, 306 (2d Cir.2003).

Binder first asserts that it was denied due process because it was not given notice of Delnegro's bankruptcy proceeding prior to the discharge. But neither the bankruptcy court's discharge, nor the procedures that the court did or did not employ, is on appeal. Even if it were, the bankruptcy court is not in this Circuit. If Binder believes that it was not afforded due process in the bankruptcy court, its recourse is to move to reopen the bankruptcy. See 11 U.S.C. § 350(b).

That being so, Binder's complaint makes clear that it has no due process claim against the SSA distinct from its complaint about the bankruptcy proceeding: Binder sought a declaration "that the attorneys fees awarded to [Binder] can not...