O'Donnell v. Saul

• Decision Date: 29 December 2020
• Docket Number: No. 20-1481,20-1481
• Citation: 983 F.3d 950
• Parties: Kathleen O'DONNELL, Plaintiff-Appellant, v. Andrew M. SAUL, Commissioner of Social Security, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

983 F.3d 950

Kathleen O'DONNELL, Plaintiff-Appellant,

v.Andrew M. SAUL, Commissioner of Social Security, Defendant-Appellee.

No. 20-1481

United States Court of Appeals, Seventh Circuit.

Argued December 4, 2020

Decided December 29, 2020

Rehearing and Rehearing En Banc Denied March 3, 2021

Kanne, Circuit Judge.

After Kathleen O'Donnell successfully challenged the denial of her application for disability benefits, her lawyer was awarded attorney fees under a series of statutes. But for reasons too complex for an introduction, the magistrate judge's order awarding fees puts the attorney in the unenviable position of having to seek part of what he is owed from his disabled client rather than the Social Security Administration. He doesn't want to do that, so he appealed.

The question we face is whether the magistrate judge abused her discretion in entering the order and denying the attorney's request that she alter it. The facts are complicated, but the answer is clear. The magistrate judge acted well within her discretion, so we affirm.

I. BACKGROUND

The facts of this case make little sense without some understanding of the relevant law. We thus summarize the key statutory provisions first, and then we'll proceed to the facts.

A. Relevant Statutes

This case implicates a handful of interrelated federal statutes that govern the award of fees to those who successfully represent Social Security claimants in administrative and court proceedings.

First, 42 U.S.C. § 406(a) authorizes the Social Security Administration ("SSA") to award a "reasonable fee" to attorneys and other persons who successfully represent claimants in administrative proceedings.

Second, 42 U.S.C. § 406(b)(1) provides that, if an attorney successfully represents a claimant in federal court:

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, and the Commissioner of Social Security may ... certify the amount of such fee for payment to such attorney out of, and not in addition to, the amount of such past-due benefits.

This "25% cap applies only to fees for representation before the court, not the agency" under § 406(a), Culbertson v. Berryhill , ––– U.S. ––––, 139 S. Ct. 517, 522, 202 L.Ed.2d 469 (2019), so an attorney may ultimately be awarded more than 25% of past-due benefits under §§ 406(a) and (b)(1) combined. The SSA Commissioner's longstanding policy, however, is to withhold only 25% of a claimant's past-due benefits for payment of all fees that may be awarded under § 406. See id. at 523 ("[T]he agency withholds a single pool of 25% of past-due benefits for direct payment of agency and court fees."). Thus, the collection of any § 406 fees above and beyond 25% of past-due benefits is generally a matter between attorney and client.

Third, 42 U.S.C. § 406(b)(2) makes it a misdemeanor for any attorney to "charge[ ], demand[ ], receive[ ], or collect[ ]" a fee for court representation in excess of that permitted under § 406(b)(1). (Note that this applies only to fees for court representation, not for agency representation under § 406(a).)

Finally, the Equal Access to Justice Act ("EAJA") provides that, in certain circumstances, "a court may award reasonable fees and expenses of attorneys" to parties who prevail "in any civil action brought by or against the United States or any agency" thereof. 28 U.S.C. § 2412(b). When the EAJA was enacted in 1980, though, it presented a conundrum for Social Security attorneys, who wondered if they were committing a misdemeanor under § 406(b)(2) by collecting EAJA fees in addition to court fees under § 406(b)(1). (Again, the collection of agency fees under § 406(a) posed no problem.) So Congress amended the EAJA in 1985 to clarify that an attorney does not violate § 406(b)(2) by accepting an EAJA fee in addition to a court fee under § 406(b)(1) —"but only if, where the claimant's attorney receives fees for the same work under both [ § 406(b)(1) ] and [the EAJA], the claimant's attorney refunds to the claimant the amount of the smaller fee." Pub. L. No. 99-80, § 3, 99 Stat. 183 (Aug. 5, 1985). We refer to this amendment as the "Savings Provision."

Also note that, whereas § 406 fees are paid directly to the claimant's attorney out of the claimant's past-due benefits, EAJA fees are paid out of agency funds to the claimant, who may assign them to her attorney. E.g. , Culbertson , 139 S. Ct. at 520 ; Astrue v. Ratliff , 560 U.S. 586, 594–95, 597, 130 S.Ct. 2521, 177 L.Ed.2d 91 (2010) ; McGraw v. Barnhart , 450 F.3d 493, 497 (10th Cir. 2006).

And now we turn to the facts of this case.

B. Factual and Procedural Background

In December 2017, Kathleen O'Donnell—represented by her attorney, John Horn ("Counsel")—filed a federal civil action challenging the SSA's denial of her application for Social Security disability insurance benefits. In February 2019, the magistrate judge remanded the case to the SSA for further administrative proceedings. On April 18, 2019, while those proceedings were pending, the magistrate judge awarded O'Donnell $7,493.06 in EAJA fees. The SSA paid the fee to Counsel, honoring his fee assignment with O'Donnell.

On remand, an administrative law judge found that O'Donnell was disabled, and the SSA then determined in October 2019 that she was eligible for benefits dating back to August 2016. Thereafter, the Commissioner withheld 25% of O'Donnell’s past-due benefits, or $14,515.37, for possible future payment of § 406 fees.

In January 2020, Counsel filed an unopposed motion for authorization to charge and collect $14,515.37 in attorney fees under § 406(b). But because Counsel had already received the $7,493.06 EAJA award in April 2019—and as we've seen, an attorney cannot keep fees awarded under both the EAJA and § 406(b) ; the smaller award belongs to the client—Counsel proposed that the magistrate judge simply let him keep the EAJA fee and "direct the Commissioner to pay [him the] balance" of the § 406(b) award, or "$7,022.31 after the EAJA offset." Counsel indicated in his motion that this method (which we'll call the "netting" method) would leave $7,493.06 in the Commissioner's hands for future payment of § 406(a) agency fees while also providing Counsel with the full $14,515.37 in court fees allowable under § 406(b).

On January 10, 2020, the court issued a minute entry stating that Counsel's "[u]nopposed motion for attorney's fees ... is granted." On January 28, however, the magistrate judge issued a new order sua sponte , which again granted Counsel's motion, but which added:

Plaintiff's attorney, John E. Horn, is awarded $14,515.37 in 42 U.S.C. § 406(b) fees, payable by the [SSA] from Plaintiff's past-due Social Security disability benefits. From this amount, counsel will refund to Plaintiff the amount of $7,493.06, equal to the EAJA attorney fees recovered by attorney Horn for representation of Plaintiff in Court.

This new order, in other words, rejected the netting method requested by Counsel. Instead, it awarded Counsel the full $14,515.37 under § 406(b) and required him to return to O'Donnell the EAJA award that he'd already received.

On February 19, 2020, Counsel filed a motion under Federal Rule of Civil Procedure 59(e) asking the court to amend the part of the order "requiring a literal refund of EAJA fees" rather than adopting Counsel's preferred netting approach, "which would leave funds in the hands of the Commissioner of Social Security for payment of 42 U.S.C. § 406(a) fees for representation in front of the [SSA]." The magistrate judge denied the motion the next day, explaining that "[n]ot only is the [netting] method suggested by counsel ‘disfavored’ ..., but there is simply no authority that would allow the Court to implement the scheme counsel wishes to effectuate." Thus, Counsel would have to look to O'Donnell, not the Commissioner, to satisfy any future § 406(a) agency fees.

On March 20, 2020, Counsel appealed (in O'Donnell’s name) the court's January 28 order and its denial of his Rule 59(e) motion. Evidently, he would like to avoid asking his disabled client to pay any agency fees awarded under § 406(a) and would prefer that those funds be held, and eventually paid, by the Commissioner. And as it happens, on April 14, 2020, an administrative law judge did award Counsel $4,925.21 under § 406(a) for his services in front of the SSA.¹ That means Counsel is authorized to retain a total of $19,440.58 under §§ 406(a) and (b) combined—but as things stand, he must seek $4,925.21 of that amount from O'Donnell.

II. ANALYSIS

We review the magistrate judge's order awarding fees under 42 U.S.C. § 406(b) and her order denying Counsel's Rule 59(e) motion for an abuse of discretion. Billups v. Methodist Hosp. of Chi. , 922 F.2d 1300, 1305 (7th Cir. 1991) ; McGuire v. Sullivan , 873 F.2d 974, 977 (7th Cir. 1989). As relevant here, "[a]n abuse of discretion occurs if the district court reaches erroneous conclusions of law ... ." Gastineau v. Wright , 592 F.3d 747, 748 (7th Cir. 2010). "The court ... addresses any attack on the Rule 59(e) ruling as part of its review of the underlying decision." Banister v. Davis , ––– U.S. ––––, 140 S. Ct. 1698, 1703, 207 L.Ed.2d 58 (2020) (citing 11 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2818 (3d ed. 2012) ; Foman v. Davis , 371 U.S. 178, 181, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) ).

A. Jurisdiction

The first issue we must address is whether we have jurisdiction over this appeal.² The Commissioner argues (with no small amount of equivocation) that we "may have subject-matter jurisdiction," but "the matter is not entirely clear" because "Counsel has not provided [sufficient] information." In particular, the Commissioner argues that Counsel—the real party in interest here—"may not have" suffered any injury in fact sufficient to confer subject-matter jurisdiction: Counsel has not...