Fenix v. Finch

• Decision Date: 19 January 1971
• Docket Number: No. 19679.,19679.
• Parties: Frank G. FENIX and Jessie P. Fenix, Appellees, v. Robert H. FINCH, Secretary of Health, Education and Welfare, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

436 F.2d 831 (1971)

Frank G. FENIX and Jessie P. Fenix, Appellees, v. Robert H. FINCH, Secretary of Health, Education and Welfare, Appellant.

No. 19679.

United States Court of Appeals, Eighth Circuit.

January 19, 1971.

Norman Knopf, Atty., U. S. Department of Justice, Washington, D. C., William D. Ruckelshaus, Asst. Atty. Gen., Calvin K. Hamilton, U. S. Atty., Kathryn H. Baldwin, Atty., Department of Justice, Washington, D. C., for appellant.

Malcolm Robertson, Joplin, Mo., Karl W. Blanchard, Blanchard, Van Fleet & Robertson, Joplin, Mo., of counsel, for appellees.

Before BLACKMUN,^* MEHAFFY and LAY, Circuit Judges.

MEHAFFY, Circuit Judge.

The Secretary of Health, Education and Welfare appeals from an award of attorneys' fees ordered by the district court in a social security case. The Secretary charges that the amount of the award is controlled by and is violative of 42 U.S.C. § 406(b), which limits the maximum attorneys' fees which may be awarded by the district court to twenty-five per cent of the past-due social security benefits recovered as a result of court proceedings. We hold that under the circumstances of this case the Act is not controlling, since it is not retroactive, and affirm the judgment of the district court, as modified.

Attorneys were first employed in this case on March 12, 1962 on a fifty per cent contingent fee basis and have represented claimants continuously since that time, securing two reversals by the district court of rulings by the Secretary, Fenix v. Celebrezze, 243 F.Supp. 816 (W.D.Mo.1965); Fenix v. Celebrezze, 289 F.Supp. 758 (W.D.Mo.1968). After the second remand to the Secretary, he computed the amount of past-due benefits recovered as a result of court proceedings to be $17,181.50 and approved an award by the district court of twenty-five per cent of that amount, or $4,295.38, as attorneys' fees. He objected, however, to the court's order "that said allowance be without prejudice to said attorneys collecting an additional reasonable fee for services rendered in securing reversal of the refund order made by the Social Security Administration in the amount of $5,021.30 for alleged overpayment of benefits, but not to exceed 25% of $5,021.30."

On appeal, the Secretary objects for the first time to the $4,295.38 award, asserting that it was discovered after the appeal was docketed in this court that the Secretary erroneously computed the amount of past-due benefits recovered in the court proceedings on which the fee was based, mistakenly including $5,021.30 which was awarded administratively, and that the correct amount on which to figure the attorneys' fees in the district court is $12,160.20 ($17,181.50 less $5,021.30). He contends that 42 U.S.C. § 406(b) is applicable and makes it unlawful for the district court to award a fee in excess of twenty-five percent of $12,160.20, or $3,040.05. He further asserts that the $5,021.30 on which the court gave its permission to secure an additional twenty-five per cent fee represents part of the past-due benefits recovered administratively and that the court therefore had no authority to authorize the collection of a fee on these funds.

Frank Fenix first made application for social security benefits in September, 1956 at the age of sixty-nine. He reported the period from January 1, 1955 to September 30, 1956 during which he was employed by the St. Regis Mining Company, a partnership owned by his son Gilbert and another man, as part of the six quarters of employment required to qualify for benefits and was awarded $104.50 per month. In January, 1957 his wife, Jessie, applied for benefits based upon her husband's employment record and was awarded $52.30 per month. Mr. and Mrs. Fenix continued to receive monthly payments until May, 1959 at which time the Secretary discovered that Fenix's son, Gilbert, had acquired, on February 7, 1955, all of the assets of the St. Regis Mining Company for which his father had worked and reported employment from January 1, 1955 to September 30, 1956. The Secretary then notified Mr. and Mrs. Fenix that this made the elder Fenix's employment "family employment" which was exempt from coverage under the Social Security Act at that time and that without this period of employment Fenix did not have the required six quarters of coverage. He thereupon denied future benefits and directed Mr. and Mrs. Fenix to repay the government the total of $5,021.30 in benefits which they had received. They refused and employed counsel, as hereinbefore mentioned, ultimately prevailing in the district court.

The first reversal by the district court was on June 22, 1965, a little over a month prior to the effective date of 42 U.S.C. § 406(b) which prohibits an award by the court of an attorneys' fee of more than twenty-five per cent of the past-due social security benefits recovered as a result of a court proceeding.¹ When the case was remanded to the Secretary, however, he failed to apply the legal standard of actual or constructive notice designated by the district court in its opinion as the standard to be used in determining whether Fenix had adequate notice of the dissolution of the partnership, again holding that Fenix and his wife were not entitled to benefits under the 1956-1957 applications for the reason that they had "implied" notice. Claimants again appealed and on August 8, 1968 the district court, in reversing the Secretary for the second time, 289 F.Supp. 758, held that the ruling of the Secretary that Fenix had "implied" notice of the dissolution of the partnership was an inappropriate legal standard and that since it was found that he had no actual nor constructive notice Mr. and Mrs. Fenix were entitled to the $5,021.30 in benefits already received and to the additional amount thereafter accrued under said applications to be computed by the Secretary.

In the meantime, claimants had filed new applications for benefits in 1962, substituting another employment period for the one rejected by the Secretary. These applications were not finally acted upon by the Secretary until July, 1968, approximately a month prior to the rendition of the second opinion by the district court on the 1956-1957 applications. The Secretary ruled administratively that claimants were entitled to benefits under the 1962 applications and that the total past-due benefits accrued thereunder amounted to $11,835.20. Since at that time the district court case on the 1956-1957 applications was still pending in which the Secretary was contending that the claimants owed the government $5,021.30 allegedly erroneously paid to them under the 1956-1957 applications, the Secretary did not pay claimants the full administrative award of $11,835.20 under the 1962 applications but kept the amount allegedly due the government of $5,021.30 as a set-off, thereby absolving them for that alleged debt, and paid claimants the difference of $6,813.90.

When the district court held the following month that claimants were entitled to benefits under the 1956-1957 applications, the court remanded the case to the Secretary to compute the amount due claimants. In making the computation, the Secretary included the amount awarded administratively of $11,835.20 under the 1962 applications in the total amount to which claimants were entitled under all applications and arrived at a figure of $23,995.40. The Secretary then deducted from this amount the administrative lump-sum payment to claimants the preceding month of $6,813.90, certifying to the court that the total benefits recovered by the claimants in the district court amounted to $17,181.50. This did not take into account the $5,021.30 which had been paid to them in monthly payments prior to May, 1959 when the payments were stopped. Assuming without deciding that 42 U.S.C. § 406(b) was applicable, the court thereafter awarded attorneys' fees of twenty-five per cent of $17,181.50, or $4,295.38, with the express approval of the Secretary. Over the objections of the Secretary, however, the court added that this allowance was "without prejudice to said attorneys collecting an additional reasonable fee for services rendered in securing reversal of the refund order made by the Social Security Administration in the amount of $5,021.30 for alleged overpayment of benefits, but not to exceed 25% of $5,021.30." The Secretary contends that the award of attorneys' fees should be vacated and the matter remanded for a new computation.

Claimants contend that the statute is not applicable since it is not retroactive and therefore the award is not unlawful; that regardless of whether the Secretary's present computations are correct, his contention that his previous computations are incorrect is not timely; and that since the Secretary conceded or stipulated that the district court should base its award of attorneys' fees on a recovery of $17,181.50, it cannot dispute this on appeal.

We affirm the district court's award of $4,295.38 in attorneys' fees and modify the court's order to hold that this allowance is without prejudice to the right of said attorneys to pursue the matter of their application to the Secretary for collection of a fee on the amount awarded administratively.

The crucial date in determining whether 42 U.S.C. § 406(b) is retroactive to this case is the date of the first favorable remand to the Secretary, which was on June 22, 1965. Fenix v. Celebrezze, supra, 243 F.Supp. 816, 824. This was prior to the effective date of the Act on July 30, 1965 and therefore the Act is not retroactive to this case and the court may award a fee in excess of twenty-five percent so long as it is reasonable.

In Ray v. Gardner, 387 F.2d 162, 165 (4th Cir. 1967), Judge Haynsworth, speaking for the court, said:

"When the first judicial litigation terminated in a remand of the proceedings to the Secretary for further administrative consideration, a favorable court judgment was entered within the meaning of 42 U.S.C.A. § 406(b)

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