Guadamuz v. Bowen, 86-2857

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBefore FARRIS, WIGGINS and TROTT; WIGGINS
Citation859 F.2d 762
Parties, Unempl.Ins.Rep. CCH 14220A Gwendolyn GUADAMUZ; Mary Baham; Raymond Holm; Plaintiffs-Appellees, v. Otis R. BOWEN, * Secretary of Human Services; Nicholas Brady, ** in his official capacity as Managing Trustee of the Federal Disability and Insurance Trust Fund, Defendants- Appellants.
Docket NumberNo. 86-2857,86-2857
Decision Date18 October 1988

Page 762

859 F.2d 762
23 Soc.Sec.Rep.Ser. 360, Unempl.Ins.Rep. CCH 14220A
Gwendolyn GUADAMUZ; Mary Baham; Raymond Holm; Plaintiffs-Appellees,
Otis R. BOWEN, * Secretary of Human Services;
Nicholas Brady, ** in his official
capacity as Managing Trustee of the
Federal Disability and
Insurance Trust
No. 86-2857.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted July 11, 1988.
Decided Oct. 18, 1988.

Page 763

Stanley Ericsson, Office of the Gen. Counsel, Baltimore, Md., and Michael R. Power, Asst. Regional Counsel, San Francisco, Cal., for defendants-appellants.

David W. Calvert and Glenn M. Clark, Withy, Miller, Clark, Levin & Calvert, Berkeley, Cal., for plaintiffs-appellees.

Appeal from the United States District Court for the Northern District of California.

Before FARRIS, WIGGINS and TROTT, Circuit Judges.

WIGGINS, Circuit Judge:

The Secretary of Health and Human Services appeals from an injunction issued by the district court. The plaintiffs brought a class action challenging the Secretary's procedure for computing attorneys' fees in Social Security cases. The plaintiffs moved for partial summary judgment and an injunction. The district court granted the motions for partial summary judgment and an injunction in part and denied them in part. The court held that the Secretary's application of 42 U.S.C. Sec. 406 "artificially reduced" attorneys' fees awarded to attorneys representing claimants before the Agency and in court. The court found that the Secretary's construction of the statute was "manifestly contrary to [the] statute" and not entitled to deference. The court ordered the Secretary to calculate and withhold attorneys' fees by a different formula and directed that the Secretary implement the order within fifteen days. We reverse.

Page 764


Title II (SSDI) of the Social Security Act, 42 U.S.C. Secs. 401-33, provides disability benefits to claimants who demonstrate physical or mental disability within the meaning of the Act. To receive Title II benefits, the claimant must be totally disabled and currently insured. To be "currently insured", the claimant must have worked and contributed to the Social Security trust fund. Eligibility for Title II benefits is independent of the claimant's financial need. Financial need is presumed. Title XVI (SSI), 42 U.S.C. Secs. 1381-83, of the Social Security Act provides supplemental income payments for the aged, blind and disabled. Eligibility for Title XVI benefits, however, is based on economic need. The more "chargeable" income a claimant has, the less Title XVI benefits he will receive. 42 U.S.C. Sec. 1382(a)(2)(B). Title II benefits are considered "chargeable" income for Title XVI purposes. That is, the amount a claimant is eligible to receive under Title XVI is reduced by the amount he has received under Title II. 42 U.S.C. Sec. 1382a(a)(2)(B).

When a claimant files a claim for benefits under Title II, the administrative decisionmaking process is often protracted. In such a case, the claimant, once eligibility has been determined, is entitled to a retroactive award of benefits. Many claimants apply for Title II and Title XVI benefits concurrently. Prior to 1980, if the claimant received Title XVI benefits first and later received a retroactive award of Title II benefits for the same period, he would have received a "windfall." The "windfall" was created because if Title II benefits had been received in the months that they were due, because they are "chargeable" income for Title XVI purposes, they would have reduced the amount of Title XVI benefits payable to the claimant. However, because the Title II benefits were not received in the months in which Title XVI benefits were paid, the Title XVI benefits would never have been reduced by the amount of the Title II benefits.

In order to remedy the "windfall" problem, Congress enacted in 1980 a "windfall offset" provision. 42 U.S.C. Sec. 1320a-6. 1 The statute mandates that when a claimant is awarded benefits under either section and later receives a retroactive award of benefits under the other, the retroactive award will be reduced by the amount received under the other title. This offset creates the attorneys' fees problem at issue in this case.

Title II provides for payment of attorneys' fees. Under 42 U.S.C. Sec. 406, attorneys' fees may be awarded by the Secretary 2 or by the district court 3 to an attorney

Page 765

representing a successful claimant. The fees are withheld from the benefits awarded to the claimant. Title XVI contains no analogous provision for attorneys' fees. The interplay between section 406 and the "windfall offset" provision provides the basis for the plaintiff attorneys' suit.

A particular attorney's fee is calculated both by the court and by the Secretary as a percentage of the past-due benefits. If the retroactive Title II benefits awarded to the claimant are reduced by the prior award of Title XVI benefits, the attorney's fee will be much smaller. This is so because, by regulation, the Secretary defines "past-due" benefits as the "total amount of benefits payable under Title II of the Act...." 20 C.F.R. Sec. 404.1703 (1988) (emphasis added). The amount "payable" is that "amount of retroactive [Title II benefits] reduced by the amount of any [Title XVI] benefits received in the retroactive period." 20 C.F.R. Sec. 404.408(b) (1982) (Preamble: final regulations implementing 42 U.S.C. Sec. 1320a-6) (47 Fed.Reg. 4986 (Feb. 1982)). Thus, the Secretary defines "past-due benefits" to mean net, post-offset Title II benefits. The district court provided the following example of the reduction in attorneys' fees accomplished by the Secretary's interpretation of the windfall offset provision:

[A]ssume a claimant is entitled to $10,000 in Title II benefits and $9,000 in Title XVI benefits, each entitlement calculated independently of the other. If Title II benefits are paid first, the court can authorize up to $2,500 (25% of $10,000) in attorneys' fees under Sec. 406(b) and the Secretary can withhold and pay directly to the attorney up to $2500 under either Sec. 406(a) or (b). However, assume the $9,000 in Title XVI benefits are paid first. Under Sec. 1320a-6, the $10,000 Title II entitlement must be offset by the $9,000 Title XVI award, leaving only $1,000 in Title II benefits. The result is that the court could authorize only $250 in attorneys' fees under Sec. 406(b) and the Secretary could withhold and pay directly to the attorney only $250 under either subsection (a) or (b).

Guadamuz v. Heckler, 662 F.Supp. 1060, 1063 n. 2 (N.D.Cal.1986). 4

At the present time, it is a matter of chance whether Title II or Title XVI benefits are figured first. 5 The plaintiffs brought suit challenging the Secretary's interpretation of "past-due benefits." The plaintiffs argued that "past-due benefits" should be construed to mean gross, pre-offset benefits. In other words, the attorney plaintiffs wanted their percentage paid out of the full Title II benefits before they

Page 766

were reduced by the amount of Title XVI benefits paid to their client claimants. The complaint alleged jurisdiction under 28 U.S.C. Secs. 1331 (federal question jurisdiction), 1343(a)(3) (civil rights), 1361 (mandamus), and 5 U.S.C. Sec. 555(b) (Administrative Procedure Act--Attorney representation before administrative agencies). The Secretary, in her answer, asserted lack of subject matter jurisdiction.

Without ever certifying a class, the district court granted the appellees' motion for an injunction and partial summary judgment. 6 The court held that "for purposes of applying Sec. 406 in concurrent claims cases, 'past-due benefits' means the actual Title II benefits payable before offset for Title XVI benefits." Guadamuz, 662 F.Supp. at 1067. The court found that the Secretary's interpretation of 42 U.S.C. Secs. 406 and 1320a-6 was " 'manifestly contrary to the statute[s]' " and hence was not entitled to deference. Id. The court determined that the purpose of section 406 was to encourage effective legal representation of claimants by insuring that their lawyers will receive reasonable attorney's fees. "By artificially reducing the amount of Title II benefits from which attorneys' fees may be withheld ... the Secretary's approach provides a significant disincentive to attorneys who might otherwise be willing to represent Social Security claimants...." Id. at 1064. The court ordered the Secretary to "calculate and withhold attorneys' fees based on pre-offset Title II benefits. In furtherance of this order the Secretary shall issue instructions to all necessary offices to implement this order within fifteen days of this order." Id. at 1067. The Secretary timely appealed. We have jurisdiction under 28 U.S.C. Sec. 1291.


Questions of law are reviewed de novo. 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). The district court's grant of permanent injunctive relief is reviewed for an application of erroneous legal principles. SEC v. Goldfield Deep Mines Co. of Nevada, 758 F.2d 459, 465 (9th Cir.1985).


I. Jurisdiction.

Both below, and on appeal, the Secretary challenged the subject matter jurisdiction of the district court. Nowhere in its order did the district court address this issue. The plaintiffs alleged jurisdiction under 28 U.S.C. Secs. 1331, 1343(a)(3), 1361, and 5 U.S.C. Sec. 555(b). The complaint also sought declaratory relief under 28 U.S.C. Secs. 2201 and 2202. The existence of subject matter jurisdiction presents a question of law reviewed de novo by the court of appeals. Peter Starr Prod. Co. v. Twin Continental Films, Inc., 783 F.2d 1440, 1442 (9th Cir.1986). Even if the district court has failed to address the issue, this court on appeal may reach and decide the issue of subject matter jurisdiction. Csibi v. Fustos, 670 F.2d 134,...

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