Guadamuz v. Heckler

• Decision Date: 23 October 1986
• Docket Number: No. C-84-6396 MHP.,C-84-6396 MHP.
• Citation: 662 F. Supp. 1060
• Court: U.S. District Court — Northern District of California
• Parties: Gwendolyn GUADAMUZ, et al., Plaintiffs, v. Margaret HECKLER, Secretary of Human Services, et al., Defendant.

662 F. Supp. 1060

Gwendolyn GUADAMUZ, et al., Plaintiffs, v. Margaret HECKLER, Secretary of Human Services, et al., Defendant.

No. C-84-6396 MHP.

United States District Court, N.D. California.

October 23, 1986.

Allan C. Miller, Glenn Clark, Withy, Miller, Gerstler & Clark, Berkeley, Cal., for plaintiffs.

Deborah Seymour Shefler, Asst. U.S. Atty., Civ. Div., San Francisco, Cal., Larry Banks, Asst. U.S. Atty., Office of General Counsel, Social Security Div., Dept. of Health & Human Services, Baltimore, Md., for defendant.

OPINION

PATEL, District Judge.

Plaintiffs originally brought this class action challenging the Secretary of Health and Human Services ("Secretary") policy of delaying the payment of retroactive benefits under Title II of the Social Security Act, 42 U.S.C. §§ 401-433 (1983) ("Title II") until after retroactive benefits under Title XVI of the Social Security Act, 42 U.S.C. §§ 1381-1383 (1982) ("Title XVI") were calculated and paid in "concurrent claims cases" — cases in which the claimant applies for both types of benefits at roughly the same time and the Secretary ultimately awards both types of benefits retroactively. Plaintiffs alleged that the Secretary's policy artificially reduced the amount of past-due Title II disability benefits from which attorneys' fees could be withheld, providing a disincentive for attorneys to represent claimants in Social Security cases, and resulting in an underpayment of Title XVI Supplemental Security Income ("SSI") benefits to claimants represented by attorneys.

After plaintiffs moved for class certification and a preliminary injunction, but before the court ruled on the motions, the parties entered into a stipulated order under which the Secretary was to submit to the court a set of instructions and procedures to remedy the problems identified by plaintiffs. The Secretary filed her new procedures with the court on July 10, 1985, in the form of an amendment to the Program Operation Manual System ("POMS").

Plaintiffs now move for partial summary judgment and an injunction. Plaintiffs contend that although the new procedures alleviate some of the problems originally complained of, a number of problems remain. For the reasons discussed below, plaintiffs' motion for partial summary judgment and an injunction is granted in part and denied in part.

STATUTORY BACKGROUND

There are two types of federal benefits available to disabled individuals: disability benefits under Title II and SSI benefits under Title XVI. Eligibility for Title II benefits is based on a claimant's insured status and is independent of financial need. Eligibility for Title XVI benefits, on the other hand, is wholly dependent upon financial need; the more "chargeable" income and resources an individual has, the less Title XVI benefits, if any, she will receive. Title II benefits, though not themselves based on need, are considered "chargeable" income for purposes of determining Title XVI eligibility. 42 U.S.C. § 1382a(a)(2)(B). Thus, an award of Title II benefits will generally have the effect of reducing a claimant's Title XVI eligibility, although the reduction will not necessarily be dollar-for-dollar. The amount of Title II benefits a claimant is entitled to is not affected by an award under Title XVI, however.

The problem arises when a claimant has already been receiving Title XVI benefits and then later receives a retroactive award of Title II benefits for the same period. Had the Title II benefits been paid when due, they would have reduced the amount of Title XVI benefits the claimant would have received. However, where the Title II benefits are paid retroactively, the Title XVI benefits which have already been paid out were never reduced by the amount of Title II benefits. As a result the claimant receives a windfall.

In order to remedy this problem Congress enacted a "windfall offset" provision in 1980. 42 U.S.C. § 1320a-6. Under § 1320a-6, when a claimant is awarded retroactive Title II benefits for a period in which she has already received Title XVI benefits, the Title II benefits are reduced by the amount of Title XVI benefits which the claimant would not have received had the Title II benefits been awarded when due rather than retroactively. The original version of § 1320a-6 did not provide for a similar offset in those cases in which Title II benefits were paid first. Therefore, in order to ensure that the windfall offset would be applied in all concurrent claims cases, the Secretary developed a policy of delaying Title II benefits until after Title XVI benefits had been calculated and paid. This policy, originally termed "Title XVI offset," was effective in all claims adjudicated after June 30, 1981. POMS GN 02610.005 et seq.

In 1984, Congress amended § 1320a-6 to allow for offset regardless of which class of benefits was paid first.¹ This amendment became effective on February 1, 1985 and removed the need to calculate and pay Title XVI benefits first in all cases. Following the amendment of § 1320a-6, the Secretary developed a new set of instructions and procedures for handling concurrent claims cases. When Title II benefits are paid first the Secretary applies the "Title XVI offset" procedures; when Title XVI benefits are paid first the "Title II offset" procedures are applied. The order in which the benefits are paid is determined by which current monthly benefit check is processed and ready for mailing first.

DISCUSSION

1. Attorneys' Fees Under § 406

Attorneys' fees can be recovered for services performed in connection with Title II claims. 42 U.S.C. § 406. Section 406(a) deals with fees awarded at the administrative level. Under § 406(a), "whenever the Secretary, in any claim before him for benefits under Title II, makes a determination favorable to the claimant, he shall fix ... a reasonable fee to compensate such attorney for the services performed by him in connection with such claim." 42 U.S.C. § 406(a). In addition to providing for the authorization of attorneys' fees, § 406(a) requires the Secretary to withold up to 25% "of the total amount of past-due Title II benefits" and to pay the withheld amount directly to the attorney. However, § 406(a) does not limit the amount of fee which the Secretary may authorize. See 20 C.F.R. § 404.1725(b) (1986). However, direct payment is made from past-due benefits of the smallest of 25% of the total past-due benefits, the amount set by the Secretary or the amount agreed upon between the attorney and the claimant. See 20 C.F.R. § 404.1730(b) (1986).

Section 406(b) deals with attorneys' fees awarded by a court and provides that, where a court renders a judgment favorable to a claimant who was represented by an attorney, the court may authorize a reasonable fee not to exceed 25% "of the total of the past-due benefits to which the claimant is entitled by reason of such judgment." 42 U.S.C. § 406(b)(1). Section 406(b) further provides that the Secretary may withhold "the amount of such fee for payment directly to such attorney out of, and not in addition to, the amount of such past-due benefits." Id. Thus, unlike § 406(a), subsection (b) limits both the total fee the court may authorize and the amount the Secretary can withhold to 25% of the total "past-due benefits."

The Secretary has defined "past-due benefits" by regulation as "the total amount of benefits payable under title II of the Act to all beneficiaries that has accumulated because of a favorable administrative or judicial determination or decision, up to but not including the month the determination or decision is made." 20 C.F.R. § 404.1703 (emphasis added). The Secretary has elaborated on this definition in the preamble to 20 C.F.R. § 404.408b, the final regulations implementing 42 U.S.C. § 1320a-6:

As for attorneys' fees, the amount of retroactive benefits that is subject to withholding for payment of an attorney's fee is the total amount of retroactive Social Security benefits payable to the beneficiary (see § 404.1703). The amount payable is the amount of retroactive benefits less the amount of any deductions, reductions, or overpayments applicable to the retroactive period. Thus, the amount of retroactive benefits payable for purposes of withholding an attorney's fee is the amount of retroactive Social Security benefits reduced by the amount of any SSI payments received in the retroactive period.

47 Fed.Reg. 4986 (Feb. 1982).

In other words, the Secretary has interpreted "past-due benefits" under § 406 to mean net, post-offset Title II benefits. In cases in which Title XVI benefits are paid first, the Secretary's interpretation has the effect of artificially reducing the amount of Title II benefits available from which to withhold attorneys' fees under 406(a) and (b) and from which to authorize attorneys' fees under § 406(b).² Indeed, in those instances in which Title II benefits are totally offset by the Title XVI benefits previously paid, no attorneys' fee will be withheld and, under § 406(b), no fee can be authorized. Plaintiffs contend that the Secretary's interpretation of "past-due benefits," as applied in offset cases, contravenes the Congressional purpose behind § 406 to encourage legal representation of Social Security claimants. Plaintiffs argue that "past-due benefits" should be construed to mean gross, pre-offset benefits.

The Secretary's interpretation and implementation of § 406 is entitled to great deference. See, e.g., Herweg v. Ray, 455 U.S. 265, 275, 102 S.Ct. 1059, 1066, 71 L.Ed.2d 137 (1982); Schweiker v. Gray Panthers, 453 U.S. 34, 44, 101 S.Ct. 2633, 2640, 69 L.Ed.2d 460 (1981); Cubanski v. Heckler, 781 F.2d 1421, 1427 (9th Cir.1986). "However, an agency's interpretation is not always infallible, and the courts must remain the final authorities on critical questions of statutory construction." Fagner v. Heckler, 779 F.2d 541, 543 (9th Cir.1985). A court need not defer to the Secretary's interpretation where there are...