Jeter v. Astrue

• Decision Date: 30 September 2010
• Docket Number: No. 09-30452.,09-30452.
• Citation: 622 F.3d 371
• Parties: Rita JETER, Plaintiff-Appellant, v. Michael J. ASTRUE, Commissioner of Social Security, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

622 F.3d 371

Rita JETER, Plaintiff-Appellant,

v.Michael J. ASTRUE, Commissioner of Social Security, Defendant-Appellee.

No. 09-30452.

United States Court of Appeals,Fifth Circuit.

Sept. 30, 2010.

John G. Ratcliff, Ratcliff & Greer, L.L.C., Shreveport, LA, for Jeter.

Jose Ricardo Hernandez, Sp. Asst. U.S. Atty., SSA, Office of Gen. Counsel, Region VI, Dallas, TX, John A. Broadwell, Asst. U.S. Atty., Shreveport, LA, for Astrue.

Appeal from the United States District Court for the Western District of Louisiana.

Before GARZA and BENAVIDES, Circuit Judges, and LYNN ^* , District Judge.

BENAVIDES, Circuit Judge:

We are presented with the question of whether district courts may employ the lodestar method to determine whether an attorney fee constitutes a “windfall” under Gisbrecht v. Barnhart, 535 U.S. 789, 122 S.Ct. 1817, 152 L.Ed.2d 996 (2002). Because we read Gisbrecht as merely forbidding exclusive reliance on the lodestar method to determine the reasonableness of a 42 U.S.C. § 406(b) attorney fee, we do not conclude that Gisbrecht precludes a court's consideration of the lodestar method altogether. And since the district court here did not rely exclusively on the lodestar method to evaluate the reasonableness of a contingency fee, we conclude the district court did not abuse its discretion in finding the contingency fee unreasonable under § 406(b). Accordingly, we AFFIRM the decision of the district court, and we write further only to clarify an area of the law that, following the Supreme Court's decision in Gisbrecht, has resulted in confusion and conflicting outcomes in the decisions of our lower courts.

Facts and Procedural Background

The named appellant in this appeal, Gary W. Jeter (“Jeter”), is a Social Security benefits claimant. He is represented by his attorney, John G. Ratcliff (“Ratcliff”), who is the real party in interest for purposes of this appeal's pertinent analysis. ¹ On appeal, Ratcliff challenges the district court's denial of the contingency fee he made with Jeter. ²

On August 12, 2002, Jeter filed an application for Title II disability insurance benefits and Title XVI supplemental security income, alleging an inability to work due to physical impairments resulting from a myocardial infarction. On April 22, 2005, an administrative law judge issued a decision finding Jeter not disabled under the Act. Jeter requested review before the Appeals Council, and on November 29, 2005, the Council denied his request. As a result, Jeter had exhausted his administrative remedies and could then file an appeal of the Administration's denial of his claim to the United States District Court, for the Western District of Louisiana.

Jeter sought out the services of Ratcliff. Ratcliff agreed to represent Jeter in his appeal of the Administration's denial of his claim for benefits, and on January 12, 2006, the two entered into an agreement (what is commonly known as a “contingency fee”) stipulating that Ratcliff would provide Jeter with representation to appeal the denial of his claim in federal court, in exchange for twenty-five percent of Jeter's unpaid past benefits in the event that Ratcliff's representation proved to be successful. On that very same day, Ratcliff filed Jeter's appeal in the district court.

The case proceeded and six months later, on July 31, 2006, Ratcliff filed a brief arguing that the Administration's failure to find Jeter disabled violated the Act. On October 4, 2006, the Administration filed a motion requesting remand. The matter was referred to a magistrate judge, and the magistrate judge recommended remand. Soon thereafter, the district court adopted the magistrate judge's report and recommendation in its entirety, and entered judgment remanding the case. After further proceedings before the Administration, including a hearing and a supplemental hearing, a second administrative law judge determined that Jeter had been disabled since March 20, 2002. In a notice of award dated May 4, 2008, the Administration stated that Jeter's “past due benefits are $89,289.00 for September 2002 through March 2008.” ³ As highlighted above, Jeter and Ratcliff's contingency fee agreement set Ratcliff's fee at twenty-five percent. Twenty-five percent of $89,289.00 is $22,322.25.

Ratcliff then collected $5,300.00, the maximum fee permitted for his work at the administrative level, leaving a balance of $17,022.25 available for attorney's fees under § 406(b). Ratcliff returned to the federal district court and, pursuant to § 406(b), requested the $17,022.25 in fees for the work he performed in the district court. At the same time, Ratcliff noted that he intended to refund Jeter the $2,827.50 in fees he had previously received under the Equal Access to Justice Act (EAJA), recognizing that “[f]ee awards may be made under both [EAJA and § 406(b)], but the claimant's attorney must refund to the claimant the amount of the smaller fee.” Gisbrecht, 535 U.S. at 796, 122 S.Ct. 1817. ⁴ As a result, Ratcliff's request that the contingency fee be formally recognized resulted in a request for $14,734.74 in attorney's fees. On July 1, 2008, the Administration filed its opposition to Ratcliff's § 406(b) motion, arguing that Ratcliff's requested fee was not reasonable because it would result in a “windfall.”

The case was once again referred to a magistrate judge, and the magistrate judge issued a report and recommendation on December 29, 2008. The magistrate judge recommended granting Ratcliff's request for payment pursuant to his and Jeter's contingency fee but reducing the total amount Ratcliff would be awarded to $3,993.75. ⁵ In her report and recommendation, the magistrate judge began by noting that “courts have struggled significantly in applying Gisbrecht.” Specifically, she noted that the “question for this court to answer is whether the Administration is correct that the fee represents a windfall.”

Thus, in undertaking a § 406(b) “reasonableness” analysis, the court considered several factors including: (1) Ratcliff's degree of expertise in Social Security cases; (2) the adequacy of Ratcliff's representation of Jeter; (3) the amount Jeter ultimately recovered; (4) the fact that Ratcliff sought twenty-five percent of Jeter's recovered amount; and (5) Ratcliff's risk of loss. The court also considered the hourly rate Ratcliff would receive as a result of the contingency fee-by dividing the fee by the number of hours Ratcliff worked-and found that if the court deemed the whole fee to be reasonable, Ratcliff would be paid at a rate of $846.88 per hour for his services. In considering all of the aforementioned factors combined, the magistrate judge recommended that the district court find that Ratcliff's requested fee would result in an unreasonable windfall under Gisbrecht.

Since she found the contingency fee unreasonable, the magistrate judge recommended that instead of the requested $14,734.74, the district court award $3,993.75, reasoning that “[t]his will result in ... an amount the court considers reasonable and appropriate under the circumstances before it.” On April 3, 2009, the district court fully adopted the magistrate judge's report and recommendation, finding the requested contingency fee unreasonable and awarding only $3,993.75.

This appeal timely followed. On appeal, Ratcliff asserts that the district court erred when it found his § 406(b) contingency fee would constitute a windfall under Gisbrecht. In particular, Ratcliff argues that the district court's reliance on the lodestar method in making its fee determination violates the Supreme Court's decision in Gisbrecht. As we will explain in greater detail to follow, we find that the district court did not rely exclusively on a lodestar calculation to find Ratcliff's requested fee unreasonable, and consequently, we cannot conclude that the district court's fee award violates Gisbrecht. We write further, however, in order to provide our lower courts better guidance in navigating the circuitous contours of Gisbrecht's “windfall” jurisprudence.

Standard of Review

A district court's assessment of whether a contingency fee is reasonable under 42 U.S.C. § 406(b) “qualif[ies] for [this Court's] highly respectful review.” Gisbrecht, 535 U.S. at 808, 122 S.Ct. 1817. That is, “[a]n award of attorney's fees out of past-due benefits is discretionary, and we will not reverse a district court's denial of attorney's fees under § 406(b) absent an abuse of discretion.” Pierce v. Barnhart, 440 F.3d 657, 663 (5th Cir.2006).

“A district court abuses its discretion when it bases its decision on an erroneous legal conclusion or on a clearly erroneous finding of fact.” James v. Cain, 56 F.3d 662, 665 (5th Cir.1995); see also Squires-Allman v. Callahan, 117 F.3d 918, 920 (5th Cir.1997) (“Underlying findings of fact are reviewed for clear error. Underlying conclusions of law, however, are reviewed de novo.”) (internal citations omitted). Accordingly, “ ‘it is not inconsistent with the discretion standard for an appellate court to decline to honor a purported exercise of discretion which was infected by an error of law.’ ” Rice v. Astrue, 609 F.3d 831, 836 n. 22 (5th Cir.2010) (quoting Abrams v. Interco, Inc., 719 F.2d 23, 28 (2d Cir.1983)) (internal citations omitted).

Analysis

As the magistrate judge aptly noted in her report and recommendation, our “courts have struggled significantly in applying Gisbrecht.” This is because the Gisbrecht Court began by explicitly rejecting the application of the “lodestar method to calculate fees under § 406(b),” ⁶ Gisbrecht, 535 U.S. at 798, 122 S.Ct. 1817, and then concluded by stating that “[i]f the benefits [resulting from the contingency fee] are large in comparison to the amount of time counsel spent on the case, a downward adjustment is similarly in order [to] ... disallow windfalls for lawyers.” Id. at 808, 122 S.Ct. 1817 (internal citations and quotation marks omitted) (emphasis added). We are not surprised...