Pappas v. Bowen, 230

Citation863 F.2d 227
Decision Date08 December 1988
Docket NumberD,No. 230,230
Parties, Unempl.Ins.Rep. CCH 14415A John PAPPAS, Richard Stehr, Individually and on behalf of all others similarly situated, Plaintiffs-Appellees, v. Otis R. BOWEN, M.D., Secretary of Health and Human Services, Defendant- Appellant. ocket 88-6139.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Bruce H. Nims, Sp. Asst. U.S. Atty. (Andrew J. Maloney, U.S. Atty., E.D. of New York, of counsel), for appellant.

Victor Fusco, Hempstead, N.Y. (Scheine, Fusco, Brandenstein & Rada, P.C., of counsel), for appellee-Pappas.

Ira S. Schneider, Hempstead, N.Y., for appellee-Stehr.

Before OAKES, MINER and ALTIMARI, Circuit Judges.

MINER, Circuit Judge:

The Secretary of the United States Department of Health and Human Services (the "Secretary") appeals from an order of the United States District Court for the Eastern District of New York (Korman, J.) remanding plaintiffs' action to the Secretary with specific instructions for calculation of attorney's fees pursuant to 42 U.S.C. Sec. 406 (1982). The Secretary had determined that plaintiffs Pappas and Stehr were entitled to retroactive benefits under Title II of the Social Security Act (the "Act"), 42 U.S.C. Secs. 401-433 (1982), and Title XVI of the Act, 42 U.S.C. Secs. 1381-1383 (1982). The Secretary then calculated attorney's fees, pursuant to section 406, as a percentage of Title II benefits that remained after offset for Title XVI benefits. In the district court, Pappas and Stehr challenged the Secretary's method for calculating On appeal, the Secretary argues that the district court erred in the method it ordered to be used for these calculations. We uphold the method established by the Secretary for computing attorney's fees in cases where benefits under both Titles II and XVI of the Social Security Act are awarded retroactively. We therefore reverse and remand for the entry of judgment in accordance with the Secretary's calculation of attorney's fees.

attorney's fees. The district court, agreeing with the plaintiffs that attorney's fees were computed improperly, held that these fees should be calculated prior to any offset of Title II benefits by Title XVI benefits.

BACKGROUND
A. Statutes and Regulations

The disabled and needy are assisted by separate federal programs established under Titles II and XVI of the Act. Each of these programs provides monthly cash payments to those deemed eligible by the Secretary. Title II provides for disability insurance funded by worker and employer contributions. Title XVI authorizes the payment of Supplemental Security Income ("SSI"), is independent of a claimant's insured status and provides, from federal moneys, a minimum monthly income for those in need. Whereas Title II establishes an insurance program available to all contributors, SSI is a need-based program available to claimants whose income and resources fall below a minimum subsistence level.

Many claimants file concurrently for benefits under both Titles II and XVI. When determining SSI eligibility, Title II payments are considered income and can reduce, if not completely eliminate, Title XVI awards. Title XVI payments, however, do not affect Title II eligibility. From time to time, claimants engage attorneys to assist them in pursuing their claims for these benefits. Attorney's fees for services rendered in Title II claims can be awarded either administratively or by a court, depending on whether the services are rendered in an administrative proceeding or court action.

Section 406(a) of the Act governs administrative determinations of attorney's fees. The Secretary must fix "a reasonable fee to compensate [an] attorney for the services performed by him," 42 U.S.C. Sec. 406(a). The Secretary further is required to withhold up to 25% of the total amount of "past-due [Title II] benefits," id., in order to pay the attorney directly. The amount withheld from a claimant's Title II entitlement for direct payment of attorney's fees is limited to the smaller of: 25% of the total past-due benefits, the reasonable amount fixed by the Secretary or an amount agreed upon by the claimant and his attorney, id. If a fee greater than the 25% direct payment limit is fixed by the Secretary or agreed upon by the attorney and claimant, the attorney is free to arrange with the client collection of the remainder of the fee.

Section 406(b) allows a court that directs entry of judgment in favor of a claimant to authorize attorney's fees, not greater than 25% of the past-due benefits. The Secretary then may withhold this court-ordered amount from the claimant's retroactive Title II award and pay the attorney directly. No other fee can be paid to the attorney when a court orders attorney's fees. 42 U.S.C. Sec. 406(b)(1). Thus, the maximum an attorney can expect when a court orders his fee is 25% of a claimant's Title II award.

Significantly, section 406 applies only to attorney's fees in Title II cases. Title XVI, in contrast to Title II, contains no provision concerning attorney's fees and, consequently, Title XVI funds cannot be used for attorney's fees. Bowen v. Galbreath, --- U.S. ----, 108 S.Ct. 892, 99 L.Ed.2d 68 (1988).

Because there is a lag between the time a claimant applies for federal aid and the time he is adjudged eligible, most successful claimants eventually receive a retroactive lump-sum benefits payment. When Title II benefits are awarded in one retroactive payment, those benefits are not charged as income to the past months for While awaiting a determination of Titles II and XVI eligibility, many claimants turn to the state for interim SSI assistance. A claimant receiving this temporary aid typically authorizes the Secretary to withhold funds sufficient to reimburse the state from his eventual retroactive SSI award. The Act specifically provides for this reimbursement practice, but only allows Title XVI, not Title II, awards to be so tapped. See 42 U.S.C. Secs. 407, 1383(g).

which the claimant may have been awarded Title XVI benefits. This is so because Title II benefits constitute income only for the months in which they are received, 20 C.F.R. Sec. 416.1123 (1988). The result, prior to 1980 remedial action by Congress, was a windfall of SSI payments for the claimant.

Interim assistance from the state created another windfall for claimants. Eligibility for interim aid, as for SSI, depends upon a claimant's income, which includes federal benefits, falling below a minimum subsistence level. A delayed award of federal benefits allows a claimant to receive state interim SSI that would not have been his due had the benefits been paid on time.

Accordingly, Congress in 1980 enacted a "windfall offset" provision to Title II, 42 U.S.C. Sec. 1320a-6 (1982), so that when a claimant is granted a retroactive Title II award for a period in which he also was owed SSI, the Title II payment is reduced by the amount of SSI authorized to the claimant that would not have been awarded had the claimant been given his Title II benefits when due, rather than retroactively. The Secretary, applying the windfall offset provision, calculates first a claimant's SSI benefits, then the Title II benefits, and then offsets Title II benefits due by the SSI amount, 20 C.F.R. Sec. 404.408 (1988); see White v. Bowen, 835 F.2d 974 (2d Cir.1987). Because Title II benefits are not factored into the SSI computation as income, the SSI figure is higher than if Title II would have been calculated first. Thus, the state, able to anticipate only Title XVI funds, generally can expect to be reimbursed fully for its interim SSI payments. From a claimant's perspective, this is all purely a matter of bookkeeping, as his overall cash entitlement is not affected by the order of computations.

Attorney's fees are drastically affected by this application of section 1320a-6 because they are linked to the amount of past-due Title II benefits only. The Secretary defines "past-due" Title II benefits as Title II benefits actually payable, 20 C.F.R. Sec. 404.1703 (1988), i.e. net, post-offset Title II benefits. As a result, the fund from which attorney's fees are calculated under section 406(a) often is reduced. Plaintiffs urge a computation of attorney's fees from a gross, pre-offset Title II fund. 1

B. Facts

The facts of this consolidated case are undisputed. On August 7, 1981, John Pappas filed concurrent applications for benefits under Titles II and XVI. After his applications were denied, he requested a hearing, and on September 30, 1982, an administrative law judge ("ALJ") issued a decision finding that Pappas was entitled to benefits under both Title II and Title XVI as of September 1981. Accordingly, on November 29, 1982, Pappas was notified that he was entitled to $3,840.21 in retroactive SSI for the period September 1981 through November 1982.

On December 23, 1982, Pappas was advised that the Secretary had not yet determined Richard Stehr filed concurrent applications for benefits under Titles II and XVI on November 1, 1982. On October 27, 1983, an ALJ determined that Stehr was entitled to both Title II benefits and SSI. On January 10, 1984, Stehr was informed that his Title II benefits accrued as of March 1983 but that he would not receive those benefits until his SSI for that period was determined. 2

the amount of his retroactive Title II benefits, but that, pursuant to 42 U.S.C. Sec. 1320a-6, such benefits would be reduced if he were owed SSI for the period in which he would receive Title II. Accordingly, on June 9, 1983, he was informed that his Title II benefits for the period March 1982 through October 1982 would be reduced by $2,161.28 because of the SSI he had been awarded for that period. In addition, he was advised that 25% of the remaining Title II benefits, or $40.30, would be withheld for attorney's fees, pursuant to section 406 of the Act.

On February 13, 1984, Stehr was advised that, although he...

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