Scates v. Principi

• Citation: 282 F.3d 1362
• Decision Date: 13 March 2002
• Docket Number: No. 01-7033.,01-7033.
• Parties: Mitchell SCATES, Jr., Claimant, v. Anthony J. PRINCIPI, Secretary of Veterans Affairs, Respondent-Appellee, v. Kenneth B. Mason, Jr., Intervenor-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

282 F.3d 1362

Mitchell SCATES, Jr., Claimant, v. Anthony J. PRINCIPI, Secretary of Veterans Affairs, Respondent-Appellee, v. Kenneth B. Mason, Jr., Intervenor-Appellant.

No. 01-7033.

United States Court of Appeals, Federal Circuit.

March 13, 2002.

John S. Groat, Attorney, Civil Division, Department of Justice, of Washington, DC, argued for respondent-appellee. With him on the brief were Stuart E. Schiffer, Acting Assistant Attorney General; David M. Cohen, Director; and Robert E. Kirschman, Assistant Director. Of counsel on the brief were Donald E. Zeglin, Deputy Assistant General Counsel; and Michael J. Timinski, Attorney, Department of Veterans Affairs, of Washington, DC. Of counsel was Michael A. Leonard, Department of Veterans Affairs, of Washington, DC.

Kenneth M. Carpenter, Carpenter, Chartered, of Topeka, Kansas, argued for intervenor-appellant.

Before NEWMAN, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and RADER, Circuit Judge.

FRIEDMAN, Senior Circuit Judge.

A lawyer who formerly represented a veteran in his claim before the Department of Veterans Affairs ("Department") for benefits seeks twenty percent of the past benefits the Department awarded the veteran. His claim is based upon his retainer agreement with the veteran providing that amount as the lawyer's fees. During the proceedings before the Department, however, the veteran terminated the lawyer's representation and substituted a veterans organization, which pursued the case to its successful conclusion.

The question before us is which component of the Department — the Board of Veterans' Appeals ("Board") or the Regional Office — should decide initially the lawyer's claim. The Court of Appeals for Veterans Claims ("Veterans Court") held that the Board has jurisdiction to determine only the reasonableness of (but not the lawyer's entitlement to) the fee, and remanded the case to the Board to dismiss and for the Regional Office initially to determine the lawyer's entitlement to a fee. We modify the remand order and, as modified, affirm it.

I

The appellant Mason, an attorney, entered into a "Fee retainer contract" in January 1991 with the veteran Scates to represent Scates in his claim for benefits before the Department and the Veterans Court. In the contract Scates "agree[d] to pay a `Contingent Fee' equal to 20% (Twenty Percent) of the total amount of any past-due benefits awarded on the basis of your claim with the Department of Veterans Affairs (DVA). It is understood that this Contingent Fee is to be paid by the DVA directly to me from any past due benefits awarded to you."

Scates and Mason amended their representation agreement in April 1993. The new agreement substituted the following paragraphs relating to the contingent fee arrangement:

If there is a recovery of benefits, I agree to pay you a fee contingent upon the outcome of the matter or proceeding described in paragraph 1. I agree to pay you a fee equal to twenty percent (20%) of the total amount of any past-due VA disability benefits awarded by judgment, settlement or administrative action on the basis of my (the client's) claim with the U.S. Department of Veterans Affairs.

If there is an award of attorney fees under the Equal Access to Justice Act (EAJA), I (the client) agree to pay you (the attorney) that part of the EAJA award that, when added to the twenty percent (20%) of the past due disability benefits, raises the total fee earned by you to the following level: The number of hours of time expended on this case multiplied by $350 per hour, which is two times your normal $175 hourly rate for noncontingency work. I agree and acknowledge because of the contingency nature of my case, $350 per hour is a reasonable rate.

I HEREBY ORDER AND DIRECT DVA TO WITHHOLD TWENTY PERCENT (20%) OF PAST DUE BENEFITS PAYABLE TO ME AND TO PAY SUCH AMOUNT TO YOU FOR ATTORNEY'S FEE....

If, for any reason, the Department of Veteran [sic] Affairs fails to follow my order and direction, I promise and agree to pay the contingent fee, less the advance retainer, directly to you.

In June 1994, Scates terminated Mason's representation, and appointed the Veterans of Foreign Wars as his representative. The Regional Office notified Mason of this change and told him that the April 1993 amended retainer agreement would be kept in Scates' file. The Regional Office stated that if past-due benefits subsequently were awarded, it would forward that agreement to the Board to determine whether Mason should receive any fee for his representation of Scates.

In March 1996, the Department awarded Scates benefits, including past-due benefits. The Regional Office, pending a decision by the Board on Scates' right to a fee, withheld twenty percent of the past-due benefits. The Board held that Mason had satisfied all the requirements for receiving his fee, and directed that he be paid. The Board ruled that Scates' revocation of Mason's authority to represent him did not preclude payment of "otherwise due" attorney fees.

On Scates' appeal, a divided panel of the Veterans Court reversed the Board. It held that under New York law Scates' termination of Mason's employment extinguished Mason's right to the contingent attorney fee.

The full court, however, granted rehearing en banc and vacated the panel decision. In its en banc opinion the Veterans Court held that "[b]ecause ... the Board does not have original jurisdiction to consider... any issues regarding entitlement to attorney fees in direct-payment cases, ... all issues involving entitlement or eligibility for attorney fees under direct-payment contingency-fee agreements, as contrasted with the issues of reasonableness and excessiveness, must first be addressed by the RO [Regional Office] in accordance with the normal adjudication procedures and cannot be the subject of sua sponte or other original (on motion) BVA review." It stated:

The matter of attorney fees remains pending before the Secretary by virtue of the fee agreement filed in this case. After notice to the appellant and intervenor, and an opportunity to be heard, that claim should be decided by the RO. The aggrieved party may then file a Notice of Disagreement and pursue an appeal to the Board and this Court if so desired.... Our decision today does not decide the question of the effect of the termination of the attorney-client relationship between Mr. Mason and Mr. Scates and leaves that question for decision at the initial administrative level. Neither does the Court express any view as to the reasonableness or excessiveness of the fee called for in this agreement since the facts surrounding such issues must be developed in the adjudication of the pending claim. The Board's decision is VACATED for want of original jurisdiction to decide eligibility for direct payment of a withheld contingency fee under § 5904(d), and the matter is REMANDED to the Board with directions to dismiss the matter of direct-payment fee eligibility as referred to the Board by the RO. (citations omitted).

II

A. Mason contends that under his retainer agreement with Scates, and because he played a significant role in the litigation of this case, he is entitled to the twenty percent of the past-due benefits award that the Regional Office retained, even though Scates terminated his appointment during the Department proceedings. According to Mason, only the "ministerial" act of paying him the withheld money remains to be done to complete the resolution of this attorney fee dispute. Under Mason's analysis, there is therefore no occasion to remand this case to the Regional Office for further proceedings.

Mason's attorney fee claim cannot be disposed of so simply and easily.

In the amended representation agreement, Scates stated that "[i]f there is a recovery of benefits, I agree to pay you a fee contingent upon the outcome of the matter or proceeding described in paragraph 1 ... equal to twenty percent (20%) of the total amount of any past-due VA disability benefits awarded." Read in isolation, this provision could be interpreted as entitling Mason to that amount if benefits are recovered, without regard to how long Mason's employment continued or whether Scates terminated Mason's employment during the administrative proceedings and retained a substitute representative who continued to handle the claim.

Read in context and in the light of the statutory provisions governing the payment of attorney fees in veterans benefits cases, however, we conclude that implicit in this arrangement was the understanding that Mason's right to receive the full twenty percent of past due benefits would arise only if Mason continued as Scates' attorney until the case was successfully completed. If, as here, the veteran terminated the lawyer's services during the case and retained a substitute representative, the first lawyer's fees would be based upon and fairly reflect that lawyer's contribution to the case.

Under 38 U.S.C. § 5904(d)(1), (2), when a claimant and an attorney have entered into a contingent fee agreement under which "the total amount of the fee ... (i) is to be paid to the attorney by the Secretary directly from any past due benefits awarded on the basis of the claim,"

The total fee payable to the attorney may not exceed 20 percent of the total amount of any past due benefits awarded on the basis of the claim.

The statute thus limits the total fee payable to an attorney to twenty percent of the "past due benefits awarded." Under Mason's theory, if the veteran terminated the attorney's services in the middle of the case, the total twenty percent maximum fee would be due to the first attorney. It would then be, at best, extremely difficult for the veteran to hire and pay a successor attorney to complete the case. This would be so even if the claimant dismissed his lawyer for unsatisfactory services (as the client has a right to do, see Kenis v. Perini Corp., 452 Pa.Super. 634, 682 A.2d 845, 849 (1996); Campagnola v....