Harrington v. Berryhill

Citation: 906 F.3d 561Docket: No. 17-3179; No. 17-3194

Court: Court of Appeals for the Seventh Circuit; October 10, 2018; Federal Appellate Court

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The Commissioner of Social Security denied benefits to Staci Harrington and Andrew Banks, leading both to seek judicial review with the assistance of The de la Torre Law Office LLC. They assigned their potential attorney fees under the Equal Access to Justice Act (EAJA) to the law firm. After succeeding in their cases, they received fee awards of $11,851.04 for Harrington and $11,001 for Banks. However, the Treasury Department offset these amounts against the plaintiffs' outstanding debts to government entities instead of paying the fees directly to their attorneys. Consequently, both plaintiffs and their attorneys appealed the decision. The appeals were consolidated due to similar legal issues. The court declined to consider new administrative claims related to the judgments and affirmed the district courts' decisions. Both plaintiffs, classified as indigent, had initially been denied benefits due to the Commissioner finding them not disabled. Their representation by The de la Torre Law Office LLC was contingent on assigning potential attorney fees, which were awarded after their successful litigation. However, despite requesting direct payments to their attorneys, the district courts did not issue such orders. Instead, Treasury, under its statutory authority, applied offsets to the attorney fee awards due to Harrington's debt to the Department of Education and Banks' child support obligations, effectively settling those debts through the awarded fees.

Harrington filed a motion under Fed. R. Civ. P. 69, seeking to have the district court order the government to rescind its administrative offset and pay his counsel the full fee award, referencing Indiana law on fee assignments. The district court denied this motion, citing Astrue v. Ratliff and Matthews-Sheets v. Astrue, and upheld the government's actions. Banks did not file a similar motion. Both plaintiffs appealed, requesting the court to compel the government to reverse Treasury's offsets, reinstate their debts, and pay their lawyers.

The appellate court reviews attorney fee awards under the Equal Access to Justice Act (EAJA) for abuse of discretion and questions of law de novo. The precedent set by Ratliff is significant; it established that EAJA fees are awarded to the "prevailing litigant" and subject to offset for federal debts. The Court noted that attorney entitlement to payment typically arises from nonstatutory rights. Although Ratliff did not involve an assignment of fees, the current plaintiffs assert that their assignments under Indiana law should take precedence over government claims.

Additionally, the plaintiffs raise several challenges to the offsets: they argue that their state law attorney's liens should protect their fees, and they contest the offsets on various grounds, including statutory authority, equitable principles, the Takings Clause, the Judgment Setoff Act, and constitutional authority of executive actions. They contend that these issues, not considered in Ratliff, warrant a fresh examination of their claims against the administrative offsets.

Before addressing these challenges, the court must first determine if the district courts correctly awarded fees under EAJA, which mandates such awards to prevailing parties unless the government's position was substantially justified.

Both district courts approved the plaintiffs' requests for attorney fees without any challenges to the fee calculations on appeal. The plaintiffs argued that the courts erred by not ordering the government to pay these fees directly to their attorneys, as requested in their Equal Access to Justice Act (EAJA) petitions. However, the courts awarded fees to the "prevailing party," as per statutory requirements, and according to Ratliff, these payments should go to the litigants, not their attorneys. The government complied with court orders, providing financial relief to the plaintiffs by reducing their federal debts. The plaintiffs contended that such offsetting of debts did not constitute a "payment" under EAJA, but the courts maintained that an offset effectively serves as payment, as affirmed in Ratliff.

The plaintiffs referenced a prior case, Pam-to-Pee v. United States, to assert that district courts could examine the execution of judgments; while this is correct, the current case's context differs from the admiralty law focus of that decision. Ultimately, the courts concluded that a reduction of debts through offsets satisfies the obligation to pay the prevailing party under EAJA, aligning with the interpretation of Ratliff. Any challenges raised by the plaintiffs did not alter the fact that the judgments were executed correctly per statutory terms. All parties involved in the litigation acknowledged the satisfaction of the EAJA's requirements regarding fee awards and processing.

Ancillary jurisdiction is declined for the remaining claims, as the plaintiffs' attorneys raise issues regarding the interaction between the Equal Access to Justice Act (EAJA) and state law, as well as constitutional or statutory challenges to the Treasury Offset Program. The court emphasizes that federal jurisdiction is limited to powers granted by the Constitution and statutes, referencing Kokkonen v. Guardian Life Ins. Co. of Am. to support this point. Jurisdictional authority comes from 42 U.S.C. § 405(g) for reviewing actions by the Commissioner and 28 U.S.C. § 2412(d) for awarding fees against agency actions. The court's appellate jurisdiction is constrained by the subject matter jurisdiction of the district courts, which does not encompass the collateral challenges presented by the plaintiffs. Although the plaintiffs argue for the exercise of ancillary jurisdiction to enforce judgments, the court notes that such jurisdiction serves to manage proceedings and effectuate decrees, not to address new, unrelated claims. The Supreme Court's ruling in Kokkonen illustrates that disputes arising from a settled case do not fall within federal jurisdiction if they constitute new state law claims. Past considerations of ancillary jurisdiction regarding attorney fees, as seen in Baer v. First Options of Chicago, Inc., are acknowledged, but they do not apply to the current case where the core issues remain outside the court's limited jurisdiction.

The Second Circuit upheld the exercise of ancillary jurisdiction in Grimes v. Chrysler Motors Corp. due to the district court's control over fee deposits and an explicit provision in the settlement agreement allowing the court to resolve related disputes. Conversely, the Fourth Circuit rejected jurisdiction in Taylor v. Kelsey, as it involved a straightforward breach of contract claim without similar controlling factors. Both cases illustrate that the exercise of ancillary jurisdiction is discretionary, dependent on the connection to the original dispute and the presence of independent jurisdiction over new claims. In the current matter, the plaintiffs’ attorneys challenge actions of an agency not party to the lawsuit, framing the appeal as a challenge to the Treasury's authority regarding a regulation. These claims introduce numerous new issues, effectively creating a separate case. The appropriate legal framework for such challenges is through the Administrative Procedure Act (APA), which allows for a clearer review process and gives the Treasury the opportunity to defend its rule. A separate suit under the APA would also mitigate potential conflicts of interest between the attorneys and their clients, as the attorneys are the primary parties in interest.

Victory for the attorneys would lead to the reinstatement of their clients' government debts, which raises concerns about allowing the case to proceed in their clients' names. The court emphasizes that its decision does not comment on the merits of the plaintiffs' legal theories, acknowledging the significant impact administrative offsets have on indigent petitioners' ability to pursue valid lawsuits. The Equal Access to Justice Act (EAJA) aims to remove financial barriers for individuals challenging unreasonable governmental actions. However, the potential for EAJA fee awards to be offset by litigants' debts complicates access to representation for low-income individuals, as noted by a concurring opinion from Justice Sotomayor. Despite recognizing these policy implications, the court concludes that the statutory text mandates upholding the offsets, leaving broader policy questions to Congress.

The court affirms the district courts' decisions to grant attorney fees under the EAJA, agreeing with the government's application of those fees to the plaintiffs' debts following established precedents. The court refrains from exploring constitutional issues raised by the parties as they were not adequately presented in the district court and may be waived. Additionally, it clarifies the distinction between ancillary and supplemental jurisdiction, noting the latter is codified and applies to separate claims connected to a primary claim. Ancillary jurisdiction, although not codified, allows courts to manage interdependent claims effectively. The analysis focuses on ancillary jurisdiction as requested by the parties, despite the interchangeability of terms in the case law.