Krig v. Sullivan

Citations: 143 F.R.D. 270; 1992 U.S. Dist. LEXIS 21110; 1992 WL 159911Docket: No. GCA 89-10141-MMP

Court: District Court, N.D. Florida; July 6, 1992; Federal District Court

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Plaintiff Lynn S. Krig has filed a motion for attorney’s fees under 42 U.S.C. § 406(b), seeking $4,762.25, which represents 25% of her past-due benefits totaling $19,049.00. The Secretary acknowledges that the 14.10 hours claimed for legal work is reasonable but contests the total fee as excessive, resulting in an hourly rate of $337.74. Krig argues that the fee is justified based on a contingency fee agreement with her attorney, which is included with her motion. The court has noted that significant discrepancies exist among circuit courts regarding the calculation of attorney’s fees under § 406(b), with some advocating adherence to contingency fee agreements while others favor the lodestar method. The report recommends continuing the lodestar approach, emphasizing that § 406(b) provides a maximum fee of 25% of past-due benefits, distinguishing it from other fee awards that are paid by the defendant. Congress aimed to limit exorbitant attorney fees through this cap while acknowledging the validity of contingency fee contracts.

Contingent fee contracts are capped at 25%, indicating they remain valid and enforceable, as affirmed in Wells v. Sullivan. The court's role is to order the disbursement of attorney fees from escrowed benefits up to this limit, while also determining a 'reasonable' fee from past-due benefits. This has led to a split among circuits regarding the basis for determining reasonableness. The Second, Sixth, and Seventh Circuits mandate that courts use the contingent fee contract as the primary basis for the award, unless it results in a 'windfall' or is clearly unreasonable. In contrast, the Fourth, Fifth, Eighth, and Ninth Circuits reject this method, favoring the lodestar approach, which considers the contingent fee as one of several factors. The Eleventh Circuit has not yet addressed this issue. The case of Venegas v. Mitchell supports the validity of contingent fee contracts, affirming that such contracts do not violate 42 U.S.C. § 1988 and that attorneys can enforce liens based on these contracts, establishing a reasonable fee based on the agreed percentage, even if it exceeds statutory fees.

Plaintiffs under 42 U.S.C. § 1983 may waive their causes of action and assign portions of their recovery to attorneys, with the rationale that such arrangements enhance their chances of recovery. This creates a distinction between the reasonable attorney’s fees owed by a losing defendant and those owed by a successful plaintiff, particularly relevant for § 406(b) fee applications where the plaintiff, not the defendant, bears the fee. In *Wells v. Sullivan*, the court upheld the importance of allowing social security claimants to enter into contingent fee arrangements, as many are indigent and unable to afford fixed hourly rates. Ignoring such agreements could hinder their ability to secure adequate legal representation. The court advocated for deference to these agreements, equating them to any contract reflecting the parties' intent. It further stated that while the lodestar method scrutinizes fees paid by losing parties, such scrutiny is less critical when fees are not shifted under § 406(b). The *Wells* ruling emphasized that contingency fees are reasonable in the social security context due to the inherent uncertainty of payment. It suggested that presuming contingency fee agreements as reasonable could streamline judicial processes, which currently spend significant time on fee evaluations. The *Rodriquez* decision also recognized the need for consistency in attorney fee authorization, asserting that while contingent fee contracts are presumed reasonable, this presumption can be challenged, requiring courts to assess the fairness of contracts based on factors such as arm’s length negotiation, attorney effectiveness, and potential windfalls.

An award based on a contingency fee contract may be deemed unreasonable if the Plaintiff’s attorney has delayed the case unnecessarily or performed little to no useful work. The fee, calculated as a percentage of past-due benefits, is influenced by any delays caused by the attorney. A fee of 25% may be inappropriate if the case was presented with boilerplate pleadings that lack material facts and legal research. In McGuire v. Sullivan, it was determined that enhancing the attorney's fee for risk of nonpayment does not unduly burden the defendant, as the fee is not payable by them. The court noted that since the contingent fee is agreed upon by the claimant and attorney, it reflects their valuation of the risk involved, thus requiring less scrutiny from the court. Concerns were raised that claimants with difficult cases might struggle to find representation without such arrangements. McGuire adopted Rodriquez's factors for assessing the reasonableness of a contingency fee in 406(b) cases. However, a contrasting view emerged from new Fifth Circuit cases, notably Brown v. Sullivan, which argued that a contingency fee contract is merely a factor in determining a 406(b) fee. Citing Johnson v. Georgia Highway Express, Brown emphasized that reasonableness, rather than the agreed fee, is the key consideration, indicating that the 406(b) statute affects the attorney-client contract. Following Venegas, the precedent established in Johnson is less compelling, as it clarified that fee adjustments do not intrude upon the attorney-client relationship when the issue is solely about the attorney's fee. Other referenced cases did not deeply analyze whether a contingency fee contract should serve as the presumptive basis for a 406(b) fee award.

Chief Judge Thompson's analysis in Frazier v. Sullivan addresses the determination of reasonableness for 406(b) fees in the context of contingency fee contracts. He noted that while Congress did not prohibit such contracts, it provided no guidance for courts on assessing their reasonableness. Thompson concluded that courts must adhere to statutory mandates to determine reasonable fees, regardless of contractual agreements. He emphasized the importance of the 25% cap, stating it prevents the depletion of plaintiffs' awards, particularly for those with small recoveries. Thompson expressed concern that awarding the maximum contingent fee could undermine the Secretary's ability to allocate fees for administrative work under 406(a), disrupting the roles of both the court and the Secretary.

Additionally, he highlighted the special vulnerabilities of social security claimants, many of whom may lack the capacity to negotiate contracts effectively, thus necessitating protective measures like the 25% cap. He criticized existing rules that presumed the reasonableness of contingency fees and found them lacking in satisfactory guidelines. Thompson argued for a lodestar approach to ensure more predictable standards and adequately protect the interests of all parties involved in determining reasonable fees. He raised concerns about the contingent fee structure, which could discourage attorneys from taking on cases with smaller benefits due to the unpredictability of fees, and favored a system that compensates attorneys for actual work performed. Overall, his ruling underscores the need for a balanced approach to ensure fair representation for social security claimants while maintaining a viable framework for attorney compensation.

Judge Thompson's opinion in Frazier v. Sullivan is deemed the most compelling among the cited cases, challenging the assumption that social security claimants have the negotiating power necessary to establish fair fee agreements with attorneys. Most claimants, facing poverty and health issues, lack the resources to hire attorneys unless they agree to contingent fee arrangements. The prevailing practice has established a standard 25% fee on past-due benefits, which suggests a lack of genuine negotiation. Unlike 42 U.S.C. 1988, which allows for attorney-client fee contracts, 406(b) mandates that courts determine reasonable fees, indicating a need for judicial oversight regardless of prior agreements. 

Thompson argues that awarding the contingent fee as is may not be reasonable since such fees can increase with case delays rather than reflect attorney skill or effort. He recommends rejecting the Wells, McGuire, and Rodriquez rulings in favor of adopting Frazier v. Sullivan and determining reasonable 406(b) fees based on a lodestar analysis, which is simpler and reduces the likelihood of further litigation. The court has previously set a reasonable hourly rate of $150 for 406(b) fees, leading to a calculated lodestar of $2,115 for the 14.10 hours deemed necessary for the case. The plaintiff has not provided evidence to justify an adjustment to this lodestar, which is critical for any fee enhancement, as established in precedent cases. Enhancements are only justified when necessary to ensure the availability of counsel.

It is recommended that the court order the Secretary to pay $2,115.00 to the Plaintiff’s attorney as a reasonable attorney’s fee under 42 U.S.C. 406(b). Parties have 15 days to file written objections to this recommendation and may respond to objections within 10 days. Failure to file specific objections will limit the review scope of the proposed findings. The Plaintiff acknowledged that the court was not obligated by the contingency fee agreement. The attorney did not request fees based on the contract but rather on an hourly rate. The previously established fee in 1988 was $117,000, while the monetary recovery in this case was $2,080,000, which would equate to a 40% contingent fee of $406,000. It is emphasized that statutory provisions should be read to harmonize all aspects of the law. Additionally, it is noted that the Plaintiff has a mental disability.