In determining the method of calculating the amount of past-due benefits to be awarded attorneys of successful Social Security claimants, the U.S. Supreme Court rules that the 'lodestar' method, under which the number of hours devoted to the case is multiplied by a reasonable hourly fee, cannot displace attorney-client contingent-fee agreements that are within the statutory 25 percent ceiling. Gisbrecht, et al. v. Barnhart (U.S., No.01 '“131, May 28, 2002).
Gary Gisbrecht, Barbara Miller, and Nancy Sandine brought three separate actions in U.S. District Court for the District of Oregon seeking Social Security disability benefits. All three were represented by the same attorneys, and all three prevailed on the merits of their claims. Each petitioner then successfully sought attorneys' fees under the Equal Access to Justice Act (EAJA), which are payable by the United States if the government's position in the litigation was not 'substantially justified.' 28 U.S.C. §2412(d)(1)(A). Mr. Gisbrecht was awarded $3,339.11, Ms. Miller, $5,164.75, and Ms. Sandine, $6,836.10. However, 42 U.S.C.§406(b) authorizes fees payable from the successful party's recovery. Characteristically in Social Security benefits cases, attorneys and clients enter into contingent-fee agreements specifying that the attorney's fee will be 25 percent of any past-due benefits to which the claimant becomes entitled. In each of the three cases, the petitioner had agreed to pay counsel 25 percent of all past-due benefits recovered. Their attorneys accordingly requested $7,091.50 from Mr. Gisbrecht's recovery, $7,514 from Ms. Miller's, and $13,988 from Ms. Sandine's. Congress harmonized fees payable under EAJA with fees payable under §406(b) out of the Social Security claimant's past-due benefits in the following way: Fee awards may be made under both prescriptions, but the claimant's attorney must refund to the claimant the amount of the smaller fee, up to the point the claimant receives 100 percent of the past-due benefits.
Following Ninth Circuit precedent, the District Court in each case declined to give effect to the attorney-client fee agreement, instead employing a 'lodestar' method, under which the number of hours reasonably devoted to each case was multiplied by a reasonable hourly fee. This method yielded as §406(b) fees $3,135 from Mr. Gisbrecht's recovery, $5,461.50 from Ms. Miller's, and $6,550 from Ms. Sandine's. Then, offsetting the EAJA awards against the lodestar determinations, the court determined that no portion of Mr. Gisbrecht's or Ms. Sandine's past-due benefits was payable to counsel, and that only $296.75 of Ms. Miller's recovery was payable. The Ninth Circuit consolidated the cases and affirmed. The petitioners appealed, arguing that the attorney-client fee agreement should control if not 'in excess of 25 percent of . . . the past-due benefits.' 42 U.S.C. §406(b)(1)(A).
The United States Supreme Court reverses, finding that the Ninth Circuit erroneously read §406(b) to override customary attorney-client contingent-fee agreements. The Court holds that §406(b) does not displace contingent-fee agreements within the statutory 25 percent ceiling. 'Rather,' writes Justice Ginsburg for the 8-1 majority, '§406(b) calls for court review of such arrangements as an independent check, to assure that they yield reasonable results in particular cases.' However, the Court notes that 'the lodestar method today holds sway in federal-court adjudication of disputes over the amount of fees properly shifted to the loser in the litigation.'
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