Court Scrutiny of EAJA Settlements with a Federal Agency

The parties attempted to settle this matter, twice.  The court denied the opportunity to settle this matter because the Commissioner did not confess a lack of substantial justification.  Counsel  represents to the court that no other court in which he practices requires a confession of error or a confession of a lack of substantial justification in order to permit a represented party to resolve a matter of questionable or certain loss.  Would the court require the United States to admit to negligence in an action under the Federal Tort Claims Act in order to resolve a negligence claim?  Undoubtedly that would prevent resolution of claims because the alleged tort feasor rarely admits to liability in a settlement – the parties settle for reasons that they don’t admit to each other much less the world.  

The United States is never estopped in other cases because the Commissioner settled any claim arising under the EAJA.  New Hampshire v. Maine, 532 U.S. 742, 755 (2001) (citing Heckler v. Community Health Services of Crawford Cty., Inc., 467 U. S. 51, 60 (1984)).  Settlement does not conclusively establish weakness and the court should not penalize or discourage useful settlements.  Pierce v. Underwood, 487 U.S. 552, 568 (1988). 

And the risk to the fisc is significant.  The preparation of serial stipulations, motions, or other documents to evade the court’s requirement that a settlement include a confession of sin eats at the most valuable public and private asset of the parties – the time of their counsel.  Nor does this motion seeking the court finding of a lack of substantial justification help.  But for the settlement, this party would seek $4,600 in fees and expenses already itemized and additional time for the preparation of this motion.  Settlement allows the Commissioner to avoid some of its exposure in exchange for a sacrifice of some of the plaintiff’s potential fee recovery all with the serendipitous result that allowing parties to settle avoids the court’s expenditure of time and effort in the noble quest that the ably represented United States not give away the contents of the Treasury or the Social Security Trust Funds.   

In the final analysis, the court’s oversight of the EAJA process should not amount to a rigorous extraction of itemization and confession of each element of the fee request.  The court need exercise care in approving settlement of class actions because of the divergent interests of the class representatives, class counsel, and the members of the class.  Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998) (risk, expense, complexity, likely duration, amount offered, extent of discovery, stage of proceedings, experience and views of counsel, presence of a government entity, and view of the proposed class).   But those factors are not present in individual party litigation after the close of the merits.  Fees should not give rise to a second round of motion practice or litigation.  Hensley, 461 U.S. at 437.  The Supreme Court focused on the desired practice – “Ideally, of course, litigants will settle the amount of a fee.”  Id.  If the parties don’t settle, then and only then does the prevailing party bear the burden of proof of time, rates, and entitlement.  Id.  Where the parties resort to the ideal, the court should not put the parties to the expense of the unideal.  The court should approve the fee agreed upon by the parties.

Subsequent Applications and Fees -- Oh My

On June 3, we discussed the ethics and strategy behind a subsequent application while the claimant has a complaint for review pending with the federal courts -- Just Do It.  The problem for the representatives extend beyond the cutting off of the past-due benefit accumulation.  The fees get messy.

1.  The Subsequent Application Gets Paid

Whether by initial determination, reconsideration determination, or hearing, subsequent applications get paid with fair regularity.  These are cases on the cusp where reasonable minds could differ; you contend that the ALJ acted unreasonably in denying the case now pending in court.  These cases get paid, expect it.

The typical paradigm is the fee agreement process.  As long as the operative fee agreement is 25% of the past due benefits or $6,000, whichever is less, applies to the subsequent application, the fee agreement will get approved and the representative will get paid.  HALLEX I-1-2-16 states that the ALJ or the AC will approve or disapprove the fee agreement on the facts before the agency.  POMS GN 03940.038 gets into more detail but to the same result.  When the claimant receives a favorable decision on a subsequent application, SSA will approve the fee agreement and pay the withheld fees so long as the fee agreement meets the requirements and the representative is eligible.

What HALLEX and POMS do make clear is that all the cases that the claimant has constitute one case for fee purposes.  That $6,000 ceiling on the fees for the subsequent application continues to apply if and when the district court remands the case back to the agency for further proceedings.  There is no reset button and the claimant is not liable for up to $6,000 twice.  One continuous period deserves one fee.

     a. No Tiering and Same Representative(s)

The last fee agreement controls the fees in the case.  If the representative had the claimant sign a new fee agreement on filing the subsequent application, that is the fee agreement that controls all the fees.  Remember, one fee for the entire case.  All representatives must sign the same fee agreement.  The usual conditions apply.

If the fee agreement does not make an exception to the ceiling for remanded cases, the fee agreement continues to apply.  If the representative received $2,000 on the subsequent claim, the maximum that representative can get on the remanded case for agency work is $4,000.  The time to request administrative review of the fee ceiling -- that deadline is triggered by the notice of award or other payment document on the first favorable decision, the one on the subsequent application.  Absent that timely request for administrative review of the fee filed before the court remanded the case, the representative is stuck with the ceiling.  HALLEX I-1-2-14.

     b.  Tiering or Different Representatives

If the fee agreement provides for a fee without reference to a ceiling on remand, the conditions for approval of the fee agreement no longer apply.  If the claimant appoints different representatives or they all don't sign the same fee agreement, the conditions for approval of the fee agreement no longer apply.  These circumstances manifest for the first time after a favorable decision and cause a rescission of the approval of the fee agreement on the subsequent application.  HALLEX I-1-2-16. 

Whatever fee the representative received on the subsequent application, that authorization to charge and receive a fee is no more.  It is gone.  The representative now holds an unauthorized fee with all of the potential ramifications for holding an unauthorized fee.  Prudence suggests that moving that fee amount to a client trust account is the minimum required. 

All the representatives must file a fee petition with the decision maker that made the last favorable decision and order rescinding approval of the fee agreement on the subsequent application.  The representative must cover all the fees that he/she will seek to charge and receive. 

Example:

Claude Claimant goes through the process and receives a denial of review from the Appeals Council.  CC and Rachel Representative refer that case to Andy Attorney.  RR advises CC to file a new claim, which he does. 

While AA goes through the litigation process, RR presses the claim forward on the subsequent application.  CC receives a favorable decision and receives an award for $16,000 is past due benefits.  RR receives a fee agreement approval and a fee of $4,000 for her services.  AA wins the federal court action, obtaining a remand for another hearing.  The Appeals Council affirms the subsequent grant and remands the first claim to an administrative law judge to comply with the order of the court. 

On remand, AA represents CC.  The ALJ issues a fully favorable decision awarding CC a finding of disability for the earlier period and rescinding the fee agreement.  For the period not covered by the subsequent claim, SSA owes CC an additional $60,000 in PDB.  RR must now move the $4,000 to trust; she is no longer authorized to hold that fee.  RR and AA must file fee petitions to charge and receive a fee.  AA can also apply for fees in federal court, subject to the offset for any EAJA fee received.

If RR represented CC at the remand hearing without a tiered fee agreement and did not request administrative review after the favorable decision/determination on the subsequent claim, the most that RR could receive for that last hearing (and the first one that lead to the court action) is $2,000. 

It doesn't matter if AA had a tiered fee agreement, AA and RR are not in the same firm and the conditions to approve the fee agreements no longer apply.  The agency will only approve on fee agreement.  Two fee petitions will have to be filed. 

The lesson is that the subsequent application can cause fee issues later.  As we discussed earlier this month -- it is ethically required to advise the client of the advantages and disadvantages to the client of a new application.  Convincing the client not to file a subsequent claim because it makes AA's fees problematic is poor form.  Client's interests first and foremost.  We are fiduciaries and that is how fiduciaries act. 

Subsequent Applications -- Just Do It

For representatives that have clients whose cases go to federal court, the filing of a subsequent application can cause problems with the fees charged.  This is true whether the representative is also a lawyer that handles the case in federal court while pursuing a subsequent claim; the representative refers out the federal court claim and represents the claimant on the subsequent claim; or refers the client for the federal court claim and the subsequent claim to an attorney. 

1.  The Subsequent Claim

First things first, representatives have a duty to advise their clients on the ability to file a new claim with Social Security while the other claim is in federal court.  A grant of a subsequent claim cuts off the accrual of past due benefits for fees.  That works to the net benefit of the claimant and the net loss of the attorney.  Attorneys "shall consult with the client as to the means by which they are to be pursued."  ABA Model Rule 1.2(a).  This fits with the obligation to provide competent representation.  POMS GN 03970.010.    Absent an expired "date last insured" for Title II benefits, the only reason to endure the risk of litigation without putting all the eggs in one basket is to protect the prospective fee interests of the representative(s).  Attorneys must advise their clients of the right and effects of a subsequent claim under the ABA Model Rule.  See also California Rules of Professional Conduct Rule 3-500.

Most claimants will take the option to spread the risk of loss of past and future benefits and file a new claim.  The claimant can do so with or without representation.  If the claimant appoints a representative as to that claim and the prosecution of that claim results in the payment of benefits, that representative may charge and receive a fee under the fee agreement process. 

2.  The Court Action

On average, the courts grant relief in under half of the claims for relief presented.  Successful claimants may receive fee relief under the Equal Access to Justice Act.  Attorneys may take a lien or accept an assignment in those EAJA fees.  Attorneys may receive fees from the past due benefits, up to 25% of the benefits that result from the action for review.  The most common form of relief in a court proceeding to review the final decision of the Commissioner is a remand for further proceedings. 

3.  Consolidation

If the claimant receives a remand order from the court with the subsequent claim pending, SSA may consolidate the two claims for a single decision.  HALLEX I-1-10-25.  Two claims under the same title with abutting or overlapping periods of time present a single question of whether and when disability exists.  Two claims under different titles with overlapping periods of time present issues of collateral estoppel as to the whether and when disability exists to the extent of temporal congruence.  Two applications that do no overlap or abut the periods of time should not get consolidated. 

If the claimant receives a remand order from the court with a subsequent claim already in pay status, SSA may consider reopening and revising that grant of benefits.  Reopening puts the onus of quick action on the agency to resolve the matter diligently.  Carillo-Yeras v. Astrue.

If the claimant receives a remand order from the court with a subsequent claim already in pay status, SSA may affirm the grant of benefits on the subsequent application.  The claimant can proceed to decision on remand without concern that the agency will disturb the current pay status.  This is the best case scenario and more likely now than it was prior to SSR 11-1p. 

4.  The Potential Downside

The filing of a subsequent claim with a prior claim pending in federal court continues the development of the medical file.  SSA, through the state agency, will collect records to develop the subsequent claim and may send the claimant out for consultative examinations.  The presence of a subsequent claim permits the representative to have access to a drop point for newly developed medical evidence.  Those are positive points.  So is there a downside?

The potential downside to filing a new claim for benefits is that the state agency will collect records and possibly send the claimant out for new examinations while developing new opinion evidence from the state agency physicians.  New evidence may cut both ways.  With the 2015 revision to the regulations requiring the claimant and the representative to submit all evidence that relates to the claim, the perception of a way to avoid new harmful evidence takes on an illusory characteristic. 

The ALJ also has the right and perhaps the responsibility to send the claimant out for new consultative examinations on remand.  The remand refloats the application and the ALJ must adjudicate through the date last insured to deny the claim and through the date of decision to allow the claim or for an unexpired date last insured.  That makes evading the subsequent application to prevent development of other non-treating medical evidence a mirage. 

5.  Should the Claimant File a Subsequent Application While Pursuing a Federal Court Action?

For SSI - yes.
For DIB - yes if the claimant has an unexpired date last insured beyond the date of the administrative decision. 

Just do it.