The Assessment of Risk for Social Security Act Fees

In the last year for which the Social Security Advisory Board reports the full array of data for federal court proceedings (2013), claimants sought judicial review in 19,041 cases.  The courts reversed and awarded benefits in 387 cases in 2013.  The courts remanded in 6,811 cases in 2013.  The courts affirmed in 16,082 cases.  Claimants won either benefits or a remand in 44.76% of cases.   Allowance rates on remand typically hover around 60%.  Using the published remand/reversal rates and assuming 60% of cases are paid after remand, the odds of getting paid fees under sec. 406(b) are about 27.8%.  The risk of not getting paid is 72.2%.  The delay in getting paid from complaint to fees is measured in years.  Risk and delay are important factors in taking Social Security cases to federal court.

In assessing the risk of taking a cases where the claimant obtained reversal or remand and eventually got paid benefits is the problem.  Playing the game of "where's Waldo" is pretty easy after someone circled Waldo with a sharpie.  We just cannot miss him.  There he is.  Who could miss him?  That is the post mortem exercise in assessing risk -- this was the easiest remand that anyone could have ever obtained.  Kinderspiel, child's play.

But the contingency fee contract is signed before services began.  The contract after-the-fact bears no risk of non-payment and is contingent on nothing.  The parties know the outcome.  Justice Scalia in dissent recognized this before the fact inquiry into the reasonableness of the fee:

I think it obvious that the reasonableness of a contingent fee arrangement has to be determined by viewing the matter ex ante, before the outcome of the lawsuit and the hours of work expended on the outcome are definitively known.

 Scalia goes on to advocate a lodestar calculation of fees.  But that is clearly not how the majority read the statute.  The eight-justice majority settles the issue:

Courts that approach fee determinations by looking first to the contingent-fee agreement, then testing it for reasonableness, have appropriately reduced the attorney's recovery based on the character of the representation and the results the representative achieved.

If the benefits are large in comparison to the amount of time counsel spent on the case, a downward adjustment is similarly in order. See id., at 747 (reviewing court should disallow "windfalls for lawyers").

Risk is not part of the assessment.  It is the character of representation and the results achieved.  A perceived windfall is a basis for lowering the percentage of the recovery.  Justice Scalia's concerns about ex ante and ex post risk assessment are misplaced.  The parties bargain for that risk assessment as part of the contingent fee contract that the courts should start with in assessment reasonableness.

But if risk assessment is part of the calculus, then a multiplier of 4 is in order.  Contingency fee lawyers don't take risk and endure the delay of getting paid to break even, they engage in a contingent fee practice to get ahead.  The risk-reward assessment requires a positive outcome to the lawyer.