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Second Circuit Rejects Law Firm’s Bid to Sue SSA for Attorney Fees

March 24, 2016 | Posted in : Fee Entitlement / Recoverability, Fee Issues on Appeal, Fee Statute

A recent New York Law Journal story, “Circuit Rejects Advocates’ Bid to Sue SSA to Collect Fees,reports that a company's attempt to force the Social Security Administration to step in and pay attorney fees for clients who have gone bankrupt has been rejected by a federal appeals court.

The U.S. Court of Appeals for the Second Circuit agreed the administration is shielded by sovereign immunity from lawsuits brought by Social Security disability advocates Binder & Binder.  The decision, coming in the appeal of Binder & Binder v. Colvin, 14-4141-cv, resolved a conflict within the district courts of the circuit.

In two cases, Binder had sought attorney fees for successfully representing clients who had their debts, including the debts for the fees, discharged in the bankruptcy courts.

Both cases were in the Eastern District, where Judges Joseph Bianco and Denis Hurley each granted summary judgment to the Social Security Administration and rejected the company's argument that a fee provision in the Social Security Act, 42 U.S.C. §406(a) allowed suit against the government.

In one case, Binder had represented claimant Jay Scott Lerner in obtaining disability benefits, and the SSA paid out all the benefits in a lump sum without deducting the $6,000 fee owed to the company—a bill that was discharged in bankruptcy.

In the second case, the firm represented David Walton, who was paid $15,000 in past-due benefits.  Included in that amount was Binder's fee, which also was discharged in bankruptcy.

Section 406(a) allows the Commissioner of Social Security to allow payment of a reasonable attorney fee "out of such past-due benefits" where a claimant has successfully obtained those benefits.

Both Bianco and Hurley followed the holding of two circuit courts—the Third Circuit in In re Handel, 570 F.3d 140 (3d Cir. 2009) and the Eighth Circuit in Pittman v. Sullivan, 911 F.2d 42 (8th Cir.1990)—as they found that §406(a) does not constitute a waiver of sovereign immunity.

Their decisions, the Second Circuit said, conflict with a third Eastern District case that found such a waiver, Judge Sandra Feuerstein's decision in Binder & Binder v. Astrue, 848 F. Supp. 2d 230 (EDNY 2012).

In their opinion, Second Circuit Judges Guido Calabresi, Rosemary Pooler and Gerard Lynch said their court has yet to address the issue.

Writing for the court, Calabresi said, "under the Social Security Act's fee structure, it is the claimant who pays the attorney from her entitlements, and the SSA, in deducting those fees from its payments to the claimant, serves only as an intermediary."

There was nothing in the statute, he said, that amounted to an unequivocal waiver of sovereign immunity.

"The fact remains that the Social Security Act fees, whether for services before the SSA or the court, are the plaintiff's debt and not the government's," he said.  "The failure of the SSA to deduct the fees that the plaintiff owes its lawyer may be a wrong on the part of the SSA.  But the existence of a wrong—even a statutory wrong—by the government, does not, without more, waive sovereign immunity."

The judge said Binder "confuses rights and remedies."

"There may well be a wrong (the SSA's alleged failure to disperse fees), but to pursue successfully the remedy that Binder seeks (damages from the SSA) for this wrong, Binder must demonstrate a waiver of sovereign immunity," he said.  "And it has failed to cross this threshold."