2nd Circuit raises a glass to contingency fee lawyers
FEB 2, 2022 | REPUBLISHED BY LINY : FEB 3, 2022
Between them, Judges Guido Calabresi, Rosemary Pooler and Barrington Parker have sat on the appellate bench for more than 70 years. This 2nd U.S. Circuit Court of Appeals trio, in other words, is well-equipped to opine on whether lawyers have done right by their clients and how they should be paid for that work.
So for plaintiffs’ lawyers working on contingency, the judges’ ruling last week in Fields v. Kijakazi should be especially sweet. Calabresi, Pooler and Parker concluded that the Social Security disability law firm Binder & Binder was entitled to a 25% contingency fee for its representation of a disabled man who ended up winning more than $160,000 in past-due benefits, even though the firm’s $40,170 fee amounted to an hourly rate of nearly $1,600.
That number alone, wrote Calabresi, does not mean that the law firm’s $40,170 fee was a windfall. Yes, Binder & Binder lawyers worked only 25.8 hours on the case, the 2nd Circuit said. But the appellate judges pointed out that in those scant hours, across several years of hearings and appeals in federal district court and before the Social Security Administration, the firm accomplished a lot.
Binder & Binder mastered the 863-page administrative record; produced a highly detailed memo explaining why its client was wrongly denied benefits; negotiated a stipulation with the government that sent the case back to a new administrative law judge and finally obtained a ruling in 2020 that its client was entitled to benefits dating back to 2009, as well as ongoing monthly payments.
At oral argument last October, Pooler described the outcome as “fabulous.” And under those circumstances, the 2nd Circuit said, Binder & Binder lawyers should not be penalized for their skill and speed.
In the decision on appeal, U.S. Magistrate Judge Stewart Aaron of Manhattan had awarded the firm just $19,350 — or $750 per hour — after concluding that a $1,600 hourly rate was unreasonable.
The same law firm earned $52.75 per hour in prior 2nd Cir. Opinion
But that approach, the appellate court said, was wrong.
“Binder & Binder’s ability and expertise allowed it to accomplish in just 25.8 hours what other lawyers might reasonably have taken twice as much time to do,”
the 2nd Circuit said.
“And the relatively high de facto hourly rate of $1,556.98 must be viewed in this context. It would be foolish to punish a firm for its efficiency and thereby encourage inefficiency.”
What an eminently sensible approach: Instead of incentivizing contingency-fee lawyers to pad their hours and puff up their lodestars, courts should reward results. But over and over, we see judges, especially in class actions, balk at percentage-based fees when they result in sky-high hourly rates.
That instinct is more understandable in class action fee determinations, of course. In class actions, plaintiffs’ lawyers leverage the rights of absent class members who never consented to be represented, let alone to a particular contingency fee.
Judges overseeing class actions have a duty to protect all of those class members, since their collective recovery is diminished by the fees paid to class counsel. As you know, trial judges have vast discretion in exercising that authority.
Judges’ discretion is more limited, by statute and precedent, in fee awards in Social Security litigation. The Social Security Act caps contingency fees for claimants’ lawyers at 25% of the recovery of past-due benefits. Fee requests are, by statute, subject to court approval. In 2002’s Gisbrecht v. Barnhart, the U.S. Supreme Court upheld contingency fee agreements that comply with the statutory cap. The court also specified the factors that trial courts should consider – such as the nature of the work and the results obtained — as they weigh the reasonableness of lawyers’ fee requests.
The problem, as the 2nd Circuit noted in last week’s ruling, is that the Supreme Court, quoting 2nd Circuit precedent, warned that courts could consider a downward adjustment “if the benefits are large in comparison to the amount of time counsel spent on the case.”
That so-called “windfall” factor has not been clearly defined, the appeals court said.
Last week’s ruling provided that clarity.
The windfall inquiry is not an excuse to import the lodestar method into a contingency fee inquiry, Calabresi wrote, confirming that “even a relatively high hourly rate may be perfectly reasonable, and not a windfall, in the context of any given case.”
Instead, the 2nd Circuit said, the key question is whether claimants’ lawyers earned the contingency fees their clients agreed to.
If their work didn’t lead to the good outcome, the fee might be unearned, but the court cautioned, “it must be truly clear that the high fee represents a sum unearned by counsel.”
The whole point of contingency fees, the court said, is to induce “truly good lawyers” to represent worthy plaintiffs.
There is risk in that proposition, as the 2nd Circuit panel noted during oral arguments in the Binder & Binder case last October.
(Binder & Binder, for instance, wins past-due benefits for clients in only about one-third of its cases, according to statistics that emerged in oral arguments last fall.)
Lawyers who accept that risk and obtain “fabulous” results deserve to get paid, the appeals court said.
It’s worth pointing out that Binder & Binder’s client did not object to the firm’s contingency fee.
The Manhattan U.S. Attorney’s office, representing the Social Security Administration, called for the 2nd Circuit to uphold the trial court award of $19,350.
A spokesperson for the U.S. Attorney did not respond to my query on the ruling.
Daniel Jones of Binder & Binder, who argued for the firm at the 2nd Circuit (and put in most of the firm’s hours in the underlying case), said the decision is a “great win for the disabled.”
Low fees, he said via email, have forced Social Security claimants increasingly to rely on paralegal organizations instead of lawyers.
“Perhaps with this win, more lawyers will be willing to take cases at the administrative level and prepare the cases for potential appeals when disabled claimants are wrongfully denied,” Jones said.