Contingent fee agreements are permissible in Social Security cases provided fees do not exceed 25 percent of past due benefits

Law Reporter, Sep 2002

Gisbrecht v. Barnhart,_ U.S. -, No. 01-131, 2002 WL 1049193 (May 28, 2002).

The U.S. Supreme Court held that contingent fee agreements are permissible in Social Security cases provided the fees under such agreements do not exceed 25 percent of past due benefits.

Here, attorneys represented three individuals seeking Social Security benefits. The attorneys were successful on all three claims and sought attorney fees under contingent fee agreements that provided for counsel to receive 25 percent of all past due benefits recovered. The trial court refused to uphold the contingent fee agreements and instead used a lodestar calculation. Using this method, the court determined that the reasonable fees totaled less than $300 for all three cases. The North Circuit Court of Appeals affirmed.

Reversing, the U.S. Supreme Court noted that the Social Security Act, 42 U.S.C. sec 406(b), allows courts to award reasonable fees not to exceed 25 percent of the past due benefits awarded. The statutory language, the Court found, does not exclude contingent fee agreements that produce fees no higher than the 25 percent ceiling. These agreements are the most common fee arrangements between attorneys and Social Security claimants, the Court observed. In addition, the legislative history indicates no intent on Congress's part to prohibit or discourage attorneys from entering into contingent fee agreements with Social Security claimants. Given the prevalence of such agreements in these cases, it is unlikely that Congress intended to prohibit them, the Court observed. This reasoning is supported by Congress's authorization of contingent fee agreements under another provision of the statute, the Court found. It would be anomalous if contract-based fees expressly authorized by another provision were disallowed for cases covered by sec 406(b).

Moreover, the Court rejected the trial court's use of the lodestar method to calculate the fees. The lodestar figure is the main method of calculating fees in fee-shifting cases, the Court explained. The case here does not concern fees shifted to a losing party, however. Rather, sec 406(b) authorizes fees payable from a successful party's recovery. In addition, the Court noted that it is unlikely Congress intended use of a lodestar method that was not developed until some years after the statute was passed. Thus, the Court concluded, sec 406(b) does not prohibit contingent fee agreements as a means by which fees are set for successful representation of Social Security claimants.

Plaintiffs' Counsel

Eric Schnaufer, Evanston, Ill.