Attorney’s Fees
The fee agreement process for approval of attorney fees.
by Thomas E. Bush
Excerpted from Social Security Disability Practice
Attorney fees in social security disability and SSI
cases are regulated. 42 U.S.C. §§ 406(a) and 1383(d)(2). The Social
Security Administration (SSA) must approve your fee for work done before
the agency unless one of the very limited exceptions to this rule
applies. See §746. If you accept an unauthorized fee, you could be
punished by a fine not exceeding $500.00 or by imprisonment not
exceeding one year, or both. 42 U.S.C. § 406(a)(5). You could also lose
your right to practice before the Social Security Administration. 20
C.F.R. § 404.1745.
Two Fee Approval Systems
Two alternative systems with entirely different
procedures, rules and time limits govern fee approval. One system, the fee
petition process, described in §§720-739, is slow, burdensome, generally stingy
and leaves inordinate discretion in the hands of decision makers. The other
system, the fee agreement process, which provides for streamlined approval and
payment of attorney fees, works better in the vast majority of cases.
Fee Petition Process Problems
The primary problem with the fee petition system is the
typically long delay before payment. Before mid-1991, when the fee agreement
process took effect, it was not unusual for it to take six months from the date
of the favorable decision for a fee petition to be approved and another three
months for payment to be made. After the fee agreement process was instituted,
attorneys report that in most hearing offices it takes even longer for a fee
petition to be approved. Cynics say this is a deliberate effort by decision
makers to discourage use of fee petitions and encourage use of the fee agreement
process, a system that requires very little decision maker time. Those more
charitable are not surprised that decision makers, who dislike the fee petition
process almost as much as attorneys do and who have been busy with a large
backlog of claims in recent years, give fee petition approval low priority.
The fee petition process is not only slow, it is also
stingy. Attorneys seldom feel that they are paid the full value of their
services under a system that steadfastly refuses to consider the contingent
nature of fees and only rarely rewards outstanding work. For example, if you win
tens of thousands of dollars for your client because of a brilliant inspiration
that took very little time, you’re likely to be granted a fee commensurate with
the small amount of time spent on the case rather than a fee commensurate with
your brilliant inspiration. An arbitrary hourly rate cap, a factor not listed
for consideration in the regulations, is silently applied.
Fee Agreement Process
The fee agreement process, designed to address the
limitations of the fee petition system, is faster; and, although it contains
traps for those who do not carefully follow its complicated rules, it is a vast
improvement. Nevertheless, one cannot expect too much from the fee agreement
process. When the fee agreement process began, many attorneys thought that at
last SSA had recognized the contingent nature of fees. These attorneys also
thought that by using the fee agreement process, they could represent almost all
claimants without having to worry about the adequacy of fees in any single case.
They thought that average fees would be adequate. But attorneys have discovered
that it remains necessary to avoid using the fee agreement process in too many
cases with small or non-existent back benefits because the good-paying cases may
not sufficiently bring up the overall average.
Fee Agreement Process Problem
— Appeals Beyond ALJ Hearing
Attorneys have found that the fee agreement process pays
smaller fees than the fee petition process in time-consuming cases such as those
involving appeals beyond the ALJ hearing level. Indeed, the more hours an
attorney spends on a case, the lower the average hourly fee because under the
fee agreement process, fees are limited to a maximum of $5,300. As we shall see,
however, there is a way to seek higher fees in cases involving appeals beyond
the ALJ hearing level by using a two-tiered fee agreement. See §703 and
the two-tiered fee agreement in §178.3.1.
Fee Agreement Process Problem
— Subsequent Applications
In a case where a second application is paid while the
first is on appeal, SSA will treat the two applications as one case for purposes
of applying the fee agreement cap. The attorney may spend an average amount of
time on the case involving the second application and receive a $5,300 fee.
After winning on the first application, the one that took years of work, the
attorney will be dismayed to discover that it is SSA’s position that no
additional fee is due under the fee agreement process. Because the attorney
accepted the fee from the case involving the second application, SSA says the
attorney elected to treat the entire case as coming under the fee agreement
process. The attorney has already received a maximum fee. See §716.1.
Fee Agreement Process Problem —
Partially Favorable Decisions
The fee agreement process discourages appeals, especially
appeals of partially favorable decisions. See §716. It discourages taking
hard cases at a time when SSA says that its goal is to have ALJs hear only hard
cases — with easier cases being paid at a lower level of review.
Fee Agreement Process Problem—The Cap
Part of the problem is that the fee agreement process
places a cap on attorney fees, which is currently $5,300. The Social Security
Act provides that the Commissioner of Social Security “from time to time” may
increase the cap by no more than the annual COLA percentage increase. 42 U.S.C.
§406(a)(2)(A). The cap has been raised only one time since 1991 when the fee
agreement process was instituted. The Commissioner raised the cap to $5,300
applicable to favorable decisions issued on or after February 1, 2002. 67 Fed.
Reg. 2,477 (2002). See also HALLEX I-1-2-12 A.3.
Many observers question whether a cap is appropriate at
all in a hard-fought case or where lawyer creativity increases back benefits by,
for example, reopening an earlier application. There are those who argue that
without a cap on fees, the lawyer’s interests and the client’s interests would
be congruent — both would want to maximize the recovery in each case. With a cap
on fees, if the lawyer has already received a maximum fee, what is the lawyer’s
interest in appealing a partially favorable decision? It is a good thing that
most lawyers are motivated not only by law office economics but also by
professional responsibility to the client, lawyer ethics and a desire to do the
right thing. Otherwise, very few appeals of a partially favorable decision would
be taken.
No Fee Agreement Process Regulations
Another part of the problem with the fee agreement process
is that the Commissioner never published regulations required by 42 U.S.C. §
406(a)(3) for dealing with appeals. Instead, decision makers rely on the HALLEX
and the POMS and, for fee issues not covered, they appear to make up the rules
as they go along based on principles that often ignore the realities of
modern-day law practice. See §709.
Fee Agreement Process Exceptions
You will need to pay special attention to SSA’s set of
exceptions, circumstances where the fee agreement process does not apply, that
appear only in the HALLEX and POMS. The most common exceptions involve multiple
representatives:
-
Where the claimant had a prior representative;
-
Where the claimant appoints multiple representatives from the same firm and all do not sign a common fee agreement; and
-
Where the claimant appoints multiple representatives and all are not members of a single law firm.
SSA says that these exceptions themselves will not apply
if the extra representative waives his or her fee. But this works only in a
situation involving successive representatives. In the other situations,
although a fee waiver will allow the fee to be paid under the fee agreement
process, it will also reduce the total fee by the amount of the proportionate
share of the waiving representative. See §709.
There are also exceptions for when a representative dies
before a favorable decision is issued and when a state court declares the
claimant legally incompetent and the claimant’s legal guardian doesnot sign the
fee agreement. In addition, if a federal court issues a decision awarding
benefits, SSA says that the representative’s fee for work before the agency will
not be paid under the fee agreement process. Whenever an exception applies, it
will be necessary for you to file a fee petition to obtain your fee. See
§705.
When to Use the Fee Petition System
In most cases where past-due benefits accumulate, the fee
agreement process is the better fee approval system. Because it is the best way
to obtain a minimum fee, the fee petition process is recommended for cases where
you can predict in advance that past-due benefits will be minimal (such as where
a claimant is recently disabled or offsets apply) or non-existent (such as
benefit termination, overpayment or other post-entitlement cases). The fee
petition process is otherwise simply too much trouble for too little reward.
Of course, if you could predict in advance which case
would become a protracted one, one that you would fight for years, you would
choose the fee petition process for that case. Although such predictions are
usually impossible, it is possible to make a contract with your client that
applies the fee agreement process, for example, through the first ALJ hearing;
but after that, the fee petition process applies. See §703 and the
two-tiered fee agreement at §178.3.1.
§701 Conditions for Fee Agreement
Process
The fee agreement process for obtaining approval of a fee
provides for virtually automatic payment of your fee if:
(1) You agree to limit your
fee to the lesser of 25 percent of total past-due benefits (including combined
past-due benefits in concurrent claims) or $5,300 (or such higher limit as the
Commissioner of Social Security may set under 42 U.S.C. § 406(a)(2)(A));
(2) The fee agreement is
signed by both the claimant and the attorney;
(3) SSA receives your fee
agreement before a favorable decision is issued;
(4) No exception to the fee
agreement process applies;
(5) A favorable decision is
issued;
(6) The claim results in
past-due benefits; and
(7) there is no objection
from the claimant, an auxiliary beneficiary or the decision maker.
§702 The Lesser of 25 Percent of
Past-Due Benefits or $5,300
To qualify for the fee agreement process, the fee stated
in the agreement must be limited to the lesser of 25 percent of past-due
benefits or $5,300. This crucial limitation is based on 42 U.S.C.
§406(a)(2)(A)(ii), which provides that the fee agreement process will apply if:
The fee specified in the agreement does not exceed the lesser of
—
(I) 25 percent of the total amount of such past-due benefits (as
determined before any applicable reduction under section 1320a-6(a) of this
title [pertaining to the SSI windfall offset]), or
(II) $4,000 ....
The $4,000 cap set by the statute was raised to $5,300 by
action of the Commissioner of Social Security under the authority of 42 U.S.C.
§406(a)(2)(A) effective February 1, 2002. 67 Fed. Reg. 2,477 (2002). See also
HALLEX I-1-2-12 A.3.
Although another increase in the cap is not expected soon,
you may, if you wish, include reference in your fee agreement to the
Commissioner’s authority to raise the cap by no more than the COLA applicable to
Title II benefits pursuant to 42 U.S.C. § 406(a)(2)(A): “The Commissioner of
Social Security may from time to time increase the dollar amount under clause
(ii)(II) to the extent that the rate of increase in such amount, as determined
over the period since January 1, 1991, does not at any time exceed the rate of
increase in primary insurance amounts under section 415(i) of this title since
such date.” The fee agreement that appears at §178.3.1 qualifies.
Thomas E. Bush has devoted his practice to social security disability issues since 1977. He was elected to NOSSCR’s Board of Directors in 1988, and was President of NOSSCR for the 1997-98 term. He is the author of Social Security Disability Practice, from which this article is excerpted.
Updated 11/22/11
