John G. Roberts, Jr.: We will hear argument first this morning in Case 08-1322, Astrue v. Ratliff. Mr. Yang.
Anthony A. Yang: Mr. Chief Justice, and may it please the Court: EAJA provides that in an appropriate case a court shall award to a prevailing party fees and other expenses incurred by that party. Every court of appeals to have addressed the question, including the court below, recognized that the plain meaning of EAJA's text directs payment of EAJA fees and other expenses to the prevailing party, and not her attorneys. Moreover, EAJA's relationship to the fees approved under section 406(b) of the Social Security Act and this Court's decisions in Jeff D. and Venegas in the section 1988 fee context make clear that Congress designed EAJA, like other fee-shifting statutes, to work within traditional attorney-client fee relationships, under which the attorney looks to the client for payment. Congress has also provided that, subject to exceptions not relevant here, all funds payable to the -- by the United States to an individual who owes a valid delinquent debt, Federal debt, shall be reduced by administrative offset. There is no dispute in this case that the prevailing party in this case, Ms. Kills Ree, owed a valid delinquent debt to the United States, received notice of that debt, had the opportunity to repay that debt or enter into a repayment agreement that would have avoided offset, failed to do so. Congress directed in the Debt Collection Improvement Act of 1996 that agencies and the Department of Treasury here shall offset such payments for delinquent debts.
Samuel A. Alito, Jr.: Isn't it true that the Commissioner of Social Security in the past paid EAJA awards directly to attorneys and that this is still done in cases in which the client has assigned the payment to an attorney?
Anthony A. Yang: That is true in part. Prior to 2005, the Treasury Department did not yet implement, fully implement, the Debt Collection Improvement Act with respect to certain payments. Here, these are miscellaneous payments. Treasury undertook the very large undertaking of computerizing the system to provide for offsets by tackling things like tax refunds, Federal benefits, most contractor payments, large payment systems that the government deals with on a day-to-day basis, and only in 2005 was able to implement miscellaneous offsets. Since 2005, the government has been offsetting EAJA payments. Now, in some circumstances where a debt is owed -- where an EAJA payment is made and a court, for instance, orders the government to pay the attorney, the government's policy is to check whether or not there is a delinquent debt a prevailing party owes, and if not, then the government may accept the assignment or comply with the--
Samuel A. Alito, Jr.: What gives the Federal Government the right to override State law on that issue? Suppose the situation was that another creditor would have priority over the attorney if the money had been paid directly to the claimant. What gives the government the right, in effect, to override that by paying the money directly to the attorney, unless the government believes that this is payable to the attorney under -- under EAJA?
Anthony A. Yang: --I don't believe so. There's two circumstances where -- that we might be talking about. The first circumstance might be where a court has ordered the government to pay the attorney. That happens in a number of cases. When the government does not have a debt which is receivable from the prevailing party, it complies with the district court's order. It simply does not have a dog in that fight. When we have an assignment that the government recognizes, that's true in any kind of context where you might have an assignment. The government recognizes the assignment. If there are third-party creditors who are able to come in, they may come in and contest that. They likely wouldn't have notice of it. But it's no different than any other assignment that the government might accept, from a party, of the debt, and that is not an infrequent event.
Antonin Scalia: What authority does a court have to direct that the money be paid to the attorney?
Anthony A. Yang: Well, it certainly doesn't lie in EAJA. Courts have recognized that they retain equitable authority to recognize a constructive trust or an equitable lien to enforce an agreement between the attorney and client that the client will pay over to an attorney funds received pursuant to an award such as EAJA. And in that context, although courts haven't been particularly clear in their reasoning -- they have cited to equity -- the courts have provided that when, for instance, an attorney represents a client pro bono or represents a prisoner pro bono, that the court will see to it that the payment actually received doesn't ultimately land in the hands of the client and enforces the understanding, either expressed or implicit, between the attorney and client that the funds that the client receives will go to the attorney.
Ruth Bader Ginsburg: What would happen in the case -- in case it is a prisoner who is this prevailing party? Would the -- would the attorney fee be paid to the prisoner? And if not, to whom would it be paid?
Anthony A. Yang: The attorney fee under EAJA is payable to the prevailing party, which would be the prisoner. Now, attorneys would likely come in, the attorneys for the prisoner, and ask the court to exercise its equitable authority to recognize a constructive trust over the fees that are actually paid to the party and prevent the party from keeping that money. But a prisoner is ultimately no different than any other prevailing party under EAJA. It is the prevailing party to whom Congress has directed the court shall award fees and other expenses.
John G. Roberts, Jr.: So how can the court's broad equitable authority trump what you say is what the statute says?
Anthony A. Yang: They are not trumping it, Your Honor. The -- there's two things going on when a court recognizes an equitable trust. First, it has to necessarily recognize the right of the prevailing party to the payment. The prevailing party obtains the payment, and only once the prevailing party actually has title to the thing does equitable trust or a constructive trust attach. So it's recognizing in the EAJA context that the prevailing party is the one who is entitled to the fee, but then--
John G. Roberts, Jr.: Do you actually have to transfer it or--
Anthony A. Yang: --Well--
John G. Roberts, Jr.: --I mean, the statute says pay the prevailing party.
Anthony A. Yang: --Correct.
John G. Roberts, Jr.: And you're saying the court can say: No, pay the lawyer.
Anthony A. Yang: Well--
John G. Roberts, Jr.: In certain--
Anthony A. Yang: --In order to recognize the agreement between the party and the attorney.
Ruth Bader Ginsburg: Where is the agreement between the party and the attorney? The Equal Access to Justice Act provides that fees will be paid to the prevailing party. Where does the prevailing party have a contract with the attorney to turn the fees over?
Anthony A. Yang: I'm sorry. I didn't--
Ruth Bader Ginsburg: You said that pursuant -- maybe I misunderstood you, but I thought you said that there is a contract between the prevailing party and the attorney. And where is -- how does that contract come about if it's simply a case that the lawyer is representing pro bono a plaintiff?
Anthony A. Yang: --Well, as this Court recognized in Venegas in the section 1988 context, it's commonplace either for there to be an expressed or an implied agreement to pay over any statutory award that the prevailing party may receive to the attorney. And I think, in the absence of any indication otherwise, courts are well positioned to simply say, you know, if they haven't agreed otherwise, the normal practice would be for a prevailing party, if they were to receive something under a statutory fee-shifting provision like section 1988 or like EAJA, to agree to pay it to the attorney.
Antonin Scalia: Doesn't -- doesn't the government setoff depend upon who owns the money under State law? I mean, it's -- it's commonplace for the Federal law to look to State law on issues of ownership. And, in fact, if there is this doctrine of equitable ownership on the part of the attorney, what right does the government have to do the setoff?
Anthony A. Yang: Well, that might be true if we were relying on a common law offset. But in this context, Congress has directed that all Federal payments, unless there is an exception -- and there is no exception in this case -- are to be offset before payment, any payment, to the debtor. So in this case, Congress has effectively established a priority scheme whereby when a debtor owes a delinquent valid debt to the United States and the United States owes an offsetting obligation to that individual, Congress has provided that no Federal funds shall be paid to the individual and instead that the debt -- the government's debt shall be offset against the debt that the--
John G. Roberts, Jr.: --What if the client is bankrupt? What happens then?
Anthony A. Yang: --The same rule would apply. No Federal payment would -- well -- I believe that the same rule would apply. I've not carefully studied the bankruptcy provisions, and I hate to venture into a very complicated area to give you something definitive. But my belief is that, based on the very clear text of section 3716 of Title 31, which was amended by the Debt Collection Improvement Act, that no payment shall be -- even in bankruptcy, the payment goes to the -- has to go to the debtor first, and then it goes to the estate -- that no payment shall be made from the Treasury and instead an administrative offset shall be undertaken to collect the government's debt.
Stephen G. Breyer: Is there a way for the lawyer -- a lawyer sees that his client has a good case against the government, and thinks he can get an EAGA fee, so he says to the client: I'd like to represent you and I can get paid for this. But the client says: There are a lot of debts I owe the government. Now, is there any way they can work it out so he can get the representation?
Anthony A. Yang: Well, sure. There's--
Stephen G. Breyer: What?
Anthony A. Yang: --As we indicated in our brief, there's several things that can be done. First, the attorney can determine whether there is in fact a debt which is eligible for offset, and that can be done by asking the Treasury with a valid Privacy Act waiver from the client. If that is the case, the client retains the right, which Congress expressly codified in section 3716, the right to enter into a repayment agreement. If that is done, there will be no offset, and the repayment agreement is largely governed by the Federal claims collections standards, which are codified at 31 C.F.R. 900 to 904, and those -- those provisions provide in section 901.8, for instance, that installments shall -- should bear a reasonable relation to the size of the debt and the debtor's ability to pay. And in some instances, the government agency is able to compromise that debt if the debtor is unable to repay it within a reasonable amount of time. The agency should consider the age, health, present and potential income, as well as assets of the debtor, in order to determine the--
Stephen G. Breyer: In other words, the lawyer and the agency and the client sit down, and the lawyer says: Here, I can get some money for this client and that will help everybody, but I want to be paid. So I want you, Agency, to agree that on the repayment schedule if I get an EAGA fee, then I get to keep it and I don't have to give it to my client, who will have to give it to the government. And then they can sign a piece of paper and then that's done and the lawyer gets to keep the money.
Anthony A. Yang: --That -- that's correct.
Stephen G. Breyer: And has that ever happened?
Anthony A. Yang: I don't know that that's happened in this offset context.
Stephen G. Breyer: But it could now. Now people would know about, and they could do it.
Anthony A. Yang: It could well happen, and in fact--
Anthony M. Kennedy: Well, what's -- what's the authority for the government to enter into the agreement?
Anthony A. Yang: --The authority--
Anthony M. Kennedy: I mean, if the statute says there has to be an offset, that's it.
Anthony A. Yang: --Well, the statute also provides, under section 3711, for the Department of Justice and the Department of Treasury to establish guidelines for agencies. They have done so in Parts 901 to -- or 900 to 904 of Title 31 of the Code of Federal Regulations.
Anthony M. Kennedy: But do the guidelines reflect Justice Breyer's hypothetical?
Anthony A. Yang: Well, the statute actually reflects Justice Breyer's hypothetical, because at section 3716 -- this is at page 9a of the government's brief's appendix -- the head of the agency, prior to implementing an administrative offset must advise -- this is on a4 -- the debtor of the opportunity to make a written agreement with the head of the agency to repay the amount of the claim. That reflects the practice in the Federal claims collections standards of agreeing to repayment of such claims.
Sonia Sotomayor: Could you tell me what would motivate the government to agree to give to a lawyer a piece of a recovery that it, the government, thinks it's entitled to? I mean, it's one thing to work a repayment plan. That starts on the proposition that the individual can only each week or month or whatever give a certain amount of money over. But what--
Anthony A. Yang: Well, I think the hypothetical was premised at the beginning of the lawsuit rather than at the end. If -- if the case were at the end and the government were ordered to pay EAJA fees, the offset would be automatic. We would not agree at that point to split the -- the offset with -- with the attorney. But in the beginning of the lawsuit, when the attorney is undertaking representation of the client, the attorney is able to do precisely what Congress intended, which was to have debtors come to the United States and take -- to avail themselves of the opportunity to repay their debts to avoid an offset.
John G. Roberts, Jr.: Well, but that's a fanciful answer, because EAJA requires that the government's position, to get fees, is substantially unjustified. And so the government lawyer is going to sit down and say, well, you know, if I take a position that is substantially unjustified, I will at that point pay the fees to you, not to the client.
Anthony A. Yang: Well, not at all. The government's interest in an installment plan is not motivated by EAJA. The government's interest is--
John G. Roberts, Jr.: Yes, but the attorney's interest -- I thought in the hypothetical we were talking about, the attorney's interest is. He thinks the government is going to take a substantially unjustified position, and he wants to make sure in that case that he gets paid.
Anthony A. Yang: --This is a separate question, which is whether there is really any deterrent or how large the deterrent effect would be having the specter of a fee offset. And as we explained in our brief, this Court in Underwood explained that, because EAJA awards are not given to every prevailing party and are only given to parties where the government's position is not substantially justified, it is -- one cannot reliably determine in advance whether the government's position is going to be so unreasonable that you're going to get an award of fees. And that -- that suggests that any deterrent effect of having the possibility of an offsetting -- an offset for the client's debt is small. And that--
John G. Roberts, Jr.: Well, that's going to look awful bad to a court that comes in and he's -- and the court is asked to award EAJA fees, and there is an agreement already in effect. The government says, well, if we're -- you know, if we're liable for EAJA fees, this is how we are going to handle it.
Anthony A. Yang: --I may have misspoken--
John G. Roberts, Jr.: That would be the first piece of -- that would be the first piece of evidence that I would want to put in saying I should get EAJA fees. The government thought they might even take a position that qualified.
Anthony A. Yang: --Let me back up. I may have misspoken. What I intended to convey is that at the beginning of the case when an attorney is deciding whether to represent a client, the case has not been litigated, we don't know whether the government's position is going to be found to be substantially unjustified or not, the attorney -- if the attorney checks and wants to determine whether the client has a -- a debt owed to the government that would be subject to offset, the attorney can go to the government and say: Let's enter into a repayment plan so that my debtor gets on the government's good graces and no longer is subject to have a tax -- a tax return, for instance, offset or any other payment that the government may owe to that debtor in the future, including EAJA. But it's not because of the EAJA payment that you would enter into the agreement. The government--
John G. Roberts, Jr.: No, but say he goes in to the government and says, look, I'm about to sue you, and I'd like to sit down and negotiate a nice agreement about the repayment.
Anthony A. Yang: --Well, I guess the attorney may say, I'm about to sue you, but the government certainly is not motivated because of the lawsuit. The government -- whether an attorney is going to sue the government or not, the question is--
John G. Roberts, Jr.: Government lawyers are always sympathetic to people who come in and say: I'm going to sue you. [Laughter]
Anthony A. Yang: --Well, I guess that certainly gets our attention. But the reason that the government would enter into a repayment agreement is because that is an opportunity for the government to collect a debt that is delinquent, valid, and outstanding. And what Congress intended to do in the Debt Collection Improvement Act was not to have additional Federal funds be paid to debtors who have been given multiple warnings of the debt and are essentially, you know--
Sonia Sotomayor: --The problem with your argument is this pot of money is actually not going to -- it's going to the debtor, according to your argument, because in theory the debtor is the prevailing party and is entitled to get the award. But the money is not being paid to the debtor. It's for the benefit of the lawyer who has done the work that Congress wanted done.
Anthony A. Yang: --Well, actually, either--
Sonia Sotomayor: I don't know what the -- I don't know what the motivation would be for a lawyer to undertake to represent the meritorious claim when they have to not only do the work in the case, but now have to do the work for the government in getting their client to negotiate an agreement with the government on something that's completely unrelated to the claim.
Anthony A. Yang: --I guess a--
Sonia Sotomayor: It's -- it's sort of--
Anthony A. Yang: --There's a few answers--
Sonia Sotomayor: --illogical.
Anthony A. Yang: --There's a few answers to that. EAJA applies not only in the Social Security context; it applies in all civil actions in which -- not sounding in tort, in which there's not another specific fee provision, brought -- brought by or against the United States. Congress intended -- and this is in the statutory findings which precede EAJA in section -- I believe it's 202 of the Act; it is -- to diminish the financial deterrent on individuals, businesses, and organizations caused by the expense of providing -- of litigating a case. This is--
Ruth Bader Ginsburg: That sounds like you're -- you have -- the client has an agreement to pay the lawyer or the client has paid the lawyer. It would make sense if the client has paid the lawyer and then there is reimbursement under EAJA that what -- what you're describing would make sense in that situation. But in most of these situations, the client doesn't have the wherewithal to pay the attorney upfront, of course.
Anthony A. Yang: --That may be true in the Social Security context, but there are many instances in which -- this is the -- this is the normal way that, you know, clients and -- and -- and their -- their attorneys work out fee arrangements. Sometimes clients will pay their attorney in advance; sometimes they will pay as the litigation goes forward. And by the time you have the EAJA award the client will have paid all or part -- sometimes none -- but all or part of the -- of the fee award.
Ruth Bader Ginsburg: Is it--
Anthony A. Yang: Congress directed -- the language is very clear: Courts shall award to the prevailing party fees and expenses--
Ruth Bader Ginsburg: --And does that mean--
Anthony A. Yang: --incurred by the party.
Ruth Bader Ginsburg: --The award goes to the prevailing party. So, therefore, the attorney's fee is income to the client--
Anthony A. Yang: I--
Ruth Bader Ginsburg: --is taxable income to the client?
Anthony A. Yang: --This is -- the answer to that is complicated and, generally, yes. The IRS is of the view that attorney fee awards to prevailing parties, whether it's EAJA or otherwise, are deemed to be taxable income to the client. Now, the clients, of course, will have an offsetting deduction for expenses incurred by -- in -- in the course of producing or collecting income, and that was recognized by this Court's opinion in Banks. That deduction is, of course, subject to certain limits. It has to be in excess of 2 percent of the adjusted gross income and subject to the alternative minimum tax, which wouldn't apply to Social Security claims. But the general answer is yes, it is income when the prevailing party receives a fee. There is an offsetting deduction. However, there's a -- some uncertainty with whether some fee awards when the underlying benefit obtained is not taxable, whether that -- the IRS will treat such payments to -- the fee awards, as--
Ruth Bader Ginsburg: Like pain and suffering, but that's not--
Anthony A. Yang: --Yes, so, but also certain Federal benefits, including Social Security benefits, have a very complicated tax relationship. Social Security benefits are taxable in part. It depends on the size and the amount of other income. So, the answer is actually quite complicated whether fees are taxable under EAJA in the Social Security context. But the general rule is, yes, fee awards to a prevailing party are income and subject to--
Ruth Bader Ginsburg: --And then, in turn, income to the attorney when -- if the client--
Anthony A. Yang: --Correct. Just as, you know, when I'm -- you know, I am paid my salary and taxed on it, and then when I pay for services, the person to whom I pay also has income, and they are taxed as well. This is not an unusual situation.
Anthony M. Kennedy: It seems to me the underlying assumption -- and some of the question would have been put to you by the court -- is that the government has somehow benefited because the money is created to offset the debt. It really isn't. It would -- this would be true if an attorney were suing a third party and creating a fund, and the government said, ah, there's the money. In this case, it's just being paid from one account to the other. The government would be better off if there were no suit at all.
Anthony A. Yang: That's correct. If the government never had an EAJA award, it at least would be less of a debt that it could collect.
Anthony M. Kennedy: It's just paying itself from one account to the other.
Anthony A. Yang: That's correct. The government is -- ultimately zeroes out here. The person that gets the benefit is the prevailing party, because the prevailing party has eliminated a debt to the United States by having that offset by the EAJA award. So the prevailing party obtains the benefit, which is precisely what Congress intended here.
John G. Roberts, Jr.: The government zeroes out, but in the course of it, it has taken a legal position in court against a small business that was substantially unjustified.
Anthony A. Yang: And it has paid its EAJA award by offsetting that award against the debt that the business owed to the United States. The government is -- at the end of the day, the balance sheets of the government have not changed. And with -- from the perspective of--
John G. Roberts, Jr.: But I think the idea -- well--
Anthony A. Yang: --From the perspective of the prevailing party as well. The prevailing party has an obligation to the attorney. Those are the attorney's fees incurred which have not yet been paid. The prevailing party also has an obligation to the government in the -- in the amount of a debt. It has income that comes in through the -- through the fee award, and whether that goes to offset the debt to the government or offset the -- for use to pay the attorney, the prevailing party ultimately gets the benefit of that fee award. And the government has paid the EAJA award as required by statute.
Samuel A. Alito, Jr.: Do you happen to know how much the -- the Treasury typically collects in a year under these EAJA offsets? Does it put a dent in the Federal deficit?
Anthony A. Yang: We don't, and the reason we don't is because each agency that -- which is the subject of an EAJA order submits to Treasury a payment request based on that order, and they check "miscellaneous payment". That agency doesn't know whether that payment is offset. Treasury receives that -- that request of payment and sees that it's a miscellaneous payment, checks it against a debt, and may offset. But Treasury doesn't know that the miscellaneous payment was an EAJA award. So we don't have any statistics that we can point to, to say how often this -- this occurs. I can say that the financial management service executes one -- over one billion payments per year, and that offsets of those payments account for $4.8 billion. So about two-tenths of 1 percent of payments from the Federal Government result in offsets. I'd like to reserve the balance of my time.
John G. Roberts, Jr.: --Thank you, counsel. Mr. Leach.
James D. Leach: Mr. Chief Justice, may it please the Court: I'd like to discuss with you this morning four reasons why Catherine Ratliff, and not the government, is entitled to receive the fee for the legal services she performed, that Congress invited her to perform, to show that the government's position was legally erroneous and was not even substantially justified. And my first point arises from your question, Justice Scalia. You asked whether State law determines who has the priorities here in terms of offset, if I understood. And the answer is that actually Federal law determines that, specifically the Debt Collection Improvement Act and regulations. The Act requires mutuality of a debt between the debtor and the government before the government can offset. And the regulations, which I'll quote in just an instant, require that before offset can occur, the government must look to who has the beneficial interest in the payment. In other words, who is entitled to benefit from it. Specifically, 31 C.F.R. 285.5(b), which is quoted at page 45 of the red brief, defines, quote, "offset", close quote, as withholding funds to satisfy a debt owed by a payee. And 45 of our reply brief, as "the person entitled" -- as the person entitled to the benefit of all or part of a payment. In other words, not the legal title holder if there is a difference, but the person with the beneficial interest.
John G. Roberts, Jr.: The prevailing party gets the benefit in the sense that she is relieved of the debt she owed to the government. That's a real benefit.
James D. Leach: Well, Your Honor, I think that's a benefit -- true, that's a benefit, I agree; but that's not a benefit, I don't think, in the sense of who -- because the question is who has the beneficial interest in the fee payment? And when we look to that question, because that's what's at issue here, is the fee payment.
Samuel A. Alito, Jr.: Isn't this argument circular? The -- the issue is who is -- to whom is this payment to be made. And if it's to be made to the -- the claimant, then it's not for the beneficial interest of the -- of the attorney.
James D. Leach: Two responses, if I could, Justice Alito: First, the word "payment" gets thrown around a lot in the briefs. It can mean two separate things. It can mean who receives the payment first; in other words, who is the check mailed to; or it can mean who the check is ultimately entitled to -- who is entitled to benefit from it. And the government's -- my second point is the government's reply brief at page 10 to 12 concedes that, but for the government's alleged right to offset, the attorney does indeed have the beneficial interest in the attorney's fee. And the government gives three reasons, and only three reasons, why its alleged right to offset trumps the attorney's beneficial interest. The first reason the government gives is the government says that the -- the constructive trust, which the government acknowledges exists in the -- in -- in favor of the attorney with respect to the fee payment, does not arise until the instant the fee reaches the client. And that's true, but that's not the point. The point is the attorney had the beneficial interest in the fee, which had to precede the moment the fee reached the client, if it's payable to the client in the sense of "sent to". The beneficial interest had to precede that in order for a constructive trust to arise. The government's second argument--
Stephen G. Breyer: On the first one, imagine that the -- a trust owes some money to the government. Now, suppose a lawyer representing the trust recovers. Now, they recover on a separate debt, okay? Separate debt? One. That money goes to the trust. Right?
James D. Leach: --If -- I'm not--
Stephen G. Breyer: The trust first owes -- the trust owes $1,000 to the government. The trust then independently recovers $500 from the government on a different matter.
James D. Leach: --Yes.
Stephen G. Breyer: The government couldn't offset that?
James D. Leach: Of course it could.
Stephen G. Breyer: Yes. Of course it could.
James D. Leach: Yes.
Stephen G. Breyer: But the trust is not a person entitled to the benefit of the payment.
James D. Leach: Well--
Stephen G. Breyer: The beneficiaries of the trust are entitled to the benefit of the payment.
James D. Leach: --If I understood your hypothetical, if the trust is entitled to $500, then the trust I think would be entitled to the benefit of the payment.
Stephen G. Breyer: It's not entitled to the benefit of the $500. The trust holds money for the benefit of the beneficiaries of the trust. So--
James D. Leach: I--
Stephen G. Breyer: --it can't -- you agree that that couldn't be?
James D. Leach: --Well--
Stephen G. Breyer: Yes, and once you agree that that couldn't be, I think you are in trouble on your first argument. I'm not sure.
James D. Leach: --Okay. I don't think so, because if we are talking about payments to persons, you know, if a person -- if a person owes a debt of $10,000, receives $500 on the debt, the person receives the benefit of that $500.
Ruth Bader Ginsburg: I--
Stephen G. Breyer: Well, similarly, the -- the guy -- the client here receives the benefit of the money that he has just gotten from the government, including the attorney's fees. It happens that he can't keep those attorney's fees, just as the trust can't keep the $500. He has to give the attorney's fees to the lawyer, just as the trust eventually has to give the $500 to the beneficiary. So I'm simply saying -- drawing a parallel, which -- go on to the next issue.
James D. Leach: All right, Your Honor.
John G. Roberts, Jr.: Well, let me -- can trusts -- can trusts recover EAJA fees?
James D. Leach: I don't know, Your Honor.
John G. Roberts, Jr.: Yes, I don't either. I'm looking at the definition. It doesn't say "trust". It says a lot of other things, like corporation, association, unit of government. I just don't--
Anthony M. Kennedy: I'm having trouble with this aspect, and it may -- may be that it varies from State to State. But as a general matter, under State law, let's say that the employee makes a contingency fee arrangement with a lawyer to sue the employer and wins $50,000. It's a one-third contingent fee. The -- the employee already owes the employer $40,000. It would seem to me under the general principle of offset that the employer has to only pay $10,000, and the attorney is not going to get his full fee.
James D. Leach: That's--
Anthony M. Kennedy: And that's just -- that's just the law of offsets.
James D. Leach: --That's true.
Anthony M. Kennedy: Because again, it's the same party. If they created money by suing some third person, then that's different.
James D. Leach: I think that's true.
Anthony M. Kennedy: And -- and so I -- it seems to me that what you're -- what you're asking for is just contrary to the standard law of offsets.
James D. Leach: Well, Your Honor, with what I--
Anthony M. Kennedy: And it's even worse because the Federal statute says that there shall be this offset first as a matter of priority.
James D. Leach: --Actually, Your Honor, the Federal statute provides for offset in accordance with regulations to be issued by the Treasury Department. And those Treasury Department regulations were what I quoted right at the beginning of my argument. We have to look at who is entitled to the benefit of the payment, not the benefit in a generalized sense of the lawsuit.
Anthony M. Kennedy: Well, in the generalized sense of -- of common law of offsets, as I've described to it, sure, the attorney has a beneficial interest, but he's not going to be able to collect it vis-à-vis the employer who is entitled to an offset.
James D. Leach: Yes. And the difference, Your Honor, is that in your hypothetical we're talking about one sum of money that's recovered in the name of the claimant. In this situation, we're talking about a statutory fee award, which is created only based on the work of the attorney and which is labeled an attorney's fee and separate from the benefit--
Stephen G. Breyer: Well, how is it different? Look. This, what I was talking about, has nothing to do With EAJA.
James D. Leach: --Yes.
Stephen G. Breyer: It has to do with when the government's allowed to offset some money.
James D. Leach: Yes.
Stephen G. Breyer: And it's allowed to offset some money when the money is money that it would otherwise give to a payee. All right?
James D. Leach: Yes.
Stephen G. Breyer: And then you've defined "payee" as a person who has some beneficial interest in that money.
James D. Leach: Yes.
Stephen G. Breyer: And I think that the client here has no more and no less beneficial interest whether he's a person or whether he's a trust. That was my point.
James D. Leach: I understand, Your Honor.
Stephen G. Breyer: Okay.
James D. Leach: And my point about the statute is simply that the statute is subject to the regulation which looks to who's entitled to benefit.
Antonin Scalia: Okay, let's take the regulation: "A person who is entitled to the benefit of all or part of the payment. " Ultimately, isn't it the plaintiff who has recovered that is entitled to the benefit, because this money is given to him in order that he can meet a financial obligation that he owes to the lawyer? I mean, if this didn't exist, he'd owe the lawyer and have to pony it up out of his own pocket, no?
James D. Leach: Not so, Your Honor, in Social Security cases, which this is, and in Veterans cases, which together account for more than 90 percent of all EAJA awards. In Social Security cases, 42 U.S.C. 406(b)(2), set out in our appendix, makes it a Federal crime for any lawyer to charge, receive, demand, or collect a fee payment directly from a client, other than under past -- the 46 U.S.C. 406 past-due benefits, 25 percent, or EAJA. And this is a critical difference. In the non-EAJA, in the non-Social Security, non-Veterans contexts, you know, about 10 percent of cases, you've got -- conceivably, you've got, often, clients paying lawyers on a traditional pay-as-you-go basis. But in a Social Security case or a Veterans case--
Antonin Scalia: And in those cases, you agree the offset can be made?
James D. Leach: --Absolutely. Absolutely. The difference here in all these Social Security and Veterans cases is that the attorney is barred by law from receiving money on a pay-as-you-go basis. So the attorney has never been paid.
Ruth Bader Ginsburg: --In exchange for getting 25 percent of the recovery?
James D. Leach: No. Actually, Your Honor, in exchange for showing in Federal court, if I understand your question. I hope I do.
Ruth Bader Ginsburg: My understanding is that the ordinary payment to the lawyer for Social Security benefits gained for the client is 25 percent of the recovery to the client paid directly to the lawyer.
James D. Leach: That's true.
Ruth Bader Ginsburg: So that, just as a background in this case, did Ms. Ratliff get that 25 percent?
James D. Leach: No, Your Honor. There was no 25 percent fee here.
Ruth Bader Ginsburg: And that was because it was too small to be bothered with? What was the reason?
James D. Leach: She did not apply for a 25 percent fee. It would have been quite small, had she received it. It would have been much smaller than the EAJA fee.
Ruth Bader Ginsburg: And she could keep only one from the--
James D. Leach: Yes.
Ruth Bader Ginsburg: --She could keep only the larger of the two.
James D. Leach: Had she received the EAJA fee, she could have kept it.
Ruth Bader Ginsburg: One of the difficulties with your position is that Congress did exempt a number of Federal payments from the offset, but it didn't exempt Equal Access to Justice fees.
James D. Leach: Yes. And the -- there are two points there, Your Honor. I mean, EAJA fees -- I'm not claiming all EAJA fees are exempt. As I just said -- spoke with you, Justice Scalia, if the -- in a non-Social Security, non-Veterans case where the client has paid the attorney and then an EAJA fee comes down, that's clearly subject to offset. You have to look to that regulation and who is entitled to the benefit of the fee payment. And the reason that the Debt Collection Improvement Act doesn't address this in 1996 is that in 1996, the government had never taken the position that attorney fees were subject to offset in Social Security or Veterans cases. And in fact, in 1996, there were three court of appeals decisions on the question of whether a creditor could offset a statutory fee award: Plant -- these are all of our briefs -- Plant, Fourth Circuit, 1979; Duncan -- I'm sorry, Plant is Fifth Circuit, 1979; Duncan, Fourth Circuit, 1989; Curtis, Eighth Circuit, 1993. All those cases said that the creditor may not offset a statutory fee award against the creditor's debt because the fee is for the attorney. That's why Congress couldn't have conceivably thought to address it in 1996. And some of the questions take me toward the point that you asked about before, Justice Roberts -- Chief Justice Roberts. And you suggested, or you said, that EAJA says: Pay to the prevailing party. If I heard you correctly. In fact, Your Honor, the language of the statute is, quote, "award to the prevailing party. " "fees and other expenses. " "incurred by that party. " And the two parts that we haven't really addressed yet are that what is awarded is attorney's fees. And this "incurred by" language -- with respect to that attorney's fee language, "attorney's fees" has a traditional meaning. It's a meaning this Court has recognized in all those cases bullet-pointed at pages 19 to 21 of our briefs. It's a fee earned by and paid to an attorney. And in Gisbrecht v. Barnhart in 2002, this Court specifically described the real parties in interest in attorney's fees litigation as the attorneys, recognizing the reality that attorney fees go to attorneys. In addition, the language "incurred by that party" -- what does it mean here? Well, outside of EAJA, it could mean -- it does mean, I think -- money the client takes out and pays to the attorney. We know in Social Security cases and Veterans cases it can't mean that, because that's illegal. That's a Federal crime if the attorney does it. So what does it mean? Well, the government concedes at page 8 of its reply brief that that language "incurred by" a prevailing party is supported by the client's implied or express obligation to pay the attorney the fee received. So this is where the government's argument is circular, I think, Justice Alito, in the sense that that EAJA award only may be made where the client has the express or implied obligation to pay the attorney.
Antonin Scalia: Well, you say that in Social Security the attorney is forbidden to accept pay-as-you-go? Is--
James D. Leach: Yes, Your Honor.
Antonin Scalia: --But that doesn't mean that there is not either an express or an implied contract between the attorney and the Social Security recipient.
James D. Leach: I agree. That's what I was trying to say.
Antonin Scalia: Well, but if there is that implied contract, then it is an obligation of the recipient.
James D. Leach: Yes, that's what I was trying to say, Your Honor.
Antonin Scalia: Well, I don't see how that leads you where you want to go. Then the payment given to the recipient does indeed benefit the recipient by -- by paying off an obligation that the Social Security recipient has.
James D. Leach: Yes, but that obligation exists only to the extent of the EAJA fee. It's not a separate obligation. The attorney can't turn around and go against the client. I mean, 406(b)(2) prohibits the attorney going against the client for any fee other than the 406(b) fee, which is separate, if there is a 406(b) fee, or the EAJA fee. And when--
Sonia Sotomayor: Is it--
James D. Leach: --We have been talking -- I'm sorry.
Sonia Sotomayor: --Just so I'm clarifying, is it your position -- and this is something I want to ask the government as well -- that once the EAJA fee is awarded, the attorney couldn't sue the client later even in an offset situation for repayment, because by statute you view them as blocked from--
James D. Leach: Yes.
Sonia Sotomayor: --from seeking anything other than the EAJA fee or the 406 fee?
James D. Leach: Yes, that's what 406(b)(2) says, Your Honor.
Sonia Sotomayor: So that once the offset happens, the attorney, under -- even if the client had other money, the attorney would be blocked from going after it?
James D. Leach: Yes, Your Honor.
Sonia Sotomayor: Because by the terms of the statute they can only seek the EAJA fee?
James D. Leach: They can only seek what?
Sonia Sotomayor: Either the EAJA fee or the 406 fee.
James D. Leach: Yes, and we have been talking as if EAJA fees and 406(b) fees are sort of contemporaneous in every case. In fact, the data cited at page 14 of the red brief is that 46 percent of Federal court Social Security cases result in a remand. Only 5 percent result in an award of benefits. So there are going to be far more EAJA fees in Federal court than there ever are 406(b) fees.
Anthony M. Kennedy: Do you calculate the fee under either the Social Security Act or EAJA, depending on the case? Do you ever calculate it under both so that you get some under each?
James D. Leach: Yes, Your Honor. And that's--
Anthony M. Kennedy: The -- the -- you calculate it under both so you get some under each?
James D. Leach: --No, section 3 says how this works, of the -- of EAJA 1985. It says if there are two fees, the attorney keeps the larger fee--
Anthony M. Kennedy: Right.
James D. Leach: --and sends the smaller to the client and vice versa. And that's the situation, for example, where you could have an offset of an EAJA fee in a Social Security case. Let's say there is a 406(b) fee that's $6,000. Let's say there is an EAJA fee that is $4,000. Under section 3, that -- the attorney doesn't keep that $4,000. That $4,000 winds up in the client's pocket. The government can offset that. That's -- that's what integrates all this discussion we've been having about EAJA fees not being exempt. We have to look to the beneficial interest.
Ruth Bader Ginsburg: In what percent of the Social Security cases where the claimant prevails is there an EAJA fee?
James D. Leach: Forty-six percent. No, that's not right. It's about 42 percent. And I get that from combining two numbers. There are 5,481 EAJA awards per year. That's red brief page 4. And there are about 13,000 Social Security civil cases per year. That's green brief page 22. Fifty-four -- 13,000 divided by 5,481 is 42 percent. And this bring me to the point the government was making in suggesting that an attorney at the beginning of a case could never know whether or not there -- there is going to be an EAJA fee, because, you know, you can't know at the beginning, they argue, what position the government will take, whether or not the government's position is substantially justified or not. Well -- and the government cites Pierce/Underwood from 1988 from this Court, in which this Court said exactly that -- Pierce v. Underwood. Pierce v. Underwood is outside the Social Security context, outside the Veterans context, so Pierce v. Underwood is in this less than 10 percent category of cases under EAJA which are not Social Security or Veterans. In a Social Security case or a Veterans case, the attorney has the record before proceeding into court, before deciding whether to proceed into court. And the attorney can look at that record, read it, and have a pretty good idea of whether or not the government position might be substantially justified or not. I don't ask you to take my word for any of this. Let me tell you what the data shows. The data, Justice Ginsburg -- this is where the 42 percent of Federal Social Security cases result in an EAJA award. If it's 42 percent, that's quite a high number of cases in which the government's position is found substantially -- not substantially justified as well as legally erroneous. In Veterans cases, it's even worse. The Court of Veterans Appeal Web site -- this the number of cases -- all together -- number of dispositions per year and the number of EAJA awards. And for 2008 and 2009, if you add up the numbers, out of all the Veterans disability cases filed, 70 percent, 7-0, result in an EAJA award. So there's quite a large number of cases in which -- in -- in a Veterans context or Social Security context where the government's position is found not to be--
Stephen G. Breyer: I don't understand your earlier point.
James D. Leach: --I'm sorry.
Stephen G. Breyer: Imagine that if Joe Smith is in a lot of financial trouble.
James D. Leach: Yes.
Stephen G. Breyer: His house is being foreclosed on--
James D. Leach: Yes.
Stephen G. Breyer: --all his bank accounts are attached. Then he gets some money from the government and -- including an EAJA fee.
James D. Leach: Yes.
Stephen G. Breyer: And it's $5,000 of money and 1,000 for the fee. They put it in his bank account. It was attached, good-bye, nobody sees the money, because it's whoever attached it got the money. Is that possible?
James D. Leach: Are we talking about the government?
Stephen G. Breyer: I'm making this up. I'm not talking about the government. I'm saying the government paid him 5,000 plus 1,000 in an EAJA fee, and the bank got all the money because it had attached his bank account. Is that possible?
James D. Leach: Is this in a Social Security--
Stephen G. Breyer: I'm making it up. No. It has nothing to do with -- I'm just making up--
James D. Leach: --Yes.
Stephen G. Breyer: --a hypothetical.
James D. Leach: Yes, it is. Sorry.
Stephen G. Breyer: All right?
James D. Leach: Yes.
Stephen G. Breyer: You follow that. Those are the facts.
James D. Leach: I think so.
Stephen G. Breyer: Okay. So a year later, Joe Smith is doing much better. Couldn't the attorney now sue him for the $1,000, say I'd like it? It went to the bank because they had attached the bank account.
James D. Leach: Outside the Social Security context, yes, I think so.
Stephen G. Breyer: All right. Now, suppose it happened to be that that 6,000, 5 for the one and 1 for the other, came from Social Security. Then how does that make a difference?
James D. Leach: The bank could not take it because of the anti-assignment provision--
Stephen G. Breyer: It couldn't take 1,000?
James D. Leach: --Couldn't take any of it under--
Stephen G. Breyer: Couldn't take any of it. Because of?
James D. Leach: --42 U.S.C. 407.
Stephen G. Breyer: Is that in here?
James D. Leach: Yes, 42 U.S.C. 407 -- it's cited, if it's not quoted -- prohibits assignment of Social Security benefits. But, Justice Breyer, if I--
Stephen G. Breyer: And the EAJA fee counts as a Social Security benefit?
James D. Leach: --Oh, I'm sorry. I thought we were outside the Social Security context.
Stephen G. Breyer: I changed it and said, now, how does it matter if it's Social Security? [Laughter]
James D. Leach: If it's an EAJA fee in a Social Security context, the bank cannot take that because of the Federal -- well, because the attorney -- the government admits the constructive trust exists in favor of the attorney with respect to those funds.
Stephen G. Breyer: If you win this case?
James D. Leach: No. The government says -- has said that in its reply brief.
Stephen G. Breyer: In other words -- in other words, no one can attach? No one can -- no one get the EAJA fee by attaching the bank account of the client?
James D. Leach: Yes.
Stephen G. Breyer: Okay.
James D. Leach: And I wanted to get back to the point you asked, Justice Breyer--
Stephen G. Breyer: Well, skip my points. They're too complicated. [Laughter]
James D. Leach: --Well -- but during -- during Mr. Yang's argument, you asked about this -- this repayment agreement. The concept of a repayment agreement being any use to a lawyer who is thinking about taking one of these cases is fanciful for two reasons: Number one, SSI benefits by statute are limited to, quote, "aged, blind, and disabled people who have little or no money. " So, I don't know where the disabled or blind or aged person is going to get the money to enter into any repayment agreement. But the second reason it's fanciful is that the attorney only has 60 days from final agency action to file the case in Federal court. And, so, there is 60 days to, you know, meet with the client and try to get an answer out of the government. I've never tried to do this -- I don't know anyone who has -- but I don't think you're going to get much of an answer at 60 days asking the government to do this so the attorney can then recover a fee. Finally, there's -- there's a critical point here that I need to get to, which is that I think Congress has told us exactly what this language means. Here's why. In 1985, Congress enacts EAJA and uses this section 3 language which talks about who gets the fee, large or smaller fee. Okay. In 1992, Congress extends EAJA to Veterans claims. And when it does that, in 38 U.S.C. 5904, Congress uses the same language, down to the exact commas in the same place, that it has done in 1985. During this entire period -- and here's why that's important -- during that entire period from 1985 to 1992, and indeed continuing many years after that, but for purposes here, 1992, the administration is every time paying the attorney's fee to the attorney under EAJA. And so when Congress in 1992 uses the same language for Veterans EAJA claims that it used for Social Security EAJA claims 7 years earlier, Congress, as a matter of law, is incorporating the settled administrative construction--
Antonin Scalia: I thought the -- I thought the government said they only did that when -- when the court directed that it be paid to the attorney.
James D. Leach: --Mr. Yang was talking about from 2006 on. From 1990 -- from 1985 to 2006, every EAJA fee went to the attorney.
Ruth Bader Ginsburg: Because there was no offset in the picture because the government wasn't offsetting.
James D. Leach: Two responses, Your Honor: The offset came into the picture in 1996, but the government says it wasn't practical to 2005. Even if you grant them that point, the agency had to make -- totally apart from offset, the agency had to decide who these fees should be paid to under section 3 -- I mean under EAJA. The government had to say, who does this statute say fees should be paid to? Now, had the government said, well, fees go to the client, says, you know, award to the prevailing party, fees and other expenses, we are going to pay attorney's fees to clients, which had never happened. But had the government said that -- that's not what they said. They look at the statute. They look at the fact that the attorney earned the fees, and they say we are going to pay these fees to the attorney. So that's what's going on at the time Congress in 1992 copies its 1985 language--
Ruth Bader Ginsburg: But Congress has provided in some statutes, the Social Security Act itself, 406, that you quoted, for the fee to be paid directly to the attorney. Here it used different language; it said pay the prevailing party.
James D. Leach: --Just two points, Justice Ginsburg: Number one, we get back to this question about does payment mean who receives the check or who is entitled to benefit from it? Number two, EAJA doesn't say pay to the party. EAJA doesn't use the phrase 406 says payment to the attorney. EAJA doesn't say that, "payment", at all. The only place you find EAJA is where it says the government cannot be required to pay a filing fee. There is this, shall award to a prevailing party fees and other expenses, and (d)(2)(A) defines "fees" to include quote, "attorney fees", close quote. I'm finishing my sentence, Your Honor.
John G. Roberts, Jr.: --Go ahead.
James D. Leach: Thank you. And -- and so EAJA.
John G. Roberts, Jr.: Thank you, counsel.
James D. Leach: Thank you very much, Your Honor.
John G. Roberts, Jr.: Mr. Yang, you have 4 minutes remaining.
Anthony A. Yang: I believe I heard counsel concede that EAJA fees outside of the Social Security context are payable to the prevailing party and therefore subject to offset. That's true. EAJA does not draw a distinction between Social Security fees and other types of fees. Section 2412 uses the same language, court shall award to the prevailing party fees and other expenses. I believe that disposes of this case. Second, counsel relies on a definition of "representative payee" in the offset regulations. That's addressed at reply -- our reply, page 2, footnote 1. A representative payee -- as the Federal Register provisions that relate to this make clear, it refers to things like attorneys, it refers to things like parents, where the beneficial interest is not that of the attorney or the parent but the client and the child. It would be entirely unworkable if any time that a payee owes some debt that a third party might claim an interest to, that the government would have to find out the payee's finances and obligations in order to execute an offset. It's simply not the way the offset program was designed, and it's not reflected in the regulation.
Sonia Sotomayor: Counsel, is your adversary correct that under 406(b)--
Anthony A. Yang: (2).
Sonia Sotomayor: --(b)(2), that if these attorneys -- if any attorney attempts to collect from a Social Security or Veterans client any fees outside of those granted--
Anthony A. Yang: No. Section 206(b) of the EAJA, which is reproduced on 4a of our appendix, states that section 206(b)(2), the provision you were talking about, shall not apply with respect to any such award, meaning any award under EAJA, so long as where the attorney receives fees, the smaller fee is returned. So--
John G. Roberts, Jr.: Counsel, do you -- do you dispute your friend's statement that 42 percent of the time in Social Security cases the government's position is unjustified, and 70 percent of the time in Veterans cases?
Anthony A. Yang: --Well, I think that reflects the stakes often, Your Honor. Oftentimes the government does not contest, for instance, a $2,000 EAJA award and because it's the government, it has to--
John G. Roberts, Jr.: So whenever it really makes a difference--
Anthony A. Yang: --No--
John G. Roberts, Jr.: --70 percent of the time the government's position is substantially unjustified?
Anthony A. Yang: --In cases -- in the VA context, the number is not quite that large, but there's a substantial number of cases at the court of appeals--
John G. Roberts, Jr.: What number would you accept?
Anthony A. Yang: --It was, I believe, in the order of either 50 or maybe slightly more than 50 percent. It might be 60. But the number is substantial that you get a reversal, and in almost all of those cases, EAJA--
John G. Roberts, Jr.: Well, that's really startling, isn't it? In litigating with veterans, the government more often than not takes a position that is substantially unjustified?
Anthony A. Yang: --It is an unfortunate number, Your Honor. And it is -- it's accurate. With respect to the question of in the Social Security context, EAJA awards occur not only -- excuse me, 406(b) awards under the Social Security Administration do not apply in only the 5 percent of the cases that get judgment entered. 406(b) provides that any time a judgment that leads to an award of benefits is made, then 406(b) fees are awarded. So even if in cases that were remanded to the Social Security Administration, as in this case, you could get 406(b) fees. It's just a question of the timing. You have to do so after a remand determines the amount of the fee. So in all cases in which a claimant ends up recovering back benefits -- prevailing and recovering back benefits as a result of a successful court case, that attorney is entitled to payment under 406(b) pursuant to the fee agreement with the client.
Ruth Bader Ginsburg: What would that be in this case? What was the -- the amount?
Anthony A. Yang: That is not in the record, but what is in the record -- actually, no, this is not in the record, either. But the court's -- I can tell you that the district court's opinion at the underlying case, pursuant to the government's concession, awarded -- determined that 2 additional months of benefits would be paid.
John G. Roberts, Jr.: Thank you, counsel. The case is submitted.