Opinion ID: 2827109
Heading Depth: 3
Heading Rank: 2

Heading: Attorney’s Fees Under CAFRA Belong to the

Text: Client In determining whether the Anti-Assignment Act applies in this case, we must decide whether the attorney’s fees awards “belong” to the Kim Claimants or to Honig. If the awards belong to and are directly payable to Honig, then the Anti-Assignment Act will not apply, as no assignment will have been necessary to place the awards in Honig’s hands. Honig contends that his right to the fee award arose from the representation agreement and vested the moment that the Kim Claimants prevailed against the Government. Honig interprets our precedent to mean that fee awards are an asset of the attorney, not the client. Again, the question before us is not who is ultimately entitled to the fee awards, but whether that award can be paid directly to the attorney from the United States. In Astrue v. Ratliff, the Supreme Court confronted a similar question: whether an award of attorney’s fees under 24 UNITED STATES V. KIM the EAJA could be paid directly to the attorney. 560 U.S. at 589. The attorney in Ratliff sought direct payment, because the government asserted a right to offset the judgment against the litigant’s preexisting debt. Id. Within the EAJA context, the Supreme Court held that a “fees award is payable to the litigant and is therefore subject to a Government offset to satisfy a pre-existing debt that the litigant owes the United States.” Id. The Supreme Court so held, even though it recognized “the practical reality that attorneys are the beneficiaries and, almost always, the ultimate recipients of the fees that the statute awards to prevailing parties.” Id. at 598 (alteration and internal quotation marks omitted). We extended Ratliff to the CAFRA context in $186,416.00 I, holding that “attorney fees awarded under CAFRA are payable to the claimant, not to claimant’s attorney.” 642 F.3d at 754. We further observed that “[d]irect payment to the attorney is the exception, not the rule. . . . Unless the statute specifies payment to the litigant’s attorney, payment to the attorney is not assumed.” Id. at 756. There is no language in CAFRA providing for direct payment of a fee award to the attorney. Honig and the Kim Claimants rely on pre-Ratliff cases to argue that the fee awards should be paid directly to Honig. The primary case they rely upon is U.S. ex rel Virani v. Jerry M. Lewis Truck Parts & Equip., Inc., 89 F.3d 574 (9th Cir. 1996). In that case (a qui tam action where fees were awarded under the False Claims Act), we determined that “the fee is for the attorney and the attorney should receive it,” that is, the fees should be paid directly to the attorney. Id. at 578. We left no doubt there: a fee award “must be directed to the attorney. Were the rule otherwise, plaintiffs would obtain possession of fee awards, and attorneys would be left to attempt to obtain the money paid for their services as best UNITED STATES V. KIM 25 they could.” Id. at 579. Honig also cites to Marre v. United States, where the Fifth Circuit squarely held that the government could not set off an award of fees to the client’s attorney against the client’s tax liability, because the fee belongs to the attorney.7 117 F.3d 297, 304 (5th Cir. 1997). However, the reasoning in these cases does not survive Ratliff. In Virani, we recognized that the language of the False Claims Act provided that attorney’s fees awards were to be paid to the clients, but interpreted this language to mean that a client had only the “power” to decide whether to seek fees or not. 89 F.3d at 576–79. In Ratliff, the Supreme Court interpreted the text of the EAJA, providing that fees are to be awarded to the prevailing party, to mean that an award of attorney’s fees was to be paid directly to the party and not to the attorney. 560 U.S. at 592–93. Ratliff arrived at this holding in the same posture as Marre: whether the fee was paid directly to the attorney or not affected the government’s right to use the fee award to offset a preexisting liability. Id. at 590–91. The Supreme Court in Ratliff recognized that it was overturning circuit precedent that provided for direct payment of fee awards under the EAJA to attorneys. Id. Accordingly, Ratliff abrogated Virani,8 and we are bound by 7 Notably, the Fifth Circuit’s reasoning was motivated in part by a recognition that, if the attorney’s ownership of the fees derived from an assignment, that interest would be voided by the Anti-Assignment Act. Marre, 117 F.3d at 305. 8 “As a three-judge panel of this circuit, we are bound by prior panel decisions . . . and can only reexamine them when their ‘reasoning or theory’ of that authority is ‘clearly irreconciliable’ with the reasoning or theory of intervening higher authority.” Rodriguez v. AT&T Mobility Servs. LLC, 728 F.3d 975, 979 (9th Cir. 2013) (quoting Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003) (en banc)). “It is not enough for there 26 UNITED STATES V. KIM our holding in $186,416.00 I that “attorney fees awarded under CAFRA are payable to the claimant, not to claimant’s attorney.” 642 F.3d at 754. Honig and the Kim Claimants’ final argument that the fees should be paid directly to Honig depends upon language in United States v. $186,416.00 that “fees may be directed to an attorney on account of a contractual assignment, even when the attorney has no statutory right to collect fees directly.” 722 F.3d 1173, 1175 (9th Cir. 2013) (“$186,416.00 II”). However, in that case, the government had waived its rights under the Anti-Assignment Act. Id. at 1176 n.1. $186,416.00 II did not reach this question: whether a contractual assignment of an attorney’s fees award can survive after the government invokes its rights under the Anti-Assignment Act. Because an award of attorney’s fees under CAFRA is “a claim against the United States” and the fees are payable directly to the Kim Claimants, the AntiAssignment Act applies to the assignment in this case. The remaining question is the scope of the Anti-Assignment Act and what rights, if any, Honig retains in the fee awards. to be ‘some tension’ between the intervening higher authority and prior circuit precedent, or for the intervening higher authority to ‘cast doubt’ on prior circuit precedent. The intervening higher precedent must be ‘clearly inconsistent’ with the prior circuit precedent.” Lair v. Bullock, 697 F.3d 1200, 1207 (9th Cir. 2012) (citations omitted) (quoting United States v. Delgado-Ramos, 635 F.3d 1237, 1239 (9th Cir. 2011) and United States v. Orm Hieng, 679 F.3d 1131, 1140–41 (9th Cir. 2012)). We are unable to reconcile Virani with Ratliff under even this demanding standard. UNITED STATES V. KIM 27 C. The Anti-Assignment Act Voids the Assignment of the Fee Awards, but Honig Retains an Attorney’s Lien in the Proceeds The plain language of the Anti-Assignment Act compels the conclusion that the purported assignment of the Kim Claimants’ attorney’s fees awards to Honig is void. The Act states that “[a]n assignment may be made only after” the laundry list of requirements has been met. 31 U.S.C. § 3727(b). It is undisputed that the Kim Claimants and Honig failed to abide by the Anti-Assignment Act. Because it applies to the assignment at issue in this case, that assignment is void. Therefore, the award of attorney’s fees must be paid to the Kim Claimants, and not to Honig. Cases interpreting the Anti-Assignment Act over its long history have been unequivocal: the Act, where it applies, is a total bar on the assignment of claims against the United States. In United States v. Gillis, the Supreme Court held that assignments that ran afoul of the Anti-Assignment Act “were made void by the statute.” 95 U.S. at 415. Failure to comply with the Act renders an “assignment ‘null and void as against the United States.’” Northrop Grumman Computing Sys., Inc. v. United States, 709 F.3d 1107, 1113 (Fed. Cir. 2013). However, voiding the assignment is the extent of the Act’s reach; applying the Act “leaves the claim where it was before the purported assignment.” Colonial Navigation Co. v. United States, 181 F. Supp. 237, 240 (Ct. Cl. 1960). The underlying agreement is untouched, only the assignment is voided. See Murkledove, 635 F.3d at 794. Thus, although the assignment is voided by the Anti-Assignment Act, there is nothing in the Act to prevent Honig from obtaining an interest in the attorney’s fees awards through another mechanism. 28 UNITED STATES V. KIM Under California law, Honig obtained an attorney’s lien against the CAFRA attorney’s fees awards. “In California, an attorney’s lien is created only by contract—either by an express provision in the attorney fee contract or by implication where the retainer agreement provides that the attorney is to look to the judgment for payment for legal services rendered.” Carroll v. Interstate Brands Corp., 121 Cal. Rptr. 2d 532, 534 (Ct. App. 2002) (citations omitted). “An attorney’s contractual lien is created and takes effect when the fee agreement is executed.” Waltrip v. Kimberlin, 79 Cal. Rptr. 3d 460, 465 (Ct. App. 2008). “A contractual lien for attorney fees is a secret lien; no notice is required before it is effective against a judgment creditor who levies on the judgment.” Id. The language of the fee agreement in this case states that a fee award under CAFRA belongs to Honig. This language is likely sufficient under California law to give rise to a lien in the attorney’s fees awards for Honig’s benefit. The Government concedes that Honig likely obtained a lien in the fee awards as a matter of California law. The Government argues, however, that the Anti-Assignment Act reaches beyond the assignments at issue and voids any interest that Honig might have in the awards, at least as against the United States, leaving the Government’s tax liens with priority over all other interests. The Government relies primarily on two Supreme Court cases for its expansive view of the Anti-Assignment Act’s scope. In Nutt v. Knut, the Supreme Court held that a clause in a contract “making the payment of the attorney’s compensation a lien upon the claim asserted against the government” was “null and void upon its face.” 200 U.S. 12, 20 (1906). However, the Supreme Court declined to reverse the state court judgment in favor of the attorney, holding that the contract “created a legal obligation upon the part of the UNITED STATES V. KIM 29 [client] which, if not recognized after collection of the money, could have been enforced by suit for the benefit of the attorney, without doing violence to the statute or to the public policy established by its provisions.” Id. at 21. At most, voiding the clause in the contract meant that the “agreement did not give the attorney any interest or share in the claim itself, nor any interest in the particular money paid over to the claimant by the government.” Id. That said, the Supreme Court in Nutt did not confront the issue here: the contract “did not assume to give [the attorney] any lien upon the claim, or any priority in the distribution of the money . . . . Indeed, no lien is asserted by the plaintiff in his pleadings.” Id. Nutt was followed by the second Supreme Court case relied upon by the Government, Calhoun v. Massie, 253 U.S. 170 (1920). In Calhoun, the Supreme Court held that the Anti-Assignment Act voided “[t]he provision in the contract sued on purporting to give a lien upon any warrant issued.” Id. at 175. This was the only line in Calhoun that pertained to the Anti-Assignment Act, the rest of the case was devoted to a statute limiting contingency fee agreements for Civil War claims. Id. Other cases have followed Nutt and Calhoun to hold that attorneys may not take a contingency interest in or a lien against claims against the United States. See United States v. Transocean Air Lines, Inc., 386 F.2d 79, 82 (5th Cir. 1967) (“A contingent fee in a judgment against the United States is an assignment subject to the Anti-assignment Act.”); Kearney v. United States, 285 F.2d 797, 800 (Ct. Cl. 1961) (“[A] contract between an attorney and a client which gives the attorney an interest in the client’s claim against the Government is exactly what the anti-assignment statute forbids.”); Pittman v. United States, 116 F. Supp. 576, 580 (Ct. Cl. 1953) (holding that Nutt “stands for the broad principle that any attempt to impress a lien upon the proceeds 30 UNITED STATES V. KIM of a claim against the United States as security for the payment of an attorney’s fee is within the ends to which the prohibition of [the Act] was aimed.”). However, Honig is not asserting a right akin to a contingency fee in the awards, which could be voided by operation of the Anti-Assignment Act. His lien against the awards arose from the representation agreement by operation of California law. The Government’s cited precedents stand for a narrow proposition: an assignee may not stand in the shoes of the assignor and seek payment directly from the United States. In all of the cases cited, the attorney was seeking direct payment from the United States, and thus stood in the shoes of the assignor. See Transocean Air Lines, Inc., 386 F.2d at 81; Kearney, 285 F.2d at 799; Pittman, 116 F. Supp. at 577; see also Shannon, 342 U.S. at 290–91; Aetna Cas. & Sur. Co., 338 U.S. at 369; Gillis, 95 U.S. at 411. Calhoun reinforces this interpretation of the Anti-Assignment Act. Calhoun stated only that the Anti-Assignment Act prohibited the creation of a lien on the warrant. 253 U.S. at 175. The warrant, at that time, was not the proceeds of a claim against the United States but the right to be paid directly from the Treasury. See Black’s Law Dictionary 1724 (9th ed. 2009) (defining “treasury warrant” as “[a]n order in the form of a check on which government disbursements are paid”). Notably, the predecessor to the Anti-Assignment Act stated only that a claim allowed by Congress “shall not . . . be paid to any person or persons other than the claimant or claimants.” Act of July 29, 1846, ch. 66, 9 Stat. 41. From the beginning, then, the Anti-Assignment Act has been concerned with direct payment of claims. Subsequent to Nutt and Calhoun, the Supreme Court relaxed the harsh strictures of the Anti-Assignment Act. In UNITED STATES V. KIM 31 Martin, the Court confirmed that the Anti-Assignment Act reaches only the initial payment from the Treasury, holding that “[a]n assignment ineffective at law may none the less amount to the creation of an equitable lien when the subject matter of the assignment has been reduced to possession and is in the hands of the assignor.” Martin, 300 U.S. at 597. This interpretation is consistent with the Act’s purposes. The United States has no need to worry about fraud or any of the other evils associated with the assignment of claims against it once the proceeds of the claim have been reduced to the possession of the purported assignor. The key purpose of the act in this case, “to save to the United States ‘defenses which it has to claims by an assignor . . . which might not be applicable to an assignee,’” Shannon, 342 U.S. at 291–92 (citation omitted), is not implicated when the proceeds of the claim have already been paid out. By the time the CAFRA awards have been paid to the Kim Claimants, as they must, the Government has had every opportunity to assert any defenses that it had against the Kim Claimants. Adopting the Government’s position would transform the Anti-Assignment Act from its core purpose as a defense that the Government may assert to claims against the United States, see Murkledove, 635 F.3d at 794, to a far reaching mechanism that the Government can use to interfere with the private arrangements of a claimant solely because the claimant has come into possession of federal moneys. The circumstances of this case illustrate why the AntiAssignment Act should be so circumscribed. The Government urges us to extend the Anti-Assignment Act to invalidate all interests that Honig has in the attorney’s fees awards that he earned, because such an interpretation is necessary to protect the Government’s ability to collect taxes. However, the Government had an opportunity to protect its 32 UNITED STATES V. KIM ability to collect taxes in this case and will have that ability in the future. Nothing in our opinion today impinges upon the Government’s statutory right to offset an award of attorney’s fees against a claimant’s tax liabilities. The Government in this case simply waived its right to do so, and now seeks to stretch the Anti-Assignment Act beyond all recognition to rescue it from its litigation decision. Having waived the right to set off the attorney’s fees awards, the Government must rely on its tax liens against the Kim Claimants, and it is free to enforce them. But in doing so, the Government will have to contend with Honig’s attorney’s lien. Because the Anti-Assignment Act applies to void the assignment in the representation agreement between the Kim Claimants and Honig, we vacate the district court’s order awarding attorney’s fees directly to Honig. We remand for further proceedings, including determining the priority of liens in the awards.9