Opinion ID: 510634
Heading Depth: 3
Heading Rank: 2

Heading: Calculation of the Fees

Text: 14
15 The EAJA establishes a statutory rate of $75 per hour unless the court determines that an increase in the level of pay is justified by an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for the proceedings involved. 28 U.S.C. Sec. 2412(d)(2)(A)(ii). The Supreme Court has recently held that the latter clause, allowing an increase for certain special factor[s], must be interpreted narrowly and cannot be read to encompass situations in which normally skilled and qualified attorneys are simply in short supply. See Pierce, --- U.S. at ---- - ----, 108 S.Ct. at 2553-54. Moreover, the Court held that the contingent nature of a fee could not constitute a special factor allowing district courts to increase the $75 per hour rate. See id. at ----, 108 S.Ct. at 2554. The Court noted that the EAJA, a statute of broad application in litigation involving the government, is not directed [at] a category of litigation that can be identified in advance by the contingent-fee attorney. Id. Moreover, the EAJA is not designed to reimburse reasonable fees without limit. Id. Notwithstanding the narrowing of the special factor[s] language in Pierce, however, it remains clear that the EAJA's $75 per hour rate can be increased to reflect a demonstrable increase in the cost of living since the date of the statute's effectiveness. See, e.g., Parks v. Bowen, 839 F.2d 44, 45-46 (2d Cir.1988) (per curiam) (awarding EAJA fees at $93 per hour). We hold that Chief Judge Munson was acting well within his discretion in deciding to award EAJA fees at a rate of $90 per hour. 16 Having calculated the EAJA fee awards, however, the district court summarily denied any fees under the SSA. In two of the four cases at issue here, Chief Judge Munson simply concluded that any SSA fees would be nearly identical to those awarded under the EAJA; in the two other cases, he offered no explanation for his decision. We must consider, therefore, whether the calculation of fees under the SSA differs significantly from that under the EAJA and whether some independent consideration of the amount of any such fee award was necessary in these cases. 17
18 When a statute mandates an award of reasonable fees, as does the SSA, such fees typically must be set at the prevailing market rates in the relevant community. See, e.g., Blum v. Stenson, 465 U.S. 886, 892-96, 104 S.Ct. 1541, 1545-48, 79 L.Ed.2d 891 (1984) (42 U.S.C. Sec. 1988); Miele v. New York State Teamsters Conference Pension & Retirement Fund, 831 F.2d 407, 408-09 (2d Cir.1987) (ERISA). Moreover, when a statute calls for an award of reasonable fees, the district court, in determining the prevailing market rates, may not simply rely on specific hourly rates mandated by other statutes, such as the EAJA or the Criminal Justice Act, 18 U.S.C. Sec. 3006A (1982 & Supp. IV 1986). See Coup, 834 F.2d at 324; Miele, 831 F.2d at 408-09. If the record in a particular case is unclear as to what criteria the district court used in setting reasonable fees, or if it appears that the court impermissibly relied on inapplicable statutory standards, then a remand for clarification and recalculation is necessary. See id. at 408-10. 19 From the records in the instant cases, it does not appear that the district court engaged in any independent analysis of what would constitute a reasonable fee award under 42 U.S.C. Sec. 406(b). In fact, in simply concluding in Oliver and Wells that any SSA fees would be nearly identical to the EAJA fees, the district court appears to have impermissibly transported the EAJA rate ceiling into his assessment of what would be reasonable under the SSA. We believe that this necessitates a remand. As we have already discussed, the fee provisions of the SSA and the EAJA are independent statutes even though they may be employed together in appropriate cases. When fees are awarded under both statutes, the proper course is to award the smaller amount to the client. It is therefore necessary in cases involving proper dual fee applications to compute the SSA fee independently, with reference to the prevailing market rates in the relevant community. 20 Generally, the first step in the calculation of reasonable attorney's fees is the determination of the so-called lodestar amount. See, e.g., Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, 478 U.S. 546, 563-64, 106 S.Ct. 3088, 3097-98, 92 L.Ed.2d 439 (1986) (Delaware Valley I ); Laffey v. Northwest Airlines, Inc., 746 F.2d 4, 12-13 & n. 56 (D.C.Cir.1984), cert. denied, 472 U.S. 1021, 105 S.Ct. 3488, 87 L.Ed.2d 622 (1985); City of Detroit v. Grinnell Corp., 560 F.2d 1093, 1099 (2d Cir.1977) (Grinnell II ); Lindy Bros. Builders, Inc. v. American Radiator & Standard Sanitary Corp., 487 F.2d 161, 166-69 (3d Cir.1973) (Lindy I ). The lodestar amount represents the number of hours reasonably worked on a case multiplied by the reasonable hourly rate. See Delaware Valley I, 478 U.S. at 564, 106 S.Ct. at 3097 (citing Lindy I, 487 F.2d at 167); Laffey, 746 F.2d at 12-13; Grinnell II, 560 F.2d at 1099. See also Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 1939, 76 L.Ed.2d 40 (1983). Certain variable criteria such as the novelty of a case and the individual attorney's skill are subsumed into this initial calculation. See Delaware Valley I, 478 U.S. at 564, 106 S.Ct. at 3098; Blum, 465 U.S. at 898-900, 104 S.Ct. at 1548-50. Beyond that, additional enhancement is permissible in certain exceptional cases. See Delaware Valley I, 478 U.S. at 565, 106 S.Ct. at 3098; Blum, 465 U.S. at 899-901, 104 S.Ct. at 1549-50. In these appeals, we must decide if enhancement is permissible under 42 U.S.C. Sec. 406(b) to reflect the risks inherent in a contingent-fee agreement--namely, the risks of loss and nonpayment and the risk of delay in receiving payment. 21 Several courts of appeals have held that the risks associated with contingent-fee agreements may be taken into account in enhancing attorney's fees under certain statutory provisions, including the SSA provision at issue here. See Coup, 834 F.2d at 324-25 (SSA); Lewis v. Coughlin, 801 F.2d 570, 573-76 (2d Cir.1986) (42 U.S.C. Sec. 1988); Blankenship v. Schweiker, 676 F.2d 116, 118 (4th Cir.1982) (SSA); Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 718 (5th Cir.1974) (Title VII). District courts in this Circuit, however, have differed in their views of the proper role of contingency factors in calculating fees pursuant to the SSA. Compare Modica v. Secretary of Health and Human Services, 581 F.Supp. 39, 40 (E.D.N.Y.1984) (refusing to consider contingency factors), with Allen, 588 F.Supp. at 1249-50 (noting that contingency factors are permissible considerations in setting fees under 42 U.S.C. Sec. 406(b)). See also Penny v. Heckler, 623 F.Supp. 1240, 1243 (E.D.N.Y.1986) (suggesting that enforcement of contingent-fee agreements in social security cases may be reprehensible). The Supreme Court recently addressed the issue of contingency enhancement when considering fee awards under the Clean Air Act, 42 U.S.C. Sec. 7604(d) (1982). In Pennsylvania v. Delaware Valley Citizens' Council for Clean Air, --- U.S. ----, 107 S.Ct. 3078, 97 L.Ed.2d 585 (1987) (Delaware Valley II ), a plurality of the Court held that the risk of loss associated with contingent-fee agreements is an impermissible factor for enhancing attorney's fees under the usual fee-shifting statutes. See id. at ----, 107 S.Ct. at 3087. As for the risk of nonpayment, the plurality held that such enhancement should be reserved for exceptional cases. Id. Specifically, the plurality held that such an adjustment must be supported by evidence, on the record, that without risk-enhancement plaintiff would have faced substantial difficulties in finding counsel in the local or other relevant market. Id. at ----, 107 S.Ct. at 3089. 22 Justice O'Connor wrote separately in Delaware Valley II, concurring in part and concurring in the judgment. She joined the four dissenters in holding that enhancement for all the risks of contingency was intended by Congress when it passed such fee-shifting provisions as 42 U.S.C. Sec. 1988 and that in the Clean Air Act. See id. at ----, 107 S.Ct. at 3089; see also id. at ----, ---- - ----, 107 S.Ct. at 3091, 3095-3100 (Blackmun, J., dissenting). Moreover, Justice O'Connor joined the dissenters in concluding that compensation for contingency must be based on the difference in market treatment of contingent fee cases as a class, rather than on an assessment of the 'riskiness' of any particular case. Id. at ----, 107 S.Ct. at 3089. She indicated, however, that she would reserve contingency enhancement for a narrower class of cases than the dissenters, limiting such a step to those situations in which the unavailability of such enhancement would create  'substantial difficulties in finding counsel in the local or other relevant market.'  See id. at ---- - ----, 107 S.Ct. at 3089-91 (quoting plurality opinion). The dissenters, by contrast, would have allowed enhancement whenever an attorney faced a risk of nonpayment that could not be mitigated in any other way. See id. at ---- - ----, 107 S.Ct. at 3095-3100. 23 Since Delaware Valley II was decided, the Third Circuit, in Coup v. Heckler, has considered whether enhancement for the risks of contingency is appropriate under 42 U.S.C. Sec. 406(b). First, the court distinguished the issue before it from that in Delaware Valley II by noting that fees paid to an attorney under the SSA fee provision are paid by the client and not by the government--a factor that influenced the Delaware Valley II plurality. See 834 F.2d at 324. [A] contingency enhancement [under the SSA] simply recognizes that [a client] was willing to pay more to induce his attorney to take a case where there was a risk of nonpayment. Id. This conclusion follows directly from the Coup Court's earlier observation that 42 U.S.C. Sec. 406(b) does not involve consideration of sovereign immunity, but rather [is] a statutory interference with the attorney client contractual relationship[,] which would otherwise be determined by the marketplace for legal services. Id. 24 We agree that the considerations that led the Delaware Valley II plurality to limit the use of risk-enhancement factors under the usual fee-shifting statutes, --- U.S. at ----, 107 S.Ct. at 3087, are inapplicable in the SSA context, where the award of attorney's fees is predicated on a pre-existing, consensual agreement between the attorney and the client. See Wolverton v. Heckler, 726 F.2d 580, 582 (9th Cir.1984) (noting that 42 U.S.C. Sec. 406(b) is not a fee-shifting statute). For the same reason, we believe that the instant cases are distinguishable from the Supreme Court's recent decision in Pierce, in which the Court held that the risks of contingency are improper factors for the upward adjustment of the hourly rate ceiling set by the EAJA. See --- U.S. at ----, 108 S.Ct. at 2554. The SSA fee provision itself recognizes that fee arrangements in this area of practice typically are based on a percentage of any past-due benefits ultimately received by the client. Given that reality, and the very real prospects of failure inherent in this field of practice, 1 any reasonable fee must reflect the risks of loss and nonpayment. Otherwise, the fees would not realistically reflect the prevailing market conditions in this entire class of cases and the consequent availability of competent representation. See Delaware Valley II, --- U.S. at ---- - ----, 107 S.Ct. at 3095-3100 (Blackmun, J., dissenting); see also id. ---- - ---- 107 S.Ct. at 3089-90 (O'Connor, J., concurring). Even [t]he effective lawyer will not win all of his cases, and any determination of the reasonableness of his fees in those cases in which his client prevails must take account of the lawyer's risk of receiving nothing for his services. McKittrick v. Gardner, 378 F.2d 872, 875 (4th Cir.1967) (discussing 42 U.S.C. Sec. 406(b)). 25 We therefore hold that the risks associated with a typical contingent-fee agreement are necessary factors for a district court to consider in setting a reasonable fee pursuant to 42 U.S.C. Sec. 406(b). Moreover, as the Coup Court noted, any enhancement for delay in receiving payment is an additional factor that must be considered separately from the risks of loss and nonpayment generally associated with contingent agreements. See 834 F.2d at 324-25. We refuse, however, to adopt the appellants' recommendation and hold that enhancement for contingency factors should be an automatic numerical multiplier in all cases, based on some prevailing statistical success rate. See note 1, supra. Nor do we believe that the contingency percentage embodied in any given attorney-client contract should be treated by the district court as presumptively reasonable for purposes of 42 U.S.C. Sec. 406(b). Rather, district courts must have some discretion in individual cases to decide how much weight to assign to the risks assumed by an attorney. The court may consider a variety of factors, including the success rate in social security cases in general or in a particular subclass of cases. But, the district court may not simply refuse to employ a contingency enhancement on the ground that it is an unfair, impermissible or reprehensible factor. Cf. Penny, 623 F.Supp. at 1243; Modica, 581 F.Supp. at 40. In any case in which the pre-existing fee agreement is contingent in nature, the court must articulate, on the record, the weight assigned to the risks of contingency in its calculation of a fee. Such decisions will then be subject to review under an abuse of discretion standard. Cf. Pierce, --- U.S. at ---- - ----, ----, 108 S.Ct. at 2546-49, 2551-53.