OCTOBER TERM, 2001
Syllabus
GISBRECHT ET AL.
v. BARNHART, COMMISSIONER OF SOCIAL
SECURITY
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH
CIRCUIT
No.01-131. Argued March 20, 2002-Decided May 28, 2002
An attorney who successfully represents a Social Security
benefits claimant in court may be awarded as part of the judgment
"a reasonable fee ... not in excess of 25 percent of the ...
past-due benefits" awarded to the claimant. 42 U. S. C. §
406(b)(1)(A). The fee is payable "out of, and not in addition to,
the amount of [the] past-due benefits."
Ibid. In many cases,
as in the instant case, the Equal Access to Justice Act (EAJA)
effectively increases the portion of past-due benefits the
successful Social Security claimant may pocket. Under EAJA, a party
prevailing against the United States in court may be awarded fees
payable by the United States if the Government's position in the
litigation was not "substantially justified." 28 U. S. C. §
2412(d)(1)(A). Congress harmonized fees payable by the Government
under EAJA with fees payable under §406(b) out of the Social
Security claimant's past-due benefits: Fee awards may be made under
both prescriptions, but the claimant's attorney must refund to the
claimant the amount of the smaller fee, up to the point the
claimant receives 100 percent of the past-due benefits.
Petitioners Gisbrecht, Miller, and Sandine brought separate
actions in the District Court seeking Social Security disability
benefits under Title II of the Social Security Act. All three were
represented by the same attorneys and prevailed on the merits of
their claims. Each petitioner then successfully sought attorneys'
fees under EAJA. Pursuant to contingent-fee agreements standard for
Social Security claimant representation, each petitioner had agreed
to pay counsel 25 percent of all past-due benefits recovered. Their
attorneys accordingly requested $7,091.50 from Gisbrecht's
recovery, $7,514 from Miller's, and $13,988 from Sandine's. Given
the EAJA offsets, the amounts in fact payable from each client's
past-due benefits recovery would have been $3,752.39 from
Gisbrecht's recovery, $2,349.25 from Miller's, and $7,151.90 from
Sandine's. Following Ninth Circuit precedent, the District Court in
each case declined to give effect to the attorney-client fee
agreement, instead employing a "lodestar" method, under which the
number of hours reasonably devoted to each case was multiplied by
the reasonable hourly fee. This method yielded as § 406(b) fees
$3,135 from Gisbrecht's
790
Syllabus
recovery, $5,461.50 from Miller's, and $6,550 from Sandine's.
Offsetting the EAJA awards against the lodestar determinations, the
court determined that no portion of Gisbrecht's or Sandine's
past-due benefits was payable to counsel, and that only $296.75 of
Miller's recovery was payable to her counsel. The Ninth Circuit
consolidated the cases and affirmed.
Held: Section 406(b) does not displace contingent-fee
agreements within the statutory ceiling; instead, § 406(b)
instructs courts to review for reasonableness fees yielded by those
agreements. Pp. 799-809.
(a) Section 406(b)'s words, read in isolation, could be
construed to allow either the Ninth Circuit's lodestar approach or
petitioners' position that the attorney-client fee agreement should
control, if not "in excess of 25 percent of ... the past-due
benefits." Because the statute's text is inconclusive, this Court
takes into account, as interpretive guides, the origin and standard
application of the proffered approaches. Pp. 799-800.
(b) The lodestar method, though rooted in accounting practices
adopted in the 1940's, did not gain a firm foothold in the federal
courts until the mid-1970's. The lodestar method today holds sway
in federalcourt adjudication of disputes over the amount of fees
properly shifted to the loser in the litigation. Fees shifted to
the losing party, however, are not at issue here. Pp. 800-802.
(c) Section 406(b) authorizes fees payable from the successful
party's recovery. Characteristically in Social Security benefits
cases, attorneys and clients enter into contingent-fee agreements
specifying that the attorney's fee will be 25 percent of any
past-due benefits to which the claimant becomes entitled.
Contingent-fee arrangements, though problematic, particularly when
not exposed to court review, are common in the United States in
many settings, and Social Security representation operates largely
on a contingent-fee basis. Before 1965, the Social Security Act
imposed no limits on contingent-fee agreements drawn by counsel and
signed by benefits claimants. Arrangements yielding exorbitant fees
reserved for lawyers one-third to one-half of the accrued benefits;
the longer the litigation persisted, the greater the buildup of
past-due benefits and, correspondingly, of legal fees awardable
from those benefits if the claimant prevailed. Attending to these
realities, Congress provided for a reasonable fee, not in excess of
25 percent of accrued benefits, as part of the court's judgment,
and specified that no other fee would be payable. Violation of
these limitations was made a criminal offense. In addition to
protecting claimants against inordinately large fees, Congress
sought to ensure that attorneys successfully representing Social
Security claimants would not risk nonpayment by
791
their clients. Congress therefore authorized agency payment of
fees directly to counsel from funds withheld from the claimant's
past-due benefits. But nothing in § 406(b)'s text or history
reveals a design to prohibit or discourage attorneys and claimants
from entering into contingent-fee agreements. Given the prevalence
of such agreements between attorneys and Social Security benefits
claimants, it is unlikely that Congress, simply by prescribing
"reasonable fees," meant to outlaw, rather than to contain, the fee
agreements. Pp. 802-805.
(d) This conclusion is bolstered by Congress' 1990 authorization
of contingent-fee agreements under § 406(a), which governs fees for
agency-level representation. It would be anomalous if
contract-based fees expressly authorized by § 406(a)(2) at the
administrative level were disallowed for court representation under
§ 406(b). It is also unlikely that Congress, legislating in 1965,
intended to install a lodestar method that courts did not develop
and employ until years later. Furthermore, the lodestar method was
designed to govern imposition of fees on the losing party. In such
cases, nothing prevents the attorney for the prevailing party from
gaining additional fees, pursuant to contract, from his own client.
But § 406(b) governs the total fee a successful Social Security
claimant's attorney may receive for court representation. Nothing
more may be demanded or received from the benefits claimant. Pp.
805-807.
(e) Most plausibly read, § 406(b) does not displace
contingent-fee agreements as the primary means by which fees are
set for successfully representing Social Security benefits
claimants in court. Rather, § 406(b) calls for court review of such
arrangements to assure that they yield reasonable results in
particular cases. Within the 25 percent boundary Congress provided,
the attorney for the successful claimant must show that the fee
sought is reasonable for the services rendered. Courts have reduced
the attorney's recovery based on the character of the
representation and the results the representative achieved. If the
attorney is responsible for delay, for example, a reduction is in
order so that the attorney will not profit from the accumulation of
benefits during the pendency of the case in court. And if the
benefits are large in comparison to the amount of time counsel
spent on the case, a downward adjustment is similarly in order. Pp.
807-808.
238 F.3d
1196, reversed and remanded.
GINSBURG, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and STEVENS, O'CONNOR, KENNEDY, SOUTER, THOMAS,
and BREYER, JJ., joined. SCALIA, J., filed a dissenting opinion,
post, p. 809.
792
Eric Schnaufer argued the cause for petitioners. With him
on the briefs were
Eric Schnapper and
Tim
Wilborn.
David B. Salmons argued the cause pro hac vice for respondent.
With him on the brief were Solicitor General Olson, Assistant
Attorney General McCallum, Deputy Solicitor General Clement,
William Kanter, and Frank A. Rosenfeld.
*
JUSTICE GINSBURG delivered the opinion of the Court. This case
concerns the fees that may be awarded attorneys who successfully
represent Social Security benefits claimants in court. Under 42 U.
S. C. §406(b) (1994 ed. and Supp. V),l a prevailing claimant's fees
are payable only out of the benefits recovered; in amount, such
fees may not exceed 25 percent of past-due benefits. At issue is a
question that has sharply divided the Federal Courts of Appeals:
What is the appropriate starting point for judicial determinations
of "a reasonable fee for [representation before the court]"? See
ibid. Is the contingent-fee agreement between claimant and
counsel, if not in excess of 25 percent of past-due benefits,
presumptively reasonable? Or should courts begin with a lodestar
calculation (hours reasonably spent on the case times reasonable
hourly rate) of the kind we have approved under statutes that shift
the obligation to pay to the loser in the litigation? See
Hensley v.
Eckerhart, 461 U. S. 424, 426 (1983)
(interpreting Civil Rights Attorney's Fees Awards Act of 1976, 42
U. S. C. § 1988, which allows a "prevailing party" to recover from
his adversary "a reasonable attor-
* Jeffrey Robert White filed a brief for the
Association of Trial Lawyers of America as
amicus curiae
urging reversal.
Daniel J. Popeo and
Richard A. Samp
filed a brief for the Washington Legal Foundation et al. as
amici curiae urging affirmance.
Nancy G.
Shor, Kirk B. Roose, Joel F.
Friedman,
Robert E. Rains, and
Eric Buchanan filed a brief for the
National Organization of Social Security Claimants' Representatives
as
amicus curiae.
149 Stat. 624, as amended.
793
ney's fee as part of the costs" (internal quotation marks
omitted)).
Congress, we conclude, designed § 406(b) to control, not to
displace, fee agreements between Social Security benefits claimants
and their counsel. Because the decision before us for review rests
on lodestar calculations and rejects the primacy of lawful
attorney-client fee agreements, we reverse the judgment below and
remand for recalculation of counsel fees payable from the
claimants' past-due benefits.
I A
Fees for representation of individuals claiming Social Security
old-age, survivor, or disability benefits, both at the
administrative level and in court, are governed by prescriptions
Congress originated in 1965. Social Security Amendments of 1965, 79
Stat. 403, as amended, 42 U. S. C. § 406.2
2 Before 1965, Congress did not explicitly authorize attorney's
fees for in-court representation of Social Security benefits
claimants. At least two Courts of Appeals, however, concluded that
42 U. S. C. § 405(g) implicitly authorized such fees. See
Bowen v.
Galbreath, 485 U. S. 74, 75-76 (1988)
(citing
Celebrezze v.
Sparks, 342
F.2d 286 (CA5 1965)) ("Under 42 U. S. C. § 405(g), a
court reviewing [a Social Security benefits decision] has the power
to enter 'a judgment affirming, modifying, or reversing the
decision ... .' The court in
Sparks reasoned that where a
statute gives a court jurisdiction, it must be presumed, absent any
indication to the contrary, that the court was intended to exercise
all the powers of a court, including the power to provide for
payment of attorney's fees out of any recovery. 342 F. 2d, at
288-289 [citing
Folsom v.
McDonald, 237 F. 2d
380,382-383 (CA4 1956)].").
As to administrative proceedings, the Social Security Act
originally made no provision for attorney's fees. 49 Stat. 620
(1935). Four years later, Congress amended the Act to permit the
Social Security Board to prescribe maximum fees attorneys could
charge for representation of claimants before the agency. Social
Security Act Amendments of 1939, 53 Stat. 1360. Congress expected
the need for counsel in agency proceedings to be slim. H. R. Rep.
No. 728, 76th Cong., 1st Sess., 44-45 (1939); S. Rep. No. 734, 76th
Cong., 1st Sess., 53 (1939). The Board subsequently established a
maximum fee of $10, permitting a higher fee only by petition
794
The statute deals with the administrative and judicial review
stages discretely: § 406(a) governs fees for representation in
administrative proceedings; § 406(b) controls fees for
representation in court. See also 20 CFR § 404. 1728(a) (2001).
For representation of a benefits claimant at the administrative
level, an attorney may file a fee petition or a fee agreement. 42
U. S. C. § 406(a). In response to a petition, the agency may allow
fees "for services performed in connection with any claim before"
it; if a determination favorable to the benefits claimant has been
made, however, the Commissioner of Social Security
"shall
... fix ... a reasonable fee" for an attorney's services. §
406(a)(1) (1994 ed.) (emphasis added). In setting fees under this
method, the agency takes into account, in addition to any benefits
award, several other factors. See 20 CFR § 404.1725(b) (2001).3
Fees may
to the agency. 20 CFR §403.713(d) (1949). The agency later
prescribed separate fees for representation at the initial and
appellate levels of the administrative process. 20 CFR § 404.976
(1961).
3 Title 20 CFR §404.1725(b) provides:
"Evaluating a request for approval of a fee.
"(1) When we evaluate a representative's request for approval of
a fee, we consider the purpose of the social security program,
which is to provide a measure of economic security for the
beneficiaries of the program, together with-
"(i) The extent and type of services the representative
performed; "(ii) The complexity of the case;
"(iii) The level of skill and competence required of the
representative
in giving the services;
"(iv) The amount of time the representative spent on the case;
"(v) The results the representative achieved;
"(vi) The level of review to which the claim was taken and the
level of the review at which the representative became your
representative; and "(vii) The amount of fee the representative
requests for his or her services, including any amount authorized
or requested before, but not including the amount of any expenses
he or she incurred.
"(2) Although we consider the amount of benefits, if any, that
are payable, we do not base the amount of fee we authorize on the
amount of the benefit alone, but on a consideration of all the
factors listed in this section. The benefits payable in any claim
are determined by specific provisions
795
be authorized, on petition, even if the benefits claimant was
unsuccessful. § 404.1725(b)(2).
As an alternative to fee petitions, the Social Security Act, as
amended in 1990, accommodates contingent-fee agreements filed with
the agency in advance of a ruling on the claim for benefits.
Omnibus Budget Reconciliation Act of 1990, 104 Stat. 1388-266 to
1388-267, as amended, 42 U. S. C. §§ 406(a)(2)-(4) (1994 ed. and
Supp. V). If the ruling on the benefits claim is favorable to the
claimant, the agency will generally approve the fee agreement,
subject to this limitation: Fees may not exceed the lesser of 25
percent of past-due benefits or $4,000 (increased to $5,300
effective February 2002). §§406(a)(2)(A)(ii), (iii) (1994 ed.); 67
Fed. Reg. 2477 (2002); see Social Security Administration, Office
of Hearings and Appeals, Litigation Law Manual (HALLEX) 1-5-109
IILA (Feb. 5, 1999).
For proceedings in court, Congress provided for fees on
rendition of "a judgment favorable to a claimant." 42 U. S. C. §
406(b)(1)(A) (1994 ed., Supp. V). The Commissioner has interpreted
§ 406(b) to "prohibi[t] a lawyer from charging fees when there is
no award of back benefits." Tr. of Oral Arg. 37-38; see Brief in
Opposition 12, n. 12 (reading § 406(b) to "prohibi[t] other [fee]
arrangements such as non-contingent hourly fees").
As part of its judgment, a court may allow "a reasonable fee ...
not in excess of 25 percent of the ... past-due benefits" awarded
to the claimant. § 406(b)(1)(A). The fee is payable "out of, and
not in addition to, the amount of [the] past-due benefits."
Ibid. Because benefits amounts figuring in the fee
calculation are limited to those past due, attorneys may not gain
additional fees based on a claimant's continuing entitlement to
benefits.
The prescriptions set out in §§ 406(a) and (b) establish the
exclusive regime for obtaining fees for successful represen-
of law and are unrelated to the efforts of the representative.
We may authorize a fee even if no benefits are payable."
796
tation of Social Security benefits claimants. Collecting or even
demanding from the client anything more than the authorized
allocation of past-due benefits is a criminal offense. §§
406(a)(5), (b)(2) (1994 ed.); 20 CFR §§ 404.1740-1799 (2001).
In many cases, as in the instant case, the Equal Access to
Justice Act (EAJA), enacted in 1980, effectively increases the
portion of past-due benefits the successful Social Security
claimant may pocket. 94 Stat. 2329, as amended, 28 U. S. C. § 2412.
Under EAJA, a party prevailing against the United States in court,
including a successful Social Security benefits claimant, may be
awarded fees payable by the United States if the Government's
position in the litigation was not "substantially justified." §
2412(d)(1)(A). EAJA fees are determined not by a percent of the
amount recovered, but by the "time expended" and the attorney's
"[hourly] rate," § 2412(d)(1)(B), capped in the mine run of cases
at $125 per hour, § 2412(d)(2)(A).4 Cf. 5 U. S. C. § 504
(authorizing payment of attorney's fees by the Government when a
party prevails in a federal agency adjudication).
Congress harmonized fees payable by the Government under EAJA
with fees payable under § 406(b) out of the claimant's past-due
Social Security benefits in this manner:
Fee awards may be made under both prescriptions, but the
claimant's attorney must "refun[d] to the claimant the amount of
the smaller fee." Act of Aug. 5, 1985, Pub. L. 99-80, § 3, 99 Stat.
186. "Thus, an EAJA award offsets an award under Section 406(b), so
that the [amount of the total past-due benefits the claimant
actually receives] will be increased by the ... EAJA award up to
the point the claimant receives 100 percent of the past-due
benefits." Brief for United States 3.
4 A higher fee may be awarded if "the court determines that an
increase in the cost of living or a special factor, such as the
limited availability of qualified attorneys for the proceeding
involved, justifies a higher fee." 28 U. S. C. §
2412(d)(2)(A)(ii).
797
B
Petitioners Gary Gisbrecht, Barbara Miller, and Nancy Sandine
brought three separate actions in the District Court for the
District of Oregon under 42 U. S. C. § 405(g) (1994 ed.),5 seeking
Social Security disability benefits under Title II of the Social
Security Act. All three petitioners were represented by the same
attorneys, and all three prevailed on the merits of their claims.
Gisbrecht was awarded $28,366 in past-due benefits; Miller,
$30,056; and Sandine, $55,952. Each petitioner then successfully
sought attorneys' fees payable by the United States under EAJA:
Gisbrecht was awarded $3,339.11, Miller, $5,164.75, and Sandine,
$6,836.10.
Pursuant to contingent-fee agreements standard for Social
Security claimant representation, see 1 B. Samuels, Social Security
Disability Claims § 21:10 (2d ed. 1994), Gisbrecht, Miller, and
Sandine had each agreed to pay counsel 25 percent of all past-due
benefits recovered, App. to Pet. for Cert. 72-86. Their attorneys
accordingly requested § 406(b) fees of $7,091.50 from Gisbrecht's
recovery, $7,514 from Miller's, and $13,988 from Sandine's. Given
the EAJA offsets, the amounts in fact payable from each client's
past-due benefits recovery would have been $3,752.39 from
Gisbrecht's recovery, $2,349.25 from Miller's, and $7,151.90 from
Sandine's.
Following Circuit precedent, see
Allen v.
Shalala,
48 F. 3d
456,458-459 (CA9 1995), the District Court in each
case declined to give effect to the attorney-client fee agreement.
Gisbrecht v.
Apfel, No. CV-98-0437-RE (Ore., Apr. 14,
1999);
Miller v.
Apfel, No. CV-96-6164-AS (Ore., Mar.
30, 1999);
Sandine v.
Apfel, No. CV-97-6197-ST (Ore.,
June 18, 1999). Instead, the court employed for the § 406(b) fee
calculation a "lodestar" method, under which the number of hours
reasonably devoted to each case was multiplied by a reasonable
5 Section 405(g) authorizes judicial review of administrative
denials of applications for Social Security benefits.
798
hourly fee. This method yielded as § 406(b) fees $3,135 from
Gisbrecht's recovery, $5,461.50 from Miller's, and $6,550 from
Sandine's. Offsetting the EAJA awards, the court determined that no
portion of Gisbrecht's or Sandine's past-due benefits was payable
to counsel, and that only $296.75 of Miller's recovery was payable
to her counsel as a § 406(b) fee. The three claimants
appealed.6
Adhering to Circuit precedent applying the lodestar method to
calculate fees under § 406(b), the Court of Appeals for the Ninth
Circuit consolidated the cases 7 and affirmed the District Court's
fee dispositions.
Gisbrecht v.
Apfel, 238 F. 3d 1196
(2000). The Appeals Court noted that fees determined under the
lodestar method could be adjusted by applying 12 further factors,
one of them, "whether the fee is fixed or contingent."
Id.,
at 1198 (quoting
Kerr v.
Screen Extras Guild, Inc.,
526 F.2d
67, 70
(CA9 1975)).8 While "a district
6 Although the claimants were named as the appellants below, and
are named as petitioners here, the real parties in interest are
their attorneys, who seek to obtain higher fee awards under §
406(b). For convenience, we nonetheless refer to claimants as
petitioners. See
Hopkins v.
Cohen, 390 U. S. 530, 531, n. 2
(1968). We also note that the Commissioner of Social Security here,
as in the Ninth Circuit, has no direct financial stake in the
answer to the § 406(b) question; instead, she plays a part in the
fee determination resembling that of a trustee for the claimants.
See,
e. g., Lewis v.
Secretary of Health
and Human Servs., 707 F.2d
246, 248
(CA61983).
7 A fourth case,
Anderson v.
Apfel, No.
CV-96-6311-HO (Ore., Sept. 29, 1999), was also consolidated with
petitioners' cases; we denied certiorari in
Anderson in the
order granting certiorari on petitioners' question. See 534 U. S.
1039 (2001).
8 Kerr directed consideration of "(1) the time and labor
required, (2) the novelty and difficulty of the questions involved,
(3) the skill requisite to perform the legal service properly, (4)
the preclusion of other employment by the attorney due to
acceptance of the case, (5) the customary fee, (6) whether the fee
is fixed or contingent, (7) time limitations imposed by the client
or the circumstances, (8) the amount involved and the results
obtained, (9) the experience, reputation, and ability of the
attorneys, (10) the 'undesirability' of the case, (11) the nature
and length of the pro-
799
court must
consider a plaintiff's request to increase a
fee [based on a contingent-fee agreement]," the Ninth Circuit
stated, "a court 'is not required to articulate its reasons' for
accepting or rejecting such a request." 238 F. 3d, at 1199 (quoting
Widrig v.
Apfel, 140 F.3d
1207, 1211
(CA9 1998)) (emphasis in original).
We granted certiorari, 534 U. S. 1039 (2001), in view of the
division among the Circuits on the appropriate method of
calculating fees under § 406(b). Compare
Coup v.
Heckler, 834 F.2d
313 (CA3 1987);
Craig v.
Secretary, Dept. of
Health and Human Servs., 864 F.2d
324 (CA4 1989);
Brown v.
Sullivan,
917 F.2d
189 (CA5 1990);
Cotter v.
Bowen, 879 F.2d
359 (CA8 1989);
Hubbard v.
Shalala,
12 F.3d
946 (CAlO 1993); and
Kay v.
Apfel, 176 F.3d
1322 (CAll 1999) (all following, in accord with the
Ninth Circuit, a lodestar method), with
Wells v.
Sullivan, 907 F.2d
367 (CA2 1990);
Rodriguez v.
Bowen,
865 F.2d
739 (CA6 1989) (en bane); and
McGuire v.
Sullivan, 873 F.2d
974 (CA7 1989) (all giving effect to attorney-client
contingent-fee agreement, if resulting fee is reasonable).9 We now
reverse the Ninth Circuit's judgment.
II
Beginning with the text, § 406(b)'s words, "a reasonable fee ...
not in excess of 25 percent of ... the past-due benefits," read in
isolation, could be construed to allow either the Ninth Circuit's
lodestar approach or petitioners' position that the attorney-client
fee agreement ordinarily should control, if not "in excess of 25
percent." The provision
fessional relationship with the client, and (12) awards in
similar cases." 526 F. 2d, at 69-70 (citing
Johnson v.
Georgia Highway Express, Inc., 488
9 Cf.
Ramos Colon v.
Secretary of Health and Human
Servs., 850 F.2d
24, 26
(CA1 1988)
(per curiam) ("a court is not
required to give blind deference to ... a contractual fee
agreement, and must ultimately be responsible for fixing a
reasonable fee for the judicial phase of the proceedings" (internal
quotation marks omitted)).
800
instructs "a reasonable fee," which could be measured by a
lodestar calculation. But § 406(b)'s language does not exclude
contingent-fee contracts that produce fees no higher than the 25
percent ceiling. Such contracts are the most common fee arrangement
between attorneys and Social Security claimants. See Department of
Health and Human Services, Social Security Administration, Office
of Hearings and Appeals, Report to Congress: Attorney Fees Under
Title II of the Social Security Act 15, 66, 70 (July 1988)
(hereinafter SSA Report); Brief for National Organization of Social
Security Claimants' Representatives as
Amicus Curiae 1-2.
Looking outside the statute's inconclusive text, we next take into
account, as interpretive guides, the origin and standard
application of the proffered approaches.
The lodestar method has its roots in accounting practices
adopted in the 1940's to allow attorneys and firms to determine
whether fees charged were sufficient to cover overhead and generate
suitable profits. W. Ross, The Honest Hour:
The Ethics of Time-Based Billing by Attorneys 16 (1996)
(hereinafter Honest Hour). An American Bar Association (ABA)
report, published in 1958, observed that attorneys' earnings had
failed to keep pace with the rate of inflation; the report urged
attorneys to record the hours spent on each case in order to ensure
that fees ultimately charged afforded reasonable compensation for
counsels' efforts. See Special Committee on Economics of Law
Practice, The 1958 Lawyer and His 1938 Dollar 9-10 (reprint
1959).
Hourly records initially provided only an internal accounting
check. See Honest Hour 19. The fees actually charged might be
determined under any number of methods: the annual retainer; the
fee-for-service method; the "eyeball" method, under which the
attorney estimated an annual fee for regular clients; or the
contingent-fee method, recognized by this Court in
Stanton
v.
Embrey, 93
U. S. 548, 556 (1877), and formally approved by the ABA in
1908. See Honest Hour 13-19. As it became standard accounting
practice to
801
record hours spent on a client's matter, attorneys increasingly
realized that billing by hours devoted to a case was
administratively convenient; moreover, as an objective measure of a
lawyer's labor, hourly billing was readily impartable to the
client.
Id., at 18. By the early 1970's, the practice of
hourly billing had become widespread. See
id., at 19,
21.
The federal courts did not swiftly settle on hourly rates as the
overriding criterion for attorney's fee awards. In 1974, for
example, the Fifth Circuit issued an influential opinion holding
that, in setting fees under Title VII of the Civil Rights Act of
1964, 42 U. S. C. § 2000e-5(k) (1970 ed.), courts should consider
not only the number of hours devoted to a case but also 11 other
factors.
Johnson v.
Georgia Highway Express, Inc.,
488 F.2d
714, 717-719 (1974).10 The lodestar method did not gain a firm
foothold until the mid-1970's, see
Lindy Bros. Builders, Inc. of
Philadelphia v.
American Radiator &
Standard
Sanitary Corp., 487 F.2d
161 (CA3 1973), appeal after remand,
540 F.2d
102 (1976), and achieved dominance in the federal courts only
after this Court's decisions in
Hensley v.
Eckerhart,
461 U. S. 424
(1983),
Blum v.
Stenson, 465 U. S. 886 (1984), and
Pennsylvania v.
Delaware Valley Citizens' Council for
Clean Air, 478 U.
S. 546 (1986).
Since that time, "[t]he 'lodestar' figure has, as its name
suggests, become the guiding light of our fee-shifting
jurisprudence."
Burlington v.
Dague, 505 U. S. 557, 562 (1992)
(relying on
Hensley, Blum, and
Delaware Valley to
apply lodestar method to fee determination under Solid Waste
Disposal Act, § 7002(e), 42 U. S. C. § 6972(e) (1988 ed.), and
Clean Water Act, § 505(d), 33 U. S. C. § 1365(d) (1988 ed.), and
noting prior application of lodestar method to Civil Rights
Attorney's Fees Awards Act of 1976, 42 U. S. C. § 1988 (1988 ed.,
Supp. III); Title VII of Civil Rights Act of 1964, 42 U. S. C. §
2000e-5(k) (1988 ed., Supp. III); and Clean Air Act, 42 U. S. C. §
7604(d) (1988 ed.)). As we recognized in
Hensley,
10 See
supra, at 798-799, n. 8.
802
"[i]deally, ... litigants will settle the amount of a fee." 461
U. S., at 437.11 But where settlement between the parties is not
possible, "[t]he most useful starting point for [court
determination of] the amount of a reasonable fee [payable by the
loser] is the number of hours reasonably expended on the litigation
multiplied by a reasonable hourly rate."
Id., at 433. Thus,
the lodestar method today holds sway in federal-court adjudication
of disputes over the amount of fees properly shifted to the loser
in the litigation. See
id., at 440 (Burger, C. J.,
concurring) (decision addresses statute under which "a lawyer seeks
to have his adversary pay the fees of the prevailing party").
Fees shifted to the losing party, however, are not at issue
here. Unlike 42 U. S. C. § 1988 (1994 ed. and Supp. V) and EAJA, 42
U. S. C. § 406(b) (1994 ed., Supp. V) does not authorize the
prevailing party to recover fees from the losing party. Section
406(b) is of another genre: It authorizes fees payable from the
successful party's recovery. Several statutes governing suits
against the United States similarly provide that fees may be paid
from the plaintiff's recovery. See,
e. g., Federal
Tort Claims Act (FTCA), 28 U. S. C. § 2678 ("No attorney shall
charge, demand, receive, or collect for services rendered, fees in
excess of 25 per centum of any [court] judgment rendered [in an
FTCA suit], or in excess of 20 per centum of any award, compromise,
or settlement made [by a federal agency to settle an FTCA
claim]."); Veterans' Benefits Act, 38 U. S. C. § 5904(d)(1) (1994
ed.) ("When a claimant [for veterans' benefits] and an attorney
have entered into a [contingent- ]fee agreement [under which fees
are paid by withholding from the claimant's benefits award], the
total fee payable to the attorney may not exceed 20 percent of the
total amount of any past-due benefits awarded
11 See also,
e. g., 31 U. S. C. § 3554(c)(4) (1994
ed.) ("[T]he Federal agency and the interested party shall attempt
to reach an agreement on the amount of the costs [including
attorneys' fees] to be paid.").
803
on the basis of the claim.")P Characteristically in cases of the
kind we confront, attorneys and clients enter into contingent-fee
agreements "specifying that the fee will be 25 percent of any
past-due benefits to which the claimant becomes entitled." Brief
for National Organization of Social Security Claimants'
Representatives as
Amicus Curiae 2; see Brief for Washington
Legal Foundation et al. as
Amici Curiae 9, n. 6 ("There is
no serious dispute among the parties that virtually every attorney
representing Title II disability claimants includes in his/her
retainer agreement a provision calling for a fee equal to 25% of
the past-due benefits awarded by the courts.").
Contingent fees, though problematic, particularly when not
exposed to court review, are common in the United States in many
settings. Such fees, perhaps most visible in
12 See also Servicemembers' Group Life Insurance Act, 38 U. S.
C. § 1984(g) (1994 ed.) ("[T]he court ... shall determine and allow
reasonable fees for the attorneys of the successful party or
parties and apportion same if proper, said fees not to exceed 10
per centum of the amount recovered and to be paid by the Department
out of the payments to be made under the judgment or decree.");
International Claims Settlement Act of 1949 (ICSA), 22 U. S. C. §
1623(f) ("No remuneration on account of services rendered on behalf
of any claimant in connection with any claim filed with the
Commission under [the ICSA] shall exceed 10 per centum of the total
amount paid pursuant to any award certified under the [ICSA] on
account of such claim. Any agreement to the contrary shall be
unlawful and void."); Trading with the Enemy Act, 50 U. S. C. App.
§ 20 (1994 ed.) ("No property or interest or proceeds shall be
returned under this Act ... unless satisfactory evidence is
furnished ... that the aggregate of the fees to be paid to all
agents, attorneys ... , or representatives, for services rendered
in connection with such return or payment or judgment does not
exceed 10 per centum of the value of such property or interest or
proceeds or of such payment."); War Claims Act, 50 U. S. C. App.
§2017m ("No remuneration on account of services rendered on behalf
of any claimant in connection with any claim filed with the
Commission under this [Act] shall exceed 10 per centum (or such
lesser per centum as may be fixed by the Commission with respect to
any class of claims) of the total amount paid pursuant to any award
certified under the provisions of this title ... on account of such
claim.").
804
tort litigation, are also used in,
e. g., patent
litigation, real estate tax appeals, mergers and acquisitions, and
public offerings. See ABA Formal Opinion 94-389, ABA/BNA Lawyers'
Manual On Professional Conduct 1001:248, 1001:250 (1994). But see
id., at 1001:248, n. 3 (quoting observation that controls on
contingent fees are needed to "reduce financial incentives that
encourage lawyers to file unnecessary, unwarranted[,] and
unmeritorious suits" (internal quotation marks omitted)).
Traditionally and today, "the marketplace for Social Security
representation operates largely on a contingency fee basis." SSA
Report 3; see also
id., at 15, 66, 70; App. to Pet. for
Cert. 56, 60, 88, 89, 91 (affidavits of practitioners).
Before 1965, the Social Security Act imposed no limits on
contingent-fee agreements drawn by counsel and signed by benefits
claimants. In formulating the 1965 Social Security Act amendments
that included § 406(b), Congress recognized that "attorneys have
upon occasion charged ... inordinately large fees for representing
claimants [in court]." S. Rep. No. 404, 89th Cong., 1st Sess., pt.
1, p. 122 (1965). Arrangements yielding exorbitant fees, the Senate
Report observed, reserved for the lawyer one-third to one-half of
the accrued benefits.
Ibid. Congress was mindful, too, that
the longer the litigation persisted, the greater the buildup of
past-due benefits and, correspondingly, of legal fees awardable
from those benefits if the claimant prevailed.
Ibid.13
Attending to these realities, Congress provided for "a
reasonable fee, not in excess of 25 percent of accrued bene-
13 Congress also adopted a proposal recommended by the Social
Security Administration that attorneys be paid directly with funds
withheld from their clients' benefits awards; the Commissioner
testified to the Senate Committee on Finance that "[a]ttorneys have
complained that ... awards are sometimes made to the claimant
without the attorney's knowledge and that some claimants on
occasion have not notified the attorney of the receipt of the
money, nor have they paid his fee." Hearings on H. R. 6675 before
the Senate Committee on Finance, 89th Cong., 1st Sess., pt. 1, pp.
512-513 (1965).
805
fits," as part of the court's judgment, and further specified
that "no other fee would be payable."
Ibid. Violation of the
"reasonable fee" or "25 percent of accrued benefits" limitation was
made subject to the same penalties as those applicable for charging
a fee larger than the amount approved by the Commissioner for
services at the administrative levela fine of up to $500, one
year's imprisonment, or both.
Ibid. "[T]o assure the payment
of the fee allowed by the court," Congress authorized the agency
"to certify the amount of the fee to the attorney out of the amount
of the accrued benefits."
Ibid.; see
supra, at 804,
n. 13.
Congress thus sought to protect claimants against "inordinately
large fees" and also to ensure that attorneys representing
successful claimants would not risk "nonpayment of [appropriate]
fees." SSA Report 66 (internal quotation marks omitted). But
nothing in the text or history of § 406(b) reveals a "desig[n] to
prohibit or discourage attorneys and claimants from entering into
contingent fee agreements."
Ibid. Given the prevalence of
contingent-fee agreements between attorneys and Social Security
claimants, it is unlikely that Congress, simply by prescribing
"reasonable fees," meant to outlaw, rather than to contain, such
agreements.14
This conclusion is bolstered by Congress' 1990 authorization of
contingent-fee agreements under § 406(a), the provision governing
fees for agency-level representation. Before enacting this express
authorization, Congress instructed the Social Security
Administration to prepare a report on attor-
14 Cf.,
e. g., Act of Mar. 3, 1891, § 9, 26 Stat.
851-854 (regulating fees for claims by Native Americans before the
Court of Claims and providing: "all contracts heretofore made for
fees and allowances to claimants' attorneys, are hereby declared
void ... and the allowances to the claimant's attorneys shall be
regulated and fixed by the court"); Alaska Native Claims Settlement
Act of 1971, 43 U. S. C. § 1621(a) (1994 ed.) ("None of the
revenues granted by [the Act] shall be subject to any contract
which is based on a percentage fee of the value of all or some
portion of the settlement granted by this [Act].").
806
ney's fees under Title II of the Social Security Act. Pub. L.
100-203, § 9021(b), 101 Stat. 1330-295. The report, presented to
Congress in 1988, reviewed several methods of determining
attorney's fees, including the lodestar method. See SSA Report
10-11. This review led the agency to inform Congress that, although
the contingency method was hardly flawless, the agency could
"identify no more effective means of ensuring claimant access to
attorney representation."
Id., at 25.
Congress subsequently altered § 406(a) to validate
contingent-fee agreements filed with the agency prior to
disposition of the claim for benefits. See 42 U. S. C. § 406(a)(2)
(1994 ed.);
supra, at 795. As petitioners observe, Brief for
Petitioners 24, it would be anomalous if contract-based fees
expressly authorized by § 406(a)(2) at the administrative level
were disallowed for court representation under § 406(b).
It is also unlikely that Congress, legislating in 1965, and
providing for a contingent fee tied to a 25 percent of past-due
benefits boundary, intended to install a lodestar method courts did
not develop until some years later. See
supra, at 801-802.
Furthermore, we again emphasize, the lodestar method was designed
to govern imposition of fees on the losing party. See,
e. g.,
Dague, 505 U. S., at 562. In such cases, nothing prevents the
attorney for the prevailing party from gaining additional fees,
pursuant to contract, from his own client. See
Venegas v.
Mitchell, 495
U. S. 82, 89-90 (1990) ("[None] of our cases has indicated that
[42 U. S.
C.] § 1988 ... protects plaintiffs from having to
pay what they have contracted to pay, even though their
contractualliability is greater than the statutory award that they
may collect from losing opponents. Indeed, depriving plaintiffs of
the option of promising to pay more than the statutory fee if that
is necessary to secure counsel of their choice would not further §
1988's general purpose of enabling such plaintiffs ... to secure
competent counsel."). By contrast, § 406(b) governs the total fee a
claimant's attorney may receive for court representation; any
endeavor by the claimant's attorney to
807
gain more than that fee, or to charge the claimant a
noncontingent fee, is a criminal offense. 42 U. S. C. § 406(b)(2);
20 CFR § 404.1740(c)(2) (2001).
Most plausibly read, we conclude, § 406(b) does not displace
contingent-fee agreements as the primary means by which fees are
set for successfully representing Social Security benefits
claimants in court. Rather, § 406(b) calls for court review of such
arrangements as an independent check, to assure that they yield
reasonable results in particular cases.15 Congress has provided one
boundary line: Agreements are unenforceable to the extent that they
provide for fees exceeding 25 percent of the past-due benefits. §
406(b)(1)(A) (1994 ed., Supp. V).16 Within the 25 percent boundary,
as petitioners in this case acknowledge, the attorney for the
successful claimant must show that the fee sought is reasonable for
the services rendered. See Brief for Petitioners 40.17
15 The dissent observes that "fee agreements in ...
Social-Security cases are hardly negotiated; they are akin to
adherence contracts."
Post, at 812. Exposure to court
review, plus the statute's 25 percent limitation, however, provide
checks absent from arbitration adherence provisions this Court has
upheld over objections that they are not "freely negotiated," see
Vimar Seguros y Reaseguros, S.
A. v.
MN Sky
Reefer, 515 U. S.
528, 556 (1995) (STEVENS, J., dissenting), but are the product
of "disparate bargaining power" between the contracting parties,
Carnival Cruise Lines, Inc. v.
Shute, 499 U. S. 585, 598 (1991)
(STEVENS, J., dissenting). See also
Circuit City Stores,
Inc. v.
Adams, 532 U. S. 105, 138-139,
and n. 3 (2001) (SOUTER, J., dissenting) (observing that many
employees "lack the bargaining power to resist an arbitration
clause if their prospective employers insist on one").
16 Statement of the limitation in terms of a percent of the
recovery tellingly contrasts with EAJA, which authorizes fee
shifting and, correspondingly, places a specific dollar limit on
the hourly rate that ordinarily can be charged to the losing party.
28 U. S. C. § 2412(d)(2)(A); see
supra, at 796, and n.
4.
17 Specifically, petitioners maintain that "[a]lthough section
406(b) permits an attorney to base a fee application on a
contingent fee agreement with the claimant, the statute does not
create any presumption in favor of the agreed upon amount. To the
contrary, because section 406(b) requires an affirmative judicial
finding that the fee allowed is 'reasonable,' the
808
Courts that approach fee determinations by looking first to the
contingent-fee agreement, then testing it for reasonableness, have
appropriately reduced the attorney's recovery based on the
character of the representation and the results the representative
achieved. See,
e. g., McGuire, 873 F. 2d, at 983 ("Although
the contingency agreement should be given significant weight in
fixing a fee, a district judge must independently assess the
reasonableness of its terms.");
Lewis v.
Secretary of
Health and Human Servs., 707 F.2d
246, 249-250
(CA6 1983) (instructing reduced fee when
representation is substandard). If the attorney is responsible for
delay, for example, a reduction is in order so that the attorney
will not profit from the accumulation of benefits during the
pendency of the case in court. See
Rodriquez, 865 F. 2d, at
746-747. If the benefits are large in comparison to the amount of
time counsel spent on the case, a downward adjustment is similarly
in order. See
id., at 747 (reviewing court should disallow
"windfalls for lawyers");
Wells, 907 F. 2d, at 372 (same).
In this regard, the court may require the claimant's attorney to
submit, not as a basis for satellite litigation, but as an aid to
the court's assessment of the reasonableness of the fee yielded by
the fee agreement, a record of the hours spent representing the
claimant and a statement of the lawyer's normal hourly billing
charge for noncontingent-fee cases. See
Rodriquez, 865 F.
2d, at 741. Judges of our district courts are accustomed to making
reasonableness determinations in a wide variety of contexts, and
their assessments in such matters, in the event of an appeal,
ordinarily qualify for highly respectful review.
***
The courts below erroneously read § 406(b) to override customary
attorney-client contingent-fee agreements. We hold that § 406(b)
does not displace contingent-fee agree-
attorney bears the burden of persuasion that the statutory
requirement has been satisfied." Brief for Petitioners 40.
809
ments within the statutory ceiling; instead, § 406(b) instructs
courts to review for reasonableness fees yielded by those
agreements. Accordingly, we reverse the judgment of the Court of
Appeals for the Ninth Circuit and remand the case for further
proceedings consistent with this opinion.
It is so ordered.
JUSTICE SCALIA, dissenting.
I do not know what the judges of our district courts and courts
of appeals are to make of to day's opinion. I have no idea what the
trial judge is to do if he finds the fee produced by the
("presumptively reasonable,"
ante, at 792) contingent-fee
agreement to be 25% above the lodestar amount; or 40%; or 65%. Or
what the appellate court is to do in an appeal from a district
judge's reduction of the contingent fee to 300% of the lodestar
amount; or 200%; or to the lodestar amount itself. While today's
opinion gets this case out of our "in" box, it does nothing
whatever to subject these fees to anything approximating a uniform
rule of law. That is, I think, the inevitable consequence of trying
to combine the incompatible. The Court tells the judge to commence
his analysis with the contingent-fee agreement, but then to adjust
the figure that agreement produces on the basis of factors (most
notably, the actual time spent multiplied by a reasonable hourly
rate,
ante, at 808) that are, in a sense, the precise
antithesis of the contingent-fee agreement, since it was the very
purpose of that agreement to eliminate them from the fee
calculation. In my view, the only possible way to give uniform
meaning to the statute's "reasonable fee" provision is to
understand it as referring to the fair value of the work actually
performed, which we have held is best reflected by the lodestar.1
See
Hensley v.
Eckerhart, 461 U. S. 424, 433
(1983).
1 The Court finds it "unlikely,"
ante, at 806, that 42 U.
S. C. § 406(b) (1994 ed.), enacted in 1965, contemplated
application of the lodestar method that the courts had not yet even
developed. Of course it did not. But it
did
810
I think it obvious that the reasonableness of a contingentfee
arrangement
has to be determined by viewing the matter
ex
ante, before the outcome of the lawsuit and the hours of work
expended on the outcome are definitively known. For it is in the
nature of a contingent-fee agreement to
gamble on outcome
and hours of work-assigning the risk of an unsuccessful outcome to
the attorney, in exchange for a percentage of the recovery from a
successful outcome that will (because of the risk ofloss the
attorney has borne) be higher, and perhaps much higher, than what
the attorney would receive in hourly billing for the same case.
That is why, in days when obtaining justice in the law courts was
thought to be less of a sporting enterprise, contingent fees were
unlawful. See,
e. g., Butler v.
Legro, 62 N. H. 350,
352 (1882) ("Agreements of this kind are contrary to public justice
and professional duty, tend to extortion and fraud, and are
champertous and void").
It is one thing to say that a contingent-fee arrangement is,
ex ante, unreasonable because it gives the attorney a
percentage of the recovery so high that no self-respecting legal
system can tolerate it; the statute itself has made this
determination for Social-Security-benefit cases, prescribing a
maximum contingent fee of 25%. And one can also say that a
contingent-fee arrangement is,
ex ante, unreasonable because
the chances of success in the particular case are so high, and the
anticipated legal work so negligible, that the percentage of the
recovery assured to the lawyer is exorbitant; but neither I nor the
Court thinks that the "reasonable
contemplate an
ex post determination of a reasonable fee
for an attorney's work-which our post-1965 cases have held is best
achieved by using the lodestar. We have not hesitated to apply the
lodestar method to other fee statutes enacted before the method was
developed. See,
e. g., Burlington v.
Dague, 505 U.
S. 557, 561-562 (1992) (explaining that "our case law
construing what is a 'reasonable' fee applies uniformly" to
fee-shifting statutes that use similar language, including,
inter alia, 42 U. S. C. § 1988 and 42 U. S. C. § 2000e-5(k)
(Civil Rights Act of 1964)).
811
fee" provision of the statute anticipates such a case-by-case
ex post assessment of
ex ante predictions in the
thousands of (mostly small recovery) Social-Security-benefit cases.
It is something quite different, however-and something quite
irrational-to look at the
consequences of a contingent-fee
agreement
after the contingencies have been resolved, and
proclaim those consequences unreasonable because the attorney has
received too much money for too little work. That is rather like
declaring the purchase of the winning lottery ticket void because
of the gross disparity between the $2 ticket price and the
million-dollar payout.2
I think, in other words, that the "reasonable fee" provision
must require
either an assessment of the reasonableness of
the contingent-fee agreement when it was concluded,
or an
assessment of the reasonableness of the fee charged after the
outcome and work committed to it are known; it cannot combine the
two. And since an
ex post assessment of the
ex ante
reasonableness of the contingent-fee agreement (already limited by
statute to a maximum 25% of the recovery) is not what the statute
could conceivably have contemplated, I conclude that a "reasonable
fee" means not the reasonableness of the agreed-upon contingent
fee, but a reasonable recompense for the work actually done. We
have held that this is best calculated by applying the
lodestar,
2 There is one
ex post element prominent in
Social-Security-benefit cases that assuredly should reduce the
amount of an otherwise reasonable (that is to say, an
ex
ante reasonable) contingent-fee award: Since the award is based
upon past-due benefits, and since the amount of those benefits
increases with the duration of the litigation, a lawyer can
increase his contingent-fee award by dragging his feet. It is
unreasonable to be rewarded for dilatoriness. But
that
element need not be made part of an overall
ex post
reasonableness assessment, as the Court would do, see
ante,
at 808. For it is not only unreasonable; it is a breach of
contract. Surely the representation agreement contains as an
implicit term that the lawyer will bring the matter to a conclusion
as quickly as practicable-or at least will not intentionally delay
its conclusion. Any breach of that condition justifies a reduction
of the contracted contingent-fee award.
812
which focuses on the quality and amount of the legal work
performed, and "provides an objective basis on which to ...
estimate ... the value of a lawyer's services."
Hensley, 461
U. S., at 433.
This is less of a departure than the Court suggests from the
normal practice of enforcing privately negotiated fee agreements.
The fee agreements in these Social-Security cases are hardly
negotiated; they are akin to adherence contracts. It is uncontested
that the specialized Social-Security bar charges uniform contingent
fees (the statutory maximum of 25%), which are presumably presented
to the typically unsophisticated client on a take-it-or-Ieave-it
basis. Nor does the statute's explicit approval of contingency-fee
agreements at the agency stage, see 42 U. S. C. § 406(a) (1994 ed.
and Supp. V), imply that contingency-fee agreements at the
judicial-review stage should be regarded as presumptively
reasonable. The agreements approved at the agency stage are limited
not merely by a 25% maximum percentage of recovery, but also by a
firm $5,300 maximum. With the latter limitation, there is no need
to impose a reasonableness requirement. Once a reasonableness
requirement is imposed, however, I think it can only refer to the
reasonableness of the actual compensation.
***
Because I think there is no middle course between, on the one
hand, determining the reasonableness of a contingent-fee agreement
and, on the other hand, determining the reasonableness of the
actual fee; because I think the statute's reference to a
"reasonable fee" must connote the latter; and because I think the
Court's hybrid approach establishes no clear criteria and hence
will generate needless satellite litigation; I respectfully
dissent.
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