STEPHANIE K. BOWMAN, Magistrate Judge.
This case involves the thorny issue of how to determine whether a standard contingency fee agreement in a social security case should be approved as a "reasonable" fee, or reduced to avoid an impermissible "windfall." Pursuant to local practice, the attorney's motion for the award of such a fee has been referred to the undersigned for initial review. For the reasons stated, and adhering to five guideposts established by controlling case law, the undersigned recommends that the requested fee be reduced in this case.
For a variety of reasons, the wheels of justice turn slowly in social security cases. This case presents a particularly egregious example. Plaintiff Charles Ringel alleges he became disabled more than a dozen years ago, in September 2005. After his March 2008 application for benefits was initially denied, Plaintiff's case remained under review by the Social Security Agency for more than four years, until May 2012, when the Appeals Council denied further review. Dissatisfied, Plaintiff, through counsel, filed a federal judicial appeal in July 2012.
Mr. Ringel's appeal was one of nearly 20,000 such appeals filed annually nationwide, and one of 42 filed by his attorney, Ms. Pehowic, that same year in this district alone.
Just over four years ago, Mr. Ringel became a successful appellant, winning a remand for further administrative review of his disability claim under sentence four of 42 U.S.C. §405(g). (See Docs. 16, 17). After this Court entered Judgment, the Court granted Ms. Pehowic's unopposed motion for an award of her fees under the Equal Access to Justice Act ("EAJA"), awarding $3,315.00 for the hours put to effective use in this Court, plus the filing fee. (Doc. 20).
After remand, the case went through multiple additional administrative proceedings, resulting in the passage of several more years before Mr. Ringel at last obtained a favorable decision: an award of past-due benefits dating back to March 2007. Because benefits had accrued for more than a decade by the time that the May 2, 2017 Notice of Award was issued, the amount of those benefits had grown large, totaling $130,943.00. Based upon a contingency agreement signed in 2010, Ms. Pehowic timely filed a motion seeking an award of attorney's fees.
The Commissioner filed a memorandum in opposition, arguing that the requested fee constitutes "a windfall at the expense of her disabled client." (Doc. 23 at 1). The Commissioner points out that the award sought by Plaintiff's counsel amounts to an extraordinarily high hourly rate, effectively $1,371 per hour.
The undersigned now recommends that counsel's motion be granted, but that the award be reduced to an effective rate of $600.00 per hour, which appropriately honors the contingent nature of the fee contract, but avoids a windfall occasioned almost solely by the exceptionally slow pace of justice in this particular case.
The Social Security Act requires federal courts to "determine and allow as part of its judgment a
Case law emphasizes the affirmative obligation of courts to determine whether a fee award is "reasonable," even when supported by an unopposed motion that relies on a standard contingency fee agreement within the 25% statutory cap. Lowery v. Com'r of Soc. Sec., 940 F.Supp.2d 689, 691 (S.D. Ohio 2013) (approving unopposed motion for fee where counsel did not request full 25% fee authorized by agreement, but instead voluntarily reduced fee to 14.5% of past-due benefits award). A primary reason for all this scrutiny is that, unlike the EAJA award received by Ms. Pehowic in 2014 for the same work, the §406(b) fee award is paid directly out of, and therefore directly reduces, the amount of the past-due benefits paid to the disabled claimant. See e.g., Royzer v. Sec'y of Health & Human Servs., 900 F.2d 981, 982 (6th Cir. 1990) (reversing trial court's flat rejection of a contingent fee agreement, but warning that "[c]ontingent fees in social security cases are different than in other cases of the law because Congress has put the responsibility on the federal judiciary to make sure that fees charged are reasonable and do not unduly erode the claimant's benefits").
Still, federal courts — far more accustomed to enforcing contracts than to breaking them — are understandably reluctant to rewrite the key term of a facially valid contract for payment between a lawyer and his/her client. Because standard contingency agreements universally seek the statutory maximum fee,
Thus, review of §406(b) fee motions continues to challenge trial courts. Although the instant motion is contested, most such motions are unopposed since the only party with any financial incentive is the disabled claimant, who previously agreed to the contingent fee agreement and whose attorney has filed the motion with his client's presumed consent. Unopposed motions are more likely to be granted by busy courts.
Unlike the underlying judicial appeal or an EAJA award, the Commissioner has no direct financial stake in the §406(b) fee. Filing any opposition to a fee motion not only requires the Commissioner's attorney to devote scarce resources to briefing a matter in which his client will not benefit, but also requires counsel to reverse his/her earlier role and advocate in support of the Commissioner's previous opponent, who has not asked for such assistance.
Consistency is the hallmark of any effective judicial system. In the context of social security fee awards, inconsistency persists.
I begin with Gisbrecht v. Barnhart, 535 U.S. 789, 803, 122 S.Ct. 1817 (2002), a case that was not limited to the problem of the windfall fee, but tackled in a larger context a split among circuits in their approach to ascertaining a "reasonable" statutory fee. The Ninth Circuit used a strict "lodestar" approach, defining a "reasonable rate" almost solely by reference to a standard hourly rate times the number of hours expended, consistent with fee-shifting statutes. In so doing, the Ninth Circuit declined to give effect to contingency fee agreements, allowing courts to consider them as only one of a dozen factors that could hypothetically alter the lodestar rate, but with no requirement that courts so much as articulate that consideration. By contrast, the Sixth Circuit started not with a flat lodestar fee, but with the contingency fee agreement, giving those agreements presumptive but not absolute weight. See Rodriquez v. Bowen, 865 F.2d 739, 746 (6th Cir. 1989)(en banc).
In Gisbrecht, the Supreme Court favored the Sixth Circuit's approach. The Court held that "Congress. . .designed §406(b) to control, not to displace, fee agreements between Social Security benefits and their counsel." Id., 535 U.S. at 793. Gisbrecht leaves no doubt as to the court's role in checking the reasonableness of every fee. See id., 535 U.S. at 807 and n.15 (stating that statute requires court review "as an independent check, to assure that they [contingent awards] yield reasonable results in particular cases.") Thus, Gisbrecht instructs trial courts to begin their analysis with the contingent agreement, but not to end with it. Instead, courts should test the contingent fee for reasonableness, reducing it as needed not only for attorney misconduct or delay,
Gisbrecht's core holding was to reject the Ninth Circuit's failure to give "primacy" (or often any weight at all) to the standard 25% contingent agreement, in favor of the Sixth Circuit's approach. Rodriquez instructed trial courts to use the standard 25% agreements "as a starting point," affording such agreements a "rebuttable presumption" of reasonability, but "emphasiz[ing] that it [the agreement] is not be viewed as per se reasonable." Id., 865 F.2d at 746.
Prior to Gisbrecht's endorsement of the Rodriquez approach, courts within the Sixth Circuit remained inconsistent, particularly in the windfall determination. In Hayes v. Sec'y of HHS, 923 F.2d 418 (6th Cir. 1990), the Sixth Circuit tried to rein in that inconsistency by announcing a simple-to-use guidepost to curtail but not eliminate trial court discretion to define a Rodriquez windfall.
Id., 923 F.2d at 422.
Post-Gisbrecht, trial courts have continued to use the elegantly simple Hayes test as a method by which to determine whether a contracted contingent fee should be further reviewed to ensure it does not constitute a windfall. In November 2014, in Lasley v. Com'r of Soc. Sec., 771 F.3d 308 (6th Cir. 2014), the Sixth Circuit confirmed the continuing vitality of the Hayes test, and affirmed the use of additional guideposts that offer the promise of greater consistency. In Lasley, the undersigned had reasoned:
Case No. 1:10-cv-394 (Doc. 19 at *16, R&R filed 7/29/13, adopted at Doc. 23, Order of 11/22/13). On appeal, Plaintiff's counsel argued that this Court had failed to comply with the Hayes presumption. "Not so," declared the Sixth Circuit, citing to the quoted language and reiterating that "nothing in Hayes prevents a court from considering arguments rebutting the presumption of reasonableness." Id. at 309.
Lasley affirmed this Court's discretionary reduction of a contingency fee as a windfall, where counsel sought an effective rate of $733 per hour, which rate "grossly exceeded — indeed more than quadrupled — the standard rates applied to social security fee requests in the Southern District of Ohio." Id., 881 F.3d at 310. At the trial court level, the undersigned had explained that a reduction to an effective hourly rate of $360 per hour was appropriate based on multiple factors, including counsel's delay in filing the fee petition, his "extremely high claimed hourly rate, the opposition of the Commissioner (ordinarily a disinterested party to §406(b) motions), the lack of any offer to negotiate or reduce the fee to the benefit of the Plaintiff in order to reduce the likelihood of a windfall to counsel, the relative brevity of representation in this Court, and the relative simplicity of the claim presented to this Court." (R&R, Doc. 19 at 17).
Shortly after Lasley but with little discussion of that case, a Michigan district court issued a published opinion on a §406(b) windfall issue, advocating a retreat from the use of effective hourly rates as a benchmark.
In Jeter, the Fifth Circuit addressed head on the difficulty that trial courts have had in following Gisbrecht in determining windfall.
Jeter v. Astrue, 622 F.3d at 377)(footnotes omitted).
Id., 622 F.3d at 379-80. Answering in the affirmative, Jeter concluded that Gisbrecht does not forbid use of a lodestar but rather, forbids only the exclusive use of a lodestar (without regard to contingency fee agreements) in the evaluation of §406(b) motions. By contrast, when a court conducts the windfall inquiry, reference to the hourly rate is wholly appropriate. Id., 622 F.3d at 377. Sensibly, Jeter concluded that courts
Id., 622 F.3d at 380. In the Sixth Circuit, Hayes strongly emphasizes the utility of the effective hourly rate in the windfall analysis. Jeter's analysis is consistent with Rodriquez, Hayes, and the more recent Lasley.
In contrast to Jeter, the Michigan court in Sykes viewed Gisbrecht as forbidding use of the hourly rate as a benchmark. Because the Commissioner had used that benchmark to argue on the plaintiff's behalf that the fee amounted to a windfall, Sykes heavily criticized "the Commissioner's "fixation on the hourly rate [as] contrary to the plain holding of Gisbrecht, in which the Supreme Court rejected the lodestar method of fee review in non-fee-shifting cases," id. at 925. Continuing the presumption that Gisbrect wholly "rejected" use of hourly rates, Sykes also dismissed the Commissioner's proposal that a "reasonable" rate would be a multiplier of 3.4 times counsel's "stated usual hourly rate of $150." Id. Uneasily acknowledging the Sixth Circuit's use of the Hayes test despite what it viewed as Gisbrecht's avoidance of hourly reference points, Sykes reasoned that any use of an effective hourly rate should be relegated to "a marginal, not a central guidepost." Id. at 925 (emphasis original).
However, in Lasley the Sixth Circuit expressly affirmed the continuing central role of the Hayes test in assessing whether a contingent fee may be a windfall, as well as use of the same mathematical formula as a guidepost to determine a reasonable fee in the subset of cases that exceed the Hayes floor.
The Hayes test endures as a model of simplicity. If the contingency fee agreement produces an award that is less than the sum of 2 times the "standard rate," then the windfall analysis is complete.
Returning to Gisbrecht (which cited only Rodriquez, not Hayes), the Supreme Court suggested that to assess windfall, trial courts could compare evidence of an attorney's "normal hourly billing charge for noncontingent-fee cases" to the effective hourly rate produced by a contingent fee agreement. Gisbrecht, 535 U.S. at 808. Where an attorney has a "standard rate" for comparable noncontingent fee cases, it is appropriate for this Court to consider such evidence. As a practical matter, however, few attorneys who practice exclusively in the area of social security law will be able to produce such evidence, because like Ms. Pehowic, they simply do not take on noncontingent fee cases.
Barring any evidence of counsel's standard rate in noncontingent social security cases,
Using an EAJA-based fee for the Hayes test assures consistency, since the same attorney usually will have recovered that rate for the same work. Using that standard also decreases the complexity required for courts to perform the requisite §406(b) analysis and keeps intact the intended simplicity of Hayes, while decreasing satellite litigation over the definition of the "standard rate." Additionally, the EAJA inflation-adjusted rate has been widely adopted in a clear majority of unpublished cases employing the Hayes test. See e.g., Hicks v. Com'r, 2016 WL 7634457 (reducing Ms. Pehowic's contingent fee from hypothetical rate of $1414 per hour to $360 per hour), adopted at 2017 WL 25524 (S.D. Ohio Jan. 3 2017)(Barrett, J.); Jones v. Astrue, 2012 WL 3251865 (reducing effective hourly rate from $750 to twice-times $180 per hour), adopted at 2012 WL 3763909 (S.D. Ohio, Aug. 29, 2012)(Rice, J.); Tharp v. Com'r, 2011 WL 3438431 (S.D. Ohio Aug. 5, 2011)(Barrett, J., reducing request that resulted in effective rate of $1371.75 per hour to $356 per hour, determining that twice the EAJA hourly rate resulted in a reasonable contingent fee); Edwards v. Com'r of Soc. Sec., 2011 WL 1002186 (S.D. Ohio March 16, 2011)(Dlott, J., approving calculated hourly rate of $312 as "less than twice the $165 hourly rate approved under the EAJA"); see also Woods v. Colvin, 2014 WL 2918454 at 5, n.6 (N.D. Ohio June 26, 2014) (accepting different standard rate in light of lack of objection by Commissioner, but noting that most cases use EAJA rates).
Not only has this Court used the EAJA rate of payment as proxy for the "standard rate" in the Hayes equation in most cases, but the Sixth Circuit expressly affirmed that approach in Lasley v. Com'r. Pointing to the lack of evidence of any "contrary standard rate," the Sixth Circuit acknowledged this Court's use of an EAJA-based "standard rate" as the "standard rate[] applied to social security fee requests in the Southern District of Ohio." Id., 771 F.3d at 310.
In her motion, Ms. Pehowic advocates for a different approach that would result in a much higher — and in the undersigned's view — artificially inflated — "standard rate." Ms. Pehowic generally proposes a rate in excess of $200 per hour, based upon a 2004 survey of average rates in the downtown Cincinnati area and an Ohio State Bar Association report, The Economics of Law Practice in Ohio 2013, that reflect billing rates ranging from $325 per hour at the 75th percentile to $350 per hour at the 95th percentile for social security attorneys, with even higher hourly rates for attorneys across all areas of practice with 26-35 years of experience. Of course, redefining the "standard rate" at a higher value will exempt a correspondingly higher percentage of contingent fee awards from further windfall scrutiny under Hayes.
Ms. Pehowic's argument mirrors the approach used in Sykes, which selected the "highest rate" published in a Michigan bar survey as a "standard rate." Ironically, the claimant's counsel in Sykes provided Gisbrecht evidence by representing his normal billing rate was $150 per hour, which the Commissioner used as his "standard rate" for the Hayes test. However, Sykes reasoned that the definition of the "standard rate" used in Hayes was open to interpretation, based on the fact that the Sixth Circuit "never has endorsed any particular nominal figure. . .for the `standard hourly rate' applicable to the litigation of civil actions under the Social Security Act." Sykes v. Com'r, 144 F. Supp.3d at 924. Sykes proceeded to adopt the rationale that the "standard rate" should not be "composed from average or typical hourly rates" but instead should reflect "the highest rate routinely accepted in the sort of practice at issue in the relevant market." Id. at 925. (emphasis added). Citing an unpublished case that had summarily used the same reference,
Id., 144 F.Supp.3d at 925-26.
The undersigned respectfully disagrees with this rationale. In the phrase "standard rate," the word "standard" is an adjective, akin in meaning to "normal," "average," or "typical." The suggestion by Sykes that the Hayes use of a "standard rate" should not represent "average or typical hourly rates" but instead should reflect "the highest rate routinely accepted" flips on its head the most common meaning, and undercuts the rationale of Hayes for choosing a multiplier of 2. Moreover, in rejecting evidence of the plaintiff attorney's stated hourly billing rate of $150, Sykes disregards Gisbrecht (which suggested as a comparison rate the attorney's "normal" rate for noncontingent work). Finally, while a different "standard rate" (even if EAJA-based) may apply in other districts, Lasley recognized and affirmed this Court's use of an EAJA rate as the "standard rate" in the Southern District of Ohio. In short, the EAJA-based "standard rate" has been sufficiently established in the Southern District of Ohio to be entitled to presumptive weight under Hayes in the absence of evidence of counsel's normal billing rate for comparable, noncontingent work. Ms. Pehowic's proffer of state bar data does not overcome that presumption.
Importantly, the presumptive use of EAJA rates in the Hayes test does build in consideration of state bar data over time, because the EAJA rate ultimately is derived from that data. Submission of state bar data makes a great deal of sense in the EAJA context, where the focus is
Although the undersigned has explained the basis for concluding that Ms. Pehowic's previously awarded EAJA rate should be used as her standard rate for purposes of the Hayes test, to the extent a reviewing court may disagree, the undersigned writes further to explain why the data offered by Ms. Pehowic is particularly unpersuasive. First, the 2013 OSBA report reflects that only six practitioners of social security law statewide reported their billing rates, a very small sample size. Further complicating the issue is the fact that virtually all social security cases are taken on a contingency basis, leaving the undersigned to wonder whether the few practitioners who responded are an anomaly unto themselves. The same report reflects widespread gender disparities in hourly billing rates, and that social security practitioners may earn less than attorneys who practice in other areas. Even if the extremely small sample size is considered, their "median" hourly billing rate is $250. And, Ms. Pehowic's reference to attorneys with more than 26 years of practice is perplexing since she had practiced for 10 years at the time she worked on this case. The hourly rate for attorneys across all areas of practice with 6-25 years of practice was $200. Other statistics cited by Plaintiff make no distinction between partners at large downtown firms practicing in the areas of health care or environmental law, and the solo practitioner practicing social security or family law. In contrast to any of the referenced data, counsel states that she exclusively handles social security disability claims on a contingent fee basis, and admittedly earns "a great deal less than $350 per hour" in the cases in which she files judicial appeals. (Doc. 21 at 5). In short, the undersigned finds the amount previously awarded to Ms. Pehowic under the EAJA for the same work in this case ($170 per hour) is an appropriate standard rate.
Hayes held, consistent with Gisbrecht, that some level of premium should be paid based on the contingent nature of social security cases. Hayes chose a multiplier of 2 times the "standard rate" to reflect that premium, given that social security cases are routinely taken on a contingent basis, but are "won" approximately half the time in federal court. The average remand rate for social security appeals has not significantly changed in the decades since Hayes was decided. To that extent, the Hayes rationale for selecting a multiplier of 2 remains intact.
Hayes established a multiplier of 2 as its floor, but did not designate any ceiling other than the 25% statutory cap. Instead, Hayes left it to trial courts to determine in individual cases when a higher multiplier is reasonable, holding only that "a hypothetical hourly rate that is less than twice the standard rate is per se reasonable, and a hypothetical hourly rate that is equal to or greater than twice the standard rate may well be reasonable." Id., 923 F.2d at 427.
In this case, Ms. Pehowic's motion requested an amount more than 8 times her previously awarded EAJA rate. In her reply memorandum, she offers to reduce her award, but still seeks a fee that is 4.4 times her prior fee for the same work. Although she bears the burden of persuasion, see Gisbrecht, 535 U.S. at 807 n.17, Ms. Pehowic offers little justification for so high a multiplier other than to cite the contingent nature of the work and the fact that similarly high awards have been approved in unpublished cases in this district, including two cases in which she was awarded (on unopposed motions) effective hourly rates of $689 and $912.
Virtually none of the cases relied upon by Ms. Pehowic cite Lasley. Instead, they cite (or adopt the reasoning of) Pickett v. Astrue, 2012 WL 1806136 (S.D. Ohio May 17, 2012), a pre-Lasley decision. In Pickett, the court awarded an effective rate of $709 per hour based upon a lack of "impropriety" by counsel and the fact the plaintiff "voluntarily entered into the contingency fee agreement with counsel and counsel undertook and assumed the risk of non-payment, which is the nature of contingency fee agreements." Id. at *2. The undersigned finds that reasoning to greatly overemphasize the contingent nature of the agreement in a manner that is incompatible with controlling case law. Following that reasoning, there would be virtually no multiplier that could not be justified based on the "risk of nonpayment" inherent to contingent fee work and the claimant's "voluntary" contractual agreement.
On the other hand, the undersigned rejects, as equally contrary to Gisbrecht and Hayes, the Commissioner's suggestion that a fixed multiplier of 2 is "an appropriate rate in this jurisdiction" (Doc. 23 at 5), or that a slightly higher multiplier that results in an hourly rate of $400 "may be the new recognized maximum in this jurisdiction." (Id. at 9, emphasis added). In most of the cases cited by the Commissioner, the §406(b) motions also were unopposed.
Courts must be willing to approve multipliers above the Hayes "floor" when appropriate. At the same time, Hayes suggests that the higher the multiplier/rate, the more closely an award should be reviewed for windfall. Even where counsel's conduct is above approach and achieves a good result, the contingent fee to which the claimant agreed may still be too much.
Thirty-six years ago, the Sixth Circuit set forth its first mathematical equation to use as a safeguard against windfall awards, holding that "[i]n no event should the fee exceed 25% of the past-due benefits that would have been due if judgment had been rendered within three months [of the case being submitted to the district court]." Webb v. Richardson, 472 F.2d 529, 538 (6th Cir. 1972), overruled on other grounds, Horenstein v. Sec'y of Health and Human Servs., 35 F.3d 261 (6th Cir. 1994)(en banc). In Webb, judicial delay resulted from an "unconscionable" court practice that continued disposition of social security cases for periods of years. Webb, 472 F.2d at 538. Even though counsel's conduct played no part, Webb broadly cautioned courts to
Webb v. Richardson, 472 F.2d 529, 537-38 (6th Cir. 1972).
Fifteen years later in Dearing v. Sec'y of Health and Human Servs., the Sixth Circuit again lamented delays that "although not chargeable in this case to any fault of counsel, had the effect of substantially increasing the maximum amount of allowable attorney fees if based upon a percentage of the entire amount of accumulated benefits." Id., 815 F.2d 1082, 1083 (6th Cir. 1987). Admonishing trial courts, Dearing wrote:
Id. Rodriquez also reaffirmed the Dearing formula, instructing that it applies "even though the delay [is] not due to the fault of counsel." Id., 865 F.2d at 747.
Despite that reiteration, the Dearing formula is rarely cited and largely has been forgotten.
Thatch v. Com'r of Social Sec., 2012 WL 2885432, at *6 (N.D. Ohio 2012).
The same presiding judge assigned to this case has expressed similar concerns, citing the principle of Dearing as a basis for reducing an unopposed §406(b) fee as a windfall, where most of the delay occurred at the administrative level, after remand by this Court, and even though counsel played no part in that delay. See Willis v. Com'r of Soc. Sec., Case No. 1:10-cv-594, 2014 WL 2589259 at *5-6 and n.3 (S.D. Ohio June 10, 2014)(Barrett, J.)(reducing §406(b) award in part because "an estimated one-third of Plaintiff's past due benefits accrued" during administrative delay after remand, citing cases supporting similar reductions for administrative delay); see also Woods v. Colvin, 2014 WL 2918454 at *6 (finding delay at administrative level more relevant when fee exceeds Hayes test); Boston v. Com'r of Soc. Sec., 2014 WL 49858 (reducing Ms. Pehowic's fee based in part on seven years' delay in award of benefits, most of which occurred at administrative level, despite finding Dearing "not directly applicable").
Where the amount of elapsed time from onset of the disability to the Notice of Award is more than a decade as in this case, there is a significant likelihood that the past-due benefits award will be "inordinately" large, and that the corresponding contingent fee will be "unearned" and unreasonable solely because of the length of time that benefits have accrued. The crux of the issue is whether the attorney or the disabled claimant should bear the greater risk for unusually long delay, whether at the administrative or judicial level.
In some future case, a reviewing court may craft a temporal framework that will be more straightforward than Dearing's formula. In the absence of more definitive authority, and in the spirit of Hayes simplicity, the undersigned suggests that a contingent fee based on a past-due benefits award that reflects a period of less than four years is unlikely to constitute a windfall.
Though related to the Hayes test, the quality and quantity of hours provides its own guidepost when calculating a reasonable contingent fee, and may have some bearing on the degree of difficulty of a particular case. For example, a case in which the Commissioner jointly agrees to a remand would typically require fewer hours than one that requires full briefing. See also Hayes, 923 F.2d at 422 (approving discretionary consideration of "what proportion of the hours worked constituted attorney time as opposed to clerical or paralegal time and the degree of difficulty of the case")(internal quotations and citations omitted).
However, contrary to Ms. Pehowic's arguments that a higher fee is warranted based on her efforts at the administrative level, this Court is legally prohibited from considering time other than spent before this Court under 42 U.S.C. §406(b). In short, compensation is restricted to the 19.5 hours of work performed for the one and only appeal filed in this forum. See also Horenstein v. Sec'y of Health & Human Servs., 35 F.3d 261.
Because they are appeals not trials, and for a host of other reasons including a sequential review process that limits the types of claims, the vast majority of social security cases reflect a very standardized number of attorney hours, typically between 10 and 40 hours, with most (based on the undersigned's review) falling near the midpoint of a 12-30 hour range. See generally Glass v. Sec'y of Health & Human Servs., 822 F.2d 19, 20 (6th Cir.1987)(observing typical range of "twenty to thirty hours"); Hayes, 923 F.2d at 420 (noting trial court's reference to thirty to forty hours). In Rodriquez, the Sixth Circuit explained that the routine nature of most social security appeals should inform a trial court's analysis of a "reasonable" fee versus a windfall:
Rodriquez, 865 F.2d at 747 (emphasis added, footnote omitted); see also Bailey v. Heckler, 777 F.2d at 1170 n. 3 ("[T]his court has stressed that given the general lack of correlation between the amount of a social security award and the attorney's performance, courts should hesitate to grant `routine approval' of the statutory maximum contingency fee") (emphasis original, additional citation omitted).
While relevant, the number of hours alone, when within the standard range, will seldom be determinative. An unusually high number may signal greater difficulty, but also could reflect the expenditure of "unnecessary hours" that do nothing but reduce the effective hourly rate below the Hayes floor. See Jeter, 622 F.3d at 381 (noting that attorneys could have "a perverse incentive to delay proceedings or expend unnecessary hours" if courts focus exclusively on the hourly rate). In addition, experienced attorneys (including Ms. Pehowic) may be able to complete a case in fewer hours within the typical range than would a newer attorney. In such cases, counsel should not pay a penalty for efficiency.
In this case, the issues presented in Mr. Ringel's appeal were not novel or complex, but represent routine claims. The case did not require any level of federal appellate review beyond this Court. Under Rodriquez, such factors favor a reduction of fees. In her reply, Ms. Pehowic points out that the Commissioner does not argue that she expended "minimal effort" or that she acted improperly or provided ineffective assistance. But again, the fact that counsel was guilty of no misconduct does not immunize her fee from windfall reduction. Nor does the fact that Ms. Pehowic's work can be described as "simple and routine" detract from the reality that she performed her job admirably, achieving a significant benefit on Mr. Ringel's behalf.
Consistent with the high volume nature of social security practice,
In addition to pointing out the routine nature of Mr. Ringel's case, the Commissioner quibbles with a few of Ms. Pehowic's hours, noting the relative brevity of hours spent on brief-writing (consistent both with the routine arguments and Ms. Pehowic's experience), but contrasting other time entries that suggest clerical or administrative time, or otherwise appear excessive for the nature of the task (i.e., 2 hours for that 1.5 page boilerplate complaint). In her reply, Ms. Pehowic implies that the Commissioner should be deemed to have waived any concerns with the number of hours, because the Commissioner filed no objection to those same 19.5 hours in opposition to her EAJA motion. "It would be entirely inappropriate for Plaintiff to submit a different timesheet with the Application for EAJA fees and expenses as compared with the current motion for fees under §406(b), since both requests for fees relate to the same body of work." (Doc. 24 at 5).
The undersigned finds no waiver. In the context of the EAJA petition, the much smaller fee award may not have merited the Commissioner's time in a cost/benefit analysis. Admirably, given the fact that the Commissioner does not reap any direct benefit, the opposition to the § 406(b) motion has been filed not to represent the Commissioner, but on behalf of the disabled claimant whose interests in retaining his benefits and proportional risk of loss are much greater. And, while the undersigned expresses no view on the propriety of claiming a smaller number of hours under §406(b), the law requires a reduction under § 406(b) to avoid a windfall. If no other factor favored reduction, the undersigned may well approve the hours as reasonable overall, since they fall within the standard range. However, in combination with the other factors discussed, the quality and quantity of hours expended on such routine claims favor a downward adjustment of fees in this case.
In many unpublished cases in which an unusually high effective hourly rate has been awarded, the trial court will do so after noting that the fee requested does not, in fact, represent the full contracted amount. In those cases, courts point out that the motions reflect a voluntary compromise of the contingent fee well below the agreedupon 25%, in recognition of the fact that the contract would result in a windfall. See, e.g., Lowery, 940 F.Supp.2d 689 (granting unopposed motion where counsel sought only 14.5% of past-due benefits representing an effective hourly rate of $406, rather than full contingent fee); Willis v. Com'r, 2014 WL 2589259 at *5 ("While counsel is not required to seek less than the 25 percent contingency fee, a discounted fee or the lack thereof is relevant to a reasonableness determination")(collecting cases); Reynolds v. Com'r of Soc. Sec., 292 F.R.D. 481, 485 (W.D. Mich. 2013)(permitting fee despite delay in filing motion, where counsel had significantly and voluntarily reduced requested award to an amount representing 17% of benefit award in lieu of 25%); Childers v. Astrue, 2012 WL 4757828 (S.D. Ohio, Oct. 4, 2012)(approving unopposed fee that represented effective rate of $634, in part because counsel had voluntarily reduced request from 25% to just over 10% of benefit award).
This factor can put counsel in the difficult position of bidding against themselves, as it were, by offering to take a significantly reduced fee in lieu of the contracted amount agreed to by their clients. Yet, the statute authorizes only a "reasonable" fee, which does not include a windfall. Application of Hayes and similar guideposts continue to alert both counsel and courts of whether further windfall review is warranted. In cases where the Hayes test or significant delay suggest possible windfall, the extent to which counsel has offered to compromise the fee (or failed to compromise) will be more relevant. See Willis, 2014 WL 2589259 at *5 (holding that voluntary reduction "is particularly relevant where, as here, the Court's judgment was followed by an administrative delay in the final award of past-due benefits").
In this case, Ms. Pehowic's initial motion reflects small compromise. She seeks "25% of Plaintiff's past due benefits withheld ($32,735.75) less the EAJA fees ($3,315.00) previously awarded to Plaintiff's counsel, and less the amount of fees ($6,000.00) expected to be awarded to Plaintiff's counsel for work performed at the administrative level"). (See Doc. 21 at 6).
The first "subtraction" of the EAJA fee, prior to the Hayes calculation, is misguided. After subtracting the EAJA fee, Plaintiff reports seeking only $23,420.75, rather than a total fee of $26,735.75. This common error leads Ms. Pehowic to mistakenly calculate her effective hourly rate as $1,201 per hour rather than the true rate of $1,371 per hour.
It is true that the EAJA's Savings Clause bars duplicative awards, and that an attorney who recovers a second, larger fee under 42 U.S.C. §406(b) must refund the duplicate EAJA fee to the claimant.
Ms. Pehowic's second subtraction, of the $6,000 she will receive for her work performed at the administrative level under 42 U.S.C. §406(a), is consistent with the Social Security Administration's retention of an aggregate 25% of the past-due benefits in its Notice of Award. It is unclear whether Ms. Pehowic intended that subtraction to reflect a voluntary compromise of her fee. However, in contrast to the subtraction of the EAJA offset, the subtraction of a fee received for work performed at the administrative level does constitute a true "compromise" under Sixth Circuit precedent.
The Agency's withholding practice is consistent with the view of several circuits which hold that the 25% cap on attorney's fees applies to the
Ms. Pehowic's reply memorandum offers greater compromise, reducing her effective rate to $750 per hour, for a total award of $14,625, a sum that is less than half the maximum fee she could have sought under Sixth Circuit law. That degree of compromise is significant, but must be considered in proportion to other guideposts, including the significant delay in this case. Compare, e.g. Jones v. Com'r of Soc. Sec., 2017 WL 1745569 (S.D. Ohio May 4, 2017)(where Ms. Pehowic initially sought $2217 per hour, but after opposition by Commissioner, offered proportionally greater compromise to $750 per hour in her reply; court awarded rate of $580 per hour).
In addition to the Hayes test, the amount of delay, the quantity and quality of hours, and any attorney compromise of his/her fee, a fifth guidepost is whether the Commissioner has filed any opposition. As discussed above, such opposition is relatively rare, and is taken seriously in this case.
Because fee awards ultimately require the exercise of discretion, the list of five guideposts set forth above is not intended to be exhaustive. While not as common, additional factors that may warrant a reduction include: (1) whether counsel failed to first seek a fee under the EAJA (since that fee is paid by the Commissioner); and (2) whether specific language in the fee contract provides for an "aggregate" approach to the 25% cap, or if some other contractual element disfavors an award of the statutory maximum fee. See, e.g., Jones v. Com'r of Soc. Sec., 2017 WL 1745569 (S.D. Ohio May 4, 2017)(reducing Ms. Pehowic's fee based upon her failure to submit an EAJA application on her client's behalf prior to filing her §406(b) motion, collecting cases); Damron v. Com'r of Soc. Sec., 104 F.3d 853, 856 (6th Cir. 1997)(fee not truly contingent where no fee agreement signed until after benefit award was made).
Additionally, the undersigned recognizes that her determination of a "reasonable" fee may not be identical to the discretionary determination by another magistrate judge or district judge. But that does not mean that courts cannot be consistent in their approach. So long as the referenced guideposts are used as such to determine reasonableness, without "automatically" approving or disallowing any fee, then greater consistency should result.
Like the underlying appeal that generated the R&R recommending remand in this case, the motion for attorney's fees is considered to be dispositive. McCombs v. Meijer, Inc., 395 F.2d 346, 360 (6th Cir. 2005); see also Massey v. City of Ferndale, 7 F.2d 506, 510-511 (6th Cir. 1993); Fed. R. Civ. P., Rule 54(d)(2)(D) (providing for the referral of attorney's fee motions to magistrate judges). This R&R sets forth the guideposts used to inform judicial discretion and define when a contingent fee may constitute a windfall under §406(b), consistent with controlling case law, as well as persuasive authority. Although the undersigned has endeavored to exercise her judicial discretion in a manner consistent with those guideposts, the referral of a discretionary motion does not alter the de novo standard of review applicable to any objections made by the parties to the district judge. See McCombs v. Meijer, Inc., 395 F.3d at 359-60.
At the same time, the discretionary nature of the fee award may limit the scope of appellate review. In McCombs, the Sixth Circuit explained that its own review of such awards falls "under the same standard as evidentiary determinations and [we] will therefore `usually sustain a district court's award and division of attorneys' fees absent an abuse of discretion.'" Id., 395 F.3d at 359-60 (affirming district judge's one-page order adopting R&R on fee award over objections, where Court stated it had "reviewed the comprehensive findings of the Magistrate Judge and considered de novo all of the findings in this matter," citing Dean v. Holiday Inns, Inc., 860 F.2d 670, 672 (6th Cir.1988)); accord Damron v. Com'r, 104 F.3d 853, 856 (6th Cir. 1997)("This court will reverse a [SSA] fee award decision upon finding an abuse of discretion").
Under Gisbrecht, this Court begins with the contingency fee agreement, which here authorized the statutory maximum fee of 25% of the past-due benefits award. Because the motion was timely filed under Local Rule 54.2 with no evidence of attorney misconduct, the Hayes test is applied to determine whether further analysis is warranted to prevent a windfall. The standard EAJA rate previously awarded for the same work is presumed to apply for that test.
Ms. Pehowic's initial motion sought a fee 8 times the standard rate, well above the Hayes floor. Even in her reply memorandum, she continues to seek an award that is 4.4 times her previously awarded standard rate.
When the requested fee exceeds the Hayes floor, as it does here, the Court will further consider the following guideposts: (1) the number of years that past benefits have accrued and whether extraordinary delay has resulted in an inordinately large past-due benefits award (without regard to any fault of counsel); (2) the quality and quantity of hours, including the typicality of claims, the efficiency of the attorney performing those hours, and any non-compensable work; (3) the extent to which counsel has compromised the fee; and (4) whether the motion is opposed by the Commissioner, and/or any other factors that provide a reasoned basis for the exercise of discretion.
On the record presented, four of the five factors favor some reduction (the Hayes test, the extraordinary delays that resulted in an inordinately high past-due benefits award, the quality and quantity of hours, and the Commissioner's opposition). Counsel's somewhat belated offer to significantly compromise her fee lessens the need for reduction, but must be viewed in the context of, and in proportion to, the record as a whole. All in all, the undersigned recommends that a "reasonable" fee be awarded in the amount of $11,700. That sum reflects an effective hourly rate of $600, which — at more than 3.5 times counsel's standard rate — adequately compensates her for the contingent nature of her contracted fee for work performed in this Court,
Accordingly,
Pursuant to Fed. R. Civ. P. 72(b), any party may serve and file specific, written objections to this Report & Recommendation ("R&R") within