Judges: Kanne
Filed: Oct. 10, 2018
Latest Update: Mar. 03, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 17-3179 STACI HARRINGTON, Plaintiff-Appellant, v. NANCY A. BERRYHILL, Acting Commissioner of Social Security, Defendant-Appellee, _ No. 17-3194 ANDREW BANKS, Plaintiff-Appellant, v. NANCY A. BERRYHILL, Acting Commissioner of Social Security, Defendant-Appellee. _ Appeals from the United States District Courts for the Southern District of Indiana, Terre Haute Division, and the Northern District of Indiana, Ft. Wayne Division. No.
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 17-3179 STACI HARRINGTON, Plaintiff-Appellant, v. NANCY A. BERRYHILL, Acting Commissioner of Social Security, Defendant-Appellee, _ No. 17-3194 ANDREW BANKS, Plaintiff-Appellant, v. NANCY A. BERRYHILL, Acting Commissioner of Social Security, Defendant-Appellee. _ Appeals from the United States District Courts for the Southern District of Indiana, Terre Haute Division, and the Northern District of Indiana, Ft. Wayne Division. No. ..
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In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 17‐3179
STACI HARRINGTON,
Plaintiff‐Appellant,
v.
NANCY A. BERRYHILL,
Acting Commissioner of Social Security,
Defendant‐Appellee,
____________________
No. 17‐3194
ANDREW BANKS,
Plaintiff‐Appellant,
v.
NANCY A. BERRYHILL,
Acting Commissioner of Social Security,
Defendant‐Appellee.
____________________
Appeals from the United States District Courts for the
Southern District of Indiana, Terre Haute Division, and the Northern
District of Indiana, Ft. Wayne Division.
No. 2:16‐cv‐129 — Jane Magnus‐Stinson, Chief Judge, and
No. 1:15‐cv‐400, Susan L. Collins, Magistrate Judge.
____________________
2 Nos. 17‐3179 & 17‐3194
ARGUED SEPTEMBER 5, 2018 — DECIDED OCTOBER 10, 2018
____________________
Before KANNE, SYKES, and ST. EVE, Circuit Judges.
KANNE, Circuit Judge. The Commissioner of Social Security
separately denied benefits to Staci Harrington and Andrew
Banks. Both individuals sought judicial review of those deci‐
sions. To that end, each separately engaged the services of The
de la Torre Law Office LLC, which agreed to represent them
in federal court. In exchange, the two plaintiffs assigned to
counsel any legal fees to which they might be entitled under
the Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412(d).
After successfully prosecuting their cases, the plaintiffs ob‐
tained the statutory fee awards.
But that was not the end of the story. The Treasury Depart‐
ment, which had the responsibility of processing the pay‐
ments, determined that both litigants had outstanding debts
to various government entities. Rather than paying out the
fees directly, it reduced the litigants’ debts by equal amounts
under the Treasury Offset Program, 31 C.F.R. § 285. The attor‐
neys received nothing. In response, the parties brought these
appeals, which we have consolidated because they pose the
same legal questions. See Harrington v. Berryhill, 876 F.3d 889
(7th Cir. 2017). We believe it would be imprudent to entertain
new administrative claims that are only minimally related to
the judgments, so we decline to exercise ancillary jurisdiction
over the plaintiffs’ collateral challenges to the regulations and
instead affirm the district courts’ judgments.
Nos. 17‐3179 & 17‐3194 3
I. BACKGROUND
Both Harrington and Banks are indigent petitioners who
filed claims for Social Security Disability Insurance Benefits
and Supplemental Security Income in 2014. In each case, the
Commissioner found that the petitioner was not disabled and
was therefore not entitled to benefits. Both separately sought
judicial review of those determinations in district court, and
both engaged The de la Torre Law Office LLC to assist with
those suits. Because the plaintiffs had limited means, the at‐
torneys conditioned their representation on their clients’
agreement to assign any potential award of attorney fees to
the law firm under Indiana law. Both plaintiffs were victori‐
ous, and the district courts remanded the cases to the Com‐
missioner for reconsideration.
As in many cases involving Social Security, the parties
then successfully petitioned the district courts to award attor‐
ney fees under EAJA; Harrington received $11,851.04, and
Banks received $11,001. Although the plaintiffs requested that
the government make its payments directly to the attorneys
rather than to their clients, neither district court ordered the
government to do so.
Pursuant to the awards, the Social Security Administration
(“SSA”) submitted payment vouchers to Treasury under 31
U.S.C. § 3325(a). Rather than issuing a direct payment to the
“prevailing part[ies]” as envisioned by EAJA, however,
§ 3325(a) permits Treasury to execute “payment intercepts or
offsets” under a provision of the Debt Collection Improve‐
ment Act of 1996 (“DCIA”), 31 U.S.C. § 3716. As it processed
the payment vouchers, Treasury determined that Harrington
had an outstanding debt to the Department of Education that
exceeded the sum of her attorney fees. Likewise, Banks was
4 Nos. 17‐3179 & 17‐3194
delinquent on child support obligations administrated by the
prosecutor’s office in Allen County, Indiana, a debt monitored
and administered at the federal level by the Department of
Health and Human Services (“HHS”). Under its regulations
issued pursuant to the DCIA, Treasury applied an adminis‐
trative offset to both awards of attorney fees. See 31 C.F.R.
§§ 285.1, 285.5. Treasury deducted amounts from SSA appro‐
priations and transferred those sums to Education and HHS
accounts. In turn, those departments reduced the plaintiffs’
outstanding debts by equal amounts, effectively “paying” the
litigants as required by the fee awards.
Harrington subsequently filed a motion under Fed. R. Civ.
P. 69. That motion pointed to the assignment of fees under
Indiana law and requested that the district court order the
government to rescind the administrative offset and pay the
full amount of the fee award directly to counsel. The district
court, citing both Astrue v. Ratliff, 560 U.S. 586 (2010) and our
decision in Matthews‐Sheets v. Astrue, 653 F.3d 560 (7th Cir.
2011), overruled on other grounds by Sprinkle v. Colvin, 777 F.3d
421 (7th Cir. 2015), denied that motion and upheld the gov‐
ernment’s action. Banks made no such motion.
Both plaintiffs appealed their cases. They now ask us to do
what the district courts would not do: compel the government
to reverse Treasury’s administrative offsets, reinstate their
prior debts, and pay their lawyers.
II. ANALYSIS
We review an order to award attorney fees under EAJA for
abuse of discretion. See Sprinkle, 777 F.3d at 424. We review all
questions of law involved in the interpretation of EAJA de
novo. Id.
Nos. 17‐3179 & 17‐3194 5
The shadow of Ratliff looms over this appeal. In that case,
the Court held that the plain text of EAJA requires courts to
award fees to the “prevailing litigant,” not to the litigant’s at‐
torney. 560 U.S. at 596. The award is “thus subject to offset
where the litigant has relevant federal debts.” Id. In essence,
the statute “controls what the losing defendant must pay, not
what the prevailing plaintiff must pay his lawyer.” Id. at 598
(quoting Venegas v. Mitchell, 495 U.S. 82, 90 (1990)). Instead,
the Court observed that it is usually “nonstatutory (contrac‐
tual and other assignment‐based) rights that typically confer
upon the attorney the entitlement to payment,” and that those
contractual arrangements would be unnecessary if EAJA re‐
quired a direct payment to attorneys. 560 U.S. at 598.
That language raises the question of whether an assign‐
ment or other contractual claim to the fees might change the
calculus. The plaintiff in Ratliff had no such assignment in
hand, so the Court did not give the possibility any further
thought. In dicta, we observed the following year in Matthews‐
Sheets that Ratliff “suggests that if there is an assignment, the
only ground for the district court’s insisting on making the
award to the plaintiff is that the plaintiff has debts that may
be prior to what she owes her lawyer.” 653 F.3d at 565. Again,
however, we did not definitively answer the question.
The plaintiffs pose it to us directly today. The attorneys in
these cases have assignments in hand, which they contend
give them priority over any government claim under Indiana
law. In addition, they challenge the offsets on the basis of sev‐
eral other theories. First, they contend that even if their as‐
signments do not enable them to take the awards free and
clear of the government’s claims, their state law attorney’s
6 Nos. 17‐3179 & 17‐3194
liens do. Second, they attempt to distinguish Ratliff by attack‐
ing the offsets on grounds other than EAJA: they argue that
Treasury lacked the statutory authority to promulgate the off‐
set regulations; that the offsets violate the equitable Rule of
Mutuality; that they violate the Takings Clause of the Fifth
Amendment; that they violate the Judgment Setoff Act of
1875; and finally that the offsets violate Article III of the Con‐
stitution as an improper executive intrusion into the judicial
power to issue judgments.1
Because Ratliff did not consider any of these questions,
they contend, it does not control here, and we must give the
plaintiffs a fresh opportunity to challenge the administrative
offsets of attorney fees.
A. The district courts properly awarded attorney fees
Before we reach any of those issues, we must first assess
the threshold question of whether the district courts properly
awarded fees under EAJA. The statute directs that courts
“shall award to a prevailing party other than the United States
fees and other expenses … incurred by that party in any civil
action … , including proceedings for judicial review of agency
action … unless the court finds that the position of the United
States was substantially justified.” § 2412(d)(1)(A). Both dis‐
trict courts granted the plaintiffs’ motions for fees upon re‐
quest. See Harrington v. Berryhill, No. 2:16‐cv‐00129‐JMS‐MJD,
2017 WL 2502456 (S.D. Ind. Jun. 9, 2017); see also Banks v.
1 We note that Banks did not raise the constitutional arguments in the
district court, and that Harrington raised them only briefly in her reply to
the motion for summary judgment. These arguments are likely waived,
but we need not address that issue because we decline to exercise ancillary
jurisdiction to consider them.
Nos. 17‐3179 & 17‐3194 7
Comm’r of Soc. Sec., No. 1:15‐cv‐00400‐SLC, 2017 WL 3634300
(N.D. Ind. Aug. 23, 2017). No party has brought a challenge to
the calculation of those fees on appeal, and we see no reason
to disturb the findings of the district courts.
Instead, the plaintiffs contend that the district courts erred
by failing to direct the government to render payment directly
to the attorneys, as both parties requested in their EAJA peti‐
tions and Harrington reiterated in a subsequent Rule 69 mo‐
tion requesting that the district court order “the Commis‐
sioner to pay any EAJA award directly to Plaintiff’s counsel”
and “[d]eclare that the Government may not execute Plain‐
tiff’s EAJA fee judgment through an administrative offset …
against Plaintiff’s alleged federal debts.” (S.D. Ind. R. 28 at 10;
37 at 2).
There is no question that the district courts and SSA com‐
plied with the requirements set forth in the statute. The courts
awarded fees to the “prevailing party” as the statute directs,
and Ratliff requires that such payment go directly to the liti‐
gant rather than to her attorney. See 560 U.S. at 591 (“We have
long held that the term ‘prevailing party’ in fee statutes is a
‘term of art’ that refers to the prevailing litigant.”). SSA paid
money out of its appropriations according to the court orders,
and the prevailing litigants received value through the reduc‐
tion of their outstanding debts.
Although the plaintiffs contend that a withholding of pay‐
ment (and subsequent reduction of debts) is not a “payment”
under EAJA, we disagree. The plaintiffs cite to Pam‐to‐Pee v.
United States, 187 U.S. 371, 382 (1902), to establish the propo‐
sition that the district courts, “which render[ed] a judgment
in favor of A against B,” also have the jurisdiction “to inquire
8 Nos. 17‐3179 & 17‐3194
whether that judgment has been rightly executed by a pay‐
ment from B to C.” We agree that the district courts had such
jurisdiction, and therefore we have jurisdiction to review the
inquiry that they made. However, Ratliff approved the execu‐
tion of an EAJA award against the United States even though
that award was subject to offset, effectively paying C (another
federal agency) in order to satisfy an obligation to B (Ratliff’s
client).
The economic realities of this transaction confirm that in‐
quiry, as Harrington and Banks have each received more than
$11,000 in economic value through a reduction of their out‐
standing debts. The plaintiffs contend that dicta in United
States v. Isthmian Steamship Co., 359 U.S. 314, 318–19 (1959),
firmly distinguishes between the concepts of payment and
withholding payment to offset a prior debt. But Isthmian was
primarily about admiralty law and whether a setoff in a non‐
admiralty context could serve as a defense to suit in admiralty
jurisdiction. See 359 U.S. at 320 (“[W]e must ascertain whether
admiralty practice permits private parties to defend by setting
up claims arising out of separate and unrelated transactions
between the parties.”). This case has nothing to do with admi‐
ralty law, and the Court made no distinction between pay‐
ment and offset in Ratliff. See also Pan‐Atlantic S.S. Corp. v.
United States, 245 F. Supp. 731, 733 (D. Del. 1965) (“The treat‐
ment of the defense of setoff in Isthmian is demonstrative of a
provision peculiar to admiralty.”); 31 C.F.R. § 285.5(e)(9)
(“When an offset occurs, the debtor has received payment in
full for the underlying obligation represented by the pay‐
ment.”). Following Ratliff, we hold that a reduction of a liti‐
gant’s prior debts to the government by administrative offset
constitutes payment to the prevailing party under EAJA.
Nos. 17‐3179 & 17‐3194 9
The collateral attacks that plaintiffs’ counsel raise on non‐
EAJA grounds do not affect the fact that the judgments have
been executed pursuant to the terms of the statute as inter‐
preted by Ratliff. To the extent that EAJA controls the award
and processing of attorney fees, all parties to the present liti‐
gation have been satisfied.
B. We decline to exercise ancillary jurisdiction over the remain‐
ing claims
But the plaintiffs’ attorneys received no such satisfaction.
They accurately point out that Ratliff did not address ques‐
tions of the interaction between EAJA and state law or con‐
sider collateral constitutional or statutory attacks to the Treas‐
ury Offset Program, and they now ask us to consider those
challenges in the first instance. However, several factors cau‐
tion us against answering those questions today, and we de‐
cline to do so.
“Federal courts are courts of limited jurisdiction. They
possess only that power authorized by Constitution and stat‐
ute, which is not to be expanded by judicial decree.” Kokkonen
v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (cita‐
tions omitted). These cases arose in the district courts under
the jurisdictional provision contained in 42 U.S.C. § 405(g).
That section contains a clear congressional grant of authority
to courts to review actions and determinations of the Com‐
missioner and to remand a case for further administrative ac‐
tion. Likewise, 28 U.S.C. § 2412(d) authorizes courts to award
fees to parties challenging agency actions. Our jurisdiction to
review the district courts’ orders stems from 28 U.S.C. § 636(c)
(permitting us to review the actions of magistrate judges to
whose supervision the parties have consented, as in the case
of Banks) and 28 U.S.C. § 1291 (permitting us to review the
10 Nos. 17‐3179 & 17‐3194
final decisions of district courts). In both cases, the extent of
our appellate jurisdiction is limited by the extent of the subject
matter jurisdiction exercised by the courts of first instance.
None of these jurisdictional grants expressly cover the collat‐
eral challenges presented in this appeal.
The plaintiffs suggest that, even if we believe their claims
do not fall squarely within the scope of our subject matter ju‐
risdiction, we might exercise ancillary jurisdiction to enforce
the judgments as they desire. That doctrine “recognizes fed‐
eral courts’ jurisdiction over some matters (otherwise beyond
their competence) that are incidental to other matters
properly before them.” Kokkonen, 511 U.S. at 378. The Su‐
preme Court has noted that one of the proper uses of ancillary
jurisdiction is “to enable a court to function successfully, that
is, to manage its proceedings, vindicate its authority, and ef‐
fectuate it decrees.” Id. at 380. The plaintiffs here urge us to
“vindicate [our] authority” and “effectuate [our] decrees” by
invalidating Treasury’s offsets and directing the payments to
their lawyers, whom they believe are the appropriate recipi‐
ents.
In Kokkonen, the Supreme Court found that the district
court had no ancillary jurisdiction to resolve a dispute over
compliance with a settlement agreement. After approving the
agreement, the district court dismissed the case with preju‐
dice. Later on, a dispute arose between the parties as to their
obligations under the settlement agreement. The parties re‐
turned to the same district court seeking to resolve that new
dispute. The Supreme Court, however, determined that the
new issue was essentially an entirely new state law breach of
contract claim and that federal courts lacked the power to re‐
solve it. Id.
Nos. 17‐3179 & 17‐3194 11
We have considered the use of ancillary jurisdiction to
resolve a dispute over attorney fees in the past. In Baer v. First
Options of Chicago, Inc., 72 F.3d 1294 (7th Cir. 1995), the parties
to the original litigation had already settled and removed
themselves by the time the case reached us on appeal. The
only remaining dispute was between two of the plaintiff’s
attorneys, who both laid claim to the fee awarded. In that case,
decided one year after Kokkonen, we considered the
approaches of both the Second and Fourth Circuits to similar
problems. The Second Circuit approved the district court’s
exercise of ancillary jurisdiction to resolve a dispute over fees
in Grimes v. Chrysler Motors Corp., 565 F.2d 841 (2d Cir. 1977),
while the Fourth Circuit declined to exercise jurisdiction over
a nearly identical case in Taylor v. Kelsey, 666 F.2d 53 (4th Cir.
1981). Our reading, however, found that there was no conflict
in the reasoning of the two cases: both were highly fact‐
specific analyses that led to opposite conclusions because of
slight differences in circumstances. See Baer, 72 F.3d at 1300–
01. In Grimes, the district court had ordered the fees to be
deposited in an escrow account pending resolution of the
dispute and therefore had affirmative control over the funds.
The settlement agreement on which the dispute was premised
also included an explicit provision authorizing the same
district court to resolve any resulting arguments over its
execution. On the contrary, neither of those factors were
present in Taylor, and the dispute resembled a run‐of‐the mill
breach of contract claim between citizens of the same state.
For those reasons, the exercise of ancillary jurisdiction was
improper. We determined that the dispute in Baer more
12 Nos. 17‐3179 & 17‐3194
closely resembled that in Grimes and therefore opted to
exercise ancillary jurisdiction to resolve it.2 Id.
In sum, the cases seem to make the exercise of ancillary
jurisdiction discretionary based on the extent to which the
new issues are closely connected to the original dispute,
whether there exists some independent basis for jurisdiction
over the new claims, and whether the facts suggest it would
be prudent to do so. See Baer, 72 F.3d at 1301 n.8 (“Because
neither party has challenged the district court’s exercise of its
[ancillary] jurisdiction, it is sufficient to decide that [ancillary]
jurisdiction existed. We need not determine whether the
court’s decision to exercise that discretion was appropriate.”);
see also Goyal v. Gas Tech. Inst., 718 F.3d 713, 717 (7th Cir. 2013)
2 We note that there is some confusion between the terms “ancillary
jurisdiction” and “supplemental jurisdiction” running through the case
law. They seem to be used interchangeably in some circumstances. Sup‐
plemental jurisdiction is codified at 28 U.S.C. § 1367 and applies most of‐
ten to entirely separate, free‐standing claims that a court would not have
jurisdiction to hear, but which are appended at the outset of litigation to a
primary claim over which the court has original jurisdiction granted by
statute. Compare Baer, 72 F.3d at 1299–1301 (comparing both terms and ap‐
plying ancillary jurisdiction to reach its result) with Humphrey v. United
States, 787 F.3d 824, 826 (7th Cir. 2015) (distinguishing Baer while analyz‐
ing § 1367 as applied in a case arising under diversity jurisdiction). On the
other hand, ancillary jurisdiction is not codified by statute. The Supreme
Court clarified the doctrine considerably in Kokkonen. See 511 U.S. at 378–
80 (“The doctrine … can hardly be criticized for being overly rigid or pre‐
cise.”). Ancillary jurisdiction exists “(1) to permit disposition by a single
court of claims that are, in varying respects and degrees, factually interde‐
pendent; and (2) to enable a court to function successfully, that is, to man‐
age its proceedings, vindicate its authority, and effectuate its decrees.” Id.
at 579–80 (citations omitted). At the request of the parties, our analysis is
limited to ancillary jurisdiction, despite the fact that some of the case law
we have quoted refers to supplemental jurisdiction.
Nos. 17‐3179 & 17‐3194 13
(“District courts may exercise [ancillary] jurisdiction over dis‐
putes between attorneys and clients concerning costs and fees
for representation in matters pending before the district
court.” (emphasis added)).
The claims at issue today are essentially free‐standing
challenges to the actions of an agency that is not a party to this
lawsuit by attorneys who themselves are not the original par‐
ties. As the plaintiffs themselves said, “[c]hallenges to EAJA
offset … are challenges to Treasury decision‐making.” (Ap‐
pellants’ Br. at 22.) The plaintiffs, or rather their attorneys,
frame this appeal as a challenge to Treasury’s authority to
promulgate 31 C.F.R. § 285.5. While the claim generally arises
out of the litigation, the legal claims that the plaintiffs’ attor‐
neys put forward “inject so many new issues that [they create]
functionally a separate case.” Wilson v. City of Chicago, 120
F.3d 681, 684 (7th Cir. 1997).
A new suit under the Administrative Procedure Act
(“APA”), 5 U.S.C. § 701 et seq., is the proper vehicle for this
litigation. That statute provides the legal framework for chal‐
lenging agency actions the plaintiff believes to be unlawful
because they were “contrary to constitutional right, power,
privilege, or immunity” or “in excess of statutory jurisdiction,
authority, or limitations.” § 706(2)(B)–(C). Such a suit would
also give Treasury the opportunity to defend its rule as a
party to the case and would operate under the clearer stand‐
ards of review and deference suitable to a challenge to agency
action. Indeed, the plaintiff in Ratliff, the attorney challenging
the offset, brought her own suit under the APA rather than
continue her client’s litigation in order to avoid the same pit‐
falls. See Petition for a Writ of Certiorari at ¶ 3.a, Ratliff, 560
U.S. 586 (No. 08‐1322), 2009 WL 1155415 at *5.
14 Nos. 17‐3179 & 17‐3194
A separate suit would also alleviate the potential for a con‐
flict of interest between the attorneys, who are the real party
in interest in this case (as counsel conceded at oral argument),
and the clients whom they claim to represent on appeal. Be‐
cause victory for the attorneys would necessarily result in the
reinstatement of their clients’ government debts (and in the
case of Banks, recoupment of money already paid to the
mother of his child), we hesitate to permit the attorneys to go
forward in their clients’ names.
We stress that our decision today indicates no opinion on
the merits of the various legal theories the plaintiffs have pro‐
posed to us. These are important questions that deserve their
day in court. In particular, we sympathize with the practical
effects that administrative offsets have on the ability of indi‐
gent petitioners to bring meritorious lawsuits before federal
courts. “[T]he specific purpose of the EAJA is to eliminate for
the average person the financial disincentive to challenge un‐
reasonable governmental actions.” Comm’r v. Jean, 496 U.S.
154, 163 (1990). As three members of the Supreme Court noted
in a concurrence to Ratliff, “[s]ubjecting EAJA fee awards to
administrative offset for a litigant’s debts will unquestionably
make it more difficult for persons of limited means to find at‐
torneys to represent them.” 560 U.S. at 600–01 (Sotomayor, J.,
concurring). The fact that EAJA awards are often relatively
small sums also removes the incentive for attorneys to chal‐
lenge the offsets, further undercutting the effectiveness of the
law. Id. at 600. Nevertheless, Justice Sotomayor and her col‐
leagues determined that regardless of the policy outcomes,
the text of the law clearly required upholding the offsets. They
left questions of policy to Congress.
Nos. 17‐3179 & 17‐3194 15
III. CONCLUSION
Another court sitting under another statutory grant of ju‐
risdiction may determine that some provision of the Consti‐
tution or a statute forbids administrative offsets of EAJA
awards. But this case is not a suitable vehicle in which to as‐
sess those questions, and we will not do so. The district courts
properly granted attorney fees under EAJA, and the govern‐
ment properly applied those fees to the plaintiffs’ outstanding
debts in accord with Ratliff and the Treasury Offset Program
as it currently stands. Those questions form the extent of our
jurisdiction on appeal, and we need not exercise ancillary ju‐
risdiction to reach collateral attacks that are better suited for a
separate action under the APA. For those reasons, the judg‐
ments are AFFIRMED.