DECISION AND ORDER DECLINING TO ADOPT THE RECOMMENDED DECISION OF THE MAGISTRATE JUDGE
D. BROCK HORNBY, District Judge.
This dispute over the amount of fees a law firm can recover from its client in a Social Security Disability appeal purports to be over whether any rate enhancement is permissible for paralegal billings. I conclude that the dispute's focus is misdirected. Here the law firm and the claimant had a percentage contingent fee agreement between them, a type of fee arrangement expressly permitted by the Supreme Court. This reviewing court is still required to assess the resulting fee amount to see if circumstances make it unreasonable.1 (It is the Commissioner who is challenging the fee amount, not the client.) But the answer to whether the resulting fee amount is unreasonable does not come down to the propriety of a multiplier for paralegal services.
BACKGROUND
In this case, the Commissioner denied disability benefits to the claimant. Wanting to challenge the denial, she engaged a law firm. She signed a contingent fee agreement providing for attorney fees in the amount of 25% of her recovery, the maximum amount permitted by statute, and no fee at all if she did not recover monetary benefits. Contingent Fee Agreement (Docket Item 20-2); 42 U.S.C. § 406(b)(1)(A). In representing her from 2007 until May 28, 2010, the law firm accrued 25.45 hours of paralegal work and 4.7 hours of lawyer work in the quest for past due benefits. Att'y Billing Record (Docket Item 20-3). The firm's work was successful and it obtained for her a total award of $45,466.50.2 She will continue to receive benefits into the future, but those future amounts are not counted in the contingency fee calculation. Twenty-five percent of her award of past due benefits is $11,366.62. Pl.'s Mot. for Attorney Fees n. 1 (Docket Item 20). Since the law firm has already recovered $6,000 in fees for its work on her behalf before the Social Security Administration, the current motion in this court under section 406(b) seeks the remaining $5,366.62 of the percentage contingency for the work done here.3 Id. at 1.
The Commissioner has opposed the motion, with the following explanation:
When the $5,366.62 in requested § 406(b) fees is divided by the 30.15 total hours expended by Plaintiff's Counsel's office, an amount of $177.99/hour results. At first blush, this appears reasonable as it almost mirrors the hourly rate he received for attorney work under EAJA.
Despite the apparent reasonableness of Plaintiff's Counsel's request, the Commissioner has significant concerns. Specifically, of the 30.15 hours performed before this Court, only 4.7 hours were performed by an attorney. Thus, Plaintiff's Counsel is actually seeking 406(b) fees for actual attorney work at a rate of $1141.83/hour ($5,366.62 divided by 4.7 hours). This is unreasonable.
The Commissioner, however, is not ignorant to the fact that Plaintiff's Counsel's staff expended 25.45 hours of paralegal work in this case. Unfortunately, the Commissioner is unable to find any precedential guidance from this Court—or the First Circuit—regarding how paralegal work should be compensated under § 406(b), if at all. Further convoluting this query is the fact that the courts that have addressed this issue are in disagreement regarding whether or not time expended by a paralegal is separately considered or whether it is expected to be included in overhead. At bottom, the Commissioner is unable to agree that the award Plaintiff's counsel seeks is reasonable as he is unsure whether or not this Court is of the belief that paralegal time is compensable under § 406(b)—and if it is, at what rate.
Def.'s Response to Pl.'s Counsel's Mot. for an Award of § 406(b) Fees at 4-5 (citations omitted) (Docket Item 21). In the end, the Commissioner recommended paying the law firm for attorney hours based upon 3 times the hourly rate permitted under the EAJA (4.7 hours times 3 times $175.75) for a total of $2,478.00 and the paralegal time for 25.45 hours at the rate of $75 per hour (also the hourly rate permitted under the EAJA I learned at oral argument) for a total of $1909, yielding a grand total fee award of $4,387.00 rather than the percentage contingency fee of $5,366.62.
ANALYSIS
In Gisbrecht v. Barnhart, 535 U.S. 789, 122 S.Ct. 1817, 152 L.Ed.2d 996 (2002), the Supreme Court was explicit that contingent fees up to a maximum of 25% are permitted, not disfavored, in social security cases. Gisbrecht recognized contingent fees "as the primary means by which fees are set for successfully representing Social Security benefits claimants in court." Id. at 807, 122 S.Ct. 1817 (emphasis added). Within the 25% limit, however, the lawyer "must show that the fee sought is reasonable for the services rendered." Id. Gisbrecht approved "looking first to the contingent-fee agreement, then testing it for reasonableness." Id. at 808, 122 S.Ct. 1817. The Court mentioned the appropriateness of fee reductions "based on the character of the representation and the results the representative achieved," and based on attorney-caused delay that drove up the size of the award for accumulating benefits. Id. It also observed:
"If the benefits are large in comparison to the amount of time counsel spent on the case, a downward adjustment is similarly in order. 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."4
Id. As Justice Scalia predicted in his Gisbrecht dissent5, courts have struggled over how to apply Gisbrecht's Janus-faced approach. Many courts have found it difficult to leave behind the lodestar analysis that they are accustomed to use under fee-shifting statutes. (Under the lodestar, courts determine reasonable rates and the reasonable amount of time for a case, then consider adjustments based upon a number of other factors. Coutin v. Young & Rubicam Puerto Rico, Inc., 124 F.3d 331, 337 (1st Cir.1997).) Thus, some courts have developed rules of thumb in social security disability cases to determine when a contingent fee becomes unreasonable. Typically the rules of thumb measure the contingent fee against the basic lodestar starting point of hours times rates, identifying a multiplier (e.g., 2 or 3 times) below which the fee will not be deemed unreasonable.
But two circuit courts of appeal recently have found it necessary to remind trial courts that after Gisbrecht they must not focus their primary attention on the lodestar analysis in reviewing fees. In Crawford v. Astrue, 586 F.3d 1142, 1148 (9th Cir.2009) (quoting Gisbrecht, 535 U.S. at 793, 122 S.Ct. 1817), for example, the Ninth Circuit reiterated Gisbrecht's instruction that a district court "must respect `the primacy of lawful attorney-client fee agreements.'" Crawford stated: "Performance of that duty must begin, under Gisbrecht, with the fee agreement, and the question is whether the amount need be reduced, not whether the lodestar amount should be enhanced." Id. at 1149 (emphasis added).
By beginning with the lodestar calculation, the district courts plainly failed to respect the "primacy of lawful attorney-client fee agreements." Lawful attorney-client contingent fee agreements do not result in "enhancements" that modify a lodestar fee that might otherwise be too low. Rather, they are the "primary means" by which fees are determined. The district courts' methodology in these cases under-emphasizes the contingent-fee agreements, contravening the Supreme Court's instruction that the agreements be the primary means for determining the fee.
Id. at 1150 (citation omitted). In Jeter v. Astrue, 622 F.3d 371 (5th Cir.2010), the Fifth Circuit was somewhat more tolerant of district courts looking at the lodestar calculation, but only under clear restrictions:
We find ... that it is possible to construe Gisbrecht such that its prohibition against lone reliance on the lodestar method still permits a court to include a lodestar calculation in its consideration of the fee—specifically, in instances where the court simultaneously relies on additional factors to support its determination that the contingency fee constitutes an unearned advantage to the attorney—such that the fee award may be considered a windfall.
Jeter, 622 F.3d at 377 (emphasis added). According to Jeter, the focus must be on whether there is
some unearned advantage for which it would not be reasonable to compensate him.
Any other reading would give attorneys a perverse incentive to delay proceedings or expend unnecessary hours in an effort to prolong successful litigation—all to ensure that their § 406(b) fee would not be reduced based on its appearing excessively high in comparison to the number of hours they expended. Likewise, we do not read Gisbrecht's "windfall" as support for the proposition that experienced, competent counsel should be punished for accomplishing an arduous task in a shorter span of time than less-experienced, less-aggressive counsel. Accordingly, we interpret Gisbrecht's prohibition on the lodestar method as an affirmation that if a claimant's success on appeal can be attributed to his attorney's endeavors before the district court, then that attorney should reap the benefit of his work—even if he managed to accomplish a great deal in a small window of time. In this way, Gisbrecht's "windfall" does not preclude attorneys from recovering what may mathematically seem like a high fee award if the attorney's success on appeal is of his own making.
Id. at 380-81. Furthermore, Jeter says:
[W]e read Gisbrecht as commanding that in order for district courts to rely on the lodestar method to find a particular fee constitutes a windfall, the district court must also articulate the factors that demonstrate to the court that the fee is unearned. Specifically, the district court must discuss the factors that demonstrate that the success on appeal is not of the attorney's making, but rather, is attributable to some other source for which it would be unreasonable to compensate the attorney.
Id. at 381 (emphasis added).
Following Gisbrecht, Crawford and Jeter, I conclude that the influence of the lodestar calculations here have distorted the proper analysis. I do not accept the Commissioner's argument that this court should approve an award measured by the attorney's hours times the EAJA rate with a multiplier of 3, and the paralegal's hours according to the EAJA rate.
Instead, I start with the contingent fee: $5,366.62 for the work done in this federal court, hardly an overwhelming sum for federal court practice and certainly not for the amount recovered for this client. It is undisputed that the claimant's lawyers were very successful on her behalf in reversing the Commissioner's denial of benefits, and there is no accusation of delay or inadequate representation. The only issue is whether the fee is too large given the paralegal's significant role. Under the Crawford and Jeter analysis, which I believe is faithful to Gisbrecht, the answer is no. How the law firm chooses to accomplish the task is not the issue. There is no suggestion that this was obviously an inordinately easy case from the outset and that the success was not due to the law firm's efforts, or that its success was attributable to some other source.
That should be the end of the matter. Nevertheless, I will deal with the Commissioner's arguments and concerns. The Commissioner says the fee is too large because too much is being awarded for the paralegal's work. At oral argument, the Commissioner's lawyer was troubled that at even an hourly rate of $75 (he may have said $70), "the paralegal would be paid at $150,000 plus per year," whereas the average paralegal salary across the country is $50,000. First, that argument gives improper primacy to the lodestar calculation rather than the fee agreement. Second, $150,000 is not necessarily an unreasonable amount to bill for a salary of $50,000, because the law firm must take in far more dollars than the paralegal's salary to make it profitable to employ him or her. The law firm must also pay fringe benefits, unemployment and worker's compensation insurance, rent, heat, light, malpractice premiums, other insurance and other elements of overhead before it can make a profit on employing the paralegal. Third, and critical to the manner in which contingent fees work, on cases where there is no monetary recovery the law firm receives nothing, even though it still must pay salary and benefits to those who worked on the case as well as rent for their space, malpractice insurance premiums and general overhead. The paralegal may not be at risk for his or her salary (if the law firm can survive), but the law firm takes on the risk of that salary and all the other related elements of overhead in every contingent fee case. Therefore, the law firm must receive more than its ordinary billing rates for cases that it wins, to offset the time and expenditures on those where it loses and receives no reimbursement.6
For the limited manner in which the lodestar calculation should be used in assessing a contingent fee award, the Commissioner should have continued with the analysis with which he began: What was the total effort expended by this law firm? Law firm practices need not follow a single model. Some lawyers do all their own research; some outsource; some use paralegals; some use law clerks, legal assistants, or interns; probably there are other variations.7 It is not the purpose of a fee award to encourage or discourage one or another of these. Law firms should be free to use the most economically efficient model as long as they comply with ethical standards and provide excellent legal representation to their clients. Thus, if this law firm is able to educate its paralegals to do some of the work that other firms assign to lawyers, that ability should not compel it to reduce its contingent fee. At oral argument, the claimant's lawyer told me that the paralegal did much of the factual preparation of the case. With no indication that a total of 30 hours was excessive legal work to achieve the result here, producing an effective modest hourly rate of $177.79 for the total services, that should have been the end of the matter.8
It is true that Gisbrecht talks about the amount of time "counsel" spent on the case. But there is no suggestion that in using this language the Court was focusing on the lawyer's time alone in assessing the reasonableness of a contingent fee and trying to bind Social Security practice to a particular model of law firm structure. As I have stated, if a firm can organize its practice efficiently by using less of its lawyers' time, yet still produce high quality legal work, it should not be penalized in the fee it can recover. A different conclusion would lead this and other lawyers to do more of the work themselves and delegate less to paralegals, to no apparent gain. I conclude that the reasonableness review contemplated by Gisbrecht has to do with the entire fee, compared to the services rendered, and is not limited to the hours put in by someone admitted to the bar.
Thus, the issue here is not whether paralegal time is compensable or, if so, what multiplier, if any, is appropriate. The issue is whether this percentage contingent fee agreement yields a reasonable fee amount in this case. The answer to that question depends upon the legal services provided, regardless of how the law firm structured its work on the case, and whether that amount needs to be reduced (Crawford) or whether there is some additional reason beyond the lodestar calculation (Jeter) to find that some part of the fee was unearned and not due to the law firm's efforts. I conclude that the amount requested here does not create such a windfall.9
Now I recognize that something else is going on in this dispute. There are thousands of these cases, and the Commissioner is looking for rules of thumb as to which fee requests to challenge and which not. Fair rules of thumb can save the time and resources of the court as well. Apparently in past cases this District's Magistrate Judges have indicated that there is no point in the Commissioner challenging fee requests where the lawyer gets a recovery of no more than 2 or 3 times the hourly rate he/she is able to recover in an EAJA fee award.10 The Commissioner would like similar guidance on how to evaluate fee requests when paralegal time is a major component. I am not in this case approving or disapproving a rule of thumb that reduces the number of attorney fee contests in this District. But if there is to be a rule of thumb, it must apply to the legal services provided, not fixate on who is providing them. And most important, the rule of thumb cannot be taken to announce that anything beyond its limit is unreasonable. It can only set aside a group of fee amounts that will be deemed reasonable without further attention. Any other case, just like this one, must still be evaluated according to the rule of Gisbrecht, Crawford and Jeter for the reasonableness of the fee amount given all the services rendered by the law firm as a whole, and why some portion of the fee requested should be considered as "unearned" and attributed to some source other than the law firm's efforts.11
I know that attorney fee disputes present difficult issues and the temptation to find easy formulas to resolve them is almost irresistible. But Gisbrecht has told us that the percentage contingency fee is the default. The burden is on the person attacking the resulting fee amount to show that part of it is unearned. A lodestar calculation with enhancement is not sufficient to that task.
Accordingly, I DECLINE to adopt the Report and Recommended Decision of the Magistrate Judge in this case. The motion for attorney fees is GRANTED in the amount of Five Thousand Three Hundred Sixty-Six Dollars and Sixty-Two Cents ($5,366.62).
SO ORDERED.
