Attorney s Fees: Limitations And Awards

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1 7 Attorney s Fees: Limitations And Awards 7.01 INTRODUCTION TO ATTORNEY S FEES IN FEDERAL GOVERNMENT LITIGATION To the old adage that death and taxes share a certain inevitable character, federal judges may be excused for adding attorneys fees cases. 1 In this chapter, we turn to the subject of attorney s fees in litigation to which the federal government is a party, both as charged against a client who initiates litigation against the federal government and as recovered from the government as the opponent in litigation. Although the ethical standards for charging and collecting legal fees are addressed in each state s rules of professional conduct, additional restrictions are imposed upon an attorney by federal statute when representing a party making certain types of claims against the federal government. 2 Moreover, the exponential proliferation of statutes that authorize awards of attorney s fees that is, shifting of legal fees from the prevailing party to the losing party in litigation and the accompanying increase in contentious fee disputes in court, makes awards of attorney s fees a topic of growing significance to the modern practice of law. 3 As with so many of the other areas covered in this treatise, much of the law of attorney s fees as applied in federal government cases is the same as in other areas of litigation, but much also is different. Accordingly, the subject of attorney s fees in federal government litigation deserves special attention and separate treatment. 1 Kennedy v. Whitehurst, 690 F.2d 951, 952 (D.C. Cir. 1982). 2 See infra 7.02 to See infra 7.05 to

2 428 Litigation With The Federal Government 7.02 PART A: LIMITATIONS ON PRIVATE ATTORNEY S FEE CONTRACTS IN FEDERAL GOVERNMENT CASES 7.02 INTRODUCTION TO LIMITATIONS ON FEE CONTRACTS With respect to compensation for legal services, an attorney ordinarily has a contract with his or her client under which the client agrees to pay the attorney a fee, either at a specified rate by the hour or as a percentage of the amount recovered. In the private sector, the limitations on fee arrangements come as a matter of contract law doctrine governing the validity of agreements and the rules of professional ethics that govern lawyer conduct in the pertinent state. Rule 1.5 of the Model Rules of Professional Conduct, approved by the American Bar Association and adopted in most states, sets forth standards for determining a reasonable fee, limitations on when a fee may be made contingent upon an outcome, and other requirements or expectations concerning fee arrangements between attorneys and clients. When a private person or entity hires an attorney to pursue or defend litigation against the federal government, the amount of the fee indeed will depend upon the contract between the client and attorney, at least as a starting point. In some circumstances, however, the federal government itself takes an interest in the fee arrangement between an attorney and a client. To ensure that the party who has suffered an injury or who has an entitlement to a government benefit enjoys the primary welfare of the public funds paid to that party, Congress has enacted limitations on the amount that an attorney may collect and thus effectively subtract from the client s recovery on certain claims (as the fee typically is paid out of the funds recovered from the government in settlement or by judgment). As the two leading examples of such a limitation, both the Federal Tort Claims Act 4 and the Social Security Act 5 establish limitations on the amount of the fee that may be collected by the attorney from any award or settlement for damages or past-due benefits respectively. Other federal statutes impose similar limitations, such the Veterans Benefits Act which establishes a fee limit of 20 percent of the total amount of past-due veterans benefits and provides for court review of fee agreements U.S.C See infra U.S.C See infra U.S.C. 5904, On the Veterans Benefits Act generally, see supra 3.19.

3 7.03(b) Attorney s Fees LIMITATION ON ATTORNEY S FEES IN FEDERAL TORT CLAIMS ACT CASES 7.03(a) The Basic Statutory Limitation On Fees Under Section 2678 of Title 28 of the United States Code, 7 an attorney representing a tort claimant against the federal government may collect no more than 25 percent of the judgment in a suit under the Federal Tort Claims Act. 8 The attorney who fails to comply with this limitation may suffer more than the obligation to refund (regurgitate) the fee. The statute authorizes a criminal penalty, imposing punishment of a fine and up to one year in prison. Accordingly, when calculation of the fee involves an element of uncertainty, the attorney would be well-advised not simply to take the fee the lawyer thinks is merited, but instead to submit the request for approval by the court. 7.03(b) Calculating The Fee When Recovery Involves Future Payments Or Non-Monetary Benefits In the ordinary situation in which a recovery under the FTCA involves a lump-sum payment by the government from the Judgment Fund, 9 determination of the fee involves a simple mathematical calculation of what constitutes 25 percent of the judgment rendered or settlement made. However, in instances in which a settlement is structured so as to involve future payments or in which the judgment or settlement involves provision by the government of services in-kind, such as continued medical services, the calculation is more complicated and requires a determination of the appropriate monetary value of the recovery. In Wyatt v. United States, 10 the United States Court of Appeals for the Sixth Circuit determined that the valuation of a structured settlement should be based upon the present cost to the government of the total settlement that is, the cash amount of the immediate payment and the cost for purchasing annuities. In other words, the base figure against which the 25 percent fee is to be calculated is the appropriated amount of the settlement or judgment. The court rejected the plaintiff attorney s argument that the structured set U.S.C On fee limitations under the FTCA, see generally 2 & 3 LESTER S. JAYSON & ROBERT C. LONGSTRETH, HANDLING FEDERAL TORT CLAIMS, 10.01, 16.10[3] (Matthew Bender & Co., 2005) U.S.C. 1346(b), See supra 3.02 to On settlements with the federal government and on the payment of judgments from the Judgment Fund, see supra 1.09 to F.2d 45, (6th Cir. 1986).

4 430 Litigation With The Federal Government 7.04 tlement was of greater value than its present-cost, based upon the tax advantages to the client of receiving the money over a period of time rather than in a lump sum or because of the intangible benefit to the client of being unable to squander the recovery (because he was deprived of immediate access to it). The Sixth Circuit in Wyatt also noted the hardship that may be imposed upon a plaintiff who is receiving a structured recovery through an upfront 25 percent fee, calculated upon the cost of payments that will not be received by the client until some point into the future. 11 For this reason, the court suggested (in dicta) that, in the absence of an agreement between the attorney and client, a court could decide to award payment to the attorney of 25 percent of each individual payment to the client as it is disbursed in the future. Such an approach would also avoid any dispute about the present value of the structured settlement, because the 25 percent payment to the attorney would be made simultaneously with each actual payment to the client. However, an attorney understandably might not want to wait for payment in installments over a lengthy period of time. Thus, the Sixth Circuit agreed, an attorney may arrange by contract with the client to be paid immediately according to the present value of the recovery. However, in a decision predating Wyatt, the Seventh Circuit in Robak v. United States 12 held that it is beyond the authority of a court to postpone the attorney s fee payment until each disbursement of a structured settlement is made, even in the absence of a specific contractual fee arrangement so providing. A similar problem of proper calculation arises when a settlement includes non-monetary benefits, such as a government agreement to provide future medical services. In Godwin v. Schramm, 13 the Third Circuit suggested that a present value must be assigned to the package of benefits received by the plaintiff and the lawyer s fee must be based upon that figure LIMITATION ON ATTORNEY S FEES IN SOCIAL SECURITY BENEFITS CASES 7.04(a) The Purpose Of The Limitation On Fees And Judicial Review Like the Federal Tort Claims Act fees provision addressed above, 14 the Social Security Act authorizes a fee of up to 25 percent of any recovery Id. at F.2d 471, (7th Cir. 1981) F.2d 153, 159 (3d Cir. 1984). 14 See supra U.S.C On Social Security benefits claims generally, see supra 3.17.

5 7.04(b) Attorney s Fees 431 However, unlike the Social Security Act, the FTCA does not direct courts to determine and allow a reasonable fee up to 25 percent of a plaintiff s recovery; that is, the FTCA, on its face, anticipates a more passive judicial role in fee determinations. 16 By contrast, the attorney s fee provision in the Social Security Act Section 406 of Title 42 of the United States Code specifically directs the courts to determine and allow a reasonable fee of up to 25 percent, 17 thus anticipating an active role by the Judiciary in protecting beneficiaries from excessive fees charged by their attorneys. The manifest purpose of the statute is to ward against attorney overreaching and to ensure that claimants are the primary recipients of the benefits made available by Congress. Moreover, given the very rationale for Social Security benefits, particularly in the disability context, claimants often are peculiarly vulnerable and these benefits may be essential to secure the basic necessities of life. As the United States Court of Appeals for the Eleventh Circuit explained in Kay v. Apfel, 18 [Section] 406(b) is designed to protect a particularly vulnerable class of claimants. Many claimants in Social Security benefits cases are minors, or incompetent to manage their affairs, or disadvantaged by lack of education or by physical or mental impairments. Thus, even more so than in the Federal Tort Claims Act context, policing of fee charges has been deemed important by the Department of Justice, and it regularly raises objections in court to what it regards as excessive fee claims. 7.04(b) The Previous Debate On Proper Measurement Of Fees In FTCA litigation, the standard for measuring a permissible fee tracks the ordinary contingent fee approach generally used by plaintiff s attorneys in personal injury cases, with the only real difference being the size of the contingency percentage allowed. The FTCA limits the fee to 25 percent, while such fees in private tort cases frequently are set at a third or more of the judgment. 19 In the Social Security context, however, the government previously resisted the argument by claimants attorneys that the statutory 25 percent limitation not only set a ceiling but also identified the presumptively reasonable fee. In response, attorneys for Social Security claimants observed that such cases are routinely taken on a contingency basis, in which 16 Alison M. MacDonald & Victor Williams, In Whose Interests? Evaluating Attorneys Fee Awards and Contingent-Fee Agreements in Social Security Disability Benefits Cases, 47 ADMIN.L.REV. 115, 147 (1995) U.S.C. 406(b)(1)(A) F.3d 1322, 1326 (11th Cir. 1999). 19 See supra 7.03.

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