Posted: April 14, 2016

Social Security Administration Cannot Be Sued for Failure to Pay Fee Award

On March 21, 2016, the Second Circuit issued a decision in Binder & Binder v. Colvin, 14‐4141-CV and 14‐4457‐CV, affirming decisions by the EDNY that sovereign immunity barred a law firm’s lawsuits against the Social Security Administration for failing to pay fee awards.

In Binder & Binder, the plaintiff law firm successfully represented litigants in two actions against the Social Security Administration. In both cases, the plaintiff was successful in the representation and, under the Social Security Act, was entitled to be paid fees out of the award. However, in both cases the Social Security Administration failed to withhold and pay to plaintiff the fees and instead paid the entire award to the plaintiff’s clients. Worse (for plaintiff), its clients declared bankruptcy and its clients’ debts to it were discharged.

The plaintiff sued the Social Security Administration for failing to withhold and pay to the plaintiff the fees to which it was entitled under the Social Security Act. The EDNY granted the Social Security Administration’s motion for summary judgment dismissing the plaintiff’s claims on the ground that the Social Security Administration was immune from suit under the principle of sovereign immunity. The Second Circuit affirmed.

First it explained that the requirement that the Social Security Administration pay counsel fees from the claimant’s award did not constitute a waiver of sovereign immunity:

Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit. Moreover, waivers of sovereign immunity must be unequivocally expressed in statutory text, and cannot simply be implied.

[The plaintiff] contends that sovereign immunity is waived by the statutory instruction that the Commissioner of Social Security shall . . . certify for payment out of such past‐ due benefits . . . to such attorney an amount equal to so much of the maximum fee as does not exceed 25 percent of such past‐due benefits.” But under the Social Security Act’s fee structure, it is the claimant who pays the attorney from her entitlements, and the SSA – in deducting those fees from its payments to the claimant – serves only as an intermediary.  The Social Security Act creates a statutory duty for the SSA to fix the fees of claimantʹs attorneys and to withhold and transmit the fees so fixed.

Our Court earlier recognized this aspect of the fee provision in the context of a neighboring provision of the Social Security Act, which governs fees for cases that proceed to judicial review.  In Wells v. Bowen, we were presented with fee petitions under both the Social Security Act, 42 U.S.C. § 406(b), and the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412(d). We there noted that the principal difference between the SSA . . . fee provision and the EAJA is that EAJA fees are paid by the government to the litigant to defray the cost of legal services whereas the SSA . . . fees are paid by the litigant to the attorney from the past‐due benefits awarded. And we contrasted the EAJA, which is based on a waiver of the normal principles of sovereign immunity, with the Social Security Act fee provision, which is simply a statutory interference with the attorney client contractual relationship—thereby, indicating that there is no similar waiver of sovereign immunity under the Social Security Act.

The language of § 406(a) differs slightly from § 406(b), the provision in Wells.  Section 406(a) provides that the Commissioner “shall” fix, approve, and certify such a fee, while § 406(b) provides that a court “may determine . . . a reasonable fee,” which the Commissioner “may certify” out of past due benefits (emphasis added).

But this difference, reflecting the mandatory nature of § 406(a), does not constitute a waiver of sovereign immunity.  The substitution of shall for may does not amount to an “unequivocally expressed statutory waiver” of sovereign immunity reflecting the consent of the United States to be sued for money damages.

(Internal quotations and citations omitted) (emphasis added).

Next, the Court acknowledged that this may have left the plaintiff with a right without a remedy, but held that this did not trump the principle of sovereign immunity:

The fact remains that the Social Security Act fees, whether for services before the SSA or the court, are the plaintiff’s debt and not the government’s. The failure of the SSA to deduct the fees that the plaintiff owes its lawyer may be a wrong on the part of the SSA. But the existence of a wrong – even a statutory wrong – by the government, does not, without more, waive sovereign immunity.

In other words, [the plaintiff] confuses rights and remedies. [The plaintiff] begins by noting that it continues to be entitled to its statutorily awarded legal fees; fair enough.  It then says that such a right means that the SSA remains liable to [it] for the award fees.   But, as Judge Bianco aptly observed although Binder II recognizes a statutory duty based on 42 U.S.C. § 406(a) on the part of the SSA, the decision does not establish a corresponding remedy of money damages against the SSA for breach of that duty. There may well be a wrong (the SSA’s alleged failure to disburse fees), but to pursue successfully the remedy that [the plaintiff] seeks (damages from the SSA) for this wrong, Binder must demonstrate a waiver of sovereign immunity. And it has failed to cross this threshold.

(Internal quotations and citations omitted) (emphasis added).

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