In re: Melinda Hande

Opinions of the United
2009 Decisions States Court of Appeals
for the Third Circuit
6-19-2009
In re: Melinda Hande
Precedential or Non-Precedential: Precedential
Docket No. 08-2137
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 08-2137
IN RE: MELINDA HANDEL,
Debtor
BINDER & BINDER, P.C.
Appellant
v.
MELINDA HANDEL, and JO ANNE BARNHART,
COMMISSIONER OF THE SOCIAL SECURITY
ADMINISTRATION
Appellees
On Appeal of a Decision of the United States District Court
for the District of New Jersey (No. 2:07-02588 (DMC))
District Judge: Dennis M. Cavanaugh
Submitted under Third Circuit L.A.R. 34.1(a)
January 13, 2009
Before: SLOVITER and BARRY, Circuit Judges,
and POLLAK, District Judge*
(Filed: February 18, 2009)
Jeffrey Herzberg
Zinker & Herzberg
278 East Main Street, Suite C
P.O. Box 866
Smithtown, NY 11787
Attorney for Appellants
Anthony J. LaBruna
Office of United States Attorney
970 Broad Street, Room 700
Newark, NJ 07102
Attorney for Appellee
Comm’r of Social Security
Allen B. Gillman
770 Amboy Avenue
Edison, NJ 08837
Attorney for Appellee
Melinda Handel
OPINION OF THE COURT
POLLAK, District Judge.
Appellant Binder & Binder, P.C. (Binder), appeals from a
March 28, 2008 order of the United States District Court for the
*
Honorable Louis H. Pollak, Senior Judge of the United
States District Court for the Eastern District of Pennsylvania,
sitting by designation.
2
District of New Jersey affirming earlier grants of summary
judgment from the United States Bankruptcy Court, District of
New Jersey, in favor of the appellees, Melinda Handel and the
Commissioner of the Social Security Administration. Binder
sought payment, from Handel herself or from the Social Security
Administration, of an outstanding debt for legal fees owed by
Handel. We have jurisdiction pursuant to 28 U.S.C. §§ 158(d),
1291 and exercise the same standard of review as the District
Court when it reviewed the original appeal from the Bankruptcy
Court. In re Woskob, 305 F.3d 177, 181 (3d Cir. 2002). Thus,
we review the Bankruptcy Court’s findings of fact for clear error
and exercise plenary review over the Bankruptcy Court’s legal
determinations. Id.I.
In September 1996, Melinda Handel, a resident of New
Jersey, became disabled and sought benefits from the Social
Security Administration. In January 1998, she engaged the New
York law firm of Binder & Binder to represent her in seeking
benefits. Handel signed a retainer agreement stating, inter alia,
that if “the litigation is successful at any stage of the
administrative process, the CLAIMANT will pay [attorney’s
fees of] 25% of the past due benefits or $1,000, whichever is
greater.” J. Appx. at 27.
On March 6, 2002, the Social Security Administration
issued a notice of award to Handel, granting her disability
benefits from March 1997. Her past due benefits from March
1997 through November 2001 were calculated at $68,150. The
notice of award stated the following (J. Appx. at 31):
We have approved the fee agreement between you
and your lawyer. Your past-due benefits are
$68,150.00 for March 1997 through November
2001. Under the fee agreement, the lawyer cannot
charge you more than $4,000.00 for his or her
work . . . . Because of the law, we usually
withhold 25 percent of the total past-due benefits
or the maximum payable under the fee agreement
to pay an approved lawyer’s fee. We withheld
3
$4,000.00 from the past due benefits to pay the
lawyer.
Handel and Binder each had fifteen business days from the date
of receipt of the award notice to contest the fee as too high or too
low. At some point (the record does not reveal exactly when),
the Social Security Administration issued a fee payment of
$4,000 to Binder and issued the remaining past-due benefits to
Handel.
Binder filed a challenge to the fee determination as too
low. The record contains no evidence regarding whether Binder
objected within the fifteen-day deadline. In its Reply Brief on
this appeal, Binder has included an affirmation by attorney
Charles Binder contending that the firm objected in a timely
fashion.1 On September 9, 2002, an administrative law judge
increased the fee to $9,908.40. On October 2, 2002, Binder
contested this determination. In April 2003, a different
administrative law judge approved a fee amount of $14,000 for
Binder. The record does not establish what steps, if any, Binder
then took to obtain the $10,000 difference in fees from Handel or
from the Social Security Administration.
On September 2, 2003, Handel filed a voluntary petition
for bankruptcy under Chapter 7 of the Bankruptcy Code. The
petition listed Binder as “an unsecured, nonpriority creditor
1
Charles Binder’s affirmation recites that the firm received
an order on December 3, 2001 from an Administrative Law Judge
approving the fee agreement, and that the firm filed objections to
this order on December 7, 2001 with both the Administrative Law
Judge and the “payment center” (presumably of the Social Security
Administration). Binder Aff. ¶¶ 1 - 3. Further, Charles Binder
states that his firm received the award notice on March 13, 2002
and filed a petition on April 5, 2002 requesting the full 25% fee.
Id. ¶ 4. The April 5 petition would not have been within the
fifteen-day period set by the notice for objections. Binder argues,
however, that the firm’s original objection of December 7, 2001
was timely and put the Commissioner on notice of its intention to
pursue an increase in its fee. Reply Br. at 2 - 3.
4
holding a claim in the amount of $10,000.” J. Appx. at 102.
The Bankruptcy Court issued notices to creditors on Sept. 6 for a
meeting on October 2, 2003. It is unclear whether Binder
attended the meeting or pursued its listed debt through the
regular bankruptcy process. Appellees contend that Binder did
neither. On October 28, 2003, the bankruptcy trustee reported
that Handel had no property available to satisfy her outstanding
debts; the trustee recommended discharge of all remaining
obligations. The Bankruptcy Court issued an order discharging
Handel’s debts on December 5, 2003.
On November 21, 2003, Binder filed a complaint in the
Bankruptcy Court against Handel and the Commissioner of the
Social Security Administration. Binder sought a determination
that Handel’s outstanding $10,000 debt to the firm was non-
dischargeable. Binder further sought a declaratory judgment that
(1) it retained rights to its full fee against both Handel and the
Social Security Administration and (2) the Social Security
Administration’s “POMS” manual provisions regarding
attorney’s fees and claimant bankruptcy are void. The
Bankruptcy Court held a hearing on February 23, 2004;
following the hearing, the parties entered discovery, then filed
cross-motions for summary judgment.
On October 4, 2005, the Bankruptcy Court issued an
opinion and order concerning Binder’s claim that the law firm
retained an enforceable attorney’s charging lien against Handel’s
benefits. The Bankruptcy Court ruled that Binder did not have
an enforceable lien because 42 U.S.C. § 407(a) expressly bars
“execution, levy, attachment, garnishment, or other legal
process” against Social Security payments. Then on December
2, 2005, the Bankruptcy Court ruled that Binder had no “federal
common law property right/lien” against Handel’s benefits that
could be enforced against the Social Security Administration.
Binder appealed the October and December 2005
summary judgment decisions to the District Court. On March
28, 2008, following some intervening process not at issue here,
the District Court affirmed both decisions of the Bankruptcy
Court.
5
II.
Initially, we consider the Commissioner’s contention that
Binder’s appeal should be dismissed. The Commissioner argues
that Binder failed to object to the March 6, 2002 award within
the allotted fifteen business days, and hence had no entitlement
to pursue the matter further. The Commissioner’s contention
was not presented to the Bankruptcy Court or the District Court.
It is raised here for the first time. To the argument that the time
to raise this issue has passed, the Commissioner responds that
the issue is one of standing to challenge a payment from the
Commissioner, a jurisdictional question that can be raised at any
time.
The award notice found in the record, which allocated
$4,000 of the past-due benefits to Binder for attorney’s fees,
gave claimant’s counsel fifteen business days to object to the fee
determination. J. Appx. at 29 - 34. The record of the
Bankruptcy Court proceedings does not reveal whether Binder
objected within that period; in its Reply Brief on this appeal, the
firm has included an affirmation that it made a timely objection
of some kind to the fee determination.2
Despite appellees’ creative pleading, this is an allegation
of procedural default, not an issue of standing. The
Commissioner argues that Binder should be barred from pursuit
of the increased fee because it failed to file objections by the
deadline set by the Social Security Administration. The
Commissioner, however, should have raised this argument
before the Bankruptcy Court. “It is well established that failure
to raise an issue in the [court of original jurisdiction] constitutes
a waiver of the argument.” Brenner v. Local 514, United
Brotherhood of Carpenters & Joiners of Am., 927 F.2d 1283,
1298 (3d Cir. 1991). The issue of whether Binder failed to
timely object is waived.
III.
2
See note 1 supra and accompanying text.
6
Binder argues that “SSA remains liable to pay the amount
of the awarded attorney’s fees” determined pursuant to 42
U.S.C. § 406(a) and that sovereign immunity does not protect
the Social Security Administration from Binder’s direct claim
for the increased fee. The Bankruptcy Court determined that
Binder held no kind of enforceable right against the Social
Security Administration, and the District Court affirmed.
Section 206 of the Social Security Act (“the Act”), 42
U.S.C. § 406, governs the representation of Social Security
claimants and dictates how fees for representation will be
assessed and paid. The provision applicable to this controversy
is as follows:
. . . if the claimant is determined to be entitled to
past-due benefits under this subchapter and the
person representing the claimant is an attorney, the
Commissioner of Social Security shall,
notwithstanding section 405(i) of this title, 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. . .
42 U.S.C. § 406(a)(4). The attorney’s fees provisions of § 406
were developed, in large measure, to eliminate conflicts over
fees between claimants and counsel by creating a statutory
mechanism for payment as well as a statutory cap on fees. See,
e.g., Pappas v. Bowen, 863 F.2d 227, 231 (2d Cir. 1988);
Rodriguez v. Sec’y of HHS, 856 F.2d 338, 340 (1st Cir. 1988);
Motley v. Heckler, 800 F.2d 1253, 1255 (4th Cir. 1986).
Under the doctrine of sovereign immunity, the United
States has no liability for the payment of attorney’s fees absent
express waiver. Ruckelshaus v. Sierra Club, 463 U.S. 680, 685
(1983). “[42 U.S.C. § 406] is not a waiver of sovereign
immunity, but rather a statutory interference with the attorney
client contractual relationship which would otherwise be
determined by the marketplace for legal services.” Coup v.
Heckler, 834 F.2d 313, 324 (3d Cir. 1987), abrogated on other
grounds by Gisbrecht v. Barnhart, 535 U.S. 789 (2002); see also
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Pittman v. Sullivan, 911 F.2d 42, 46 (8th Cir. 1990) (stating that
§ 406 “cannot be construed as a waiver of immunity because it
contemplates payment of the fee award by the claimant, out of
past-due benefits, rather than by the government, out of general
funds” (internal quotations omitted)).
Accordingly, § 406 does not create in the Social Security
Administration the kind of obligations described by Binder.
Binder states, variously, that “it is indisputable that the SSA was
statutorily mandated to pay the amount of the awarded fees to
Binder, notwithstanding . . . Claimant’s bankruptcy” and that
“SSA’s inadvertent payment of part of the 25% of the past-due
disability award does not free the SSA from liability to Binder
for the wrongful payment of part of said 25% award to the
Claimant.” Appellant’s Br. at 14.3 Such arguments suggest that,
under § 406, the federal government has a direct obligation to
counsel for a Social Security claimant for the amount of any
attorney’s fee determination. We disagree. The face of § 406
and cases like Coup, 834 F.2d at 324, make clear that the federal
government oversees and regulates the private obligation of the
claimant to her counsel, but does not create a federal promise to
3
Binder contends that the Social Security Administration
erred and contravened the law when it paid the firm $4,000 and
released the remainder of the past-due benefits to the claimant.
See, e.g., Appellant’s Br. at 35 (“SSA . . . failed to comply with its
statutory obligations”), 39 (“It is beyond peradventure that the SSA
was required to withhold the 25% of the past-due disability
award.”). In these statements, Binder appears to assert that the
Social Security Administration is obligated affirmatively by the
Act to withhold 25% of the past-due award until such point as all
fee disputes are resolved. We do not agree with this reading of the
statute or its implementing regulations. 42 U.S.C. § 406 and 20
C.F.R. §§ 404.1720(b), 404.1725(b), 404.1730(b)(1) authorize the
Social Security Administration to determine, certify, and pay (out
of the claimant’s past-due benefits) an attorney’s fee, so long as the
request and determination do not exceed 25% of the past-due
award. We have found no directive that the Social Security
Administration “escrow” the full 25% and hold it until such time
that all doubts are resolved.
8
pay counsel independently of the private obligation. Section 406
does not represent a waiver of sovereign immunity vis-á-vis
attorney’s fees; accordingly, Binder has no direct recourse
against the Commissioner of Social Security for the unpaid
amount.4
4
Binder goes on to contend that if “SSA erroneously fails
to pay the award from the past-due disability award, it must first
make payment of the . . . award to the attorney and then has the
right under certain circumstances to recoup the erroneous payment
from the claimant. . . .” Appellant’s Br. at 14 - 15. Binder
compares the role of the Social Security Administration to that of
an “escrow agent” that would be responsible for recovering any
funds released in error in a transaction. Binder further contends
that the Social Security Administration is obligated to protect the
rights of an attorney who received a fee determination from a past-
due award but was not properly paid the fee. Id. at 15 - 16. We
find these arguments unpersuasive for much the same reasons
stated above and in note 3 supra. Binder’s fee does not represent
a direct obligation of the federal government. Additionally, § 406
grants the Social Security Administration the authority to
determine the private fee, not merely to “escrow” it. Here, the
Social Security Administration made an appropriate fee
determination and payment certification, but Binder objected and
sought an increase in the fee determination. In the absence of a
statute or regulation providing otherwise, Binder and other
attorneys remain responsible for protecting their rights regarding
the private fee obligations of the claimants they represent. The
lodging of objections does not somehow act to shift responsibility
for safeguarding the interests of counsel to the federal government.
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IV.
Binder further asserts that the outstanding portion of the
final fee determination is not subject to the claimant protections
embodied in 42 U.S.C. § 407 and that the firm holds a state law
lien for the outstanding fee that could not be discharged by the
Bankruptcy Court. The Bankruptcy Court determined that the
anti-alienation provisions of § 407 do, in fact, bar an attorney
from bringing a charging lien against federal disability benefits,
leaving Binder with only an unsecured $10,000 claim against
Handel. The District Court affirmed.
42 U.S.C. § 407(a) states that the “right of any person to
any future payment under this subchapter shall not be
transferable or assignable, at law or in equity, and none of the
moneys paid or payable or rights existing under this subchapter
shall be subject to execution, levy, attachment, garnishment, or
other legal process, or to the operation of any bankruptcy or
insolvency law.” The Supreme Court has clarified the scope of §
407(a) in Wash. Dep’t of Soc. & Health Servs. v. Guardianship
Estate of Keffeler, 537 U.S. 371, 385 (2003), stating that “‘other
legal process’ should be understood to be process much like the
processes of execution, levy, attachment, and garnishment, and
at a minimum, would seem to require utilization of some judicial
or quasi-judicial mechanism. . . to discharge or secure discharge
of an allegedly existing or anticipated liability.”
Binder’s alleged lien falls squarely within the definition
of “other legal process” in § 407 as established by Keffeler, 537
U.S. at 385. Binder references both New York and New Jersey
statutes that establish attorney charging liens in each jurisdiction;
each law envisions the utilization of courts to enforce valid
claims of liability. N.Y. Judiciary Law § 475 (McKinney 2005)
(“The court upon the petition of the client or attorney may
determine and enforce the lien.”); N.J. Stat. Ann. § 2A:13-5
(West 2000) (“The court in which the action or other proceeding
is pending, upon the petition of the attorney or counsellor at law,
may determine and enforce the lien.”). Accordingly, under 42
U.S.C. § 407(a), Handel’s Social Security benefits are not
subject to Binder’s claim of a charging lien, and the outstanding
$10,000 in fees represented an unsecured debt dischargeable by
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the Bankruptcy Court.
V.
For the reasons set forth above, we will affirm the order
of the District Court.
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