Kenneth B. Mason v. R. James Nicholson

UNITED STATES COURT OF APPEALS FOR VETERANS CLAIMS
NO . 04-1406
KENNETH B. MASON , APPELLANT ,
V.
R. JAMES NICHOLSON ,
SECRETARY OF VETERANS AFFAIRS, APPELLEE.
On Appeal from the Board of Veterans' Appeals
(Argued April 27, 2006 Decided August 16, 2006 )
Kenneth M. Carpenter, of Topeka, Kansas, for the appellant.
Ralph G. Davis, with whom Tim S. McClain, General Counsel; R. Randall Campbell,
Assistant General Counsel; and Edward V. Cassidy, Jr., Deputy Assistant General Counsel, were
on the brief, all of Washington, D.C., for the appellee.
Before LANCE, DAVIS, and SCHOELEN, Judges.
LANCE, Judge: The appellant, attorney Kenneth B. Mason, appeals through counsel a June
21, 2004, decision of the Board of Veterans' Appeals (Board) that determined that the "fee specified
in the fee agreement between [the appellant-attorney] and the veteran is excessive and unreasonable
in that it includes both an [Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412(d)] award plus a
contingency fee for work performed before the Court, Board and VA on the same claim." Record
(R.) at 4. On appeal to the Board was the appellant-attorney's eligibility to receive directly from VA
payment of the 20% contingency fee specified in his fee agreement with the veteran, where VA had
mistakenly released 100% of the past-due benefits award to the veteran. The Board concluded that
although the appellant-attorney was eligible for direct payment of 20% of the past-due benefits
awarded to the veteran, because the appellant-attorney was required to offset that fee against the
EAJA fees that he had already received, he was not "entitled" to the claimed 20% "because to receive
such additional benefits would render his attorney fees excessive and unreasonable." R. at 10. The
court has jurisdiction pursuant to 38 U.S.C. §§ 7252(a) and 7266(a). For the reasons that follow, the
Court will affirm the June 2004 Board decision.
I. FACTS
In October 1995, the Board, inter alia, awarded the veteran, John L. Simmons, a 50%
disability rating for psychophysiological gastrointestinal reaction with depression, cholecystectomy,
and a hiatal hernia with reflux. R. at 17-30. The veteran disagreed with the 50% disability rating
and filed a timely Notice of Appeal to this Court. On February 21, 1996, the veteran entered into
a legal representation agreement with the appellant-attorney, Kenneth Mason. R. at 35-38. With
regard to what legal services the appellant-attorney was retained to provide, the fee agreement
provided, in pertinent part:
1. Legal Services to be Provided. I hereby retain you to represent me in the
[U.S. Court of Appeals for Veterans Claims] in an appeal from a decision by the
[Board], before the [Board] and before the Department of Veterans Affairs (DVA)
Regional Office, as may be necessary in your judgment, for award, or increase of
award, of veterans benefits either by appeal, by reconsideration, by reopened claim
based on new and material evidence[,] by any other way on all issues stated or
inferred in all decisions prior to the date hereof.
R. at 35. As to the agreed-upon fee to be earned by the attorney for the above-mentioned
representation, the agreement provided in pertinent part:
3. Contingency Fee Arrangement. If there is NO recovery of veterans
benefits, there shall be no fee owed by me to you for representation in this matter.
If there IS RECOVERY, I agree to pay you a fee contingent upon the outcome
of the matter or proceeding described in paragraph 1. I agree to pay you twenty
percent (20%) of the gross amount of any past due VA disability benefits recovered,
whether by judgment, settlement or administrative action.
4. Equal Access to Justice Act Fee. If there is an award of attorney fees
under the Equal Access to Justice Act (EAJA), I agree to pay you that part of the
EAJA award that, when added to the twenty percent (20%) of the past due disability
benefits, raises the total fee earned by you to the following level: The number of
hours of time expended on this case multiplied by $400 per hour, which is two times
your normal $200 hourly rate for non-contingency work. I agree and acknowledge
because of the contingent nature of my case, $400 per hour is a reasonable rate. This
ceiling on the fees earned by you is agreed to so that you can undertake this case
under circumstances in which you will earn the retainer above if I do not prevail.
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5. Lien on Claim and Amounts Recovered. I HEREBY ORDER AND
DIRECT DVA TO WITHHOLD TWENTY PERCENT (20%) OF PAST DUE
BENEFITS PAYABLE TO ME AND PAY SUCH AMOUNT TO YOU FOR
ATTORNEY FEES.
R. at 35-36 (capitalization and underline emphasis in original). In March 1996, the appellant-
attorney filed a copy of the fee agreement with the Court as required by 38 U.S.C. § 7263(c). R. at
33. He also filed a copy of the agreement with the Office of the Chairman, Special Legal Assistant,
Board of Veterans' Appeals. R. at 119, 171-72; see 38 U.S.C. § 5904(c)(2), 38 C.F.R. § 20.609(g)
(2005). Later that month, the deputy chief counsel for legal affairs of the Board, by direction of the
Chairman of the Board, sent a letter to the appellant-attorney acknowledging receipt of the fee
agreement. R. at 171-72. The letter stated that "[w]e have instructed the [regional office (RO)] to
process your fee agreement dated February 21, 1996, for payment of your fee for services before VA
from past-due benefits if such an award is made." Id.In December 1996, in the veteran's matter underlying the fee agreement, the Court granted
the veteran's and the Secretary's joint motion for remand and vacated that portion of the Board's
October 1995 decision that denied an evaluation in excess of 50% for service-connected
psychophysiological gastrointestinal reaction with depression, cholecystectomy, and hiatal hernia
with reflux. R. at 52. The Board subsequently remanded the matter to the RO for additional
development. R at 66-72. On January 27, 1997, the veteran, through counsel, submitted an EAJA
application for attorney fees under 28 U.S.C. § 2412. In February 1997, the veteran and the
Secretary stipulated to settle the EAJA application in the amount of $4,700. R. at 74-77. The Court
granted the parties' joint motion and dismissed the EAJA application on February 20, 1997. R. at
73. Pursuant to the parties' February 1997 stipulation, VA processed the EAJA settlement (R. at 54),
and in March 1997, issued a check in the amount of $4,700 payable to the veteran and the appellant-
attorney. R. at 54, 165.
In July 1999, the RO increased the veteran's psychological disability rating, now diagnosed
as post-traumatic stress disorder, from 50% to 100% disabling, effective March 27, 1999. R. at 85-
90. This action resulted in an award of past-due benefits in the amount of $2,307. R. at 111. VA
paid the entire past-due benefits amount to the veteran without withholding 20% of the award for
payment of the attorney's direct-payment contingency fee. Id.3
In November 1999, the veteran executed a VA Form 21-22 and appointed the American
Legion as his representative. R. at 98. Later that month, the appellant-attorney sent a facsimile to
the RO indicating that he understood that all retroactive benefits had been released to the veteran
without withholding any portion of the retroactive benefit for payment of attorney fees. R. at 101-02.
He requested that he be advised of the amount of the award and the amount of the fee that should
have been withheld. Id. In November 2000, the appellant-attorney also attempted to file a Notice
of Disagreement (NOD) on behalf of the veteran as to the July 1999 rating decision. Id. However,
VA subsequently notified him that it could not honor the NOD because the veteran had authorized
a new power of attorney. R. at 116.
A November 1999 VA report of contact indicates that the veteran was informed by telephone
that VA had failed to withhold the 20% attorney contingency fee from the July 1999 retroactive
benefits payment. R. at 106. The veteran reported that he would contact his attorney about this
matter. Id. In January 2000, VA sent the veteran a letter again informing him that a retroactive
benefits payment of $2,307 was released to him on July 26, 1999, which represented the full amount
of benefits payable. VA stated that it should have withheld 20% of the past-due benefits ($461.40)
as payment for attorney fees provided for in the veteran's fee agreement. R. at 111. VA requested
that the veteran provide information about his action or lack of action in paying his contracted
attorney fees. Id. Finally, VA informed him that it may be required to make a duplicate payment
to the attorney and that if VA was required to make duplicate payment, VA may thereafter seek to
recover those funds from the veteran by creating an overpayment in his account. Id. In June 2000,
The American Legion, on behalf of the veteran, responded to VA and submitted a written statement
asserting that "VA failed to duly withhold attorney fees on behalf of the [appellant-attorney]. This
is clearly an administrative error on the part of the VA. The VA is, therefore, obligated to correct
the error." R. at 145.
In June 2002, the RO determined that although the legal criteria under 38 U.S.C. § 5904 and
38 C.F.R. § 20.609 had been met and the appellant-attorney was entitled to $461.40 in attorney fees
under the provisions of the fee agreement, no money would be paid out of VA funds because VA's
records showed that in March 1997 the appellant-attorney had already been paid $4,700 in EAJA
fees. R. at 182. The appellant-attorney, through counsel, filed an NOD. R. at 185-88. The RO
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issued a Statement of the Case (SOC), which determined that although the statutory and regulatory
criteria were met for direct payment of a contingency fee, VA could not pay the 20% contingency
fee because the appellant-attorney already received EAJA fees that exceeded that amount. R. at 192-
202. The appellant-attorney perfected his appeal to the Board. R. at 204-07.
In the June 2004 decision on appeal, the Board determined that "the appellant[-attorney] was
entitled to a fee, in the amount of 20[%], of the past due benefits, calculated in the amount of
$461.40, resulting from the July 1999 award." R. at 4. The Board also concluded that the fee
agreement met the criteria for a valid agreement under 38 U.S.C. § 5904(c)(1) and 38 C.F.R.
§ 20.609(c) (2003). Id. Notwithstanding the Board's finding that the criteria for a valid fee
agreement had been met, the Board concluded that "[t]he fee specified in the fee agreement between
the attorney and the veteran is excessive and unreasonable in that it includes both an EAJA award
plus a contingency fee for work performed before the Court, Board and VA on the same claim." Id.;
see 38 U.S.C. §§ 5904(c)(2) (allows Board on own motion or request of either party to order a
reduction in the fee called for in the agreement if the Board finds that the fee is excessive or
unreasonable), 7263 (providing for Court's review of fee agreements); 38 C.F.R. § 20.609(f),(h)
(2005). Relying on our en banc opinion in Carpenter v. Principi, 15 Vet.App. 64 (2001), which held
that a fee that includes both an EAJA award plus a contingency fee for work performed before the
Court, Board, and VA on the same claim, such that the fee is enhanced by an EAJA award, is
unreasonable pursuant to 38 U.S.C. §§ 5904, 7263, the Board concluded under the "unique
circumstances in this case" that the RO's failure to withhold 20% of the past-due benefits award was
"entirely appropriate." R. at 9-10. The Board reasoned that the law "requires an attorney to offset
any EAJA award received for services rendered to a claimant before the Court against any other fees
received by the attorney with respect to the same claim, regardless of when or how the non-EAJA
attorney fees were earned and received." R. at 9 (citing Carpenter, supra). Hence, the Board
concluded the appellant-attorney would have been obligated to offset the EAJA fees ($4,700) he had
received against the 20% ($461.40) still owed to him, and because the 20% fee was smaller than the
EAJA fee, he was not "entitled" to the claimed 20% "because to receive such additional benefits
would render his attorney fees excessive and unreasonable." R. at 10.
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II. ANALYSIS
A. Contentions of the Parties
On appeal, the appellant-attorney requests that the Court reverse the June 2004 decision and
instruct the Board to direct VA to pay him his attorney fees in the amount of $461.40. Appellant's
Brief (Br.) at 3-8. In support of reversal, he makes three specific assertions of error. First, he asserts
that the Board violated 38 U.S.C. § 7104(c) because the Board failed to follow VA General Counsel
Precedent Opinion 12-97 (March 26, 1997) [hereinafter G.C. Prec. 12-97]. Br. at 4-5. In that regard
he contends that in cases such as this, where the attorney is eligible to receive an EAJA fee and a
direct payment contingency fee, the General Counsel has stated that although the attorney is
permitted to retain the larger of the two fees, "[t]here is no authority for the Board to take any action,
such as offset the amount of the EAJA fees, to ensure that the attorney fulfills his responsibility to
refund the smaller fee to the claimant." G.C. Prec. 12-97; see Br. at 4-5. Hence, he contends that
the Board acted ultra vires when, "under the guise of an excessive and unreasonableness
determination," it imposed an offset contrary to the General Counsel's opinion. Br. at 5.
Second, the appellant-attorney asserts that the Board misinterpreted 38 U.S.C.
§ 5904(d)(2)(A)(i). Br. at 5-6. Upon concluding that there was a valid fee agreement, VA was
obligated by statute to pay the appellant-attorney directly out of the veteran's past-due benefits award.
Id. He maintains that the Board erred when it determined that he was not "entitled" to the claimed
20% of the veteran's past-due benefits award because the Secretary's regulation provides that fees
that total no more than 20% of any past-due benefits are presumptively reasonable. Br. at 6-7; see
38 C.F.R. § 20.609(f) (2005). Thus, he argues that the Board's reliance on Carpenter, supra, to
conclude that his fees were excessive and unreasonable is misplaced.
Finally, he contends that the Board erred when it failed to follow this Court's decision in
Snyder v. Principi, 15 Vet.App. 285, 291 (2001), which held that "the Secretary's obligation and the
attorney's right do derive from statute [section 5904], which expressly authorizes the Secretary to
make payment to the attorney." Br. at 7-8. He argues that his attorney fees were presumptively
reasonable under 38 C.F.R. § 20.609(f) and, therefore, once entitlement and eligibility had been
determined the Board was required to instruct VA to pay him because the existence of the erroneous
payment to the veteran is "immaterial to the Secretary's responsibility to make payment where there
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is lawful entitlement." Snyder, 15 Vet.App. at 292.
In his brief, the Secretary asserts that he "stands on the uncontested facts and confession of
error by the Board." Secretary's (Sec'y) Br. at 15. However, because he contends that there is no
case or controversy to resolve, he asserts that the Court should dismiss the appeal. Id. During oral
argument, the Secretary candidly asserted that VA erred in this matter when it failed to directly pay
the appellant-attorney his 20% contingency fee out of the veteran's award of past-due benefits.
Nonetheless, the Secretary suggests that the Court adopt a "no-harm-no-foul" approach toward this
case. He contends that if VA were directed to pay the appellant-attorney, the appellant-attorney
would be required under the law to offset the contingency fee against the EAJA fees that he had
already collected and, therefore, he would be required to return the lesser amount (the $461.40) to
the veteran. However, because the veteran received the $461.40 when VA paid him 100% of the
past-due benefits award, VA would be required to create an overpayment in the veteran's account
to recoup the funds. Sec'y Br. at 18. The Secretary contends that because both the veteran and the
attorney have exactly what they are entitled to under the law there has been no prejudice to either
party to the fee agreement, and therefore, it is unnecessary for the Court to order further action. Id.
In his reply brief, the appellant-attorney asserts the Secretary improperly assumes that there
is an offset obligation and, therefore, the Secretary improperly concludes there has been no harm.
Reply Br. at 5. He asserts that it is not at all clear that there remains a pertinent EAJA application
because the EAJA application was dismissed by the Court and, therefore, there is no "same work"
offset required because there has been no payment under the EAJA. Id. In the alternative, he argues
that even if there is an offset obligation, it is the responsibility of the attorney and not the RO or the
Board to assess whether payment under both the EAJA and the contingency fee agreement is for the
"same work." Reply Br. at 5-6. Finally, he argues that G.C. Prec. 12-97 clearly held that the Board
had no authority to take any action and if the Board intended to delve into the reasonableness of the
fee agreement and the attorney's offset obligations, then it should have first given notice under
Bernard v. Brown, 4 Vet.App. 384 (1993). Reply Br. at 6.
B. Issue Presented
There is no dispute on appeal that the appellant-attorney is eligible to receive 20% of the
past-due benefits award because the Board determined that there is a valid fee agreement under
7
38 U.S.C. § 5904(c) that also qualifies as a direct-pay fee agreement under 38 U.S.C. § 5904(d)1.
R. at 4. The question presented is whether the Board's considering and finding unreasonable the fee
agreement was appropriate and correct in light of the appellant-attorney's suggestion at oral argument
that the Board violated Bernard, supra. The appellant-attorney contends that the Board should not
have considered the reasonableness of the fee agreement since the sole issue on appeal was his
eligibility to receive a fee. However, because the Board has original jurisdiction to review the
reasonableness of a fee agreement and we conclude the appellant-attorney was not prejudiced by its
review in this instance, we must also determine whether the Board's imposition of an offset against
EAJA fees received by the appellant-attorney was appropriate under the facts of this case.
C. Board's Authority To Review Reasonableness of Fee Agreement
Pursuant to section 5904(c)(2) of title 38, U.S. Code, the Board has original jurisdiction to
review "upon its own motion, or the request of either party" a fee agreement and "may order a
reduction in the fee called for in the agreement if the Board determines that the fee is excessive and
unreasonable." 38 U.S.C. § 5904(c)(2); Scates v. Principi, 14 Vet.App. 62, 64 (2000) (en banc)
(recognizing as a departure from normal claims adjudication process Board's jurisdiction to review
reasonableness of fee agreement), aff'd as modified, 282 F.3d 1326 (Fed. Cir. 2002); see also
38 C.F.R. § 20.610(i) (2005) (setting forth Board's procedure and notice requirements for review of
fee agreements). On the other hand, "all issues involving entitlement and eligibility for attorney fees
1
Because there is no dispute on appeal, we will not review the Board's eligibility
determination. However, the Court has serious concerns as to whether the provisions of paragraph
4 of the fee agreement, supra, violate the limitation in section 5904(d) that the total fee payable to
the attorney may not exceed 20% of the total amount of any past-due benefits awarded. The fee
agreement clearly contemplates that the attorney receive 20% of past-due benefits plus some or all
of the EAJA fees awarded by the Court. Although the RO found this to be a qualifying fee
agreement under section 5904(d), the eligibility decision does not include any explanation of how
it reached this conclusion. See Hazan v. Gober, 10 Vet.App. 511, 524 (1997) (provision in fee
agreement providing for fixed fee of $2,000 plus a contingent fee of 20% of past-due benefits
awarded, to be paid directly by VA, found unenforceable because it conflicts with the terms of
section 5904(d)(1) and (2)(a)); see also In re Fee Agreement of Mason, 13 Vet.App. 79, 86 (1999)
(if attorney charges fee beyond 20% contingency fee to be paid directly by VA, for representation
at the Board or VA on the issue successfully appealed to the Court, the amended fee agreement
would violate the 20% contingency-fee limitation under section 5904(d)). Hence, nothing in this
opinion should be construed as the Court's agreement with VA's eligibility determination.
8
under direct-payment contingency-fee agreements, as contrasted with issues of reasonableness and
excessiveness, must first be addressed by the RO in accordance with normal adjudication procedures
and cannot be the subject of sua sponte or other original [Board] review." Id.; see also Stanley v.
Principi, 16 Vet.App. 356, 361 (2002) (applying the holding in Scates to non-direct-payment fee
agreements); but see Scates, 282 F.3d at 1367 (stating that "the line between (1) entitlement to and
(2) reasonableness and excessiveness of attorney fees may not be as clear and bright as the Veterans
Court believed"). We have also held that RO review of a fee agreement for eligibility pursuant to
section 5904(c)(1) is a necessary prerequisite to Board review of the agreement for reasonableness
under section 5904(c)(2). See Snyder, 15 Vet.App. at 296-98.
Section 20.610(i) of title 38, Code of Federal Regulations, sets forth the procedure for the
Board's review of a fee agreement for excessiveness or unreasonableness. The Board may review
a fee agreement "upon its own motion or upon the motion of any party to the agreement." 38 C.F.R.
§ 20.610(i).
Such motions must be in writing and must include the name of the veteran, the name
of the claimant or appellant if other than the veteran, and the applicable [VA] file
number. Such motions must set forth the reason, or reasons, why the fee called for
in the fee agreement is excessive or unreasonable; must be accompanied by all
evidence the moving party desires to submit; and must include a signed statement
certifying that a copy of the motion and any evidence was sent by first–class mail,
postage prepaid, to each other party of the agreement. . . . The other parties may file
a response to the motion, with any accompanying evidence, . . . with the Board . . .
not later than 30 days following the date of receipt of the copy of the motion.
Id.There is no indication in the record that the Board filed a written motion to review the fee
agreement, or that it otherwise provided the parties to the fee agreement with notice that it would be
reviewing the fee agreement for reasonableness in addition to its review of the appellant-attorney's
eligibility to receive a fee. The Board is not free to ignore the law or VA regulations, and therefore,
we hold that the Board erred when it reviewed the fee agreement for reasonableness without
providing the notice contemplated by 38 C.F.R. § 20.610(i). See Schafrath v. Derwinski, 1 Vet. App.
589, 592 (1991) (Board not free to ignore regulation adopted by VA). However, because we
conclude that this procedural error was nonprejudicial, we will not remand the matter to the Board
to correct this error.
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Notwithstanding the apparent lack of notice, there is no doubt that the Board has the authority
to make reasonableness determinations pursuant to section 5904(c)(2). Furthermore, contrary to the
appellant-attorney's suggestion at oral argument, we do not believe it necessary to require the Board
to institute a separate proceeding to address the reasonableness of the fee agreement, when the
agreement is already before it on review of an eligibility determination. However, as noted above,
the Secretary's regulation sets forth a procedure whereby the parties to the fee agreement are given
notice and an opportunity to be heard before the Board addresses the reasonableness of a fee
agreement. Although the appellant-attorney does not rely on this regulation to assert error, he did
suggest at oral argument and in his reply brief that the Board's failure to provide him with notice that
it would be reviewing the reasonableness of the fee agreement violated Bernard.
In Bernard, we held that when the Board addresses a question not addressed by the RO, it
is for the Board to "consider whether the claimant has been given adequate notice of the need to
submit evidence or argument on that question and an opportunity to submit such evidence and
argument . . . , and if not, whether the claimant has been prejudiced thereby." 4 Vet.App. at 394.
In the instant case, the Board did not provide notice nor did it conduct the prejudice analysis
contemplated in Bernard. This was a procedural error. However, because we find the Board's
procedural error to be nonprejudicial, we do not believe that a remand is necessary for the Board to
provide the appellant-attorney with notice and opportunity to present argument on this issue, or for
the Board to address prejudice in the first instance. See 38 U.S.C. § 7261(b)(2) (Court is required
to "take due account of the rule of prejudicial error"); Conway v. Principi, 353 F.3d 1369, 1374-75
(Fed. Cir. 2004).
Initially, we note that the June 2002 RO decision that denied the appellant-attorney's request
for direct payment of his contingency fee put him on notice that the RO questioned whether he was
entitled to collect a fee under section 5904(d) and the EAJA. R. at 182. Although the RO did not
address the appellant-attorney's entitlement to payment specifically in terms of reasonableness, it is
clear that the attorney's offset obligations guided the RO's determination that VA was not required
to pay him additional fees under section 5904, when he had already received payment for his services
under the EAJA. R. at 202. In fact, it was on this basis that the appellant-attorney, through counsel,
appealed to the Board and argued that the RO impermissibly relied on the appellant-attorney's offset
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obligations to avoid paying his fee under section 5904(d). R. at 185-88, 204-07. While the Board
couched its determination in terms of reasonableness rather than eligibility, ultimately, as it guided
the RO, it was the appellant-attorney's offset obligations that guided the Board's conclusion in this
case. Therefore, although the appellant-attorney argued this issue in terms of his eligibility to collect
a fee under 5904(d), he certainly was on notice that the terms of the fee agreement regarding his
EAJA offset obligations were key to the resolution of the issue and, therefore, he was not unduly
prejudiced.2
A Board determination under section 5904(c)(2) may be reviewed by this Court pursuant to
38 U.S.C. § 7263(d). The Court reviews Board decisions regarding the reasonableness of a fee
agreement de novo. Carpenter, 15 Vet.App. at 78. Therefore, a Board finding regarding the
excessiveness or reasonableness of the fee agreement is entitled to no deference. In re Matter of
Vernon, 8 Vet.App. 457, 459 (1996). Accordingly, because there is no deference in our review, the
appellant-attorney's arguments are no stronger or weaker here than if they had been considered by
the Board in the first instance. Therefore, because we conclude in part II, D, below, that paragraph
4 of the fee agreement is facially unreasonable pursuant to our en banc opinion in Carpenter, supra,
a remand to the Board would be a superfluous exercise adding to an already overburdened system.
Cf. Valiao v. Principi, 17 Vet. App. 229, 231-32 (2003) (holding that the Board's error concerning
the notice requirements of the Veterans Claims Assistance Act of 2000 (VCAA), Pub. L. No.
106-475, 114 Stat. 2096, was nonprejudicial where the facts were not in dispute, the facts averred
could not conceivably lead to a different result, and the Board's decision was reduced to a matter of
law); Mason v. Principi, 16 Vet. App. 129, 132 (2002) (where "the law as mandated by statute, and
not the evidence, is dispositive . . . , the VCAA is not applicable"); Soyini v. Derwinski, 1 Vet.App.
540, 546 (1991) (stating that "strict adherence [to the law] does not dictate an unquestioning, blind
adherence in the face of overwhelming evidence in support of the result in a particular case"). Under
these circumstances, a remand for compliance with Bernard is not necessary. Cf. Velez v. West,
11 Vet. App. 148, 157 (1998) ("even if there had been any general violation of . . . any broadly stated
2
We also note that the Board's failure to notify the veteran of its sua sponte review of the
reasonableness of the fee agreement was not prejudicial to the veteran because the Board reached
a determination that was favorable to the veteran.
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'fair process' requirement, such violation would have been nonprejudicial because . . . the . . . . claim
. . . . was not well grounded . . . .").
D. Reasonableness of Fee Agreement
Section 506(c) of the Federal Courts Administration Act (FCAA), Pub.L. No. 102-572,
§ 506(c), 106 Stat. 4506, 4513 (1992) provides that section 5904(d) shall not preclude an award of
fees under the EAJA. However, "where the claimant's attorney receives fees for the same work
under both section 5904(d) and [the EAJA], the claimant's attorney refunds to the claimant the
amount of the smaller fee." Id.This Court has held that fee agreements that do not provide that attorney fees be offset by the
amount of an EAJA award for the same work are unreasonable. See Shaw v. Gober, 10 Vet.App.
498, 505 (1997) (fee agreement unreasonable on its face to the extent that it could be read as
precluding an offset where Court remanded claim with direction to Board to award benefits). In
determining the reasonableness of a fee agreement that contained a no-offset provision, the Court
initially focused on whether the work before the Court and the Board could be considered the "same
work." Compare Shaw, supra, with Fritz v. West, 13 Vet.App. 190, 194 (1999) (not unreasonable
to keep contingency fee and EAJA fees if work before the Board after remand results in more relief
than received from the Court).
However, in Carpenter, the en banc Court was concerned that the interpretation of "same
work" in Shaw and Fritz, both supra, was too narrow and left open the opportunity to subvert the
very purpose and intent of the EAJA. 15 Vet.App. at 74. In discussing Congress's intent when it
passed the EAJA, the Court stated: "The purpose of EAJA is not to provide an attorney a greater fee
than contemplated by his fee agreement. 'The policy of [EAJA] is to pay nonenhanced fees for legal
services actually rendered.'" Carpenter, 15 Vet.App. at 75 (quoting Phillips v. Gen. Servs. Admin.,
924 F.2d 1577, 1583 (Fed.Cir. 1991)). The fee agreement at issue in Carpenter carved out an
exception that if the claim was remanded by the Court, the attorney's 30% contingency fee would
be supplemented by any EAJA fee awarded. The Court held that if it were to consider the work on
remand different from the work at the Court, then it would improperly be allowing the EAJA fee to
enhance the attorney's fee, rather than to reimburse the veteran for the cost of representation. Hence,
the en banc Court concluded that
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representation of a claimant in pursuit of a claim at all stages of the adjudication
process is the "same work" regardless of the tribunal before which it is performed.
Therefore, the Court holds that a fee which included both an EAJA award plus a
contingency fee for work performed before the Court, Board, and VA on the same
claim such that the fee is enhanced by an EAJA award is unreasonable pursuant to
38 U.S.C. § 5904(c) and 7263.
Carpenter, 15 Vet.App. at 76 (emphasis added). The Court further held: "To the extent the fee
agreement here provides that any portion of the EAJA award will not be offset against the fee paid,
or to be paid, by the veteran to the appellant, the appellant's fee is excessive and unreasonable." Id.;
see also RESTATEMENT (THIRD ) OF THE LAW GOVERNING LAWYERS § 34 (2000) ("A lawyer may not
charge a fee larger than is reasonable in the circumstances or that is prohibited by law.").
Paragraph 4 of the fee agreement at issue clearly contemplates that the appellant-attorney's
fee is to be enhanced by an EAJA award: "If there is an award of attorney fees under the [EAJA],
I agree to pay you that part of the EAJA award that, when added to the . . . 20% of the past due
disability benefits, raises the total fee earned by you . . . ." R. at 35-36 (emphasis added). Applying
the interpretation of "same work" adopted by the en banc Court in Carpenter, we hold that paragraph
4 of the fee agreement is facially unreasonable and unenforceable to the extent it provides that any
part of an EAJA award will be added to the appellant-attorney's 20% contingency fee. The purpose
of awarding EAJA fees to a successful litigant against the Government is to defray the cost of
litigation and not to give the appellant-attorney a greater fee. Hence "[a]n artfully or inartfully
drafted contingency fee agreement which would circumvent the letter and spirit of EAJA [is]
'patently unreasonable on its face.'" Carpenter, 15 Vet.App. at 77. Accordingly, pursuant to
38 U.S.C. § 7263, the Court will affirm the Board's conclusion that the fee agreement is excessive
and unreasonable.
E. Attorney's Obligation To Offset His Contracted Attorney Fees Against
Money Paid by VA in Settlement of an EAJA Application
Our conclusion that paragraph 4 of the fee agreement is facially unreasonable does not
resolve the underlying issue presented: Whether VA is required to directly pay the appellant-attorney
his 20% contingency fee, when he has already collected and retained $4,700 paid in settlement of
the veteran's EAJA application? The Board determined that the appellant-attorney must offset the
EAJA fees he received against the 20% owed to him. R. at 10. Hence, the Board concluded that
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because the money owed to him, $461.40, "is quite a bit less than the EAJA award of $4,700 he has
already received, the . . . attorney is not "entitled" to the claimed 20[%] of the veteran's past due
benefits." Id. The appellant-attorney rejects this line of reasoning on two grounds. First, he
contends that the Board has no authority to impose an offset, but rather it is his own ethical
responsibility to refund any money that he may owe to the veteran. Br. at 4-5; see G.C. Prec. 12-97.
Second, he contends that it is not at all clear that an offset is required because the EAJA application
was dismissed by the Court, and therefore, there was no payment under the EAJA. Reply Br. at 5.
We will address the second contention because if an offset is required, both the veteran and
the appellant-attorney already have what they are legally entitled to under the law. Thus, even
assuming arguendo the Board erred by injecting itself into the process, neither the veteran nor the
appellant-attorney would have been harmed by the Board's action and, therefore, such error would
be nonprejudicial. See 38 U.S.C. § 7261(b)(2); Conway, supra.
1. Did the Appellant-Attorney Receive Fees Under the EAJA?
Section 506(c) of the FCAA requires an attorney who "receives fees for the same work under
both section 5904 of title 38, United States Code, and section 2412 (d) of title 28, United States
Code," to refund to the claimant the amount of the smaller fee. Cf. Gisbrecht v. Barnhart, 535 U.S.
789, 796 (2002) (recognizing that an attorney who receives fees under the EAJA and the Social
Security Act, 42 U.S.C. § 406(b), must refund the smaller fee to the client). In the instant case, the
RO and the Board both determined that the appellant-attorney is entitled to receive his fee under
section 5904(d), and therefore, there is no dispute on appeal concerning his entitlement under section
5904(d). Additionally, there is no dispute that the appellant-attorney received fees in the amount of
$4,700 in March 1997. R. at 54, 165. The question raised by the appellant-attorney is whether the
$4,700 he received was under section 2412(d) for purposes of determining that an offset is required?
For the reasons that follow, we conclude the $4,700 paid by VA in settlement of the veteran's EAJA
application was money received under section 2412(d), and therefore, the appellant-attorney would
be required to refund the smaller fee to the veteran.
In January 1997, the veteran, through counsel, submitted an EAJA application for attorney
fees under 28 U.S.C. § 2412. In February 1997, the parties stipulated to settle the veteran's EAJA
application in the amount of $4,700 (R. at 74-77). The settlement agreement executed by the parties
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indicated that they agreed to an amicable resolution of the veteran's claim for reasonable attorney
fees under section 2412(d). Id. The parties filed a joint motion to dismiss the EAJA application,
citing as authority Dofflemyer v. Brown, 4 Vet.App. 339 (1993), for the proposition that their
agreement rendered moot the only issue pending before the Court, and therefore, without a case or
controversy to resolve, dismissal was appropriate. The Court granted the parties' joint motion to
dismiss on February 20, 1997. R. at 73. VA processed the EAJA settlement and pursuant to their
agreement issued a check in the amount of $4,700. R. at 54, 165.
The purpose of the EAJA is to provide claimants with the financial means to challenge
unjustified governmental action, which they would otherwise not have. See Abbs v. Principi,
237 F.3d 1342, 1347 (Fed. Cir. 2001). In light of the EAJA's intended purpose, we have held that
"the law gives the EAJA cause of action and standing to the client, not the attorney, and the attorney
cannot amend the law by bestowing such standing on the attorney." Carpenter, 15 Vet.App. at 75
(quoting Shaw, 10 Vet.App. at 506). Because the purpose of the EAJA is to reimburse the veteran
for the cost of litigation, we will not adopt the appellant-attorney's suggestion that payment of
litigation fees in settlement of an EAJA application is not "receipt" of a fee under the EAJA that
must be offset against fees received under section 5904(d). To hold otherwise would contravene the
intent and purpose of the EAJA. Hence, we will not construe the FCAA to require a Court "award"
of EAJA fees, when the parties' settlement of the EAJA application divests this Court of jurisdiction
to act over the application. See Massey v. Brown, 9 Vet. App. 134, 136 (1996); Dofflemyer, supra.
Accordingly, we find that the appellant-attorney "received" fees in the amount of $4,700 under
section 2412(d). Cf. In the Matter of the Fee Agreement of Mason, 13 Vet.App. 79, 87 (1999)
(noting that any contingency fee collected must be offset against any EAJA fees already received
under Court's order granting parties' joint motion to dismiss EAJA application).
Furthermore, the Court notes that if the $4,700 paid to the appellant-attorney is not money
received under the EAJA, then there is no contract in the record that would have authorized him to
retain that money. The law is well established that EAJA litigation is controlled by the client and
EAJA awards are the property of the litigant, not the attorney. See Carpenter, supra. Here, the
terms of the original contract do not authorize the appellant-attorney to retain the "settlement" money
if it was not money received under the EAJA. See R. at 35-38. In this regard, neither the settlement
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agreement nor any other document identified in the record constitutes an amended contract,
supported by consideration from the attorney to the veteran, to pay the attorney EAJA settlement
money. Therefore, if we were to accept the argument that there was no payment under the EAJA,
we would have to conclude that the appellant-attorney owes the veteran $4,239.60, the difference
between the EAJA settlement money and his 20% contingency fee. In which case, he is currently
in possession of more money than he should have under the contract.
Therefore, because we conclude that the appellant-attorney has received fees under the EAJA,
section 506(c) of the FCAA would require that he refund the smaller of the two fees to the veteran.
However, in this case, the veteran has already received that money when VA mistakenly paid to him
100% of the past-due benefits award.
2. Applicability of VA General Counsel Precedent Opinion 12-97
The appellant-attorney argues, in the alternative, that even if an offset is required the Board
violated 38 U.S.C. § 7104(c) when it failed to follow G.C. Prec. 12-97. Br. at 4-5; Reply Br. at 5.
He asserts that the General Counsel stated in cases such as this that the Board has no authority to
take any action to ensure that an attorney fulfills his ethical responsibility to refund the smaller fee
to the claimant. G.C. Prec. 12-97. First, we note that, although the Board is bound by the precedent
opinions of the VA General Counsel, this Court is not so bound. See Hatch v. Principi, 18 Vet.App.
527, 531 (2004) (citing Theiss v. Principi, 18 Vet.App. 204, 210 (2004), Cottle v. Principi,
14 Vet.App. 329, 335 (2001), and Sabonis v. Brown, 6 Vet.App. 426, 429 (1994)).
More importantly, we cannot agree with the appellant-attorney's assertion that the
circumstances presented in his case were addressed in the General Counsel's opinion. The General
Counsel's opinion relies on section 506(c) of the FCAA and applies to situations where the attorney
is lawfully eligible to receive attorney fees under both the EAJA and section 5904(d). However, the
General Counsel's opinion is premised on there being a lawful fee agreement. The General Counsel's
opinion does not address the situation presented here, i.e., an unreasonable fee agreement that
expressly conflicts with section 506(c) because of its provision that the attorney's section 5904(d)
fee will be enhanced by EAJA fees. Because the General Counsel opinion does not contemplate an
unreasonable and unenforceable fee agreement, we do not find it to limit or restrict the Board's
ability to impose an offset obligation under the facts presented here.
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3. Applicability of the Rule of Prejudicial Error
Even assuming that the Board lacked the authority to impose an offset, the Court is required
to take due account of the rule of prejudicial error. See 38 U.S.C. § 7261(b)(2). Section 506(c) of
the FCAA and our prior caselaw establish a well-defined policy against permitting an attorney to
double-dip by collecting a fee for the same work under section 5904(d) and the EAJA. Hence, while
the law permits the attorney to retain the greater of the two fees, he may not retain both fees. There
is no dispute that the appellant-attorney has already collected and retained the greater of the two fees.
Nor is there any question that the veteran, albeit mistakenly, has already received 100% of the past-
due benefits award.
Therefore, based on our finding that the appellant-attorney's receipt of the $4,700 fee was
under the EAJA, compliance with section 506(c) of the FCAA would have required the appellant-
attorney to refund the 20% direct-pay contingency fee received under section 5904(d) to the veteran.
However, under the facts of this case, the veteran already received these funds when VA mistakenly
released the entire past-due benefits award to the veteran in 1999. R. at 111. Accordingly, both the
appellant-attorney and the veteran have precisely what they are entitled to under the law, and
therefore, we conclude that neither party to the fee agreement has been prejudiced by the Board's
imposition of an offset.
We are mindful of our decisions in Cox v. Principi, 15 Vet.App. 280 (2001), and Snyder,
supra, which obligate VA to directly pay an attorney a 20% direct-payment contingency fee if the
fee agreement meets the statutory and regulatory criteria, regardless of VA's erroneous payment of
that fee to the claimant. See Snyder, 15 Vet.App. at 292; Cox, 15 Vet.App. at 282-83. However,
under the circumstances of this case, where the appellant-attorney would otherwise be obligated to
refund the contingency fee to the veteran, the Court will not require a blinding adherence to the law,
with absolutely no benefit flowing to the appellant-attorney. See 38 U.S.C. § 7261(b)(2); see also
Marciniak v. Brown, 10 Vet.App. 198, 201 (1997) (holding that, "[i]n the absence of demonstrated
prejudice," remand unnecessary); Parker v. Brown, 9 Vet.App. 476, 481 (1996) (same). To be clear,
by this opinion we do not seek to condone or reward VA for its repeated procedural failures in this
case. Nevertheless, in the absence of any demonstrated prejudice, we will not require the Secretary
to make any further payment under section 5904(d), when to do so would contravene our established
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policy against an attorney's receipt of two fees for the same work. See Carpenter, Fritz, and Shaw,
all supra.
III. CONCLUSION
Upon consideration of the foregoing analysis, the record on appeal, and the parties' briefs,
the June 21, 2004, Board decision is AFFIRMED.
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