Marasco & Nesselbush, LLP v. Collins

LIPEZ, CIRCUIT JUDGE.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND Hon. John J. McConnell, Jr., U.S. District Judge

Timothy K. Baldwin, with whom Robert C. Corrente, Caroline R. Thibeault, and Whelan Corrente &Flanders LLP were on brief, for appellant.

Dennis Fan, with whom Ethan P. Davis, Acting Assistant Attorney General; Aaron L. Weisman, United States Attorney; Charles W. Scarborough, Attorney, Civil Division, Appellate Staff, U.S. Department of Justice; Royce Min, General Counsel, Social Security Administration; Michael J. Pelgro, Regional Chief Counsel, Social Security Administration; Timothy S. Bolen, Assistant Regional Counsel, Social Security Administration, and Amy Rigney, Attorney, Social Security Administration, were on brief for appellees.

Before Howard, Chief Judge, Lipez and Thompson, Circuit Judges.

LIPEZ, CIRCUIT JUDGE.

Appellant Marasco & Nesselbush, LLP ("M&N"), a law firm, brought this action to challenge what it describes as "the Social Security Administration's byzantine and irrational rules that govern payment of attorney's fees in Social Security disability cases." The district court dismissed M&N's claims for mandamus and relief under the Administrative Procedure Act ("APA"), and it granted summary judgment for the Social Security Administration ("SSA") on M&N's equal protection and due process claims. We affirm dismissal of one APA claim, vacate dismissal of the other, and conclude that certain of the payment rules challenged by M&N are arbitrary and unenforceable. Given the availability of relief under the APA, we affirm dismissal of M&N's claim for mandamus relief and vacate the avoidable ruling on the constitutional claims.

I.

C. M&N's SSA Fee-Collecting Experience

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Id.; see also Dep't of Homeland Sec. v. Regents of Univ. of Calif., 140 S.Ct. 1891, 1905 (2020) (noting that the APA "requires agencies to engage in 'reasoned decisionmaking'" (quoting Michigan v. EPA, 576 U.S. 743, 750 (2015))). Pursuant to this "'highly deferential'" standard of review, courts should uphold an agency determination if it is "supported by any rational view of the record." Atieh v. Riordan, 797 F.3d 135, 138 (1st Cir. 2015) (quoting River Street Donuts, LLC v. Napolitano, 558 F.3d 11, 114 (1st Cir. 2009)). From that perspective, we turn to the two rules we have identified.

b. Former Associates in Government Positions

(B) at a time when such person is an . . . employee . . . in any agency of the United States.

18 U.S.C. § 203(a)(1) (emphasis added). Section 205 contains a similar prohibition, but it covers the representation work itself rather than compensation for such work. See 18 U.S.C. § 205(a)(2).

The SSA does not explain to us how a statute that by its terms bars compensation to attorneys for "representational services . . . rendered . . . at a time" when they are working for the government supports its prohibition on fees for work completed before that employment began. However, in 2015, in response to M&N's inquiry about fees due for work performed by Wilson and Dorsey, defendant Tara Collins relied on a 1998 opinion from the federal Office of Legal Counsel ("OLC") to elaborate on why the fees could not be paid. The opinion reports that the OLC has long viewed § 203 to "prohibit[] an individual entering government employment from maintaining a contingent interest in fees recoverable in a proceeding involving the United States." Application of 18 U.S.C. § 203 to Maintenance of Contingent Interest in Expenses Recoverable in Litigation Against the United States, 22 Op. O.L.C. 1, 2 (1998). Collins specifically invoked a sentence contained in a footnote attached to that quoted statement: "A rule against retaining a contingent interest in fees reflects that a contingent fee covers the entire representation up to the payment, the amount remains uncertain until then, and the fee thus compensates, in part, for representational services performed after the employee began working for the United States." Id. at 2 n.2.

Even with that elaboration drawn from the record, however, we find the SSA's reasoning to be inscrutable at best and, given the information available to the agency, facially irrational. Through the fee petition process, an attorney "request[s] a fee for the services he or she actually provided." HALLEX § I-1-2-53.A (emphasis added). Importantly, the information required in a fee petition includes "[t]he dates services began and ended." POMS § GN 03930.020.D.3; see also 20 C.F.R. § 404.1725(a)(1). The fee petition process itself thus allows the agency to confirm that the work underlying the fee request was performed before an attorney's government employment began. Fees awarded through this process are not properly labeled "contingent." As we have described, the statute governing SSA representation, § 406, mandates "a reasonable fee" for the services performed by an attorney who successfully represents a claimant, and fees also may be requested via petition if no benefits are awarded. Hence, even though the exact amount remains within the SSA's discretion, based on the factors prescribed in its rules, the petition procedures set forth a fee-for-service model that easily permits the SSA to determine a reasonable fee without running afoul of the ethics requirements -- and which § 406(a) requires it to do for successful representation. See generally Weisbrod v. Sullivan, 875 F.2d 526, 528 (5th Cir. 1989) (noting that both the governing statute, 42 U.S.C. § 406, and the regulation listing the factors for determining an award, 20 C.F.R. § 404.1725(b), "appear to be aimed at ensuring that an attorney receives a fair fee for the work he or she performs while at the same time not unduly dissipating the claimant's benefits"); see also Gisbrecht, 535 U.S. at 805 (similar).

As an example of how payment timing can affect M&N's access to fees, M&N's Statement of Uncontested Material Facts describes the submission of fee petitions in April 2018 by partner Nesselbush and associate Valerie Diaz for their joint representation of a successful claimant. The SSA hired Diaz in July 2018. The agency's decision on the fee award was issued in November 2018, and it rejected Diaz's petition because -- as required when she changed jobs -- she had withdrawn as counsel and "'waived the right to charge and collect a fee.'" As noted above, the parties agreed to dismiss the claims against Dorsey, Wilson, and Posey, as well as the claims against the SSA defendants as individuals. See Marasco &Nesselbush, LLP v. Collins, 327 F.Supp.3d 388, 393 &n.3 (D.R.I. 2018). The court's 2018 decision covered the remaining six claims. A key difference is that, if a Rule 12(b)(1) motion contests factual allegations of the complaint, the court must engage in judicial factfinding to resolve the merits of the jurisdictional claim. See Valentin v. Hosp. Bella Vista, 254 F.3d 358, 363-65 (1st Cir. 2001). Rule 12(b)(6) motions, on the other hand, are always facial, not factual, challenges to the complaint. Cebollero-Bertran v. P.R. Aqueduct & Sewer Auth., No. 20-1096, 2021 WL 2699040, at *3 (July 1, 2021). Section 1361 grants jurisdiction to district courts over "any action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff." 28 U.S.C. § 1361. Most other circuits have concluded that mandamus jurisdiction is available "to review otherwise unreviewable procedural issues" arising under the SSA. Family Rehab., Inc. v. Azar, 886 F.3d 496, 505 & n.21 (5th Cir. 2018) (quoting Wolcott v. Sebelius, 635 F.3d 757, 764 (5th Cir. 2011)); see also Wolcott, 635 F.3d at 765 (collecting cases). "The APA generally requires that before a federal agency adopts a rule it must first publish the proposed rule in the Federal Register and provide interested parties with an opportunity to submit comments and information concerning the proposal." N.H. Hosp. Ass'n, 887 F.3d at 70 (citing 5 U.S.C. § 553). In all likelihood, the prior rule could not have withstood arbitrary-and-capricious review. Among other factors, it would be difficult to defend a rule that eliminates as much as one-half of an agreed-upon fees payment without regard for the role played by each attorney. M&N complains, for example, about the requirement that all representatives must sign the same fee agreement. Not only does this rule plainly fall outside the notice-and-comment requirement, but it also easily survives arbitrary-and-capricious review. Requiring a single document is a rational way to avoid confusion about how many representatives are entitled to share in the fees authorized pursuant to an agreement. M&N also challenges as arbitrary the payment of attorney's fees to other law firms in circumstances in which M&N has been denied payments. We take up M&N's allegations concerning differential treatment of law firms below, in our discussion of its equal protection claims. In Union of Concerned Scientists, we noted the need for a "set of statutory or regulatory requirements to guide us in assessing the propriety of an agency's procedures" apart from "the reasoned decision-making standards of the APA alone." 954 F.3d at 21. With Congress's objectives as reflected in § 406(a)(1) -- to pay attorneys representing SSA claimants "a reasonable fee" -- and in 18 U.S.C. §§ 203 and 205 -- barring government employees from compensation and representation in cases against the United States -- federal courts have ample basis and guidance to evaluate the rules challenged here. It appears that this prohibition is not explicitly set forth in either the POMS or HALLEX manuals, except insofar as the manuals specify that individuals must submit their own fee requests and that payments may be made only to individuals. Rather, the rule arises from the SSA's practice of requiring fee waivers for new government employees with pending fee requests. In its brief to this court, the SSA cited as support for the practice -- in addition to the two ethics statutes discussed above -- two sections of a regulation titled "Rules of conduct and standards of responsibility for representatives." 20 C.F.R. § 404.1740. One cited section, (b)(3)(iv), states, inter alia, that representatives have a duty to "[o]nly withdraw representation at a time and in a manner that does not disrupt the processing or adjudication of a claim." The other section, (b)(8), requires representatives to disclose to the agency when they "ha[ve] been disqualified from participating in or appearing before any Federal program or agency." Neither provision addresses the obligation to forgo fees. At least in the past, contingency-fee contracts were widely used in SSA benefits cases. In Gisbrecht, the Supreme Court cited a 1988 SSA report for its observation that "[s]uch contracts are the most common fee arrangement between attorneys and Social Security claimants." 535 U.S. at 800; see also id. at 804 ("Traditionally and today, 'the marketplace for Social Security representation operates largely on a contingency fee basis.'" (citing the same SSA report)). Although Gisbrecht was reporting on agreements for representation in court, Congress anticipated that the "streamlined process" of fee agreements -- adopted later for administrative representation -- would be similarly popular in that context and "generally replace the fee petition process." Power v. Barnhart, 292 F.3d 781, 786 (D.C. Cir. 2002) (quoting H.R. Conf. Rep. No. 101-964, at 933 (1990)) (emphasis omitted). More recent SSA data shows that fee petitions did decrease in popularity, with the percentage of fees paid from withheld benefits pursuant to that process steadily declining from about 30 percent in 1995 to roughly 12 percent in 2000. See SSA's Processing of Attorney Fees: Hearing Before Subcomm. on Social Security of the H. Comm. on Ways &Means, 107th Cong. (May 17, 2001). The record does not reveal the current popularity of fee agreements. The SSA's rules also contemplate other fee arrangements. For example, the agency recognizes that a representative and claimant may agree to rely on "the fee agreement process, if SSA favorably decides the claim at a certain level," but will rely on "the fee petition process, if the claim progresses beyond the level specified in the agreement." POMS § GN 03920.001.C.2 ("Two-tiered Arrangement"). The SSA similarly recognizes that the claimant and representative may sign a non-contingent fee agreement, in which the claimant's lack of success would mean that the representative could not obtain a fee based on the statutory provision regarding agreements. See 42 U.S.C. § 406(a)(2). However, if the agreement was not "a contingency fee contract," the representative could nonetheless submit a fee petition after his or her representation ends. See POMS § GN 03930.020.A; HALLEX § I-1-2-51; id. § I-1-2-53.A; id. § I-1-2-57.A.6 (Exception). In its brief, the SSA suggests a variety of measures that law firms could adopt to avoid fee-collection problems when associates plan to leave the firm for government work, including requesting that the departing attorneys provide sufficient notice to "wrap up their cases and fee requests prior to departure" and arrange start dates for their new jobs "that substantially prejudice[] neither employer." However, departing associates do not control the timing of the SSA's decision-making and, as noted above, M&N alleges that the wait for SSA fee authorizations can be lengthy. Hence, the efficacy of these proposed measures would, at best, be limited. The SSA's suggestion that M&N could assess its departing associates the amount of attorney's fees that are uncollectible because of their departures strikes us as both inappropriate and impractical. In short, the SSA unreasonably attempts to place the burden of its unsupportable practice on the associate attorneys and their firms. The district court's discussion of the rule's asserted arbitrariness was in the context of M&N's substantive due process claim because the court had dismissed the APA claim. See M&N II, 444 F.Supp.3d at 327-28. The distinction between allowing entities to serve as representatives and allowing fees payments to law firms was recognized in a congressional response to a 2008 proposed rulemaking in which the SSA considered allowing entities to represent claimants. The statement, made by the chair of the House Subcommittee on Social Security on the committee's behalf, was quoted in the SSA's Cross-Motion for Summary Judgment in this case: While it may be more efficient in some cases to pay the fee directly to an entity that is the employer of a representative eligible for direct payment, actually authorizing that entity to act as an individual's representative would weaken the chain of accountability and create more problems than it would solve. Defs.' Cross-Mot. for Summ. J. 34, No. 1:17-cv-00317-JJM-LDA, ECF No. 45 (filed May 30, 2019) (quoting Michael R. McNulty, Comment on Revisions to Rules on Representation of Parties, Docket No. SSA-2007-0068 (Nov. 6, 2008)) (emphasis omitted and added). To be clear, the problem is not only the refusal to pay fees at all -- in the context of associates moving to government employment -- but also the agency's arbitrary denial of payments from past-due benefits for work the agency knows was financed by a law firm. The latter occurs when, for example, an associate withdraws from an ongoing case being handled by his or her firm, moves to another law firm, and submits a petition for the representation services provided for a claimant at the behest (and expense) of the original firm. At present, fees for that withdrawn attorney's work may be obtained only from the claimant, see POMS § GN 03920.017.A -- a route that typically is unproductive, see supra note 10.