NEW YORK (Legal Newsline) - A law firm that specializes in Social Security cases deserved its large hourly rate for quickly and efficiently winning disability benefits for its client, the Second Circuit Court of Appeals ruled, reversing a lower court decision that declared a 25% contingency fee to be excessive and a “windfall” for the lawyers.
Binder & Binder started representing Jim R. Fields in 2011 to obtain disability benefits over a condition dating to 2009. After a Social Security administrative law judge denied him benefits in 2012, Binder & Binder appealed the case to federal court. The case bounced between federal court and administrative law judges until April 2020, when an ALJ determined Fields was disabled and awarded him $161,000 in back benefits and $1,349 a month in future.
Federal law caps contingency fees in Social Security cases at 25%, with the additional requirement that a court find the fee is “reasonable.” Binder & Binder asked for 25%, or $40,170 in fees, which worked out to $1,556.98 an hour.
A federal district judge decided that would be an unreasonable “windfall” because the firm spent only about 25 hours on the case and reduced the fee to $19,350, saying it would “adequately compensate Binder & Binder for the time spent.”
The Second Circuit reversed in a Jan. 28 decision by Judge Guido Calabresi.
“A contingency fee charged in any given winning case is likely to be high in relation to the hours actually spent on the case by the lawyer,” the judge wrote. “But, without contingency fees, people in need of good lawyers would often not be able to hire them.
Courts often judge contingency fees by the “lodestar” method, calculating a hypothetical fee based on hours spent times an appropriate market rate, the judge said. But in Social Security cases the client hires the lawyer and pays the fees out of any award, he said, so the only thing to judge is the reasonableness of the contingency agreement.
In Social Security cases courts are supposed to consider whether the fee results in a “windfall” for the lawyers, he continued, but the important questions there are whether the lawyers efficiently accomplished what their client hired them to do. The fact Binder & Binder spent so little time on the case reflects their expertise, he said, which allowed them “to accomplish in just 25.8 hours what other lawyers might reasonably have taken twice as much time to do.”
“It would be foolish to punish a firm for its efficiency and thereby encourage inefficiency,” Calabresi wrote.