United States District Court, Eastern District of New York
May 29, 1990
WALLACE J. KRAUSS, SR., PLAINTIFF,
OTIS R. BOWEN, M.D., SECRETARY OF HEALTH AND HUMAN SERVICES, DEFENDANT.
The opinion of the court was delivered by: Nickerson, District Judge:
This matter concerns the conduct of plaintiff's attorney,
Calvin C. Saunders, in representing plaintiff in 80 CV 2638, an
appeal from a denial of disability insurance benefits (the
"disability" claim), and in 83 CV 0237, an action seeking
compensatory and punitive damages against defendant for alleged
delay and mishandling of the earlier case (the "damages"
Saunders was appointed from the pro bono panel on October 25,
1985, to represent plaintiff, Wallace Krauss, in his two
earlier commenced actions. The court consolidated these actions
on defendant's motion on March 23, 1984. The procedural history
of these actions both before and after Saunders' appointment is
set forth in the court's memorandum and order of August 18,
1989, familiarity with which is assumed.
On February 20, 1987, Assistant United States Attorney Deborah
Zwany filed a memorandum of law in support of defendant's
motion to dismiss the damages claim on the grounds of sovereign
immunity. That day she informed the court and Saunders at a
status conference that her office was asking the Department of
Justice for permission to decline to defend the denial of
Krauss' disability claim. The motion was argued on March 27,
1987 with Saunders present. The court reserved decision.
On May 8, 1987 the Assistant United States Attorney sent
Saunders a proposed stipulation, dated May 8, 1987, providing
that the disability claim be remanded to the defendant "solely
for the purpose of calculation and payment of benefits."
Saunders, on behalf of Krauss, rejected the stipulation. On May
27, 1987, Zwany sent Saunders a second set of proposed
stipulations. The first provided for remand of the disability
claim "solely for the purpose of calculation and payment of
benefits from December 31, 1975, the date of onset alleged by
plaintiff." The second provided for dismissal of plaintiff's
damage claim with prejudice. Krauss again refused to agree to
these. Saunders did not respond to this offer, or to a second
mailing of these proposed stipulations on June 17, 1987.
Assistant United States Attorney Bruce Nims took over the case
from Zwany. In April 1988 he explained to Saunders that Krauss'
latest conditions for signing a stipulation to remand the
disability claim, namely, that the defendant not review Krauss'
eligibility for disability benefits for at least three years,
would contravene 42 U.S.C. § 421(h). Nims again enclosed a
proposed stipulation to remand the disability claim for
calculation and payment of benefits from December 31, 1975.
Saunders prepared a counter-stipulation dated April 25, 1988,
with new conditions, including that defendant reimburse
plaintiff for various costs, provide him with various records,
and provide a physical examination before denying or reducing
benefits in the future. In a letter dated July 29, 1988, Nims
informed Saunders the defendant would not agree to any terms
other than those it had proposed, and again sent a proposed
stipulation for remand of the disability claim.
On November 1, 1988, Saunders sent another counter-stipulation
with further conditions, including that the defendant pay
various costs Krauss had incurred, and attorneys fees on the
damage claim for Krauss' self-representation, although the
counter-stipulation also provided for dismissal of the damage
claim with prejudice. Apparently aware these conditions would
be unacceptable, Saunders wrote in an accompanying letter that
further negotiation was useless, and that his client requested
the "matter be brought before the court . . . per Rule 11, to
be heard as expediently as possible."
Unable to discontinue the actions with plaintiff's consent,
defendant moved to remand the disability claim for calculation
of benefits, and moved to dismiss the damage claim on December
19, 1988. This court
granted both motions, the remand on January 20, 1989 and the
dismissal with prejudice on March 1, 1989.
On April 11, 1989, shortly after Krauss was notified of the
amounts defendant would pay him, Saunders sent him a
contingency fee arrangement to review and sign. The arrangement
was in the form of a letter from Krauss to Saunders, which read
in relevant part:
At the time your firm agreed to represent me before the Eastern
District Court of New York, I agreed to a legal fee of 25% of
all retroactive benefits receive by me, if successful.
Subsequent to this agreement you informed me that the [sic] in
the event the Court determined that the reasonable value of
your legal services was determined by the Court to be less than
25% of the retroactive benefits, I would be entitled to any
difference between the amount you were awarded, and the 25%
that Social Security would withhold from my award. [. . . .]
As a result of the expertise of the law firm of Calvin C.
Saunders., an acceptable decision was rendered, and I will be
receiving monthly Social Security benefits as well as the
retroactive monies due.
I am thoroughly satisfied with the way in which the Social
Security matter was handled and I approve and consent to the
25% of any retroactive benefits withheld for legal fees
(. . .).
This was accompanied by a cover letter that said, "if [the fee
arrangement] contains anything that is inaccurate please feel
free to correct it" and "I will submit [the arrangement] to
Judge Nickerson and allow him to determine the appropriate
amount of attorney's fees."
Saunders subsequently applied to this court for fees equal to
25% of the considerable benefits due plaintiff, or $24,466. In
his papers to support this application, Saunders included
timesheets — all captioned with the docket number of the
damages action — stating he spent a total of 1831/2; hours of
his time (incorrectly totaled on those documents as 182 hours)
on Krauss' affairs, 74 1/2 hours of it prior to receiving the
defendant's stipulation on May 27, 1987.
Among the matters in these records are eight hours spent in
January 1989 preparing a brief on the onset date of disability,
even though the government had conceded plaintiff's alleged
onset date nearly two years earlier. This brief was delivered
to Nims' office, but not filed with the court. The final
paragraph of the brief states "No purpose would be served by
remanding this case back for further determination." From this
sentence, the court presumes Saunders did not comprehend that
the government's offer was to pay his client the full amount to
which he was legally entitled. In a similar vein, Saunders also
billed for considerable time researching medical questions at
times subsequent to the defendant's offer to fully pay
plaintiff his benefits.
In response to Saunders' application, the court on August 18,
1989 ordered a hearing to determine the circumstances under
which plaintiff signed the fee arrangement, the services
Saunders rendered in connection with the disability claim prior
to May 27, 1987, and whether sanctions under Rule 11 should be
imposed on Saunders.
At the hearing, held December 15, 1989, Krauss and Saunders
both testified that they understood each of the two
stipulations offered by defendant on May 27, 1987, to be
conditioned on acceptance of the other. Saunders testified
Krauss had first offered to pay him 25% of any award of
benefits prior to May 27, 1987, at the time Krauss rejected an
earlier offer of defendant to calculate benefits from a date in
1979. Saunders also conceded that of his original claim for 182
hours, nine hours were improperly included which were spent on
the damages claim.
Saunders' Application for Attorney's Fees
The Social Security Act, 42 U.S.C. § 406(b)(1), provides:
Whenever a court renders a judgment favorable to a claimant
under this subchapter who was represented before the court by
an attorney, the court may determine
and allow as part of its judgment a reasonable fee for such
representation, not in excess of 25 percent of the total of the
past-due benefits to which the claimant is entitled by reason
of such judgment[.]
Although Krauss appeared at the hearing to be thoroughly
convinced his recovery of past benefits is due to the efforts
of Saunders, this court does not share his assessment. Despite
his claims to extensive legal research on the subject, other
than the obviously unacceptable counter-stipulations he drafted
at Krauss' direction, Saunders filed no legal papers in
relation to the disability claim. That the court rendered a
decision favorable to Krauss is entirely due to defendant's
motion to remand the action for calculation and payment of
benefits. Saunders, in his failure to comprehend and explain to
his client that the government was offering him all the relief
it legally could offer, served Krauss poorly. However, he
thereby undoubtably helped to increase the accumulation of
retroactive benefits from which Saunders now claims a
Nonetheless, Saunders does seem to have contributed in one
respect to plaintiff's recovery. He testified that due to his
efforts, defendant agreed to remand the disability claim for
calculation of benefits from December 31, 1975, rather than its
initial offer to calculate benefits from 1979, the onset period
determined at a prior administrative adjudication. The court
finds this plausible, given that defendant's initial proposal
of May 8, 1988 did not specify a date from which benefits were
to be calculated, and all proposed stipulations since May 27,
1988 include plaintiff's alleged onset date.
Saunders urges the court to honor what he terms "the contingent
fee arrangement" to which his client assented. See Reply
Affidavit, ¶ 23 (June 9, 1989). While attorneys who represent
disability cases pro bono are entitled to apply for fees up
to 25% of past benefits due their clients under § 406(b)(1),
the court notes this does not authorize these attorneys to make
"contingency fee" arrangements with assigned clients.
This district's Rules Governing Procedures for Appointment of
Attorneys (May 17, 1982) (hereinafter "Appointment Rules"), a
copy of which is provided to every firm with an attorney on the
pro bono panel, requires attorneys to inform the assigned
judge if their clients are able to pay for legal services. If
so, the assigned judge may then approve a fee arrangement.
Appointment Rule 7(d). This Saunders did not do. Though
Saunders prepared "counter-stipulations" that asked the
defendant to reimburse costs of litigation, these Rules make
clear the attorney is responsible for all costs in the case,
unless he applies for reimbursement from the Eastern District
Civil Litigation Fund. Appointment Rule 6.
The court, however, will not consider Saunder's fee application
sanctionable. He may have intended defendant reimburse only
Krauss for expenses incurred before counsel was appointed. Read
in the kindest light, the fee arrangement together with the
cover letter provides only what disability clients are already
informed, namely, that their court-appointed attorney may be
awarded a fee deductible from any retroactive disability
benefits found due. Appointment Rule 7(b).
Since a contingency fee arrangement is unwarranted in a pro
bono case such as this, the court will ignore the agreement
between Saunders and Krauss, and apply the factors articulated
in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714
(5th Cir. 1974), as to what constitutes a "reasonable fee"
under § 406. These include the time and labor required, the
novelty and difficulty of the legal issues, the skill required
of counsel for the task, and customary fees for similar work.
It is not difficult to agree to an offer of remand for
calculation and payment of benefits or to negotiate the date of
onset of disability. The court realizes that time was required
for Saunders to become familiar with the thirteen year course
the disability claim. His submitted credentials show he has
some familiarity with disability cases, though his legal papers
do not suggest expertise. The court determines that fifteen
hours is a reasonable period for an attorney familiar with
disability cases to accomplish a review of the file and
negotiate plaintiff's alleged onset date, compensated at the
rate of $100 per hour.
Saunders also applied for fees under the Equal Access to
Justice Act, 28 U.S.C. § 2412(d)(1)(A). The court remanded the
disability action on January 27, 1989. Saunders' application,
filed on May 9, 1989, is far later than the thirty day period
after final judgment required by the act, and contains no
allegation that the position of the United States was not
substantially justified. 28 U.S.C. § 2412(d)(1)(B). Saunders is
not entitled to fees under this statute for the damage claim,
in which his client did not prevail.
Rule 11 Sanctions
Although Saunders' conduct relating to his client's disability
claim, while hardly praiseworthy, is not deserving of sanction,
his conduct as to the damages action is another matter.
Federal Rule of Civil Procedure 11, as amended in 1983,
requires all papers submitted to the court be signed by an
attorney or a party. It further provides that such signature
constitutes a certificate by the signer that the signer has
read the pleading, or other paper; that to the best of the
signer's knowledge, information and belief formed after
reasonable inquiry it is well grounded in fact and is warranted
by existent law or a good faith argument for extension,
modification, or reversal of existing law, and that it is not
interposed for any improper purpose, such as to harass or to
cause any unnecessary delay or needless increase in the cost of
Fed.R.Civ.P. 11. The rule as quoted above sets out two grounds
for sanctions, namely, that the paper is frivolous or is
interposed for an improper purpose. Quadrozzi v. New York,
127 F.R.D. 63, 78 (S.D.N.Y. 1989). Saunders' submissions in the
damage action violated the rule on both grounds.
In assessing whether a paper is not warranted by existing law
or a good faith argument for its extension, modification, or
reversal, the court does not use hindsight and resolves all
doubts in favor of the party who signed the paper. But "where
it is patently clear that a claim has absolutely no chance of
success under the existing precedents," sanctions must be
imposed. Eastway Construction Corp. v. City of New York,
762 F.2d 243, 254 (2d Cir. 1985), cert. denied, 484 U.S. 918, 108
S.Ct. 269, 98 L.Ed.2d 226 (1987).
It has been settled that the Social Security Act gives a
claimant no right against the government for consequential or
punitive damages for a denial of disability benefits. See
Watson v. Califano, 487 F. Supp. 179, 182 (S.D.N.Y. 1979),
aff'd mem., 622 F.2d 577 (2d Cir. 1980). Saunders did not
argue that an exception to sovereign immunity existed because
the defendant acted beyond its statutory authority or in an
unconstitutional manner. See Krauss v. Bowen, No. 80 C 2638,
83 C 237, 1989 WL 23933 (E.D.N.Y. March 1, 1989).
In his Memorandum of Law dated January 10, 1989, Saunders
argued that defendant's motion to consolidate the damage action
with the disability action before the same judge constituted a
waiver of sovereign immunity. He cited no legal authority for
this proposition. The court has found none. Indeed, the
contention is frivolous.
The cases cited in his subsequent submission to the court on
this subject, Panola Land Buyers Association v. Shuman,
762 F.2d 1550 (11th Cir. 1985), and McNutt v. Hills, 426 F. Supp. 990
(D.D.C. 1977), discuss circumstances where sovereign
immunity does not bar nonmonetary relief. Saunders argued as
Although CV-83-0237 complaint listed hardship and compensation
for benefits wrongfully denied, I felt that the basis of his
claim was in the nature of a mandamus seeking the Court's
assistance in enforcement of an order directing the agency to
comply with its own rules and regulations, and injunctive
relief in the
form of correcting errors in the record, and precluding the
repetitious request [sic.] that were warranted by the
defendant's loss of plaintiff's file.
The court finds this proposition disingenuous. Saunders made no
attempt to amend the complaint to seek injunctive relief. His
client's submissions and statements show that he expected
monetary relief and in a large amount.
An attorney is held to a standard of objectively reasonable
conduct, consistent with minimal standards of professional
competence. Greenberg v. Hilton International Co.,
870 F.2d 926, 934 (2d Cir. 1989). Even were this court to accept that
Saunders acted with a pure heart, it would still be required to
impose sanctions. See Eastway Construction Corp., 762 F.2d at
254 n. 7.
Where a client insists on asserting claims that are legally
specious, an attorney has options other than to comply. The
Appointment Rules, for example, specifically provide that an
attorney may apply to be relieved if he believes that his
client's claims "are not warranted under existing law and
cannot be supported by good faith argument for extension,
modification or reversal of existing law." Appointment Rule
4(v). See also Code of Professional Responsibility,
Disciplinary Rule 2110(C)(1)(a).
The court, however, finds it difficult to believe Saunders'
actions were motivated solely by a mistaken belief he was
compelled to defend his client's unwarranted claim for
compensatory and punitive damages. The defendant's motion to
dismiss this claim on the ground of sovereign immunity was
first filed on February 20, 1987. At that time it was clear the
Assistant United States Attorney would endeavor to remand the
disability claim. In November of 1987, Saunders requested the
defendant to estimate Krauss' retroactive benefits. Saunders
gave his client to believe that the remand for calculation of
benefits was contingent on dismissal of the damages claim.
Consequently, Saunders and Krauss rejected at least four offers
of remand from May 27, 1987 until January 27, 1989, when this
court ordered remand.
The implication that Saunders acted with a purpose to swell the
pool of retroactive benefits from which to claim a contingency
fee is strong. For just such reasons, courts have disfavored
honoring contingency fee arrangements for litigation in
disability claims. Administrative delay in the final
adjudication of disability claims "should not be compounded by
incentives for procrastination and delaying tactics on the part
of claimant's attorney." McKittrick v. Gardner, 378 F.2d 872,
874 (4th Cir. 1967); see also Fed.R.Civ.P.11 advisory
committee note to 1983 amendment (Rule 11 intended to
"discourage dilatory or abusive tactics" and lessen "frivolous
claims or defenses").
The court has discretion under Rule 11 to fashion an
appropriate sanction, including "reasonable expenses incurred
because of the filing of the pleading, motion, or other paper,
including a reasonable attorney's fee." Fed.R.Civ.P. 11. Nims
estimates his time spent in opposing the damage action to be
five hours, which the court determines reasonably billed at
$100 per hour. The court may also add to this the cost borne by
taxpayers of the court's time spent on a frivolous filing. See
Fischer v. Samuel Montagu, Inc., 125 F.R.D. 391, 396 (S.D.N Y
1989) (citing cases). Though the court does not keep precise
time records in the manner of attorneys, the sum of $500 should
adequately compensate the time spent as a consequence of
Saunders' filing by all court personnel, and vindicate the
honor of the court.
In regard to Krauss' disability claim, Saunders' application
for fees under 42 U.S.C. § 406(b)(1) is granted in the amount of
$1500. The court sanctions Saunders for his filings in the
action for damages under Federal Rule of Civil Procedure 11 in
the amount of $1000, $500 to be paid to defendant and $500 to
be paid to the court.
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