Facts of the Case

Under 42 USC section 406(b), an attorney who successfully represents a Social Security benefits claimant in court may be awarded a reasonable fee not in excess of 25 percent of the past-due benefits awarded to the claimant, payable out of the amount of the past-due benefits. After three individuals prevailed on their claims for Social Security disability benefits and successfully sought attorneys' fees under the Equal Access to Justice Act, their attorneys were to collect 25 percent of all past-due benefits recovered from each claimant, pursuant to contingent-fee agreements. In each case, the District Court declined to give effect to the attorney-client fee agreement, instead employing a "lodestar" method, under which the number of hours reasonably devoted to each case was multiplied by the reasonable hourly fee. The Court of Appeals affirmed.

Question

Do lodestar fee awards for attorneys who successfully represent Social Security benefits claimants in court, under 42 USC section 406(b), displace contingent-fee agreements within the statutory ceiling?

Conclusion

No. In an 8-1 opinion delivered by Justice Ruth Bader Ginsburg, the Court held that section 406(b) does not displace contingent-fee agreements within the statutory ceiling; instead, section 406(b) instructs courts to review for reasonableness fees yielded by those agreements. The Court reasoned that, because section 406(b) was enacted at a time when contingent fee agreements were prevalent in Social Security cases and before the lodestar method of calculating fees was developed, section 406 was intended to prohibit only unreasonable contingent fee agreements and reasonable agreements remained enforceable. Justice Antonin Scalia dissented.