Appeal from the United States District Court for the Central District of California Arthur Nakazato and Robert N. Block, Magistrate Judges, Presiding. D.C. Nos. CV-00-11884-AN, CV-03-06884-AN & CV-98-05662-RNB.
The opinion of the court was delivered by: B. Fletcher, Circuit Judge
Argued and Submitted June 22, 2009 -- Seattle, Washington
Before: Alex Kozinski, Chief Judge, Mary M. Schroeder, Betty B. Fletcher, Harry Pregerson, Stephen Reinhardt, Andrew J. Kleinfeld, Marsha S. Berzon, Johnnie B. Rawlinson, Richard R. Clifton, Carlos T. Bea, and N. Randy Smith, Circuit Judges.
Opinion by Judge B. Fletcher; Partial Concurrence and Partial Dissent by Judge Clifton; Dissent by Judge Bea.
We review three consolidated appeals that present one overarching issue: Did the district court follow the mandate of Gisbrecht v. Barnhart, 535 U.S. 789 (2002), in determining the amount of attorneys' fees awarded to lawyers who successfully represented Social Security disability insurance ("SSDI") claimants in federal court under contingent-fee contracts?*fn1 We hold in each case that it did not. We vacate the district courts' orders and grant the attorneys the contingency-based fees they requested.
In each of the three cases presented for review, the Social Security Administration ("SSA") denied a claim for benefits. Each claimant retained an attorney to challenge the administrative action in federal court. Each of the three claimants was represented by a different attorney: Brian C. Shapiro represented Clara Crawford; Young Cho represented Ruby Washington; and Denise Bourgeois Haley represented Daphne M. Trejo. All three attorneys were affiliated with the Lawrence D. Rohlfing ("Rohlfing") law firm, which specializes in Social Security matters. In each case, the claimant signed a written contingent-fee agreement under which the attorney would be paid 25% of any past-due benefits awarded to the claimant. The district court remanded each case back to the SSA, which eventually awarded substantial past-due benefits to each claimant. The attorneys subsequently filed motions in the district court pursuant to 42 U.S.C. § 406(b) requesting fees of less than the 25% of past-due benefits for which their attorney-client fee agreements provided. In each case, the Commissioner of Social Security ("Commissioner") declined to assert a position on the reasonableness of the fees requested by the attorneys.*fn2 None of the claimants objected to the requested fees. Nevertheless, the district court in each case awarded significantly lower fees than the attorneys sought.*fn3
A. Crawford (Real-party-in-interest Shapiro)
On remand, the SSA awarded Crawford $123,891.20 in past-due benefits. Twenty-five percent of that amount is $30,972.80. Shapiro requested a fee of $21,000 (16.95% of the past-due benefits awarded). To support his motion, Shapiro presented evidence that he spent 19.5 hours of his own time and 4.5 hours of paralegal time on Crawford's case. Because the Rohlfing firm operates only on a contingent-fee basis, Shapiro presented evidence (1) that small firms charged average hourly rates, after accounting for inflation, of $272.72 for partners, $186.54 for associates, and $93.82 for paralegals; (2) that the upper-decile hourly rates charged for each position in small firms were $366.54, $272.72, and $130.91, respectively; and (3) that the average gross income of small plaintiffs' contingency firms was about 30-40% higher than the average gross income of all small law firms combined. He also presented evidence that a lawyer representing SSDI claimants in federal court could anticipate payment in only about 35% of cases because (1) district courts granted benefits in SSDI cases only about 6% of the time, and (2) in the 48% of cases in which the district court remanded an SSDI case to the agency, the SSA awarded benefits about 60% of the time. To aid the district court's evaluation of his request, Shapiro noted that the fee he requested was equivalent to 3.55 times the lodestar calculation and reasonably accounted for the risk he assumed in representing his client on a contingent-fee basis.
The court found that there was no "fraud or overreaching" in the negotiation of the 25% contingent-fee agreement, that the requested fee was within the 25% boundary set by § 406(b), and that Shapiro caused no unnecessary delay resulting in an undue accumulation of back benefits. The court also found that the hours, comparative hourly rates, and inflation rates that Shapiro presented were reasonable and would result in a lodestar fee of $5,907.14. The court concluded, however, that Shapiro had not met his burden of convincing the court that a fee of $21,000, which the court found represented a 256% "enhancement" over the lodestar, was reasonable. The court noted that Shapiro did not present "data regarding his firm's success rate that would enable the Court to assess the risk assumed by his firm in representing social security benefits claimants in the Central District of California" and determined that counsel's expertise had already been taken into account in the comparative hourly rate. The court therefore found that the fee constituted a "windfall" and that a "substantial reduction [was] warranted." The court concluded, without explaining its reasoning, that a 40% percent enhancement over the lodestar fee would be reasonable. The court awarded a fee of $8,270.00, or 6.68% of the past-due benefits.
B. Washington (Real-party-in-interest Cho)
On remand, the SSA awarded Washington $76,041.00 in past-due benefits. Twenty-five percent of that amount is $19,010.25. Cho sought a fee of $11,500.00 (15.12% of the benefits awarded). Cho presented evidence that he spent 17.45 hours of his time and 4.7 hours of paralegal time on the case. Cho introduced the same comparative hourly rate data that Shapiro presented, as well as evidence that the costs of legal services had risen faster than the cost of living, justifying hourly rates in the ninth decile of $429.95 for partners, $319.90 for associates, and $153.55 for paralegals. Finally, Cho presented the same success-rate data for SSDI cases as did Shapiro. Cho noted that courts determining fees in class-action securities cases had found that multipliers of 3 to 4.5 over the lodestar were reasonable.
The same magistrate judge who decided Crawford also decided Washington. As in Crawford, the court found that there was no "fraud or overreaching" in the making of the contingent-fee agreement, that the fee Cho sought fell within the 25% statutory boundary and was less than the fee Washington agreed to pay, and that there was no "excessive delay" attributable to counsel. The court also found that the economic data Cho presented were reasonable. Nevertheless, the court found that the requested fee, which it found represented an 82% "enhancement" over the $6,303.95 lodestar fee, was unreasonable. As in Crawford, the court noted that Cho had provided no data regarding his law firm's success rate and that Cho's skills were already accounted for in determining the reasonable hourly rate. The court also found that: (1) "counsel did not have to do much work to persuade the Commissioner to stipulate to a remand," and (2) a fee representing a 3 to 4.5 multiplier over the lodestar would be unreasonable because Social Security cases are not as complex or expensive as class-action securities litigation. Concluding that the requested fee would represent a "windfall," the court applied a 40% enhancement to the lodestar fee, without explaining why that percentage increase would result in a reasonable fee. The court awarded a fee of $8,825.53, or 11.61% of the past-due benefits.
C. Trejo (Real-Party-in-Interest Haley)
On remand, the SSA awarded Trejo $172,223.00 in past-due benefits. Twenty-five percent of that amount is $43,055.75. Haley sought a fee of $24,000 (13.94% of the past-due benefits awarded.) She presented evidence that she spent 26.9 hours of her time and 2.6 hours of paralegal time on the case. She also presented the same comparative hourly rate data and success rate data as did Shapiro and Cho.
The court acknowledged the contingent-fee agreement providing for 25% of the past-due benefits awarded and found that there was no evidence of fraud or overreaching by counsel in making the agreement. The court noted the "high quality of the representation provided . . . which ultimately resulted in a fully favorable decision awarding over twelve years of back benefits" and found that there was no excessive delay attributable to Haley. The court also found that Haley's economic data were reasonable. Nevertheless, the court found that the fee Haley sought was unreasonable. First, finding that 1.5 hours of claimed paralegal time and 1.4 hours of claimed attorney time were improperly attributed to the federal court action, the court reduced the hours worked to 25.5 hours of attorney time and 1.1 hours of paralegal time. Second, as in Crawford and Washington, the court noted that Haley had provided no data regarding her law firm's success rate and that Haley's skills were already accounted for in determining the reasonable hourly rate. Third, the court found that there was no evidence that the firm was precluded from other employment by accepting Trejo's case and that the case did not involve any unduly short time limits. The court concluded that "plaintiff's counsel has done a wholly inadequate job convincing the Court that the 279% enhancement sought . . . is reasonable under the circumstances presented," and that a reasonable enhancement over the $6,325.20 lodestar would be 100%. The court did not, however, explain why a 100% enhancement would be reasonable. The court determined that a reasonable fee would be $12,650.40, or about 7.35% of the past-due benefits.
The three attorneys timely appealed the district courts' fee orders. We consolidated the cases for argument. We review a district court's award of attorneys' fees pursuant to 42 U.S.C. § 406(b) for abuse of discretion. Clark v. Astrue, 529 F.3d 1211, 1213 (9th Cir. 2008) (citing Allen v. Shalala, 48 F.3d 456, 457 (9th Cir. 1995), abrogated on other grounds by Gisbrecht, 535 U.S. at 799). "The district court abuses its discretion if it does not apply the correct legal standard or rests its decision on a clearly erroneous finding of fact." Id. at 1214. We review de novo the district court's interpretation of a statute. Id.; see also Mudd v. Barnhart, 418 F.3d 424, 427 (4th Cir. 2005) (reviewing de novo the district court's interpretation of 42 U.S.C. § 406(b)).
 Under 42 U.S.C. § 406(b), a court entering judgment in favor of an SSDI claimant who was represented by an attorney "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."*fn4 In contrast to fees awarded under fee-shifting provisions such as 42 U.S.C. § 1988, the fee is paid by the claimant out of the past-due benefits awarded; the losing party is not responsible for payment.*fn5 Gisbrecht, 535 U.S. at 802. Also in contrast to fees awarded under fee-shifting statutes, under which "nothing prevents the attorney for the prevailing party from gaining additional fees, pursuant to contract, from his own client," id. at 806, the court-awarded fee is the only way a successful SSDI attorney may recover fees ...