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Law Firm Stumbles in 2nd Circuit Fees Dispute

MANHATTAN (CN) - A law firm seeking to recover $21,000 in legal fees cannot sue the government agency that paid the money directly to clients who have since filed for bankruptcy protection, the Second Circuit ruled on Monday.

Binder & Binder represented two individuals who successfully sued the Social Security Administration over past-due benefits. Later, the agency paid the legal fees awarded by the court not to the law firm, but directly to its clients, Scott Lerner and David Walton.

Binder & Binder said Lerner was paid $6,000 in legal fees; Walton, $15,000.

Both men subsequently declared bankruptcy, and had their debts, including those to Binder & Binder, discharged by the bankruptcy courts.

The law firm pursued the fees with two lawsuits filed in federal court, but in each case, the court rulings went against him.

On Monday, the Second Circuit upheld those rulings, barring Binder & Binder from suing the agency to recover the fees.

The Social Security Administration maintained throughout that its standard procedure is to pay the full amount it owes directly to claimants. It then expects the claimants will reimburse legal fees to their lawyers.

U.S. Circuit Judge Guido Calabresi, writing for the three-judge panel, found that such a procedure can, as it did in this case, create a situation where attorneys don't get paid. As a result, he said, Binder & Binder had a legitimate grievance.

However, he concluded, "The fact remains that the Social Security Act fees, whether for services before the SSA or the court, are the plaintiff's debt and not the government's."

Binder & Binder argued that the Social Security Administration waved its sovereign immunity through its adoption of a statutory instruction that said ""the Commissioner of Social Security shall ... certify for payment out of such past due benefits ... to such attorney an amount equal to so much of the maximum fee as does not exceed 25 percent of such past-due benefits."

But Calabresi found this argument unconvincing.

Just because the code says the Social Security administration "shall" determine and certify fees instead of "may" does not mean the agency waives its sovereign immunity, Calabresi wrote.

"Binder confuses rights and remedies," he held. "There may well be a wrong ... [but] Binder must demonstrate a waiver of sovereign immunity. And it has failed to cross this threshold."

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