Harrington v. Berryhill, No. 17-3179 (7th Cir. 2018)

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Justia Opinion Summary

After plaintiffs successfully prosecuted their cases, the Treasury Department determined that plaintiffs had outstanding debts to various government entities. However, plaintiffs had assigned to counsel any legal fees to which they might be entitled under the Equal Access to Justice Act (EAJA). The Treasury Department, rather than paying out the fees directly, reduced plaintiffs' debts by equal amounts under the Treasury Offset Program and thus the attorneys received nothing.

The Seventh Circuit held that it would be imprudent to entertain new administrative claims that were only minimally related to the judgments, and declined to exercise ancillary jurisdiction over plaintiffs' collateral challenges to the regulations. Accordingly, the court affirmed the district courts' judgments. In this case, the district courts properly granted attorney fees under the EAJA, and the government properly applied those fees to plaintiffs' outstanding debts.

This opinion or order relates to an opinion or order originally issued on December 4, 2017.

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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 17 3179 STACI HARRINGTON, Plaintiff Appellant, v. NANCY A. BERRYHILL, Acting Commissioner of Social Security, Defendant Appellee, ____________________ No. 17 3194 ANDREW BANKS, Plaintiff Appellant, v. NANCY A. BERRYHILL, Acting Commissioner of Social Security, Defendant Appellee. ____________________ Appeals from the United States District Courts for the Southern District of Indiana, Terre Haute Division, and the Northern District of Indiana, Ft. Wayne Division. No. 2:16 cv 129 — Jane Magnus Stinson, Chief Judge, and No. 1:15 cv 400, Susan L. Collins, Magistrate Judge. ____________________ 2 Nos. 17 3179 & 17 3194 ARGUED SEPTEMBER 5, 2018 — DECIDED OCTOBER 10, 2018 ____________________ Before KANNE, SYKES, and ST. EVE, Circuit Judges. KANNE, Circuit Judge. The Commissioner of Social Security separately denied benefits to Staci Harrington and Andrew Banks. Both individuals sought judicial review of those deci sions. To that end, each separately engaged the services of The de la Torre Law O ce LLC, which agreed to represent them in federal court. In exchange, the two plainti s assigned to counsel any legal fees to which they might be entitled under the Equal Access to Justice Act (“EAJA”), 28 U.S.C. § 2412(d). After successfully prosecuting their cases, the plainti s ob tained the statutory fee awards. But that was not the end of the story. The Treasury Depart ment, which had the responsibility of processing the pay ments, determined that both litigants had outstanding debts to various government entities. Rather than paying out the fees directly, it reduced the litigants’ debts by equal amounts under the Treasury O set Program, 31 C.F.R. § 285. The attor neys received nothing. In response, the parties brought these appeals, which we have consolidated because they pose the same legal questions. See Harrington v. Berryhill, 876 F.3d 889 (7th Cir. 2017). We believe it would be imprudent to entertain new administrative claims that are only minimally related to the judgments, so we decline to exercise ancillary jurisdiction over the plainti s’ collateral challenges to the regulations and instead a rm the district courts’ judgments. Nos. 17 3179 & 17 3194 3 I. BACKGROUND Both Harrington and Banks are indigent petitioners who filed claims for Social Security Disability Insurance Benefits and Supplemental Security Income in 2014. In each case, the Commissioner found that the petitioner was not disabled and was therefore not entitled to benefits. Both separately sought judicial review of those determinations in district court, and both engaged The de la Torre Law O ce LLC to assist with those suits. Because the plainti s had limited means, the at torneys conditioned their representation on their clients’ agreement to assign any potential award of attorney fees to the law firm under Indiana law. Both plainti s were victori ous, and the district courts remanded the cases to the Com missioner for reconsideration. As in many cases involving Social Security, the parties then successfully petitioned the district courts to award attor ney fees under EAJA; Harrington received $11,851.04, and Banks received $11,001. Although the plainti s requested that the government make its payments directly to the attorneys rather than to their clients, neither district court ordered the government to do so. Pursuant to the awards, the Social Security Administration (“SSA”) submitted payment vouchers to Treasury under 31 U.S.C. § 3325(a). Rather than issuing a direct payment to the “prevailing part[ies]” as envisioned by EAJA, however, § 3325(a) permits Treasury to execute “payment intercepts or o sets” under a provision of the Debt Collection Improve ment Act of 1996 (“DCIA”), 31 U.S.C. § 3716. As it processed the payment vouchers, Treasury determined that Harrington had an outstanding debt to the Department of Education that exceeded the sum of her attorney fees. Likewise, Banks was 4 Nos. 17 3179 & 17 3194 delinquent on child support obligations administrated by the prosecutor’s o ce in Allen County, Indiana, a debt monitored and administered at the federal level by the Department of Health and Human Services (“HHS”). Under its regulations issued pursuant to the DCIA, Treasury applied an adminis trative o set to both awards of attorney fees. See 31 C.F.R. §§ 285.1, 285.5. Treasury deducted amounts from SSA appro priations and transferred those sums to Education and HHS accounts. In turn, those departments reduced the plainti s’ outstanding debts by equal amounts, e ectively “paying” the litigants as required by the fee awards. Harrington subsequently filed a motion under Fed. R. Civ. P. 69. That motion pointed to the assignment of fees under Indiana law and requested that the district court order the government to rescind the administrative o set and pay the full amount of the fee award directly to counsel. The district court, citing both Astrue v. Ratli , 560 U.S. 586 (2010) and our decision in Matthews Sheets v. Astrue, 653 F.3d 560 (7th Cir. 2011), overruled on other grounds by Sprinkle v. Colvin, 777 F.3d 421 (7th Cir. 2015), denied that motion and upheld the gov ernment’s action. Banks made no such motion. Both plainti s appealed their cases. They now ask us to do what the district courts would not do: compel the government to reverse Treasury’s administrative o sets, reinstate their prior debts, and pay their lawyers. II. ANALYSIS We review an order to award attorney fees under EAJA for abuse of discretion. See Sprinkle, 777 F.3d at 424. We review all questions of law involved in the interpretation of EAJA de novo. Id. Nos. 17 3179 & 17 3194 5 The shadow of Ratli looms over this appeal. In that case, the Court held that the plain text of EAJA requires courts to award fees to the “prevailing litigant,” not to the litigant’s at torney. 560 U.S. at 596. The award is “thus subject to o set where the litigant has relevant federal debts.” Id. In essence, the statute “controls what the losing defendant must pay, not what the prevailing plainti must pay his lawyer.” Id. at 598 (quoting Venegas v. Mitchell, 495 U.S. 82, 90 (1990)). Instead, the Court observed that it is usually “nonstatutory (contrac tual and other assignment based) rights that typically confer upon the attorney the entitlement to payment,” and that those contractual arrangements would be unnecessary if EAJA re quired a direct payment to attorneys. 560 U.S. at 598. That language raises the question of whether an assign ment or other contractual claim to the fees might change the calculus. The plainti in Ratli had no such assignment in hand, so the Court did not give the possibility any further thought. In dicta, we observed the following year in Matthews Sheets that Ratli “suggests that if there is an assignment, the only ground for the district court’s insisting on making the award to the plainti is that the plainti has debts that may be prior to what she owes her lawyer.” 653 F.3d at 565. Again, however, we did not definitively answer the question. The plainti s pose it to us directly today. The attorneys in these cases have assignments in hand, which they contend give them priority over any government claim under Indiana law. In addition, they challenge the o sets on the basis of sev eral other theories. First, they contend that even if their as signments do not enable them to take the awards free and clear of the government’s claims, their state law attorney’s 6 Nos. 17 3179 & 17 3194 liens do. Second, they attempt to distinguish Ratli by attack ing the o sets on grounds other than EAJA: they argue that Treasury lacked the statutory authority to promulgate the o set regulations; that the o sets violate the equitable Rule of Mutuality; that they violate the Takings Clause of the Fifth Amendment; that they violate the Judgment Seto Act of 1875; and finally that the o sets violate Article III of the Con stitution as an improper executive intrusion into the judicial power to issue judgments.1 Because Ratli did not consider any of these questions, they contend, it does not control here, and we must give the plainti s a fresh opportunity to challenge the administrative o sets of attorney fees. A. The district courts properly awarded attorney fees Before we reach any of those issues, we must first assess the threshold question of whether the district courts properly awarded fees under EAJA. The statute directs that courts “shall award to a prevailing party other than the United States fees and other expenses … incurred by that party in any civil action … , including proceedings for judicial review of agency action … unless the court finds that the position of the United States was substantially justified.” § 2412(d)(1)(A). Both dis trict courts granted the plainti s’ motions for fees upon re quest. See Harrington v. Berryhill, No. 2:16 cv 00129 JMS MJD, 2017 WL 2502456 (S.D. Ind. Jun. 9, 2017); see also Banks v. 1 We note that Banks did not raise the constitutional arguments in the district court, and that Harrington raised them only briefly in her reply to the motion for summary judgment. These arguments are likely waived, but we need not address that issue because we decline to exercise ancillary jurisdiction to consider them. Nos. 17 3179 & 17 3194 7 Comm’r of Soc. Sec., No. 1:15 cv 00400 SLC, 2017 WL 3634300 (N.D. Ind. Aug. 23, 2017). No party has brought a challenge to the calculation of those fees on appeal, and we see no reason to disturb the findings of the district courts. Instead, the plainti s contend that the district courts erred by failing to direct the government to render payment directly to the attorneys, as both parties requested in their EAJA peti tions and Harrington reiterated in a subsequent Rule 69 mo tion requesting that the district court order “the Commis sioner to pay any EAJA award directly to Plainti ’s counsel” and “[d]eclare that the Government may not execute Plain ti ’s EAJA fee judgment through an administrative o set … against Plainti ’s alleged federal debts.” (S.D. Ind. R. 28 at 10; 37 at 2). There is no question that the district courts and SSA com plied with the requirements set forth in the statute. The courts awarded fees to the “prevailing party” as the statute directs, and Ratli requires that such payment go directly to the liti gant rather than to her attorney. See 560 U.S. at 591 (“We have long held that the term ‘prevailing party’ in fee statutes is a ‘term of art’ that refers to the prevailing litigant.”). SSA paid money out of its appropriations according to the court orders, and the prevailing litigants received value through the reduc tion of their outstanding debts. Although the plainti s contend that a withholding of pay ment (and subsequent reduction of debts) is not a “payment” under EAJA, we disagree. The plainti s cite to Pam to Pee v. United States, 187 U.S. 371, 382 (1902), to establish the propo sition that the district courts, “which render[ed] a judgment in favor of A against B,” also have the jurisdiction “to inquire 8 Nos. 17 3179 & 17 3194 whether that judgment has been rightly executed by a pay ment from B to C.” We agree that the district courts had such jurisdiction, and therefore we have jurisdiction to review the inquiry that they made. However, Ratli approved the execu tion of an EAJA award against the United States even though that award was subject to o set, e ectively paying C (another federal agency) in order to satisfy an obligation to B (Ratli ’s client). The economic realities of this transaction confirm that in quiry, as Harrington and Banks have each received more than $11,000 in economic value through a reduction of their out standing debts. The plainti s contend that dicta in United States v. Isthmian Steamship Co., 359 U.S. 314, 318–19 (1959), firmly distinguishes between the concepts of payment and withholding payment to o set a prior debt. But Isthmian was primarily about admiralty law and whether a seto in a non admiralty context could serve as a defense to suit in admiralty jurisdiction. See 359 U.S. at 320 (“[W]e must ascertain whether admiralty practice permits private parties to defend by setting up claims arising out of separate and unrelated transactions between the parties.”). This case has nothing to do with admi ralty law, and the Court made no distinction between pay ment and o set in Ratli . See also Pan Atlantic S.S. Corp. v. United States, 245 F. Supp. 731, 733 (D. Del. 1965) (“The treat ment of the defense of seto in Isthmian is demonstrative of a provision peculiar to admiralty.”); 31 C.F.R. § 285.5(e)(9) (“When an o set occurs, the debtor has received payment in full for the underlying obligation represented by the pay ment.”). Following Ratli , we hold that a reduction of a liti gant’s prior debts to the government by administrative o set constitutes payment to the prevailing party under EAJA. Nos. 17 3179 & 17 3194 9 The collateral attacks that plainti s’ counsel raise on non EAJA grounds do not a ect the fact that the judgments have been executed pursuant to the terms of the statute as inter preted by Ratli . To the extent that EAJA controls the award and processing of attorney fees, all parties to the present liti gation have been satisfied. B. We decline to exercise ancillary jurisdiction over the remain ing claims But the plainti s’ attorneys received no such satisfaction. They accurately point out that Ratli did not address ques tions of the interaction between EAJA and state law or con sider collateral constitutional or statutory attacks to the Treas ury O set Program, and they now ask us to consider those challenges in the first instance. However, several factors cau tion us against answering those questions today, and we de cline to do so. “Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and stat ute, which is not to be expanded by judicial decree.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (cita tions omitted). These cases arose in the district courts under the jurisdictional provision contained in 42 U.S.C. § 405(g). That section contains a clear congressional grant of authority to courts to review actions and determinations of the Com missioner and to remand a case for further administrative ac tion. Likewise, 28 U.S.C. § 2412(d) authorizes courts to award fees to parties challenging agency actions. Our jurisdiction to review the district courts’ orders stems from 28 U.S.C. § 636(c) (permitting us to review the actions of magistrate judges to whose supervision the parties have consented, as in the case of Banks) and 28 U.S.C. § 1291 (permitting us to review the 10 Nos. 17 3179 & 17 3194 final decisions of district courts). In both cases, the extent of our appellate jurisdiction is limited by the extent of the subject matter jurisdiction exercised by the courts of first instance. None of these jurisdictional grants expressly cover the collat eral challenges presented in this appeal. The plainti s suggest that, even if we believe their claims do not fall squarely within the scope of our subject matter ju risdiction, we might exercise ancillary jurisdiction to enforce the judgments as they desire. That doctrine “recognizes fed eral courts’ jurisdiction over some matters (otherwise beyond their competence) that are incidental to other matters properly before them.” Kokkonen, 511 U.S. at 378. The Su preme Court has noted that one of the proper uses of ancillary jurisdiction is “to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and ef fectuate it decrees.” Id. at 380. The plainti s here urge us to “vindicate [our] authority” and “e ectuate [our] decrees” by invalidating Treasury’s o sets and directing the payments to their lawyers, whom they believe are the appropriate recipi ents. In Kokkonen, the Supreme Court found that the district court had no ancillary jurisdiction to resolve a dispute over compliance with a settlement agreement. After approving the agreement, the district court dismissed the case with preju dice. Later on, a dispute arose between the parties as to their obligations under the settlement agreement. The parties re turned to the same district court seeking to resolve that new dispute. The Supreme Court, however, determined that the new issue was essentially an entirely new state law breach of contract claim and that federal courts lacked the power to re solve it. Id. Nos. 17 3179 & 17 3194 11 We have considered the use of ancillary jurisdiction to resolve a dispute over attorney fees in the past. In Baer v. First Options of Chicago, Inc., 72 F.3d 1294 (7th Cir. 1995), the parties to the original litigation had already settled and removed themselves by the time the case reached us on appeal. The only remaining dispute was between two of the plainti ’s attorneys, who both laid claim to the fee awarded. In that case, decided one year after Kokkonen, we considered the approaches of both the Second and Fourth Circuits to similar problems. The Second Circuit approved the district court’s exercise of ancillary jurisdiction to resolve a dispute over fees in Grimes v. Chrysler Motors Corp., 565 F.2d 841 (2d Cir. 1977), while the Fourth Circuit declined to exercise jurisdiction over a nearly identical case in Taylor v. Kelsey, 666 F.2d 53 (4th Cir. 1981). Our reading, however, found that there was no conflict in the reasoning of the two cases: both were highly fact specific analyses that led to opposite conclusions because of slight di erences in circumstances. See Baer, 72 F.3d at 1300– 01. In Grimes, the district court had ordered the fees to be deposited in an escrow account pending resolution of the dispute and therefore had a rmative control over the funds. The settlement agreement on which the dispute was premised also included an explicit provision authorizing the same district court to resolve any resulting arguments over its execution. On the contrary, neither of those factors were present in Taylor, and the dispute resembled a run of the mill breach of contract claim between citizens of the same state. For those reasons, the exercise of ancillary jurisdiction was improper. We determined that the dispute in Baer more 12 Nos. 17 3179 & 17 3194 closely resembled that in Grimes and therefore opted to exercise ancillary jurisdiction to resolve it.2 Id. In sum, the cases seem to make the exercise of ancillary jurisdiction discretionary based on the extent to which the new issues are closely connected to the original dispute, whether there exists some independent basis for jurisdiction over the new claims, and whether the facts suggest it would be prudent to do so. See Baer, 72 F.3d at 1301 n.8 (“Because neither party has challenged the district court’s exercise of its [ancillary] jurisdiction, it is su cient to decide that [ancillary] jurisdiction existed. We need not determine whether the court’s decision to exercise that discretion was appropriate.”); see also Goyal v. Gas Tech. Inst., 718 F.3d 713, 717 (7th Cir. 2013) 2 We note that there is some confusion between the terms “ancillary jurisdiction” and “supplemental jurisdiction” running through the case law. They seem to be used interchangeably in some circumstances. Sup plemental jurisdiction is codified at 28 U.S.C. § 1367 and applies most of ten to entirely separate, free standing claims that a court would not have jurisdiction to hear, but which are appended at the outset of litigation to a primary claim over which the court has original jurisdiction granted by statute. Compare Baer, 72 F.3d at 1299–1301 (comparing both terms and ap plying ancillary jurisdiction to reach its result) with Humphrey v. United States, 787 F.3d 824, 826 (7th Cir. 2015) (distinguishing Baer while analyz ing § 1367 as applied in a case arising under diversity jurisdiction). On the other hand, ancillary jurisdiction is not codified by statute. The Supreme Court clarified the doctrine considerably in Kokkonen. See 511 U.S. at 378– 80 (“The doctrine … can hardly be criticized for being overly rigid or pre cise.”). Ancillary jurisdiction exists “(1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interde pendent; and (2) to enable a court to function successfully, that is, to man age its proceedings, vindicate its authority, and effectuate its decrees.” Id. at 579–80 (citations omitted). At the request of the parties, our analysis is limited to ancillary jurisdiction, despite the fact that some of the case law we have quoted refers to supplemental jurisdiction. Nos. 17 3179 & 17 3194 13 (“District courts may exercise [ancillary] jurisdiction over dis putes between attorneys and clients concerning costs and fees for representation in matters pending before the district court.” (emphasis added)). The claims at issue today are essentially free standing challenges to the actions of an agency that is not a party to this lawsuit by attorneys who themselves are not the original par ties. As the plainti s themselves said, “[c]hallenges to EAJA o set … are challenges to Treasury decision making.” (Ap pellants’ Br. at 22.) The plainti s, or rather their attorneys, frame this appeal as a challenge to Treasury’s authority to promulgate 31 C.F.R. § 285.5. While the claim generally arises out of the litigation, the legal claims that the plainti s’ attor neys put forward “inject so many new issues that [they create] functionally a separate case.” Wilson v. City of Chicago, 120 F.3d 681, 684 (7th Cir. 1997). A new suit under the Administrative Procedure Act (“APA”), 5 U.S.C. § 701 et seq., is the proper vehicle for this litigation. That statute provides the legal framework for chal lenging agency actions the plainti believes to be unlawful because they were “contrary to constitutional right, power, privilege, or immunity” or “in excess of statutory jurisdiction, authority, or limitations.” § 706(2)(B)–(C). Such a suit would also give Treasury the opportunity to defend its rule as a party to the case and would operate under the clearer stand ards of review and deference suitable to a challenge to agency action. Indeed, the plainti in Ratli , the attorney challenging the o set, brought her own suit under the APA rather than continue her client’s litigation in order to avoid the same pit falls. See Petition for a Writ of Certiorari at ¶ 3.a, Ratli , 560 U.S. 586 (No. 08 1322), 2009 WL 1155415 at *5. 14 Nos. 17 3179 & 17 3194 A separate suit would also alleviate the potential for a con flict of interest between the attorneys, who are the real party in interest in this case (as counsel conceded at oral argument), and the clients whom they claim to represent on appeal. Be cause victory for the attorneys would necessarily result in the reinstatement of their clients’ government debts (and in the case of Banks, recoupment of money already paid to the mother of his child), we hesitate to permit the attorneys to go forward in their clients’ names. We stress that our decision today indicates no opinion on the merits of the various legal theories the plainti s have pro posed to us. These are important questions that deserve their day in court. In particular, we sympathize with the practical e ects that administrative o sets have on the ability of indi gent petitioners to bring meritorious lawsuits before federal courts. “[T]he specific purpose of the EAJA is to eliminate for the average person the financial disincentive to challenge un reasonable governmental actions.” Comm’r v. Jean, 496 U.S. 154, 163 (1990). As three members of the Supreme Court noted in a concurrence to Ratli , “[s]ubjecting EAJA fee awards to administrative o set for a litigant’s debts will unquestionably make it more di cult for persons of limited means to find at torneys to represent them.” 560 U.S. at 600–01 (Sotomayor, J., concurring). The fact that EAJA awards are often relatively small sums also removes the incentive for attorneys to chal lenge the o sets, further undercutting the e ectiveness of the law. Id. at 600. Nevertheless, Justice Sotomayor and her col leagues determined that regardless of the policy outcomes, the text of the law clearly required upholding the o sets. They left questions of policy to Congress. Nos. 17 3179 & 17 3194 15 III. CONCLUSION Another court sitting under another statutory grant of ju risdiction may determine that some provision of the Consti tution or a statute forbids administrative o sets of EAJA awards. But this case is not a suitable vehicle in which to as sess those questions, and we will not do so. The district courts properly granted attorney fees under EAJA, and the govern ment properly applied those fees to the plainti s’ outstanding debts in accord with Ratli and the Treasury O set Program as it currently stands. Those questions form the extent of our jurisdiction on appeal, and we need not exercise ancillary ju risdiction to reach collateral attacks that are better suited for a separate action under the APA. For those reasons, the judg ments are AFFIRMED.

Primary Holding

District courts properly granted attorney fees under the Equal Access to Justice Act, and the government properly applied those fees to plaintiffs' outstanding debts.

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