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Marasco & Nesselbush, LLP v. Collins

United States District Court, D. Rhode Island

July 9, 2018

MARASCO & NESSELBUSH, LLP, Plaintiff,
v.
TARA COLLINS, in her official capacity as Supervisory Attorney of ODAR; CAROLYN TEDINO, in her official capacity as Regional Management Officer for Boston Social Security Administration; SOCIAL SECURITY ADMINISTRATION, by and through NANCY BERRYHILL, in her official capacity as Acting Commissioner of the Social Security Administration; and JANE DOE, in her official capacity as an employee of the Social Security Administration, Defendants.

          MEMORANDUM AND ORDER

          JOHN J. MCCONNELL, JR., United States District Judge.

         Marasco & Nesselbush, LLP ("M&N") has sued the Social Security Administration ("SSA") and employees Tara Collins, Carolyn Tedino, and Jane Doe, alleging that the Defendants have unlawfully discriminated and retaliated against M&N through their arbitrary and irrational conduct regarding the payment of attorney's fees in Social Security disability cases. Defendants now move to dismiss. ECF No. 21. For the following reasons, the motion is GRANTED IN PART and DENIED IN PART.

         I. BACKGROUND

         The facts in this case are largely undisputed; nevertheless, the Court briefly summarizes the relevant facts in the light most favorable to M&N.

         SSA has total regulatory control over attorney's fees in Social Security disability cases. With this power, SSA has refused to recognize law firms when paying attorney's fees: SSA makes those payments only to individual attorneys, not firms. In any event, attorneys can only collect fees if SSA approves of the fee, and unauthorized fee collection can lead to criminal prosecution and the revocation of the right to practice before SSA.

         M&N is a Rhode Island law firm[1] practicing Social Security disability law. M&N employs salaried associate attorneys. Those associates have no right to the attorney's fees that SSA pays them, and their salaries do not depend on the amount of fees generated by the disability cases they handle. To effectuate this, M&N associates sign Limited Powers of Attorney that acknowledge the attorney's fees are M&N's property.

         M&N alleges that many of SSA's practices are arbitrary, capricious, and unconstitutional. For example, while SSA does not recognize law firms for paying attorney's fees, it does recognize law firms for tax purposes. That is, while SSA makes the actual payments to the individual attorneys, it credits the fees to M&N for tax reporting. At the same time SSA insists the attorney's fees are the associate's property, then, it acknowledges M&N owns the fees for tax purposes.

         To further complicate matters, while SSA will not pay firms for work performed at the agency level, it does authorize payment to firms for work performed on Social Security disability cases if they reach federal courts. Indeed, M&N alleges that it has received such payments in its own name.

         The effect of these rules causes M&N to maintain separate bank accounts in the individual name of every associate who works on disability cases for the firm. SSA will only deposit attorney's fees into these accounts, and M&N then must transfer the money into its own operating or escrow accounts. This is an imperfect solution, however; if an associate leaves M&N and withdraws the Limited Power of Attorney, M&N cannot transfer the fees from that associate's account under the threat of criminal prosecution. The result is that the fees are left in limbo, stuck in the joint account.

         Another arbitrary rule M&N challenges is SSA's division of fees under the expedited fee agreement process. In that process, SSA divides the attorney's fee by the number of attorneys who have worked on a case and submitted forms to SSA. SSA divides the fee evenly, no matter how much or how little work the attorneys performed on the case. This process also requires M&N to maintain updated fee agreements with its clients every time an attorney leaves or joins the firm, so that the fee agreements reflect all attorneys who may work on a case.

         Additionally, when attorneys move between law firms, SSA will only withhold attorney's fees for the newer attorney; it does not withhold any fees for the attorney in the prior firm even if SSA authorizes a fee award to that attorney. Due to the lengthy time to disposition common in Social Security cases, firms must keep track of their associates long after they have departed so that they can arrange for M&N to collect the fee.

         When associates depart private practice with a law firm to work for SSA, however, SSA will not authorize any fees for the associate's prior work, even if the associate completed most or all of the work while she was still at the firm. SSA's position is that fee collection is "work," notwithstanding that it will not permit an attorney to even submit a fee petition until all work is completed on a case, and notwithstanding that SSA prohibits attorneys from applying for attorney's fees for the time claimed for preparing a fee petition or for any other activities related to charging or collecting a fee.

         M&N alleges that it faced this last circumstance when three of its associate attorneys-former Defendants Joseph Wilson, Paul Dorsey, and Kyle Posey-left to work for SSA. The agency refused to pay M&N for work performed by these individuals. Yet, M&N alleges, SSA has paid attorneys fees to other Rhode Island law firms under the same circumstances. M&N alleges that these other firms never experienced difficulty getting paid for the cases handled by their associate attorneys who left for government service and that these firms continued to receive authorization and payments for Social Security disability cases that were in the individual names of the associates after beginning their government work.

         The Defendants now move to dismiss the Amended Complaint (ECF No. 21), which M&N opposes (ECF No. 24).[2] Following briefing on the motion to dismiss, the parties stipulated to the dismissal of Defendants Dorsey, Wilson, and Posey, as well as to Defendants Collins and Tedino in their individual capacities. ECF Nos. 27-31! Text Order, Apr. 26, 2018.

         II. STANDARD OF REVIEW

         Federal Rule of Procedure 12(b)(1) tests the Court's subject matter jurisdiction. As a court of limited jurisdiction, this Court may not-absent subject matter jurisdiction-proceed with an action. Belsito Commc'ns, Inc. v. Decker, 845 F.3d 13, 21 (1st Cir. 2016). The party invoking jurisdiction bears the burden of establishing the jurisdictional requirements. Wal-Mart P.R., Inc. v. Zaragoza-Gomez, 834 F.3d 110, 116 (1st Cir. 2016).

         Federal Rule of Civil Procedure 12(b)(6) tests the plausibility of the claims presented in a plaintiffs complaint. "To avoid dismissal, a complaint must provide 'a short and plain statement of the claim showing that the pleader is entitled to relief" Garcia-Catalan v. United States, 734 F.3d 100, 102 (1st Cir, 2013) (quoting Fed.R.Civ.P. 8(a)(2)). At this stage, "the plaintiff need not demonstrate that she is likely to prevail, but her claim must suggest 'more than a sheer possibility that a defendant has acted unlawfully."' Id. at 102-03 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). The "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face."' Iqbal, 556 U.S. at 678 (quoting BellAtl Corp- v. Twombly 550 U.S. 544, 570 (2007)).

         "The plausibility inquiry necessitates a two-step pavane." Garcia-Catalan, 734 F.3d at 103. "First, the court must distinguish 'the complaint's factual allegations (which must be accepted as true) from its conclusory legal allegations (which need not be credited).'" Id. (quoting Morales-Cruz v. Univ. of P.R, 676 F.3d 220, 224 (1st Cir. 2012)). "Second, the court must determine whether the factual allegations are sufficient to support 'the reasonable inference that the defendant is liable for the misconduct alleged.'" Id. (quoting Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011)). "In determining whether a complaint crosses the plausibility threshold, 'the reviewing court [must] draw on its judicial experience and common sense."' Id. (alteration in original) (quoting Iqbal, 556 U.S. at 679).

         III. ...


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