
    Betty J. DeFOUR, Plaintiff, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant.
    Civ. A. 91-74985.
    United States District Court, E.D. Michigan, S.D.
    March 17, 1993.
    Kenneth F. LaRitz, Warren, MI, for plaintiff.
    Peter A. Caplan, Asst. U.S. Atty., E.D. Mich., S.D., Detroit, MI, for defendant.
   MEMORANDUM AND ORDER

COHN, District Judge.

I.

A.

This is a declaratory judgment action relating to the necessity of filing a petition for approval of attorney fees for work at the administrative level in a social security disability case when the fees are paid by a third party. 42 U.S.C. § 406(a). Plaintiff, Betty J. DeFour (DeFour) filed an application for social security disability benefits stating that she became disabled due to chronic asthma and breathing problems. Her application was denied initially and upon reconsideration. She requested an administrative hearing and the ALJ decided she was not disabled under the Social Security Act (the Act). The Appeals Council denied her request for review. DeFour filed an action for judicial review. Both DeFour and the Secretary of Health and Human Services (Secretary) filed motions for summary judgment. Upon referral, a magistrate judge reviewed the case and issued a Report and Recommendation recommending that the Secretary’s motion be granted and DeFour’s be denied. The Court adopted the magistrate judge’s report and recommendation and, on May 13, 1992, issued a memorandum and order affirming the administrative law judge’s finding of no disability.

B.

Clifford Weisberg (Weisberg), an attorney, represented DeFour at the administrative level. His representation included preparation and the filing of a request for reconsideration and a request for hearing, attendance at the administrative hearing and appeal to the Appeals Council. Weisberg’s representation of DeFour was pursuant to a contract between Weisberg and John Hancock Mutual Insurance Company (Hancock Insurance). That contract provided that Weisberg would be paid for his services at the administrative level regardless of the outcome. If Weisberg represented the claimant at the district court level he would only be compensated if he achieved a favorable outcome. Ford Motor Company Group Insurance Plan under an agreement between Ford Motor Company, Hancock Insurance, and the United Auto Workers was obligated to pay the fees and costs of the representation. Pursuant to his contract Weisberg was to receive a $1,000.00 fee for his work at the administrative level.

Weisberg signed the Department of Health and Human Services’ (HHS) Appointment of Representative Form on December 6, 1988 and agreed to waive his right to charge and collect a fee under 42 U.S.C. § 406. The waiver also released DeFour from any obligation that she might owe to him by virtue of his representation. On December 12, 1988, Weisberg signed another HHS Form in which he again agreed to waive his right to charge and collect a fee from DeFour under 42 U.S.C. § 406.

DeFour asks the Court: (1) whether Weisberg must obtain approval of his fee for services rendered at the administrative level given that DeFour was denied disability benefits; (2) whether Weisberg must obtain approval of his fee when his fee was not contingent upon a successful outcome and when his fee will be paid by a third party, Hancock Insurance, and not by DeFour; and (3) if approval is required, to whom should Weisberg submit his petition, to the Court or to the Secretary? No objection is made by the Secretary as to the Court’s jurisdiction.

At oral argument, the Court ordered the Secretary to provide a complete exposition of all forms, communications, and a historical explanation of the waiver of fee provision contained in HHS forms SSA-1696-U4 and SSA-1697-U3. The Court also ordered the Secretary to provide all directives and communications relative to the Secretary’s policy of reviewing attorneys fees in a social security disability case. The Secretary has done so. Much of the materials were submitted for an in camera examination. DeFour did not object to such form of examination.

II.

A.

Section 206(a) of the Social Security Act, 42 U.S.C. § 406(a), requires an attorney to petition the Social Security Administration in order to receive fees for services at the administrative level. That section also allows the Secretary to make rules and regulations “prescribing] the maximum fees which may be charged for services performed in connection with any claim before the Secretary under this subchapter and any agreement in violation of such rules and regulations shall be void.” Pursuant to the rulemaking authority granted under 42 U.S.C. § 406(a), the Secretary enacted a regulation with respect to a representative’s fee, 20 C.F.R. § 404.-1720(b), that provides in relevant part:

(1) The representative must file a written request with us [the Social Security Administration] before he or she may charge or receive a fee for his or her services.
(2) We [the Social Security Administration] decide the amount of the fee, if any, a representative may charge or receive.
(3) A representative shall not charge or receive any fee unless we have approved it, and he or she shall not charge or receive any fee that is more than the amount we approve. This rule applies whether the fee is charged to or received from you or from someone else.

In 1985, the Social Security Administration issued Social Security Ruling 85-3 (SSR 85-3) which allows payment of a representative’s fees by a nonprofit or governmental agency without approval by the Secretary.

B.

Weisberg contends that it is not necessary for him to petition the Secretary for approval to charge and receive payment from Hancock Insurance for his services in representing DeFour and he asks the Court for an order allowing him to charge and receive his fee from Hancock Insurance without filing a petition for approval. In support, Weisberg relies on Lee v. Secretary of Health and Human Services, 768 F.Supp. 604 (E.D.Mich.1991). In that case, Lee filed a motion for declaratory relief asking the Court to “clarify whether it is necessary to file a petition for approval of a fee under 42 U.S.C. § 406 when the fee will be paid by an insurance company or employer and not by the claimant.” Id. at 605. The Court held that a petition for approval of fees was not required as 42 U.S.C. § 406 did not apply to the case because “(1) the source of attorney’s fees was a private insurance policy, the premiums of which were paid by Lee’s employer, and (2) the attorney fees at issue would not be deducted from the benefits that Lee would receive from the Social Security Administration.” Id. Further, the Court held that “the attorney fees provision within the Social Security Act applies only to those case in which the attorney fees are subtracted from the total amount due to the claimant.” Id.

C.

The Secretary contends that Weisberg is required to file a petition for approval of his fees for services rendered at the administrative level even though DeFour was denied disability benefits and Weisberg’s fee was not contingent and will be paid by Hancock Insurance. In support, the Secretary cites the specific language of 20 C.F.R. § 404.1720(b) which requires Secretary approval of all representative’s fees regardless of who actually pays the fee. The Secretary notes that the rationale behind the regulation is to protect claimants and beneficiaries from paying unreasonable attorney fees. When insurance companies and private employers become involved in the payment of fees, the Secretary says, a claimant may indirectly be liable for payment of some or all of the fees awarded. Such indirect costs may include, among other things, higher insurance premiums to maintain coverage. The institutions may also have a financial interest when an individual receives disability benefits. Further, the Secretary says that although an exception was created by SSR 85-3 for nonprofit agencies and governmental entities, other third party payors must receive fee approval from the Secretary because they cannot be assumed to be as beneficent as a nonprofit or governmental agency.

With respect to the decision in Lee, the Secretary points out that although the facts in Lee are quite similar to the facts here, the Lee court granted benefits to the claimant. More importantly, the Lee court failed to consider the applicability of 20 C.F.R. § 404.-1720(b) and therefore, Lee is distinguishable.

D.

Weisberg replies that the Secretary’s argument that government agencies have no financial interest in a claimant’s receipt of benefits while an insurance company or employer does is false. Weisberg says that, by way of example, in a case involving the supplemental security income program for the aged, blind and disabled (SSI), the State of Michigan is authorized to make payment of a reasonable fee to a representative who successfully represents a. person in obtaining benefits from SSA in a proceeding establishing retroactive benefits for that person. The amount of payment is to be based upon the State’s receipt of reimbursed interim assistance. If the amount of reimbursed interim assistance is over $500.00 the reasonable fee will be $500.00 or 25% of the reimbursed interim assistance, whichever is greater. If the amount of reimbursed interim assistance is less than $500.00 then the fee will be the entire amount of the reimbursed interim assistance. Thus, Weisberg says, the State of Michigan has a financial interest when a person receives SSI benefits just as an insurance company does when a person receives disability benefits.

Weisberg also submits that DeFour will incur no liability in the payment of his fee as Hancock Insurance is under contract with him to pay a flat rate for the representation regardless of the outcome of the claim. In addition, Weisberg says that although there is a possibility that a claimant’s insurance benefits would be reduced by the portion of social security disability benefits awarded by the SSA, it is likely that a claimant’s insurance premiums would decrease since the insurance company is reducing the outflow of benefits pursuant to a contract with the insured. Weisberg says that since there is no real distinction between non-profits, governmental agencies, and for-profit insurance companies, he should not have to receive approval from the Secretary for his attorney fees.

III.

Upon review of the parties’ papers and the supplemental material provided by the Secretary, it is clear to the Court that the law requires the approval of a fee by the Secretary when the fee will be paid by a third party other than a nonprofit or governmental agency. Since Weisberg is to be paid by a for-profit third party, Hancock Insurance, pursuant to 20 C.F.R. § 404.1720(b), Weisberg must obtain the Secretary’s approval prior to charging and receiving any fee from Hancock Insurance. The Court is satisfied that the distinction the Secretary draws between nonprofit and governmental agencies and for-profit entities in justifying its requirement of fee approval in the case of for-profit entities is not offensive and was reached as a result of careful consideration by the Secretary. At this time, the Court sees no reason to set aside the regulations.

IV.

For the reasons stated above, Weisberg must submit a petition for attorney fees to the Secretary for approval. The time for filing that petition will be extended for thirty days following the date of this decision.

SO ORDERED.

APPENDIX A

APPENDIX B

APPENDIX C 
      
      . Form SSA-1696-U4. (Appendix A).
     
      
      . Form SSA-L1697-U3. (Appendix B).
     
      
      . Nothing in the papers the Secretary provided for in camera examination affects the parties’ rights. The papers only show careful consideration by the Secretary of its policy requiring fee approval by the Secretaiy.
     
      
      . Appendix C.
     
      
      . The Court finds Lea inapposite since the Lee court failed to take into account 20 C.F.R. § 404.1720(b).
     