Gumpenberger: Attorney Fees when a Debt is Invalidated

Gumpenberger v. Wilkie, Case Number 17-0092, decided February7, 2019 considers the award and amount of attorney fees when an attorney assists a veteran by getting a debt caused by overpayment invalidated. 

This is a case that on the surface might only be interesting to a small group, but has larger ramifications in that it impacts whether veterans will be able to retain assistance in disputing debts.

Mr. Gumpenberger assisted a veteran and was successful in invalidating an overpayment debt.  The question was whether Mr. Gumpenberger should be paid an attorney fee equal to 20% of the full amount of the invalidated debt or 20% of the amount recouped by the VA while the debt was still valid but then refunded upon debt invalidation.  The Court determined: “the total amount of the invalidated debt does not constitute a ‘past-due benefit awarded’ for purposes of section 5904(d)(1).”

In January 2009, the RO determined the veteran was a fugitive felon due to an outstanding warrant from 1992.  The RO proposed to discontinue the veteran’s disability compensation benefits retroactive to December 2001 (the date the benefits were awarded).  Within a month, the trial court that issued the warrant cancelled and the VA was notified of the cancellation.  Several months later, the RO issued a decision implementing the proposed discontinuation of benefits during the period while the warrant was outstanding, resulting in a debt of $199,158.   That debt was to be recouped by withholding a portion of the veteran’s monthly benefit.

In 2013, while Mr. Gumpenberger represented the veteran, the Board found the overpayment debt invalid because the veteran was not aware of the outstanding warrant until the VA notified him of it and therefore was not a fugitive felon for VA purposes.  Therefore, the Board waived the entire debt.  However, the VA had already recouped $65,464 from the veteran which would be returned to the veteran.  An internal worksheet showed the “net effects of award as of generation” as $199,158 but the VA found the attorney was only entitled to receive 20% of the erroneously collected amount ($65,464) rather than the entire invalidated debt amount of $199,158. 

The Court began by stating “The dispute in this case arises from the parties' disagreement over the meaning of the phrase "total amount of any past-due benefits awarded on the basis of the claim" as regards a direct-pay fee agreement under section 5904(d).”  Id. at *4.  It then explains “Mr. Gumpenberger principally argues that the phrase encompasses non-cash benefits such as the change in fugitive felon status that resulted in the

invalidation of the overpayment debt in this case, thereby entitling him to 20% of the $199,158.70 debt invalidated by the Board.  As support for his interpretation, Mr. Gumpenberger relies on the U.S. Court of Appeals for the Federal Circuit's decisions in Snyder v. Nicholson, 489 F.3d 1213 (Fed. Cir. 2007), and Jackson v. McDonald, 635 Fed.App'x. 858 (Fed. Cir. 2015) (nonprecedential); VA's definitions of "benefit" and "claim" in 38 C.F.R. § 20.3(e) and (f); and the RO's initial characterization, in decisional documents, of the benefit awarded in this case.”  Id. at *4.

It also noted: “The Secretary asserts that the total amount of the invalidated overpayment debt does not constitute a "past-due" benefit awarded to Mr. Graham because the $199,158.70 debt was not unpaid and owed to the veteran when the debt was invalidated. Instead, the Secretary contends that the "past-due" benefit awarded to Mr. Graham was the $65,464 that was erroneously recouped during the course of the appeal and then paid to Mr. Graham upon invalidation of the debt.”  Id. at *4.  The Court then adopted the Secretary’s argument.

Specifically, the Court distinguished this case from the Snyder decision.  It stated:

the Federal Circuit also made an additional important conclusion about what constitutes a past-due benefit in the first place—namely, it held that the "'total amount of any past-due benefits awarded on the basis of the claim' is the sum of each month's unpaid compensation—as determined by the claimant's disability rating—beginning on the effective date and continuing through the date of the award." Id. at 1218. Thus, the Federal Circuit essentially equated past-due with unpaid, meaning that, for there to be payment of attorney fees out of the past-due benefits awarded on the basis of the claim, there must first be an award of past-due benefits that were unpaid or owed to the claimant

from which those fees could be paid.

Id. at *6.  The Court then considered Jackson decision and determined

Taken together, Snyder and Jackson teach that, for the purposes of determining an agent's

or attorney's fee under a direct-pay fee agreement, "the total amount of any past-due benefits awarded on the basis of the claim" does not depend on the amount ultimately payable to the claimant. Instead, the amount of "benefits awarded on the basis of the claim" is determined by VA when the claim is granted and is not affected by an impediment to payment like the statutory bar in Snyder or the veteran's death in Jackson. Section 5904(d)(1) also makes clear, however, that the source of an agent's or attorney's fee under a direct-pay fee agreement is "the total amount of any past-due benefits," which, per Snyder, means the total amount of benefits that were "unpaid" or owed to the claimant. 489 F.3d at 1218 (emphasis added). In other words, attorney fees can only be paid, pursuant to a direct-pay fee agreement under section 5904(d)(1), out of those benefits that were past-due

Id. at *7.

The Court then applied its findings to the case at hand to say that Gumpenberger’s theory of the case is that past-due benefits awarded in an action challenging an overpayment of debt is the total amount of the overpayment regardless of the amount collected.  It then decided that argument is flawed because it attempts to read the term “past-due” out of the statute.  Id. at *7.  It explained: “To hold otherwise would be to ignore Congress's clear mandate that the fees to be paid to an agent or attorney pursuant to a valid direct-pay fee agreement must come from past-due benefits awarded, not merely the benefits awarded, on the basis of the claim.”  Id. at *8.

The Court acknowledged the result is an attorney might not be paid for these cases but instead argues that direct-pay fee agreements might not be appropriate in these types of cases.  Id. at *10.  However, the Court demonstrates a willful ignorance of economics and legal practice in this pronouncement.  The truth is most veterans are unable to pay an hourly rate and the risks of a non-direct-fee agreement are great.  The likely result is that attorneys will either take these cases out of a sense of duty on what is likely to be a pro bono basis or will simply not take these cases when the client is unable to pay a significant retainer and hourly rate.  The Court’s failure to grapple with Congress’ desire to increase attorney representation in cases is disappointing and will likely result in debt repayment cases not being taken by attorneys until a significant amount has been recouped.

The decision was by Judge Bartley and joined in by Judges Pietsch and Toth.

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