Casey: Attorney Fees, Administrative Error and Reduction

Casey v. Wilkie, Case Number 18-1051, decided June 26, 2019 provides a definitive answer to a question that has plagued practitioners for some time.  What happens when the VA forgets to pay withhold the 20% attorney fee and pays the veteran the whole award?  Frequently, the VA will then pay the attorney their 20% and create an overpayment as to the veteran that can serve to reduce their monthly benefit. Many attorneys have argued that such an overpayment is the result of administrative error and would not stand up in Court.  Well, it appears that conventional wisdom was wrong.

The case focused on 38 U.S.C. Section 5112(b)(10) which provides: "The effective date of a reduction or discontinuance of compensation, dependency and indemnity compensation, or pension by reason of an erroneous award based solely on administrative error or error in judgment shall be the date of last payment." 

The Court ultimately concluded:

VA's recoupment of attorney fees mistakenly paid to an accrued benefits recipient as part of the one-time payment of an accrued benefits award does not result in a "reduction." Therefore, section 5112(b)(10) doesn't apply to defeat the proper creation of an overpayment here. Correspondingly, because there was no "reduction," we need not consider whether there was an erroneous award based solely on administrative error.

Id. at *2.

First, the Court noted that the fact the appellant in this case (a surviving spouse) was receiving DIC (an ongoing monthly benefit) was incidental to the question of an overpayment.  Id. at *5-6.

Second, the Court turned to the language of the statute and determined

The question is whether the one-time lump sum payment could later be "reduced." Contrary to the appellant's argument, VA can't diminish a one-time accrued-benefits payment in size or amount retroactively. What VA paid, it paid; VA can't change the past. What it can do is recover any excessive amount it paid. Nor is a grant of benefits diminished in size or amount simply because the total benefit must be apportioned and paid to two parties. The fact that VA could recover part of an excessive payment made by mistake doesn't mean that the initial grant itself was reduced. Because neither the payment nor the initial grant of appellant's accrued benefits was reduced, we hold that section 5112(b)(10) doesn't apply here.

Id. at *8.

The Court also looked toward legislative intent to support its ruling.  It reasoned

The second sentence's structure hints that Congress sought to balance inequities inevitably born by two innocent populations, faultless recipients of running awards and taxpayers. Let's start with benefits recipients. Recipients of running awards, who receive monthly benefits checks, may depend solely or mostly on their VA benefits to live month-to-month, and Congress seemingly thought it unjust for these people to take on liability for returning past overpayments that had been accruing monthly because of mistakes they didn't make or cause. However, these concerns that Congress seemingly had in mind at the time of section 5112(b)(10)'s enactment don't translate well into the context of one-time accrued benefits payments. With a one-time payment, which often represents years' worth of accrued benefits, there's no (or certainly less) chance that overpayment recovery could unjustly impact a recipient's day-to-day finances. In other words, recipients of one-time payments aren't similarly situated to recipients of running award payments. Thus, they don't require the same protections, and it doesn't appear to us that Congress was crafting section 5112(b)(10) to protect one-time payment recipients. Nevertheless, section 5112(b)(10)'s inapplicability to a recipient of a one-time, accrued benefits payment such as the appellant doesn't mean that Congress left those recipients totally unprotected; they can still seek waivers, a subject to which we return in a moment.

Id. at *12.

The Court opined that its result in this case might seem harsh, but that the appellant could still seek a waiver.  My only response to the suggestion of a waiver is to say that the waiver process is largely within the Secretary’s discretion and its process makes applying, fighting or and finally receiving benefits a walk in the park as compared to a marathon. 

The decision was by Judge Allen, joined in by Chief Judge Davis and Judge Meredith.  I hope this case is appealed to the Federal Circuit.  It seeks to turn an actual reduction into nothing and create a situation where the VA’s own mistake can only be corrected by its own benevolence.  It also does not realize that a veteran who just received a lumpsum award after years of waiting will oftentimes have already spent the money and not be able to simply repay it.  Finally, it allows the VA to create a wedge between attorney and client.

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