source: Caselaw Access Project

author: Justice Ginsburg Justice Scalia,

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text:
    GISBRECHT et al. v. BARNHART, COMMISSIONER OF SOCIAL SECURITY
    No. 01-131.
    Argued March 20,2002 —
    Decided May 28, 2002

      Eric Scknaufer argued the cause for petitioners. With him on the briefs were Eric Schnapper and Tim Wilborn.

      David B. Salmons argued the cause pro hoc vice for respondent. With him on the brief were Solicitor General Olson, Assistant Attorney General McCollum, Deputy Solicitor General Clement, William Ranter, and Frank A. Rosenfeld.

        Jeffrey Robert White filed a brief for the Association of Trial Lawyers of America as amicus curiae urging reversal.

        Daniel J. Popeo and Richard A. Samp filed a brief for the Washington Legal Foundation et al. as amici curiae urging affirmance.

        Nancy G. Shor, Kirk B. Roose, Joel F. Friedman, Robert E. Rains, and Eric Buchanan filed a brief for the National Organization of Social Security Claimants’ Representatives as amicus curiae.

   Justice Ginsburg

delivered the opinion of the Court.

This case concerns the fees that may be awarded attorneys who successfully represent Social Security benefits claimants in court. Under 42 U. S. C. § 406(b) (1994 ed. and Supp. V), a prevailing claimant’s fees are payable only out of the benefits recovered; in amount, such fees may not exceed 25 percent of past-due benefits. At issue is a question that has sharply divided the Federal Courts of Appeals: What is the appropriate starting point for judicial determinations of “a reasonable fee for [representation before the court]”? See ibid. Is the contingent-fee agreement between claimant and counsel, if not in excess of 25 percent of past-due benefits, presumptively reasonable? Or should courts begin with a lodestar calculation (hours reasonably spent on the case times reasonable hourly rate) of the kind we have approved under statutes that shift the obligation to pay to the loser in the litigation? See Hensley v. Eckerhart, 461 U. S. 424, 426 (1983) (interpreting Civil Rights Attorney’s Fees Awards Act of 1976, 42 U. S. C. § 1988, which allows a “prevailing party” to recover from his adversary “a reasonable attorney’s fee as part of the costs” (internal quotation marks omitted)).

Congress, we conclude, designed § 406(b) to control, not to displace, fee agreements between Social Security benefits claimants and their counsel. Because the decision before us for review rests on lodestar calculations and rejects the primacy of lawful attorney-client fee agreements, we reverse the judgment below and remand for recalculation of counsel fees payable from the claimants’ past-due benefits.

I

A

Fees for representation of individuals claiming Social Security old-age, survivor, or disability benefits, both at the administrative level and in court, are governed by prescriptions Congress originated in 1965. Social Security Amendments of 1965, 79 Stat. 403, as amended, 42 U. S. C. §406. The statute deals with the administrative and judicial review stages discretely: § 406(a) governs fees for representation in administrative proceedings; § 406(b) controls fees for representation in court. See also 20 CFR § 404.1728(a) (2001).

For representation of a benefits claimant at the administrative level, an attorney may file a fee petition or a fee agreement. 42 U. S. C. § 406(a). In response to a petition, the agency may allow fees “for services performed in connection with any claim before” it; if a determination favorable to the benefits claimant has been made, however, the Commissioner of Social Security “shall... fix ... a reasonable fee” for an attorney’s services. § 406(a)(1) (1994 ed.) (emphasis added). In setting fees under this method, the agency takes into account, in addition to any benefits award, several other factors. See 20 CFR § 404.1725(b) (2001). Fees may be authorized, on petition, even if the benefits claimant was unsuccessful. § 404.1725(b)(2).

As an alternative to fee petitions, the Social Security Act, as amended in 1990, accommodates contingent-fee agreements filed with the agency in advance of a ruling on the claim for benefits. Omnibus Budget Reconciliation Act of 1990,104 Stat. 1388-266 to 1388-267, as amended, 42 U. S. C. §§ 406(a)(2) — (4) (1994 ed. and Supp. V). If the ruling on the benefits claim is favorable to the claimant, the agency will generally approve the fee agreement, subject to this limitation: Fees may not exceed the lesser of 25 percent of past-due benefits or $4,000 (increased to $5,300 effective February 2002). §§ 406(a)(2)(A)(ii), (iii) (1994 ed.); 67 Fed. Reg. 2477 (2002); see Social Security Administration, Office of Hearings and Appeals, Litigation Law Manual (HALLEX) 1-5-109 III.A (Feb. 5,1999).

For proceedings in court, Congress provided for fees on rendition of “a judgment favorable to a claimant.” 42 U.S.C. § 406(b)(1)(A) (1994 ed., Supp. V). The Commissioner has interpreted § 406(b) to “prohibit] a lawyer from charging fees when there is no award of back benefits.” Tr. of Oral Arg. 37-38; see Brief in Opposition 12, n. 12 (reading § 406(b) to “prohibi[t] other [fee] arrangements such as non-contingent hourly fees”).

As part of its judgment, a court may allow “a reasonable fee ... not in excess of 25 percent of the ... past-due benefits” awarded to the claimant. § 406(b)(1)(A). The fee is payable “out of, and not in addition to, the amount of [the] past-due benefits.” Ibid. Because benefits amounts figuring in the fee calculation are limited to those past due, attorneys may not gain additional fees based on a claimant’s continuing entitlement to benefits.

The prescriptions set out in §§ 406(a) and (b) establish the exclusive regime for obtaining fees for successful representation of Social Security benefits claimants. Collecting or even demanding from the client anything more than the authorized allocation of past-due benefits is a criminal offense. §§ 406(a)(5), (b)(2) (1994 ed.); 20 CFR §§404.1740-1799 (2001).

In many cases, as in the instant case, the Equal Access to Justice Act (EAJA), enacted in 1980, effectively increases the portion of past-due benefits the successful Social Security claimant may pocket. 94 Stat. 2329, as amended, 28 U. S. C. § 2412. Under EAJA, a party prevailing against the United States in court, including a successful Social Security benefits claimant, may be awarded fees payable by the United States if the Government’s position in the litigation was not “substantially justified." § 2412(d)(1)(A). EAJA fees are determined not by a percent of the amount recovered, but by the “time expended” and the attorney’s “[hourly] rate,” § 2412(d)(1)(B), capped in the mine run of cases at $125 per hour, § 2412(d)(2)(A). Cf. 5 U. S. C. § 504 (authorizing payment of attorney’s fees by the Government when a party prevails in a federal agency adjudication).

Congress harmonized fees payable by the Government under EAJA with fees payable under § 406(b) out of the claimant’s past-due Social Security benefits in this manner: Fee awards may be made under both prescriptions, but the claimant’s attorney must “refun[d] to the claimant the amount of the smaller fee.” Act of Aug. 5, 1985, Pub. L. 99-80, §3, 99 Stat. 186. “Thus, an EAJA award offsets an award under Section 406(b), so that the [amount of the total past-due benefits the claimant actually receives] will be increased by the ... EAJA award up to the point the claimant receives 100 percent of the past-due benefits.” Brief for United States 3.

B

Petitioners Gary Gisbrecht, Barbara Miller, and Nancy Sandine brought three separate actions in the District Court for the District of Oregon under 42 U. S. C. § 405(g) (1994 ed.), seeking Social Security disability benefits under Title II of the Social Security Act. All three petitioners were represented by the same attorneys, and all three prevailed on the merits of their claims. Gisbrecht was awarded $28,366 in past-due benefits; Miller, $30,056; and San-dine, $55,952. Each petitioner then successfully sought attorneys’ fees payable by the United States under EAJA: Gisbrecht was awarded $3,339.11, Miller, $5,164.75, and Sandine, $6,836.10.

Pursuant to contingent-fee agreements standard for Social Security claimant representation, see 1 B. Samuels, Social Security Disability Claims §21:10 (2d ed. 1994), Gisbrecht, Miller, and Sandine had each agreed to pay counsel 25 percent of all past-due benefits recovered, App. to Pet. for Cert. 72-86. Their attorneys accordingly requested § 406(b) fees of $7,091.50 from Gisbreeht’s recovery, $7,514 from Miller’s, and $13,988 from Sandine’s. Given the EAJA offsets, the amounts in fact payable from each client’s past-due benefits recovery would have been $3,752.39 from Gisbrecht’s recovery, $2,349.25 from Miller’s, and $7,151.90 from Sandine’s.

Following Circuit precedent, see Allen v. Shalala, 48 F. 3d 456, 458-459 (CA9 1995), the District Court in each case declined to give effect to the attorney-client fee agreement. Gisbrecht v. Apfel, No. CV-98-0437-RE (Ore., Apr. 14,1999); Miller v. Apfel, No. CV-96-6164-AS (Ore., Mar. 30, 1999); Sandine v. Apfel, No. CV-97-6197-ST (Ore., June 18, 1999). Instead, the court employed for the § 406(b) fee calculation a “lodestar” method, under which the number of hours reasonably devoted to each case was multiplied by a reasonable hourly fee. This method yielded as § 406(b) fees $3,135 from Gisbrecht’s recovery, $5,461.50 from Miller’s, and $6,550 from Sandine’s. Offsetting the EAJA. awards, the court determined that no portion of Gisbrecht’s or Sandine’s past-due benefits was payable to counsel, and that only $296.75 of Miller’s recovery was payable to he]* counsel as a § 406(b) fee. The three claimants appealed.

Adhering to Circuit precedent applying the lodestar method to calculate fees under § 406(b), the Court of Appeals for the Ninth Circuit consolidated the cases and affirmed the District Court’s fee dispositions. Gisbrecht v. Apfel, 238 F. 3d 1196 (2000). The Appeals Court noted that fees determined under the lodestar method could be adjusted by applying 12 further factors, one of them, “whether the fee is fixed or contingent.” Id., at 1198 (quoting Kerr v. Screen Extras Guild, Inc., 526 F. 2d 67, 70 (CA9 1975)). While “a district court must consider a plaintiff’s request to increase a fee [based on a contingent-fee agreement],” the Ninth Circuit stated, “a court ‘is not required to articulate its reasons’ for accepting or rejecting such a request.” 238 F. 3d, at 1199 (quoting Widrig v. Apfel, 140 F. 3d 1207, 1211 (CA9 1998)) (emphasis in original).

We granted certiorari, 534 U. S. 1039 (2001), in view of the division among the Circuits on the appropriate method of calculating fees under § 406(b). Compare Coup v. Heckler, 834 F. 2d 313 (CA3 1987); Craig v. Secretary, Dept. of Health and Human Servs., 864 F. 2d 324 (CA4 1989); Brown v. Sullivan, 917 F. 2d 189 (CA5 1990); Cotter v. Bowen, 879 F. 2d 359 (CA8 1989); Hubbard v. Shalala, 12 F. 3d 946 (CA10 1993); and Kay v. Apfel, 176 F. 3d 1322 (CA11 1999) (all following, in accord with the Ninth Circuit, a lodestar method), with Wells v. Sullivan, 907 F. 2d 367 (CA2 1990); Rodriguez v. Bowen, 865 F. 2d 739 (CA6 1989) (en banc); and McGuire v. Sullivan, 873 F. 2d 974 (CA7 1989) (all giving effect to attorney-client contingent-fee agreement, if resulting fee is reasonable). We now reverse the Ninth Circuit’s judgment.

II

Beginning with the text, §406(b)’s words, “a reasonable fee .. . not in excess of 25 percent of.. . the past-due benefits,” read in isolation, could be construed to allow either the Ninth Circuit’s lodestar approach or petitioners’ position that the attorney-client fee agreement ordinarily should control, if not “in excess of 25 percent.” The provision instructs “a reasonable fee,” which could be measured by a lodestar calculation. But § 4Q6(b)’s language does not exclude contingent-fee contracts that produce fees no higher than the 25 percent ceiling. Such contracts are the most common fee arrangement between attorneys and Social Security claimants. See Department of Health and Human Services, Social Security Administration, Office of Hearings and Appeals, Report to Congress: Attorney Fees Under Title II of the Social Security Act 15,66,70 (July 1988) (hereinafter SSA Report); Brief for National Organization of Social Security Claimants’ Representatives as Amicus Curiae 1-2. Looking outside the statute’s inconclusive text, we next take into account, as interpretive guides, the origin and standard application of the proffered approaches.

The lodestar method has its roots in accounting practices adopted in the 1940’s to allow attorneys and firms to determine whether fees charged were sufficient to cover overhead and generate suitable profits. W. Ross, The Honest Hour: The Ethics of Time-Based Billing by Attorneys 16 (1996) (hereinafter Honest Hour). An American Bar Association (ABA) report, published in 1958, observed that attorneys’ earnings had failed to keep pace with the rate of inflation; the report urged attorneys to record the hours spent on each case in order to ensure that fees ultimately charged afforded reasonable compensation for counsels’ efforts. See Special Committee on Economics of Law Practice, The 1958 Lawyer and His 1938 Dollar 9-10 (reprint 1959).

Hourly records initially provided only an internal accounting check. See Honest Hour 19. The fees actually charged might be determined under any number of methods: the annual retainer; the fee-for-service method; the “eyeball” method, under which the attorney estimated an annual fee for regular clients; or the contingent-fee method, recognized by this Court in Stanton v. Embrey, 93 U. S. 548, 556 (1877), and formally approved by the ABA in 1908. See Honest Hour 13-19. As it became standard accounting practice to record hours spént on a client’s matter, attorneys increasingly realized that billing by horn’s devoted to a case was administratively convenient; moreover, as an objective measure of a lawyer’s labor, hourly billing was readily impartable to the client. Id., at 18. By the early 1970’s, the practice of hourly billing had become widespread. See id., at 19, 21.

The federal courts did not swiftly settle on hourly rates as the overriding criterion for attorney’s fee awards. In 1974, for example, the Fifth Circuit issued an influential opinion holding that, in setting fees under Title VII of the Civil Rights Act of 1964,42 U. S. C. §2000e-5(k) (1970 ed.), courts should consider not only the number of hours devoted to a case but also 11 other factors. Johnson v. Georgia Highway Express, Inc., 488 F. 2d 714, 717-719 (1974). The lodestar method did not gain a firm foothold until the mid-1970’s, see Lindy Bros. Builders, Inc. of Philadelphia v. American Radiator & Standard Sanitary Corp., 487 F. 2d 161 (CA3 1973), appeal after remand, 540 F. 2d 102 (1976), and achieved dominance in the federal courts only after this Court’s decisions in Hensley v. Eckerhart, 461 U. S. 424 (1983), Blum v. Stenson, 465 U. S. 886 (1984), and Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air, 478 U. S. 546 (1986).

Since that time, “[t]he ‘lodestar’ figure has, as its name suggests, become the guiding light of our fee-shifting jurisprudence.” Burlington v. Dague, 505 U. S. 557, 562 (1992) (relying on Hensley, Blum, and Delaware Valley to apply lodestar method to fee determination under Solid Waste Disposal Act, § 7002(e), 42 U. S. C. § 6972(e) (1988 ed.), and Clean Water Act, § 505(d), 33 U. S. C. § 1365(d) (1988 ed.), and noting prior application of lodestar method to Civil Rights Attorney’s Fees Awards Act of 1976, 42 U. S. C. § 1988 (1988 ed., Supp. III); Title VII of Civil Rights Act of 1964, 42 U. S. C. §2000e-5(k) (1988 ed., Supp. III); and Clean Air Act, 42 U. S. C. § 7604(d) (1988 ed.)). As we recognized in Hensley, “[i]deally,... litigants will settle the amount of a fee.” 461 U. S., at 437. But where settlement between the parties is not possible, “[t]he most useful starting point for [court determination of] the amount of a reasonable fee [payable by the loser] is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate.” Id., at 433. Thus, the lodestar method today holds sway in federal-court adjudication of disputes over the amount of fees properly shifted to the loser in the litigation. See id., at 440 (Burger, C. J., concurring) (decision addresses statute under which “a lawyer seeks to have his adversary pay the fees of the prevailing party”).

Fees shifted to the losing party, however, are not at issue here. Unlike 42 U. S. C. § 1988 (1994 ed. and Supp. V) and EAJA, 42 U. S. C. § 406(b) (1994 ed., Supp. V) does not authorize the prevailing party to recover fees from the losing party. Section 406(b) is of another genre: It authorizes fees payable from the successful party’s recovery. Several statutes governing suits against the United States similarly provide that fees may be paid from the plaintiff’s recovery. See, e. g., Federal Tort Claims Act (FTCA), 28 U. S. C. §2678 (“No attorney shall charge, demand, receive, or collect for services rendered, fees in excess of 25 per centum of any [court] judgment rendered [in am FTCA suit], or in excess of 20 per centum of any award, compromise, or settlement made [by a federal agency to settle an FTCA claim].”); Veterans’ Benefits Act, 38 U.S.C. § 5904(d)(1) (1994 ed.) (“When a claimant [for veterans’ benefits] and an attorney have entered into a [contingent-]fee agreement [under which fees are paid by withholding from the claimant’s benefits award], the total fee payable to the attorney may not exceed 20 percent of the total amount of any past-due benefits awarded on the basis of the claim.”). Characteristically in cases of the kind we confront, attorneys and clients enter into contingent-fee agreements “specifying that the fee will be 25 percent of any past-due benefits to which the claimant becomes entitled.” Brief for National Organization of Social Security Claimants’ Representatives as Amicus Curiae 2; see Brief for Washington Legal Foundation et al. as Amici Curiae 9, n. 6 (“There is no serious dispute among the parties that virtually every attorney representing Title II disability claimants includes in his/her retainer agreement a provision calling for a fee equal to 25% of the past-due benefits awarded by the courts.”).

Contingent fees, though problematic, particularly when not exposed to court review, are common in the United States in many settings. Such fees, perhaps most visible in tort litigation, are also used in, e. g., patent litigation, real estate tax appeals, mergers and acquisitions, and public offerings. See ABA Formal Opinion 94-389, ABA/BNA Lawyers’ Manual On Professional Conduct 1001:248, 1001:250 (1994). But see id., at 1001:248, n. 3 (quoting observation that controls on contingent fees sire needed to “reduce financial incentives that encourage lawyers to file unnecessary, unwarranted[,] and unmeritorious suits” (internal quotation marks omitted)). Traditionally and today, “the marketplace for Social Security representation operates largely on a contingency fee basis.” SSA Report 3; see also id., at 15, 66, 70; App. to Pet. for Cert. 56, (50, 88, 89, 91 (affidavits of practitioners).

Before 1965, the Social Security Act imposed no limits on contingent-fee agreements drawn by counsel and signed by benefits claimants. In formulating the 1965 Social Security Act amendments that included § 406(b), Congress recognized that “attorneys have upon occasion charged ... inordinately large fees for representing claimants [in court].” S. Rep. No. 404, 89th Cong., 1st Sess., pt., 1, p. 122 (1965). Arrangements yielding exorbitant fees, the Senate Report observed, reserved for the lawyer one-third to one-half of the accrued benefits. Ibid. Congress was mindful, too, that the longer the litigation persisted, the greater the buildup of past-due benefits and, correspondingly, of legal fees awardable from those benefits if the claimant prevailed. Ibid.

Attending to these realities, Congress provided for “a reasonable fee, not in excess of 25 percent of accrued benefits,” as part of the court’s judgment, and further specified that “no other fee would be payable.” Ibid. Violation of the “reasonable fee” or “25 percent of accrued benefits” limitation was made subject to the same penalties as those applicable for charging a fee larger than the amount approved by the Commissioner for services at the administrative level— a fine of up to $500, one year’s imprisonment, or both. Ibid. “[T]o assure the payment of the fee allowed by the court,” Congress authorized the agency “to certify the amount of the fee to the attorney out of the amount of the accrued benefits.” Ibid.; see supra, at 804, n. 13.

Congress thus sought to protect claimants against “inordinately large fees” and also to ensure that attorneys representing successful claimants would not risk “nonpayment of [appropriate] fees.” SSA Report 66 (internal quotation marks omitted). But nothing in the text or history of § 406(b) reveals a “desig[n] to prohibit or discourage attorneys and claimants from entering into contingent fee agreements.” Ibid. Given the prevalence of contingent-fee agreements between attorneys and Social Security claimants, it is unlikely that Congress, simply by prescribing “reasonable fees,” meant to outlaw, rather than to contain, such agreements.

This conclusion is bolstered by Congress’ 1990 authorization of contingent-fee agreements under § 406(a), the provision governing fees for agency-level representation. Before enacting this express authorization, Congress instructed the Social Security Administration to prepare a report on attorney’s fees under Title II of the Social Security Act. Pub. L. 100-203, § 9021(b), 101 Stat. 1330-295. The report, presented to Congress in 1988, reviewed several methods of determining attorney’s fees, including the lodestar method. See SSA Report 10-11. This review led the agency to inform Congress that, although the contingency method was hardly flawless, the agency could “identify no more effective means of ensuring claimant access to attorney representation.” Id., at 25.

Congress subsequently altered § 406(a) to validate contingent-fee agreements filed with the agency prior to disposition of the claim for benefits. See 42 U. S. C. § 406(a)(2) (1994 ed.); supra, at 795. As petitioners observe, Brief for Petitioners 24, it would be anomalous if contract-based fees expressly authorized by § 406(a)(2) at the administrative level were disallowed for court representation under § 406(b).

It is also unlikely that Congress, legislating in 1965, and providing for a contingent fee tied to a 25 percent of past-due benefits boundary, intended to install a lodestar method courts did not develop until some years later. See supra, at 801-802. Furthermore, we again emphasize, the lodestar method was designed to govern imposition of fees on the losing party. See, e. g., Dague, 505 U. S., at 562. In such cases, nothing prevents the attorney for the prevailing party from gaining additional fees, pursuant to contract, from his own client. See Venegas v. Mitchell, 495 U. S. 82, 89-90 (1990) (“[None] of our cases has indicated that [42 U. S. C.] § 1988 . . . protects plaintiffs from having to pay what they have contracted to pay, even though their contractual liability is greater than the statutory award that they may collect from losing opponents. Indeed, depriving plaintiffs of the option of promising to pay more than the statutory fee if that is necessary to secure counsel of their choice would not further § 1988’s general purpose of enabling such plaintiffs .. . to secure competent counsel.”). By contrast, § 406(b) governs the total fee a claimant’s attorney may receive for court representation; any endeavor by the claimant’s attorney to gain more than that fee, or to charge the claimant a noncon-tingent fee, is a criminal offense. 42 U. S. C. § 406(b)(2); 20 CFR § 404.1740(c)(2) (2001).

Most plausibly read, we conclude, § 406(b) does not displace contingent-fee agreements as the primary means by which fees are set for successfully representing Social Security benefits claimants in court. Rather, § 406(b) calls for court review of such arrangements as an independent check, to assure that they yield reasonable results in particular cases. Congress has provided one boundary line: Agreements are unenforceable to the extent that they provide for fees exceeding 25 percent of the past-due benefits. § 406(b)(1)(A) (1994 ed., Supp. V). Within the 25 percent boundary, as petitioners in this case acknowledge, the attorney for the successful claimant must show that the fee sought is reasonable for the services rendered. See Brief for Petitioners 40.

Courts that approach fee determinations by looking first to the contingent-fee agreement, then testing it for reasonableness, have appropriately reduced the attorney’s recovery based on the character of the representation and the results the representative achieved. See, e. g., McGuire, 873 F. 2d, at 983 (“Although the contingency agreement should be given significant weight in fixing a fee, a district judge must independently assess the reasonableness of its terms.”); Lewis v. Secretary of Health and Human Servs., 707 F. 2d 246, 249-250 (CA6 1983) (instructing reduced fee when representation is substandard). If the attorney is responsible for delay, for example, a reduction is in order so that the attorney will not profit from the accumulation of benefits during the pendency of the case in court. See Rodriquez, 865 F. 2d, at 746-747. If the benefits are large in comparison to the amount of time counsel spent on the case, a downward adjustment is similarly in order. See id., at 747 (reviewing court should disallow “windfalls for lawyers”); Wells, 907 F. 2d, at 372 (same). In this regard, the court may require the claimant’s attorney to submit, not as a basis for satellite litigation, but as an aid to the court’s assessment of the reasonableness of the fee yielded by the fee agreement, a record of the hours spent representing the claimant and a statement of the lawyer’s normal hourly billing charge for noncontingent-fee cases. See Rodriquez, 865 F. 2d, at 741. Judges of our district courts are accustomed to making reasonableness determinations in a wide variety of contexts, and their assessments in such matters, in the event of an appeal, ordinarily qualify for highly respectful review.

* * *

The courts below erroneously read § 406(b) to override customary attorney-client contingent-fee agreements. We hold that § 406(b) does not displace contingent-fee agreements within the statutory ceiling; instead, § 406(b) instructs courts to review for reasonableness fees yielded by those agreements. Accordingly, we reverse the judgment of the Court of Appeals for the Ninth Circuit and remand the case for further proceedings consistent with this opinion.

It is so ordered.

Justice Scalia,

dissenting.

I do not know what the judges of our district courts and courts of appeals are to make of today’s opinion. I have no idea what the trial judge is to do if he finds the fee produced by the (“presumptively reasonable,” ante, at 792) contingent-fee agreement to be 25% above the lodestar amount; or 40%; or 65%. Or what the appellate court is to do in an appeal from a district judge’s reduction of the contingent fee to 300% of the lodestar amount; or 200%; or to the lodestar amount itself. While today’s opinion gets this case out of our “in” box, it does nothing whatever to subject these fees to anything approximating a uniform rule of law. That is, I think, the inevitable consequence of trying to combine the incompatible. The Court tells the judge to commence his analysis with the contingent-fee agreement, but then to adjust the figure that agreement produces on the basis of factors (most notably, the actual time spent multiplied by a reasonable hourly rate, ante, at 808) that are, in a sense, the precise antithesis of the contingent-fee agreement, since it was the very purpose of that agreement to eliminate them from the fee calculation. In my view, the only possible way to give uniform meaning to the statute’s “reasonable fee” provision is to understand it as referring to the fair value of the work actually performed, which we have held is best reflected by the lodestar. See Hensley v. Eckerkart, 461 U. S. 424, 433 (1983).

I think it obvious that the reasonableness of a contingent-fee arrangement has to be determined by viewing the matter ex ante, before the outcome of the lawsuit and the hours of work expended on the outcome are definitively known. For it is in the nature of a contingent-fee agreement to gamble on outcome and hours of work — assigning the risk of an unsuccessful outcome to the attorney, in exchange for a percentage of the recovery from a successful outcome that will (because of the risk of loss the attorney has borne) be higher, and perhaps much higher, than what the attorney would receive in hourly billing for the same case. That is why, in days when obtaining justice in the law courts was thought to be less of a sporting enterprise, contingent fees were unlawful. See, e. g., Butler v. Legro, 62 N. H. 350, 352 (1882) (“Agreements of this kind are contrary to public justice and professional duty, tend to extortion and fraud, and are cham-pertous and void”).

It is one thing to say that a contingent-fee arrangement is, ex ante, unreasonable because it gives the attorney a percentage of the recovery so high that no self-respecting legal system can tolerate it; the statute itself has made this determination for Social-Security-benefit cases, prescribing a maximum contingent fee of 25%. And one can also say that a contingent-fee arrangement is, ex ante, unreasonable because the chances of success in the particular case are so high, and the anticipated legal work so negligible, that the percentage of the recovery assured to the lawyer is exorbitant; but neither I nor the Court thinks that the “reasonable fee” provision of the statute anticipates such a case-by-case ex post assessment of ex ante predictions in the thousands of (mostly small recovery) Social-Security-benefit cases. It is something quite different, however — and something quite irrational — to look at the consequences of a contingent-fee agreement after the contingencies have been resolved, and proclaim those consequences unreasonable because the attorney has received too much money for too little work. That is rather like declaring the purchase of the winning lottery ticket void because of the gross disparity between the $2 ticket price and the million-dollar payout.

I think, in other words, that the “reasonable fee” provision must require either an assessment of the reasonableness of the contingent-fee agreement when it was concluded, or an assessment of the reasonableness of the fee charged after the outcome and work committed to it are known; it cannot combine the two. And since an ex post assessment of the ex ante reasonableness of the contingent-fee agreement (already limited by statute to a maximum 25% of the recovery) is not what the statute could conceivably have contemplated, I conclude that a “reasonable fee” means not the reasonableness of the agreed-upon contingent fee, but a reasonable recompense for the work actually done. We have held that this is best calculated by applying the lodestar, which focuses on the quality and amount of the legal work performed, and “provides an objective basis on which to ... estimate ... the value of a lawyer’s services.” Hensley, 461 U. S., at 433.

This is less of a departure than the Court suggests from the normal practice of enforcing privately negotiated fee agreements. The fee agreements in these Social-Security cases are hardly negotiated; they are akin to adherence contracts. It is uncontested that the specialized Social-Security bar charges uniform contingent fees (the statutory maximum of 25%), which are presumably presented to the typically unsophisticated client on a take-it-or-leave-it basis. Nor does the statute’s explicit approval of contingency-fee agreements at the agency stage, see 42 U. S. C. § 406(a) (1994 ed. and Supp. V), imply that contingency-fee agreements at the judicial-review stage should be regarded as presumptively reasonable. The agreements approved at the agency stage are limited not merely by a 25% maximum percentage of recovery, but also by a firm $5,300 maximum. With the latter limitation, there is no need to impose a reasonableness requirement. Once a reasonableness requirement is imposed, however, I think it can only refer to the reasonableness of the actual compensation.

* * *

Because I think there is no middle course between, on the one hand, determining the reasonableness of a contingent-fee agreement and, on the other hand, determining the reasonableness of the actual fee; because I think the statute’s reference to a “reasonable fee” must connote the latter; and because I think the Court’s hybrid approach establishes no clear criteria and hence will generate needless satellite litigation; I respectfully dissent.

       49 Stat. 624, as amended.

       Before 1965, Congress did not explicitly authorize attorney’s fees for in-court representation of Social Security benefits claimants. At least two Courts of Appeals, however, concluded that 42 U. S. C. § 405(g) implicitly authorized such fees. See Bowen v. Galbreath, 485 U. S. 74, 75-76 (1988) (citing Celebrezze v. Sparks, 342 F. 2d 286 (CA5 1965)) (“Under 42 U. S. C. § 405(g), a court reviewing [a Social Security benefits decision] has the power to enter ‘a judgment affirming, modifying, or reversing the decision The court in Sparks reasoned that where a statute gives a court jurisdiction, it must be presumed, absent any indication to the contrary, that the court was intended to exercise all the powers of a court, including the power to provide for payment of attorney’s fees out of any recovery. 342 F. 2d, at 288-289 [citing Folsom v. McDonald, 237 F. 2d 380, 382-383 (CA4 1956)].”).
      As to administrative proceedings, the Social Security Act originally made no provision for attorney’s fees. 49 Stat. 620 (1935). Four years later, Congress amended the Act to permit the Social Security Board to prescribe maximum fees attorneys could charge for representation of claimants before the agency. Social Security Act Amendments of 1939, 53 Stat. 1360. Congress expected the need for counsel in agency proceedings to be slim. H. R. Rep. No. 728, 76th Cong., 1st Sess., 44-45 (1939); S. Rep. No. 734, 76th Cong., 1st Sess., 53 (1939). The Board subsequently established a maximum fee of $10, permitting a higher fee only by petition to the agency. 20 CFR § 403.713(d) (1949). The agency later prescribed separate fees for representation at the initial and appellate levels of the administrative process. 20 CFR §404.976 (1961).

       Title 20 CFR § 404.1725(b) provides:

        “Evaluating a request for approval of a fee.

      “(1) When we evaluate a representative’s request for approval of a fee, we consider the purpose of the social security program, which is to provide a measure of economic security for the beneficiaries of the program, together with—
      “(i) The extent and type of services the representative performed;
      “(ii) The complexity of the case;
      “(iii) The level of skill and competence required of the representative in giving the services;
      “(iv) The amount of time the representative spent on the case;
      “(v) The results the representative achieved;
      “(vi) The level of review to which the claim was taken and the level of the review at which the representative became your representative; and
      “(vii) The amount of fee the representative requests for his or her services, including any amount authorized or requested before, but not including the amount of any expenses he or she incurred.
      “(2) Although we consider the amount of benefits, if any, that are payable, we do not base the amount of fee we authorize on the amount of the benefit alone, but on a consideration of all the factors listed in this section. The benefits payable in any claim are determined by specific provisions of law and are unrelated to the efforts of the representative. We may authorize a fee even if no benefits are payable.”

       A higher fee may be awarded if “the court determines that an increase in the cost of living or a special factor, such as the limited availability of qualified attorneys for the proceeding involved, justifies a higher fee.” 28 U. S. C. §2412(d)(2)(A)(ii).

       Section 405(g) authorizes judicial review of administrative denials of applications for Social Security benefits.

       Although the claimants were named as the appellants below, and are named as petitioners here, the real parties in interest are their attorneys, who seek to obtain higher fee awards under § 406(b). For convenience, we nonetheless refer to claimants as petitioners. See Hopkins v. Cohen, 390 U. S. 530, 531, n. 2 (1968). We also note that the Commissioner of Social Security here, as in the Ninth Circuit, has no direct financial stake in the answer to the § 406(b) question; instead, she plays a part in the fee determination resembling that of a trustee for the claimants. See, e. g., Lewis v. Secretary of Health and Human Servs., 707 F. 2d 246, 248 (CA6 1983).

       A fourth case, Anderson v. Apfel, No. CV-96-6311-HO (Ore., Sept. 29, 1999), was also consolidated with petitioners’ cases; we denied certiorari in Anderson in the order granting certiorari on petitioners’ question. See 534 U. S. 1039 (2001).

        Kerr directed consideration of “(1) the time and labor required, (2) the novelty and difficulty of the questions involved, (3) the skill requisite to perform the legal service properly, (4) the preclusion of other employment by the attorney due to acceptance of the case, (5) the customary fee, (6) whether the fee is fixed or contingent, (7) time limitations imposed by the client or the circumstances, (8) the amount involved and the results obtained, (9) the experience, reputation, and ability of the attorneys, (10) the ‘undesirability’ of the case, (11) the nature and length of the professional relationship with the client, and (12) awards in similar cases.” 526 F. 2d, at 69-70 (citing Johnson v. Georgia Highway Express, Inc., 488 F. 2d 714, 717-719 (CA5 1974)).

       Cf. Ramos Colon v. Secretary of Health and Human Servs., 850 F. 2d 24, 26 (CA1 1988) (per curiam) (“a court is not required to give blind deference to ... a contractual fee agreement, and must ultimately be responsible for fixing a reasonable fee for the judicial phase of the proceedings” (internal quotation marks omitted)).

       See supra, at 798-799, n. 8.

       See also, e. g., 31 U. S. C. §3554(c)(4) (1994 ed.) (“[T]he Federal agency and the interested party shall attempt to reach an agreement on the amount of the costs [including attorneys’ fees] to be paid.”).

       See also Servicemembers’ Group Life Insurance Act, 38 U. S. C. § 1984(g) (1994 ed.) (“[T]he court... shall determine and allow reasonable fees for the attorneys of the successful party or parties and apportion same if proper, said fees not to exceed 10 per centum of the amount recovered and to be paid by the Department out of the payments to be made under the judgment or decree.”); International Claims Settlement Act of 1949 (ICSA), 22 U. S. C. § 1623(f) (“No remuneration on account of services rendered on behalf of any claimant in connection with any claim filed with the Commission under [the ICSA] shall exceed 10 per centum of the total amount paid pursuant to any award certified under the [ICSA] on account of such claim. Any agreement to the contrary shall be unlawful and ■void.”); Trading with the Enemy Act, 50 U. S. C. App. §20 (1994 ed.) (“No property or interest or proceeds shall be returned under this Act . . . unless satisfactory evidence is furnished ... that the aggregate of the fees to be paid to all agents, attorneys ... , or representatives, for services rendered in connection with such return or payment or judgment does not exceed 10 per centum of the value of such property or interest or proceeds or of such payment.”); War Claims Act, 50 U. S. C. App. § 2017m (“No remuneration on account of services rendered on behalf of any claimant in connection with any claim filed with the Commission under this [Act] shall exceed 10 per centum (or such lesser per centum as may be fixed by the Commission with respect to any class of claims) of the total amount paid pursuant to any award certified under the provisions of this title ... on account of such claim.”).

       Congress also adopted a proposal recommended by the Social Security Administration that attorneys be paid directly with funds withheld from their clients’ benefits awards; the Commissioner testified to the Senate Committee on Finance that “[a]ttorneys have complained that... awards are sometimes made to the claimant without the attorney’s knowledge and that some claimants on occasion have not notified the attorney of the receipt of the money, nor have they paid his fee.” Hearings on H. R. 6675 before the Senate Committee on Finance, 89th Cong., 1st Sess., pt. 1, pp. 512-513 (1965).

       Cf., e. g., Act of Mar. 3,1891, §9, 26 Stat. 851-854 (regulating fees for claims by Native Americans before the Court of Claims and providing: “all contracts heretofore made for fees and allowances to claimants’ attorneys, are hereby declared void . . . and the allowances to the claimant’s attorneys shall be regulated and fixed by the court”); Alaska Native Claims Settlement Act of 1971, 43 U. S. C. § 1621(a) (1994 ed.) (“None of the revenues granted by [the Act] shall be subject to any contract which is based on a percentage fee of the value of all or some portion of the settlement granted by this [Act].”).

       The dissent observes that “fee agreements in... Social-Security cases are hardly negotiated; they are akin to adherence contracts.” Post, at 812. Exposure to court review, plus the statute’s 25 percent limitation, however, provide checks absent from arbitration adherence provisions this Court has upheld over objections that they are not “freely negotiated,” see Vimar Seguros y Reaseguros, S. A. v. M/V Sky Reefer, 515 U. S. 528, 556 (1995) (Stevens, J., dissenting), but are the product of “disparate bargaining power” between the contracting parties, Carnival Cruise Lines, Inc. v. Shute, 499 U. S. 585, 598 (1991) (Stevens, J., dissenting). See also Circuit City Stores, Inc. v. Adams, 532 U. S. 105, 138-139, and n. 3 (2001) (Souter, J., dissenting) (observing that many employees “lack the bargaining power to resist an arbitration clause if their prospective employers insist on one”).

       Statement of the limitation in terms of a percent of the recovery tellingly contrasts with EAJA, which authorizes fee shifting and, correspondingly, places a specific dollar limit on the hourly rate that ordinarily can be charged to the losing party. 28 U. S. C. § 2412(d)(2)(A); see supra, at 796, and n. 4.

       Specifically, petitioners maintain that “[ajlthough section 406(b) permits an attorney to base a fee application on a contingent fee agreement with the claimant, the statute does not create any presumption in favor of the agreed upon amount. To the contrary, because section 406(b) requires an affirmative judicial finding that the fee allowed is ‘reasonable,’ the attorney bears the burden of persuasion that the statutory requirement has been satisfied.” Brief for Petitioners 40.

       The Court finds it “unlikely,” ante, at 806, that 42 U. S. C. § 406(b) (1994 ed.), enacted in 1965, contemplated application of the lodestar method that the courts had not yet even developed. Of course it did not. But it did
        contemplate an ex post determination of a reasonable fee for an attorney’s work — which our post-1965 cases have held is best achieved by using the lodestar. We have not hesitated to apply the lodestar method to other fee statutes enacted before the method was developed. See, e. g., Burlington v. Dague, 505 U. S. 557, 561-562 (1992) (explaining that “our case law construing what is a ‘reasonable’ fee applies uniformly” to fee-shifting statutes that use similar language, including, inter alia, 42 U. S. C. § 1988 and 42 U. S. C. §2000e-5(k) (Civil Rights Act of 1964)).

       There is one ex post element prominent in Social-Security-benefit cases that assuredly should reduce the amount of an otherwise reasonable (that is to say, an ex ante reasonable) contingent-fee award: Since the award is based upon past-due benefits, and since the amount of those benefits increases with the duration of the litigation, a lawyer can increase his contingent-fee award by dragging his feet. It is unreasonable to be rewarded for dilatoriness. But that element need not be made part of an overall ex post reasonableness assessment, as the Court would do, see ante, at 808. For it is not only unreasonable; it is a breach of contract. Surely the representation agreement contains as an implicit term that the lawyer will bring the matter to a conclusion as quickly as practicable — or at least will not intentionally delay its conclusion. Any breach of that condition justifies a reduction of the contracted contingent-fee award.


author: Justice Stevens

text:
    SECURITIES AND EXCHANGE COMMISSION v. ZANDFORD
    No. 01-147.
    Argued March 18, 2002 —
    Decided June 3, 2002

      Matthew D. Roberts argued the cause for petitioner. With him on the briefs were Acting Solicitor General Clement, Deputy Solicitor General Kneedler, David M. Becker, Jacob H. Stillman, Richard M. Humes, Katharine B. Gresham, and Susan S. McDonald.

      Steven H. Goldblatt argued the cause for respondent. With him on the brief was Roy T. Englert, Jr.

      Briefs of amici curiae urging reversal were filed for AARP et al. by Deborah M. Zuckerman, Stacy J. Canan, Michael R. Schuster, and Kevin Roddy; and for NASD Regulation, Inc., by F. Joseph Worm, Douglas R. Cox, Andrew S. Tulumello, and Elisse B. Walter.

   Justice Stevens

delivered the opinion of the Court.

The Securities and Exchange Commission (SEC) filed a civil complaint alleging that a stockbroker violated both § 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, as amended, 15 U. S. C. § 78j(b), and the SEC’s Rule 10b-5, by selling his customer’s securities and using the proceeds for his own benefit without the customer’s knowledge or consent. The question presented is whether the alleged fraudulent conduct was "in connection with the purchase or sale of any security” within the meaning of the statute and the Rule.

I

Between 1987 and 1991, respondent was employed as a securities broker in the Maryland branch of a New York brokerage firm. In 1987, he persuaded William Wood, an elderly man in poor health, to open a joint investment account for himself and his mentally retarded daughter. According to . the SEC’s complaint, the "stated investment objectives for the account were ‘safety of principal and income.’” App. to Pet. for Cert. 27a. The Woods granted respondent discretion to manage their account and a general power of attorney to engage in securities transactions for their benefit without prior approval. Relying on respondent’s promise to “conservatively invest” their money, the Woods entrusted him with $419,255. Before Mr. Wood’s death in 1991, all of that money was gone.

In 1991, the National Association of Securities Dealers (NASD) conducted a routine examination of respondent’s firm and discovered that on over 25 separate occasions, money had been transferred from the Woods’ account to accounts controlled by respondent. In due course, respondent was indicted in the United States District Court for the District of Maryland on 13 counts of wire fraud in violation, of 18 U. S. C. §1343. App. to Pet. for Cert. 40a. The first count alleged that respondent sold securities in the Woods’ account and then made personal use of the proceeds. Id., at 42a. Each of the other counts alleged that he made wire transfers between Maryland and New York that enabled him to withdraw specified sums from the Woods’ accounts. Id., at 42a-50a. Some of those transfers involved respondent writing checks to himself from a mutual fund account held by the Woods, which required liquidating securities in order to redeem the checks. Respondent was convicted on all counts, sentenced to prison for 52 months, and ordered to pay $10,800 in restitution.

After respondent was indicted, the SEC filed a civil complaint in the same District Court alleging that respondent violated § 10(b) and Rule 10b-5 by engaging in a scheme to defraud the Woods and by misappropriating approximately $343,000 of the Woods’ securities without their knowledge or consent. Id., at 27a. The SEC moved for partial summary judgment after respondent’s criminal conviction, arguing that the judgment in the criminal case estopped respondent from contesting facts that established a violation of § 10(b). Respondent filed a motion seeking discovery on the question whether his fraud had the requisite “connection with” the purchase or sale of a security. The District Court refused to allow discovery and entered summary judgment against respondent. It enjoined him from engaging in future violations of the securities laws and ordered him to disgorge $343,000 in ill-gotten gains.

The Court of Appeals for the Fourth Circuit reversed the summary judgment and remanded with directions for the District Court to dismiss the complaint. 238 F. 3d 559 (2001). It first held that the wire fraud conviction, which only required two findings — (1) that respondent engaged in a scheme to defraud and (2) that he used interstate wire communications in executing the scheme — did not establish all the elements of a § 10(b) violation. Specifically, the conviction did not necessarily establish that his fraud was “in connection with” the sale of a security. Id., at 562. The court then held that the civil complaint did not sufficiently allege the necessary connection because the sales of the Woods’ securities were merely incidental to a fraud that “lay in absconding with the proceeds” of sales that were conducted in “a routine and customary fashion,” id., at 564. Respondent’s “scheme was simply to steal the Woods’ assets” rather than to engage “in manipulation of a particular security.” Id., at 565. Ultimately, the court refused “to stretch the language of the securities fraud provisions to encompass every conversion or theft that happens to involve securities.” Id., at 566. Adopting what amounts to a “fraud on the market” theory of the statute’s coverage, the court held that without some “relationship to market integrity or investor understanding,” there is no violation of § 10(b). Id., at 563.

We granted the SEC’s petition for a writ of certiorari, 534 U. S. 1015 (2001), to review the Court of Appeals’ construction of the phrase “in connection with the purchase or sale of any security.” Because the Court of Appeals ordered the complaint dismissed rather than remanding for reconsideration, we assume the allegations contained therein are true and affirm that disposition only if no set of facts would entitle petitioner to relief. See Hartford Fire Ins. Co. v. California, 509 U. S. 764, 811 (1993). We do not reach the question whether the record supports the District Court’s grant of summary judgment in the SEC’s favor — a question that requires all potential factual disputes to be resolved in respondent’s favor. We merely hold that the allegations of the complaint, if true, entitle the SEC to relief; therefore, the Court of Appeals should not have directed that the complaint be dismissed.

II

Section 10(b) of the Securities Exchange Act makes it “unlawful for any person . . . [t]o use or employ, in connection with the purchase or sale of any security . . . , any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.” 15 U. S. C. §78j. Rule 10b-5, which implements this provision, forbids the use, “in connection with the purchase or sale of any security,” of “any device, scheme, or artifice to defraud” or any other “act, practice, or course of business” that “operates ... as a fraud or deceit.” 17 CFR §240.10b-5 (2000). Among .Congress’ objectives in passing the Act was “to insure honest securities markets and thereby promote investor confidence” after the market crash of 1929. United States v. O’Hagan, 521 U. S. 642, 658 (1997); see also United States v. Naftalin, 441 U. S. 768, 775 (1979). More generally, Congress sought “ ‘to substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus to achieve a high standard of business ethics in the securities industry.’ ” Affiliated Ute Citizens of Utah v. United States, 406 U. S. 128, 151 (1972) (quoting SEC v. Capital Gains Research Bureau, Inc., 375 U. S. 180, 186 (1963)).

Consequently, we have explained that the statute should be “construed ‘not technically and restrictively, but flexibly to effectuate its remedial purposes.’” 406 U. S., at 151 (quoting Capital Gains Research Bureau, Inc., 375 U. S., at 195). In its role enforcing the Act, the SEC has consistently adopted a broad reading of the phrase “in connection with the purchase or sale of any security.” It has maintained that a broker who accepts payment for securities that he never intends to deliver, or who sells customer securities with intent to misappropriate the proceeds, violates § 10(b) and Rule 10b-5. See, e.g., In re Bauer, 26 S. E. C. 770 (1947); In re Southeastern Securities Corp., 29 S. E. C. 609 (1949). This interpretation of the ambiguous text of § 10(b), in the context of formal adjudication, is entitled to deference if it is reasonable, see United States v. Mead Corp., 583 U. S. 218, 229-230, and n. 12 (2001). For the reasons set forth below, we think it is. While the statute must not be construed so broadly as to convert every common-law fraud that happens to involve securities into a violation of § 10(b), Marine Bank v. Weaver, 455 U. S. 551, 556 (1982) (“Congress, in enacting the securities laws, did not intend to provide a .broad federal remedy for all fraud”), neither the SEC nor this Court has ever held that there must be a misrepresentation about the value of a particular security in order to run afoul of the Act.

The SEC claims respondent engaged in a fraudulent scheme in which he made sales of his customer’s securities for his own benefit. Respondent submits that the sales themselves were perfectly lawful and that the subsequent misappropriation of the proceeds, though fraudulent, is not properly viewed as having the requisite connection with the sales; in his view, the alleged scheme is not materially different from a simple theft of cash or securities in an investment account. We disagree.

According to the complaint, respondent “engaged in a scheme to defraud” the Woods beginning in 1988, shortly after they opened their account, and that scheme continued throughout the 2-year period during which respondent made a series of transactions that enabled him to convert the proceeds of the sales of the Woods’ securities to his own use. App. to Pet. for Cert. 27a-29a. The securities sales and respondent’s fraudulent practices were not independent events. This is not a case in which, after a lawful transaction had been consummated, a broker decided to steal the proceeds and did so. Nor is it a case in which a thief simply invested the proceeds of a routine conversion in the stock market. Rather, respondent’s fraud coincided with the sales themselves.

Taking the allegations in the complaint as true, each sale was made to further respondent’s fraudulent scheme; each was deceptive because it was neither authorized by, nor disclosed to, the Woods. With regard to the sales of shares in the Woods’ mutual fund, respondent initiated these transactions by writing a check to himself from that account, knowing that redeeming the check would require the sale of securities. Indeed, each time respondent “exercised his power of disposition for his own benefit,” that conduct, “without more,” was a fraud. United States v. Dunn, 268 U. S. 121, 131 (1925). In the aggregate, the sales are properly viewed as a “course of business” that operated as a fraud or deceit on a stockbroker’s customer.

Insofar as the connection between respondent’s deceptive practices and his sale of the Woods’ securities is concerned, the case is remarkably similar to Superintendent of Ins. of N. Y. v. Bankers Life & Casualty Co., 404 U. S. 6 (1971). In that case the directors of Manhattan Casualty Company authorized the sale of the company’s portfolio of treasury bonds because they had been “duped” into believing that the company would receive the proceeds of the sale. Id., at 9. We held that “Manhattan was injured as an investor through a deceptive device which deprived it of any compensation for the sale of its valuable block of securities.” Id., at 10. In reaching this conclusion, we did not ask, as the Fourth Circuit did in this case, whether the directors were misled about the value of a security or whether the fraud involved “manipulation of a particular security.” 238 F. 3d, at 565. In fact, we rejected the Second Circuit’s position in Superintendent of Ins. of N. Y. v. Bankers Life & Casualty Co., 430 F. 2d 355, 361 (1970), that because the fraud against Manhattan did not take place within the context of a securities exchange it was not prohibited by § 10(b). 404 U. S., at 10. We refused to read the statute so narrowly, noting that it “must be read flexibly, not technically and restrictively.” Id., at 12. Although we recognized that the interest in “ ‘preserving the integrity of the securities markets’ ” was one of the purposes animating the statute, we rejected the notion that § 10(b) is limited to serving that objective alone. Ibid. (“We agree that Congress by § 10(b) did not seek to regulate transactions which constitute no more than internal corporate mismanagement. But we read § 10(b) to mean that Congress meant to bar deceptive devices and contrivances in the purchase or sale of securities whether conducted in the organized markets or face to face”).

Like the company directors in Bankers Life, the Woods were injured as investors through respondent’s deceptions, which deprived them of any compensation for the sale of their valuable securities. They were duped into believing respondent would “conservatively invest” their assets in the stock market and that any transactions made on their behalf would be for their benefit for the “ ‘safety of principal and income.’” App. to Pet. for Cert. 27a. The fact that respondent misappropriated the proceeds of the sales provides persuasive evidence that he had violated § 10(b) when he made the sales, but misappropriation is not an essential element of the offense. Indeed, in Bankers Life, we flatly stated that it was “irrelevant” that “the proceeds of the sale that were due the seller were misappropriated.” 404 U. S., at 10. It is enough that the scheme to defraud and the sale of securities coincide.

The Court of Appeals below distinguished Bankers Life on the ground that it involved an affirmative misrepresentation, whereas respondent simply failed to inform the Woods of his intent to misappropriate their securities. 238 F. 3d, at 566. We are not persuaded by this distinction. Respondent was only able to carry out his fraudulent scheme without making an affirmative misrepresentation because the Woods had trusted him to make transactions in their best interest without prior approval. Under these circumstances, respondent’s fraud represents an even greater threat to investor confidence in the securities industry than the misrepresentation in Bankers Life. Not only does such a fraud prevent investors from trusting that their brokers are executing transactions for their benefit, but it undermines the value of a discretionary account like that held by the Woods. The benefit of a discretionary account is that it enables individuals, like the Woods, who lack the time, capacity, or know-how to supervise investment decisions, to delegate authority to a broker who will make decisions in their best interests without prior approval. If such individuals cannot rely on a broker to exercise that discretion for their benefit, then the account loses its added value. Moreover, any distinction between omissions and misrepresentations is illusory in the context of a broker who has a fiduciary duty to her clients. See Chiarella v. United States, 445 U. S. 222,230 (1980) (noting that “silence in connection with the purchase or sale of securities may operate as a fraud actionable under § 10(b)” when there is “a duty to disclose arising from a relationship of trust and confidence between parties to a transaction”); Affiliated Ute Citizens of Utah v. United States, 406 U. S., at 153.

More recently, in Wharf (Holdings) Ltd. v. United Int’l Holdings, Inc., 532 U. S. 588 (2001), our decision that the seller of a security had violated § 10(b) focused on the secret intent of the seller when the sale occurred. The purchaser claimed “that Wharf sold it a security (the option) while secretly intending from the very beginning not to honor the option.” Id., at 597. Although Wharf did not specifically argue that the breach of contract underlying the complaint lacked the requisite connection with a sale of securities, it did assert that the case was merely a dispute over ownership of the option, and that interpreting § 10(b) to include such a claim would convert every breach of contract that happened to involve a security into a violation of the federal securities laws. Id., at 596. We rejected that argument because the purchaser’s claim was not that the defendant failed to carry out a promise to sell securities; rather, the claim was that the defendant sold a security while never intending to honor its agreement in the first place. Id., at 596-597. Similarly, in this case the SEC claims respondent sold the Woods’ securities while secretly intending from the very beginning to keep the proceeds. In Wharf, the fraudulent intent deprived the purchaser of the benefit of the sale whereas here the fraudulent intent deprived the seller of that benefit, but the connection between the deception and the sale in each case is identical.

In United States v. O’Hagan, 521 U. S. 642 (1997), we held that the defendant had committed fraud “in connection with” a securities transaction when he used misappropriated confidential information for trading purposes. We reasoned that “the fiduciary’s fraud is consummated, not when the fiduciary gains the confidential information, but when, without disclosure to his principal, he uses the information to purchase or sell securities. The securities transaction and the breach of duty thus coincide. This is so even though the person or entity defrauded is not the other party to the trade, but is, instead, the source of the nonpublic information.” Id., at 656. The Court of Appeals distinguished O’Hagan by reading it to require that the misappropriated information or assets not have independent value to the client outside the securities market, 238 F. 3d, at 565. We do not read O’Hagan as so limited. In the chief passage cited by the Court of Appeals for this proposition, we discussed the Government’s position that “[t]he misappropriation theory would not.,. apply to a ease in which a person defrauded a bank into giving him a loan or embezzled cash from another, and then used the proceeds of the misdeed to purchase securities,” because in that situation “the proceeds would have value to the malefactor apart from their use in a securities transaction, and the fraud would be complete as soon as the money was obtained.” 521 U. S., at 656 (internal quotation marks omitted). Even if this passage could be read to introduce a new requirement into § 10(b), it would not affect our analysis of this case, because the Woods’ securities did not have value for respondent apart from their use in a securities transaction and the fraud was not complete before the sale of securities occurred.

As in Bankers Life, Wharf, and O’Hagan, the SEC complaint describes a fraudulent scheme in which the securities transactions and breaches of fiduciary duty coincide. Those breaches were therefore “in connection with” securities sales within the meaning of § 10(b). Accordingly, the judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

       The scope of Rule 10b-5 is coextensive with the coverage of § 10(b), see United States v. O’Hagan, 521 U. S. 642, 651 (1997); Ernst & Ernst v. Hochfelder, 425 U. S. 185, 214 (1976); therefore, we use § 10(b) to refer to both the statutory provision and the Rule.
      The complaint also contained allegations that respondent had engaged in excessive trading, or “churning,” to generate commission income. App. to Pet. for Cert. 30a. That claim was originally excluded from the summary judgment motion, and later abandoned by the SEC.

       A summary of the evidence in the Court of Appeals’ opinion affirming the judgment in respondent’s criminal case supports the conclusion that the verdict did not necessarily determine that the fraud was connected with the sale of a security:
      “The Government presented ample direct and circumstantial evidence showing that Zandford had engaged in a scheme to defraud the Woods. It showed that: (1) Zandford had systematically transferred large sums of money from the Woods’ account to his own accounts over a nineteen month period; (2) prior to November 1987, the Woods had no relationship with Zandford; (3) Zandford, and not the Woods, benefited from the money transfers; (4) the Woods were vulnerable victims due to their physical and mental limitations; (5) the personal services agreement, the loan, and the vintage car restoration business were not only contrary to the Woods’ stated investment objectives, but they violated the rules of NASD and those of Zandford’s employer that prohibited brokers from engaging in such arrangements; and (6) vehicles owned as part of the vintage car restoration business were titled in the name of Zandford’s girlfriend as opposed to the Woods’ names. Additional evidence showing a scheme to defraud included Zandford’s failure to disclose to his employer the existence of the agreements and personal loans; his failure to report on his taxes or bank loan applications that he received income from acting as the personal representative; and his failure to disclose on his taxes his involvement in a vintage car restoration business. Zandford’s contention that there is insufficient evidence supporting that he had engaged in a scheme to defraud the Woods is meritless.” Id., at 36a-37a.

       Nor do we review the District Court’s decision denying respondent discovery — a decision that may have been influenced by respondent’s frequent filings while incarcerated. The District Court noted that respondent “has been an active litigant before and during his incarceration.” Id., at 16a, n. 1 (citing Zandford v. NASD, 30 F. Supp. 2d 1 (DC 1998); Zandford v. NASD, 19 F. Supp. 2d 1 (DC 1998); Zandford v. NASD, 19 F. Supp. 2d 4 (DC 1998); Zandford v. Prudential-Bache Securities, Inc., 112 F. 3d 723 (CA4 1997); Zandford v. Prudential-Bache Securities, Inc., 111 F. 3d 963 (DC 1998) (judgt. order); Zandford v. Prudential-Bache Securities, Inc., Civ. Action No. 94-0036,1995 WL 507169 (D. D. C., Aug. 15, 1995); Zandford v. Prudential-Bache Securities, Inc., Civ. Action No. HAR-90-2568, 1994 WL 150918 (D. Md., Feb. 22, 1994); Zandford v. NASD, Civ. Action No. 93-1274, 1993 WL 580761 (D. D. C., Nov. 5, 1993)).

       Contrary to the Court of Appeals’ prediction, 238 F. 3d 559, 566 (CA4 2001), our analysis does not transform every breach of fiduciary duty into a federal securities violation. If, for example, a broker embezzles cash from a client’s account or takes advantage of the fiduciary relationship to induce his client into a fraudulent real estate transaction, then the fraud would not include the requisite connection to a purchase or sale of securities. Tr. of Oral Arg. 16. Likewise, if the broker told his client he was stealing the client’s assets, that breach of fiduciary duty might be in connection with a sale of securities, but it would not involve a deceptive device or fraud. Cf. Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 474-476 (1977).


author: Justice Scalia Justice Stevens, Justice Ginsburg,

text:
    HOLMES GROUP, INC. v. VORNADO AIR CIRCULATION SYSTEMS, INC.
    No. 01-408.
    Argued March 19, 2002 —
    Decided June 3, 2002

      James W. Dabney argued the cause for petitioner. With him on the brief were Paul Izzo, Timothy P. Gallogly, Arthur R. Miller, Marcia H. Sundeen, and Carol M. Wilhelm.

      Peter W. Gowdey argued the cause for respondent. With him on the brief were Christopher P. Murphy, Janine A. Carian, Kenneth W.Starr, and Daryl L. Joseffer

         David W. Long filed a brief for the Patent, Trademark, and Copyright Section of the Bar Association of the District of Columbia as amicus curiae.

   Justice Scalia

delivered the opinion of the Court.

In this case, we address whether the Court of Appeals for the Federal Circuit has appellate jurisdiction over a case in which the complaint does not allege a claim arising under federal patent law, but the answer contains a patent-law counterclaim.

I

Respondent, Vornado Air Circulation Systems, Inc., is a manufacturer of patented fans and heaters. In late 1992, respondent sued a competitor, Duracraft Corp., claiming that Duraeraft’s use of a “spiral grill design” in its fans infringed respondent’s trade dress. The Court of Appeals for the Tenth Circuit found for Duracraft, holding that Vornado had no protectable trade-dress rights in the grill design. See Vornado Air Circulation Systems, Inc. v. Duracraft Corp., 58 F. 3d 1498 (1995) (Vornado I).

Nevertheless, on November 26,1999, respondent lodged a complaint with the United States International Trade Commission against petitioner, The Holmes Group, Inc., claiming that petitioner’s sale of fans and heaters with a spiral grill design infringed respondent’s patent and the same trade dress held unprotectable in Vornado I. Several weeks later, petitioner filed this action against respondent in the United States District Court for the District of Kansas, seeking, inter alia, a declaratory judgment that its products did not infringe respondent’s trade dress and an injunction restraining respondent from accusing it of trade-dress infringement in promotional materials. Respondent’s answer asserted a compulsory counterclaim alleging patent infringement.

The District Court granted petitioner the declaratory judgment and injunction it sought. 93 F. Supp. 2d 1140 (Kan. 2000). The court explained that the collateral-estoppel effect of Vornado I precluded respondent from relit-igating its claim of trade-dress rights in the spiral grill design. It rejected respondent’s contention that an intervening Federal Circuit case, Midwest Industries, Inc. v. Karavan Trailers, Inc., 175 F. 3d 1356 (1999), which disagreed with the Tenth Circuit’s reasoning in Vornado I, constituted a change in the law of trade dress that warranted relitigation of respondent’s trade-dress claim. The court also stayed all proceedings related to respondent’s counterclaim, adding that the counterclaim would be dismissed if the declaratory judgment and injunction entered in favor of petitioner were affirmed on appeal.

Respondent appealed to the Court of Appeals for the Federal Circuit. Notwithstanding petitioner’s challenge to its jurisdiction, the Federal Circuit vacated the District Court’s judgment, 13 Fed. Appx. 961 (2001), 4and remanded for consideration of whether the “change in the law” exception to collateral estoppel applied in light of TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U. S. 23 (2001), a case decided after the District Court’s judgment which resolved a Circuit split involving Vornado I and Midwest Industries. We granted certiorari to consider whether the Federal Circuit properly asserted jurisdiction over the appeal. 534 U. S. 1016 (2001).

II

Congress vested the Federal Circuit with exclusive jurisdiction over “an appeal from a final decision of a district court of the United States... if the jurisdiction of that court was based, in whole or in part, on [28 U. S. C. §] 1338 ....” 28 U. S. C. § 1295(a)(1) (emphasis added). Section 1338(a), in turn, provides in relevant part that “[t]he district courts shall have original jurisdiction of any civil action arising under any Act of Congress relating to patents ....” Thus, the Federal Circuit’s jurisdiction is fixed with reference to that of the district court, and turns on whether the action arises under federal patent law.

Section 1338(a) uses the same operative language as 28 U. S. C. § 1331, the statute conferring general federal-question jurisdiction, which gives the district courts “original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.” (Emphasis added.) We said in Christianson v. Colt Industries Operat ing Corp., 486 U. S. 800, 808 (1988), that “[linguistic consistency” requires us to apply the same test to determine whether a case arises under § 1338(a) as under § 1331.

The well-pleaded-complaint rule has long governed whether a case “arises under” federal law for purposes of § 1331. See, e. g., Phillips Petroleum Co. v. Texaco Inc., 415 U. S. 125, 127-128 (1974) (per curiam). As “appropriately adapted to § 1338(a),” the well-pleaded-complaint rule provides that whether a case “arises under” patent law “must be determined from what necessarily appears in the plaintiff’s statement of his own claim in the bill or declaration . . . .” Christianson, 486 U. S., at 809 (internal quotation marks omitted). The plaintiff’s well-pleaded complaint must “establish] either that federal patent law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal patent law____” Ibid. Here, it is undisputed that petitioner’s well-pleaded complaint did not assert any claim arising under federal patent law. The Federal Circuit therefore erred in asserting jurisdiction over this appeal.

A

Respondent argues that the well-pleaded-complaint rule, properly understood, allows a counterclaim to serve as the basis for a district court’s “arising under” jurisdiction. We disagree.

Admittedly, our prior cases have only required us to address whether a federal defense, rather than a federal counterclaim, can establish “arising under” jurisdiction. Nevertheless, those cases were decided on the principle that federal jurisdiction generally exists “only when a federal question is presented on the face of the plaintiff’s properly pleaded complaint.” Caterpillar Inc. v. Williams, 482 U. S. 386, 392 (1987) (emphasis added). As we said in The Fair v. Kohler Die & Specialty Co., 228 U. S. 22, 25 (1913), whether a case arises under federal patent law “cannot depend upon the answer.” Moreover, we have declined to adopt proposals that “the answer as well as the complaint... be consulted before a determination [is] made whether the case ‘arftses] under’ federal law____” Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U. S. 1, 10-11, n. 9 (1983) (citing American Law Institute, Study of the Division of Jurisdiction Between State and Federal Courts §1312, pp. 188-194 (1969)). It follows that a counterclaim — which appears as part of the defendant’s answer, not as part of the plaintiff’s complaint — cannot serve as the basis for “arising under” jurisdiction. See, e.g., In re Adams, 809 F. 2d 1187, 1188, n. 1 (CA5 1987); FDIC v. Elefant, 790 F. 2d 661, 667 (CA7 1986); Takeda v. Northwestern National Life Ins. Co., 765 F. 2d 815,822 (CA9 1985); 14B C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure §3722, pp. 402-414 (3d ed. 1998).

Allowing a counterclaim to establish “arising under” jurisdiction would also contravene the longstanding policies underlying our precedents. First, since the plaintiff is “the master of the complaint,” the well-pleaded-complaint rule enables him, “by eschewing claims based on federal law,... to have the cause heard in state court.” Caterpillar Inc., supra, at 398-399. The rule proposed by respondent, in contrast, would leave acceptance or rejection of a state forum to the master of the counterclaim. It would allow a defendant to remove a case brought in state court under state law, thereby defeating a plaintiff’s choice of forum, simply by raising a federal counterclaim. Second, conferring this power upon the defendant would radically expand the class of removable cases, contrary to the “[d]ue regard for the rightful independence of state governments” that our cases addressing removal require. See Shamrock Oil & Gas Corp. v. Sheets, 313 U. S. 100, 109 (1941) (internal quotation marks omitted). And finally, allowing responsive pleadings by the defendant to establish “arising under” jurisdiction would undermine the clarity and ease of administration of the well-pleaded-complaint doctrine, which serves as a “quick rule of thumb” for resolving jurisdictional conflicts. See Franchise Tax Bd., supra, at 11.

For these reasons, we decline to transform the longstanding well-pleaded-complaint rule into the “well-pleaded-complaint-or-counterclaim rule” urged by respondent.

B

Respondent argues, in the alternative, that even if a counterclaim generally cannot establish the original “arising under” jurisdiction of a district court, we should interpret the phrase “arising under” differently in ascertaining the Federal Circuit’s jurisdiction. In respondent’s view, effectuating Congress’s goal of “promoting the uniformity of patent law,” Brief for Respondent 21, requires us to interpret §§ 1295(a)(1) and 1338(a) to confer exclusive appellate jurisdiction on the Federal Circuit whenever a patent-law counterclaim is raised.

We do not think this option is available. Our task here is not to determine what would further Congress’s goal of ensuring patent-law uniformity, but to determine what the words of the statute must fairly be understood to mean. It would be difficult enough to give “arising under” the meaning urged by respondent if that phrase appeared in § 1295(a)(1) — the jurisdiction-conferring statute — itself. Cf. Economic Stabilization Act of 1970, § 211(b)(2), 85 Stat. 749 (providing the Temporary Emergency Court of Appeals with exclusive jurisdiction over appeals “in cases and controversies arising under this title”). Even then the phrase would not be some neologism that might justify our adverting to the general purpose of the legislation, but rather a term familiar to all law students as invoking the well-pleaded-complaint rule. Cf. Coastal States Marketing, Inc. v. New England Petroleum Corp., 604 F. 2d 179, 183 (CA2 1979) (“The use of the phrase ‘cases and controversies arising under’... is strong evidence that Congress intended to borrow the body of decisional law that has developed under 28 U. S. C. § 1331 and other grants of jurisdiction to the district courts over cases ‘arising under’ various regulatory statutes”). But the present case is even weaker than that, since § 1295(a)(1) does not itself use the term, but rather refers to jurisdiction under § 1338, where it is well established that “arising under any Act of Congress relating to patents” invokes, specifically, the well-pleaded-complaint rule. It would be an unprecedented feat of interpretive necromancy to say that § 1338(a)’s “arising under” language means one thing (the well-pleaded-complaint rule) in its own right, but something quite different (respondent’s complaint-or-eounterclaim rule) when referred to by § 1295(a)(1).

* * *

Not all cases involving a patent-law claim fall within the Federal Circuit’s jurisdiction. By limiting the Federal Circuit’s jurisdiction to cases in which district courts would have jurisdiction under § 1338, Congress referred to a well-established body of law that requires courts to consider whether a patent-law claim appears on the face of the plaintiff’s well-pleaded complaint. Because petitioner’s complaint did not include any claim based on patent law, we vacate the judgment of the Federal Circuit and remand the case with instructions to transfer the case to the Court of Appeals for the Tenth Circuit. See 28 U. S. C. § 1631.

It is so ordered.

Justice Stevens,

concurring in part and concurring in the judgment.

The Court correctly holds that the exclusive jurisdiction of the Court of Appeals for the Federal Circuit in patent cases is “fixed with reference to that of the district court,” ante, at 829. It is important to note the general rule, however, that the jurisdiction of the court of appeals is not “fixed” until the notice of appeal is filed. See Griggs v. Provident Consumer Discount Co., 459 U. S. 56, 58-59 (1982) (per curiam) (“The filing of a notice of appeal is an event of jurisdictional significance — it confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal”).

Thus, if a case began as an antitrust case, ,but an amendment to the complaint added a patent claim that was pending or was decided when the appeal is taken, the jurisdiction of the district court would have been based “in part” on 28 U. S. C. § 1338(a), and therefore § 1295(a)(1) would grant the Federal Circuit jurisdiction over the appeal. Conversely, if the only patent count in a multicount complaint was voluntarily dismissed in advance of trial, it would seem equally clear that the appeal should be taken to the appropriate regional court of appeals rather than to the Federal Circuit. See Christianson v. Colt Industries Operating Corp., 486 U. S. 800, 823-824 (1988) (Stevens, J., concurring). Any other approach “would enable an unscrupulous plaintiff to manipulate appellate court jurisdiction by the timing of the amendments to its complaint.” Id., at 824. To the extent that the Court’s opinion might be read as endorsing a contrary result by reason of its reliance on cases involving the removal jurisdiction of the district court, I do not agree with it.

I also do not agree with the Court’s statement that an interpretation of the “in whole or in part” language of § 1295(a)(1) to encompass patent claims alleged in a compulsory counterclaim providing an independent basis for the district court’s jurisdiction would be a “neologism” that would involve “an unprecedented feat of interpretive necromancy,” ante, at 833. For there is well-reasoned precedent supporting precisely that conclusion. See Aerojet-General Corp. v. Machine Tool Works, Oerlikon-Buehrle Ltd., 895 F. 2d 736, 742-743 (CA Fed. 1990) (en banc) (opinion of Markey, C. J., for a unanimous court) (citing, e. g., Rengo Co. v. Molins Machine Co., 657 F. 2d 535, 539 (CA3 1981); Dale Electronics, Inc. v. R. C. L. Electronics, Inc., 488 F. 2d 382, 390 (CA1 1973); Pioche Mines Consol, Inc. v. Fidelity-Philadelphia Trust Co., 206 F. 2d 336,336-337 (CA9 1953); Lion Mfg. Corp. v. Chicago Flexible Shaft Co., 106 F. 2d 930, 933 (CA71939)). I am nevertheless persuaded that a correct interpretation of § 1295(a)(1) limits the Federal Circuit’s exclusive jurisdiction to those cases in which the patent claim is alleged in either the original complaint or an amended pleading filed by the plaintiff. In my judgment, each of the three policies that the Court has identified as supporting the “well-pleaded-complaint” rule governing district court jurisdiction, ante, at 831-832, points in the same direction with respect to appellate jurisdiction.

First, the interest in preserving the plaintiff’s choice of forum includes not only the court that will conduct the trial but the appellate court as well. A plaintiff who has a legitimate interest in litigating in a circuit whose precedents support its theory of the case might omit a patent claim in order to avoid review in the Federal Circuit. In some cases that interest would be defeated by a rule that allowed a patent counterclaim to determine the appellate forum.

Second, although I doubt that a rule that enabled the coun-terclaimant to be the occasional master of the appellate forum “would radically expand” the number of cases heard by the Federal Circuit, ante, at 832, we must recognize that the exclusive jurisdiction of the Federal Circuit defined in § 1295(a)(1) does not comprise claims arising under the trademark and copyright laws, which are included in the district court’s grant of jurisdiction under § 1338(a). As the instant litigation demonstrates, claims sounding in these other areas of intellectual property law are not infrequently bound up with patent counterclaims. The potential number of cases in which a counterclaim might direct to the Federal Circuit appeals that Congress specifically chose not to place within its exclusive jurisdiction is therefore significant.

Third, the interest in maintaining clarity and simplicity in rules governing appellate jurisdiction will be served by limiting the number of pleadings that will mandate review in the Federal Circuit. In his opinion in Aerojet, Chief Judge Markey merely held that a counterclaim for patent infringement that was “compulsory” and not “frivolous” or “insubstantial” sufficed to establish jurisdiction; he made a point of noting that there was no assertion in the case that the patent counterclaim at issue had been filed “to manipulate the jurisdiction of [the Federal Circuit].” 895 F. 2d, at 738. The text of the statute, however, would not seem to distinguish between that counterclaim and those that are permissive, insubstantial, or manipulative, and there is very good reason not to make the choice of appellate forum turn on such distinctions. Requiring assessment of a defendant’s motive in raising a patent counterclaim or the counterclaim’s relative strength wastes judicial resources by inviting “unhappy interactions between jurisdiction and the merits.” Kennedy v. Wright, 851 F. 2d 963, 968 (CA7 1988).

There is, of course, a countervailing interest in directing appeals in patent cases to the specialized court that was created, in part, to promote uniformity in the development of this area of the law. But we have already decided that the Federal Circuit does not have exclusive jurisdiction over all cases raising patent issues. Christianson, 486 U. S., at 811-812. Necessarily, therefore, other circuits will have some role to play in the development of this area of the law. An occasional conflict in decisions may be useful in identifying questions that merit this Court’s attention. Moreover, occasional decisions by courts with broader jurisdiction will provide an antidote to the risk that the specialized court may develop an institutional bias.

In sum, I concur in the Court’s judgment and join Parts I and II-A of its opinion.

Justice Ginsburg,

with whom Justice O’Connor joins,

concurring in the judgment.

For reasons stated by Chief Judge Markey, writing for a unanimous en banc Federal Circuit in Aerojet-General Corp. v. Machine Tool Works, Oerlikon-Buehrle Ltd., 895 F. 2d 736 (1990), I conclude that, when the claim stated in a compulsory counterclaim “aris[es] under” federal patent law and is adjudicated on the merits by a federal district court, the Federal Circuit has exclusive appellate jurisdiction over that adjudication and other determinations made in the same case. See id., at 741-744 (distinguishing Christianson v. Colt Industries Operating Corp., 486 U. S. 800 (1988), in which this Court affirmed the jurisdictional decision of the Federal Circuit; in discussing the “well-pleaded complaint rule,” the Federal Circuit observed that a patent infringement counterclaim, unlike a patent issue raised only as a defense, has as its own, independent jurisdictional base 28 U. S. C. § 1338, i. e., such a claim discretely “arises under the patent laws”).

The question now before this Court bears not at all on a plaintiff’s choice of trial forum. The sole question presented here concerns Congress’ allocation of adjudicatory authority among the federal courts of appeals. At that appellate level, Congress sought to eliminate forum shopping and to advance uniformity in the interpretation and application of federal patent law. See generally Dreyfuss, The Federal Circuit: A Case Study in Specialized Courts, 64 N. Y. U. L. Rev. 1, 30-37 (1989).

The Court’s opinion dwells on district court authority. See ante, at 829-832. But, all agree, Congress left that authority entirely untouched. I would attend, instead, to the unique context at issue, and give effect to Congress’ endeavor to grant the Federal Circuit exclusive appellate jurisdiction at least over district court adjudications of patent claims. See Dreyfuss, supra, at 36.

In the instant case, however, no patent claim was actually adjudicated. For that sole reason, I join the Court’s judgment.

       Like Christianson v. Colt Industries Operating Corp., 486 U. S. 800, 814-815 (1988), this case does not call upon us to decide whether the Federal Circuit’s jurisdiction is fixed with reference to the complaint as initially filed or whether an actual or constructive amendment to the complaint raising a patent-law claim can provide the foundation for the Federal Circuit’s jurisdiction.

       The well-pleaded-complaint rule also governs whether a case is removable from state to federal court pursuant to 28 U. S. C. § 1441(a), which provides in relevant part:
      “Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.”
      See Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U. S. 1 (1983).

       Echoing a variant of this argument, Justice Ginsburg contends that “giv[ing] effect” to Congress’s intention “to eliminate forum shopping and to advance uniformity in ... patent law” requires that the Federal Circuit have exclusive jurisdiction whenever a patent claim was “actually adjudicated.” Post, at 840 (opinion concurring in judgment). We rejected precisely this argument in Christianson, viz., the suggestion that the Federal Circuit’s jurisdiction is “fixed ‘by reference to the case actually litigated.’ ” 486 U. S., at 813 (quoting Brief for Respondent in Christianson v. Colt Industries Operating Corp., O. T. 1987, No. 87-499, p. 31). We held that the Federal Circuit’s jurisdiction, like that of the district court, “is determined by reference to the well-pleaded complaint, not the well-tried case.” 486 U. S., at 814.

       Although Justice Stevens agrees that a correct interpretation of § 1295(a)(1) does not allow a patent-law counterclaim to serve as the basis for the Federal Circuit’s jurisdiction, he nevertheless quibbles that “there is well-reasoned precedent” supporting the contrary conclusion. See post, at 835 (opinion concurring in part and concurring in judgment). There is not. The cases relied upon by Justice Stevens and by the court in Aerojet-General Corp. v. Machine Tool Works, Oerlikon-Buehrle Ltd., 895 F. 2d 736 (CA Fed. 1990), simply address whether a district court can retain jurisdiction over a counterclaim if the complaint (or a claim therein) is dismissed or if a jurisdictional defect in the complaint is identified. They do not even mention the well-pleaded-complaint rule that the statutory phrase “arising under” invokes. Nor do any of these cases interpret § 1295(a)(1) or another statute conferring appellate jurisdiction with reference to the jurisdiction of the district court. Thus, the cases relied upon by Justice Stevens have no bearing on whether the phrase “arising under” can be interpreted differently in ascertaining the jurisdiction of the Federal Circuit than that of the district court.

       The Court dismisses the cases cited in Aerojet, a unanimous opinion for an en banc Federal Circuit, as having “no bearing” on this case because they do not parse the term “arising under” or interpret 28 U. S. C. § 1295(a)(1). Ante, at 834, n. 4. But surely it is not a “quibblfe)” to acknowledge them as supporting the Aerojet court’s conclusion that the jurisdiction of the district court can be based on a patent counterclaim, thereby satisfying the “in whole or in part” requirement of § 1295(a)(1).
      In any event, the assertion that only the power of black magic could give “arising under” a different meaning with respect to appellate jurisdiction is belied by case law involving the Temporary Emergency Court of Appeals (TECA), which had exclusive jurisdiction over appeals in cases “arising under” the Economic Stabilization Act of 1970 (ESA), § 211(b)(2), 85 Stat. 749. Most courts departed from the traditional understanding of “arising under” and interpreted the statute to grant TECA appellate jurisdiction over ESA issues, including those raised as a defense. Courts nevertheless interpreted the statute’s identical language respecting the district courts to grant traditional “arising under” jurisdiction. See Coastal States Marketing, Inc. v. New England Petroleum Corp., 604 F. 2d 179, 185-186 (CA2 1979) (“It must be candidly recognized that according the TECA some form of ‘issue’ jurisdiction places on the phrase, ‘cases and controversies arising under,'... a construction that differs from the meaning associated with these words in other jurisdictional statutes, and differs even from the grant of jurisdiction to the district courts in [the ESA)”). Thus, although I am in agreement with the Court’s ultimate decision not to determine appellate jurisdiction by reference to the defendant’s patent counterclaim, I find it unnecessary and inappropriate to slight the contrary reasoning of the Court of Appeals.

       The statute grants the Federal Circuit “exclusive jurisdiction... if the jurisdiction of [the district] court was based, in whole or in part, on [28 U. S. C.] section 1338 . . . , except that a case involving a claim arising under any Act of Congress relating to copyrights, exclusive rights in mask works, or trademarks and no other claims under section 1338(a) shall be governed” by provisions relating to appeals to the regional courts of appeals. 28 U. S. C. § 1295(a)(1).

       In explicit contrast with the TECA, see n. 1, supra, the Federal Circuit was granted appellate jurisdiction over cases involving patent law claims, not issues. See Christianson v. Colt Industries Operating Corp., 486 U. S. 800, 820-821, n. 1 (1988) (Stevens, J., concurring) (quoting H. R. Rep. No. 97-312, p. 41 (1981)) (“Cases will be within the jurisdiction of the Court of Appeals for the Federal Circuit in the same sense that cases are said to ‘arise under’ federal law for purposes of federal question jurisdiction. Contrast, Coastal States Marketing, Inc. v. New England Petroleum Corp., 604 F. 2d 179 (2d Cir., 1979) [Temporary Emergency Court of Appeals properly has jurisdiction over issues, not claims, arising under the Economic Stabilization Act]” (internal quotation marks omitted)).
      Considerations of convenience to the parties and the courts support Congress’ decision to determine the Federal Circuit’s appellate jurisdiction based on the claims alleged in the well-pleaded complaint rather than the issues resolved by the district court’s judgment. If, for example, the district court’s judgment rests on multiple grounds, directing the appeal is a relatively straightforward matter by reference to the complaint. As Judge Easterbrook explains in Kennedy v. Wright, 851 P. 2d 963 (CA7 1988), fixing appellate jurisdiction with respect to the complaint also ensures that a case that has been appealed and remanded will return to the same appellate court if there is a subsequent appeal. Id., at 968 (describing the risk of “a game of jurisdictional ping-pong” if subsequent appeals are directed based on the grounds for decision rather than the pleadings).

       See Dreyfuss, The Federal Circuit: A Case Study in Specialized Courts, 64 N. Y. U. L. Rev. 1, 25-30, 54 (1989) (evaluating criticism that the Federal Circuit demonstrates a greater pro-patent bias than regional circuits).


text:
    March 4, 2002
    No. 00-1619.
    Goord, Commissioner, New York Department of Correctional Services, et al. v. Lawrence.
   C. A. 2d Cir. Certiorari granted, judgment vacated, and case remanded for further consideration in light of Porter v. Nussle, 534 U. S. 516 (2002).


text:
    No. 01-100.
    Sterner et al. v. Royster.
   C. A. 2d Cir. Certiorari granted, judgment vacated, and case remanded for further consideration in light of Porter v. Nussle, 534 U. S. 516 (2002).


text:
    No. 01-7124.
    Trobaugh v. Hawk Sawyer, Director, Federal Bureau of Prisons, et al.
   C. A. 8th Cir. Motion of petitioner for leave to proceed in forma pauperis denied, and certiorari dismissed. See this Court’s Rule 39.8.


text:
    No. 01-7526.
    Sindram v. Rubin.
   Ct. App. Md. Motion of petitioner for leave to proceed in forma pauperis denied, and certiorari dismissed. See this Court’s Rule 39.8. As petitioner has repeatedly abused this Court’s process, the Clerk is directed not to accept any further petitions in noncriminal matters from petitioner unless the docketing fee required by Rule 38(a) is paid and the petition is submitted in compliance with Rule 33.1. See Martin v. District of Columbia Court of Appeals, 506 U. S. 1 (1992) (per curiam). Justice. Stevens dissents. See id., at 4, and cases cited therein.


text:
    No. 01A434.
    Moore v. Cockrell, Director, Texas Department of Criminal Justice, Institutional Division.
   Application for certificate of appealability, addressed to Justice Kennedy and referred to the Court, denied.


text:
    No. D-2286.
    In re Discipline of Marks.
   Martin Eric Marks, of Great Neck, N. Y., is suspended from the practice of law in this Court, and a rule will issue, returnable within 40 days, requiring him to show cause why he should not be disbarred from the practice of law in this Court.


text:
    No. D-2287.
    In re Discipline of Bushlow.
   Theodore William Bushlow, of Brooklyn, N. Y., is suspended from the practice of law in this Court, and a rule will issue, returnable within 40 days, requiring him to show cause why he should not be disbarred from the practice of law in this Court.


text:
    No. D-2288.
    In re Discipline of Friesen.
   Michael J. Frie-sen, of Garden City, Kan., is suspended from the practice of law in this Court, and a rule will issue, returnable within 40 days, requiring him to show cause why he should not be disbarred from the practice of law in this Court.