John Davis v. Andrew Saul ( 2020 )

United States Court of Appeals
For the Eighth Circuit
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No. 18-3422
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John J. Davis,
lllllllllllllllllllllPlaintiff - Appellant,
v.
Andrew Saul, Commissioner, Social Security Administration,
lllllllllllllllllllllDefendant - Appellee.
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No. 18-3451
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Destiny M. Thurman,
lllllllllllllllllllllPlaintiff - Appellant,
v.
Andrew Saul, Commissioner, Social Security Administration,
lllllllllllllllllllllDefendant - Appellee.
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No. 18-3452
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Kimberly L. Iwan,
lllllllllllllllllllllPlaintiff - Appellant,
v.
Andrew Saul, Commissioner, Social Security Administration,
lllllllllllllllllllllDefendant - Appellee.
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Appeals from United States District Court
for the Northern District of Iowa - Cedar Rapids
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Submitted: November 13, 2019
Filed: June 26, 2020
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Before COLLOTON, WOLLMAN, and BENTON, Circuit Judges.
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COLLOTON, Circuit Judge.
Appellants John Davis, Destiny Thurman, and Kimberly Iwan applied
unsuccessfully for social security benefits in 2013 or 2014. Each brought an action
in the district court, asserting that the administrative law judge who denied the
application for benefits was not properly appointed in accordance with the
Appointments Clause of the Constitution. Art. II, § 2, cl. 2. None of the claimants
raised this argument during proceedings before the Social Security Administration
(SSA). The district court1 ruled in all three cases that the claimant waived the
argument by failing to raise it before the agency. We conclude that the district court
properly declined to consider the issue, and we affirm the judgments.
1
The Honorable Linda R. Reade, United States District Judge for the Northern
District of Iowa.
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I.
The three claimants applied for disability insurance benefits and supplemental
security income in either 2013 or 2014. The agency denied their applications on
initial review and on reconsideration, and each claimant requested and received a
hearing before an administrative law judge. After an ALJ denied each application,
the claimants sought review by the agency’s Appeals Council, and the Appeals
Council denied review. None of the claimants ever objected to the manner in which
the ALJ was appointed.
All three claimants sought review of the agency’s decision in the district court
under 42 U.S.C. § 405(g). While the cases were pending, the Supreme Court in Lucia
v. SEC, 138 S. Ct. 2044 (2018), decided that administrative law judges of the
Securities and Exchange Commission are “Officers of the United States” who must
be appointed by the President, a court of law, or a head of a department. Id. at 2051,
2055. The Court ruled that “one who makes a timely challenge to the constitutional
validity of the appointment of an officer who adjudicates his case is entitled to relief.”
Id. at 2055 (internal quotation omitted).
As of 2017, administrative law judges in the Social Security Administration
were not appointed by the head of the agency, but rather by lower-level officials.
While Lucia was pending at the Court, the SSA issued several emergency measures.
On January 30, 2018, the agency’s Office of General Counsel warned ALJs that they
might receive Appointments Clause challenges and instructed them not to “discuss
or make any findings related to the Appointments Clause issue,” because the “SSA
lacks the authority to finally decide constitutional issues such as these.” The agency
directed the ALJs to acknowledge when the issue had been raised. Soc. Sec. Admin.,
EM-18003: Important Information Regarding Possible Challenges to the
Appointment of Administrative Law Judges in SSA’s Administrative Process (2018).
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On June 25, shortly after the Court decided Lucia, the SSA’s Office of Hearing
Operations issued a revised emergency measure. This direction continued to instruct
ALJs to acknowledge, but not to address, challenges based on the Appointments
Clause. Soc. Sec. Admin., EM-18003 REV: Important Information Regarding
Possible Challenges to the Appointment of Administrative Law Judges in SSA’s
Administrative Process – UPDATE (2018).
Finally, on August 6, the Office of Hearing Operations issued another revised
version of the same emergency measure. This one announced that (i) the agency’s
Acting Commissioner recently had ratified the appointment of all ALJs, thereby
curing any defect related to the Appointments Clause, and (ii) ALJs should continue
to acknowledge and report any Appointments Clause challenges that were raised
before the ratification date. Soc. Sec. Admin., EM-18003 REV 2: Important
Information Regarding Possible Challenges to the Appointment of Administrative
Law Judges in SSA’s Administrative Process – UPDATE (2018).
In their complaints, Davis, Thurman, and Iwan did not raise a challenge to the
appointment of the ALJ who decided their cases. A magistrate judge, considering
only the issues raised by each claimant, recommended that the district court affirm the
agency’s decision denying each application for benefits. In August 2018, each
claimant moved for leave to file a supplemental brief that would raise an
Appointments Clause challenge for the first time. The district court allowed briefing,
but declined to consider the new argument. Citing Anderson v. Barnhart, 344 F.3d
809, 814 (8th Cir. 2003), the court ruled in each case that because the claimant did
not raise an Appointments Clause challenge before the ALJ or Appeals Council, the
claimant had waived the issue. Other circuits presented with the issue have disagreed
on whether exhaustion of the issue before the agency is required. Compare Carr v.
Comm’r, Nos. 19-5079, 19-5085, 2020 WL 3167896 (10th Cir. June 15, 2020), with
Cirko v. Comm’r, 948 F.3d 148 (3d Cir. 2020).
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II.
The claimants sought review of the agency’s decisions in federal court under
42 U.S.C. § 405(g). That section provides that “[a]ny individual, after any final
decision of the Commissioner of Social Security . . . may obtain a review of such
decision by a civil action.” Because the claimants presented their claims for benefits
to the Commissioner, the district court had jurisdiction under § 405(g) to review the
agency’s decisions. Mathews v. Eldridge, 424 U.S. 319, 328 (1976).
Even where a district court has jurisdiction under the statute, however, this
court also has required a claimant to exhaust a particular issue before an
administrative law judge in order to seek judicial review on that issue. Anderson, 344
F.3d at 814. The agency’s regulations similarly require a claimant to notify an ALJ
before the hearing if the claimant objects to the issues to be decided. 20 C.F.R.
§ 404.939.
In Sims v. Apfel, 530 U.S. 103 (2000), the Supreme Court held that a claimant
who was denied benefits by an administrative law judge was not required to exhaust
an issue before the Appeals Council in order to seek judicial review. Although the
Court said that the reasons for requiring exhaustion are much weaker in a non-
adversarial proceeding than in an adversarial proceeding, id. at 109-10, the case
ultimately was decided on narrower grounds. The deciding vote turned on the fact
that the agency told the claimant that she could seek review by sending a letter or
filling out a one-page form that should take ten minutes, that only failing to request
Appeals Council review would preclude judicial review, and that the Appeals Council
would review her entire case for issues. Id. at 113-14 (O’Connor, J., concurring in
part and concurring in the judgment).
Foreshadowing Sims, this court held in Harwood v. Apfel, 186 F.3d 1039 (8th
Cir. 1999), that a claimant did not forfeit an issue by failing to raise it before the
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Appeals Council. Id. at 1042-43. The Sims plurality favorably cited Harwood. 530
U.S. at 112 (plurality opinion). But this court in Harwood also acknowledged that
failure to raise an issue before either the ALJ or the Appeals Council “perhaps
present[s] a stronger case for a waiver rule.” 186 F.3d 1043 n.3. Other pre-Sims
cases from this court appeared to require exhaustion of issues before an ALJ. Pena
v. Chater, 76 F.3d 906, 909 (8th Cir. 1996); Brockman v. Sullivan, 987 F.2d 1344,
1348 (8th Cir. 1993). Whether a claimant must exhaust issues before an ALJ was not
before the Court in Sims, 530 U.S. at 107, and our post-Sims decision in Anderson
expressly required that step. 344 F.3d at 814; see also Forte v. Barnhart, 377 F.3d
892, 896 (8th Cir. 2004).
The issue exhaustion requirement is consistent with longstanding principles of
administrative law. “Ordinarily an appellate court does not give consideration to
issues not raised below.” Hormel v. Helvering, 312 U.S. 552, 556 (1941). “[O]rderly
procedure and good administration require that objections to the proceedings of an
administrative agency be made while it has opportunity for correction.” United States
v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37 (1952). “Exhaustion is required
because it serves the twin purposes of protecting administrative agency authority and
promoting judicial efficiency.” McCarthy v. Madigan, 503 U.S. 140, 145 (1992). In
most cases, therefore, “an issue not presented to an administrative decisionmaker
cannot be argued for the first time in federal court.” Sims, 530 U.S. at 112
(O’Connor, J., concurring in part and concurring in the judgment). In determining
whether to allow an exception to the ordinary rule, courts should be “guided by the
policies underlying the exhaustion requirement.” Bowen v. City of New York, 476
U.S. 467, 484 (1986).
The claimants advance three interrelated arguments for excusing their failure
to raise an Appointments Clause challenge during agency proceedings. They
maintain that constitutional claims need not be exhausted, that exhaustion of this
particular constitutional challenge would have been futile, and that the court should
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exercise its discretion to waive any applicable exhaustion requirement. This court has
largely rejected those contentions in litigation arising from another agency. Presented
with a constitutional challenge to appointments of members of the National Labor
Relations Board, we held that a company waived its claim by failing to raise the issue
before the Board: “Constitutional considerations, no matter how important or
‘fundamental,’ can be forfeited as Justice Scalia has emphasized: ‘Appointments
Clause claims, and other structural constitutional claims, have no special entitlement
to review.’” NLRB v. RELCO Locomotives, Inc., 734 F.3d 764, 798 (8th Cir. 2013)
(quoting Freytag v. Comm’r, 501 U.S. 868, 893 (1991) (Scalia, J., concurring in part
and concurring in the judgment)).
In the social security context, the Supreme Court has explained that a claimant
need not litigate certain constitutional questions in order to satisfy the jurisdictional
requirement of the judicial review statute. Eldridge, 424 U.S. at 329 n.10; see
Califano v. Sanders, 430 U.S. 99, 109 (1977). And we may accept that “[i]t is
unrealistic to expect that the [Commissioner] would consider substantial changes in
the current administrative review system at the behest of the single aid recipient
raising a constitutional challenge in an adjudicatory context.” Eldridge, 424 U.S. at
330.
But those observations do not demonstrate that exhaustion would have been
futile here. Application of the exhaustion doctrine is supposed to be “intensely
practical.” Bowen, 476 U.S. at 484 (quoting Eldridge, 424 U.S. at 331 n.11) (internal
quotation omitted). As a practical matter, the claimants here maintain that hundreds
if not thousands of social security claimants may raise for the first time in federal
court a challenge to the manner in which administrative law judges were appointed.
The practical effect of sustaining that position would be to require the agency to
rehear a multitude of cases. Yet if hundreds of claimants had raised an Appointments
Clause challenge before the agency, the Commissioner would have been in a position
to avoid an administrative quagmire. “Repetition of [an] objection . . . might lead to
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a change of policy, or, if it did not, the [agency] would at least be put on notice of the
accumulating risk of wholesale reversals being incurred by its persistence.” L.A.
Tucker Truck Lines, 344 U.S. at 37. Even if an individual ALJ was powerless to
address the constitutionality of her appointment, the agency head—alerted to the issue
by claimants in the adjudicatory process—could have taken steps through ratification
or new appointments to address the objection.
For similar reasons, we do not believe this is “one of those rare cases in which
we should exercise our discretion” to consider a non-exhausted claim. Freytag, 501
U.S. at 879. Freytag resolved a constitutional challenge to the appointment of
Special Trial Judges of the United States Tax Court. The Court noted that although
the petitioner did not raise the issue before the Tax Court, the claim implicated “the
strong interest of the federal judiciary in maintaining the constitutional plan of
separation of powers.” Id. (quoting Glidden Co. v. Zdanok, 370 U.S. 530, 536
(1962)). This court, however, has not understood Freytag to mean that all
Appointments Clause challenges are exempt from the typical requirements of issue
exhaustion. RELCO Locomotives, 734 F.3d at 798. We consider here the
practicalities of potentially upsetting numerous administrative decisions because of
an alleged appointment flaw to which the agency was not timely alerted. We also
recognize the perverse incentives that could be created by allowing claimants to
litigate benefits before an ALJ without objection and then, if unsuccessful, to secure
a remand for a second chance based on an unexhausted argument about how the ALJ
was appointed. See Freytag, 501 U.S. at 895 (Scalia, J., concurring in part and
concurring in the judgment). Under all of the circumstances, we do not view this as
a rare situation in which a federal court should consider an issue that was not
presented to the agency.
The judgments of the district court are affirmed.
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