Justiniano v. Social Security Administration

United States Court of Appeals
For the First Circuit
No. 16-2227
DANIEL JUSTINIANO; FRANCISCO MENÉNDEZ; PERSON A,
Plaintiffs, Appellants,
v.
SOCIAL SECURITY ADMINISTRATION; NANCY A. BERRYHILL, Acting
Commissioner of the Social Security Administration,*
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jay A. García-Gregory, U.S. District Judge]
Before
Howard, Chief Judge,
Torruella and Barron, Circuit Judges.
Javier Andrés Colón Volgamore for appellants.
Thomas Pulham, Attorney, Appellate Staff, Civil Division,
U.S. Department of Justice, with whom Benjamin C. Mizer, Principal
Deputy Assistant Attorney General, Rosa E. Rodríguez-Vélez, United
States Attorney, and Mark B. Stern, Attorney, Appellate Staff,
Civil Division, were on brief, for appellees.
* Pursuant to Fed. R. App. P. 43(c)(2), Acting Commissioner
of the Social Security Administration Nancy A. Berryhill has been
substituted for former Acting Commissioner of the Social Security
Administration Carolyn W. Colvin as defendant-appellee.
November 21, 2017
BARRON, Circuit Judge. The Social Security
Administration ("SSA") terminated the disability benefits that
Daniel Justiniano and Francisco Menéndez -- the plaintiffs-
appellants -- had been receiving.1 The SSA did so based on a
concern that the medical evidence that supported Justiniano's and
Menéndez's applications for those benefits was fraudulent because
in each case that evidence was traceable to a physician who was
the subject of a federal fraud investigation.
Justiniano and Menéndez each challenged administratively
the SSA's decision to terminate the benefits for which they had
applied. Justiniano and Menéndez contended that, among other
things, the SSA, in so deciding, neither adequately notified them
of the evidence of fraud nor provided them with an opportunity to
challenge that evidence. Justiniano and Menéndez contended that,
in consequence, the SSA violated their constitutional right to due
process of law and their rights under the Social Security Act and
its implementing regulations.
Before the two men had exhausted the administrative
review process, however, they filed suit in federal court. In
that suit, they sought various kinds of relief based presumably on
the same grounds as the claims that they had presented to the SSA
1 The complaint also names "Person A" as a plaintiff. But,
because the plaintiffs do not discuss this third plaintiff in their
appellate brief, neither do we do so here.
- 3 -
in seeking to continue to receive their benefits. The government
moved to dismiss the suit, and the District Court did so for lack
of subject matter jurisdiction based on the plaintiffs' failure to
have exhausted their administrative remedies.
Justiniano and Menéndez now appeal that jurisdictional
ruling. Because they have failed to show that they could not
obtain a restoration of their benefits through the administrative
review process, despite evidence suggesting that they would have
a substantial chance of doing so, we affirm.
I.
The undisputed facts are drawn from the complaint and
certain documents and affidavits that were filed by the parties
below. See Aversa v. United States, 99 F.3d 1200, 1209–10 (1st
Cir. 1996). For several years, Justiniano and Menéndez received
benefits under the Social Security disability insurance program
established by Title II of the Social Security Act, 42 U.S.C.
§§ 401-34.
In November of 2013, however, the SSA notified
Justiniano and Menéndez that their benefits were being suspended
pending a redetermination of their entitlement to them. The SSA
was acting pursuant to a provision in the Social Security Act, 42
U.S.C. § 405(u), by which "[t]he Commissioner of Social Security
shall immediately redetermine the entitlement of individuals to
monthly insurance benefits . . . if there is reason to believe
- 4 -
that fraud or similar fault was involved in the application of the
individual for such benefits." Id. § 405(u)(1)(A). Section 405(u)
provides that, during the redetermination process, the SSA "shall
disregard" any evidence in an application for benefits that the
agency has "reason to believe" is fraudulent. Id. § 405(u)(1)(B).
And, the provision further specifies, the SSA "may terminate" a
claimant's benefits if, after reviewing what evidence is left in
the application for benefits, "there is insufficient evidence to
support [an] entitlement" to benefits. Id. § 405(u)(3).
Here, the SSA's notices to Justiniano and Menéndez
explained that a redetermination of the disability benefits that
each had been receiving was necessary because each of their
applications for those benefits possibly contained medical
evidence from one of several suspects who was under federal
investigation for fraud in connection with the filing of disability
benefits applications. Those notices indicated, however, that
additional evidence could be presented to the SSA in support of
the disability benefits application. Medical reports from doctors
whom Justiniano and Menéndez allege they consulted were received
by the agency following those notices.
Within two months of sending the notices regarding the
suspension of the benefits, the SSA completed the process of
redetermining the benefits for Justiniano and Menéndez and
separately notified each of them of the termination of the benefits
- 5 -
that they had been receiving. Each termination notice explained
that the SSA had "disregarded" medical evidence in the benefits
application that had been provided by a physician who had pleaded
guilty in the fraud investigation. In consequence, each notice
explained that, based on a review of the evidence that remained in
each application for benefits, the applicant was "not disabled"
and thus not entitled to disability benefits.
Each plaintiff requested reconsideration of the SSA's
decision to terminate benefits. The SSA then confirmed its
termination decisions in the summer of 2014. The SSA advised both
Justiniano and Menéndez that they could appeal from the benefits
termination decisions by requesting a hearing before an
administrative law judge ("ALJ"). Both Justiniano and Menéndez
did so.
In October of 2015, however, in advance of any hearing
before an ALJ on either Justiniano's or Menéndez's administrative
appeal, they jointly filed this suit in the United States District
Court for the District of Puerto Rico. Their complaint in that
suit challenges the SSA's termination of their benefits on the
following grounds.
The complaint alleges that the SSA's termination
decision in each case was made without providing (1) adequate
notice of the evidence of fraud that the SSA relied on in making
its decision to disregard the medical evidence contained in the
- 6 -
plaintiffs' benefits' applications and (2) any opportunity to
challenge the finding of fraud in their individual cases.2 The
plaintiffs also deny in their complaint that any medical evidence
in their benefits applications was fraudulent. Their complaint
thus alleges that the SSA "reopen[ed]" the plaintiffs' cases "in
bulk" simply by relying on evidence of fraud from "unrelated" cases
that merely happened to contain medical evidence from the same
physicians who provided evidence in the plaintiffs' cases.
The complaint further alleges that the termination
notices that the SSA sent to the plaintiffs were "boilerplate"
that neither informed the plaintiffs "what actions (if any) by the
plaintiffs constituted fraud" nor identified "what evidence the
[SSA] relied on to make its decision." In addition, the complaint
alleges that the plaintiffs were "not allowed to challenge the
decision that fraud or similar fault was present in their
individual cases" and that, during the redetermination process,
"[t]he only evidence that would be received was evidence of [a]
medical nature and only evidence in support of a finding of the
2 The complaint also alleges that the SSA "failed to provide
the plaintiffs with adequate notice of the intent to terminate
benefits." The government pointed out at oral argument that the
plaintiffs have not developed any argument as to why the SSA's
initial notices of suspension pending a redetermination of
eligibility for benefits provided insufficient notice of the SSA's
intent to terminate benefits. We agree, and we therefore consider
the issue waived. See United States v. Zannino, 895 F.2d 1, 17
(1st Cir. 1990).
- 7 -
existence of impairment," thus excluding any "[e]vidence of the
existence or inexistence of fraud."
On the basis of these allegations, the complaint
contends that the SSA's benefits termination decisions violated
various legal requirements. In particular, the complaint alleges
that "[t]he presumption of fraud inherent in the [SSA's] decisions
violates the plaintiffs' Fifth Amendment right to the due process
of law." In this regard, the complaint asserts that "[t]he basic
[tenets] of due process require that the [SSA] carry the initial
burden of proof of fraud in the specific cases before the cases
can be reopened, the medical determinations revised and benefits
terminated. Due process further requires adequate notification of
any accusation against the plaintiffs . . . ."
The complaint also alleges that the SSA's termination
process violated the Social Security Act and its implementing
regulations. Specifically, the complaint alleges that the SSA had
"reopen[ed]" the cases without complying with 20 C.F.R.
§ 404.988(c)(1), which provides that "[a] determination, revised
determination, decision, or revised decision may be reopened . . .
[a]t any time if . . . [i]t was obtained by fraud or similar
fault." The complaint contends that the regulation’s reference to
the reopening of “[a] determination” (singular) requires
redeterminations to be made "on a case by case basis" based on
evidence of fraud specifically tied to each individual case.
- 8 -
The relief that the plaintiffs seek in their suit
includes a declaratory judgment that the SSA's bulk
redetermination of their disability benefits violated the federal
Constitution, the Social Security Act, and certain regulations;
actual and statutory damages; and a reinstatement of their
benefits.3 The plaintiffs also request payment of benefits that
were not paid during the termination period and an injunction
against billing them for an overpayment of benefits. Moreover, in
their complaint, Justiniano and Menéndez seek to assert not only
their own claims but also those of a putative class of similarly
situated people whose disability benefits had been terminated in
connection with the same federal fraud investigation that formed
the basis for the decision to terminate their benefits.
Before Justiniano and Menéndez moved to have their
putative class certified, however, the SSA filed a motion to
dismiss. The motion sought dismissal, in part, under Rule 12(b)(6)
3 A second count in the complaint alleges additional
constitutional, statutory, and regulatory violations based on the
plaintiffs' allegation that the SSA hearing office to which the
plaintiffs' cases had been assigned was not processing their
administrative appeals. The complaint includes a request for
declaratory and injunctive relief on this count as well. However,
on appeal, although the plaintiffs' statement of facts in their
opening brief states that the hearing office "received
instructions to not process the cases until SSA provided further
instructions," the plaintiffs' arguments pertain only to their
complaint's first count that the SSA's termination process was
unlawful. They have thus waived any arguments with respect to
their second count. See Zannino, 895 F.2d at 17.
- 9 -
of the Federal Rules of Civil Procedure on the ground that the
plaintiffs had failed to state a claim upon which relief could be
granted. The motion also sought dismissal under Rule 12(b)(1) on
the ground that, regardless of the merits of the plaintiffs' legal
claims, the District Court lacked subject matter jurisdiction
under 42 U.S.C. §§ 405(g) and (h) because the plaintiffs had failed
to exhaust the administrative remedies available to them before
filing suit.
Section 405(g) provides that "[a]ny individual, after
any final decision of the Commissioner of Social Security made
after a hearing to which he was a party . . . may obtain review of
such decision" in federal district court. And Section 405(h) in
turn states:
No action against the United States, the
Commissioner of Social Security, or any
officer or employee thereof shall be brought
under section 1331 [federal question
jurisdiction] or 1346 [federal defendant
jurisdiction] of Title 28 to recover on any
claim arising under this subchapter [governing
the Social Security old-age, survivors, and
disability insurance programs].
In consequence of these two provisions, a claim for
benefits that "arises under" the Social Security Act must comply
with Section 405(g) in order for a federal district court to have
jurisdiction over that claim. There are generally two requirements
that must be met in order for a claim for benefits that "arises
- 10 -
under" the Social Security Act to be in compliance with Section
405(g).
First, "a claim for benefits shall have been presented
to the Secretary." Mathews v. Eldridge, 424 U.S. 319, 328 (1976).4
Second, "the administrative remedies prescribed by the Secretary
[must] be exhausted." Id. These two requirements together ensure
that an individual seeking federal judicial relief in a case
"arising under" the Social Security Act is doing so, as Section
405(g) requires, "after any final decision of the Commissioner of
Social Security made after a hearing to which he was a party."
Importantly for present purposes, although the
presentment requirement is not waivable, the exhaustion
requirement may be. Id. Moreover, in some cases, the exhaustion
requirement is waived by the federal court itself and thus without
the Secretary's consent through what is known as a judicial waiver
of exhaustion. Heckler v. Ringer, 466 U.S. 602, 618 (1984) (citing
Eldridge, 424 U.S. at 330-32).5
4 The Court's reference to a "claim for benefits" with respect
to the presentment requirement does not necessarily indicate that
the claim pertains to a substantive entitlement to benefits. In
Eldridge itself, for example, the Court found that the presentment
requirement was satisfied because a "claim for benefits" had been
presented to the agency, even though the claim was deemed "entirely
collateral to [the plaintiff's] substantive claim of entitlement."
424 U.S. at 328, 330-31.
5 The term "waiver" is, arguably, a misnomer insofar as the
court itself -- as opposed to the agency -- would not seem to have
any authority to "waive" a statutory requirement. More precisely,
the judicial waiver doctrine approved by the Supreme Court reflects
- 11 -
With respect to the jurisdictional question, the
government argued in its motion to dismiss that the plaintiffs'
claims in their complaint "arise under" the Social Security Act.
The government further argued that the plaintiffs had not yet
received "final decisions" from the SSA because although the
plaintiffs presented their claims to the SSA, they failed to
exhaust the administrative appeals process. Accordingly, the
government contended that the District Court lacked subject matter
jurisdiction.
The plaintiffs responded below to the motion to dismiss
for lack of subject matter jurisdiction by arguing that the claims
in their complaint did not "arise under" the Act. The plaintiffs
contend on appeal that they also argued below, in the alternative,
that -- even assuming that their claims did "arise under" the Act
-- the plaintiffs qualified for a judicial waiver of the exhaustion
requirement. With respect to judicial waiver, the plaintiffs
contend that they asserted that the claims set forth in their
complaint in federal court were "fit for resolution" and "outside
of the Commissioner's discretion," and that "exhaustion of the
current administrative procedure would be futile" and further
an interpretation of Section 405(g) according to which Congress is
understood not to have intended the statutory requirement to apply
in certain types of cases, notwithstanding that the agency contends
otherwise.
- 12 -
delays would result in "undue hardships, dire need and undue
suffering."
The plaintiffs also argued that, insofar as the
exhaustion requirement would otherwise bar their claims from being
heard in federal court, the plaintiffs were still entitled to bring
their suit in federal court pursuant to Shalala v. Illinois Council
on Long Term Care, Inc., 529 U.S. 1 (2000). Illinois Council held
that where Section 405(h) "would not simply channel review through
the agency, but would mean no review at all" by the federal courts
of the agency action, then Section 405(h)'s jurisdictional bar
does not apply. Id. at 19.
The District Court granted the government's motion to
dismiss for lack of subject matter jurisdiction (and thus did not
address whether the complaint failed to state a claim). The
District Court reasoned that the plaintiffs' claims arose under
the Social Security Act, and thus that the plaintiffs had to meet
the presentment and exhaustion requirements in order to comply
with the requirements of Section 405(g). The District Court
concluded that, although the plaintiffs complied with the
presentment requirement, the plaintiffs did not satisfy the
exhaustion requirement because the plaintiffs had neither obtained
a decision from an ALJ nor appealed from that decision to the SSA's
Appeals Council.
- 13 -
As for the possibility of a judicial waiver of the
exhaustion requirement, the District Court stated that the
plaintiffs "have not asked the Court to waive the . . .
requirement, nor does the Court see a reason to do so." Finally,
the District Court ruled that the Illinois Council exception to
Section 405(h)'s jurisdictional bar, encompassing situations where
channeling the claims through the agency would result in "no review
at all," did not apply. 529 U.S. at 19.
The plaintiffs now appeal the District Court's
jurisdictional ruling. The plaintiffs bear the burden of proving
subject matter jurisdiction. Aversa, 99 F.3d at 1209. Where, as
here, the facts are largely uncontested and the issue is a "nearly
pure" question of law, we review de novo a district court's
decision to grant the motion to dismiss for lack of subject matter
jurisdiction. Valentín v. Hosp. Bella Vista, 254 F.3d 358, 363
(1st Cir. 2001).
II.
We begin with the plaintiffs' contention that their
federal court claims do not “arise under” the Social Security Act
and are therefore not subject to the jurisdictional limitations
set forth in Section 405(h). We do not find this contention to be
persuasive.
In Weinberger v. Salfi, 422 U.S. 749 (1975), the Supreme
Court held that a claim for relief in a lawsuit "arise[s] under"
- 14 -
the Social Security Act where "the Social Security Act . . .
provides both the standing and the substantive basis for the
presentation of [the plaintiffs'] . . . contentions." Id. at 760-
61. There, the plaintiffs sought the payment of Social Security
survivors insurance benefits that had been denied to them on the
basis of a statutory restriction that they alleged violated their
constitutional rights. Id. at 753-56.
The Supreme Court held that the plaintiffs' claims in
their complaint did "arise under" the Social Security Act. Id. at
760-61. The Court explained that the plaintiffs not only sought
the provision of Social Security benefits as relief but also would
have had no standing or substantive basis for their claims
-- including their constitutional claims -- absent the request for
benefits under the Social Security Act. Id.
Many years later, in Illinois Council, the Supreme Court
elaborated on its holding from Salfi. In Illinois Council, a group
of nursing homes challenged the process by which the federal
government imposed sanctions on nursing homes that participated in
Medicare for the failure of such nursing homes to meet certain
performance standards. 529 U.S. at 6-7. The nursing homes
contended, among other things, that the process the federal
government used for sanctioning nursing homes violated both the
federal constitutional guarantee of due process of law and the
Medicare statute. Id. at 7.
- 15 -
The Court held that both the plaintiffs' constitutional
claims and their statutory claims arose under the Medicare Act.
Id. at 11-15. The Court explained that Section 405(h)'s phrase
"any claim arising under" the Social Security Act -- or the
Medicare Act, which incorporates Section 405(h) -- clearly covers
a typical Social Security or Medicare benefits
case, where an individual seeks a monetary
benefit from the agency (say, a disability
payment, or payment for some medical
procedure), the agency denies the benefit, and
the individual challenges the lawfulness of
that denial . . . irrespective of whether the
individual challenges the agency's denial on
evidentiary, rule-related, statutory,
constitutional, or other legal grounds.
Id. at 10. The Court then acknowledged that the nursing homes
were bringing a slightly different kind of claim -- a claim where
"one who might later seek money or some other benefit from (or
contest the imposition of a penalty by) the agency challenges in
advance . . . the lawfulness of a policy, regulation, or statute
that might later bar recovery of that benefit (or authorize
imposition of the penalty)." Id.
Nevertheless, the Court held that its precedent,
including Salfi, "foreclose[d] distinctions based upon the
'potential future' versus the 'actual present' nature of the claim,
the 'general legal' versus the 'fact-specific' nature of the
challenge, the 'collateral' versus 'noncollateral' nature of the
- 16 -
issues, or the 'declaratory' versus 'injunctive' nature of the
relief sought." Id. at 13-14. Instead, the Court concluded,
[c]laims for money, claims for other benefits,
claims of program eligibility, and claims that
contest a sanction or remedy may all similarly
rest upon individual fact-related
circumstances, may all similarly dispute
agency policy determinations, or may all
similarly involve the application,
interpretation, or constitutionality of
interrelated regulations or statutory
provisions. There is no reason to distinguish
among them in terms of the language or in terms
of the purposes of § 405(h).
Id. at 14.
In this case, the plaintiffs' claims that the agency
unlawfully terminated their benefits without adequate notice of
the evidence of fraud or an opportunity to challenge that evidence
are, like the claims in Illinois Council, predicated on the
plaintiffs' potential future entitlement to those benefits. For
that reason, the plaintiffs' claims here, like those in Illinois
Council, "arise under" the Act because the Act provides "the
standing and the substantive basis" for the claims they bring in
their suit. Id. at 12 (quoting Salfi, 422 U.S. at 760-61).
In challenging this conclusion, the plaintiffs contend
that their claims do not "arise under" the Social Security Act
because the claims are based, in part, on their constitutional
right to due process and not merely on the agency's purported
violations of the Act and its implementing regulations. But Salfi
- 17 -
and Illinois Council make clear that the fact that the plaintiffs
have a constitutional basis for their claims does not change the
fact that those claims "arise under" the Act. See Ill. Council,
529 U.S. at 11-14; Salfi, 422 U.S. at 760-61. What matters is
that those claims are predicated on -- and thus "arise under"
-- the plaintiffs' interest in obtaining the benefits to which
they contend they are entitled under the Act.
III.
Because the plaintiffs' claims "arise under" the Social
Security Act, those claims may be heard in federal court only if
the plaintiffs are in compliance with Section 405(g). The District
Court determined, and the parties agree, that although the relevant
claims have been presented to the SSA, the plaintiffs have neither
exhausted their administrative remedies nor obtained a waiver from
the agency.
Although the plaintiffs contend that they are entitled
to a judicial waiver of the exhaustion requirement, before diving
into that issue, we first consider whether we even need to address
judicial waiver at all. As we explained above, if the plaintiffs
can show that subjecting their claims to the requirement of Section
405(g) would result in "no review at all," as they contend is the
case, then there is no need for the plaintiffs to show that their
claims qualify for a judicial waiver of exhaustion. Ill. Council,
- 18 -
529 U.S. at 19. And so we first address the merits of this
alternative ground for reversing the jurisdictional ruling below.
The plaintiffs contend that the agency's choice to bar
them from presenting evidence challenging the agency's
determination of fraud in their individual cases prohibits them
from developing a full evidentiary record that would allow a
federal district court to meaningfully review the agency's
decision. As a result, the plaintiffs argue that, insofar as they
are unable to meet the exhaustion requirement of Section 405(g),
it does not matter because the result would be "no review at all"
of the agency's fraud determination. They thus assert that the
exception to Section 405(g)'s exhaustion requirement set forth in
Illinois Council applies here. We do not agree.
In Illinois Council, the Supreme Court rejected the very
line of reasoning on which the plaintiffs rely. There, the Court
explained that:
The fact that the agency might not provide a
hearing for [a] particular contention . . . is
beside the point . . . . After the action has
been so channeled [through the agency], the
court will consider the contention when it
later reviews the action. And a court
reviewing an agency determination under
§ 405(g) has . . . , where necessary, the
authority to develop an evidentiary record.
Id. at 23-24 (citations omitted). The plaintiffs do not
satisfactorily explain why the opportunity to develop an
evidentiary record for the first time in federal district court,
- 19 -
after exhaustion, regarding the agency's determination of fraud,
would be insufficient. Thus, we reject the plaintiffs' argument
that applying the jurisdictional bar of Section 405(h) would result
in no judicial review at all, because we have no reason to think
that review under Section 405(g) will not offer them an adequate
opportunity to present their claims in federal court following the
exhaustion of the administrative review process.
IV.
With the "no review at all" exception out of the way, we
now confront the judicial waiver of exhaustion issue, which
provides the last route by which the plaintiffs may show that,
notwithstanding their failure to have exhausted their claims in
the manner Section 405(g) otherwise requires, there is
jurisdiction for a federal district court to hear their suit. The
District Court concluded that the plaintiffs had not sought a
judicial waiver of exhaustion and that, in any event, there was no
reason to grant such a judicial waiver.
In challenging the District Court's jurisdictional
ruling, the plaintiffs take aim at each of the District Court's
determinations regarding their entitlement to a judicial waiver of
exhaustion. And, notwithstanding the government's contrary
contention on appeal, the plaintiffs do appear to have made the
judicial waiver argument below in their memorandum in opposition
to the government's motion to dismiss. In fact, the government's
- 20 -
own reply memorandum to that filing by the plaintiffs recognized
as much, in stating that the "[p]laintiffs . . . assert that the
Act's administrative exhaustion requirement should be waived
because exhaustion would be futile." Thus, even assuming our
review of a finding as to waiver is only for clear error, we hold
that the District Court clearly erred in deeming the request for
a judicial waiver waived.
The government nevertheless argues that, if we are
"inclined to overlook the forfeiture," we should not reverse the
decision below. Instead, the government contends, we at most
should remand to the District Court for it to consider the issue
of judicial waiver of exhaustion in the first instance. But, the
District Court appears to have passed on the merits of that issue
below by concluding that, insofar as the plaintiffs had made a
request for a judicial waiver of exhaustion, it would be denied on
the ground that there was no reason to grant such a judicial waiver
in this case. In light of that ruling on the merits, we thus do
not see why there is any necessary reason to remand, as the
government agrees that the question whether a request for a
judicial waiver of exhaustion must be granted is a legal one that
we review de novo. See Wilkerson v. Bowen, 828 F.2d 117, 119 (3d
Cir. 1987).
We thus turn to the merits of the judicial waiver issue,
so that we may decide whether, on the record developed below, there
- 21 -
is any reason to disturb the District Court's apparent conclusion
that no judicial waiver of exhaustion is warranted. We begin by
laying out the precedent that guides us in undertaking that
inquiry. We then apply that precedent to the facts of the present
case.
A.
The Supreme Court first recognized that a court may waive
the exhaustion requirement under Section 405(g) without the
Secretary's consent in Eldridge. There, the Court explained that
judicial waiver of exhaustion is proper "where a claimant's
interest in having a particular issue resolved promptly is so great
that deference to the agency's judgment is inappropriate." 424
U.S. at 330.
In Eldridge, the plaintiff, without first exhausting his
administrative remedies, had brought a constitutional claim in
federal district court in which he contended that he was entitled
to an evidentiary hearing prior to the termination of his
disability benefits. Id. at 324-25. The Court waived the
exhaustion requirement in that case for two reasons. Id. at 330-
32.
First, the Court explained that the plaintiff's claim
was "entirely collateral to his substantive claim of entitlement,"
id. at 330, given that it pertained to the process to which he
alleged he was constitutionally entitled, rather than to a claim
- 22 -
to the benefits themselves. See id. at 333. The Court reached
that conclusion even though the plaintiff's complaint requested a
reinstatement of benefits pending an evidentiary hearing. See id.
at 325.
Second, the Court concluded that the plaintiff could
show “at least a colorable claim” that an erroneous termination
would irreparably harm him. Id. at 331. In reaching that
conclusion, the Court pointed to the plaintiff's allegation
concerning "his physical condition and dependency upon the
disability benefits." Id.
The Supreme Court next elaborated on the circumstances
in which judicial waiver of the exhaustion requirement under
Section 405(g) is appropriate in Bowen v. City of New York, 476
U.S. 467 (1986). And, once again, as in Eldridge, the Court found
the conditions for judicial waiver of the exhaustion requirement
satisfied. See id. at 482-86.
In City of New York, a class of plaintiffs challenged
the SSA's unpublished policy of presuming, in determining
eligibility for disability insurance benefits, that people with
certain types of disabilities were capable of performing unskilled
labor. Id. at 473. The class alleged that the policy violated
the Constitution, the Social Security Act, and certain
regulations. Id. The district court had certified a class to
- 23 -
challenge the policy and that class included claimants who had not
exhausted their administrative remedies. Id. at 475.
The Supreme Court held that the district court did not
err by waiving the exhaustion requirement with respect to those
class members. Id. at 486. The Court reasoned, first, that the
plaintiffs' claims were collateral to their substantive claim for
benefits, because "[t]he class members neither sought nor were
awarded benefits in the District Court, but rather challenged the
Secretary's failure to follow the applicable regulations." Id. at
483. The Court reasoned, second, that the plaintiffs might be
irreparably injured if forced to exhaust their administrative
remedies because the district court had found that "[t]he ordeal
of having to go through the administrative appeal process may
trigger a severe medical setback." Id.
Importantly, however, City of New York explained that
those two factors from Eldridge -- concerning the collateral nature
of the claim and the irreparable harm the plaintiff faces -- are
not the only considerations in assessing whether to permit a
judicial waiver of exhaustion. After noting Eldridge's admonition
that the exhaustion doctrine is "intensely practical," the Court
in City of New York explained that "[t]he ultimate decision of
whether to waive exhaustion should not be made solely by mechanical
application of the Eldridge factors, but should also be guided by
- 24 -
the policies underlying the exhaustion requirement." Id. at 484
(quoting Eldridge, 424 U.S. at 331 n.11).
The Court in City of New York then undertook an
"intensely practical" inquiry in which it determined that the
policies underlying the exhaustion requirement weighed in favor of
immediate review. Id. The Court determined in this regard that
the district court had not prematurely interfered with the agency's
processes because, although it took jurisdiction of the case, it
ordered "simply that the claims be reopened at the administrative
level." Id. at 485. The Court also observed "unique
circumstances" in the case that warranted immediate review. Id.
Specifically, the plaintiffs challenged a "systemwide" policy
-- rather than a deviation in the agency's application of its
regulations to individual cases -- that did not depend on the
particular facts of the underlying cases and which policy the
agency seemed unlikely to abandon in light of the "pressure" the
agency placed on state agencies to enforce the policy. Id. In
addition, the Court noted that the agency's policy was "unrevealed"
insofar as the agency had not disclosed it to claimants. Id.
Both before and after City of New York, we have explained
more generally that the exhaustion doctrine serves the following
important interests:
[Exhaustion] allows the agency to develop a
factual record, to apply its expertise to a
problem, to exercise its discretion, and to
- 25 -
correct its own mistakes, all before a court
will intervene. Insofar as specialized
administrative understanding is important,
the doctrine thereby promotes accurate
results, not only at the agency level, but
also by allowing more informed judicial
review. By limiting judicial interruption of
agency proceedings, the doctrine can encourage
expeditious decision making. Insofar as
Congress has provided that an agency will
decide a matter in the first instance, to
apply the doctrine normally furthers specific
Congressional intent. And, as a general
matter, the doctrine promotes a sensible
division of tasks between the agency and the
court: litigants are discouraged from
weakening the position of the agency by
flouting its processes, while court resources
are reserved for dealing primarily with those
matters which could not be resolved
administratively. Thus, the doctrine serves
the interests of accuracy, efficiency, agency
autonomy and judicial economy.
Doyle v. Sec'y of Health & Human Servs., 848 F.2d 296, 300 (1st
Cir. 1988); Wilson v. Sec'y of Health & Human Servs., 671 F.2d
673, 677-78 (1st Cir. 1982).6
Doyle is our only post-City of New York precedent that
squarely addresses the circumstances in which it may be proper to
permit a judicial waiver of exhaustion under Section 405(g).
There, we concluded, in dicta, that City of New York establishes
that
6Although Wilson predates City of New York, there
-- consistent with what City of New York would later require -- we
applied the two Eldridge factors in our waiver analysis and also
considered whether the interests underwriting the exhaustion
requirement would be served by insisting on exhaustion in that
case. See Wilson, 671 F.2d at 677-79.
- 26 -
when a plaintiff attacks the lawfulness of an
important 'systemwide' agency policy (say, a
constitutional challenge to a policy
disqualifying a large class of potential
Social Security recipients), the Supreme Court
has held that the agency must waive its
exhaustion requirements. In that sort of case
exhaustion serves little purpose; the agency's
policy is well-established and unlikely to
change; agency expertise is not particularly
likely to help the court; and, at the same
time, to insist upon exhaustion of agency
procedures might well physically harm a
plaintiff needing benefits.
848 F.2d at 300 (citing City of New York, 476 U.S. at 482-87).
In Doyle itself, however, we did not ultimately permit
a judicial waiver of exhaustion. Id. There, a physician who had
been sanctioned with a ban from treating Medicare patients claimed
that the sanctioning body had not properly applied the factors
that, by regulation, it was required to consider in recommending
such a sanction to the agency. Id. at 299. In declining to waive
the exhaustion requirement for the physician, we pointed to three
features of the case. See id. at 300.
We noted that the plaintiff was not challenging a
systemwide policy, as had been the case in City of New York. Id.
Rather, the plaintiff was challenging only how the relevant
regulatory factors were weighed in his particular case.
We also explained that there was no reason to think that
the agency had a "closed mind" on the matter. Id. We explained
- 27 -
in that regard that it was not a "long-standing policy that [was]
under attack." Id. at 300-01.
Finally, we reasoned that the court would benefit from
the exercise of agency expertise that would be brought to bear
through the playing out of the full administrative review process,
as well as from the complete administrative record that would be
developed through that process. Id. at 300. We noted that such
a process would permit the agency to bring its expertise to bear
on the issues of both how the regulatory factors ought to be
weighed under the agency's own regulation and whether any deviation
from the norm had prejudiced the physician. Id.
B.
It is against this legal background that we must assess
whether the plaintiffs in this case are entitled to have the
exhaustion requirement waived judicially. As in Eldridge and City
of New York, their claims are collateral to the claim for benefits,
and we may assume that they have sufficiently alleged irreparable
harm.7 However, the practical considerations underlying the
7Because neither factor was present in Wilson, that precedent
does not control here, despite the government's reliance on it.
See 671 F.2d at 679 ("[T]his case neither involves a
'constitutional challenge entirely collateral to . . . [a]
substantive claim of entitlement' . . . nor some special 'damage'
caused by failure to give a predetermination hearing 'not
recompensable through retroactive payments.'" (quoting Eldridge,
424 U.S. at 330, 331)). Rather, there, the plaintiff sought a
one-time refund payment of $173.47, rather than claiming that she
- 28 -
exhaustion requirement that we identified in Doyle would be served
by applying that requirement -- rather than its exception -- in
the circumstances of this case. Accordingly, we conclude that the
District Court correctly concluded that a waiver of that
requirement was not warranted.
1.
We start with the issue whether the claims that
Justiniano and Menéndez bring in federal court are entirely
collateral to the claim for benefits that would be the subject of
the administrative appeals process that they seek to bypass. Their
federal court complaint alleges that the SSA applied an unlawful
presumption in the agency's eligibility determination process in
terminating their benefits. That presumption was that the medical
evidence in the plaintiffs' applications was fraudulent simply
because the evidence was provided by a physician who had been
convicted of fraud with respect to other, "unrelated" applications
for disability benefits.
Given the nature of that contention, a win for the
plaintiffs in federal court would not necessarily entitle them to
benefits. Rather, a win in federal court would necessarily provide
them with only the process for having determined their eligibility
for benefits to which they claim they are legally entitled.
was entitled to particular process rights going forward, without
which there would be a risk of irreparable harm. Id. at 674-77.
- 29 -
Accordingly, their claims in federal court are entirely collateral
to their claim for benefits, just as were the claims in federal
court that were at issue in Eldridge and City of New York.8
Of course, the plaintiffs have asked, among other
relief, for a reinstatement of benefits. But that feature of their
suit does not require -- as the government contends -- a different
conclusion regarding whether their claims are collateral to a
substantive claim of entitlement to those benefits. Like in
Eldridge, 424 U.S. at 325, the plaintiffs have simply sought a
reinstatement of benefits pending the completion of the
redetermination process to which they claim they are entitled.
8 We reject the government's contention that, on this factor,
the case is instead more like Ringer. The plaintiffs in Ringer
sought a declaration that a particular surgical procedure was
reimbursable under the Medicare Act and an injunction compelling
such reimbursement. 466 U.S. at 610-11. The Court held that, at
bottom, the plaintiffs' claims were not wholly collateral to a
claim for benefits. Id. at 618. The Court so held even though
-- in its separate analysis of the presentment requirement -- it
observed that "[a]rguably" the plaintiffs raised procedural
objections both to the agency's "decision to issue a generally
applicable rule rather than to allow individual adjudication" and
to the agency's alleged failure to comply with the Administrative
Procedure Act in issuing that rule. Id. at 614. But, "ALJs were
consistently ruling in favor of individual . . . claimants" in
individual adjudication before ALJs who were not bound by the rule.
Id. at 607-08. Ringer is therefore unlike Eldridge or City of New
York, in which there was no similarly foregone conclusion that the
plaintiffs would obtain the benefits they sought if their
procedural challenges succeeded. And, on that score, the case at
hand is more like Eldridge and City of New York, rather than
Ringer, given that there is no dispute that the policy the
plaintiffs challenge on "procedural" grounds here is hardly the
only impediment to their establishing their entitlement to
benefits.
- 30 -
They are in no way seeking to adjudicate their substantive
eligibility for benefits in their federal suit.
Finally, the government is also wrong to contend that
the plaintiffs' claims in federal court are not entirely collateral
to their claim for benefits because the plaintiffs assert that the
SSA violated the Social Security Act and its implementing
regulations. The Court made clear in City of New York that a claim
does not lose its status as being entirely collateral to a claim
for benefits just because that entirely collateral claim asserts
a violation of the Social Security Act or its implementing
regulations. 476 U.S. at 483.
2.
The plaintiffs also have arguably presented a colorable
claim that they will be irreparably harmed absent a judicial waiver
of exhaustion. They allege that they depended on the disability
benefits for income to pay, among other things, for medical care
and water and electric services, and that they have now become
dependent on family members to pay for such services. Thus,
because they allege that they are no longer financially self-
sufficient as a result of the loss of income from their disability
benefits, they may be unable to access those essential services
during the time it would take them to exhaust the administrative
remedies available to them, seemingly resulting in irreparable
harm.
- 31 -
The Court's observation in Illinois Council that an
"occasional individual, delay-related hardship" may be an expected
price of Section 405(h)'s exhaustion requirement, 529 U.S. at 13,
does not appear to undermine the conclusion that Justiniano and
Menéndez face irreparable harm, as the government contends it does.
In Illinois Council, the Court was justifying the presentment
requirement, which the parties agree is satisfied in this case,
not the irreparable harm showing in the context of a judicial
waiver of exhaustion. Moreover, the risk of forgoing access to
essential medical, water, and electric services is hardly the type
of "occasional individual, delay-related hardship" that we think
the Court had in mind in justifying a routine feature of the
administrative process. Id. Therefore, with respect to the
judicial waiver analysis, we may assume that retroactive payment
would not be a sufficient remedy for the harm the plaintiffs may
incur in the meantime, if their claims are ultimately successful.
Moreover, to the extent that a showing of irreparable
harm must necessarily rest on a showing of at least a colorable
claim of ultimate success on the merits, the plaintiffs arguably
have made that showing, too. In the very cases to which the
government points as having recently presented similar challenges
to the SSA’s redetermination procedures, we note that the plaintiff
in at least one of those cases succeeded on her constitutional
- 32 -
claim. See Hicks v. Colvin, 214 F. Supp. 3d 627, 633-46 (E.D. Ky.
2016).
3.
Nevertheless, we still must consider the practical
considerations that bear on waiving the exhaustion requirement
judicially. We must do so in order to assess whether the policies
underlying the exhaustion requirement would be undermined by so
waiving that requirement. And, although some practical
considerations weigh in favor of the plaintiffs' request for a
judicial waiver of that requirement, ultimately the plaintiffs
fail to carry their burden to show that a judicial waiver of
exhaustion is warranted.
In trying to make the case that there is no practical
reason to require exhaustion, the plaintiffs argue that, like in
City of New York, they challenge a "systemwide" agency policy and
thus not a case-specific agency decision that necessarily may be
properly evaluated only after the agency has had a full opportunity
to assess it. 476 U.S. at 485. To be sure, the plaintiffs' suit
challenges only how the systemwide policy has been applied to
applications for benefits cases that have been affected by a
particular fraud investigation. But hundreds of disability
benefits cases have been affected by the application of that
systemwide policy to that fraud investigation, and the legal basis
for the challenge itself is applicable to the systemwide policy
- 33 -
rather than to the policy's specific application to the particular
fraud investigation. In addition, the government does not dispute
the plaintiffs' contention that they challenge a systemwide
policy.
Relatedly, the plaintiffs argue that exhaustion would be
"futile" because the policies underlying the exhaustion
requirement would not, in fact, be served here for an additional
reason. Specifically, the plaintiffs point out that, since this
litigation began, the agency has formalized the policy that they
challenge. The agency has done so in both its internal manual for
adjudicating benefits claims -- the Hearings, Appeals, and
Litigation Law Manual ("HALLEX"), § I-1-3-25 -- and two Social
Security Rulings. See SSR 16-1p, 81 Fed. Reg. 13436 (Mar. 14,
2016); SSR 16-2p, 81 Fed. Reg. 13439 (Mar. 14, 2016). Those
rulings (albeit not the manual) are binding on the agency. See
Sullivan v. Zebley, 493 U.S. 521, 530 n.9 (1990); Schweiker v.
Hansen, 450 U.S. 785, 789 (1981) (per curiam). Thus, the
plaintiffs contend that, unlike in Doyle, there is good reason to
think that the agency has "a closed mind on these matters" at this
point. 848 F.2d at 300.9
9On this score, this case is unlike Wilson. There, the
agency had not taken "a final position" on the plaintiff's
challenge to a policy whereby, under the agency's interpretation
of its regulations, representative payees for recipients of
supplemental security income benefits were liable for overpayments
of benefits. 671 F.2d at 678. The policy was included in the
- 34 -
The government, again, does not suggest otherwise. And
we can see why. Both parties agree that, under the agency's
formalized policy, the administrative appeal process in the
plaintiffs' cases would be limited to reviewing the remaining
medical evidence that the agency has not disregarded as potentially
fraudulent.10 For that reason, administrative review would not
appear to provide any occasion for an ALJ or the SSA's Appeals
Council to bring expertise to bear on the interpretation of the
implementing regulations that the plaintiffs seek to challenge in
federal court. Rather, an administrative adjudicator would simply
apply those administrative rulings to the case at hand.11 As a
agency's Claims Manual, but the agency had not otherwise bound
itself to the policy. Id. at 675. Thus, we observed that
completion of the administrative process "might have led to a
narrowing interpretation of the regulations or their revision."
Id. at 678.
10 The reason is that the fraud investigation in this case
originated in the SSA’s Office of Inspector General, and the agency
"will not administratively review information provided by SSA’s
Office of the Inspector General . . . regarding its reason to
believe that fraud was involved in the individual’s application
for benefits.” SSR 16-1p, 81 Fed. Reg. at 13438; see also HALLEX,
§ I-1-3-25.
11We indicated, in dicta, in McDonald v. Secretary of Health
& Human Services, 834 F.2d 1085 (1st Cir. 1987), that we were "not
necessarily persuaded" that "there was nothing to be gained from
permitting the compilation of a detailed factual record, or from
agency expertise" through exhaustion, id. at 1091, where the
plaintiffs challenged an agency policy that had been formalized in
a Social Security ruling. Id. at 1087. We were commenting on the
plaintiffs' argument that they did not need to administratively
exhaust their claim that what is known as "step 2" in the
sequential evaluation used by the Secretary of Health and Human
Services to determine eligibility for disability insurance
- 35 -
result, on this score, this case is more like City of New York, in
which the Supreme Court reasoned that a federal agency was unlikely
to change an unpublished policy because it had been pressuring
state agencies to enforce it. 476 U.S. at 485.12
Nevertheless, we conclude that, in the circumstances of
this case, plaintiffs have failed to meet the burden of showing
that exhaustion would not provide sufficient practical benefit.
We explained in Wilson that the exhaustion doctrine "encourage[s]
expeditious decision making" and that, accordingly, an agency
benefits violated the Social Security Act. See id. However, we
provided no explanation for why agency expertise might be helpful
in that context, and "we expressly [made] no determination of this
[issue] one way or the other" because we resolved the appeal on
other grounds. Id. at 1091. In any event, even if there were an
opportunity in the administrative appeals process for the agency
to bring its expertise to bear on Justiniano and Menéndez's
regulatory claim, as McDonald might suggest, the same would not be
true with respect to the plaintiffs' constitutional claim. And,
McDonald did not involve a constitutional claim. Id.
12The government does seek to distinguish this case from City
of New York with respect to practical considerations on the ground
that this case does not involve "a claim of a covert policy which,
because of its secrecy, undermined the efficacy of normal
administrative and judicial review processes." McDonald, 834 F.2d
at 1091 (citing City of New York, 476 U.S. 467). But Doyle did
not indicate that a policy must be covert in order for a judicial
waiver to be permissible. In fact, Doyle suggested otherwise in
the passage that we quoted above about when a judicial waiver of
the exhaustion requirement must be granted. See supra at 27
(quoting Doyle, 848 F.2d at 300). Nor can we see why the rule
should be otherwise. The mere fact that the agency has not hidden
the policy under challenge from view in the early stages of the
administrative process does not mean that the policies underlying
the exhaustion requirement would be served by requiring
exhaustion. That determination must be made with reference to the
particular facts at hand in a given case.
- 36 -
should be given "a chance to rectify a litigant's problems and
save judicial time and effort." 671 F.2d at 678. In this regard,
the government points out that the administrative proceedings will
provide each plaintiff with an evidentiary hearing on the remaining
medical evidence in their records and that, in seemingly comparable
cases, a substantial number of claimants succeeded in obtaining a
reinstatement of benefits, notwithstanding the exclusion of
evidence deemed by the SSA to be fraudulent. The government thus
suggests that the exhaustion of the administrative appeals process
may provide the plaintiffs with a restoration of their benefits
and, in that way, would not be "futile."13
More specifically, the government submitted a
declaration by a senior SSA official with its motion to dismiss
that described the process by which the SSA is reviewing the
13 We note that in City of New York, the Court observed that
the government "correctly assert[ed] that, had class members
exhausted administrative remedies, some might have received
benefits despite the illegal policy. . . . Such observations,
however, merely serve to remind us why exhaustion is the rule in
the vast majority of cases; they do not aid the Court in deciding
when exhaustion should be excused." 476 U.S. at 485-86. We do
not read this passage to indicate that, contrary to our view in
Wilson, 671 F.2d at 678, the likelihood of the agency process
mooting out the plaintiffs' claim -- either by disqualifying the
plaintiff from receiving benefits for an unrelated reason or by
granting benefits to the plaintiff -- has no role to play in the
analysis of whether judicial waiver of the exhaustion requirement
is warranted. Rather, we read it to mean that the mere possibility
of the agency process mooting out the plaintiffs' claim does not
in and of itself counsel in favor of or against judicial waiver of
exhaustion, but that the relative probability of it might.
- 37 -
benefits termination decisions connected to the same fraud
investigation at issue in this case. The declaration indicated
that, of the more than 2,000 administrative appeals, 423 hearings
had been held and the claimants received favorable decisions in
145 cases. The government also states in its appellate brief that
of a narrower group of 1,280 individuals who, like the plaintiffs,
originally had benefits awarded by the Puerto Rico Disability
Determination Services (as opposed to by an ALJ on review of an
unfavorable DDS decision), 100 hearings had been held, 56 decisions
had been issued, and 43 of those decisions were favorable to the
claimants. That means, as the government points out, that a
"majority" of the issued decisions have been favorable among this
narrower group.
Of course, we do not know the exact posture of the cases
in which claimants obtained a reinstatement of benefits through
their administrative appeals. And the plaintiffs did argue below
that their administrative appeals were assigned to a different
administrative hearing office than the one from which these
statistics are drawn. But the plaintiffs bear the burden of
showing that they are entitled to a judicial waiver of exhaustion,
and they have made no argument that they would not be able to
obtain the benefits to which they claim they are entitled through
the normal course of their administrative appeals. Given that, as
the case comes to us, the plaintiffs' chances of obtaining benefits
- 38 -
through the administrative process appear to be substantial, we do
not see how we could waive the requirement that would give the
agency an opportunity "to rectify" the problem by giving them the
benefits that were terminated. Id. Thus, we hold that judicial
waiver of the exhaustion requirement is not warranted on these
facts.
V.
For the foregoing reasons, the judgment of the District
Court is affirmed.
- 39 -