Supreme Court: No “Issue Exhaustion” Requirement for SSA Claimants
This case law update was written by Conor D. Dirks, an attorney at the law firm of Shaw Bransford & Roth, where since 2013 he has represented federal officials and employees in all aspects of federal personnel employment law. In addition to his work on behalf of government employees, Mr. Dirks has successfully defended small and medium-sized government agencies against EEO complaints and MSPB appeals of agency disciplinary actions.
Several weeks ago, FEDmanager reported on oral argument at the Supreme Court of the United States in Carr v. Saul. In this case, the issue was whether Social Security Administration (SSA) claimants who did not raise an Appointments Clause challenge at the administrative level forfeited their ability to challenge the validity of decisions by improperly appointed SSA administrative law judges once they appealed the decisions to federal court, pursuant to the Supreme Court’s decision in Lucia v. SEC. On April 22, 2021, the Supreme Court held that courts should not impose an “issue exhaustion” requirement on claims under the Appointments Clause of the U.S. Constitution.
The Court explained that when the SSA “denies a claim for disability benefits, a claimant who wishes to contest that decision in federal court must first seek a hearing before an administrative law judge (ALJ).” The petitioners in this case did just that, between 2013-2015, and in each case their challenge of the adverse benefit determination was unsuccessful. Then, in 2018, the Court decided Lucia v. SEC, and held that ALJs within the SEC had been unconstitutionally appointed.
The Court noted that “[l]ike the SEC ALJs at issue in Lucia, SSA ALJs had been selected by lower level staff rather than appointed by the head of the agency,” meaning that like the SEC ALJs, they were improperly appointed.
A few weeks after Lucia was decided, SSA’s Acting Commissioner (the head of the agency) preemptively “address[ed] any Appointments Clause questions involving Social Security claims” by “ratif[ying] the appointments of all SSA ALJs and “approv[ing] those appointments.” The following year, the SSA issued a ruling stating that “the Appeals Council should, in response to timely requests for Appeals Council review, vacate preratification ALJ decisions and provide fresh review by a properly appointed adjudicator.” However, SSA made clear that only claimants who had explicitly raised the Appointments Clause issue during their hearing before an ALJ or the Appeals Council could obtain fresh review. Claimants who did not raise the Appointments Clause issue during their administrative proceedings, like the petitioners in this case, “would receive no relief.”
In its analysis, the Court noted that some administrative review schemes require parties to “give the agency an opportunity to address an issue before seeking judicial review of that question,” but that the “source of that requirement (known as issue exhaustion) varies by agency.” Typically, though, issue exhaustion rules are codified in statute or regulation. If statutes and regulations are silent, however, courts decide whether to require issue exhaustion based on “an analogy to the rule that appellate courts will not consider arguments not raised before trial courts.”
Here, the SSA conceded that no statute or regulation required issue exhaustion during the administrative proceedings, and thus it was up to courts to decide whether to impose a judicially created issue exhaustion requirement. U.S. Courts of Appeals for the Eighth and Tenth Circuits adopted SSA’s position, whereas the Third, Fourth, and Sixth Circuits adopted the claimants’ position. Thus, the Supreme Court was left to resolve the split between the courts of appeals.
The Court hearkened back to its decision in Sims v. Apfel, where it held that “issues not raised before the Appeals Council (the final stage of administrative review within the SSA, rather than the ALJ hearing stage) are nonetheless preserved for judicial review,” because the reasons for a court to require issue exhaustion are “much weaker” when an administrative proceeding is not adversarial. According to the Court in Sims, the “differences between courts and agencies are nowhere more pronounced than in Social Security proceedings,” where administrative “proceedings are inquisitorial rather than adversarial.” The Court pointed to regulations governing SSA proceedings at the Appeals Council that required SSA to conduct the administrative review process in an informal, nonadversary manner, and to consider “any information” presented by a claimant. Indeed, claimants do not file briefs or make legal arguments; they merely request review.
The Court in Carr held that “[m]uch of what the Sims opinions said about Appeals Council review applies equally to ALJ proceedings, because it is the ALJ’s duty to “investigate the facts and develop the arguments both for and against granting benefits,” while there is no representative before the ALJ to oppose the claim for benefits.
However, SSA noted several key differences between Appeals Council review and ALJ proceedings. First, ALJ hearings are “typically available as a matter of right, while Appeals Council review is discretionary.” That means that ALJ proceedings present far more opportunities for claimants to press issues, and SSA “relies more heavily on those proceedings to “conduc[t the agency’s] principal and most thorough investigation of…disability claims.” In addition, the Court noted that SSA mails claimants a “notice of hearing” before the ALJ proceedings and gives the opportunity to dispute the issues to be decided in the case, and even the specific ALJ assigned to the case.
But the Court held that “[e]ven accepting that ALJ proceedings may be comparatively more adversarial than Appeals Council proceedings…two additional considerations tip the scales decidedly against imposing an issue-exhaustion requirement.”
The first reason was that “agency adjudications are generally ill suited to address structural constitutional challenges, which usually fall outside the adjudicators’ areas of technical expertise.” As such, the Court noted that it is “sometimes appropriate…to entertain constitutional challenges to statutes or other agency-wide policies even when those challenges were not raised in administrative proceedings.”
The second reason is structural; SSA ALJs, like other ALJs around the Executive Branch, are “powerless to grant the relief requested.” Specifically, ALJs cannot resolve constitutional questions, and as such “the Court has consistently recognized a futility exception to exhaustion requirements.” According to the Court, requiring issue exhaustion on constitutional issues before ALJs would be a “vain exercise” that rarely “protec[ted] administrative agency authority” or “promot[ed] judicial efficiency.”
The Court observed that internal SSA guidance confirmed that SSA “lacks the authority to finally decide constitutional issues” and directed SSA ALJs to “not discuss or make any findings related to the Appointments Clause issue on the record,” but merely to “acknowledge” the objection with standardized language and explain they lacked authority to rule on it.
For the above stated reasons, the Supreme Court of the United States held that the courts of appeals erred in imposing an issue exhaustion requirement on the claimants’ Appointments Clause claims, and reversed the judgments of the Eighth and Tenth Circuits.
Read the full opinion: Carr v. Saul.
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