Petition for Writ of Certiorari — Shalala v. Schoolcraft

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925.1392

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In the Supreme Court of the United States

OCTOBER TERM, 1992

DONNA E. SHALALA, SECRETARY OF HEALTH AND

HUMAN SERVICES, PETITIONER

Vv.

DANIEL J. SCHOOLCRAFT, ET AL.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

WILLIAM C. BRYSON

Acting Solicitor General

STUART M. GERSON

Assistant Attorney General

EDWIN S. KNEEDLER

Assistant to the Solicitor Generai

RICHARD H. SEAMON

Assistant to the Solicitor General

HOWARD S. SCHER

Attorney

Department of Justice

Washington, D.C. 20530

202) 514-2217

QUESTIONS PRESENTED

Respondents sought disability benefits under Title II

and Title XVI of the Social Security Act based on alle-

gations of alcoholism or drug addiction. After respond-

ents were found not to be disabled by the state agency in

Minnesota responsible for making initial disability de

terminations on behalf of the Secretary of Health and

Human Services, they brought this putative class action

against the Secretary and state officials, claiming that the

state agency was not applying the proper standards for

evaluating disability claims based on alcoholism or drug

addiction. The questions presented are:

1. Whether 42 U.S.C. 1983 provides respondents with

a cause of action against state officials based on their al-

legedly improper administration of the federal disability

programs on behalf of the Secretary.

2. Whether the court of appeals properly relied on

Bowen v. City of New York, 476 U.S. 467 (1986), to

dispense with the requirement in 42 U.S.C. 405(g) that

disability claimants obtain a “final decision of the Sec-

retary” by exhausting administrative remedies before

seeking judicial review, when respondents conceded that

those remedies would correct the errors of which they

complained in individual cases.

(I)

PARTIES TO THE PROCEEDINGS BELOW

Petitioners are Donna E. Shalala, Secretary of Health

and Human Services; Walter Roers, Director of the Min-

nesota Disability Determination Services, and R. Jane

Brown, Commissioner of the Minnesota Department of

Jobs and Training. Respondents are Daniel J. School-

craft, Theodore Thomas, and Joseph Drumbeater.

TABLE OF CONTENTS

Page

Opinions below .......................... SLE EERE Nope EO 1

SIE visits tnentsnnbetincbeqesenan pvannitien Seulitsicebildabasadapisucnitvimbniines 1

Statutory and regulatory provisions involved .................. 2

Cee ec sas ceeemannd anganieiidestsanantnsnasanss 2

Reasons for granting the petition ...................0...-.0.-0000.... 13

ci idalcl anpibninedaminaninninabaskahsahensntenanhenebeees 29

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I sigsnhintnnnssannnennrnccnstesieanates ssiciesiicagisntanintiebainsnitaietsns 19a

ced adicsibhacinintinnsnanastiinheseiubassvibhosnnmntabvionnaciosnennas 50a

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a ici cina a icekcniestedhadbadncts; vhebiasnaiendnenentianessrenatons 56a

iis aconighvelsewtsaniriiontbersinesons: iseetnenansakeansnnn 67a ~

Ia isis oescenaghaaiseniten saitinendgusntbnantinninwtanieannintate 68a

8 SS ee 69a

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a Sree etsmiata ti. -casliihinscadagane comtbaond peticinpenes 73a

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Appendix » ............... paesohene Ii sclssiacehat aire shdakteccaidanensdiaadacas 75a

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TABLE OF AUTHORITIES

Cases:

Abbey v. Sullivan, 978 F.2d 37 (2d Cir. 1992) ........ 26

Adams Vv. Weinberger, 548 F.2d 239 (8th Cir.

TE iN arise i. eb ineies ioemneandecnacoantoennennasndavavies 9, 10, 23

Bailey V. Sullivan, 835 F.2d 52 (3d Cir. 1989) _....... 27

Bowen V. City of New York, 476 U.S. 467 (1986) ..passim

Bowen Vv. Yuckert, 482 U.S. 187 (1987) .............. 8, 4, 6, 16

(111)

Cases—Continued: Page

Briggs v. Sullivan, 886 F.2d 1182 (9th Cir.

I a ee ae PERS Res centr OE 27

Califano v. Boles, 443 U.S. 282 (1979) ~................... 28

Califano v. Sanders, 430 U.S. 99 (1977) ................. 14

Carelli v. Howser, 923 F.2d 1208 (6th Cir. 1991)... 19

._ Chapman vy. Houston Welfare Rights Org., 441

Bs ST IDS vscekinciscaccctecssuciidiaudtinmercenncbusisantanbeetinnie 13

Chilicky v. Schweiker, 796 F.2d 1181 (9th Cir.

1986), rev’d, 487 U.S. 412 (1988) .............000........ 16

City of New York Vv. Heckler:

742 F.2d 729 (2d Cir. 1984), aff’d, 476 U.S.

I aac a 24

578 F. Supp. 1109 (E.D.N.Y.), aff’d, 742 F.2d

729 (2d Cir. 1984), aff’d, 476 U.S. 467

ERNIE Gasinc ocacsrtctsioictncnichapmecyeunanaliabachanasphancipemssicos 24

Cohen Vv. Beneficial Industrial Loan Corp., 337

a ee SI satis cote 26

Day v. Sullivan, 794 F. Supp. 801 (S.D. Ohio

1992), appeal pending, No. 92-3963 (6th Cir.).. 17, 27

Ellis v. Blum, 643 F.2d 68 (2d Cir. 1981) ..13, 15, 16, 17, 21

Heckler v. Campbell, 461 U.S. 458 (1983) ........... 6,17

Heckler v. Day, 467 U.S. 104 (1984) ..000000000... 5, 18, 19, 28

Heckler v. Ringer, 466 U.S. 602 (1984) .5, 6, 11, 21, 26, 28

Hyatt v. Heckler, 807 F.2d 376 (4th Cir. 1986) .... 27

Johnson V. Sullivan, 922 F.2d 346 (7th Cir. 1990).. 27

Jones V. Califano, 576 F.2d 12 (2d Cir. 1978)........ 20

Lujan vy. National Wildlife Federation, 497 U.S.

pS | SRR BS ee cope Se 24

Lynn V. United States Dep’t of Health & Human

Servs., 583 F. Supp. 532 (S.D.N.Y. 1984) _...... 16

Maine Vv. Thiboutot, 448 U.S. 1 (1980) .....000000-. 17

Marcus V. Sullivan, 926 F.2d 604 (7th Cir. 1991) .. 27

Mathews v. Eldridge, 424 U.S. 319 (1976) —........... 5, 26

. Middlesex County Sewerage Authority v. National

Sea Clammers Ass’n, 453 U.S. 1 (1981) -............ 18

Petition of Sullivan, In re, 904 F.2d 826 (3d Cir.

ELEN EEL Say Be 8 oe A EY 8

Puerto Rico Aqueduct & Sewer Authority Vv.

Metcalf & Eddy, Inc., 113 S. Ct. 684 (1993) _...... 26

Richardson V. Perales, 402 U.S. 389 (1971) ............ 28

Cases—Continued : Page

Rosas V. Brock, 826 F.2d 1004 (11th Cir. 1987).... 16

Schweiker v. Chilicky, 487 U.S. 412 (1988) 0.00... 19, 25

Smith v. Robinson, 468 U.S. 992 (1984) _.......... 17, 18, 21

Smith y. Schweiker, 709 F.2d 777 (2d Cir. 1983).. 20

Sullivan v. Zebley, 493 U.S. 521 (1990) —....00000000... 3

Suter v. Artist M., 112 S. Ct. 1860 (1992) ............ 19

Tataranowicz V. Sullivan, 959 F.2d 268 (D.C. Cir.

1992), cert. denied, 113 S. Ct. 963 (1993)........ 26, 27

Titus Vv. Sullivan, 776 F. Supp. 477 (S.D. Iowa

1991), appeal pending, No. 91-3498 (8th Cir.) .. 17

United States Parole Commission V. Geraghty, 445

anc, Ee citrated Nid dicennieiahipeaecnpaaianlceabbisrenn 12

Weinberger Vv. Salfi, 422 U.S. 749 (1975) ......000000... 5, 12, 21

West v. Atkins, 487 U.S. 42 (1988) ........................ 15

Wilder v. Virginia Hospital Ass’n, 496 U.S. 498

)___, PERRERRRE Rare er ar ree er eta er EERO ChE NOR 18, 20

Wilkerson V. Bowen, 828 F.2d 117 (3d Cir. 1987).. 27

Constitution, statutes, and regulations:

U.S. Const. Amend. XIV (Equal Protection

IIIT s.sc:csiadcrossiusiechiissessnceinsphoneebaenidiassiasedinuncabianinacasdaiibicldadel dakd aes 18

Disaster Relief Act of 1974, 42 U.S.C. 5121 et

SOO. «cs seis einiactaictiinc ni lletiilensinpcesapcctnbacbas lhaaia eis nhiaem lactate 17

Education of the Handicapped Act, 20 U.S.C. 1400

RCE SEE ar Re NN AI ee a ee LSP IO 18

Medicare Catastrophic Coverage Repeal Act of

1989, Pub. L. No. 101-234, 103 Stat. 1979 .......... 27

Omnibus Budget Reconciliation Act of 1990, Pub.

L. No. 101-508, Tit. V, §5128(a), 104 Stat.

1388-286 to 1388-287 (codified at 42 U.S.C. 421

Social Security Act, 42 U.S.C. 301 et seq.:

Tit. II, 42 U.S.C. 401-433 (1988 & Supp. IT 1990)..passim

ee ee 4

gi CB | | | Ree eee eon mamern ea ee 2,4,15

EET inc. cscetrdsreconiesce ccd bncbeapoutoacaaiaee passim

II iciiciic as ccectnaciid ncaa deteteses 2, 12, 20-21

Es) EOL Ret ceneetaeicans ee PRP eames nk 16

IE inicctckationscds ed 2,19

BE I ee OOD crcsesiisnsicnsseenisthnaeacinlanindaemniidnte 4

Statutes and regulations—Continued : Page

ee ee OE co cccnnpaicsaavensscncednsennsons 5, 6, 16, 19

ins exndocnsccbebibentnenodanle 7,19

42 U.S.C. 421(b) (8) (B) .......... dakinciietiaudinaneee 17

8S ¢ Tea AO ee 6,7

a ica cc wciscsnnensbsicoebiecniinitaiies 6,7

ie I oe 6, 19

42 U.S.C. 421(c) (3) (Supp. II 1990) .............. 6, 19, 20

a cnahucasatenncaianisilabbsibincaial 5, 19, 21

DE SEE eee eee ee ne ee 16

I sisi iiinnccnasinnstimionnindviocetnsccins 6, 16

Be TEE CEE GUD avcencecisccevssitnionidcaciacensaie 2,3

Ba a iciiactitataisnniinnctsinascctieneasileadereuac 25

Te FG Se ers ee WS vice bascccckctbceierccdscinnionns 4

Tit. XVI, 42 U.S.C. 1881-1883d (1988 & Supp.

Oe alee ea itches saictithincacdnconiictctamiatiscueaeal passim

sn on csesenaneeienh 4,16

CD viiecetneneveictsctntcmnesiatinies 2,3

a itticsid cvsnceenicrciaineacninadabaanalin 4

Sgt eh F ! 5 | ee 2, 4, 15, 19, 21

Ge FFs Be CID iv cakcicensccenscecscncccioatins 2,5, 19, 20, 21

gs ke” TRS nee. 2, 4, 5, 6, 7, 16, 19

Tee; EE, A tee Be OO GW) vicki 4

Social Security Disability Benefits Reform Act of

1984, Pub. L. No. 98-460, § 17, 98 Stat. 1811-

|) SEA SORCSE a enn ot SMD eR ees ee ee 19

BO I ak csnsdnecicceinssnpciehnsiesininntibdeasinahianictiadeaatetiiaaighaiadial 26

I iiicicineiseshitceteps sn aenensantsipisanniaiddininipeiannnal 2, 11, 18, 21

NCEE as icidhecnsdncctaicecicccceantnaptdiansceuiadalanns 2,138

28 U.S.C. 1861 ...... ‘chin cenainabettalteansihisdddeadkabieiadbodasaind aaa 2,13

Ns IE caasices ees cacethnrhnciichohsiabettininin ehidsiasiiatitemniiniaent passim

I I ociiccctcninsineniecessseinighicustconindnnnnelesiatas ioilsasieeenld 17

20 C.F.R.:

Pt. 404:

I 5

Sections 404.923-404.928 _......... ee. 5

Sections 404.929-404.961 _......0. 5

Sections 404.967-404.982 ............... ee 5

NN STII sicicienietsnnneiniteliicincensnabessisiatinesn 2

Regulations—Continued : Page

Section 404.1520 —...... 0... Son Poet ener eee 2,3

Section 404.1520 (a) ........... RsAik c eeneaianeloon 4

NO ooo icc ienceescdsenevenesnncincnsous 8

I GO GRD oivccecncesenvccccensesveccesesonnees 3

Subpt. P, App. 1 -................ ST ete TT 4

Subpt. P, App. 1, Listing 12.09 _.........0....... 2,7,8

AR na 5, 20

Section 404.1613(a) 0000000... a Mea ice 2, 5, 20

i ctaueamevsnensoaivs 17

Sections 404.1640-404.1643 |... 7

I I a cereal 7

Pt. 416:

to iasiceanbnarind 3

8 ERSTE ESR et 4

I eeiedaadeaas 8

Section 416.926 (a) -........... Renn Pain efi SPO ADEA 3

ESE RR SSR RE 5, 20

Section 416.1013 (a) ........... Resp NES eer Pr SAL 5, 20

I oa ccsccissicusenestuneneonene 17

Sections 416.1040-416.1043 _.... ee. 7

tS a fis aecn 7

I CE II oe cecesisenixaseonicsveseie ehetar Aicts2: 5

Sections 416.1423-416.1428 000... 5-6

Sections 416.1429-416.1461 ........ feta BRE eee 5

Sections 416.1467-416.1482 _....................-. 5

Miscellaneous :

46 Fed. Reg. (1981):

I iach niessscciveiisconsnadeisieeivusatyeieeninteesionsestones 4

NS RIES aaa A nae aD NP nme tr 4

56 Fed. Reg. (1991):

a os orle oat lalcancapennaoericnne 19

0 I II esses cw encnoncnenanpeinensniencnsonee ieckainiospiapeees 19

Program Operations Manual System:

& $4615.065 (Mar. 1966) ................--.22.-.02------02--- x

§-24515.056 (Oct. 1986) .............-.---------e-seeeee-e- *

SSA Program Circ. No. 05-0D-86 (Apr. 24,1986)... 8,9

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MAM

Iu the Supreme Court of the United States

OCTOBER TERM, 1992

No.

DONNA E. SHALALA, SECRETARY OF HEALTH AND

HUMAN SERVICES, PETITIONER

Vv.

DANIEL J. SCHOOLCRAFT, ET AL.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

The Acting Solicitor General, on behalf of the Secre-

tary of Health and Human Services, respectfully peti-

tions for a writ of certiorari to review the judgment of

the United States Court of Appeals for the Eighth Cir-

cuit in this case.’

OPINIONS BELOW

The opinion of the court of appeals (App., infra, 1a-

18a) is reported at 971 F.2d 81. The opinion of the

district court (App., infra, 19a-49a) is reported at 753

F. Supp. 1478.

JURISDICTION

The judgment of the court of appeals was entered on

July 2, 1992. A petition for rehearing was denied on

1The Attorney General of Minnesota is filing a petition for a

writ of certiorari on behalf of the state officials who were de-

fendants in the district court. Those officials will be referred to

as the “petitioner state officials.”

(1)

October 9, 1992. App., infra, 50a. On December 29,

1992, Justice Blackmun extended the time for filing a

petition for a writ of certiorari to and including Febru-

ary 8, 1993. On February 1, 1993, Justice Blackmun

further extended the time for filing a certiorari petition

to and including February 22, 1993. The jurisdiction of

this Court is invoked under 28 U.S.C. 1254(1).

STATUTORY AND REGULATORY

PROVISIONS INVOLVED

1. 42 U.S.C. 405(b), 405(g), 405(h), 421, 423

(d) (1) (A), 1882e(a) (8) (A), 1883(¢c)(1) and (3),

1383b(a), and 1988 are set out in the appendix (App.,

infra, 5la-72a).

2. 28 U.S.C. 1831, 1843(a) (3), and 1361 are set out

in the appendix (App., infra, 73a-75a).

3. 20 C.F.R. 404.1508, 404.1520, 404.1613(a), and

Pt. 404, Subpt. P, App. 1, Listing 12.09, are set out in

the appendix (App., infra, 76a-83a).

STATEMENT

In this putative class action, respondents challenge the

manner in which the Minnesota Disability Determination

Services, on behalf of the Secretary of Health and Human

Services, evaluates claims for disability benefits under

Title II and Title XVI of the Social Security Act (Act)

based on alleged alcoholism or drug addiction. The dis-

trict court dismissed the action for lack of subject mat-

ter jurisdiction in light of respondents’ conceded failure

to exhaust administrative remedies, as required by 42

U.S.C. 405(g). The Eighth Circuit reversed. With re-

spect to respondents’ claim against the Secretary, the

court relied on Bowen v. City of New York, 476 U.S.

467 (1986), to hold that exhaustion was not required.

The Eighth Circuit further held that 42 U.S.C. 1983

provided respondents with a separate cause of action

against state officials. The Secretary seeks review of both

holdings.

l.a. Title II of the Act, 42 U.S.C. 401-433 (1988 &

Supp. II 1990), establishes a disability insurance pro-

gram, which provides for the payment of monthly benefits

to disabled persons who have contributed to the program.

Title XVI of the Act, 42 U.S.C. 1881-1383d (1988 &

Supp. II 1990), establishes the Supplemental Security

Income (SSI) program, which provides for the payment

of monthly benefits to indigent persons who are disabled,

blind, or aged. Both titles define “disability” as the “in-

ability to engage in any substantial gainful activity by

reason of any medically determinable physical or mental

impairment which can be expected to result in death or

which has lasted or can be expected to last for a con-

tinuous period of not less than 12 months.” 42 U.S.C.

423 (d) (1) (A), 1882¢(a) (3) (A) ; see Bowen v. Yuckert,

482 U.S. 187, 140 (1987).

The Secretary, acting through the Social Security Ad-

ministration (SSA), has established a five-step sequential

evaluation process for determining whether a person has

a “disability” for purposes of Title II and Title XVI. 20

C.F.R. 404.1520, 416.920; see Yuckert, 482 U.S. at 140-

142; Sullivan v. Zebley, 4938 U.S. 521, 525-526 (1990).

At step one, the decisionmaker determines whether the

claimant is engaged in substantial gainful activity; if so,

benefits are denied. If not, the inquiry proceeds to step

two. If the claimant is found at that step not to have

a medically severe impairment, benefits are denied. If

the claimant does have a severe impairment, the inquiry

proceeds to step three.

At step three, the decisionmaker determines whether

the claimant’s impairment or combination of impair-

ments is the same as, or is equivalent to, any of the listed

impairments that the Secretary has specifically deter-

mined are so severe as to preclude substantial gainful

activity. See Zebley, 498 U.S. at 530-531; 20 C.F.R.

404.1526(a), 416.926(a). If the claimant’s impairment

does meet or equal a isted impairment, “disability” is

conclusively established, and there is no need to proceed

to steps four and five. See 20 C.F.R. Pt. 404, subpt. P,

App. 1 (“Listing of Impairments”); Yuckert, 482 U.S.

at 141.

On the other hand, if the claimant’s impairment does

not meet or equal a listed impairment, the decisionmaker

proceeds to steps four and five. At step four, the decision-

maker considers whether the claimant’s residual func-

tional capacity (RFC) permits him or her to return to

his or her former work; if so, benefits are denied. If

not, the decisionmaker determines at step five whether

the claimant can perform any other gainful work in the

national economy. If so, benefits are denied; if not, bene-

fits are awarded. See 20 C.F.R. 404.1520(a), 416.920(a).

b. In contrast to other programs established under the

Act—such as Medicaid (42 U.S.C. 1396 et seq.) and Aid

to Families with Dependent Children (42 U.S.C. 601

et seq.), which are funded jointly by the States and the

federal government—the disability programs in Title II

and Title XVI are funded exclusively by the federal

government. See 42 U.S.C. 401(b), 1881a.2 Moreover,

the Secretary alone is “directed to make findings of fact,

and decisions as to the rights of any individual applying

for a payment under [the disability programs].” 42

U.S.C. 405(b), 1883(¢) (1).

Nonetheless, the States are authorized to make disability

determinations in the first instance on behalf of the Secre-

tary. 42 U.S.C. 421(a); see 42 U.S.C. 1883b(a). All 50

States, as well as the District of Columbia and Puerto

Rico, have elected to do so. See 46 Fed. Reg. 29,190,

29,199 (1981). The agency in each State designated by

the Secretary to make such determinations—usually re-

ferred to as the Disability Determination Service (DDS)

—~must act “in accordance with the pertinent provisions

of {the Act] and the standards and criteria contained

2The States may, however, supplement the federal disability

benefits payable under Title XVI. 42 U.S.C. 1382e.

in regulations or other written guidelines of the Secre-

tary.” 42 U.S.C. 421(a) (2), 1383b/(a). In that role, the

DDS acts “for the Secretary” and, unless administratively

reviewed and modified, a “determination of disability

made by the [DDS] is the determination of the Secre-

tary.” 20 C.F.R. 404.1613(a), 416.1013(a); 20 C.F.R.

404.1601, 416.1001.

The Secretary has prescribed an “unusually protective”

three-stage process of administrative review for any

claimant dissatisfied with a DDS’s initial disability de-

termination. Heckler v. Day, 467 U.S. 104, 106 (1984).

First, the claimant may seek de novo reconsideration by

the DDS. 20 C.F.R. 404.907, 416.1407. If the claimant

is dissatisfied with the DDS’s decision on reconsideration,

he or she is “entitled to a hearing thereon by the Secre-

tary to the same extent as is provided in [42 U.S.C.

405(b)].” 42 U.S.C. 421(d). The hearing is conducted

by an administrative law judge (ALJ) within the SSA’s

Office of Hearings and Appeals. 20 C.F.R. 404.929-

404.961, 416.1429-416.1461. An adverse decision by the

ALJ may be appealed to the SSA’s Appeals Council. 20

C.F.R. 404.967-404.982, 416.1467-416.1482.

A claimant may obtain judicial review in federal dis-

trict court of a “final decision” or “final determination”

of the Secretary, pursuant to 42 U.S.C. 405(g). See 42

U.S.C. 421(d), 1883(c) (3). As this Court has explained,

the Secretary’s regulations establish that “[o]nly a claim-

ant who proceeds through all three stages [of the admin-

istrative appeal process] receives a final decision from

the Secretary.” Bowen v. City of New York, 476 U.S.

467, 482 (1986); see also Heckler v. Ringer, 466 U.S.

602, 606 (1984) ; Mathews v. Eldridge, 424 U.S. 319, 330

(1976) ; Weinberger v. Salfi, 422 U.S. 749, 765 (1975).°

8The Secretary has provided by regulation for an expedited

administrative appeal process in cases in which the only bar to

an award of benefits is a statutory provision that the claimant

challenges as unconstitutional. 20 C.F.R. 404.923-404.928, 416.1423-

ce. The Secretary is responsible for ensuring uniform

administration of the disability programs, both among

the DDSs and at each stage of the administrative adjudi-

cation of a claim by the DDS and SSA. To ensure uni-

formity among the DDSs, the Secretary is required to

“promulgate reg-ilations specifying * * * performance

standards and administrative requirements and proce-

dures to be followed [by the DDSs] in performing the

disability determination function.” 42 U.S.C. 421(a) (2),

1383b(a). To ensure uniformity throughout the adminis-

trative adjudication process, the Secretary must “estab-

lish by regulation uniform standards which shall be

applied at all levels of determination, review, and adjudi-

cation in determining whether individuals are under

disabilities.” 42 U.S.C. 421(k) (1); see also 42 U.S.C.

421(a)(2). The Secretary also may review individual

decisions of a DDS independently of the administrative

appeal process that may be invoked by the claimant.

Specifically, she may on her own motion review any “de-

termination, made by a State agency under [Title II],

that an individual is or is not under a disability”; this

review may take place “before or after any action is

taken to implement [the DDS’s] determination.” 42

U.S.C. 421(c) (1). Moreover, the Secretary is required

to review a certain percentage of the determinations by

DDSs that individuals are disabled before any benefits

are paid on the basis of those determinations. 42 U.S.C.

421(c) (2); see 42 U.S.C. 421(c) (3) (Supp. II 1990)

(Secretary must review 50% of benefit allowances).

The five-step sequential evaluation process for assess-

ing disability (see pp. 3-4, supra) promotes uniform-

ity both among the DDSs and at all stages of the admin-

istrative adjudication process. See Yuckert, 482 U.S. at

153; Heckler v. Campbell, 461 U.S. 458, 461 (1983). In

416.1428; see also Heckler v. Ringer, 466 U.S. at 606 n.2. That

process is not applicable here.

addition, the Secretary has established general perform-

ance standards for timeliness and accuracy, which all

DDSs are required to meet. See 20 C.F.R. 404.1640-

404.1643, 416.1040-416.1043. The Secretary monitors

each DDS’s compliance with those standards through

quality assurance review of the DDS§S’s individual deci-

sions by the Disability Quality Branch (DQB) within

SSA’s Office of Regional Program and Integrity Reviews,

pursuant to 42 U.S.C. 421(c) (1) and (2). DQB’s per-

formance, in turn, is subject to quality review by SSA’s

central office in Baltimore, Maryland. See 20 C.F.R.

404.1660, 416.1060.‘ If the Secretary finds “that a State

agency is substantially failing to make disability determi-

nations in a manner consistent with [her] regulations

and other written guidelines,” she may take over the task

of making initial disability determinations. 42 U.S.C.

421 (b) (1), 1383b(a).

2. This case concerns the manner in which the Minne-

sota Disability Determination Services (Minnesota DDS),

on behalf of the Secretary, evaluates disability claims

based on allegations of alcoholism or drug addiction.

Such claims are evaluated under the same five-step

sequential evaluation process as are other claims. As

relevant here, the Secretary has included “substance ad-

diction disorders” in the listing of impairments that a

decisionmaker consults at step three of the sequential

evaluation process after determining (at steps one and

two) that the claimant is not engaged in substantial

gainful activity and has a severe impairment. 20 C.F.R.

Pt. 404, subpt. P, App. 1, Listing 12.09. Listing 12.09,

first adopted in 1984, begins by defining “substance addic-

tion disorders” as “[b]Jehavioral changes or physical

changes associated with the regular use of substances that

4SSA’s quality- assurance review examines a statistically valid

random sample of benefit allowances and denials from each DDS.

In addition, 50 percent of all findings of disability are subjected

to review by SSA before they are given effect by the payment of

benefits.

tae eie

affect the central nervous system.” Listing 12.09 then

prescribes the level of severity required for the decision-

maker to conclude, without proceeding to steps four and

five, that the claimant is disabled. Listing 12.09 provides

that that level of severity is met when the requirements

of certain other listed mental and physical disorders are

met. See generally Jn re Petition of Sullivan, 904 F.2d

826 (3d Cir. 1990).

Recognizing the “complex medical and adjudicative dy-

namics of alcoholism or drug addiction,” the SSA’s Office

of Disability has addressed substance addiction in its

Program Operations Manual System (POMS) and other

instructional materials transmitted to state agencies.

SSA Program Cire. No. 05-OD-86, at 1 (Apr. 24, 1986)

(C.A. App. 45). These materials make clear that “[a]lco-

holism or drug addiction can be considered a medically

determinable impairment, if it meets the requirements of

the Social Security law.” Jd. at 2 (C.A. App. 46). But

they stress that “{d]rug addiction and alcoholism are

diagnostic terms; they do not denote impairment value

or severity.” POMS § 24515.045 (Mar. 1986) (C.A. App.

57); see also 20 C.F.R. 404.1525(e) (“a condition diag-

nosed as addiction to alcohol or drugs * * * will not, by

itself, be a basis for determining whether [a claimant]

[is], or [is] not, disabled’), 416.925(e) (same). In mak-

ing a diagnosis, the decisionmaker may take into account

“whether the individual has lost the ability to control the

use of drugs or alcohol.” POMS § 24515.045 (C.A. App.

57. “The loss of ability to control these substances iden-

tifies the individual as a drug addict or alcoholic diag-

nostically, but does not provide a conclusive basis for

evaluating the severity of the impairment.” Jbid. Thus,

once a diagnosis of addiction to drugs er alcohol has been

made, the claimant’s impairment must be evaluated fur-

ther at step three to determine whether its severity meets

or is equivalent to the severity required by Listing 12.09.

POMS § 24515.045 (C.A. App. 58); see also POMS

$ 24515.056 (Oct. 1986) (C.A. App. 59). If not, the deci-

sionmaker proceeds to steps four and five by considering

the claimant’s residual functional capacity and resulting

ability to engage in gainful work. SSA Program Cire.

No. 05-OD-86, supra, at 5-6 (C.A. App. 49-50).

3. Respondents are residents of Minnesota who applied

for disability benefits under Title II or Title XVI (or

both) based on allegations of alcoholism or drug addic-

tion. C.A. App. 96-99; see App., infra, 26a-28a. At the

time they filed this action, their applications for benefits

had been denied by Minnesota DDS. C.A. App. 18-21.

None of the respondents, however, had sought a hearing

before an ALJ.°

a. Respondents filed their complaint in this case on

January 25, 1990. C.A. App. 1. They named as defend-

ants the Secretary, the Director of Minnesota DDS, and

the Commissioner of Minnesota DDS’s parent agency, the

Minnesota Department of Jobs and Training. C.A. App.

88, 90 (First Amended and Supplemental Complaint).

Respondents alleged that, in two respects, Minnesota

DDS was improperly evaluating claims based on allega-

tions of alcoholism or drug addiction. First, they alleged

that Minnesota DDS was ignoring the standard for eval-

uating such claims established by the Eighth Circuit in

Adams v. Weinberger, 548 F.2d 239 (1977). In respond-

ents’ view, Adams held that a claimant must be conclu-

sively deemed disabled once it is determined that he or

she “is addicted and has lost the ability to voluntarily

control the use of alcohol/drugs.” C.A. App. 95. Second,

5 Specifically, respondent Schoolcraft’s claim for Title II and

Title XVI benefits had been denied by Minnesota DDS at the

initial stage, and he had requested reconsideration. C.A. App. 18.

Respondent Thomas’s claims for Title II and Title XVI benefits

had been denied by Minnesota DDS at the initial and reconsidera-

tion stages. Jd. at 19-20. Respondent Drumbeater’s claim for

Title XVI benefits had likewise been denied at the initial and re-

consideration stages. Jd. at 20-21. Subsequently, all three plain-

tiffs were awarded benefits—Schoolcraft and Drumbeater in May

1990, and Thomas in February 1991. App., infra, 3a n.3.

respondents alleged that Minnesota DDS was not gather-

ing adequate medical evidence to rule on disability claims

based on substance addiction. /bid.

Significantly, respondents did not contend that the

errors allegedly made by Minnesota DDS were also being

made by SSA at subsequent stages of the administrative

adjudication process. On the contrary, they asserted that

“[a]t the Hearing stage, Administrative Law Judges rou-

tinely and consistently overturn [Minnesota DDS’s] ear-

lier decisions.” C.A. App. 96. Respondents sought to rep-

resent a class of disability claimants who had not received .

a decision, either favorable or unfavorable, from an ALJ,

C.A. App. 91, and who therefore had not exhausted their

administrative remedies. App., infra, 25a.

b. On January 8, 1991, the district court granted sum-

mary judgment in favor of the Secretary and the peti-

tioner state officials, concluding that it lacked subject

matter jurisdiction over this action. App., infra, 19a-49a.

In light of that conclusion, the court denied respondents’

motion for class certification as moot. Id. at 48a.

The court first held that it did not have jurisdiction

under 42 U.S.C. 405(g) because respondents had failed

to exhaust their administrative remedies. App., infra,

29a-45a. In so holding, the court rejected respondents’

contention that this case involved “unique circumstances”

(id. at 45a) of the sort that under Bowen v. City of New

York, 476 U.S. 467 (1986), would excuse a claimant’s

failure to satisfy Section 405(g)’s exhaustion require-

ment. The district court observed that, in contrast to

City of New York, this case did not involve a secret,

internal policy that conflicted with the Act or the Secre-

tary’s regulations. App., infra, 34a-39a. Rather, respond-

ents “essentially argue that Adams establishes a per se

disability test, that is, the disability inquiry should end

at step three of the evaluation process on the mere diag-

nosis of alcoholism.” App., infra, 85a. That interpretation

of Adams, the district court concluded, “contradicts con-

gressional intent to limit disability benefits under the

Social Security Act to only those persons who are unable

to perform substantial gainful activity.” Jd. at 36a.

The district court distinguished this case from City of

New York on other grounds as well. First, it determined

that the issues raised by respondents’ lawsuit are not

“entirely collateral” to their claim for benefits. App.,

infra, 41a. Instead, by contending “that persons who lack

the ability to voluntarily control their drinking are, on

the basis of Adams, entitled to a presumption of disability

in step three of the evaluation process without reference

to the listings under § 12.09,” respondents were, in the

court’s view, challenging “the Secretary’s substantive

standards governing the entitlement to benefits,” and thus

presenting a claim “inextricably intertwined” with their

claims for benefits. App., infra, 40a (citing Heckler v.

Ringer, 466 U.S. at 614). Second, the court found that

respondents had failed to demonstrate irreparable harm.

observing that “[u]nlike the class members in City of

New York, the members of the proposed class in the

present case are no different [from] any other claimant

who has been denied benefits at the initial stages of the

administrative process.” App., infra, 42a. Finally, the

court determined that “the policies which support the

exhaustion requirement would be served if [respondents]

were required to proceed to the third and fourth levels

of the administrative process” (id. at 45a), because “[i]n

sharp contrast to City of New York, the plaintiffs in the

present case openly concede that exhaustion will remove

the alleged errors in the administrative process” (id.

at 43a).

The court further held that it did not have mandamus

jurisdiction, because 42 U.S.C. 405(g) “clearly provides

[respondents] with an adequate remedy for challenging

all aspects of the Secretary’s denial of their claims.”

App., infra, 46a. It similarly held that federal-question

jurisdiction under 28 U.S.C. 1331 was foreclosed by 42

U.S.C. 405(h). App., infra, 46a-48a (citing Salfi, 422

U.S. at 756-757).

4. The Eighth Circuit reversed and remanded the case

to the district court for further proceedings. App., infra,

la-18a,°

It first held that “the district court erred in failing to

waive the exhaustion requirement of section 405(g).”

App., infra, 14a. In the court of appeals’ view, respond-

ents had “established the|] prerequisites to waiver” under

City of New York. App., infra, 9a. Although the court

of appeals recognized that respondents’ “present conten-

tions may be intertwined with their claims for benefits,”

it deemed those contentions “sufficiently collateral” to

justify a “waiver” of exhaustion, id. at 10a, because

rather than seeking an award of benefits, respondents

sought an order requiring the Secretary to “apply the

same standards to [respondents’] claims for benefits at

each stage of the administrative process,” id. at 5a; see

also id. at 10a. Next, citing affidavits in which putative

class members alleged that without disability benefits they

would experience economic hardship, the Eighth Circuit

determined that respondents had made a “sufficient show-

ing of irreparable harm.” Jd. at 1la. But the court

considered respondents’ “most telling and forceful argu-

ment” to be that “unless exhaustion is waived, if the

ALJ implements the correct procedures and applies the

correct standards and, where appropriate, awards bene-

fits, there will never be judicial review to challenge the

actions the DDS takes at the initial and reconsideration

stages.” Jd. at 14a. Thus, the court concluded that ex-

* As an initial matter, the court of appeals held that the award

of disability benefits to the individual respondents after they filed

this action (see note 5, supra) did not render the case moot. App.,

infra, 3a n.3 (citing, inter alia, United States Parole Commission

Vv. Geraghty, 445 U.S. 888 (1980) ). We do not seek review of that

holding.

haustion was “futile” because it would correct the alleged

errors of which respondents complain. /bid."

The Eighth Circuit further held that respondents had

stated a claim against the petitioner state officials under

42 U.S.C. 19838, over which the district court could assert

federal-question jurisdiction under 28 U.S.C. 1331. App.,

infra, 15a-17a." The Eighth Circuit did not cite any sup-

port for that holding, and it expressly “disagree[d] with

the holding of the Second Circuit” to the contrary in

Ellis v. Blum, 643 F.2d 68 (1981). App., infra, 17a

n.14.°

5. The Eighth Circuit, with three judges dissenting,

denied suggestions of rehearing en banc filed by the

Secretary and the petitioner state officials. App., infra,

50a.

REASONS FOR GRANTING THE PETITION

The court of appeals plainly erred in holding that

state officials may be sued under 42 U.S.C. 1983 for their

allegedly improper administration of the disability pro-

grams established by Title II and Title XVI of the Social

Security Act. State disability determinations are made

7In light of its holding that relief was available against the

Secretary under Section 405(g), the court of appeals found it

unnecessary to decide whether relief was also available under the

mandamus statute, 28 U.S.C. 1861. App., infra, 15a. It “‘note[d],”

however, that “this court and other courts have found an alterna-

tive basis for jurisdiction under section 1361 in similar circum-

stances”; based on that view, it vacated the district court’s dis-

missal of respondents’ mandamus claim. App., infra, 15a.

SThe court of appeals rejected respondents’ reliance on 28

U.S.C, 138483(a) (3) as a basis for jurisdiction over their claims

against the petitioner state officials. App., infra, 15a (citing Chap-

man VY. Houston Welfare Rights Org., 441 U.S. 600, 621 (1979) ).

® The court of appeals stated that respondents had “not expressly

allege[d|] a violation under 42 U.S.C. § 1983.” App., infra, 16a.

In fact, respondents did cite Section 1983 in their amended com-

plaint. C.A. App. 100.

on behalf of the Secretary as part of a unitary adminis-

trative adjudication process that culminates in review by

the Appeals Council that the Secretary has established

in the Social Security Administration. As a result, the

Secretary is the real party in interest in any suit involv-

ing the administration of the disability programs, and

any such suit must be brought against the Secretary in

accordance with 42 U.S.C. 405(g). The contrary holding

below, as the Eighth Circuit acknowledged, squarely con-

flicts with a decision of the Second Circuit. This Court

should resolve that circuit conflict, in light of the poten-

tially devastating impact that separate lawsuits against

state officials could have on the “orderly administrative

mechanism” for evaluating disability claims established

by Titles II and XVI and their regulations. Califano v.

Sanders, 430 U.S. 99, 102 (1977).

Nor may Social Security claimants accomplish the same

result indirectly by challenging the actions of state agency

officials in a suit brought against the Secretary under

42 U.S.C. 405(g) immediately after receiving an adverse

disability determination from the state agency. In order

to invoke Section 405(g), a claimant must comply with

its requirement that he or she first exhaust available

administrative remedies by seeking an ALJ hearing and

Appeals Council review in the SSA, and thereby obtain

the “final decision of the Secretary” on his or her claim

for benefits. [f the exhaustion rule is not strictly en-

forced, suits under Section 405(g) will have exactly the

same adverse impact on the orderly administration of the

disability programs as suits directly against state officials

under 42 U.S.C. 1983. For that reason, the Court should

also review the Eighth Circuit’s holding that under Bowen

v. City of New York, 476 U.S. 467 (1986), respondents

were excused from satisfying the exhaustion requirement

before seeking judicial review under 42 U.S.C. 405( g).

City of New York should not be read to dispense with

that requirement where, as here, exhaustion would remedy

the alleged errors for which judicial review is sought, and

the only supposedly “irreparable injury” the claimants

assert is the same denial of benefits during the adminis-

trative review process that any of the millions of Social

Security claimants could invoke as a basis for immediate

judicial review.

1, The Eighth Circuit erred in holding that 42 U.S.C.

1983 provides respondents with a cause of action against

the petitioner state officials. That holding, moreover,

squarely conflicts with the Second Circuit’s decision in

Ellis v. Blum, supra. The question whether state officials

may be sued under Section 1983 for their allegedly im-

proper administration of the federal disability programs

is of great importance to both the federal government and

the States. Further review is therefore warranted.

a. State officials do not act “under color of state law”

within the meaning of 42 U.S.C. 1988 when they make

disability determinations on behalf of the Secretary.

Rather, they act under color of federal law, as the Second

Circuit held in Ellis v. Blum, supra. Because the “under

color of state law” requirement is “a jurisdictional requi-

site for a § 1983 action,”. West v. Atkins, 487 U.S. 42, 46

(1988), respondents’ Section 1983 claims against the peti-

tioner state officials should have been dismissed.

The responsibility for deciding disability claims under

Title II and Title XVI rests solely with the Secretary.

Under each title, the Secretary is “directed to make find-

ings of fact, and decisicns as to the rights of any in-

dividual applying for a payment under this [title].” 42

U.S.C. 405(b), 1383(c) (1). Moreover, the Secretary’s

approval of the state agency’s decision is required prior

to the payment of disability benefits. Under Title II, a

claimant’s right to benefits arises only “[u]pon final

decision of the Secretary, or upon final judgment of any

court of competent jurisdiction, that [the claimant] is

entitled to any payment or payments,” and payment must

be made “in accordance with the certification of the Secre-

tary.” 42 U.S.C. 405(i). Similarly, it is the Secretary

who is specifically designated to pay benefits under Title

XVI. 42 U.S.C. 1381a.

When a state DDS makes disability determinations

under Title II and Title XVI, it is “acting under the

authority and supervision of the Secretary.” Yuckert,

482 U.S. at 142. It must apply the five-step sequential

evaluation process developed by the Secretary for evaluat-

ing disability claims. See 42 U.S.C. 421(k) (1), 1883(d).

It must also satisfy the “performance standards and ad-

ministrative requirements and procedures” that the Secre-

tary has developed “to assure effective and uniform ad-

ministration” of the disability programs. 42 U.S.C. 421

(a) (2); see 42 U.S.C. 1888b(a). In return for those

services, each State is “entitled to receive * * * the cost

to the State of making disability determinations.” 42

U.S.C. 421(e), 1888b(a). The role of the States under

Title II and Title XVI thus is limited to determining one

aspect of eligibility for federal funds under federal cri-

teria, in exchange for federal reimbursement.

In Ellis v. Blum, the Second Circuit relied upon the

pervasively federal nature of the Title II disability pro-

gram when it affirmed the dismissal of a Section 1983

claim against state officials based on their allegedly im-

proper administration of the program. 643 F.2d at 83-84.

The court held that “[Section] 1983 is unavailable” be-

cause “the state officials were not acting under color of

state law.” Jd. at 88. The court explained that “the

state agencies function solely as agents of the Secretary

in making determinations of disability, applying federal

law and federal regulations in accordance with procedures

prescribed by her.” Jd. at 83 n.17; accord Lynn v. United

States Dep’t of Health & Human Servs., 583 F. Supp.

532, 5383 (S.D.N.Y. 1984) ; see also Chilicky v. Schweiker,

796 F.2d 1181, 1135 n.3 (9th Cir. 1986), rev’d on other

grounds, 487 U.S. 412 (1988); cf. Rosas v. Brock, 826

F.2d 1004, 1007 (11th Cir. 1987) (Section 1983 action

nt Or hee lia

did not lie against state officials based on their adminis-

tration of federal Disaster Relief Act).

Here, the Eighth Circuit expressly “disagree[d] with

the holding of the Second Circuit that the state defendants

are acting solely as agents of the United States.” App.,

infra, 17a n.14. The Eighth Circuit cited no legal sup-

port for its holding, however, and that holding cannot be

reconciled with the comprehensively federal nature of

Title II and Title XVI.

b. The acknowledged conflict between the decision below

and Ellis v. Blum warrants review by this Court. The

Eighth Circuit’s decision could disrupt the administration

of the disability programs in two ways. First, by expos-

ing state officials to lawsuits, it could discourage States

from participating in the administration of the programs.

Cf. 20 C.F.R. 404.1615(g), 416.1015(g) (DDSs are not

“responsible for defending in court any determination

made, or any procedure for making determinations”).

A State’s decision to withdraw from the programs would

cause economic dislocation within the State, see 42 U.S.C.

421 (b) (3) (B) (labor-protection measures applicable when

Secretary determines that state agency should discontinue

disability determination function), and impose a daunt-

ing new administrative burden on the “already overbur-

dened” SSA. Heckler v. Campbell, 461 U.S. at 468.

1 There are at least four other pending cases involving the ad-

ministration of the federal disability programs in which state

officials, as well as the-Secretary, have been named as defendants.

Day Vv. Sullivan, 794 F. Supp. 801 (S.D. Ohio 1992), appeal pend-

ing, No. 92-3963 (6th Cir.) ; Bentley v. Phillips, No. 92-40-CIV-J-14

(M.D. Fla.); Goodnight v. Sullivan, No. 90-0460-CV-W-5 (W.D.

Mo.); Cuffee v. Sullivan, No. 90-0460 (W.D. Mo.) ; see also Titus

v. Sullivan, 776 F. Supp. 477 (S.D. Iowa 1991), appeal pending,

No. 91-3498 (8th Cir.). The risk of future lawsuits against state

officials is enhanced by the liberal standard in 42 U.S.C. 1988 for

awarding attorney’s fees to plaintiffs in Section 1983 cases. See

Maine v. Thiboutot, 448 U.S. 1, 24 (1980) (Powell, J., dissenting) ;

cf. Smith v. Robinson, 468 U.S. 992, 1020-1021 (1984).

Second, the Eighth Circuit’s decision would frustrate

“Congress’ oft-repeated goal of uniform administration of

the Act.” Day, 467 U.S. at 116. Congress intended to

achieve uniform administration by requiring the Secre-

tary to oversee the States’ performance. The Eighth Cir-

cuit’s decision, however, disperses oversight responsibility

among the lower courts and invites peremptory and dis-

ruptive judicial intervention in the Secretary’s ongoing

review of individual claims.

ce. Even if the petitioner state officials were deemed to

be acting “under color of state law,” they would not be

subject to suit under Section 1983. That is because Titles

II and XVI establish “a remedial scheme that is ‘suffi-

ciently comprehensive . . . to demonstrate congressional

intent to preclude the remedy of suits under § 1983.’”

Wilder v. Virginia Hospital Ass’n, 496 U.S. 498, 521

(1990) (quoting Middlesex County Sewerage Authority v.

National Sea Clammers Ass’n, 453 U.S. 1, 20 (1981)).

This Court “found a remedial scheme established by

Congress sufficient to displace the remedy provided in

$ 1983” (Wilder, 496 U.S. at 521) in Smith v. Robinson,

- 468 U.S. 992 (1984). In Smith, the Court held that the

Education of the Handicapped Act (EHA) (20 U.S.C.

1400 et seg.) furnished the “exclusive avenue” through

which an individual may assert a right to a free appro-

priate public educatien. 468 U.S. at 1009. That holding

was based on “the comprehensive nature of the procedures

and guarantees set out in the EHA,” which includes “de-

tailed procedural safeguards, and a right to judicial

review.” Jd. at 1011. The plaintiffs in Smith were pre-

cluded from “circumvent[ing] * * * Congress’ carefully

tailored scheme” by bringing an action under Section 1983

alleging violations of the EHA and the Equal Protection

Clause. Jd. at 1012.

Like the EHA, Title II and Title XVI of the Social

Security Act establish a remedial scheme that is “suffi-

ciently comprehensive” to demonstrate Congress’s intent

to displace relief under Section 1983. The DDS makes

initial disability determinations under regulations, guide-

lines, and performance standards established by the Sec-

retary. 42 U.S.C. 421(a) (2), 1888b(a). In addition, the

Secretary conducts case-by-case review of a significant

portion of the DDSs’ determinations pursuant to the

quality review process required under Title II. See

pp. 6-7 & n.4, supra; 42 U.S.C. 421(c)(2) and (3)

(Supp. II 1990). If the Secretary determines that a

State has substantially failed to comply with the regula-

tions and other guidelines for making disability deter-

minations, she may take over the task of making those

determinations. 42 U.S.C. 421(b) (1). Case-by-case re-

view of DDS decisions also occurs at the instance of indi-

vidual claimants who are dissatisfied with DDS decisions

and seek review by an ALJ or the Appeals Council in SSA.

42 U.S.C. 421(d), 1883(c) (1); see also Day, 467 U.S.

at 106 (administrative review scheme is “unusually pro-

tective” of claimants’ interests). Claimants who are dis-

satisfied with the final decision of the Secretary may then

obtain judicial review in the manner specifically pro-

vided for in Title II and Title XVI. 42 U.S.C. 421(d),

1388(c) (3). Inshort, Congress “has not failed to provide

meaningful safeguards or remedies for the rights of

persons situated as respondents were.” Schweiker Vv.

Chilicky, 487 U.S. 412, 425 (1988); see also Suter v.

Artist M., 112 S. Ct. 1860, 1868-1369 (1992) ; Carelli Vv.

Howser, 923 F.2d 1208, 1212-1217 (6th Cir. 1991)."

11 As was true in Chilicky, 487 U.S. at 425-426, congressional

attention to the problem at issue here has been continuing. Con-

gress has repeatedly addressed the Secretary’s authority to monitor

the States’ performance of the disability determination function.

See Day, 467 U.S. at 116-118 (discussing 1980 amendments to 42

U.S.C. 421); Social Security Disability Benefits Reform Act of

1984, Pub. L. No. 98-460, §17, 98 Stat. 1811-1812; see also 56

Fed. Reg. 11,012, 11,025 (1991) (publishing final rules empowering

Secretary to ensure compliance by state agencies with federal

standards). Congress amended Section 421 most recently in 1990

In any event, judicial relief outside of 42 U.S.C. 405(g)

—in a suit under Section 1983—is precluded by Section

405(h).'* Both the second and third sentences of Section

405(h) bar jurisdiction over respondents’ Section 1983

claim against the petitioner state officials. The second

sentence precludes judicial review of any “findings of

fact or decision of the Secretary” except under Section

405(g). That sentence applies to disability determina-

tions by state agencies because, unless reviewed or modi-

fied by the Secretary, a “determination of disability made

by the [state DDS] is the determination of the Secre-

tary.” 20 C.F.R. 404.1613(a), 416.1013(a); see also

20 C.F.R. 404.1601, 416.1001. The third sentence of Sec-

+++ =

to require the Secretary to review a specified percentage of state

determinations awarding disability benefits. Omnibus Budget Rec-

onciliation Act of 1990, Pub. L. No. 101-508, Tit. V, § 5128(a),

104 Stat. 1888-286 to 1388-287 (codified at 42 U.S.C. 421(c) (3)

(Supp. II 1990)). This history of legislative oversight further

evidences Congress’s intention to preclude Section 1983 relief.

Cf. Wilder, 496 U.S. at 515-518, 522 (legislative history of Boren

Amendment weighed against preclusion of Section 1983 relief,

because it demonstrated Congress’s intention to limit Secretary’s

role in setting Medicaid reimbursement rates).

12 42 U.S.C. 405(h) provides:

The findings and decision of the Secretary after a hearing

shall be binding upon all individuals who were parties to such

hearing. No findings of fact or decision of the Secretary shall

be reviewed by any person, tribunal, or governmental agency

except as herein provided. No action against the United

States, the Secretary, or any officer or employee thereof shall

be brought under section 1331 or 1346 of title 28 to recover

on any claim arising under this subchapter.

As part of Title II, Section 405(h) applies directly to decisions

by the Secretary under Title II; Section 405(h) also applies to

decisions by the Secretary under Title XVI, since those decisions

are subject to judicial review “to the same extent as the Secre-

tary’s final determinations under section 405” (42 U.S.C. 1383

(c)(8)). See Smith v. Schweiker, 709 F.2d 777, 779 (2d Cir.

1983) (exclusion of judicial review in Section 405(h) “has been

implicitly incorporated into Title XVI” by 42 U.S.C. 1383(c) (3));

accord Jones V. Califano, 576 F.2d 12, 17 (2d Cir. 1978).

ene me et, Chae rer bit

tion 405(h) bars any “action against the United States,

the Secretary, or any officer or employee thereof.” It bars

claims against state officials where (as here) jurisdiction

is claimed to rest on 28 U.S.C. 1331, because, as discussed

above, those officials act on behalf of the Secretary and

therefore stand in the shoes of her officers or employees for

present purposes. See Ellis v. Blum, 643 F.2d at 76."

2.a. The Eighth Circuit also seriously erred by relying

on Bowen v. City of New York to dispense with the

exhaustion requirement of 42 U.S.C. 405(g), which per-

mits judicial review only of the Secretary’s “final deci-

sion” on a claim for benefits. The Eighth Circuit rea-

soned that, if respondents were required to seek admin-

istrative review of Minnesota DDS’s determinations, the

alleged errors by Minnesota DDS upon which this action

was based would be corrected by ALJs and therefore

would evade judicial review. App., infra, 14a. It was on

that basis that the Eighth Circuit concluded that exhaus-

tion would be “futile.” Jbid. That rationale stands the

exhaustion doctrine on its head.

A central purpose of the exhaustion requirement is to

afford the agency an opportunity to correct its own

errors. Weinberger v. Salfi, 422 U.S. 749, 765 (1975) ;

see also City of New York, 476 U.S. at 484-485. Respond-

ents asserted that the errors allegedly made by Minnesota

DDS were being corrected by ALJs. C.A. App. 96 (“At

the Hearing stage, Administrative Law Judges routinely

and consistently overturn [Minnesota DDS’s] earlier deci-

13 Like the plaintiffs in Smith v. Robinson, respondents have as-

serted constitutional claims that are “virtually identical to” their

statutory claims. See 468 U.S. at 1009. Under Smith, it is clear that

neither the constitutional nor statutory claims may be asserted in a

Section 1983 action against state officials. Rather, both types of

claims must be channeled first through the administrative review

process established in Title II and Title XVI, after which re-

spondents may seek review of any remaining claims in an action

challenging the “final decision” of the Secretary. 42 U.S.C. 421(d) ;

see 42 U.S.C. 1383(c) (1) and (3); see also Heckler v. Ringer, 466

U.S. at 614.

sions.”); Resp. C.A. Br. 5 (“If a claimant exhausts his

administrative remedies, his claim will be considered by

an ALJ using the proper standards.”). Accepting that

assertion, if respondents had exhausted their administra-

tive remedies, the Secretary would have had an oppor-

tunity to correct her (7.e., Minnesota DDS’s) alleged er-

rors; in fact, the three named respondents were awarded

benefits when they sought review by SSA.“ A remedy is

in no sense “futile” when it affords the very relief that

the claimant seeks. Exhaustion therefore was mandatory

not only because of the statutory requirement that the

claimant receive the “final decision of the Secretary”

(42 U.S.C. 405(g)), but also because exhaustion would

have fulfilled the central purpose of that requirement.

City of New York does not support the Eighth Cir-

cuit’s contrary conclusion. In City of New York, the dis-

trict court found “overwhelming” evidence of a “fixed

clandestine policy” adopted by SSA that “was inconsist-

ent in critically important ways with established regu-

lations.” 476 U.S. at 475, 485. That policy was enforced

through internal memoranda and the “returns” process

by which SSA sent individual cases back to the States

for correction. Jd. at 474-475 & n.5. Under the challenged

policy, DDS examiners presumed at step three of the

sequential evaluation process that claimants whose im-

14In the district court, the Secretary disputed respondents’ con-

tention that the standards applied by Minnesota DDS in assessing

disability claims based on allegations of alcoholism or drug addic-

tion are different from the standards applied by ALJs and the

Appeals Council. In particular, the Secretary challenged respond-

ents’ assertion that at step three of the sequential evaluation

process the ALJs and the Appeals Council rely on Adams to pre-

sume conclusively that a claimant is disabled if he or she “is

addicted and has lost the ability to voluntarily control the use of

alcohol/drugs.” C.A. App. 95. The district court rejected respond-

ents’ understanding of Adams, finding that it “contradict[ed] con-

gressional intent to limit disability benefits under the Social Security

Act to only those persons who are unable to perform substantial

gainful activity.” App., infra, 36a.

pairments did not meet or equal a listed impairment had

the residual functional capacity (RFC) to do at least

unskilled work. Id. at 475. “[T]hese tainted RFC assess-

ments by state review physicians were subsequently given

great weight by ALJ’s in the administrative appeal proc-

ess.” Jbid. (internal quotation marks omitted). Under

these “unique circumstances,” this Court held that ex-

haustion was “futile.” Jd. at 485.

This case does not involve any of the circumstances

that led the Court in City of New York to conclude that

exhaustion was futile. Respondents do not allege that the

Secretary is applying an illegal policy in evaluating dis-

ability claims; on the contrary, they state that the “proper

standards” are being applied by ALJs. Nor do respond-

ents allege that the DDS’s allegedly improper evaluation

of claims was the result of clandestine pressure from

SSA, as was alleged in City of New York, 476 U.S. at

473-474. Instead, respondents argue that DDS officials

are failing to adhere to the Eighth Circuit’s decision in

Adams, and that the Secretary has failed to correct that

alleged error on a system-wide basis. And in contrast to

City of New York, where the district court found “over-

whelming” evidence to support the plaintiffs’ charge, the

district court here rejected respondents’ Adams-based

argument, App., infra, 35a-39a."" Finally, respondents do

not assert that the DDS’s evaluations of disability claims

are given “great weight” by ALJs or otherwise influence

15 The plaintiffs in City of New York contended, and the district

court held, that at step three of the sequential evaluation process

the Secretary improperly presumed that certain claimants were

able to work, and that that presumption precluded an individualized

assessment of those claimants’ actual ability to work. Respondents’

contention is quite different. Respondents contend that at step

three the Secretary should have applied a presumption with respect

to certain claimants and that it was improper for her to make

individualized determinations of those claimants’ actual ability to

work. The district court rejected those contentions. App., infra,

35a-39a.

subsequent administrative review, cf. City of New York,

476 U.S. at 475; they make the contrary assertion. In

sum, this case does not involve a “fixed clandestine policy”

(City of New York, 476 U.S. at 475) that “was applied

throughout the elaborate administrative process” (City

of New York v. Heckler, 742 F.2d 729, 733 (2d Cir.

1984), aff'd, 476 U.S. 467 (1986) ) so as to reduce that

process to a “paper charade” (City of New York Vv.

Heckler, 578 F. Supp. 1109, 1124 (E.D.N.Y.), aff’d, 742

F.2d 729 (2d Cir. 1984), aff'd, 476 U.S. 467 (1986) ).

The Eighth Circuit’s reliance on City of New York was

therefore misplaced.”

City of New York is inapposite for another reason. In

City of New York, the district court found that the plain-

tiffs could suffer irreparable injury in the form of a

“severe medical setback” if they were required to go

through the administrative appeal process. 476 U.S. at

483 (quoting 578 F. Supp. at 1118). That finding was

based in part on evidence that “[mJany persons ha[d]

been hospitalized due to the trauma of having disability

benefits cut off.” 476 U.S. at 484 (quoting 578 F. Supp.

at 1118). No comparable evidence was presented here,

and the district court made no comparable finding of

irreparable injury. On the contrary, the district court

16The Eighth Circuit expressed concern that the allegedly sys-

temic nature of DDS’s errors would not be addressed by adminis-

trative review of individual DDS determinations. That concern

did not justify dispensing with the exhaustion requirement on a

systemic basis. System-wide errors by a DDS are to be identified

and resolved through the quality assurance process. See pp. 6-7 &

n.4, supra. That process was found to have broken down in City of

New York, 578 F. Supp. at 1115-1116, 1118, but not here. Compare

Lujan v. National Wildlife Federation, 497 U.S. 871, 891 (1990)

(“respondent cannot seek wholesale improvement of this program

by court decree, rather than in the offices of the Department or the

halls of Congress, where programmatic improvements are normally

made’’).

RAN tthe tal hy Ait dy BN ett PM i et

Pall DA RS lan ae NL RAEN OEY HR ach

Pe PERMA ate Ah Ae 8 ashy PR eB O IRE

AREA ts Re

found that respondents and the putative class members

were “no different [from] any other claimant who has

been denied benefits at the initial stages of the adminis-

trative process.” App., infra, 42a. Although the Eighth

Circuit reversed that determination (App., infra, 1la-12a

& n.10), the affidavits upon which it relied do not allege

“severe medical setback[s]” of the sort found in City of

New York, 476 U.S. at 483. Instead, the affidavits allege

only economic hardship resulting from the failure to re-

ceive benefits during pursuit of administrative appeals—

an allegation that any of the millions of Social Security

claimants each year might make, and that Congress there-

fore could not have intended to be a basis for avoiding

the statutory requirement that a claimant receive the

“final decision” of the Secretary before seeking judicial

review under 42 U.S.C. 405(g). Cf. Schweiker v. Chilicky,

487 U.S. 412, 428-429 (1988).”

Finally, the Eighth Circuit erred in holding that re-

spondents’ contentions were “sufficiently collateral” to

their claims for benefits to dispense with Section 405(g)’s

exhaustion requirement in this case. The Eighth Circuit

attached great significance to the fact that, rather than

seeking benefits, respondents challenged the Secretary’s

“failure to ensure that uniform standards are applied at

all levels of review.” App., infra, 10a; see also id. at 5a.

17 Where Congress has concluded that possible economic hardship

during exhaustion of the administrative review process warrants

special consideration, it has addressed that problem directly. See

42 U.S.C. 423(g¢) (providing for continued payment of benefits on

an interim basis, until the ALJ renders a decision, following a

state agency’s determination that a person already receiving dis-

ability benefits is not disabled). Congress’s omission of any com-

parable relief in other circumstances (e.g., where a person applying

for benefits in the first instance is found by the state agency not

to be disabled) cuts strongly against a judicial determination that

mere delay in receiving benefits pending exhaustion of adminis-

trative remedies is the sort of “irreparable injury” that would ex-

cuse the claimants from complying with the statutory exhaustion

requirement.

The district court, however, properly concluded that re-

spondents were actually challenging the substantive

standards applied at all levels for evaluating disability

claims based on alcoholism and drug addiction. App.,

infra, 40a. Such a challenge is not “collateral” to a claim

for benefits merely because it does not depend on the

facts of each case. See Ringer, 466 U.S. at 620. Rather,

the standard for determining whether a claim is “collat-

eral” for purposes of dispensing with Section 405(g)’s

exhaustion requirement should—absent truly unique or

extraordinary circumstances—approximate the stringent

standard developed for the “collateral order” doctrine of

appellate review enunciated in Cohen v. Beneficial Indus-

trial Loan Corp., 337 U.S. 541 (1949). See Eldridge, 424

U.S. at 330-331 & n.11 (noting that constitutional claim

was “entirely collateral” to claim for benefits, citing

Cohen); Tataranowicz v. Sullivan, 959 F.2d 268, 274

(D.C. Cir. 1992), cert. denied, 113 S. Ct. 963 (1993); see

also Abbey v. Sullivan, 978 F.2d 37, 46 (2d Cir. 1992) ;

see generally Puerto Rico Aqueduct & Sewer Authority v.

Metcalf & Eddy, Inc., 113 S. Ct. 684, 687-688 (1993).

Respondents clearly have not shown that the issues they

raise satisfy that standard, and they have identified no

unique or extraordinary circumstances that could excuse

them from doing so.'*

18 Although the Court observed in City of New York that the

claims there were “collateral” to the class members’ claims for bene-

fits, 476 U.S. at 483, the Court ultimately rested its decision on the

amalgam of “unique circumstances” in that case, id. at 485, which

is not remotely replicated here. Furthermore, even if the sort of

issues respondents raise in this case were regarded as sufficiently

collateral to a claim for benefits to warrant immediate judicial

review of those issues, that would not excuse the claimant who

seeks review on those issues from keeping his or her underlying

claim for benefits alive by seeking further review of an administra-

tive denial of that claim within the 60-day period allowed at each

stage of administrative or judicial review—just as a party who

seeks appellate review under 28 U.S.C. 1291 of a truly collateral

issue is not excused from complying with procedural requirements

b. The Eighth Circuit is not alone among the courts of

appeals in relying on City of New York to create sweeping

exceptions to Section 405(g)’s exhaustion requirement.

Other circuits have read City of New York overbroadly

to dispense with exhaustion in massive class actions chal-

lenging the Secretary’s administration of the Social Secu-

rity Act in a wide array of settings.’” Those decisions,

like the decision below, ignore this Court’s admonition in

City of New York that “exhaustion is the rule in the vast

majority of cases,” 476 U.S. at 486, and that exhaustion

was excused there because of the “unique eircumstances”

presented, id. at 485. In fact, judicial dispensation of

claimants’ failure to comply with the exhaustion require-

ment has become routine dn class actions involving thou-

sands—and even scores of thousands—of claimants.”

for presenting or defending the case on the merits in the district

court while the appeal on the collateral issue is pending. Thus, even

if exhaustion could properly be excused in a case such as this, the

class should include only those claimants whose substantive claims

for benefits have remained alive during the pendency of the suit

raising the supposedly “collateral” issue.

19 See Tataranowicz Vv. Sullivan, 959 F.2d 268, 273-275 (D.C. Cir.

1992) (class action challenging Secretary’s interpretation of Medi-

care Catastrophic Coverage Repeal Act of 1989, Pub. L. No. 101-

234, 103 Stat. 1979), cert. denied, 113 S. Ct. 963 (1993); Marcus

v. Sullivan, 926 F.2d 604, 612-615 (7th Cir. 1991) (class action

challenging Secretary’s methodology for evaluating claims by spouses

seeking disability benefits under Title II and Title XVI); Johnson

v. Sullivan, 922 F.2d 246, 352-355 (7th Cir. 1990) (en banc) (class

action challenging Secretary’s evaluation of disability claims) ;

Briggs v. Sullivan, 886 F.2d 1132, 1138-1141 (9th Cir. 1989) (same) ;

Bailey v. Sullivan, 885 F.2d 52, 63-66 (3d Cir. 1989) (same) ;

Wilkerson V. Bowen, 828 F.2d 117, 121-122 (3d Cir. 1987) (same);

Hyatt v. Heckler, 807 F.2d 376, 378-380 (4th Cir. 1986) (same),

cert. denied, 484 U.S. 820 (1987).

20 For example, the Department of Health and Human Services

advises us that the plaintiff class in Day Vv. Sullivan, 794 F. Supp.

801 (S.D. Ohio 1992), appeal pending, No. 92-3963 (6th Cir.),

consists of approximately 320,000 claimants.

This case presents an appropriate opportunity for the

Court to clarify the circumstances under which Section

405(g)’s exhaustion requirement may be dispensed with

in class actions challenging the Secretary’s administration

of Social Security Act programs. Cf. Heckler v. Ringer,

466 U.S. at 605 (certiorari was granted to “sort out the

thorny jurisdictional problems” raised by putative class

action challenging Secretary’s policy that surgical proce-

dure was not reimbursable under Medicare Act). This

case is an especially suitable vehicle for that purpose,

since it also presents the closely reiated issue of whether

Social Security claimants may circumvent the exhaustion

requirement of 42 U.S.C. 405(g) by bringing an action

under 42 U.S.C. 1983 against the state officials who make

disability determinations on behalf of the Secretary.

3. The social security system “is of unprecedented di-

mension.” Califano v. Boles, 443 U.S. 282, 283 (1979).

In particular, “{t]he disability programs administered

under Titles II and XVI ‘are of a size and extent difficult

to comprehend.’” Day, 467 U.S. at 106 ( quoting Richard-

son V. Perales, 402 U.S. 389, 399 (1971)). In fiscal year

1992, more than 3.1 million disability claims were filed

under the two titles, and more than $44.7 billion in

disability benefits were paid out. The Eighth Circuit’s

decision in this case and other decisions like it severely

disrupt the administration of the massive disability pro-

grams by allowing claimants to bypass the comprehensive

scheme for administrative review—and, now, to sue state

Officials directly. Review by this Court therefore is

warranted.

eG ey ee

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

WILLIAM C. BRYSON

Acting Solicitor General

STUART M. GERSON

Assistant Attorney General

EDW:N S. KNEEDLER

Assistant to the Solicitor General

RICHARD H. SEAMON

Assistant to the Solicitor General

HOWARD S. SCHER

Attorney

FEBRUARY 1993

APPENDIX A

UNITED STATES COURT OF APPEALS

EIGHTH CIRCUIT

No. 91-1643

DANIEL J. SCHOOLCRAFT; THEODORE THOMAS, and

JOSEPH DRUMBEATER, individually and on behalf of

all others similarly situated, APPELLANTS

Vv.

Louis W. SULLIVAN, M.D., Secretary of Department

of Health and Human Services; WALTER ROERS,

in his official capacity as Director of the Disability

Determination Services; R. JANE BROWN, in her

official capacity as Commissioner cf the Minnesota

Department of Jobs and Training, APPELLEES

Submitted Nov. 13, 1991

Decided July 2, 1992

Rehearing and Rehearing En Bane

Denied Oct. 9, 1992

(la)

Before LAY,* Chief Judge, ARNOLD,** Circuit

Judge, and STUART,*** Senior District Judge.

LAY, Chief Judge.

This is an appeal from the district court’s’ award

of summary judgment dismissing a class action * com-

plaint filed by three individuals, Daniel J. Schoolcraft,

Theodore Thomas and Joseph Drumbeater, against

Louis W. Sullivan, Secretary of the Department of

Health and Human Services (Secretary), and Walter

Roers and R. Jane Brown in their official capacities

as Director of Minnesota’s Disability Determination

Services and Commissioner of the Minnesota Depart-

ment of Jobs and Training, respectively. Plaintiffs

challenged the procedures and standards applied by

defendants to disability claims involving chronic alco-

holism or some other drug dependency. See School-

craft v. Sullivan, 753 F.Supp. 1478 (D.Minn.1991).

At the time the class action was filed, January 25,

*The HONORABLE DONALD P. LAY was Chief Judge

of the United States Court of Appeals for the Eighth Circuit

at the time this case was submitted and took senior status on

January 7, 1992, before the opinion was filed.

** The HONORABLE RICHARD S. ARNOLD became

Chief Judge of the United States Court of Appeals for the

Eighth Circuit on January 7, 1992.

*** The HONORABLE WILLIAM C. STUART, Senior

United States District Judge for the Southern District of

Iowa, sitting by designation.

1The Honorable David S. Doty, United States District

Judge for the District of Minnesota.

2 The class allegedly consists of over 4000 plaintiffs, each

of whom sought benefits based on disability due to chronic

alcoholism.

1990, each of the plaintiffs had appiied for disability

benefits by reason of chronic alcoholism. The district

court awarded summary judgment to the defendants

and dismissed the complaint for lack of subject mat-

ter jurisdiction based upon the plaintiffs’ failure to

exhaust their administrative remedies. Consequently,

the court concluded that plaintiffs’ motion for class

certification was moot. Jurisdiction was alleged un-

der 42 U.S.C. § 405(g) (1988), 28 U.S.C. §§ 1331,

1343(3) and 1861 (1988).*

* Subsequent to the filing of the class action, Schoolcraft

and Drumbeater were awarded disability benefits in May

1990 and Thomas received benefits in February 1991. The de-

fendants allege that this moots the law suit. We must respect-

fully disagree. The district court denied certification of the

class as moot on the basis that it lacked jurisdiction to enter-

tain the complaint. This court finds that jurisdiction to hear

the case does lie with the federal courts. Plaintiffs’ motion

for class certification is not moot as it was not decided upon

the merits. Notwithstanding the grant of eligibility, these

plaintiffs continue to have a personal stake in the litigation

because their continuing eligibility is subject to periodic re-

view. United States Parole Comm. v. Geraghty, 445 U.S. 388,

100 S.Ct. 1202, 63 L.Ed.2d 479 (1980) ; Wilkerson v. Bowen,

828 F.2d 117 (3d Cir. 1987). Since the class action was denied

before the named plaintiffs were awarded disability benefits,

as part of our judgment we remand this cause for deter-

mination of class certification with instructions that class

certification should relate back to January 25, 1990.

The instant case can be distinguished from Shipman v.

Missouri Dep’t of Family Servs., 877 F.2d 678 (8th Cir.1989),

cert. denied, 493 U.S. 1045, 110 S.Ct. 842, 107 L.Ed.2d 837

(1990), in which this court held that where plaintiffs fail to

file a motion requesting a ruling on the issue of class certi-

fication and the district court does not rule on the issue, the

court loses jurisdiction where the named plaintiffs’ personal

claims become moot.

The initial determination of a claim for disability

benefits is made by a state agency pursuant to regu-

lations, guidelines and standards established by the

Secretary. 42 U.S.C. §§ 421(a), 421(k) (1), 1883(a)

(1988). If the initial determination is adverse, the

claimant may request a de novo reconsideration of the

claim by the same state agency. 20 C.F.R. § 404.904-

.909 (1991). In Minnesota, the Disability Determina-

tion Services of the Minnesota Department of Jobs

and Training (DDS) has been designated to handle

these first two stages of the administrative adjudica-

tion process. The DDS acts under the authority and

control of the Secretary. 42 U.S.C. §§ 421(a),

421(k)(1), 1383b(a) (1988); 20 C.F.R. §§ 404.

1503(a), 416.903(a) (1991). Failure to seek a re-

consideration renders the initial decision binding on

the claimant. If the reconsideration is adverse, the

claimant is entitled to a hearing by the Secretary and

may request a de novo hearing before an adminis-

trative law judge (ALJ). 42 U.S.C. §$§ 405(b) (1),

421(d), 1883(¢c) (1) (1988) ; 20 C.F.R. § 404.967-.981

(1991). Failure to request a hearing before an ALJ

renders the adverse reconsideration a final decision.

If the ALJ’s decision is adverse to the claimant, the

claimant may appeal that decision, within sixty days,

to the Social Security Administration Appeals Council

(Appeals Council). A final decision exists once the

Appeals Council has denied review or has issued its

own decision. After exhausting these. remedies, a

claimant may file a complaint in federal district court

requesting an award of benefits pursuant to section

405(g). See 42 U.S.C. §§ 421(d), 1883(c)(3). In

the present case, plaintiffs have admittedly not ex-

hausted their administrative remedies.

This suit is not for benefits.‘ Unlike the plaintiffs

in Heckler v. Ringer, 466 U.S. 602, 104 S.Ct. 2013,

80 L.Ed.2d 622 (1984), in which the relief sought

was a change in the Secretary’s policy so that the

claimants would not have to resort to the administra-

tive process to receive benefits, the relief sought by

plaintiffs would not determine whether they would

receive benefits. The relief sought is that defendants

apply the same standards to plaintiffs’ claims for

benefits at each stage of the administrative process.

See 42 U.S.C. § 421(k)(1) (“[t]he Secretary shall

establish by regulation uniform standards which shall

be applied at all levels of determination, review, and

adjudication in determining whether individuals are

disabled... .”). Plaintiffs allege that defendants do

not follow the five-step analysis required by the Sec-

retary’s regulations.® Specifically, plaintiffs allege

* At the time of this action, each individual claimant had

been denied benefits in the initial and reconsideration level

by the state defendants.

5 See Bowen v. City of New York, 476 U.S. 467, 470, 106

S.Ct. 2022, 2024, 90 L.Ed.2d 462 (1986). Assuming a claim-

ant is not engaged in substantial gainful activity and is found

to suffer from an impairment which is severe and limits the

claimant’s basic work activity, then the administrative adjudi-

cation moves to the third step of the five step analysis. If

the impairment is severe, the claim is evaluated under the

third step of the analysis to determine whether the claimant’s

impairment meets or equals the severity of an appropriate

listed impairment. If a claimant alleges disability based on

alcoholism or dependency on another drug, the claim is eval-

uated under section 12.09 listings. If it does meet or equal a

listed impairment under section 12.09, the claimant is con-

clusively presumed to be disabled. When the impairment is

severe but is not listed, then the fourth stage of the analysis

is used to assess the residual functional capacity (RFC) and

that at the third step of the analysis the adjudicator

is also or alternatively required to consider whether

the claimant is addicted to alcohol and has “lost the

voluntary ability to control its use.” See Adams v.

Weinberger, 548 F.2d 239 (8th Cir.1977). Plaintiffs

argue that Adams established an alternative to sec-

tion 12.90 listings. See supra note 5. Although the

ALJ and Appeals Council typically employ the Adams

analysis at stage three, the state defendants allegedly

do not. The record shows that at least two individ-

uals who evaluate claims at the state level testified

that neither the Secretary nor the Social Security Ad-

ministration (SSA) had instructed DDS employees

that they must determine whether a claimant can

voluntarily control his or her use of alcohol when

evaluating a claim for disability benefits due to drug

dependency. These DDS employees were not aware

of any such requirement and had never applied the

Adams standard when evaluating such claims. Plain-

tiffs assert that as the Adams standard is considered

by the ALJ and the Appeals Council it ought to be

considered at the initial and reconsideration adjudi-

cations conducted by the state DDS at the direction

of the SSA and the Secretary.

to determine whether the claimant is able to perform work

formerly done. If he is able, he is not considered disabled

and the claim is denied. 20 C.F.R. §§ 404.1520 (e), 416.920 (e)

(1991). If the claimant is not able to do the former work,

the analysis moves to the fifth and final stage at which it is

determined whether the claimant can do any other work avail-

able in the national economy given the age, education, and

‘work experience of the person. If the claimant cannot do

any work, disability is found. 20 C.F.R. § 404, subpart P,

appendix 1 (1991).

Although to some extent the merits relate to the

jurisdictional issue, resolution of the merits does not

determine the question of jurisdiction. We address

only whether the district court erred in its jurisdic-

tional ruling.

Section 405(q)

In order for the district court to have subject mat-

ter jurisdiction under section 405(g),° a claimant

must have presented a claim for benefits to the Secre-

tary and exhausted the administrative remedies pre-

scribed by the Secretary. See, e.g., Weinberger v.

Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522

(1975). The second element of jurisdiction, the ex-

haustion of the administrative remedies, although

jurisdictional, is nonetheless deemed waivable. See,

e.g., Mathews v. Eldridge, 424 U.S. 319, 331 n.11, 96

S.Ct. 893, 900 n.11, 47 L.Ed.2d 18 (1976) (jurisdic-

tional requirement of exhaustion under section

495(g) relates to the requirement of finality). As the

district court notes, in the instant case the claimants,

as defined in plaintiffs’ motion for class certification,

all satisfy the jurisdictional requirement that a claim

for benefits has been made to the Secretary. The

putative class consists entirely of individuals who

have not exhausted the administrative remedies avail-

able to them, however. Therefore, in order for their

* Title 42 U.S.C. § 405(g) specifies the following require-

ments for judicial review: (1) a final decision of the Secre-

tary made after a hearing; (2) commencement of a civil

action within 60 days after the mailing of notice of such

decision; and (3) filing of the action in an appropriate district

court. Weinberger v. Salfi, 422 U.S. 749, 763-64, 95 S.Ct.

2457, 2465-66, 45 L.Ed.2d 522 (1975).

claims to be heard in federal court, exhaustion must

be waived.

Under Bowen v. City of New York, 476 U.S. 467,

106 S.Ct. 2022, 90 L.Ed.2d 462 (1986), waiver of ad-

ministrative exhaustion may be admitted only under

special circumstances. The Secretary urges that such

circumstances are present only where the challenged

policy was adopted in secret and where (1) the issues

were entirely collateral to the claim for benefits; (2)

the injury could not be remedied by a retroactive pay-

ment; and (3) exhaustion would be futile. City of

New York, 476 U.S. at 483, 106 S.Ct. at_2031, aff’g,

City of New York v. Heckler, 742 F.2d 729 (2d Cir.

1984), aff’g, 578 F.Supp. 1109 (E.D.N.Y.1984). We

agree that waiver of administrative remedies is the

exception to the general rule. However, we find the

present case presents an exceptional circumstance and

waiver should be allowed.’

City of New York began as a class action challeng-

ing the SSA’s internal policy of determining disabil-

ity benefits based on a general listing of impairments

instead of individual assessments. The district court

declared that policy illegal, and the Secretary ap-

pealed the court’s decision to grant relief to claimants

who had failed to exhaust administrative remedies.

The Supreme Court divided the class into two groups.

Relief for the first group, for whom administrative

remedies were no longer available when the internal

policy became public, was affirmed with little explan-

ation other than noting that requiring exhaustion

7 As the Court has explained, the Secretary has discretion

to decide when to waive the exhaustion requirement, but cases

may arise where deference to the agency’s judgment is in-

appropriate. Eldridge, 424 U.S. at 330, 96 S.Ct. at 900.

ne ee ee ea eet et eee ee eee | cg hse

would be unfair because the claimants could not have

challenged the unknown policy. City of New York,

476 U.S. at 478-82, 106 S.Ct. at 2029-31; see also

Pittson Coal Group v. Sebben, 488 U.S. 105, 123, 109

S.Ct. 414, 425, 102 L.Ed.2d 408 (1988). In addition,

notwithstanding the fact that the second group of

plaintiffs still had time to exhaust their administra-

tive remedies at the time the suit was filed and the

Secretary’s secret policy was revealed, the Court

found jurisdiction to review their claims under sec-

tion 405(g). City of New York, 476 U.S. at 482-86,

106 S.Ct. at 2031-33. In view of these factors, the

district court erred in ruling that a secret policy is a

prerequisite to waiver of exhaustion. Accord Marcus

v. Sullivan, 926 F.2d 604 (7th Cir.1991); Bailey v.

Sullivan, 885 F.2d 52 (3d Cir.1989).

City of New York, relying on Mathews v. Eldridge,

424 U.S. 319, 331, 96 S.Ct. 893, 900, 47 L.Ed.2d 18

(1976), requires that claimants show (1) their

claims are collateral to their claim of benefits; (2)

that irreparable injury will follow; and (3) that ex-

haustion would otherwise be futile. We find that

plaintiffs have established these prerequisites to

waiver and that the district court erred in dismissing

their claim against the defendants for lack of juris-

diction.

In the instant case, the district court refused to

waive the requirement of exhaustion of administra-

tive remedies, reasoning that (1) plaintiffs had not

challenged a secret policy of HHS; (2) plaintiffs’

claims were not collateral to their individual claims

for benefits; and (3) claimants had not shown ir-

reparable harm because exhaustion of their adminis-

trative remedies and awarding of retroactive benefits,

where appropriate, would remedy the wrong. On this

10a

basis, the district court concluded it did not have jur-

isdiction to entertain the complaint under section

405(g).

Although their present contentions may be inter-

twined with their claims for benefits, plaintiffs’

claims are nonetheless sufficiently collateral to justify

waiver of exhaustion. Here the class does not seek

benefits in the district court, rather, as in City of

New York, they challenge the Secretary’s failure to

ensure that uniform standards are applied at all

levels of review. Like the claims in City of New

York, the plaintiffs’ claims in this case are collateral

to their claims for benefits. Despite its close resem-

blance to the claim presented in Heckler v. Ringer,

466 U.S. 602, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984),

the City of New York Court determined that the is-

sue in City of New York was collateral because it in-

volved the Secretary’s failure to follow the applicable

regulations. Sce also Marcus v. Sullivan, 926 F.2d

604 (7th Cir.1991); Johnson v. Sullivan, 922 F.2d

346, 351 (7th Cir.1991) (en banc); New York v. Sul-

livan, 906 F.2d 910, 912-13 (2d Cir.1990). In City

of New York, the claimants were excused from ad-

ministrative exhaustion and allowed to proceed di-

rectly to district court because they had challenged

the very procedure by which their claims were proc-

essed. The Court found that whether claimants re-

8 The central issue is whether plaintiffs’ claims fall within

the factual setting of City of New York or Ringer. In focus-

ing on whether exhaustion should be waived, the Supreme

Court in City of New York stated:

This case is materially distinguishable from one in which

a claimant sues in district court, alleging mere deviation

from the applicable regulations in his particular adminis-

trative proceeding. In the normal course, such individual

br ven aula besa

(Cea oA Wek ty

lla

ceived the ‘procedure they should have been afforded

in the first place” was entirely collateral to the merits

of their claims for benefits. City of New York, 476

U.S. at 484, 106 S.Ct. at 2032. The instant case pre-

sents a similar situation.

The district court’s attempt to distinguish plain-

tiffs’ claims as substantive rather than procedural is,

under the existing circumstance, not a controlling

factor.” The fact remains that plaintiffs’ claims are

independent of their claims for disability and thus are

sufficiently collateral to support waiver of exhaustion.

Second, we find claimants have made a sufficient

showing of irreparable harm resulting from the de-

fendants’ practices. Claimants have produced over

200 affidavits which clearly demonstrate the harms

errors are fully correctable upon subsequent administra-

tive review since the claimant on appeal will alert the

agency to the alleged deviation. Because of the agency’s

expertise in administering its own regulations. the agency

ordinarily should be given the opportunity to review ap-

plication of those regulations to a particular factual con-

text. Thus, our holding today does not suggest that ex-

haustion is to be excused whenever a claimant alleges an

irregularity in the agency proceedings.

These claimants stand on a different footing from one

arguing merely that an agency incorrectly applied its

regulation. Rather, the District Court found a system-

wide, unrevealed policy that was inconsistent in critically

important ways with established regulations.

City of New York, 476 U.S. at 484-85, 106 S.Ct. at 2032-33.

® Analysis regarding whether something is procedural or

substantive often leads to obtuse characterization of the issue.

In the present case, plaintiffs assert that state officials are

applying standards at the initial stages of review which are

inconsistent with the Social Security Act and the Consti-

tution. See supra n. 5.

12a

caused by administrative exhaustion in these individ-

ual cases." The district court held that retroactive

benefits provided an adequate remedy. The over-

whelming body of case law, however, is to the con-

trary. See, e.g., Schweiker v. Chilicky, 487 U.S. 412,

108 S.Ct. 2460, 101 L.Ed.2d 370 (1988) (months of

delay in receipt of necessary Social Security income

on which one has depended for the very necessities of

life cannot be fully remedied by the “belated retroac-

tion of benefits”); Eldridge, 424 U.S. at 331, 96

S.Ct. at 900 (“an erroneous termination [of benefits]

would damage [claimant] in a way not recompensable

through retroactive payments’’).

Finally, the district court determined that the pur-

poses underlying the exhaustion doctrine would not

be served if waiver were permitted in the present case.

We must again respectfully disagree. The purposes

of administrative exhaustion are set forth in Wein-

berger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d

522 (1975). In Salfi, the Court explained that ex-

haustion is required in order that “the agency may

function efficiently and so that it may have an oppor-

tunity to correct its own errors, to afford the parties

and the courts the benefit of its experience and ex-

pertise, and to compile a record which is adequate for

judicial review.” Jd. at 765. The Salfi Court found

that exhaustion would have been futile and incon-

10 For example, Thomas Smith was homeless until he was

awarded benefits by an ALJ 14 months after he had applied

for benefits. Smith Decl. § 15 Jt.App. 234, 236. Other mem-

bers of the class, such as Jerome Arnold, Joseph Darikely

and Dale Leonard, were living on the streets as of the date

of this appeal because they could not find housing they could

afford.

at Din eid eth hy called Eaticerthee

13a

sistent with those policies, and characterized the relief

ordered—reopening the claims—as showing “proper

respect for the administrative process.” Jd. Indeed,

stressing the pragmatic basis of the exhaustion doc-

trine, the Court has directed that the doctrine’s appli-

cation be governed by the policies underlying the ex-

haustion requirement rather than by “mechanical

application of the Eldridge factors.” City of New

York, 476 U.S. at 484, 106 S.Ct. at 2032.

We find great similarity between the present case

and Mental Health Ass’n v. Heckler, 720 F.2d 965

(8th Cir.1983)."' In holding that administrative

remedies should be waived, the Mental Health Ass’n

court noted that the irreparable harm inherent in the

pursuit of administrative relief and the apparent in-

adequacy of it to redress the interests of the class

were not alleviated but rather exacerbated by rever-

sals on appeal. Jd. at 970. We agree with claimants’

representation that eventual correction of the errors

of DDS will not cure the alleged harm. As plaintiffs

urge, even though exhaustion may often result in ben-

efits being awarded it “never removes or corrects the

systemic errors at the initial and reconsideration

stage[s] of the administrative process.” Appellants’

brief at 31. As the Second Circuit stated in Jones v.

Califano, 576 F.2d 12 (2d Cir.1978), under analogous

circumstances, with exhaustion requirements “SSA

could operate indefinitely . .. with two standards...

one for claimants who seek review by the Appeals

Heckler v. Ringer, 466 U.S. 602, 104 S.Ct. 2013, 80

L.Ed.2d 622 (1984), involved the same issue, termination of

mental health benefits, later challenged in the City of New

York case.

l4a

Council, and one for claimants who do not.” ZJd. at

17.

We think the most telling and forceful argument

plaintiffs make is that unless exhaustion is waived, if

the ALJ implements the correct procedures and applies

the correct standards and, where appropriate, awards

benefits, there will never be judicial review to chal-

lenge the actions the DDS takes at the initial and

reconsideration stages. Exhaustion would be futile

if the challenged policy could never be judicially re-

viewed. As stated in City of New York: “We should

be especially sensitive to this kind of harm where the

Government seeks to require claimants to exhaust ad-

ministrative remedies merely to enable them to receive

the procedure they should have been afforded in the

first place.” 476 U.S. at 484, 106 S.Ct. at 2032; see

also Barry v. Barchi, 443 U.S. 55, 63 n. 10, 99 S.Ct.

2642, 2648 n. 10, 61 L.Ed.2d 365 (1979) (no need

to exhaust procedures when action concerns the legal-

ity of those procedures) ; Touche Ross & Co. v. SEC,

609 F.2d 570, 577 (2d Cir.1979) (to require appel-

lants to exhaust their administrative remedies would

be to require them to submit to the very procedures

which they are attacking); Jones v. Califano, 576

F.2d 12 (2d Cir.1978) (exhaustion waived because

futile in light of the Secretary’s final position and

the possibility of repeated reversal on appeal frus-

trating review of the constitutional issue).

We conclude that the district court erred in failing

to waive the exhaustion requirement of section 405(g)

and in preventing the suit against the Secretary from

proceeding.

lda

Section 1361

Jurisdiction under section 1361 by way of writ of

mandamus is sought only against the Secretary. Since

we find waiver of exhaustion and jurisdiction against

the Secretary established under section 405(g) review,

we need not discuss the plaintiffs’ mandamus claim.”

We note, however, that this court and other courts

have found an alternative basis for jurisdiction under

section 1361 in similar circumstances. See, e.g., Men-

tal Health Ass’n v. Heckler, 720 F.2d 965, 971 n. 71

(8th Cir.1983). On this ground the order dismissing

the claim under mandamus is vacated. The district

court may well choose to issue a writ of mandamus

requiring the Secretary to direct the state officials to

follow the Secretary’s procedures and the standards

of this circuit.

State Defendants

Plaintiffs assert jurisdiction against the state de-

fendants under sections 1331 and 1343(3).* We think

plaintiffs’ reliance on section 1343(3) is misplaced.

As stated by the Court in Chapman v. Houston Wel-

fare Rights Organization, 441 U.S. 600, 99 S.Ct. 1905,

60 L.Ed.508 (1979) :

12 Since we find jurisdiction under section 405(g), we need

not discuss section 1331 jurisdiction as to the plaintiffs’ con-

stitutional claims against the Secretary. See Mathews v.

Eldridge, 424 U.S. 319, 96 S.Ct. 898, 47 L.Ed.2d 18 (1976).

48 28 U.S.C. § 1843(3) states: “To redress the deprivation,

under color of any State law, statute, ordinance, regulation,

custom or usage, of any right, privilege or immunity secured

by the Constitution of the United States or by any Act of

Congress providing for equal rights of citizens or of all per-

sons within the jurisdiction of the United States.”

16a

The Social Security Act does not deal with the

concept of “equality” or with the guarantee of

“civil rights” as those terms are commonly under-

stood. The Congress that enacted § 1843(3) was

primarily concerned with providing jurisdiction

for cases dealing with racial equality; the Con-

gress that enacted § 1843(4) was primarily con-

cerned with providing jurisdiction for actions

dealing with the civil rights enumerated in 42

U.S.C. § 1985, and most notably the right to vote.

While the words of these statutes are not limited

to the precise claims which motivated their pas-

sage, it is inappropriate to read the jurisdictional

provisions to encompass new claims which fall

well outside the common understanding of their

terms.

Chapman, 441 U.S. at 621, 99 S.Ct. at 1917 (foot-

note omitted).

Nonetheless, the allegation is made that the state

defendants, acting under color of state law, violated

the federal regulations and applicable federal law (as

well as the United States Constitution). Under these

circumstances, although plaintiffs do not expressly

allege a violation under 42 U.S.C. § 1983 (1988), we

find federal question jurisdiction sufficiently pled

under section 1331. See Maine v. Thiboutot, 448 U.S.

1, 100 S.Ct. 2502, 65 L.Ed.2d 555 (1980).

The state defendants assert 42 U.S.C. § 405(h)

(1988) bars federal question jurisdiction against

them. We disagree. Section 405(h) reads: “No action

against the United States, the Secretary, or any officer

or employee thereof shall be brought under [28 U.S.C.

§ 1331 et seq.] to recover on any claim arising under

[Title II of the Social Security Act].” See Wein-

17a

berger v. Salfi, 422 U.S. 749, 756, 95 S.Ct. 2457, 2462,

45 L.Ed.2d 522 (1975); Schoolcraft, 753 F.Supp. at

1478, 1490. This provision expressly applies only to

officials of the United States. Although DDS is re-

sponsible for carrying out the Secretary’s regulations

and policies, it operates pursuant to state statutory

authority. See Minn.Stat. § 268A.03(e) (1990). The

Commissioner of Department of Jobs and Training is

required to:

maintain a contractual or regulatory relationship

with the United States as authorized by the Social

Security Act, as amended. Under this relation-

ship, the state will undertake to make determina-

tions referred to in those public laws with respect

to all individuals in Minnesota, or with respect to

a class or classes of individuals in this state that

is designated in the agreement at the state’s re-

quest. It is the purpose of this relationship to

permit the citizens of this state to obtain all bene-

fits available under federal law.

Minn.Stat. § 268A.03(d).

The state defendants are neither officers nor employees

of the federal government."

Claimants allege that these state officers in their

official capacities, acting under color of state law, vio-

lated federal law and the United States Constitution

by failing to apply the proper criteria. On this basis

plaintiffs properly assert federal question jurisdiction

under section 1331.

14 In this regard we disagree with the holding of the Second

Circuit that the state defendants are acting solely as agents

of the United States. See Ellis v. Blum, 648 F.2d 68 (2d Cir.

1981).

18a

Whether the challenged practices and policies are

inconsistent with or violative of the Secretary’s policies

is an issue for the district court to resolve. If plain-

tiffs’ claims have merit, as the depositions of the state

officers indicate, perhaps the Secretary and the claim-

ants can settle their differences. If the individuals are

harmed, as plaintiffs have alleged, the institutional

concern should be great and the wrong readily

remedied.”*

The judgment dismissing the plaintiffs’ claim for

lack of jurisdiction is vacated and the cause is re-

manded for further proceedings in accordance with

this opinion.

15 This entire litigation is somewhat bewildering to this

court. In oral argument the government stated that there is

no merit to plaintiffs’ claims because the DDS presently ad-

heres to the SSA’s standards and regulations which purport-

edly comply with the legal standards and procedures claim-

ants deem applicable. Thus, the issue is whether the plain-

tiffs are correct in asserting that the Secretary has failed to

properly instruct the state officials to do what the Secretary

agrees should be done. If all this is true, the Secretary can

easily remedy this dispute and save everyone a great deal

of time and expense by entering into a consent judgment

in the district court specifically stating the applicable stand-

ards are to be applied to each stage of the claim evaluation

process.

. |

19a

APPENDIX B

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MINNESOTA

FOURTH DIVISION

Civ. No. 4-90-53

RMR RE Ra — St ce MIEN SOM I be cnt

DANIEL J. SCHOOLCRAFT, THEODORE THOMAS, and

JOSEPH L. DRUMBEATER, individually and on behalf

of all others similarly situated, PLAINTIFFS

ee eee ee ae ee

Louis W. SULLIVAN, M.D., Secretary of the Depart-

ment of Health and Human Services, ET AL.,

DEFENDANTS

Jan. 3, 1991

ORDER

DOTY, District Judge.

This matter is before the court on plaintiffs’ mo-

tion for class certification and defendants’ motion to

dismiss for either lack of subject matter jurisdiction

or failure to state a claim upon which relief may be

granted, or in the alternative, for summary judg-

ment. Based on the file, record and proceedings herein,

the court grants defendants’ motion for summary

judgment.

Bei eA Ott to SM AAR HALON beans ow a

20a

BACKGROUND

The plaintiffs bring this action to challenge the

administrative process for evaluating social security

disability claims in which the claimants allege alco-

holism or other substance abuses as the basis for their

disability.

Titles II and XVI of the Social Security Act provide

monthly disability benefits to persons who are unable

“to engage in any substantial gainful activity by

reason of any medically determinable physical or

mental impairment.”? 42 U.S.C. § 423(d) (1) (A);

42 U.S.C. § 1882c(a) (3) (A). The definition of dis-

ability is stringent because the Act does not permit

benefits for partial disabilities. Stephens v. Heckler,

766 F.2d 284, 285 (7th Cir.1985). The Act further

imposes a durational requirement: an impairment

must be disabling for a continuous period of not less

than twelve months. 42 U.S.C. § 423(d) (1) (A) ; Tim-

merman v. Weinberger, 510 F.2d 439, 443 (8th Cir.

1975). Thus, medical conditions which are episodic

and do not last for a continuous 12-month period can-

not constitute a disability within the meaning of the

Social Security Act, even if they are disabling for

recurrent periods of less than twelve months. See,

e.g., Maher v. Secretary of Health & Human Servs.,

898 F.2d 1106, 1109 (6th Cir.1989) (citing Schaffer

v. Califano, 483 F.Supp. 1218, 1224 (D.Md. 1977) ).

In order to obtain benefits under Titles II or XVI, a

person must file a claim with the Secretary alleging,

1The regulations setting the disability standards under

Titles II and XVI are the same in all relevant respects.

Sullivan v. Zebley, U.S. ——, 110 S.Ct. 885, 888 n. 3,

107 L.Ed.2d 967 (1990).

oe ae

2la

among other things, the condition or impairment

which disables, and the date on which the disability

began. Once a claimant is deemed “disabled”, benefits

will continue as long as other nondisability related

criteria are met unless the claimant’s medical condi-

tion has improved to the point where substantial gain-

ful activity can be performed.”

The Secretary has established a four-tier admin-

istrative appeals process to resolve disputed disability

claims. The “initial determination” of a claim is made

by a state agency pursuant to regulations, guidelines,

and performance standards established by the Secre-

tary (Initial Stage). 42 U.S.C. §§ 421(a), 1383b(a).

If the initial determination is adverse, the individual

may request within 60 days a de novo reconsideration

by the same state agency. (Reconsideration Stage).

Failure to seek further review renders the initial

determination binding. After an adverse recon-

sideration decision, the claimant becomes “entitled

to a hearing thereon by the Secretary”. 42 U.S.C.

§§ 421(d), 1383(c)(1). The claimant may request a

de novo hearing before an administrative law judge

(ALJ) within 60 days after the adverse reconsidera-

tion determination. 42 U.S.C. §§ 405(b) (1), 1383

(c)(1). Failure to request an ALJ hearing renders

the reconsideration determination binding. At the

fourth stage, the claimant may appeal an adverse ALJ

2 There are certain circumstances in which the Secretary

may find that a disability has ended even though medical im-

provement has not occurred, provided the claimant also can

perform substantial gainful activity under the circumstances.

For example, benefits may be terminated without medical im-

provement if the recipient has undergone vocational therapy.

42 U.S.C. § 423(f) (2).

22a

decision, within 60 days, to the Appeals Council, the

highest appellate tribunal within the Social Security

Administration. If the claimant fails to make a timely

request for such review, the ALJ decision becomes

binding. For purposes of judicial review, a determi-

nation of an individual’s claim for benefits becomes

a “final decision” only after the Appeals Council has

either denied review or granted review and issued its

own decision. This final decision then is subject to

judicial review pursuant to 42 U.S.C. § 405(g). See

42 U.S.C. §§ 421(d), 1883(c) (3).

In Minnesota, a state agency called the Disability

Determination Services of the Minnesota Department

of Jobs and Training (DDS) has been designated by

the Secretary to handle the first two stages of the

administrative process. Thus, the DDS determines

whether the claimant is disabled at the Initial Stage.

If unsuccessful at the Initial State, the claimant may

ask the DDS for a reconsideration. If unsuccessful at

the Reconsideration Stage, the claimant may request

a hearing before an administrative law judge who is

employed by the Social Security Administration.

Throughout the four-tier administrative appeals

process, a five-step analysis is used to determine

whether a claimant is “disabled” for purposes of the

Act. In the first step, the Secretary determines if the

claimant is working or engaged in “substantial gain-

ful activity” at the time of the determination. If yes,

the claim for benefits is automatically denied. 20

C.F.R. $§ 404.1520(a) & (b), 416.920(a) & (b)

(1989). If the claimant is not engaged in substan-

tial gainful activity, the Secretary moves to the second

step of the process and determines whether the claim-

ant has a physical or mental impairment which is

23a

“severe”. An impairment is considered severe if it

significantly limits a claimant’s physical or mental

ability to perform basic work activity. If an impair-

ment is not severe, the claimant is not considered to

be disabled and the claim is denied. 20 C.F.R. §§ 404.-

1520(c), 416.920(c) (1989). If the claimant is de-

termined to have a severe impairment, the Secretary

moves to the third step to determine whether the

claimant’s impairment meets or equals the severity

of an appropriate listed impairment. A listed impair-

ment is one which is included, with its symptoms, in

the regulations governing the Title II and Title XVI

programs. If the Secretary determines that the claim-

ant has an impairment which meets or equals the

characteristics of a listed impairment the claimant is

conclusively presumed disabled. 20 C.F.R. §$§404.

1520(d), 416.920(d) (1989). If the claimant’s im-

pairment does not meet or equal a listing, the Secre-

tary goes to the fourth step to determine whether the

claimant is able to do work formerly done. If the

claimant is able to do the former work the claimant

is not considered disabled and the claim is denied. 20

C.F.R. §§ 404.1520(e), 416.920(e) (1989). If the

claimant is not able to perform the former work, the

Secretary moves on to the fifth step to determine

whether the claimant can do any other work available

in the national economy, given the age, education, and

work experience of the person. If the claimant cannot

do any other work, disability is found. 20 C.F.R.

§§ 404.1520(f), 416.920(f) (1989).

At the third step of the evaluation process, if a

claimant alleges disability based on alcoholism or

drug dependency, the claim is evaluated under § 12.09

of the listings, entitled “Substance Addiction Dis-

24a

orders”. 20 C.F.R., Part 404, Subpart P, Appendix

1 (1989). Section 12.09 is structured as a reference

listing, see id. §12.00(A), which merely identifies

other sections of the regulations that are to be used

when evaluating the behavioral, mental, or physical

changes resulting from the claimant’s regular use of

addictive substances. To establish a conclusive pre-

sumption of disability, the claimant meets the re-

quired level of severity if the requirements of any one

of nine categories listed under §$ 12.09 are met. The

plaintiffs contend that the Eighth Circuit has, in

Adams v. Weinberger, 548 F.2d 239 (1977), articu-

lated an additional standard which is equivalent to

nine § 12.09 listings and which must be used to evalu-

ate disabilities based on alcoholism or drug depend-

ence.* Under the plaintiffs’ interpretation, the Adams

case mandates that in evaluating such disability

claims, “the emphasis should be placed on whether the

claimant is addicted to alcohol and as a consequence

has lost the voluntary ability to control its use.”

Id. at 244. The plaintiffs further contend that the

DDS does not apply the Adams standard and thus

improperly denies benefits at the first two stages of

the administrative process, the Initial and Reconsid-

eration Stages.

The plaintiffs seek class certification for all those

individuals alleging disability based on alcoholism or

other substance abuse who have been denied benefits

at the first two stages of the administrative process.

The plaintiffs’ initial motion for conditional class cer-

* The plaintiffs note that nine categories in § 12.09 represent

the Secretary’s current policy, but claim that the categories

conflict with Adams. At the time Adams was decided § 12.09

was not in effect.

25a

tification was denied by this court in an order dated

February 5, 1990. The plaintiffs now renew the mo-

tion, seeking to represent a class of persons defined

as follows:

Ail persons residing in Minnesota:

1. Who have filed or will file an application for

Title II and/or Title XVI disability benefits, or

who receive or will receive Title II and/or Title

XVI disability benefits;

2. Who allege that they are unable to work in

whole or in part because of alcoholism or another

drug dependency ;

3. Who have been or will be denied or termi-

nated by defendants either in an initial or a re-

consideration determination;

4. Who have not received a subsequent decision

on the application or termination from an admin-

istrative law judge; and

5. Whose initial determination was on or after

January 25, 1989, or whose reconsideration de-

termination was on or after November 21, 1989.

The plaintiffs note that none of the named plaintiffs

had exhausted their administrative remedies at the

time this action was filed. The plaintiffs’ complaint

also confirms that none of the members of the pro-

posed class would ever exhaust their administrative

remedies because the class is defined to include only

those persons who have had their claims for disability

benefits denied or terminated at the first two levels

of administrative review. The complaint further spe-

cifies that persons who do reach the third step of

the appeals process and receive an ALJ decision auto-

ieeaiiilaiaass. iat ee

26a

matically leave the class, regardless of whether the

ALJ’s decision was favorable or unfavorable. There-

fore, it is undisputed that the named plaintiffs and

the proposed class members have failed to exhaust

their administrative remedies.

The plaintiffs also concede that exhaustion of ad-

ministrative remedies would eliminate the errors of

which they complain. The plaintiffs only allege that

the DDS does not apply the Adams standard at the

Initial or Reconsideration Stages to evaluate claims

based, in whole or in part, on alcoholism or other drug

dependency. In other words, if a claimant’s impair-

ment does not meet a § 12.09 listing at either the

Initial or Reconsideration Stage, that claim is denied

or benefits are terminated without any application of

the so-called Adams standard. The plaintiffs contend,

however, that the administrative law judges correctly

apply the Adams standard at the third stage of the

administrative process.‘ The plaintiffs therefore con-

cede that any such errors in the first two stages of

the administrative process are subsequently corrected

at the later stages of the administrative process.

The history of the named plaintiffs’ claims high-

light the significance of the plaintiffs’ concession that

exhaustion of administrative remedies would not be

futile. Joseph Drumbeater applied for supplemental

security income (SSI) on November 29, 1988. Drum-

beater was denied benefits in Initial and Reconsidera-

tion determinations dated February 8 and June 23,

1989. On March 12, 1990, Drumbeater had a hearing

4 Despite their assertion that the ALJs correctly apply the

Adams standard in the third step of the evaluation process,

plaintiffs also note that oniy 59% of the favorable ALJ de-

cision [sic] specifically rely on the Adams case.

27a

before an administrative law judge, who granted

benefits from December 1, 1986, the date on which

Drumbeater claimed his disability had begun.

Daniel J. Schoolcraft filed for Title II disability

and SSI benefits on September 9, 1989. After his

claim was denied at the initial level, Schoolcraft re-

quested reconsideration on November 13, 1989. On

March 22, 1990, the DDS awarded Schoolcraft bene-

fits on both his applications, finding him disabled

since September 1, 1989.

Theodore Thomas filed his second application for

Title II disability benefits on July 26, 1989, alleging

disability due to alcoholism since July 28, 1981. To

receive Title II disability benefits a claimant must

establish that he was disabled on or before the date

of the expiration of his insured status. 42 U.S.C.

§ 416(i) (3). Thomas alleged disability due to alco-

holism since July 28, 1981, and further alleged that

his insured status for Title II disability benefits had

expired after the onset of his disability on December

31, 1982. Thus, Thomas claimed he was eligible for

Title II benefits. After initial and reconsideration

denials, Thomas requested an ALJ hearing. On Feb-

ruary 9, 1990, the ALJ dismissed the Title II claim

because Thomas’s previous application for Title II

benefits was based on the same time period and had

already been denied. The ALJ refused to reopen this

earlier decision, thus the question of whether Thomas

had been disabled prior to the expiration of his in-

sured status may not be relitigated. The ALJ’s deci-

sion not to reopen the prior decision is not subject

to judicial review. Califano v. Sanders, 430 U.S. 99,

102-04, 97 S.Ct. 980, 982-83, 51 L.Ed.2d 192 (1977).

Thomas also filed a claim for SSI benefits. Before

he received either an initial or reconsideration deci-

28a

sion on this claim, Thomas requested that it be accel-

erated to the ALJ level so that it could be determined

with his Title II claim. The ALJ dismissed his Title

II claim, supra, but did not dismiss Thomas’s SSI

claim because the date of the termination of his in-

sured status is irrelevant for a claim of SSI benefits.

Because Thomas’s Title II claim was dismissed, how-

ever, the ALJ denied the acceleration request and re-

manded the case to the DDS for an initial determina-

tion. Thomas’s SSI claim remains pending before the

DDS.

The plaintiffs contend that this court has jurisdic-

tion to hear their claims under three separate pro-

visions: (1) the provisions for judicial review of final

administrative decisions pursuant to the Social Secu-

rity Act, 42 U.S.C. § 405(g), 18838(c) (3); (2) fed-

eral question jurisdiction pursuant to 28 U.S.C.

§ 1331; and (3) mandamus jurisdiction pursuant to

28 U.S.C. § 1361. The defendants contend that juris-

diction is inappropriate under all three provisions and

ask this court to dismiss the case for lack of subject

matter jurisdiction or failure to state a claim upon

which relief may be granted, or in the alternative, to

grant summary judgment.

ANALYSIS

Rule 56(c) of the Federal Rules of Civil Procedure

provides that summary judgment “shall be rendered

forthwith if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving

party is entitled to a judgment as a matter of law.”

This standard mirrors the standard for a directed

29a

verdict under Federal Rule of Civil Procedure 50(a),

which is that the trial judge must direct a verdict if,

under the governing law, there can be but one reason-

able conclusion as to the verdict. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511,

91 L.Ed.2d 202 (1986). Stated in the negative, sum-

mary judgment will not lie if the evidence is such

that a reasonable jury could return a verdict for the

nonmoving party. Jd. at 248, 106 S.Ct. at 2510. With

this standard at hand, the court will consider the

defendants’ motion for summary judgment.

A. Jurisdiction Pursuant to 42 U.S.C. § 405(9)

Jurisdiction for judicial review of final decisions

by the Secretary is provided by 42 U.S.C. § 405(g),°

which states that:

Any individual, after any final decision of the

Secretary made after a hearing to which he is a

party, irrespective of the amount in controversy,

may obtain a review of such decision by a civil

action commenced within 60 days after the mail-

ing to him of notice of such decision or within

such further time as the Secretary may allow.

Such action shall be brought in the district court

of the United States for the judicial district in

which the plaintiff resides. . . .

The Supreme Court has held that the “final deci-

sion” requirement of § 405(g) consists of two sepa-

rate elements: the jurisdictional nonwaivable re-

quirement that a claim for benefits has actually been

5 42 U.S.C. § 1883(c) (3), which deals with claims for sup-

plemental security income, incorporates the standard of ju-

dicial review provided in § 405(g).

30a

presented to the Secretary, and the waivable require-

ment that the claimant has exhausted all administra-

tive remedies. Bowen v. City of New York, 476 U.S.

467, 482-83, 106 S.Ct. 2022, 2031-32, 90 L.Ed.2d 462

(1986) (quoting Mathews v. Eldridge, 424 U.S. 319,

328, 96 S.Ct. 893, 899, 47 L.Ed.2d 18 (1976)). In

the present case, the class of claimants, as defined in

plaintiffs’ motion for class certification, all meet the

first element of § 405(g), the jurisdictional require-

ment that a claim for benefits has been made. The

proposed class, however, consists exclusively of per-

sons who have not met the second requirement, ex-

haustion of their administrative remedies. The class

consists of all persons who have been denied benefits

at only the first two levels of administrative review,

the Initial and Reconsideration Stages. By definition,

these claimants have neither pursued the third stage

of appeal, a de novo hearing before an ALJ, nor the

fourth stage, an appeal of an adverse ALJ decision to

the Appeals Council. The plaintiffs contend that this

court should waive the exhaustion requirement so that

it will have jurisdiction under § 405(g) to decide the

claims of the proposed class.

In evaluating the application of the exhaustion re-

quirement, the Supreme Court has explained that:

the doctrine of administrative exhaustion should

be applied with a regard for the particular ad-

ministrative scheme at issue. Exhaustion is gen-

erally required as a matter of preventing prema-

ture interference with agency processes, so that

the agency may function efficiently and so that

it may have an opportunity to correct its own er-

rors, to afford the parties and the courts the

benefit of its experience and expertise, and to

3la

compile a record which is adequate for judicial

review.

Weinberger v. Salfi, 422 U.S. 749, 765, 95 S.Ct. 2457,

2466-67, 45 L.Ed.2d 522 (1975) (citations omitted).

The Court further noted that the exhaustion require-

ment is “something more than a simple codification

of the judicially developed doctrine of exhaustion.”

Id. at 766, 95 S.Ct. at 2467. The language of § 405

(g) itself also supports the exhaustion requirement

by providing that an individual may obtain judicial

review only “after a final decision of the Secretary

made after a hearing to which he was party.” Inter-

preting this language, the Court has held that a final

decision is a condition of Congress’s waiver of sov-

ereign immunity, and thus is “central to the requisite

grant of subject-matter jurisdiction.” Salfi, 422 U.S.

at 764, 95 S.Ct. at 2466. The Social Security Act does

not define “final decision,” leaving it to the Secretary

to specify what constitutes the “final decision” which

terminates the administrative process and triggers

the right to judicial review. Jd. at 766 & n. 9, 95

S.Ct. at 2467 & n. 9. The Secretary in turn “has

provided that a ‘final decision’ is rendered ona...

claim only after the individual claimant has pressed

his claim through all designated levels of administra-

tive review.” Heckler v. Ringer, 466 U.S. 602, 606,

104 S.Ct. 2013, 2017, 80 L.Ed.2d 622 (1984) (inter-

preting “final decision” for Medicare claims) ; Salfi,

422 U.S. at 765, 95 S.Ct. at 2466-67 (interpreting

finality under § 405(g)). The Supreme Court has

also held that in class actions where jurisdiction is

based on § 405(g), a class ordinarily may be certified

only to the extent that each of its members individually

satisfies all jurisdictional requirements, including the

32a

final decision requirement. Salfi, 422 U.S. at 764, 95

S.Ct. at 2466 (discussing jurisdictional requirements

for a class under § 405(g)); cf. Califano v. Yama-

saki, 442 U.S. 682, 701, 703, 99 S.Ct. 2545, 2557-

58, 2558-59, 61 L.Ed.2d 176 (1579) (involving cer-

tification of a class action under 42 U.S.C. § 405(g) ).

Moreover, the Supreme Court has specifically held

that where the plaintiffs have fulfilled the nonwaiv-

able requirement of presenting a claim for benefits,

but have failed to satisfy the exhaustion requirement,

the action should be dismissed under § 405(g).

Ringer, 466 U.S. at 617-19, 104 S.Ct. at 2022-24.

Despite the general requirement of exhaustion, the

Supreme Court has recognized that exhaustion may be

waived in certain rare circumstances. The plaintiffs

rely on Bowen v. City of New York, 476 U.S. 467,

106 S.Ct. 2022, 90 L.Ed.2d 462 (1986), as controlling

authority on the question of whether this court should

waive the exhaustion requirement.’ In City of New

* Plaintiffs also cite a number of lower court decisions

which have excused the exhaustion requirement. See, e.g.,

Wilkerson v. Bowen, 828 F.2d 117, 121-22 (8rd Cir.1987) ;

Polaski v. Heckler, 751 F.2d 948, 951-52 (8th Cir.1984).

However, with one exception, none of the cases involve the

key admission made by the plaintiffs in the present case that

exhaustion of administrative remedies would remove the

errors of which plaintiffs complain. The one exception, Jones

v. Califano, 576 F.2d 12 (2d Cir.1978), is easily distinguished

from the present case. First, it predates the now controlling

City of New York case. Moreover, Jones involved one disputed

issue of statutory construction and the Secretary’s interpre-

tation had already been judged incorrect by both the Appeals

Council of the Social Security Administration and a federal

court. Jd. at 17, 20-21. In contrast, the present case does nut

involve only one issue of statutory interpretation. Moreover,

there has been no ruling on the merits which has been adverse

38a

York, the plaintiffs brought a class action seeking

relief on behalf of all individuals residing in New

York who had, within a specified time period, been

denied disability benefits or whose benefits had been

terminated pursuant to an allegedly illegal and secret

internal policy of the Secretary. Jd. at 473, 106 S.Ct.

at 2026. The Court waived exhaustion on the basis

of the “unique circumstances” presented in City of

New York, specifically “a systemwide, unrevealed

policy that was inconsistent in critically important

ways with established regulation” and was neverthe-

less beiug used to evaluate an entire class of claims.

Id. at 485, 106 S.Ct. at 2032. The Court waived ex-

haustion for currently pending claims because

“Tm]jembers of the class could not attack a policy

they could not be aware existed”, and thus it would

be unfair to penalize the claimants for not exhaust-

ing their administrative remedies under the circum-

stances. Jd. at 482, 106 S.Ct. at 2031 (citation

omitted). Moreover, “under these unique circum-

stances, there was nothing to be gained from per-

mitting the compilation of a detailed factual record,

or from agency expertise.” Jd. The Supreme Court

specifically distinguished the City of New York claim-

ants from those persons “arguing merely that an

agency incorrectly applied its regulation.” Jd. The

Supreme Court also emphasized that even in situa-

tions where the court has found a legally incorrect

policy, such a finding still would not necessarily jus-

tify a waiver of the exhaustion requirement. The

Court expressly stated that it did not “suggest that

to the Secretary; indeed, the Third Circuit recently upheld

§ 12.09 in Petition of Sullivan, 904 F.2d 826, 845 (3rd Cir.

1990).

34a

every internal policy that is . . . inconsistent with

legal requirements” and ‘“‘touches upon the outcome of

a class of cases” would justify “excusing exhaustion”.

Id. at 487, 106 S.Ct. at 2033-34. In City of New

York, the Supreme Court has thus required a very

high standard to excuse exhaustion, emphasizing that

exhaustion “is the rule in the vast majority of cases.”

Id. at 486, 106 S.Ct. at 2033.

In the present case the policies challenged by the

plaintiffs clearly are not secret. The Secretary’s

standards for evaluating alcoholism and substance ad-

diction claims are published in Social Security Ruling

82-60 and in § 12.09 of the listing of impairments.

20 C.F.R. Part 404, Subpart P, Appendix 1 (1989).

The plaintiffs allege the incorrect handling of dis-

ability claims based on alcoholism or drug dependence

in the first two stages of the administrative process,

but they do not allege a secret policy and thus, a

central premise of the City of New York holding is

absent.’ Moreover, the plaintiffs admit that in the

present case, unlike City of New York, there is no

systemwide problem in the appeals procedure, conced-

ing that any alleged errors at the first two levels of

the administrative process are corrected by appeal to

administrative law judges.

7 Cf. Pittston Coal Group v. Sebben, 488 U.S. 105, 109 S.Ct.

414, 102 L.Ed.2d 408 (1988). In Pittston, the Supreme Court

refused to excuse the limitations period for seeking review

by simply noting that, unlike Bowen v. City of New York,

“the agency action here was not taken pursuant to a secret

internal policy, but under a regulation that was published

for all to see.” Jd. at 123, 109 S.Ct. at 425. See also Petition

of Sullivan, 904 F.2d 826, 883 n. 7 (8rd Cir.1990) (noting

that a “secret policy permits tolling of the time in which to

seek judicial review of a denial of benefits’’).

35a

The present plaintiffs also allege no policy which is

inconsistent with statute or regulations, but instead

claim that the DDS denial of benefits at the first two

stages of the administrative process is improper be-

cause it conflicts with a 1977 Eighth Circuit case,

Adams v. Weinberger, 548 F.2d 239 (8th Cir.1977).

In discussing the difficulty of analyzing claims of dis-

ability based on alcoholism, the Adams court noted

that when evaluating such a claim, “the emphasis

should be placed on whether the claimant is addicted

to alcohol and as a consequence has lost the voluntary

ability to control its use.” Jd. at 244 (citations

omitted). The plaintiffs argue that this language sets

up an additional standard which the Secretary must

use in step three of the five-step analysis when evalu-

ating disability based on alcoholism or drug depend-

ency, a standard that is equivalent to the other nine

§ 12.09 listings. See 20 C.F.R. Part 404, Subpart P,

Appendix 1 (1989). The plaintiffs contend that the

DDS, during the Initial and Reconsideration Stages

of the appeals process, does not apply this additional,

allegedly mandatory, standard when reaching step

three of the disability analysis, and therefore improp-

erly denies or terminates benefits. Under step three

of the five-step evaluation process, however, the Secre-

tary does not automatically award disability benefits

whenever a claimant evidences a lack of control over

drinking or drug use, but rather goes on to consider

whether the claimant, under the totality of circum-

stances, is unable to engage in substantial gainful em-

ployment. See Sullivan, 904 F.2d at 845. The plain-

tiffs essentially argue that Adams establishes a per se

disability test, that is, the disability inquiry should

end at step three of the evaluation process on the

mere diagnosis of alcoholism. Thus, persons claiming

86a

alcoholism or other substance abuse as a disability

would not be required to show that their impairments

were severe enough to preclude substantial work.

Interpreting Adams in this fashion, however, contra-

dicts congressional intent to limit disability benefits

under the Social Security Act to only those persons

who are unable to perform substantial gainful activ-

ity. See 20 C.F.R. §§ 404.1520(a) & (b), 416.920(a)

& (b) (1989).

The plaintiffs’ interpretation of Adams is also

questionable for a number of other reasons. The

Adams language on which plaintiffs rely was written

in response to an ALJ’s finding that Adams could

“cure” his disability merely by stopping his drinking.

The ALJ thus determined that Adams was not dis-

abled, relying on a social security regulation which

stated that remediable conditions could not be dis-

abling. The Eighth Circuit noted that courts should

focus on whether a claimant possesses the voluntary

ability to stop drinking when determining whether

his or her alcoholism was a remediable condition.

Contrary to plaintiffs’ claims, the Adams court was

not thereby announcing a new standard for evaluat-

ing alcoholism as a disability. The Adams court never

suggested that it was establishing an additional dis-

ability standard, but rather indicated that it was

merely construing the disability regulations in effect

in 1977.8 548 F.2d at 242-44. Adams thus merely

® The reglations interpreted by the Adams court have since

been replaced by the nine categories in § 12.09 of the current

social security regulations. The plaintiffs in the present case

assert that § 12.09 is the Social Security Administration’s

current policy and that it conflicts with Adams. In Petition

of Sullivan, the Third Circuit examined the current policy

under § 12.09 and held that it did not violate prior court of

cms Denaaet Ras nis nea) AOA 7

Mr 6 a 9 A ae

ee ed

37a

interpreted the then-existing social security regula-

tions, it did not seek to impose an additional standard

when a claimant alleged disability because of alco-

holism or drug dependency. Cf. Heckler v. Campbell,

461 U.S. 458, 466, 103 S.Ct. 1952, 1956-57, 76

L.Ed.2d 66 (1983) (holding that where a social

security statue expressly delegates to the Secretary

the responsibility for implementing a provision, the

court’s review is limited to determining whether the

resulting regulation exceeded the Secretary’s statu-

tory authority and whether the regulation is arbitrary

and capricious). Nothing in the Adams decision

states that the standard set forth in that case must

be specifically incorporated by the Secretary at the

listing stage, step three of the five-step evaluation

procedure. The plaintiffs’ contention that the Adams

standard is the equivalent of a § 12.09 listing is thus

unsupported by any language in Adams.

The plaintiffs’ interpretation of Adams also ignores

language in Adams, as well [sic] language in subse-

quent Eighth Circuit decisions, which provides that in

addition to considering the issues of addiction and the

voluntary ability to control substance use, the Secre-

tary’s evaluation of an alcoholism claim must also

include an inquiry into whether the claimant’s dis-

ability is “the kind of disability with which the

[Social Security] Act is intended to deal.” Adams,

appeals’ decisions. 904 F.2d 826, 844-47 (3rd Cir.1990). Spe-

cifically, the Third Circuit found that the current policy does

not violate either McShea v. Schweiker, 700 F.2d 117 (3rd

Cir.1983), or Purter v. Heckler, 771 F.2d 682 (3rd Cir.1985),

two cases on which the current plaintiffs rely. Jd. at 844-45.

The Third Circuit further held that the § 12.09 listings do

not violate the Social Security Act. Jd. at 847.

38a

548 F.2d at 245 (citations omitted) ; Cruse v. Bowen,

867 F.2d 1188, 1186 (8th Cir. 1989) (noting that

“the mere presence of alcoholism is not necessarily

disabling”) ; Metcalf v. Heckler, 800 F.2d 793, 796

(8th Cir.1986) (citing Adams for the proposition

that “in order to establish a disability predicated on

alcoholism, the claimant must show: (1) that he has

lost self-control to the point of being ‘impotent to seek

and use means of rehabilitation,’ and (2) that his dis-

ability is encompassed by the [Social Security] Act’’).

Disability under the Act requires both the presence of

a medical impairment and the inability by reason of

that impairment to perform any substantial gainful

activity. 42 U.S.C. §§ 423(d) (1) (A), 1382¢(a) (3)

(A). To the extent that plaintiffs interpret Adams

to mandate a finding of disability without further

consideration of the effects of alcoholism on a claim-

ant’s ability to work, their interpretation is contrary

to the plain language of the social security statute.’

Adams also does not support such an interpretation;

on the contrary, it acknowledges that a claimant’s

alcoholism must be “‘the kind of disability with which

the Act is intended to deal.” Adams, 548 F.2d at 245.

The plaintiffs’ interpretation of Adams thus seeks to

®In Petition of Sullivan, the Third Circuit specifically re-

jected an argument identical to the plaintiffs’, emphasizing

that:

Not all persons whose abuse of alcohol has progressed to

the point that they are unable to control their drinking

are incapable of any gainful employment. Common medi-

cal understanding does not square with an assumption

that every person who meets the clinical definition of al-

coholism, and is thus unable to control his drinking, is

ipso facto unable to perform any gainful activity.

904 F.2d 826, 845 (3rd Cir.1990) (emphasis in original).

in seats Ria tn Aa ai a?

39a

establish a standard that is unsupported by Adams

and by subsequent Eighth Circuit case law.

The plaintiffs in the present case, unlike those in

City of New York, allege no secret agency policy,

relying instead on a questionable interpretation of the

Adams case. In addition to the presence of a secret

policy, the Supreme Court in City of New York, also

considered three other factors when determining

whether exhaustion should be waived: (1) whether

the claim for which exhaustion is sought is entirely

collateral to the claim for benefits; (2) whether class

members would be irreparably injured if required to

exhaust their administrative remedies; and (3)

whether completing the administrative appeals proc-

ess would serve the purposes underlying the exhaus-

tion requirement, specifically that “because of the

agency’s expertise in administering its own regula-

tions, the agency ordinarily should be given the op-

portunity to review application of those regulations to

a particular factual context”. 476 U.S. at 483-85, 106

S.Ct. at 2031-33. These additional factors will be

examined to determine if exhaustion should be waived

in the present case.

In City of New York, the Court considered whether

the claim raised by the plaintiffs was entirely col-

lateral to their claim for benefits, reasoning that

waiver of exhaustion would be indicated in cases

where the claims raised were entirely collateral to the

plaintiffs’ claims for benefits. 7d. at 483, 106 S.Ct. at

2031-32 (quoting Mathews v. Eldridge, 424 U.S. 319,

830, 96 S.Ct. 893, 990, 47 L.Ed.2d 18 (1976)). In

City of New York, the plaintiffs sought to vindicate

a separate procedural right, the right to have their

claims decided according to the Secretary’s published

criteria, rather than the secret policy which they al-

40a

leged was being used. 7d. at 482-83, 106 S.Ct. at

2031-32. Similarly, in Mathews v. Eldridge, the

claimant challenged a procedural rule which provided

a hearing only after a person’s benefits had been ter-

minated. 424 U.S. at 324-26, 96 S.Ct. at 897-99. Eld-

ridge, however, did not challenge the merits of the

termination of his benefits, only the adequacy of the

termination process used. The Supreme Court waived

exhaustion because Eldridge’s challenge to the hear-

ing procedure was entirely collateral to his claim for

benefits. 7d. at 330-31, 96 S.Ct. at 900-01.

In the present case, however, this factor does not

justify the waiver of exhaustion because the present

plaintiffs’ claims are not collateral to their claims for

benefits. The plaintiffs contend that persons who lack

the ability to voluntarily control their drinking are,

on the basis of Adams, entitled to a presumption of

disability in step three of the evaluation process with-

out reference to the listings under $12.09. The

plaintiffs thus are not merely asking for a preter-

mination hearing (as in Eldridge) or challenging the

failure to adhere to published regulations (as in City

of New York), they instead challenge the Secretary’s

substantive standards governing the entitlement to

benefits. The Supreme Court has already held in

Heckler v. Ringer that such claims are not collateral,

but rather are inextricably intertwined with a re-

spondent’s claim for benefits. 466 U.S. 602, 614, 104

S.Ct. 2013, 2021, 80 L.Ed.2d 622 (1984); Smith v.

Schweiker, 709 F.2d 777 (2d Cir.1983). In Smith v.

Schweiker, the Second Circuit explained in similar

circumstances that: -

~The claims raised in this action are hardly col-

lateral to the demand for benefits. Unlike Eld-

Sn AR eek Se

4la

ridge, who was asserting a right to a particular

kind of procedure to which he was not entitled

under the Secretary’s regulations, the plaintiffs

here claim only that, depending on the evidence

adduced, an illegal termination of their benefits

may result from the application of the Secretary’s

test for current disability.

Id. at 780. The present case also fails to raise claims

that are entirely collateral to the claims for benefits,

and thus under City of New York, the absence of this

factor argues against waiver of the exhaustion re-

quirement.

- The plaintiffs in the present case also fail to demon-

strate irreparable harm, another factor considered by

the Court when waiving exhaustion in City of New

York, 476 U.S. at 483-84, 106 S.Ct. at 2031-32. In

excusing exhaustion the Court heavily relied upon the

district court’s finding that the City of New York class

members would suffer irreparable harm, not merely

because their benefits would be denied, but because

the class of plaintiffs as defined had severe mental

disturbances, and requiring them to exhaust their ad-

ministrative remedies could trigger severe medical

setbacks. Jd. The Court further noted that many of

the City of New York plaintiffs did have to be hos-

pitalized because of the trauma resulting from the

wrongful termination of their disability benefits. Jd.

at 484, 106 S.Ct. at 2032. In contrast, the plaintiffs

in the present case do not allege that benefits would

be denied throughout the administrative process, ad-

mitting that any alleged errors in the process are cor-

rected at the ALJ stage. The plaintiffs also do not

demonstrate that exhausting the administrative

process would itself cause irreparable harm to any

42a

class members. Unlike the class members in City of

New York, the members of the proposed class in the

present case are no different than any other claimant

who has been denied benefits at the initial stages of

the administrative process. Moreover, in establishing

a multi-tiered review process, Congress impliedly de-

termined that a retroactive award of benefits at a

later administrative stage is a fully adequate remedy

to any injury stemming from an incorrect denial of

benefits at an earlier administrative stage. See, e.g.,

Ringer, 466 U.S. at 627, 104 S.Ct. at 2028 (reasoning

that “Congress must have felt that cases of individual

hardship resulting from delays in the administrative

process had to be balanced against the potential for

overly casual or premature judicial intervention in

an administrative system that processes literally mil-

lions of claims every year”). The plaintiffs also fail

to demonstrate that any delay resulting from the ex-

haustion requirement has actually harmed any of the

named plaintiffs. Indeed, the plaintiffs’ delay in filing

this lawsuit belies any claims of irreparable harm

stemming from the delay imposed by the administra-

tive process. Thus, the absence of any irreparable

injury also undercuts the plaintiffs’ request that ex-

haustion be waived.

_The final factor examined by the Court in City of

New York was whether completing the administrative

process would serve the purposes underlying the ex-

haustion requirement. 476 U.S. at 484-85, 106 S.Ct.

at 2032-33. As the Supreme Court emphasized in

Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45

L.Ed.2d 522 (1975), the exhaustion requirement is

intended to prevent “premature interference with

agency processes”’ so that:

a ee Sen

oe ee ee

43a

the agency may function efficiently and so that it

may have an opportunity to correct its own er-

rors, to afford the parties and the courts the ben-

efit of its experience and expertise, and to com-

pile a record which is adequate for judicial

review.

Id. at 765, 95 S.Ct. at 2466-67 (citations omitted).

All of the justifications for requiring exhaustion are

present in this case. In sharp contrast to City of New

York, the plaintiffs in the present case openly con-

cede that exhaustion will remove the alleged errors

in the administrative process. Moreover, the complex-

ity of alcoholism and drug addiction also supports the

exhaustion requirement by allowing the administra-

tive process to proceed on a case-by-case basis to de-

termine whether a particular claimant has the ability’

to control his or her drinking or drug abuse, and if

not, whether the person can nevertheless perform any

substantial gainful activity." See Sullivan, 904 F.2d

1 The Supreme Court has acknowledged the complexity of

alcoholism. In Traynor v. Turnage, 485 U.S. 535, 108 S.Ct.

1872, 99 L.Ed.2d 618 (1988), the Supreme Court sustained

the validity of a Veterans Administration regulation which

classified all forms of alcoholism as “willful misconduct”, ex-

cept for alcoholism that was “secondary to and a manifesta-

tion of an acquired psychiatric disorder.” Jd. at 538 n. 2,

550-52, 108 S.Ct. at 1876 n. 2, 1882-84. The Court noted that

whether alcoholism “is a disease whose course its victims can-

not control” is a “medical issue on which the authorities re-

main sharply divided.” Jd. at 552, 108 S.Ct. at 1383. See

generally, Fingarett, The Perils of Powell: In Search of a

Factual Foundation for the “Disease Concept of Alcoholism,”

838 Harv.L.Rev. 798, 802-08 (1970) (discussing the contro-

versy regarding the nature of alcoholism).

A survey of current literature also demonstrates the con-

troversy regarding the nature of alcoholism and other forms

44a

at 845. Exhaustion also permits the agency to com-

pile a complete record and provides the agency with a

full opportunity to exercise its judgment and exper-

of substance addiction. See, e.g., N. Heather & I. Robertson,

Problem Drinking (2d ed. 1989) (discussing the various

theories regarding alcoholism, and arguing that probiem

drinking is not a disease but rather a social psychological

response to various environmental stimuli) ; J. Beasley, Wrong

Diagnosis, Wrong Treatment: The Plight of the Alcoholic

in America (1987) (arguing that alcoholism results from an

inherited biochemical difference which should be treated by

stabilizing an individual’s nervous system through nutrition

and exercise) ; Constructive Drinking (M. Douglas ed. 1987)

(examining alcohol use from an anthropological perspective) ;

Psychological Theories of Drinking and Alcoholism (H. Blane

& K. Leonard ed. 1987) (detailing nine theories of alcoholism,

including such theories as the social learning theory, the ten-

sion reduction theory, and the interactional theory).

Minnesota is a leader in chemical dependency treatment.

As of 1989, Minnesota treatment programs were admitting

40,000 people per year. The Minnesota Consolidated Chemi-

cal Dependency Treatment Fund pays for treatment of 16,000

of these people, and is being viewed as a national model for

publicly funded chemical dependency treatment. Chemical

Dependency Program Division, Department of Human Serv-

ices of the State of Minnesota, Biennial Report 46 (1989).

Minnesota has also been a leader in curbing the spread of

AIDS among intravenous drug abusers. 7d. Minnesota state

agencies currently spend a total of 63.5 million dollars a year

on alcohol and drug related programs. Id.

In 1989, Minnesota conducted and funded a household sur-

vey of drug and alcohol use among adults (age 18 and over)

living in Minnesota. The survey was designed to provide

current information regarding the extent of substance use

in Minnesota, how that use compares with national figures,

and how use varies by region, sex, and race. Chemical De-

pendency Program Division, Minnesota Department of Hu-

man Services, Minnesota Household Surveys of Drug end

Alcohol Use Ameng Adults, Report No. 1 (1989).

45a

tise to evaluate such claims and correct any errors in

the administrative process." Therefore, the purposes

underlying the exhaustion requirement will not be

served if exhaustion is waived in the present case.

Based on the foregoing analysis, it is obvious that

none of the unique circumstances which warranted

the waiver of exhaustion in City of New York is pres-

ent in this case. The plaintiffs do not challenge any

secret policies which are inconsistent with published

regulations. They also fail to prove that they would

suffer irreparable harm if required to exhaust their

administrative remedies. They raise claims which are

not entirely collateral, but are inextricably inter-

twined with their claims for benefits. Finally, the

policies which support the exhaustion requirement

would be served if the plaintiffs were required to pro-

ceed to the third and fourth levels of the administra-

tive process. The plaintiffs essentially claim that ex-

haustion of administrative remedies should be waived

because if exhaustion were required, persons with

possibly meritorious claims would be forced to pursue

their administrative appeals, would obtain benefits,

and would have no basis for complaint. This claim is

insufficient to support the requested waiver and thus

the court determines that the plaintiffs must exhaust

their administrative remedies. As a result, there is

no basis for jurisdiction pursuant to § 405(g).

11 Tronically, the plaintiffs claim that waiver of exhaustion

is required in the present case because “they seek declaratory

and injunctive relief requiring the defendants to develop the

evidence of their impairments fully and adequately. . . .” In-

stead of supporting the requested waiver, this assertion pro-

vides further evidence that plaintiffs should be required to

exhaust their administrative remedies to permit the agency

to compile a complete record.

46a

B. Plaintiffs’ Assertion That This Court Has Juris-

diction Pursuant to 28 U.S.C. § 1361

Under 28 U.S.C. § 1361:

The district courts shall have original jurisdic-

tion of any action in the nature of mandamus to

compel an officer or employee of the United

States or any agency thereof to perform a duty

owed to the plaintiff.

The plaintiffs claim that this section provides an al-

ternative basis for jurisdiction over their claims. The

Supreme Court, however, specifically rejected this ar-

gument in Heckler v. Ringer, 466 U.S. 602, 616-17,

104 S.Ct. 2018, 2022-23, 80 L.Ed.2d 622 (1984). In

rejecting this alternative basis for jurisdiction, the

Court noted that “[t]he common-law writ of man-

damus, as codified in 28 U.S.C. § 1361, is intended to

provide a remedy for a plaintiff only if he has ex-

hausted all other avenues of relief and only if the

defendant owes him a clear nondiscretionary duty.”

Id. at 616, 104 S.Ct. at 2022. (citations omitted). The

Court then held that § 205(g) of the Social Security

Act clearly provides claimants with an adequate rem-

edy for challenging all aspects of the Secretary’s

denial of their claims, and thus, mandamus was not

available as an alternative basis for jurisdiction. /d.

at 617, 104 S.Ct. at 2022-23. Following Ringer, this

court has no jurisdiction over plaintiffs’ claims under

§ 1361.

C. Plaintiffs’ Claim That Federal Question Jurisdic-

tion Provides an Alternative Basis for Jurisdic-

tion

The plaintiffs also claim that this court has juris-

diction over their constitutional claims against Sec-

47a

retary Sullivan under 28 U.S.C. § 1331, which states

that:

The district courts shall have original jurisdic-

tion of all civil actions arising under the Consti-

tution, laws, or treaties of the United States.

The plaintiffs further assert that this court has

jurisdiction over their claims against the state offi-

cials, pursuant to 28 U.S.C. §§ 1331 and 1343 (a) (3).

Under § 13438:

(a) The district courts shall have original

jurisdiction of any civil action authorized by law

to be commenced against any person:

(3) To redress the deprivation, under

color of any State law, statute, ordinance,

regulation, custom or usage, of any right,

privilege or immunity secured by the Con-

stitution of the United States or by any Act

of Congress providing for equal rights of

citizens or of all persons within the jurisdic-

tion of the United States...

The plaintiffs’ attempt to maintain their suit on the

basis of federal question jurisdiction, however, is

barred by the provisions of the Social Security Act

itself. As the Supreme Court noted in Weinberger v.

Salfi, 42 U.S.C. § 405(h) expressly provides that:

No action against the United States, the Secre-

tary, or any officer or employee thereof shal] be

brought under [28 U.S.C. § 1331 et seq.] to re-

cover on any claim arising under [Title II of the

Social Security Act].

Weinberger v. Salfi, 422 U.S. at 756, 95 S.Ct. at 2462

(citing statute) (brackets in the original). The lan-

48a

guage of § 405(h) indicates that this jurisdictional

bar is more than a codified requirement of adminis-

trative exhaustion, because it “states that no action

shall be brought under § 1331, not merely that only

those actions shall be brought in which administrative

remedies have been exhausted.” Jd. at 757, 95 S.Ct.

at 2468. The wording of § 405(h), thus “bars dis-

trict court federal-question jurisdiction over suits,

such as this one, which seek to recover Social Security

penefits.” Jd. at 756-57, 95 S.Ct. at 2462-63. Follow-

ing this analysis, this court has no federal question

jurisdiction over the plaintiffs’ claims.

CONCLUSION

Based on the foregoing analysis, this court has no

federal question jurisdiction over the plaintiffs’

claims. Salfi, 422 U.S. at 756-57, 95 S.Ct. at 2462-63.

The court also has no jurisdiction pursuant to 28

U.S.C. § 1361 because no writ of mandamus could

properly issue in this case. Ringer, 466 U.S. at 616,

104 S.Ct. at 2022. The court also determines that

waiver of exhaustion is not appropriate, thus this

court has no jurisdiction pursuant to 42 U.S.C.

§ 405(g). The court therefore grants the defendants’

motion for summary judgment.

Based on the foregoing analysis, IT IS HEREBY

ORDERED that:

1. Plantiffs’ motion for class certification is denied

as moot;

2. Defendants’ motion for summary judgment is

granted ;

3. Defendants’ motion to dismiss plaintiffs’ claim

for lack of subject matter jurisdiction or for failure

to state a claim upon which relief can be granted is

denied as moot;

49a

4. Defendants’ appeal from the magistrate’s order

granting plaintiffs’ motion to compel responses to cer-

tain deposition questions is denied as moot; and

5. Defendants Roers’ and Samargia’s appeal of the

magistrate’s order requiring R. Dougherty to answer

certain deposition questions is denied as moot.

LET JUDGMENT BE ENTERED ACCORD-

INGLY.

50a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 91-1643MN MI

DANIEL J. SCHOOLCRAFT, APPELLANTS

vs.

Louis W. SULLIVAN, M.D., APPELLEE

ORDER DENYING PETITION FOR

REHEARING AND SUGGESTION

FOR REHEARING EN BANC

The suggestion for rehearing en banc is denied.

Judge Bowman, Judge Beam, and Judge Loken

would grant the suggestion for rehearing en banc.

The petition for rehearing is also denied.

October 9, 1992

Order Entered at the Direction of the Court:

s/ Michael E. Gans

Clerk, U.S. Court of Appeals, Eighth Circuit

5la

APPENDIX D

42 U.S.C. 405(b), (g), (h)

§ 405. Evidence, procedure, and certification for pay-

ments

* * * * *

(b) Administrative determination of entitlement to

benefits ; findings of fact ; hearings; investigations;

evidentiary hearings in reconsiderations of dis-

ability benefit terminations

(1) The Secretary is directed to make findings of

fact, and decisions as to the rights of any individual

applying for a payment under this subchapter. Any

such decision by the Secretary which involves a de-

termination of disability and which is in whole or in

part unfavorable to such individual shall contain a

statement of the case, in understandable language,

setting forth a discussion of the evidence, and stating

the Secretary’s determination and the reason or rea-

sons upon which it is based. Upon request by any

such individual or upon request by a wife, divorced

wife, widow, surviving divorced wife, surviving di-

vorced mother, surviving divorced father, husband,

divorced husband, widower, surviving divorced hus-

band, child, or parent who makes a showing in writing

that his or her rights may be prejudiced by any deci-

sion the Secretary has rendered, he shall give such

applicant and such other individual reasonable notice

and opportunity for a hearing with respect to such

decision, and, if a hearing is held, shall, on the basis

of evidence adduced at the hearing, affirm, modify, or

reverse his findings of fact and such decision. Any

such request with respect to such a decision must be

filed within sixty days after notice of such decision is

received by the individual making such request. The

52a

Secretary is further authorized, on his own motion,

to hold such hearings and to conduct such investiga-

tions and other proceedings as he may deem necessary

or proper for the administration of this subchapter.

In the course of any hearing, investigation, or other

proceeding, he may administer oaths and affirma-

tions, examine witnesses, and receive evidence. Evi-

dence may be received at any hearing before the Sec-

retary even though inadmissible under rules of evi-

dence applicable to court procedure.

(2) In any case where—

(A) an individual is a recipient of disability

insurance benefits, or of child’s, window’s, or wid-

ower’s insurance benefits based on disability,

(B) the physical or mental impairment on the

basis of which such benefits are payable is found

to have ceased, not to have existed, or to no longer

be disabling, and

(C)-as a consequence of the finding described

in subparagraph (B), such individual is deter-

mined by the Secretary not to be entitled to such

benefits.

any reconsideration of the finding described in sub-

paragraph (B), in connection with a reconsideration

by the Secretary (before any hearing under para-

graph (1) on the issue of such entitlement) of his

determination described in subparagraph (C), shall

be made only after opportunity for an evidentiary

hearing, with regard to the finding described in sub-

paragraph (B), which is reasonably accessible to such

individual. Any reconsideration of a finding described

in subparagraph (B) may be made either by the

State agency or the Secretary where the finding was

originally made by the State agency, and shall be

iS Ala Hen 8 OS Ca echt le i ot in > el Ata

58a

made by the Secretary where the finding was orig-

inally made by the Secretary. In the case of a recon-

sideration by a State agency of a finding described in

subparagraph (B) which was originally made by

such State agency, the evidentiary hearing shall be

held by an adjudicatory unit of the State agency

other than the unit that made the finding described

in subparagraph (B). In the case of a reconsidera-

tion by the Secretary of a finding described in sub-

paragraph (B) which was originally made by the

Secretary, the evidentiary hearing shall be held by a

person other than the person or per

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