MARGARET M. HECKLER, SECRETARY OF HEALTH AND HUMAN SERVICES, ET AL., PETITIONERS v. CITY OF NEW YORK, ET AL. No. 84-1923 In the Supreme Court of the United States October Term, 1985 On Petition for a Writ of Certiorari to the United States Court of Appeals for the Second Circuit Reply Brief for the Petitioners Respondents' effort to defend the court of appeals' flouting of the exhaustion and 60-day filing requirements in 42 U.S.C. 405(g) is wholly unavailing. And, contrary to respondents' assertion, there is nothing narrow about the court of appeals' rulings. In fact, the decision below unfortunately is typical of the manner in which numerous lower courts have continued to disregard the explicit terms of 42 U.S.C. 405(g) and to assert jursidiction in class actions over the cases of thousands of individuals who simply abandoned their claims for benefits by electing not to seek further administrative or judicial review. There are more than 60 pending class actions under the disability programs alone that present similar questions concerning the exhaustion or 60-day filing requirement under 42 U.S.C. 405(g). In addition, the court of appeals' rulings in this case squarely conflict with decisions of this Court and other courts of appeals. See Pet. 23, 29. Review by this Court therefore is plainly warranted A. Exhaustion of Administrative Remedies 1. The decision below permits a court to dispense with the requirement of exhaustion of administrative remedies based on its own ad hoc balancing of such factors as whether pursuing a particular legal issue in further administrative proceedings would be "futile," whether the issue involved can be characterized as "procedural" or "substantially collateral," and whether there has been a "colorable" showing of hardship by the claimant (or some unspecified number of a class of claimants). See Pet. App. 12a-15a. Respondents explicitly endorse this case-by-case judicial balancing approach. It is telling, however, that in the entire section of their argument devoted to the exhaustion question (Br. in Opp. 14-21), respondents do not discuss the relevant language in 42 U.S.C. 405(g), do not mention the implementing regulations that have governed the administrative review of claims since 1940, and do not even cite Weinberger v. Salfi, 422 U.S. 749 (1975), this Court's seminal decision on the exhaustion requirement. Respondents apparently recognize that the court of appeals' exhaustion holding cannot be squared with any of these principal sources of guidance in interpreting 42 U.S.C. 405(g). Section 405(g) permits an individual to obtain judicial review only after the Secretary has rendered her "final decision" on his claim for benefits. As this Court repeatedly has recognized, the governing regulations provide that the Secretary has rendered her "final decision" only after the claimant has pressed his claim for benefits through all levels of administrative review, including the Appeals Council. See Heckler v. Ringer, No. 82-1772 (May 14, 1984), slip op. 2; Salfi, 422 U.S. at 765; Mathews v. Eldridge, 424 U.S. 319, 330 (1976). The Court made clear in Salfi that the requirement that the claimant obtain such a "final decision" is a "statutorily specified jurisdictional prerequisite" to suit under 42 U.S.C. 405(g). Accord, Ringer, slip op. 14. Thus, the text of Section 405(g), the governing regulations, and Salfi and its progeny foreclose respondents' assertion that a court may dispense with the exhaustion requirement based on its own case-by-case balancing of what it believes to be the relevant considerations. Furthermore, Section 405(g) specifies that judicial review is available only "after a hearing." Such hearings are conducted by administrative law judges (ALJs) in the Department of Health and Human Services (HHS). Because the prior stages of the administrative review process are conducted by the state agency (see Pet. 3-5), it is the ALJ hearing stage that affords the Secretary her principal opportunity to apply her experience and expertise in the actual adjudication of a particular claim for benefits and to correct errors that might have occurred with respect to that claim at the state agency level. In this case, for example, respondents challenged an interpretation of the regulations governing the assessment of a claimant's residual functional capacity (RFC) to work that had been conveyed by certain HHS personnel to the state agency in New York. However, respondents do not dispute that the ALJs were not bound by that particular interpretation. See Pet. 5; Ringer, slip op. 2. Accordingly, any class member whose claim for benefits had been denied at the state agency level as a result of that interpretation would have been entirely free to advocate a different interpretation to the ALJ. Respondents offer no reason why that class member should have been permitted to bypass this fully adequate administrative remedy to correct an alleged error in the interlocutory denial of his claim, and instead to file suit directly in court. Congress plainly did not authorize such judicial interference with the administrative process. /1/ 2. Respondents argue, however, that a claimant was not required to have obtained an ALJ and Appeals Council decision on his claim for benefits in order to be included in the class because this suit supposedly challenges only a "procedural" irregularity, not "substantive" standards of eligibility. See Br. in Opp. 15, 16. Respondents argue that under the interpretation of the RFC regulations followed by the state agency, a claimant whose mental impairment was not among those that are deemed to be disabling on medical grounds alone was "conclusively presumed" to have the RFC to engage in substantial gainful activity and thus not to be disabled (id. at 16), thereby depriving the claimant of an "individualized assessment" of his RFC and ability to work (id. at 18). Respondents further argue (id. at 15, 18, 20 & n.14) that, even if an individual claimant might later have been found by an ALJ or the Appeals Council to be disabled, an award of benefits at that point would not have vindicated their challenge to the procedure utilized by the state agency. Respondents ignore the fact that this is precisely the argument that was rejected by the Court in Ringer. There, as here, the plaintiffs challenged instructions that were communicated by HHS to the entity responsible for adjudicating claims at the preliminary stages of the administrative review process, but that did not bind the ALJs and Appeals Council in HHS. Slip op. 3-4. There, as here, the plaintiffs contended that the instructions created a conclusive presumption of ineligibility, thereby depriving claimants of an individualized assessment of their eligibility. Id. at 8, 10, 13, 15. And there, as here, the plaintiffs sought to characterize their suit as only a challenge to a "procedural" irregularity rather than an actual claim for benefits, and they argued that an award of benefits by the ALJ or the Appeals Council would not vindicate their interest in procedural regularity. Id. at 7, 9, 10-11. The Court nevertheless unanimously held that full exhaustion of administrative remedies was required because the claimants might have been awarded benefits in the course of further proceedings. Id. at 14-16; id. at 2 (Stevens, J., concurring and dissenting). Ringer thus squarely controls this case and requires reversal of the court of appeals' exhaustion holding. 3. Respondents argue in a related vein (Br. in Opp. 19) that the court of appeals correctly dispensed with the exhaustion requirement based on its own view that exhaustion would have been "futile" with regard to the particular legal issue they raise (see Pet. App. 15a). This argument ignores Salfi, which explicitly held that exhaustion "may not be dispensed with merely by a judicial conclusion of futility" (422 U.S. at 766 (emphasis added)). The Court so held in Salfi even though the Social Security Act itself barred the payment of benefits to a person in the plaintiff's position. There has been no suggestion here that exhaustion was futile in this sense for any of the class members: as respondents and the court of appeals concede (Br. in Opp. 15, 20; Pet. App. 15a), and as the experience of several of the named plaintiffs demonstrates (see Pet. 19 & n.8), many class members might well have obtained an award of benefits in the course of further administrative proceedings. It follows a fortiori from Salfi that the court of appeals could not dispense with the exhaustion requirement on the basis of its perception that exhaustion would be futile only with respect to a particular legal issue, even though not (as in Salfi) with respect to the substantive claim of entitlement to benefits. See Ringer, slip op. 15-16. This is so because the particular legal issue might drop out of any given claimant's case if he were found at a subsequent stage of the administrative review process to be either eligible or ineligible on some other ground. 4. Finally, respondents contend (Br. in Opp. 15-16, 18) that Mathews v. Eldridge, supra, supports the ad hoc balancing approach they advocate. This suggestion is completely without merit. The Court held in Eldridge that although the plaintiff had not fully exhausted his administrative remedies on the merits of his claim for benefits, the district court had jurisdiction under 42 U.S.C. 405(g) to entertain his suit contending that he had a due process right to an evidentiary hearing before his disability payments actually were stopped. The Court stressed, however, that the issue of the asserted constitutional right to a pretermination hearing was "entirely collateral" to the claimant's substantive claim of entitlement. 424 U.S. at 330. See also Ringer, slip op. 14 ("wholly collateral"). By contrast, the issue in this case -- whether the state agency misapplied the relevant regulations in determining whether the claimant had sufficient RFC to be able to work -- manifestly is not "entirely collateral" to the merits of a class member's claim for benefits. Nor is it even "substantially collateral," as respondents and the court of appeals believe (Br. in Opp. 18; Pet. App. 14a). That issue instead goes to the very heart of the state agency's decision on the merits of the question whether the claimant is disabled. Compare Ringer, slip op. 14-15. /2/ As we have pointed out in the certiorari petition (Pet. 23), the court of appeals' exhaustion holding in this regard squarely conflicts with the Fourth Circuit's decision in Hyatt v. Heckler, 757 F.2d 1455, 1460 (1985), petition for cert. filed, No. 85-474, which held that a court may dispense with the requirement of full exhaustion only where the particular legal issue involved is wholly collateral to the substantive claim of entitlement. /3/ That conflict warrants resolution by this Court. B. The 60-Day Filing Requirement The court of appeals also held that the 60-day period within which an individual must file an action for judicial review under 42 U.S.C. 405(g) does not impose a jurisdictional limitation (Pet. App. 16a-17a) and that the running of the 60-day period was "effectively tolled" for each class member for as long as the challenged interpretation of the governing regulations "remained operative but undisclosed" (id. at 18a). We have explained in the certiorari petition (Pet. 24-25) that this holding cannot be reconciled with the established rule under this Court's decisions that the terms of Congress's consent to suit (including the time within which a suit against the government may be brought) define the jurisdiction of the court. Respondents appear to concede the correctness of this general principle. See Br. in Opp. 22. They argue only that this principle is inapplicable here because Section 405(g) authorizes the Secretary to extend the 60-day suit-filing period. However, this feature of Section 405(g) undermines rather than supports their position. The fact that Congress expressly vested only the Secretary with authority to extend the 60-day period in appropriate circumstances indicates that Congress deliberately withheld that power from the courts, and thus reinforces the application of Section 405(g) of the usual rule that a limitation on the time within which a suit may be brought is a jurisdictional condition that a court may not modify or extend. In this respect, the 60-day requirement is directly parallel to the exhaustion requirement in Section 405(g). This Court held in Salfi that a "final decision" of the Secretary is a jurisdictional prerequisite to suit that must be enforced by the courts, even though the Secretary (but not the court) has the authority in some circumstances to waive the exhaustion requirement and thereby enable a court to entertain a suit that otherwise would be barred. 422 U.S. at 766-767. The same is true of the court's jurisdictional obligation to enforce the 60-day rule where, as here, that period has not been extended by the Secretary. /4/ Under the court of appeals' holding, however, whenever HHS'S interpretation of a particular regulation later turns out to have been erroneous, the 60-day period would be tolled on a retroactive basis for hundreds or thousands of claimants for as long as that interpretation remained "undisclosed." Such a haphazard and sweeping principle of retroactive tolling would fatally undermine the interests in certainty and finality that Congress deemed to be of critical importance when it imposed the explicit 60-day limit on suits under 42 U.S.C. 405(g). Califano v. Sanders, 430 U.S. 99, 108 (1977). The principal support respondents cite (see Br. in Opp. 24-25) for the court of appeals' tolling rule is Barrett v. United States, 689 F.2d 324 (2d Cir. 1982), cert. denied 462 U.S. 1031 (1983). However, that case concerned the distinct question of when a cause of action "accrues" for purposes of the two-year limitations period in the Federal Tort Claims Act (28 U.S.C. 2401(b)). See United States v. Kubrick, 444 U.S. 111, 121-122 (1979). That issue has no relevance here. In 42 U.S.C. 405(g), Congress specified the precise time when the cause of action accrues; when the notice of the Secretary's "final decision" is mailed to the claimant. The claimant obviously will know from this notice that HHS has determined that he is not entitled to disability benefits. If the claimant disagrees with that finding, Section 405(g) requires that he file suit promptly to challenge the Secretary's decision. The fact that the Secretary's decision might have been based on a misinterpretation of a regulation does not delay the commencement of the 60-day period. Finally, respondents try to limit the impact of the decision below by arguing (Br. in Opp. 25) that the 60-day period was tolled in this case only because the interpretation of the relevant regulations applied by the state agency was found to be "secretive" and "clandestine." However, the court of appeals did not premise its tolling of the 60-day period on a finding that HHS actively concealed the interpretation challenged in this suit (see Pet. App. 17a-18a), and neither the courts below nor respondents have pointed to any evidence of such concealment. See Pet. 26; Reply Memorandum for the Petitioners on Application for a Stay Pending Certiorari 9-10. Indeed, as respondents repeatedly acknowledge (Br. in Opp. 7, 8, 9), the State agency was fully aware of HHS's interpretation. Rather, the court of appeals held that the running of the 60-day period was tolled on a state-wide basis simply because the challenged interpretation was "undisclosed" (Pet. App. 18a). Moreover, three district court decisions have read the Second Circuit's decision to state such a broad tolling principle in Social Security class actions. See New York v. Heckler, 105 F.R.D. 118, 123-124 (S.D.N.Y. 1985); Stieberger v. Heckler, No. 84 Civ. 1302 (LBS)(S.D.N.Y. Aug. 19, 1985) slip op. 22-25; Schisler v. Heckler, Civ. 80-572E (W.D.N.Y. Dec. 5, 1984), slip op. 9-13. Thus, the decision below already is having ramifications far beyond this case. As we have explained (Pet. 29), and as the court of appeals acknowledged (Pet. App. 17a), there is a conflict among the circuits on the question whether the 60-day filing period in 42 U.S.C. 405(g) is jurisdictional in nature. See also Johnson v. Heckler, slip op. 10-11. Contrary to respondents' assertion (Br. in Opp. 27-28), the Fourth Circuit has explicitly rejected the contention that the running of the 60-day period in 42 U.S.C. 405(g) may be tolled by a court. See Hunt v. Schweiker, 685 F.2d 121 (1982). This conflict warrants resolution by this Court. For the foregoing reasons and the additional reasons stated in the petition, it is respectfully submitted that the petition for a writ of certiorari should be granted. CHARLES FRIED Acting Solicitor General SEPTEMBER 1985 /1/ Of course, the unnamed class members in this case have not personally sought to short-circuit the administrative process in this manner. It is the handful of named plaintiffs who have sought to intrude the courts into the administrative proceedings involving the claims of these thousands of other individuals. The courts below required the Secretary to reopen and readjudicate those claims, whether or not the claimants involved so requested (Pet. App. 65a-66a). /2/ Moreover, contrary to respondents' contention (Br. in Opp. 16), the issue they raise -- the asserted right of a claimant to an individualized assessment of his RFC -- is clearly not one that would be lost if the claimant were required to exhaust his administrative remedies before seeking judicial review. As we have explained (see page 3, supra), the ALJs were not precluded from making such an individualized assessment; and if an ALJ failed to do so in a particular case (and if the Appeals Council did not correct that error), a court on judicial review could remand for a proper determination. By contrast, in Eldridge, the asserted right to a pretermination hearing would have been irretrievably lost if judicial consideration of that issue were postponed until after the payment of benefits had been terminated. /3/ Contrary to respondents' contention (Br. in Opp. 27), the exhaustion ruling in Hyatt was not dependent upon the presence of a nonacquiescence issue in the case; nonacquiescence was not even mentioned in the court's discussion of exhaustion. The Seventh Circuit also recently adopted an exhaustion analysis similar to that announced by the Second Circuit in this case. Johnson v. Heckler, No. 85-1254 (July 30, 1985), slip op. 7-10. The Secretary has filed a petition for rehearing en banc in Johnson /4/ Respondents' reliance (Br. in Opp. 22) on Schacht v. United States, 398 U.S. 58, 64 (1970), for the proposition that a court may extend the 60-day filing period in Section 405(g) is wholly misplaced. Schacht involved a rule of this Court that prescribed the time within which a petition for a writ of certiorari must be filed. The relevant statute (18 U.S.C. 3772), however, confers on this Court the authority to prescribe rules governing the time for filing certiorari petitions in criminal cases, without confining the Court's jurisdiction. By contrast, in 42 U.S.C. 405(g), Congress has conferred only on the Secretary, not the courts, the power to extend the time for filing suit. As a result, where the suit is not filed within the 60-day period Congress itself has allowed, Congress has conditioned the court's exercise of jurisdiction on the Secretary's extension of that period.