Carr v. Comm'r

961 F.3d 1267

Willie Earl CARR, Plaintiff - Appellee,

v.COMMISSIONER, SSA, Defendant - Appellant.

Kim L. Minor, Plaintiff - Appellee,

v.Commissioner, SSA, Defendant - Appellant.

No. 19-5079

No. 19-5085

United States Court of Appeals, Tenth Circuit.

FILED June 15, 2020

Amanda L. Mundell, Attorney (Joseph H. Hunt, Assistant Attorney General; Mark B. Stern, Joshua M. Salzman, and Daniel Aguilar, Attorneys, on the briefs) United States Department of Justice, Washington, D.C. for Defendant - Appellant.

Paul F. McTighe, Jr., Tulsa, Oklahoma for the Plaintiffs – Appellees.

Before HARTZ, MATHESON, and CARSON, Circuit Judges.

MATHESON, Circuit Judge.

This appeal asks whether Social Security disability claimants waive Appointments Clause challenges that they failed to raise in their administrative proceedings.

In separate claims, Willie Earl Carr and Kim L. Minor ("Appellees") sought disability benefits from the Social Security Administration ("SSA"). In each case, the administrative law judge ("ALJ") denied the claim, and the agency's Appeals Council declined to review.

In district court, Mr. Carr challenged the SSA's denial of his claim for disability benefits. While his case was pending, the Supreme Court held that Securities and Exchange Commission ("SEC") ALJs are "inferior officers" under the Appointments Clause, U.S. Const. art. II, § 2, cl. 2, and therefore must be appointed by the President, a court, or the head of the agency, Lucia v. S.E.C. , ––– U.S. ––––, 138 S. Ct. 2044, 2049, 201 L.Ed.2d 464 (2018). Shortly after, Ms. Minor also sued in district court challenging the denial of benefits in her case.

In response to Lucia , the SSA Commissioner ("Commissioner") appointed the SSA's ALJs.¹ The Commissioner did so "[t]o address any Appointments Clause questions" Lucia posed. Effect of the Decision in Lucia v. Securities and Exchange Commission (SEC) On Cases Pending at the Appeals Council ("Effect of Lucia"), 84 Fed. Reg. 9582, 9583 (Mar. 15, 2019). After the Commissioner's action, Mr. Carr and Ms. Minor each filed a supplemental brief, asserting for the first time that the ALJs who had rejected their claims had not been properly appointed under the Appointments Clause.

The district court upheld the ALJs’ denials of the claims, but it agreed with the Appointments Clause challenges. The court vacated the SSA decisions and remanded for new hearings before constitutionally appointed ALJs. It held that Mr. Carr and Ms. Minor did not waive their Appointments Clause challenges by failing to raise them in their SSA proceedings.

On appeal, the Commissioner argues that Appellees waived their Appointments Clause challenges by failing to exhaust them before the SSA. Exercising jurisdiction under 28 U.S.C. § 1291, we agree and reverse.

I. BACKGROUND

The following presents an overview of (A) SSA disability proceedings, (B) the Appointments Clause, and (C) the factual and procedural background in these cases.

A. Social Security Administrative Procedure

When a Social Security claimant seeks disability benefits, the SSA makes an "[i]nitial determination" regarding entitlement. 20 C.F.R. § 404.900(a)(1). Dissatisfied claimants may seek agency reconsideration. Id. § 404.900(a)(2).

A claimant who disagrees with the reconsidered determination may request a hearing before an SSA ALJ. Id. § 404.900(a)(3). An ALJ may (1) dismiss the request for a hearing, id. § 404.957, (2) remand for a revised determination, id. § 404.948(c), (3) issue a decision, id. § 404.948(a), or (4) hold a hearing and then issue a decision, id. § 404.953. "The issues before the [ALJ] include all the issues brought out in the initial, reconsidered or revised determination that were not decided entirely in [the claimant's] favor," id. § 404.946(a), as well as new issues the ALJ raises, id. § 404.946(b). Claimants must "notify the [ALJ] in writing at the earliest possible opportunity" if they "object to the issues to be decided at the hearing." Id. § 404.939.

A claimant may appeal an ALJ's decision to the SSA Appeals Council ("Appeals Council"). Id. § 404.900(a)(4). If the Appeals Council affirms or declines to review, the claimant may sue in district court within 60 days. Id. § 404.900(a)(5) ; 42 U.S.C. § 405(g).

B. Appointments Clause

The Appointments Clause provides:

[The President] ... shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

U.S. Const. art. II, § 2, cl. 2. "The Supreme Court has defined an officer generally as ‘any appointee exercising significant authority pursuant to the laws of the United States.’ " Bandimere v. S.E.C. , 844 F.3d 1168, 1173 (10th Cir. 2016) (quoting Buckley v. Valeo , 424 U.S. 1, 126, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976) (per curiam)). "The term ‘inferior officer’ connotes a relationship with some higher ranking officer or officers below the President: Whether one is an ‘inferior’ officer depends on whether he has a superior." Id. (quotations omitted). Employees—or "lesser functionaries"—need not be appointed under the Appointments Clause. Id. at 1170, 1173 (quotations omitted). The Appointments Clause prevents the "diffusion of the appointment power," Ryder v. United States , 515 U.S. 177, 182, 115 S.Ct. 2031, 132 L.Ed.2d 136 (1995), and "promotes public accountability by identifying the public officials who appoint officers," Bandimere , 844 F.3d at 1172.

In Lucia , the Supreme Court held that the SEC's ALJs are inferior officers and must be appointed by the President, a court, or a head of agency department. 138 S. Ct. at 2049. Because the ALJ in Lucia had not been appointed in one of those ways, the Court vacated the agency's decision that Mr. Lucia had violated the Investment Advisers Act, 15 U.S.C. § 80b–1 et seq. , and remanded for a new hearing before a properly appointed ALJ. Id. at 2055-56. The Court did not address whether SSA ALJs are also inferior officers subject to Appointments Clause appointment.

C. Factual and Procedural Background

Mr. Carr and Ms. Minor separately sought disability benefits in 2014. ALJs heard and denied their claims in 2017. The Appeals Council declined to review both claims, and they each sued in the Northern District of Oklahoma, contesting the ALJs’ decisions on the merits.

After Mr. Carr's suit was filed but before Ms. Minor's, the Supreme Court decided Lucia . Several weeks later, the SSA Commissioner appointed the agency's ALJs. See Effect of Lucia, 84 Fed. Reg. at 9583. The SSA explained that although

[t]he Supreme Court's decision in Lucia did not specifically address the constitutional status of ALJs who work in other Federal agencies, including the [SSA,] [t]o address any Appointments Clause questions involving Social Security claims, and consistent with guidance from the Department of Justice, on July 16, 2018[,] the Acting Commissioner of Social Security ratified the appointments of our ALJs and approved those appointments as her own.

Id.

Mr. Carr and Ms. Minor each filed briefs in district court raising, for the first time, Appointments Clause challenges to the ALJs who denied their claims. The court upheld the ALJs’ decisions on the merits but remanded for new hearings before ALJs properly appointed under the Appointments Clause. Relying on Sims v. Apfel , 530 U.S. 103, 120 S.Ct. 2080, 147 L.Ed.2d 80 (2000), it concluded that the claimants did not waive their Appointments Clause claims by failing to raise them in their SSA proceedings. See Willie Earl C. v. Saul , No. 18-CV-272-FHM, 2019 WL 2613819, at *5 (N.D. Okla. June 26, 2019) ; Kim L. M. v. Saul , No. 18-CV-418-FHM, 2019 WL 3318112, at *6 (N.D. Okla. July 24, 2019).

The Commissioner appealed as to both Mr. Carr and Ms. Minor. The appeals have been consolidated and were argued together to this panel.

II. DISCUSSION

On appeal, the Commissioner "[does] not contest that [SSA] ALJs are inferior officers and that the ALJs had not been properly appointed" when they denied Appellees’ benefits claims. Aplt. Br. at 8. He argues only that the district court erred by holding that Appellees were not required to exhaust their Appointments Clause challenges in the administrative proceedings. The Commissioner does not argue that a statute or regulation requires issue exhaustion in the SSA context. He contends we should find such a requirement "even without relying on a specific statute or regulation." Id. at 21.

A. Standard of Review

"We review a district court's ruling reversing the Commissioner's final decision de novo, applying the same standards as the district court." Vallejo v. Berryhill , 849 F.3d 951, 954 (10th Cir. 2017).²

B. Additional Legal Background

1. Issue Exhaustion

The Supreme Court "long has acknowledged the general rule that parties exhaust prescribed administrative remedies before seeking relief from the federal courts." McCarthy v. Madigan , 503 U.S. 140, 144-45, 112 S.Ct. 1081, 117 L.Ed.2d 291 (1992). Moreover, "[i]n most cases, an issue not presented to an administrative decisionmaker cannot be argued for the first time in federal court." Sims , 530 U.S. at 112, 120 S.Ct. 2080 (O'Connor, J., concurring); see also N.M. Health Connections v. U.S. Dep't of Health & Human Servs. , 946 F.3d 1138, 1165 n.25 (10th Cir. 2019) ("In general, an issue must have been raised before an agency for a party to seek judicial review of agency action on that issue."); Nuclear Energy Inst., Inc. v. Envtl. Prot. Agency , 373 F.3d 1251, 1297 (D.C. Cir. 2004) ("It is a hard and fast rule of administrative law, rooted in simple fairness, that issues not raised before an agency are waived and will not be considered by a court on review.").

When a...