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Justiniano v. Social Security Administration

United States Court of Appeals, First Circuit

November 21, 2017

SOCIAL SECURITY ADMINISTRATION; NANCY A. BERRYHILL, Acting Commissioner of the Social Security Administration [*], Defendants, Appellees.


          Javier Andrés Colón Volgamore for appellants.

          Thomas Pulham, Attorney, Appellate Staff, Civil Division, U.S. Department of Justice, with whom Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Rosa E. Rodríguez-Vélez, United States Attorney, and Mark B. Stern, Attorney, Appellate Staff, Civil Division, were on brief, for appellees.

          Before Howard, Chief Judge, Torruella and Barron, Circuit Judges.

          BARRON, Circuit Judge.

         The Social Security Administration ("SSA") terminated the disability benefits that Daniel Justiniano and Francisco Menéndez -- the plaintiffs-appellants -- had been receiving.[1] The SSA did so based on a concern that the medical evidence that supported Justiniano's and Menéndez's applications for those benefits was fraudulent because in each case that evidence was traceable to a physician who was the subject of a federal fraud investigation.

         Justiniano and Menéndez each challenged administratively the SSA's decision to terminate the benefits for which they had applied. Justiniano and Menéndez contended that, among other things, the SSA, in so deciding, neither adequately notified them of the evidence of fraud nor provided them with an opportunity to challenge that evidence. Justiniano and Menéndez contended that, in consequence, the SSA violated their constitutional right to due process of law and their rights under the Social Security Act and its implementing regulations.

         Before the two men had exhausted the administrative review process, however, they filed suit in federal court. In that suit, they sought various kinds of relief based presumably on the same grounds as the claims that they had presented to the SSA in seeking to continue to receive their benefits. The government moved to dismiss the suit, and the District Court did so for lack of subject matter jurisdiction based on the plaintiffs' failure to have exhausted their administrative remedies.

         Justiniano and Menéndez now appeal that jurisdictional ruling. Because they have failed to show that they could not obtain a restoration of their benefits through the administrative review process, despite evidence suggesting that they would have a substantial chance of doing so, we affirm.


         The undisputed facts are drawn from the complaint and certain documents and affidavits that were filed by the parties below. See Aversa v. United States, 99 F.3d 1200, 1209-10 (1st Cir. 1996). For several years, Justiniano and Menéndez received benefits under the Social Security disability insurance program established by Title II of the Social Security Act, 42 U.S.C. §§ 401-34.

         In November of 2013, however, the SSA notified Justiniano and Menéndez that their benefits were being suspended pending a redetermination of their entitlement to them. The SSA was acting pursuant to a provision in the Social Security Act, 42 U.S.C. § 405(u), by which "[t]he Commissioner of Social Security shall immediately redetermine the entitlement of individuals to monthly insurance benefits . . . if there is reason to believe that fraud or similar fault was involved in the application of the individual for such benefits." Id. § 405(u)(1)(A). Section 405(u) provides that, during the redetermination process, the SSA "shall disregard" any evidence in an application for benefits that the agency has "reason to believe" is fraudulent. Id. § 405(u)(1)(B). And, the provision further specifies, the SSA "may terminate" a claimant's benefits if, after reviewing what evidence is left in the application for benefits, "there is insufficient evidence to support [an] entitlement" to benefits. Id. § 405(u)(3).

         Here, the SSA's notices to Justiniano and Menéndez explained that a redetermination of the disability benefits that each had been receiving was necessary because each of their applications for those benefits possibly contained medical evidence from one of several suspects who was under federal investigation for fraud in connection with the filing of disability benefits applications. Those notices indicated, however, that additional evidence could be presented to the SSA in support of the disability benefits application. Medical reports from doctors whom Justiniano and Menéndez allege they consulted were received by the agency following those notices.

         Within two months of sending the notices regarding the suspension of the benefits, the SSA completed the process of redetermining the benefits for Justiniano and Menéndez and separately notified each of them of the termination of the benefits that they had been receiving. Each termination notice explained that the SSA had "disregarded" medical evidence in the benefits application that had been provided by a physician who had pleaded guilty in the fraud investigation. In consequence, each notice explained that, based on a review of the evidence that remained in each application for benefits, the applicant was "not disabled" and thus not entitled to disability benefits.

         Each plaintiff requested reconsideration of the SSA's decision to terminate benefits. The SSA then confirmed its termination decisions in the summer of 2014. The SSA advised both Justiniano and Menéndez that they could appeal from the benefits termination decisions by requesting a hearing before an administrative law judge ("ALJ"). Both Justiniano and Menéndez did so.

         In October of 2015, however, in advance of any hearing before an ALJ on either Justiniano's or Menéndez's administrative appeal, they jointly filed this suit in the United States District Court for the District of Puerto Rico. Their complaint in that suit challenges the SSA's termination of their benefits on the following grounds.

         The complaint alleges that the SSA's termination decision in each case was made without providing (1) adequate notice of the evidence of fraud that the SSA relied on in making its decision to disregard the medical evidence contained in the plaintiffs' benefits' applications and (2) any opportunity to challenge the finding of fraud in their individual cases.[2] The plaintiffs also deny in their complaint that any medical evidence in their benefits applications was fraudulent. Their complaint thus alleges that the SSA "reopen[ed]" the plaintiffs' cases "in bulk" simply by relying on evidence of fraud from "unrelated" cases that merely happened to contain medical evidence from the same physicians who provided evidence in the plaintiffs' cases.

         The complaint further alleges that the termination notices that the SSA sent to the plaintiffs were "boilerplate" that neither informed the plaintiffs "what actions (if any) by the plaintiffs constituted fraud" nor identified "what evidence the [SSA] relied on to make its decision." In addition, the complaint alleges that the plaintiffs were "not allowed to challenge the decision that fraud or similar fault was present in their individual cases" and that, during the redetermination process, "[t]he only evidence that would be received was evidence of [a] medical nature and only evidence in support of a finding of the existence of impairment, " thus excluding any "[e]vidence of the existence or inexistence of fraud."

         On the basis of these allegations, the complaint contends that the SSA's benefits termination decisions violated various legal requirements. In particular, the complaint alleges that "[t]he presumption of fraud inherent in the [SSA's] decisions violates the plaintiffs' Fifth Amendment right to the due process of law." In this regard, the complaint asserts that "[t]he basic [tenets] of due process require that the [SSA] carry the initial burden of proof of fraud in the specific cases before the cases can be reopened, the medical determinations revised and benefits terminated. Due process further requires adequate notification of any accusation against the plaintiffs . . . ."

         The complaint also alleges that the SSA's termination process violated the Social Security Act and its implementing regulations. Specifically, the complaint alleges that the SSA had "reopen[ed]" the cases without complying with 20 C.F.R. § 404.988(c)(1), which provides that "[a] determination, revised determination, decision, or revised decision may be reopened . . . [a]t any time if . . . [i]t was obtained by fraud or similar fault." The complaint contends that the regulation's reference to the reopening of "[a] determination" (singular) requires redeterminations to be made "on a case by case basis" based on evidence of fraud specifically tied to each individual case.

          The relief that the plaintiffs seek in their suit includes a declaratory judgment that the SSA's bulk redetermination of their disability benefits violated the federal Constitution, the Social Security Act, and certain regulations; actual and statutory damages; and a reinstatement of their benefits.[3] The plaintiffs also request payment of benefits that were not paid during the termination period and an injunction against billing them for an overpayment of benefits. Moreover, in their complaint, Justiniano and Menéndez seek to assert not only their own claims but also those of a putative class of similarly situated people whose disability benefits had been terminated in connection with the same federal fraud investigation that formed the basis for the decision to terminate their benefits.

         Before Justiniano and Menéndez moved to have their putative class certified, however, the SSA filed a motion to dismiss. The motion sought dismissal, in part, under Rule 12(b)(6) of the Federal Rules of Civil Procedure on the ground that the plaintiffs had failed to state a claim upon which relief could be granted. The motion also sought dismissal under Rule 12(b)(1) on the ground that, regardless of the merits of the plaintiffs' legal claims, the District Court lacked subject matter jurisdiction under 42 U.S.C. §§ 405(g) and (h) because the plaintiffs had failed to exhaust the administrative remedies available to them before filing suit.

         Section 405(g) provides that "[a]ny individual, after any final decision of the Commissioner of Social Security made after a hearing to which he was a party . . . may obtain review of such decision" in federal district court. And Section 405(h) in turn states:

No action against the United States, the Commissioner of Social Security, or any officer or employee thereof shall be brought under section 1331 [federal question jurisdiction] or 1346 [federal defendant jurisdiction] of Title 28 to recover on any claim arising under this subchapter [governing the Social Security old-age, survivors, and disability insurance programs].

         In consequence of these two provisions, a claim for benefits that "arises under" the Social Security Act must comply with Section 405(g) in order for a federal district court to have jurisdiction over that claim. There are generally two requirements that must be met in order for a claim for benefits that "arises under" the Social Security Act to be in compliance with Section 405(g).

         First, "a claim for benefits shall have been presented to the Secretary." Mathews v. Eldridge, 424 U.S. 319, 328 (1976).[4]Second, "the administrative remedies prescribed by the Secretary [must] be exhausted." Id. These two requirements together ensure that an individual seeking federal judicial relief in a case "arising under" the Social Security Act is doing so, as Section 405(g) requires, "after any final decision of the Commissioner of Social Security made after a hearing to which he was a party."

         Importantly for present purposes, although the presentment requirement is not waivable, the exhaustion requirement may be. Id. Moreover, in some cases, the exhaustion requirement is waived by the federal court itself and thus without the Secretary's consent through what is known as a judicial waiver of exhaustion. Heckler v. Ringer, 466 U.S. 602, 618 (1984) (citing Eldridge, 424 U.S. at 330-32).[5]

         With respect to the jurisdictional question, the government argued in its motion to dismiss that the plaintiffs' claims in their complaint "arise under" the Social Security Act. The government further argued that the plaintiffs had not yet received "final decisions" from the SSA because although the plaintiffs presented their claims to the SSA, they failed to exhaust the administrative appeals process. Accordingly, the government contended that the District Court lacked subject matter jurisdiction.

         The plaintiffs responded below to the motion to dismiss for lack of subject matter jurisdiction by arguing that the claims in their complaint did not "arise under" the Act. The plaintiffs contend on appeal that they also argued below, in the alternative, that -- even assuming that their claims did "arise under" the Act -- the plaintiffs qualified for a judicial waiver of the exhaustion requirement. With respect to judicial waiver, the plaintiffs contend that they asserted that the claims set forth in their complaint in federal court were "fit for resolution" and "outside of the Commissioner's discretion, " and that "exhaustion of the current administrative procedure would be futile" and further delays would result in "undue hardships, dire need and undue suffering."

         The plaintiffs also argued that, insofar as the exhaustion requirement would otherwise bar their claims from being heard in federal court, the plaintiffs were still entitled to bring their suit in federal court pursuant to Shalala v. Illinois Council on Long Term Care, Inc., 529 U.S. 1 (2000). Illinois Council held that where Section 405(h) "would not simply channel review through the agency, but would mean no review at all" by the federal courts of the agency action, then Section 405(h)'s jurisdictional bar does not apply. Id. at 19.

         The District Court granted the government's motion to dismiss for lack of subject matter jurisdiction (and thus did not address whether the complaint failed to state a claim). The District Court reasoned that the plaintiffs' claims arose under the Social Security Act, and thus that the plaintiffs had to meet the presentment and exhaustion requirements in order to comply with the requirements of Section 405(g). The District Court concluded that, although the plaintiffs complied with the presentment requirement, the plaintiffs did not satisfy the exhaustion requirement because the plaintiffs had neither obtained a decision from an ALJ nor appealed from that decision to the SSA's Appeals Council.

         As for the possibility of a judicial waiver of the exhaustion requirement, the District Court stated that the plaintiffs "have not asked the Court to waive the . . . requirement, nor does the Court see a reason to do so." Finally, the District Court ruled that the Illinois Council exception to Section 405(h)'s jurisdictional bar, encompassing situations where channeling the claims through the agency would result in "no review at all, " did not apply. 529 U.S. at 19.

         The plaintiffs now appeal the District Court's jurisdictional ruling. The plaintiffs bear the burden of proving subject matter jurisdiction. Aversa, 99 F.3d at 1209. Where, as here, the facts are largely uncontested and the issue is a "nearly pure" question of law, we review de novo a district court's decision to grant the motion to dismiss for lack of subject matter jurisdiction. Valentín v. Hosp. Bella Vista, 254 F.3d 358, 363 (1st Cir. 2001).


         We begin with the plaintiffs' contention that their federal court claims do not "arise under" the Social Security Act and are therefore not subject to the jurisdictional limitations set forth in Section ...

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