948 F.3d 148 (3rd Cir. 2020), 19-1772, Cirko v. Commissioner of Social Security

Docket Nº:19-1772, 19-1773
Citation:948 F.3d 148
Opinion Judge:KRAUSE, Circuit Judge.
Party Name:Andrew M. CIRKO, ON BEHALF OF Sandra L. CIRKO, Deceased v. COMMISSIONER OF SOCIAL SECURITY, Appellant John Steven Bizarre, Jr. v. Commissioner Social Security, Appellant
Attorney:Daniel J. Aguilar, Esq., United States Department of Justice, Civil Division, Joshua M. Salzman [ARGUED], United States Department of Justice, Counsel for Appellant Thomas D. Sutton [ARGUED], Leventhal Sutton & Gornstein, Counsel for Appellee
Judge Panel:Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges
Case Date:January 23, 2020
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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948 F.3d 148 (3rd Cir. 2020)

Andrew M. CIRKO, ON BEHALF OF Sandra L. CIRKO, Deceased

v.

COMMISSIONER OF SOCIAL SECURITY, Appellant

John Steven Bizarre, Jr.

v.

Commissioner Social Security, Appellant

Nos. 19-1772, 19-1773

United States Court of Appeals, Third Circuit

January 23, 2020

Argued November 13, 2019

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On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. Nos. 1-17-cv-00680, 1-18-cv-00048) District Judge: Honorable Christopher C. Conner

Daniel J. Aguilar, Esq., United States Department of Justice, Civil Division, Joshua M. Salzman [ARGUED], United States Department of Justice, Counsel for Appellant

Thomas D. Sutton [ARGUED], Leventhal Sutton & Gornstein, Counsel for Appellee

Before: AMBRO, KRAUSE, and BIBAS, Circuit Judges

OPINION

KRAUSE, Circuit Judge.

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This case presents the question whether claimants for Social Security disability benefits must exhaust Appointments Clause challenges before the very administrative law judges (ALJs) whose appointments they are challenging. Because both the characteristics of the Social Security Administration (SSA) review process and the rights protected by the Appointments Clause favor resolution of such claims on the merits, we hold that exhaustion is not required in this context and therefore will affirm.

I. BACKGROUND

The facts here are simple. After Appellees’— Andrew M. Cirko (on behalf of his late wife Sandra L. Cirko) and John Steven Bizarre— disability claims were denied by ALJs employed by the Social Security Administration, the Supreme Court held in Lucia v. SEC, __ U.S. __, 138 S.Ct. 2044, 201 L.Ed.2d 464 (2018), that ALJs in the Securities and Exchange Commission (SEC) exercised "significant discretion" in carrying out "important functions" and were therefore required under the Appointments Clause, U.S. Const. art. II, § 2, cl. 2, to be appointed by the President, a court of law, or a head of department. Id. at 2053 (citation omitted). Because the ALJs of the SEC were not so appointed, the petitioner there was entitled to a new hearing before a different constitutionally appointed ALJ. See id. at 2055.

When Lucia was decided, Appellees here were already in the process of challenging the SSA’s denial of their claims in the District Court, and although they had not previously raised this claim, they immediately demanded new hearings on the ground that the ALJs of the SSA were likewise unconstitutionally appointed. In response to Lucia and in light of an executive order concluding that "at least some— and perhaps all— ALJs are ‘Officers of the United States’ and thus subject to the Constitution’s Appointments Clause," Exec. Order No. 13 ,843, 83 Fed.Reg. 32,755 (July 13, 2018), the Acting Commissioner of Social Security conceded the premise and in short order reappointed the agency’s administrative judges, including both the ALJs and the Administrative Appeals Judges (AAJs) of the SSA’s Appeals Council, under her own authority.1 Nonetheless, the Commissioner argued that Appellees were not entitled to relief because they had not previously presented their Appointments Clause challenges to their ALJs or the Appeals Council and thus had not exhausted those claims before the agency.

In a comprehensive and analytically rigorous opinion, the District Court declined

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to require exhaustion, vacated the agency’s decisions, and remanded for new hearings before different, properly appointed ALJs. The Commissioner now appeals.

II. DISCUSSION2

The Commissioner’s appeal requires us to decide whether SSA claimants may raise Appointments Clause challenges in federal court without having exhausted those claims before the agency. The Commissioner argues, based on Supreme Court case law and our precedent, that the general rule of exhaustion applies in these circumstances so the District Court should have dismissed Appellees’ appeals.3 As explained below, we disagree.

The Commissioner concedes that there is no statutory or regulatory exhaustion requirement that governs SSA proceedings. Thus, whether we should impose an exhaustion requirement here "is a matter of sound judicial discretion." Cerro Metal Prods. v. Marshall, 620 F.2d 964, 970 (3d Cir. 1980). To determine whether to impose an exhaustion requirement where we have not done so before, we must assess (a) the "nature of the claim presented," (b) the "characteristics of the particular administrative procedure provided," and (c) the proper "balance [between] the interest of the individual in retaining prompt access to a federal judicial forum [and] countervailing institutional interests favoring exhaustion." McCarthy v. Madigan, 503 U.S. 140, 146, 112 S.Ct. 1081, 117 L.Ed.2d 291 (1992). As explained below, each of these three considerations supports the conclusion that exhaustion of Appointments Clause claims is not required in the SSA context.

A. The Nature of Appointments Clause Claims Does Not Favor Exhaustion

We begin with the "nature of [Appellees’] claim." See McCarthy, 503 U.S. at 146, 112 S.Ct. 1081. As a general matter, exhaustion is appropriate for certain claims involving "exercise of the agency’s discretionary power or when the agency proceedings in question allow the agency to apply its special expertise." Id. at 145, 112 S.Ct. 1081. But exhaustion is generally inappropriate where a claim serves to vindicate structural constitutional claims like Appointments Clause challenges, which implicate both individual constitutional rights and the structural imperative of separation of powers. Glidden Co. v. Zdanok, 370 U.S. 530, 536-37, 82 S.Ct. 1459, 8 L.Ed.2d 671 (1962).

The importance of the Appointments Clause has been recognized since our nation’s founding. In the colonial system, appointments were distributed in "support of

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a despicable and dangerous system of personal influence," The Federalist No. 77, at 421 (Alexander Hamilton) (E.H. Scott ed., 1894), that enabled officers to "harass our people, and eat out their substance," The Declaration of Independence para. 12 (U.S. 1776). Indeed, the "power of appointment to offices" was seen in the Founding Era as "the most insidious and powerful weapon of eighteenth century despotism." Freytag v. Comm’r, 501 U.S. 868, 883, 111 S.Ct. 2631, 115 L.Ed.2d 764 (1991) (quoting Gordon S. Wood, The Creation of the American Republic 1776-1787 79, 143 (1969)). By requiring that all "Officers of the United States" be appointed by the president, a head of department, or a court of law, see U.S. Const. art. II, § 2, cl. 2, our Founders sought to replace that "despicable and dangerous system," The Federalist No. 77, supra, at 421, with one that favored political accountability and neutrality, and our Supreme Court has upheld the protection of the Clause in various cases for the express purpose of "protec[ting] individual liberty," NLRB v. Noel Canning, 573 U.S. 513, 571, 134 S.Ct. 2550, 189 L.Ed.2d 538 (2014) (Scalia, J., concurring) (citation omitted), and upholding the "principle of separation of powers," Buckley v. Valeo, 424 U.S. 1, 121, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976).

An individual litigant need not show direct harm or prejudice caused by an Appointments Clause violation. As the D.C. Circuit has noted, "it will often be difficult or impossible for someone subject to a wrongly designed scheme[, including an Appointments Clause violation,] to show that the design— the structure— played a causal role in his loss." Landry v. FDIC, 204 F.3d 1125, 1131 (D.C. Cir. 2000). But this difficulty to show direct harm does not diminish the important individual liberty safeguarded by the Appointments Clause. Such harm is presumed.

Two cases recognizing these principles, Lucia and Freytag, bear heavily on our decision today. In Lucia, where the Court held that the ALJs of the SEC were unconstitutionally appointed, it ordered the agency to provide the petitioner with a new hearing before a constitutionally appointed ALJ different from the original ALJ, explaining that the petitioner had made a "timely challenge" by contesting the validity of the ALJ’s appointment at the agency appeals level— though not, apparently, before the ALJ himself. 138 S.Ct. at 2053-54, 55. And while the Lucia Court did not expound on what made the challenge "timely," it did cite Freytag, where the Court had declined to enforce exhaustion in the Appointments Clause context. See id. at 2053-54 (citing Freytag, 501 U.S. at 871-82, 111 S.Ct. 2631).

In Freytag, the petitioners not only "fail[ed] to raise a timely objection to the assignment of their cases to [the] judge" they claimed was unconstitutionally appointed, but they also affirmatively "consent[ed] to the assignment." 501 U.S. at 878, 111 S.Ct. 2631. "[A]s a general matter," the Court acknowledged, "a litigant must raise all issues and objections at trial." Id. at 879, 111 S.Ct. 2631. Yet, it explained, "the disruption to sound appellate process entailed by entertaining objections not raised below does not always overcome ... the strong interest of the federal judiciary in maintaining the constitutional plan of separation of powers." Id. (internal quotation marks and citation omitted). And given the strength of that interest in an Appointments Clause claim, the Court excused exhaustion and heard the challenge on the merits. Id. at 880, 111 S.Ct. 2631.

As the Commissioner here emphasizes, neither Lucia nor Freytag map perfectly onto our case: The former addressed a different agency and a claimant who

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raised the Appointments Clause challenge at least on administrative appeal, 138 S.Ct. at 2050; and the latter also addressed a...

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