Dixon v. Shalala

• Decision Date: 19 April 1995
• Docket Number: D,No. 212,212
• Citation: 54 F.3d 1019
• Parties: , 48 Soc.Sec.Rep.Ser. 3, Unempl.Ins.Rep. (CCH) P 14554B David DIXON, and all others similarly situated, Plaintiffs-Appellees, and State of New York and Michael J. Dowling, as Commissioner of the New York State Department of Social Services, Intervenors-Plaintiffs-Appellees, v. Donna E. SHALALA, as Secretary of the Department of Health & Human Services, Defendant-Appellant. ocket 94-6040.
• Court: U.S. Court of Appeals — Second Circuit

Page 1019

54 F.3d 1019

63 USLW 2667, 48 Soc.Sec.Rep.Ser. 3,

Unempl.Ins.Rep. (CCH) P 14554B

David DIXON, and all others similarly situated, Plaintiffs-Appellees,

and

State of New York and Michael J. Dowling, as Commissioner of

the New York State Department of Social Services, Intervenors-Plaintiffs-Appellees, v. Donna E. SHALALA, as Secretary of the Department of Health &

Human Services, Defendant-Appellant.

No. 212, Docket 94-6040.

United States Court of Appeals, Second Circuit.

Argued Oct. 12, 1994.

Decided April 19, 1995.

Sapna V. Raj, Asst. U.S. Atty., New York City (Mary Jo White, U.S. Atty., Ping C. Moy and Steven M. Haber, Asst. U.S. Attys., of counsel), for defendant-appellant.

Matthew Diller, of counsel to The Legal Aid Soc., New York City (Helaine D. Barnett, Deputy Atty. in Charge, Scott A. Rosenberg, Acting Director of Litigation, Civil Appeals & Law Reform Unit, Richard E. Blum, of counsel; Rolando T. Acosta, Atty. in Charge, Susan R. Sternberg, of counsel, Brooklyn, NY; Deborah A. Bigel, Stroock & Stroock & Lavan, New York City, of counsel), for plaintiffs-appellees.

G. Oliver Koppell, Atty. Gen. of the State of New York, Mary Fisher Bernet, Asst. Atty. Gen., New York City, for intervenors-plaintiffs-appellees.

Before: OAKES, KEARSE and MINER, Circuit Judges.

OAKES, Senior Circuit Judge:

This appeal involves litigation initiated more than a decade ago on behalf of more than 200,000 claimants whose applications for benefits were denied on the basis of what the trial court found to be systematic and covert misapplication of the disability regulations. Defendant Donna Shalala, Secretary of Health and Human Services (the "Secretary"), appeals from a December 22, 1993, final order (the "Remedial Order") of the United States District Court for the Southern District of New York, William C. Conner, Judge, implementing the court's May 8, 1992, opinion and order (the "1992 Opinion"), rendered after trial on a stipulated record. Dixon v. Sullivan, 792 F.Supp. 942 (S.D.N.Y.1992).

Plaintiffs, who were denied disability benefits on the grounds that their impairments were found to be "not severe," brought this class action in 1984 to challenge what they alleged was a policy by the Secretary to heighten the threshold standards for benefits. In the 1992 Opinion, the district court found that the Secretary and Social Security In the Remedial Order, issued after more than a year of subsequent negotiations between the parties, the court retroactively expanded the previously "conditional" plaintiff class in light of the conclusion regarding equitable tolling. As certified in 1984, the class had consisted of claimants whose benefits were denied or terminated pursuant to the severity regulation or the Secretary's noncombination policy after July 20, 1983, 60 days prior to the date of the complaint in this action, as well as claimants whose benefits might be denied or terminated on these grounds in the future. In its Remedial Order, the district court expanded the reach of the class seven years further into the past, to include applicants whose benefits were denied or terminated after June 1, 1976. The court further ordered the Secretary to identify and notify all class members, and to reopen and readjudicate the claims of those who responded. For claimants to whom specified presumptions of disability or non-disability did not apply, the court required the agency to investigate and readjudicate each individual's disability from the earliest possible date of entitlement to the present.

Administration ("SSA") adjudicators, between June 1976 and July 1983, engaged in systematic and clandestine misapplication of disability regulations concerning "severe" impairments and illegally implemented a policy involving "noncombination" of impairments, causing plaintiffs' disabilities to be classified as "non-severe" and their applications to be denied without full review. Because the court found the agency's misapplication of the regulations to be covert as well as illegal, it concluded that disability claimants could not reasonably have been expected to know of the practice. Consequently, the court equitably tolled the statute of limitations governing appeals of disability denials, allowing claimants to appeal their denials even if they had failed to bring suit within the 60-day statutory period or to exhaust their administrative remedies.

The Secretary raises three issues on appeal. First, she contends, the district court erred in concluding that the Secretary engaged in pervasive and systematic misapplication of the severity regulations from 1976 to 1983. The district court erred secondly, the Secretary contends, in invoking the equitable tolling doctrine to resuscitate the claims of applicants who failed to exhaust administrative remedies or to file suit within the statutorily required period. Third, the Secretary challenges two provisions of the court's Remedial Order: its requirement that the government "reconstruct," as the Secretary characterizes it, files destroyed by the SSA pursuant to regulation; and its requirement that the government readjudicate class members' applications from the earliest possible date of entitlement to the present. These requirements, the Secretary contends, would impose administrative costs of hundreds of millions of dollars on an already overburdened agency and divert scarce resources away from current applicants.

We are painfully aware that no judicial pronouncement may at this late date make whole the hundreds of thousands of disabled individuals who comprise the plaintiff class, and that the choices before us are among perhaps equally unhappy alternatives. After full consideration of the Secretary's contentions, however, we remain unconvinced that the trial court abused its equitable discretion or committed reversible error. Accordingly, we affirm the judgment of the district court in its entirety.

BACKGROUND

I. The Statutory and Regulatory Framework

Title II of the Social Security Act (the "Act"), 42 U.S.C. Secs. 401-33 (the Old Age Survivors and Disability Insurance program ("OASDI")), and Title XVI of the Act, 42 U.S.C. Secs. 1381-1383d (the Supplemental Security Income program ("SSI")), each provide for the payment of monthly benefits to disabled persons who meet certain requirements. For purposes of both programs, a person will be found disabled

only if his physical or mental impairment or impairments are of such severity that he is not only unable to do his previous work but cannot, considering his age, education, and work experience, engage in any 42 U.S.C. Secs. 423(d)(2)(A), 1382c(a)(3)(B) (1988).

other kind of substantial gainful work which exists in the national economy.

The Secretary, acting through SSA, established a five-step "sequential evaluation" process for determining whether a person has a "disability." See 20 C.F.R. Secs. 404.1520, 416.920 (1994). In an earlier appeal of the action before us, we described the five-step process as follows:

The first step in the sequential process is a decision whether the claimant is engaged in "substantial gainful activity." If so, benefits are denied. 20 C.F.R. Secs. 404.1520(a), (b), 416.920(a), (b) (1983). If not, the second step is a decision whether the claimant's medical condition or impairment is "severe." If not, benefits are denied. 20 C.F.R. Secs. 404.1520(c), 416.920(c). If the impairment is "severe," the third step is a decision whether the claimant's impairments meet or equal the "Listing of Impairments" set forth in subpart P, app. 1, of the social security regulations, 20 C.F.R. Secs. 404.1520(d), 416.920(d). These are impairments acknowledged by the Secretary to be of sufficient severity to preclude gainful employment. If a claimant's condition meets or equals the "listed" impairments, he or she is conclusively presumed to be disabled and entitled to benefits. If the claimant's impairments do not satisfy the "Listing of Impairments," the fourth step is assessment of the individual's "residual functional capacity," i.e., his capacity to engage in basic work activities, and a decision whether the claimant's residual functional capacity permits him to engage in his prior work. If the residual functional capacity is consistent with prior employment, benefits are denied. 20 C.F.R. Secs. 404.1520( [e], 416.920(e). If not, the fifth and final step is a decision whether a claimant, in light of his residual functional capacity, age, education, and work experience, has the capacity to perform "alternative occupations available in the national economy." Decker v. Harris, 647 F.2d 291, 298 (2d Cir.1981); 20 C.F.R. Secs. 404.1520(f), 416.920(f). If not, benefits are awarded.

Dixon v. Heckler, 785 F.2d 1102, 1103 (2d Cir.1986) (quoting City of New York v. Heckler, 742 F.2d 729, 732 (2d Cir.1984), aff'd, 476 U.S. 467, 106 S.Ct. 2022, 90 L.Ed.2d 462 (1986)), vacated, 482 U.S. 922, 107 S.Ct. 3203, 96 L.Ed.2d 690 (1987).

A. The History of the Severity Regulation

At issue in the present case is Step Two, commonly known as the "severity regulation," which addresses whether a claimant's impairment is "severe." As with every other step in the five-step evaluation process, failure to meet the disability criteria of Step Two results in denial of benefits with no opportunity to proceed to any later step.

The severity regulation, as amended in 1980, provided:

If you do not have any impairment(s) which significantly limits your physical or mental ability to do basic work activities, we will find that you do not have a severe impairment and are, therefore, not disabled. We will not consider your age, education, and work experience.

20 C.F.R. Sec. 404.1520(c) (1980). "Basic work activities" are defined as "the abilities and aptitudes necessary to do most jobs," such as, for example, "[p]hysical functions such as walking, standing, sitting, lifting, [etc.]", "[c]apacities for seeing, hearing, and speaking," and "[u]...