Johnson v. Shalala

• Decision Date: 06 August 1993
• Docket Number: No. 92-35507,92-35507
• Citation: 2 F.3d 918
• Parties: , Unempl.Ins.Rep. CCH 17442A Gale R. JOHNSON, Plaintiff-Appellee, v. Donna E. SHALALA * , Secretary of Health and Human Services, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 918

2 F.3d 918

42 Soc.Sec.Rep.Ser. 121, Unempl.Ins.Rep. CCH 17442A

Gale R. JOHNSON, Plaintiff-Appellee, v. Donna E. SHALALA ^*, Secretary of Health and Human Services, Defendant-Appellant.

No. 92-35507.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 3, 1992.

Decided Aug. 6, 1993.

Stuart M. Gerson, Asst. Atty. Gen., Barbara Biddle and Howard S. Scher, U.S. Dept. of Justice, Washington, DC, for defendant-appellant.

Randall W. Robinson, Idaho Legal Aid Services, Inc., Lewiston, ID, for plaintiff-appellee.

Gill Deford and Kim Savage, National Senior Citizens Law Center, Los Angeles, CA, for plaintiff-appellee.

Appeal from the United States District Court for the District of Idaho.

Before: GOODWIN, FARRIS, and PREGERSON, Circuit Judges.

FARRIS, Circuit Judge:

The Secretary of Health and Human Services appeals the decision of the district court granting summary judgment in favor of plaintiffs Tracy Defrance and Sandy Johnson (class representatives). The Secretary argues that the district court erred in certifying a class that included individuals who failed to meet either the 60-day limitations period or the exhaustion requirement in 42 U.S.C. Sec. 405(g) (1988). We affirm in part and reverse in part.

The United States Magistrate Judge had jurisdiction pursuant to 42 U.S.C. Secs. 405(g) and 1383(c)(3). This court has jurisdiction over the Secretary's timely appeal pursuant to 28 U.S.C. Sec. 1291.

DISCUSSION

This case originally challenged the Secretary's policy of treating in-kind loans as income under the Supplemental Security Income program. The named plaintiff, ¹ Gale Johnson, lived with his elderly mother while awaiting approval of his SSI application. Johnson's mother paid his share of the living expenses with the understanding that he would repay her when he started receiving SSI benefits.

The Social Security Administration had a systemwide policy of treating "in-kind" loans as income. The agency thus reflected the in-kind household expenses that Johnson's mother loaned him as income and reduced his lump sum award by one-third. Johnson would have received the full SSI check if his mother had loaned him cash to pay for his share of the living expenses or if he had paid his living expenses with a credit card. See SSR 78-26.

Johnson filed this action on September 19, 1990, on behalf of himself and others similarly situated. He asserted that the policy of distinguishing between in-kind loans and cash loans for the purpose of determining income was invalid under the Social Security Act and the Equal Protection Clause of the Fifth Amendment.

Before the district court ruled on Johnson's complaint, we invalidated the challenged practice. See Ceguerra v. HHS, 933 F.2d 735 (9th Cir.1991). SSA changed its practice in December 1991. The district court ordered the Secretary to pay the eligible class members "SSI benefits retroactive to the date that the loan of in-kind support became available and was treated as income by the Secretary."

42 U.S.C. Sec. 405(g) requires claimants to appeal a final decision by the Secretary within 60 days. Thus the Secretary argues that Sec. 405(g) precludes the revival of claims that had "lapsed"--become final--more than 60 days before the filing of the claim in this case.

Section 405(g) also requires each social security claimant to exhaust his administrative remedies before appealing to a federal district court. Many members of the putative class had claims that had not lapsed at the time this action was filed but subsequently failed to exhaust their administrative remedies. The Secretary argues that the exhaustion requirement barred the district court from including those individuals in the class.

The district court waived the exhaustion requirement and tolled the sixty-day statute of limitations. The court certified the following class:

all applicants for or recipients of SSI benefits who reside in the State of Idaho and whose SSI benefits have been denied, terminated, or reduced because of the Secretary's policy of counting in-kind loans as income, from April 1978 forward.

We review the district court's class definition order for an abuse of discretion. Six (6) Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1304 (9th Cir.1990).

I. EXHAUSTION REQUIREMENT

Section 405(g) requires an SSI claimant to obtain a final judgment from the Secretary before seeking judicial review. A final judgment consists of two elements: the presentment of a claim to the Secretary and the exhaustion of administrative remedies. The presentment requirement is jurisdictional, and therefore cannot be waived by the Secretary or the courts. The exhaustion requirement--the first issue in this appeal--is not jurisdictional, and thus, is waivable by either the Secretary or the courts. Matthews v. Eldridge, 424 U.S. 319, 330, 96 S.Ct. 893, 900, 47 L.Ed.2d 18 (1975).

The Supreme Court has suggested, and we have applied, a three-part test "to determine whether a particular case merits judicial waiver of the exhaustion requirement." Briggs v. Sullivan, 886 F.2d 1132, 1139 (9th Cir.1989); see also Bowen v. City of New York, 476 U.S. 467, 483, 106 S.Ct. 2022, 2031-32, 90 L.Ed.2d 462 (1986); Matthews, 424 U.S. at 330-31, 96 S.Ct. at 900-01. The claim must be (1) collateral to a substantive claim of entitlement (collaterality), (2) colorable in its showing that denial of relief will cause irreparable harm (irreparability), and (3) one whose resolution would not serve the purposes of exhaustion (futility). Briggs, 886 F.2d at 1139.

A. COLLATERALITY

The Secretary asserts that any claim that challenges a published SSA policy as inconsistent with a statute is not collateral to a claim for benefits. Whether the Secretary has published a challenged policy, however, does not determine whether the plaintiff's claim is collateral. Greene v. Bowen, 639 F.Supp. 554 (E.D.Cal.1986). A plaintiff's claim is collateral if it is not essentially a claim for benefits. Bowen v. City of New York, 476 U.S. 467, 483, 106 S.Ct. 2022, 2032, 90 L.Ed.2d 462 (1985).

In City of New York, plaintiffs challenged a policy that mandated a presumption that mentally disabled applicants were qualified to do unskilled work. The Supreme Court found that the plaintiffs' claims were collateral because the class members "neither sought nor were awarded benefits in the District Court, but rather challenged the Secretary's failure to follow the applicable regulations." Id. at 483, 106 S.Ct. at 2032.

The plaintiffs here challenged the Secretary's policy of treating as income all in-kind loans. They sought the invalidation of a rule used to determine eligibility for benefits rather than the denial of benefits in a particular case. The plaintiffs' claim was no more a claim for benefits than the plaintiffs' claim in City of New York.

The Secretary argues that Heckler v. Ringer, 466 U.S. 602, 104 S.Ct. 2013, 80 L.Ed.2d 622 (1984), compels the conclusion that plaintiffs' challenge to the in-kind loan policy is not collateral. The Secretary contends that the Supreme Court viewed the plaintiffs' claim in Ringer as a claim for benefits because Ringer challenged the Secretary's published interpretation of a statute. According to the Secretary, the Ringer Court viewed Ringer's claim as one for benefits, because benefits would inevitably flow from the decision on the statutory interpretation issue.

The Secretary interprets Ringer too broadly. The plaintiffs in Ringer requested that the Secretary change her policy to allow payment for a medical procedure "so that respondents simply [would] not have to resort to the administrative process." Ringer, 466 U.S. at 614, 104 S.Ct. at 2021. The Court found that the plaintiffs' claim was "at bottom" a claim that they should be paid for their surgery. Id. As such, the plaintiffs' claim was "inextricably intertwined" with their claim for benefits. Id.

In contrast, the district court's class certification order requires that the Secretary readjudicate those claims that were denied under the in-kind policy. Some claimants will receive benefits they were once denied. For others, the readjudication will make no difference. They would not be entitled to benefits under either policy:

Thus, the plaintiff's attack is essentially to the policy itself, not to its application to them, nor to the ultimate substantive determination of their benefits. Their challenge to the policy rises and falls on its own, separate from the merits of their claim for benefits.

Johnson v. Sullivan, 922 F.2d 346, 353 (7th Cir.1990). The plaintiffs' claim is collateral because it is not "bound up with the merits so closely that [the court's] decision would constitute 'interference with agency process.' " Id. (quoting Weinberger v. Salfi, 422 U.S. 749, 765, 95 S.Ct. 2457, 2467, 45 L.Ed.2d 522 (1975)).

B. IRREPARABILITY

The plaintiffs must raise "at least a colorable claim" that exhaustion will cause them irreparable injury. Eldridge, 424 U.S. at 331, 96 S.Ct. at 901. We have held that "a 'colorable' showing of irreparable injury is one that is not 'wholly insubstantial, immaterial, or frivolous.' " Briggs, 886 F.2d at 1140 (quoting Cassim v. Bowen, 824 F.2d 791, 795 (9th Cir.1987) (citations omitted)).

In Eldridge, the Court held that the plaintiff had "raised at least a colorable claim that because of his physical condition and dependency upon the disability benefits, an erroneous termination would damage him in a way not recompensable through retroactive payments." Id. at 331, 96 S.Ct. at 901. The Court found that because Eldridge claimed that he had a constitutional entitlement to a pretermination hearing, a decision "at the post-termination stage would not answer his constitutional challenge." Id. at 332, 96 S.Ct. at 901. Eldridge demonstrated that the exhaustion requirement would cause him both irreparable economic loss and the destruction of his claim.

The Secretary contends that these...