United States Court of Appeals,
Eleventh Circuit.
No. 96-6002.
Sterling CRAYTON, on behalf of himself and all others similarly situated, et al., Plaintiffs-
Appellants,
v.
John J. CALLAHAN, Acting Commissioner of the Social Security Administration, et al.,
Defendants-Appellees.
Sept. 3, 1997.
Appeal from the United States District Court for the Northern District of Alabama. (No. 94-N-1689-
S), Edwin Nelson, Judge.
Before BIRCH, Circuit Judge, RONEY, Senior Circuit Judge, and O'KELLEY*, Senior District
Judge.
RONEY, Senior Circuit Judge:
This is an appeal from the district court's dismissal of a class action brought by mentally
disabled persons who alleged that the defendants, the Commissioner of Social Security and
Alabama's Division of Disability Determination ("DDD"), failed to properly process their disability
claims in that the persons considering a claim of disability do not develop evidence of mental
disability, even though that is not a basis upon which the claim has been made.
Plaintiffs, ten persons with limited mental capacity, on behalf of themselves and others
similarly situated, claimed defendants violated the Social Security Act, section 504 of the
Rehabilitation Act of 1973, 29 U.S.C. § 794, and the Due Process Clause of the Fourteenth
Amendment. The district court dismissed these claims for lack of subject matter jurisdiction. The
court held that plaintiffs failed to exhaust their administrative remedies and their claims did not
satisfy the elements necessary to require waiver of the exhaustion requirement. We affirm.
In July 1994, claimants filed their complaint, alleging that the state agency's practice
operated to deny benefits to persons with mental disabilities. Plaintiffs sought certification of a
*
Honorable William C. O'Kelley, Senior U.S. District Judge for the Northern District of
Georgia, sitting by designation.
class; a judgment declaring that the process at the state level, as then administered, violated federal
law and the Fourteenth Amendment's due process clause; preliminary and permanent injunctions
enjoining the improper practices; and a writ of mandamus (in effect) directing defendants to
perform the non-discretionary duties owed plaintiffs under applicable law. Defendants opposed
plaintiffs' motion for class certification and a hearing was held. The defendants filed motions to
dismiss the complaint for lack of subject matter jurisdiction. After defendants filed their motions,
the district court stayed discovery and deferred ruling on class certification pending the decision on
the motions to dismiss.
On May 3, 1995, the district court dismissed all claims against the Secretary for lack of
jurisdiction, and dismissed the claims brought under the Social Security Act and the Due Process
Clause against the state defendants, leaving only claims against the state that were predicated on
section 504 of the Rehabilitation Act. After the parties briefed the issue, the district court dismissed
the remaining claims for lack of jurisdiction in an Order entered in October 1995. Because of the
court's disposition of the jurisdictional issue, it never ruled upon class certification.
Plaintiffs allege that they should have been considered for benefits under two similar
programs administered by the Social Security Administration (SSA). The Social Security Disability
Insurance program (SSDI) pays benefits to persons who have contributed to the program and who
are determined to be "disabled" due to a physical and/or mental impairment. Title II, Social Security
Act, 49 Stat. 622, as amended. 42 U.S.C. § 401 et seq. The Supplemental Security Income program
(SSI) extends such benefits to indigent disabled persons. Title XVI, Social Security Act, 86 Stat.
1465, as amended, 42 U.S.C. § 1381 et seq. Both Titles define "disability" as the "inability to
engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of less than 12 months...." 42 U.S.C. §§ 423(d)(1)(A),
1382c(a)(3)(A). Under express statutory authority, 42 U.S.C. § 405(a), the Commissioner has
promulgated detailed regulations governing eligibility for SSDI and SSI benefits. 20 C.F.R. Part
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404, Subpart P (SSDI); 20 C.F.R. Part 416, Subpart I(SSI). Both programs follow the same
five-step "sequential evaluation" process to determine whether a claimant is disabled. Compare 42
U.S.C. § 423(d) with 42 U.S.C. § 1382c; compare also 20 C.F.R. § 404.1520 with 20 C.F.R. §
416.920.
The disability examiner determines first, whether the claimant is engaged in "substantial
gainful activity." If not, the examiner decides second whether the claimant's condition or
impairment is "severe," i.e., whether it significantly limits claimant's physical or mental ability to
do basic work activities. 20 C.F.R. §§ 404.1520(c), 416.920(c). If so, the examiner decides at the
third step whether the claimant's impairment meets or equals the severity of the specified
impairments acknowledged by SSA to be of sufficient severity to preclude any gainful work activity
(the "Listings"), Subpart P, Appendix 1 of the Regulations, 20 C.F.R. §§ 404.1520(d), 416.920(d).
If the claimant's condition meets or equals the level of severity of a listed impairment, the claimant
at this point is conclusively presumed to be disabled based on his or her medical condition.
If the claimant has a severe impairment that does not equal or meet the severity of a listed
impairment, the examiner proceeds to the fourth step and assesses the claimant's "residual functional
capacity" ("RFC"). This assessment measures whether a claimant can perform past relevant work
despite his or her impairment. If the claimant is unable to do past relevant work, the examiner
proceeds to the fifth and final step of the evaluation process to determine whether in light of RFC,
age, education and work experience the claimant can perform other work. 20 C.F.R. §§ 404.1520(f),
416.920(f).
Plaintiffs' contentions in this case concern the third step in the process, i.e., whether
claimant's impairment meets or equals the impairment in the Listings. Specifically, plaintiffs
challenge the DDD's failure to determine whether the mental retardation Listings apply to them. 20
C.F.R. Part 404, Subpart P, Appendix 1 at § 12.05 (Mental Retardation and Autism).
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To be considered for disability benefits under section 12.05, a claimant must at least (1) have
significantly subaverage general intellectual functioning; (2) have deficits in adaptive behavior;
and (3) have manifested deficits in adaptive behavior before age 22.
Generally, the claimant meets the criteria for presumptive disability under section 12.05(b)
when the claimant presents a valid IQ score of 59 or less, or under section 12.05(c) when the
claimant presents a valid IQ score of 60 through 70 inclusive, and when the claimant presents
evidence of an additional mental or physical impairment significantly affecting claimant's ability to
work. See Lowery v. Sullivan, 979 F.2d 835, 837 (11th Cir.1992) (a valid IQ score need not be
conclusive of mental retardation, where the IQ score is inconsistent with other evidence in the record
concerning the claimant's daily activities and behavior).
In addition to describing plaintiffs generally as persons with limited mental capacity, the
complaint alleges facts about each of the named plaintiffs, including their ages and their limited
educational background and work experience; the dates they applied for and were denied benefits
at the agency level; the IQ levels of some of the plaintiffs and their physical disabilities where
relevant.
It appears plaintiffs' claims were not based on limited mental capacity. The complaint does
not allege which of the above facts, if any, were presented to the agency. Plaintiffs fault the state
disability examiners for failing to develop evidence sua sponte of limited mental capacity, even
when such a claim is not made, but when there is some indication in the record that the claimant has
a limited mental capacity.
Specifically, plaintiffs allege:
Defendants do not request information from disability applicants which would show that
limited mental capacity is likely. Defendants fail and refuse to obtain consultative exams
for I.Q. testing even when mental retardation is suggested by evidence of record (such as an
adult having only a fourth grade education). Defendants do not obtain school records which
would show that limitation of mental capacity was evident early in applicant's life. This
failure to develop is particularly important because people with limited mental capacities
often do not allege this deficiency as a basis for their disability claims, either because they
do not appreciate the extent of their mental limitation or because they do not realize that their
mental limitation can constitute a basis for disability. Defendants also deny benefits in cases
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where the record includes a valid I.Q. score of 60 or less or a valid I.Q. score between 61 to
70 and an additional significant work-related impairment.
We presume the truth of all factual allegations in the complaint and review defendants' facial
challenge to jurisdiction de novo. The motion to dismiss is appropriately granted if the plaintiffs
failed to allege an element necessary for subject matter jurisdiction. Titus v. Sullivan, 4 F.3d 590,
593 (8th Cir.1993).
Under 42 U.S.C. § 405(g), the section which gives the federal court jurisdiction of claims
under this statute, a claimant must satisfy two jurisdictional prerequisites to obtain judicial review
of an agency decision. First, the individual must have presented a claim for benefits to the
Secretary. Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976). Second, the
claimant must have exhausted the administrative remedies.
This means claimant must have completed each of the steps of the administrative review
process unless exhaustion has been waived. Claimants in this case were pursuing but had not
exhausted their administrative remedies at the time their complaint was filed, so in order for their
claims to be heard, exhaustion must be waived. The district court in this case, as did the courts in
other cases cited by the parties, applied a three-part test to determine whether waiver is applicable:
(1) are the issues entirely collateral to the claim for benefits; (2) would failure to waive cause
irreparable injury; and (3) would exhaustion be futile. Bowen v. City of New York, 476 U.S. 467,
483, 106 S.Ct. 2022, 2031-32, 90 L.Ed.2d 462 (1986). The district court based its dismissal on
plaintiffs' failure to establish two of these three elements: irreparable injury and futility.
In arguing that the district court should have applied the doctrine of waiver to assert
jurisdiction in this case, plaintiffs rely upon the Supreme Court's analysis of waiver in three cases,
Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975); Mathews v. Eldridge, 424
U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976); and Bowen v. City of New York, 476 U.S. 467, 106
S.Ct. 2022, 90 L.Ed.2d 462 (1986). Because of the context within which the principles were
developed in these cases, however, these cases do not support a required waiver of the exhaustion
requirement in this case.
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In Salfi, a widow and her child brought a class action challenging the constitutionality of
certain Social Security Administration procedures after she was denied benefits both initially and
on reconsideration at the regional level. The Court held that the Secretary's failure to challenge the
sufficiency of plaintiffs' allegations of exhaustion amounted to a determination by the Secretary that
for purposes of this litigation, the reconsideration determination was "final," and thereby satisfied
the requirements for judicial review under section 405(g). 422 U.S. at 767, 95 S.Ct. at 2467.
In reaching this conclusion, the Court observed that the statutory scheme, which determines
when an agency decision is final, allows the Secretary to determine what exhaustion requirement
would best "serve his own interests in effective and efficient administration." 422 U.S. at 766, 95
S.Ct. at 2467. Thus, it is within the Secretary's province to waive the exhaustion requirement. This
may be done by failing to challenge jurisdiction based on failure to exhaust. The Secretary has not
chosen to do that in this case.
In Mathews v. Eldridge, when plaintiff's disability benefits were terminated, plaintiff did not
seek agency reconsideration but instead brought an action in federal district court alleging that
termination of his benefits without a hearing violated his constitutional due process rights. The
Supreme Court predicated its holding that judicial waiver of exhaustion was appropriate on the fact
that plaintiff challenged the constitutional validity of administrative procedures, and noted the
importance of that distinction:
A claim to a predeprivation hearing as a matter of constitutional right rests on the
proposition that full relief cannot be obtained at a postdeprivation hearing [so that] denying
Eldridge's substantive claim "for other reasons" or upholding it "under other provisions" at
the post-termination stage, ... would not answer his constitutional challenge.
424 U.S. at 331-32, 96 S.Ct. at 900.
Plaintiffs' due process claim is not based on the failure to have a hearing, but on how that
hearing was handled, normal subject matter for the regular administrative exhaustion requirement.
In Bowen v. City of New York, plaintiffs brought a class action alleging that an internal policy
of the Secretary of Health and Human Services had the effect of denying disability benefits to
numerous claimants who may have been entitled to them. Suit was brought on behalf of state
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residents who had applied for or been receiving Social Security benefits and who had been found
by the agency to have a severe mental impairment, but were denied benefits based on the
determination that claimants were capable of substantial gainful employment. After a seven-day
trial, the district court held, among other things, that the agency had followed a covert policy as
alleged by plaintiffs and that such policy was illegal. The court noted that the evidence of the "fixed
clandestine policy against those with mental illness" was overwhelming. 476 U.S. at 475, 106 S.Ct.
at 2027 (citations omitted).
The district court certified a class, including in it claimants who had not exhausted their
administrative remedies. The court clearly had jurisdiction of the case involving plaintiffs with
exhausted claims. It was only the inclusion in this class with those claimants who had not exhausted
that the government appealed. The trial court's findings on the merits of plaintiffs' case were
unchallenged. The only question was whether those claimants who had not exhausted their
administrative remedies should be included in the class for which relief would be granted. Thus,
the Court had before it a record fully developed by the plaintiffs who had exhausted upon which to
base its decision. Under such circumstances, it would be nonsensical to require claimants to exhaust
their remedies when the outcome was a foregone conclusion.
In making its decision, the Bowen Court looked at several factors, the first two of which are
factors the Court discussed previously in Eldridge: first, that the constitutional challenge brought
was entirely collateral to a substantive claim of entitlement; and second, that claimants would suffer
irreparable injury because their claim rested on the proposition that full relief could not be obtained
at a post-deprivation hearing. The Court said it must consider whether application of the exhaustion
doctrine was practical, and whether it was consistent with the requirement's underlying policies. The
Court explained that
Exhaustion is generally required as a matter of preventing premature interference with
agency processes, so that the agency may function efficiently and so that it may have an
opportunity to correct its own errors, to afford the parties and the courts the benefit of its
experience and expertise, and to compile a record which is adequate for judicial review.
422 U.S. at 765, 106 S.Ct. at 2467.
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The holdings in each of these cases is consistent with the stated principles underlying
exhaustion. The agency may always waive the exhaustion requirement. It may be held to have done
so by failing to challenge the sufficiency of the allegations in plaintiffs' complaint, as it did in Salfi.
Exhaustion may be excused when the only contested issue is constitutional, collateral to the
consideration of claimant's claim, and its resolution therefore falls outside the agency's authority as
in Eldridge. Exhaustion may be impractical and inconsistent with the exhaustion principles when
a judicial determination has been made that the agency's procedure is illegal.
Plaintiffs also cited cases from other circuits that like plaintiffs go straight to application of
the three-part test, particularly a line of cases decided by the Eighth Circuit, including Titus v.
Sullivan, 4 F.3d 590 (8th Cir.1993); Schoolcraft v. Sullivan, 971 F.2d 81 (8th Cir.1992), cert. denied
sub nom., Shalala v. Schoolcraft, 502 U.S. 1081, 114 S.Ct. 902, 127 L.Ed.2d 93 (1994); and Mental
Health Ass'n of Minnesota v. Heckler, 720 F.2d 965 (8th Cir.1983). We are unpersuaded as to the
correctness of these cases or that they require a waiver in this case.
We hold only that in this case both the practical considerations and the guiding principles
of exhaustion dictate that these claimants should make their claims to the agency and exhaust their
administrative remedies before the federal court would have jurisdiction to review the agency
decision.
It appears from the language of the district court's memorandum opinions that its dismissal
was with prejudice. We modify the judgment to the extent that the dismissal of the claims of the
individual plaintiffs is without prejudice, so that they may pursue administrative remedies and then
return to federal court if appropriate.
AFFIRMED AS MODIFIED.
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