By Payroll and Entitlements Editorial Staff
Noting that the Supreme Court has imposed an issue exhaustion requirement even in the absence of a statute or regulation, the U.S. Court of Appeals for the 10th Circuit in Carr v. Commissioner, Nos. 19-5079 and 19-5085, June 15, 2020, ruled that Social Security disability claimants waive their Appointments Clause challenges that they failed to raise in their administrative proceedings.
Background. In separate cases, an ALJ denied the claimants’ applications for disability benefits and the Appeals Council declined review. During the pendency of the claimants’ cases, the Supreme Court held in another case that ALJs in the Securities and Exchange Commission were subject to the Appointments Clause of the United States Constitution (Lucia v. S.E.C., 138 S. Ct. 2044 (2018)). The High Court ruled that because the ALJs of the SEC were not appropriately appointed, the petitioner was entitled to a new hearing before a different constitutionally appointed ALJ. Subsequently, the Commissioner appointed the SSA’s ALJs. In addition, the SSA issued a ruling explaining how the agency would adjudicate cases pending at the Appeals Council in which a claimant has raised a timely challenge to the appointment of an ALJ under the Appointments Clause in light of the decision in Lucia v. SEC. After the Commissioner’s action, the claimants each filed a supplemental brief, asserting for the first time that the ALJs who had rejected their claims were not appropriately appointed under the Appointments Clause. Although they had not previously raised the issue, the district court vacated the SSA decisions and remanded the cases for new hearings before constitutionally appointed ALJs. The district court held that the claimants did not waive their Appointments Clause challenges by failing to raise them in the SSA proceedings.
Issue exhaustion promotes efficiency. On appeal, the Commissioner did not contest that the SSA ALJs had not been properly appointed when they denied the benefits claims. However, the Commissioner contended that the district court erred and that the claimants had waived their Appointments Clause challenges by failing to exhaust them before the agency. The Tenth Circuit agreed, concluding that institutional interests supported issue exhaustion. Regardless of the lack of a statute or regulation requiring issue exhaustion in the SSA context, the court recognized that such a requirement exists to further institutional interests. If the claimants had exhausted their Appointments Clause claims, the SSA could have corrected the appointment error. In addition, the court found that an exhaustion requirement would have promoted both judicial and agency efficiency. Finally, the court determined that the district court failed to provide adequate reasons to depart from the general principle that an issue must be raised before an agency for the party to seek judicial review of an agency action on that issue. The judgment of the district court was reversed.
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