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Tustin v. Heckler

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT


December 7, 1984

GALE TUSTIN, MILTON RUIZ, AND ISMAEL SOTO AND ALL PERSONS SIMILARLY SITUATED, PLAINTIFFS-APPELLEES
v.
MARGARET HECKLER, SECRETARY OF UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES DEFENDANT-APPELLANT

On Appeal from the United States District Court for the District of New Jersey

Author: Becker

Before: SEITZ, BECKER, Circuit Judges, and ROSENN, Senior Circuit Judge

Opinion OF THE COURT

BECKER, Circuit Judge.

On April 14, 1984, responding to widespread problems in the administration of the Social Security Disability Program and to the expectation that comprehensive legislative would soon be enacted to alleviate these problems, the Secretary Health and Human Services (the "Secretary") decided to suspend periodic review of disability determinations. The periodic review program had been instituted in 1980 to enable the Secretary to terminate the disability benefits of persons who, upon reevaluation, were found to be capable of engaging in substantial gainful employment. As part of the decision to suspend periodic review, the Secretary restored cases had not received final administrative decisions. The Secretary did not, however, restore benefits to individuals whose benefits had been terminated pursuant to the review procedure and whose appeals were pending in the federal courts.*fn1

The plaintiffs, persons in this latter group, brought suit in the district court for the District of New Jersey seeking injunctive relief on behalf of all similarly situated individuals, and challenging on equal protection grounds the Secretary's decision to distinguish between disability review cases on the basis of whether the claimants had received final administrative determinations. On July 12, 1984, finding that the requirements of Fed.R.Civ.P. 23(b)(2) were met, the district court certified a nationwide class comprising all individuals with appeals from adverse periodic review disability determinations pending in the federal district courts. The district court also decided that, because the distinction relied on by the Secretary was "chimerical," her decision did not meet the (applicable) rational relation test and was unconstitutional. Accordingly, the district court granted a preliminary injunction requiring the Secretary to restore benefits to the class.

Concluding that the district court erred in declaring the Secretary's decision unconstitutional, we now vacate its order granting a preliminary injunction. Although the court's class certification does not give rise to an appealable order, we remand so that the district court may decide whether to vacate the class certification in light of our decision on the merits.

I. FACTS AND PROCEDURAL HISTORY

A. The Periodic Review Process

In 1980, Congress amended the Social Security Act to require review of the eligibility of each disability beneficiary at least once every three years.*fn2 Implementation of this rather straightforward mandate has, however, been controversial. Central to the controversy has been the lack of a national standard for reviewing cases to determine whether continued disability benefits are warranted. Initially, the Secretary adopted a standard of review that required termination of benefits when the current evidence of record supported a finding that the person was able to engage in substantial gainful activity. See 45 Fed. Reg. 55,566, 55,568 (Aug. 20, 1980). This standard was challenged in court, however, and several courts of appeals concluded that the Secretary's standard was improper, although these courts disagreed among themselves as to the appropriate standard of review.*fn3 As a result, several standards of review have been applied to disability redeterminations, so that a person's eligibility has depended as much on one's state of residence as on one's condition of disability.

Responding to these "significant problems and dislocations," and "reaffirming [a] commitment to and insistence upon a nationally uniform disability insurance program," S. Rep. No. 98-466, 98th Cong., 2d Sess. 6, 9 (1984), the 98th Congress, true to the Secretary's expectations, enacted legislation establishing a uniform standard for disability reviews.*fn4 This legislation was signed into law by the President on October 9, 1984. Although the enacted statute provides the named plaintiffs and class members with some of the relief that they would otherwise receive as a result of the district court's injunction in this case, it does not moot this appeal.*fn5 We therefore turn to the Secretary's April 1984 decision.

After considering the substantial problems inherent in administering a national disability program with widely varying eligibility standards and the apparently imminent enactment of a comprehensive disability standard,*fn6 the Secretary announced that the Social Security Administration (SSA) would suspend the disability review process until the legislation was enacted and implemented. See Appendix at 4. The Secretary also directed the SSA to restore current and retroactive benefits to all individuals with claims pending at the administrative level. See id. On May 22, 1984, a Ruling was issued by the Acting Commissioner of SSA to implement the Secretary's announcement. The Acting Commissioner specified that "determinations and decisions of disability cessation for medical reasons" would be rescinded for:

individuals who have not received an Appeals Council decision or notice denying a request for review by the Appeals Council of the administrative law judge decision on their periodic review claims and who have such claims properly pending in the Department. People who, as of the effective date of this policy, still have time to appeal the determination to stop their benefits to the next administrative review level also will have their [disability] determinations rescinded."

Id. at 16-17.

The Ruling did not rescind adverse decisions and restore benefits for

individuals who received an Appeals Council decision or notice denying review and those whose claims were not properly pending administratively . . . as of [April 13, 1984]. . . . Similarly, cases pending in the Federal courts for review of a final agency decision . . . are not subject to the Secretary's policy even if a court has remanded the case for further administrative action.

Id. at 17.*fn7

The Ruling by the Acting Administrator outlined the following three reasons for the agency's actions: (1) the disability review program was suspended because "the SSA cannot effectively administer the . . . program in the fair and humane way that the agency desires"; (2) restoration of benefits to individuals with claims pending in the administrative process was considered "particularly justified" because of "the absence of . . . an opportunity [to pursue their periodic review claims] and of a final agency decision by the Appeals Council"; and (3) benefits were not restored to individuals with "cases pending in the Federal courts for review of a final agency decision" because those individuals have "pursued [their] periodic review claim[s] through all steps of the administrative review process." Id. at 16-17.*fn8

B. The Challenge to the Secretary's Decision

The three named plaintiffs in this case, Gale Tustin, Milton Ruiz, and Ismael Soto, had their disability benefits terminated by the Secretary pursuant to the periodic review procedure. Their individual appeals of the disability terminations were pending in the district court for the District of New Jersey at the time that the Secretary made her decision to restore disability benefits to persons with pending administrative disability determinations. These plaintiffs then brought this separate action in the same court on behalf of themselves and all other persons with appeals of disability determinations then pending in any United States district court. The plaintiffs sought a declaration that the Secretary's failure to rescind their terminations and to restore their benefits was a violation of the equal protection component of the due process clause of the fifth amendment;*fn9 they also sought injunctive relief.

After a hearing on the merits, the district court granted the plaintiffs request for a preliminary injunction. The court concluded that the Secretary based the classification on a "chimerical" distinction between disability recipients, and held that the "criterion . . . bears no rational relationship to a legitimate legislative goal." Tustin v. Heckler, 591 F. Supp. 1049, 1061 (D.N.J. 1984).

The court also certified a nationwide class pursuant to Fed. R. Civ. P. 23(b)(2). The court's order defined the class as:

all persons nationwide who have had their Social Security disability benefits terminated for reasons having to do with the evaluation of a medical condition pursuant to a periodic review conducted under Section 221(i)(l) of the Social Security Act and who presently have a claim appealing said termination pending in a United States District Court. Appendix at 68 (Order of July 12). According to the Secretary, there are between 9,000 and 11,250 members in this class. Brief for Appellant at 14 n.7.

After the district court issued its July 12 order, the Secretary moved for a stay. On July 24, 1984, the court granted the stay until September 4, 1984, "on the condition that [the Secretary] move for expedited disposition of the appeal." Appendix at 93. This court expedited the appeal that followed, and has continued the stay during its pendency.

We turn first to a discussion of the preliminary injunction. It is now settled law in this circuit that "reversal [of a decision on a preliminary injunction] is warranted if the trial court has abused its discretion or committed error in applying the law." Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1242 (3d Cir. 1983), cert dismissed, 464 U.S. 1033, 104 S. Ct. 690, 79 L. Ed. 2d 158 (1984); see also Rennie v. Klein, 653 F.2d 836, 840 (3d Cir. 1981) (in banc); Kennecott Corp. v. Smith, 637 F.2d 181, 187 (3d Cir. 1980). Because the preliminary injunction in this case rested on the district court's decision that the Secretary's classification was unconstitutional, a decision that did not turn on any factfinding, we consider here whether the district court committed an error of law. On questions of law, our scope of review is plenary. See Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir. 1981); St. Claire v. Cuyler, 634 F.2d 109, 116 n.9 (3d Cir. 1980).

II. THE DISTRICT COURT OPINION;

THE CONTENTIONS ON APPEAL

The district court concluded that the Secretary acted irrationally when she failed to rescind disability determinations and restore benefits to those who had received final administrative decisions and whose cases were pending in federal district courts. The court set out three principal reasons for this conclusion. Most important, the district court decided that the Secretary acted improperly when she distinguished among claimants on the basis of a "final" administrative determination. The court surveyed data supplied by the SSA and the Administrative Office of the United States Courts that indicated, first, that federal courts reversed directly or remanded to the SSA for additional proceedings over two-thirds of the SSA decisions before them and, second, that "vast" numbers of individuals who received adverse decisions challenged those decisions in court. See Tustin, 591 F. Supp. at 1059-61. Based on these data, the court reasoned that:

the proffered rationale for the distinction in the disputed ruling between those who have or have not obtained such a "final" decision is chimerical. The government is, in effect, discriminating among claimants to funds from the public treasury on the basis of a criterion which bears no rational relationship to a legitimate legislative goal.

The governmental interest in equitably and efficiently managing the disability program is not at all served by a distinction which grants temporary benefits to persons who have not heard the Secretary's last word on their claims to benefits but denies restoration to a group of claimants who have heard that word, but who will predictably end up proving that that last word was erroneous.

Id. at 1061.

Concomitantly, the district court found that because, once enacted and implemented, the legislative initiative that had promoted the Secretary's action "would affect plaintiffs to the same extent as it would affect those persons still within the administrative review process," her distinction between two groups during the pre-enactment period was irrational, as was the decision to "burden" courts "with making determinations the Secretary has determined not to make." Id.

Additionally, in light of the Secretary's participation in consent judgments that restored benefits to individuals in the same situation as the plaintiffs, the district court found that there was neither a "fair nor logical" reason why a final decision "should be given weight when no other decision within the administrative review process is any longer given any weight." Id.

The government argues that the Secretary acted reasonably because her changes in program administration reflected an important characteristic of a discrete group of recipients engaged in the review process. Specifically, the government contends that:

persons [with final administrative determinations] were not faced with the effect which the freeze on administrative processing of claims had on persons with pending administrative claims. Unlike persons with claims pending in the administrative process, persons with final administrative decisions have an avenue open to obtain reversal of an erroneous termination of benefits.

Appellant's Brief at 21.*fn10

Appellees rely primarily on the decision of the district court. They also argue that the Secretary's classification is irrational because "it gives weight to administrative decisions rendered under a standard attacked in several Courts of Appeals and abandoned by the Secretary at the administrative level." Appellees' Brief at 21. Finally, appellees challenge the classification because it does not provide relief to those "most in need of . . . relief in that they have been so long without benefits." Id.

III. RATIONALITY OF THE SECRETARY'S DECISION Although the equal protection component of the due process clause, see supra note 9, does not require that the government treat all persons alike, Tigner v. Texas, 310 U.S. 141, 147, 84 L. Ed. 1124, 60 S. Ct. 879 (1940), the equal protection requirements does ensure that, when the government distinguishes among individuals or groups, the distinctions must be sufficiently justified.*fn11 Since the watershed case of Dandridge v. Williams, 397 U.S. 471, 485, 25 L. Ed. 2d 491, 90 S. Ct. 1153 (1970), the Supreme Court has approached governmental classifications "in the area of economics and social welfare" with substantial deference: "a State does not violate the Equal Protection Clause merely because the classifications made by its laws are imperfect. If the classification has some "reasonable basis," it does not offend the Constitution simply because the classification "is not made with mathematical nicety or because in practice it results in some inequality." Id. (quoting Lindsley v. National Carbonic Gas Co., 220 U.S. 61, 78, 55 L. Ed. 369, 31 S. Ct. 337 (1911)). See also Schweiker v. Wilson, 450 U.S. 221, 230, 67 L. Ed. 2d 186, 101 S. Ct. 1074 (1981) (The government in social welfare legislation only needs to "classify the persons it affects in a manner rationally related to legitimate governmental objectives."). The narrow scope of judicial review inherent in the rational relation test has been considered necessary by the Supreme Court in order to ensure that the legislature has "substantial latitude to establish classifications that roughly approximate the nature of the problem perceived, that accommodate competing concerns both public and private, and that account for limitations on the practical ability of the State to remedy every ill." Plyler v. Doe, 457 U.S. 202, 216, 72 L. Ed. 2d 786, 102 S. Ct. 2382 (1982).

We recently applied this standard of review to the Pennsylvania welfare reform law, notwithstanding "the profound impact that [the law] will have on the lives of so many Pennsylvanians." Price v. Cohen, 715 F.2d 87, 96 (3d Cir. 1983).*fn12 The Price panel stated that it was reluctant to apply such a deferential standard, but that it felt fully bound by Supreme Court precedent. See Price, 715 F.2d at 96. Cf. Dandridge, 397 U.S. at 485 (concluding that the rational relation test, although developed in the context of economic regulation, should apply to "the administration of public welfare . . . [which] involves the most basic economic needs of impoverished human beings"). With this understanding of the limited judicial role in scrutinizing economic and social legislation, we turn to the classification at issue in this case.

It is clear that the Secretary acted rationally when she decided in April that widespread administrative problems and imminent legislative action justified some immediate change in the administration of the disability benefits program and that a suspension of periodic administrative reviews of disability determinations was necessary as a first step to reform the system. The propriety of this decision has never been at issue in this case.

It is clear that the Secretary acted rationally when she decided in April that widespread administrative problems and imminent legislative action justified some immediate change in the administration of the disability benefits program and that a suspension of periodic administrative reviews of disability determinations was necessary as a first step to reform the system. The propriety of this decision has never been at issue in this case.

Once the Secretary decided that a suspension of administrative review was warranted, she had to decide how to treat individuals who had periodic disability reviews pending in the administrative system or the courts. Plaintiffs do not argue that the Secretary's decision to rescind administrative determinations and to restore benefits for those individuals who lacked final agency decisions was standing alone, irrational. In fact, considering that these individuals had no statutory right of appeal to the courts because their administrative remedies had not been exhausted, see 42 U.S.C. § 405(g) (1982); see also id. § 405(b), one could argue persuasively that the Secretary's decision would have been unlawful had she not provided some relief for individuals with claims still pending in the administrative system at the time she suspended disability reviews.

We recognize that the Secretary might have waived the exhaustion requirement for those individuals whose administrative claims were pending, see Mathews v. Diaz, 426 U.S. 67, 76, 48 L. Ed. 2d 478, 96 S. Ct. 1883 (1976), but we conclude that her decision not to do so was rational in light of the important policies served by the exhaustion requirement. Exhaustion of administrative remedies ensures that the Secretary has a chance to develop fully her position in a case before she must defend that position in the courts, and that the judiciary has access to a detailed administrative record that will facilitate meaningful judicial review. Therefore, the Secretary could rationally have concluded that granting a general waiver would have placed an unwarranted burden on HHS and the courts.*fn13

Plaintiffs argue that the Secretary was irrational in not restoring benefits to all persons affected by the suspension of the periodic review program. This argument is unpersuasive. Unlike persons with claims subject to additional review in the administrative agency, persons with final administrative decisions have both the clear statutory right to appeal the disability determination in a federal district court and the well- developed record that makes the appeal meaningful. Once in the courts, these claimants may (or may not) win a remand for further proceedings, or an outright reversal of the Secretary that directs an award of benefits, see Podedworny v. Harris, 745 F.2d 210 (3d Cir. 1984). Although faced with the inconvenience and expense of further proceedings, such claimants may still recover benefits as a result of the judicial review provided by the statute. Given the narrow scope of review to which we must adhere, we cannot say that the Secretary acted irrationally when she decided that she would rescind administrative determinations and restore benefits only to those whose claims had not been finally resolved by the agency.*fn14

The Secretary acknowledges, as she must, that her policy has resulted in some inequity. See Appellant's Brief at 22-23.*fn15 We are unable, however, to overturn a governmental decision that results in inequity that is neither invidious nor irrational. See Schweiker v. Wilson, 450 U.S. 221, 234, 67 L. Ed. 2d 186, 101 S. Ct. 1074 (1981) ("In the area of economics and social welfare . . . if the classification has some "reasonable basis," it does not offend the Constitution simply because the classification is not made with mathematical nicety or because in practice it results in some inequity."); Price v. Cohen, 715 F.2d 87, 95 (3d Cir. 1983) ("We may not . . . reject common sense propositions relied on by the state because they are overbroad or underinclusive.").

In sum, we conclude that the Secretary's classification was rational because it reasonably reflected the importance of a final administrative decision under the statutory scheme.*fn16

IV. CERTIFICATION OF THE NATIONWIDE CLASS

In its July 12 order, the district court certified a class defined to include "all persons nationwide who have had their Social Security disability benefits terminated for reasons having to do with . . . a periodic review conducted under Section 221(i)(1) . . . and who presently have a claim appealing said termination pending in a United States District Court." Appendix at 68. The nationwide class was certified pursuant to Fed. R. Civ. P. 23(b)(2). Following normal 23(b)(2) practice, the district court provided for no notice to members of the class and no opportunity to opt out, despite the fact that some class members were named plaintiffs in other suits in the district courts. See Tustin, 591 F. Supp. at 1069.

The government argues with great force that the district court abused its discretion and committed legal error in certifying this class. Noting that the precise issue considered here is now being litigated in suits pending in various districts in six other circuits, see Appellant's Brief at 15 n.8, 17 n.11, the government contends that the principle of comity precludes the certification of this nationwide class because the class was defined without "sensitivity to ongoing litigation of the same issue in other districts." Califano v. Yamasaki, 442 U.S. 682, 703, 61 L. Ed. 2d 176, 99 S. Ct. 2545 (1979). The government contends that comity within the federal system counsels that a legal issue be litigated in a number of courts so that, if it is ever necessary for the Supreme Court to consider the question, all of the legal arguments will have been fully developed and the law on the subject will have matured. See id. at 701-02. In addition to this general contention, the government presents a number of specific problems to illustrate the hazards of certifying a class without sufficient attention to the principle of comity. These problems relate both to the status of a class member who is also a plaintiff in another pending case, and to how the district courts should proceed with these related cases. For example, are there any limits on the authority of some other district court to decide a plaintiff's disability claim on the merits? What happens to a class member whose identical constitutional claim is resolved in another court during the pendency of this action?

Appellees respond that the district court acted properly in certifying the nationwide class precisely because a decision that the Secretary's classification deprives any named plaintiff of the equal protection of the laws also necessarily decides the issue for all other persons with appeals of disability review determinations pending nationwide. In appellees' submission, a universal resolution of the issue is necessary not only to vindicate rights but to facilitate prompt Supreme Court review. They contend that the nationwide class does not interfere with the prior jurisdiction of district courts throughout the country, but simply prevents a deluge of adjudications of the identical legal issue. In appellees' view, the nationwide class is an important devide for controlling unnecessary and duplicative litigation because it allows for certain and final resolution of a discrete legal issue. Appellees also argue that the Supreme Court recognized the value of nationwide classes in social security litigation when it affirmed the class certification in Yamasaki, over the Secretary's objection that a nationwide class "forecloses reasoned consideration of the same issues by other federal courts."*fn17 Id. They acknowledge that the issue litigated here is also directly raised in other cases brought by class members, but they argue that no other class action has been certified.*fn18

Although we would like to be able to resolve this issue because the impact of the district court's decision is this case is so greatly magnified by its class action determination, we are prevented from doing so by a jurisdictional defect. In Kershner v. Mazurkiewicz, 670 F.2d 440, 449 (3d Cir. 1982) (in banc), this court considered the appeal of a district court order that denied both a preliminary injunction and class certification. See id. at 445. The court affirmed the denial of the injunction, but held that "a pendent class certification order is not appealable under section 1292(a)(1) unless the preliminary injunction issue cannot properly be decided without reference to the class certification question." Id. at 449 (footnote omitted). The court in Kershner specified that the requisite relationship is present only when the class certification issue "directly controls disposition of the [preliminary injunction issue], or [when] the issues are, in some other way, inextricably bound."*fn19 Id.

The instant case also presents an appeal from an order of the district court that disposed of requests for both a preliminary injunction and class certification. As in Kershner, see id. at 450, we do not find an inextricable linkage between the two decisions of the district court. In fact, the issues critical to a decision about the propriety of the class certification in this case are entirely separate from the legal issues upon which we focused in resolving the preliminary injunction issue. While the enormous practical impact that the certification of a nationwide class imparts to the district court's action might arguably furnish a basis for distinguishing Mazurkiewicz, we suspect that such a distinction might swallow up the Mazurkiewicz rule. Thus, we conclude that we have no jurisdiction to resolve the class certification issue in this case.

It is important to stress, however, that the district court has the authority to reconsider its certification of the nationwide class following remand. See Fed R. Civ. P. 23(c).*fn20 We are confident, given our resolution of plaintiffs' request for a preliminary injunction, that the district court will in fact engage in this re-evaluation.

V. CONCLUSION

We hold that the Secretary did not violate the equal protection component of the due process clause of the fifth amendment when she suspended the periodic review process but rescinded administrative determinations and restored benefits only for persons who had not yet received final administrative decisions. We conclude, therefore, that the district court erred as a matter of law when it found that the plaintiffs had made a showing of probable success on the merits. Accordingly, we vacate the preliminary injunction and remand the case for futher proceedings consistent with this opinion. Each side shall bear its own costs.


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