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Welch v. Heckler

argued: December 4, 1986.

WELCH, ALMON E.
v.
HECKLER, MARGARET, SECRETARY OF HEALTH AND HUMAN SERVICES; SECRETARY OF HEALTH & HUMAN SERVICES, APPELLANT



On Appeal from the United States District Court for the Middle District of Pennsylvania (Scranton) D.C. Civil No. 84-1445.

Author: Hunter

Opinion OF THE COURT

HUNTER, Circuit Judge:

1. Appellee Almon E. Welch applied for disability benefits on June 25, 1982. The Secretary denied these benefits to Welch both initially and on reconsideration. Welch requested and was granted a hearing before an Administrative Law Judge ("ALJ"). After a den novo consideration of the case, the ALJ ruled on June 14, 1984 that Welch was disabled within the meaning of the Act. On August 11, 1983, the Appeals Council notified Welch that, pursuant to 20 C.F.R. §§ 404.969 and 404.970 (1986), it had decided on its own motion to review the ALJ's decision. After a de novo review of the record (including additional evidence submitted by Welch), the Appeals Council ruled on August 29, 1984 that Welch was not disabled within the meaning of the Act, thereby reversing the ALJ. The decision of the Appeals Council became the final decision of the Secretary. Welch then brought this action in United States District Court for the Middle District of Pennsylvania under 42 U.S.C. § 1383(c)(3) (1983), incorporating by reference 42 U.S.C. § 405(g) (1983), to review the final determination by the Secretary. The case was submitted on cross motions for summary judgment. On March 18, 1986, the Magistrate issued a report recommending that the Secretary's motion for summary judgment be denied and that Welch's motion be granted. The district court adopted the Magistrate's report, and on April 16, 1986, granted Welch's motion for summary judgment, thereby affirming the ALJ and reversing the Appeals Council. This appeal followed.

2. We are called upon in this case to determine whether "the findings of the Secretary [are] . . . supported by substantial evidence." 42 U.S.C. § 405(g). Before examining the administrative record to determine whether the Secretary's decisions supported by substantial evidence, we must resolve two threshold questions. First, we must determine whether the Secretary is barred from seeking appellate review due to his failure to raise objections to the magistrate's report within the prescribed time period. Second, we must determine whether, when the ALJ and Appeals Council are in conflict, 42 U.S.C. § 405(g) directs us to review the ALJ's decision or the Appeals Council's decision for substantial evidence.

3. The following "Notice" was attached to the magistrate's report:

Any party may object to the report and recommendation within fifteen (15) days from the date of this notice by filing with the Clerk written exceptions setting forth in full the basis of the exceptions. The exceptions may be accompanied by a memorandum or brief in support thereof.

The filing of exceptions is not required and, if exceptions are not filed, it will be considered that the party or parties intend to rely on the arguments made in the briefs previously filed.

Appellee Welch argues that, by the terms of this notice, the Secretary waived his right to object to the magistrate's findings by not filing exceptions with the magistrate in the first instance. We will not hold that the secretary has waived his right to object to the magistrate's findings because, under the plain language of the magistrate's notice, the filing of exceptions was permissive, not mandatory. While it is within the power of this appellate court to condition the taking of an appeal in these circumstances upon a timely filing of objections, see Thomas v. Arn, 474 U.S. 140, 106 S. Ct. 466, 471, 88 L. Ed. 2d 435 (1985), we find that it would be inappropriate to do so in this case, where the language of the magistrate's report did not put the Secretary on notice that he would be waiving his appellate rights by not filing objections below. Cf. Thomas v. Arn, 106 S. Ct. at 469 (magistrate's report stated that "ANY OBJECTIONS . . . must be filed . . . within ten (10) days. . . . Failure to file objections within the specified time waives the right to appeal the District Court's order.").*fn1

4. The second threshold question we must resolve involves the scope of our review of disability claims under the Social Security Act. Under 42 U.S.C. § 405(g), the federal courts are empowered to review "any final decision of the Secretary," to determine whether the Secretary's factual findings are supported by "substantial evidence." In most disability cases, we review the decision of the ALJ, as approved by the Appeals Council, to determine whether it is supported by substantial evidence. In the present case, the Appeals Council, on its own motion, understood a de novo review of appellee's case and reversed the ALJ. Thus, we must determine whether, when the ALJ and Appeals Council disagree, it is the decision of the ALJ or the decision of the Appeals Council that must be evaluated under the "substantial evidence" standard. We conclude that, because the regulations clearly designate the Appeals Council as the final administrative arbiter of all disability claims, see 20 C.F.R. § 404.981 (1986), it is the Council's decision that is the "final decision" of the Secretary, and is thus the decision that must be reviewed by us under the substantial evidence standard. Under the regulations, the Secretary has delegated his authority to make "final decisions" to the Appeals Council. Thus, the ALJ's decision does not become "final" and eligible for judicial review until the Appeals Council has in some way approved that decision. Clearly then, a decision that is expressly disapproved by the Appeals Council cannot be deemed a "final decision" by the Secretary.

5. Appellee Welch argues that, in his case, the Appeals Council's decision is not entitled to deferential judicial review as a "final decision," because the Council's de novo review of his application for disability benefits was not authorized by the applicable regulations. Pursuant to 20 C.F.R. § 404.969, "anytime within 60 days after the date of a hearing decision or dismissal, the Appeals Council itself may decide to review the action that was taken." Welch argues that § 404.969 is modified by 20 C.F.R. § 404.970(a), which provides that

The Appeals Council will review a case if --

(1) There appears to be an abuse of discretion by the ...


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