Mario Lopez v. Margaret M. Heckler, Secretary of Health and Human Services

Citations: 713 F.2d 1432; 1983 U.S. App. LEXIS 24563; 2 Soc. Serv. Rev. 395Docket: 83-6126

Court: Court of Appeals for the Ninth Circuit; August 24, 1983; Federal Appellate Court

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The Secretary of Health and Human Services sought a partial stay pending appeal of a preliminary injunction from the U.S. District Court for the Central District of California, which mandated the restoration of Social Security disability benefits for a significant number of recipients, estimated between 28,000 and 78,000 individuals. The Ninth Circuit Court, consisting of Judges Pregerson, Boochever, and Reinhardt, denied the request for a stay, allowing the injunction to remain in effect.

The underlying case is a class action challenging the Secretary's policies for terminating disability benefits, specifically alleging that these procedures contravene prior Ninth Circuit rulings (Patti v. Schweiker and Finnegan v. Matthews) which establish that the Secretary must provide evidence of improved medical conditions before benefits can be terminated. The district court found that the Social Security Administration had drastically increased its review rate, resulting in a doubling of annual benefit terminations from 98,000 in fiscal year 1981 to 195,474 in fiscal year 1982.

Plaintiffs argue that the Secretary's refusal to adhere to the court's prior rulings constitutes a violation of the separation of powers, stare decisis, and their constitutional rights to due process and equal protection. The Secretary's policy of terminating benefits irrespective of any medical improvement contradicts the legal precedents set by the Ninth Circuit.

On June 16, 1983, Senior District Judge William P. Gray issued a preliminary injunction that prevented the Secretary from ignoring certain precedential cases (Finnegan and Patti) and from enforcing a nonacquiescence policy outlined in specific Social Security Rulings. The government did not seek to stay these components but requested a stay on a portion requiring notification to individuals who had their Supplemental Security Income Disability benefits terminated after specified dates, allowing them to apply for reinstatement. The injunction mandated that upon application, benefits should be reinstated to the amounts previously received, and any subsequent disability investigations must adhere to the standards established in the referenced cases, with opportunities for individuals to contest determinations of benefit cessation.

The Secretary filed an emergency motion for a stay on August 11, 1983, shortly before the notification deadline of August 15. The court denied this request, stating that the immediate obligation to notify recipients was the only urgent matter, and the financial implications of reinstating benefits would not arise until individuals began reapplying. On August 15, the Secretary complied with the notification requirement for 28,557 affected individuals. The key issue now before the court is whether the Secretary must continue to comply with the remaining requirements of the injunction regarding the reinstatement of benefits and adherence to the established procedures during the appeal process.

The standard for evaluating stays pending appeal mirrors that used for granting preliminary injunctions, involving two interrelated legal tests along a continuum. At one end, the moving party must show a probability of success on the merits and the possibility of irreparable injury; at the other end, they must demonstrate serious legal questions and a significant imbalance in hardships. The relative hardship faced by the parties is crucial in determining the justification for a stay, with public interest also being a significant consideration.

In this case, the Secretary is seeking a stay pending appeal of a preliminary injunction, requiring an evaluation of her arguments against the district court's decision. Generally, a lower court's order on a preliminary injunction is reversed only if there is an abuse of discretion or an error in legal premises.

The Secretary argues that the government faces substantial hardship without a stay, citing financial and administrative costs associated with reinstating disability benefits for 28,557 former recipients, estimating a monthly cost of $12 million for potential claims and $10.3 million in administrative costs. However, despite acknowledging some burden on the government, the court finds that the balance of hardships strongly favors the plaintiffs. The plaintiffs' evidence of physical and emotional suffering due to loss of benefits outweighs the government's financial concerns. The court supports the district court's conclusion that the hardships faced by the plaintiffs, including deprivation of necessities and severe health impacts, present a more compelling case than the government's administrative inconveniences. Thus, the balance of hardships decisively favors the plaintiffs.

The plaintiffs' class consists largely of infirm and disabled individuals with limited resources and life spans, making the deprivation of benefits pending trial particularly harmful. Such deprivation could lead to severe economic distress, suffering, or even death, and retroactive restoration of benefits would not adequately address these issues. Judge Gray concurred that retroactive relief would be insufficient and potentially too late to fulfill the purpose of Social Security disability benefits, which is to provide a minimum standard of living for the poor and disabled. The argument that delayed financial compensation mitigates hardship is rejected, as claimants often face dire financial situations while awaiting benefits. The harms suffered by class members due to denied or terminated benefits cannot be remedied through retroactive awards.

Additionally, the public interest is closely linked to the hardships experienced by the litigants. While the government's interest has been viewed narrowly in terms of administrative and financial implications, a broader perspective reveals that the government must also consider the welfare of society. Neglecting the needs of the poor, hungry, and disabled affects societal well-being, and fair procedures must be afforded to all, even if it involves government expenditure. The wrongful deprivation of essential benefits to vulnerable populations would be detrimental, while any potential inability of the government to recoup funds after overturning the preliminary injunction would be less harmful to society.

The balance of hardships favors the plaintiffs significantly, especially when considering public interest. The Secretary's arguments against the preliminary injunction lack persuasiveness. The defense of 'nonacquiescence' to federal court decisions is rejected by various circuit courts, indicating a low likelihood of success for the Secretary in this defense. Furthermore, any decisions made by the Secretary based on nonacquiescence will likely be dismissed if challenged in this circuit. 

The Secretary's main contention revolves around the district court's jurisdiction over certain plaintiffs, which is based on 42 U.S.C. 405(g). To meet the requirements of this statute, plaintiffs must demonstrate that they presented a claim for benefits to the Secretary and that a final decision was made. The Secretary's claim that jurisdiction does not exist for some plaintiffs is countered by substantial authority suggesting that once the Secretary has acted and benefits were terminated, the claim is satisfied. Additionally, the final decision requirement may be waived or excused by the Secretary or the court. Some plaintiffs have exhausted administrative remedies and received final decisions, confirming their standing in the district court.

The district court determined that the plaintiffs' failure to exhaust administrative remedies was justified due to the Secretary's nonacquiescence policy, which made such efforts futile. This decision is supported by precedents, including *Weinberger v. Salfi* and *Ringer v. Schweiker*. The court recognized that constitutional challenges to nonacquiescence policies warrant waiving the exhaustion requirement, as established by the Second Circuit in *Jones v. Califano*. It is deemed unrealistic to expect the Secretary to reconsider the administrative review process based on a single recipient's constitutional challenge. Additionally, the Third Circuit's ruling in *Liberty Alliance for the Blind v. Califano* allows for waiving the exhaustion requirement when the Secretary has taken a definitive stance on an issue.

The district court also highlighted the inequity of the dual benefit review system created by the Secretary's policy, which imposes disparate standards on claimants based on their ability to navigate the administrative process. This situation disproportionately affects individuals with limited resources and health, making it prejudicial. The court noted that the exhaustion requirement under section 405(g) must be satisfied within 60 days of the Secretary's final decision; however, this requirement can be waived, and there was no indication that the Secretary raised this issue in the district court. Generally, the res judicata effect of unchallenged decisions does not apply when constitutional issues are involved, as noted in *Califano v. Sanders*.

The Second Circuit dismissed a class action complaint regarding the termination of disability benefits due to lack of jurisdiction, as seen in Smith v. Schweiker. The plaintiffs contended that medical evidence was necessary for termination, but all named individuals had appealed their terminations and were receiving benefits during the litigation. Additionally, the case did not raise any constitutional challenges like those in the current case. Although the government may find some comfort in the analysis from Smith, it is unlikely to significantly influence the current issues.

The Secretary's arguments regarding the probability of success on the merits of her appeal from a preliminary injunction were deemed weak. The court determined that the balance of hardships favored the plaintiffs and that the public interest also opposed granting a stay. Consequently, the request for a partial stay was denied.

Judge Pregerson concurred with the decision but expressed concern over the Secretary's policy of nonacquiescence to Ninth Circuit law, comparing it to the pre-Civil War doctrine of nullification. He emphasized the importance of adherence to the law and judicial supremacy. The district court had certified a class of Supplemental Security Income and Social Security Disability Insurance recipients in the Ninth Circuit who faced termination considerations based on the cessation of disability after specific dates.

In 1980, 185,639 Continuing Disability Investigations (CDIs) were conducted, increasing to 435,262 in fiscal year 1982. The Secretary did not appeal decisions in the cases of Patti or Finnegan, but the affected individuals received the relief mandated by the court. Cost estimates provided by the Secretary in an amended declaration on August 17, 1983, were significantly lower than previous estimates, which projected monthly benefit reinstatement costs at $32 million and total administrative costs at $28 million. The district court found no evidence that these costs would jeopardize the disability insurance trust fund or that the government's hardships outweighed the plaintiffs'. 

Critically, the Secretary's claims of financial harm were viewed as exaggerated. Increased administrative workload from hearings would only arise in cases where evidence of improved medical conditions supported benefit terminations. Evidence indicated that the disability insurance trust fund was solvent, contradicting the government's claims. Additionally, the Secretary's estimates neglected the increased financial burden on state and local taxpayers due to benefit terminations, with studies showing significant numbers of terminated Supplemental Security Income recipients becoming reliant on state-funded welfare programs. For instance, New York state projected an annual cost increase of $234 million in welfare and $165 million in mental health care due to these terminations. 

The court highlighted that merely shifting financial responsibility from federal to state and local governments does not serve the public interest. There was also mention of the government's right to recover erroneously paid benefits, contingent on the preliminary injunction, although this was deemed more illusory than practical.

The Secretary argues that her nonacquiescence rulings, issued after the Patti and Finnegan decisions, should be treated as superseding regulations. However, those decisions were not based on specific Health and Human Services regulations, making it unlikely that the Secretary will succeed in this argument. Additionally, there are alternative bases for the district court's jurisdiction beyond 405(g), specifically 28 U.S.C. § 1361, which allows for mandamus actions to compel U.S. officials to perform duties owed to plaintiffs. The district court has previously recognized § 1361 as a valid ground for jurisdiction in cases involving constitutional challenges, as seen in Leschniok v. Heckler. The plaintiffs argue that due to the Secretary's noncompliance with prior rulings, mandamus is warranted since their claim is clear and the officer's duty is unequivocal. They also assert that § 1361 jurisdiction is appropriate because their challenge pertains to procedural issues rather than direct benefits.

The district judge found jurisdiction under 405(g) and did not address the § 1361 issue. In Jones, the Second Circuit ruled that claimants could bypass exhaustion requirements when the Secretary refused to amend a disapproved regulation, allowing for a review of class-wide relief to prevent disparate standards for benefit calculations. Lastly, the Secretary's contention that the district court's preliminary injunction grants retroactive relief to the plaintiffs is rejected; the court clarified that it has not awarded retroactive benefits and that such relief is not appropriate at this stage given the ongoing litigation and absence of a request from the plaintiffs.