Case Name: Frank KUEHNER, Dorothy Burayak, Richard Burns, Alice Hetherington, Frank Jennings, Jr., Philip Fisher, Clinton Royal, Solomon Katz, Raymond Staniewicz, James N. McKeown, James Loughlin, Margaret Douglas, Lawrence Cook, Steven Sverdlow, Elaine Fleigelman and Riva Yanovskaya, on behalf of themselves and all others similarly situated, James McKeown and Riva Yanovskaya, on behalf of themselves and all others similarly situated, Appellants, v. Richard SCHWEIKER, Secretary, U.S. Department of Health and Human Services, John A. Svahn, Commissioner, Social Security Administration, Barry Stern, Secretary, Pa. Dept. of Labor & Industry, John Delpaine, Director, Pa. Disability Determination Bureau
Court: United States Court of Appeals for the Third Circuit
Jurisdiction: United States
Decision Date: 1983-09-19
Citations: 717 F.2d 813
Docket Number: No. 82-1514
Parties: Frank KUEHNER, Dorothy Burayak, Richard Burns, Alice Hetherington, Frank Jennings, Jr., Philip Fisher, Clinton Royal, Solomon Katz, Raymond Staniewicz, James N. McKeown, James Loughlin, Margaret Douglas, Lawrence Cook, Steven Sverdlow, Elaine Fleigelman and Riva Yanovskaya, on behalf of themselves and all others similarly situated, James McKeown and Riva Yanovskaya, on behalf of themselves and all others similarly situated, Appellants, v. Richard SCHWEIKER, Secretary, U.S. Department of Health and Human Services, John A. Svahn, Commissioner, Social Security Administration, Barry Stern, Secretary, Pa. Dept. of Labor & Industry, John Delpaine, Director, Pa. Disability Determination Bureau.
Judges: Before GIBBONS and BECKER, Circuit Judges, and WEBER, District Judge.
Reporter: Federal Reporter 2d Series
Volume: 717
Pages: 813–828

Head Matter:
Frank KUEHNER, Dorothy Burayak, Richard Burns, Alice Hetherington, Frank Jennings, Jr., Philip Fisher, Clinton Royal, Solomon Katz, Raymond Staniewicz, James N. McKeown, James Loughlin, Margaret Douglas, Lawrence Cook, Steven Sverdlow, Elaine Fleigelman and Riva Yanovskaya, on behalf of themselves and all others similarly situated, James McKeown and Riva Yanovskaya, on behalf of themselves and all others similarly situated, Appellants, v. Richard SCHWEIKER, Secretary, U.S. Department of Health and Human Services, John A. Svahn, Commissioner, Social Security Administration, Barry Stern, Secretary, Pa. Dept. of Labor & Industry, John Delpaine, Director, Pa. Disability Determination Bureau.
No. 82-1514.
United States Court of Appeals, Third Circuit.
Argued June 1, 1983.
Decided Sept. 19, 1983.
Rehearing and Rehearing En Banc Denied Nov. 28, 1983.
Jonathan M. Stein (argued), James M. Lafferty, Richard P. Weishaupt, Community Legal Services, Inc., Philadelphia, Pa., for appellants.
J. Paul McGrath, Asst. Atty. Gen., Washington, D.C., Peter F. Vaira, Jr., U.S. Atty., Philadelphia, Pa., William Kanter, Nicholas S.Zeppos (argued), Attorneys, Appellate Staff, Civil Div., Washington, D.C., for ap-pellee.
Before GIBBONS and BECKER, Circuit Judges, and WEBER, District Judge.
Hon. Gerald J. Weber, United States District Judge for the Western District of Pennsylvania, sitting by designation.

Opinion:
OPINION OF THE COURT
GIBBONS, Circuit Judge.
The plaintiffs, former recipients of Social Security disability benefits, appeal from an order dismissing their class action complaint for lack of subject matter jurisdiction. The defendants are Richard Schweiker, Secretary of Health and Human Services, John A. Svahn, Commissioner, Social Security Administration (the federal defendants), Barry Stern, Secretary, Pennsylvania Department of Labor and Industry, and John Delpaine, Director, Pennsylvania Disability Determination Bureau (the state defendants). The defendants administer Titles II and XV of the Social Security Act. 42 U.S.C. § 401 et seq. (Supp. V 1981). The complaint challenges methods employed by the defendants in determining that disability payments should be terminated. In that process the state defendants participate on behalf of the Social Security Administration, and their actions are subject to review by that Administration. We hold that the trial court, 547 F.Supp. 49, erred in dismissing the complaint for lack of jurisdiction, and we reverse.
I
Each of the sixteen named plaintiffs is a former recipient of disability benefits who has been notified that those benefits have been or are about to be terminated, and each has presented a claim to a state or federal agency for continued benefits. The complaint alleges that, motivated by the goal of reducing disability benefits payments for the fiscal year 1982 and thereafter, the federal defendants adopted policies, implemented by the state defendants, which have resulted in high volume review of continued eligibility. It alleges further that the high volume review process has or will soon affect over 250,000 class members in Pennsylvania who have previously properly been determined to be eligible for such benefits. It alleges, moreover, that the high volume review process which the defendants have implemented (1) fails to ascertain whether there has been any substantial medical improvement in the disabled person's disabling condition, (2) faife to give any presumptive effect to the prior disability determination, (3) results in cessation of disability benefits despite lack of medical evidence in the record justifying that action, (4) ignores or fails to weigh treating physician evidence, and (5) ignores vocational factors, the effects of combined impairments, and the effects of disabling pain. These defects are alleged to be fixed policies applicable to all disability benefit recipients. The complaint alleges, further, that many of the class members suffer from mental illness or disabilities which make it unlikely that they will appreciate the steps which they may have to take to obtain review of initial termination decisions, that many others will be subject to medical risk by the termination of treatment resulting from termination of medicare benefits, and that most class members rely on their disability payments for the necessities of life. These and similar allegations are relied upon as likely to cause immediate and irreparable harm. The complaint charges that the high volume review process involving the five deficiencies alleged is illegal in several respects. These fixed policies are said to violate the Social Security Act, as interpreted by this court, and to deprive class members of benefits to which they are entitled without due process of law. For purposes of a Rule 12(b)(1) motion we must assume that the factual allegations are true.
For relief the plaintiffs seek a declaratory judgment that defendants are erroneously and illegally terminating or threatening to terminate class members receipt of disability benefits by failing:
a. to determine whether substantial medical improvement has occurred;
b. to allow presumptive effect to prior determinations of disability;
c. to develop fully and to accord appropriate weight to evidence from treating physicians; and
d. to follow a proper sequential disability evaluation process, including consideration of medical evidence, combi nation of impairments, pain, and residual functional capacity.
Injunctive relief against such illegality is sought as well.
II
The Social Security Administration does not before this court contend that the fixed policies alleged in the complaint are consistent with interpretations of the Social Security Act made by this court and others. Indeed at oral argument the Justice Department attorney appearing for the defendants conceded that the Social Security Administration pursues, with respect to certain rulings by courts of appeals, a policy of nonac-quiescence. The Social Security Administration has, for example, adopted such a policy with respect to an April 16, 1981 decision of the United States Court of Appeals for the Ninth Circuit holding that disability benefits could not be terminated unless it showed that there was a material improvement in the claimant's medical condition. Memorandum of February 23, 1982 From Associate Commissioner Office of Hearings and Appeals to all Components of the Social Security Administration. App. at 43a. The Social Security Administration does contend that by virtue of 42 U.S.C. § 405(h) (1976) the district court lacks subject matter jurisdiction to consider its policies either in a suit against the federal defendants or in a suit against the state defendants. And, implicitly at least, the defendants contend that 42 U.S.C. § 405(g) (1976) controls even with respect to challenges to fixed agency policies which violate due process.
III
The district court held that it lacked subject matter jurisdiction to entertain the complaint against either the state or the federal defendants.
A. The State Defendants
The complaint alleges jurisdiction over the state defendants by virtue of 28 U.S.C. § 1343(a)(3) (Supp. V 1981) because of constitutional violations. The court ruled that because the state defendants were administering a federal program they were acting under color of federal law, and thus that there was no jurisdiction under that statute. The court's observation is arguably correct, but irrelevant. Reading the complaint as charging that state officers, acting under color of federal law, deprived the class members of property interests to which the Social Security Act entitled them, either in violation of the due process clause or in violation of the Social Security Act, states a claim arising under the Constitution or laws of the United States. As the trial court construed the complaint against the state officers, therefore, there was jurisdiction to consider it without regard to jurisdictional amount. 28 U.S.C. § 1331 (Supp. V 1981). Moreover, Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975), holding that 42 U.S.C. § 405(h) eliminates section 1331 jurisdiction over suits against the Social Security Administration to recover on any claim arising under the Social Security Act, is not controlling. Section 405(h) refers only to actions against "the United States, the Secretary, or any officer or employee thereof." It cannot be construed as a limitation of state court jurisdiction over suits against state officers, or as a limitation of the general jurisdictional grant in section 1331 except as specified.
We recognize that the jurisdictional reference in the complaint, while mentioning section 1331, relied specifically on 28 U.S.C. § 1343 (Supp. V 1981) for jurisdiction over the state defendants. However, the complaint, as construed by the district court, alleges claims against state officers arising under the Constitution and laws of the United States, and we are instructed by 28 U.S.C. § 1653 (1976) that "[defective allegations of jurisdiction may be amended, upon terms, in the trial or appellate courts." The Justice Department is appearing for all defendants, and we can conceive of no prejudice to the state defendants from looking to the allegations of the complaint in order to determine subject matter jurisdiction. See Ellis v. Blum, 643 F.2d 68, 75-76 (2d Cir.1981) (section 1331 provides basis for jurisdiction over state defendants in Social Security Act litigation even though not pleaded).
Thus we hold that the court erred in holding that it lacked subject matter jurisdiction over the suit against the state defendants. Whether the complaint states a claim against them upon which declaratory and injunctive relief may be granted against them in the absence of the federal defendants is a separate question. Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946). It is not a question we need address on this appeal, however, for as indicated below the federal defendants were properly joined in the district court.
B. The Federal Defendants
For subject matter jurisdiction as to the federal defendants the complaint relied upon 42 U.S.C. § 405(g) and 1383(c), on 28 U.S.C. § 1361, and on 28 U.S.C. § 1331. The district court rejected each basis of jurisdiction. We consider them separately.
42 U.S.C. § 405(g) and 1383(c)
Section 405(g) provides for judicial review of decisions of the Secretary made after a hearing, in a civil action in a United States District Court. The trial court held that each named plaintiff and each class member must finally exhaust all administrative remedies before a complaint on his behalf for judicial review could be entertained. In so ruling the court failed to take into account this court's decision in Liberty Alliance of the Blind v. Califano, 568 F.2d 333 (3d Cir.1977). In that case we held that section 405(g) permitted class actions on behalf of Supplemental Security Income recipients whose benefits have been reduced or terminated. We wrote:
In order for a district court properly to entertain an action under § 405(g), two conditions must be satisfied. First, a claim for benefits must have been presented to the Secretary. Second, there must have been a final decision after a hearing. The Supreme Court has held, however, that only the first condition is a mandatory requirement. The second' — the requirement that the claimant exhaust his administrative remedies — can be waived either by the Secretary, Mathews v. Diaz, 426 U.S. 67, 76, 96 S.Ct. 1883 [1889] 48 L.Ed.2d 478 (1976), or, under certain circumstances, by the court on its own determination, Mathews v. Eldridge, 424 U.S. 319 [96 S.Ct. 893, 47 L.Ed.2d 18] (1976).
568 F.2d at 344. We held that the plaintiffs in Liberty Alliance had met the first, non-waivable condition, because all the claimants were benefit recipients whose benefits had been reduced or terminated. Id. That holding is controlling in this case with respect to the first, non-waivable condition, for the plaintiffs and the class they seek to represent are identically situated.
Liberty Alliance also addressed the Social Security Administration's contention that the holding in Mathews v. Eldridge, 424 U.S. 319, 328 [96 S.Ct. 893, 899, 47 L.Ed.2d 18] (1976), was limited to challenges to agency action on constitutional grounds. We wrote:
[Weinberger v.] Salfi [422 U.S. 749 [95 S.Ct. 2457, 45 L.Ed.2d 522] (1975)] teaches us that if the legal issue is constitutional, since the administrative agency cannot decide that issue, no exhaustion is required. 422 U.S. at 765, 95 S.Ct. 2457.... Where the legal issue is statutory, however, the agency does have authority to decide it, subject of course to judicial review. The test for exhaustion of a statutory issue in an individual case, we believe, should be whether the Secretary has taken a final position on that issue. In the class context the test should be no different.
568 F.2d at 345-46. Thus Liberty Alliance settles two points. There is no § 405(g) exhaustion requirement for constitutional issues, and for statutory issues the court may waive exhaustion if the Secretary has taken a final position on them.
Here the plaintiffs present both constitutional and statutory issues. Moreover the complaint alleges, and at this stage we must accept the allegation as true, that the challenged policies represent fixed positions of the Social Security Administration. Thus the complaint falls squarely within the Liberty Alliance holding.
While the trial court simply ignored Liberty Alliance, the Justice Department brief attempts to distinguish it on the ground that with respect to one named plaintiff, Mrs. Carney, the claim had been exhausted at the highest administrative level. Appel-lee's Brief at 25. The reference, however, to a single exhausted claim, is taken entirely out of context. The Liberty Alliance opinion points to the Secretary's decision in Mrs. Carney's case, not as satisfying the exhaustion requirement for the entire class, but as evidence of the fact that the Secretary had taken a final position on the legal issue. Fairly read, the complaint alleges that the Social Security Administration's position on the challenged procedures is final. The government has filed no affidavit to the contrary. The nonacquiescence memorandum of February 23, 1982 referred to above suggests rather strongly that the plaintiffs will be able to prove the allegation. But in any event, for purposes of this Fed.R.Civ.P. 12(b)(1) ruling the allegation in the complaint controls and puts the case squarely within Liberty Alliance.
Although the Justice Department brief makes the rather lame attempt to distinguish Liberty Alliance referred to above, its real thrust is that the Secretary does not acquiesce in that holding. The Brief urges that Mathews v. Eldridge permits judicial waiver of exhaustion only with respect to constitutional issues which are "entirely collateral" to individual claims. Essentially the same argument was rejected by this court in Liberty Alliance, and for good reasons. There we noted:
The sensible construction of § 405(g) in Salfi, Eldridge, and Diaz accommodates the sometimes competing needs of the administrative process for time to arrive at a mature judgment on often complex legal issues, of the judicial process for avoidance of multiple applications for judicial review, and of similarly situated benefit applicants for the avoidance of futile administrative delays in the determination of their benefits.
568 F.2d at 346. Each of the policy considerations adverted to in the quoted passage from Liberty Alliance is fully applicable here. Indeed, if the allegations of the instant complaint are proved, the policy arguments in favor of classwide relief are even stronger, for the plaintiffs in effect charge that the Social Security Administration has for budgetary reasons instructed those responsible for termination adjudications to disregard definitive interpretations of the Act made by the courts.
In any event, while the Secretary may feel free to express nonacquiescence in Liberty Alliance or any other construction of the Social Security Act announced by this court, the rules under which we operate do not afford any such leeway. This panel is, and the district court was, bound by Liberty Alliance unless the court in banc should choose to overrule it. Since Liberty Alliance was followed in Mattern v. Mathews, 582 F.2d 248, 249, 252-53 (3d Cir.1978), cert. denied, 443 U.S. 912, 99 S.Ct. 3101, 61 L.Ed.2d 876 (1979), and in Town Court Nursing Center v. Beal, 586 F.2d 266, 275 (3d Cir.1978) (in banc), an in banc overruling seems unlikely. The fact that other federal courts have followed the Liberty Alliance section 405(g) interpretation suggests a broad consensus. See Wright v. Califano, 587 F.2d 345, 349 (7th Cir.1978); Jones v. Califano, 576 F.2d 12, 19 (2d Cir.1978); Caswell v. Califano, 583 F.2d 9, 13 (1st Cir.1978); Kennedy v. Harris, 87 F.R.D. 372, 375 (S.D.Cal.1980); Adams v. Califano, 474 F.Supp. 974, 982 (D.Md.1979); Fitzgerald v. Schweiker, 538 F.Supp. 992, 997-98 (D.Md.1982).
Thus we hold that the trial court erred when it disregarded the controlling Liberty Alliance precedent and dismissed the com plaint for lack of subject matter jurisdiction.
28 U.S.C. § 1361
In the district court the plaintiffs also asserted jurisdiction under the federal mandamus statute, 28 U.S.C. § 1361 (1976). The trial court, although citing in another context Judge Friendly's opinion in Ellis v. Blum, 643 F.2d 68 (2d Cir.1981), summarily rejected that basis for jurisdiction. In Ellis v. Blum, like this a challenge to an administrative action fey the Social Security Administration, Judge Friendly carefully analyzes the scope of district court jurisdiction under 28 U.S.C. § 1361 to afford class-wide relief with respect to defective procedures. He holds that 42 U.S.C. § 405(h) does not affect the district court's jurisdiction under section 1361. 643 F.2d at 82. We need not repeat here Judge Friendly's typically thorough and careful analysis. We only note that the Ellis v. Blum holding was anticipated in this court by our holding in Mattern v. Weinberger, 519 F.2d 150, 156-57 (3d Cir.1975), vacated and remanded on other grounds, Mathews v. Mattern, 425 U.S. 987, 96 S.Ct. 2196, 48 L.Ed.2d 812 (1976), that 28 U.S.C. § 1361 affords jurisdiction in a class action challenging the validity of recoupment procedures adopted by the Social Security Administration for the recovery of overpayments.
Thus the trial court erred as well in disregarding the Mattern v. Weinberger precedent and refusing to entertain the plaintiff's action under 28 U.S.C. § 1361.
§ 1331
Since we have already identified two separate statutes affording subject matter jurisdiction over plaintiffs' lawsuit against the federal defendants, there is no need to address the question whether, despite 42 U.S.C. § 405(h), 28 U.S.C. § 1331 provides subject matter jurisdiction for declaratory and injunctive relief with respect to procedures as distinguished from collection of benefits. But see St. Louis University Hospital v. Blue Cross Hospital Services, 537 F.2d 283, 291-92 (8th Cir.), cert. denied, 429 U.S. 977, 97 S.Ct. 484, 50 L.Ed.2d 584 (1976).
IV
Since there was subject matter jurisdiction over the claim against the state defendants under 28 U.S.C. § 1331 and subject matter jurisdiction over the federal defendants both under 42 U.S.C. § 405(g) and under 28 U.S.C. § 1361, the judgment dismissing the complaint for lack of subject matter jurisdiction will be reversed.
. Since the elimination of jurisdictional amount in 28 U.S.C. § 1331 the jurisdictional grant in 28 U.S.C. § 1343 appears to have little practical utility.
. Judge Weis has commented perceptively upon the costs resulting from the practice of federal agency nonacquiescence in decisions of the courts of appeals. See Goodman's Furniture Co. v. United States Postal Serv., 561 F.2d 462, 465-66 (3d Cir.1977) (Weis, J., concurring).