Opinion ID: 658774
Heading Depth: 2
Heading Rank: 1

Heading: Waiver: SLCAP's Failure to Contest the DAB's Jurisdiction Before the Agency

Text: 14 HHS argues that because SLCAP failed to contest the DAB's jurisdiction before the agency itself, SLCAP waived that objection and should have been barred from arguing to the District Court that it was entitled to a full and fair hearing pursuant to 42 U.S.C. Sec. 9841(a)(3). SLCAP's response is twofold. First, SLCAP argues that because the DAB has limited jurisdiction, it would have been futile for SLCAP to have raised claims going to the validity or constitutionality of HHS' cost regulations. Alternatively, SLCAP urges that the exception to the exhaustion rule recognized in Railroad Yardmasters of America v. Harris, 721 F.2d 1332, 1338 (D.C.Cir.1983), applies here. We reject both of these arguments. 15 We start from the well-settled premise that objections to agency proceedings must be presented to the agency in order to raise issues reviewable by the courts. United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37, 73 S.Ct. 67, 69, 97 L.Ed. 54 (1952); see also Foundation on Economic Trends v. Heckler, 756 F.2d 143, 156 (D.C.Cir.1985); Washington Ass'n for Television & Children v. FCC, 712 F.2d 677, 680 (D.C.Cir.1983). The principal policy underlying the waiver rule is that judicial review might be hindered by the failure of the litigant to allow the agency to make a factual record, exercise its discretion, or apply its expertise. Yardmasters, 721 F.2d at 1338. Based upon this rule, it seems elementary that if SLCAP believed, as it argued to the District Court, that it was entitled to a full hearing before an ALJ rather than before the DAB, then SLCAP should have made that argument to the DAB. 16 SLCAP argues strenuously that it could not have waived the right to present its case to the District Court because the DAB historically has refused to entertain the kinds of constitutional and statutory claims pressed in the District Court; thus, it would have been futile for SLCAP to seek such relief from the DAB. SLCAP relies on our holdings that a litigant need not always pursue futile remedies in order to preserve a claim for judicial review, see, e.g., Washington Ass'n for Television & Children, 712 F.2d at 682 & n. 9, and that [r]esort to the administrative process is futile if the agency will almost certainly deny any relief either because it has a preconceived position on, or lacks jurisdiction over, the matter. Randolph-Sheppard Vendors of Am. v. Weinberger, 795 F.2d 90, 107 (D.C.Cir.1986) (emphasis in original); accord James v. Department of Health & Human Servs., 824 F.2d 1132, 1139 (D.C.Cir.1987). We reject SLCAP's futility argument as inapplicable, as it seems to flow from a misunderstanding of HHS' position with respect to waiver. 17 SLCAP probably is correct in asserting that the DAB would not have entertained arguments that the cost regulations were unconstitutional or invalidly promulgated. See, e.g., Commonwealth of Puerto Rico Dep't of Social Servs., Decision No. 1253 at 6 (D.A.B.1991) (under 45 C.F.R. Sec. 16.14, DAB is bound by the Department's regulations, even if invalid under a constitutional analysis, if those regulations are applicable); Delaware Dep't of Health & Social Servs., Decision No. 732 (D.A.B.1986) (DAB has no authority to pass on constitutionality of underlying statute). However, we do not understand HHS to argue that SLCAP waived its challenges to the validity or constitutionality of the underlying regulations by failing to present them to the DAB. Rather, HHS' waiver argument is limited, as is our holding, to SLCAP's claim that 42 U.S.C. Sec. 9841(a)(3) entitles SLCAP to a hearing before an ALJ rather than the DAB. 18 As an alternative line of defense, SLCAP relies on our decision in Yardmasters. In that case, we allowed the petitioner to raise for the first time before this court the argument that the three-member National Mediation Board had no power to decide a dispute while two of its seats were vacant. Yardmasters, 721 F.2d at 1338-39. We noted there that the substantive issue was solely one of statutory interpretation and that its [304 U.S.App.D.C. 192] resolution did not implicate the traditional concerns motivating the exhaustion rule--the need for a record or for the exercise of agency discretion or expertise. See id. 19 SLCAP is not the first litigant to argue that Yardmasters created a broad exception to the exhaustion requirement, nor is this the first time we unequivocally reject that contention. As we very recently held in Mitchell v. Christopher, 996 F.2d 375, 378 (D.C.Cir.1993), Yardmasters applies only to challenges that concern the very composition or 'constitution' of an agency. See also Natural Resources Defense Council v. Thomas, 805 F.2d 410, 428 (D.C.Cir.1986) (Yardmasters applies only to the unusual and limited type of attack challenging the proper constitution of the agency); Linemaster Switch Corp. v. EPA, 938 F.2d 1299, 1308 (D.C.Cir.1991) (same). Thus, on facts analogous to those presented here, Mitchell held that the government could not raise for the first time in federal court a challenge to the jurisdiction of the Foreign Service Grievance Board (FSGB) of the State Department. As in this case, the governing statute deprived FSGB of jurisdiction to hear any complaint or appeal where a specific statutory hearing procedure existed. See Mitchell, 996 F.2d at 377. The question on the merits therefore was whether such a separate statute actually applied. The court, however, did not reach the issue, as it held, in part, that the government should have raised the jurisdictional question before the agency. See id. at 379. 20 While we concede, as we have before, that Yardmasters might at first blush be taken to create a broad exception allowing issues of statutory construction or agency jurisdiction to be raised for the first time on judicial review, we think our subsequent cases conclusively resolve any uncertainty on this point. As we stated in Mitchell: 21 Our narrow reading of Yardmasters is, in part, based on our recognition that there are precious few cases involving interpretation of statutes authorizing agency action in which our review is not aided by the agency's statutory construction--even when the issue can be properly characterized as going to an agency's jurisdiction (which itself is often disputed). 22 Id. at 379. 23 We see no reason why SLCAP could not have argued to the DAB the simple proposition that a disallowance constitutes a termination within the meaning of 42 U.S.C. Sec. 9841(a)(3) and its implementing regulations, and that SLCAP therefore was entitled to a full and fair hearing before an ALJ. SLCAP nowhere argues that the DAB would not have had the authority to interpret and apply regulations governing its own jurisdiction; indeed, the crux of SLCAP's futility argument, discussed above, is that the DAB is strictly bound by its governing regulations. We note that HHS regulations explicitly prescribe a multi-part procedure by which the DAB Chair determines whether that body has jurisdiction over a matter, see 45 C.F.R. Part 16, App. A, Sec. G (1992), and that published decisions demonstrate that the DAB frequently rules on its own jurisdiction. See A.A. 274-86 (reprinting DAB decisions). In sum, we find traditional exhaustion principles applicable and we reject SLCAP's suggestion that Yardmasters or the futility doctrine excuses its failure to challenge the DAB's jurisdiction before the agency. 24 Ordinarily, our inquiry might end with the conclusion that SLCAP had waived its jurisdictional claim, and we would vacate the District Court's decision on the merits of that claim. In this case, however, we hesitate to rest solely on a finding of waiver because we do not believe the District Court was given adequate opportunity to consider the waiver problem. As we read the record before us, HHS presented its claim of waiver only sparsely, almost in passing; indeed, the issue was not explored, or even mentioned, during the preliminary injunction hearing in the District Court. Given the multiplicity of substantive issues presented in SLCAP's complaint and the procedural posture before the District Court, 3 we believe that HHS' waiver [304 U.S.App.D.C. 193] claim was not adequately brought to the attention of the District Court. 25 The question whether a disallowance constitutes a termination of financial assistance is a straightforward one whose resolution has substantial implications for the agency--either HHS can continue in disallowance cases to provide grantees a streamlined appeal procedure before the DAB or it must afford all grantees a full hearing before an ALJ. It makes no sense for us to rest solely on a finding of a waiver when the District Court failed to address it and instead reached a patently erroneous resolution of the substantive question. Thus, we turn to the merits of SLCAP's claim that the DAB lacked jurisdiction to hear its appeal. 26