Richard Murillo et al., Plaintiffs-appellants, v. F. David Mathews, Secretary of the U. S. Department of Hew,et al., Defendants-appellees, 588 F.2d 759 (9th Cir. 1978)

Plaintiffs below appeal from the district court's dismissal of their suit for lack of subject matter jurisdiction. We vacate the judgment of the district court and remand.

In January of 1974, appellant Murillo's father allegedly went repeatedly to Social Security Administration (SSA) offices and orally inquired about benefits for appellant Murillo under Title XVI of the Social Security Act, 42 U.S.C. § 1381. On each occasion he was allegedly erroneously informed orally that his son was not eligible, and he did not make a written application for benefits. In May, 1974, he submitted a written application which was granted.¹  Because the SSA pays benefits beginning with the month in which the application is filed, Murillo's benefits began in May and not January. The May application, however, did not ask the SSA to provide benefits for the period from January to May.

In August, 1975, Murillo and two organizations purporting to represent the aged and the handicapped²  filed suit on behalf of themselves and "all others similarly situated" against the Secretary of Health, Education and Welfare and the Commissioner of the SSA. They alleged that the present SSA practice of offering informal advice about eligibility which potential applicants may view as denials of eligibility and which may deter potential applicants from filing reviewable written applications, contravened federal statute and the due process clause of the federal constitution. Appellants asked that the court declare the present practice illegal and unconstitutional and enjoin that practice, award costs and reasonable attorneys' fees, and "(i) ssue a writ of mandate commanding defendants . . . forthwith to provide reasonable notice and opportunity for a hearing to any person who has claimed to be an eligible individual, who was subsequently informally denied eligibility . . . and is in disagreement with such determination . . . ."

The district court held that it lacked subject matter jurisdiction over the suit. The district court rejected claims that it had jurisdiction under the Administrative Procedure Act, 28 U.S.C. § 1331, 28 U.S.C. § 1343(3), 28 U.S.C. § 1361, and 42 U.S.C. § 405(g).

We believe that the district court prematurely considered whether it had jurisdiction under applicable federal statute. Appellants have not alleged that they, or any of them, have ever invoked the administrative processes of the SSA or Secretary regarding the instant claim that "informal denials" are inappropriate or illegal. Given this failure ever to address formally their contention to the SSA or Secretary, we hold that the district court could not properly take jurisdiction over the cause even if there existed a statutory basis for subject matter jurisdiction over this type of claim.³ 

The courts have repeatedly recognized the importance of allowing an administrative agency to consider claims and objections prior to judicial action. The Supreme Court has recently written that the purpose of the exhaustion requirement is to permit an agency to "perform functions within its special competence to make a factual record, to apply its expertise, and to correct its own errors so as to moot judicial controversies." Parisi v. Davidson, 405 U.S. 34, 37, 92 S. Ct. 815, 818, 31 L. Ed. 2d 17 (1972); See McKart v. United States, 395 U.S. 185, 193-95, 89 S. Ct. 1657, 23 L. Ed. 2d 194 (1969); Casey v. FTC, 578 F.2d 793, 798 (9th Cir. 1978); Montana Chapter of Association of Civilian Technicians, Inc. v. Young, 514 F.2d 1165, 1168 (9th Cir. 1975).⁴ 

This court has also appreciated that affording the administrative agency an opportunity to resolve a dispute is especially important when administrative action may obviate the need for adjudication of constitutional issues:

We do not disagree with plaintiff's contention that federal administration agencies have neither the power nor competence to pass on the constitutionality of statutes. (Citation omitted.) However, the doctrine of exhaustion of administrative remedies is not prevented from being applied solely by the fact the party applying for judicial relief urges a violation of rights secured by the federal constitution. Where relief may be granted on other nonconstitutional grounds, exhaustion is required. (Citation omitted.) The necessity of deciding the constitutional issues may well be avoided by the grant of alternative administrative relief. . . . As the Supreme Court stated . . .:

"(T)he very fact that constitutional issues are put forward constitutes a strong reason for not allowing this suit either to anticipate or to take the place of (a final judicial or administrative procedure). When that has been done, it is possible that nothing will be left of appellants' claim . . . ."

Montana Chapter of Civilian Technicians, 514 F.2d at 1167-68.⁵  See Renegotiation Board v. Bannercraft Clothing Co., 415 U.S. 1, 20, 94 S. Ct. 1028, 39 L. Ed. 2d 123 (1974); Allen v. Grand Central Aircraft Co., 347 U.S. 535, 553, 74 S. Ct. 745, 98 L. Ed. 933 (1954); Aircraft & Diesel Corp. v. Hirsch, 331 U.S. 752, 772, 67 S. Ct. 1493, 91 L. Ed. 1796 (1947); Monolith Portland Midwest Co. v. Reconstruction Finance Corp., 178 F.2d 854, 858 (9th Cir. 1949), Cert. denied, 339 U.S. 932, 70 S. Ct. 668, 94 L. Ed. 1352 (1950).⁶ 

In the instant case appellants have never presented their contention to the SSA or Secretary. Yet administrative procedures are available to appellants and even their counsel acknowledges that the Secretary has been responsive at least in part to criticisms of the SSA's rendering of informal advice.⁷  Montana Chapter of Civilian Technicians requires that the present suit not go forward prior to administrative consideration.⁸ 

Appellants respond that this court should excuse their failure to exhaust⁹  for two main reasons. First, they argue that Mathews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976), means that exhaustion should not be required.

In Eldridge appellant had formally applied for and received benefits under Title II of the Social Security Act. When his benefits were later terminated, he filed suit rather than pursue administrative reconsideration. The Supreme Court noted that § 205(g) of the Act, 42 U.S.C. § 405(g), required that prior to judicial review "there be a final decision by the Secretary after a hearing." Id. at 328, 96 S. Ct. at 899. The Court continued:

(T)his condition consists of two elements, only one of which is purely "jurisdictional" in the sense that it cannot be "waived" by the Secretary . . . . The waivable element is the requirement that the administrative remedies prescribed by the Secretary be exhausted. The nonwaivable element is the requirement that a claim for benefits shall have been presented to the Secretary. Absent such a claim there can be no "decision" of any type.

Id. The Court then found that Eldridge had "specifically presented the claim that his benefits should not be terminated" to the Secretary, thereby satisfying the nonwaivable component. Id. at 329, 96 S. Ct. at 900. The Court then concluded that even though Eldridge had not utilized all the possible administrative steps, the waivable element had been satisfied. The Court noted that Eldridge's constitutional challenges were independent of his personal entitlement and that agency resolution of his case on nonconstitutional grounds "would not answer his constitutional challenge." Id. at 332, 96 S. Ct. at 901.

Rather than indicating that appellants' failure to present their claim to the Secretary should be excused, Eldridge suggests that this court should not excuse the failure.¹⁰  The Supreme Court carefully noted that Eldridge had satisfied the "nonwaivable" requirement of presenting his claim to the Secretary. In the instant case, however, appellants have never presented their claims for benefits dating from their "informal denials" to the Secretary. They have thus not satisfied the "manifestly reasonable" policy enunciated in Weinberger v. Salfi, 422 U.S. 749, 95 S. Ct. 2457, 45 L. Ed. 2d 522 (1975), and reiterated in Eldridge, that "the Secretary (should have) the opportunity prior to constitutional litigation to ascertain, for example, that the particular claims involved are neither invalid for other reasons nor allowable under other provisions of the Social Security Act." 422 U.S. at 762, 95 S. Ct. at 2465; See 424 U.S. at 332, 96 S. Ct. 893.

The Supreme Court's analysis as to the "waivable" component followed the equitable policy that exhaustion will not be required when it would be fruitless, the Court noting that the Secretary could not respond to Eldridge's constitutional challenge. The Court reaffirmed this approach in Mathews v. Diaz, 426 U.S. 67, 96 S. Ct. 1883, 48 L. Ed. 478 (1976). There the Court found that the "nonwaivable" element had been satisfied. The Secretary, however, had never formally denied the application. The Court noted:

The plaintiffs in Salfi alleged that their claims had been denied by the local and regional Social Security offices and that the only question was one of constitutional law, beyond the competence of the Secretary to decide. These allegations did not satisfy the exhaustion requirements of § 405(g) or the Secretary's regulations, but the Secretary failed to challenge the sufficiency of the allegations on this ground. We interpreted this failure as a determination by the Secretary that exhaustion would have been futile and deferred to his judgment that the only issue presented was the constitutionality of a provision of the Social Security Act.

The same reasoning applies to the present case. Although the Secretary moved to dismiss for failure to exhaust administrative remedies, at the hearing on the motion he stipulated that no facts were in dispute, that the case was ripe for disposition by summary judgment, and that the only issue before the District Court was the constitutionality of the statute. As in Salfi, this constitutional question is beyond the Secretary's competence. . . . For jurisdictional purposes, we treat the stipulation . . . as tantamount to a decision denying the application and as a waiver of the exhaustion requirements.

Id. at 76-77, 96 S. Ct. at 1889 (footnotes and citation omitted.)

In the present case, resort to administrative processes would not be pointless. The Secretary could meet appellants' objections by a decision on the nonconstitutional issues appellants have raised. Indeed, counsel for appellants has acknowledged that the Secretary has proposed new regulations which would rectify at least some of the problems appellants suggest.¹¹  Given this receptivity to the kinds of problems raised by appellants, we cannot conclude that resort to the administrative processes would inevitably prove fruitless.

Appellants argue secondly that the Secretary's writing requirement constitutes an insurmountable obstacle to their invoking administrative processes and therefore exhaustion should be excused.¹²  We would, of course, look askance at the Secretary's insistence that administrative processes be exhausted were the Secretary also to make invocation of those processes impossible or impractical. But in the instant case the Secretary has indicated that appellant Murillo could have contested his date of initial eligibility "at any time in conjunction with his May 1974 (written) application," and that "(w)ith respect to the putative class, all its members need do to have full appeal rights under the Act is file a written application." Given that he will apparently consider whether to confer benefits from the date of "informal denials" if appellants now file a formal, written application, the Secretary has not created an unfair obstacle to invocation of his administrative processes.¹³ 

We of course express no opinion as to the legality, constitutionality, or advisability of the Secretary's present regulations and practices or as to whether appellants' claims should be administratively accepted or rejected. We hold only that given that the appellants have never formally asked the Secretary to consider their claims, that such consideration could obviate the need for constitutional adjudication, and that such consideration is practical, appellants should be required to invoke administrative processes before asking for judicial relief. We therefore vacate the district court's judgment that it lacked statutory jurisdiction, and remand to the district court to dismiss the suit without prejudice.

VACATED and REMANDED.