Courthouse Steps Decision Teleforum: Carr v. Saul

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On April 22, 2021, the U.S. Supreme Court decided Carr v. Saul. Writing for the unanimous Court and in reversing the lower court, Justice Sonia Sotomayor explained that principles of issue exhaustion do not require Social Security disability claimants to argue at the agency level that the administrative law judges hearing their disability claims were unconstitutionally appointed. Justice Thomas filed an opinion concurring in part and concurring in the judgment, in which Justices Gorsuch and Barrett joined. Justice Breyer filed an opinion concurring in part and concurring in the judgment.

Thomas Berry, who filed an amicus brief on behalf of petitioners, joins us to discuss the ruling and its implications

Featuring:

Thomas Berry, Research Fellow, Robert A. Levy Center for Constitutional Studies, Cato Institute; Managing Editor, Cato Supreme Court Review

 

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Event Transcript

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Dean Reuter:   Welcome to Teleforum, a podcast of the Federalist Society's Practice Groups. I'm Dean Reuter, Vice President, General Counsel and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group Teleforum calls, become a Federalist Society member today at fedsoc.org.

 

 

Evelyn Hildebrand:  Welcome to the Federalist Society's Teleforum conference call this afternoon, April 29th, to discuss the Supreme Court's decision in Carr v Saul. My name is Evelyn Hildebrand, and I'm an Associate Director of Practice Groups at The Federalist society.

 

      As always, please note that all expressions of opinion are those of the expert on today's call.

 

      Today, we are fortunate to have with us Mr. Thomas Berry. Mr. Berry is a research fellow at the Robert A. Levy Center for Constitutional Studies at the Cato Institute. He is also the Managing Editor at the Cato Supreme Court Review. After our speaker gives his opening remarks, we will turn to you the audience for questions. So be thinking of those as we go along, and have them in mind for when we get to that portion of the call. With that, thank you for being with us today. Thomas, the floor is yours.

 

Thomas Berry: Thank you very much. I'll start by giving a little background on the type of administrative hearing and administrative judges at issue in this case because that background is really kind of necessary for understanding the competing issues at play, and the various options the Court had for either a wide or a narrow holding.

 

      So this case is about Social Security Administration and administrative law judges. SSA, or the Social Security Administration, is a sprawling agency that's notable, among other things, for having by far the largest cohort of administrative law judges of any agency in the federal government. In fact, out of roughly 1,900 total administrative law judges, or ALJs, about 1,600 are in the Social Security Administration alone. The remaining agencies have roughly 300 combined.

 

      So coming before Social Security ALJ is a necessary stage in the process for anyone who's dissatisfied with the outcome of a claim for Social Security disability benefits. The law requires claimants to go before an ALJ before they can take their objections to federal court. Now, because there are so many disputes between claimants and the Social Security Administration, these hearings are much faster and far more casual than anything that might come to mind when you imagine a typical courtroom setting.

 

      Most notably, it's not a situation where the claimant or the claimant's lawyer—they're allowed to have one, but not required—argues for a claim and then a government lawyer argues against the claim in the typical adversarial process. Instead, the hearing is modeled on the so-called inquisitorial process where the Social Security judge simply asks the claimant questions, tries to get a handle on what the issues are, ascertain what the strongest and weakest points in the case are, and then issues a decision.

 

      As the Social Security Administration itself puts it in a guide to the process, "Under our inquisitorial hearings process, an ALJ fulfills a role that requires him or her to act as a neutral decision maker and to develop the facts for and against the benefit claim." So you can think of the Social Security ALJ as something of a hybrid acting a bit as objective interviewer, a bit as claimant advocate, a bit as government advocate, and then finally as judge.

 

      Once again, the SSA's owns words, the judge wears "three hats," "helping the claimant to develop facts and evidence, helping the government investigate the claim, and issuing an independent decision." So while claimants can have a lawyer present in these hearings, it's not really designed for them to feel like they need one to navigate the process. Now once the ALJ issues a decision after such a hearing, if the claimant is still dissatisfied, the claimant then has the option to petition another round of administrative review within the agency, and that's called the appeals council. Whether they appeal to the appeals council or not, once the administrative decision is final, only then is the claimant allowed to bring their claim to federal court and then up through the federal court system.

 

      So with that background on what the system is that we're talking about and what's lying behind this case, here's the sequence of events that actually set the dispute of this case in motion.

 

      In 2018, the Supreme Court decided a constitutional case called Lucia v. SEC. That case was about administrative law judges in the Securities and Exchange Administration, and whether they had been appointed as the Constitution requires. The Constitution has a clause called the Appointments Clause that requires all "officers of the United States be appointed by either the president, a department head, or court."

 

      But the Constitution doesn't define what makes someone an officer of the United States. So ever since that clause was written, the Supreme Court has had to draw the line on which federal government employees fall into the category of officers. The details of Lucia aren't important here, but suffice it to say that in Lucia the Court held SEC ALJs have enough authority that they do qualify as officers, meaning they need to be hired by someone in those high-level categories.

 

      Now, why was that ruling significant to the Social Security Administration? Because those 1,600 ALJs I mentioned in SSA have very similar powers to the ALJs in the SEC that were at issue in Lucia. In other words, the Court's holding in Lucia almost surely meant that Social Security ALJs are also officers. But unfortunately, for the Social Security Administration at least, it had not appointed its ALJs in one of the three ways required for officers at the time Lucia was decided.

 

      It only did so belatedly after the decision came down in July 2018. That's when the acting Social Security administrator announced that she was "ratifying all of the ALJs appointments." Effectively, she was saying that she was rehiring them all herself in her capacity as the head of a department, one of the types of hires that the Constitution allows. So that may have solved the problem for future cases after summer '18, but the cases decided by those SSA ALJs before July 2018 remained in legal jeopardy.

 

      The Supreme Court has held repeatedly Appointments Clause violations are structural, meaning you don't have to show that your particular judge was biased or incompetent on the account of being not hired by the right person. Rather, the Appointments Clause is about more background principles of accountability, the right to be before someone that the department head has taken responsibility for hiring.

 

      So when there's an Appointments Clause violation, that violation by itself is enough to entitle someone to a new hearing before a properly appointed judge. And that's what many of the claimants who had their cases decided by these ALJs before summer 2018 asked for when they got to federal court. But that's when they ran into the obstacle that became the crux of this case. And that's a doctrine called administrative issue exhaustion.

 

      Now, the idea of issue exhaustion in general is familiar to any lawyers who litigate in the federal system. It's appellate law 101. You can't raise new claims on appeal that you didn't raise in district court. But administrative issue exhaustion is a trickier question. Can you raise new claims in federal district court that you didn't raise in the administrative hearing before the ALJs?

 

      Now, for many agencies, there are statutes or regulations that spell this rule out in detail, and when they do courts simply follow them. But not so for the Social Security Administration. Its laws and regulations are silent on the issue, which means it's up to federal courts to decide for themselves whether to impose such an exhaustion rule. Now, issue exhaustion in the case of the Social Security Administration has come up once before at the Supreme Court in a 2000 case called Sims v. Apfel.

 

      It was about that discretionary appeals court I mentioned—the appeals council. Now, the Supreme Court in that case confronted the question whether there's issue exhaustion for issues the claimant doesn't raise in the appeals council, but then wants to raise it in federal court. A four-justice plurality written by Justice Thomas would have had a broad holding that essentially any hearing with an inquisitorial rather than adversarial approach is not fit for issue exhaustion because essentially you don't have the same development of facts and development of issues that you have in the typical federal district court process. And so the typical justification for requiring raising all issues at that stage doesn't apply.

 

      But that was not the majority holding because Justice O'Connor joined the judgment on a much narrower ground. She looked specifically at the particular forms dealing with the appeals council and decided that those did not give enough notice to claimants, that they might forfeit an issue if they didn't raise it. And so she held that it would have been unfair to impose issue exhaustion in that particular case.

 

      So the fact that Justice O'Connor did not join the plurality's broader reasoning was very consequential because it essentially left the broader principle unsettled of when is there and when is there not issue exhaustion in the Social Security context specifically for that first stage for the ALJ hearing itself. And so courts split on the question of whether issue exhaustion applied to Appointments Clause claims in nearly every case a claimant did not raise the Appointments Clause in that informal non-adversarial hearing that I described.

 

      And that's understandable. They usually don't have a lawyer with them, let alone a constitutional lawyer. And this issue of the Appointments Clause really didn't get attention until Lucia was decided. Obviously, some lawyers who are closely following the case may have had it on their radar, but the general Social Security claimants certainly would not have.

 

      And so those are the type of people at issue here, the people who did not raise the Appointments Clause in their ALJ hearing typically before July 2018, but then wanted to raise the Appointments Clause once they got to federal district court after July 2018. And some circuits held that they could, but two circuits, the Eighth and Tenth, held that they could not.

 

      They essentially started with a background presumption that issue exhaustion is the default rule unless there is this sufficient justification to depart from that default rule. And looking narrowly at Justice O'Connor decisive fifth vote, they held that it was so specific to the appeals council that it really couldn't be extended to the ALJ hearing itself. And so they held that there is still issue exhaustion for the ALJ hearing, and essentially any issue raised at the ALJ hearing.

 

      So both the Eighth and Tenth Circuit, on the basis of that reasoning, denied claimants the right to raise an Appointments Clause claim, essentially denying them the right to even have the constitutional argument heard and have the chance to get a new hearing before a properly appointed judge. The Supreme Court granted cert on the issue. And that's how it got to the Supreme Court in that posture, on a review of the Eighth and Tenth Circuit denial of review. And those two cases were consolidated.

 

      Now, once it got to the Supreme Court, the Court really had a range of options for its holding from big to narrow. At the biggest end, but perhaps the most unlikely end, it could have simply established the bright line rule that Social Security ALJ hearings are so non-adversarial that there's no issue exhaustion for any type of issue, even one that the ALJ potentially could have ruled on that would essentially be the four-justice holding that Justice Thomas wanted back in Sims v. Apfel finally getting a majority.

 

      A little bit narrower, but still more in the nature of a bright line rule, the Court might've said there's no issue exhaustion for any pure question of law, or maybe it's still narrow a category. Like there's no issue exhaustion for any issue of constitutional law. And those were all -- I would say before the decision came down, those were seen as the most likely outcomes because they were all that was really necessary to decide this case, since all of these claims were issues of constitutional law.

 

      And also they're really outside the wheelhouse of Social Security ALJs. They're not trained to decide constitutional issues. And in fact, they had been specifically directed by leadership not to address an Appointments Clause claim if it were raised.

 

      And so recently this month, the Court came out with its opinion in Carr v. Saul. And in fact, the Court didn't choose any of those options, it took the narrowest option available to decide the particular case.

 

      The Court expressly -- it ruled 9-0 in favor of the claimants. It ruled that there was no issue exhaustion in their case, and they could raise the Appointments Clause claim. The majority opinion was by Justice Sotomayor, and there were, in addition, two concurrences joining on the judgment by Justice Thomas and Justice Breyer. And the majority opinion expressly limited its holding to "the specific context of petitioner's Appointments Clause challenges."

 

      Holding that, in that context, the scales tipped decidedly against imposing an issue exhaustion requirement. And to make clear the narrowness of the holding, the Court added a footnote saying, "outside the context of Appointments Clause challenges such as in the sphere of routine objections to individual benefits determinations, the scales might tip differently." In other words, the Court is not going to reach that question.

 

      But if we look at the factors that the Court used in deciding why the scales tipped the way they did, one at least strongly suggests that the Court would have reached the same outcome for any constitutional claim, not just the Appointments Clause claim. The first factor the Court mentioned was that agency adjudications are "generally ill-suited to address structural constitutional challenges," which usually fall outside the adjudicator's area of technical expertise.

 

      And the second factor that the Court mentioned was futility. As the Court noted, “It makes little sense to require litigants to present claims to adjudicators who are powerless to grant the relief requested, and that was the case here.” As the Court noted, the SSA had directed ALJs to acknowledge Appointments Clause objections, and then say they did not have the authority to rule on them.

 

      Now, what was the government's primary argument here that did not get a single vote? Essentially, it was a challenge to the notion that it really was futile. And the government had an interesting argument that even though it might've been individually futile, it was not necessarily collectively futile because if enough people had raised Appointments Clause claims in front of the ALJs, the agency itself might have took notice of the problem earlier, and it might have done what it belatedly did in July 2018 earlier. In other words, it might've ratified them earlier.

 

      And the government had one case on its side called L.A. Tucker Truck Lines from 1952, which had seemed to endorse that type of theory. But the Court took a relatively narrow approach to distinguishing this case from that 1952 one. The Court pointed out that in the 1952 case, the adjudicative body at issue was itself the body with the power to change the policy.

 

      In other words, the government's theory in this case required one more hypothetical and uncertain step of information sharing for repeated arguments to ALJs to cause a change in appointment policies. The ALJs would have had to communicate to the commissioner that they're hearing these repeated pleas were unconstitutionality, and then the commissioner would have had to act on the basis of that information.

 

      As the Court put it in this case, "The SSA's administrative review scheme at no point afforded petitioner's access to the Commissioner, the one person who could remedy their Appointments Clause challenges." Now, the majority opinion essentially combined all of these factors, and didn't say anyone was decisive. It looked at non-adversariality, it looked at the futility, and it looked at the nature of the claim and the fact that constitutional claims are outside the wheelhouse of lower courts.

 

      But it didn't establish one bright line rule. Who had a concurring opinion, once again, stresses non-adversariality and asking for a bright line rule? Once again, Justice Thomas. So in some ways this was a case of the more things change, the more they stay the same. The three justices who joined Justice Thomas's plurality opinion 21 years ago in Sims have all since left the Court, but Thomas picked up two new accolades for his position, Justice Gorsuch and Justice Barrett.

 

      So Justice Thomas has essentially come close, but no cigar twice 21 years apart for a bright line rule that all inquisitorial hearings are so non-adversarial that there should be no exhaustion for any issue in them. So Justice Thomas in his concurrence said that he would have simply stopped the analysis at the inquisitorial nature of the hearing and not relied in addition on the fact that it was a constitutional claim, and on the fact that the ALJs were instructed not to rule on it.

 

      And then in addition, we have an opinion concurring in the judgment by Justice Breyer who essentially is the flip side of Justice Thomas. And Justice Breyer had been the dissenting judge in Sims v. Apfel. So the two justices who remained from the year 2000 essentially pick up their debate right where they left off 21 years apart. Whereas, Justice Thomas argued that inquisitorial nature alone should be sufficient for a no issue exhaustion, Justice Breyer preferred to rule that issue exhaustion is the presumption, but that futility in this particular case tipped the scales against that presumption.

 

      So what is the implication for the future of this case? Well, we know in the short term that these particular claimants now have the right to raise their Appointments Clause challenge, and they're very likely to win.

 

      In fact, the fact that Social Security Administration ratified the appointments of these judges seems to be a concession that they were in fact unconstitutional, although they have not formally conceded that point. How many people does this affect during the oral argument? The estimate was it's in the hundreds, not the thousands, because of course there is still waiver for federal court. So some people, if their cases were too long ago, they may have gotten to federal court and not raised the Appointments Clause claim, and typical notions of waivers still apply there.

 

      So this is a kind of small subset of people who happen to fall in that timeline where the ALJ hearing was before 2018, but the district court hearing was shortly after 2018. So they're all likely to get new hearings, eventually. They're all likely to get new hearings, not just before a properly appointed judge, but a different one than the one who decided their case.

 

      The Supreme Court said in Lucia that you have to assume the person who decided their case may have prejudged it understandably. And so the best way to avoid any lingering error is to simply give them a fresh start with a new judge. Now, here's an additional area where the theorizing might have an effect. And this is something that lawyers will probably look at creatively in reading this opinion. And that's forfeiture in the realm of structural objections to rule making.

 

      So I've been involved in some cases that have raised Appointments Clause challenges to rule making, and the government has attempted to argue in some of them that an Appointments Clause claim against a rule maker can't be made in federal court unless the challenge raised that objection during the notice-and-comment period.

 

      So the fact that the Court emphasized here both futility and lack of capacity is going to be very relevant to those types of arguments later on because you can make essentially similar arguments that agencies when they're looking at comments to rule, they're really just looking for comments about the policies behind the rule pros and cons, cost benefit analysis. They're not really in a position to consider whether it violates some structural constitutional principle.

 

      And so in the same way that futility and lack of capacity to rule on constitutional issues was important here, it probably means that doctrine of forfeiture is unlikely to succeed on the government side in the rulemaking context as well.

 

      How will this apply to other agencies? Again, it's not entirely clear. The Social Security Administration is kind of a unique animal. This was also brought up in oral arguments, and the lawyer for the claimants said that probably the other two most non-adversarial agencies are the Veterans Administration and the Railroad Retirement Board, not exactly of the same size or scope as the Social Security Administration. And both of those have a rule set out. So the Social Security Administration really is somewhat unique in the fact that it's so large, so non-adversarial. And for some reason, even in the 21 years since the Apfel has declined to have any rules or statutes really giving guidance on this issue.

 

      So really what continues to be the biggest unanswered question in the wake of this it's about Social Security itself. And it's whether there is a bright line rule for no waiver for any type of claim. But the fact that Justice Thomas's opinion still only mastered three votes rather than five, makes me think that in future cases the Court is more likely than not to accept issue exhaustion for issues that are in the wheelhouse of ALJs.

 

      The typical factual claim through legal claims about whether a disability was properly considered or not. But if there are any future structural constitutional issues, those are very much likely not to be subject to issue exhaustion. And I think I'll pause there and open it up for any questions.

 

Evelyn Hildebrand:  Wonderful. Thank you so much for your presentation. And I'll begin the question and answer portion of the question of my own. I'm wondering if there were surprises during oral argument or surprises based on how oral argument went that you noticed in the decision

 

Thomas Berry:  Interesting question. Well, one, I think the writing was somewhat on the wall when the government attorney came up to speak both Justice Sotomayor, who ended up writing the majority opinion, and Justice Alito simply said that they passed. Now, that can mean one of two things if a judge has no questions for you, it either means you're definitely going to win, or it means you're definitely going to lose.

 

      So in other words, their mind has probably been made up. And so I think the writing was somewhat on the wall already that the government's theory of non-futility by virtue of many people asking a question was a pretty big stretch. I can say personally the part of the argument I found the most amusing and kind of a shady insult at lawyers was Chief Justice Roberts in talking about the inquisitorial casual nature of this. He explained that Social Security hearings are described as sort of people chatting in their living room.

 

      And he said, how weird it would be to require someone to raise the Appointments Clause. Because he said the normal American when they're chatting in their living room doesn't often talk about how important the Appointments Clause is. And I kind of felt personally attacked by that because I have in fact had conversations in my living room about how important the Appointments Clause is.

 

Evelyn Hildebrand:  Perhaps you're in the minority in that situation. I’d remind thee.

 

Thomas Berry:  I'm willing to accept that. Yes.

 

Evelyn Hildebrand:  And this might be something that's been asked already in your presentation, but I'm wondering if the reason that the Court can find their decision to such a narrow set of facts is because they suspect that there are other courts. I know you said that the Veterans administration, the Railroad, are perhaps the most similar. Do you think that that influenced the reason that they chose to decide it so narrowly?

 

Thomas Berry:  It could well have, yes. Even though those administrative law judges there aren't as many of them and they don't decide as many cases, I do think that they want to do two things. One is they don't want to have too big of a rule without knowing the full implications of that. And then another issue that may arise is, is there a limit on what agencies can impose in terms of issue exhaustion? And this has really never so much been litigated.

 

      So in other words, some of those agencies may have issued their own rules explicitly saying yes, giving people notice; yes, there is issue exhaustion. Could you reach a point where the hearing is so non-adversarial that you violate due process by promulgating one of those rules? In Sims v Apfel, they had an odd parenthetical in Justice Thomas' opinion where he says the issue is not before us, but we presume it's likely that Social Security could impose issue exhaustion to rule if it wanted to.

 

      I think perhaps the Court doesn't want to put too much language in its opinion describing how inapt issue exhaustion would be for this type of hearing, because if it did so that might create fodder for someone challenging on due process grounds rule or statute imposed issue exhaustion. And that's really a different animal than judicially imposed issue exhaustion.

 

      There's a much lower justification for judicially imposed issue exhaustion because there's no evidence that the other branches, the political branches, actually thought that's more efficient. It's essentially just courts themselves saying in our own discretion, we're going to choose not to hear those claims.

 

Evelyn Hildebrand:  Got you. Do you see a potential for -- and correct me if I'm wrong, but do you see potential for a flood gate of litigation in saying that there was no issue exhaustion in ruling for the claimants in the way that they did?

 

Thomas Berry:  On this, Appointments Clause issue a flood of litigation is unlikely just because of the timing aspect of it. So any hearing after 2018 is constitutionally sound most likely because of that ratification. So you really have a discrete set of pre-2018 ALJ decisions that would potentially be subject to new hearings. And based on, at least in oral arguments, the claimants asserted that it's below a thousand, the total number who would likely fall into that.

 

      Still a large number to be sure, but one that the Social Security Administration can handle. Now, there's the question of could there be other constitutional claims? Certainly there could be, I don't think any are as likely to succeed as the Appointments Clause. I mean, people are always trying to raise broad based constitutional theories like the non-delegation Clause or due process saying that all issues have to be decided by an Article III court, not by an administrative judge. But those have not yet gotten the same traction as the Appointments Clause, which has really had something of arrival in the last 20 or 30 years or so.

 

Evelyn Hildebrand:  Is there a statute of limitations in play apart from the 2018 time frame?

 

Thomas Berry: I don't know that there's a statute of limitations. Essentially, there's the timeline of federal litigation. I don't know exactly what the time limit is. But in general, when someone has a final decision rendered against them in an administrative case, they have a limited amount of time before they can file suit in federal court challenging that.

 

      And then once they get to federal court there's no dispute that issue exhaustion applies there. So for example, if you have someone who had a negative ruling way back in 2010 and then they filed in federal court in 2011 and didn't raise the Appointments Clause, they can't go back and revive their claim now 10 years later and say, Oh, wait, I want to bring it again and add an Appointments Clause claim because their cases either – I mean, if it's that old, it would be decided completely.

 

      Or even if you have a federal case that's winding its way through the federal courts, if they didn't raise it at the district court level, they've waived it. So this is still limited to people who got that Appointments Clause claim in on time at the federal court level. And so it's really a narrow subset of time of people who got lucky where Lucia came out right after their ALJ hearings. And then that brought a lot of attention to it. And then once they got lawyers and got in federal court, then all the lawyers suddenly knew about this issue. And so that's really when Appointments Clause claims started to be raised in federal court for the first time.

 

Evelyn Hildebrand: Great. Okay. That is very helpful. And in the absence of any other questions, I'll hand the floor back over to you for any closing comments that you would like to make.

 

Thomas Berry:  Sure. Well, I think this was -- it's to be determined whether this is how important this case is going to be. It's certainly always nice to see a 9-0 ruling, even though the justices somewhat disagreed on whether to be fact bound or to have more of a bright line rule. They could all agree that the balance of the interests tilted decidedly against imposing issue exhaustion.

 

      I think it's important that the opinion in no place said there's a background presumption of issue exhaustion. So I think in the future lower courts will be less inclined to assume that. I think they'll hopefully start at a point of equipoise, and in my view, that's the correct way to start. And perhaps hopefully this will, once again, motivate agencies to consider either rule making or petitioning Congress for a statute, laying out these rules to more detail because a lot of this litigation could have been avoided if there were rules set out in advance.

 

      And it is indeed odd that the largest system of ALJs in the federal government -- I think the justices has even expressed some consternation about this at oral argument: it's the largest system and yet it's one that has continued to decline to set out these background rules of what people are expected to raise and when. And there's an element of fairness there, which is that when you don't have a background rule telling people what they're expected to raise, and when I can see even more unfair to sandbag them and imposing issue exhaustion rule they weren't even expecting. And as Chief Justice Roberts said a hearing that sometimes feels more like a chat in the living room.

 

Evelyn Hildebrand:  It's a good place to end. On behalf of the Federalist Society, I want to thank our expert for the benefit of his valuable time and expertise today. And I want to thank our audience for calling in. We welcome listener feedback by email at info@fedsoc.org.

 

      As always, keep an eye on our website and your emails for announcements about upcoming Teleforum calls and virtual events. And we do have two more Teleforums coming up this afternoon, one at 2:00 and one at 3:30. One discussing the Supreme Court, PennEast Pipeline case, and then another is a litigation update at 3:30. And please keep an eye on your email for announcements and more information about those Teleforum calls. Thank you all for joining us today. We are adjourned.

 

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Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society's practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.