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NATIONAL COMM. TO PRESERVE SOC. SEC. v. BOWEN

March 9, 1990

NATIONAL COMMITTEE TO PRESERVE SOCIAL SECURITY, Plaintiff,
v.
OTIS R. BOWEN, et al., Defendants


Aubrey E. Robinson, Jr., Chief United States District Judge.


The opinion of the court was delivered by: ROBINSON

AUBREY E. ROBINSON, JR., CHIEF UNITED STATES DISTRICT JUDGE:

 In this proceeding, the Court is confronted with serious questions relating to the administration and implementation of Section 432 of the Social Security Act of 1935, 42 U.S.C. §§ 301-1399 ("the Act") as related to the computation of a taxpayer's social security benefits. In a complaint seeking declaratory and injunctive relief, plaintiff, the National Committee to Preserve Social Security ("National Committee"), a nonprofit organization which has among its aims the protection of Social Security and Medicare programs, challenges the current wage recording system employed by the Department of Health and Human Services ("HHS"), the Social Security Administration ("SSA"), the Internal Revenue Service ("IRS"), and the Department of the Treasury ("Treasury"). Plaintiff alleges that under the current wage recording system a vast number of workers, past and present contributors to the Social Security fund under the Act, have earned and paid taxes on billions of dollars which have not been credited to their Social Security wage accounts. The result, alleges the plaintiff, is that eligible workers are either currently losing or faced with continued or future losses in their Social Security benefits.

 National Committee challenges not only the government's reliance upon the Social Security wage account recording system, but also its failure to comply with the notice and comment requirements of the Administrative Procedure Act ("APA"). 5 U.S.C. § 553, as applied to Section 432 of the Act. APA Section 553 provides that after notice of proposed rulemaking is published in the Federal Register, the agency grants interested persons an opportunity to participate and comment through submissions of written data, views, or arguments. After the agency considers the relevant matters presented, it incorporates in the adopted rules a concise general statement of the basis and purpose of the adopted rules.

 The government has moved to dismiss the complaint for lack of subject matter jurisdiction. Plaintiff asserts 28 U.S.C. § 1331, the federal question provision, as a basis for this Court's jurisdiction. The government argues that this lawsuit is merely a disguised claim for benefits and, therefore, federal question jurisdiction is precluded by Section 205(h) of the Act. Section 205(h) provides that no action against the United States shall be brought under Section 1331 to recover on any claim arising under the Act. The government also moves to dismiss the complaint on grounds that mandamus jurisdiction, 28 U.S.C. § 1361, does not lie here and that National Committee lacks standing to bring this suit.

 For the reasons discussed below, this Court rejects the government's arguments and denies its motion to dismiss.

 I. BACKGROUND

 Under the provisions of section 205(a) of the Act, the Secretary is authorized to promulgate the rules, regulations, and procedures to be utilized in establishing the rights and benefits due contributors to the fund.

 Prior to 1978, Department of Treasury regulations required employers to submit quarterly reports of employee wages subject to social security taxes. Under the regulations:

 
These reports, on Treasury Form 941-A, . . . listed each employee by name, social security account number, and total wages paid to the employee with respect to which social security taxes are payable. The preparation and filing of this quarterly report involved considerable effort and expense on the part of employers particularly in the case of small and medium-sized companies which did not have the advantage of computerized payroll systems.

 S. Rep. No. 550, 94th Cong., 1st Sess. 9 (1975).

 In response to employers' concerns Congress amended the Act by adding Section 432 enacted on January 2, 1976. The law, which took effect in 1978, *fn1" eliminated the quarterly, individualized wage data reports and implemented an annual wage reporting system. Under this system, employers continue to file quarterly 941 summaries with IRS, but IRS no longer receives or sends the SSA quarterly reports documenting the wages earned by individual employees. Instead, once a year, employers submit W-2 and W-3 forms *fn2" directly to the SSA. The SSA then records this information in the appropriate individual wage accounts and forwards the W-2 and W-3 information directly to the IRS. The IRS compares these W-3 wage totals to the 941 wage totals. The total of each employer's quarterly reports to the IRS should equal the total earnings that an employer annually reports to the SSA.

 In its complaint, National Committee argues that under the old reporting system employers prepared a quarterly set of personalized wage data reports which the IRS and SSA shared. Under the new authorized wage reporting system, however, employers submit different sets of data to the IRS and the SSA in different form, prepared at different times of the year. The IRS receives quarterly summaries of aggregate wages paid and the SSA receives an annual list of wages received by each individual employee. The result, argues the plaintiff, is an increased opportunity for error in calculating an individual's Social Security benefits.

 Indeed, on September 18, 1987, the General Accounting Office released a report entitled "Social Security: More Must Be Done to Credit Earnings to Individuals' Accounts", HRD-87-52 ("GAO Report" or "Report"). According to the Report, from 1978 through 1984 the total earnings amounts recorded by each agency has differed significantly. As of March 1987, the SSA had recorded approximately $ 58.5 billion less in total employee earnings than the IRS had recorded for the same period. Thus, taxes on the $ 58.5 billion in wages were duly paid to the IRS but were not properly credited to individual earnings accounts in the SSA's records. The Report noted that "although the number of workers affected is not known, we estimate that this backlog of unreconciled differences could affect about 9.7 million workers." *fn3" To address this reconciliation problem, the SSA adopted "tolerance levels" below which no reconciliation is initiated as the amounts at issue are deemed insignificant. Plaintiff claims that these tolerance levels were adopted without publication or an opportunity for public comment as required under the APA.

 Plaintiff also argues that after the enactment of the new legislation which authorized the IRS and the SSA to enter into a cooperative agreement embodied in a Memorandum of Understanding ("MOU"), *fn4" the government should have provided the public with general notice of the proposed rule by publishing the MOU in the Federal Register thereby providing interested persons with an opportunity to comment. And not having done so is alleged to be yet another failure by the government to meet the notice and comment requirements under APA Section 553.

 National Committee claims that both the IRS and the SSA have acknowledged the validity of the GAO Report. The two agencies had acknowledged, both before and after the Report was issued, that grave problems exist with the current annual wage reporting system. The wage reconciliation problem has existed for over ten years and has been characterized by chronic agency inaction and delay. *fn5" Although the IRS and the SSA have known about this problem for years, they have made little or no effort to attempt to resolve the problem. *fn6"

 II. LEGAL ANALYSIS

 A. Subject Matter Jurisdiction

 In its seminal ruling, Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 87 S. Ct. 1507, 18 L. Ed. 2d 681 (1967) the Supreme Court stated that the Administrative Procedure Act "embodies the basic presumption of judicial review to one 'suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute. '" In Citizens to Preserve Overton Park Inc. v. Volpe, 401 U.S. 402, 28 L. Ed. 2d 136, 91 S. Ct. 814 (1971) the Supreme Court explained the extent of this presumption of reviewability. It declared that under Section 701 *fn7" of the APA, each authority of the Government of the United States is subject to judicial review unless there is a statutory prohibition on review or where "agency action is committed to agency discretion by law." Id. at 410. It also declared that the "committed to agency discretion" is a very narrow one -- the legislative history of the APA indicates that it is applicable only in those rare instances where "statutes are drawn in such broad terms that in a given case there is no law to apply." S. Rep. No. 752, 79th Cong., 1st Sess., 26 (1945). More recently, the Supreme Court, in upholding the Sixth Circuit's decision in Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 670, 90 L. Ed. 2d 623, 106 S. Ct. 2133 (1986), *fn8" reinforced the doctrine and held that there is a " strong presumption that Congress intends judicial review of administrative action . . . 'our cases [have established] that judicial review of a final agency action by an aggrieved person will not be cut off unless there is persuasive reason to believe that such was the purpose of Congress.'" quoting Abbott Laboratories, 387 U.S. at 140 (emphasis added). *fn9"

 Congress, however, may make exceptions to this traditional practice. Since judicial review of administrative action is a presumption, it can be overcome by specific language, through legislative history, or any other reliable indicator of congressional intent. See Block v. Community Nutrition Institute, 467 U.S. 340, 349, 81 L. Ed. 2d 270, 104 S. Ct. 2450 (1984). However, if any "substantial doubt about the congressional intent exists, the general presumption favoring judicial review of administrative action is controlling." Id. at 351.

 In this proceeding, the government argues that Section 205(h) expressly excludes all administrative or judicial review not otherwise provided in the statute. Therefore, it alleges that the wage recording system does not fall within the grant of federal question jurisdiction found in 28 U.S.C. § 1331. This argument is unpersuasive.

 Section 205(h) provides that no action shall be brought against the United States, or any official, under Section 1331 to recover any claim arising under the Act. The section does not govern procedural challenges to statutes or administrative policies; rather it applies only to personal claims of workers for benefits under Title II of the Act. See National Association of Home Health Agencies v. Schweiker, 223 U.S. App. D.C. 209, 690 F.2d 932 (D.C. Cir. 1982) (statute governing finality of HHS Secretary's decisions did not preclude review of regulation requiring home health agencies to seek medicare reimbursement determinations); Humana of South Carolina, Inc. v. Califano, 191 U.S. App. D.C. 368, 590 F.2d 1070 (D.C. Cir. 1978) (claim was not precluded by Section 205(h) as hospital's challenge of medicare regulation was not directed at demonstrating unreasonableness of benefit amounts but was a procedural attack aimed at showing that Secretary failed to adhere to methodology generally applicable to rulemaking effort). Therefore, to the extent that a plaintiff's claim seeks to recover Social Security benefits, "federal question jurisdiction is clearly foreclosed." Soberal-Perez v. Schweiker, 549 F. Supp. 1164, 1168 n.7 (E.D.N.Y. 1982), aff'd 717 F.2d 36 (2d Cir. 1983) cert. denied, 466 U.S. 929, 80 L. Ed. 2d 186, 104 S. Ct. 1713 (1984).

 This action does not arise from a claim for additional benefits; rather it stems from plaintiff's ultimate goal of "vindicating an interest in procedural regularity." Humana of South Carolina, Inc., 590 F.2d at 1080. Plaintiff's entire argument rests on challenging the rule used to determine an employee's Social Security benefits and the procedure under which that rule was promulgated. Therefore Section 205(h), by its own terms, is inapplicable to this proceeding as it neither involves any findings of fact nor any decision by the Secretary on a claim for benefits. See National Association of Patients on Hemodialysis and Transplantation, Inc. v. Heckler, 588 F. Supp. 1108, 1117 (D.D.C. 1984) (§ 205(h) inapplicable to bar suit where plaintiff's challenge involved no findings of fact or any decision by Secretary for a benefits claim and no other form of review was available to challenge regulations); Colonial Penn Ins. Co. v. Heckler, 721 F.2d 431, 439 (3rd Cir. 1983) (permitting judicial review to challenge regulations making Medicare benefits secondary to insurance coverage). Furthermore, this Circuit has continually held that Section 205(h) does not preclude judicial review of claims which challenge the Secretary's compliance with the APA. Humana, 590 F.2d at 1080; National Association of Home Health Agencies, 690 F.2d at 940.

 Nevertheless, the government relies principally on Heckler v. Ringer, 466 U.S. 602, 80 L. Ed. 2d 622, 104 S. Ct. 2013 (1984) and Weinberger v. Salfi, 422 U.S. 749, 45 L. Ed. 2d 522, 95 S. Ct. 2457 (1975) for the proposition that plaintiff's claims "arise under the Act"; therefore plaintiff is not only barred from review under Section 1331 but also must exhaust its administrative remedies. The government's reliance on these cases is misplaced as plaintiff's claims not only do not arise under the Act but also can be distinguished from these cases.

 Ringer involved four individual Medicare claimants who challenged an administrative ruling denying medicare benefits for a specific type of surgical procedure. The court held that the "inquiry in determining whether § 405(h) bars federal question jurisdiction must be whether the claim 'arises under' the Act not whether it lends itself to a 'substantive' rather than a 'procedural' label." Ringer, 466 U.S. at 615. The court found that plaintiffs tried to avoid the Act's exhaustion requirements by disguising their substantive benefit claims as procedural ones. Under these circumstances the court found that Section 205(h) barred plaintiffs' procedural claims which it found to be "inextricably intertwined" with their benefit claims. Id. at 614.

 In Salfi, after appellee-widow's husband of less than six months died, she filed applications for mother's Social Security insurance benefits for herself and child's insurance for her daughter by a previous marriage. When the SSA denied both applications on the basis of its duration-of-relationship requirements, *fn10" widow and child brought a class action seeking declaratory and injunctive relief on behalf of all widows and stepchildren denied benefits because of the nine month requirement. A three judge district court held that it had federal question jurisdiction under Section 1331. The Supreme Court, however, held that the district court did not have federal question jurisdiction. It construed the "arising under" language of Section 205(h) very broadly to include "any claims in which 'both the standing and the substantive basis' for the presentation of the claims is the Social Security Act." Id. 422 U.S. at 760. It is this interpretation of "arising under" that the court in Ringer, and the government here, rely upon to preclude jurisdiction under Section 1331.

 The present case is distinguishable from Ringer on its facts. Nowhere in the complaint does plaintiff raise a substantive claim for benefits. The claims raised in this proceeding are not "inextricably intertwined" with a claim for benefits and there is no intermingling of substantive and procedural claims. Plaintiff does not seek an award for benefits; therefore this Court is not faced with the Ringer court's problem of plaintiffs circumventing the requirement of exhausting administrative remedies. Plaintiff seeks a procedural reform of the wage recording system, ...


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