USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 1 of 20
PUBLISHED
UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT
No. 22-1187
L.N.P., on his own behalf and on behalf of his dependent children P.D.P. and L.D.P., and on behalf of all others similarly situated,
Plaintiff - Appellant,
v.
KILOLO KIJAKAZI, in her official capacity as Acting Commissioner of the Social Security Administration; SOCIAL SECURITY ADMINISTRATION,
Defendants - Appellees.
Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Michael Stefan Nachmanoff, District Judge. (1:21-cv-00820-MSN-TCB)
Argued: December 8, 2022 Decided: April 7, 2023
Before NIEMEYER, AGEE, and QUATTLEBAUM, Circuit Judges.
Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Agee and Judge Quattlebaum joined.
ARGUED: Cameron Reynolds Argetsinger, II, KELLEY DRYE & WARREN LLP, Washington, D.C., for Appellant. Hugham Chan, OFFICE OF THE UNITED STATES ATTORNEY, Alexandria, Virginia, for Appellees. ON BRIEF: Ira T. Kasdan, KELLEY DRYE & WARREN LLP, Washington, D.C., for Appellant. Jessica D. Aber, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Richmond, Virginia, for Appellees. USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 2 of 20
NIEMEYER, Circuit Judge:
This appeal addresses the question of whether an applicant for retirement benefits
under the Social Security Act has satisfied the conditions necessary for excusing his failure
to exhaust the administrative process required by 42 U.S.C. § 405(g) when challenging the
calculation of the benefits that he received.
In October 2019, just before his 62nd birthday, L.N.P. applied to the Social Security
Administration (“SSA”) for early retirement benefits, as well as “auxiliary” benefits for his
two dependent children. SSA approved his application, advising him that by January 2020,
after he turned 62, he would receive retirement benefits of $2,154 per month, and his
children would each receive auxiliary benefits of $1,107 per month, the amount of which
was derived from the amount of L.N.P.’s benefits.
Believing that SSA had used an incorrect formula to calculate his children’s benefits
and was underpaying them as a result, L.N.P. filed a request with SSA for reconsideration,
and an SSA employee informed him by telephone that his request was being denied. When
L.N.P. asked for a written confirmation of SSA’s decision, the employee indicated that she
would request one but that it could take up to a year to be issued. In July 2021, after not
receiving a written decision for more than a year, L.N.P. commenced this action against
SSA pursuant to 42 U.S.C § 405(g) on behalf of himself, his two dependent children, and
a putative class of similarly situated individuals. In his complaint, he challenged SSA’s
method for calculating auxiliary benefits for dependent children, alleging that it violated a
provision of the Social Security Act, 42 U.S.C. § 403, and an implementing regulation, 20
C.F.R. § 404.403. He also alleged that “[a]ny requirement for exhaustion of [his]
2 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 3 of 20
administrative remedies should be excused in this case.” For relief, he requested
declaratory and injunctive relief to correct SSA’s method of calculation, as well as an
award for his children’s past-due benefits.
Shortly after L.N.P. commenced this action, SSA issued its written decision,
affirming its denial of L.N.P.’s request and standing by its method of calculation.
SSA filed a motion to dismiss L.N.P.’s complaint pursuant to Federal Rules of Civil
Procedure 12(b)(1) and 12(b)(6), contending that the district court “lacked subject matter
jurisdiction” because § 405(g)’s waiver of sovereign immunity applied only with respect
to judicial review of a “final decision of the Commissioner of Social Security” and that
L.N.P. had not obtained a final decision, having refused to “exhaust [the] four-step
administrative process before the [Agency].” It also argued that L.N.P. should not be
excused from exhausting the administrative process, as he alleged in his complaint. On the
merits, SSA contended that it had properly calculated L.N.P.’s children’s auxiliary benefits
and therefore that L.N.P.’s complaint should be dismissed as a matter of law.
The district court granted SSA’s motion and dismissed L.N.P.’s complaint without
prejudice, concluding that L.N.P.’s failure to exhaust was “a jurisdictional problem
requiring dismissal under [Rule] 12(b)(1)” and that L.N.P. had failed to satisfy the
conditions necessary for excusing exhaustion. After L.N.P. filed a motion to alter or amend
the judgment under Rule 59(e) on the ground that the failure to exhaust was not
jurisdictional, the district court stated that “whether . . . analyzing this [case] under 12(b)(1)
or 12(b)(6),” it would “come to the same conclusion” — namely, that the “exceptions to
exhaustion [had] not been met.” Accordingly, the court denied L.N.P.’s Rule 59(e) motion.
3 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 4 of 20
While we agree with L.N.P. that § 405(g)’s exhaustion requirement is not
jurisdictional, we nonetheless conclude that exhaustion is a mandatory requirement of the
Social Security Act that may be excused only in a narrow set of circumstances, which are
not present here. Accordingly, we affirm the district court’s order on the basis of Rule
12(b)(6).
I
Under the Social Security Act, individuals who reach “retirement age” are entitled
to “old age insurance benefits” based on their earnings record. At the time of L.N.P.’s
application for benefits, the applicable full retirement age was 66½ years old. In addition,
retirees’ “auxiliaries” — such as spouses and dependent children under the age of 18 —
are each entitled to receive benefits derivative from the retiree’s benefits in an amount that
may not exceed one-half of the retiree’s benefits. But all such benefits — the retiree’s and
auxiliaries’ — are subject to a statutory family maximum amount that can have the effect
of limiting the auxiliaries’ benefits. If a retiree reaches the age of 62, he may elect to apply
for a reduced “early retirement” benefit at any time thereafter up to the full retirement age.
In this case, L.N.P. elected to receive early retirement benefits at age 62, and his
reduced benefit was calculated to be $2,154 per month, rather than the full retirement
benefit, which would have been $2,954 per month had he waited until age 66½. His two
dependent children each received an auxiliary benefit of $1,107 per month. After receiving
notice of these benefits, L.N.P. believed that SSA had miscalculated his children’s benefits
and thus was underpaying them, and he so notified SSA. He maintained that under the
4 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 5 of 20
Social Security Act, when he elected to receive a reduced benefit based on early retirement,
that reduced amount should effectively increase the remaining portion of the family
maximum amount that would then be available to his dependent children, increasing the
benefit for each child by $375 per month. He argued that his calculation was required by
the First Circuit’s decision in Parisi by Cooney v. Chater, 69 F.3d 614 (1st Cir. 1995),
which interpreted certain provisions of 42 U.S.C. § 403 and 20 C.F.R. § 404.403 and which
SSA had officially adopted.
SSA, however, took the position that the children’s benefits must be based on the
family maximum benefit minus the full retirement benefit, even if the retiree receives a
reduced benefit amount, and that therefore L.N.P.’s dependent children were not entitled
to any additional payment. SSA explained that its method of calculation reflected a policy
that when the retiree receives a reduced benefit, the auxiliary benefits based on that retiree’s
work record must also be reduced — not proportionally increased, as L.N.P. would have it
— and it thus viewed L.N.P.’s proposed method as “lead[ing] to the absurd result of
redistributing to auxiliary beneficiaries the benefits that the early retiree chose to forego.”
L.N.P. commenced this action seeking a declaration that his method of calculation
is correct, an injunction requiring SSA to follow it, and reimbursement of the
underpayment amount of $375 per child per month. In his detailed 31-page complaint,
L.N.P. alleged that SSA “improperly deduct[ed] a much larger amount from the ‘family
maximum’ than [it] should,” resulting “in lesser amounts of child’s insurance benefits
being paid than is required by law.” He alleged that SSA’s improper calculations were
5 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 6 of 20
“traceable to [its] failure to properly apply the holding of the First Circuit’s decision in
[Parisi], which [properly] construed [42 U.S.C.] § 403 and 20 C.F.R. § 404.403.”
In his complaint, L.N.P. acknowledged that he did not exhaust his administrative
remedies, as required by 42 U.S.C. § 405(g), but he alleged that “[a]ny requirement for
exhaustion of administrative remedies should be excused in this case,” setting forth in
detail the reasons for doing so. First, he alleged that his claims “[were] collateral to any
claims for benefits.” Second, he alleged that he and his dependent children “[were] being
irreparably harmed and [could] not adequately be compensated by the relief that would
accrue from a judicial proceeding,” pointing to “economic hardship.” And third, he alleged
that “the purpose of exhaustion would . . . not be served by requiring exhaustion” in the
circumstances where SSA’s position was “entrenched” and “exhaustion would be futile,”
because “SSA would not likely overturn its current illegal policy.” He maintained that in
these circumstances, the Supreme Court has authorized waiver or judicial excuse of
§ 405(g)’s exhaustion requirement.
On SSA’s motion, the district court dismissed L.N.P.’s complaint, concluding that
L.N.P. could not be excused from exhausting administrative remedies and that his
complaint was therefore subject to dismissal under Rule 12(b)(1) for lack of subject-matter
jurisdiction. Addressing L.N.P.’s alleged justification for excusing exhaustion, the court
concluded first that “[L.N.P.’s] challenge to the SSA’s policy [was] too closely tied to his
demand for increased auxiliary benefits for the issue of benefits to be collateral to his
cause,” noting that L.N.P.’s claims were “inextricably intertwined” with his “claim for
benefits” and should “be channeled first into the administrative process which Congress
6 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 7 of 20
has provided for the determination of claims for benefits” (quoting Heckler v. Ringer,
466 U.S. 602, 614 (1984), and citing Turnbull v. Berryhill, 490 F. Supp. 3d. 132, 141, 143
(D.D.C. 2020)). The court also concluded that exhausting administrative remedies would
not be futile but would be consistent with the purpose of allowing SSA “to expound on its
position at the administrative level,” rather than through the judicial process, “‘especially
given’ that the issue is one of first impression” (quoting Shalala v. Ill. Council on Long
Term Care, Inc., 529 U.S. 1, 13 (2000) (explaining that “the ‘channeling’ of virtually all
legal attacks through [SSA]” “assures the agency greater opportunity to apply, interpret, or
revise policies, regulations, or statutes without possibly premature interference by different
individual courts” (emphasis added))). Finally, the court concluded that exhausting
administrative remedies would not lead to irreparable harm because “the alleged harm is
entirely monetary in nature” and there was no allegation of economic hardship flowing
from the lack of an additional $375 per month. Based on this analysis, the court dismissed
L.N.P.’s complaint for lack of subject-matter jurisdiction under Rule 12(b)(1). But after
L.N.P. filed a Rule 59(e) motion to alter or amend the judgment, the court explained that it
would “come to the same conclusion under Rule 12(b)(6)” and therefore denied that
motion.
From the district court’s judgment dated November 24, 2021, and its order denying
L.N.P.’s Rule 59(e) motion dated February 11, 2022, L.N.P. filed this appeal.
7 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 8 of 20
II
On the subjects of jurisdiction and exhaustion of administrative remedies, the Social
Security Act provides:
The findings and decisions of the Commissioner of Social Security after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Commissioner of Social Security shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Commissioner of Social Security, or any officer or employee thereof shall be brought under section 1331 or 1346 of Title 28 to recover on any claim arising under this subchapter.
42 U.S.C. § 405(h) (emphasis added). As the Supreme Court has observed, this section
“withdraws federal-court jurisdiction under 28 U.S.C. §§ 1331, 1346” and “serves to route
review through § 405(g).” Smith v. Berryhill, 139 S. Ct. 1765, 1776 n.13 (2019) (cleaned
up). Section 405(g), in turn, provides, as relevant:
Any individual, after any final decision of the Commissioner of Social Security made after a hearing to which he was a party, irrespective of the amount in controversy, may obtain a review of such decision by a civil action commenced within sixty days after the mailing to him of notice of such decision or within such further time as the Commissioner of Social Security may allow. Such action shall be brought in the district court of the United States for the judicial district in which the plaintiff resides, or has his principal place of business . . . .
42 U.S.C. § 405(g) (emphasis added). By requiring a final decision of the Commissioner
as a condition for judicial review, § 405(g) effectively mandates exhaustion of
administrative remedies as a prerequisite for filing suit. Specifically, as the Supreme Court
explained the process:
Modern-day claimants must generally proceed through a four-step process before they can obtain review from a federal court. First, the claimant must seek an initial determination as to his eligibility. Second, the claimant must
8 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 9 of 20
seek reconsideration of the initial determination. Third, the claimant must request a hearing, which is conducted by an ALJ. Fourth, the claimant must seek review of the ALJ’s decision by the Appeals Council. See 20 CFR § 416.1400. If a claimant has proceeded through all four steps on the merits, all agree, § 405(g) entitles him to judicial review in federal district court.
Smith, 139 S. Ct. at 1772. The exhaustion requirement was designed to let SSA process
claims in accordance with its complex procedures and apply its expertise before
authorizing judicial review. As the Court in Weinberger v. Salfi explained:
Exhaustion is generally required as a matter of preventing premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review.
422 U.S. 749, 765 (1975) (emphasis added).
Because the Commissioner of Social Security has “ultimate responsibility for the
integrity of the administrative program,” she has the discretion to waive the exhaustion
requirement if she “satisfies [her]self, at any stage of the administrative process, that no
further review is warranted either because the internal needs of the agency are fulfilled or
because the relief that is sought is beyond [her] power to confer.” Mathews v. Eldridge,
424 U.S. 319, 330 (1976); see also Bowen v. City of New York, 476 U.S. 467, 483 (1986).
And in “exceptional circumstances,” a court may excuse the exhaustion requirement.
Hyatt v. Heckler, 807 F.2d 376, 378 (4th Cir. 1986) (citing Bowen, 476 U.S. at 483); see
also Smith, 139 S. Ct. at 1774 (observing that exhaustion “may not only be waived by the
agency, but also excused by the courts” (citations omitted)).
The Supreme Court has identified three conditions that permit a court to excuse
compliance with § 405(g), namely, when (1) “[t]he claims . . . are collateral to the claims
9 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 10 of 20
for benefits”; (2) “the claimants . . . would be irreparably injured were the exhaustion
requirement . . . enforced against them”; and (3) “[t]he purposes of exhaustion would not
be served by requiring” it, as exhaustion would be “futile.” Bowen, 476 U.S. at 483–85;
see also Hyatt, 807 F.2d at 378. Even so, the Bowen Court admonished that “[i]n the
normal course,” exhaustion should not be excused. 476 U.S. at 484–85.
In short, Congress has channeled all claims for social security benefits first to SSA
for its consideration and resolution in accordance with its administrative procedures and,
only after the Commissioner of Social Security has issued her final decision, to a district
court. That statutory sequence is mandatory. Yet, in exceptional circumstances, when the
purposes of the administrative process have been fulfilled or when the Commissioner
determines she has no power to grant the relief requested, the Commissioner may, in her
discretion, waive the exhaustion requirement and allow the claim to proceed to court.
Moreover, focusing on those same considerations, a court may excuse the exhaustion
requirement. And there may also be an equitable justification for excusing exhaustion in
the circumstance when engaging in the administrative process would result in irreparable
injury to the claimant. See Bowen, 476 U.S. at 483–84.
With these principles in hand, we address L.N.P.’s contention that the district court
erred in not excusing exhaustion of administrative remedies in this case.
III
At the outset, L.N.P. contends that the district court erred by “treating exhaustion as
a jurisdictional question” and dismissing his complaint under Rule 12(b)(1), rather than
10 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 11 of 20
addressing it under Rule 12(b)(6) and the standards applicable to that rule. He contends
further that because exhaustion is not a jurisdictional question, it is an “affirmative defense
to be established by [SSA] and not by the complaint.” And the complaint, as he notes,
must be taken on its face as true at this stage of the proceedings. He argues that, because
the complaint made sufficient non-conclusory factual allegations that established at least
one of the three recognized exceptions to exhaustion, the district court erred in dismissing
it.
In the initial order dismissing the complaint, the district court did indeed treat
exhaustion as a jurisdictional question and accordingly relied on Rule 12(b)(1) to dismiss
it. At the hearing on L.N.P.’s motion to modify that order under Rule 59(e), which claimed
that Rule 12(b)(6) and not Rule 12(b)(1) should have been applied, the district court stated,
“whether in analyzing this under 12(b)(1) or 12(b)(6), I’ve come to the same conclusion,
which is that exhaustion — the exception to exhaustion has not been met.”
L.N.P.’s argument is well taken. While § 405(h) channels judicial review to
§ 405(g), and § 405(g) in turn provides for judicial review only after the claimant obtains
a “final decision of the Commissioner of Social Security made after a hearing,” § 405(g)
addresses both subject-matter jurisdiction and the mandatory, but waivable, conditions for
judicial review. The Mathews Court explained how § 405(g) has these “two elements”:
[The requirement of a final decision by the Commissioner made after a hearing] consists of two elements, only one of which is purely “jurisdictional” in the sense that it cannot be “waived” by the [Commissioner] in a particular case. The waivable element is the requirement that the administrative remedies prescribed by the [Commissioner] be exhausted. The nonwaivable element is the requirement that a claim for benefits shall have been presented to the [Commissioner].
11 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 12 of 20
Absent such a claim there can be no “decision” of any type. And some decision by the [Commissioner] is clearly required by the statute.
424 U.S. at 328 *; see also Smith, 139 S. Ct. at 1773–74; Bowen, 476 U.S. at 482–83. Thus,
§ 405(g) confers jurisdiction on district courts to review claims so long as the claims have
first been submitted to the Commissioner. With that jurisdiction, courts may then consider
and address questions relating to whether the exhaustion requirement has been satisfied or
whether it has been waived or may be excused. See Smith, 139 S. Ct. at 1774.
Accordingly, a motion under Rule 12(b)(1), which addresses a court’s subject-
matter jurisdiction, does not reach exhaustion issues when the claim has been submitted to
SSA. Moreover, a Rule 12(b)(6) motion to dismiss, which addresses the sufficiency of the
complaint, generally does not enable the court to determine whether the exhaustion
requirement has been satisfied or whether it has been waived or should be excused, because
exhaustion is treated as an affirmative defense. See, e.g., Jones v. Bock, 549 U.S. 199,
211–12 (2007). When, however, “facts sufficient to rule on an affirmative defense [such
as exhaustion] are alleged in the complaint, the defense may be reached by a motion to
dismiss filed under Rule 12(b)(6).” Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir.
2007) (en banc). But this principle applies only in the “relatively rare circumstances” when
“all facts necessary to the affirmative defense clearly appear on the face of the complaint.”
* The Supreme Court’s opinion refers to the “Secretary” of Health, Education, and Welfare, rather than the “Commissioner” of Social Security. The Social Security Act, however, was later amended to substitute the Commissioner for the Secretary. See Social Security Independence and Program Improvements Act of 1994, Pub. L. No. 103–296, § 102, 108 Stat. 1464, 1465–66 (1994) (codified at 42 U.S.C. § 902). For purposes of this opinion, the distinction makes no difference. 12 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 13 of 20
Id. (cleaned up). And even to succeed in these rare circumstances, the defendant must
show “that the plaintiff’s potential [response] to the affirmative defense was foreclosed by
the allegations in the complaint.” Id. at 466.
We conclude that the Goodman exception applies in this case. L.N.P., recognizing
that satisfying exhaustion under § 405(g) was the generally applicable and mandatory rule
and that he had not administratively exhausted his claims, alleged in great detail why his
case was exceptional and why his circumstances satisfied all three conditions identified for
a court to excuse exhaustion. In summary, his complaint alleged (1) that his claims were
“collateral to [any] claims for benefits” because of their systemic nature; (2) that he would
be “irreparably harmed” if he were required to exhaust his claims administratively; and (3)
that “exhaustion would be futile as a practical matter because the SSA would not likely
overturn its current illegal policy.” In his brief on appeal, he agrees that in response to the
lack-of-exhaustion affirmative defense, he “bears the burden of showing that one or more
of the [Bowen] exceptions apply,” but he argues that “the Complaint alleges sufficient facts
to warrant waiver of exhaustion.”
On this threshold question raised by L.N.P., we therefore conclude that, while the
district court erroneously relied on Rule 12(b)(1) in the first instance to dismiss L.N.P.’s
complaint, we can, in the circumstances of this case, review the merits of the exhaustion
requirement under Rule 12(b)(6). This is so because the merits of that defense can be fully
adjudicated by looking to the face of the complaint to determine whether L.N.P. would be
able to justify excusing compliance with § 405(g)’s exhaustion requirement.
13 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 14 of 20
IV
On the merits, the district court held that L.N.P. satisfied none of the three Bowen
conditions, and accordingly, it dismissed L.N.P.’s complaint for failing to exhaust
administrative remedies as required by § 405(g). L.N.P. contends that the court erred with
respect to each condition, although he maintains that he need only satisfy one of them.
Before addressing the Bowen conditions, we note that L.N.P.’s contention that
satisfaction of any one condition is sufficient to bypass the exhaustion requirement appears
to be foreclosed by our precedent. In Bowen, the Supreme Court identified and applied all
three factors, stating:
[1] The claims in this lawsuit are collateral to the claims for benefits . . . . [2] Moreover . . . the claimants . . . would be irreparably injured were the exhaustion requirement now enforced against them. . . . [3] Finally, . . . guided by the policies underlying the exhaustion requirement, . . . exhaustion would have been futile.
476 U.S. at 483–85 (cleaned up). And in Hyatt, we likewise articulated the three Bowen
conditions and applied them conjunctively, suggesting that all three must be satisfied. See
807 F.2d at 378. We stated in conclusion that “the district court’s judicial waiver of the
exhaustion of administrative remedies satisfies the criteria prescribed by the Supreme
Court. Id. at 380 (emphasis added); accord Blue Valley Hospital, Inc. v. Azar, 919 F.3d
1278, 1284 (10th Cir. 2019); Justiniano v. SSA, 876 F.3d 14, 27 (1st Cir. 2017); Degnan v.
Burwell, 765 F.3d 805, 808 (8th Cir. 2014); Kildare v. Saenz, 325 F.3d 1078, 1082 (9th
Cir. 2003). While the issue need not be conclusively resolved here, we understand that it
could reasonably be argued that while both collaterality and futility would have to be
shown, as they go to the practical necessity of exhaustion, irreparable injury might, in some
14 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 15 of 20
circumstances, operate as an independent equitable justification for bypassing exhaustion
if it were pellucidly clear that such injury were likely.
Nonetheless, we address whether L.N.P. has satisfied each of the three Bowen
conditions.
A
L.N.P. argues first that his claims are “collateral” to his claim for benefits, as he is
seeking relief requiring SSA to “make ministerial calculations consistent with [the] law,”
which reaches beyond the specific relief requested for himself and his children. He alleged
in his complaint that SSA’s calculations of auxiliary benefits have been violating § 403 of
the Social Security Act and 20 C.F.R. § 404.403, and that these “procedural violations”
constitute “a system-wide failure” and therefore are “collateral to any claims for benefits.”
But L.N.P. also alleged in his complaint that he made a claim for benefits on his
own behalf and on behalf of his children and that SSA awarded him and his children
benefits based on calculations that, he claimed, violated 42 U.S.C. § 403 and 20 C.F.R. §
404.403. And he alleged further that because SSA was not applying the proper calculation,
“[his] eligible children . . . are and have been underpaid at least $375 per month each.”
Thus, he concluded, his children “are owed several thousands of dollars in past due
benefits.” For relief, he requested that the court order SSA “immediately to re-calculate”
his children’s benefits “and to provide full payment, including past-due benefits.”
L.N.P.’s complaint, which claimed systemic procedural violations that arose from
his own claim for benefits, presents exactly the scenario that the Supreme Court has found
15 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 16 of 20
does not justify bypassing the exhaustion requirement of § 405(g). See Ringer, 466 U.S.
at 613–14 (1984). In Ringer, the claimants likewise brought a systemic challenge to the
agency’s established procedures — in that case, for denying benefits for a particular
surgical procedure — but the Court found that “those claims [were] ‘inextricably
intertwined’ with [the claimants’ own] claims for benefits,” which were based on the SSA’s
denial of benefits for the same surgical procedure. Id. at 614. Consequently, the Court
held that such a mix of claims “should be channeled first into the administrative process
which Congress has provided for the determination of claims for benefits.” Id.
As in Ringer, we conclude that L.N.P.’s own claims for benefits are inextricably
intertwined with his systemic claims because both are based on the very same allegedly
erroneous method of calculating benefits. The claims are therefore not collateral in the
sense first articulated in Mathews, where, as the Court noted, the constitutional challenge
alleging a violation of the claimant’s due process rights was “entirely collateral to [the
claimant’s] substantive claim of entitlement.” 424 U.S. at 330 (emphasis added).
Accordingly, L.N.P.’s systematic claims do not warrant excusing the exhaustion of the
administrative process specified in § 405(g).
B
L.N.P. also argues that requiring him to exhaust administrative remedies will cause
his dependent children “irreparable hardship.” He alleged that the irreparable hardship
would arise from “economic hardships” caused by waiting for back benefits; by his
mortality risk as a man in his 60s, given that his children’s benefits are derivative of his
16 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 17 of 20
own; and by the loss of interest on any economic reparation. In short, the irreparable
hardship that L.N.P. claims is entirely economic. Moreover, the heightened mortality risk
he alleged exists regardless of whether his children receive increased benefits; his death
would not be a relevant factor for determining benefits payable before his death.
Economic hardship of the type L.N.P. claims is not the kind of equitable condition
for which courts have excused exhaustion of the administrative process. For instance, in
Mathews, the Court recognized a risk of irreparable injury based on the claimant’s physical
condition and corresponding dependency on disability benefits, such that “termination [of
benefits] would damage him in a way not recompensable through retroactive payments.”
424 U.S. at 331. And in Bowen, the Court accepted the district court’s finding that the
“ordeal of having to go through the administrative appeal process may trigger a severe
medical setback” for the claimant and therefore result in irreparable injury. 476 U.S. at
483.
In his complaint, L.N.P. alleged no physical injury, much less irreparable injury,
that would be suffered as a consequence of delayed payment. Moreover, even as to the
alleged economic hardship, he alleged that each of his children was receiving $1,107 per
month and that, if he were to be successful, those payments would increase by only $375
per month. He made no allegation that this underpayment was depriving his children of
basic life necessities or other matters of similar gravity. See Hyatt, 807 F.2d at 380
(applying the exception where the claimants would be “irreparably injured if the exhaustion
requirement were enforced against them”); see also Smith v. Schweiker, 709 F.2d 777, 781
17 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 18 of 20
(2d Cir. 1983) (noting that the claimant’s harms were not irreparable when they were
“currently . . . receiving benefits and [were] eligible to make claims for past losses”).
C
Finally, L.N.P. argues that pursuing the administrative process would be futile
because SSA personnel would follow its internal “Program Operations Manual System,”
which, he claims, provides the method for calculating auxiliary benefits that is inconsistent
with 42 U.S.C. § 403 and 20 C.F.R. § 404.403. He alleged in his complaint that “SSA
would not likely overturn its current illegal policy” that “has been ‘entrenched’ for
decades.” (Emphasis added).
L.N.P.’s speculation as to what SSA would do might well be correct. But it also
might not be correct. See Bowen, 476 U.S. at 487 (stressing that not “every internal policy
[alleged] to be inconsistent with legal requirements . . . will justify . . . excusing
exhaustion”). Indeed, this type of issue is of the kind that falls squarely within the policy
underlying the exhaustion requirement that Congress recognized in enacting § 405(g). As
the Bowen Court explained, the “policies underlying the exhaustion requirement” include:
preventing premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review.
Id. at 484 (emphasis added) (quoting Salfi, 422 U.S. at 765); see also Smith, 139 S. Ct. at
1779 (noting that “a federal court generally goes astray if it decides a question that has
been delegated to an agency if that agency has not first had a chance to address the
question”).
18 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 19 of 20
Neither the district court nor this court has had the benefit of reviewing SSA’s
decision in light of a reasoned explanation for why it believes that the best interpretation
of § 403 and 20 C.F.R. § 404.403 requires that auxiliary benefits be calculated based on
the difference between the family maximum and the retiree’s full retirement benefit, rather
than the retiree’s early retirement benefit. As SSA argued to the district court, even if it
were “certain[]” that full exhaustion would leave its initial decision unchanged, it is
nevertheless a significant and valuable procedural step to retain because it allows SSA “to
get its explanation on the record as to why it has interpreted certain provisions in a
particular way.” We agree.
* * *
In sum, L.N.P. made a claim to SSA for retirement benefits for himself and auxiliary
benefits for his children. SSA awarded both him and his children benefits, calculating their
amount in accordance with its operative internal manual. L.N.P. disagreed with SSA’s
calculation of his dependents’ auxiliary benefits and commenced this action without
exhausting the administrative process. Despite his efforts to emphasize the fact that a
favorable decision in his case would benefit many similarly situated persons, this case is,
at bottom, about L.N.P.’s disagreement with the manner in which SSA disposed of his
claim for benefits.
Congress has stated clearly that all such claims must be channeled through § 405(g),
which requires exhaustion through SSA’s administrative process. L.N.P.’s claims do not
present the rare case in which bypassing that process is justified. The district court
dismissed L.N.P.’s complaint without prejudice, which allows L.N.P. to pursue his claims
19 USCA4 Appeal: 22-1187 Doc: 29 Filed: 04/07/2023 Pg: 20 of 20
in court after completing the administrative process. We affirm the judgment of the district
court.
AFFIRMED