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Steigerwald v. Commissioner of Social Security

United States District Court, N.D. Ohio

January 17, 2018

STEPHANIE L. STEIGERWALD, Plaintiff,
v.
COMMISSIONER OF SOCIAL SECURITY, Defendant.

          OPINION & ORDER [RESOLVING DOC. NO. 18]

          JAMES S. GWIN, UNITED STATES DISTRICT JUDGE.

         Plaintiff Stephanie Steigerwald brings this class action complaint against Defendant Nancy Berryhill, Acting Commissioner of the Social Security Agency (“Commissioner”).[1] Plaintiff Steigerwald alleges that Defendant Commissioner has repeatedly failed to properly calculate and disburse Social Security benefits when a claimant's representative receives attorneys' fees.

         Defendant Commissioner moves to dismiss Plaintiff's complaint, saying this Court lacks subject matter jurisdiction.[2] Defendant Commissioner argues that Plaintiff Steigerwald failed to present and exhaust her claim before the Social Security Agency (“SSA”), as required by statute, and that Plaintiff Steigerwald's claim is moot.

         For the following reasons, the Court DENIES Defendant Commissioner's motion to dismiss.

         I. Background

         A. The Windfall Offset Calculation

         Defendant Commissioner has previously found Plaintiff Steigerwald entitled to both retroactive disability benefits under Title II of the Social Security Act and retroactive supplemental security income (“SSI”) under Title XVI of that Act.[3] Neither party contests these benefit awards.

         Eligibility for SSI benefits and the amount of those benefits are both affected by an individual's income, including income from Title II disability benefits.[4] For this reason, when a claimant qualifies for both retroactive Title II and SSI benefits, SSA performs a calculation to ensure that the claimant is not paid a greater amount than they would have received if the claimant's benefits were paid when originally owed.[5] This is known as a windfall offset calculation.[6]

         When a claimant hires an attorney or other representative to aid them in obtaining Title II disability benefits, the claimant can pay the representative from her awarded Title II benefits.[7]When this happens, SSA deducts the attorney representative payment amount from the claimant's income calculation for SSI purposes.[8]

         Because a representative's fee may not be finalized until after a claimant is awarded retroactive benefits, SSA may need to calculate the windfall offset twice: once when a claimant is initially paid retroactive benefits, and again after the claimant's representative's fee is finalized.[9]

         After the representative's fee is finalized, a second windfall offset calculation can result in SSA paying the claimant additional benefits.[10] Additional benefits result because the claimant's income is lower after SSA deducts representative fees from their income and the Social Security Act's means-testing scheme increases SSI benefits when income decreases. In effect, the SSA payment of the attorneys' fees decreases the Title II disability benefits and the resulting decreased Title II disability benefits qualifies the participant for increased SSI benefits.

         Plaintiff Steigerwald alleges that in a large number of cases, including her own, SSA has failed to perform a second windfall offset calculation after the final representative's fee is determined.[11] Because of this failure, Plaintiff Steigerwald alleges that Defendant Commissioner has wrongfully withheld retroactive Title II benefits potentially totaling millions of dollars.[12]

         B. The Windfall Offset Calculations as Applied to Plaintiff Steigerwald

         Because the process leading to the necessity of a windfall offset recalculation can be confusing when spoken of in the abstract, Plaintiff Steigerwald's account gives a useful example.

         Plaintiff Steigerwald hired her attorneys in September 2009, and agreed to pay her attorneys 25 percent of the benefits they recovered for her.[13] In July 2014, her attorneys successfully recovered approximately five years of back SSI and Title II disability payments.[14]

         At that time, SSA correctly calculated the amount of past-due SSI and Title II benefits owed to Steigerwald. SSA then paid all past-due SSI benefits to Plaintiff Steigerwald, and withheld all past-due Title II benefits in order to make the first windfall offset calculation and to account for approximately $17, 000 in potential attorneys' fees that Steigerwald might have to pay.[15] In February 2015, SSA made the initial windfall offset calculation.[16]

         Under her attorneys' agreement with Steigerwald, their successful representation entitled them to approximately $17, 000, which is the amount they sought in a January 2015 petition.[17]SSA, however, reduced this amount and ultimately awarded $13, 500 in fees to Steigerwald's attorneys in August 2016.[18]

         In September 2016, SSA contacted Steigerwald's attorneys to ask whether Steigerwald's attorneys would petition the district court for the remainder of the fee that SSA had not awarded them. SSA also notified the attorneys that the agency was withholding approximately $3, 500 (the difference between Steigerwald's attorneys' full fee and the amount SSA awarded them) from Steigerwald's benefits.[19] Steigerwald's attorneys responded within a few days, informing SSA that they would not petition for any additional fees, that their fee was therefore finalized, and that SSA should release the withheld funds to Plaintiff Steigerwald.[20]

         At this point, SSA had to complete two actions in order to finish paying Steigerwald's past-due benefits. First, SSA needed to release the $3, 500 it withheld for attorneys' fees. SSA did this in February 2017.[21]

         Second, SSA needed to perform another windfall offset calculation after reducing Steigerwald's qualifying income to account for the $13, 500 attorneys' fees that she had paid.[22] As of the filing of this suit, SSA had not performed the second windfall offset calculation. Had it done so, Steigerwald would have been entitled to an additional $5, 392.08 in past-due benefits.[23]

         II. Legal Standard

         A motion to dismiss pursuant to Rule 12(b)(1) may either make a facial jurisdictional attack or it can attack the factual basis of jurisdiction.[24] When a defendant challenges subject matter jurisdiction under Rule 12(b)(1), the plaintiff bears the burden of establishing that the Court has subject matter jurisdiction over his claim.[25] “Aside from the resolution of jurisdictional prerequisites, a district court must generally confine its Rule 12(b)(1) or 12(b)(6) ruling to matters contained within the pleadings and accept all well-pleaded allegations as true.”[26]

         III. Analysis

         Defendant Commissioner argues that this Court lacks jurisdiction to hear Plaintiff Steigerwald's claims because (1) Steigerwald did not first present her claims to the SSA; (2) even if Steigerwald had first presented her claims, she did not exhaust those claims; and (3) Steigerwald's claims are now moot. Defendant Commissioner also argues that this Court lacks mandamus jurisdiction because Steigerwald has an alternate adequate remedy through § 405(g).

         The Court addresses each of these arguments in turn.

         A. Presentment

         Defendant Commissioner argues that this Court lacks subject matter jurisdiction over Plaintiff Steigerwald's claims because she did not sufficiently bring those claims to SSA before filing her complaint, in violation of 42 U.S.C. § 405(g)'s non-waivable presentment requirement.[27]The Court finds, however, that Plaintiff Steigerwald did present her claims to SSA.

         Section 405(g)'s presentment prong requires that all claimants bring their claims to the attention of SSA before filing suit in federal court.[28] This requirement is intended to “channel” legal attacks through SSA and “assure[] the agency greater opportunity to apply, interpret, or revise policies, regulations, or statutes without possibly premature interference by different individual courts . . . .”[29]

         Plaintiff Steigerwald argues that she or her attorneys satisfied § 405(g)'s presentment requirement three times: first, by originally filing her application for benefits; second, by her attorneys' petitioning for attorneys' fees; and third, by responding with a letter that told SSA that Steigerwald's attorneys' fees were final and arguing for SSA to “release the withheld benefits to the claimant.”

         The Court need not decide whether Steigerwald presented her current claims simply by filing for benefits or when her attorneys made their request for fees. Steigerwald's attorneys' subsequent letter to SSA regarding benefits withheld because of attorneys' fees satisfies the presentment requirement.

         That letter, sent on September 15, 2016, responded to SSA's September 12, 2016 notice that SSA was still withholding funds from Plaintiff Steigerwald's benefits because of her attorneys' pending request for fees.[30] Plaintiff Steigerwald's attorney, Kirk Roose, faxed his response to SSA, stating:

We were notified that additional money is being withheld for our fee in a Social Security Notice dated September 12, 2016.
We are writing to inform you that we are not petitioning the United States District Court . . . for the balance of our fee. Please release the withheld benefits to the claimant.[31]

         This letter informed Defendant Commissioner that the attorneys' fees in Plaintiff Steigerwald's case were final and told SSA to release whatever benefits SSA had withheld because of these outstanding fees. SSA's own operations manual states that once an attorney's fee is authorized by SSA or the district court in a case where both Title II and SSI claims are involved, SSA should send a copy of the notice authorizing the fee to the relevant SSA field office. That field office should then perform the necessary windfall offset benefits recalculation.[32]

         Therefore, SSA knew Plaintiff Steigerwald had demanded SSA perform a second, updated windfall offset calculation, and SSA had all of the information it needed to perform this calculation. Presentment does not require more than this.[33]

         The Court finds that by making SSA aware that the attorneys' fees issue was final and that SSA should release her withheld benefits, Plaintiff Steigerwald presented her claim.

         B. Exhaustion

         In addition to its non-waivable presentment requirement, § 405(g) also contains a waivable requirement that a claimant exhaust her administrative remedies prior to filing an action in federal court. Defendant Commissioner can voluntarily waive this administrative exhaustion requirement, or in certain circumstances, the Court may require Defendant Commissioner to waive this requirement.[34]

         Plaintiff Steigerwald does not contend that she has exhausted her available administrative remedies. Instead, she argues that this requirement should be waived because exhaustion in this instance would be futile. She argues that neither she nor any class member received a notice of entitlement to retroactive payment of underpaid benefits. Without the knowledge that SSA had failed to perform a second windfall offset calculation and did not intend to do so, Plaintiff Steigerwald says there was no decision to appeal and no remedy to exhaust. Plaintiff Steigerwald also argues that exhaustion should be waived because her claim is collateral to her claim for benefits and she will suffer irreparable harm without waiver.

         The Court finds each of these arguments persuasive. In Bowen v. City of New York, the Supreme Court identified three relevant factors for deciding whether a court should waive an exhaustion requirement: “(1) are the claims at issue collateral to the underlying decisions as to eligibility for entitlements; (2) would claimants be irreparably harmed were the exhaustion requirement enforced against them; and (3) would exhaustion of administrative remedies be futile.”[35]

         All three of these factors weigh in favor of requiring waiver here. First, SSA has already determined that Plaintiff Steigerwald and the proposed class are entitled to both Title II and SSI benefits. Indeed, Defendant Commissioner now admits that it owed Steigerwald additional benefits after a windfall offset recalculation.[36] Steigerwald's current claim is, at its core, simply an attempt to force SSA to finish calculating the amount of the benefits that SSA admits it owes her.[37]

         Second, Plaintiff Steigerwald makes a clear case for potential irreparable harm. Title II and SSI benefits are designed to ensure that recipients who live with both poverty and disability receive enough income to purchase basic life necessities. Prolonged ...


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