Taking it on the Chenery: should the principles of Chenery I apply in social security disability cases?

• Author: Bond, Bryan C.

INTRODUCTION

Facing an increasing caseload, (1) federal courts must review thousands of Social Security disability cases each year, with most ending in reversal of the agency's decision. (2) Judges have grown frustrated with the process, believing that the Social Security Administration often wrongfully denies claims. (3) Indeed, a few courts have even threatened sanctions against the agency for ignoring precedent and thereby "forcing claimant after claimant to file lawsuits in order to obtain deserved benefits." (4) As Congress put it, there is an "increasing number and intensity of confrontations between the agency and the courts as [the agency] refuses to apply circuit court opinions." (5)

The principles of SEC v. Chenery Corp. (Chenery I), (6) as applied, exacerbate these issues by preventing courts from directly enforcing their precedents. In Chenery, the Supreme Court established the "simple but fundamental rule of administrative law.... that a reviewing court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency." (7) One important corollary of this rule is that a court generally must remand to an agency if it finds the agency has committed legal error or has failed to address a material issue. (8)

The Supreme Court has reaffirmed these principles in a variety of settings. (9) And, as one would expect, federal courts uniformly apply Chenery when reviewing agency decisions--including Social Security disability determinations. (10) In fact, each circuit court of appeals (11) has invoked Chenery in a Social Security disability case without discussing its applicability. (12) But the Supreme Court has not spoken as to whether these principles extend to the Social Security disability setting, (13) and careful examination of the Social Security Act's judicial review provisions (14) indicates these principles may not apply in that context.

42 U.S.C. [section] 405 (g) grants a reviewing court the "power to enter, upon the pleadings and transcript of the record, a judgment affirming, modifying, or reversing the decision of the Commissioner of Social Security, with or without remanding the cause for a rehearing." (15) Thus, the plain language of the statute appears to contradict Chenery's remand requirement. (16) Moreover, [section] 405(g) takes the courts outside of "their accustomed role as external overseers of the administrative process," (17) and instead makes them "virtual[] ... coparticipants in the process, exercising ground-level discretion of the same order as that exercised by [administrative law judges] and the Appeals Council." (18) It follows, then, that a Social Security decision may not be a "determination or judgment which an administrative agency alone is authorized to make." (19)

The remand process places a burden on both the agency and the courts by forcing each to reconsider cases where the eventual outcome should be clear. Therefore, if Chenery does not apply in Social Security disability cases, wasteful remands can be avoided. This would alleviate congestion in the federal courts and reduce the tension between the courts and the Social Security Administration, as courts could enforce their precedents directly.

This Note explores Chenery's applicability in Social Security disability cases. Part I tracks the development of Chenery and its progeny. Part II analyzes the Social Security Act's judicial review provisions and compares them with those typically found in other statutes underlying Chenery's application. Part III explores the legal arguments for and against applying Chenery in Social Security disability cases. It begins with the implicit arguments raised in dicta by the Tenth Circuit in Powell v. Barnhart, (20) before moving on to analyze [section] 405(g)'s "with or without remanding" clause. Finally, the Note concludes by suggesting courts should confront the text of [section] 405 (g), rather than "mechanically import[ing the principles of Chenery and its progeny] into the particular context of social security disability proceedings." (21)

1. CHENERY AND ITS PROGENY

   1. Chenery I

      Chenery I involved a group of corporate "officers, directors, and controlling stockholders" (22) (Directors) who purchased preferred stock (23) in a controlled subsidiary while that subsidiary's reorganization was pending before the SEC. (24) Although the Commission found no fraud or failure to disclose on the part of the Directors, it concluded that they "were fiduciaries and hence under a 'duty of fair dealing' not to trade in the securities of the corporation while plans for its reorganization were before the Commission." (25)

      On appeal, the Supreme Court agreed that the Directors occupied positions of trust, but it disagreed with the Commission's interpretation of fiduciary law. (26) And because the Commission based its decision solely on the laws of equity, the laws of equity were the only basis upon which the Commission's decision could be judged. (27) Thus, the Chenery doctrine was born: "The grounds upon which an administrative order must be judged are those upon which the record discloses that its action was based." (28)

      The Court explained this rule by analogizing to judicial review of lower court decisions. (29) A reviewing court must affirm a lower court's decision if it reaches the correct result, even if "the lower court relied upon a wrong ground or gave a wrong reason." (30) This rule makes sense because "[i] t would be wasteful to send a case back to a lower court to reinstate a decision which it had already made but which the appellate court concluded should properly be based on another ground within the power of the appellate court to formulate." (31) If, however, the lower court's decision rests "upon a determination of fact which only a jury could make but which has not been made, the appellate court cannot take the place of the jury." (32)

      Similarly, if an administrative order relies on "a determination of policy or judgment which the agency alone is authorized to make and which it has not made, a judicial judgment cannot be made to do service for an administrative judgment." (33) Thus, "[f]or purposes of affirming no less than reversing its orders, an appellate court cannot intrude upon the domain which Congress has exclusively entrusted to an administrative agency." (34)

      Applying this rule, the SEC's order could not stand. (35) The Directors were under no fiduciary duty to avoid buying and selling the corporation's stock simply because they were officers and directors of the corporation. (36) This did not mean, however, that the Commission could not prevent the transactions. Congress gave the SEC broad power to protect the public interest. (37) Therefore, "[h]ad the Commission, acting upon its experience and peculiar competence, promulgated a general rule of which its order ... was a particular application, the problem for [the Court's] consideration would be very different." (38) Because the SEC chose not to rely on its statutory authority--and instead relied on an incorrect interpretation of the laws of equity--the Court remanded the case so the agency could exercise its delegated discretion. (39)

   2. SEC v. Chenery Corp. (Chenery II) (40)

      On remand, the SEC again refused to allow the Directors to benefit from the transactions. (41) This time, however, the agency took the Court's hint (42) and grounded its decision in statutory authority. (43) As the Court noted on appeal, "[t] he latest order of the Commission definitely avoids the fatal error of relying on judicial precedents which do not sustain it. This time.., the Commission has concluded that the proposed transaction is inconsistent with the standards of ... the [Public Utility Holding Company] Act." (44) Moreover, "[i]t has drawn heavily upon its accumulated experience in dealing with utility reorganizations. And it has expressed its reasons with a clarity and thoroughness that admit of no doubt as to the underlying basis of its order." (45) For those reasons, the Court upheld the Commission's order. (46)

      The second Chenery opinion is a landmark in administrative law because of its holding that an agency may choose between rulemaking and adjudication when announcing its policies. (47) For purposes of this Note, though, it is notable mostly for its explication of Chenery I: (48)

      When the case was first here, we emphasized a simple but fundamental rule of administrative law. That rule is to the effect that a reviewing court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency. If those grounds are inadequate or improper, the court is powerless to affirm the administrative action by substituting what it considers to be a more adequate or proper basis. To do so would propel the court into the domain which Congress has set aside exclusively for the administrative agency. (49) C. Chenery's Progeny

      The Court has refined Chenery's principles since handing down its original decisions in the 1940s. In Burlington Truck Lines, Inc. v. United States, (50) the Court faced what has become the typical situation involving Chenery; government counsel argued on appeal that the agency's decision should be affirmed on grounds not set forth in its order. (51) The Court refused the invitation, stating that "courts may not accept appellate counsel's post hoc rationalizations for agency action; Chenery requires that an agency's discretionary order be upheld, if at all, on the same basis articulated in the order by the agency itself." (52) To substitute a court's discretion for an agency's would undermine the orderly function of judicial review. (53)

      These principles were further explained in ICC v. Brotherhood of Locomotive Engineers. (54) There, the concurrence argued that...