This article originally appeared on Law360, and is republished here with permission.
May a bankruptcy court exercise jurisdiction over a claim or issue arising under the Social Security Act, such as the termination of a provider agreement for Medicare or an overpayment determination? The answer to this question may mean the difference between a speedy hearing in front of a bankruptcy court or a four-stage administrative appeals process that may take years to conclude.
In the May 10, 2019, ruling Benjamin v. United States of America, Social Security Administration (In re Benjamin), the United States Court of Appeals for the Fifth Circuit has breathed new life into a circuit split by joining the Ninth Circuit in holding that bankruptcy courts may exercise jurisdiction over a claim arising under the Social Security Act. This holding is at odds with the view held by the United States courts of appeal for the Third, Seventh, Eighth and Eleventh circuits. Lower courts have arrived at different results in attempting to navigate the split of authority.
Kenneth Benjamin was the designated beneficiary of his sister’s disability benefits. In September 2013, the Social Security Administration informed Benjamin that his sister’s benefits had expired in April 2012 because the SSA learned that she had returned to work, resulting in an overpayment of more than $19,000. Benjamin and his sister requested reconsideration of the overpayment determination and a waiver of overpayment.
The SSA did not consider the waiver request until July 2016, but it started withholding a portion of Benjamin's Social Security payments to make up the overpayment in September 2014. The SSA had recovered about $6,000 from Benjamin in September 2015 when it abruptly, for unknown reasons, stopped withholding the money. In July 2016, the SSA denied Benjamin's request for a waiver of the overpayment. Benjamin then timely filed an appeal to an administrative law judge.
The appeal was pending in May 2017 when Benjamin filed for Chapter 7 relief in the United States Bankruptcy Court for the Southern District of Texas. He then initiated an adversary proceeding against the SSA asserting that it collected $6,000 from him illegally and in violation of its own regulations. Benjamin demanded a full refund. The SSA moved to dismiss the case for lack of subject matter jurisdiction, arguing that Benjamin alleged only regulatory violations and thus must first seek relief through the administrative-appeal process. The bankruptcy court agreed and granted the motion, and Benjamin appealed to the U.S. District Court for the Southern District of Texas, which affirmed. Benjamin then turned to the Fifth Circuit, which reversed for the reasons discussed below.
The circuit split regarding bankruptcy jurisdiction over Social Security Act claims centers on an interpretation of whether 42 U.S.C. Section 405(h) — which explicitly states that no claim arising under the Social Security Act can be brought under 28 U.S.C. Sections 1331 and 1346 — should also be understood to bar bankruptcy courts from exercising their jurisdiction under Section 1334 to hear Social Security claims.
The U.S. Supreme Court has held that Section 405(h) “purports to make exclusive the judicial review method set forth in Section 405(g)” for claims falling within its scope. Exclusive judicial review is accomplished by stripping district courts of the most obvious sources of federal jurisdiction for any claims arising under Title II of the Social Security Act; namely “federal question” jurisdiction over all civil actions arising under federal law under Section 1331 and jurisdiction over civil actions against the United States under Section 1346. Section 405(h) then channels a certain class of those claims into Section 405(g), which, in turn, grants jurisdiction to district courts to review final agency decisions made after a hearing. Thus, the Social Security Act limits judicial review until after administrative remedies have been exhausted pursuant to 42 U.S.C. Sections 405(g) and (h) where Sections 1331 or 1334 provide the jurisdictional basis for the claim.
The majority position acknowledges that the plain language of Section 405(h) does not include Section 1334, which confers jurisdiction under Title 11 of the United States Code (the Bankruptcy Code), but reads § 405(h) as including a hidden jurisdictional bar. The majority position arrives at this conclusion by (1) reviewing the history of § 405(h), and (2) building off of the rationale set forth in Bodimetric Health Services Inc. v. Aetna Life and Casualty wherein the court considered whether the third sentence of Section 405(h) stripped courts of their Section 1332 diversity jurisdiction (which is also not included in Section 405(h)) to hear claims arising under the Medicare Act.
As originally enacted in 1939, Section 405(h) barred all actions brought under Section 24 of the Judicial Code of the United States, which contained all the jurisdictional grants to the federal courts at the time. As part of a recodification, Congress split the jurisdictional grants into multiple sections that are scattered throughout Section 28. Section 405(h) continued to incorrectly refer to Section 24 for approximately the next 30 years until it was revised to its current language in 1984. The majority position focuses on the recodification canon, which states that when legislatures codify the law, courts should presume that no substantive change was intended absent a clear indication otherwise. The most recent circuit to weigh in on this issue is the United States Court of Appeals for the Eleventh Circuit, which adopted the nontextualist approach in 2016 in ruling on In re Bayou Shores SNF LLC.
The only circuit to read Section 405(h)’s third sentence according to its plain text is the U.S. Court of Appeals for the Ninth Circuit, which held in In re Town & Country Home Nursing Services Inc., that Section 405(h) “only bars actions under 28 U.S.C. [Sections] 1331 and 1346; it in no way prohibits an assertion of jurisdiction under Section 1334.” The Ninth Circuit has subsequently held that Section 405(h) bars diversity jurisdiction under Section 1332, which the SSA argues signals a retreat from its position. However, the Ninth Circuit has not overruled Town & Country and has distinguished its result based on the special status of Section 1334’s “broad jurisdictional grant over all matters conceivably having an effect on the bankruptcy estate[.]”
The Fifth Circuit acknowledged that it must take a side in the circuit split. The Fifth Circuit rejected the nontextual approach exemplified by the Eleventh Circuit and held that Section 405(h) must be read according to its plain text. In reaching its conclusion, the Fifth Circuit first discussed the history of Section 405(h) and the majority position and rationale.
Joining the Ninth Circuit in adopting the opposite position, the Fifth Circuit panel said the majority of circuits — and the district court here, in affirming the Bankruptcy Court — wrongly relied on the recodification canon in reading a bar on Section 1334 jurisdiction into Section 405(h).
The Fifth Circuit noted that, “[w]hile the recodification canon is useful in some instances, it only applies — as the Eleventh Circuit noted — in the absence of a clear indication from Congress that it intended to change the law's substance.” The Fifth Circuit stated that while the Eleventh Circuit could not find any such indication that Congress did not intend to change Section 405(h)'s substance in updating its language, “it overlooked the most obvious source of congressional intent — the actual words of Section 405(h)'s third sentence.”
The Fifth Circuit held that the Eleventh Circuit violated the bedrock canon of statutory interpretation that the expression of one thing implies the exclusion of others.
The Fifth Circuit reversed the district court’s decision and remanded the case offering guidance to determine whether Benjamin’s claims challenge the type of administrative decisions that Section 405(h)’s second sentence channels into Section 405(g) and which would require administrative finality.
The Fifth Circuit’s textualist approach to Section 405(h) has reenergized the debate over whether bankruptcy courts may exercise jurisdiction over claims raised under the Social Security Act. Up until the decision in Benjamin, the Ninth Circuit was the only circuit to hold that Section 405(h) did not bar bankruptcy jurisdiction under Section 1334 in a decision decided in 1991.
With the Fifth Circuit joining the textualist position there is likely to be a renewed discussion over the proper interpretation of bankruptcy jurisdiction with the possibility of other circuits that have not yet weighed in on the circuit split joining the Fifth and Ninth Circuit. The government may be expected to vehemently contest decisions that seek to expand bankruptcy court, or alternative source, jurisdiction to evade Section 405(h)’s restrictions.
The circuit split between the Third, Seventh, Eighth, and Eleventh circuits and the Fifth and Ninth circuits could be resolved through legislation amending or revising Section 405(h) or by a decision from the Supreme Court. Until then, under Benjamin, eligible debtors seeking expedited determinations relating to claims under the Social Security Act may wish to consider filing in the Fifth Circuit.