Professional Documents
Culture Documents
Mccollum Ruling
Mccollum Ruling
Plaintiffs,
Defendants.
____________________________________/
ORDER AND MEMORANDUM OPINION
Now pending is the defendants’ motion to dismiss (doc. 55). This motion
seeks dismissal of Counts One, Two, Three, and Six of the plaintiffs’ amended
complaint for lack of subject matter jurisdiction (pursuant to Rule 12(b)(1), Fed. R.
Civ. P.), and dismissal of all counts in the amended complaint for failure to state a
claim upon which relief can be granted (pursuant to Rule 12(b)(6), Fed. R. Civ. P.).
The plaintiffs have filed a response in opposition, and the defendants have filed a
reply to that response. A hearing was held in this matter on September 14, 2010.
I. INTRODUCTION
This litigation --- one of many filed throughout the country --- raises a facial
Constitutional challenge to the federal healthcare reform law, Patient Protection and
Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), amended by
Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124
Stat. 1029 (2010) (the “Act”). It has been filed by sixteen state Attorneys General
and four state Governors (the “state plaintiffs”);1 two private citizens, Mary Brown
1
The state plaintiffs represent: Alabama, Alaska, Arizona, Colorado, Florida,
Georgia, Idaho, Indiana, Louisiana, Michigan, Mississippi, Nebraska, Nevada, North
and South Dakota, Pennsylvania, South Carolina, Texas, Utah, and Washington.
Page 2 of 65
and Kaj Ahlburg (the “individual plaintiffs”); and the National Federation of
Independent Business (“NFIB”) (together, the “plaintiffs”). The defendants are the
United States Department of Health and Human Services, Department of Treasury,
Department of Labor, and their respective secretaries (together, the “defendants”).
Before addressing the plaintiffs’ allegations, and the arguments in support of
the defendants’ motion to dismiss, I will take a moment to emphasize preliminarily
what this case is, and is not, about.
The Act is a controversial and polarizing law about which reasonable and
intelligent people can disagree in good faith. There are some who believe it will
expand access to medical treatment, reduce costs, lead to improved care, have a
positive effect on the national economy, and reduce the annual federal budgetary
deficit, while others expect that it will do exactly the opposite. Some say it was
the product of an open and honest process between lawmakers sufficiently
acquainted with its myriad provisions, while others contend that it was drafted
behind closed doors and pushed through Congress by parliamentary tricks, late
night weekend votes, and last minute deals among members of Congress who did
not read or otherwise know what was in it. There are some who believe the Act is
designed to strengthen the private insurance market and build upon free market
principles, and others who believe it will greatly expand the size and reach of the
federal government and is intended to create a socialized government healthcare
system.
While these competing arguments would make for an interesting debate and
discussion, it is not my task or duty to wade into the thicket of conflicting opinion
on any of these points of disagreement. For purposes of this case, it matters not
whether the Act is wise or unwise, or whether it will positively or negatively impact
healthcare and the economy. Nor (except to the limited extent noted in Part III.A(7)
infra) am I concerned with the manner in which it was passed into law. My review
of the statute is not to question or second guess the wisdom, motives, or methods
care are passed along to market participants in the form of higher costs and raised
premiums, which, in turn, can help perpetuate the cycle (or the “premium spiral,”
as the defendants call it) and add to the number of uninsured. It was against this
backdrop that Congress passed the Act.
A. The Legislative Scheme
At nearly 2,700 pages, the Act is very lengthy and includes many provisions,
only a few of which are specifically at issue in this litigation. Chief among them is
Section 1501, which, beginning in 2014, will require that all citizens (with stated
exceptions) obtain federally-approved health insurance, or pay a monetary penalty
(the “individual mandate”). This provision is necessary, according to Congress and
the defendants, to lower premiums (by spreading risks across a much larger pool)
and to meet “a core objective of the Act,” which is to expand insurance coverage
to the uninsured by precluding the insurance companies from refusing to cover (or
charging exorbitant rates to) people with pre-existing medical conditions. Without
the individual mandate and penalty in place, the argument goes, people would
simply “game the system” by waiting until they get sick or injured and only then
purchase health insurance (that insurers must by law now provide), which would
result in increased costs for the insurance companies. This is known as “the moral
hazard.” The increased costs would ultimately be passed along to consumers in the
form of raised premiums, thereby creating market pressures that would (arguably)
inevitably drive the health insurance industry into extinction. The plaintiffs allege
that regardless of whether the individual mandate is well-meaning and essential to
the Act, it is unconstitutional and will have both a “profound and injurious impact”
on the states, individuals, and businesses.
The plaintiffs object to several interrelated portions of the Act as well. First,
the Act significantly alters and expands the Medicaid program. Created in 1965,
Medicaid is a cooperative federal-state program that provides for federal financial
assistance (in the form of matching funds) to states that elect to provide medical
care to needy persons. The Act will add millions of new enrollees to the states’
Medicaid rolls by expanding the program to include all individuals under the age of
65 with incomes up to 133% of the federal poverty line. Second, the Act provides
for creation of “health benefit exchanges” designed to allow individuals and small
businesses to leverage their buying power to obtain competitive prices. The Act
contemplates that these exchanges will be set up and operated by the states, or by
the federal government if the states elect not to do so. And lastly, the Act requires
that the states (along with other “large employers”) provide their employees with a
prescribed minimum level of health insurance coverage (the “employer mandate”).
The plaintiffs allege that these several provisions violate the Constitution and state
sovereignty by coercing and commandeering the states and depriving them of their
“historic flexibility” to run their state government, healthcare, and Medicaid
programs. The plaintiffs anticipate that these and various other provisions in the
Act will cost Florida (and the other states similarly) billions of dollars between now
and the year 2019, not including the administrative costs it will take to implement
the Act, and that these costs will only increase in the subsequent years. In short,
the plaintiffs contend that the legislation is coercive, intrusive, and could bankrupt
the states.2
B. This Lawsuit and the Motion to Dismiss
The plaintiffs advance six causes of action in their amended complaint, and
they seek declaratory and injunctive relief with respect to each. They contend that
the Act violates the Constitution in the following ways: (1) the individual mandate
and concomitant penalty exceed Congress’s authority under the Commerce Clause
2
Not all states feel this way, and there is even a division within a few of the
plaintiff states. Three Attorneys General and four Governors previously requested
leave to participate in this case as amici curiae, and they have indicated that they
favor the changes the Act will bring as they believe the new legislation will save
money and reduce their already overburdened state budgets (docs. 57, 59).
and violate the Ninth and Tenth Amendments (Count I); (2) the individual mandate
and penalty violate substantive due process under the Fifth Amendment (Count II);
(3) “alternatively,” if the penalty imposed for failing to comply with the individual
mandate is found to be a tax, it is an unconstitutional unapportioned capitation or
direct tax in violation of U.S. Const. art. I, § 9, cl. 4, and the Ninth and Tenth
Amendments (Count III); (4) the Act coerces and commandeers the states with
respect to Medicaid by altering and expanding the program in violation of Article I
and the Ninth and Tenth Amendments (Count IV); (5) it coerces and commandeers
with respect to the health benefit exchanges in violation of Article I and the Ninth
and Tenth Amendments (Count V); and (6) the employer mandate interferes with
the states’ sovereignty as large employers and in the performance of government
functions in violation of Article I and the Ninth and Tenth Amendments (Count VI).
See generally Amended Complaint (“Am. Compl.”) (doc. 42).
The defendants seek to have the complaint dismissed on numerous grounds;
four of the counts for lack of jurisdiction (under Rule 12(b)(1)), and all six of them
for failure to state a claim upon which relief can be granted (under Rule 12(b)(6)).
With respect to jurisdiction, the defendants contend that for the challenges to the
individual mandate and employer mandate (Counts I, II, and VI), the plaintiffs lack
standing; the claims are not ripe; and the claims are barred by the Anti-Injunction
Act. (By not raising similar arguments for Counts IV and V, the defendants appear
to impliedly concede that those counts allege injuries that are immediately ripe for
review). As for the plaintiffs’ “alternative” cause of action contending that, if the
individual mandate penalty is deemed to be a tax, then it is an impermissible and
unconstitutional one (Count III), the defendants maintain that, too, is precluded by
the Anti-Injunction Act.
If the foregoing jurisdictional challenges fail, the defendants go on to assert
that those causes of action, and all others, fail to state a claim for which relief can
be granted.
III. DISCUSSION
A. Is the “Penalty” for Non-Compliance with the Individual Mandate Actually
a “Tax” for Constitutional Analysis?
A fundamental issue overlaps the defendants’ challenges to several of the
plaintiffs’ claims, and that is whether the individual mandate penalty is a “tax”
within Congress’s broad taxing power and thus subject to the Anti-Injunction Act,
or instead, a “penalty” that must be authorized, if at all, by Congress’s narrower
Commerce Clause power. Because of the importance of this issue, I will analyze it
first and at some length.
The defendants contend that the individual mandate penalty is a tax that is
sustainable under Congress’s expansive power to tax for the general welfare. U.S.
Const. art I, § 8, cl. 1 (“The Congress shall have Power To lay and collect Taxes,
Duties, Imposts and Excises, to pay the Debts and provide for the . . . general
Welfare”). The plaintiffs urge that, if it is a tax, it is an unconstitutional one. The
defendants maintain that the plaintiffs have no standing to raise the claim at this
point in time because of the Anti-Injunction Act.
The Anti-Injunction Act [26 U.S.C. § 7421(a)] provides that “no suit for the
purpose of restraining the assessment or collection of any tax shall be maintained
in any court by any person . . . .” The remedy for challenging an improper tax is a
post-collection suit for refund. As the Supreme Court has explained:
The Anti-Injunction Act . . . could scarcely be more
explicit --- “no suit for the purpose of restraining the
assessment or collection of any tax shall be maintained in
any court . . .” The Court has interpreted the principal
purpose of this language to be the protection of the
Government’s need to assess and collect taxes as
expeditiously as possible with a minimum of
preenforcement judicial interference, “and to require that
the legal right to the disputed sums be determined in a
suit for refund.” The Court has also identified “a collateral
objective of the Act --- protection of the collector from
litigation pending a suit for refund.”
Bob Jones Univ. v. Simon, 416 U.S. 725, 736-37, 94 S. Ct. 2038, 40 L. Ed. 2d
496 (1974) (citations omitted); accord, e.g., United States v. Clintwood Elkhorn
Min. Co., 553 U.S. 1, 10, 128 S. Ct. 1511, 170 L. Ed. 2d 392 (2008) (“[The Anti-
Injunction Act] commands that (absent certain exceptions) ‘no suit for the purpose
of restraining the assessment or collection of any tax shall be maintained in any
court,’” even if the tax is alleged to be unconstitutional, which means “the
taxpayer must succumb to an unconstitutional tax, and seek recourse only after it
has been unlawfully exacted”); Enochs v. Williams Packing & Navigation Co., 370
U.S. 1, 7, 82 S. Ct. 1125, 8 L. Ed. 2d 292 (1962) (explaining that the “manifest
purpose” of the Anti-Injunction Act “is to permit the United States to assess and
collect taxes alleged to be due without judicial intervention, and to require that the
legal right to the disputed sums be determined in a suit for refund. In this manner
the United States is assured of prompt collection of its lawful revenue.”). The Anti-
Injunction Act, in short, applies to “truly revenue-raising tax statutes,” see Bob
Jones Univ., supra, 416 U.S. at 743, and seeks “protection of the revenues”
pending a suit for refund. See id. at 737, 740.
Because the individual mandate does not go into effect until 2014, which
means the penalty for non-compliance could not be assessed until that time, the
Anti-Injunction Act, if it applies, could render much of this case premature and
inappropriate as any injunctive or declaratory relief in favor of the plaintiffs could
hinder collection of tax revenue. See id. at 732 n.7, 738-39 (where the outcome of
a suit seeking injunctive or declaratory relief will prevent assessment and collection
of tax revenue, the case “falls within the literal scope and the purposes of the
[Anti-Injunction Act]”). Consequently, whether the individual mandate penalty is a
tax is an important question that not only implicates jurisdiction (vis-a-vis the Anti-
Injunction Act), and is not only the specific basis of one of the plaintiffs’ causes of
action, but it also goes to the merits of the individual mandate-related challenges of
Counts One and Two (that is, whether the penalty can be justified by, and enforced
3
The plaintiffs have briefly suggested that the Anti-Injunction does not apply
to this case because their challenge “is to the individual mandate itself” and not the
“incidental penalty that accompanies the individual mandate.” While it is true that
the language of the Anti-Injunction Act only prohibits suits “for the purpose of
restraining the assessment or collection of any tax,” which would not apply to the
individual mandate for every citizen to maintain healthcare coverage, the mandate
and penalty clearly work in tandem. If the penalty is a legitimate tax, striking the
individual mandate down will necessarily impede assessment and collection of tax
revenue. The Anti-Injunction Act is not limited to direct and actual tax assessment
or collection; the Eleventh Circuit and other courts have held that the statute also
reaches activities that may “eventually” impede the collection of revenue (even if
indirectly). See, e.g., Gulden v. United States, 287 Fed. Appx. 813, 815-17 (11th
Cir. 2008) (explaining that the Anti-Injunction Act is “interpreted broadly” and
“bars not only suits that directly seek to restrain the assessment or collection of
taxes, but also suits that seek to restrain . . . activities ‘which are intended to or
may culminate in the assessment or collection of taxes’”) (citation omitted);
Judicial Watch Inc. v. Rossotti, 317 F.3d 401, 405 (4th Cir. 2003) (“it is clear that
the Anti-Injunction Act extends beyond the mere assessment and collection of
taxes to embrace other activities,” such as those that may eventually “culminate in
the assessment or collection of taxes”).
259 U.S. 44, 42 S. Ct. 453, 66 L. Ed. 822 (1922), that the Supreme Court once
drew distinctions between regulatory and revenue-raising taxes. However, those
holdings had a very short shelf-life. As noted in Bob Jones Univ., supra, which
cited to Lipke and Hill for that position, “the Court . . . subsequently abandoned
such distinctions.” 416 U.S. at 741 n.12; see also id. at 743 (further stating that
the cases were “of narrow scope” and “produced a prompt correction in course”).
Succeeding case law recognized that “[e]very tax is in some measure regulatory.
To some extent it interposes an economic impediment to the activity taxed as
compared with others not taxed. But a tax is not any the less a tax because it has
a regulatory effect.” Sonzinsky v. United States, 300 U.S. 506, 513, 57 S. Ct.
554, 81 L. Ed. 772 (1937); see also id. (“it has long been established that an Act
of Congress which on its face purports to be an exercise of the taxing power is not
any the less so because the tax . . . tends to restrict or suppress the thing taxed”).
Thus, as the law currently exists, “[i]t is beyond serious question that a tax does
not cease to be valid merely because it regulates, discourages, or even definitely
deters the activities taxed. The principle applies even though the revenue obtained
is obviously negligible, or the revenue purpose of the tax may be secondary.”
United States v. Sanchez, 340 U.S. 42, 44, 71 S. Ct. 108, 95 L. Ed. 47 (1950);
accord United States v. Kahriger, 345 U.S. 22, 27 n.3, 28, 73 S. Ct. 510, 97 L.
Ed. 754 (1953) (holding same and sustaining federal gambling tax even though its
proponents sought to hinder the activity at issue and “‘indulge[d] the hope that the
imposition of this type of tax would eliminate that kind of activity’”), overruled on
other grounds, Marchetti v. United States, 390 U.S. 39, 88 S. Ct. 697, 19 L. Ed.
2d 889 (1968). The elimination of the “regulatory vs. revenue-raising” test does
not necessarily mean, however, that the exaction at issue in this case is a “tax.”
(2) The Court’s role in ascertaining what Congress intended
In deciding this specific question, I will start from the assumption (only for
the analysis of whether it is a tax) that Congress could have used its broad taxing
power to impose the exaction and that, if it had clearly (or even arguably) intended
to do so, then the exaction would have been sustainable under its taxing authority.
See Kahriger, supra, 345 U.S. at 28, 31 (“As is well known, the constitutional
restraints on taxing are few,” and courts are generally “without authority to limit
the exercise of the taxing power”); see also United States v. Ptasynski, 462 U.S.
74, 103 S. Ct. 2239, 76 L. Ed. 2d 427 (1983) (observing that “Congress’s power
to tax is virtually without limitation”).4 However, that is not what happened here.
Although factually dissimilar, on this point I find instructive the early case of Helwig
v. United States, 188 U.S. 605, 23 S. Ct. 427, 47 L. Ed. 614 (1903). At issue in
that case was a federal law that required importers to pay a duty on imported items
based on their declared value, plus “a further sum” for any item subsequently found
to have been inadequately valued. The sole question the Supreme Court was called
upon to decide was whether, for jurisdictional purposes, the so-called “further sum”
was “revenue from imports or tonnage” (i.e., a tax), or whether it was in the nature
of a penalty. The Court stated:
Although the statute, under § 7, supra, terms the money
demanded as ‘a further sum,’ and does not describe it as
a penalty, still the use of those words does not change
the nature and character of the enactment. Congress may
enact that such a provision shall not be considered as a
penalty or in the nature of one, . . . and it is the duty of
the court to be governed by such statutory direction, but
the intrinsic nature of the provision remains, and, in the
absence of any declaration by Congress affecting the
manner in which the provision shall be treated, courts
must decide the matter in accordance with their views of
the nature of the act.
Id. at 612-13 (emphasis added). In concluding that the provision was a penalty, the
Court stated that, based on the statutory language and its application to the facts
4
But see the discussion with respect to Count Three, Part III.C(4) infra.
of the case, it was “impossible . . . to hold this provision to be other than penal in
its nature.” Id. at 613. To be clear, it is not necessarily significant for our purposes
that Helwig found the “further sum” to be in the nature of a penalty and not a tax;
rather, what is significant is what the Supreme Court said along the way to getting
there. In reaching its conclusion, the Court made it a point to stress --- as it did in
the emphasized portion quoted above --- that regardless of the “ordinary or general
meaning of the words” in the statute, and regardless of the “nature and character
of the enactment,” the exaction would not have been found a penalty if Congress
intended otherwise. Thus, “[i]f it clearly appear that it is the will of Congress that
the provision shall not be regarded as in the nature of a penalty, the court must be
governed by that will.” Id. (emphasis added).
As applied to the facts of this case, Helwig can be interpreted as concluding
that, regardless of whether the exaction could otherwise qualify as a tax (based on
the dictionary definition or “ordinary or general meaning of the word”), it cannot be
regarded as one if it “clearly appears” that Congress did not intend it to be. In this
case, there are several reasons (perhaps none dispositive alone, but convincing in
total) why it is inarguably clear that Congress did not intend for the exaction to be
regarded as a tax.5
(3) Congress did not call it a tax, despite knowing how to do so
In addition to the Act, there were several healthcare reform bills introduced
5
Although it only matters what Congress intended, I note for background
purposes that before the Act was passed into law, one of its chief proponents,
President Barack Obama, strongly and emphatically denied that the penalty was a
tax. When confronted with the dictionary definition of a “tax” during a much-
publicized interview widely disseminated by all of the news media, and asked how
the penalty did not meet that definition, the President said it was “absolutely not a
tax” and, in fact, “[n]obody considers [it] a tax increase.” See, e.g., Obama:
Requiring Health Insurance is Not a Tax Increase, CNN, Sept. 29, 2009, available
at: http://www.cnn.com/2009/POLITICS/09/20/obama.health.care/index.html.
and debated during the 111th Congress. For example, “America’s Affordable Health
Choices Act of 2009” (H.R. 3200) was introduced in the House of Representatives
on July 14, 2009. Like the Act, it contained an individual mandate and concomitant
penalty. However, it called the penalty a tax. Section 401 was unambiguously
titled “Tax on Individuals Without Acceptable Health Care Coverage,” and went on
to refer to the exaction as a “tax” no less than fourteen times in that section alone.
See, e.g., id. (providing that with respect to “any individual who does not meet the
requirements of subsection (d) at any time during the taxable year, there is hereby
imposed a tax“). H.R. 3200 was thereafter superseded by a similar bill, “Affordable
Health Care for America Act” (H.R. 3962), which was actually passed in the House
of Representatives on November 7, 2009. That second House bill also included an
individual mandate and penalty, and it repeatedly referred to the penalty as a “tax.”
See, e.g., Section 501 (providing that for any person who does not comply with
the individual mandate “there is hereby imposed a tax,“ and referring to that “tax”
multiple times); Section 307(c)(1)(A) (further referring to the penalty as a “tax[ ] on
individuals not obtaining acceptable coverage”).
While the above bills were being considered in the House, the Senate was
working on its healthcare reform bills as well. On October 13, 2009, the Senate
Finance Committee passed a bill, “America’s Healthy Future Act” (S. 1796). A
precursor to the Act, this bill contained an individual mandate and accompanying
penalty. In the section titled “Excise Tax on Individuals Without Essential Health
Benefits Coverage,” the penalty was called a “tax.” See Section 1301 (“If an
applicable individual fails to [obtain required insurance] there is hereby imposed a
tax”).
In contrast to the foregoing, the Act --- which was the final version of the
healthcare legislation later passed by the Senate on December 24, 2009 --- did not
call the failure to comply with the individual mandate a tax; it was instead called a
“penalty.” The Act reads in pertinent part: “If an applicable individual fails to meet
be that Congress did not intend for the “penalty” to be a tax. See generally Hodge
v. Muscatine County, 196 U.S. 276, 25 S. Ct. 237, 49 L. Ed. 477 (1905) (noting
that “[i]t is not easy to draw an exact line of demarcation between a tax and a
penalty,” but where the statute uses “tax” in one section and “penalty” in another,
courts “cannot go far afield” in treating the exaction as it is called; to do otherwise
“would be a distortion of the words employed”); see also Duncan v. Walker, 533
U.S. 167, 173, 121 S. Ct. 2120, 150 L. Ed. 2d 251 (2001) (“It is well settled that
‘[w]here Congress includes particular language in one section of a statute but omits
it in another section of the same Act, it is generally presumed that Congress acts
intentionally and purposely in the disparate inclusion or exclusion.’”) (citations
omitted); Freemanville Water Sys., Inc. v. Poarch Band of Creek Indians, 563 F.3d
1205, 1209 (11th Cir. 2009) (“[W]here Congress knows how to say something but
chooses not to, its silence is controlling”); DIRECTV, Inc. v. Brown, 371 F.3d 814,
818 (11th Cir. 2004) (“[W]hen Congress uses different language in similar sections,
it intends different meanings.”).
The defendants assert in their memorandum, see Memorandum in Support of
Defendants’ Motion to Dismiss (“Def. Mem.”), at 33, 50 n.23 (doc. 56-1), as they
did during oral argument, that in deciding whether the exaction is a penalty or tax,
“it doesn’t matter” what Congress called it because the label “is not conclusive.”
See Transcript of Oral Argument (“Tr.”), at 27-29 (doc. 77). As a general rule, it is
true that the label used is not controlling or dispositive because Congress, at times,
may be unclear and use inartful or ambiguous language. Therefore, as the Supreme
Court recognized more than 100 years ago in Helwig, supra, the use of a particular
word “does not change the nature and character of the [exaction],” and it is the
ultimate duty of the court to decide the issue based on “the intrinsic nature of the
provision” irrespective of what it is called. See 188 U.S. at 612-13; accord Cooley
v. Bd. of Wardens, 53 U.S. (12 How.) 299, 314, 13 L. Ed. 996 (1851) (“it is the
thing, and not the name, which is to be considered”). However, as also noted in
Helwig, this rule must be set aside when it is clear and manifest that Congress
intended the exaction to be regarded as one and not the other. For that reason, the
defendants are wrong to contend that what Congress called it “doesn’t matter.” To
the extent that the label used is not just a label, but is actually indicative of
legislative purpose and intent, it very much does matter. By deliberately changing
the characterization of the exaction from a “tax” to a “penalty,” but at the same
time including many other “taxes” in the Act, it is manifestly clear that Congress
intended it to be a penalty and not a tax.6
Quoting the Third Circuit in Penn Mut. Indem. Co. v. C.I.R, 277 F.2d 16, 20
(3d Cir. 1960), the defendants maintain that “‘Congress has the power to impose
taxes generally, and if the particular imposition does not run afoul of any
constitutional restrictions then the tax is lawful, call it what you will.’” Def. Mem.
at 50 n.23. I do not necessarily disagree with this position, at least not when it is
quite clear that Congress intends to impose a tax and is acting pursuant to its
taxing power. However, as will be discussed in the next section, that is not the
situation here. In the Penn Mutual Indemnity case, for example, it was clear and
undisputed that Congress had exercised its taxing authority to impose the exaction;
it was inarguably a “tax,” and the only question was whether it was an excise tax,
an income tax, or some other type of tax. It was in that particular context that the
Third Circuit’s analysis included the quoted statement, and further elaborated that:
“It is not necessary to uphold the validity of the tax imposed by the United States
6
A hypothetical helps to further illustrate this point. Suppose that after the
Act imposed the penalty it went on to expressly state: “This penalty is not a tax.”
According to the logic of the defendants’ argument, if the intrinsic nature of the
penalty was a tax, it could still be regarded as one despite what it was called and
despite the clear and unmistakable Congressional intent to the contrary. Such an
outcome would be absurd. In my view, changing the word from tax to penalty, but
at the same time including various other true (and accurately characterized) taxes in
the Act, is the equivalent of Congress saying “This penalty is not a tax.”
that the tax itself bear an accurate label.” See 277 F.2d at 20. That is obviously a
very different situation from the one presented here, where the precise label of an
acknowledged tax is not being disputed, but rather whether it is even a tax at all.
(4) Congress did not state that it was acting under its taxing authority, and,
in fact, it treated the penalty differently than traditional taxes
Congress did not state in the Act that it was exercising its taxing authority
to impose the individual mandate and penalty; instead, it relied exclusively on its
power under the Commerce Clause. U.S. Const. art I, § 8, cl. 3 (“[Congress shall
have Power] To regulate Commerce with foreign Nations, and among the several
States, and with the Indian Tribes”). The Act recites numerous (and detailed)
factual findings to show that the individual mandate regulates commercial activity
important to the economy. Specifically, it states that: “The [individual mandate] is
commercial and economic in nature, and substantially affects interstate commerce”
in that, inter alia, “[h]ealth insurance and health care services are a significant part
of the national economy” and the mandate “will add millions of new consumers to
the health insurance market, increasing the supply of, and demand for, health care
services.” Act § 1501(a)(1)-(2)(B)(C). It further states that health insurance “is in
interstate commerce,” and the individual mandate is “essential to creating effective
health insurance markets.” Id. § 1501(a)(2)(F), (H). The Act contains no indication
that Congress was exercising its taxing authority or that it meant for the penalty to
be regarded as a tax. Although the penalty is to be placed in the Internal Revenue
Code under the heading “Miscellaneous Excise Taxes,” the plain language of the
Code itself states that this does not give rise to any inference or presumption that
it was intended to be a tax. See United States v. Reorganized CF&I Fabricators of
Utah, Inc., 518 U.S. 213, 222-23, 116 S. Ct. 2106, 135 L. Ed. 2d 506 (1996)
(citing to 26 U.S.C. § 7806(b), which provides that: “No inference, implication, or
presumption of legislative construction shall be drawn or made by reason of the
location or grouping of any particular section or provision or portion of this title”).
In fact, while the penalty is placed under the “Excise Taxes” heading of the Code,
at the same time Congress specifically exempted and divorced the penalty from all
the traditional enforcement and collection methods used by the Internal Revenue
Service, such as tax liens, levies, and criminal proceedings. See Act § 1501(b).
These exemptions from normal tax attributes --- coupled with Congress’s failure to
identify its taxing authority --- belie the claim that, simply because it is mentioned
in the Internal Revenue Code, the penalty must be a tax.7
(5) Lack of statutorily-identified revenue-generating purpose
Perhaps most significantly, the Act does not mention any revenue-generating
purpose that is to be served by the individual mandate penalty, even though such a
purpose is required. See Rosenberger v. Rector and Visitors of Univ. of Virginia,
515 U.S. 819, 841, 115 S. Ct. 2510, 132 L. Ed. 2d 700 (1995) (“‘A tax, in the
general understanding of the term, and as used in the Constitution, signifies an
exaction for the support of the Government’”). In this circuit, the ultimate test of
tax validity “is whether on its face the tax operates as a revenue generating
measure and the attendant regulations are in aid of a revenue purpose.” United
7
In highlighting that Congress did not identify its taxing power as the basis
for imposing the “penalty,” I am not suggesting that legislative action is invalid if a
power source is not identified. To the contrary, I recognize that “Congress’s failure
to cite [a particular power] does not eliminate the possibility that [said power] can
sustain this legislation.” United States v. Moghadam, 175 F.3d 1269, 1275 n.10
(11th Cir. 1999); see also Wilson-Jones v. Caviness, 99 F.3d 203, 208 (6th Cir.
1996) (“A source of power [can] justify an act of Congress even if Congress did
not state that it rested the act on the particular source of power.”) (citing cases,
including Woods v. Cloyd W. Miller Co., 333 U.S. 138, 144, 68 S. Ct. 421, 92 L.
Ed. 596 (1948) (“The question of the constitutionality of action taken by Congress
does not depend on recitals of the power which it undertakes to exercise.”)). Thus,
to be clear, I am not saying that the penalty is invalid as a tax because Congress
did not expressly identify its taxing power. Rather, its failure to do so (particularly
when it took time to extensively identify its Commerce Clause power), is merely
one of several facts that shows Congress was not exercising its taxing authority
and did not intend for the penalty to be regarded as a tax.
States v. Ross, 458 F.2d 1144, 1145 (5th Cir. 1972) (emphasis added) (binding
under Bonner, supra, 661 F.2d at 1207).
The revenue-generating provisions in the Act were an important part of the
legislation as they were necessary under current Congressional procedure to score
its final cost. To be sure, much of the debate within and outside Congress focused
on the bill’s final price tag and whether it would exceed the threshold of $1 trillion
over the course of the first ten years; and while the legislation was being debated,
Congress worked closely and often with the Congressional Budget Office (“CBO”)
to ensure that it did not. Obviously, if the penalty had been intended by Congress
to be a true revenue-generating tax (that could be used to keep the Act’s final cost
down) then it would have been treated as a tax “on its face.” During oral argument,
defense counsel stated that “[t]he purpose of the [penalty] is . . . to raise revenue
to offset expenditures of the federal government that it makes in connection, for
example, with the Medicaid expansion.” See Tr. at 9. However, there is absolutely
no support for that statement in the statute itself.
On its face, the Act lists seventeen “Revenue Offset Provisions” (including
the several taxes described supra), and, as reconciled, it further includes a section
entitled “Provisions Relating to Revenue” (which also references those taxes and
other revenue offsetting provisions). However, the individual mandate penalty is
not listed anywhere among them. Nowhere in the statute is the penalty provision
identified or even mentioned as raising revenue and offsetting the Act’s costs. It is
especially noteworthy that the Act does not identify revenue to be generated from
the penalty (which the defendants now maintain would raise about $4 billion each
year), but the statute identifies the tanning salon tax as revenue-raising (even
though that tax is expected to raise a significantly smaller $300 million annually).
See Joint Committee on Taxation, Estimated Revenue Effects of the Manager’s
Amendment to the Revenue Provisions Contained in the “Patient Protection and
Affordable Care Act,” as Passed by the Senate on December 24, 2009 (JCX-10-
10), March 11, 2010, at 2. If Congress had intended and understood the penalty to
be a tax that would raise revenue for the government, which could in turn be used
to partially finance the Act’s budgetary effect and help keep its ten-year cost below
the $1 trillion threshold by offsetting its expenditures, it makes little sense that
Congress would ignore a “tax” that could be expected to raise almost $20 billion in
revenue between the years 2015-2019, yet mention another tax that was expected
to raise less than one-tenth of that revenue annually during the same time period.
To the extent there is statutory ambiguity on this issue, both sides ask that I
look to the Act’s legislative history to determine if Congress intended the penalty to
be a tax. Ironically, they rely on the same piece of legislative history in making their
respective arguments, to wit, the 157-page “Technical Explanation” of the Act that
was prepared by the Staff of the Joint Committee on Taxation on March 21, 2010
(the same day the House voted to approve and accept the Senate bill and two days
before the bill was signed into law). The plaintiffs highlight the fact that the report
“consistently” refers to the penalty as a penalty and not a tax, see Pl. Mem. at 19
(as compared, for example, with the tanning salon tax that is consistently referred
to as a “tax” in that same report, see JCT, Technical Explanation of the Revenue
Provisions of the “Reconciliation Act of 2010,” as amended, in Combination with
the “Patient Protection and Affordable Care Act” (JCX-18-10), March 21, 2010, at
108). The defendants, on the other hand, highlight the fact that the JCT referred to
the penalty as an “excise tax” in a single heading in that report. See Def. Mem. at
51.
As the Supreme Court has repeatedly held, “the authoritative statement is
the statutory text, not the legislative history or any other extrinsic material.
Extrinsic materials have a role in statutory interpretation only to the extent they
shed a reliable light on the enacting Legislature’s understanding of otherwise
ambiguous terms.” Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546,
568, 125 S. Ct. 2611, 162 L. Ed. 2d 502 (2005) (emphasis added). On the facts
of this case, “penalty” is not an ambiguous term, but rather was a carefully and
intentionally selected word that has a specific meaning and carries a particular
import (discussed infra). Moreover, even if the term was ambiguous, the Supreme
Court has pointed out two “serious criticisms” of attempting to rely on legislative
history:
Not all extrinsic materials are reliable sources of insight
into legislative understandings . . ., and legislative history
in particular is vulnerable to two serious criticisms. First,
legislative history is itself often murky, ambiguous, and
contradictory. Judicial investigation of legislative history
has a tendency to become, to borrow Judge Leventhal’s
memorable phrase, an exercise in “‘looking over a crowd
and picking out your friends.’” See Wald, Some
Observations on the Use of Legislative History in the
1981 Supreme Court Term, 68 Iowa L. Rev. 195, 214
(1983). Second, judicial reliance on legislative materials
like committee reports, which are not themselves subject
to the requirements of Article I, may give
unrepresentative committee members --- or, worse yet,
unelected staffers and lobbyists --- both the power and
the incentive to attempt strategic manipulations of
legislative history to secure results they were unable to
achieve through the statutory text. Id.
In this case, both criticisms are directly on the mark. The report is ambiguous
and contradictory, as evidenced by the simple fact that both sides claim it supports
their position. Should I look to the heading (that calls the exaction an “excise tax”),
or should I look to the actual body of the report (that calls it a penalty no less than
twenty times with no mention of it being a tax)? It is, as Judge Leventhal said, like
“looking over a crowd and picking out your friends.” Further, a strong argument
could be (and has been) made that the staffers who drafted the report were merely
engaging in last minute “strategic manipulation” to secure results they were unable
to achieve through the Act itself. See, e.g., The Insurance Mandate in Peril, Wall
St. J., Apr. 29, 2010, at A19 (opining that the “excise tax” heading in the JCT
report should not be used to convert the penalty into a tax because the Supreme
Court “will not allow staffers and lawyers to change the statutory cards that
Congress already dealt when it adopted the Senate language”). For these reasons,
as recognized by the Supreme Court, resort to, or reliance upon, the JCT staff’s
Technical Explanation would be inappropriate on the facts of this case --- even if
the term “penalty” was ambiguous (which it is not).
To summarize the foregoing, it “clearly appears” from the statute itself, see
Helwig, supra, 188 U.S. 613, that Congress did not intend to impose a tax when it
imposed the penalty. To hold otherwise would require me to look beyond the plain
words of the statute. I would have to ignore that Congress:
(i) specifically changed the term in previous incarnations of the statute from
“tax” to “penalty;”
(ii) used the term “tax” in describing the several other exactions provided for
in the Act;
(iii) specifically relied on and identified its Commerce Clause power and not
its taxing power;
(iv) eliminated traditional IRS enforcement methods for the failure to pay the
“tax;” and
(v) failed to identify in the legislation any revenue that would be raised from
it, notwithstanding that at least seventeen other revenue-generating provisions
were specifically so identified.
The defendants have not pointed to any reported case decided by any court
of record that has ever found and sustained a tax in a situation such as the one
presented here, and my independent research has also revealed none. At bottom,
the defendants are asking that I divine hidden and unstated intentions, and despite
considerable evidence to the contrary, conclude that Congress really meant to say
one thing when it expressly said something else. The Supreme Court confronted
the inverse of this situation in Sonzinsky, supra, and I believe the rationale of that
individual mandate challenges even if the penalty is not a tax. For this argument,
the defendants rely on Title 26, United States Code, Section 6671, which states
that the “penalties” provided under subchapter B of chapter 68 of the IRS Code (a
classification that includes the individual mandate penalty) “shall be assessed and
collected in the same manner as taxes.” If the penalty is intended to be assessed
and collected in the same manner as a tax, the defendants contend, then the Anti-
Injunction Act should apply. I do not agree. First of all, the penalty is obviously not
to be collected and treated “in the same manner as taxes” in light of the fact that
Congress specifically divorced the penalty from the tax code’s traditional collection
and enforcement mechanisms. Further, and more significantly, as noted supra, the
whole point of the Anti-Injunction Act is to protect the government in the collection
of its lawful tax revenues, and thus it applies to “truly revenue-raising tax
statutes,” which Congress plainly did not understand and intend the penalty to be.
The Eleventh Circuit has recognized (albeit by implication) that the Anti-Injunction
Act does not reach penalties that are, as here, “imposed for substantive violations
of laws not directly related to the tax code” and which are not good-faith efforts to
enforce the technical requirements of the tax law. Cf. Mobile Republican Assembly
v. United States, 353 F.3d 1357, 1362 n.5 (11th Cir. 2003). The defendants have
cited two out-of-circuit cases in support of their contention that Section 6671(a)
requires penalties to be treated the same as taxes for Anti-Injunction Act purposes,
Barr v. United States, 736 F.2d 1134 (7th Cir. 1984); Warren v. United States, 874
F.2d 280 (5th Cir. 1989). Although those cases did indeed hold that the penalties at
issue fell under the Anti-Injunction Act, they do not really support the defendants’
position. As the plaintiffs note, the penalties in both those cases were imposed for
failing to pay an undisputed tax, that is, falsely claiming an exemption in Barr, and
refusing to sign a tax return in Warren. In other words, the penalties were “directly
related to the tax code.” Cf. Mobile Republican Assembly, supra, 353 F.3d at 1362
n.5. Allowing IRS penalties such as those to qualify as a tax for Anti-Injunction Act
purposes “is simply a means for ensuring that the [underlying] tax is paid.” See
Botta v. Scanlon, 314 F.2d 392, 393 (2d Cir. 1963). That is not the situation here.
It would be inappropriate to give tax treatment under the Anti-Injunction Act to a
civil penalty that, by its own terms, is not a tax; is not to be enforced as a tax; and
does not bear any meaningful relationship to the revenue-generating purpose of the
tax code. Merely placing a penalty (which virtually all federal statutes have) in the
IRS Code, even though it otherwise bears no meaningful relationship thereto, is not
enough to render the Anti-Injunction Act (which only applies to true revenue-raising
exactions) applicable to this case.
(7) Accountability
I will say one final thing on the tax issue, which, although I believe it to be
important, is not essential to my decision. For purposes of this discussion, I will
assume that the defendants are correct and that the penalty is (and was always
intended to be) a tax.
In Virginia v. Sebelius, 3:10cv188, one of the twenty or so other lawsuits
challenging the Act, the federal government’s lead counsel (who is lead defense
counsel in this litigation, as well) urged during oral argument in that case that the
penalty is proper and sustainable under the taxing power. Although that power is
broad and does not easily lend itself to judicial review, counsel stated, “there is a
check. It’s called Congress. And taxes are scrutinized. And the reason we don’t
have all sorts of crazy taxes is because taxes are among the most scrutinized
things we have. And the elected representatives in Congress are held accountable
for taxes that they impose.” See Transcript of Oral Argument (Virginia case), at 45
(emphasis added).
This foregoing statement highlights one of the more troubling aspects of the
defendants’ “newfound”8 tax argument. As noted at the outset of this order, and
as anyone who paid attention to the healthcare reform debate already knew, the
Act was very controversial at the time of passage. Irrespective of the merits of the
arguments for or against it, the legislation required lawmakers in favor of the bill to
cast politically difficult and tough votes. As it turned out, the voting was extremely
close. Because by far the most publicized and controversial part of the Act was the
individual mandate and penalty, it would no doubt have been even more difficult to
pass the penalty as a tax. Not only are taxes always unpopular, but to do so at that
time would have arguably violated pledges by politicians (including the President) to
not raise taxes, which could have made it that much more difficult to secure the
necessary votes for passage. One could reasonably infer that Congress proceeded
as it did specifically because it did not want the penalty to be “scrutinized” as a $4
billion annual tax increase, and it did not want at that time to be “held accountable
for taxes that they imposed.” In other words, to the extent that the defendants are
correct and the penalty was intended to be a tax, it seems likely that the members
of Congress merely called it a penalty and did not describe it as revenue-generating
to try and insulate themselves from the potential electoral ramifications of their
votes.
Regardless of whether the members of Congress had this specific motivation
and intent (which, once again, is not my place to say), it is obvious that Congress
did not pass the penalty, in the version of the legislation that is now “the Act,” as
a tax under its taxing authority, but rather as a penalty pursuant to its Commerce
8
See, e.g., Changing Stance, Administration Now Defends Insurance
Mandate as a Tax, N.Y. Times, July 17, 2010, at A14 (“When Congress required
most Americans to obtain health insurance or pay a penalty, Democrats denied that
they were creating a new tax. But in court, the Obama administration and its allies
now defend the requirement as an exercise of the government’s ‘power to lay and
collect taxes.’”).
Clause power. Those two exactions, as previously noted, are not interchangeable.
And, now that it has passed into law on that basis, government attorneys have
come into this court and argued that it was a tax after all. This rather significant
shift in position, if permitted, could have the consequence of allowing Congress to
avoid the very same accountability that was identified by the government’s counsel
in the Virginia case as a check on Congress’s broad taxing power in the first place.
In other words, the members of Congress would have reaped a political advantage
by calling and treating it as a penalty while the Act was being debated, see Virginia
v. Sebelius, 702 F. Supp. 2d 598, 612 (E.D. Va. 2010) (referring to “preenactment
representations by the Executive and Legislative branches” that the penalty was
not “a product of the government’s power to tax for the general welfare”), and
then reap a legal advantage by calling it a tax in court once it passed into law. See
Def. Mem. at 33-34, 49 (arguing that the Anti-Injunction Act bars any challenge to
the penalty which, in any event, falls under Congress’s “very extensive” authority
to tax for the general welfare). This should not be allowed, and I am not aware of
any reported case where it ever has been.
Congress should not be permitted to secure and cast politically difficult votes
on controversial legislation by deliberately calling something one thing, after which
the defenders of that legislation take an “Alice-in-Wonderland” tack9 and argue in
court that Congress really meant something else entirely, thereby circumventing the
safeguard that exists to keep their broad power in check. If Congress intended for
9
Lewis, Carroll, Through the Looking-Glass, Chapter 6 (Heritage 1969):
the penalty to be a tax, it should go back and make that intent clear (for example,
by calling it a tax, relying on Congress’s Constitutional taxing power, allowing it to
be collected and enforced as a tax, or identifying revenue to be raised) so it can be
“scrutinized” as a tax and Congress can accordingly be held accountable. They
cannot, however, use a different linguistic with a perhaps secret understanding
between themselves that the word, in fact, means something else entirely. As the
First Circuit has explained, the integrity of the process must be guaranteed by the
judiciary:
In our republican form of government, legislators make
laws by writing statutes --- an exercise that requires
putting words on paper in a way that conveys a
reasonably definite meaning. Once Congress has spoken,
it is bound by what it has plainly said, notwithstanding
the nods and winks that may have been exchanged. . . .
And the judiciary must stand as the ultimate guarantor of
the integrity of an enacted statute’s text.
State of Rhode Island v. Narragansett Indian Tribe, 19 F.3d 685, 699-70 (1st Cir.
1994).
(8) For Constitutional purposes, it is a penalty, and must be analyzed under
Congress’s Commerce Clause power
For all the above reasons, I conclude that the individual mandate penalty is
not a “tax.” It is (as the Act itself says) a penalty. The defendants may not rely on
Congress’s taxing authority under the General Welfare Clause to try and justify the
penalty after-the-fact. If it is to be sustained, it must be sustained as a penalty
imposed in aid of an enumerated power, to wit, the Commerce Clause power. See
Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 393, 60 S. Ct. 907, 84 L.
Ed. 1263 (1940) (“Congress may impose penalties in aid of the exercise of any of
its enumerated powers“). Therefore, the Anti-Injunction Act does not deprive this
court of jurisdiction. See Lipke, supra, 259 U.S. at 562 (“The collector demanded
payment of a penalty, and [thus the Anti-Injunction Act], which prohibits suits to
Mem. at 26. While that statement is certainly true, the injury alleged in this case
will not occur at “some indefinite future time.” Instead, the date is definitively fixed
in the Act and will occur in 2014, when the individual mandate goes into effect and
the individual plaintiffs are forced to buy insurance or pay the penalty. See ACLU of
Florida, Inc. v. Miami-Dade County School Bd., 557 F.3d 1177, 1194 (11th Cir.
2009) (standing shown in pre-enforcement challenge where the claimed injury was
“pegged to a sufficiently fixed period of time”). Because time is the primary factor
here, this case presents a durational issue, and not a contingency issue. “A plaintiff
who challenges a statute must demonstrate a realistic danger of sustaining a direct
injury as a result of the statute’s operation or enforcement. But, ‘one does not have
to await the consummation of threatened injury to obtain preventive relief. If the
injury is certainly impending, that is enough.’” Babbitt v. United Farm Workers Nat’l
Union, 442 U.S. 289, 298, 99 S. Ct. 2301, 60 L. Ed. 2d 895 (1979) (citations and
brackets omitted). The defendants contend that the forty-months gap between now
and 2014 is “too far off” and not immediate enough to confer standing. However,
as the Eleventh Circuit has expressly held:
[P]laintiffs here have alleged when and in what manner
the alleged injuries are likely going to occur. Immediacy
requires only that the anticipated injury occur with some
fixed period of time in the future, not that it happen in the
colloquial sense of soon or precisely within a certain
number of days, weeks, or months.
Fla. State Conf. of the NAACP v. Browning, 522 F.3d 1153, 1161 (11th Cir. 2008)
(citing Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 115 S. Ct. 2097, 132 L.
Ed. 2d 158 (1995)); accord 520 Michigan Ave. Associates, Ltd. v. Devine, 433
F.3d 961, 962 (7th Cir. 2006) (“Standing depends on the probability of harm, not
its temporal proximity. When injury . . . is likely in the future, the fact that [the
complained of harm] may be deferred does not prevent federal litigation now.”).
The defendants concede that an injury does not have to occur immediately
to qualify as an injury-in-fact, but they argue that forty months “is far longer than
typically allowed.” Def. Mem. at 27. It is true that forty months is longer than the
time period at issue in the particular cases the defendants cite. See, e.g., ACLU,
supra, 557 F.3d at 1194 (harm was six weeks away); Nat’l Parks Conservation
Ass’n v. Norton, 324 F.3d 1229, 1242 (11th Cir. 2003) (harm was between one
week to one month away). But, the fact that the harm was closer in those cases
does not necessarily mean that forty months is ipso facto “too far off.” In Village
of Bensenville v. FAA, 376 F.3d 1114 (D.C. Cir. 2004), for example, the plaintiffs
challenged a passenger fee at Chicago’s O’Hare International Airport that was not
scheduled to be imposed until thirteen years in the future. The District of Columbia
Circuit held that, despite the significant time gap, there was an “‘impending threat
of injury’” to plaintiffs that was “‘sufficiently real to constitute injury-in-fact and
afford constitutional standing’” because the decision to impose the fee was “final
and, absent action by us, come 2017 Chicago will begin collecting [it].” See id. at
1119 (citations omitted). That is the same situation at issue here. Imposition of the
individual mandate and penalty, like the fee in Village of Bensenville, is definitively
fixed in time and impending. And absent action by this court, starting in 2014, the
federal government will begin enforcing it.
The defendants suggest that the individual plaintiffs may not have to be
forced to comply with the individual mandate in 2014. They contend that the
individual plaintiffs “cannot reliably predict that insurance will be an economic
burden” to them when the individual mandate is in place because, once the Act
“mak[es] health insurance more affordable,” they may decide to voluntarily buy
insurance on their own. Def. Mem. at 26. This argument appears to presuppose
that the individual plaintiffs object to the individual mandate solely on the grounds
that it will be an “economic burden” to them, and that they do not currently have
insurance because they cannot afford it. That does not appear to be the case. Ms.
Brown alleges in the amended complaint that she devotes her resources to running
and maintaining her business and paying her employees; she does not allege that
she has no money left over after doing so or that she is otherwise unable to buy
insurance if she wanted it. Rather, she has apparently just made the decision that
she would prefer to direct and divert her resources elsewhere because obtaining
insurance, in her particular situation, is not “a worthwhile cost of doing business.”
See Am. Comp. ¶¶ 27, 62. Further, Mr. Ahlburg has affirmatively stated that he is
financially able to pay for all of his own healthcare-related services. Thus, both he
and Ms. Brown do not want to be forced to spend their money (whether they have
a little or a lot) on something they do not want (or feel that they need), and, in this
respect, they object to the individual mandate as “unconstitutional overreaching.”
See Am. Comp. at ¶¶ 27, 28.10
Continuing this argument, the defendants further contend that there is too
much “uncertainty” surrounding the individual plaintiffs’ allegations. They allege,
for example, that while Ms. Brown may not want to purchase healthcare insurance
now (because she would rather devote her resources to her business), and although
Mr. Ahlburg does not need insurance now (because he is financially able to pay for
his own healthcare out-of-pocket and as needed), the “vagaries” of life could alter
their situations by 2014. Def Mem. at 26. The defendants suggest that because
“businesses fail, incomes fall, and disabilities occur,” by the time the individual
mandate is in effect, the individual plaintiffs “could find that they need insurance,
or that it is the most sensible choice.” See id. That is possible, of course. It is also
10
And in any event, the defendants’ argument seems to assume that the Act
will, in fact, reduce premiums so that insurance is “more affordable.” That claim is
both self-serving and far from undisputed. Indeed, most objective analyses indicate
an insurance premium increase, and the CBO itself has predicted that premiums will
rise 10-13% under the Act, at least with respect to individuals with certain policies
who do not qualify for government subsidies. See Congressional Budget Office, An
Analysis of Health Insurance Premiums Under the Patient Protection and Affordable
Care Act, November 30, 2009.
“possible” that by 2014 either or both the plaintiffs will no longer be alive, or may
at that time fall within one of the “exempt” categories. Such “vagaries” of life are
always present, in almost every case that involves a pre-enforcement challenge. If
the defendants’ position were correct, then courts would essentially never be able
to engage in pre-enforcement review. Indeed, it is easy to conjure up hypothetical
events that could occur to moot a case or deprive any plaintiff of standing in the
future. In Pierce v. Society of Sisters, 268 U.S. 510, 45 S. Ct. 571, 69 L. Ed. 2d
1070 (1925), for example, a private school sought and obtained review of a law
that required children to attend public schools, even though that law was not to
take effect for more than two years. Under the defendants’ position, there was no
standing to consider the case because --- since “businesses fail” --- it was possible
that the school may have closed down by the time the law finally went into effect.
However, the Supreme Court found that it had standing to consider the challenge,
notwithstanding the universe of possibilities that could have occurred between the
filing of the suit and the law going into effect years later. The Court concluded that
it was appropriate to consider the challenge because the complained of injury “was
present and very real, not a mere possibility in the remote future,” and because the
“[p]revention of impending injury by unlawful action is a well-recognized function of
courts of equity.” Id. at 536.
In short, to challenge the individual mandate, the individual plaintiffs need
not show that their anticipated injury is absolutely certain to occur despite the
“vagaries” of life; they need merely establish “a realistic danger of sustaining a
direct injury as a result of the statute’s operation or enforcement,” see Babbitt,
supra, 442 U.S. at 298, that is reasonably “pegged to a sufficiently fixed period of
time,” see ACLU, supra, 557 F.3d at 1194, and which is not “merely hypothetical
or conjectural,” see NAACP, supra, 522 F.3d at 1161. Based on the allegations in
the amended complaint, I am satisfied that the individual plaintiffs have done so.
Accordingly, they have standing to pursue Counts One and Two.
The defendants next contend that the state plaintiffs do not have standing to
pursue the employer mandate being challenged in Count Six. They devote less than
one paragraph to this argument, see Def. Mem. at 21, and I can be equally brief in
addressing it. For this count, the state plaintiffs contend that in their capacities as
“large employers,” they will have to offer and enroll state employees in federally-
approved health plans, which they currently do not do. They claim, for example,
that under existing Florida law, thousands of OPS (Other Personnel Services)
employees are excluded from that state’s healthcare plan, but under the Act the
employees will have to be enrolled in an approved health plan, which will cost the
state money if they do, and will cost the state money (in the form of penalties) if
they do not. I am satisfied that this qualifies as an injury-in-fact, for essentially the
same reasons discussed with respect to the individual mandate --- to wit, the state
plaintiffs have established a realistic (and not hypothetical or conjectural) danger of
sustaining a redressable injury at a sufficiently fixed point in time as a result of the
Act’s operation or enforcement.
The individual plaintiffs thus have standing to pursue Counts One and Two,
and the state plaintiffs have standing to pursue Count Six. Because those are the
only causes of action for which the defendants have challenged standing, this
eliminates any need to discuss whether the NFIB also has standing. See Watt v.
Energy Action Educational Foundation, 454 U.S. 151, 160, 102 S. Ct. 205, 70 L.
Ed. 2d 309 (1981) (“Because we find California has standing, we do not consider
the standing of the other plaintiffs.”); Village of Arlington Heights v. Metropolitan
Housing Dev. Corp., 429 U.S. 252, 264 n.9, 97 S. Ct. 555, 50 L. Ed. 2d 450
(1977) (“Because of the presence of this plaintiff, we need not consider whether
the other individual and corporate plaintiffs have standing to maintain this suit.”);
see also Mountain States Legal Found. v. Glickman, 92 F.3d 1228, 1232 (D.C. Cir.
1996) (“For each [challenged] claim, if . . . standing can be shown for at least one
plaintiff, we need not consider the standing of the other plaintiffs to raise that
(2) Ripeness
There is a “conspicuous overlap” between the doctrines of standing and
ripeness and the two “often converge[ ].” See Elend v. Basham, 471 F.3d 1199,
1205 (11th Cir. 2006). Nevertheless, they warrant separate analyses.
“Ripeness is peculiarly a question of timing. Its basic rationale is to prevent
the courts, through premature adjudication, from entangling themselves in abstract
disagreements.” Thomas v. Union Carbide Agr. Products Co., 473 U.S. 568, 580,
105 S. Ct. 3325, 87 L. Ed. 2d 409 (1985) (citations and alterations omitted). “A
claim is not ripe for adjudication if it rests upon contingent future events that may
not occur as anticipated, or indeed may not occur at all.” Texas v. United States,
523 U.S. 296, 300, 118 S. Ct. 1257, 140 L. Ed. 2d 406 (1998) (citation omitted).
The ripeness inquiry turns on “‘the fitness of the issues for judicial decision’ and
‘the hardship to the parties of withholding court consideration.” Pacific Gas and
Elec. Co. v. State Energy Resources Conservation & Dev. Comm’n, 461 U.S. 190,
201, 103 S. Ct. 1713, 75 L. Ed. 2d 752 (1983) (citation omitted). In the context
of a facial challenge, as in this case, “a purely legal claim is presumptively ripe for
judicial review because it does not require a developed factual record.” Harris v.
Mexican Speciality Foods, Inc., 564 F.3d 1301, 1308 (11th Cir. 2009).
Because the individual mandate and employer mandate will not take effect
until 2014, the defendants contend that those claims are unripe because no injury
can occur before that time. However, “[w]here the inevitability of the operation of
a statute against [plaintiffs] is patent, it is irrelevant to the existence of a justiciable
controversy that there will be a time delay before the disputed provisions come into
effect.” Blanchette v. Connecticut Gen. Ins. Corps., 419 U.S. 102, 143, 95 S. Ct.
335, 42 L. Ed. 2d 320 (1974). “The Supreme Court has long . . . held that where
the enforcement of a statute is certain, a preenforcement challenge will not be
rejected on ripeness grounds.” NAACP, supra, 522 F.3d at 1164 (citing Blanchette,
supra, 419 U.S. at 143).
More Law Center v. Obama, 2010 WL 3952805, at *4 (E.D. Mich. Oct. 7, 2010)
(“[T]he government is requiring plaintiffs to undertake an expenditure, for which the
government must anticipate that significant financial planning will be required. That
financial planning must take place well in advance of the actual purchase of
insurance in 2014 . . . There is nothing improbable about the contention that the
Individual Mandate is causing plaintiffs to feel economic pressure today.”)11
The Supreme Court and the Eleventh Circuit, as noted, have not hesitated to
consider pre-enforcement challenges to the constitutionality of legislation when the
complained of injury is certainly impending and more than a hypothetical possibility.
Because the issues in this case are fully framed, and the relevant facts are settled,
“[n]othing would be gained by postponing a decision, and the public interest would
be well served by a prompt resolution of the constitutionality of [the statute].” See
Thomas, supra, 473 U.S. at 582. Therefore, the case is ripe for review.12
Because the defendants’ jurisdictional challenges fail, I will now turn to their
arguments for failure to state a claim upon which relief can be granted under Rule
11
The defendants have recently filed a notice of supplemental authority in
which they have attempted to distinguish Thomas More Law Center by claiming
that the standing analysis in that case “hinge[d] on allegations not present here;”
specifically, according to the defendants, the plaintiffs alleged in that case that
“they were being compelled to ‘reorganize their affairs,’ and ‘forego certain
spending today, so they will have the funds to pay for health insurance when the
Individual Mandate takes effect in 2014” (doc. 78 at 1-2). The defendants allege
that “[t]he individual plaintiffs here make no comparable assertion.” See id. That
does not appear to be so. Ms. Brown has alleged that the individual mandate will
force her to “divert resources from [her] business” and “reorder [her] economic
circumstances” in order to obtain qualifying coverage. Am. Comp. ¶ 62.
12
Further strengthening the conclusion that the public interest would be best
served by a prompt resolution, I recognize that this court is but the first of probably
several steps this case will take. Because that process will likely take another year
or two, and because this court “will be in no better position later than we are now”
to decide the case, see Blanchette, supra, 419 U.S. at 145, it would not serve the
public interest to postpone the first step of this litigation until at least 2014.
must be both factually and legally plausible. This requires me to examine each of
the claims factually and to “take a peek” at the status of the applicable existing
Constitutional law. Several of the plaintiffs’ claims arise under Constitutional
provisions for which the Supreme Court’s interpretations have changed over the
years. But, of course, the court is bound by the law as it exists now. Each count
will be discussed below, in reverse order.
(1) Interference with state sovereignty as employers and performance of
governmental functions (Count VI)
For this count, the plaintiffs object to the Act’s employer mandate which
requires the states, in their capacities as large employers, to offer and automatically
enroll state employees in federally-approved insurance plans or else face substantial
penalties and assessments. These “extensive new benefits,” the plaintiffs contend,
will “impose immediate and expensive requirements on the States that will continue
to increase,” see Pl. Mem. at 55-56, and “burden[ ] the States’ ability to procure
goods and services and to carry out governmental functions,” see Am. Compl. ¶
90. The employer mandate allegedly exceeds Article I of the Constitution and also
runs afoul of state sovereignty in violation of the Ninth and Tenth Amendments.
Regardless of whether the employer mandate will be costly and burdensome
to the states in their capacity as large employers (which at this stage of the case is
assumed to be true), it is a “generally applicable” law that reaches both public and
private employers alike. Although a law of general applicability, as opposed to one
directed only at the states, is not per se Constitutional, it is a factor that the
Supreme Court and the courts of appeal have consistently found to be significant.
In the landmark case of Garcia v. San Antonio Metro. Transit Auth., the Supreme
Court held that a city’s transit authority (SAMTA) was bound by the minimum
wage and overtime pay provisions in the Fair Labor Standards Act (“FLSA”). During
the course of its decision, the Court stated:
[W]e need go no further than to state that we perceive
open), the fact that the employer mandate is generally applicable goes a long way
toward sustaining it.
Further, in this case, the mere fact that the states will be required to provide
the same healthcare benefits to employees as private employers does not, by itself,
implicate or interfere with state functions and sovereignty. In Maryland v. Wirtz,
392 U.S. 183, 88 S. Ct. 2017, 20 L. Ed. 2d 1020 (1968), the Supreme Court
rejected the argument that extending FLSA wage and overtime pay provisions to
the states would violate state sovereignty by telling public hospitals and schools
how to carry out their sovereign functions:
The Act establishes only a minimum wage and a
maximum limit of hours unless overtime wages are paid,
and does not otherwise affect the way in which school
and hospital duties are performed. Thus appellants’
characterization of the question in this case as whether
Congress may, under the guise of the commerce power,
tell the States how to perform medical and educational
functions is not factually accurate. Congress has
“interfered with” these state functions only to the extent
of providing that when a State employs people in
performing such functions it is subject to the same
restrictions as a wide range of other employers whose
activities affect commerce, including privately operated
schools and hospitals.
Id. at 193-94. The state plaintiffs allege that the employer mandate will interfere
with their sovereignty and impede state functions insofar as it will be financially
burdensome and that, if it is allowed to stand, the state’s authority “to define the
conditions of its officeholders and employees and to control appropriations [will be]
usurped.” Pl. Mem. at 57; see also id. at 56 n.59 (contending that “Congress may
[not] decree the basic terms of the employment relationship with State officers and
employees and usurp the States’ authority over their budgets and resources”).
However, virtually any and all attempts to regulate the wages and conditions
of employment in the national labor market (which Congress has long done) will
result in similar restrictions and adversely impact the state fisc. The minimum wage
and overtime pay provisions in the FLSA, which the Supreme Court upheld against
the states in Wirtz and Garcia, supra, certainly had much the same effect, as the
dissenters in those cases made it a point to emphasize. See Garcia, supra, 469
U.S. at 528 (“The financial impact on States and localities of displacing their
control over wages, hours, overtime regulations, pensions, and labor relations with
their employees could have serious, as well as unanticipated, effects on state and
local planning, budgeting, and the levying of taxes.”) (Powell, J., dissenting); Wirtz,
supra, 392 U.S. at 203 (stating that “[t]here can be no doubt” that if the FLSA is
extended to the states it could “disrupt the fiscal policy of the States and threaten
their autonomy in the regulation of health and education”) (Douglas, J., dissenting).
The majority opinions in those two cases control here, unless there is a discernable
reason to treat healthcare benefits differently than compensation and conditions of
employment.
I see no persuasive reason why healthcare benefits --- which are generally
viewed as a condition of employment and part of an employee’s compensation
package13 --- should be treated differently than other aspects of compensation and
conditions of employment that the Supreme Court has already held Congress may
regulate and mandate against the states (such as wages, hours, overtime pay, etc).
This is particularly so in light of the fact that, as the defendants correctly point out,
13
Cf., e.g., Owen v. McKibben, 78 Fed. Appx. 50, 51 n.3 (10th Cir. 2003)
(compensation package at issue included healthcare insurance); United States v.
City of New York, --- F. Supp. 2d ---, 2010 WL 1948562, at *1 (S.D.N.Y. May 13,
2010) (same); Portugues-Santa v. B. Fernandez Hermanos, Inc., 614 F. Supp. 2d
221, 228 (D.P.R. 2009) (same); Laselva v. Schmidt, 2009 WL 1312559, *1
(N.D.N.Y. May 7, 2009) (same); Plitt v. Ameristar Casino, Inc., 2009 WL
1297404, at *1 (E.D. Mo. May 6, 2009) (same); Perrotti v. Wal-Mart Stores, Inc.,
2006 WL 146232, *1 (D.N.H. Jan. 19, 2006) (same); Hudson v. International
Computer Negotiations, Inc., 2005 WL 3087865, at *1 (M.D. Fla. Nov. 16, 2005)
(same).
to some extent Congress already regulates health benefits for state employees, for
example, with respect to COBRA’s temporary continuation of coverage provisions
and HIPAA’s restrictions on the ability of group plans to deny coverage due to pre-
existing conditions. See Def. Mem. at 22. If the employer mandate in the Act is
unconstitutional as applied to the states, for the reasons claimed by the plaintiffs,
then the FLSA (and arguably COBRA and HIPAA) are likewise unconstitutional as
applied to the states. The plaintiffs tried to distinguish Garcia during oral argument
by contending that the case was justified because Congress there was trying to
ensure that workers “were, in effect, not going to be abused with regard to hours
or inadequate wages.” Tr. at 79. Whether the plaintiffs feel that Congress had a
more noble and well-meaning purpose in passing the FLSA is irrelevant. The power
that Congress asserted (and the effect it would have on the state fisc) is essentially
the same as here.
For the foregoing reasons, I believe Wirtz and Garcia control. I recognize that
Wirtz (state employers subject to the FLSA) was overruled by National League of
Cities v. Usery, 426 U.S. 833, 96 S. Ct. 2465, 49 L. Ed. 2d 245 (1975) (state
employers not subject to the FLSA), which was in turn overruled by Garcia (state
employers once again subject to the FLSA). Accordingly, in light of this “unsteady
path” of Supreme Court jurisprudence, New York v. United States, 505 U.S. 144,
160, 112 S. Ct. 2408, 120 L. Ed. 2d 120 (1992), the plaintiffs would most likely
have stated a plausible claim if it had been brought between 1975 and 1985. But,
of course, I am required to apply the law as it now exists.
Because the Act’s employer mandate regulates the states as participants in
the national labor market the same as it does private employers, and because the
Supreme Court has held in this context that adversely impacting the state fisc (by
requiring a minimum level of employment-based benefits) does not interfere with
state sovereignty and impede state functions, the employer mandate does not
violate the Constitution as a matter of law --- under the current law. Therefore,
Count Six does not state a plausible claim upon which relief can be granted and
must be dismissed.14
(2) Coercion and commandeering as to healthcare insurance (Count V)
The Act provides for the creation of health benefit exchanges to foster and
provide “consumer choices and insurance competition.” The Act gives the states
the option to create and operate the exchanges themselves, or have the federal
government do so. The plaintiffs acknowledge that they have a choice, but they
claim it is tantamount to no choice because the Act forces them to operate the
exchange “under threat of removing or significantly curtailing their long-held
regulatory authority” (see Am. Compl. ¶ 88), which will “displace State authority
over a substantial segment of intrastate insurance regulation . . . that the States
have always possessed under the police powers provided in the Constitution.” See
id. ¶ 44. This is improper “coercion and commandeering” in violation of the Ninth
and Tenth Amendments, according to the plaintiffs.
The plaintiffs’ argument for this claim is directly foreclosed by Hodel v.
Virginia Surface Min. & Reclamation Association, Inc., 452 U.S. 264, 101 S. Ct.
2352, 69 L. Ed. 2d 1 (1981). That case involved a pre-enforcement challenge to
the Surface Mining Control and Reclamation Act, which was a comprehensive
statute designed to “‘establish a nationwide program to protect society and the
14
The plaintiffs argue that the employer mandate runs afoul of the inter-
governmental-tax-immunity doctrine, see Pl. Mem. at 58-60, but the defendants
persuasively respond that the claim has not been pled in the amended complaint
and that, in any event, it must fail as a matter of law, see Reply in Support of
Defendants’ Motion to Dismiss (“Reply Mem.”), at 8-11 (doc. 74). Indeed, under
the current state of the law, it is unclear if the inter-governmental-tax-immunity
even retains any viability. See South Carolina v. Baker, 485 U.S. 505, 518 n.11,
108 S. Ct. 1355, 99 L. Ed. 2d 592 (1988) (noting the inter-governmental-tax-
immunity doctrine has “shifted into the modern era,” and declining to decide “the
extent, if any, to which States are currently immune from direct nondiscriminatory
federal taxation”) (emphasis added).
environment from the adverse effects of surface coal mining operations.’” Id. at
268. Pursuant to the statute, “any State wishing to assume permanent regulatory
authority over the surface coal mining operations” was required to submit a
“proposed permanent program” demonstrating compliance with federal regulations.
Id. at 271. If any state chose not to do so, the statute provided that the Secretary
of the Interior would “develop and implement” the program for that particular state.
Virginia filed suit and alleged that the statute violated the Constitution in that “the
threat of federal usurpation of their regulatory roles coerces the States into
enforcing the Surface Mining Act.” Id. at 289. The district court agreed, reasoning
that while the statute “allows a State to elect to have its own regulatory program,
the ‘choice that is purportedly given is no choice at all’ because the state program
must comply with federally prescribed standards.” Id. at 285 n.25. However, the
Supreme Court flatly rejected the argument and reversed. In doing so, the Court
explained that the statute merely established “a program of cooperative federalism
that allows the States, within limits established by federal minimum standards, to
enact and administer their own regulatory programs, structured to meet their own
particular needs.” Id. at 289. It “prescribes federal minimum standards governing
surface coal mining, which a State may either implement itself or else yield to a
federally administered regulatory program.” Id. The Supreme Court further stated
that:
A wealth of precedent attests to congressional authority
to displace or pre-empt state laws regulating private
activity affecting interstate commerce when these laws
conflict with federal law. Although such congressional
enactments obviously curtail or prohibit the States’
prerogatives to make legislative choices respecting
subjects the States may consider important, the
Supremacy Clause permits no other result.
***
15
The plaintiffs appear to suggest that our case is distinguishable from Hodel
because, unlike the statute under review in that case, the federal government here
has not accepted the “full regulatory burden” of the health benefit exchanges. For
this, the plaintiffs rely on six statutory provisions that they maintain “conscript and
coerce States into carrying out critical elements of the insurance exchange
program.” See Pl. Mem. at 51-54. As the defendants correctly point out, however,
see Reply Mem. at 6-7, upon close and careful review, each challenged provision is
voluntary and generally applicable only if the state elects to establish the exchange.
The defendants do not appear to deny that the Act will significantly alter and
expand the Medicaid program as it currently exists (although they do point out that
the federal government will be absorbing 100% of the new costs for the first three
years16). Rather, the defendants rest their argument on this simple and unassailable
fact: state participation in Medicaid under the Act is, as it always has been, entirely
voluntary. When the freedom to opt out of the program is considered in conjunction
with the fact that Congress has expressly reserved the right to alter and amend the
program, see 42 U.S.C. § 1304 (“The right to alter, amend, or repeal any provision
of this chapter is hereby reserved to the Congress.”), and, in fact, it has done so
numerous times over the years, see Def. Mem. at 10, the defendants contend that
the state plaintiffs have failed to state a claim. See Harris v. McRae, 448 U.S. 297,
301, 100 S. Ct. 2671, 65 L. Ed. 2d 784 (1980) (noting “[a]lthough participation in
the Medicaid program is entirely optional, once a State elects to participate, it must
comply with the requirements” that Congress sees fit to impose).
The state plaintiffs assert that they do not actually have the freedom to opt
out. They note that “‘Medicaid is the single largest Federal grant-in-aid program to
the States, accounting for over 40 percent of all Federal grants to states.’” See Pl.
Mem. at 50 (quoting Bipartisan Comm’n on the Medicaid Act of 2005, H.R. 985,
109th Cong. § 2(13) (2005)). They further note that in Florida, for example, 26% of
its budget is presently devoted to Medicaid outlays, and because the federal
government contributes an average of 55.45% of Medicaid costs, Florida’s outlays
would have to be more than doubled (to the point of consuming more than 58% of
its state budget) to offer the same level of benefits that its Medicaid enrollees now
receive. In short, the plaintiffs contend that the Act imposes a Hobson’s Choice.
16
One could argue, however, that the “federal government” will not really be
absorbing the costs as the government has little money except through taxpayers,
who almost exclusively reside within the states.
They must either: (1) accept the Act’s transformed Medicaid program with all its
new obligations and costs that the states cannot afford; or (2) exit the program
altogether and lose federal matching funds that are necessary and essential for
them to provide healthcare to their neediest citizens (along with other Medicaid-
linked federal funds). Either way, they contend that their Medicaid systems will
eventually collapse, leaving millions of their neediest residents without any health
insurance. Consequently, they claim that they are being forced into accepting the
changes to the Medicaid program --- even though they cannot afford it and doing
so will work an enormous financial hardship --- because they “effectively have no
choice other than to participate.” See Am. Comp. ¶ 84. Although this claim has
intuitive appeal, the status of existing law makes it a close call as to whether it
states a “plausible” claim upon which relief can be granted.
The underlying question presented is whether the Medicaid provisions satisfy
the Spending Clause. There are four “general restrictions” on Congress’s spending
power: (1) the exercise of spending power must be for the general welfare; (2) the
conditions must be stated clearly and unambiguously; (3) the conditions must bear
a relationship to the purpose of the program; and (4) the conditions imposed may,
of course, not require states “to engage in activities that would themselves be
unconstitutional.” See generally South Dakota v. Dole, 483 U.S. 203, 207-10, 107
S. Ct. 2793, 97 L. Ed. 2d 171 (1987). The plaintiffs do not appear to dispute that
the Act meets these restrictions. Rather, their claim is based principally on a single
sentence near the end of Dole, where the Supreme Court speculated that “in some
circumstances the financial inducement offered by Congress might be so coercive
as to pass the point at which ‘pressure turns into compulsion.’” Id. at 211. For that
statement, the Court relied upon an earlier decision, Steward Machine Co. v. Davis,
301 U.S. 548, 57 S. Ct. 883, 81 L. Ed. 1279 (1937), which likewise speculated
that there may be a point at which Congressional pressure turns into impermissible
coercion. However, the Steward Machine Court made no attempt to define exactly
where that line might be drawn and, in fact, suggested that no such line could be
drawn. Justice Cardozo cautioned that any spending measure (in that case, in the
form of a tax rebate) “conditioned upon conduct is in some measure a temptation.
But to hold that motive or temptation is equivalent to coercion is to plunge the law
in endless difficulties.” Id. at 589-90.
Accordingly, the coercion theory has been often discussed in case law and
scholarship, but never actually applied. While it appears that the Eleventh Circuit
has not yet been called upon to consider the issue, the courts of appeal that have
considered the theory have been almost uniformly hostile to it. See, e.g., Doe v.
Nebraska, 345 F.3d 593, 599 (8th Cir. 2003) (acknowledging what the Supreme
Court said in Dole, but going on to note that the “circuits are in accord” with the
view that no coercion is present if a state --- even when faced with the possible
“sacrifice” of a large amount of federal funding --- voluntarily exercises its own
choice in accepting the conditions attached to receipt of federal funds; noting that
a “politically painful” choice does not compulsion make); Kansas v. United States,
214 F.3d 1196, 1201-02 (10th Cir. 2000) (“The cursory statements in Steward
Machine and Dole mark the extent of the Supreme Court’s discussion of the
coercion theory. The Court has never employed the theory to invalidate a funding
condition, and federal courts have been similarly reluctant to use it”; the theory is
“unclear, suspect, and has little precedent to support its application.”); Nevada v.
Skinner, 884 F.2d 445, 448 (9th Cir. 1989) (“The coercion theory has been much
discussed but infrequently applied in federal case law, and never in favor of the
challenging party. . . . The difficulty if not the impropriety of making judicial
judgments regarding a state’s financial capabilities renders the coercion theory
highly suspect as a method for resolving disputes between federal and state
governments.”); Oklahoma v. Schweiker, 655 F.2d 401, 413-14 (D.C. Cir. 1981)
(pre-Dole) (coercion argument rejected because courts “are not suited to evaluating
whether states are faced here with an offer they cannot refuse or merely a hard
plaintiffs are in an extremely difficult situation. They either accept the sweeping
changes to Medicaid (which they contend will explode their state budgets), or they
withdraw from the system entirely (which they allege could leave millions of their
poorest and neediest citizens without any medical coverage). The plaintiffs have
argued that this is tantamount to no choice at all, which can perhaps be inferred
from the fact that Congress does not really anticipate that the states will (or could)
drop out of the Medicaid program. To be sure, since the Act seeks to reduce costs,
reduce uncompensated care, and reduce the number of uninsured, it would make
little sense for Congress to expect that objecting states would opt out of Medicaid
and leave millions of the country’s poorest citizens without medical coverage, and
thus make each of those stated problems significantly worse.
In addition, if the state plaintiffs make the decision to opt out of Medicaid,
federal funds taken from their citizens via taxation that used to flow back into the
states from Washington, D.C., would instead be diverted to the states that have
agreed to continue participating in the program.17
If the Supreme Court meant what it said in Dole and Steward Machine Co.
(and I must presume that it did), there is a line somewhere between mere pressure
and impermissible coercion. The reluctance of some circuits to deal with this issue
because of the potential legal and factual complexities is not entitled to a great deal
of weight, because courts deal every day with the difficult complexities of applying
17
See, e.g., Lynn A. Baker, The Spending Power and the Federalist Revival,
4 Chap. L. Rev. 195, 213-14 (2001) (“[S]hould a state decline proffered federal
funds because it finds a condition intolerable, it receives no rebate of any tax
dollars that its residents have paid into the federal fisc. In these cases, the state
(through its residents) contributes a proportional share of federal revenue only to
receive less than a proportional share of federal spending. Thus, when the federal
government offers the states money, it can be understood as simply offering to
return the states’ money to them, often with unattractive conditions attached.”).
Constitutional principles set forth and defined by the Supreme Court. Because the
Eleventh Circuit (unlike the other circuits) has apparently not directly addressed and
foreclosed this argument, and because, in any event, “the location of the point at
which pressure turns into compulsion, and ceases to be inducement, would be a
question of degree, at times, perhaps, of fact,” Steward Machine Co., supra, 301
U.S. at 590 (emphasis added), the plaintiffs have stated a “plausible” claim in this
circuit.
(4) Violation of constitutional prohibition of unapportioned capitation or direct
tax (Count III)
For this count, the plaintiffs object to the individual mandate penalty. They
make an “alternative” claim that, if the penalty is a tax (which they do not believe
it is, and some Constitutional authorities have concluded it could not be18), it is an
unconstitutional capitation or direct tax, prohibited by Article I, Section 9, Clause 4
of the Constitution.19 Although the argument is not only plausible, but appears to
have actual merit, as some commentators have noted, see, e.g., Steven J. Willis
and Nakku Chung, Constitutional Decapitation and Healthcare, Tax Notes (2010), I
need not be concerned with the issue. As previously explained, it is quite clear that
Congress did not intend the individual mandate penalty to be a tax; it is a penalty.
18
See, e.g., Randy Barnett, Commandeering the People: Why the Individual
Health Insurance Mandate is Unconstitutional, N.Y.U. J.L. & Liberty (forthcoming),
at 27 (stating that the argument for the penalty being justified under Congress’s
broad taxing authority is based on a “radical” theory that, if accepted, would
authorize Congress “to penalize or mandate any activity by anyone in the country,
provided it limited the sanction to a fine enforced by the Internal Revenue Service,”
which would “effectively grant Congress a general police power”).
19
This is the same Constitutional provision under which the Supreme Court
held that the first attempt to impose a federal income tax was unconstitutional to
the extent it was not apportioned. See generally Pollock v. Farmers’ Loan & Trust
Co., 157 U.S. 429, 15 S. Ct. 673, 39 L. Ed. 759 (1895). Subsequently, passage
of the Sixteenth Amendment in 1913 authorized the imposition of an income tax
without the need for apportionment among the states.
yet. That is the current state of the law, and it is not a district court’s place to
expand upon that law.
Congress made factual findings in the Act and concluded that the individual
mandate was “essential” to the insurance market reforms contained in the statute.
This is a “rational basis” justifying the individual mandate --- if it does not relate to
a fundamental right, which only the Supreme Court can recognize. In the absence
of such a recognized fundamental right, that stated “rational basis” is sufficient to
withstand a substantive due process challenge. This count must be dismissed.
(6) Challenge to individual mandate as exceeding Commerce Clause (Count I)
Under the Commerce Clause, Congress may regulate: (1) the channels of
interstate commerce; (2) the instrumentalities of interstate commerce; and (3)
activities “affecting” interstate commerce. Perez v. United States, 402 U.S. 146,
150, 91 S. Ct. 1357, 28 L. Ed. 2d 686 (1971). Only (3) is at issue here.
For this count, the plaintiffs maintain that the individual mandate does not
regulate activity affecting interstate commerce; instead, it seeks to impermissibly
regulate economic inactivity. The decision not to buy insurance, according to the
plaintiffs, is the exact opposite of economic activity. Because the individual
mandate “compels all Americans to perform an affirmative act or incur a penalty,
simply on the basis that they exist and reside within any of the United States,” the
plaintiffs contend that it will deprive them of “their rights under State law to make
personal healthcare decisions without governmental interference.” Am. Comp. ¶¶
70, 75. Thus alleged, the individual mandate exceeds the Commerce Clause, and
violates the Ninth and Tenth Amendments.
The defendants, of course, have a different take. They contend that “[t]he
appearance of inactivity here is just an illusion” because the people who decide to
not buy insurance are participating in the relevant economic market. See Tr. at 30.
Their argument on this point can be broken down to the following syllogism: (1)
because the majority of people will at some point in their lives need and consume
healthcare services, and (2) because some of the people are unwilling or unable to
pay for those services, (3) Congress may regulate everyone and require that
everyone have specific, federally-approved insurance. Framed this way, the
defendants insist that the individual mandate does not require people to pay for a
service they do not want; rather, it merely tells them how they must pay for a
service they will almost certainly consume in the future.
It is, according to the defendants, no different than Congress telling people
“you need to pay by cash instead of check or credit card.” Tr. at 88; accord Def.
Mem. at 43 (“[Individuals who choose not to buy insurance] have not opted out of
health care; they are not passive bystanders divorced from the health care market.
Instead, they have chosen a method of payment for services they will receive, no
more ‘inactive’ than a decision to pay by credit card rather than by check.”). Also,
because the individual mandate is essential to the insurance market reforms in the
Act, the defendants argue that it is sustainable for the “second reason” that it falls
within the Necessary and Proper Clause. See Def. Mem. at 44-48.
At this stage in the litigation, this is not even a close call. I have read and am
familiar with all the pertinent Commerce Clause cases, from Gibbons v. Ogden, 22
U.S. (9 Wheat.) 1, 6 L. Ed. 23 (1824), to Gonzales v. Raich, 545 U.S. 1, 125 S.
Ct. 2195, 162 L. Ed. 2d 1 (2005). I am also familiar with the relevant Necessary
and Proper Clause cases, from M’Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4
L. Ed. 579 (1819), to United States v. Comstock, --- U.S. ---, 130 S. Ct. 1949,
176 L. Ed. 2d 878 (2010). This case law is instructive, but ultimately inconclusive
because the Commerce Clause and Necessary and Proper Clause have never been
applied in such a manner before. The power that the individual mandate seeks to
harness is simply without prior precedent. The Congressional Research Service (a
nonpartisan legal “think tank” that works exclusively for Congress and provides
analysis on the constitutionality of pending legislation) advised Congress on July
24, 2009, long before the Act was passed into law, that “it is unclear whether the
20
The district court, however, went on to adopt the government’s argument
that the Commerce Clause should not only reach economic activity --- which had
“always” been present in “every Commerce Clause case” decided to date --- but it
should be applied to “economic decisions” as well, such as the decision not to buy
health insurance.
could result in abnormally low or high wheat prices. The defendants have therefore
suggested that because the motel owner in Heart of Atlanta was required to rent
rooms to a class of people he did not want to serve, Congress was regulating
inactivity. And, because the farmer in Wickard was limited in the amount of wheat
he could grow for his own personal consumption, Congress was forcing him to buy
a product (at least to the extent that he wanted or needed more wheat than he was
allowed). There are several obvious ways in which Heart of Atlanta and Wickard
differ markedly from this case, but I will only focus on perhaps the most significant
one: the motel owner and the farmer were each involved in an activity (regardless
of whether it could readily be deemed interstate commerce) and each had a choice
to discontinue that activity. The plaintiff in the former was not required to be in the
motel business, and the plaintiff in the latter did not have to grow wheat (and if he
did decide to grow the wheat, he could have opted to stay within his allotment and
use other grains to feed his livestock --- which would have been most logical, since
wheat is usually more expensive and not an economical animal feed --- and perhaps
buy flour for him and his family). Their respective obligations under the laws being
challenged were tethered to a voluntary undertaking. Those cases, in other words,
involved activities in which the plaintiffs had chosen to engage. All Congress was
doing was saying that if you choose to engage in the activity of operating a motel
or growing wheat, you are engaging in interstate commerce and subject to federal
authority.
But, in this case we are dealing with something very different. The individual
mandate applies across the board. People have no choice and there is no way to
avoid it. Those who fall under the individual mandate either comply with it, or they
are penalized. It is not based on an activity that they make the choice to undertake.
Rather, it is based solely on citizenship and on being alive. As the nonpartisan CBO
concluded sixteen years ago (when the individual mandate was considered, but not
pursued during the 1994 national healthcare reform efforts): “A mandate requiring
21
Starting in the First World War, there have been at least six attempts by
the federal government to introduce some kind of universal healthcare insurance
coverage. At no point --- until now --- did it mandate that everyone buy insurance
(although it was considered during the healthcare reform efforts in 1994, as noted
above). While the novel and unprecedented nature of the individual mandate does
not automatically render it unconstitutional, there is perhaps a presumption that it
is. In Printz, supra, 521 U.S. at 898, the Supreme Court stated several times that
an “absence of power” to do something could be inferred because Congress had
never made an attempt to exercise that power before. See id. at 905 (stating that
if “earlier Congresses avoided use of this highly attractive power, we would have
reason to believe that the power was thought not to exist”); see id. at 907-08
(“the utter lack of statutes imposing obligations [like the one at issue there]
(notwithstanding the attractiveness of that course to Congress), suggests an
assumed absence of such power”) (emphasis in original); see id. at 918 (stating
“almost two centuries of apparent congressional avoidance of the practice [at
issue] tends to negate the existence of the congressional power asserted here”).