The Fourth Circuit dismissed two lawsuits challenging the constitutionality of the individual mandate in the Affordable Care Act (“ACA”). While two of the three judges wrote individual opinions stating that they believe the ACA is constitutional, there is no majority opinion addressing the constitutionality of the law. In Virginia v. Sebelius, No. 11-1058, 2011 WL 3925617 (4th Cir. Sept. 8, 2011), the panel unanimously held that Virginia lacks standing to mount a challenge to the ACA’s constitutionality, not reaching the merits. Then the same panel dismissed a second challenge to the ACA, in Liberty Univ., Inc. v. Geithner, No. 10-2347, 2011 WL 3962915 (4th Cir. Sept. 8, 2011). The panel dismissed Liberty on a basis not supported by either party, holding that the claim was barred by the Anti-Injunction Act (“AIA”). This approach was suggested by FRP’s Si Lazarus and Professor Alan Morrison, in an article in Slate (here). It was also proposed in the DC Circuit in an amicus brief written by Professor Morrison (here), and the brief was cited by the Fourth Circuit majority in Liberty. Judge Diana Gribbon Motz, a Clinton nominee, wrote both Fourth Circuit opinions. In Liberty, Judge James Wynn, an Obama nominee, wrote a concurrence expressing his opinion that the ACA is constitutional, and Judge Andre M. Davis, also an Obama nominee, dissented on the grounds that the AIA does not bar the lawsuit. Judge Davis reached the merits and concluded that the ACA is constitutional.
Virginia v. Sebelius
The same day that President Obama signed the ACA into law, Ken Cuccinelli, the Attorney General of Virginia, filed a lawsuit challenging the constitutionality of the ACA’s individual mandate, naming only Virginia as a Plaintiff. The following day, the Governor of Virginia signed the Virginia Health Care Freedom Act (“VHCFA”) into law, which declares that “[n]o resident of this Commonwealth . . . shall be required to obtain or maintain a policy of individual insurance coverage.” Va. Code Ann. § 38.2-3430.1:1. Importantly, the VHCFA does not contain an enforcement mechanism.
Despite the fact that the ACA’s individual mandate imposes no obligations on Virginia, the sole Plaintiff in this case, Virginia contended that it has standing because the individual mandate allegedly conflicts with the VHCFA. Kathleen Sebelius, the Secretary of the Department of Health and Human Services, moved to dismiss the lawsuit for lack of subject-matter jurisdiction. Sebelius argued that Virginia lacks standing to bring the lawsuit because it did not and could not allege any cognizable injury as required by the Constitution.
Reviewing de novo the district court’s ruling as to standing, the Fourth Circuit began by noting that Virginia claimed that it has standing solely because of the alleged conflict between the ACA and the VHCFA, which allegedly injures Virginia by hindering its power to “create and enforce a legal code.” See Wyoming v. United States, 539 F.3d 1236, 1242 (10th Cir. 2008). In response to this argument, Sebelius contended that Virginia in fact sought to sue on behalf of its citizens, which the Supreme Court has prohibited. See Massachusetts v. Melon, 262 U.S. 447, 485-86 (1923). Thus, the question for the court was whether the conflict between the ACA and the VHCFA inflicts a sovereign injury on Virginia, or whether Virginia was actually suing on behalf of its citizens.
On this question, the court concluded that Virginia does not have standing to challenge the individual mandate because the mandate does not prohibit Virginia from enforcing the VHCFA. In coming to this conclusion, the court first explained that “only when a federal law interferes with a state’s exercise of its sovereign ‘power to create and enforce a legal code’ does it inflict on the state the requisite injury-in-fact.” See Alfred L. Snapp & Son, Inc. v. Puerto Rico , 485 U.S. 592, 601 (1982) (emphasis added). The court then stated that the VHCFA reflects no exercise of sovereign power because it “regulates nothing and provides for the administration of no state program.” In the court’s view, the VHCFA “simply purports to immunize Virginia citizens from federal power.”
The court went on to explain the ramifications of Virginia’s standing theory. The court stated that “[u]nder Virginia’s standing theory, a state could acquire standing to challenge any federal law merely by enacting a statute – even an utterly unenforceable one – purporting to prohibit the application of the federal law.” As an example, the court explained that under its theory Virginia could enact a statute declaring that Virginia residents are not required to pay social security taxes, and then proceed to file a lawsuit that challenges the Social Security Act.
The court concluded its opinion by recognizing that while the individual mandate raises important constitutional questions, the Constitution places limits on who can challenge the mandate. In the court’s opinion, “the significance of the questions at issue here only heightens the importance of waiting for an appropriate case to reach the merits.”
Liberty Univ., Inc. v. Geithner
Also on the day the ACA was signed, a group of individuals and Liberty University (collectively “Plaintiffs”) filed a lawsuit challenging the constitutionality of two provisions of the law. The first provision, commonly known as the individual mandate, requires an “applicable individual” to obtain “minimum essential coverage.” I.R.C. § 5000A(a). An individual “taxpayer” who fails to obtain required coverage is subject to a “penalty.” § 5000A(b)(1). The second provision challenged by the Plaintiffs, commonly known as the employer mandate, imposes an “assessable payment” on “any applicable large employer” if at least one “full-time employee” obtains an “applicable premium tax credit or cost-sharing reduction.” I.R.C. § 4980H(a), (b). The “assessable payment” is calculated differently depending on whether the employer offers adequate insurance coverage or not, with a higher “assessable payment” if the employer fails to offer adequate insurance coverage. See § 4980H(a), (b)(1), (b)(2), (c)(1), (c)(5).
Before the district court, the Plaintiffs claimed that the individual and the employer mandate exceed Congress’s Commerce Clause power and its power under the Taxing and Spending Clause. The district court disagreed, holding that both provisions are a valid exercise of Congress’s Commerce Clause power. In doing so, the district court rejected the Secretary’s argument that the AIA barred the district court from reaching the merits of the lawsuit. After the Plaintiffs appealed the decision, the Fourth Circuit ordered both parties to file supplemental briefs on whether the AIA bars the Plaintiffs’ lawsuit. In their supplemental briefs, both parties argued that the AIA did not bar the district court from reaching the merits of the lawsuit.
At the outset of its opinion, the Fourth Circuit discussed the operation of the AIA. The court explained that the AIA forbids “suits seeking to restrain the assessment or collection of a tax.” The court added that a taxpayer can always pay an assessment and then bring an action in federal court. See United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 4-5 (2008). Both parties agreed that the Plaintiffs brought a pre-enforcement action. Consequently, the relevant question for the court was whether the Plaintiffs’ lawsuit indeed seeks to restrain the assessment or collection of “any tax.”
After a short discussion of what constitutes a “tax,” the Fourth Circuit concluded that the exaction imposed on an individual who fails to comply with the individual mandate constitutes a “tax” as understood by the Internal Revenue Code’s assessment provisions. See I.R.C. §§ 6201(a), 6202, 5000A(g)(1). Because the exaction is considered a “tax,” the court found that the AIA bars the Plaintiffs’ lawsuit.
The court then addressed the Secretary’s argument (as well as the dissent’s position) that the individual mandate is a “penalty” and not a “tax.” To support this argument, the Secretary primarily relied on the fact that the ACA labels the exaction a “penalty,” and the fact that the Sixth Circuit recently held that the exaction is a penalty. See Thomas More Law Center v. Obama, __ F.3d __, No. 10-2388, 2011 WL 2556039 (6th Cir. 2011). The court responded to this argument by stating that the Sixth Circuit in Thomas More is the only federal appellate court that “has ever held that the label affixed to an exaction controls, or is even relevant to, the applicability of the AIA.” The Secretary also relied on two Supreme Court cases for the notion that the label of the exaction is relevant for purposes of the AIA. See Bailey v. Drexel Furniture, 259 U.S. 16, 38 (1922); Bailey v. George, 259 U.S. 16 (1922). The Fourth Circuit, however, found that the twin Bailey cases stand for the proposition that “the term ‘tax’ in the AIA reaches any exaction assessed by the Secretary pursuant to his authority under the Internal Revenue Code – even one that constitutes a ‘penalty’ for constitutional purposes.”
The Secretary and the dissent pointed to Section 6665(a)(2) of the Internal Revenue Code, which states that “any reference in this title to ‘tax’ imposed by this title shall be deemed also to refer to the . . . penalties provided by [Chapter 68].” According to the Secretary and the dissent, this section necessarily implies that a “penalty” that is not included in Chapter 68 is not a “tax” under the Code. The court responded by stating that the section merely clarifies that the term “tax” includes the penalties prescribed in Chapter 68, but that it does not limit the term “tax” to only the penalties listed in Chapter 68. The court also refused to infer such a limitation, and added that the Secretary’s position conflicts with the Eleventh Circuit’s interpretation of the AIA. See Mobile Republican Assembly v. United States, 353 F.3d 1357 (11th Cir. 2003). While the Secretary advanced several other reasons why the exaction is not a “tax,” the Fourth Circuit dismissed all of the contentions as being “unsupported by any statute or case law.”
After dismissing the Secretary’s argument, the court addressed the Plaintiffs’ principal argument that a narrow exception to the AIA permits their lawsuit. The exception allows a plaintiff to escape the reach of the AIA if he or she can demonstrate (1) that there would be irreparable injury absent an injunction, and (2) that “it is clear that under no circumstances could the [Secretary] ultimately prevail.” Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962). The court responded by stating that “[i]t is difficult to see how any irreparable injury justifies the injunctive relief requested here.” The court added that Plaintiffs cannot show with certainty that the Secretary will not prevail on the merits.
The court concluded its opinion by stating that “[u]nless and until Congress tells us otherwise, we must respect the AIA’s bar to the ‘intrusion of the injunctive power of the courts into the administration of the revenue.” South Carolina v. Regan, 465 U.S. 367, 368 (1984) (O’Connor, J., concurring).
Judge James Wynn, an Obama nominee, concurred in Judge Motz’s “fine” opinion that the AIA applies to this case. Judge Wynn, however, noted that if were he to reach the merits, he would uphold the constitutionality of the ACA on the basis that Congress had the power to enact it pursuant to its taxing power. Judge Wynn came to this decision after finding that the individual and employer mandates are “taxes,” not “penalties,” and that they are reasonably related to raising revenue, serve the general welfare, and do not infringe upon any other right.
Judge Andre M. Davis, also an Obama nominee, dissented on the grounds that the AIA does not bar the lawsuit. In his view, because “Congress did not intend the Anti-Injunction Act to block timely judicial review of the employer mandate provisions,” the court has jurisdiction to consider all of the Plaintiffs’ claims. As noted above, Judge Wynn also agreed with many of the Secretary’s arguments that were ultimately rejected by the majority.
Because Judge Davis would have reached the merits of the case, he explained at length why he believed that the ACA is a valid exercise of Congress’s Commerce Clause power. While Judge Davis rejected the view that in determining the constitutionality of the ACA courts must decide whether the Commerce Clause distinguishes between activity and inactivity, he concluded that even if he did consider the distinction he would find that it not vital to the Commerce Clause analysis. The important consideration to Judge Davis was whether “the failure to obtain health insurance substantially affects the interstate markets for health insurance and health care services.” Because Judge Davis concluded that it does, he would uphold the ACA as a valid exercise of Congress’s Commerce Clause power.