Fourth Circuit Finds It Lacks Jurisdiction To Hear Challenges to Health Reform Law

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In a long-awaited decision, the U.S. Court of Appeals for the Fourth Circuit Sept. 8 declared that the tax anti-injunction act (AIA) stripped it of jurisdiction to hear a challenge to the constitutionality of a key provision of the federal health reform law (Liberty University Inc. v. Geithner, 4th Cir., No. 10-2347, 9/8/11).

A second separate opinion ended, for now, Virginia Attorney General Kenneth T. Cuccinelli II's (R) hopes of having the individual mandate declared unconstitutional, as the court ruled that the state did not have standing to challenge the Patient Protection and Affordable Care Act (Virginia ex rel. Cuccinelli v. Sebelius, 4th Cir., No. 11-1057, 9/8/11).

The individual mandate, at issue in both cases, is scheduled to take effect in 2014 and would require virtually all citizens to purchase health insurance or pay a penalty. It has been a lightning rod for controversy, generating over two dozen challenges in federal courts nationwide.

By declaring that it did not have jurisdiction in either case, the Fourth Circuit sidestepped the key issue of whether Congress exceeded its authority by enacting a provision that will require individuals to purchase a commodity—health insurance. Opponents of the individual mandate argued that it goes beyond the limits set on congressional power and, if approved, would mean that Congress could require citizens to purchase virtually anything.

The U.S. Court of Appeals for the Sixth Circuit in late June held that Congress had authority through its commerce clause power to enact the controversial provision (126 HCDR, 6/30/11). The U.S. Court of Appeals for the Eleventh Circuit, however, deemed the provision constitutionally invalid, thereby creating a circuit split (157 HCDR, 8/15/11).

The public interest law firm plaintiff in the Sixth Circuit case, the Thomas More Law Center, already has filed a petition for review with the U.S. Supreme Court. The government has until late September to file a brief in opposition to the request for review.

Judge Diana Gribbon Motz wrote the unanimous opinion in Virginia ex rel. Cuccinelli and the majority opinion in Liberty University. Judge James A. Wynn Jr. wrote a concurring opinion, and Judge Andre M. Davis dissented. Davis would have reached the merits and would have held the individual mandate constitutional.

AIA Bars Decision on Merits

In the Liberty University case, the Fourth Circuit vacated a decision by the U.S. District Court for the Western District of Virginia upholding the individual mandate. It remanded the case and ordered the district court to dismiss it.

Liberty University and two individuals had sought to enjoin the mandate's enforcement. The plaintiffs also challenged the constitutionality of the employer mandate, which would impose a penalty on a large employer if any employee sought coverage through a health exchange.

Early on in the litigation, the government argued that Congress had authority to enact the individual mandate under its taxing and spending power. It also argued that the AIA barred the lawsuit because the plaintiffs raised a pre-enforcement challenge to a tax. The district court specifically rejected this argument.

The Fourth Circuit resurrected the AIA issue when, after oral argument, it asked the parties to brief the applicability of the AIA to the plaintiffs' challenge. Both parties responded with briefs arguing that the AIA did not apply to this case. The Fourth Circuit disagreed.

The AIA, Internal Revenue Code §7421(a), states that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” When applicable, the AIA “divests federal courts of subject-matter jurisdiction,” the court said. Thus, a taxpayer cannot bring a pre-enforcement action before a tax has been assessed or collected. The taxpayer's only remedy, the court said, would be to pay the penalty and seek a refund.

In applying the AIA bar in this case, the court noted that PPACA amended the Internal Revenue Code by adding a penalty payable to the secretary of the Treasury by a taxpayer who failed to maintain adequate health insurance coverage. Only a taxpayer is liable for the penalty, and only the existing tax collection system can be used to implement the mandate, the court said.

It was irrelevant that Congress labeled the mandate a “penalty” rather than a tax, the court continued, because the AIA reaches “any extraction that is made under color of their offices by revenue officers charged with the general authority to assess and collect the revenue.” According to the court, the Supreme Court has construed the AIA as applying broadly to bar interference with any extraction, regardless of whether it is officially a tax.

In any case, the court said, if Congress intended to allow pre-enforcement challenges of the individual mandate, it could have amended the AIA to exempt the mandate from its provisions.

Decision Surprising

While opponents of the individual mandate did not expect a good outcome in the Fourth Circuit, given the tone of the oral arguments, they were surprised that the court ordered Liberty University's case dismissed on the ground that the AIA barred a decision on the merits.

David B. Rivkin Jr. said that, while the government initially used the AIA argument when seeking dismissal of PPACA challenges, no judge in the country previously had accepted it. Nor had any judge, until Wynn in his concurring opinion, accepted the government's argument that Congress had authority to enact the mandate pursuant to the taxing and spending clause, Ilya Shapiro told BNA.

Rivkin, a partner at Baker Hostetler in Washington, served as outside counsel to the 26 state plaintiffs in another PPACA case, Florida v. HHS. Shapiro is a senior fellow in constitutional studies at the Cato Institute in Washington.

Shapiro called the Fourth Circuit's decision “unusual.” He noted that the two-judge majority argued that the individual mandate must be considered a tax for purposes of the AIA, regardless of whether it is, in fact, a tax. Rivkin said that the mandate was unconstitutional even under the taxing and spending clause, an issue that the court did not address.

In a telephone briefing sponsored by the American Constitution Society, former U.S. Solicitor General Walter Dellinger opined that whether the AIA barred the litigation was a “very close question.” He agreed with the Fourth Circuit that the answer does not depend on whether Congress could justify passing the mandate under the taxing and spending clause, because it still could be considered a “tax” for AIA purpose.

More interesting, Dellinger said, is the fact that the Supreme Court now may take the AIA bar “seriously.” If the high court agreed with the Fourth Circuit that the AIA barred the constitutional challenge to the mandate at this time, it would “greatly postpone the resolution of the constitutional issue,” he said. Rather than having a decision by June 2012, as most experts have predicted, the earliest the constitutional question would be resolved by the Supreme Court would be June 2016, Dellinger said.

Dellinger is now a partner at O'Melveny & Myers LLP in Washington.

Rivkin and Shapiro, however, both said they do not see the Fourth Circuit's decision as having any impact in the Supreme Court. Shapiro told BNA that the constitutional issue has been “so thoroughly briefed” that he does not believe the Supreme Court will have any qualms about taking one of the other cases in its upcoming term.

Dean Erwin Chemerinsky of the University of California—Irvine School of Law told BNA in an e-mail that “the Fourth Circuit is right that [the mandate] is a tax.” He noted that the mandate “is calculated based on income and collected by the IRS. A good deal of the legislative history indicates that Congress thought it was a tax, though it was not called that,” he said, adding that “labels cannot matter.”

No Standing for State

In the second opinion, the Fourth Circuit judges unanimously held that the state of Virginia did not have standing to challenge the constitutionality of the individual mandate. The court said that the mandate did not apply to the state and, therefore, the state could not demonstrate that it would suffer an injury in fact should the mandate be upheld. A state cannot bring an action solely to defend the constitutional rights of its citizens, the court added.

The court rejected Virginia's assertion that it had standing due to the conflict between the mandate and the Virginia Health Care Freedom Act (VHCFA). It said the VHCFA did not “confer on Virginia a sovereign interest in challenging the individual mandate.”

“[T]he mere existence of a state law like the VHCFA does not license a state to mount a judicial challenge to any federal statute with which the state law assertedly conflicts,” the court said. Rather, a state demonstrates an injury in fact only when the federal law interferes with the state's exercise of its sovereign power to create and enforce statutes, it said.

The court noted that the VHCFA was enacted just a day after PPACA.

Rivkin called the Fourth Circuit's decision “fundamentally wrong.” The issue is one of state sovereignty, he said. “If Virginia can't dispute the federal government's imposition” on its right to say its citizens cannot be forced to buy health insurance, “then the concept of dual sovereignty means nothing,” he said.

Shapiro said the decision was not surprising, given how the oral argument played out. But he said the issue of whether states, at least in limited circumstances, should be permitted to pass laws that conflict with federal law was a “close call.” Such laws are “politically important,” in that they demonstrate citizens' disagreement with the federal law, he said. As a matter of law, however, they may not do much, he said.

Despite Cuccinelli's vow to seek Supreme Court review of the decision, announced in a Sept. 8 press release, Shapiro said he did not think the high court would grant review on the standing issue.

Dellinger agreed with the others that the ruling was expected, and he agreed with Shapiro that the Supreme Court is unlikely to take up this issue.

Chemerinsky told BNA that “the court is clearly right that Virginia lacks standing. A state cannot exempt its citizens from complying with a federal law.” He asserted that Virginia's statute “is clearly preempted by federal law,” and “it therefore cannot be a basis for the state to have standing.”

Chemerinsky added that he agreed with the position Davis took in his dissent—that the mandate is constitutional.

Dellinger too, agreed with Davis's position. He asserted, also, that—though normally loath to make predictions—the Supreme Court is likely to agree. Dellinger said that, after all the briefing and the appeals courts' decisions, “the rhetoric has been stripped away” and “it is hard to find a persuasive argument” that Congress lacked authority to enact the mandate. The constitutional question “is an easy one,” he said.

By Mary Anne Pazanowski

Full text of the opinion in the Virginia case is available at . Full text of the opinion in the Liberty University case is available at .


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