Hotze et al v. Sebelius et al
Filing
30
MEMORANDUM AND ORDER Granting 14 MOTION to Dismiss 1 Complaint . This case is DISMISSED WITH PREJUDICE. (Signed by Judge Nancy F. Atlas) Parties notified.(gkelner, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
STEVEN F. HOTZE, M.D., and
§
BRAIDWOOD MANAGEMENT, INC.,§
Plaintiffs,
§
§
v.
§
§
KATHLEEN SEBELIUS, U.S.
§
SECRETARY OF HEALTH AND
§
HUMAN SERVICES, and
§
JACOB J. LEW, U.S. SECRETARY
§
OF THE TREASURY, in their
§
official capacities,
§
Defendants.
§
CIVIL ACTION NO. 4:13-cv-01318
MEMORANDUM AND ORDER
This case, which challenges the constitutionality of the Patient Protection and
Affordable Care Act (the “Affordable Care Act” or “ACA”), Pub. L. No. 111-148,
124 Stat. 119,1 follows on the coattails of—and in some ways is derivative of—the
Supreme Court’s recent decision in National Federation of Independent Business v.
Sebelius, 132 S. Ct. 2566 (2012) (“NFIB”). Plaintiffs Steven F. Hotze, M.D.
(“Hotze”) and Braidwood Management, Inc. (“Braidwood,” and together with Hotze,
“Plaintiffs”) seek a declaratory judgment that the ACA is unconstitutional on two
grounds not addressed by NFIB: (1) that the ACA violates the Origination Clause of
1
The Patient Protection and Affordable Care Act was amended by the Health Care and
Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029, and by
the Department of Defense Full-Year Continuing Appropriations Act, 2011, Pub. L.
112-10, 125 Stat. 38.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
the United States Constitution, U.S. CONST. art. I, § 7, cl. 1; and (2) that the ACA
violates the Takings Clause of the Fifth Amendment, U.S. CONST. amend. V.
Before the Court is the Motion to Dismiss [Doc. # 14] of Defendants Kathleen
Sebelius, U.S. Secretary of Health and Human Services (“Sebelius”) and Jacob J.
Lew, U.S. Secretary of the Treasury (“Lew,” and together with Sebelius,
“Defendants”). Plaintiffs have filed a Response [Doc. # 20], to which Defendants
have replied [Doc. # 25].
Having carefully considered the parties’ briefing, all matters of record, and the
applicable legal authorities, the Court holds that Plaintiffs have standing to contest
the ACA on the grounds alleged and that this case is otherwise justiciable. The Court
further concludes that Plaintiffs have failed to state a claim upon which relief can be
granted under either the Origination Clause or the Takings Clause, and that there is
no viable amendment to the Complaint that can rectify the deficiencies in Plaintiffs’
pleadings. Accordingly, the Court grants Defendants’ Motion to Dismiss. The
claims against Defendants are dismissed with prejudice.
I.
BACKGROUND
A.
Statutory Background
On October 8, 2009, the House of Representatives (the “House”) passed H.R.
3590, otherwise titled at the time the “Service Members Home Ownership Tax Act
of 2009.” H.R. 3590, 111th Cong., § 1 (Oct. 8, 2009). H.R. 3590 was a bill to make
certain changes to the Internal Revenue Code. Specifically, the bill extended or
waived the recapture of a first-time homebuyer credit for certain members of the
armed forces. Id., §§ 2-3. The bill also expanded exclusions from gross income of
certain military-related fringe benefits. Id., § 4. Finally, the bill increased the penalty
for failure to file a partnership or “S corporation” tax return from $89 to $110, and
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
2
increased certain estimated corporate taxes by 0.5%. Id., §§ 5-6.
Upon receipt, the Senate struck out the entirety of H.R. 3590 aside from its
enacting clause.2 In its place the Senate inserted new text under the title “Patient
Protection and Affordable Care Act.” H.R. 3590, 111th Cong., § 1(a) (Dec. 24,
2009). The bill passed the Senate on December 24, 2009.
The amended H.R. 3590 was then sent back to the House. On March 21, 2010,
the House passed H.R. 3590 as amended. Concurrently, the House passed H.R. 4872,
entitled the “Health Care and Education Reconciliation Act of 2010,” which made
certain amendments to the ACA.3 President Obama signed H.R. 3590 into law on
March 23, 2010. See Pub. L. 111-148. The Senate passed H.R. 4872 on March 25,
2010, and the President signed it into law on March 30, 2010. See Pub. L. 111-150.
Two particular provisions of the ACA are relevant to this case. First, under the
ACA, individuals not otherwise exempted from the law’s coverage must either
maintain “minimum essential coverage” or, in the alternative, must pay “a penalty
with respect to such failures.” 26 U.S.C. § 5000A (the “individual mandate” or
“minimum coverage provision”). Second, where “any applicable large employer fails
to offer to its full-time employees (and their dependents) the opportunity to enroll in
minimum essential coverage under an eligible employer-sponsored plan” and where
“at least one full-time employee of the applicable large employer has been certified
. . . as having enrolled for such month in a qualified health plan with respect to which
2
The enacting clause reads: “Be it enacted by the Senate and House of Representatives
of the United States of American in Congress assembled.”
3
The House had, on November 7, 2009, passed a bill largely similar to the amended
H.R. 3590, entitled the “Affordable Health Care for America Act.” H.R. 3962, 111th
Cong., § 1(a) (Nov. 11, 2009). That bill was not acted on by the Senate in that form.
The House ultimately passed H.R. 3590 and H.R. 4872 instead.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
3
an applicable premium tax credit or cost-sharing reduction is allowed or paid with
respect to the employee,” the employer will be assessed a payment.4 26 U.S.C.
§ 4980H (the “employer mandate” or “employer responsibility provision”).5
B.
NFIB v. Sebelius
The Supreme Court has previously addressed the constitutionality of the ACA
in National Federation of Independent Business v. Sebelius (“NFIB”). At issue in
NFIB was the constitutionality of the individual mandate and the ACA’s Medicaid
4
The employer mandate, in other words, requires certain large employers to either:
(1) provide their employees healthcare insurance coverage that meets minimum
standards as laid out in the ACA; or (2) be assessed a “shared responsibility payment”
if at least one of their employees would qualify for a tax credit or cost-sharing
reduction through purchase of an insurance plan on the individual health insurance
markets. Both employers who offer insurance that does not meet minimum standards
and employers who do not offer any insurance at all can be assessed these payments.
See generally “What is the Employer Shared Responsibility Payment?,”
H EALTHCARE.GOV (last accessed January 7, 2014).
5
The Court adopts and uses the terms “individual mandate” and “employer mandate”
as shorthands to refer to § 5000A and § 4980H, respectively. The phrase “individual
mandate” is to some extent a misnomer in light of NFIB, which held that individuals
fully comply with the law if they “choose to pay [a tax] rather than obtain health
insurance.” NFIB, 132 S. Ct. at 2597. Under that analysis, individuals are not
mandated to purchase insurance, but rather are given the lawful choice between
obtaining insurance or paying a tax. See Marty Lederman, Hobby Lobby Part
III–There is no “Employer Mandate”, B ALKANIZATION (December 16, 2013, 9:366
A M ), http://balkin.blogspot.com /2013/12/hobby-lobby-part-iiitheres-n oemployer.html. The Court adopts a similar analysis below with respect to the
“employer mandate.” See infra Part V. Nevertheless, the Court uses the individual
mandate and employer mandate phrases because that is how the statutory provisions
colloquially are known, and because other courts, including those that have rendered
decisions on the issues presented in this case, have adopted that terminology. See,
e.g., NFIB, 132 S. Ct. 2566; Liberty Univ., Inc. v. Lew, 733 F.3d 72 (4th Cir. 2013);
Sissel v. U.S. Dep’t of Health and Human Servs., __ F. Supp. 2d __, 2013 WL
3244826, at *6 (D.D.C. June 28, 2013).
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
4
expansion. The Supreme Court’s opinion regarding the individual mandate is
particularly important to the issues presented in this case.
Chief Justice Roberts, writing for the Court in this regard,6 first rejected the
Government’s argument that the individual mandate is a “valid exercise of Congress’s
power under the Commerce Clause and the Necessary and Proper Clause.” NFIB,
132 S. Ct. at 2585. The Commerce Clause, the Court held, “presupposes the
existence of commercial activity,” and the individual mandate “compels individuals
to become active in commerce by purchasing a product, on the ground that their
failure to do so affects interstate commerce.” Id. at 2586-87 (emphasis in original).
That distinction, in the Court’s view, was fatal to the Government’s Commerce
Clause argument—the Court effectively rejected the “proposition that Congress may
dictate the conduct of an individual today because of prophesied future activity.” Id.
at 2590.7
The Court, however, ultimately upheld the constitutionality of the individual
6
The NFIB Court was splintered. Chief Justice Roberts’ opinion announced the
judgment of the Court and is the controlling opinion. His opinion was joined by
Justices Ginsburg, Breyer, Sotomayor, and Kagan with respect to Parts I, II, and III-C
and by Justices Breyer and Kagan with respect to Part IV. Notably, no other Justice
joined his opinion with respect to Parts III-A, III-B, and III-D. Justice Ginsburg,
joined by Justice Sotomayor and Justice Breyer and Kagan in part, filed an opinion
concurring in part, concurring in the judgment in part, and dissenting in part. Justices
Scalia, Kennedy, Thomas, and Alito filed a joint dissent, and Justice Thomas filed a
separate dissent.
7
The Court also rejected the Government’s argument under the Necessary and Proper
Clause because, to sustain an action under that Clause, Congress’s “exercise[] of
authority” must be “derivative of, and in service to, a granted power,” and, in contrast
to previous cases, “the individual mandate . . . vests Congress with the extraordinary
ability to create the necessary predicate to the exercise of an enumerated power.”
NFIB, 132 S. Ct. at 2592.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
5
mandate under Congress’s power to “lay and collect Taxes.” U.S. CONST. art. I, § 8,
cl. 1. The Court noted that “shared responsibility payment(s)” due under the ACA for
those not obtaining minimum essential coverage is paid into the Treasury in
conjunction with tax returns, that the provision is found in the Internal Revenue
Code, and that “it produces at least some revenue for the Government.” NFIB, 132
S. Ct. at 2594. The Court also rejected the argument that the payments should be
considered “penalties” instead of taxes. Id. at 2595-96. Moreover, the Court stressed
that although the individual mandate is designed to “induce the purchase of health
insurance,” there are no legal consequences for not doing so, and one who foregoes
purchasing insurance and instead chooses to make a payment to the IRS has “fully
complied with the law.” Id. at 2596-97. Thus, the Court found the individual
mandate to comply with Congress’s taxing power, even though it effectively imposes
a tax on individuals for their “inactivity.” Id. at 2599-600. Significantly, the Court
noted that “[a]lthough the payment will raise considerable revenue, it is plainly
designed to expand health insurance coverage.” Id. at 2596 (emphasis added).8
C.
Plaintiffs’ Claims
Plaintiffs in this case are a Texas corporation and an individual Texas resident.
Braidwood is a corporation that “manages health and wellness services for patients.”9
Braidwood has approximately 73 full-time employees, and currently offers a “high-
8
The balance of Chief Justice Roberts’ opinion is devoted to the constitutionality of
Congress’s expansion of Medicaid, a discussion not relevant to the issues at bar.
9
Complaint, ¶ 10. While Plaintiffs have not filed an amended complaint in this case,
the Court construes the new factual allegations in Plaintiffs’ Response to the Motion
to Dismiss [Doc. # 20] as a supplement to their Complaint.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
6
deductible” health coverage plan to employees.10 Hotze is “the founder and one of
the employees of Plaintiff Braidwood.”11 He currently participates in the health plan
offered by Braidwood.12
The claims that Plaintiffs press are different from those in NFIB. Plaintiffs here
seek a declaratory judgment that the entire ACA is unconstitutional because Congress
passed the law in violation of the Origination Clause.13 U.S. CONST. art. I, § 7, cl. 1.
In addition, Plaintiffs seek a declaratory judgment that the ACA “constitutes a taking
within the meaning of the Takings Clause of the Fifth Amendment because ACA
compels Plaintiffs to pay money to other private entities: government-approved health
insurance companies.”14 Plaintiffs also seek injunctive relief “prohibiting Defendants
from enforcing ACA against Plaintiffs and similarly situated residents of Texas.”15
10
Complaint, ¶¶ 3, 23.
11
Id., ¶ 11.
12
Id.
13
Id., ¶¶ 37-56.
14
Id., ¶¶ 57-64.
15
Id., Prayer for Relief, cl. v. Certain phrases in the Complaint reference other
constitutional provisions. For example, in two different places Plaintiffs state that the
ACA violates the Tenth Amendment. See Complaint, ¶¶ 54, Prayer for Relief, cl. iii.
However, Plaintiffs do not allege a separate cause of action under this Constitutional
Amendment. Nor have Plaintiffs responded to the Motion to Dismiss on the basis of
this theory. Thus, the Court construes these references to be part and parcel of
Plaintiffs’ Origination Clause claim. Similarly, Plaintiffs state that the tax imposed
under the individual mandate is “non-uniform,” in violation of the Uniformity Clause,
U.S. C ONST. art. I, § 8, cl. 1. See Complaint, ¶ 53. Plaintiffs’ Response to the Motion
to Dismiss, however, makes clear that their Uniformity Clause argument is only an
aspect of their Origination Clause argument. See Plaintiffs’ Response [Doc. # 20],
(continued...)
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
7
II.
APPLICABLE LEGAL STANDARDS
A.
Subject Matter Jurisdiction
“A case is properly dismissed for lack of subject matter jurisdiction when the
court lacks the statutory or constitutional power to adjudicate the case.” Krim v.
pcOrder.com, Inc., 402 F.3d 489, 494 (5th Cir. 2005) (citations omitted). In
considering a challenge to subject matter jurisdiction, the district court is “free to
weigh the evidence and resolve factual disputes in order to satisfy itself that it has the
power to hear the case.” Id. When the court’s subject matter jurisdiction is
challenged, the party asserting jurisdiction bears the burden of establishing it. See
Davis v. United States, 597 F.3d 646, 649 (5th Cir. 2009). A motion to dismiss for
lack of subject matter jurisdiction should be granted only if it appears certain that the
plaintiff cannot prove a plausible set of facts that establish subject matter jurisdiction.
Id. The Court must “take the well-pled factual allegations of the complaint as true
and view them in the light most favorable to the plaintiff.” Lane v. Halliburton, 529
F.3d 548, 557 (5th Cir. 2007).
B.
Failure to State a Claim
A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure is viewed with disfavor and is rarely granted. Turner v. Pleasant, 663 F.3d
770, 775 (5th Cir. 2011) (citing Harrington v. State Farm Fire & Cas. Co., 563 F.3d
141, 147 (5th Cir. 2009)). The complaint must be liberally construed in favor of the
plaintiff, and all facts pleaded in the complaint must be taken as true. Harrington,
563 F.3d at 147. The complaint must, however, contain sufficient factual allegations,
15
(...continued)
at 15. Accordingly, the Court construes Plaintiffs’ claims in their Complaint to be
limited to the two counts that Plaintiffs explicitly advance, namely, violations of the
Origination Clause and the Takings Clause.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
8
as opposed to legal conclusions, to state a claim for relief that is “plausible on its
face.” See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Patrick v. Wal-Mart, Inc., 681
F.3d 614, 617 (5th Cir. 2012). When there are well-pleaded factual allegations, a
court should presume they are true, even if doubtful, and then determine whether they
plausibly give rise to an entitlement to relief. Iqbal, 556 U.S. at 679. Additionally,
regardless of how well-pleaded the factual allegations may be, they must demonstrate
that the plaintiff is entitled to relief under a valid legal theory. See Neitzke v.
Williams, 490 U.S. 319, 327 (1989); McCormick v. Stalder, 105 F.3d 1059, 1061 (5th
Cir. 1997).
III.
JURISDICTIONAL ISSUES
A.
Plaintiffs’ Standing
Defendants first argue that both Hotze and Braidwood lack standing to assert
the claims alleged. Defendants contend that Hotze lacks standing because he
currently participates in Braidwood’s health plan and carries health coverage16 that
makes it “very likely [Hotze] will not be subject to the tax penalty assessed under the
minimum coverage provision.”17 Defendants further contend that Braidwood lacks
standing because it cannot be assessed a payment until 2015, “and whether
Braidwood will be [subject to an assessable payment] turns on facts that are not pled
in the complaint, including the future actions of Braidwood’s employees.”18
Specifically, Defendants argue that it is “speculative whether Braidwood will owe any
tax under Section 4980H” because Braidwood “will be subject to the assessable
16
See Complaint, ¶ 11.
17
Motion to Dismiss [Doc. # 14], at 8-9.
18
Id., at 11.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
9
payment only if at least one of its full-time employees is certified as having enrolled
in a qualified health plan in an exchange and that full-time employee is allowed
premium tax credits or cost-sharing reductions,” and that a Braidwood employee can
only receive a tax credit “if the employer-sponsored coverage offered fails to meet
certain standards for adequate coverage.”19
Defendants therefore argue that
Braidwood cannot yet know whether it will be subject to an assessable payment,
because it is unclear: whether Braidwood’s health plan will fall short of the required
standards for minimum coverage; whether a Braidwood employee will choose to
obtain coverage in a health exchange; and whether an employee who does obtain
coverage on an exchange will be eligible for a premium tax credit.20
“Standing under Article III of the Constitution requires that an injury be
concrete, particularized, and actual or imminent; fairly traceable to the challenged
action; and redressable by a favorable ruling.” Monsanto Co. v. Geertson Seed
Farms, 130 S. Ct. 2743, 2752 (2010). In addition to this “constitutional” standing
requirement, a party must also show that it has “prudential” standing, which
“encompasses the general prohibition on a litigant’s raising another person’s legal
rights, the rule barring adjudication of generalized grievances more appropriately
addressed in the representative branches, and the requirement that a plaintiff’s
complaint fall within the zone of interests protected by the law invoked.” Elk Grove
Unified Sch. Dist. v. Newdow, 542 U.S. 1, 12 (2004) (citing Allen v. Wright, 468 U.S.
737, 751 (1984)). “[T]he party invoking federal jurisdiction bears the burden of
19
Id.
20
Id., at 12.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
10
establishing its existence.” Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 104
(1998).
The Court agrees with Braidwood that it has standing to contest the
constitutionality of the ACA under the Origination and Takings Clauses. Braidwood
has alleged an injury that is “concrete, particularized, and imminent.” Braidwood is
subject to the employer mandate as an “applicable large employer” since it “has
approximately 73 full-time equivalent employees.”21 See 26 U.S.C. § 4980H(c)(2)(A)
(defining “applicable large employer” as “an employer who employed an average of
at least 50 full-time employees on business days during the preceding calendar year”).
Currently, Braidwood voluntarily offers its employees a high-deductible health
coverage plan and the option to contribute money to Health Savings Accounts.22
Funding this plan costs Braidwood approximately $198,000 per year.23 Braidwood
alleges that it “must make decisions soon about whether to incur the new penalties
imposed by [the] ACA or switch to more expensive and less desirable health
insurance coverage pursuant to [the] ACA requirements.”24 Braidwood has plausibly
asserted that it must take steps now to ensure compliance with the employer mandate
in 2015 and that it imminently will accrue expenses in preparing for and
implementing its plan. These allegations are sufficient, on a motion to dismiss, to
meet the concrete injury requirement. See Lujan v. Defenders of Wildlife, 504 U.S.
555, 561 (1992) (“General factual allegations of injury resulting from the defendant’s
21
Complaint, ¶ 4.
22
Id., ¶¶ 23-24.
23
Id., ¶ 27.
24
Id., ¶ 28.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
11
conduct may suffice, for on a motion to dismiss we presume that general allegations
embrace those specific facts that are necessary to support the claim.”“); see also
Liberty Univ., Inc. v. Lew, 733 F.3d 72, 89-90 (4th Cir. 2013) (citing Lujan and
holding that Liberty University had standing to contest the employer mandate because
“[e]ven if the coverage Liberty currently provides ultimately proves sufficient, it may
well incur additional costs because of the administrative burden of assuring
compliance with the employer mandate, or due to an increase in the cost of care.”).
Braidwood also meets the second and third elements of the constitutional
standing analysis. Braidwood’s injury is “fairly traceable to the challenged action;”
indeed, Braidwood would not have any injury at all—at least as regards its provision
of health coverage to its employees—if not for the requirements imposed by the
employer mandate. And Braidwood’s injury would be “redressable by a favorable
ruling,” which, under the claims Braidwood asserts, would require striking down all
or part of the ACA as unconstitutional.
Defendants further argue that Braidwood’s claims are simply “generalized
grievances” for which Braidwood lacks prudential standing.25 This argument is
essentially foreclosed for the reasons the Court has determined that Braidwood has
established constitutional standing to challenge the ACA on the grounds asserted.
Because Braidwood suffers an actual, concrete injury under the ACA in its status as
an employer subject to the employer mandate, Braidwood’s claim is not
“generalized,” but instead is particular to it as an employer. Accordingly, Braidwood
has met its burden to establish that it has standing to assert these claims.
25
Defendants’ Reply [Doc. # 25], at 8. Defendants do not actually use the phrase
“prudential standing” in their brief.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
12
The Court does not separately address Hotze’s standing, as it is well-settled
that where one party has standing to assert the claims presented, a court does not have
to “consider the standing of the other plaintiffs.”26 Watt v. Energy Action Educ.
Found., 454 U.S. 151, 160 (1981); see also Florida ex rel. Attorney Gen. v. U.S.
Dep’t of Health and Human Servs., 648 F.3d 1235, (11th Cir. 2011), aff’d in part and
rev’d in part on other grounds, NFIB, 132 S. Ct. 2566 (2012) (proceeding to the
merits on claims contesting provisions of the ACA where “at least one plaintiff has
standing to raise each claim”).
B.
Anti-Injunction Act
Defendants also contend that the Anti-Injunction Act (“AIA”), which 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, whether or not such person is the
person against whom such tax was assessed,”27 26 U.S.C. § 7421(a), precludes this
Court’s adjudication of Braidwood’s challenges to the employer mandate. The Court
is unpersuaded.28 In NFIB, the Supreme Court ruled that the AIA does not apply to
the individual mandate because Congress “chose to describe the ‘shared responsibility
payment’ . . . not as a ‘tax,’ but as a ‘penalty,’” in contrast to “many other exactions
[the ACA] creates as ‘taxes.’” NFIB, 132 S. Ct. at 2583. Thus, even though the
Supreme Court ultimately upheld the law under Congress’s taxing power, the Court
26
Only two claims are before the Court: (1) whether the ACA originated in the Senate
in violation of the Origination Clause; and (2) whether payments under the ACA are
“takings” under the Fifth Amendment. Both Plaintiffs assert both claims before this
Court.
27
Motion to Dismiss [Doc. # 14], at 13.
28
The AIA does not preclude the Court’s review of Plaintiff Hotze’s challenges to the
individual mandate. See NFIB, 132 S. Ct. at 2582-84.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
13
reasoned that both “[t]he Anti-Injunction Act and the Affordable Care Act . . . are
creatures of Congress’s own creation,” and a review of the statutory text that
Congress promulgated led the Court to conclude that Congress had not intended the
individual mandate to be subject to the AIA. Id. at 2583-84.
Defendants argue that the employer mandate should be treated differently from
the individual mandate. Defendants cite to various provisions of the ACA that refer
to the employer mandate as a “tax.”29 Accordingly, Defendants reason that because
Congress was more explicit in referring to the employer mandate as a tax, it stands
to reason, under NFIB, that the mandate should be subject to the AIA.30
The Court is not persuaded by Defendants’ distinction between the employer
mandate and the individual mandate. The ACA does, at times, refer to the employer
mandate as a “tax.” See, e.g., 42 U.S.C. § 18081(f)(2)(A); 26 U.S.C. § 4980H(b)(2);
26 U.S.C. § 4980H(c)(7). In other instances, however, the ACA refers to the
employer mandate as an “assessable payment,” see, e.g., 26 U.S.C. § 4980H(b)(1),
(c)(2)(D)(i)(I), (d)(1), (d)(2), (d)(3), or an “assessable penalt[y],” 26 U.S.C.
§ 4780H(c)(2)(D). Thus, Congress’ phrasing regarding the employer mandate is
ambiguous, at best, with regard to it being a “tax” within the meaning of the AIA. As
the Supreme Court in NFIB emphasized, “penalties” located in subchapter 68B of the
Internal Revenue Code “are treated as taxes under Title 26,” but the individual
mandate was “not in subchapter 68B of the Code.” NFIB, 132 S. Ct. at 2583. The
same is true for the employer mandate. See Liberty Univ., 733 F.3d at 88.
The Court agrees with the Fourth Circuit’s observation in Liberty University
29
Id., at 14-15.
30
See id. at 15-16.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
14
that “to adopt the [Defendant’s] position” that the employer mandate, unlike the
individual mandate, is subject to the AIA “would lead to [the] anomalous result” that
an individual could bring a pre-enforcement challenge to the individual mandate but
an employer could not assert such a challenge to the employer mandate. Id.
Defendants here disagree with the Liberty University Court on the grounds that the
employer mandate, unlike the individual mandate, can be enforced through certain
“summary administrative measures,” such as “by levies and the filing of notices of
liens.”31 Despite this distinction, the Fourth Circuit noted, “[i]t seems highly unlikely
that Congress meant to signal . . . that the mandates should be treated differently for
purposes of the AIA’s applicability.” Id. These mandates serve similar purposes,
albeit for different “persons” under the law, and it seems unlikely that the employer
mandate should be subject to the AIA simply because Congress provided the Internal
Revenue Service with expanded methods to collect taxes from employers who choose
to pay the tax in lieu of providing health coverage to employees. The Court declines
to import a distinction between the mandates with regard to the applicability of the
AIA and follows the Supreme Court and Fourth Circuit’s leads that the AIA does not
deprive this Court of jurisdiction over Braidwood’s claims.
C.
Ripeness
Defendants’ final procedural argument for dismissal is that this Court is
without jurisdiction to adjudicate Braidwood’s claim that claim is not yet ripe.32
Essentially, Defendants argue that Braidwood cannot sustain an injury until the
employer mandate goes into effect—that is, in 2015—and that “Braidwood [cannot]
31
Motion to Dismiss [Doc. # 14], at 15-16; Defendants’ Reply [Doc. # 25], at 10-11.
32
Defendants do not contest the ripeness of Hotze’s claims.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
15
establish with any reliability that it will be subject to the tax assessment associated
with the provision at that time.”33 Braidwood, in opposition, argues that it will
imminently be subject to the employer mandate,34 that the claims here are “purely
legal,” and that application of the mandate requires Braidwood to “incur additional
costs in order to make it ACA-compliant,” costs Braidwood must incur now in order
to prepare for the mandate and “to attract and retain employees” subject to the
individual mandate.35
“[The] ripeness doctrine is drawn both from Article III limitations on judicial
power and from prudential reasons for refusing to exercise jurisdiction.” Reno v.
Catholic Soc. Servs., 509 U.S. 43, 58 n.18 (1993) (citing Buckley v. Valeo, 424 U.S.
1, 114 (1976)). The purpose of the ripeness doctrine “is to prevent the courts,
through avoidance of premature adjudication, from entangling themselves in abstract
disagreements.” Choice Inc. of Texas v. Greenstein, 691 F.3d 710, 715 (5th Cir.
2012) (quoting Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967)). In considering
a ripeness objection, a court should consider “the fitness of the issues for judicial
decision and the hardship to the parties of withholding court consideration.” Id.
33
Motion to Dismiss [Doc. # 14], at 17.
34
Plaintiffs, in essence, argue that despite the fact that the employer mandate will not
go into effect until 2015, it is clear as of now that the mandate will go into effect (and
that taxes will be imposed), and that delay in deciding the constitutionality of this
provision will only hurt Plaintiffs, while reviewing the law’s constitutionality now
will leave Defendants unharmed. Plaintiffs’ Response [Doc. # 20], at 10.
35
Id., at 10-11. Braidwood suggests that the plan it currently offers is not “ACAcompliant,” so it must switch its plan now both to ensure compliance with the ACA
(at least as of 2015) and to ensure that its employees (or possible future employees),
who are subject to the individual mandate, receive insurance that would allow them
to comply individually with the ACA.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
16
Ripeness inquiries are particularly important in cases where a plaintiff seeks “preenforcement review of a law or regulation.” Roark & Hardee LP v. City of Austin,
522 F.3d 533, 544 (5th Cir. 2008) (emphasis in original). While cases involving
purely legal issues are generally ripe for consideration, a plaintiff must still “show
some hardship in order to establish ripeness.” Choice Inc. of Texas, 691 F.3d at 715.
The Court concludes that Braidwood’s claims are ripe for consideration. First,
the claims at bar are fit for judicial decision. Braidwood’s claims are essentially
“pure legal questions,” one contesting the entire ACA under the Origination Clause
and the other challenging the employer mandate under the Takings Clause of the Fifth
Amendment. In order to be adjudicated, neither claim requires detailed factual
development regarding Braidwood’s health coverage obligations.
The Court
concluded above that Braidwood has Article III standing to assert its claims.36 The
Supreme Court has opined that fitness for decision depends, at least in part, on
whether the claim involves “contingent future events that may not occur as
anticipated, or indeed may not occur at all.” Thomas v. Union Carbide Agric. Prods.
Co., 473 U.S. 568, 580-81 (1985) (citing 13A C. Wright, A. Miller & E. Cooper,
FEDERAL PRACTICE AND PROCEDURE § 1352 (1984)). Here, “there is some risk that
circumstances could change between the time this complaint was filed” and 2015, the
deadline for application of the employer mandate. Ass’n of Amer. Physicians &
Surgeons, Inc. v. Sebelius, 901 F. Supp. 2d 19, 37 (D.D.C. 2012). But the risk
appears quite small, given that the Supreme Court has upheld the constitutionality of
the individual mandate in NFIB, the fact that the individual mandate itself has already
36
See supra Part III.A.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
17
gone into effect, and, as detailed below,37 that the employer mandate relies on a
similarly sound constitutional basis. See id.
Second, Braidwood would suffer hardship if the decision were delayed on these
issues. “The Supreme Court has found hardship to inhere in legal harms, such as the
harmful creation of legal rights or obligations; practical harms on the interests
advanced by the party seeking relief; and the harm of being forced . . . to modify
one’s behavior in order to avoid future adverse consequences.” Choice Inc. of Texas,
691 F.3d at 715 (internal quotations omitted). Braidwood contends that its current
health coverage plan does not comply with the requirements of employer health plans
under the ACA, and that it will need to incur costs in order to comply.38 Moreover,
Braidwood asserts that it must do so now in order to retain current employees or
attract future employees who themselves are subject to the individual mandate.39
While any direct payment under the employer mandate would not be assessed until
2015, Braidwood must already bear these incidental costs and is being “harmed” by
the mandate. Accordingly, Braidwood has sufficiently shown the required hardship
in order to permit pre-enforcement judicial review of its claims. See Roark, 522 F.3d
at 545-46 (holding that a bar would suffer hardship without pre-enforcement review
of an ordinance requiring the bar to take “necessary steps to prevent or stop another
person from smoking in an enclosed area in a public place,” where the bar would be
required to “guess the requirements of the . . . provision” to implement and where
failure to do so could subject the bar to a fine or revocation of licenses); Ass’n of
37
See infra Parts IV and V.
38
Plaintiffs’ Response [Doc. # 20], at 11.
39
Id.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
18
Amer. Physicians, 901 F. Supp. 2d at 37 (finding challenge to individual mandate ripe
where “individuals who will be affected by this provision will need to start preparing
in advance of the date it actually takes effect”).
Moreover, the Court notes that during the litigation challenging the individual
mandate that preceded the Supreme Court’s decision in NFIB, at least one Court of
Appeals that considered the ripeness issue found the challenge ripe for judicial
decision. See, e.g., Thomas More Law Center v. Obama, 651 F.3d 529, 537-38 (6th
Cir. 2011), cert. denied, 133 S. Ct. 61 (2012), and abrogated on other grounds by
NFIB, 132 S. Ct. 2566 (2012) (finding Article III ripeness because the case concerned
a “pre-enforcement facial challenge” to the individual mandate and the fact that “[b]y
permitting this lawsuit to be filed three and one-half years before the effective date
. . . the only thing that changes is that all three layers of the federal judiciary will be
able to reach considered merits decisions . . . before the law takes effect”). The same
logic applies to the employer mandate. Braidwood asserts a pre-enforcement facial
challenge to the law under the Origination Clause and the Takings Clause. No
recognized principle of federal jurisdiction will be served by delaying decision on this
issue until 2015, when assessable payments under the employer mandate will
commence for employer non-compliance. Given the choice between allowing for a
full and thorough consideration of the issues by various levels of the judiciary at this
time or requiring “rushed interim decisions” at some later point, “[t]he former is
certainly preferable to the latter.” Id. at 538.
IV.
ORIGINATION CLAUSE
The Origination Clause provides that “[a]ll Bills for raising Revenue shall
originate in the House of Representatives; but the Senate may propose or concur with
Amendments as on other Bills.” U.S. Const. art. I, § 7, cl. 1. The jurisprudence on
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
19
the Origination Clause is sparse but informative, and that precedent guides this
Court’s decision of Plaintiffs’ Origination Clause challenge to the ACA.
To state a claim for the violation of the Origination Clause, a plaintiff must
show that each element of the Clause has been breached. First, the plaintiff must
show that the bill in question is one “for raising revenue.” Second, the plaintiff must
prove that the bill “did not originate in the House of Representatives.” See Sissel v.
U.S. Dep’t of Health and Human Servs., __ F. Supp. 2d __, 2013 WL 3244826, at *6
(D.D.C. June 28, 2013); see also Twin City Nat’l Bank of New Brighton v. Nebecker,
167 U.S. 196, 202-03 (1897) (holding that bill was not one for raising revenue, and
thus finding it unnecessary to reach the question of whether the bill “originated in the
one body or the other”); see generally United States v. Munoz-Flores, 495 U.S. 385
(1990) (analyzing whether challenged statute was a “Bill[] for raising Revenue”);
Flint v. Stone Tracy Co., 220 U.S. 107 (1911), overruled on other grounds by Garcia
v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985) (analyzing whether
challenged statute originated in the House of Representatives).40
Judge Beryl Howell of the United States District Court for the District of
Columbia has recently considered, and rejected, the argument that the ACA was
passed in violation of the Origination Clause. See Sissel, 2013 WL 3244826, at *612. This Court finds much of Judge Howell’s reasoning persuasive and, for similar
reasons, rejects Plaintiffs’ challenge to the ACA on Origination Clause grounds.
A.
The ACA is not a “Bill for raising Revenue”
Plaintiffs contend that certain provisions of the ACA—namely, the individual
mandate and the employer mandate—“levy taxes in the strict sense of the word” and
40
The Supreme Court has held that Origination Clause challenges to a law are
justiciable. See generally United States v. Munoz-Flores, 495 U.S. 385 (1990).
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
20
thus “raise revenue” under the Origination Clause.41 In support of this contention,
Plaintiffs note that funds raised through these mandates “go into the Treasury” and
not into any distinct, healthcare-oriented (or other regulatory) program.42 Plaintiffs
assert that these provisions of the ACA essentially create “a massive, multi-billiondollar income tax.”43 In support of their position, Plaintiffs cite three Supreme Court
cases that address the Origination Clause.44
In its Origination Clause jurisprudence, the Supreme Court has paid particular
attention to the overarching purpose of the challenged bills. Bills covered by the
Origination Clause “are those that levy taxes in the strict sense of the word, and are
not bills for other purposes which may incidentally create revenue.” Nebecker, 167
U.S. at 202-03 (citing 1 Joseph Story, COMMENTARIES ON THE CONSTITUTION OF THE
UNITED STATES § 880 (1833)). The Supreme Court has rejected Origination Clause
challenges on the grounds that a bill imposed a tax that only “incidentally” created
revenue. For example, the Nebecker Court held that a tax imposed on certain banking
associations was not a revenue bill because it was only “a means for effectually
accomplishing the great object of giving to the people a currency that would rest
primarily upon the honor of the United States . . . . There was no purpose by the act,
or by any of its provisions, to raise revenue to be applied in meeting the expenses or
41
Plaintiffs’ Response [Doc. # 20], at 14.
42
Id., at 14-15.
43
Id., at 16 (emphasis in original).
44
See id., at 14-17 (citing United States v. Munoz-Flores, 495 U.S. 385 (1990); Millard
v. Roberts, 202 U.S. 429 (1906); Twin City Nat’l Bank of New Brighton v. Nebecker,
167 U.S. 196 (1897)). It is noted that none of these decisions held there was a
violation of that clause.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
21
obligations of the government.”45 Nebecker, 167 U.S. at 203. In Millard v. Roberts,
the Supreme Court held that a tax imposed on District of Columbia property owners
to help fund infrastructure to be used by private railroad corporations was not a
revenue bill because that tax was “but means to the purposes provided by the act.”
202 U.S. 429, 437 (1906). And in United States v. Munoz-Flores, the Supreme Court
held that a “special assessment” imposed on people convicted of misdemeanors was
“passed as part of a particular program to provide money for that program—the Crime
Victims Fund,” and therefore was not a “bill for raising revenue,” even where the
excess money collected was paid into the General Treasury. 495 U.S. 385, 398-400
(1990). In short, the Supreme Court has consistently interpreted the phrase “raising
revenue” narrowly to apply only to those bills, or provisions of bills, whose primary
purpose is the collection of revenue. See Sissel, 2013 WL 3244826, at *7 (“Under
the Supreme Court’s precedents—sparse as they may be on this subject—so long as
the primary purpose of the provision is something other than raising revenue, the
provision is not subject to the Origination Clause.”).
The Fifth Circuit’s Origination Clause jurisprudence—though limited—also
supports the notion that the “revenue raising” provisions of an act must be evaluated
by looking at the act’s larger purpose. In United States v. Herrada, 887 F.2d 524 (5th
Cir. 1989), the Court of Appeals addressed the provision—the “special assessment”
imposed under 18 U.S.C. § 3013—at issue in Munoz-Flores. The Court of Appeals,
reaching the same conclusion that the Supreme Court ultimately reached a year later,
reasoned that:
Section 3013 was but a subsidiary element of a comprehensive
45
The Court notes that the tax imposed in the bill at issue in Nebecker was paid to the
“treasurer of the United States.” Nebecker, 167 U.S. at 199.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
22
Congressional scheme aimed at aiding the victims of crime. The
purpose of the Act was not the prohibited purpose of raising revenue ‘to
be applied in meeting the expenses or obligations of the government.’
Id. at 527. Indeed, the Court of Appeals explained that the Supreme Court’s
precedents “instruct us to consider the overarching purpose of an Act when one of
its provisions is subject to an Origination Clause challenge.” Id. at 528 (emphasis
added).46 Thus, the fact that tax revenue gained through the ACA’s provisions is
directed to the “general Treasury”—the crux of Plaintiffs’ Origination Clause
argument—is not sufficient to qualify the ACA as a “bill for raising revenue.”
Plaintiffs correctly note a distinguishing feature of this case from past decisions, such
as Nebecker, Millard, and Munoz-Flores, that the assessments under the ACA are
paid to the Treasury and are not required to be used to fund particular programs
created by the legislation.47 See Munoz-Flores, 495 U.S. at 399. But the use of
revenue is only one method of assessing the “purpose” of the provision. In
determining the primary purpose of the ACA, the Court may also assess whether the
46
Plaintiffs argue that “speculation about a legislative purpose . . . is contrary to Fifth
Circuit teachings that the plain meaning of a statute trumps assertions of legislative
intent.” Plaintiffs’ Response [Doc. # 20], at 20. Plaintiffs, however, conflate
different ways in which background legislative materials may be used. The Fifth
Circuit has in dicta rejected the use of “legislative intent” in interpreting the meaning
of particular provisions of a statute. See id. (citing Andrepont v. Murphy Exploration
& Prod. Co., 566 F.3d 415, 420-21 (5th Cir. 2009)). Discernment of “legislative
intent,” however, is distinct from ascertaining legislative “purpose” to determine
whether a statute complies with certain Constitutional requirements, such as the
Origination Clause. The Fifth Circuit’s own precedent, as cited above, “instructs”
that legislative “purpose” should be used in the latter circumstance. Moreover, the
Supreme Court has noted that the “purpose” of the individual mandate is apparent on
the face of the statute. See NFIB, 132 S. Ct. at 2596 (noting that the individual
mandate is “plainly designed to expand health insurance coverage”).
47
Plaintiffs’ Response [Doc. # 209], at 15.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
23
law “raises revenue to support Government generally,” Munoz-Flores, 495 U.S. at
398, and whether “[t]he tax was a means for effectually accomplishing” a purpose
distinct from raising revenue “to be applied in meeting the expenses or obligations
of the government,” Nebecker, 167 U.S. at 203. See Sissel, 2013 WL 3244826, at *7.
The ACA, by and through the individual mandate and employer mandate, is
“plainly designed to expand health insurance coverage.” NFIB, 132 S. Ct. at 2596.
These mandates, in other words, are but a means to an end, which is to advance health
care coverage. See, e.g., Patient Protection and Affordable Care Act, Pub. L. No.
111-148, § 1501(a)(2)(C) (“The [minimum essential coverage] requirement, together
with other provisions of this Act, will add millions of new consumers to the health
insurance market, increasing the supply of, and demand for, health care services.”).48
Their goal is not to “support Government generally.” Indeed, while individuals have
the free choice whether to purchase insurance or pay an assessment, which has been
characterized as a tax, Congress’s purpose clearly was to “induce the purchase of
health insurance.” See NFIB, 132 S. Ct. at 2596-97. Congress’s preference is
undoubtedly that individuals purchase insurance in lieu of paying the tax, and thus
for “the individual mandate to raise zero revenues.” Sissel, 2013 WL 3244826, at *8.
48
The text of the ACA does not expressly state the purpose of the employer mandate,
as the statute does for the individual mandate. In certain legislative history, in
addition to the quote in the parenthetical in the text above, Congress expressed that
the employer mandate also served the broader purpose of expanding and stabilizing
the American health insurance market. See H.R. Rep. No. 111-443(II), at 985-86
(“The employer responsibility to provide and/or contribute to the health care of its
workers will stabilize the employer-based health care system. Because the Employee
Retirement Income Security Act of 1974 (ERISA) currently contains no requirement
that an employer offer employee benefits, employers who do not offer health
insurance to their workers gain an unfair economic advantage relative to those
employers who do provide coverage, and millions of hard-working Americans and
their families are left without health insurance.”).
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
24
The same is true for the employer mandate, which also serves to expand health care
coverage.49 While some revenue under these mandates will be paid to the general
Treasury, those payments are only “incidental” to the ACA’s “overarching purpose.”
See Munoz-Flores, 495 U.S. at 399-400 (holding that “special assessment” collected
in misdemeanor convictions was only “incidental” to the purpose of “generating
needed income to offset the cost of the Crime Victims Fund”); Nebecker, 167 U.S.
at 203 (holding that tax imposed on banking associations was only a “means for
effectually accomplishing the great object” of creating a national currency).50
49
See Motion to Dismiss [Doc. # 14], at 29 (“Indeed, the very purpose of the employer
responsibility provision is to encourage applicable large employers to provide
sufficient health coverage and thus to avoid paying the associated tax. As with
Section 5000A, Section 4980H will thus operate most successfully by generating even
less revenue.”).
50
Plaintiffs primarily argue as to the Origination Clause that the ACA is a “massive,
multi-billion-dollar income tax,” making it a revenue bill subject to that clause.
Plaintiffs’ Response [Doc. # 20], at 16 (emphasis in original). Plaintiffs also seek to
frame the ACA as “a government-mandate redistribution of wealth” because “the
persons paying the taxes under ACA are unrelated to those receiving the benefits.”
Id., at 18-19. These arguments, however, do not address the crux of the
issue—whether Congress’s purpose in enacting the individual mandate or the
employer mandate was primarily to raise revenue, rather than to induce the purchase
of and broaden the number of people receiving health care coverage. Plaintiffs’ first
argument (i.e., that the ACA is an income tax) conflates the concept of “taxes” with
“bills for raising revenue.” While there is undoubtedly overlap between the two
concepts, the Government can impose taxes whose primary purpose is not the raising
of revenue. See NFIB, 132 S. Ct. at 2596 (“But taxes that seek to influence conduct
are nothing new . . . . That § 5000A seeks to shape decisions about whether to buy
health insurance does not mean that it cannot be a valid exercise of the taxing
power.”). Plaintiffs’ second argument seeks to interpose a purpose to the law that is
found neither in the statutory text nor in the legislative history. Moreover, Plaintiffs
provide no support for their proposition that the supposed “redistributive” aspect of
the mandates makes those provisions constitutionally suspect under the Origination
(continued...)
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
25
Accordingly, neither the ACA as a whole nor the individual and employer mandates
per se within the act are a “Bill[] for raising Revenue” subject to the Origination
Clause.
B.
The ACA Originated in the House of Representatives
Alternatively, to the extent that the ACA is a “Bill[] for raising Revenue,” the
ACA originated in the House of Representatives. Plaintiffs do not argue in response
to the Motion to Dismiss how this H.R. 3590 originated in the Senate; instead,
Plaintiffs here again focus on whether the ACA “raises revenue within the meaning
of the Origination Clause.”51 Accordingly, the Court concludes that Plaintiffs have
abandoned the theory that the bill did not originate in the House as a basis for striking
down the ACA on Origination Clause grounds.
Even if Plaintiffs were deemed not to have abandoned this argument because
they allege in their Complaint that “[a]s amended in the Senate, ACA is a revenueraising bill that did not originate with a revenue-raising bill in the House . . .,”52 the
argument fails. More specifically, the Court addresses the contention that the version
of H.R. 3590 that originated in the House was effectively superseded by the Senate’s
“creation” of the ACA, and thus the ACA, though nominally titled under H.R. 3590,
originated in the Senate.53 The Court finds this argument unpersuasive.
50
(...continued)
Clause.
51
Plaintiffs’ Response [Doc. # 20], at 14.
52
Complaint, ¶ 51.
53
Some scholars have referred to this as a “shell bill.” See Rebecca M. Kysar, The
‘Shell Bill’ Game: Avoidance and the Origination Clause, 91 W ASH. U. L. R EV. __
(forthcoming 2014). The Court finds it important to address this argument, though
(continued...)
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
26
This contention ignores the second half of the Origination Clause, which states
that “the Senate may propose or concur with Amendments as on other bills.” U.S.
CONST. art. I, § 7, cl. 1. Significantly, the Supreme Court has upheld against an
Origination Clause challenge a law in which the Senate struck a provision of a House
bill regarding taxes and inserted a new provision of its own. See Flint, 220 U.S. at
143 (rejecting Origination Clause challenge where Senate’s amendment inserted a
corporation tax in place of an inheritance tax).54 There, the Supreme Court stated:
This statement shows that the tariff bill of which the section under
consideration is a part, originated in the House of Representatives, and
was there a general bill for the collection of revenue . . . The bill having
properly originated in the House, we perceive no reason in the
constitutional provision relied upon why it may not be amended in the
Senate in the manner which it was in this case. The amendment was
germane to the subject-matter of the bill, and not beyond the power of
the Senate to propose.
Id. Subsequent Courts of Appeals, including the Fifth Circuit, have endorsed this
Congressional practice even where the Senate substitutes the entire text of a Houseoriginated bill with its own text. See, e.g., Texas Ass’n of Concerned Taxpayers, Inc.
v. United States, 772 F.2d 163 (5th Cir. 1985), cert. denied, 476 U.S. 1151 (1986)
(affirming, in dicta, the lower court’s dismissal of an Origination Clause challenge
where, “[u]pon reaching the Senate, [a House bill] was referred to the Senate Finance
Committee, which struck the entire text of the bill after the enacting clause and
53
(...continued)
abandoned, because it grants Defendants’ Motion to Dismiss without leave to amend,
and recognizes that, in an amended pleading, Plaintiffs may have reasserted this
argument.
54
The Supreme Court also held that the “plan for inheritance taxation” which originated
in the House “was there a general bill for the collection of revenue.” Flint, 220 U.S.
at 143.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
27
replaced it with a massive tax-increasing proposal,” on the grounds that, under Flint,
the Senate’s amendment was permissible); Armstrong v. United States, 759 F.2d 1378
(9th Cir. 1985) (stating that “once a revenue bill has been initiated in the House, the
Senate is fully empowered to propose amendments,” even when those amendments
are “far-reaching and extensive”). The Senate’s amendment power, in other words,
is broad in scope, even where those amendments leave the original House-originated
legislation as nothing more than a “shell bill.”
One limitation courts have considered, but not found dispositive, is whether the
Senate’s amendment was “germane” to the subject of the House bill. See Flint, 220
U.S. at 143 (“The amendment was germane to the subject-matter of the bill, and not
beyond the power of the Senate to propose.”); Texas Ass’n of Concerned Taxpayers,
772 F.2d at 168 (“The Senate’s amendment, adding new taxes, was germane to the
subject matter and thus within the range of amendments permitted by the origination
clause.”). The Origination Clause itself does not require “germaneness,” and it is
unclear whether any of the cited cases actually impose such a requirement. See
Sissel, 2013 WL 3244826, at *10 (reading Flint to conclude that it is “sufficient,” but
not necessary, “to comport with the Origination Clause when a Senate amendment to
a House revenue bill is germane to the subject-matter of the bill”). Moreover, the
Origination Clause allows the Senate to amend a House a bill that raises revenue “as
on other bills.” U.S. CONST. art. I, § 7, cl. 1. There can be no dispute that, generally
speaking, the Senate is not limited by a germaneness requirement in amending Houseoriginated legislation. Thus, it is likely that the Origination Clause does not impose
a “germaneness” requirement either. Nevertheless, because the issue is not free from
doubt, the Court assumes that the Senate’s amendment to a revenue bill must be
germane, at some level of generality, to the topic of the House bill, and holds that the
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
28
ACA satisfies this requirement.55
Both Flint and Texas Association of Concerned Taxpayers adopted “a very
loose conception of germaneness.” Sissel, 2013 WL 3244826, at *12. In Flint, the
Supreme Court found the Senate’s substitution of a corporation tax bill in place of an
inheritance tax provision was germane for Origination Clause purposes. See Flint,
220 U.S. at 143. Similarly, in Texas Association of Concerned Taxpayers, the Fifth
Circuit found that the Senate’s amendment that raised taxes on certain conduct or
businesses was germane to a House bill that cut taxes without regard to the source of
the revenue. See Texas Ass’n of Concerned Taxpayers, 772 F.2d at 168. The
unifying principle in these cases is that a Senate amendment to a bill that “raises
revenue” is germane so long as the original House bill related to tax or revenue
55
The Sissel Court held that the issue of “germaneness” was not justiciable. See Sissel,
2013 WL 3244826, at *11 (citing Rainey v. United States, 232 U.S. 310 (1914)) (“The
Supreme Court’s statement that ‘it is not for this court to determine whether the
amendment was or was not outside the purposes of original bill’ strongly suggests that
it is for Congress, not the courts, to decide whether an amendment is properly
germane in any given case.”). The Sissel Court concluded that while Munoz-Flores
made Origination Clause challenges themselves justiciable in federal court, it did not
address the germaneness issue, and that a proper reading of that decision, and other
Supreme Court and D.C. Circuit decisions, indicated that justiciability “likely stops
short of permitting scrutiny of whether a Senate amendment to a revenue bill is
germane.” Id. This Court does not read Munoz-Flores so narrowly. While the
Supreme Court’s Origination Clause analysis in that case was limited to whether the
contested bill was one for raising revenue, the first half of its opinion—devoted to the
justiciability issue—is not so limited. Indeed, the Court there stressed that “the law
must comply with all relevant constitutional limits” and that “[a] law passed in
violation of the Origination Clause would thus be no more immune from judicial
scrutiny because it was passed by both Houses and signed by the President than would
be a law passed in violation of the First Amendment.” Munoz-Flores, 495 U.S. at
397. To the extent that the Constitution requires “germaneness” under the Origination
Clause, the Court is required, under Munoz-Flores, to examine the Senate amendment
in light of the original House bill to see if this requirement has been met.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
29
issues.
In this light, the ACA is germane to H.R. 3590 as originally drafted in the
House. The ACA passed the House and the Senate, and was signed by the President,
as H.R. 3590.56 The bill that originated in the House on October 8, 2009, entitled the
“Service Members Home Ownership Tax Act of 2009,” included both revenue-raising
and revenue-decreasing provisions. Indeed, the entirety of that bill concerned
revenue. The ACA, a much longer bill, included provisions that were revenue-raising
(such as the individual and employer mandates) and provisions which did not touch
on revenue at all. Because both versions of the bill concerned revenue, any
applicable germaneness requirement is met here. See Sissel, 2013 WL 3244826, at
*12. That the sources of revenue generated by the ACA mandates differ from those
originally proposed under the House bill is of no import in this analysis, as both Flint
and Texas Association of Concerned Taxpayers make clear. Accordingly, even if the
56
Defendants contend that “the ACA’s compliance with the Origination Clause is
underscored by the House’s acceptance of the Senate’s amendment,” since the House
has the ability to independently enforce the Origination Clause through the “blueslipping” procedure. Motion to Dismiss [Doc. # 14], at 29-30. The Supreme Court
rejected a similar argument in Munoz-Flores, noting that “congressional consideration
of constitutional questions does not foreclose subsequent judicial scrutiny of the law’s
constitutionality.” Munoz-Flores, 495 U.S. at 391. While the House’s enactment of
the Senate’s version of H.R. 3590 demonstrates the House concurred in the Senate’s
provisions, the House’s enactment does not address the issue of which body
originated the legislation. The Court notes, however, that the “H.R.” designation on
the enrolled bill here does carry some weight in assessing where the bill originated.
Cf. id. at 409 (Scalia, J., dissenting) (“[F]ederal courts should not undertake an
independent investigation into the origination of the statute at issue here. The
enrolled bill which, when signed by the President, became the Victims of Crime Act
of 1984, 98 Stat. 2170, bore the indication ‘H.J. Res. 648.’. . . The enrolled bill’s
indication of its House of origin establishes that fact as officially and authoritatively
as it establishes the fact that its recited text was adopted by both Houses . . . [The
Court] should similarly accept the congressional representation in the present case.”).
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
30
ACA and the mandate provisions are “Bills for raising Revenue,” H.R. 3590
originated in the House and was later amended in a manner “germane” to the original
bill. Plaintiffs’ arguments to the contrary are rejected and their claim of violation of
the Origination Clause is dismissed.
V.
TAKINGS CLAUSE
The Takings Clause of the Fifth Amendment provides that “private property
[shall not] be taken for public use, without just compensation.” U.S. CONST. amend.
V. Plaintiffs allege that the “ACA constitutes a ‘taking’ . . . because ACA compels
Plaintiffs to pay money to other private entities: government-approved health
insurance companies.”57 This, Plaintiffs allege, violates the Fifth Amendment “by
compelling private individuals and entities to make payments to other private entities,
without a public use and without just compensation.”58 In support of this allegation,
Plaintiffs argue that though the ACA59—that is, the individual mandate—is
constitutional under the Government’s taxing power, the taxing power cannot be used
in a manner that violates another constitutional provision, such as the Takings
Clause.60 Plaintiffs contend that, in purchasing or providing insurance under the
57
Complaint, ¶ 58.
58
Id., ¶ 60.
59
As in their Complaint, Plaintiffs here consistently refer to the ACA generally and not
to particular provisions of the ACA. See Plaintiffs’ Response [Doc. # 20], at 22-25.
Many provisions of the ACA, however, do not involve the Government’s taxing
power and thus are not relevant to Plaintiffs’ argument. The Court construes
Plaintiffs’ argument to relate to the individual mandate and the employer mandate, the
two provisions most relevant to their claim. See id., at 23 (referring to “ACA’s tax
penalties”).
60
Id., at 23.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
31
individual mandate or the employer mandate, they would “pay higher premiums to
subsidize both private insurance companies and ACA’s favorable treatment of those
with pre-existing conditions,” and would therefore “not get a fair approximation of
the cost of the benefits supplied.”61
The Court is unpersuaded.
Just last term, the Supreme Court stated
unequivocally that “it is beyond dispute that taxes and user fees . . . are not takings.”
Koontz v. St. Johns River Water Mgmt. Dist., 133 S. Ct. 2586, 2600 (2013) (citing
Justice Scalia’s dissent in Brown v. Legal Found. of Wash., 538 U.S. 216, 242 n.2
(2003)). That principle is dispositive in this case. As noted, the Supreme Court in
NFIB upheld the individual mandate as a “tax.” See NFIB, 132 S. Ct. at 2593-2600.
While the Supreme Court did not consider the constitutionality of the employer
mandate, the Court’s reasoning in NFIB is equally applicable to that provision, which
also must be deemed a “tax.” Provisions of the ACA dealing with the employer
mandate refer to that mandate as a tax.62 See, e.g., 42 U.S.C. § 18081(f)(2)(A) (“The
Secretary shall establish a separate appeals process for employers who are notified
under subsection (e)(4)(C) that the employer may be liable for a tax imposed by
section 4980H of Title 26 with respect to an employee because of a determination that
the employer does not provide minimum essential coverage through an employersponsored plan . . .”); 26 U.S.C. § 4980H(b)(2) (referring to the “aggregate amount
of tax determined under paragraph (1)”); 26 U.S.C. § 4980H(c)(7) (referring to
“denial of deduction for the tax imposed by this section”). Moreover, “[t]he
requirement to pay is found in the Internal Revenue Code and enforced by the IRS.”
61
Id.
62
This Court adopts the distinctions articulated by Chief Justice Roberts in NFIB
regarding the individual mandate being a tax but not subject to the AIA.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
32
NFIB, 132 S. Ct. at 2594. Perhaps most importantly, the employer mandate also
contains “the essential feature of any tax: it produces at least some revenue for the
Government.” Id.
The Fourth Circuit, the single Court of Appeals to have addressed the
constitutionality of the employer mandate, similarly concluded that the employer
mandate was constitutional as a tax, under the Supreme Court’s analysis in NFIB. See
Liberty Univ., Inc. v. Lew, 733 F.3d 72, 95-98 (4th Cir. 2013), cert. denied __ S. Ct.
__, 2013 WL 4811562, at *1 (Dec. 2, 2013) (concluding that the employer mandate
can be upheld as a tax).63 While the constitutionality of the employer mandate under
Congress’s taxing power is not presented in this case (as it was in Liberty University),
and thus the Court does not reach that issue, the Court does conclude, for present
purposes, that the employer mandate functions as a tax and thus is not
unconstitutional under the Takings Clause.
Moreover, striking down either the individual mandate or the employer
mandate as unconstitutional under the Takings Clause would fly in the face of the
Supreme Court’s decision in NFIB. As noted, the Supreme Court concluded that the
individual mandate was constitutional under Congress’s taxing power. For the
reasons set forth above, the employer mandate also is constitutional. To permit
Congress to tax certain conduct (i.e., the failure to purchase or provide health
coverage), but then to require Congress to provide “just compensation” because the
collection is a “taking,” would render Congress’s taxing authority nugatory. See
Ass’n of Amer. Physicians, 901 F. Supp. 2d at 38 (“[I]f the government were
63
The Fourth Circuit also noted that, like the individual mandate, the employer mandate
is not a “penalty” because it “does not punish unlawful conduct,” but instead leaves
employers with the choice of either providing health coverage or paying the tax.
Liberty Univ., 733 F.3d at 98.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
33
prohibited from using tax money for the benefit of the American people, or if it was
required to give the money back, its taxation powers would be useless.”). Plaintiffs
have supplied no limiting principle here that would reconcile this tension.
The NFIB Court noted that “[e]ven if the taxing power enables Congress to
impose a tax on not obtaining health insurance, any tax must still comply with other
requirements in the Constitution.” NFIB, 132 S. Ct. at 2598. Plaintiffs point this
Court to Brushaber v. Union Pacific Railroad Company, 240 U.S. 1 (1916), to
support the proposition that Congress’s taxing power must be limited by the Takings
Clause.64 But Plaintiffs misread that case. In Brushaber, the Court rejected an
argument that an income tax provision was unconstitutional under the Fifth
Amendment, stating:
[I]t is equally well settled that [the Due Process Clause of the Fifth
Amendment] is not a limitation upon the taxing power conferred upon
Congress by the Constitution; in other words, that the Constitution does
not conflict with itself by conferring, upon the one hand, a taxing power,
and taking the same power away, on the other, by the limitations of the
due process clause.
Id. at 24. Brushaber stands for the proposition that the Fifth Amendment cannot be
read to limit Congress’s taxing power, not that the Fifth Amendment serves as a
limitation on that power. Brushaber did state that this doctrine “would have no
application in a case where . . . a seeming exercise of the taxing power” is really “so
arbitrary as to constrain to the conclusion that it was not the exertion of taxation, but
a confiscation of property; that is, a taking of the same in violation of the 5th
Amendment.”
Id. at 24-25 (emphasis added).
That limitation, however, is
inapplicable to this case, where the Supreme Court already has determined that
64
Plaintiffs’ Response [Doc. # 20], at 22-23.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
34
“Congress had the power to impose the exaction in [the individual mandate] under
the taxing power,” NFIB, 132 S. Ct. at 2598, and the employer mandate meets the
same criteria for a constitutional tax. In sum, because the taxes challenged here are
permissible and not “arbitrary,” the Takings Clause cannot be read as a limitation on
the power to impose those taxes. See also Ass’n of Amer. Physicians, 901 F. Supp.
2d at 38-39 (rejecting application of Brushaber’s limiting principle).
Finally, Plaintiffs argue that even though Congress has the “power to tax,” it
“lacks the power to use taxation to compel private citizens to transfer their money to
other private entities.”65 This argument is foreclosed by NFIB, which upheld
Congress’s “use of the Taxing Clause to encourage buying [individual health
coverage].” NFIB, 132 S. Ct. at 2599. In other words, under the reasoning of NFIB,
Congress has authority to use its taxing power to incentivize the purchase of
individual health coverage from private entities. Congress similarly can incentivize
employers to provide health coverage to its employees through its taxing power.
Plaintiffs are not “compelled” to “transfer their money to other private entities.” As
the Supreme Court stressed, Plaintiffs are free “to do or not do a certain act, so long
as [they are] willing to pay a tax levied on that choice.” Id. at 2600.
VI.
LEAVE TO AMEND
When a plaintiff’s complaint fails to state a claim, the court should generally
give the plaintiff at least one chance to amend the complaint under Rule 15(a) of the
Federal Rules of Civil Procedure before dismissing the action with prejudice. See
Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th
Cir. 2002). The Court finds that allowing Plaintiffs to do so here “would prove to be
65
Plaintiffs’ Response [Doc. # 20], at 23.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
35
futile.” United States ex rel. Willard v. Humana Health Plan of Tex. Inc., 336 F.3d
375, 387 (5th Cir. 2003). The Court, in this Memorandum and Order, has pointed to
deficiencies in Plaintiffs’ causes of action that would not be cured through an
amended pleading. Moreover, other plaintiffs have filed cases in other jurisdictions
incorporating identical causes of action as alleged here, and Plaintiffs’ counsel plainly
considered those pleadings before filing in this Court. Accordingly, it is highly
unlikely that Plaintiffs can amend their Complaint to state viable claims for relief
against Defendants. Leave to amend their Complaint is denied. If Plaintiffs
nevertheless seek to amend their Complaint in ways the Court has not anticipated,
Plaintiffs must move for reconsideration within 28 days of entry of the Court’s final
order.
VII. CONCLUSION
Plaintiffs have established that the Court has jurisdiction to consider their
Origination Clause and Takings Clause claims. Having considered the issues
presented, the Court concludes that Plaintiffs have failed to state a legally cognizable
claim as to each of their causes of action. Leave to amend the complaint would not
rectify the deficiencies in the constitutional challenges to the ACA asserted. It is
therefore
ORDERED that Defendants Kathleen Sebelius and Jacob J. Lew’s Motion to
Dismiss [Doc. # 14] is GRANTED.
This case is DISMISSED WITH
PREJUDICE.
A final order of dismissal with be filed separately.
10th
SIGNED at Houston, Texas, this _____ day of January, 2014.
P:\ORDERS\11-2013\1318MD.wpd
140110.1525
36
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?