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State v. United States

United States District Court, D. Maryland

February 1, 2019



          Ellen Lipton Hollander United States District Judge.

         The State of Maryland filed a declaratory and injunctive action, seeking, among other things, a declaration as to the constitutionality and enforceability of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (Mar. 23, 2010), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010) (collectively, the "Affordable Care Act," the "ACA," or the "Act'). In 2017, the ACA was further amended by the Tax Cuts and Jobs Act of 2017 (the "TCJA"), Pub. L. 115-97, 131 Stat. 2054 (2017). The State explains that, in filing suit, it is "seeking to head off the myriad of serious harms that will befall the State and its residents if the Trump Administration . . . ceases [to] enforc[e] the ACA in whole or in part." ECF 27 at 7.

         In its initial Complaint (ECF 1), filed on September 13, 2018, the State sued the United States of America; the United States Department of Justice ("DOJ"); Jefferson B. Sessions, III, in his official capacity as Attorney General; the United States Department of Health and Human Services ("HHS"); Alex M. Azar, II, in his official capacity as Secretary of HHS; the United States Internal Revenue Service ("IRS"); and Charles P. Rettig, in his official capacity as Commissioner of the IRS. The State has since amended its Complaint (ECF 8, "Amended Complaint"), adding additional defendants.

         On November 7, 2018, before the government's response to the suit was even due, Attorney General Sessions resigned. ECF 6-1 at 4.[1] Almost immediately thereafter, President Trump, relying on the Federal Vacancies Reform Act ("FVRA"), 28 U.S.C. §§ 3345 el seq., appointed Matthew G. Whitaker as Acting Attorney General.[2] Mr. Whitaker had served as Chief of Staff to Mr. Sessions. In that capacity, he was not employed in a Senate-confirmed position. In contrast, Rod J. Rosenstein, the Deputy Attorney General, has been confirmed by the U.S. Senate.

         President Trump has since nominated William P. Barr to serve as Attorney General.[3] The Senate Judiciary Committee held confirmation hearings on January 15, 2019, and January 16, 2019. Barr's nomination is pending in the U.S. Senate.

         On November 11, 2018, in response to the appointment of Mr. Whitaker, the State filed a "Motion for Preliminary Injunction and to Substitute Defendant" (ECF 6), supported by a memorandum of law. ECF 6-1 (collectively, "Motion for Preliminary Injunction" or "P.I. Motion"). According to the State, the appointment of Mr. Whitaker violates the Attorney General Succession Act, 28 U.S.C. § 508, as well as the Appointments Clause of the United States Constitution, U.S. CONST, art. II, § 2. ECF 6. Accordingly, the State seeks to enjoin Mr. Whitaker from appearing in this case as the Acting Attorney General. Id. at 1. Alternatively, under Fed.R.Civ.P. 25, the State seeks "to substitute Deputy Attorney General Rosenstein as Acting Attorney General in his official capacity." ECF 6-1, ¶ 3.

         Soon after moving for a preliminary injunction, the State filed its Amended Complaint. ECF 8. It asserts the same allegations against defendants that were alleged in the Complaint. See Id. However, the State added Mr. Rosenstein and Mr. Whitaker as defendants, both in their official capacities. Id. ¶ 15. I shall sometimes refer to the defendants collectively as the "government."

         Defendants have moved to dismiss the Amended Complaint, pursuant to Rule 12(b)(1), for lack of subject matter jurisdiction, and under Rule 12(b)(6), for failure to state a claim (ECF 11), supported by a memorandum of law. ECF 11-1 (collectively, "Motion to Dismiss"). According to defendants, the State lacks standing to pursue its claims because it has merely asserted speculative harm. Id. at 8. Further, defendants maintain: "Even if the State of Maryland is able to overcome these jurisdictional obstacles, its single Declaratory Judgment Act claim fails to state a claim because the State has failed to identify a cause of action for this suit." Id.

         Defendants also oppose the Motion for Preliminary Injunction. ECF 28. According to the government, the "State's challenge to Mr. Whitaker's designation ultimately fails for lack of standing . . . ." Id. Defendants also argue that, as a threshold matter, the Court must first resolve their Motion to Dismiss because, if the Court grants that motion, "the State's request for preliminary injunctive relief would be moot." Id. at 11. In any event, the government maintains that Whitaker's appointment is lawful under the FVRA.

         The State opposes the Motion to Dismiss. ECF 27. It has also replied to the opposition to its P.I. Motion. ECF 31. And, defendants replied to the State's opposition to their Motion to Dismiss. ECF 33.

         In addition, pursuant to Rule 15(a)(2), the State has filed a "Motion for Leave to File Second Amended Complaint" (ECF 29), supported by a memorandum of law. ECF 29-1 (collectively, "Motion for Leave"). The Motion for Leave "set[s] forth the amendments Maryland would propose to make to its Amended Complaint if the Court [i]s inclined to grant" the defendants' Motion to Dismiss. See ECF 27 at 8. The proposed Second Amended Complaint is docketed at ECF 29-3 ("Second Amended Complaint" or "SAC").

         The battle lines in this ACA case have arguably been impacted by a decision issued on Friday, December 14, 2018, by United States District Judge Reed O'Connor of the Northern District of Texas, declaring the Individual Mandate of the ACA unconstitutional and the remaining provisions of the ACA inseverable and thus invalid. See Texas v. United States, No. 4:18-cv-00I67-O, ECF 211, 340 F.Supp.3d 579 (N.D. Tex. 2018) (hereinafter, Texas or the ''Texas Case")[4]In the wake of the decision in Texas, I held a telephone conference with counsel on Monday, December 17, 2018, and directed counsel to submit supplemental briefing addressing the effect of the Texas Case, if any, on the State's standing to pursue its requests for declaratory and injunctive relief. See Docket.

         The State submitted a supplemental brief on December 18, 2018 (ECF 40), contending that the Texas Case strengthens its standing to secure declaratory and injunctive relief. The government's supplemental brief is docketed at ECF 41. It adheres to its position that the State lacks standing. Moreover, it points out that HHS, the agency charged with enforcing the ACA, "has expressed its commitment to continue to enforce the ACA until there is a final decision or other judicial order directing otherwise." Id.

         Several amici curiae also filed memoranda. They focused largely on the State's P.I. Motion concerning the lawfulness of the appointment of Matthew Whitaker.[5]

         Thereafter, on December 19, 2018, the Court held a lengthy motions hearing, at which argument was presented. ECF 42.

         Then, on December 31, 2018, Judge O'Connor stayed his ruling of December 14, 2018. See Texas, No. 4:18-cv-00167-O, ECF 223. In light of Judge O'Connor's stay, this Court issued an Order on January 2, 2019 (ECF 45), inviting counsel to submit memoranda addressing the impact of the stay on the State's standing to bring suit in the instant case.

         The government's response is docketed at ECF 50. It maintains that "the stay issued by Judge O'Connor confirms that the State of Maryland has neither standing nor a cause of action to sue on the basis that the State will be harmed by Defendants' alleged non-enforcement of the AC A." Id. at 1. Conversely, the State claims in its memorandum (ECF 51) that the stay in the Texas Case "does not eliminate Maryland's standing to pursue its claims regarding the continuing validity of the [ACA]." Id. at 1.

         For the reasons that follow, I shall grant the State's Motion for Leave (ECF 29). And, I shall construe the government's Motion to Dismiss (ECF 11) as a motion lodged against the Second Amended Complaint. I shall also grant the Motion to Dismiss, without prejudice. Therefore, I shall deny, as moot, the State's Motion for Preliminary Injunction (ECF 6) and the State's Motion to Substitute (ECF 6).

         I. Motion For Leave

         As noted, the government has moved to dismiss the Amended Complaint under Rule 12(b)(1), on the basis that the State lacks "standing to pursue its declaratory relief claim." ECF 11-1 at 8. Alternatively, the government has moved to dismiss the State's Declaratory Judgment Act claim, pursuant to Rule 12(b)(6), claiming that "the State has failed to identify a cause of action for this suit." Id.

         In response, the State maintains that, based on the allegations of the Amended Complaint, it has standing to bring suit. However, if the Court deems the allegations presented in the Amended Complaint deficient, Maryland seeks leave to file the Second Amended Complaint. ECF 29; ECF 29-3. The proposed SAC "adds allegations to respond to several arguments raised" in the government's Motion to Dismiss. ECF 29, ¶ 3.

         Rule 15 of the Federal Rules of Civil Procedure governs amendments to pleadings. Under Rule 15(a)(1)(A), "[a] party may amend its pleading once as a matter of course," if done within 21 days after serving the pleading. Or, "if the pleading is one to which a responsive pleading is required," a party may amend once as a matter of course, provided that it does so within "21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier." Fed.R.Civ.P. 15(a)(1)(B). Rule 15(a)(2) provides that, "[i]n all other cases," a party wishing to amend its pleading must obtain "the opposing party's written consent or the court's leave." Notably, Rule 15(a)(2) states, in part: "The court should freely give leave [to amend] when justice so requires." Id.

         There are three circumstances when it is appropriate to deny leave to amend: "(1) 'the amendment would be prejudicial to the opposing party;' (2) 'there has been bad faith on the part of the moving party;' or (3) 'the amendment would have been futile.'" Scott v. Family Dollar Stores, Inc., 733 F.3d 105, 121 (4th Cir. 2013) (quoting Laber v. Harvey, 438 F.3d 404, 426 (4th Cir. 2006)). An amendment is futile "'when the proposed amendment is clearly insufficient or frivolous on its face." Johnson v. Oroweat Foods Co., 785 F.2d 503, 510 (4th Cir. 1986).

         Certainly, the government would not be prejudiced by allowing the State to file the SAC. And, the State has not acted in bad faith. Although I ultimately conclude that the proposed SAC proves futile in regard to standing, that conclusion is apparent only after an analysis of the standing issue. Therefore, I shall grant the State's Motion for Leave and consider the allegations in the proposed Second Amended Complaint. Moreover, to avoid any further delay, I shall construe the Motion to Dismiss as if it were lodged against the SAC.

         II. Background [6]

         A. The Affordable Care Act

         The Affordable Care Act, enacted by Congress in 2010, was one of President Barack Obama's signature legislative accomplishments. The Act, sometimes called "ObamaCare," sought ''to increase the number of Americans covered by health insurance and decrease the cost of healthcare." Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519, 538 (2012) ("NFIB"). In over 900 pages of text, Congress endeavored to provide the opportunity for "near-universal" health-insurance coverage and to reduce health insurance premiums through the "creation of effective health insurance markets" and new statutory requirements for individuals and insurance companies. See, e.g., 42 U.S.C. §§ 18091(2)(D), (2)(F), and (2)(I).

         The ACA ushered in its seminal changes to the United States healthcare system through a series of provisions that created new requirements for individuals, employers, healthcare providers, and insurance companies. ECF 29-3, ¶ 21. Among these changes, the ACA adopted "three key reforms." King v. Burwell, 576 U.S.__, 135 S.Ct. 2480, 2482 (2015).

         First, the Act includes the "guaranteed-issue" and "community-rating" provisions to address "the problem of those who cannot obtain insurance coverage because of preexisting conditions or other health issues." NFIB, 567 U.S. at 547; see 42 U.S.C. § l8O9l(2)(I); id. § 300gg-1. Together, the guaranteed-issue and community-rating provisions "prohibit insurance companies from denying coverage to those with [preexisting] conditions or charging unhealthy individuals higher premiums than healthy individuals." NFIB, 567 U.S. at 548 (citing 42 U.S.C. §§ 300gg, 300gg-1, 300gg-3, 300gg-4).

         In particular, the guaranteed issue provision requires insurers "offering coverage in an individual and group market in a State" to "accept every employer and individual in the State that applies for such coverage." 42 U.S.C. § 300gg-l(a). And, as a corollary, an insurer "offering group or individual health insurance coverage may not" exclude coverage based on a preexisting condition. Id. § 300gg-3(a). The community-rating provision was enacted to prevent insurers from varying premiums within a geographic area based on "certain narrow factors," including race, age, gender, sexual orientation, occupation, health status, claims history, and several others. Id. § 300gg.

         The second key reform concerns 26 U.S.C. § 5000A, which is titled "Requirement to maintain minimum essential coverage." This provision of the Act is commonly known as the "Individual Mandate." Pursuant to the "Individual Mandate," individuals are generally required to maintain minimal essential health insurance. Id. § 5000A(a). The provision represented "an effort 'plainly designed to expand health insurance coverage.'" ECF 29-3, ¶ 23 (citing NFIB, 567 U.S. at 574).

         To compel compliance. Congress imposed a financial penalty on individuals who were subject to the requirement but failed to purchase insurance. 26 U.S.C. § 5000A(b); see also NFIB, 567 U.S. at 574. However, this penalty, known as the "shared responsibility payment," did not apply to those for whom "the cost of buying insurance would exceed eight percent of that individual's income." Burwell, 135 S.Ct. at 2482; see 26 U.S.C. § 5000A(b) ("shared responsibility payment"); id. § 5000A(e)(1) (exempting "individuals who cannot afford coverage").[7]

         Third, "to make insurance more affordable," Burwell, 135 S.Ct. at 2487, the Act provides tax credits, or subsidies, to purchase health insurance for individuals making between 100% and 400% of the federal poverty line. 42 U.S.C. §§ 18031, 18041.

         The Act contains many other vital provisions. For example, it creates and subsidizes a health exchange in each state, i.e., "a marketplace that allows people to compare and purchase insurance plans." Burwell, 135 S.Ct. at 2482; see 42 U.S.C. §§ 18031-44. "The Act gives each state the opportunity to establish its own Exchange, but provides that the Federal Government will establish 'such Exchange' if the State does not." Burwell, 135 S.Ct. at 2482 (citing 42 U.S.C. §§ 18031, 18041). The tax credits provided under 26 U.S.C. § 36B "can be used to pay insurance premiums in advance through an exchange." ECF 29-3, ¶ 24 (citing 42 U.S.C. § 18082).

         Further, the ACA expands "Medicaid, which the States administer, to make additional segments of the population eligible to receive coverage." ECF 29-3. ¶ 26 (citing 42 U.S.C. §§ 1396(a)(10)(A)(i)(VIII), 1396a(e)(14)(I)(i)). Under the Act, the federal government must cover a significant portion of the expansion cost: 100% in 2014-2016, 95% in 2017, 94% in 2018, 93% in 2019, and 90% in 2020 and each subsequent year thereafter. 42 U.S.C. § l396(d)(y)(1)(A)-(E).

         In addition, the ACA contains a provision allowing dependent children to remain on their parents* health insurance until age 26. 42 U.S.C. § 300gg-14(a). The ACA also implemented an employer mandate and an employer-responsibility assessment. These provisions require employers with at least fifty full-time employees to pay the federal government a penalty if they fail to provide their employees with ACA-compliant health-plan options. See 26 U.S.C. § 4980H.

         B. National Federation of Independent Businesses v. Sebelius

         Since its passage, the Affordable Care Act has generated intense controversy. As Judge O'Connor observed in the Texas Case, "[h]ealth-insurance policy is ... a politically charged affair - inflaming emotions and testing civility." 340 F.Supp.3d 579, 585. Indeed, shortly after President Obama signed the Act into law, thirteen states filed suit, challenging the constitutionality of the provisions concerning minimum coverage and Medicaid expansion. And, an additional thirteen states and several individuals and organizations, including the National Federation of Independent Businesses, joined plaintiffs in the action.[8]

         On June 19, 2012, the United States Supreme Court issued its landmark decision in National Federation of Independent Businesses v. Sebelius, 567 U.S. 519 (2012). By a 5-4 vote, the Court upheld the constitutionality of the Individual Mandate and the shared responsibility payment under 26 U.S.C. § 5000A as a valid exercise of Congress's taxing power. NFIB, 567 U.S. at 544-46; see also ECF 29-3, ¶ 57 (summarizing NFIB).

         The majority opinion, authored by Chief Justice Roberts, rejected the contention that the Individual Mandate was a lawful exercise of Congress's power to regulate interstate commerce. NFIB, 567 U.S. at 562. But, the Court observed that, despite the Act's reference to the payment of a -'penalty," not a "tax," see 26 U.S.C. § 5000A, it "looks like a tax in many respects." NFIB, 567 U.S. at 563.

         In this regard, the Court noted first that the payment obligation "is found in the Internal Revenue Code and enforced by the IRS, which . . . must assess and collect it in the same manner as taxes." Id. at 564 (quotation marks and citation omitted). "This process yields the essential feature of any tax: It produces at least some revenue for the Government." Id. (citation omitted). "Although the payment will raise considerable revenue," the Supreme Court noted, "it is plainly designed to expand health insurance coverage." Id. at 567. And, observed the Court, "taxes that seek to influence conduct are nothing new." Id.

         Second, the price of the payment is "far less than the price of insurance, and by statute, it can be no more." Id. at 566. Unlike a prohibitory penalty, "[i]t may often be a reasonable financial decision to make the payment rather than purchase insurance." Id. Third, "the individual mandate contains no scienter requirement," which is "typical of punitive statutes, because Congress often wishes to punish only those who intentionally break the law.'" Id. Finally, "the payment is collected solely by the IRS through the normal means of taxation . .. ." Id.

         For these reasons, the Supreme Court upheld the financial penalty under the taxing power of Congress. Id. at 575. It concluded: "[I]t is only because we have a duty to construe a statute to save it, if fairly possible, that § 5000A can be interpreted as a tax," Id. However, the Supreme Court found unconstitutional 42 U.S.C. § 1396c, a provision under the Act that coerced states to comply with the Act's expansion by threatening to "tak[e] away their existing Medicaid funding." Id. at 584. "[F]or that constitutional violation," the NFIB Court determined that the appropriate remedy was "to preclude the Government from imposing such a sanction," but this did "not require striking down other portions of the Affordable Care Act." Id. at 588.

         In the wake of the Supreme Court's decision in NFIB, "Maryland finalized its implementation of the Affordable Care Act" ECF 29-3, ¶ 6. In particular, it enacted "a procedure to eliminate its state-operated risk pool; establish[ed] a funding stream for its fledgling independent agency, the Maryland Health Benefit Exchange; and expand[ed] Medicaid eligibility." Id. (citing Maryland Health Progress Act of 2013, 2013 Md. Laws ch. 139).

         According to plaintiff, the NFIB decision did not put an end to the challenges to the ACA. Indeed, since the decision in NFIB, "members of Congress have attempted to repeal" the Act "an estimated 70 times." ECF 29-3, ¶ 7. See, e.g., H.R. 3762, 114th Cong. (2015); H.R. 45, 113th Cong. (2013); H.R. 6079, 112th Cong. (2012).[9]

         C. The Tax Cuts and Jobs Act

         As a candidate for President of the United States, Donald Trump repeatedly expressed his fervent opposition to the ACA. On January 20, 2017, just hours after President Trump was sworn into office, he signed Executive Order 13765, titled "Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal." ECF 29-3, ¶ 35; see Exec. Order No. 13765, 82 Fed. Reg. 8351 (Jan. 20, 2017). The Executive Order instructed HHS to "exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [Affordable Care] Act that would impose a fiscal burden on any State ... ." Id.

         The Second Amended Complaint alleges that "the President has continued his campaign to undermine the enforcement of [the AC A], by launching a series of measures that include suspending cost-sharing reduction payments; directing his agencies to implement statutorily unauthorized rules disrupting enforcement of nondiscrimination provisions and disrupting individual and small group market reforms; and curtailing funding for the federally-facilitated exchanges." ECF29-3, ¶ 11.

         For example, on October 12, 2017, "the President announced that his Administration was reversing course on a longstanding policy of the Secretaries of Health and Human Services and Treasury to make cost-sharing reduction (one way the Act subsidizes individual purchase of health insurance) payments ('CSR payments') each month under the authority provided to them by the Affordable Care Act's permanent appropriation.1' Id. ¶ 36. In a statement "issued by the White House Press Secretary," the Trump Administration stated that HHS "had concluded" that the Act's "permanent appropriation [did] not apply to CSR payments." Id. Early the next day, DOJ "made a court filing including a copy of a new opinion by the Attorney General addressing the purported legal basis for the Administration's action." Id. Also on October 13, 2017, the President tweeted, id.: "The Democrats ObamaCare is imploding. Massive subsidy payments to their pet insurance companies has stopped. Dems should call me to fix!"[10]

         About two months later, on December 22, 2017, President Trump signed into law the TCJA, the most sweeping tax reform legislation in recent history. Of relevance here, "as part of a larger revision of federal income tax laws," Congress amended the tax code by reducing to zero the shared responsibility payment of the ACA, 26 U.S.C. § 5000A(b), "for individuals failing to demonstrate health insurance coverage, which is based on a percentage of the taxpayer's household income." ECF 29-3, ¶ 8. Notably, the TCJA "did not repeal any provision of the Affordable Care Act." Id. However, it "reduced the shared responsibility percentage from '2.5%' to 'zero percent,' and the applicable dollar amount from -$695' to '$0.'" Id. (citing Pub. L. 115-97, 2017 HR 1, at *2092 (Dec. 22, 2017)). This change, which went into effect on January 1, 2019 (ECF 29-3, ¶ 8), essentially gutted the Individual Mandate.

         Senator Pat Toomey (R-PA) made clear in floor debate that Congress intended to reduce the payment but sought to preserve the remainder of the Affordable Care Act. He said:

We don't change any of the subsidies. They are all available to anyone who wants to participate. We don't change the rules. We don't change eligibility. We don't change anything except one thing. We say that if you decide this plan doesn't fit your family or if you decide for all the subsidies you get it is still not worth it for you to have this plan and you opt out, you will no longer be punished with this tax. That is the only thing we do in this bill.

163 CONG. Rec. S7672 (daily ed. Dec. 1, 2017); see also ECF 29-3, ¶ 30.

         Several other senators echoed his view. Senator Shelley Moore Capito (R-WV) asserted: "There has been a lot of misinformation about this provision, so let me just clarify. No one is being forced off of Medicaid or a private health insurance plan by the elimination of the individual mandate. By eliminating the individual mandate, we are simply stopping penalizing and taxing people who either cannot afford or decide not to buy health insurance plans." 163 CONG. Rec. S7383 (daily ed. Nov. 29, 2017); see also ECF 29-3, ¶ 31.

         And, Senator Orrin Hatch (R-UT) explained during the Senate Finance Committee's markup of the tax bill:

[L]et us be clear, repealing the tax does not take anyone's health insurance away. No one would lose access to coverage or subsidies that help them pay for coverage unless they chose not to enroll in health coverage once the penalty for doing so is no longer in effect. No one would be kicked off of Medicare. No one would lose insurance they are currently getting from insurance carriers. Nothing-nothing- in the modified mark impacts Obamacare policies like coverage for preexisting conditions or restrictions against lifetime limits on coverage.

Continuation of the Open Executive Session to Consider an Original Bill Entitled the Tax Cuts and Jobs Act Before the S. Comm. on Fin., 115th Cong. 106 (2017); see also ECF 29-3, ¶ 32.

         Senator Tim Scott (R-SC) declared: "Anyone who doesn't understand and appreciate that the individual mandate and its effects in our bill take nothing at all away from anyone who needs a subsidy, anyone who wants to continue their coverage-it does not have a single letter in there about preexisting conditions or any actual health feature." 163 CONG. Rec. S7666 (daily ed. Dec. 1, 2017); see also ECF 29-3, ¶ 33.

         The State acknowledges in the Second Amended Complaint that, notwithstanding the passage of the TCJA, the statements of congressional legislators demonstrate a "clear" congressional intent "to maintain all provisions of the Affordable Care Act as enacted.. . ." ECF 29-3, ¶ 8. But, the Slate points to a speech delivered by President Trump on June 19, 2018, "shortly after another Congressional repeal effort had failed." Id. ΒΆ 37. Referring to the passage of the TCJA, President Trump ...

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