United States District Court, D. Maryland
Lipton Hollander United States District Judge.
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.
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.
November 7, 2018, before the government's response to the
suit was even due, Attorney General Sessions resigned. ECF
6-1 at 4. 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. 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.
Trump has since nominated William P. Barr to serve as
Attorney General. 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.
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.
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."
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
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.
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.
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").
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")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.
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."
amici curiae also filed memoranda. They focused largely on
the State's P.I. Motion concerning the lawfulness of the
appointment of Matthew Whitaker.
on December 19, 2018, the Court held a lengthy motions
hearing, at which argument was presented. ECF 42.
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
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.
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).
Motion For Leave
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
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.
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.
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).
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.
The Affordable Care Act
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).
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).
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).
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.
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).
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").
"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.
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).
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. §
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.
National Federation of Independent Businesses v.
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
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).
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.
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."
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 . .. ."
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.
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).
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.
The Tax Cuts and Jobs Act
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.
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.
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!"
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
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
163 CONG. Rec. S7672 (daily ed. Dec. 1, 2017); see
also ECF 29-3, ¶ 30.
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.
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.
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.
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.
¶ 37. Referring to the passage of the TCJA, President