Tuesday, May 24, 2011

Unexpected Orders in the Fourth Circuit challenges to the individual mandate still bad, but not as awful as originally thought

On Monday May 23, 2011 the Fourth Circuit issued two identical orders in Commonwealth v. Sebelius and Liberty U. v. Geithner requiring additional briefing on the issue of the Anti Injunction Act [AIA].  As indicated here, my opinion is that this reflects a strong preference among the Fourth Circuit panel of judges deciding these cases to declare that the penalty under the individual mandate is a tax.

In all of our (commentators') haste to analyze the unexpected demands of the Fourth Circuit in Commonwealth v. Sebelius and Liberty U. v. Geithner, there was a dearth of analysis as to the different effect the AIA might have on the Liberty U. Plaintiffs as opposed to the Commonwealth of Virginia.  Upon further reflection, Monday’s orders still reflect an unexpected setback, but not as much for the Commonwealth of Virginia.  The reason for the lack of effect on the great Commonwealth can be found in a 1984 Supreme Court decision regarding the ever interesting subject of the taxation of interest on state issued bonds.  (seriously, do not read the whole decision unless you are having trouble sleeping).   

Does the AIA apply to the states?

In the matter of South Carolina v. Regan, the Supreme Court addressed an instance in which the federal government sought to bar a state from pursing a remedy due to the AIA. 465 U.S. 367 (1984).  In Regan the Supreme Court stated “the Anti-Injunction Act's purpose and the circumstances of its enactment indicate that Congress did not intend the Act to apply to actions brought by aggrieved parties for whom it has not provided an alternative remedy.”  465 U.S. at 378.  Further the AIA “was intended to apply only when Congress has provided an alternative avenue for an aggrieved party to litigate its claims on its own behalf.”  465 U.S. at 381.

Virginia has no alternative avenue to litigate these claims.  The short version of the holding on the issue relevant to Virginia in Commonwealth v. Sebelius is as follows: If Virginia could never itself pay the tax and then seek a refund as suggested under 26 U.S.C. § 7422, then the AIA does not apply and Virginia may proceed with this lawsuit.  Perhaps in an oversimplification of the holding one could say “the AIA does not apply to the states.”

What does this mean for the Commonwealth of Virginia?

The negative consequences indicated here will not befall the Commonwealth.  Instead the Fourth Circuit will likely throw out Virginia’s claims on standing grounds as indicated in oral argument (I explained this here).

What does this mean for the Liberty U. Plaintiffs?

The Fourth Circuit is seriously considering the individual mandate a tax and dismissing the Liberty U. case pursuant to the AIA.

What does this mean for substantive rulings on the individual mandate?

If the Fourth Circuit finds against the Commonwealth on standing and against the Liberty U. Plaintiffs under the AIA, then the Fourth Circuit will have avoided ruling on the substance of the individual mandate in the PPACA.  The Supreme Court can then still deny certiorari for the Fourth Circuit cases without affecting the Constitutionality of the individual mandate.  The only hope in this situation is that the Commonwealth can convince the Supreme Court that the issue of standing for states is just as important as the Constitutionality of the PPACA, and argue both standing and the Constitutionality of the individual mandate in the Supreme Court.

The second reason the Commonwealth of Virginia should be less concerned about the additional briefing orders can be found here.

Click here. for my previous posts regarding the individual mandate.

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