Virginia healthcare challenges suffer further unexpected setbacks

UPDATE:  This setback has different effects on the Commonwealth of Virginia and the Liberty U. Plaintiffs.  See details here and here.

Unexpectedly on Monday afternoon the Fourth Circuit Panel that heard oral argument in Commonwealth v. Sebelius and Liberty U. v. Geithner ordered the parties to provide supplemental briefing on a narrow set of issues barely addressed at any stage thus far.

The ordering of supplemental briefs after oral argument is quite unusual by itself, moreover the subject matter of the additional briefs should be cause for concern by opponents of the individual mandate.

The Orders require that the parties must submit supplemental briefs by May 31, 2011 on three subjects.

1. When applicable, does the Anti-Injunction Act, 26 U.S.C. § 7421(a), deprive a federal court of subject-matter jurisdiction? See J.L. Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 5-8 (1962). If so, does it divest federal courts of jurisdiction in this case? See Bob Jones University v. Simon, 416 U.S. 725, 736-48 (1974).

2. Can a court determine that a challenged exaction qualifies as a “tax” for purposes of the Anti-Injunction Act without reaching the question of whether the exaction qualifies as a “tax” for purposes of Art. I, § 8, cl. 1? Compare Bailey v. George, 259 U.S. 16 (1922), with Bailey v. Drexel Furniture Co., 259 U.S. 20 (1922).

3. Assuming the Anti-Injunction Act does apply in this case, does a plaintiff have the ability to challenge the exaction provided by § 5000A in a refund suit or otherwise? See 26 U.S.C. § 7422(a); 28 U.S.C. §§ 1331, 1340, 1346.

What is the anti-injunction act all about?

In order to avoid prolific anticipatory (before tax enforcement) litigation seeking to prevent the government from enforcing a particular tax, there is a federal statute prohibiting lawsuits seeking injunctions against collection of federal taxes.  There are exceptions to this act.  In many instances when a tax has been erroneously collected the remedy for the taxpayer is a lawsuit under 26 U.S.C. § 7422 after presentation and denial of a claim for refund.

Where does this leave us on the schedule?

The Fourth Circuit will not be deciding either case until at least after May 31, 2011.  Moreover the Fourth Circuit will likely want to take some time to consider the arguments in the briefs.  In terms of timing, this is a setback for the Virginia cases, and may just put them directly on par, in terms of timing, with the Florida case going before the 11th Circuit in early May.

What does this mean for the substantive outcome of the cases?

This is a setback.  It means the Fourth Circuit is seriously considering declaring the penalty under the individual mandate a tax, and barring both cases on procedural grounds.  If this were to occur, the Supreme Court could deny certiorari for the Virginia cases, without resulting in a substantive effect on the Constitutionality of the individual mandate.  The Virginia Plaintiffs would then be left until after actual imposition of the tax penalty before a remedy could be had that challenges the Constitutionality of the individual mandate.  This would set these cases back for years.

Order in Commonwealth v. Sebelius can be found here.

Order in Liberty U. v. Geithner can be found here.


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