Is the individual mandate penalty a tax? Analysis of the 4th Circuit briefs regarding the Anti Injunction Act

In originally proposing the individual mandate as part of the PPACA, Congress and the President took great pains to ensure that no portion of the bill be referred to (or enacted as) a tax.  Of course once threatened litigation hit the Federal Courts lawyers for the Federal government argued that the penalty for not obtaining insurance pursuant to the individual mandate is a tax.  This is because the penalty pursuant to the individual mandate is more likely to be considered Constitutional if it is a tax, than if it is a mere regulatory penalty promulgated pursuant to the commerce clause in Article I § 8 of the Constitution.

On May 23, 2011, nearly two weeks after oral argument in the two Virginia cases (Commonwealth v. Sebelius and Liberty U. v. Geithner ), the Fourth Circuit ordered additional briefing on the application of the Anti Injunction Act [AIA], and if the penalty for meeting the terms of the individual mandate constitutes a tax under the AIA.  This was a strong signal that the Fourth Circuit panel that heard oral argument not only believes the penalty is a tax, but that the parties are not allowed to come to court to challenge that tax until after the tax is assessed and collected in another couple years.

Virginia, and the Liberty U. Plaintiffs submitted substantially different briefs due to the procedural effects on each party of the AIA.  The Federal government submitted a nearly identical brief in both cases, and argued something quite surprising.

Below is an analysis of the briefs submitted on May 31, 2011, and the potential effect they will have on each case.

Virginia’s brief correctly lays out the inapplicability of the AIA

The AIA does not apply to Virginia in this type of situation.  As I laid out here on May 24, 2011, and here on May 26, 2011, The AIA, for the most part, does not apply to states.  In short, the AIA does not apply to Virginia, as there is no alternative remedy given by the AIA.  Further, the AIA generally does not apply to the states under traditional statutory construction principles.  On pages 2-4 of the brief Virginia applies a version of my analysis from May 24, 2011, and on pages 4-6 Virginia applies a version of my May 26, 2011 analysis.  Both are accurate and controlling, and the Fourth Circuit panel will likely find the AIA simply does not apply to Virginia.  Unfortunately, as I indicated on May 10, 2011 I believe Virginia is likely to lose at the Fourth Circuit due to standing.

Liberty U.’s brief impressively lays out not only a major exception to the AIA, but also how the penalty truly is not a tax

In a simple summary the brief starts, in part, with the following:

“The AIA deprives a court of jurisdiction only if the suit seeks to restrain the assessment or collection of a tax. Even then, the AIA does not apply if (1) it is clear that under no circumstances could the Government ultimately prevail, and (2) equity jurisdiction exists otherwise.”

Equity jurisdiction in this instance is injunctive relief based on a court ordered declaration that the PPACA is unconstitutional.  The first part of the test is self explanatory.  Nonetheless, I presume the Fourth Circuit panel still feels the penalty is Constitutional.   

And the Federal government capitulates?

Far and away the most surprising arguments came from the Federal government.  On page 2 of each brief they state:

“In the district courts, the government argued for dismissal of these actions under the AIA. On further reflection, and on consideration of the decisions rendered thus far in the ACA litigation, the United States has concluded that the AIA does not foreclose the exercise of jurisdiction in these cases.”

The Federal Government expressly attempts to waive the argument of the applicability of the AIA.  They go to great lengths to reemphasize that the penalty is Constitutional as it is a tax.  Later on page seven they argue:

“. . .Congress delayed the effective date of the minimum coverage provision, thus dramatically mitigating the risk of disruption to ongoing administration of the tax code that the AIA is intended to prevent. The AIA’s purpose is to prevent anyone from interfering with the federal government’s administration of the Tax Code, from forcing it by judicial fiat to treat a particular taxpayer or group of taxpayers differently than others, and from compelling it to stop or alter the ongoing business of tax enforcement. This broad challenge to the constitutionality of the minimum coverage provision, which was brought nearly four years before the minimum coverage provision is to be implemented, five years before any tax is to be paid and the IRS begins assessing and collecting those taxes, and well before the IRS has even set up the systems to administer the provision, poses no realistic threat of such disruption -- in contrast to the threat of disruption to the administration of the ACA that postponing review would raise.”

In short, they want this issue resolved well in advance to avoid disruption of the PPACA years down the road.

But isn’t this a change of heart?  In my opinion, yes.  The Federal government has changed its strategy, but not because of fear of disruption in 2015.  I believe the strategy, up until now has been to delay as long as possible, even if that means procedural dismissals (such as a dismissal based on standing or ripeness) in order for the PPACA be too far along for courts to want to disrupt implementation.  But, given the makeup of this Fourth Circuit panel, the Federal government wants a substantive (rather than procedural) victory to carry to the 6th and 11th Circuits to support their other cases.

The result

The Fourth Circuit could ignore all the briefs and rule as it deems fit.  Unfortunately, given the not so subtle signals from the Federal Government I fear we are headed towards a dismissal of Virginia’s claim based on standing, and a loss for the Liberty U. Plaintiffs on the substance of the PPACA.

Virginia's supplemental brief on the Anti Injunction Act

No time to analyze, just links to uploaded copies of

Virginia's Supplemental Brief in Commonwealth v. Sebelius 

The Federal Government's Brief in Commonwealth v. Sebelius

The Federal Government's Brief in Liberty v. Geithner

The Plaintiffs' Brief in Liberty v. Geithner

regarding the status of the individual mandate penalty as a tax and the application of the Anti Injunction Act.

Provided as a public service.

My previous coverage of PPACA/Individual mandate challenges can be found here.

Judge Cacheris reconsidering critique of Citizens United?

On May 31, 2011 Judge Cacheris entered an additional briefing order requiring the parties in U.S. v. Danilczyk to submit additional materials on the effects of the decisions in FEC v. Beaumont, 539 U.S. 146 (2003), and Agostini v. Felton, 521 U.S. 203 (1997), and if these decisions should alter Judge Cacheris' extension of Citizens United from May 26, 2011 as discussed here.

Professor Hasen has the breaking coverage at the Election Law Blog of this additional briefing order, and a copy of the order here.

Procedural items of note:

Judge Cacheris issued this Order sua sponte (without either party requesting it).  This indicates Judge Cacheris was concerned about some element of his ruling.  He also ordered briefs within 24 hours and a hearing within four days.  Motions for reconsideration will normally be heard quickly, but this is lightning fast.

So what is the purpose of this procedure?

Prof. Hasen indicates as follows:

"The reference to Agostini means he could decide that Citizens United implicitly overruled Beaumont. (I think that argument is dead wrong, for reasons explained in great detail in Part I of this brief filed in the San Diego case.)"

Quite frankly I have not briefed this particular issue, yet I stand by my prediction, of this morning, before Judge Cacheris issued this briefing order that:

"As indicated, I do not think an appeal is likely, although I do believe this is grounds for reconsideration so Judge Cacheris can write an additional paragraph about how FEC v. Beaumont although not specifically overturned, was functionally overturned in Citizens United."

I believe Judge Cacheris already has an amended opinion in draft form, and needs to see if there is anything to add from the parties before issuing the opinion.  Some folks may not give him credit for it, but I think Judge Cacheris wants to make sure his opinion is thorough, even if it is controversial.

Why the real fallout of Judge Cacheris’ expansion of the Citizen’s United case will be minimal

UPDATE: Judge Cacheris reconsiders his previous ruling, coverage here.

On May 29, 2011 I explained the nature of Judge Cacheris’ decision in U.S. v. Danielczyk, Case No. 1:11cr85, and how the portion reported in the media is only a small portion of a 52 page substantial opinion. 

Some commentary from learned observers prompts me to explain why in my estimation this opinion will have little effect on the electoral landscape.

Is the opinion subject to being overturned?

For the opinion to be overturned it must be appealed.  Only in certain specific and uncommon circumstances can a decision be appealed before a case has been resolved.  U.S. v. Danielczyk does not have a final decision, and can not be currently appealed.  There is a trial set for July 6, 2011.  No appeal will be happening at least until after trial, sentencing, and post trial motions.

Moreover, many criminal cases do not reach an appeal stage.  The case is a criminal matter with an indictment that has at least five counts that survived the Defendants’ motions to dismiss.  If there is any reasonable possibility of both actual guilt of the Defendants, and success on any count by the prosecution, the parties will probably reach a deal.  If there is a plea bargain the case will not be appealed, and the ruling will stand.

Professor Rick Hasen who runs the Election Law Blog believes the case will be overturned on appeal, or at least be reconsidered.  In this post, Prof Hasen points out that Judge Cacheris failed to address an earlier Supreme Court case, FEC v. Beaumont, that supports the Constitutionality of the ban on corporate giving.   

It would be odd that Judge Cacheris failed to mention this case, except, as suggested by Prof. Hasen, the federal government did not mention it in their brief.  As indicated, I do not think an appeal is likely, although I do believe this is grounds for reconsideration so Judge Cacheris can write an additional paragraph about how FEC v. Beaumont although not specifically overturned, was functionally overturned in Citizens United.

So if no appeal occurs do we have a corporate fundraising free-for-all?

In my last post I suggested, through a series of rhetorical questions, that a corporate fundraising free-for-all is unlikely for practical reasons.  In reality, as long as this decision is not appealed, a corporate fundraising free-for-all remains legally perilous for candidates and corporations alike.

In Roll Call on May 28, 2011 in an article entitled Campaign Finance Experts See Few Implications for Virginia Ruling, the author states the following:

“The interpretations of Thursday's U.S. District Court decision by Judge James C. Cacheris vary. Campaign finance lawyers believe the decision applies to only a small section of the country, would allow federal candidates to raise donations only from Virginia companies and even those contributions would be subject to donation limits.”

This is mostly accurate.  To understand how this works the reader needs to understand the jurisdictional effect of federal precedent.  In simpler terms, “if a court says something, who geographically is affected?”  For Supreme Court cases, the opinions affect the entire country.  For Federal appeals court cases, (Circuit Courts) the cases affect all of the states and territories within the Circuit. For example the Fourth Circuit encompasses the following states, MD, WV, VA, NC, and SC, and all of those states would be affected by a Fourth Circuit ruling.  For these reasons it is possible to have conflicting rulings in different parts of the country.

The article seems to suggest that the ruling of a District Court Judge will be binding on the entire District.  This is simply not the case.  The rulings of District Court Judges are binding only on the facts, circumstances, and parties of the exact case before the Court.  The other Judges in the Eastern District of Virginia re not even bound by Judge Cacheris’ ruling outside of the actual case of U.S. v. Danielczyk.  Any federal candidate or federal corporation engaging in direct solicitation or contribution, even in the Eastern District of Virginia, is doing so at the highly likely peril of prosecution, assignment to a Judge other than Judge Cacheris, and criminal sanctions.  Not even Judge Cacheris is technically bound by his previous decision, and could decide in a contrary manner for the next similar Defendants in his courtroom.

So if the decision is not appealed, does it matter at all?

Yes.  Any ruling declaring a law unconstitutional will be used by future litigants in an attempt to invalidate the law in other courtrooms.  Eventually this issue will make it to one or more Circuit Courts, and perhaps back to the Supreme Court.  This is just a very early skirmish in a very long litigation battle.  Corporations are far from being able to donate directly to federal candidates. 

For those interested in seeing how an alternative campaign finance system works with no limits, but full disclosure, look into Virginia’s state level campaign finance regulatory scheme.

Some basic sources can be found here:

http://www.vpap.org/

http://www.sbe.virginia.gov/cms/Campaign_Finance_Disclosure/Index.html