Wednesday, March 04, 2015

Chevron or Dole in King v Burwell?

by Michael Dorf

In the aftermath of the King v. Burwell oral argument, what I have previously called "SCOTUS kremlinology" now commences: Lawyers and law professors will dissect every question asked by the various Justices and even matters analogous to the seating arrangements--such as the fact that CJ Roberts was mostly quiet during the argument, with one critical exception, to which I'll return below. I like to play this game too but I'm going to resist in order to suggest that there is a critical argument towards which Justice Kennedy's questions gestured, but that, for institutional reasons, SG Verrilli was not well positioned to make quite as forcefully as it might have been made.

The plaintiffs and the government each argued that they respectively should win the case under both the plain meaning of the statutory text and its meaning understood in context. I think it's nonetheless fair to say that the government's argument relied more on context, whereas the plaintiffs' argument relied more on (somewhat isolated) text. Indeed, even Justice Scalia, who was quite obviously sympathetic to the plaintiffs' position, didn't seem to buy attorney Michael Carvin's argument that the ACA works perfectly well--indeed better!--without subsidies on federally run exchanges than with them; Justice Scalia instead expressed the view that Congress messes stuff up all the time but that's no reason to disregard plan statutory language.

Meanwhile, SG Verrilli expressed the view that, read in light of overall context, the statute is clear that it authorizes subsidies on federal exchanges. That's an argument for affirming based on a different rationale from the one offered by the Fourth Circuit in the proceedings below. That court found that as used in 26 § 36B(c)(2)(A)(i), the crucial term "an Exchange established by the State under section 1311" was unclear, but that pursuant to step 2 of Chevron, the IRS construction of the term to include federal exchanges was reasonable. By contrast, SG Verrilli argued that the government should win at Chevron step 1.

And it's not surprising that he did so. In just about his only intervention on issues other than standing, CJ Roberts asked the SG whether a victory under Chevron step 2 would mean that a future administration could reach a contrary conclusion, finding that subsidies are not available on federal exchanges. SG Verrilli put up some resistance, saying that--in light of the disastrous consequences--such a construction might be unreasonable, but given that avoidance of those same disastrous consequences is part of what informs his conclusion that the government should win at Chevron step 1, if the Court were to reach Chevron step 2 (say, in reviewing an IRS change of heart under a future Republican president), that might not be enough to deem this approach unreasonable.

It thus might appear that in order to win the case on terms that bode well for the long-term survival of the ACA, the SG had to persuade the Court that § 36B(c)(2)(A)(i) is not merely ambiguous but that, when read in overall context, it clearly means what the government says it means. I think he has a decent argument for that conclusion, but it's hardly a slam-dunk.

Nonetheless, the government can win big even if a majority of Justices find that the language is ambiguous. The key would be to win not on the basis of Chevron deference but on the basis of the South Dakota v. Dole plain statement rule. For if the Court holds that, in light of Dole, subsidies are available on federal exchanges, then no future Administration could undo that result (absent repeal of the ACA by a sympatico Congress).

South Dakota v. Dole sets forth conditions on conditional spending by Congress, one of which
states that "if Congress desires to condition the States' receipt of federal funds, it must do so unambiguously." (Internal quotations and citations omitted.) By its terms, that test doesn't apply to  § 36B(c)(2)(A)(i), because it is a provision governing the tax liability of individuals rather than governing the states' receipt of federal funds. However, the logic of Dole and the anti-commandeering case, New York v. United States, very strongly point in the direction of applying it in the present context.

Indeed, at one point Justice Alito asked SG Verrilli directly whether reading § 36B(c)(2)(A)(i) as the plaintiffs proposed would render the law unconstitutionally coercive. Justice Kennedy's earlier line of questions to Mr. Carvin indicated that he thought the answer was yes. However, because SG Verrilli was aware of his obligation to defend the statute if attacked on that ground, what he said was it would be a "novel" question. He then started to say something like if the Court thinks that's a difficult constitutional question, then the Court should invoke the canon of constitutional avoidance and reject the plaintiffs' reading, but Justice Kennedy interrupted him and made the point for him.

And that seems right to me. NY v. US says that Congress can't simply direct a state to pass a law (such as the one needed to set up a state exchange) but that Congress can do so if it conditions the state's receipt of funds on passing a law, so long as it satisfies the Dole rules regarding conditional spending. The "novel" question is whether Congress can evade NY/Dole's requirements by threatening to withhold money (here in the form of tax subsidies) from the citizens of a state rather than from the state itself. The whole logic of NY strongly suggests a negative answer, and that's the way that Justice Kennedy appeared to be leaning.

Two final points are worth noting. First, in the past I (and many others) have criticized SG Verrilli's performance in high-stakes cases, including the last ACA case. Here he did a great job. His inability to seize the lifeline offered by Justice Kennedy with both hands was occasioned by the institutional constraint I've noted, not by any lack of competence--and even then, he did embrace the suggested constitutional avoidance argument.

Second, Justice Alito tried to head off the conditional spending point by noting that there wouldn't be a severe notice problem: Congress would not be pulling the rug out from the states because they could simply set up their own exchanges after a ruling by the Supreme Court. But this argument is doctrinally non-responsive. Under Dole, if a condition is not expressed clearly, it doesn't exist; it doesn't get converted to a phase-in. Moreover, the point of requiring a clear statement in a conditional spending measure is partly to give fair notice to the states, but that's not its only point. The clear statement rule for conditional spending also seeks to leverage the political safeguards of federalism: If Congress really wants to put financial pressure on the states to do its bidding, then it must do so clearly and in the open, so that the states can attempt to use their political power to block it in Congress before it goes into effect; not just by refusing to take the money.

25 comments:

Justin said...

I want to make one counterpoint. I don't think you have to invoke Dole to prove the point. Rather, in the context of the ACA, the clear statement rule must exist AS A MATTER OF BASIC STATUTORY INTERPRETATION.

The reason for this is easily seen by the movie Dr. Strangelove:

Dr. Strangelove: Of course, the whole point of a Doomsday Machine is lost, if you *keep* it a *secret*! Why didn't you tell the world, EH?
Ambassador de Sadesky: It was to be announced at the Party Congress on Monday. As you know, the Premier loves surprises.

The point of withholding subsidies is absurd unless the threat is communicated to the states. This is true if you are a committed textualist or not. If you are a committed textualist, you have to find the plain statement in the text; otherwise, you can look through your whole range of interpretive aids. But in either mode, the fact that 51 reasonably intelligent (and well-supported) Attorneys General reviewed the law and did not find the threat communicated is itself-along with the text-enough to establish that the threat never existed in the first place. Dole, and its expansion, are unnecessary.

Paul Scott said...

My favorite part so far:

JUSTICE SCALIA:  What about what about Congress? You really think Congress is just going to sit there while while all of these disastrous consequences ensue. I mean, how often have we come out with a decision such as the you know, the bankruptcy court decision? Congress adjusts, enacts a statute that that takes care of the problem. It happens all the time. Why is that not going to happen here?

Joseph Simmons said...

Even if it was Congress's intent to pressure the states, is the chosen method (tax credits to individuals based on whether they buy particular healthplans and have low income) too attenuated to be of constitutional significance? No doubt the availability of credits (under petitioners' view) hinge on state action, but at what point is the pressure on states simply too remote?

There are federal tax implications which hinge on state laws to varying degrees - marriage leaps to mind. Or let us imagine a more celebratory scheme: a federal law providing a tax credit for adults who attain legal drinking age upon their 21st birthday and have a beer on that day (the "Prost! Act"). Applicability of the law hinges on states having a drinking age of 21 - not 18, 19, 20, or even 22. The law does not directly impact the states; it impacts bars and individuals directly. Maybe the amount of the credit matters? Whether the cost of the beer or some higher arbitrary amount? [All of this assumes no other constitutional infirmity, like an EPC violation.]

The tax exemption for commuter benefits hinges essentially on whether the state or municipality has established a mass transit system. If there is a notice problem in the ACA for tax credits to individuals, how do we differentiate that from such other tax provisions? Does it matter if part of the impetus of the provision was to encourage states to set up mass transit systems?

Ryan White said...

Why are you framing this are Chevron v. Dole rather than Chevron v. Pennhurst?

Michael C. Dorf said...

Joseph Simmons: I agree that there could be de minimis benefits/burdens for state citizens but that's clearly not the case here. Indeed, the plaintiffs' whole argument for the idea that their interpretation makes sense is that the threatened financial consequences to state citizens WILL pressure states to establish exchanges.

Ryan White: The language I quoted from Dole in turn quotes Pennhurst, so in some sense they're the same, but Dole is more directly relevant because there the question is the validity of a condition, rather than whether it entails private rights in third parties, as in Pennhurst.

Hashim said...

You may want to check out the ok ag's oped in wsj, explaining why there are non deminimis benefits to the state, which is precisely why it and other states are challenging the irs rule

Michael C. Dorf said...

AG Pruitt's argument is non-responsive to the Dole point I'm attributing to Justice Kennedy, which is that if the language is unclear then it's not a permissible exercise of conditional spending. He says that the statute is not coercive under Dole/NFIB, which is right but beside the point because per Dole/Pennhurst, it's not sufficient that a condition be non-coercive; it also must be clear. Pruitt then says that he and representatives of seven other states thought there was no authority for subsidies on federally established exchanges a few years ago. All that shows--at most--is that they had been exposed to the argument that § 36B(c)(2)(A)(i) could be construed to bar subsidies on federally established exchanges. It hardly shows that the statute itself contains a clear statement to that effect.

Justin said...

If Pruitt was right, the language would have been reflected in section 1332. And the relationship between setting up an exchange seems tenuous relative to both the subsidies and the mandate. If that was the opt-out congress was offering, why be so cryptic? If this is textuslism, textualism is dead.

Hashim said...

Kennedy never suggested that he thought there was a Pennhurst/Dole *clear notice* problem with 36B. To the contrary, insofar as he referenced the clarity of the text of 36B at all, he tended to suggest that he agrees with the pltfs that the statute plainly forecloses subsidies on federal exchanges.

Instead, as your own post notes (para. 8), Kennedy had the *distinct concern* that, whether clear or not, 36B *unconstitutionally coerces* States under NFIB/Dole. And, on that point -- which your response comment seems to agree is wrong -- Pruitt's op-ed is directly apposite in illustrating the flaw in the coercion theory.

matt30 said...

Can you please say something about that nonsense Randy Barnett wrote in the Washington Post today?

IIRC, "constitutional avoidance" i.e. when you decide a case on narrower grounds when both statutory and constitutional grounds are available, is not the same thing as what Kennedy was talking about.

What Kennedy was talking about was what one of the amicus called the "constitutional-doubt canon," where a statute is read in the light least likely to create future constitutional problems. That is a doctrine of statutory construction, not a constitutional issue that he assumes it to be.

I also think he has misinterpreted (probably deliberately) the nature of the coercion Kennedy is talking about. It's not the regulations per se, it's the fact that the states don't effectively have a choice under the law because the benefit is so large as to effectively be the federal government commandeering state resources to set up the exchange.

The whole article just left a bad taste in my mouth.

Michael said...

But doesn't Congress in PPACA "simply direct a state to pass a law (such as the one needed to set up a state exchange)" without "conditioning the state's receipt of funds on passing a law, so long as it satisfies the Dole rules regarding conditional spending"?

I mean, PPACA clearly does direct states to establish exchanges. And our contention is that it does not conditions the state's receipt of funds on passing that law.

But it does so while setting up basically no other enforcement mechanism, either. It;s basically an empty command; a request.

So is the point really that NY v. US says that Congress can't direct a state to pass a law (such as the one needed to set up a state exchange) and establish some means of enforcement of that directive even more coercive than conditioning states' receipt of funds - like some kind of actual police action - but that Congress can do so if it (merely) conditions the state's receipt of funds on passing a law, so long as it satisfies the Dole rules regarding conditional spending?

Asher said...

I know Chevron is perhaps unlikely to play a decisive role in a case of this magnitude, whereas federalism concerns, or avoidance, may. But as a formal matter, is there any difference between the clarity required by Pennhurst for plaintiffs to win, the unambiguity required by Chevron for plaintiffs to win, and, I suppose, the unambiguity required by avoidance for plaintiffs to win (assuming there's a substantial coercion question to avoid that plaintiffs' interpretation of the statute would raise, which is what I, like Hashim, think Kennedy's getting at, not Pennhurst/Dole)? I always thought of this as a Chevron case, so I was a little confused the past week or two when Pennhurst's clear statement rule became the argument du jour, as if Pennhurst somehow increased the burden on plaintiffs. If not for Pennhusrt wouldn't the plaintiffs still need clarity?

The other point I'd make is that it seems almost as likely to me that Kennedy simply invalidates, as coercive, what he perceives to be an unambiguous limitation on the credits, as that he uses avoidance. (Remember Public Citizen, where he avoids using avoidance and votes to invalidate a statute that the majority had used avoidance to construe differently?) Now, that would be quite an expansion of the coercion doctrine, but the thing is, I don't see that if four Justices say the government wins as a statutory matter and he says they win on coercion grounds, his opinion would control under Marks. So exactly what he writes may not matter, and he may know it.

Michael C. Dorf said...

Thanks for the various comments. I'm going to write my next Verdict column responding to the arguments by Prof. Barnett and by AG Pruitt.

Briefly in response to Michael, Justice Kennedy is best read to say that IF the obligation to create exchanges is simply a naked obligation, then it clearly violates NY v US, so it's best read as an option, BUT it's an option that's enforced via withholding of spending, albeit spending on state citizens, not the state itself. That last difference is why SG Verrilli called the argument "novel" but I think it's a pretty straightforward inference from Pennhurst/Dole.

Hash and Asher: You're right that it's possible to read Justice Kennedy as making the argument that the withholding of funds would be impermissibly coercive per NFIB even if stated clearly, and I share the skepticism of that argument. But I think that the argument is much stronger if understood to invoke Pennhurst/Dole--and if you read the transcript that's certainly a possibility.

I'll explain in detail in my column.

Joseph Simmons said...

I look forward to reading your column. Quite possibly it has already come to your attention, but in his recent post Prof. Adler finds the opposite lesson in New York, which he quotes:

The affected States are not compelled by Congress to regulate, because any burden caused by a State’s refusal to regulate will fall on those who generate waste and find no outlet for its disposal, rather than on the State as a sovereign. A State whose citizens do not wish it to attain the Act’s milestones may devote its attention and its resources to issues its citizens deem more worthy; the choice remains at all times with the residents of the State, not with Congress. The State need not expend any funds, or participate in anyfederal program, if local residents do not view such expenditures or participation as worthwhile.

In New York the issue of notice required under Spending Clause precedent was related to the escrow account that would be awarded to the states. The conditions imposing burdens on private individuals were held valid under the Commerce Clause. The Court held, "Where federal regulation of private activity is within the scope of the Commerce Clause, we have recognized the ability of Congress to offer states the choice of regulating that activity according to federal standards or having state law pre-empted by federal regulation."

And as illustrated in NFIB v. Seblius, Congress's taxing power is very broad. The decision to offer tax credits is usually considered legislative grace.

As Hashim wrote, the matter appears to be more related to coercion than notice (and Kennedy appears to see the statutory language as quite unambiguous). And neither Dole nor New York are helpful on that front.

I write in hopes of seeing responses to such points being raised. Thank you.

Michael C. Dorf said...

I'll address points like those raised by Joseph Simmons in a discussion on the limits of conditional preemption.

William J. Green said...

Caveat: I am not a trained attorney but an erstwhile Economics Professor. Please forebear my inability to comment primarily from case law. I’ll have to argue much more broadly. But thank you to all of you who are attorneys for what you’ve taught me from your original post and comments. I read them all.

My Presuppositions:

1) Ceteris paribus, SCOTUS wishes to rule as narrowly as possible and preferably employ the doctrine of Constitutional Avoidance.

2) The decision hinges primarily upon the votes of Chief Justice John Roberts and Associate Justice Anthony Kennedy, with the other votes more or less assured.

3) Chief Justice Roberts, perhaps to preserve his court’s legacy, perhaps for racial harmony and what he reasoned would be better for the nation, saved Barack Hussein Obama’s “face” with his NFIB decision to partially rewrite the law and codify the mandate as a tax – though AG Verrilli argued it could be either/or – to preserve the law largely intact, and not caused riots such as we saw in Ferguson.

4) The relevant language, even within context, is ambiguous at best; at worst it means exactly what it says and that subsidies are reserved only for those who enroll through a State exchange.

5) The IRS is loathed; the possibility of impending criminal charges against one or more past or present IRS officials associated with Lois Lerner looms; a national issue encompassing many billions of dollars of taxpayer subsidies should not be decided by an unelected department within the Executive Branch.

Givens:

1) Obamacare was an abortion from the beginning; it began as a House-passed Veterans Housing Benefits bill that Harry Reid gutted like a fallen deer into whose carcass he inserted glitchy and ambiguous at best, error-ridden at worst, Obamacare text that virtually no lawmaker fully read and understood before voting. Republicans were not permitted amendments.

2) Not a single Republican vote was garnered in either chamber of Congress, violating Thomas Jefferson’s wise but non-binding axiom that “great innovations should not be forced on a slender majority – or enacted without broad support.”

3) The bill never went to Committee; a bill of this magnitude, encompassing 1/6th of our economy, should have had solid input from both parties and between both chambers of Congress, as per Jefferson above.

3) The bill passed in the Senate employing Reconciliation which is intended (only) for House initiated revenue bills.

Questions:

1) Is there anything that could or would prevent SCOTUS from ruling for the Plaintiffs, sending at least the relevant portion – if not the entire bill – back to Congress for a correction or rewrite?

2) Could not the SCOTUS stay the mandate until such time as Congress can rewrite and pass a bill according to regular order with bipartisan support for signing by POTUS? Is there a time constraint on any stay SCOTUS imposes?

3) Is there any precedent for SCOTUS to think so broadly as to de facto call for a partial or full Congressional rewrite, for the good of the nation, given the fact that over 30,000,000 Americans are still uninsured, millions lost their health insurance and/or doctor and/or hospital they were pleased with - for which Barack Hussein Obama was made the 2013 Lie of the Year laureate, that insurance plans have not gone down by an average of $2,500 per year, and more Americans still disapprove of Obamacare than approve of it?

Shag from Brookline said...

Mr. Green, "an erstwhile Economics Professor," colorfully displays his animus for President Obama.

With respect to his "Questions," they are rhetorical in nature and display unreality with respect to Congress.

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