Fourth Circuit Denies ObamaCare Challenges

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The fourth circuit has ruled against the plaintiff two suits that sought to overturn our new health care law, one brought by the state of Virginia, and the other by Liberty University and two private plaintiffs who argued that the mandate was an unconstitutional infringement on their right not to buy health insurance.  But supporters shouldn't get too excited: the rulings were narrow findings that the plaintiffs lack standing to sue, not exciting broad assertions that the individual mandate is 100% constitutional.


The suits are more interesting for why they were dismissed.  In the Virginia case, the court says that they can't sue because it's an individual mandate; it's not enough that it contravenes Virginia law:

Thus, if we were to adopt Virginia's standing theory, eachstate could become a roving constitutional watchdog of sorts; noissue, no matter how generalized or quintessentially political,would fall beyond a state's power to litigate in federal court. We cannot accept a theory of standingthat so contravenes settled jurisdictional constraints.

The reaction of those who opposed the health care law has been, roughly, "OH NOES!!! Then there would be some sort of check on federal power!"


Which I guess is also roughly the reaction of those who supported the law.

But there's probably some legal nuance we're all missing.

The Liberty University case is more interesting still.  These plaintiffs can clearly articulate a direct harm to them, as individuals, from the individual mandate.  So why can't they sue?

Because, says the court, the mandate is a tax.  And you cannot pre-litigate taxes; you have to pay them first, and then sue, thanks to the Anti-Injunction Act.  The AIA has what seems like a basically sensible purpose: if you could get a reprieve from your tax bill simply by filing suit, the temptation to tie up the courts with frivolous suits would seem to be very high.  But it's now being used to argue that people cannot sue until this law goes into effect--when, of course, it will be very expensive and difficult to dismantle.

The plaintiffs argued that it's not a tax because Congress didn't call it a tax, and that therefore they obviously have standing to sue now.  Ah, no, says the court; they're being far too persnickety about this business of names:

The Secretary's contrary contention primarily relies on the fact that the individual mandate labels the imposed exaction a "penalty," not a "tax." § 5000A(b). For the Secretary, the Sixth Circuit, see Thomas More Law Center v. Obama, -- F.3d -- (6th Cir. 2011) [No. 10-2388], and now our friend in dissent, this "penalty" label renders the AIA inapplicable.

Indisputably, the AIA bars pre-enforcement challenges even when Congress has "exhibit[ed] its intent" that a challenged exaction function as a "penalty." Compare Bailey v. Drexel, 259 U.S. at 38, with Bailey v. George, 259 U.S. at 20. The term "penalty" therefore describes a category of exaction to which the Supreme Court has already applied the AIA.4 Given this history, it seems inconceivable that Congress would intend to exclude an exaction from the AIA merely by describing it as a "penalty."

To be sure, Congress called the penalty at issue in the Bailey cases a "tax." That fact, however, only aids the Secretary if there is something talismanic about the label "penalty" that removes a challenged exaction from the scope of the AIA. The Secretary has cited no case even remotely supporting such a proposition.

This seems, to my lay ears, rather magnificently oblivious, though I'm sure the argument must be better than it sounds.  The court goes on to cite a number of cases in which the court has looked through the name to the true metaphysical nature of our tax/penalty/mandate, rather than being stymied by something as pedestrian as the name Congress chose to call it.  


My understanding is that this reading is sort of a stretch--that the cases in which the court has looked past the name to the "true character" are generally cases that went against the government, ones in which the government has slapped the name "tax" on an otherwise questionable rule in order to smuggle it in under the taxing power--and that the government is generally given relatively little leeway to argue that Congress totally meant to enact a tax, but forgot to call it that.  However, I am not a lawyer, so I hope our resident tax professionals will weigh in.

Aside from the somewhat contorted language, this is interesting for a few reasons.  If I am reading the decision right, the government and the plaintiffs are both arguing that the mandate penalty is not a tax: the court is essentially freelancing its arguments in favor of tax-hood.  This can't be normal, and it's sort of mystifying why they would go this route, when the decision makes it clear that the panel would have been happy to uphold on commerce clause grounds.

This ruling seems quite unlikely to hold up at the Supreme Court level--the third member of the panel writes a stirring brief for the commerce clause, but points out that Congress clearly considered the possibility of calling it a tax, and decided on a different name, so it's hard to argue that they somehow forgot to avail themselves of the taxing power.  (The majority offers this legislative history as proof that it is a tax, which seems rather surprising.)  Moreover, as many conservatives will no doubt point out over the next few days, the powers implied are even more sweeping than those implied by using the commerce power to justify the mandate:  the government can do anything it wants as long as it includes a modest tax in the enforcement section.  Is this supreme court really going to hasten to gratuitously expand government power over the economy?

So why dismiss the suit rather than ruling on the merits?  The best theory I've been able to come up with is that it's the legal equivalent of a Hail Mary pass:  it resurrects a potential out for ObamaCare's supporters that would otherwise probably have died at the circuit level.  But given that there's quite obviously no receiver at the end of the field to catch your long shot and run with it, I'm not sure why they bothered.

At any rate, aside from resurrecting an argument that's unlikely to go anywhere, this doesn't change things much. The challenges are still going to go to the Supreme Court, because other circuits have split on substantive questions.  I infer that it has a better-than-expected shot at succeeding for two reasons: the challengers I've talked to are revising their chances upward, and the liberal supporters who used to pooh-pooh these challenges as obvious no-hopers now seem to be panicking.  I still think there's a better than 50% chance that the Court rules against the challengers--but the odds I was quoted in the winter of 2010 were more like 95%, so that's still major news.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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