Thursday, March 05, 2015

Coercion of the States in King--and the federalism canons

Marty Lederman

In the wake of the oral argument in King v. Burwell yesterday, supporters of the challengers (and even some who support the government’s view) have taken to the newspapers and the blogs in droves to address Justice Kennedy’s questions (see pages 16 and 49 of the transcript) about whether the Court ought to reject, or “avoid,” challengers’ interpretation because it might raise a serious constitutional question—namely, whether the draconian choice put to the States under the challengers’ reading would be impermissibly coercive.

The Solicitor General adequately addressed the avoidance doctrine on page 49, in response to a related question from Justice Alito.  The challengers’ interpretation, he said, would present “a novel constitutional question” and, “to the extent the Court believes that this is a serious constitutional question, . . . then I do think the doctrine of constitutional avoidance becomes another very powerful reason to read the statutory text our way.”

Here, I’d simply like to make two additional points about Justice Kennedy’s coercion concerns.  First, the efforts of challengers’ counsel to minimize the nature of the coercion that would result from his reading of the Act is misleading.  And second, there’s no need for the Court even to grapple with the constitutional avoidance question in King, because another federalism canon of statutory construction—the one I discussed in my post on Monday—suffices to resolve the case (as would the absurdity doctrine, not to mention the government's argument that the statute plainly authorizes tax credits to residents of a State that allows HHS to establish the Exchange in that State).

1.  Petitioners’ reading of the Act would uniquely and dramatically coerce the States.

One of the most surprising aspects of the oral argument was the effort by the challengers’ counsel, Michael Carvin, to paper over the draconian effects of his interpretation of the statute.  In response to questions regarding the effect on the States, Carvin repeatedly characterized Section 36B of the Act as simply a “funding condition” (pp. 16, 79), akin to those Congress has imposed in many other statutes.

Not so.

The condition the petitioners’ reading would impose upon States that choose to allow HHS to set up Exchanges in their territory—denial of tax credits for all of their residents—hardly begins to describe the consequences of such a choice.  In addition, the ACA displaces state insurance regulation in all States, requiring (i) issuance of individual health insurance regardless of preexisting conditions and (ii) pricing of that insurance based upon community-wide characteristics. 

When these reforms are viewed in conjunction with the denial of tax credits that the challengers’ reading would require, the effective choice that would be put to the States is not “establish an Exchange or be denied a federal benefit,” but instead “establish an Exchange or we will destroy your health insurance market, and make your residents worse off than they would have been absent any federal regulation at all.”  That is to say, under the challengers’ view Congress would not be threatening the States with denial of a “carrot,” or even the withdrawal of a very valuable federal benefit or privilege on which the States had come to depend,* but rather, both the denial of important benefits to the State’s residents (the tax credits that allow such residents to purchase insurance on the Exchanges in the first instance) and federal preemption of state regulation of health insurance—a combination that would wreak havoc on the States’ preexisting health insurance markets.  The stark differences between this supposed “offer” to the States and the long-recognized models of federal-state cooperation—namely, conditional grant programs and federal laws permitting state implementation with a federal fallback—are discussed in detail in Part III of the amicus brief filed by Professors Merrill, et al.

2.  The case can be resolved by resort to the Gregory/Bond canon of statutory construction.

Whatever one might think of the constitutional avoidance argument in King, the case can be resolved under another distinct and potent federalism canon of statutory construction that I discussed in my post on Monday—the Gregory v. Ashcroft canon that is the focus of the Merrill amicus brief and that the Court applied last Term in Bond v. United States.  As the Court wrote in Gregory and in Bond (and in New York v. United States):  “It is incumbent upon the federal courts to be certain of Congress' intent before finding that federal law overrides the ‘usual constitutional balance of federal and state powers.”** 
This federalism canon of construction appears to have been what Justice Kagan was alluding to in her remarks yesterday (pp. 27-28):

Let's go back to this question of where . . . Congress put this thing [the alleged choice to the States to establish an Exchange or deny their residents the critical tax credits that permit the Exchange—and the Act as a whole—even to operate], because, putting aside constitutional issues, . . .. there’s at least a presumption, as we interpret statutes, that Congress does not mean to impose heavy burdens and draconian choices on States unless it says so awfully clearly.  And here . . . there’s really nothing clear about this.  [T]his took a year and a half for anybody to even notice this language.  And, as Justice Ginsburg said, it's . . . put . . . not in a place that you would expect it to be put in, which is where [Section 1321] says to the States, “here is the choice you have.”  It's not even put in where the statute defines . . . who is entitled to get the subsidies [the definition of the “applicable taxpayer[s]” in subsection 36B(c)(1)(A)].  Rather, it comes in . . . this technical formula that’s directed to the Department of the Treasury saying how much the amount of  the subsidy should be. . . .   

It both makes no sense from Congress’s point of view, and in terms of our own point of view, in terms of interpreting statutes.  [T]hat’s not the clarity with which we require the government to speak when it’s upsetting Federal­/State relations like this.

Exactly so.  To similar effect, see the Merrill brief at pages 16-20. 

At oral argument, Michael Carvin briefly tried to suggest (p.16) that the Gregory canon only applies when Congress is “taking away a police power” from the States, whereas “here, all the Federal government is doing is [imposing conditions] on billions of free Federal dollars.”  Not so, on either count.  In neither New York nor Bond was the federal government trying to “take away” any state police power.  And, as I explain above, the choice here, on petitioners' view, would be something very different from an ordinary spending condition:  If the threat to destroy a State’s existing market for health insurance doesn’t upset the federal/state balance in a way that should trigger the Gregory canon, it’s hard to imagine what would. 

Moreover, if the Court were to apply the Gregory canon, it would compel affirmance of the IRS’s interpretation.  As I explained in my earlier post, far from any certitude that Congress intended such a draconian effect on the States, the challengers cite virtually no evidence, apart from the contested “established by the State” language itself, that Congress so intended.  And as both the Merrill amicus brief and Justice Kagan’s remarks demonstrate, there are numerous powerful indications in the Act itself that Congress did not have any such intent to put the States to such a potentially devastating choice—not least of which is the implausible manner in which Congress is said to have informed the States of that choice in the results of a calculation made pursuant to a “monthly credit calculation” provision of the Act.

* * * *
I should add, in closing, that even apart from the Gregory federalism canon, the Court could rule for the government without reaching any question of constitutional avoidance if (i) the Court finds that the government’s construction of Section 36B is compelled, when that provision is read in the context of the statute as a whole; (ii) the Court concludes that Section 36B is ambiguous, in which case Chevron deference supports the Department of Treasury reading (see Nick Bagley's post); or (iii) the Court concludes, as Justice Sotomayor suggested (p. 21) and as the Solicitor General argued (p.55), that the statute as a whole would simply “make no sense” under the challengers’ reading—in effect, that it would result in an absurdity at the heart of the Act for Congress to have compelled the Secretary to create and operate Exchanges if either the alleged “inducement” would cause every State to establish Exchanges or residents could not afford to purchase insurance and the insurance markets would collapse in States that declined to do so.  (This last point, about absurdity, is not, as Justice Scalia would have it (p.57), merely that the challengers’ reading would result in “untoward” or “disastrous” consequences—although it certainly would do that—but instead that a key component of the Act itself would simply make no sense under that reading, i.e., that no rational Congress would have written a statute with both such provisions in it.)


* That was basically the scenario under one part of the statute challenged in New York v. United States.  An earlier enactment had approved regional compacts affording all States the right to dispose of their radioactive waste in a cost-effective manner at sites in Nevada, South Carolina and Washington.  The 1986 Act challenged in New York authorized those three States to exact a graduated surcharge for waste arriving from outside the regional compacts, and then, after seven years, to exclude radioactive waste generated outside the region altogether.  The “choice” thus presented to the waste-generating States, according to the Court, was that “States may either regulate the disposal of radioactive waste according to federal standards by attaining local or regional self-sufficiency, or their residents who produce radioactive waste will be subject to federal regulation authorizing sited States and regions to deny access to their disposal sites.”  The Court unanimously upheld Congress's authority to offer the States this either/or choice.  505 U.S. at 173-174; see also id. at 168-169.  The choice presented by the challengers’ reading of the ACA, by contrast, would go much further, by threatening the destruction of a State’s insurance regime if the State chooses not to establish an Exchange.

** Indeed, in New York, 505 U.S. at 169-170, the Court specifically distinguished this “no unbalancing without certitude of congressional intent” Gregory canon from the constitutional avoidance canon.  The Court held in that case that both of those canons were reasons not to construe a seemingly straightforward directory provision—that “each State shall be responsible for providing . . . for the disposal of . . . low-level radioactive waste”—as a mandate to the States, but instead as grounds for reading the statute as a whole to offer the States a choice of either regulating radioactive waste disposal or being subject to one or more of a series of burdens (what the Court characterized as “incentives” to regulate).

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