Untangling the Procedural History and Legal Arguments of Texas v. California

In our last segment recognizing the defeat of “skinny repeal,” we introduced the pending Supreme Court case, Texas v. California, which (again) challenges the constitutionality of the Affordable Care Act (ACA) following the “zeroing out” of the individual mandate.

This week, we dive into the case itself, which is now scheduled to appear before the Supreme Court on November 10th, one week after the November 3rd election. In this article, we examine the case’s complicated procedural history as well as its merits. 

PREVIOUSLY ON MASTERPIECE (POLITICAL) THEATER…

First, let’s briefly recap where we left off.  

In 2012, the Supreme Court upheld the constitutionality of the ACA (and, specifically, of the individual mandate) on the basis of Congress’ authority to tax. Since that time, the ACA has remained controversial and at the center of subsequent election campaigns. Reflecting this prominence, President Trump, in one of his first actions as president, issued an executive order instructing agency officials to “to waive, defer, grant exemptions from, or delay” implementation of the ACA. The executive order is currently pending repeal by Congress.

While the then Republican-controlled Congress failed in their promise to repeal the ACA, the Tax Cuts and Jobs Act of 2017 provided a “back door” to invalidate the ACA by eliminating the penalty associated with failing to comply with the mandate to maintain adequate insurance.

This raised the question: If a tax raises no revenues for the state, is it still a tax? If it is not, and the individual mandate (previously deemed a constitutional exercise of Congress’ authority to tax) is now unconstitutional, is the entire Act invalidated?

A Brief(ish) Summary of the Procedural History of Texas v. the U.S. (now Texas v. California)

The questions above were the questions raised by Texas who, joined by 19 other Republican state Attorney Generals, filed suit against the federal government, challenging the constitutionality of the Act in the absence of an actual penalty to the individual mandate. They were subsequently joined by two individual Plaintiffs residing in Texas. 16 states with Democratic State Attorney Generals promptly petitioned for and were granted the ability to intervene and defend the constitutionality of the ACA.   

As may be expected, the courtroom battle represented the larger political battle lines drawn between “red” and “blue” states. This was made all the more stark given the unprecedented (but not unexpected) position of the US Department of Justice (DOJ). While the DOJ generally defends the validity of all Acts of Congress, in this instance, the DOJ said “hard pass.” As detailed in a brief letter to Congress, the DOJ instead petitioned the Court to sever specific elements of the ACA, including protections against pre-existing conditions and community rating for insurance. 

The case was heard in federal court in September 2018. That December, the judge ruled in favor of the plaintiffs, holding that the individual mandate was now an unconstitutional exercise of Congressional authority and that the entire Statute was invalid. This decision was promptly appealed in the 5th District Court of Appeals. A year later, the Court of Appeals largely upheld the District Court’s decision, remanding the case back to the trial court to determine if the individual mandate section could be severed from the Act. However, before that happens, there were the 2018 mid-term elections which led to a reconfiguration of the parties involved.

A Game of Musical Chairs and the DOJ Doubles Down

Following the 2018 elections, Michigan, Colorado, Iowa, and Nevada as well as the new Democrat-led House of Representatives joined the Defendants while two Plaintiff states (Maine and Wisconsin) withdrew. 

Oral Arguments before the 5th Circuit of the Federal Court of Appeals were scheduled for July 2019.  Prior to that time, and following the abrupt withdrawal of three US attorneys appearing in the Case, the DOJ filed a brief in support of the Plaintiffs, petitioning the Court to uphold the district court’s decision invalidating the Act. 

Then in December 2019, in a 2:1 decision, the Court of Appeals upheld the lower court’s finding that the individual mandate was unconstitutional and remanded the case back to the trial court to determine whether the individual mandate could be severed from the Statute or if the entire Act must fail. The Defendants then petitioned the Supreme Court for an expedited review, which was granted.

Déjà vu at SCOTUS

Oral hearings before the Supreme Court are now scheduled for October 10, 2020, when the Court will address three issues:

1. Whether the individual and state plaintiffs have the standing to challenge the Act;
2. Whether the elimination of a financial penalty associated with failure to maintain insurance renders the individual mandate provision unconstitutional; and
3. If so, whether the individual mandate is severable from the rest of the Act or if the Act as a whole must fail.

It is worth starting with the second issue, which is ultimately the crux of the matter. The question of whether a tax is still a tax if it does not generate any revenue for the State feels a little bit like the thought experience: “If a tree falls in the woods and no one is around to hear it, does it make a sound?  

While the generation of revenue is a defining feature of any tax, it is worth noting that there is a directly controlling precedent supporting the constitutionality of a “zero-ed out” individual mandate. In the 5th Circuit case, the United States v. Ardoin, 19 F.3d 177 (5th Cir. 1994), the Court held that congressional exercise of taxing power may be held “in abeyance” (ie: not actually exercised and no revenues actually collected), upholding the constitutionality of the Firearms Owners Protection Act of 1986 which prohibited the sale, manufacture, or possession of machine guns in the absence of registration and taxation (taxation that the controlling agency refused to levy, completing the intended effective ban). Consistent with Ardoin, the authority to tax, Congress’ uncontested privilege, is thus preserved even where unused.

Standing and the Justiciability Doctrine

The next question is whether the Plaintiffs have the standing to bring this claim. Under the Constitution, federal courts’ jurisdiction is limited to actual cases or controversies. What this means on a practical level is to restrict the federal court’s authority only to those cases where a Plaintiff suffers an actual (continuing) injury that can be addressed by judicial action, and where its resolution is not more appropriately reserved for a political, representative action. Known generally as the Justiciability Doctrine – it represents the parameters of the Court’s jurisdiction. On a philosophical level, this limitation of judicial authority is important to the court’s legitimacy within representative government.

A determination that a plaintiff has “standing” to challenge a statute or regulation simply means that the challenger has been (1) injured in some way and (2) that the court is able to do something to “fix” that injury as caused by the statute. To bring a claim challenging any regulation or act, a plaintiff, therefore, must demonstrate three things: The plaintiff must have:

1. Suffered an actual injury, or an “invasion of a legally protected interest”;
2. Which is the direct or proximate result of the contested statute or regulation; and
3. Which the Court can effectively redress or correct by issuing a favorable ruling.

While it is difficult to conceive how the State Plaintiffs are impacted by a statute that applies to taxpayers; or how the individual plaintiffs suffer an actual injury from a waived tax that has no practical effect, that is exactly what the district and appellate courts concluded. The trial court focused exclusively on the standing of the two individual plaintiffs, according no attention or analysis to the State Plaintiffs.

However, the Appellate Court went further, confirming that the State-Plaintiffs, as employers, incurred administrative costs related to the statute.  

Legal scholars across the political spectrum have challenged this analysis of the justiciability of the case. However, Appellate Judge King, in his dissent in the 5th Circuit decision perhaps summarized it best following the “zeroing out” of the individual mandate:

“Without any enforcement mechanism to speak of, questions about the legality of the individual “mandate” are purely academic, and people can purchase insurance – or not – as they please.  No more need be said; it has long been settled that the federal courts deal in cases and controversies, not academic curiosities.”

So, setting aside the Plaintiff’s petition to invalidate the entirety of the ACA on the basis of this discrete section, and relying on the strong presumption of severability (as will be discussed in the following section), does it matter, as Judge King queried if the Court formally strikes down and out an unenforceable mandate?

We argue that it does and that the extra-judicial (as Judge King termed it) is problematic in and of itself. Traditionally, the Courts have vigorously scrutinized all elements of a case’s justiciability–scrupulously protecting the legitimacy of this non-representative branch of government. Instead, as Professors Jonathan H. Adler and Professor Abbe R. Gluck of Case Western University and Yale Law, respectively, observed, this case’s decision is an “exercise of raw judicial power, unmoored from the relevant doctrines…[which] makes a mockery of the rule of law and basic principles of democracy.”  In a time when public faith in the integrity of so many of our institutions of government is at a low ebb, it is a problem when the judicial branch also voluntarily erodes its own legitimacy.

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In our next segment, we will complete our analysis of the legal questions at issue in this case and look at the presumption of severability, before turning to our crystal ball as it relates to the Supreme Court’s evaluation of this case. 

ADDITIONAL RESOURCES

To learn more about this case, we highly recommend University of Michigan Professor Nicholas Bagley’s (scathing, trenchant) December 2019 article, “A Case that should have been laughed out of court may kill Obamacare”

Demonstrating the (albeit legal scholar outrage) from both sides of the political spectrum, Case Western University Professor Jonathan Adler’s and Yale Law Professor Abbe Gluck’s 2018 New York Times Opinion Piece (referenced above), “What the Lawless Obamacare Ruling Means” is a must-read outline.