King v. Sebelius
997 F. Supp. 2d 415
E.D. Va.2014Background
- Plaintiffs (four Virginia residents) sued to invalidate an IRS regulation that makes premium tax credits available to enrollees in federally-facilitated Exchanges as well as state Exchanges, arguing the rule exceeds statutory authority under 26 U.S.C. § 36B and violates the APA.
- Each plaintiff would, absent a subsidy, qualify for an exemption from the ACA’s individual mandate because the cheapest available bronze plan would cost more than 8% of income; the subsidy makes them subject to the mandate.
- Defendants (HHS and Treasury/IRS) adopted coordinated regulations (HHS rule and IRS Rule) defining “Exchange” to include federally-facilitated Exchanges and authorizing advance premium tax credits for enrollees in those Exchanges.
- On motions, the court evaluated justiciability (standing, ripeness, APA pre-enforcement review vs. tax-refund alternative) and statutory interpretation under Chevron.
- The court concluded plaintiffs have Article III and prudential standing and that the challenge was ripe, but upheld the agencies’ interpretation of § 36B and granted the government’s motion to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing (Article III/prudential) | Plaintiffs suffer economic injury because IRS Rule denies exemption and forces them to buy insurance or face penalty | Plaintiffs are merely refusing a benefit to manufacture injury | Plaintiffs have Article III and prudential standing; injury is concrete and traceable; within statute's zone of interests |
| Ripeness / APA pre-enforcement review vs. tax-refund remedy | Pre-enforcement APA review is appropriate; tax-refund suit is inadequate and would be inferior | If challenge relates to tax liability, plaintiffs should use post-payment refund procedures | Claim is ripe and reviewable; APA suit permitted because tax-refund route is inadequate and would be futile/inferior |
| Meaning of “Exchange” in § 36B (Chevron step one) | “Established by the State under §1311” limits credits to state-run Exchanges; federally-facilitated Exchanges not covered | “Exchange” reasonably includes federally-facilitated Exchanges; statute and context show Congress assumed nationwide credits | Court finds plaintiffs’ literal reading implausible in context; statutory structure and consequences refute plaintiffs’ interpretation |
| Chevron deference (step two) | Agency interpretation is unreasonable and usurps Congress’s bargain favoring states | IRS and HHS made a coordinated, reasonable interpretation; shared-administration context warrants Chevron deference | Chevron applies; agencies’ coordinated definition of "Exchange" is a permissible construction; regulation upheld |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (standing requirements for Article III) (establishes injury-in-fact, causation, redressability)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading standard) (Rule 8 plausibility standard for complaints)
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (administrative law) (two-step test for judicial review of agency statutory interpretation)
- Hodel v. Virginia Surface Mining & Reclamation Ass'n, 452 U.S. 264 (ripeness/ facial v. as-applied challenges) (distinguishes when facial review is appropriate)
- National Federation of Independent Business v. Sebelius, 567 U.S. 519 (ACA individual mandate context) (addresses limits on injunctive relief re: tax collection and related preliminaries)