363 F. Supp. 3d 109
D.C. Cir.2019Background
- DOL issued a 2018 Final Rule redefining "employer" under ERISA to expand which associations can sponsor Association Health Plans (AHPs) and to allow sole proprietors without employees ("working owners") to qualify as both employers and employees for AHP participation.
- The Final Rule relaxed prior DOL guidance by (1) permitting associations formed primarily to offer AHPs to qualify if they have "at least one substantial business purpose," (2) allowing common geography (same state or metropolitan area) to satisfy "commonality of interest," and (3) adding a working-owner provision letting sole proprietors join AHPs.
- Eleven states and D.C. sued under the Administrative Procedure Act, challenging the bona fide association and working-owner provisions as contrary to ERISA (and implicating the ACA) and arbitrary and capricious.
- The States alleged injuries including lost premium-tax revenue and increased regulatory costs from oversight of AHPs; the court found those economic injuries sufficient for standing as to self-funded AHPs and regulatory burdens.
- Applying Chevron deference, the district court reviewed whether the Final Rule reasonably interprets ERISA and concluded the challenged provisions exceed DOL's statutory authority and must be vacated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue | States: lost premium tax revenue and increased regulatory costs from expanded AHPs confer Article III injury | DOL: Rule regulates AHPs not states, so no cognizable injury | Court: States have standing based on concrete lost tax revenue (some states) and imminent regulatory costs; speculative sovereign/preemption harms rejected |
| Deference (Chevron) | States: agency exceeded statutory bounds; Chevron still applies but Final Rule unreasonable | DOL: ERISA ambiguous; DOL's interpretation entitled to Chevron deference | Court: Chevron applies but DOL's interpretation is not a reasonable construction of ERISA |
| Bona fide association test (purpose/commonality/control) | States: new tests (esp. geography and weak "substantial business purpose") fail to limit associations to those acting "in the interest of" employers and unlawfully broaden ERISA | DOL: relaxed criteria are reasonable to expand AHP access and are balanced by control and nondiscrimination requirements | Court: Purpose test is too minimal, geography does not ensure common employer interest, control cannot cure those defects; provision unlawful and vacated |
| Working-owner provision | States: allowing sole proprietors without employees to count as both employer and employee is contrary to ERISA and ACA structure | DOL: ambiguity permits treating working owners as dual-status when part of an association; aggregation satisfies ACA "2+ employees" rule | Court: Unreasonable and absurd; ERISA contemplates an employment relationship (employer/employee are distinct), Yates and precedent exclude sole-owner-only plans; provision vacated |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837 (agency interpretation framework and deference)
- United States v. Mead Corp., 533 U.S. 218 (limits on deference to agency interpretations)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (standing burden at summary judgment)
- Clapper v. Amnesty Int'l U.S.A., 568 U.S. 398 (speculative injury and standing)
- Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 541 U.S. 1 (working-owner dual status limited to plans including nonowner employees)
- Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318 (common-law agency/employee inquiry under ERISA)
- Nachman Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359 (ERISA's purpose and background)
- MDPhysicians & Assocs., Inc. v. State Bd. of Ins., 957 F.2d 178 (5th Cir.) (rejecting geographic-only nexus for ERISA coverage)
- Gruber v. Hubbard Bert Karle Weber, Inc., 159 F.3d 780 (3d Cir.) (both commonality and control required)
- Wis. Educ. Ass'n Ins. Trust v. Iowa State Bd. of Pub. Instruction, 804 F.2d 1059 (8th Cir.) (ERISA requires employment-based nexus)