34 F.4th 841
9th Cir.2022Background
- Congress enacted the American Rescue Plan Act (ARPA) in March 2021, providing nearly $200 billion to states; ARPA conditions receipt on certifications and contains an "Offset Provision" barring use of ARPA funds to directly or indirectly offset reductions in a State's net tax revenue.
- The Treasury issued an Interim Final Rule (IFR) interpreting the Offset Provision, adopting a fungibility-based four-step framework and a recoupment process for alleged violations.
- Arizona accepted ARPA funds (about $4.7 billion) and then enacted a $1.9 billion tax cut; it sued, alleging the Offset Provision is unconstitutionally ambiguous and coercive under the Spending Clause and the Tenth Amendment.
- The district court dismissed for lack of Article III standing, rejecting Arizona’s theories (compliance-cost injury, realistic-threat pre-enforcement injury, and sovereign-coercion injury).
- The Ninth Circuit reversed and remanded, holding Arizona has standing on two grounds: (1) a realistic danger of enforcement (applying the Susan B. Anthony List/Driehaus pre-enforcement test) and (2) cognizable sovereign injury from being offered ambiguous/coercive funding conditions; the court did not reach the merits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether compliance costs from Treasury’s IFR confer standing | IFR reporting imposes present regulatory burdens that injure Arizona | IFR issued after complaint; standing measured at filing, so no injury then | No — standing rejected for this theory (IFR post-dates complaint) |
| Whether Arizona may bring a pre-enforcement challenge under Driehaus (realistic danger of enforcement) | Arizona accepted funds, enacted a large tax cut, and faces a credible threat Treasury will recoup funds — meets Driehaus factors | Arizona hasn’t alleged it used ARPA funds to offset the tax cut; enforcement is speculative | Yes — Arizona has standing: passed tax cut is a concrete plan and Treasury’s IFR/communications make enforcement credible |
| Whether Arizona must admit intent to violate law to have pre-enforcement standing | Plaintiffs need not confess to unlawful conduct; passing the tax cut suffices to show conduct proscribed "on its face" | Requiring confession would improperly force plaintiffs to admit illegality | Yes — court follows MedImmune/Driehaus: no confession required; tax cut plausibly reduces net revenue |
| Whether an offer of federal funds with ambiguous/coercive conditions inflicts sovereign injury | Ambiguous or coercive ARPA condition infringes Arizona’s sovereign tax-setting power and voluntariness of consent, so states have standing to challenge the offer | States face no present loss of funds and accepted voluntarily; coercion/ambiguity are merits issues, not jurisdictional | Yes — Arizona has standing under "special solicitude"/sovereign-injury theory to challenge ambiguous/coercive spending conditions |
Key Cases Cited
- Susan B. Anthony List v. Driehaus, 573 U.S. 149 (2014) (pre-enforcement standing test for threatened enforcement)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (injury-in-fact and timing of standing)
- Pennhurst State School & Hospital v. Halderman, 451 U.S. 1 (1981) (Spending Clause conditions are contractual; acceptance must be voluntary and knowing)
- South Dakota v. Dole, 483 U.S. 203 (1987) (limits on conditional spending: unambiguousness, relation to federal interest, other constitutional constraints, coercion)
- Spokeo, Inc. v. Robins, 578 U.S. 330 (2016) (concrete injury requirement)
- Warth v. Seldin, 422 U.S. 490 (1975) (pleading allegations accepted for standing analysis)
- MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (no requirement to confess intent to break law to obtain pre-enforcement review)
- Cal. Trucking Ass'n v. Bonta, 996 F.3d 644 (9th Cir. 2021) (pre-enforcement standing where state signaled intent to enforce and sent notices)
- Thomas v. Anchorage Equal Rights Comm'n, 220 F.3d 1134 (9th Cir. 2000) (three-factor framework for credible-threat analysis)
- City & County of San Francisco v. Trump, 897 F.3d 1225 (9th Cir. 2018) (loss-of-funds promise can confer standing)