Case 7:21-cv-00465-LSC
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ALABAMA WESTERN DIVISION
Filed 11/15/21
MEMORANDUM OF OPINION
I. Introduction
On March 31, 2021, Plaintiffs West Virginia, Alabama, Arkansas, Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, and Utah (hereinafter, “the Plaintiff States“) brought this action against the United States Department of the Treasury
The ARPA is a $1.9 trillion economic stimulus bill that was passed by Congress and signed into law by President Biden on March 11, 2021. It was enacted to hasten the United States’ recovery from the economic impact of the COVID-19 pandemic and accompanying recession. The ARPA distributes roughly $195.3 billion directly to the States for specified purposes.
The Court has previously entered one opinion and order in this case, denying the Plaintiff States’ motion for a preliminary injunction of the Tax Mandate during the pendency of this litigation. This opinion considers three motions that are currently pending. The Wisconsin Legislature has moved to intervene as a plaintiff in this lawsuit. (Doc. 58.) Additionally, the existing parties have filed warring motions, the resolution of which will conclude this litigation: the Plaintiff States’ motion for a final judgment that would declare the Tax Mandate unconstitutional and permanently enjoin its enforcement (doc. 75) and the Defendants’ motion to dismiss the Plaintiff States’ Complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted (doc. 76).
After providing background information on the ARPA, the Tax Mandate, and events that occurred after its enactment, the Court will consider whether it continues to have subject matter jurisdiction over this action, concluding that it does. The Court will then explain why the Wisconsin Legislature is not entitled to intervene as a plaintiff in this action. Finally, the Court will discuss why the Plaintiff States’ motion for a final judgment and permanent injunction is due to be granted and the Defendants’ motion to dismiss is due to be denied. Accordingly, the Court will permanently enjoin the Secretary from seeking enforcement of the Tax Mandate against the Plaintiff States.1
The COVID-19 pandemic has caused ongoing economic harm to individuals, businesses, and state and local governments. To ease the financial strain, in March 2020, Congress provided $150 billion in direct assistance for state, local, and Tribal governments under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act“). See
The federal funds come with certain strings attached. To qualify for the funding, a State must “provide the Secretary with a certification, signed by an authorized officer of such State ... that such State ... requires the payment ... to carry out the activities specified in subsection (c) . . . and will use any payment under this section . . . in compliance with subsection (c).”
As the above language suggests, the conditions are set forth in subsection (c). In that section, Congress specified that States must use ARPA funds to respond to the negative economic impacts of the COVID-19 pandemic in one of four specific ways: (1) providing assistance to “households, small businesses, and nonprofits” and “impacted industries such as tourism, travel, and hospitality“; (2) responding “to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers“; (3) making up for pandemic-related reductions in state government revenue; and (4) paying for “necessary investments in water, sewer, or broadband infrastructure.”
The ARPA also contains two restrictions on the States’ use of the federal funds. One limitation (not challenged here) provides that a State may not deposit ARPA funds “into any pension fund.”
(2) FURTHER RESTRICTION ON USE OF FUNDS. —
(A) IN GENERAL. — A State or territory shall not use the funds provided under this section or transferred pursuant to section 603(c)(4) to either directly
or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.
On March 16, 2021, twenty-one State attorneys general wrote a letter to the Secretary, seeking guidance as to the scope of the Tax Mandate. (Doc. 21-1 at 4.) The letter listed several tax cuts proposed by legislatures in various States and asked if those cuts would expose the States to ARPA recoupment. The letter included the following concern:
The import of [the ARPA‘s] prohibition against “offsetting” reductions in state tax revenue is unclear, but potentially breathtaking. This provision might have been intended merely to prohibit States from expressly taking COVID-19 relief funds and rolling them directly into a tax cut of a similar amount. But its prohibition on “indirectly” offsetting reductions in tax revenue, combined with the list of prohibited kinds of tax reductions (rate cuts, rebates, deductions, credits, or “otherwise“), could also be read to prohibit tax cuts or relief of any stripe, even if wholly unrelated to and independent of the availability of relief funds. After all, money is fungible, and States must balance their budgets. So, in a sense, any tax relief enacted by a state legislature after the State has received relief funds could be viewed as “using” those funds as an “offset” that allows the State to provide that tax relief.
(Id. at 5.)
The Secretary responded on March 23, 2021, writing as follows:
Nothing in the Act prevents States from enacting a broad variety of tax cuts. That is, the Act does not “deny States the ability to cut taxes in any manner whatsoever.” It simply provides that funding received under the Act may not be used to offset a reduction in net tax revenue. If states lower certain taxes but do not use funds under the Act to offset those cuts—for example, by replacing the lost revenue through other means—the [Tax Mandate] is not implicated.
(Id. at 12.) The Secretary‘s letter did not respond to the States’ questions regarding the specific tax modification proposals pending in the States.
On March 31, 2021, the Plaintiff States, believing the Tax Mandate to be unconstitutional, sued for declaratory and injunctive relief in this Court. The Plaintiff States alleged in their Complaint that they are or were actively considering various forms of tax relief for individuals and small businesses, whether directly related to state pandemic-relief efforts or through unrelated policy measures. (Doc. 1 ¶¶ 76-83.) They claim that the Tax Mandate has cast significant uncertainty over these efforts
On April 13, 2021, the Plaintiff States moved in this Court, pursuant to
On May 13, 2021, while the motion for a preliminary injunction was still pending, the Wisconsin Legislature moved to intervene as a Plaintiff in this lawsuit pursuant to
On May 17, 2021, the Secretary published a 66-page Interim Final Rule (hereinafter the “Final Rule“) in the Federal Register, which expounded on the ARPA, including the Tax Mandate. See 86 Fed. Reg. 26786-824. Relevant here, the Final Rule states that “because money is fungible,” even ARPA funds “not explicitly or directly used to cover the costs of changes that reduce net tax revenue . . . may be used in a manner inconsistent with the statute by indirectly being used to substitute for the State‘s or territory‘s funds that would otherwise have been needed to cover the costs of the reduction.” Id. at 26807 (emphasis added).
The Final Rule creates a framework for identifying illegal offsets under the Tax Mandate. First, every fiscal year during the covered period, States use their ordinary budget-scoring process to “identify and value” anticipated legislative and administrative actions that might reduce net tax revenue. Id. If there are such reductions, the State must “pay for” them with sources other than ARPA funds. Id. However, if the State‘s covered changes are anticipated to decrease revenue by one percent or less of the State‘s 2019 inflation-adjusted revenue, the decreases are deemed “de minimis” and will not be subject to recoupment. Id. at 26807-08. A State also falls within a safe harbor from the Tax Mandate if its actual tax revenue for a fiscal year exceeds its inflation-adjusted 2019 tax revenue. Id. at 26807, 26809. If neither the de minimis exception nor the safe harbor applies, and the State‘s actual tax revenue in the reporting year is less than the State‘s inflation-adjusted 2019 tax revenue, the State will identify any sources of funds that have been used to permissibly offset the total value of covered tax changes. Id. at 26807. These include any tax changes that increase tax revenue and any spending cuts in “areas” where the State is not spending ARPA funds. Id. at 26808. The State then subtracts those permissible offsets from the
To determine which spending cuts are “covered,” the Treasury‘s supervision must extend beyond how States are spending ARPA funds to also cover how States are spending State funds. Spending cuts in “areas” where States spent ARPA funds are not “covered spending cuts” and thus cannot offset a decrease in revenue. Id. at 26810. Even a spending cut that a State thinks would qualify as covered in one year may become an uncovered spending cut years later. The Treasury promises to “monitor changes in spending throughout the covered period,” and if a spending cut in one year is, years later, “replaced with [ARPA] Funds and used to indirectly offset a reduction in net tax revenue resulting from a covered change, Treasury may consider such change to be an evasion of the restrictions of the offset provision and seek recoupment of such amounts.” Id. Ultimately, “all relevant facts and circumstances” are considered when the Treasury determines whether a State has violated the Tax Mandate. Id.
On July 14, 2021, this Court denied the Plaintiff States’ motion for a preliminary injunction. (Doc. 71; West Virginia v. U.S. Dep‘t of Treasury, 2021 WL 2952863 (N.D. Ala. July 14, 2021)). With regard to the jurisdictional question, this Court determined that the Plaintiff States alleged facts sufficient to establish standing and that their claims are ripe because they properly alleged several different injuries in fact: they were not offered a clear understanding of the deal that Congress is offering because of the Tax Mandate‘s ambiguity; their sovereignty was intruded upon by having to choose between forgoing a benefit (federal funds) or accepting that benefit on unconstitutional terms; and there is a credible threat of enforcement in the form of a recoupment action. (Doc. 71 at 14-20.) This Court refrained from deciding whether the Plaintiff States were likely to succeed on the merits of their constitutional claims, instead concluding that preliminary injunctive relief was not warranted because the Plaintiff States could not establish that a preliminary injunction would remedy the irreparable injury they had already suffered or were likely to suffer. This was so for several reasons. For one, recoupment of ARPA funds is not an irreparable injury because this Court could return the funds to the Plaintiff States if the Secretary recouped them during the pendency of this lawsuit and this Court ultimately invalidated the Tax Mandate. Additionally, preliminarily enjoining the Secretary from recouping ARPA funds while this action is pending would not have remedied the harm that the Plaintiff States claimed to suffer because they still had to take into consideration, when deciding whether to accept ARPA funds, that the funds would be subject to possible recoupment if this Court were to ultimately issue a merits decision declining to invalidate the Tax Mandate. This Court noted that the only difference in whether this Court granted or denied the motion for a preliminary injunction was that, if the Court granted the motion, the Secretary could not recoup funds from that point until the point that this Court decided the ultimate issues in this case, and there was virtually no likelihood that the Secretary would recoup ARPA funds from the Plaintiff
Immediately after the Court denied the motion for a preliminary injunction, the parties filed, and the Court granted, a joint motion for an expedited briefing schedule relating to motions for final resolution of this case, acknowledging that this dispute presents purely legal issues. On July 29, 2021, the Plaintiff States moved for a final judgment, permanent injunction, and declaratory judgment. (Doc. 75.) In support of their motion, the Plaintiff States provided a list of some of the revenue-related laws that each of the thirteen Plaintiff States has passed since the enactment of the ARPA in March 2021. (Doc. 75-1.) The Plaintiff States also provided the declaration of an Alabama State Senator, Greg Albritton. (Doc. 75-2.) The Defendants responded in opposition to the Plaintiff States’ motion for a permanent injunction and moved to dismiss the Plaintiff States’ Complaint pursuant to
According to a joint stipulation of facts submitted by the parties, as of July 23, 2021, the following Plaintiff States have submitted to the Secretary signed certifications under
With these factual developments in mind, the Court turns to the matters before the Court.
III. Discussion
A. Jurisdiction
Although the Court ruled that it has jurisdiction over this action in its earlier opinion considering the Plaintiff States’ request for a preliminary injunction, see doc. 71 at 18-20, because the Defendants have moved to dismiss the Complaint pursuant to
Article III of the U.S. Constitution restricts federal courts to the resolution of “Cases” and “Controversies.”
To show standing, a plaintiff must generally demonstrate that he suffered or shall immediately suffer an injury in fact, that the injury was caused by the defendant‘s conduct, and that the injury is redressable by a favorable court decision. See Fla. State Conf. of N.A.A.C.P. v. Browning, 522 F.3d 1153, 1159 (11th Cir. 2008). An injury sufficient to satisfy Article III must be “concrete and particularized” and “actual and imminent, not ‘conjectural or hypothetical.‘” Lujan, 504 U.S. at 560 (quoting Whitmore v. Arkansas, 495 U.S. 149, 155 (1990)).
The dispute between the parties as to standing centers on the question of injury in fact. The Defendants assert that the Plaintiff States have not proved that there is an imminent threat of enforcement of the Tax Mandate or that they have suffered any other cognizable injury.2 In contrast, the Plaintiff States contend that they have suffered harm to their sovereign power to set tax policy since the date on which the Tax Mandate became effective, whether or not they certify compliance with the ARPA‘s conditions or the Secretary ever initiates recoupment proceedings, because the Tax Mandate does not define how States might use ARPA funds to indirectly offset any net tax revenue reductions caused by a change in state law.
As this Court noted at the preliminary injunction stage, the Supreme Court has likened Congress‘s conditioning of federal money to a contract: “in return for federal funds, the States agree to comply with federally imposed conditions.” Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17 (1981). Just as a contract requires a knowing acceptance of the offer‘s terms, conditioned federal money must “enable the States to exercise their choice knowingly, cognizant of the consequences of” their acceptance. Id. The Court in Pennhurst continued, “There can, of course, be no knowing acceptance if a State is unaware of the conditions or is unable to ascertain what is expected of it. Accordingly, if Congress intends to impose a condition on the grant of federal moneys, it must do so unambiguously.” Id. (internal citations and footnote omitted). Taking note of this Spending Clause jurisprudence, this Court concluded that, because Congress is required to clearly state the terms upon which it extends an offer of conditional funding to the States, the Plaintiff States had established that they were entitled to clarity regarding the strings attached when presented with an
The Defendants present various arguments seeking a different result now, but none has merit. First, they contend that the original harm that the Plaintiff States claimed in filing suit—the difficulty that the Tax Mandate‘s ambiguity created for them in deciding whether to accept ARPA funding—ended for ten of the thirteen Plaintiff States when they made the decision to certify compliance with the ARPA, binding them to its terms. According to the Defendants, accepting the deal moots the injury as to those ten States.
As an initial matter, standing is measured at the time the lawsuit is filed based on the facts as they existed at that time. Lujan, 504 U.S. at 569 n.4. Thus, the Plaintiff States do not relinquish their standing to sue due to subsequent events. However, if events that occur subsequent to the filing of a lawsuit deprive the court of the ability to give a plaintiff meaningful relief, then the case is moot and must be dismissed. See, e.g., Hall v. Beals, 396 U.S. 45, 48 (1969) (per curiam). Granted, for ten of the Plaintiff States, one type of harm that they incurred in contemplating whether to accept an ambiguous deal has now been extinguished in that they have made that decision. However, these ten States continue to suffer the closely related harm to their sovereign authority to set their own tax policies. Indeed, the Supreme Court has long recognized the States’ sovereign authority to tax as “indispensable” to the States’ very “existence.” Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 199 (1824); see also McCulloch v. Maryland, 17 U.S. 316, 428 (1819) (“[T]he power of taxing the people and their property[] is essential to the very existence of government.“). The Plaintiff States have sufficiently demonstrated that their legislatures do not have sufficient information in considering tax changes to determine the impact such changes will have on their ability to retain the federal grant money. As stated by Alabama State Senator Albritton in his declaration submitted by the Plaintiff States, it is crucial that State legislatures understand the financial effects of revenue laws that they pass to effectively craft state budgets, and the uncertainty surrounding the Tax Mandate has caused at least one bill in the Alabama legislature to fail despite widespread approval by legislators and constituents, due to fear that the Secretary could interpret the reduction as triggering a right to recoupment. (Doc. 75-2.) Thus, the Plaintiff States have shown that they are subject to continuous and ongoing harm even if no recoupment action ever happens because of the harm that the Tax Mandate inflicts on the legislative process. And they are experiencing these injuries now, making them “actual or imminent, not conjectural or hypothetical,” Lujan, 504 U.S. at 560. Accordingly, the fact that ten Plaintiff States have now accepted the deal certainly does not moot this Court‘s ability to give them meaningful relief by way of invalidating the Tax Mandate.
The second challenge that the Defendants present to the Plaintiff States’
States have already suffered and continue to suffer an injury in fact due to being presented with an ambiguous deal. Moreover, the Plaintiff States have bolstered their allegations with a list of revenue-related laws passed by the thirteen States since the ARPA‘s passing as well as a declaration by a State senator. (See docs. 75-1, 75-2.) It is unclear, and the Defendants have not suggested, what additional evidence the Plaintiff States could or would be able to present on this front.
Finally, the Defendants resist the conclusion that the Plaintiff States have met the injury in fact element of the standing inquiry by emphasizing their arguments about the substantive validity of the Tax Mandate. They argue that the plain text of the Tax Mandate does not actually prohibit States from reducing their own taxes and that the Tax Mandate is sufficiently clear under the Supreme Court‘s Spending Clause jurisprudence because all that is required is that a recipient of federal funds know that a condition exists, not what it means. However, while standing “often turns on the nature and source of the claim asserted,” it “in no way depends on the merits of the plaintiff‘s contention that particular conduct is illegal.” Warth, 422 U.S. at 500. Thus, whether the Plaintiff States have standing to bring this lawsuit is not dependent on whether their constitutional claims ultimately succeed.3
In sum, the Defendants have not shown that the Court‘s earlier conclusion that the Plaintiff States have suffered an injury in fact for standing purposes was erroneous, and they have similarly not demonstrated that the matters at hand are moot. The Court once again concludes that it has jurisdiction over this action.
B. The Wisconsin Legislature‘s Motion to Intervene
The Wisconsin Legislature—not the State of Wisconsin—seeks to intervene as a Plaintiff in this action by right, pursuant to
1. Intervention as of Right and Standing
Under
Because the Wisconsin Legislature seeks relief not specifically sought by the Plaintiff States—a Court order invalidating the Tax Mandate that applies to the State of Wisconsin—the Wisconsin Legislature must establish its own standing aside from the standing of the Plaintiff States. The Court will thus first address whether the Wisconsin Legislature has standing to challenge the Tax Mandate before moving to the elements of intervention as of right. See Steel Co. v. Citizens for a Better Env‘t, 523 U.S. 83, 94 (1998) (when a court lacks jurisdiction, it “cannot proceed at all in any cause”).
The Wisconsin Legislature asserts that it seeks “to protect the interests of the State of Wisconsin and its Legislature.” (Doc. 58 at 5.) It contends that a Wisconsin statute authorizes it to represent the interests of the State of Wisconsin, which it alleges is being harmed by the Tax Mandate for the same reasons that the Plaintiff States have alleged. However, the Wisconsin Legislature cannot represent the interests of the State of Wisconsin in this context. “[I]n the ordinary course, a litigant must assert his or her own legal rights and interests, and cannot rest a claim to relief on the legal rights or interests of third parties.” Hollingsworth v. Perry, 570 U.S. 693, 708 (2013) (quoting Powers v. Ohio, 499 U.S. 400, 410 (1991)). The exception to this rule is that a party who lacks standing in their own right may represent the State only if State law authorizes that party “to speak for the State in federal court.” Id. at 710; see also Va. House of Delegates v. Bethune-Hill, 139 S. Ct. 1945, 1952 (2019). Wisconsin law provides:
The [Wisconsin] department of justice shall . . . appear for and represent the state . . . and prosecute or defend in any court or before any officer, any cause or matter, civil or criminal in which the state or the people of this state may be interested. The joint committee on legislative organization may intervene as permitted under § 803.09(2m) at any time.
When a party to an action challenges in state or federal court the constitutionality of a statute, facially or as applied, challenges a statute as violating or preempted by federal law, or otherwise challenges the construction or validity of a statute, as part of a claim or affirmative defense, the assembly, the senate, and the legislature may intervene . . .
That is not the case here. Here, the Wisconsin Legislature seeks to bring an affirmative challenge to a federal statute. There is no question about the validity of any Wisconsin statute at issue in this case. Thus, the default rule under
The Wisconsin Legislature‘s argument to the contrary is unavailing. It argues that the Legislature can challenge the Tax Mandate because “a Spending Clause penalty that is so coercive as to make the State‘s passage of a contrary law prohibitive is indistinguishable from a direct violation of state law . . . .” (Doc. 69 at 4.) Thus, according to the Wisconsin Legislature, it is representing the State of Wisconsin‘s “interest in the validity of state laws” by challenging the Tax Mandate. See Democratic Nat‘l Comm., 949 N.W.2d at 424. The Court declines to interpret
Because the Wisconsin Legislature cannot represent the interests of the State of Wisconsin, it must show that it has or will suffer an injury in fact to itself as an institution. Cf. Bethune-Hill, 139 S. Ct. at 1953 (requiring the Virginia House of Representatives to establishing standing in its own right once it was determined that it could not proceed as the State‘s agent). The Court finds that the Legislature has not established an injury in fact for several reasons. The Legislature asserts that the Tax Mandate “harms the sovereign dignity of the State of Wisconsin and its Legislature” by being unconstitutionally vague and coercive. (Doc. 58 at 11–12 (emphasis added).) But the sovereign is the State, not its legislature. And the ARPA‘s funds are offered to the States, not to State legislatures. See
The distinction between the State and its legislature may seem minor considering that, in practice, the legislatures certainly play a major role in setting state fiscal policy. But, given the type of constitutional rights asserted in this case, the difference between the two cannot be overstated. See Warth, 422 U.S. at 500 (standing turns on the “nature and source of the claim asserted”). As further explained in the merits section of this opinion, the limits placed on Congress‘s Spending Clause power rest on concerns of federalism and the protection of our nation‘s dual system of governing. See Nat‘l Fed‘n of Indep. Bus. (“NFIB”) v. Sebelius, 567 U.S. 519, 577 (2012) (“Respecting th[e] limitation [on Congress‘s ability to secure States’ compliance with federal objectives by requiring States’ knowing and voluntary acceptance of the terms of a spending condition] is critical to ensuring that Spending Clause legislation does not undermine the status of the States as independent sovereigns in our federal system.”). It is the States’ unique sovereignty that enables them to have certain rights as “offerees” of the “contracts” Congress is authorized to extend to them pursuant to the Spending Clause. See, e.g., Pennhurst, 451 U.S. at 17. Thus, while a State, as the offeree of a Spending Clause contract that is impermissibly ambiguous or coercive, can certainly claim an injury to its sovereign interest in setting its own tax policies, it does not make sense to say that a State legislature, which is not the offeree, can do the same. Given the requirement that a plaintiff must have suffered a “particularized” injury, which means that “the injury must affect the plaintiff in a personal and individual way,” see Lujan, 560–61 n.1, it thus seems a stretch to say that a legislature can claim the same type of harm—to its right to be offered an unambiguous condition of federal money—that a State can.
The Supreme Court cases addressing the standing of legislative bodies, while not directly on point, further support this Court‘s conclusion that the Wisconsin Legislature, as an institution, has not suffered an injury in fact by virtue of the Tax Mandate‘s enactment. The Supreme Court addressed the standing of a state legislature in Arizona State Legislature v. Arizona Independent Redistricting Commission, 576 U.S. 787 (2015). Arizona voters adopted Proposition 106, which amended the Arizona Constitution by removing the Arizona Legislature‘s redistricting authority and vesting it in an independent commission. Id. at 791. The Arizona Legislature sued, alleging that Proposition 106 and the commission‘s redistricting activities deprived the Legislature of its constitutional authority over redistricting, in violation of the Elections Clause of the U.S. Constitution. Id. at 792 (citing
In Raines, the Supreme Court considered whether six members of Congress had standing to challenge the constitutionality of the Line Item Veto Act after they were outnumbered in their votes against it
On the other hand, in Coleman, the Supreme Court recognized the standing of twenty Kansas state legislators who voted against a resolution that ultimately passed only because the Lieutenant Governor cast a tie-breaking vote—a procedure that the legislators argued was impermissible under Article V of the U.S. Constitution. 307 U.S. at 436. The Supreme Court stated in Raines that Coleman stands “at most . . . for the proposition that legislators whose votes would have been sufficient to defeat (or enact) a specific legislative Act have standing to sue if that legislative action goes into effect (or does not go into effect), on the ground that their votes have been completely nullified.” 521 U.S. at 823.
The Supreme Court in Arizona State Legislature concluded that its facts were more like those in Coleman than in Raines. 576 U.S. at 803. Proposition 106 “would ‘completely nullif[y]’ any vote by the Arizona Legislature now or ‘in the future,’ purporting to adopt a redistricting plan.” Id. (quoting Raines, 521 U.S. at 823–24). Accordingly, the Court concluded, there was a sufficiently concrete injury to the Arizona Legislature‘s interest in redistricting that the Legislature had Article III standing. Id.
From Arizona State Legislature, this Court derives the principle that a legislative body may have standing as an institution so long as its claimed harm serves to “completely nullify” its interest in taking some action that it is legally authorized to take, “now or in the future.” See id. It is not enough that the legislature‘s power is diluted; it must be completely lost. Id. at 802–04. Here, the application of the Tax Mandate does not nullify any actions that the Wisconsin Legislature would like to take. It may affect them, but it does not render them meaningless. Thus, the Wisconsin Legislature has at most alleged an “abstract dilution of institutional legislative power,” rather than a cognizable institutional injury. See Raines, 521 U.S. at 826. It therefore lacks standing.
If this Court were to hold differently, it would not find, in any event, that the Wisconsin Legislature may intervene as a matter of right under
Nor can the Wisconsin Legislature establish that its interests, if any, would be impaired by the disposition of this action. The Wisconsin Legislature may separately litigate, should it be able to establish its standing using some other theory of harm, and the Eleventh Circuit has noted that the ability to separately litigate defeats the impairment element. See Worlds v. Dep‘t of Health & Rehab. Servs., State of Fla., 929 F.2d 591, 594 (11th Cir. 1991). Finally, this Court may “presume that a proposed intervenor‘s interest is adequately represented when an existing party pursues the same ultimate objective as the party seeking intervention.” Fed. Sav. & Loan Ins. Corp. v. Falls Chase Special Taxing Dist., 983 F.2d 211, 215 (11th Cir. 1993). Accordingly, assuming it had standing, this Court would not have allowed the Wisconsin Legislature to intervene as of right pursuant to
2. Permissive Intervention
Although the absence of standing dooms the Wisconsin Legislature‘s request to intervene as of right, that does not necessarily command the same result for its request to intervene permissibly under
This Court need not, however, take a position on the standing requirements for permissive intervention because the Court exercises its broad discretion to deny the Wisconsin Legislature‘s request.
Here, several factors counsel against permissive intervention. The Wisconsin Legislature lacks Article III standing in its own right. It also seeks relief different from the Plaintiff States in the form of an injunction of the Tax Mandate that applies to the State of Wisconsin, of which the Legislature is not a legal representative in this action. Accordingly, in the exercise of its discretion, the Court declines to permit the Wisconsin Legislature to permissively intervene under
C. Merits
Having concluded that it has jurisdiction and determined the proper parties to this case, the Court turns to the merits of the Plaintiff States’ constitutional challenge. The Plaintiff States claim both that Congress exceeded its authority under the Spending Clause as well as violated the Tenth Amendment‘s grant of power to the States and the anti-commandeering doctrine when it enacted the Tax Mandate. Because the Court concludes that the Plaintiff States are correct on the first front, it need not address the second. See Ashwander v. Tenn. Valley Auth., 297 U.S. 288, 347 (1936) (“It is not the habit of the court to decide questions of a constitutional nature unless absolutely necessary to a decision of the case.”) (quoting Burton v. United States, 196 U.S. 283, 295 (1905)).
The U.S. Constitution empowers Congress to “lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”
However, Congress‘s spending power is not unlimited. Dole, 483 U.S. at 207. Although Congress can condition a State‘s receipt of federal money, any such condition must comply with several requirements. See id. at 207–08. First, the condition must “be in pursuit of ‘the general welfare.’” Id. at 207 (quoting Helvering v. Davis, 301 U.S. 619, 640–41 (1937)). Second, Congress must condition the States’ receipt of federal funds “unambiguously . . ., enabl[ing] the States to exercise their choice [whether to accept federal funds] knowingly, cognizant of the consequences of their participation.” Id. (quoting Pennhurst, 451 U.S. at 17). Third, the condition must be reasonably related to a “federal interest in particular national projects or programs.” Id. (quoting Massachusetts v. United States, 435 U.S. 444, 461 (1978)). Fourth, no condition attached to receipt of federal funds may violate another provision of the U.S. Constitution. Id. at 208. Finally, the Supreme Court has “recognized that in some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which ‘pressure turns into compulsion.’” Id. at 211 (quoting Steward Mach. Co. v. Davis, 301 U.S. 548, 590 (1937)). If a federal condition induces a State to act “not of her unfettered will, but under the strain of a persuasion equivalent to undue influence,” then the condition exceeds Congress‘s Spending Clause authority. Steward Mach., 301 U.S. at 590.
Federalism is the root of these limitations that are placed on Congress‘s ability to “pay for” States’ compliance with federal policies or directives. See NFIB, 567 U.S. at 577. As the Supreme Court has recognized in its Spending Clause jurisprudence, the Federal Government possesses only enumerated powers, while the States and the people retain the remainder. Id. at 533. See also
The Plaintiff States claim that the Tax Mandate is inconsistent with nearly every Spending Clause restriction espoused in Dole, supra. First, they contend that the mandate is unconstitutionally coercive because the amount of ARPA funding offered to the States is so large a percentage of their annual budgets that they have no real choice but to accept the mandate‘s restriction on their sovereign taxing powers. Second, they claim that the mandate is unconstitutionally ambiguous because it contains no explanation as to how the Treasury will determine whether a State has—either directly or indirectly—offset its tax cuts with ARPA funds. Thus, the Plaintiff States state that they are unable make an informed choice of whether to accept or decline ARPA funds, and if they accept ARPA funds, whether to cut taxes without putting those ARPA funds at risk of being recouped by the Treasury. Third, they contend that the mandate is not reasonably related to the purpose that the ARPA serves—to assist in the rebound from the COVID-19 pandemic‘s economic devastation—because prohibiting state tax reductions does not advance the goal of providing economic relief to individuals and entities affected by the pandemic. Finally, they claim that the mandate violates an independent constitutional provision—the Tenth Amendment, which reserves power to the States. Because the Court concludes that the Tax Mandate is an unconstitutionally ambiguous condition on the States’ receipt of federal funds, see Dole, 483 U.S. at 207; Pennhurst, 451 U.S. at 17, it need not address the Plaintiff States’
Congress must “speak with a clear voice” “[i]f [it] intends to impose a condition on the grant of federal moneys”—that is, “it must do so unambiguously.” Pennhurst, 451 U.S. at 17. But how much clarity is required? On the one hand, the Supreme Court has held that the State recipient must be able to “voluntarily and knowingly accept[] the [condition‘s] terms.” Id. And there can be no “knowing acceptance if a State is unaware of the conditions or is unable to ascertain what is expected of it.” Id. Put another way, the State recipient must be able to “clearly understand . . . the obligations[.]”). Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 291, 296 (2006). The Eleventh Circuit has similarly stated that Congress must “define [the] conditions clearly enough for the states to make an informed choice.” Benning v. Georgia, 391 F.3d 1299, 1306 (11th Cir. 2004) (citing Pennhurst, 451 U.S. at 25).
On the other hand, the Supreme Court has warned that Congress need not “prospectively resolve every possible ambiguity concerning particular applications of a [federal grant] program‘s requirements.” Bennett v. Ky. Dep‘t of Educ., 470 U.S. 656, 666–69 (1985). According to the Eleventh Circuit, “once Congress clearly signals its intent to attach federal conditions to Spending Clause legislation, it need not specifically identify and proscribe in advance every conceivable state action that would be improper.” Benning, 391 F.3d at 1306 (quoting Sandoval v. Hagan, 197 F.3d 484, 495 (11th Cir. 1999), overruled on other grounds, Alexander v. Sandoval, 532 U.S. 275 (2001)). Congress must only “make the existence of the condition itself—in exchange for the receipt of federal funds—explicitly obvious.” Id. at 1307 (quotation omitted).
The Plaintiff States argue that the language of the Tax Mandate makes it impossible for States to “make an informed choice,” see id. at 1306, about the costs of receiving ARPA funds because it is impossible to know how to exercise taxing authority without putting ARPA funds at risk. The Court agrees. The Tax Mandate does not define what it means to “directly or indirectly” offset tax cuts with ARPA funds. See
change in state law or policy. After all, a decrease in one part of a State‘s revenue is necessarily offset somehow to achieve a balanced budget. Thus, there is no way for the Plaintiff States to “clearly understand the[ir] obligations” if they accept ARPA funds. See Arlington Central, 548 U.S. at 296.
The Defendants disagree, arguing that once Congress has made explicitly clear that a condition exists, nothing else is required of it. According to the Defendants, Congress need not explain how States might tailor their compliance with a condition because imposing such a burden on Congress would be too onerous. Further, the Defendants contend that the major Supreme Court and Eleventh Circuit
Pennhurst, the origin of the Supreme Court‘s Spending Clause unambiguity requirement, concerned the Developmentally Disabled Assistance and Bill of Rights Act,
The Supreme Court had to decide whether the bill of rights provision imposed on participating States an obligation to provide certain kinds of treatment at their own expense by virtue of receiving the federal funds. Id. at 10. The Supreme Court held that it did not, stating that the bill of rights provision “represent[s] general statements of federal policy, not newly created legal duties” and “in no way suggests that the grant of federal funds is ‘conditioned’ on a State‘s funding the rights described therein.” Id. at 23. Several factors led the Court to so conclude, including that the bill of rights provision lacked “conditional” language and that under the Act and the implementing regulations, funds were incapable of being withheld from States on the basis of failure to meet the standards in the bill of rights provision. Id. The Court also noted that the amount of money Congress granted to Pennsylvania was “woefully inadequate” to meet the “enormous financial burden of providing ‘appropriate’ treatment in the ‘least restrictive’ setting” as stated in the bill of rights provision. Id. at 24 (quoting
The Pennhurst Court further discussed Congress‘s failure to clearly express its intent to impose a condition in the bill of rights provision:
Our conclusion is also buttressed by the rule of statutory construction established above, that Congress must express clearly its intent to impose conditions on the grant of federal funds so that the States can knowingly decide whether or not to accept those funds. That canon applies with greatest force where, as here, a State‘s potential obligations under the Act are largely indeterminate. It is difficult to know what is meant by providing “appropriate treatment” in the “least restrictive” setting, and it is unlikely that a State would have accepted federal funds had it known it would be bound to provide such treatment. The crucial inquiry, however, is not whether a State would knowingly undertake that obligation, but whether Congress spoke so clearly that we can fairly say that the State could make an informed choice. In this case, Congress fell well short of providing clear notice to the States that they, by accepting
funds under the Act, would indeed be obligated to comply with § 6010.
The Defendants contend that Pennhurst is distinguishable from this case because, in Pennhurst, the Supreme Court had to decide whether a condition existed in the first place, but here, there is no question that the Tax Mandate exists as a condition to States accepting ARPA funds. Indeed, in Pennhurst, the requirement that Congress express unambiguously “its intent to impose conditions on the grant of federal funds” was to keep Congress from “surprising participating States with post-acceptance or retroactive conditions.” NFIB, 567 U.S. at 584 (quoting Pennhurst, 451 U.S. at 25). Yet merely because Pennhurst stands for the proposition that Congress must clearly state its intent to impose a condition does not mean that Congress need not also define the condition sufficiently so that States can know how to comply with it. To the contrary, Pennhurst requires Congress to speak “so clearly that . . . the State[s can] make an informed choice.” 451 U.S. at 25. Pennhurst does not undermine the Plaintiff States’ position that the Tax Mandate does not meet that standard.
The Defendants further contend that the Eleventh Circuit‘s decision in Benning v. Georgia forecloses the Plaintiff States’ claim that the Tax Mandate is ambiguous. Benning concerned whether Congress violated the Spending Clause in enacting section 3 of the Religious Land Use and Institutionalized Person‘s Act (“RLUIPA“),
The Eleventh Circuit rejected Georgia‘s argument, pointing out that the strict scrutiny standard, which has “long applied to the states in disputes regarding the free exercise of religion,” was “not new to Georgia or any state.” Id. at 1306 (citing Midrash Sephardi, Inc. v. Town of Surfside, 366 F.3d 1214, 1236-37 (11th Cir. 2004)). The court found that RLUIPA‘s flexibility in giving States “wide latitude in applying its provisions” does not make the statute “opaque.” Id. It stated, “once Congress clearly signals its intent to attach federal conditions to Spending Clause legislation, it need not specifically identify and proscribe in advance every conceivable state action that would be improper.” Id. (quoting Sandoval, 197 F.3d at 495).
Although Georgia relied upon Pennhurst in supporting its argument that section 3 of the RLUIPA is ambiguous, the Eleventh Circuit distinguished Pennhurst, stating, “The federal law in Pennhurst was unclear as to whether the states incurred
In Mayweathers [v. Newland, 314 F.3d 1062 (9th Cir. 2002)], the Ninth Circuit stated, “Congress is not required to list every factual instance in which a state will fail to comply with a condition. Such specificity would prove too onerous, and, perhaps, impossible. Congress must, however, make the existence of the condition itself—in exchange for the receipt of federal funds—explicitly obvious.” 314 F.3d at 1067. The Seventh Circuit explained, “Congress permissibly conditioned the receipt of federal money in such a way that each State is made aware of the condition and is simultaneously given the freedom to tailor compliance according to its particular penological interests and circumstances.” Charles [v. Verhagen], 348 F.3d [601,] 608 [(7th Cir. 2003)]. No federal appellate court has held otherwise, and we decline to be the first.
There are several reasons why Benning does not foreclose the Plaintiff States’ ambiguity argument. For one thing, the ARPA‘s Tax Mandate is nothing like a Congressional spending condition that prohibits States from discriminating based on an individual‘s religion, as was the case in Benning. Although the strict scrutiny standard may result in different applications among the courts, there is no question that the RLUIPA expressly conditions the receipt of federal money upon States’ refraining from creating substantial burdens on prisoners’ religious rights that are not justified by a compelling governmental interest and are not furthered by the least restrictive means possible. See
Additionally, the Court is cautious not to read Benning as applying too far outside the scope of spending conditions that prohibit unlawful discrimination. See Benning, 391 F.3d at 1306 (“The Supreme Court has explained that so long as a spending condition has a clear and actionable prohibition of discrimination, it does not matter that the manner of that discrimination can vary widely.“) (emphasis added). Indeed, all of the cases that Benning relies upon in support of the conclusion that Congress need not identify in advance very State action that may be improper address spending clause legislation related to federal nondiscrimination statutes. See Benning, 391 F.3d at 1306-07 (citing Sandoval, 197 F.3d at 495 (spending condition prohibited discrimination on the basis of national origin in violation of Title VI of the Civil Rights Act of 1964); Davis v. Monroe County Bd. of Edu., 526 U.S. 629, 651 (1999) (spending condition prohibited student-on-student sexual harassment in violation of Title IX of the Education Amendments of 1972); Mayweathers, 314 F.3d at 1067 (the same RUILPA spending condition prohibiting religious discrimination that was the subject of Benning); Charles, 348 F.3d at 607-08 (same)). The common denominator in these cases is that they addressed statutes, like the RLUIPA, that “follow[] in the
[T]he United States has a substantial interest in ensuring that state prisons that receive federal funds protect the federal civil rights of prisoners....
Congress has a strong interest in making certain that federal funds do not subsidize conduct that infringes individual liberties, such as the free practice of one‘s religion. The federal government also has a strong interest in monitoring the treatment of federal inmates housed in state prisons and in contributing to their rehabilitation. Congress may allocate federal funds freely, then, to protect the free exercise of religion and to promote rehabilitation....
Mayweathers, 314 F.3d at 1067; see also Charles, 348 F.3d at 608-09.
Benning, 391 F.3d at 1307.6 Simply put, the Federal Government‘s paramount interest in protecting individuals from discrimination that was present in Benning is simply not present in this case. See Pennhurst, 451 U.S. at 18 (reminding courts to “look to the provisions of the whole law, and to its object and policy,” in determining whether Congress intended to impose a condition). To the contrary, the Federal Government has no interest in proscribing state tax policy. Yet the Tax Mandate dictates more than what States do with federal funds; it dictates what States do with State funds as well. The Tax Mandate‘s restriction on direct or indirect state tax cuts pressures States into adopting a particular—and federally preferred—tax policy. The inherent ambiguity in the text of the mandate may disincentivize the Plaintiff States from considering any tax reductions for fear of forfeiting ARPA funds. This is a federal invasion of State sovereignty that was just simply not at issue in Benning.
Accordingly, the Court finds no precedential authority that would proscribe its ruling today that Congress exceeded its Spending Clause authority in crafting an unconstitutionally ambiguous spending condition in the Tax Mandate.
Having determined that the Tax Mandate falls short of the clarity required when Congress exercises its powers under the Spending Clause, the Court must now determine what effect, if any, the Final Rule has on the Tax Mandate‘s failure—as enacted—to meet that requirement. Although the issuance of the Final Rule raises the question whether an administrative regulation can provide the clarity needed for a statutorily ambiguous spending condition to pass muster under the Spending Clause jurisprudence, little discussion is ultimately needed on this point. This is because the Defendants appear to concede that, assuming that the language of the Tax Mandate is itself unconstitutionally ambiguous, the Final Rule cannot cure that ambiguity. (See Doc. 76 at 32 (“Both sides agree that agencies cannot impose funding conditions that Congress itself has not attached. . . . Defendants are not asking the Court to defer to the [Final] Rule because Plaintiffs have not challenged it.“)).
D. Remedies
Having found that the Tax Mandate exceeds Congress‘s power under the Constitution, the Court now turns to the remedies sought by the Plaintiff States. The Plaintiff States request both declaratory relief and a permanent injunction enjoining the Secretary from enforcing the Tax Mandate provision of the ARPA against the thirteen Plaintiff States.
1. Permanent Injunction
A plaintiff who has demonstrated success on the merits is entitled to a permanent injunction if: (1) it “suffered an irreparable injury“; (2) the “remedies available at law, such as monetary damages, are inadequate to compensate for that injury“; (3) the “balance of hardships between the plaintiff and the defendant” justify an equitable remedy; and (4) “the public interest would not be disserved by a permanent injunction.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
The Plaintiff States satisfy each factor. First, the Tax Mandate has and will continue to inflict irreparable injury on the Plaintiff States, who are all either faced with or bound by an unconstitutionally ambiguous “deal” that is intruding on each State‘s ability to exercise its “indispensable” sovereign power to tax. See Gibbons, 22 U.S. at 199. Second, the States cannot sue the federal government for damages. See F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994) (“Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit.“). Thus, since their harms are not redressable through damages, “the remedies available at law” are “inadequate.” eBay, 547 U.S. at 391. Third, the balance of hardships favors the States, which have a strong interest in not having their sovereign authority impinged by an unconstitutional law, while the Defendants have no legitimate interest in enforcing that law. Additionally, given the limited scope of the permanent injunction, the Defendants will be free to enforce every other provision of the ARPA. Fourth, an injunction will promote the public interest because “the public . . . has no interest in enforcing an unconstitutional law.” Scott v. Roberts, 612 F.3d 1279, 1297 (11th Cir. 2010).
A permanent injunction is proper in this case, as enjoining the enforcement of the Tax Mandate against the Plaintiff States alleviates the constitutional harm.
2. Declaratory Relief
The Declaratory Judgment Act provides a federal court with jurisdiction over “a case of actual controversy” the authority to
IV. Conclusion
For the aforementioned reasons, the Plaintiff States’ motion for a final judgment and permanent injunction is due to be granted, and the Defendants’ motion to dismiss the complaint is due to be denied. A separate order consistent with this opinion will be issued.
DONE and ORDERED on November 15, 2021.
L. Scott Coogler
United States District Judge
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