The Electrical Welfare Trust Fund v. United States of America et al

MOTION to Dismiss for Lack of Jurisdiction

D. Md.November 28, 2016

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND GREENBELT DIVISION THE ELECTRICAL WELFARE TRUST ) FUND, INC., ) ) Plaintiff, ) ) v. ) No. 8:16-cv-02186-DKC ) UNITED STATES, et al., ) ) Defendants. ) ____________________________________) DEFENDANTS’ MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION The government respectfully moves to dismiss Plaintiff’s Complaint for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). The basis for this motion is set forth in the accompanying memorandum of points and authorities. Dated: November 28, 2016 Respectfully submitted, BENJAMIN C. MIZER Principal Deputy Assistant Attorney General ROD J. ROSENSTEIN United States Attorney SHEILA M. LIEBER Deputy Director, Federal Programs Branch /s/ Matthew J.B. Lawrence MATTHEW J.B. Lawrence Trial Attorney United States Department of Justice Civil Division Federal Programs Branch 20 Massachusetts Ave., N.W. Rm. 6132 Washington, D.C. 20530 Case 8:16-cv-02186-DKC Document 18 Filed 11/28/16 Page 1 of 3 Telephone: (202) 616-8105 Telefacsimile: (202) 616-8460 Matthew.Lawrence@usdoj.gov Attorneys for Defendant Case 8:16-cv-02186-DKC Document 18 Filed 11/28/16 Page 2 of 3 Certificate of Service I hereby certify that on the 28th day of November, 2016, I caused the forgoing to be served on counsel for plaintiff by filing with the court’s electronic case filing system. /s/ Matthew J.B. Lawrence Matthew J.B. Lawrence Notice of Courtesy Copy I hereby certify that on the 29th day of November, 2016, I will send a courtesy copy of the foregoing to Chambers by overnight mail. /s/ Matthew J.B. Lawrence Matthew J.B. Lawrence Case 8:16-cv-02186-DKC Document 18 Filed 11/28/16 Page 3 of 3 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND GREENBELT DIVISION THE ELECTRICAL WELFARE TRUST ) FUND, INC., ) ) Plaintiff, ) ) v. ) No. 8:16-cv-02186-DKC ) UNITED STATES, et al., ) ) Defendants. ) ____________________________________) DEFENDANTS’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF THEIR MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 1 of 26 i TABLE OF CONTENTS PRELIMINARY STATEMENT ........................................................................................ 1 BACKGROUND ................................................................................................................ 5 STANDARD OF REVIEW ................................................................................................ 8 ARGUMENT ...................................................................................................................... 9 A. Section 1346 of 28 U.S.C. Does Not Give the Court Subject Matter Jurisdiction ... 9 1. The ACA Does Not Describe the Reinsurance Contribution as a Tax .............. 10 2. Even on the Functional Understanding the Supreme Court Rejected, the Reinsurance Contribution Is Not an Internal Revenue Tax ............................... 11 B. The APA Waiver of Sovereign Immunity Does Not Apply ................................... 14 1. Plaintiff Does Not Seek Relief “Other Than Money Damages” ........................ 15 2. The Court of Federal Claims Is an Adequate Alternative Remedy.................... 17 CONCLUSION ................................................................................................................. 19 Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 2 of 26 ii TABLE OF AUTHORITIES Cases Page(s) Adams v. Bain, 697 F.2d 1213 (4th Cir. 1982) ...................................................................................... 8 Alford v. Mabus, No. 7:14-CV-195-D, 2015 WL 3885730 (E.D.N.C. June 23, 2015), aff'd, 622 F. App'x 249 (4th Cir. 2015) ........................................................................................... 17 Arbaugh v. Y & H Corp., 546 U.S. 500 (2006) ..................................................................................................... 9 Atkinson-Bush v. Baltimore Washington Med. Ctr., Inc., No. L-10-2350, 2011 WL 2216669 (D. Md. May 25, 2011) ....................................... 8 Batsche v. Burwell, No. 15-CV-0053, 2016 WL 5402190 (D. Minn. Sept. 26, 2016) ....................... passim Bowen v. Massachusetts, 487 U.S. 879 (1988) ............................................................................................. 15, 16 Brazos Elec. Power Co-op., Inc. v. United States, 144 F.3d 784 (Fed. Cir. 1998) .................................................................................... 18 Cathedral Square Partners L.P. v. S.D. Hous. Dev. Auth., 679 F. Supp. 2d 1034 (D.S.D. 2009) .......................................................................... 16 Christopher Vill., L.P. v. United States, 360 F.3d 1319 (Fed. Cir. 2004) .................................................................................. 18 Dep’t of the Army v. Blue Fox, 525 U.S. 255 (1999) ............................................................................................. 15-16 Evans v. B.F. Perkins Co., 166 F.3d 642 (4th Cir. 1999) .................................................................................... 2, 8 Great-W. Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) ................................................................................................... 15 Horizon Coal Corp. v. United States, 43 F.3d 234 (6th Cir. 1994) ..................................................................................10, 12 Huff v. U.S. Dep’t of Army, 508 F. Supp. 2d 459 (D. Md. 2007) ............................................................................. 8 Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 3 of 26 iii Kidwell v. Dep’t of the Army, Bd. for Corr. of Mil. Records, 56 F.3d 279 (D.C. Cir. 1995) ...................................................................................... 17 King v. Burwell, 135 S. Ct. 2480 (2015) .................................................................................................. 5 Lane v. Pena, 518 U.S. 187 (1996) ................................................................................................. 4, 9 Larkin v. United States, No. 11-80732-CIV, 2012 WL 2945167 (D. Fla. Jan. 18, 2012) ........................... 13-14 Mortenson v. First Federal Savings & Loan Ass’n, 549 F.2d 884 (3rd Cir. 1977) ....................................................................................... 8 Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2012) ...................................................................................... 3, 10, 11 Radioshack Corp. v. United States, 105 Fed. Cl. 617 (Fed. Cl. 2012) .......................................................................... 13, 14 Randall v. United States, 95 F.3d 339 (4th Cir. 1996) ........................................................................ 4, 14, 17, 18 Renne v. Geary, 501 U.S. 312 (1991) ..................................................................................................... 9 Suburban Mortg. Assocs. v. U.S. Dep’t of Hous. & Urban Dev., 480 F.3d 1116 (Fed. Cir. 2007) .................................................................................. 17 United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1 (2008) ....................................................................................................... 13 United States v. Dalm, 494 U.S. 596 (1990) ................................................................................................... 10 United States v. Mitchell, 463 U.S. 206 (1983) ..................................................................................................... 9 United States v. Sherwood, 312 U.S. 584 (1941) ................................................................................................. 3, 9 Welch v. United States, 409 F.3d 646 (4th Cir. 2005) .................................................................................... 2, 9 Whilder v. Chertoff, No. Civ. L-0702541, 2008 WL 7677363 (D. Md. Aug. 8, 2008) ................................ 8 Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 4 of 26 iv Wyodak Res. Dev. Corp. v. United States, 637 F.3d 1127 (10th Cir. 2011) ............................................................................10, 12 Statutes 5 U.S.C. § 702 .................................................................................................................. 15 5 U.S.C. § 704 ...................................................................................................... 14, 16, 17 26 U.S.C. § 7421(a) ......................................................................................................... 10 26 U.S.C. § 7422 ........................................................................................................ 10, 13 28 U.S.C. § 1346 ...................................................................................................... passim 28 U.S.C. § 1491 ........................................................................................................ 16, 17 42 U.S.C. § 18041 ........................................................................................................ 5, 12 42 U.S.C. § 18061 .................................................................................................... passim Fed. R. Civ. P. 12(b)(1) .................................................................................................. 4, 8 Fed. R. Civ. P. 23 ............................................................................................................. 13 Administrative and Executive Materials Calculation of Reinsurance Payments Made Under the National Contribution Rate, 45 C.F.R. § 153.230 .......................................................................................................5 Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, 77 Fed. Reg. 17,220 (Mar. 23, 2012) ........................................................................ 6, 7 HHS Notice of Benefit and Payment Parameters for 2015, 79 Fed. Reg. 13,744 (Mar. 11, 2014) ..................................................................... 7, 16 Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 5 of 26 1 PRELIMINARY STATEMENT The Affordable Care Act’s (ACA) transitional reinsurance program helps to stabilize health insurance premiums in the individual health insurance market during the first three years of the Act’s market reforms. See 42 U.S.C. § 18061. The program does so by requiring contributions from “contributing entities” that fund reinsurance payments to certain individual market health plans that cover individuals who incur especially significant health care costs. Id. Through two payments totaling $1,038,429, Plaintiff contributed to the transitional reinsurance program for the 2014 health insurance benefit year (which ended December 31, 2014). Compl. ¶ 65, ECF No. 1. Plaintiff believes that Defendants should not have required it to do so—that its contribution amounted to an illegal exaction—because Plaintiff has chosen to administer its group health plan in-house rather than hire a third- party administrator. Specifically, Plaintiff argues (incorrectly) that the ACA unambiguously exempts such “self-funded, self-administered” health plans from its otherwise market-spanning requirement that health insurance plans contribute to the reinsurance program based on the premiums they collect. Because Plaintiff has already made its contribution for the only year in question (the 2014 benefit year), Plaintiff does not seek prospective relief. Rather, Plaintiff asks the Court to order Defendants to pay Plaintiff its $1,038,429 back. Compl. ¶¶ 14, 20, 33-34. The premise of Plaintiff’s claim—that it was unlawful for Defendants to require contributions by self-funded, self-administered health plans for benefit year 2014—is incorrect. The Centers for Medicare & Medicaid Services’ (CMS) interpretation of the ACA as requiring self-insured, self-administered plans to contribute to the reinsurance Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 6 of 26 2 program for the 2014 plan year was reasonable in light of the reinsurance program’s text, structure, and purpose.”1 That CMS later changed its interpretation by regulation to exclude such plans for the 2015 and 2016 plan years does not render its interpretation regarding the 2014 plan year unreasonable because the statute is ambiguous. But this is not the appropriate forum to resolve this interpretive issue. As the district court in Batsche v. Burwell held in dismissing a closely-analogous case for lack of subject matter jurisdiction without reaching the merits, a “self-administered, self-funded” health insurance plan may pursue a claim for “refund” of its reinsurance contribution, if at all, exclusively in the United States Court of Federal Claims. See Batsche v. Burwell, No. 15- cv-0053 (PJS/BRT), 2016 WL 5402190, *5 (D. Minn. Sept. 26, 2016) (“Even if the Trustees could identify a waiver of sovereign immunity, the Tucker Act would vest exclusive jurisdiction over this lawsuit in the United States Court of Federal Claims.”). The Court should reach the same conclusion in this case and dismiss for lack of subject matter jurisdiction. It is Plaintiff’s burden to demonstrate that the Court has subject matter jurisdiction, Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999), which includes “show[ing] that an unequivocal waiver of sovereign immunity exists.” Welch v. United States, 409 F.3d 646, 651 (4th Cir. 2005). Plaintiff attempts to carry that burden by citing the statutory provision governing tax refund actions, 28 U.S.C. § 1346(a)(1), which provision permits federal courts to hear actions “for the recovery of any internal-revenue tax alleged to have been . . . in any manner wrongfully collected under the internal-revenue 1 The Government elaborated upon the proper interpretation of the statute in its motion for summary judgment in Batsche v. Burwell. See Def.’s Mem. of Law in Supp. of Mot. Summ. J., Batsche v. Burwell, No. 15-00053 (D. Minn. Nov. 23, 2015), ECF No. 46. Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 7 of 26 3 laws.” Compl. ¶ 16, 82. According to Plaintiff, the reinsurance contribution is such “an internal-revenue tax,” id. ¶ 83, so the Court has jurisdiction under section 1346. Id. ¶ 16. That is incorrect. Plaintiff’s assertion that the Court has jurisdiction because the reinsurance contribution is an “internal revenue tax” fails at the outset because the ACA describes the exaction as a “payment” and a “contribution,” never a “tax,” 42 U.S.C. § 18061, even while “describ[ing] many other exactions it creates as ‘taxes.’” Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2583 (2012) (“NFIB”) (citation omitted). In NFIB the Supreme Court rejected an analogous argument that a particular ACA exaction counted as a “tax” for jurisdictional purposes precisely because the ACA did not call the exaction a tax. See id. (“Congress’s decision to label [the individual mandate] exaction a ‘penalty’ rather than a ‘tax’ is significant because the Affordable Care Act describes many other exactions it creates as ‘taxes.’”) (citation omitted). What is more, the reinsurance contribution does not in any way function like a tax. For example, all but a fraction of the contribution must be used to make reinsurance payments to issuers. And Congress directed the Secretary of Health and Human Services (HHS) to work with states to implement the reinsurance program, including reinsurance contributions, under Title 42 of the United States Code. It did not vest this authority in the Internal Revenue Service under Title 26, the tax code. There is therefore no ambiguity whatsoever about whether the ACA’s reinsurance “contribution” is an “internal revenue tax,” let alone indicia of meaning sufficient to overcome the rule that a waiver of sovereign immunity must be strictly construed. United States v. Sherwood, 312 U.S. 584, 586 (1941). Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 8 of 26 4 The plaintiffs in Batsche (the prior reinsurance “refund” case) did not even assert the atextual argument, relied on by Plaintiff here, that the Court has jurisdiction because the reinsurance contribution is somehow an “internal revenue tax.” Instead the plaintiffs in Batsche sought to rely on the APA’s waiver of sovereign immunity for actions seeking relief “other than money damages.” But, as the district court in Batsche correctly held, an award of damages to compensate for an allegedly unlawful exaction—which is what Plaintiff seeks, see Compl. ¶ 98 (alleging “damage[]” to Plaintiff from exaction); id. ¶ 111 (alleging “actual damages”); id. ¶ 119 (same)—is “money damages” within the meaning of the ACA. See Batsche, 2016 WL 5402190 at *5. And, in any event, the APA does not provide a cause of action in federal district court where Congress has created an adequate alternative remedy in the Court of Federal Claims. Id.; see also Randall v. United States, 95 F.3d 339, 346 (4th Cir. 1996) (“to determine whether Plaintiff’s suit is cognizable under the APA, the court must first examine whether he has an available remedy under the Tucker Act”). These two independent barriers to APA review may explain Plaintiff’s effort to construct a different waiver of sovereign immunity by creative interpretation of the ACA, but only Congress can waive the United States’ sovereign immunity, and it must do so “unequivocally . . . in statutory text.” Lane v. Pena, 518 U.S. 187, 192 (1996). Because Plaintiff has not carried its burden to establish that the Court has subject matter jurisdiction, Defendants respectfully request that the Court dismiss this action pursuant to Federal Rule of Civil Procedure 12(b)(1). Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 9 of 26 5 BACKGROUND The Affordable Care Act adopted a series of interlocking reforms designed to expand coverage in the individual (non-group) health insurance market. See King v. Burwell, 135 S. Ct. 2480, 2485 (2015). First, the Act provides billions of dollars of subsidies each year to help make insurance affordable. See id. at 2489. Second, the Act bars insurers from taking an individual’s health into account when deciding whether to sell the individual health insurance or how much to charge. See id. at 2485. Third, the Act generally requires each individual to maintain insurance coverage or make a specified payment. See id. To mitigate adverse selection, the Affordable Care Act established three premium stabilization programs: the risk adjustment, reinsurance, and risk corridors programs. This case involves the reinsurance program. Reinsurance is a three-year transitional program running from 2014-2016, to be operated by the states pursuant to HHS oversight unless they fail to do so. 42 U.S.C. § 18061(b) (state operation of reinsurance programs); § 18041(c) (federal backstop). A broad group of issuers and group health plans are required to contribute to this reinsurance program for each plan year, in order to fund payments to a subset of individual-market issuers of reinsurance-eligible plans that cover especially high-risk individuals with actual annual medical costs of many tens of thousands of dollars. See id. § 18061(b) and 45 C.F.R. § 153.230. The statute sets collection targets for these reinsurance payments to individual-market issuers—$10 billion for 2014, $6 billion for 2015, and $4 billion for 2016—and directs the Secretary to set contributions for each year based on her estimate of how much each contributor must pay to reach that year’s target. Id. § 18061(b)(3). Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 10 of 26 6 While the Act makes clear that many health plans that are ineligible to receive reinsurance payments must nonetheless contribute to the program, it does not specifically and unambiguously address whether one particularly rare type of health plan must contribute. Specifically, and Plaintiff’s contrary reading of the statute notwithstanding, the ACA is ambiguous when it comes to contributions by self-funded plans (plans that pay their own beneficiaries’ costs, rather than contracting through an insurer) that do not choose to utilize the services of a third-party administrator. Rather, the ACA provides only that “health insurance issuers, and third party administrators on behalf of group health plans, are required to make payments to an applicable reinsurance entity for any plan year beginning in the 3-year period beginning January 1, 2014.” 42 U.S.C. §18061(b)(1)(A) (emphasis added). It does not say whether group health plans that do not utilize third party administrators who can contribute on their “behalf”—like Plaintiff—must nonetheless do so on their own, and it is unclear that Congress even knew that such plans existed. Neither the statute nor its legislative history specifically mentions such plans. Through notice-and-comment rulemaking, CMS originally interpreted this statutory provision as requiring self-insured, self-administered group health plans (as well as other self-insured group health plans and health insurance issuers) to make reinsurance contributions to the program.2 Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, 77 Fed. Reg. 17220, 17225 (Mar. 23, 2012). This determination comported with the agency’s understanding that the ACA “directs a broad cross-section of issuers and 2 Self-insured plans are those plans in which the plan sponsor pays the cost of health benefits from its own assets. The vast majority of self-insured plans contract with third- party administrators to process the plan’s claims and enrollment. Those self-insured plans that do not contract with a third-party administrator are called self-administered plans. Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 11 of 26 7 self-insured plans to make reinsurance contributions, given the uncertainty of the size and characteristics of the population that will participate in the Exchanges.” Id. at 17236. In December 2013, CMS issued a new proposed rule that would exempt self- insured, self-administered group health plans − such as Plaintiff’s fund here − from the reinsurance fee for the 2015 and 2016 benefit years. After receiving comments from interested parties, CMS finalized this new rule in March 2014. Although the agency explained that the ACA “can reasonably be interpreted in more than one way with respect to the applicability of reinsurance contributions to self-insured, self-administered plans, . . . the better reading of [] is that a self-insured, self-administered plan should not be a contributing entity” for purposes of the reinsurance program. HHS Notice of Benefit and Payment Parameters for 2015, 79 Fed. Reg. 13744, 13773 (Mar. 11, 2014). The agency further explained, however, that this exemption would only apply prospectively (that is, in the 2015 and 2016 benefit years) because “making the proposed exemption effective for the 2014 benefit year at this late stage would be disruptive to plans and issuers that have already set contribution rates and premiums, and could upset settled estimates with respect to expected reinsurance payments and contribution obligations.” Id. at 13774. CMS’s estimate of how much each plan and issuer would have to contribute in order to reach $10 billion had, after all, been premised on the participation of all self-insured, self- administered plans. Id. Thus, under CMS’s Final Rule issued in March 2014, self-insured, self-administered group health plans were obligated to pay the reinsurance fee for the 2014 benefit year, but are exempt for the 2015 and 2016 benefit years. Plaintiff is a self-administered, self-insured health plan that explains that it contribute to the reinsurance program in 2014. Compl. ¶ 20. On June 17, 2016, Plaintiff Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 12 of 26 8 filed this suit arguing that the requirement that it contribute as to plan year 2014 was unlawful and asking the Court to order the United States to reimburse Plaintiff for the allegedly unlawful exaction. Id. Plaintiff’s Complaint alleges that the assessment and collection of its 2014 reinsurance contribution violated the tax code, the APA, the Due Process Clause, and the Takings Clause. Id. ¶¶ 81-119. Plaintiff also seeks declaratory relief, attorney’s fees, costs, and interest. Id. at 33-34. STANDARD OF REVIEW Federal Rule of Civil Procedure 12(b)(1) provides for dismissal of a complaint for lack of subject matter jurisdiction. Adams v. Bain, 697 F.2d 1213, 1218-19 (4th Cir. 1982). The party seeking to invoke the jurisdiction of this Court “has the burden of proving that subject matter jurisdiction exists.” Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999). When considering a motion for lack of subject matter jurisdiction, “‘[n]o presumptive truthfulness attaches to the plaintiff’s allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.’” Huff v. U.S. Dep’t of Army, 508 F. Supp. 2d 459, 462 (D. Md. 2007) (quoting Mortenson v. First Federal Savings & Loan Ass’n, 549 F.2d 884, 891 (3rd Cir. 1977); see also Atkinson-Bush v. Baltimore Washington Med. Ctr., Inc., No. L-10- 2350, 2011 WL 2216669, at *1 (D. Md. May 25, 2011) (same); Whilder v. Chertoff, No. Civ. L-0702541, 2008 WL 7677363, at *1 (D. Md. Aug. 8, 2008) (same). Subject matter jurisdiction can never be forfeited or waived, and federal courts have a continuing, independent obligation to determine whether subject matter jurisdiction exists. Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006). Courts should “presume that Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 13 of 26 9 [they] lack jurisdiction unless the contrary appears affirmatively from the record.” Renne v. Geary, 501 U.S. 312, 316 (1991) (citation omitted). “It is axiomatic that the United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction.” United States v. Mitchell, 463 U.S. 206, 212 (1983). A party seeking to sue the United States must identify a specific statutory provision that waives the government’s sovereign immunity. See Sherwood, 312 U.S. at 586. This waiver “must be unequivocally expressed in statutory text,” and the scope of a sovereign immunity waiver is “strictly construed” in favor of the sovereign. Lane, 518 U.S. at 192. If a plaintiff cannot establish a waiver of sovereign immunity, the court must dismiss the action for lack of subject matter jurisdiction. See Welch, 409 F.3d at 651. ARGUMENT The only waiver of sovereign immunity that Plaintiff puts forward as a basis for this Court’s jurisdiction is the waiver for tax refund suits, 28 U.S.C. § 1346(a)(1). Compl. ¶ 16. That waiver is inapplicable here, however, because the contribution to the reinsurance program that Plaintiff challenges was not an internal revenue tax. Furthermore, any effort by Plaintiff to respond by attempting to invoke the limited waiver of sovereign immunity in the APA would be futile because that waiver is also inapplicable. A. Section 1346 of 28 U.S.C. Does Not Give the Court Subject Matter Jurisdiction Section 1346 of 28 U.S.C., empowers federal district courts to hear lawsuits seeking a refund of “any internal revenue tax.” Plaintiff asserts that the Court has jurisdiction under this provision because the reinsurance contribution is an “internal revenue tax.” Compl. ¶ 16. Plaintiff is wrong. Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 14 of 26 10 1. The ACA Does Not Describe the Reinsurance Contribution as a Tax The Supreme Court’s opinion in NFIB v. Sebelius, 132 S. Ct. 2566, 2583-85 (2012), is determinative. In that case the Supreme Court confronted the question whether the ACA’s individual mandate penalty—the exaction the ACA requires certain individuals who go without health insurance to pay when they file their taxes—is a tax for purposes of a related jurisdictional provision, 26 U.S.C. § 7421(a), which prevents courts from entering certain relief vis a vis internal revenue taxes until after they are collected.3 See NFIB, 132 S. Ct. at 2583. The Supreme Court noted that the ACA itself refers to the exaction as a “penalty,” not a tax, and held Congress’s choice of label in the ACA to be conclusive: Congress’s decision to label this exaction a ‘penalty’ rather than a ‘tax’ is significant because the Affordable Care Act describes many other exactions it creates as ‘taxes.’ Where Congress uses certain language in one part of a statute and different language in another, it is generally presumed that Congress acts intentionally. Id. at 2585 (citation omitted). Accordingly, the Supreme Court held that the exaction was not an internal revenue tax for purposes of the statutory limitation on advance judicial review applicable to tax refund suits. Id. 3 While NFIB interpreted 26 U.S.C. § 7421(a), the provision of the tax code limiting judicial review prior to collection of a tax, rather than 28 U.S.C. § 1346, which authorizes refund suits in the first instance, its interpretation is directly relevant here. “[Section] 1346(a)(1) must be read in conformity with other statutory provisions which qualify a taxpayer’s right to bring a refund suit upon compliance with certain conditions.” United States v. Dalm, 494 U.S. 596, 601 (1990); Wyodak Resources Development Corp. v. United States, 637 F.3d 1127, 1132 (10th Cir. 2011) (“Absent some very good reason to conclude that Congress intended the phrase ‘internal revenue tax’ to have two different meanings within the very same act, such a tortured interpretation should be avoided.”). But see Horizon Coal Corp. v. United States, 43 F.3d 234 (6th Cir. 1994) (reading 28 U.S.C. § 1346 more broadly than same 26 U.S.C. § 7422). Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 15 of 26 11 The Supreme Court’s analysis in NFIB controls this case and requires its dismissal. Here, as there, the ACA does not refer to the exaction in question as a “tax.” Instead, Congress chose to describe the reinsurance contribution as a “payment,” 42 U.S.C. § 18061(a), and as a “contribution.” Id. § 18061(b)(3). Because the ACA refers to so many other of its exactions as “taxes,” NFIB requires that the Court decline Plaintiff’s invitation to assign a label to the reinsurance contribution that Congress itself did not apply. NFIB, 132 S. Ct. at 2583. 2. Even on the Functional Understanding the Supreme Court Rejected, the Reinsurance Contribution Is Not an Internal Revenue Tax In NFIB, an amicus argued that the Supreme Court should treat the individual mandate penalty as a tax despite the text of the ACA because, in its view, the penalty in some senses functioned like an internal revenue tax. Id. The Supreme Court rejected this functional approach, concluding that the text of the ACA did not permit it. Id. at 2583 (whether statutory payment counts as “tax” for purposes of jurisdictional provisions is “up to Congress, and the best evidence of Congress’s intent is the statutory text”). Notably, even the functional understanding offered by the amicus in NFIB (and rejected by the Supreme Court) would not help Plaintiff here, because the reinsurance contribution does not even arguably function like an internal revenue tax. The contribution is housed in 42 U.S.C rather than 26 U.S.C. (the tax code), and Congress placed responsibility for the program with states and the Secretary of Health and Human Services, rather than with the Internal Revenue Service or the Department of Treasury. See 42 U.S.C. § 18061(b)(1)(B) and 42 U.S.C. § 18041(c)(1). The vast majority of reinsurance contributions are used to fund reinsurance payments to individual market issuers of Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 16 of 26 12 reinsurance eligible plans, not to generate revenue. Id. § 18061(b)(3)(B)(iv) (in addition to $10 billion in collections for 2014 to fund reinsurance program, requiring $2 billion in collections to be deposited into U.S. Treasury). And, of course, the reinsurance contribution has nothing to do with whether Plaintiff paid too little or too much in federal taxes in 2014. Even if the Supreme Court had not rejected the functional approach to determining whether an ACA exaction is a statutory tax in NFIB, then, these facts alone would preclude the conclusion that the reinsurance contribution is such a tax. See Wyodak Resources Development Corp. v. United States, 637 F.3d 1127, 1134 (10th Cir. 2011) (“for purposes of district court jurisdiction under 28 U.S.C. § 1346(a)(1), Congress intended the phrase ‘internal revenue tax’ to mean taxes collected by the IRS”). Cf. Horizon Coal Corp. v. United States, 43 F.3d 234, 240 (6th Cir 1994) (reading “internal revenue tax” to apply to “revenue generated within the boundaries of the United States”).4 Indeed, Plaintiff itself recognizes that the reinsurance contribution is not really an internal revenue tax. If it were, then the Court’s jurisdiction would be lacking for the separate reason that Plaintiff has not demonstrated that it has satisfied the strict exhaustion 4 The broad functional reading of “internal revenue tax” adopted by the Sixth Circuit in Horizon Coal was addressed and rejected at length by the Tenth Circuit in Wyodak, 637 F.3d at 1132-36. And it is inconsistent with the Supreme Court’s approach in NFIB. See supra at 10 & n.3. In any event, even if Horizon Coal correctly read 28 U.S.C. § 1346 to reach an exaction designed to generate revenue even if not housed in the tax code, that provision’s waiver of sovereign immunity would still not apply to the reinsurance contribution. As discussed above, the ACA provides for the contribution to fund state- level reinsurance programs, and all but a fraction of collections must be distributed directly to other insurers through reinsurance payments. Cf. Horizon Coal, 43 F.3d at 234 (federal reclamation fee was collected by Department of Interior and 100% of fee went into federal fund used to pay for activities of the Department). Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 17 of 26 13 requirements applicable to tax refund suits.5 E.g. 26 U.S.C. § 7422 (“No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected . . . until a claim for refund or credit has been duly filed with the Secretary.”). But Plaintiff asserts that it need not pursue any such process, but see id. & n.5, supra, on the ground that the administrative process for tax refund claims is “inapplicable to the [reinsurance contribution] because [it] is imposed under the ACA and not the Internal Revenue Code.” Compl. ¶ 87. That is like a twelve- year-old applicant for a driver’s license saying she should not have to take a driving test because she is too young to get a license. Ineligibility is not just an excuse; it is a disqualifier. Finally, even if the Court had jurisdiction over Plaintiff’s claims under 28 U.S.C. § 1346 (it does not), the Court should still dismiss the class action allegations in Plaintiff’s complaint, Compl. ¶ 69-80, for lack of subject matter jurisdiction. “[P]otential plaintiffs seeking tax refunds cannot be included in a class action unless they have exhausted the administrative process prior to the filing of the lawsuit.” RadioShack Corp., 105 Fed. Cl. at 624. So it is that “[s]everal federal courts have refused to certify classes in tax refund suits under Federal Rule of Civil Procedure 23 where the named plaintiffs did not show 5 Plaintiff make the halfhearted claim that they (though not their purported class members) filed tax refund claims with the Department of Treasury in an apparent effort to address this defect. Compl. ¶ 68 (alleging filing of “Form 843,” a generic IRS refund form). That is insufficient. Exhaustion is a jurisdictional prerequisite to any tax refund suit and entails not just properly filing a claim but either giving the IRS time to process the claim or receiving an adverse response. United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 8 (2008); RadioShack Corp. v. United States, 105 Fed. Cl. 617, 622 (Fed. Cl. 2012). Plaintiff does not offer sufficient detail about its purported filing to satisfy its burden to demonstrate its satisfaction of these jurisdictional prerequisites to any tax refund suit. Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 18 of 26 14 that all putative class members had met the jurisdictional prerequisites for tax refund suits at the time of the filing the complaint.” Id. (collecting cases); Larkin v. United States, No. 11-80732-CIV, 2012 WL 2945167, at *1 (D. Fla. Jan. 18, 2012) (dismissing class action allegations in purported tax refund suit as barred by sovereign immunity for lack of exhaustion). Plaintiff does not even allege that the putative class members met the jurisdictional prerequisites for tax refund suits as to their reinsurance contributions (and, as shown above, any such allegation would be baseless, because the contributions are not taxes). B. The APA Waiver of Sovereign Immunity Does Not Apply The plaintiff in Batsche, the reinsurance contribution lawsuit recently dismissed by the District of Minnesota for lack of subject matter jurisdiction, did not assert the tax refund jurisdictional theory asserted by Plaintiff. Instead, the plaintiff in that case argued that the waiver of sovereign immunity under the Administrative Procedure Act for relief “other than money damages” permitted its suit. See Batsche, 2016 WL 5402190, at *5. The district court in Batsche found that the waiver did not apply because the relief sought was not relief “other than money damages,” id., given that the plaintiff was not challenging any aspects of the reinsurance program that had any ongoing effect, and, in any event, held that the APA was unavailable because the Court of Federal Claims was an adequate alternative remedy. Id. at *5; accord Randall v. United States, 95 F.3d 339, 346 (4th Cir. 1996) (“to determine whether Plaintiff’s suit is cognizable under the APA, the court must first examine whether he has an available remedy under the Tucker Act”). Plaintiff here does not invoke the APA’s waiver of sovereign immunity as a basis for jurisdiction—any such invocation would have been in vain for the reasons explained Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 19 of 26 15 by the district court in Batsche—and, indeed, concedes that it seeks monetary relief as damages for allegedly wrongful conduct. See Compl. ¶ 111 (“Plaintiff . . . ha[s] suffered actual damages in the amounts of the [reinsurance contribution]”); id. ¶ 119 (same); id. at 34 (seeking award of “just compensation”). Therefore, the Court does not need to address this issue. However, any belated effort by Plaintiff to invoke the APA’s waiver of sovereign would be futile because the holding in Batsche was correct. 1. Plaintiff does not seek relief “other than money damages” The APA’s waiver of sovereign immunity is limited to relief “other than money damages.” 5 U.S.C. § 702. Plaintiff seeks an order requiring the government to pay money, Compl. at 33-34, and admits that this payment would be for alleged “damages” flowing from the exaction. Id. ¶¶ 111, 119. Such relief is clearly beyond the scope of the APA’s limited waiver: “Almost invariably suits seeking (whether by judgment, injunction, or declaration) to compel the defendant to pay a sum of money to the plaintiff are suits for ‘money damages,’ as that phrase has traditionally been applied, since they seek no more than compensation for loss resulting from the defendant’s breach of legal duty.” Great- West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210 (2002) (citation omitted). In Batsche, the plaintiff nonetheless argued that the relief it sought was not “money damages,” citing the Supreme Court’s decision recognizing limited circumstances in which an order for the payment of money is not “money damages” in Bowen v. Massachusetts, 487 U.S. 893, 894 (1988). But Bowen is inapplicable to Plaintiff’s claims that the reinsurance contribution was an illegal exaction. That case held that a request for an order of “specific” as opposed to “compensatory” relief—an order requiring the government to do the “very thing” it is statutorily required to do rather than remediating for some separate Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 20 of 26 16 unlawful action by the government—is not “money damages” even if the legally-required action “happens to be . . . the payment of money.” Id. at 894-95, 901. In other words, an order requiring a payment may not actually constitute “money damages” if the court is merely enforcing the money-mandating provision of a statute. Dep’t of Army v. Blue Fox, 525 U.S. 255, 262 (1999); Bowen, 487 U.S. at 895-97 (“Specific remedies are not substitute remedies at all, but attempt to give the plaintiff the very thing to which he was entitled.”). Plaintiff says that the ACA requires HHS to exclude it and other self-administered, self-insured plans from the reinsurance contribution requirement. Compl. ¶¶ 95, 98. But Plaintiff does not ask for an order requiring HHS to do that; indeed, the agency is already excluding Plaintiff, prospectively. HHS Notice of Benefit and Payment Parameters for 2015, 79 Fed. Reg. 13744, 13773 (Mar. 11, 2014). Instead, Plaintiff argues, based on the faulty premise that the Department violated such a statutory requirement in the past and thereby imposed “damages” on it via an illegal exaction, that the agency must make a remedial payment to make up for the amount that Plaintiff paid into the reinsurance program for the 2014 benefit year. Compl. at 34-35. This is in no sense a request for “the very thing to which [Plaintiff alleges] [it] was entitled,” Bowen, 487 U.S. at 893, it is a request for “money . . . to substitute for a suffered loss.”6 Id. As the district court in 6 Furthermore, unlike the state plaintiff in Bowen, here Plaintiff seeks purely retroactive relief. Rather than having a “complex[,] ongoing relationship” with HHS with regard to the reinsurance program, Bowen, 487 U.S. at 905, Plaintiff seeks compensation for a one- time payment—that has already been distributed to other insurers—based on an allegedly erroneous interpretation of a federal statute. While a decision on the interpretation issue in Bowen could have affected future reimbursement payments under the Medicaid program, Plaintiff’s claim in this case will not modify the future rights and responsibilities of the parties because the agency has determined that it will not collect reinsurance contributions from Plaintiff for the 2015 and 2016 benefit years. Therefore, Plaintiff’s claim is for retroactive monetary damages and cannot proceed, even if otherwise properly brought Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 21 of 26 17 Batsche correctly held, sovereign immunity bars that request. While Congress has waived sovereign immunity over actions seeking monetary relief, 28 U.S.C. § 1491, where the amount in controversy is greater than $10,000, Congress has made the jurisdiction of the Court of Federal Claims over such actions exclusive. Id. 2. The Court of Federal Claims Is an Adequate Alternative Remedy Even if Plaintiff did seek relief “other than money damages,” the APA does not provide a cause of action where a Plaintiff has another “adequate remedy in a court.” See 5 U.S.C. § 704. A monetary judgment from the court that Congress designated for monetary claims, namely, the Court of Federal Claims, would be an adequate remedy for Plaintiff’s unlawful exaction claim. See Batsche, 2016 WL 5402190, *5 (“[t]he harm suffered by the Trustees will be entirely redressed by a money judgment”). This is another reason the Court should dismiss for lack of subject matter jurisdiction. See Randall, 95 F.3d at 346 (“to determine whether Plaintiff’s suit is cognizable under the APA, the court must first examine whether he has an available remedy under the Tucker Act”); Kidwell v. Dep’t of Army, 56 F.3d 279, 284 (D.C. Cir. 1995) (“a primary purpose of the [Tucker] Act [is] to ensure that a central judicial body adjudicates most claims against the United States Treasury.”); Alford v. Mabus, No. 7:14-CF-195-D, 2015 WL 3885730, at *2 (E.D.N.C. June 23, 2015), aff'd, 622 F. App'x 249 (4th Cir. 2015) (dismissing APA case for lack of subject matter jurisdiction because Court of Federal Claims was adequate remedy). To be sure, the authority of the Court of Federal Claims to grant equitable relief is limited. But whether this limitation renders the Court of Federal Claims an inadequate under the APA. See Cathedral Square Partners Ltd. v. South Dakota Hous. Dev. Auth., 679 F. Supp. 2d 1034, 1043-44 (D.S.D. 2009). Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 22 of 26 18 alternative forum does not depend on whether Plaintiff seeks some relief that is unavailable in that forum; it depends on whether such relief is the “essence” of Plaintiff’s complaint. See Suburban Mortg. Assocs., Inc. v. U.S. Dep’t of Hous. & Urban Dev., 480 F.3d 1116, 1124 (Fed. Cir. 2007) (“our cases have emphasized that in determining whether a plaintiff’s suit is to be heard in district court or the Court of Federal Claims, we must look beyond the form of the pleadings to the substance of the claim”); Christopher Vill., L.P. v. United States, 360 F.3d 1319, 1328 (Fed. Cir. 2004) (“[A] party may not circumvent the Claims Court’s exclusive jurisdiction by framing a complaint in the district court as one seeking injunctive, declaratory, or mandatory relief where the thrust of the suit is to obtain money from the United States.”) (emphasis added, citation omitted); see also Randall, 95 F.3d at 346-47 (in considering the adequacy of the Court of Federal Claims despite its limited ability to issue injunctive relief, asking whether injunctive relief sought was the “essence of [the] complaint”). Here, the relief Plaintiff seeks is purely monetary and retrospective; 2014 was the only benefit year for which it was required to contribute to the reinsurance program, and the third and final benefit year of the program’s three-year life will come to an end on December 31, 2016. 42 U.S.C. § 18061(b)(1)(A) (limiting reinsurance program to “3-year period beginning January 1, 2014). This is fundamentally a monetary claim, over which the Court of Federal Claims has special competence and exclusive jurisdiction. See Brazos Elec. Power Co-op., Inc. v. United States, 144 F.3d 784, 788 (Fed. Cir. 1998) (“[I]n the instant case, a single, uncomplicated payment of money would provide [the plaintiff] with an entirely adequate remedy. No prospective relief would be required and there would be no ongoing relationship to monitor and referee.”). Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 23 of 26 19 CONCLUSION Defendants respectfully request that the Court dismiss Plaintiff’s Complaint in its entirety for lack of subject matter jurisdiction. In the alternative, Defendants respectfully request that the Court dismiss the class action allegations of Plaintiff’s Complaint for lack of subject matter jurisdiction. Dated: November 28, 2016 Respectfully submitted, BENJAMIN C. MIZER Principal Deputy Assistant Attorney General ROD J. ROSENSTEIN United States Attorney SHEILA M. LIEBER Deputy Director, Federal Programs Branch /s/ Matthew J.B. Lawrence MATTHEW J.B. LAWRENCE (Md. Bar Jan. 7, 2010) Trial Attorney United States Department of Justice Civil Division Federal Programs Branch 20 Massachusetts Ave., N.W. Rm. 6132 Washington, D.C. 20530 Telephone: (202) 616-8105 Telefacsimile: (202) 616-8460 Matthew.Lawrence@usdoj.gov Attorneys for Defendant Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 24 of 26 Certificate of Service I hereby certify that on the 28th day of November, 2016, I caused the forgoing to be served on counsel for plaintiff by filing with the court’s electronic case filing system. /s/ Matthew J.B. Lawrence Matthew J.B. Lawrence Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 25 of 26 Notice of Courtesy Copy I hereby certify that on the 29th day of November, 2016, I will send a courtesy copy of the foregoing to Chambers by overnight mail. /s/ Matthew J.B. Lawrence Matthew J.B. Lawrence Case 8:16-cv-02186-DKC Document 18-1 Filed 11/28/16 Page 26 of 26 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND GREENBELT DIVISION THE ELECTRICAL WELFARE TRUST ) FUND, INC., ) ) Plaintiff, ) ) v. ) No. 8:16-cv-02186-DKC ) UNITED STATES, et al., ) ) Defendants. ) ____________________________________) |PROPOSED| ORDER Pending before the Court is Defendants’ Motion to Dismiss for Lack of Subject Matter Jurisdiction. The Motion is GRANTED. Plaintiff’s Complaint is hereby DISMISSED. IT IS SO ORDERED Dated: _________________, 2017 __________________________ HON. DEBORAH K. CHASANOW UNITED STATES DISTRICT JUDGE Case 8:16-cv-02186-DKC Document 18-2 Filed 11/28/16 Page 1 of 1