American Council of Life Insurers v. District of Columbia Health Benefit Exchange Authority , 73 F. Supp. 3d 65 ( 2014 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
AMERICAN COUNCIL OF LIFE
INSURERS,
Plaintiff, Civil Action No. 14-cv-1138 (BAH)
v. Judge Beryl A. Howell
DISTRICT OF COLUMBIA HEALTH
BENEFIT EXCHANGE AUTHORITY, et al.,
Defendants.
MEMORANDUM OPINION
This case raises a constitutional challenge to the funding mechanism enacted by the
District of Columbia to continue the operations of the District of Columbia Health Benefit
Exchange (the “D.C. Exchange”) beginning on January 1, 2015. The D.C. Exchange was
established under the auspices of the Patient Protection and Affordable Care Act (“ACA”) to,
inter alia, “[e]nable individuals and small employers to find affordable and easier-to-understand
health insurance;” “[f]acilitate the purchase and sale of qualified health plans;” “[r]educe the
number of uninsured;” and “[a]ssist individuals and groups to access programs, premium
assistance tax credits, and cost-sharing reductions.” Health Benefit Exchange Authority
Establishment Act (“Establishment Act”), D.C. Code § 31-3171.02. Indeed, the D.C. Exchange
currently facilitates access to health care for approximately 50,000 residents of this jurisdiction.
See Compl. ¶ 44, ECF No. 1. To ensure sufficient funding for the operations of the D.C.
Exchange when, after December 31, 2014, all federal funding assistance ceases, the District
passed two separate laws, the Health Benefit Exchange Authority Financial Sustainability
Emergency Amendment Act of 2014 (the “Emergency Amendment Act” or “EAA”), D.C. Act
1
20-356, and the Health Benefit Exchange Authority Financial Sustainability Temporary
Amendment Act of 2014 (“TAA”), D.C. Act 20-256, both of which authorize a Health Carrier
Assessment (the “HC Assessment”) on health insurance issuers doing significant business in the
District, even if those issuers do not participate, or sell products eligible for sale, on the D.C.
Exchange. Id. ¶¶ 45-47.
The plaintiff, American Council of Life Insurers (“ACLI”), a trade association with
approximately 300 member insurance companies operating throughout the United States,
including the District of Columbia, filed this suit against the District of Columbia, the District of
Columbia Health Benefit Exchange Authority (the “Authority”) and various D.C. government
officials in their official capacities1 (collectively, “defendants”), alleging that the Emergency
Amendment Act violates multiple parts of the U.S. Constitution by authorizing imposition of the
HC Assessment on the plaintiff’s members when those members do not participate in, or receive
any benefit from, the D.C. Exchange.2 See Compl. at 22 (“Plaintiff prays for relief . . . [t]hat the
1
The individuals named as defendants are Mila Kofman, in her official capacity as Executive Director of the
Authority; the Executive Board of the Authority; Diane C. Lewis, in her official capacity as Chairperson of the
Executive Board of the Authority; and Vincent C. Gray, in his official capacity as Mayor of the District of
Columbia.
2
The Emergency Amendment Act was passed by the D.C. Council on May 22, 2014 and remained in effect for only
90 days, expiring on August 20, 2014. EAA, D.C. Act 20-329, 61 D.C. Reg. 5363 (providing that it “shall remain in
effect for no longer than 90 days, as provided for emergency acts of the Council of the District of Columbia in
section 412(a) of the District of Columbia Home Rule Act, approved December 24, 1973 (87 Stat. 788; D.C. Official
Code § 1–204.12(a))”); see also Pl.’s Mem. in Supp. of Prelim. Inj. (“Pl.’s P.I. Mem.”) at 14, n.12, ECF No. 11. On
June 18, 2014, the D.C. Council passed the TAA, which became effective on August 8, 2014, after a 30 day
Congressional review period, and expires after 225 days, on March 21, 2015. TAA, D.C. Act 20-356 (providing that
“[t]his act shall expire after 225 days of its having taken effect”); see also Pl.’s P.I. Mem. at 14, n.12. Even though
both the Emergency Amendment Act and the TAA were enacted by the time this lawsuit was initiated on July 3,
2014, the Complaint challenges only the Emergency Amendment Act, which is no longer in effect. Indeed, the
plaintiff recognized the inevitable expiration of the Emergency Amendment Act in its Complaint, Compl. ¶ 47, n.1,
but has taken no steps to amend the Complaint to challenge the TAA, the law currently in effect authorizing the HC
Assessment, a deficiency not addressed by the defendants. Rather, the plaintiff simply asks the Court to assume the
relief sought applies to both the expired law and the law currently in effect, even though the Complaint only seeks
relief from the former. See Prelim. Inj. Hr’g Tr. (“P.I. Hr’g”) 11:15-21 (The Court: “So part of your injunction is
asking me to stop enforcement of the emergency amendment and the temporary legislation. Is that right?” Pl.’s
Counsel: “Your Honor, to the extent, yes, that the assessments would come under the temporary legislation rather
than the emergency legislation.”), ECF No. 35. While the principle is well established that a challenge to an expired
law is moot, see, e.g., Burke v. Barnes, 479 U.S. 361, 363 (1987) (holding that issues “were mooted when that bill
2
Court declare that the Emergency Legislation, as construed by the Authority, is unconstitutional
and is preempted by the ACA and is thus unenforceable”). The plaintiff has moved, twice, to
enjoin preliminarily the defendants from assessing and collecting the HC Assessment on
premiums or other receipts from products that are not sold on the D.C. Exchange, see Compl., ¶
88; Pl.’s Mot. for Prelim. Inj. (“Pl.’s P.I. Mot.”), ECF No. 11; Pl.’s Emergency Mot. for Prelim.
Inj. (“Pl.’s P.I. Emerg. Mot.”), ECF No. 32, and the defendants have moved to dismiss the
Complaint, under Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim upon
which relief can be granted, Defs.’ Mot. to Dismiss (“Defs.’ Mot.”), ECF No. 25. As discussed
more fully below, the defendants’ motion is granted, the plaintiff’s motions are denied, and the
Complaint is dismissed.
II. BACKGROUND
The plaintiff claims that the HC Assessment on health insurance companies, which do not
participate in, or sell products eligible for sale on, the D.C. Exchange, is preempted by the ACA
and violates the Takings, Equal Protection and Due Process Clauses of the Fifth Amendment to
the U.S. Constitution, as well as the non-delegation doctrine. Evaluation of these constitutional
challenges is aided by review of pertinent provisions in the ACA and the Establishment Act,
which is the law containing both the amendments—the Emergency Amendment and the TAA
expired by its own terms”), dismissal may be avoided with an adequate showing that the law is or will be reenacted
in a form that raises the same issues, see NextG Networks of NY, Inc. v. City of New York, 513 F.3d 49, 54-55 (2d
Cir. 2008) (preemption challenge not moot where reasonable expectation existed that subject of challenge would be
reenacted); Catanzano v. Wing, 277 F.3d 99, 107 (2d Cir. 2001) (action not moot “if there is a reasonably concrete
basis to anticipate that the expired rule will be reenacted in a form that will raise the same questions”). In this case,
both the Emergency Amendment and the TAA amend the same provision of the Health Benefit Exchange Authority
Establishment Act (“Establishment Act”), D.C. Code § 31–3171.03, with identical language, to provide the
District’s Health Benefit Exchange Authority with the authority to assess health insurance carriers doing significant
business in the District. Thus, the Court will construe the Complaint as a challenge to the amendment (the
“Challenged Amendment”) to the Establishment Act, rather than deem the Complaint moot for expressly seeking
relief only from the expired Emergency Amendment Act.
3
(the “Challenged Amendment”) that is at issue. This statutory review is followed by a summary
of the procedural history of this case.
A. The Relevant Statutes
1. The ACA
The ACA was enacted to “increase the number of Americans covered by health
insurance and decrease the cost of health care.” Nat’l Fed’n of Indep. Bus. v. Sebelius (NFIB),
132 S. Ct. 2566, 2580 (2012). To this end, the law requires that (1) States create their own
Exchange in compliance with federal regulations or that (2) the Secretary create a federally-
managed program (a “Federal Exchange”) in the State. Compl. ¶¶ 1, 28. Only those health
insurance plans that meet certain minimum requirements established by federal law are eligible
for sale as Qualified Health Plans (“QHPs”) on either State or Federal Exchanges. Generally,
QHPs are comprehensive health plans that offer “essential health benefits” and meet other
federal and state regulatory standards. Id. ¶ 30 (citing 42 U.S.C. § 18031(a)-(d)). Plans that do
not meet these requirements, called “Excepted Plans,” are prohibited from sale on Exchanges.
Compl. ¶ 26. Excepted plans include disability income, worker’s compensation policies, long-
term care coverage, fixed indemnity insurance, and certain group health insurance policies. Id.
(citing 42 U.S.C. § 300gg-91(c)).
The ACA authorizes initial federal funding to the States and the District for the purpose
of establishing State Exchanges. Id. ¶¶ 3, 43. In total, the initial federal funding provided to the
States and the District to set up State Exchanges exceeded $4.8 billion. See Pl.’s Mem. in Supp.
of Prelim. Inj. Mot. (“Pl.’s P.I. Mem.”), at 8 (citing Daniel H. Schlueter Decl. (“Schlueter Decl.”)
Ex. D, Annie L. Mach, et al., CONG. RESEARCH SERV., R43066, FEDERAL FUNDING FOR HEALTH
INSURANCE EXCHANGES 4-5 (2014), ECF No. 11-1). All federal funding for State Exchanges
4
ceases, however, after December 31, 2014, at which time the States are expected to operate their
Exchanges without federal funding. See id.
The same ACA provision, Section 1311(d)(5)(A), 42 U.S.C. § 18031(d)(5)(A), both
terminates federal funding assistance “beginning January 1, 2015” and directs States to take
responsibility for the “continued operations” of State Exchanges. This ACA provision is the
lynchpin to the plaintiff’s preemption challenge. See id. ¶¶ 3, 29. To ensure adequate funding
“to support [the] operations” of State Exchanges, ACA’s Section 1311(d)(5)(A) authorizes the
States and the District to allow the State Exchanges “to charge assessments or user fees to
participating issuers” and “to otherwise generate funding.” 42 U.S.C. § 18031(d)(5)(A).
2. District Authorizing Laws
One year after Congress enacted the ACA, the District opted to create a local Exchange
and passed the Establishment Act, D.C. Code § 31-3171.01 et seq., declaring the District’s intent
to operate the D.C. Exchange. Compl. ¶ 4. The Establishment Act established the Authority and
set out the responsibilities of this new entity. See D.C. Code § 31-3171.01. First, the Authority
is tasked with maintaining the D.C. Exchange, see Compl. ¶¶ 35-36, and, as part of this
responsibility, it must certify QHPs to be sold on the D.C. Exchange based on the plans’
compliance with D.C. and federal regulations. Id. ¶¶ 37-38 (citing D.C. Code § 31-3171.04(a)).
Second, the Authority is responsible for the administration of the Health Benefit
Exchange Authority Fund (the “Fund”), which was also created by the Establishment Act to
finance the D.C. Exchange. Id. ¶ 39. The Fund derives monies from multiple sources, including:
(1) Any user fees, licensing fees, or other assessments collected by the Authority;
(2) Income from investments made on behalf of the Fund;
(3) Interest on money in the Fund;
(4) Money collected by the executive board as a result of a legal or other action;
(5) Donations;
(6) Grants;
5
(7) All general revenue funds appropriated by a line item in the budget submitted
pursuant to section 446 of the District of Columbia Home Rule Act, approved December
24, 1973 (87 Stat. 801; D.C. Official Code § 1-204.46), and authorized by Congress for
the purposes of the Authority; and
(8) Any other money from any other source accepted for the benefit of the Fund.
D.C. Code § 31-3171.03(b); Compl. ¶ 40. The Establishment Act authorizes the Authority to
generate funds “necessary to support the operation of the Authority,” D.C. Code § 31-
3171.03(e)(2), by charging “(A) User fees; (B) Licensing fees; and (C) Other assessments on
health carriers selling qualified dental plans or qualified health plans in the District, including
qualified health plans and qualified dental plans sold outside the exchanges,” id. at (e)(1); see
also Compl. ¶ 41.
Facing the December 31, 2014 termination of all federal funding, Compl. ¶ 3, and an
estimated $28.75 million in operating costs for the D.C. Exchange in 2015, id. ¶ 44, the
Authority appointed the Financial Sustainability Advisory Working Group (the “Working
Group”) to develop a plan to fund the D.C. Exchange after federal funding ceased. Id. ¶ 45. The
Working Group “consist[ed] of, among others, health insurance issuers offering [QHPs] on the
D.C. Exchange.” Id. After weighing several alternatives, the Working Group ultimately
proposed a broad assessment that would apply to health insurance issuers generating significant
revenues from businesses in the District, regardless of whether they participated in the Exchange
or could sell products on the Exchange. See ¶¶ 45-46. To confirm its power to generate funds in
the manner proposed, the Authority sought emergency legislation from the D.C. Council to
amend the Establishment Act to authorize the imposition and collection of the “Health Carrier
Assessment.” Id. ¶ 47. As noted, supra note 2, both the EAA and the TAA were subsequently
enacted to provide this expanded authority to the Authority.
6
The EAA and its successor, the TAA, amend the Establishment Act to enable the
Authority to increase the Fund used to sustain the D.C. Exchange by “annually assess[ing],
through a ‘Notice of Assessment,’ each health carrier doing business in the District with direct
gross receipts of $50,000 or greater in the preceding calendar year an amount based on a
percentage of its direct gross receipts for the preceding calendar year.” D.C. Code § 31-
3171.03(f)(1).3 The EAA and TAA thus expand the Authority’s power under the Establishment
Act to charge assessments on issuers of health insurance policies that do not participate in the
D.C. Exchange, but that generate significant revenues of $50,000 or more from business in the
District. See Compl. ¶ 50. The Authority’s power is, however, constrained in that “[t]he amount
assessed shall not exceed reasonable projections regarding the amount necessary to support the
operations of the Authority.” Id. ¶ 51 (quoting D.C. Code § 31-3171.03(f)(2)). The plaintiff
alleges that, for the 2015 fiscal year, the Authority plans to generate nearly all of its revenue
through the HC Assessment, which is paid by both participating and non-participating health
issuers generating substantial revenues from business in the District. See id.; Pl.’s Opp’n to
Defs.’ Mot. to Dismiss (“Pl.’s Opp’n”) at 10 (noting that participating issuers are expected to pay
“the exact same fee . . . no more than .80% of premiums” as the plaintiff’s members subject to
the HC Assessment), ECF No. 28.
Once notified of an assessment, an assessed health insurance issuer has thirty days to pay
the assessment, Compl. ¶ 53, or face penalties, id. ¶¶ 55-57 (citing D.C. Code § 31-1204(a)-(b)).
Failure to pay the assessment subjects the issuer to a financial penalty “which shall be 10% of
3
The Challenged Amendment provides the following definitions for two key terms: (1) “Health Carrier” is defined
as “an entity subject to the insurance laws and regulations of the District that contracts, or offers to contract, to
provide, deliver, arrange for, pay for, or reimburse any of the costs of health care services, including: (A) An
accident and sickness insurance company; (B) A health maintenance organization; (C) A hospital and medical
services corporation; or (D) Any other entity providing a health benefit plan,” D.C. Code § 31-3171.01(6); and (2)
“Direct gross receipts” mean “all policy and membership fees and net premium receipts or consideration received in
a calendar year on all health insurance carrier risks originating in or from the District of Columbia,” D.C. Code § 31-
3171.01(3A).
7
the assessment plus interest at one-half of 1% per month for the period between the due date and
the date of full payment.” D.C. Code § 31-1204. Additional penalties may also be imposed,
subject to the Mayor’s discretion, upon service of a notice of deficiency. Discretionary penalties
may include: “suspending or revoking the insurer’s or health maintenance organization’s
certificate of authority or license to transact business, or any other appropriate action or sanction
authorized under the insurance laws for failure to comply with the District’s Laws, including
referring the matter to the Corporate Counsel for legal action to collect the assessment.” D.C.
Code § 31-1204. Under an emergency rule adopted by the Authority, assessed parties may
appeal an assessment to contest classification as a health carrier subject to the fee, or the
calculation of the assessment amount. Compl. ¶ 53; see 61 D.C. Reg. 6236 (June 20, 2014); Pl.’s
Mem. in Supp. of Mot. for Emergency Prelim. Inj., (“Pl.’s Emerg. P.I. Mem.”), at ¶ 6, ECF No.
32.4 Pursuant to the TAA, the Authority began assessing the HC Assessment on August 18,
2014. See Pl.’s Emerg. P.I. Mem. at ¶ 4.
B. Procedural History
As noted, supra note 2, the plaintiff initiated this suit shortly after passage of both the
EAA and the TAA, alleging that the power provided to the Authority in the EAA to assess non-
participating issuers to fund the D.C. Exchange is (1) preempted under the Supremacy Clause, by
the ACA (“Count I”), see Compl. ¶¶ 60-63, and (2) an unconstitutional violation of the (i)
Takings Clause (“Count II”), id. ¶¶ 64-68, (ii) Due Process Clause (“Count III”), id. ¶¶ 69-73,
(iii) Equal Protection Clause (“Count IV”), id. ¶¶ 74-77, and (iv) the separation of powers
principles inherent in the U.S. Constitution and D.C. Home Rule Act, barring delegation of
4
In support of its request for injunctive relief, the plaintiff has highlighted that “[n]either the legislation enacting the
[HC Assessment] nor the Emergency Rule authoriz[es] the Exchange to issue a refund of fees paid.” Pl.’s Emerg.
P.I. Mem. at ¶ 6.
8
legislative power to an executive officer (“Count V”), id. ¶¶ 78-81.5 On July 10, 2014, the
plaintiff sought a preliminary injunction barring the defendants from assessing, collecting, or
enforcing the assessment of the HC Assessment on products that cannot be sold on the D.C.
Exchange. See Pl.’s P.I. Mot. The day before the hearing on the plaintiff’s motion for
preliminary injunctive relief, the defendants filed a motion to dismiss the Complaint for failure to
state a claim for relief under Federal Rule of Civil Procedure 12(b)(6). See Defs.’ Mot. The
Court indicated at the motions hearing that both pending motions would be considered and
resolved together. See Prelim. Inj. Hr’g. Tr. (“P.I. Hr’g”) 77:14-16, July 29, 2014, ECF No. 35.
Less than two weeks after the briefing was complete on the defendants’ motion to dismiss, the
plaintiff filed a supplemental declaration from a member company that the Authority had issued
assessments, at the rate of 1 percent of 2013 gross receipts and required payment by September
30, 2014. Pl.’s Mot. to File Supp. Decl., ¶ 3, ECF No. 30. The day before the assessments were
due for payment, the plaintiff filed a second motion for a preliminary injunction, making
essentially the same arguments posited in its first motion and in opposition to the defendants’
Motion to Dismiss. See Pl.’s Emerg. P.I. Mot.
Since the defendants’ motion to dismiss is granted for the reasons discussed below, the
plaintiff’s motions for injunctive relief are denied as moot.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain “a short and
plain statement of the claim showing that the pleader is entitled to relief,” to “give the defendant
fair notice of what the . . . claim is about and the grounds upon which it rests.” Bell Atlantic
5
The plaintiff initially incorporated a request for a preliminary injunction in the Complaint (“Count VI”), but
subsequently complied with Local Civil Rule 65.1(c) by filing a separate motion for preliminary injunctive relief.
See LCvR 65.1(c) (“an application for a preliminary injunction shall be made in a document separate from the
complaint”); Pl.’s Mot. Prelim. Inj., ECF No. 11.
9
Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alterations in original) (citations and internal
quotations omitted); see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319
(2007). To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the
“complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that
is plausible on its face.” Wood v. Moss, 134 S. Ct. 2056, 2067 (2014) (quoting Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009)).
“[B]ecause a court can fully resolve any purely legal question on a motion to dismiss,
there is no inherent barrier to reaching the merits at the 12(b)(6) stage” when no facts are in
dispute. Marshall Cnty. Health Care Auth. v. Shalala, 988 F.2d 1221, 1226 (D.C. Cir. 1993); see
also Montanans For Multiple Use v. Barbouletos, 542 F. Supp. 2d 9, 13 (D.D.C. 2008) (“Where
the movant bases the motion on a failure to state a claim upon which relief can be granted, the
Court may dismiss based on dispositive issues of law.”); Am. Immigration Lawyers Ass’n v.
Reno, 18 F. Supp. 2d 38, 52 (D.D.C. 1998) aff’d, 199 F.3d 1352 (D.C. Cir. 2000) (resolving a
12(b)(6) motion to dismiss where “the entire case on review involves only questions of law and
does not turn on issues of fact”). When a “complaint properly read, actually presents no factual
allegations, but rather only arguments about legal conclusion to be drawn about the agency
action . . . the sufficiency of the complaint is the question on the merits, and there is no real
distinction in this context between the question presented on a 12(b)(6) motion and a motion for
summary judgment.” Marshall Cnty. Health Care Auth., 988 F.2d at 1226. Therefore, “Rule
12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law.” Neitzke
v. Williams, 490 U.S. 319, 326 (1989) (citing Hishon v. King & Spalding, 467 U.S. 69, 73
(1984)).
10
III. DISCUSSION
The parties agree that the ACA requires the D.C. Exchange, as well as other State-
operated Exchanges, to wean themselves from federal funding by January 1, 2015, Compl. ¶ 3;
Defs.’ Mem. in Supp. Mot. to Dismiss (“Defs.’ Mem.”) at 4, ECF No 26-1, but they dispute the
constitutionality of the mechanism adopted by the District to raise the necessary funds to
continue operation of the D.C. Exchange when federal funding becomes unavailable. The
plaintiff seeks a declaratory judgment that the Challenged Amendment to the Establishment Act
authorizing the HC Assessment is unenforceable because the ACA preempts and bars this
funding mechanism, which the plaintiff contends is also unconstitutional on other grounds.6 See
6
Although the defendants’ mention that the plaintiff failed to present “facts relating to ACLI’s members specific to
this case,” Defs.’ Mem. at 2, n. 2, they do not expressly challenge or examine the bases for the plaintiff’s standing,
see generally Defs.’ Mem.; P.I. Hr’g 6:11-12 (Plaintiff’s counsel noting, “I don’t think the District is in any way
contesting [the associative standing issue].”). The Court does not have that luxury. “[T]he requirement that a
claimant have ‘standing is an essential and unchanging part of the case-or-controversy requirement of Article III.’”
Davis v. FEC, 554 U.S. 724, 733 (2008) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). Where
an organization, such as the plaintiff here, “claim[s] representational standing on behalf of [its] members,” Compl.
¶¶ 14-15, the organization must show that “[1] [their] members would otherwise have standing to sue in their own
right, [2] the interests [they] seek[] to protect are germane to the organization’s purpose, and [3] neither the claim
asserted nor the relief requested requires the participation of individual members.” Natural Res. Def. Council v.
EPA, 755 F.3d 1010, 1016 (D.C. Cir. 2014) (citation omitted). Thus, the organization must put forward at least one
member who “would otherwise have standing to sue in [its] own right,” id., which in this case would require that an
ACLI member would be subject to the HC Assessment and meet Article III standing requirements, see Lujan, 504
U.S. at 560–61; Sierra Club v. EPA, 292 F.3d 895, 898 (D.C. Cir. 2002), and also fulfill the remaining requirements
for organizational standing. The Complaint states in a conclusory fashion that the plaintiff “has associational
standing to pursue claims for injunctive and declaratory relief on behalf of its members” and that “[the plaintiff’s]
members have standing to sue in their own right,” Compl. ¶ 14, without substantiating this assertion with any factual
allegations that any ACLI member met all of the criteria necessary to be subject to the HC Assessment, i.e., “a
health carrier doing business in the District with direct gross receipts of $50,000 or greater in the preceding calendar
year,” D.C. Code § 31-3171.03(f)(1). At the preliminary injunction hearing, plaintiff’s counsel conceded, in
response to the Court’s inquiries about the deficiencies in the Complaint regarding organizational standing, that
“there’s no allegation [in the Complaint] as to [the] specific amount of gross receipts” made by any plaintiff member
to demonstrate organizational standing, P.I. Hr’g 7:16-17, but offered to cure this deficiency by filing an amended
complaint or supplemental affidavit, id. at 6:25-7:5. Subsequently, in opposition to the defendants’ motion to
dismiss, the plaintiff provided a declaration that one of its members would be subject to the HC Assessment. See
Pl.’s Opp’n at 11-12 (citing D.C. Code § 3171.03(f) and Patterson Decl. at ¶¶ 3-4) (“Unum . . . is an accident and
sickness insurance company, licensed to sell insurance in the District, subject to the District’s insurance laws and
regulations, D.C. Code § 3171.06 (6), with more than $50,000 in gross receipts from the sale of disability insurance
in the District in the current and preceding calendar years.”)). The plaintiff has therefore demonstrated
organizational standing since, inter alia, (1) at least one of its members meets the criteria to be subject to the HC
Assessment and has therefore shown an injury-in-fact redressible by the relief sought in this suit, (2) the plaintiff is a
trade organization whose purpose “is to advocate for public policy that supports its members’ marketplace and its
members offer products that will be subject to the fee,” despite the members not participating in the D.C. Exchange;
11
Compl., prayer for relief. First, the plaintiff contends that, under the Supremacy Clause, the
Challenged Amendment is preempted because “[t]he ACA requires the Exchanges be ‘self-
sustaining,’ which means they must ‘generate’ funding from their own operations.” See Pl.’s
Opp’n at 1. Notwithstanding this ACA requirement, according to the plaintiff, the Challenged
Amendment gives the Authority the power to impose the HC Assessment on “non-participating
issuers and policies that are not and cannot be sold on the Exchange.” Id. (emphasis omitted).
Second, the plaintiff alleges that the Challenged Amendment violates the Takings, Due Process
and Equal Protection Clauses because applying the HC Assessment to non-participating health
insurance issuers confers no benefit on those assessed carriers, whose business has no nexus to
the operations of the D.C. Exchange. Id. at 20-30. Finally, the plaintiff argues that the
Challenged Amendment violates the non-delegation doctrine for failing to provide the Authority
with adequate standards in exercising its authority to charge and collect the HC Assessment. Id.
at 31-33. Each of the plaintiff’s constitutional challenges is addressed seriatim below.
A. ACA Does Not Preempt Challenged Amendment
Count I of the Complaint alleges that the Challenged Amendment is preempted because
“the ACA does not authorize the District to impose assessments or user fees on the sale of
products that are not sold on the Exchange.” Compl. ¶ 63. The plaintiff relies on Section
1311(d)(5)(A) of the ACA, 42 U.S.C. § 1803(d)(5)(A), together with the interpretation of the
ACA by the U.S. Department of Health and Human Services (“HHS”), to assert that the HC
and (3) only injunctive and declaratory relief is sought so individual member participation is not necessary. See
Pl.’s Opp’n at 12.
12
Assessment, as applied to non-participating issuers, “conflicts with, stands as an obstacle to, and
frustrates Congress’ purposes in the ACA.” Id. Review of general preemption principles is
helpful before turning to an analysis of the plaintiff’s preemption claim.
1. Preemption Principles
The Supremacy Clause of the U.S. Constitution establishes that the laws of the United
States “shall be the supreme Law of the Land; . . . any Thing in the Constitution or Laws of any
State to the Contrary notwithstanding.” U.S. CONST. art. VI, cl.2.; Wyeth v. Levine, 555 U.S.
555, 584 (2009) (holding that, under the Supremacy Clause, Congress “may impose its will on
the States”). The critical issue in a preemption case is whether Congress intended a federal
statute to preempt a state law. See Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516 (1992)
(“‘[t]he purpose of Congress is the ultimate touchstone’ of pre-emption analysis”) (quoting
Retail Clerks v. Schermerhorn, 375 U.S. 96, 103 (1963)). Congress’ intent, if not express, may
be inferred from both the language of the statute at issue and the statutory framework.
Medtronic, Inc. v. Lohr, 518 U.S. 470, 486 (1996).
The D.C. Circuit has outlined “three ways in which a federal statute or regulation can
pre-empt state law.” Geier v. Am. Honda Motor Co., 166 F.3d 1236, 1237 (D.C. Cir. 1999).
First, Congress can enact a statute that contains an express preemption clause, leaving “‘no
doubt’ that federal law prevails.” Comm’ns Imp. Exp. S.A. v. Republic of the Congo, 757 F.3d
321, 326 (D.C. Cir. 2014) (quoting Arizona v. United States, 132 S. Ct. 2492, 2500 (2012)); see
Altria Group, Inc. v. Good, 555 U.S. 70, 76 (2008); Hillman v. Maretta, 133 S. Ct. 1943, 1949
(2013) (“Under the Supremacy Clause Congress has the power to pre-empt state law
expressly.”); Geier, 166 F.3d at 1237.
13
Second, “Congress [may] regulate[] the field so extensively that it clearly intends the
subject area to be controlled only by federal law,” in what is called “field preemption.” Geier,
166 F.3d at 1237 (internal quotations and brackets omitted). As the Supreme Court explained,
“[w]hen Congress intends federal law to ‘occupy the field,’ state law in that area is preempted . .
. [a]nd even if Congress has not occupied the field, state law is naturally preempted to the extent
of any conflict with a federal statute.” Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363,
372 (2000).
Finally, “implied or conflict pre-emption [] applies when a state law conflicts with a
federal statute or regulation.” Geier, 166 F.3d at 1237. A finding of implied or conflict
preemption still requires the court to determine whether Congressional intent is sufficiently clear
for federal law to supersede state law. Wyeth, 555 U.S. at 565. Implied preemption may be
found where compliance with both state and federal law is impossible, Fla. Lime & Avocado
Growers, Inc. v. Paul, 373 U.S. 132, 142–43 (1963), or the state law “stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress,” Hines v.
Davidowitz, 312 U.S. 52, 67 (1941).
These categories of preemption are not “rigidly distinct.” Crosby, 530 U.S. at 372 n.6
(2000) (citing English v. Gen. Elec. Co., 496 U.S. 72, 79, n. 5 (1990)). Since “a variety of state
laws and regulations may conflict with a federal statute, whether because a private party cannot
comply with both sets of provisions or because the objectives of the federal statute are frustrated,
‘field pre-emption may be understood as a species of conflict pre-emption,’” Id. (quoting Gen.
Elec. Co., 496 U.S. at 79-80) (citation omitted). Notably, a general presumption against federal
preemption of state law exists, particularly in areas traditionally reserved to the States.
Medtronic, Inc., 518 U.S. at 485 (directing that courts “start with the assumption that the historic
14
police powers of the States were not to be superseded by the Federal Act unless that was the
clear and manifest purpose of Congress”) (internal quotations and citations omitted); California
v. ARC Am. Corp., 490 U.S. 93, 101 (1989); Biotech. Indus. Org. v. District of Columbia, 505
F.3d 1343, (D.C. Cir. 2007) (“To overcome the presumption against preemption[], the party
asserting preemption must demonstrate ‘that the clear and manifest purpose of Congress’
supports preemption.” (quoting N.Y. State Conference of Blue Cross & Blue Shield Plans v.
Travelers Ins. Co., 514 U.S. 645, 655 (2007))); Geier, 166 F.3d at 1237 (noting the presumption,
which “courts must consider when invoking the doctrine of preemption,” that “in areas where
States have exercised their historic police powers (such as the health and safety of their citizens),
courts must start with a presumption against preemption, absent a ‘clear and manifest purpose of
Congress’”). Consequently, “when the text of a pre-emption clause is susceptible of more than
one plausible reading, courts ordinarily accept the reading that disfavors pre-emption,” since
“[t]hat approach is consistent with both federalism concerns and the historic primacy of state
regulation of matters of health and safety.” CTS Corp. v. Waldburger, 134 S. Ct. 2175, 2188-
2189 (U.S. 2014) (internal quotations and citations omitted). This presumption against
preemption may be overcome only if the court finds that the preemptive purpose of Congress
was “clear and manifest.” Medtronic, 518 U.S. at 485; Albany Eng’g Corp. v. F.E.R.C., 548
F.3d 1071, 1075 (D.C. Cir. 2008).
Set against these preemption principles, the Court now turns to analysis of the plaintiff’s
preemption claim.
2. Analysis of Plaintiff’s Preemption Claim
The plaintiff does not specify the precise type of preemption invoked – express, field or
implied – in support of its preemption claim. Nevertheless, express preemption is clearly
15
unavailable. The ACA amends, in part, the Public Health Services Act, which squarely
addresses preemption and provides that: “Nothing in this title shall be construed to preempt any
State law that does not prevent the application of the provisions of this title.” 42 U.S.C. §
18041(d); Defs.’ Mem. at 13.7 Express preemption cannot apply because the ACA explicitly
recognizes that State laws may be required to carry out the ACA mandate to provide minimum
essential health coverage. Similarly, to the extent the plaintiff seeks to invoke “field”
preemption by referencing “the authority of Congress to reserve for itself exclusive dominion
over an entire field of legislative concern,” Compl. ¶ 61, this effort is unavailing. The ACA
expressly grants the States the choice of operating their own Exchanges, pursuant to state law,
rather than adopt a Federal Exchange, id. ¶ 2, plainly undercutting any perceived congressional
intent to control the entire field of local Exchanges.
The plaintiff appears to “hedge its bets” and invoke an implied preemption by claiming
that the Challenged Amendment “conflicts with, stands as an obstacle to, and frustrates
Congress’ purposes in the ACA.” Compl. ¶ 63. The plaintiff reasons that the ACA requirement
for State Exchanges to be “self-sustaining” by January 1, 2015 preempts the Challenged
Amendment. Pl.’s Opp’n at 13-14. In the plaintiff’s view, this self-sustaining requirement
“means [the Exchanges] must ‘generate’ funding from their own operations” and, therefore,
“[r]eaching outside the Exchange to commandeer funds from companies that do not sell products
on the Exchange is not consistent with that statutory requirement.” Id. at 1; see id. at 13 (“by its
plain terms, the statute requires that an Exchange be able to ‘generate’ funds from its own
operations”). The plaintiff insists that the use in the ACA’s Section 1311(d)(5)(A) of the term
“self-sustaining” is an over-arching limitation on the funding options available to the States in
7
The plaintiff appears to concede this point, arguing that the lack of express preemption “is not the end of the
inquiry” because the state law must comply with rather than conflict with the ACA. Pl.’s Opp’n at 19.
16
funding local Exchanges, with the result that this section preempts any effort by the District to
seek funding outside of the operations of the D.C. Exchange itself. The plaintiff contends that
this interpretation of Section 1311(d)(5)(A) is reinforced by: (1) the plain meaning of “self-
sustaining,” which is defined as “‘maintaining or able to maintain oneself by independent
effort,’” id. at 13 (quoting Merriam-Webster.com, http://merriam-webster.com/dictionary); (2)
the express terms of this ACA section, id. at 14; (3) the use of the same term “self-sustaining” in
another federal statute, the Independent Offices Appropriations Act (“IOAA”), 31 U.S.C. §
9701, id.; and, finally, (4) the manner in which Federal Exchanges are operated, id. at 14-15.
The defendants, on the other hand, assert that the “plain language of the ACA clearly
defeats this claim” because “the ACA specifically grants power to the Authority to generate
funding from sources in addition to imposing user fees on health insurance companies selling
policies through the D.C. Exchange.” Defs.’ Mem. at 13 (emphasis in original). According to
the defendants, the term “self-sustaining” means simply that the State must operate the Exchange
independent of federal government funds.
Each party’s construction of ACA’s Section 1311(d)(5)(A) turns on the meaning of the
term “self-sustaining.” While the definition of “self-sustaining” is undisputed, the crux of the
instant dispute is whether this term as used in ACA limits the manner in which a local Exchange
may be funded by the State or, instead, requires the State to fund the local Exchange
independently of the Federal government. In other words, does the “self” in “self-sustaining”
refer to the Exchange or the State? The plaintiff’s arguments on this issue, while forceful, are
ultimately unpersuasive.
In considering the parties’ respective interpretations of the ACA, the following
principles of statutory interpretation are instructive. When dealing with a complex statutory
17
scheme, like that reflected in the ACA, issues related to particular provisions must be examined
in context with the overall statute and as part of “a symmetrical and coherent regulatory
scheme.” See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (internal
quotation marks omitted); Wolf Run Mining Co. v. Fed. Mine Safety & Health Review Comm’n,
659 F.3d 1197, 1200 (D.C. Cir. 2011). This means that the court “must (as usual) interpret the
relevant words not in a vacuum, but with reference to the statutory context, structure, history,
and purpose.” Abramski v. United States, 134 S. Ct. 2259, 2267 (2014) (internal quotations and
citations omitted); see Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 466 (2001) (“Words that
can have more than one meaning are given content, however, by their surroundings.”).
“Interpretation of a word or phrase depends upon reading the whole statutory text, considering
the purpose and context of the statute, and consulting any precedents or authorities that inform
that analysis.” Dolan v. U.S. Postal Serv., 546 U.S. 481, 486 (2006). Thus, the Court begins its
analysis with the statutory language and the interpretation of the statute provided in
implementing regulations promulgated by an expert agency, before turning to the remaining
arguments of the parties.
(a) ACA’s Purpose and the Plain Language of ACA Section 1311(d)(5)(A)
As noted, the key ACA provision requiring, as of January 1, 2015, non-federal funding to
operate State Exchanges, including the D.C. Exchange, is Section 1311(d)(5)(A), which states in
full:
(5) FUNDING LIMITATIONS
(A) NO FEDERAL FUNDS FOR CONTINUED OPERATIONS.—
In establishing an Exchange under this section, the State shall ensure that such Exchange
is self-sustaining beginning January 1, 2015, including allowing the Exchange to charge
assessments or user fees to participating health insurance issuers, or to otherwise generate
funding, to support its operations.
18
42 U.S.C. § 18031 (d)(5)(A).
The plaintiff focuses on this provision’s explicit authorization for the Exchange to
“charge assessments or user fees to participating health insurance issuers,” 42 U.S.C. § 18031
(d)(5)(A), as reinforcing the meaning of the term “self-sustaining” that the Exchange is limited to
raising funds by “generat[ing] fees through its actual operations.” Pl.’s Opp’n at 14 (emphasis in
original). Certainly, this statutory provision makes clear that charging user fees on participating
health issuers that sell their products on a State Exchange, is one valid mechanism to generate
the necessary funds to operate State Exchanges.
The plaintiff’s heavy reliance on the example of “charg[ing] assessments or user fees to
participating health insurance issuers,” however, discounts the significance of the broader
authorization that follows, namely: “to otherwise generate funding” in order to fund the
Exchange’s operations. With respect to this latter phrase, the plaintiff argues that the Exchange,
“not the District as a whole,” is authorized “to otherwise generate funding,” id. at 15, and offers
several examples of alternatives to assessments on non-participating issuers that the Exchange
could employ to generate funds.8 Even if the statutory provision at issue speaks to what the
Exchange may do, as the plaintiff contends, the latter phrase “to otherwise generate funding”
gives States the “green light” to authorize their Exchanges to raise funds “to support [their]
operations” in any way that the State believes is necessary. See Defs.’ Mem. at 13 (“[T[he
Authority, in addition to imposing user fees on the several health carriers selling insurance
through the D.C. Exchange may ‘otherwise generate funding[,] to support its operations.’”
(quoting 42 U.S.C. § 18031(d)(5)(A))).
8
The plaintiff suggests, “[f]or instance, an Exchange could [generate funding] by investing its surplus funds,
offering services to other Exchanges (call center, computer, etc.), advertising, imposing assessments on purchasers,
or operating stand-alone marketplaces (e.g., vision), as some States are contemplating.” Pl.’s Opp’n at 17.
19
The plaintiff contests this reading of the statute, arguing that allowing States to authorize
Exchanges to generate funds from outside of the Exchanges’ operations violates “multiple
canons of contract construction.” Pl.’s Opp’n at 16. At the outset, interpretive canons are
employed when the meaning or intent of the statutory language is ambiguous. The Supreme
Court has observed that interpretive canons “are quite often useful in close cases, or when
statutory language is ambiguous. But . . . such ‘interpretative canon[s are] not a license for the
judiciary to rewrite language enacted by the legislature.’” United States v. Monsanto, 491 U.S.
600, 611 (1989) (quoting United States v. Albertini, 472 U.S. 675, 680 (1985)). In this case,
ACA’s text and purpose make plain that Congress did not intend to limit the exercise of State
power in operating State Exchanges. On the contrary, Congress intended in the ACA to
encourage States to operate their own Exchanges and to give the States broad authority to
provide adequate funding for those Exchanges when federal funding ceased.
The congressional intent is consistent with the purpose of the ACA to increase health care
accessibility. NFIB, 132 S. Ct. at 2580. A brief perusal of the naming conventions Congress
used for the ACA’s subchapters makes this purpose obvious. These provisions are titled, for
example, “Immediate Actions to Preserve and Expand Coverage,” 42 U.S.C. §§ 18001-03;
“Available Coverage Choices for All Americans,” id. at §§18021-63; and “Affordable Coverage
Choices for All Americans,” id. at §§ 18071-84. In support of this goal, the ACA authorizes the
States to establish their own Exchanges and encourages this effort by granting more than $4.8
billion to establish State Exchanges. See Pl.’s P.I. Mem. at 8 (citing Schlueter Decl. Ex. D,
Annie L. Mach, et al., Cong. Research Serv. R43066, FEDERAL FUNDING FOR HEALTH
INSURANCE EXCHANGES at 4-5 (2014)). The District exercised this option and elected to
establish its own Exchange and received more than $133 million in federal grants to fund its
20
operations. Compl. ¶ 43. The Establishment Act authorizes the Authority to administer the D.C.
Exchange and, as amended with the Challenged Amendment, to collect sufficient funds to ensure
the continued operations of the Exchange after federal funding ceases in January 2015. Thus,
contrary to the plaintiff’s view, the Challenged Amendment furthers the purpose of the ACA and
fulfills the mandate set out in ACA’s Section 1311(d)(5)(A) for State Exchanges to function
without federal funding after December 31, 2014.
The plaintiff’s construction of the term “self-sustaining” would undermine the viability of
the D.C. Exchange’s continued operations, unless rates for D.C. residents obtaining health
insurance on that Exchange were substantially increased, thereby reducing the accessibility to
affordable insurance. These adverse effects would undermine both the ACA’s purpose and the
District’s efforts to further that purpose by setting up the D.C. Exchange. The defendants
pointed out at the motions hearing that should the plaintiff prevail, “essentially the state
exchange in [the] jurisdiction will fail, and, therefore the District of Columbia is [going to] have
to go back to the federal exchange.”9 The District “will be taking many steps backwards if that’s
the result of this motion and that’s not . . . what Congress wanted to happen.” See P.I. Hr’g
68:18-20.
In the face of clear Congressional purpose in the ACA and the District’s effort to fulfill
the mandate of ACA with the Challenged Amendment, the plaintiff responds with reference to
certain canons of statutory construction that reflect a facility with Latinate phrases more than the
9
The D.C. Circuit recently held that the ACA does not allow federal tax credit subsidies for insurance purchased on
Federal Exchanges. See Halbig v. Burwell, 758 F.3d 390, 399 (D.C. Cir. 2014) reh'g en banc granted, judgment
vacated, No. 14-5018, 2014 WL 4627181 (D.C. Cir. Sept. 4, 2014). This opinion has been vacated pending en banc
review, but if the holding of Halbig were adopted and, at the same time, available funding mechanisms for the D.C.
Exchange were curtailed, as the plaintiff urges in this case, such that the D.C. Exchange cannot continue, then the
consequences of these combined decisions for D.C. residents may be use of a Federal Exchange for which, under the
holding of Halbig, no tax credit subsidies are available. The Supreme Court has granted certiorari on this issue. See
King v. Burwell, No. 14-114, 2014 WL 3817533, at *1 (U.S. Nov. 7, 2014) (“The petition for writ of certiorari is
granted.”).
21
applicability of those canons here. While these canons are undoubtedly serviceable devices in
certain contexts, they are poor weapons to attempt to blow holes through such expressly stated
Congressional intent or defeat the plain meaning of ACA’s Section 1311(d)(5)(A). The plaintiff
contends, for example, that the canon expressio unius est exclusio alterius (i.e., “expressing one
item of [an] associated group or series excludes another left unmentioned,” United States v.
Vonn, 535 U.S. 55, 65 (2002)), is violated by reading the funding provision in ACA’s Section
1311(d)(5)(A) broadly because such a construction renders superfluous the specific authorization
to impose fees on “participating issuers.” Pl.’s Opp’n at 16. Reliance on this canon is
misplaced. The fact that this statutory provision provides an instructive example of a funding
mechanism that relies on user fees from participating issuers serves only to highlight that
option—and may even mean that option is preferable—without limiting the funding alternatives
available to the States when federal funding ceases.
To apply the plaintiff’s suggested canon to restrict funding options available to States
would violate another principle of statutory construction: namely, not reading an implied
negative inference into a statute unless such a meaning is clear. As the Supreme Court recently
explained, “[t]he force of any negative implication” created by including one example of funding
as opposed to another “depends on context.” Marx v. Gen. Revenue Corp., 133 S. Ct. 1166,
1175 (2013). Indeed, “unless it is fair to suppose that Congress considered the unnamed
possibility and meant to say no to it,” Barnhart v. Peabody Coal Co., 537 U.S. 149, 168 (2003),
the negative implication is not warranted. In the context of the ACA, Congress’ intent was clear
to give the States broad flexibility to operate State Exchanges without limiting the States’
authority to employ alternative funding sources. See Marx, 133 S. Ct. at 1175 (noting that the
canon of expression unius est exclusion alterius can be overcome by “contrary indications that
22
adopting a particular rule or statute was probably not meant to signal any exclusion”) (citation
omitted).
The plaintiff also argues that reading the phrase “to otherwise generate funding” as
granting broad funding authority for State Exchanges would violate the interpretative canons of
noscitur a sociis (i.e., “a word may be known by the company it keeps,” Graham Cnty. Soil &
Water Conservation Dist. v. United States ex rel. Wilson, 559 U.S. 280, 281 (2010) (quotations
and citation omitted)), and ejusdem generis (i.e., “of the same kind,” Bullock v. BankChampaign,
N.A., 133 S. Ct. 1754, 1760 (2013)). Pl.’s Opp’n at 16. Taken together these two canons mean
that “general words are construed to embrace only objects similar in nature to those objects
enumerated by the preceding specific words.” Wash. State Dep’t of Social & Health Servs. v.
Guardianship Estate of Keffeler, 537 U.S. 371, 384 (2003) (collecting cases); see also Stewart v.
Nat’l Educ. Ass’n, 471 F.3d 169, 175 (D.C. Cir. 2006) (“ejusdem generis, which limits general
terms which follow specific ones to matters similar to those specified” and “[t]he similar doctrine
of noscitur a sociis teaches that a word is known by the company it keeps”) (internal quotations
and citations omitted). These canons may be referenced when “a word is capable of many
meanings in order to avoid giving unintended breadth to the Acts of Congress.” Amgen, Inc. v.
Smith, 357 F.3d 103, 112-13 (D.C. Cir. 2004) (citing Jarecki v. G.D. Searle & Co., 367 U.S. 303,
307 (1961)). While the canon of ejusdem generis can be useful, “its force can easily be
overcome by evidence of words and circumstances that indicate contrary intention.” 4 Arthur
Linton Corbin, Corbin on Contracts, § 24.28 (1998). Thus, in the context of the ACA where
Congress was plainly concerned with providing the States with the upmost flexibility in
generating the necessary funds to operate State Exchanges when federal funding ceased, these
canons are virtually useless.
23
Given the purpose of the ACA and clear Congressional intent to encourage States and the
District to set up and fund their own Exchanges, the plaintiff’s restrictive reading of “self-
sustaining” to require each State Exchange to generate funds only from the Exchange’s own
operations, must be rejected. Moreover, as discussed next, the plaintiff’s interpretation of this
ACA provision is contrary to that given by HHS in this agency’s implementing regulations.
(b) ACA’s Implementing Regulations
The parties dispute the import of the ACA’s implementing regulations for the proper
construction of Section 1311(d)(5)(A). The defendants contend that “the plain reading of the . . .
implementing regulations show that Congress and HHS intended to provide the States with broad
discretion to develop a wide range of options for funding plans” to ensure that the Exchange
could operate after December 31, 2014 when federal funding ceases. Defs.’ Mem. at 15. The
plaintiff, on the other hand, posits that HHS regulations, “if anything, [] only make more clear
that an Exchange must ‘generate’ funding from its own operations.” Pl.’s Opp’n at 18. Review
of these regulations shows that the plaintiff’s position is simply wrong.
The Final Rule promulgated by HHS to implement the ACA provides significant
guidance on a number of issues related to this new, complex law and, in particular, its “direct
effects on the distribution of power and responsibilities among the state and federal governments
. . . relating to health insurance coverage (that is, for QHPs) that is offered in the individual and
small group markets.” 77 Fed. Reg. 18310, 18443 (“HHS Final Rule”) (March 27, 2012). Any
Federalism implications were considered “substantially mitigated because under the statute,
States have choices regarding the structure and governance of their Exchanges” and are “not
require[d] [] to establish an Exchange.” Id. Indeed, the Final Rule makes clear that the
regulations are intended “to afford States substantial discretion in the design and operation of an
24
Exchange, with greater standardization provided where directed by the statute or where there are
compelling practical, efficiency or consumer protection reasons.” Id. at 18311 (emphasis
supplied). This emphasis on State discretion in administering the operations of State Exchanges
is reflected throughout the HHS Final Rule because “States are best equipped to adapt the
minimum Exchange functions to their local markets and the unique needs of their residents,” due
to the States’ “significant experience performing many key functions.” Id. at 18313.
Consequently, “where possible,” HHS “finalized provisions of the proposed rule that provided
significant discretion for States to go beyond the minimum standards in implementing and
designing an Exchange.” Id.
The HHS Final Rule further addresses the Federalism implications of the ACA and
implementing regulations, observing that “[b]ecause States have flexibility in designing their
Exchange, State decisions will ultimately influence both administrative expenses and overall
premiums.” Id. at 18443. With respect to the funding of State Exchanges, the rule describes the
breakdown of funding sources between the Federal and State governments, such that “much of
the initial costs to the creation of Exchanges” would be funded by federal grants and “[a]fter this
time, Exchanges will be financially self-sustaining with revenue sources at the discretion of the
State.” Id. The HHS Final Rule states that “[c]urrent State Exchanges charge user fees to
issuers,” id., but does not indicate that a State’s discretion in tapping “revenue sources” is in any
way limited to such user fees.
Moreover, the HHS Final Rule’s discussion of the specific regulation implementing
ACA’s Section 1311(d)(5)(A) is notable in the agency’s responses to comments recommending
non-approval of State plans absent “a clear plan to achieve financial sustainability” and “specific
recommendations on how Exchanges should generate revenue.” Id. at 18322-23. The agency
25
rejected the invitation in the comments to impose restrictions on States’ funding options for State
Exchanges. Instead, the HHS Final Rule states that the “ACA directs Exchanges to be self-
sustaining and provides flexibility for Exchanges to generate support for continued operation in a
variety of ways, such as through user fees.” Id. at 18323. Consequently, in accord with the
statutory terms, the regulations “do not limit Exchanges’ options in the final rule by prescribing
or prohibiting certain approaches.” Id. On the contrary, maximum flexibility was provided
because “user fees parameters, as well as the need for other revenue-generating strategies, may
vary by State depending upon several factors such as the number of potential enrollees and the
Exchange’s operational costs.” Id.
Several comments and responses are particularly pertinent to the instant challenge to the
District’s funding mechanism for the D.C. Exchange. In response to “concerns about specific
approaches for generating revenue, such as a provider or general tax,” the agency described
“Exchange flexibility in funding ongoing operations” as “critical,” and observed “that the ability
to pursue specific funding strategies may vary by State.” Id. Rather than bar any funding option,
the agency merely “encourage[d] Exchanges to consider the implications of various fee
structures on all stakeholders before making a selection” and, again, stressed “that the Exchange
has discretion to set parameters related to assessments.” Id.
Another comment addressed “recommendations regarding the types of issuers that should
be subject to any assessments established by the Exchange,” with “the majority of commenters
advocat[ing] for a broad-based approach in which all issuers would be subject to the assessment”
and “[f]ewer commentators recommend[ing] a narrower approach,” in which “certain plans, such
as excepted benefit plans, [would] be excluded.” Id. Other than urging that the “Exchange
should identify the issuers that are subject to any user fees or other assessments, if applicable,”
26
id., the agency left the option of imposing assessments on non-participating issuers up the States.
Indeed, the agency’s response indicates that issuers subject to fees or assessments “could include
all participating issuers . . . or a subset of issuers identified by the Exchange,” or “an Exchange
could exempt certain issuers from assessments.” Id. The agency stressed that “Exchange
discretion is important with respect to issuer participation so that Exchanges can consider a broad
range of user fee and assessment alternatives.” Id.
Consistent with HHS’ explanations and responses to comments discussed in the Final
Rule, the final regulation regarding “Financial support for continued operations,” codified at 45
C.F.R. § 155.160, requires that each State “ensure its Exchange has sufficient funding in order to
support its ongoing operations beginning January 1, 2015,” id. at § 155.160 (b), and provides
that “States may generate funding, such as through user fees on participating issuers, for
Exchange operations,” id. at § 155.160 (b)(1); see also HHS Final Rule, 77 Fed. Reg. at 18322.
The plaintiff, again, seizes on “[t]he specific example given – user fees” as confirmation “that a
‘self-sustaining’ Exchange is one that is able to ‘generate’ its own funding through its own
operations.” Pl.’s Opp’n at 18. To the contrary, an example cannot have the effect of
swallowing the whole provision, as the plaintiff urges. The words “such as” preceding the
example have meaning, and indicate that the example that follows is not exclusive but only an
available option. See D. Ginsberg & Sons v. Popkin, 285 U.S. 204, 208 (1932) (It is a “cardinal
rule that, if possible, effect shall be given to every clause and part of a statute.”).
The implementing regulations for the ACA, generally, and Section 1311(d)(5)(A), in
particular, make amply clear that States were afforded the utmost flexibility in determining how
to fund State Exchanges rather than, as the plaintiff urges, limited in how they may raise the
funds to operate their Exchanges. See Defs.’ Mem. at 14.
27
(c) Use of “Self-Sustaining” Term in IOAA
The plaintiff also looks to the use of the term “self-sustaining” in an entirely different
federal statute, the IOAA, to support its position that Congress’ directive that the “State shall
ensure that such Exchange is self-sustaining beginning January 1, 2015” means that the D.C.
Exchange must generate funding from its own operations. This argument misses the mark.
The IOAA, enacted over sixty years ago in 1952, admonishes federal agencies to recover
the cost of providing services and purports to authorize agency discretion in setting fees. This
statute provides, in full, that “[i]t is the sense of Congress that each service or thing of value
provided by an agency (except a mixed-ownership Government corporation) to a person (except
a person on official business of the United States Government) is to be self-sustaining to the
extent possible.” 31 U.S.C. § 9701(a) (emphasis added). “The IOAA describes only in the most
general terms how this desideratum of agency self-sufficiency is to be accomplished; agencies
are statutorily instructed to be fair in imposing any fee regime and to consider such factors as
costs to the Government, the value of the service to the recipient, the public policy or interest
being served, and ‘other relevant facts.’” Cent. & S. Motor Freight Tariff Ass’n v. United States,
777 F.2d 722, 724 (D.C. Cir 2014) (quoting 31 U.S.C. § 9701 (b)(2)(A-D)).
Significantly, the IOAA is interpreted “narrowly to avoid constitutional problems.” Nat’l
Cable Television Ass’n v. United States, 415 U.S. 336, 342 (1974); see also Fed. Power Comm’n
v. New England Power Co., 415 U.S. 345 (1974). Specifically, Federal agencies may charge
fees “for a service that confers a specific benefit upon an identifiable beneficiary,” Engine Mfrs.
Ass’n v. EPA, 20 F.3d 1177, 1180 (D.C. Cir. 1994), but over-charging beyond “value to the
recipient” would exceed the Congressional authorization set out in the IOAA and amount to an
improper tax, NCTA, 415 U.S. at 342-43.
28
The IOAA is nowhere referenced in the ACA, which does not make this “sense of
Congress,” 31 U.S.C. § 9701(a), applicable to the States or State Exchanges. Indeed, the
plaintiff concedes, as it must, that the IOAA applies to federal agencies and not to State
Exchanges. Pl.’s Opp’n at 14. Nonetheless, the plaintiff insists that because “self-sustaining”
has an acquired meaning as used in the IOAA, that same meaning must apply to the use of the
term “self-sustaining” in the ACA. See id. As an initial matter, while a standard principle of
statutory interpretation is that identical phrases appearing in the same statute ordinarily bear a
consistent meaning, see Powerex Corp. v. Reliant Energy Services, Inc., 551 U.S. 224, 232
(2007), it cannot be presumed that the same phrase in different statutes share the same meaning.
Indeed, the Supreme Court has expressly cautioned that “[w]hen conducting statutory
interpretation, the Court “must be careful not to apply rules applicable under one statute to a
different statute without careful and critical examination.” Gross v. FBL Fin. Servs., 557 U.S.
167, 174 (2009) (quoting Fed. Express Corp. v. Holowecki, 552 U.S. 389, 393 (2008)); see also
Hardt v. Reliance Std. Life Ins. Co., 560 U.S. 242, 253-54 (2010) (holding that construction of
statute referring to “prevailing party” was not governed by “[o]ur ‘prevailing party’ precedent”
because statute at issue contained different terms).
Moreover, the plaintiff’s argument that the same constraints placed by the IOAA on
Federal agencies also apply to State Exchanges because the same term “self-sustaining” is used
in both the IOAA and the ACA stretches the reach of the IOAA too far. The ACA directive that
State Exchanges be “self-sustaining” does not involve the appropriation or taxing powers of
Congress and, in fact, is triggered by the cessation of any federal funding by January 1, 2015.
Thus, the ACA raises none of the same constitutional concerns over exceeding the fee-for-
service authorization in the IOAA that requires the latter statute to be read narrowly. Instead, the
29
Court looks to the text of the ACA and the context in which that term is used to discern its
meaning. See King v. St. Vincent's Hosp., 502 U.S. 215, 221 (1991) (“the meaning of statutory
language, plain or not, depends on context”); Am. Fed’n of Gov’t Emps., AFL-CIO, Local 3669
v. Shinseki, 709 F.3d 29, 33 (D.C. Cir. 2013) (“always, [] begin with the text of the statute”). In
this regard, the statutory test and purpose of the ACA controls the proper interpretation of the
term “self-sustaining” and takes precedent over use of the same term in an entirely different
statute and context.
(d) Funding of Federal Exchanges Is Irrelevant
Finally, the plaintiff argues that its “interpretation of the statute is consistent with HHS’
own actions in setting up the funding mechanism for the Federal Exchanges, which impose fees
solely in relation to products actually sold on such an Exchange.” Pl.’s Opp’n at 14. The
plaintiff summarily states that the operations of the Federal Exchanges supports the interpretation
that “self-sustaining refers not to the need for States to sustain their Exchanges without federal
funding . . . but rather to the need for Exchanges to sustain themselves through their own
operations.” Id. at 15.
The manner in which Federal Exchanges are operated is not the appropriate lens through
which to view Congress’ intent regarding how States may exercise their discretion and authority
to fund State Exchanges. Federal Exchanges may provide a model for State Exchanges but that
is a far cry from the plaintiff’s claim that States are restricted to that model. Whatever funding
limitations or requirements Congress may impose on Federal Exchanges does not necessarily
extend to the States. As discussed, supra, in Part III.A.2(a), Congress plainly gave the States the
flexibility in ACA’s Section 1311(d)(5)(A), to determine how their local Exchanges would
30
“otherwise generate funding to support [their] operations” and the States are not limited to user
fees or assessments on participating issuers.
* * *
The plaintiff has utterly failed to overcome the “presumption against preemption.”
Biotech. Indus. Org., 505 F.3d at 1351. Rather than “demonstrate that the clear and manifest
purpose of Congress supports preemption,” id., the plaintiff has strained to use the term “self-
sustaining” in ACA’s Section 1311(d)(5)(A) as a hook to pull in the requirements of the IOAA
and apply those same limitations to the States’ funding options for State Exchanges. The text
and context in which “self-sustaining” is used in this ACA provision, however, allows the States
to slip off any line tying this statute to the IOAA.
Moreover, the “case for federal pre-emption is particularly weak where Congress has
indicated its awareness of the operation of state law in a field of interest, and has nonetheless
decided to ‘stand by both concepts and to tolerate whatever tension there [is] between them.’”
Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 167 (1989) (quoting Silkwood v.
Kerr-McGee Corp., 464 U.S. 238, 256 (1984)) (alterations in original). As the defendants note,
“[h]ere, not only did Congress demonstrate its ‘awareness’ of the operation of state and local law
in the regulation of the health-insurance industry in the ACA, it encouraged a collaborative
approach, detailing ways in which States could generate funding to operate their Exchanges.”
Defs.’ Mem. at 17.
Accordingly, the ACA does not preempt the Challenged Amendment, as the ACA
reflects the intent of Congress for the States to have broad flexibility to implement and operate
State Exchanges.
31
B. The Challenged Amendment Does Not Violate Other Constitutional Provisions
In addition to arguing that the Challenged Amendment is preempted by the ACA under
the Supremacy Clause of the U.S. Constitution, the plaintiff attacks the Challenged Amendment
as an unconstitutional violation of (1) the Takings Clause of the Fifth Amendment, in Count II,
Compl. ¶¶ 64-68; (2) the Due Process Clause of the Fifth Amendment, in Count III, id. ¶¶ 69-73,
(3) the Equal Protection Clause of the Fifth Amendment, in Count IV, id.¶¶ 74-77, and (4) the
separation of powers inherent in the U.S. Constitution, due to an alleged improper delegation of
legislative power to an executive agency, in Count V, id. ¶¶ 78-81. These claims also fail, for
the reasons discussed below.
1. Takings Clause Claim
Count II of the Complaint alleges that the HC Assessment constitutes a taking of property
without just compensation, in violation of the Fifth Amendment to the U.S. Constitution.
Compl. ¶ 68. The Takings Clause applies to the States as well as the federal Government,
Chicago, B. & Q.R. Co. v. City of Chicago, 166 U.S. 226, 236 (1897), and provides that private
property shall not “be taken for public use, without just compensation.” U.S. CONST. amend. V.
Thus, the Takings Clause “does not prohibit the taking of private property, but instead places a
condition on the exercise of that power.” First English Evangelical Lutheran Church of
Glendale v. Los Angeles Cnty., 482 U.S. 304, 314 (1987); see also Williamson Cnty. Reg’l
Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172, 194 (1985) (“The Fifth
Amendment does not proscribe the taking of property; it proscribes taking without just
compensation.”). Consequently, “[w]hen the action of the [] government effects a ‘taking’ for
Fifth Amendment purposes, there is no inherent constitutional defect, provided just
32
compensation is available.” Transmission Access Policy Study Grp. v. FERC, 225 F.3d 667, 690
(D.C. Cir. 2000).
The plaintiff alleges that the Challenged Amendment amounts to an unconstitutional
taking because the HC Assessment “is imposed without regard to whether the underlying product
was, or even could be, sold on the D.C. Exchange, and thus without regard to what, if any,
benefit the assessed issuer received from the Exchange.” Compl. ¶ 67. In the plaintiff’s view,
the HC Assessment is a user fee imposed on the plaintiff’s members that “is constitutional only if
there is a meaningful nexus between the fee imposed and the benefits supplied in return.” Pl.’s
Opp’n at 21. Under this articulation of the applicable constitutional standard, the plaintiff
contends, the District has “failed” to “demonstrate some meaningful nexus between those it
discretely burdens for an assessment and the benefits that flow from what the assessment funds.”
Id. at 23.
The defendants counter that the HC Assessment is not a “user fee” but rather merely a
monetary obligation and, as such, “cannot violate the Fifth Amendment Takings Clause.” Defs.’
Mem. at 19. If the Takings Clause does apply to the monetary exaction on non-participating
issuers subject to the HC Assessment, the defendants posit that the District need only show “the
assessment[] imposed on health insurance companies doing business in the District is
‘reasonably related’ to the benefits of the D.C. Exchange under the ACA.” Id. at 21. Contrary to
the plaintiff’s conclusion, the defendants assert that the HC Assessment meets this standard and,
in any event, “[t]here is a meaningful nexus between the assessments to be issued by the District
and the benefits that ACLI’s members will receive with a successful and viable D.C. Exchange.”
Defs.’ Reply in Supp. Mot. Dismiss (“Defs.’ Reply”) at 10.
33
In short, the parties fundamentally disagree about whether the HC Assessment is a user
fee or, instead, a form of monetary exaction immune from the Takings Clause and, even if the
HC Assessment is subject to the Takings Clause, what the applicable analytical standard is and
whether the HC Assessment would meet that standard and comport with the Takings Clause.
At the outset, before turning to the areas of disagreement between the parties, the Court
notes one issue on which both parties agree: the HC Assessment is not a tax. Pl.’s Opp’n at 23
n.19 (“[a]t the hearing on Plaintiff’s motion for preliminary injunction . . . the District
concede[d] that the [HC Assessment] is not a tax”) (citing P.I. Hr’g 54:24: Defense counsel
stating: “it’s not a tax.”)).10 The Court will therefore assume for purposes of resolving the
pending motion that the HC Assessment is not a tax.11
10
The plaintiff explains, and the defendants do not dispute, that D.C. law precludes the characterization of the
assessment as a tax because local law limits taxes on insurance companies to a 2 percent premium tax. Pl.’s Opp’n
at 24 n.19 (citing D.C. Code § 47-2608 (a)). While D.C. Code § 47-2608 (a)(1)(B) authorizes, in addition to the
premium tax, the imposition of “fees and charges provided by the insurance laws of the District including
amendments made to such laws by this chapter,” counsel for the defendants stated at the motions hearing that the
HC Assessment does not fall under this provision. P.I. Hr’g. 55:14-16. Notably, the parties’ agreement on this issue
confirms the observation by the Supreme Court that “teasing out the difference between taxes and takings is more
difficult in theory than in practice.” Koontz v. St. Johns River Water Mgmt. Dist., 133 S. Ct. 2586, 2601 (2013).
The Court highlighted the “illustrative” case of Brown v. Legal Found. of Wash., 538 U.S. 216, 242 n.2 (2003),
where, like here and in Koontz, the government “never claimed that they were exercising their power to levy taxes
when they took the petitioners’ property.” Id.
11
In determining whether an assessment is a tax or a regulatory fee, “[t]here is no single test to evaluate the
assessment's character,” Thomas v. Network Solutions, 2 F. Supp. 2d 22, 29 (D.D.C. 1998), aff’d, 176 F.3d 500
(1999), but, given the Court’s assumption, no further discussion of the appropriate test or its application is
necessary. The import of this assumption must be noted, however. If the HC Assessment were a tax, the plaintiff
contends that this “would not obviate the need for the District to establish some nexus between the assessment it has
imposed and the purpose that it is intended to serve,” although the plaintiff concedes “a looser nexus requirement”
would apply. Pl.’s Opp’n at 23 n. 19. In other words, if the HC Assessment were a tax, the plaintiff would have a
more difficult burden to show a taking. Indeed, long-standing Supreme Court precedent makes clear that the Fifth
Amendment’s Takings Clause generally imposes no limitation on the legislature’s taxing power, unless “the act
complained of was so arbitrary as to constrain to the conclusion that it was not the exertion of taxation, but a
confiscation of property.” Brushaber v. Union Pacific R.R. Co., 240 U.S. 1, 24 (1916); see also Koontz, 133 S. Ct.
at 2600 (“It is beyond dispute that ‘[t]axes and user fees . . . are not takings.’” (quoting Brown, 538 U.S. at 243 n.2
(2003) (Scalia, J., dissenting))). The HC Assessment, as repugnant as this assessment is to the plaintiff’s
membership, amounts to the collection of only a small percentage of direct gross receipts derived from business in
the District, and is not so oppressive or burdensome as to put at risk, or even produce a loss in, business operations
for the plaintiff’s members. Thus, if the HC Assessment were a valid tax, it would not operate in such a
confiscatory manner as to constitute a taking under the Fifth Amendment. Accord Lucas v. S.C. Coastal Council,
505 U.S. 1003, 1029 (1992) (describing “confiscatory regulations” as imposing such “limitation[s] so severe” as to
prohibit all economically beneficial use of land”); FCC v. Fla. Power Corp., 480 U.S. 245, 254 (1987) (finding that
34
While agreeing that the HC Assessment is not a tax, the parties vehemently disagree over
whether this assessment is a “user fee.” The plaintiff insists that the HC Assessment is a
“governmental user fee that fails to bear a sufficient relationship to the value received or fails to
provide a fair approximation of the costs of benefits supplied,” thereby resulting in an
unconstitutional taking. Compl. ¶ 66. Indeed, the plaintiff makes the bold assertion that the HC
Assessment “‘walks, talks, and squawks’ exactly like a user fee” because it is called a “user fee”
for issuers participating on the D.C. Exchange and “is imposed as a percentage of actual
premiums sold.” Pl.’s Opp’n at 20 (emphasis in original). The defendants contest this
characterization by pointing out the obvious: the HC Assessment “cannot constitute a ‘user fee’
because . . . the assessment applies to health carriers that do not ‘use’ the D.C. Exchange.”
Defs.’ Mem. at 18. The plaintiff concedes as much since the gravamen of their complaint about
the HC Assessment is its application to non-participating issuers. See Compl. ¶10 (“In effect, the
Emergency Legislation imposes ‘user fees’ on non-users, i.e., on companies and products that
are ineligible for participation on the Exchange and beyond the Authority’s power to regulate.”).
Indeed, if the HC Assessment were a “user fee,” the Challenged Amendment would be
superfluous since the Establishment Act already granted the Authority the power to assess such
fees. See 42 U.S.C. § 18031 (d)(5)(A); D.C. Official Code § 31-3171.03(b)(1); Defs.’ Mem. at
18 (“the Council was not of the view that the imposition of an assessment was a user fee
because, if it did, it would have had no reason or need to pass the Emergency Act”).
The defendants have the more persuasive argument on this particular issue and the Court
finds that the HC Assessment is not a “user fee.” The plaintiff’s effort to squeeze the HC
Assessment into the “user fee” mold has the transparent purpose of triggering the constitutional
FCC regulatory order “does not effect a taking of property under the Fifth Amendment” because “a rate providing
for the recovery of fully allocated cost, including the actual cost of capital” is not confiscatory).
35
analysis applicable to user fees. Under this standard, the Supreme Court has held that, while the
amount of a user fee need not be “precisely calibrated to the use that a party makes of
Government services,” such a fee is required to be “a ‘fair approximation of the cost of benefits
supplied.’” United States v. Sperry Corp., 493 U.S. 52, 60 (1989) (quoting Massachusetts v.
United States, 435 U.S. 444, 463, n.19 (1978)); id. at 63 (“a reasonable user fee is not a taking if
it is imposed for the reimbursement of the cost of government services”). Resolution of this
issue against the plaintiff renders inapplicable the proffered analytical rubric employed in Sperry
to assess whether a “user fee” amounts to a taking, within the meaning of the Fifth Amendment,
but nonetheless does not resolve the plaintiff’s takings challenge or the appropriate standard for
evaluating this claim.
The defendants eschew any need to undertake a takings analysis if the HC Assessment is
not a user fee. Since this assessment is the “‘mere imposition of an obligation to pay money,’”
Defs.’ Mem. at 19 (quoting Commonwealth Edison Co. v. United States, 271 F.3d 1327, 1339
(Fed. Cir. 2001)), they contend that the plaintiff’s claim must fail because “the payment of
money is not a taking,” id. In support of their contention that the Takings Clause is inapplicable
to validly imposed payment obligations when “no property is being confiscated by the
government,” id. at 20 (emphasis in original), the defendants rely upon non-binding decisions
from appellate courts outside the D.C. Circuit and this District Court, id. at 19-20, n.22 (citing
Commonwealth Edison Co., 271 F.3d at 1339, n.10; Kitt v. United States, 277 F.3d 1330, 1336
(Fed. Cir. 2002); West Va. CWP Fund v. Stacy, 671 F.3d 378, 387 (4th Cir. 2011); McCarthy v.
City of Cleveland, 626 F.3d 280, 285–86 (6th Cir. 2010); Swisher Int’l, Inc. v. Schafer, 550 F.3d
1046, 1054 (11th Cir. 2008); SRM Chem. Ltd, Co. v. Fed. Mediation & Conciliation Serv., 355 F.
Supp. 2d 373, 377 (D.D.C. 2005) (“[A] government-imposed obligation to pay money is not
36
susceptible to a takings analysis.”); BEG Invs., LLC v. Alberti, No.13-cv-182, 2014 WL
1280261, at *13 (D.D.C. Mar. 31, 2014) (noting “circular and nonsensical” result “[i]f money
payments were considered a taking”)).
The plaintiff contests this reading of the law, stating that “numerous binding Supreme
Court and D.C. Circuit cases readily refute” the defendants’ position that a government-imposed
obligation to pay money cannot be a taking. Pl.’s Opp’n at 21. Nevertheless, the plaintiff
hedges its position by noting that “even if a monetary exaction did have to burden a particular
piece of property, this case, like Koontz v. St. Johns River Water Mgmt. Dist., 133 S. Ct. 2586
(2013), involves such a situation—the monetary exaction burdens the insurance licenses of
ACLI’s members, which are subject to revocation if an insurer does not pay the fee.” Id. at 22
n.17.12 Likewise, the defendants hedge their position by also arguing that the HC Assessment
would withstand scrutiny under the Takings Clause because “here the assessments imposed on
12
The plaintiff raises this argument only in a footnote in its opposition. The D.C. Circuit has instructed that “the
court generally declines to consider an argument if a party buries it in a footnote and raises it only in a conclusory
fashion.” Nat’l Oilseed Processors Ass’n v. Occupational Safety & Health Admin., No. 12-1228, 2014 WL
5393871, at *9 (D.C. Cir. Oct. 24, 2014) (citing CTS Corp. v. EPA, 759 F.3d 52, 64 (D.C. Cir. 2014)). In any event,
although the plaintiff briefly mentions that the authorized penalties for failure to pay the HC Assessment includes a
potential risk to its members’ business licenses, this reference is not in connection with the plaintiff’s Takings
Clause claim but only proffered as evidence of irreparable harm in support of the plaintiff’s requests for injunctive
relief. See, e.g., Compl. ¶ 57; Pl.’s P.I. Mem., at 15-16, ECF No. 11; Pl.’s Reply in Support of Mot. for Prelim. Inj.,
at 10 n.3, ECF No. 29; Pl.’s Emerg. P.I. Mem., ¶ 5, ECF No. 32. Indeed, no concern over the risk posed to a
member's business license was expressed in either declaration submitted by the representative of one of the
plaintiff's members. See generally, Decl. of Theresa Patterson (“Patterson Decl.”), ECF No. 28-1; Supp. Declaration
of Theresa Patterson (“Supp. Patterson Decl.”), ECF No. 30-1. Given that the suspension or revocation of insurance
licenses is only a potential penalty among the myriad of discretionary options that the Mayor is authorized to
exercise, see D.C. Code § 31-1204(b) (authorizing Mayor, “in the Mayor’s discretion,” to take whatever actions “the
Mayor deems appropriate, including suspending or revoking the insurer’s . . . certificate of authority or license to
transact business”), and that no such penalty has been imposed, the risk to the plaintiff's members’ licenses is highly
speculative, not ripe and therefore insufficient to support a Takings Clause claim. See San Remo Hotel, L.P. v. City
& County of San Francisco, 545 U.S. 323, 346-347 (2005) (“‘a claim that the application of government regulations
effects a taking of a property interest is not ripe until the government entity charged with implementing the
regulations has reached a final decision regarding the application of the regulations to the property at issue.’”
(quoting Williamson Cnty Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172, 186 (1985)); Hodel v. Va.
Surface Min. & Reclamation Ass’n, Inc., 452 U.S. 264, 294-95 (1981) (“constitutionality of statutes ought not be
decided except in an actual factual setting that makes such a decision necessary”) (collecting cases).
37
health insurance companies doing business in the district is ‘reasonably related’ to the benefits of
the D.C. Exchange under the ACA.” Defs.’ Mem. at 21.13
The parties’ dispute over the standard applicable to analyzing the HC Assessment under
the Takings Clause is not just skilled litigation posturing but stems from the difficulties in sorting
through the muddle of what commentators have called “famously incoherent” and “a mess” of
Takings Clause jurisprudence. Steven A. Haskins, Closing the Dolan Deal—Bridging the
Legislative/Adjudicative Divide, 38 URB. LAW 487, 487 (Summer 2006) (internal quotations and
citations omitted). The Supreme Court’s recent decision in Koontz provides general guidance on
three analytical rubrics applicable to judicial review of Takings Clause challenges to different
forms of government action.14 First, if the government “directly seize[s]” a tangible property
interest, such as real property or an easement or lien, then “it would have committed a per se
taking.” Koontz, 133 S. Ct. at 2598-99; see also Lingle v. Chevron U.S.A. Inc., 544 U.S. 528,
537 (2005) (“The paradigmatic taking requiring just compensation is a direct government
13
The plaintiff seems to concur that its Takings Clause claim should be evaluated, as the defendants suggest, under
the “reasonably related” standard, indicating that the same standard applies to its takings, equal protection and due
process claims. Pl.’s Opp’n at 22 (“bedrock due process and equal protection principles impose the same nexus
requirement on assessments directed at a subset of the population as the Takings Clause”). At the same time, the
plaintiff does not explain precisely what the difference is, if any, between the “reasonably related” standard and the
standard it also articulates as applicable, namely “a meaningful nexus between the fee imposed and the benefits
supplied in return,” id. at 21; id. at 25, such that the benefit to the plaintiff’s members are not “vastly out of
proportion” to the cost of the HC Assessment, id. at 27.
14
The Ninth Circuit recently “enter[ed] the doctrinal thicket of the Supreme Court’s regulatory takings
jurisprudence,” and discerned “three ‘relatively narrow categories’ of regulations which work a categorical, or per
se, taking:” “the first category . . . holds that permanent physical invasions of real property work a per se taking.
The second . . . teaches that regulations depriving owners of all economically beneficial use of their real property
also work a per se taking. The third line of cases, represented by Nollan and Dolan, articulate a more nuanced rule
[and] hold that a condition on the grant of a land use permit requiring the forfeiture of a property right constitutes a
taking unless the condition (1) bears a sufficient nexus with and (2) is roughly proportional to the specific interest
the government seeks to protect through the permitting process. If those two conditions are met, then the imposition
of the conditional exaction is not a taking.” Horne v. USDA, 750 F.3d 1128, 1138-41 (9th Cir. 2014). Two other
Judges on this Court have also helpfully outlined the discernable analytical rubrics used in Takings Clause cases.
See Perry Capital LLC v. Lew, Nos. 13-1025, 13-1053, 12-1439, 13-1288, 2014 U.S. Dist. LEXIS 138066, at * 81-
97 (D.D.C. Sept. 30, 2014) (Lamberth, J.). Ascom Hasler Mailing Sys. v. United States Postal Serv., 815 F. Supp. 2d
148, 172-173 (D.D.C. 2011) (Friedman, J.); Foggy Bottom Ass’n v. D.C. Office of Planning, 441 F. Supp. 2d 84, 88-
89 (D.D.C. 2011) (Friedman, J.).
38
appropriation or physical invasion of private property.”); Loretto v. Teleprompter Manhattan
CATV Corp., 458 U.S. 419, 426 (1982) (“[A] permanent physical occupation authorized by
government is a taking without regard to the public interests that it may serve.”).
Second, if the government does not directly seize property and instead conditions the
receipt of a government benefit on the relinquishment of a property interest, another form of per
se taking may occur. The Supreme Court explained that “the government can pressure an owner
into voluntarily giving up property for which the Fifth Amendment would otherwise require just
compensation.” Koontz, 133 S. Ct. at 2594. In such cases, the condition of “just compensation”
set out in the Takings Clause is met—and no takings violation arises—“so long as there is a
‘nexus’ and ‘rough proportionality’ between the property that the government demands and the
social costs of the applicant’s proposal.” Koontz, 133 S. Ct. at 2595 (citing Dolan v. City of
Tigard, 512 U.S. 374, 391 (1994) and Nollan v. California Coastal Comm’n, 483 U.S. 825, 837
(1987)). On the other hand, when the government requires the relinquishment of a property
interest in exchange for a discretionary government benefit, which “lack[s] an essential nexus
and rough proportionality to” the property taken, a per se violation of the Takings Clause occurs.
Koontz, 133 S. Ct. at 2600 (identifying the “central concern of Nollan and Dolan” as “the risk
that the government may use its substantial power and discretion in land-use permitting to pursue
governmental ends that lack an essential nexus and rough proportionality to the effects of the
proposed new use of the specific property at issue, thereby diminishing without justification the
value of the property”).
The second analytical rubric is not limited to protecting only real property under the
Takings Clause. The Koontz Court held that the same “per se takings approach” articulated in
Dolan and Nollan “is the proper mode of analysis,” “when the government commands the
39
relinquishment of funds linked to a specific, identifiable property interest such as a bank account
or parcel of real property.” Id. at 2600-01 (citing Brown v. Legal Foundation of Washington,
538 U.S. 216, 235 (2003) (holding that State Supreme Court’s seizure of the interest on client
funds held in escrow account was a taking); Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449
U.S. 155 (1980) (holding that a county’s taking of interest on an interpleader fund violated the
Fifth Amendment); see also Perry Capital LLC v. Lew, Nos. 13-1025, 13-1053, 12-1439, 13-
1288, 2014 U.S. Dist. LEXIS 138066, at *88-89 n.54 (D.D.C. Sept. 30, 2014) (Lamberth, J.).
Short of a per se taking, the Koontz Court also identified a third analytical rubric that
applies to “a regulatory taking.” Koontz, at 2600. Determining whether a regulatory taking has
occurred “necessarily entails complex factual assessments of the purposes and economic effects
of government actions.” Brown, 538 U.S. at 234. “To constitute a regulatory taking, the
[g]overnment action must (1) affect a property interest and (2) go ‘too far’ in so doing (i.e.
amount to a deprivation of all or most economic use or a permanent physical invasion of
property).” Full Value Advisors, LLC v. SEC, 633 F.3d 1101, 1109 (D.C. Cir. 2011); Ascom
Hasler Mailing Sys. v. United States Postal Serv., 885 F. Supp. 2d 156, 193-194 (D.D.C. 2012).
The Supreme Court has set out three factors to consider whether the regulation has gone “too
far:” (1) “the economic impact of the regulation on the claimant;” (2) “the extent to which the
regulation has interfered with distinct investment-backed expectations;” and (3) “the character of
the governmental action,” particularly “whether it amounts to a physical invasion” or
appropriation of property or instead merely affects property interests through “some public
program adjusting the benefits and burdens of economic life to promote the common good.”
Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978); see also Full Value
Advisors, LLC v. SEC, 633 F.3d at 1109; Lingle, 544 U.S. at 538-40. “[T]he Penn Central
40
inquiry turns in large part . . . upon the magnitude of a regulation’s economic impact and the
degree to which it interferes with legitimate property interests.” Lingle, 544 U.S. at 540; id. at
539 (noting that each of the Penn Central factors “has given rise to vexing subsidiary questions”
but “have served as the principal guidelines for resolving regulatory takings claims that do not
fall within physical takings”).
Significantly for this case, the Koontz Court expressly declined to address whether “the
government can commit a regulatory taking by directing someone to spend money.” Koontz, 133
S. Ct. at 2600. Describing “Penn Central’s essentially ad hoc, factual inquir[y]” as “difficult and
uncertain,” the Koontz Court refused to “extend” that rule “to the vast category of cases in which
someone believes that a regulation is too costly.” Id. (alterations in original) (internal quotations
and citations omitted). Thus, the majority of the Koontz Court left intact the plurality view
reflected in Eastern Enterprises v. Apfel, 524 U.S. 498 (1998), where Justice Kennedy, in
concurrence, joined with four dissenters (Justices Stevens, Souter, Ginsberg and Breyer) “in
arguing that the Takings Clause does not apply to government-imposed financial obligations that
‘d[o] not operate upon or alter an identified property interest.” Koontz, at 2599 (citing Eastern
Enterprises, 524 U.S. at 540 (Kennedy, J., concurring in judgment and dissenting in part) and at
554-556 (Breyer, J., dissenting)); id. at 2603-04 (Kagan, J., dissenting) (“Eastern Enterprises . . .
held that the government may impose ordinary financial obligations without triggering the
Takings Clause’s protections.”).15 The Koontz Court distinguished Eastern Enterprises because
in Koontz “the monetary obligation burdened petitioner’s ownership of a specific parcel of land.”
Koontz, 133 S. Ct. at 2599; id. at 2600 (emphasizing that “[t]he fulcrum this case turns on is the
15
In Eastern Enterprises, the Supreme Court struck down a statute that retroactively imposed on a former mining
company an obligation to pay for the medical benefits of retired miners and their families, with a four-Justice
plurality concluding that the statute violated the Takings Clause and Justice Kennedy concurring in the result on Due
Process, rather than Takings Clause, grounds. 524 U.S. at 529-37.
41
direct link between the government’s demand and a specific parcel of real property”); id. at 2603
(summarizing Koontz holding that government’s demand for money “from a land-use permit
applicant must satisfy the requirements of Nollan and Dolan even when the government denies
the permit”). Indeed, the Koontz Court stated that “[t]his case therefore does not affect the
ability of governments to impose property taxes, user fees, and similar laws and regulations that
may impose financial burdens on property owners.” Id. at 2600.
Even though the Koontz majority stressed throughout its opinion that the linkage between
the monetary exaction and real property was critical to triggering the Dolan/Nollan per se
takings analysis, this emphasis was confusingly undermined by the majority’s footnote stating
that “this case does not implicate the question whether monetary exactions must be tied to a
particular parcel of land in order to constitute a taking.” Id. at 2600 n.2. Consequently, the
dissent cautioned that “[t]he boundaries of the majority’s new rule are uncertain.” Id. at 2604
(Kagan, J., dissenting). These are the boundaries tested in the instant case, where the HC
Assessment is a monetary exaction that is not linked either to any real estate parcel or other
“specific, identifiable property interest.”
Given that Koontz did not alter the majority view of the Supreme Court, as reflected by
the plurality in Eastern Enterprises, however, the defendants, again, have the more persuasive
argument that a general monetary exaction does not qualify as “a specific, identifiable property
interest,” Koontz, 133 S. Ct. at 2600, to serve as a predicate for a takings claim. See
Commonwealth Edison Co., 271 F.3d at 1338-39, n.10 (“although a minority of the Supreme
Court has urged that a taking can occur when Congress has imposed an obligation to pay money .
. . five justices of the Supreme Court in Eastern Enterprises agreed that regulatory actions
requiring the payment of money are not takings [and] [w]e agree with the prevailing view that
42
we are obligated to follow the views of that majority.”) (collecting cases). Accordingly, the
second count of the Complaint alleging a violation of the Takings Clause fails to state a claim for
which relief can be granted.
In any event, even if the HC Assessment “could be viewed as the first step in a
‘regulatory taking,’” Brown, 538 U.S. at 234, the plaintiff’s claim would still fail to state a
cognizable cause of action.16 The Supreme Court’s evaluation of a takings claim predicated on
the allegation, similar to the plaintiff’s here, that a regulation imposes an excessive or unfair
burden is evaluated under the Penn Central factors. The first factor in this analysis of whether a
regulation has gone “too far” requires consideration of the economic impact of the regulation on
the plaintiff’s members. In this regard, the HC Assessment is not so burdensome as to deny the
plaintiff’s members a “reasonable rate of return,” see Penn Central, 438 U.S. at 136 (focusing on
the ability to earn a reasonable rate of return), or make the plaintiff’s members’ insurance
business in the District unprofitable, see Dist. Intown Properties Ltd. P’ship v. D.C., 198 F.3d
874, 884 (D.C. Cir. 1999) (rejecting takings claim and noting that mere loss of value “is
irrelevant to whether the property as a whole can be operated at a sufficient profit even with the
regulation”), or commercially impracticable, see Keystone Bituminous Coal Ass’n v.
DeBenedictis, 480 U.S. 470, 495-96 (1987) (looking to whether the regulation makes property
owner's coal operation “commercially impracticable”). Thus, consideration of the first factor
shows that the HC Assessment has only a minimal economic impact on the plaintiff’s members.
With respect to the second Penn Central factor, given the highly regulated nature of the
insurance industry, the HC Assessment does not interfere with any investment-backed
16
The parties presented no analysis of the HC Assessment as a regulatory taking since the plaintiff contends that the
Dolan/Nollan per se takings analysis applies and the defendants contend, correctly under current—though somewhat
“uncertain”—Supreme Court jurisprudence, that the assessment is not the type of property interest that triggers a
Takings Clause claim.
43
expectations of the plaintiff’s members. As the D.C. Circuit explained in District Intown
Properties, 198 F.3d at 883, “[b]usinesses that operate in an industry with a history of regulation
have no reasonable expectation that regulation will not be strengthened to achieve established
legislative ends.”
Finally, with respect to the final Penn Central factor, the nature and purpose of the HC
Assessment does not involve any physical invasion of the plaintiff’s members’ property and is
intended to advance the public purpose of extending health insurance to the uninsured in the
District. Even the plaintiff concedes that this is a legitimate public purpose. Pl.’s Opp’n at 25
(“[T]he relevant question is not whether funding the Exchange is a rational government
objective; of course it is.”); P.I. Hr’g 38:4-9 (acknowledging that plaintiff does not dispute the
D.C. Exchange provides a public benefit)). Thus, consideration of all three Penn Central factors
strongly militates against any finding of a regulatory taking.
The conclusion that the HC Assessment is not a regulatory taking is confirmed by the
Supreme Court’s reasoning in Brown v. Legal Foundation of Washington. There, the Court
examined the claim that a State court’s confiscation of the “interest on lawyers’ trust accounts,”
(“IOLTA”), 538 U.S. at 220, to support legal services for the poor amounted to a taking in
violation of the Takings Clause, since that interest otherwise belonged to “the owner of the
principal.” 538 U.S. at 235. The Supreme Court concluded that, if the IOLTA program were
considered a regulatory taking, under the Penn Central analysis “it is clear there would be no
taking because the transaction had no adverse economic impact on petitioners and did not
interfere with any investment-backed expectation.” Id. at 234.17 See also Decatur Liquors, Inc.
17
While the IOLTA program was not a regulatory taking, the Brown Court concluded that it could be a per se taking
due to the transfer of the beneficial ownership of interest funds from specific, identifiable IOLTA accounts for a
public use. Id. at 235. Nevertheless, the Court found no compensatory taking occurred, explaining that “[b]ecause
44
v. District of Columbia, 478 F.3d 360, 364 (D.C. Cir. 2007) (rejecting plaintiffs’ claim that
District’s moratorium on sale of certain single containers of beer in part of city constituted an
unconstitutional taking because they were not deprived of all economically viable use of their
liquor licenses, citing Mugler v. Kansas, 123 U.S. 623, 655, 657 (1887), where Supreme Court
rejected “a taking claim by a brewery owner whose brewery lost 75% of its value as a result of a
state ban on the making of intoxicating liquors other than ‘for medical, scientific, and mechanical
purposes.’”).
In sum, the HC Assessment does not constitute either a per se or regulatory taking.
Accordingly, the plaintiff’s takings claim in Count Two of the Complaint must be dismissed.
2. Due Process Clause Claim
Count III of the Complaint alleges that the HC Assessment “is imposed without regard to
whether the underlying product was, or even could be sold on the DC Exchange, and thus
without regard to what, if any, benefit the assessed issuer received from the Exchange.” Compl. ¶
72. Extrapolating from this allegation, the Complaint further claims that the HC Assessment
“bears an insufficient relationship to the government’s intended purpose of defraying the
regulatory and administrative costs of operating the D.C. Exchange” and “therefore violates
carriers’ right to due process . . .” Id. ¶¶ 72-73. Consequently even if the defendants can
overcome a Takings Clause challenge, the plaintiff contends that the funding mechanism adopted
in the Challenged Amendment runs afoul of the Fifth Amendment’s Due Process Clause.18 The
Court first addresses the appropriate standard for evaluating the plaintiff’s due process claim
of the way the IOLTA program operates, the compensation due [the plaintiffs] for any taking of their property would
be nil” and, consequently, “[t]here was [] no constitutional violation when they were not compensated.” Id. at 240.
18
While due process claims are typically analyzed under the Constitution’s Fourteenth Amendment, the District of
Columbia, which is not a State, is subject to the Due Process Clause of the Fifth Amendment. See Atherton v. D.C.
Office of the Mayor, 567 F.3d 672, 689 (D.C. Cir. 2009); Butera v. District of Columbia, 235 F.3d 637, 645 n.7
(2000).
45
before turning to evaluate the parties’ arguments regarding application of this standard to the
Challenged Amendment.
(a) Applicable Standard
The Complaint alludes to the standard for success on the plaintiff’s due process claim,
stating that “due process requires a sufficient relationship between the target of the fee and the
benefit the government seeks to fund.” Compl. ¶ 71. The plaintiff explains that this analysis
“impose[s] the same nexus requirement on assessments directed at a subset of the population as
the Takings Clause.” Pl.’s Opp’n at 22. Although somewhat opaque, the plaintiff’s proffered
standard suggests that a “sufficient relationship” to satisfy the due process clause exists when the
assessed organization enjoys a direct benefit from the program funded by a regulatory monetary
exaction. By contrast, the defendants argue that the due process claim should be rejected on
grounds that “the assessments are rationally related to a legitimate state interest” and “are
constitutional unless they are arbitrary or the classification imposed for the assessment bears no
reasonable relation to the goal.” Defs.’ Mem. at 22. The defendants’ articulation of the
appropriate standard is much closer to the mark.
The Due Process Clause of the Fifth Amendment protects citizens against deprivation of
“life, liberty, or property without due process of law.” U.S. CONST. amend. V. The Fifth
Amendment’s application is therefore limited to those cases where “the plaintiff has been
deprived of a protected interest in ‘property’ or ‘liberty.’” Ralls Corp. v. Comm. on Foreign Inv.
In U.S., 758 F.3d 296, 315 (D.C. Cir. 2014) (quoting Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526
U.S. 40, 59 (1999)). The plaintiff makes clear that its due process challenge to the HC
Assessment is substantive rather than procedural.19 The plaintiff urges that the HC Assessment
19
The plaintiff explains that “the point is not that [the plaintiff] was denied an opportunity to participate in the
process through which the District arrived at its misguided solution. No amount of process allows the government
46
is susceptible to a substantive due process challenge because the assessment is charged against
the plaintiff and its members without providing a commensurate corresponding benefit. Whether
the plaintiff’s members are benefitted by the Challenged Amendment, however, is simply not the
appropriate test to apply in evaluating the sufficiency of the substantive due process claim. The
law is clear that “[a]bsent a suspect classification or infringement of a fundamental interest,” the
Due Process Clause “requires only a rational basis.” AFGE v. United States, 330 F.3d 513, 523
(D.C. Cir. 2003) (citing FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 313 (1993); Waters v.
Rumsfeld, 320 F.3d 265, 268 (D.C. Cir. 2003).
Thus, to sustain its substantive due process claim, the plaintiff bears the burden of
showing “that there is no ‘rational relationship between [the challenged statute] and some
legitimate governmental purpose.’” Gordon v. Holder, 721 F.3d 638, 656 (D.C. Cir. 2013)
(quoting Am. Bus. Ass’n v. Rogoff, 649 F.3d 734, 742 (D.C. Cir. 2011)) (internal bracket
language modified); see also NFIB, 132 S. Ct. at 2579; Gen. Motors Corp. v. Romein, 503 U.S.
181, 191 (1992) (Due Process Clause is satisfied if challenged regulation serves “a legitimate
legislative purpose furthered by rational means”). “This burden to negative every conceivable
basis which might support the law is especially difficult to meet.” Gordon, 721 F.3d at 656
(internal quotations and citation omitted).
In particular, when the challenged statute or regulation imposes a monetary exaction, any
burden on the government “to justify its actions” is “only very slight.” Emory v. United Air
Lines, Inc., 720 F.3d 915, 923 (D.C. Cir. 2013). The Supreme Court has made clear that
“legislative Acts adjusting the burdens and benefits of economic life come to the Court with a
presumption of constitutionality, and . . . the burden is on the one complaining of a due process
to impose burdens on a few that should be borne by actual users or the public at large.” Pl.’s Opp’n at 23 n.18.
Thus, the plaintiff concedes any procedural due process challenge.
47
violation to establish that the legislature has acted in an arbitrary and irrational way.” Usery v.
Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976). Courts must decline invitations from
litigants burdened by regulatory action “to engage in a higher level of scrutiny than rational basis
review allows,” Gordon, 721 F.3d at 657, and avoid “assess[ing] the wisdom of Congress’
chosen scheme,” Usery, 428 U.S. at 18-19. Under the rational basis standard, “[i]t is enough to
say that the Act approaches the problem of cost-spreading rationally; whether a broader cost-
spreading scheme would have been wiser or more practical under the circumstances is not a
question of constitutional dimension.” Id.; see also NFIB, 132 S. Ct. at 2579) (observing that
courts “possess neither the expertise nor the prerogative to make policy judgments. Those
decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the
people disagree with them. It is not our job to protect the people from the consequences of their
political choices.”)
In the face of this well-settled precedent on application of the rational basis standard to
economic regulation, the plaintiff heavily relies on three pre-1930 cases in which the Supreme
Court invalidated government regulations that imposed monetary assessments on a select portion
of the population. See Pl.’s Opp’n at 22 (citing Norwood v. Baker, 172 U.S. 269 (1898); Myles
Salt Co. v. Bd. of Comm’rs of Iberia & St. Mary Drainage Dist., 239 U.S. 478 (1916), and Road
Improvement Dist. No. 1 of Franklin Cnty., Ark. V. Mo. Pac. R. Co., 274 U.S. 188 (1927)). As
the defendants point out, the plaintiff’s attempt to “return to the days when the Supreme Court
struck down legislation on substantive due process grounds” is unavailing—and for good reason.
See Defs.’ Reply at 16.
Over one-hundred years ago, in Lochner v. New York, 198 U.S. 45, 52-53 (1905), the
Supreme Court applied a strict level of scrutiny to strike down a state regulation on substantive
48
due process grounds, finding that the wage and hour restrictions at issue violated the employees’
right to “liberty.” The approach used by the Court in Lochner to scrutinize government
economic regulation has been firmly rejected in favor of upholding government economic
regulations so long as they meet a “rational basis” standard of review. See Adam Winkler, Fatal
in Theory and Strict in Fact: An Empirical Analysis of Strict Scrutiny in the Federal Courts, 59
VAND. L. REV. 793, 798 (2006) (citing United States v. Carolene Prods. Co., 304 U.S. 144
(1938); NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1 (1937); and W. Coast Hotel Co. v.
Parrish, 300 U.S. 379 (1937) as “the three cases that overturned Lochner”). There is no question
that the Supreme Court has “held for many years (logically or not) that the ‘liberties’ protected
by Substantive Due Process do not include economic liberties.” Stop the Beach Renourishment,
Inc. v. Florida Dep’t of Envtl. Prot., 560 U.S. 702, 721 (2010) (citing Lincoln Fed. Labor Union
v. Northwestern Iron & Metal Co., 335 U.S. 525, 536 (1949)); cf. Hettinga v. United States, 677
F.3d 471, 481-83 (D.C. Cir. 2012) (Brown, J., concurring) (discussing the benefits of the
Lochner-era protections of economic liberties and indicating disagreement with the move away
from these principles because “[r]ational basis review means property is at the mercy of the
pillagers”), cert. denied, 133 S. Ct. 860 (2013).20
20
Another Judge concurring in the per curiam opinion in Hettinga v. United States, declined to join in Judge
Brown’s concurring opinion, citing “the Supreme Court's long-standing approach to claims of economic liberty” and
this “broad area of the Supreme Court's settled jurisprudence.” 677 F.3d at 483 (Griffith, J., concurring).
Nonetheless, commentators have noted a trend in Supreme Court jurisprudence to rely on the Takings Clause, as
opposed to the discredited substantive due process doctrine, to provide greater judicial scrutiny of government
regulation. See, e.g., Eduardo Moisés Peñalver, Regulatory Taxings, 104 COLUM. L. REV. 2182, 2194 n. 52 (2004)
(noting that “several commentators have compared the Court's regulatory takings jurisprudence to the pre-Lochner
doctrine of economic substantive due process”) (collecting law review article citations); Dan Herber, Comment,
Surviving the View Through the Lochner Looking Glass: Tahoe-Sierra and the Case for Upholding Development
Moratoria, 86 MINN. L. REV. 913, 941 (2002) (“[S]ome argue that the broad conception of the Takings Clause that
Justice Scalia and a majority of the current Court have adopted embodies a strict form of substantive due process
reminiscent of the Lochner era.” (internal citation omitted)); see also Dolan v. City of Tigard, 512 U.S. 374, 406-07
(1994) (Stevens, J., dissenting) (“The so-called ‘regulatory takings’ doctrine. . . has an obvious kinship with the line
of substantive due process cases that Lochner exemplified.”).
49
With the applicable standard of review settled, the Court next considers whether the
plaintiff has met its burden of establishing that “there is not any reasonable conceivable state of
facts that could provide a rational basis for the” Challenged Amendment. Hettinga, 677 F.3d at
479 (internal quotations and citation omitted); see also Armour v. City of Indianapolis, 132 S. Ct.
2073, 2082 (2012) (“burden is on the one attacking the legislative arrangement to negative every
conceivable basis which might support it”) (quotations and citations omitted).
(b) Rational Relationship Between HC Assessment and Legislative
Purposes
When assessing a rational relationship between a challenged legislative action and a
legitimate governmental purpose, the court is not “restricted to the stated reasons for passing a
law,” Gordon v. Holder, 721 F.3d at 657, but may discern such purpose from the text of the
statute or reasons provided post-enactment. Indeed, “a legislature need not actually articulate at
any time the purpose or rationale supporting its classification.” Armour, 132 S. Ct. at 2082. In
this case, as noted, the Establishment Act speaks for itself in outlining the purposes of this law to
“[e]nable individuals and small employers to find affordable and easier-to-understand health
insurance;” “[f]acilitate the purchase and sale of qualified health plans;” “[r]educe the number of
uninsured;” and “[a]ssist individuals and groups to access programs, premium assistance tax
credits, and cost-sharing reductions.” Establishment Act, D.C. Code § 31-3171.02.
To withstand a substantive due process challenge, economic legislation “must meet the
test [of] a legitimate legislative purpose furthered by rational means.” Gen. Motors Corp., 503
U.S. at 191. In this case, the Challenged Amendment authorizing the HC Assessment was not an
arbitrary choice but resulted from a survey of funding options compiled and analyzed by the
Working Group, at the request of the Authority, which sought to fulfill its statutory mandate of
ensuring adequate funds for the D.C. Exchange. See Compl. ¶ 45. The Working Group rejected
50
approaches that would have assessed hospital revenue, increased general taxes or limited funding
sources to those issuers offering plans on the D.C. Exchange. Pl.’s P.I. Mot., Schlueter Decl., Ex.
E (“Pl.’s P.I. Mot. Ex. E”) at 2, ECF No. 11-6.21 A funding option to assess only participating
issuers would have required double-digit percentage assessments on participating issuers in 2015
and resulted in a concomitant increase in costs for those seeking insurance on the D.C. Exchange
and the consequent adverse effect on the affordability of such insurance plans in the year that
federal funding ceases. Id. at 4, 12.22 These results would have undermined the goals of both the
ACA and the Establishment Act to expand health insurance coverage to uninsured and make
such insurance more affordable for both individuals and small businesses. See Defs.’ Mem. at 23
(“[s]uch an approach would have added significantly to the cost of the policies available to
enrollees, and thus defeat a primary purpose of the ACA.”). Instead, the Working Group
unanimously recommended that “if additional revenue is required, [it] should be raised from an
assessment on all health insurance premiums written in the District.” Pl.’s P.I. Mot., Ex. E at 1;
Compl. ¶ 45. The Challenged Amendment authorizing the Authority to impose the HC
Assessment reflects this recommendation and imposes a small assessment on health insurance
21
Although matters outside the pleadings generally must be excluded when evaluating the sufficiency of a
Complaint on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), courts may review materials
referenced in the Complaint, particularly where, as here, the plaintiff has presented the document to the Court in
support of its claims. See Abhe & Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059 (D.C. Cir. 2007) (noting court may
consider, on motion to dismiss, “facts alleged in the complaint, documents attached thereto or incorporated therein,
and matters of which it may take judicial notice” (quoting Stewart v. Nat’l Educ. Ass’n, 471 F.3d 169, 173 (D.C. Cir.
2006))); Vanover v. Hantman, 77 F. Supp. 2d 91, 98 (D.D.C. 1999) aff’d, 38 F. App’x 4 (D.C. Cir. 2002)
(concluding court could properly consider, on motion to dismiss, chapter of Personnel Manual and “various letters
and materials produced in the course of plaintiff’s discharge proceedings” attached to plaintiff’s opposition that were
“referred to in the complaint and [were] central to plaintiff's claims” without converting motion to summary
judgment); Corporate Sys. Res. v. Wash. Metro. Area Transit Auth., No. 13-1258, 2014 U.S. Dist. LEXIS 39020, at
*10-11 (D.D.C. Mar. 25, 2014) (in considering Rule 12(b)(6) motion, court considered contracts referenced in
complaint).
22
The plaintiff indicates that “the District’s funding problem was a temporary one of its own creation.” Pl.’s Opp’n
at 9; id. at 10 (“the funding problem the Exchange faces is plainly a temporary one of the District’s own making”).
This argument is immaterial since the focus of rational basis review is not whether policy-makers in the District
could have performed better but whether the legislative choice made bears a reasonable relationship to the policy
goal.
51
issuers generating significant revenues from operations in the District to further the purposes of
the D.C. Exchange. As one health insurance provider acknowledged, ensuring all District
residents have health insurance will “stabiliz[e] the risk pool, reduc[e] health care costs, and
eliminat[e] uncompensated losses.” Defs.’ Mem. at 24 (citing Letter, dated March 28, 2014,
from Laurie G. Kuiper, Senior Director, Government Relations, Kaiser Foundation Health Plan
of Mid-Atlantic States, Inc., to Mary Beth Senkewicz of the Authority).
In sum, the Challenged Amendment reflects a considered, and not an arbitrary, choice by
the District that is rationally related to, and intended to further the goals of, the ACA and the
Establishment Act to facilitate access to affordable health insurance for underserved District
residents and small businesses.
In addition to meeting the low substantive due process threshold reflected in the rational
basis standard, the defendants go further to proffer multiple ways in which the continued
operations of the D.C. Exchange funded by the HC Assessment benefits even non-participating
assessed issuers. See Defs.’ Reply at 9-13. For example, the defendants proffer, first, that “the
Exchange creates direct and clear benefits for carriers of supplemental insurance, which include
some of the companies in [plaintiff’s] membership” because increasing the availability of
affordable major medical insurance plans will advance the market for supplemental insurance.
See id. at 10. More affordable major medical plans for small employers, for example, may
enable such employers to offer benefits to employees that include both major and supplemental
medical benefits and thereby provide a competitive advantage for businesses within this
jurisdiction. Id. at 11 (the D.C. Exchange may “free up resource[s] to be redistributed towards
supplemental health plans” offered by employers). These “free[d] up resources” may, in turn,
52
increase the business of plaintiff’s members that sell such supplemental insurance products. Id.23
The defendants further point out that certain excepted benefit products, such as hospital
indemnity coverage, cannot be sold to individuals who do not already have major medical
insurance, which the D.C. Exchange provides. See Defs.’ Mem. at 21.
Second, the D.C. Exchange creates a healthier population by providing affordable
minimum essential health insurance. This healthier D.C. population may directly benefit issuers
of supplemental insurance products because “numerous supplemental benefit plans pay claims
upon the onset of a disability or upon death, which may be avoided in the case of a disability, or
in either case have a later onset after more premiums [have] incurred.” Defs.’ Reply at 12.
Relatedly, the D.C. Exchange not only increases coverage but also offers more comprehensive
coverage which, according to the defendants, could reduce the cost to issuers of certain
supplemental products offered by the plaintiff’s members, such as long-term care. Id.
Finally, by creating another marketplace for major medical plans, the D.C. Exchange
enhances competition, which in turn lowers prices and enables consumers to save money that
could be used to buy supplemental health products offered by the plaintiff and its members. Id.
at 13.
The plaintiff rejects the likelihood of these anticipated benefits because they “simply do
not extend to the vast majority of non-participating issuers and products” subject to the HC
Assessment, Pl.’s Opp’n at 26, and are purely “speculative,” id. at 27. Even if the defendants
“got it wrong,” however, and none of the anticipated benefits to the assessed issuers come to
fruition, this is not the applicable test for a substantive due process violation and does not
warrant striking down the Challenged Amendment as unconstitutional. As Judge Mikva
23
The defendants note, for example, that Unum, the company that the plaintiff relied upon to establish
organizational standing in this matter, only offers products through employers. See Defs.’ Reply at 11 n.11.
53
explained over thirty years ago, “[u]ndoubtedly, the political process sometimes gets it wrong,
but the Constitution presumes that, as long as the groups involved have a fair chance to fight in
the political arena, the democratic process will right itself. Legislatures may change flawed laws,
or voters may even ‘throw the bums out.’” Beach Commc’n, Inc. v. FCC, 959 F.2d 975, 988
(D.C. Cir. 1992) (Mikva, J. concurring); see also Beach Commc’n, 508 U.S. at 320 (“The
assumptions underlying these rationales may be erroneous, but the very fact that they are
‘arguable’ is sufficient, on rational-basis review, to ‘immunize’ the congressional choice from
constitutional challenge.”); Vance v. Bradley, 440 U.S. 93, 97 (1979) (“The Constitution
presumes that, absent some reason to infer antipathy, even improvident decisions will eventually
be rectified by the democratic process and that judicial intervention is generally unwarranted no
matter how unwisely we may think a political branch has acted.”).
All that is required to pass constitutional muster, under the Fifth Amendment’s Due
Process Clause, is a non-arbitrary, rational relationship between the Challenged Amendment and
the purpose of operating the D.C. Exchange. This standard is clearly met. Therefore, the Court
will not second-guess the legislature to find a substantive due process violation. The fact that
assessments are charged to non-participating health issuers deriving significant revenues from
the District is simply not enough to impugn this rational relationship. See Ass’n of Bituminous
Contrs. v. Apfel, 156 F.3d 1246, 1256 (D.C. Cir. 1998) (“legislation need not burden the most
responsible party to survive rational basis review”). Thus, the plaintiff has failed to carry the
requisite burden to sustain its substantive due process challenge and this claim in Count III of the
Complaint is, therefore, dismissed.
3. Equal Protection Clause Claim
54
Count IV of the Complaint alleges that the Challenged Amendment “creates an
unreasonable classification that is not rationally related to the District’s objective” by “impos[ing
the HC Assessment] on certain D.C. businesses without regard to whether the products they sell
are, or even could be, sold on the D.C. Exchange” when this assessment “is not imposed on other
similarly situated businesses in the District that cannot sell their products on the D.C. Exchange.”
Compl. ¶ 76. According to the plaintiff, this “violates carriers’ right to equal protection . . . .”
Id. ¶ 77. The defendants counter that “[b]ecause there is a rational relationship between the
assessment and the legitimate governmental purpose of maintaining the D.C. Exchange, [the
plaintiff] does not—and cannot—come close to meeting” its burden of establishing an equal
protection violation. Defs.’ Mem. at 26. The defendants are correct.
Under the equal protection clause, “no State shall ‘deny to any person within its
jurisdiction the equal protection of the laws,’ which is essentially a direction that all persons
similarly situated should be treated alike.” City of Cleburne, Tex. v. Cleburne Living Ctr., 473
U.S. 432, 439 (1985) (quoting Plyler v. Doe, 457 U.S. 202, 216 (1982)).24 The law is well-
established that “‘a classification neither involving fundamental rights nor proceeding along
suspect lines . . . cannot run afoul of the Equal Protection Clause if there is a rational relationship
between the disparity of treatment and some legitimate governmental purpose.’” Armour, 132 S.
Ct. at 2080 (quoting Heller v. Doe, 509 U.S. 312-20 (1993)). Under the rational basis standard,
“legislatures may single out classes of people as long as the lines drawn are not ‘invidious or
24
The Fourteenth Amendment’s Equal Protection Clause, by its terms, applies only to the States, but the Fifth
Amendment’s due process clause is applicable to the District of Columbia and “has been construed to incorporate a
guarantee of equal protection of the law.” United States v. Jackson, 553 F.2d 109, 120 n.19 (D.C. Cir. 1976) (citing
Bolling v. Sharpe, 347 U.S. 497 (1954); Davis v. Washington, 512 F.2d 956, 957-58 n.2 (1975) rev’d on other
grounds, 426 U.S. 229 (1976); Von Stauffenberg v. District Unemployment Compensation Board, 459 F.2d 1128,
1130 n.5 (1972)); see also Dixon v. District of Columbia, 666 F.3d at 1339 (noting that “the Equal Protection Clause
of the Fourteenth Amendment applies to the District of Columbia through the Due Process Clause of the Fifth
Amendment”).
55
irrational.’” Beach Commc’ns, Inc., 959 F.2d at 988 (quoting United States R.R. Retirement Bd.
v. Fritz, 449 U.S. 166, 176 (1980)). In other words, “‘if a law neither burdens a fundamental
right nor targets a suspect class, we will uphold the legislative classification so long as it bears a
rational relation to some legitimate end.’” Dixon, 666 F.3d at 1342 (quoting Romer v. Evans,
517 U.S. 620, 631 (1996)) (brackets omitted).
This case involves neither a suspect class entitled to special scrutiny nor a fundamental
right. Instead, the Challenged Amendment merely imposes a monetary exaction against all
health insurance issuers generating significant revenues from their operations in the District. The
plaintiff’s equal protection claim is based on the differential treatment of assessed issuers from
other “businesses in the District that cannot sell their products on the D.C. Exchange,” Compl. ¶
76, but, at base, this difference affects only a purely economic interest. As the D.C. Circuit
explained, “the equal protection component of the Fifth Amendment’s Due Process Clause does
not require that all persons everywhere be treated alike. Instead, it imposes the rather more
modest requirement that government not treat similarly situated individuals differently without a
rational basis.” Noble v. United States Parole Comm’n, 194 F.3d 152, 154 (D.C. Cir. 1999)
(internal citations omitted). Indeed, “it is inherent in the nature of regulation that some people
and businesses will be treated differently from others.”  Decatur Liquors, Inc., 478 F.3d at 363
(rejecting as “insubstantial” plaintiffs’ equal protection challenge to District’s moratorium on
sales of certain forms of beer containers in single ward of the city). Consequently, the plaintiff’s
argument that “[c]ountless retailers, restaurants, and other companies” share the same benefit
“from a healthier workforce” as the plaintiff’s members but are not subject to the HC
Assessment, is unavailing. Pl.’s Opp’n at 27-28. The plaintiff’s complaint about the Challenged
Amendment’s “underinclusiveness is not a basis for invalidating it, because under rational basis
56
review Congress may choose to proceed ‘one step at a time,’ applying remedies to ‘one phase of
one field [while] . . . neglecting the others.’” Kaemmerling v. Lappin, 553 F.3d 669, 685 (D.C.
Cir. 2008) (quoting Williamson v. Lee Optical of Okla., Inc., 348 U.S. 483, 489, (1955); see also
Gordon, 721 F.3d at 656 (“Courts must uphold legislation ‘[e]ven if the classification involved . .
. is to some extent both underinclusive and overinclusive . . . .’” (quoting Vance v. Bradley, 440
U.S. 93, 108 (1979))).
Despite the plaintiff’s protestations about the unfairness resulting from imposition of the
HC Assessment on its members, the Challenged Amendment is subject to the same “highly
deferential rational basis standard” of review applicable to the due process clause claim, and “the
District’s policy . . . is entitled to a presumption of rationality.” Dixon, 666 F.3d at 1342. The
Court scrutinizes the classification “only to determine the existence of ‘some relevance to the
purpose for which the classification is made.’” United States v. Jackson, 553 F.2d 109, 120
(D.C. Cir. 1976) (quoting Baxstrom v. Herold, 383 U.S. 107, 111 (1966)); see id. (“the statute
here in issue must be upheld if there is a rational basis for the scheme it creates”); Calloway v.
District of Columbia, 216 F.3d 1, 6 (D.C. Cir. 2000) (“Most laws will survive equal protection
challenge if they bear a rational relationship to a legitimate governmental purpose.”). Moreover,
“at the motion to dismiss stage, a plaintiff alleging an equal protection violation must plead facts
that establish that there is not ‘any reasonable conceivable state of facts that could provide a
rational basis for the classification.’” Hettinga, 677 F.3d at 479 (quoting Dumaguin v. Sec’y of
Health and Human Servs., 28 F.3d 1218, 1222 (D.C. Cir. 1994)). The plaintiff has not met this
burden here.
The burden is particularly onerous for the plaintiff in this case since, as noted in the
discussion of the plaintiff’s substantive due process claim, courts “grant statutes involving
57
economic policy a ‘strong presumption of validity.’” Hettinga, 677 F.3d at 478-479 (quoting
Beach Commc’ns, Inc., 508 U.S. at 314). When “ordinary commercial transactions’ are at issue,
rational basis review requires deference to reasonable underlying legislative judgments,” United
States v. Carolene Products Co., 304 U.S. 144, 152 (1938), since States “enjoy[] wide regulatory
latitude” over “commercial matters,” Levin v. Commerce Energy, Inc., 560 U.S. 413, 431
(2010); see also City of Cleburne, 473 U.S. at 439-40. Thus, “[n]ot only should economic
legislation be upheld as long as the classifications drawn in the statute are reasonable in light of
its purpose, but the justification for the legislation need not appear in the legislative or
administrative record.” Beach Commc’ns, Inc., 959 F.2d at 989 (internal quotations and citations
omitted).
Courts have recognized that the legislature is often left “striv[ing] for the best possible
outcome under the circumstances . . . [b]ecause the only alternative would be to discourage
legislators from making even an attempt to address complicated social and economic problems.”
Beach Commc’ns, Inc., 959 F.2d at 988 (emphasis omitted). Indeed, when “social and economic
policy” is at stake, “a statutory classification” should be upheld “against an equal protection
challenge if there is any reasonably conceivable state of facts that could provide a rational basis
for the classification.” Beach Commc’ns, 508 U.S. at 313-14. “[E]qual protection is not a
license for courts to judge the wisdom, fairness, or logic of legislative choices.” Dixon, 666 F.3d
at 1342 (internal quotations and citations omitted). The Supreme Court has cautioned that
“judicial intervention is generally unwarranted no matter how unwisely we may think a political
branch acted . . . absent . . . antipathy” because it is assumed that the political process will
eventually rectify an unwise political decision. Beach Commc’ns, 508 U.S. at 313. The rational
basis standard does not require perfect or even close alignment between public purposes and the
58
regulatory burdens imposed. Rather, “courts are compelled under rational-basis review to accept
a legislature’s generalizations even when there is an imperfect fit between means and ends.”
Heller, 509 U.S. at 321. “The Constitution is a blueprint for a workable government, and ‘we
must remember,’ as Justice Holmes wrote, ‘that the machinery of government would not work if
it were not allowed a little play in its joints.’” Beach Commc’ns, 959 F.2d at 988 (quoting Bain
Peanut Co. v. Pinson, 282 U.S. 499, 501 (1931)).
The plaintiff may indeed be correct that a better fit exists but this is not sufficient to
“overcome the presumption of rationality that applies to government classifications.” Dixon, 666
F.3d at 1342 (internal quotations and citation omitted). As ample post-Lochner era precedent
counsels, the courts should not—and this Court will not—second-guess a legislature’s policy
choice, if supported by any conceivable set of facts, absent a showing that the choice made
burdens protected classes or rights. That is the mandate of rational basis review. Set against
these principles and in view of the defendants’ plausible justifications for assessing the HC
Assessment against non-participating health insurance issuers generating significant revenue in
the District, see, infra, Part III.B.2(b), the HC Assessment survives the plaintiff’s equal
protection challenge. This claim in Count IV of the Complaint is, therefore, dismissed.
4. Non-Delegation Doctrine Claim
In Count V of the Complaint, the plaintiff alleges that the Challenged Amendment
granting the Authority the power to impose the HC Assessment “unlawfully and
unconstitutionally delegates to the Authority an arbitrary and unlimited legislative power,” in
violation of the United States Constitution and the D.C. Home Rule Act. Compl. ¶¶ 80-81. In
support of this claim, the plaintiff makes two arguments: first, the Authority’s power to charge
the assessment cannot be checked by a political process, since the plaintiff’s members “are
59
wholly outside the Authority’s regulatory ambit,” see Pl.’s Opp’n at 31; and, second, the
Challenged Amendment does not provide the Authority with intelligible standards to apply in
exercising its discretion to impose the HC Assessment, id. Both arguments are unavailing and
do not save the plaintiff’s last claim.
At the outset, the parties do not dispute that legislation enacted by the District is subject
to the non-delegation doctrine inherent in the tripartite structure and terms of the United States
Constitution. See U.S. CONST. art I, § 1 (providing that “[a]ll legislative Powers herein granted
shall be vested in a Congress of the United States”). “Through the Home Rule Act, Congress
delegated some, but not all, of its Article I ‘exclusive’ legislative authority over the District of
Columbia to the D.C. Council.” Marijuana Policy Project v. United States, 304 F.3d 82, 84
(D.C. Cir. 2002). The District’s Charter created “the familiar tripartite structure of government
for the District” and “by its own statutory enactment, the Council has explicitly declared that it
‘recognizes the principle of separation of powers in the structure of the District of Columbia
government.’” D.C. Code § 1-227.1(b) (1992). The District of Columbia Self-Government and
Governmental Reorganization Act, Pub. L. No. 93-198 (1973) (codified, as amended, at D.C.
Code Ann. § 1-201.01 et seq.), empowers the D.C. Council to exercise legislative authority over
“all rightful subjects of legislation” on Congress’ behalf.25 D.C. Code § 1-203.02; see id. § 1-
204.04. The D.C. Court of Appeals has concluded that “it is reasonable to infer from this
tripartite structure and the vesting of the respective ‘power’ in each branch that the same general
principles should govern the exercise of such power in the District Charter as are applicable to
the three branches of government at the federal level.” Wilson v. Kelly, 615 A.2d 229, 231-232
(D.C. 1992). The D.C. Council concurs in this view, “explicitly declar[ing] that it ‘recognizes
25
The Home Rule enumerates certain subjects that are not considered “rightful” and the Council may not legislate
on those subjects, including imposing a commuter tax on non-residents or authorizing the construction of buildings
taller than permitted by the monument restriction. See D.C. Code Ann. § 1-206.02(a)(4), 1-206.02(a)(8).
60
the principle of separation of powers in the structure of the District of Columbia government.’”
Id. (quoting D.C. Code § 1-227.1(b) (1992)).
The plaintiff’s first argument is that “delegation concerns are at their zenith” in this case
because “an agency seeks to exercise power over third parties that have no relationship with or
meaningful ability to influence the agency exercising that power.” Pl.’s Opp’n at 31. In support
of this argument, the plaintiff relies on the seminal case of McCulloch v. Maryland, 17 U.S. 316,
428 (1819), where the Supreme Court precluded the State from taxing the bank of the United
States, in part, because there was no relationship between the bank and the State to preclude
abuse of the taxing power. McCullough is inapposite, however, because there is both a rational
relationship between charging the HC Assessment against the plaintiff’s members, see supra,
Part III.B.2(b), and a political process for checking the power of the Authority to charge the HC
Assessment.
Indeed, the plaintiff concedes that, as the Supreme Court recognized in McCullough, the
political process “is in general, a sufficient security against erroneous and oppressive taxation,”
id. at 428, but contends that “the Authority has strong incentives to capitulate to the demands of
participating issuers that it wants and needs to continue selling their products on the Exchange.”
Pl.’s Opp’n at 31-32. According to the plaintiff, the Working Group, which recommended
implementation of a broad-based HC Assessment rather than raising fees on participating issuers,
included representatives from participating issuers that sell products on the Exchange. See Pl.’s
Opp’n at 9-10 (“[n]otwithstanding the readily available alternatives . . . the Working Group
recommended the third option, which allowed the providers who actually participated in the
group to decrease their own contributions to the costs of the Exchange . . . by outsourcing these
costs to providers who do not and cannot participate on the Exchange”) (emphasis omitted).
61
Even if the plaintiff is correct that the Working Group participants had an incentive to curb the
fees assessed on participating issuers by adopting a recommendation for a more broad-based
funding mechanism, this is an insufficient basis to hold the Challenged Amendment
unconstitutional. While the plaintiff’s criticism of the Working Group may have validity, the
Challenged Amendment was only enacted after review in the normal, legislative process. As a
result, the dynamics animating the Supreme Court’s concern in McCulloch are not present in the
instant action and all that is needed are intelligible standards to overcome the plaintiff’s non-
delegation challenge.
The plaintiff’s second argument is that the District’s grant of such broad power to the
Authority to impose the HC Assessment through the Establishment Act and the Challenged
Amendment amounts to an unconstitutional delegation of legislative authority. Pl.’s Opp’n at
37-39. In evaluating this argument, the Court is mindful that “the test is whether Congress has
set forth ‘an intelligible principle to which the person or body authorized to act is directed to
conform.’” Taxpayers of Michigan Against Casinos v. Norton, 433 F.3d 852, 866 (D.C. Cir.
2006) (quoting Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 472 (2001) (alterations and
internal quotations omitted)); see Michigan Gambling Opposition v. Kempthorne, 525 F.3d 23,
30 (D.C. Cir. 2008) (same). When “Congress provides an administrative agency with standards
guiding its actions such that a court could ascertain whether the will of Congress has been
obeyed, no delegation of legislative authority trenching on the principle of separation of powers
has occurred.” Skinner v. Mid-Am. Pipeline Co., 490 U.S. 212, 218 (1989) (citations and
quotations omitted); see also Am. Power & Light Co. v. Sec. & Exch. Comm’n, 329 U.S. 90, 105
(1946) (It is “constitutionally sufficient if Congress clearly delineates the general policy, the
public agency which is to apply it, and the boundaries of this delegated authority. Private rights
62
are protected by access to the courts to test the application of the policy in the light of these
legislative declarations”).
The plaintiff insists that the standards set out in the Establishment Act and the Challenged
Amendment are insufficient. Pl.’s Opp’n at 37-39. A finding of excessive delegation of
authority is extremely rare, however, given the low threshold that legislation must meet to
overcome a non-delegation doctrine claim. See United States v. Ross, 778 F. Supp. 2d 13, 26
(D.D.C. 2011) (“[o]nly twice in [the Supreme Court’s] history, and not since 1935, has [it]
invalidated a statute on the ground of excessive delegation of legislative authority”) (citations
and quotations omitted). The Supreme Court has “‘almost never felt qualified to second-guess
Congress regarding the permissible degree of policy judgment that can be left to those executing
or applying the law.’” Mich. Gambling Opposition, 525 F.3d at 30 (quoting Am. Trucking
Ass’ns, 531 U.S. at 474-75).
Review of the Establishment Act and the Challenged Amendment reveals sufficient
guidance for the Authority’s exercise of its discretion in funding the operations of the D.C.
Exchange. For example, any money collected in the Fund to operate the Exchange “shall not
revert” and is only available for the purpose of funding the D.C. Exchange. D.C. Code § 31-
3171.03(c). In addition, the Challenged Amendment provides guidance on the timing and
application of the HC Assessment, authorizing the Authority to charge an annual assessment on
“each health carrier doing business in the District with direct gross receipts of $50,000 or
greater” based on gross receipts from the preceding fiscal year. D.C. Code § 31-3171.03(f)(2).
Finally, the Authority’s power is further restricted to assess fees only up to the amount necessary
to operate the Exchange, stating that “[t]he amount assessed shall not exceed reasonable
projections regarding the amount necessary to support the operation of the Authority.” Id.
63
(emphasis supplied). The cost of the Exchange is not capped, however, and therefore, no
maximum exists on how much can be assessed each year based on reasonable projections.26
Regulations containing similarly broad standards limiting agency charges to the amount
necessary to fund an administrative activity have been upheld in the face of a non-delegation
doctrine challenge. See, e.g., Skinner, 490 U.S. at 215 (finding no fault with Congress granting
power to the Department of Transportation to levy natural gas pipeline user fees in an amount
“sufficient to meet the costs of [administrative] activities [related to the Pipeline Safety Acts] . . .
but at no time shall the aggregate of fees received for any fiscal year . . . exceed 105 percent of
the aggregate of appropriations made for such fiscal year for activities to be funded by such
fees.” (quoting the Consolidated Omnibus Budget Reconciliation Act of 1995 § 7005(d), 49
U.S.C. § 1682a (1982)). Indeed, even where authorizing statutes provide far less guidance than
that provided in the Challenged Amendment, courts have rejected non-delegation challenges.
For example, in Lichter v. United States, 334 U.S. 742, 768 (1948), the Supreme Court upheld a
statute that authorized agencies to collect “excessive profits” paid through wartime Government
contracts even though Congress did not “specify how much profit was too much.” Am. Trucking
Ass’ns, 531 U.S. 457 at 475 (citing Lichter, 334 U.S. at 783). By contrast to the statute upheld in
in Lichter, the Challenged Amendment specifies how much of an assessment would be too much
and caps the amount of the assessment at the amount necessary to fund the operations of the D.C.
26
The plaintiff points out that, in 2013, the Authority projected annual operating costs in 2014-2016 for the D.C.
Exchange to be between $20 and $25 million but that cost estimate has already increased with a projected operating
budget for the D.C. Exchange in 2015 of $28.75 million. Pl.’s Prelim Inj. Mem. at 11 (citing Schlueter Decl. Exh. E,
D.C. Health Benefit Exchange Authority, Recommendations of the Working Group on Financial Sustainability to
the District of Columbia Health Benefit Exchange Authority (May 23, 2013) at 3). Moreover, the plaintiff cites
statistics showing that the D.C. Exchange “is the second most expensive in the country,” id., and that, by
comparison, Vermont's local Exchange is estimated to cost “only $10.6 million—even though it has more than three
times as many private enrollees as the District,” Pl.'s Reply Mem. Supp. Mot. Prelim. Inj., at 31, ECF No. 24. The
plaintiff’s concerns regarding the Authority's management of the D.C. Exchange are legitimate, in view of these
growing expense projections, particularly in comparison to other State Exchanges serving substantially greater
numbers of enrollees, and these concerns may even raise issues warranting increased oversight, but nevertheless do
not amount to a constitutional violation.
64
Exchange. Accordingly, the District has provided sufficient guidance to the Authority to avoid a
rare finding of an unconstitutional delegation of legislative authority.
IV. CONCLUSION
For the foregoing reasons, the Challenged Amendment authorizing the HC Assessment is
neither preempted by the ACA nor an unconstitutional violation of the Takings, Due Process and
Equal Protection Clauses, or the non-delegation doctrine. Accordingly, the defendants’ motion
to dismiss for failure to state a claim is granted and the plaintiff’s motions for preliminary
injunctions are denied as moot.
An order consistent with this Memorandum Opinion will be contemporaneously entered.
Date: November 13, 2014 Digitally signed by Hon. Beryl A.
Howell
DN: cn=Hon. Beryl A. Howell, o=U.S.
District Court for the District of
Columbia, ou=United States District
Court Judge,
email=Howell_Chambers@dcd.uscou
rts.gov, c=US
Date: 2014.11.13 22:26:28 -05'00'
__________________________
BERYL A. HOWELL
United States District Judge
65