Biggs v. Betlach

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
ANDY BIGGS, et al., Plaintiffs/Appellants,
v.
THOMAS J. BETLACH, Defendant/Appellee.
EDMUNDO MACIAS; GARY GORHAM; DANIEL MCCORMICK; and
TIM FERRELL, Intervenor–Defendants/Appellees.
No. 1 CA-CV 15-0743
FILED 3-16-2017
Appeal from the Superior Court in Maricopa County
No. CV2013-011699
The Honorable Douglas Gerlach, Judge
AFFIRMED
COUNSEL
Goldwater Institute, Phoenix
By Christina Sandefur and Aditya Dynar
Counsel for Plaintiffs/Appellants
Fennemore Craig, P.C., Phoenix
By Douglas Northup, Timothy Berg, Patrick Irvine, and Carrie Ryerson
Counsel for Defendant/Appellee
Arizona Center for Law in the Public Interest, Phoenix
By Timothy Hogan and Joy Herr-Cardillo
William E. Morris Institute for Justice, Phoenix
By Ellen Sue Katz
Co-Counsel for Intervenor-Defendants/Appellees
Coppersmith Brockelman PLC, Phoenix
By Roopali Desai and D. Andrew Gaona
Arizona Hospital and Healthcare Association, Phoenix
By Ann-Marie Alameddin
Co-Counsel for Amicus Curiae Arizona Hospital and Healthcare Association
Statecraft PLLC, Phoenix
By Kory Langhofer
Counsel for Amicus Curiae Health System Alliance of Arizona
OPINION
Judge Paul J. McMurdie delivered the opinion of the Court, in which
Presiding Judge Kenton D. Jones and Judge Patricia K. Norris joined.
M c M U R D I E, Judge:
¶1 We are asked to consider whether the hospital assessment
under Arizona Revised Statutes (“A.R.S.”) section 36-2901.08 was enacted
in violation of Article 9, Section 22, of the Arizona Constitution. 1
¶2 Appellants, a group of legislators who voted against House
Bill (“HB”) 2010 during the 2013 legislative session, appeal the superior
court’s order granting Defendant’s and Intervenor-Defendants’ motions for
summary judgment. Appellants contend HB 2010 created a new tax on
hospitals, and therefore required a super-majority vote under Article 9,
Section 22. Because HB 2010 imposed an assessment that is excepted under
Section 22(C)(2), we find it constitutional as enacted and affirm the superior
court.
FACTS AND PROCEDURAL BACKGROUND
¶3 In September 2013, during the Fifty-First Arizona State
Legislature, legislators introduced HB 2010 to expand Arizona’s indigent
healthcare program. Included in that expansion was an assessment on
hospitals to be set by the director of the Arizona Health Care Cost
1 We cite to the current version of applicable statutes or rules when no
revision material to this case has occurred.
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Opinion of the Court
Containment System (“AHCCCS”). HB 2010 passed by a simple-majority
vote, and Governor Janice K. Brewer signed it into law as A.R.S.
§ 36-2901.08.
¶4 Members of the Arizona Legislature who voted against
HB 2010 subsequently filed suit in September 2013 to enjoin enforcement of
the expansion, arguing HB 2010 was passed in violation of Article 9, Section
22.2 The parties filed cross-motions for summary judgment in May 2015
seeking a declaration regarding the constitutionality of § 36-2901.08. The
superior court found the legislation came within a listed exception to
Article 9, Section 22, and thus was not subject to the super-majority vote
requirement. The legislators timely appealed and we have jurisdiction
pursuant to A.R.S. § 12-2101(A)(1) (2016).3
DISCUSSION
¶5 Questions of statutory interpretation and constitutional law
are reviewed de novo. State ex rel. Thomas v. Klein, 214 Ariz. 205, 207, ¶ 5
(App. 2007). We presume that a statute is constitutional and resolve any
2 The superior court originally dismissed the legislators’ claim for lack
of standing; however, this court subsequently reversed that decision. Biggs
v. Cooper, 234 Ariz. 515, 522, ¶ 20 (App. 2014). The supreme court affirmed
this court’s ruling. Biggs v. Cooper ex rel. County of Maricopa, 236 Ariz. 415,
420, ¶ 21 (2014).
3 The Health System Alliance of Arizona, in its amicus brief, raises the
“enrolled bill rule” as a jurisdictional ground to preclude our review. “[I]t
is the rule that amici curiae are not permitted to create, extend, or enlarge
issues beyond those raised and argued by the parties.” Town of Chino Valley
v. City of Prescott, 131 Ariz. 78, 84 (1981) (citing City of Tempe v. Prudential
Ins. Co. of Am., 109 Ariz. 429 (1973)). And in any event, our supreme court
has made clear that appellants have legal standing, and that this court has
jurisdiction to review the substance of the claims. See Biggs v. Cooper ex rel.
County of Maricopa, 236 Ariz. 415, 418, ¶ 7 (2014) (“. . . giving the legislature
exclusive authority to decide whether Section 22 applies to a particular bill
would eliminate Article 9, Section 22’s ability to act as a limiting provision
on the legislature’s power.”) (quotation omitted).
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Opinion of the Court
doubts in favor of constitutionality.4 Niehaus v. Huppenthal, 233 Ariz. 195,
197, ¶ 5 (App. 2013). While all three branches of government have a role in
interpreting the Constitution, when a conflict arises it is the courts’
constitutional responsibility to be the final arbiter. See Powell v. McCormack,
395 U.S. 486, 549 (1969).
A. A.R.S. § 36-2901.08 Was Constitutionally Enacted in Accordance
with Article 9, Section 22, of the Arizona Constitution.
¶6 AHCCCS provides health insurance benefits to qualified
persons of low income. HB 2010 was intended to expand the program’s
coverage, with joint funding from the federal and state governments. In
order to provide the funding needed from the state government, HB 2010
created an assessment, paid by Arizona hospitals as set forth by the director
of AHCCCS. HB 2010, 2013 Ariz. Sess. Laws, ch. 10, § 5 (1st Spec. Sess.).
¶7 Article 9, Section 22 states, “[a]n act that provides for a net
increase in state revenues . . . is effective on the affirmative vote of two-
thirds of the members of each house of the legislature.” Subsection B
provides that qualifying “acts” include, inter alia, “[t]he imposition of any
new tax” and “[t]he imposition of any new state fee or assessment.” Ariz.
Const. art. 9, § 22(B)(1), (5). However, Subsection C states that the two-
thirds vote is not required on “[f]ees and assessments that are authorized
by statute, but are not prescribed by formula, amount or limit, and are set
by a state officer or agency.” Ariz. Const. art. 9, § 22(C)(2).
1. The Hospital Assessment Is Not a Tax.
¶8 Because the exception under Section 22(C)(2) applies only to
“fees and assessments,” appellants first argue that the hospital assessment
enacted by HB 2010 was a new “tax” under Section 22(B), and therefore
required a two-thirds affirmative vote from both houses of the Arizona
4 Appellants’ opening brief argues against this presumption, citing
cases where statutes were found to be unconstitutional. E.g., Dobson v. State
ex rel. Comm’n on Appellate Court Appointments, 233 Ariz. 119 (2013)
(legislature’s amendment of the judicial nomination system violated the
state constitution). We take notice that this presumption is rebuttable, but
the party challenging the validity of a statute bears the burden of proving
that the legislation is unconstitutional. E.g., State v. Casey, 205 Ariz. 359, 362,
¶ 11 (2003); Chevron Chem. Co. v. Superior Court, 131 Ariz. 431, 438 (1982).
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Opinion of the Court
Legislature.5 When deciding whether to categorize a government levy as an
assessment or a tax, the analysis is context-driven and examines three
factors: (1) the entity imposing the levy; (2) the parties upon whom the levy
is imposed; and (3) whether the levy is expended for general public
purposes or used for the regulation or benefit of the parties upon whom the
assessment is imposed. May v. McNally, 203 Ariz. 425, 430-31, ¶ 24 (2002);
see also Bidart Bros. v. California Apple Comm’n, 73 F.3d 925, 929–31 (9th Cir.
1996). All three factors support the categorization of the hospital levy in the
immediate case as an assessment.
¶9 Appellants claim the entity imposing the levy is the state
legislature because the levy was created by the legislature through statute.
This argument misses the mark. While the legislature may have authorized
the levy through statute, we look to the entity with regulatory authority
over the levy for purposes of categorizing it as a tax or assessment. See
Jachimek v. State, 205 Ariz. 632, 636, ¶ 15 (App. 2003). Most levies are first
authorized by statute. See, e.g., A.R.S. § 32-124(A) (establishing fees to be
collected by the State Board of Technical Registration); A.R.S. § 45-334(A)
(authorizing the director of water resources to set Colorado river water use
fees); A.R.S. § 17-333 (mandating that the Game and Fish Commission
prescribe license fees by rule). This does not mean that the levies are
imposed by the legislature. Instead, the levies are imposed by an entity with
discretion to set and administer them. Here, because the director has
authority to “establish, administer and collect” the levy, we find AHCCCS
is the entity imposing the levy. A.R.S. § 36-2901.08(A).
¶10 Analyzing the second factor, appellants argue the levy is
imposed upon a broad class of hospitals, making it more like a tax than an
5 Appellees contend that an assessment can be defined broadly to
include a tax, and therefore the distinction between “taxes” and
“assessments” under Article 9, Section 22 is inapplicable. However, such an
interpretation would render the specific omission of the word “tax” under
Section 22(C)(2) meaningless when the language of the provision, under
subsection (B), specifically listed categories of “tax” as a separate class from
“fee[s] and assessment[s]”. See Ariz. Const. art. 9, § 22(B)(1)-(2), (5). Because
we presume a statute does not enact “superfluous or reiterative” language,
we decline to interpret assessment to include any tax under Section 22. See
Phoenix Newspapers, Inc. v. Dep’t of Corrections, 188 Ariz. 237, 244 (App.
1997); see also Herman v. City of Tucson, 197 Ariz. 430, 434, ¶ 14 (App. 1999)
(“[W]e must avoid interpreting a statute so as to render any of its language
mere surplusage . . . .”).
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assessment. Appellants misconstrue the language of the statute on its face.
Section 36-2901.08(C) allows the director to “establish modifications or
exemptions to the assessment.” In doing so, the director is allowed to
consider factors including the size, services offered, and location of the
hospital. A.R.S. § 36-2901.08(C). Therefore, the levy at issue is not
necessarily charged to every hospital in the state.6 Even if it were, the
assessment is narrowly applied only to hospitals, and not a broad class of
citizens as is typical of a tax. This court has previously held that levies that
are specific to a class of business are appropriately treated as an assessment.
See, e.g., Jachimek, 205 Ariz. at 636, ¶ 16 (an assessment charged to all
licensed pawnbrokers when reporting transactions under state law was not
a tax). Therefore, because the levy is restricted to hospitals within the
discretion of the director, this factor weighs in favor of treating the levy as
an assessment.
¶11 Finally, appellants argue the levy is expended for general
public purposes, not for the regulation or benefit of the levied parties, and
therefore, should be considered a tax. Appellants focus in particular on the
“broad public purpose” of the statute, and healthcare expansion as a whole.
But while the entire expansion’s purpose was to provide healthcare to more
of Arizona’s indigent population, the purpose of the assessment, as
evidenced by the language of HB 2010, was to “be used for the benefit of
hospitals for the purpose of providing health care for persons eligible for
coverage funded by the hospital assessment.” HB 2010, 2013 Ariz. Sess.
Laws, ch. 10, § 44(3) (1st Spec. Sess.) (emphasis added).
¶12 Appellants also contend hospitals only benefit “incidentally”
from the assessment. But, under Arizona law, a levy can be treated as an
assessment and not a tax as long as there is “some reasonable relation to the
service to be performed on the payer’s behalf.” See Jachimek, 205 Ariz. at 637,
¶ 21 (quoting Stewart v. Verde River Irrigation & Power Dist., 49 Ariz. 531, 548
(1937)); see also Kyrene Sch. Dist. No. 28 of Maricopa County v. City of Chandler,
150 Ariz. 240, 244 (App. 1986) (water system development charges were not
taxes simply because they benefited other parties). Here, while the Arizona
residents who received coverage under the expansion also benefit from the
statute and the assessment, this does not make the levy a tax being
6 The current rules set forth by the director exclude several categories
of hospitals, including those operated by the state or designated as a short-
term, psychiatric, rehabilitation, children’s, or special hospital. Arizona
Administrative Code (“A.A.C.”) § R9-22-730(I).
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Opinion of the Court
expended for a general public purpose. 7 Because of the hospital assessment
fund created by the statute, hospitals receive additional funding for
uncompensated care, which is a benefit related to the levy.8
¶13 Weighing the factors set forth in May, we conclude that the
hospital assessment is not a tax. The assessment is imposed by the director
of AHCCCS, on hospitals, and it is intended to provide additional funding
for hospitals caring for qualified individuals under the expansion.
2. The Hospital Assessment Fits Within the (C)(2) Exception.
¶14 Because the hospital assessment is not a tax, we next address
whether it fits within the specific exception under Section 22 (C)(2). Here,
the exception requires the assessment to be: (1) authorized by statute; (2)
not prescribed by formula, amount, or limit; and (3) set by a state officer or
agency. Ariz. Const. art. 9, § 22(C)(2). Because neither party challenges that
the assessment is set by a state officer or agency, we only address the first
two prongs of the exception.
i) The plain language of the exception does not require a super
majority before it can apply to a fee or assessment.
¶15 Appellants argue that the language under the exception
requiring it to be “authorized by statute” requires that an assessment be
authorized by a two-thirds affirmative vote from both houses of the
legislature, after which, a state officer or agency may then change the fee or
assessment without invoking Section 22, so long as it is not prescribed by
formula, amount, or limit. We disagree.
¶16 Article 9, Section 22(C)(2) simply states the exception applies
to “assessments that are authorized by statute, but are not prescribed by
formula, amount or limit, and are set by a state officer or agency.” Ariz.
Const. art. 9, § 22(C)(2). Nowhere in the plain language of the exception do
we find a requirement that the initial statute authorizing the fee must be
passed by a super majority before the (C)(2) exception applies to fees and
7 In their motion for summary judgment filed on May 14, 2015,
Appellants conceded the levy benefited hospitals.
8 Section 36-2901.09 creates a special fund entitled the “hospital
assessment fund” where the revenues collected from the assessment set
forth in § 36-2901.08 are deposited. A.R.S. § 36-2901.08(F). Notably, the
monies collected therein cannot revert to the state general fund to be used
for another public purpose. A.R.S. § 36-2901.09(C)(1).
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assessments set by a state officer or agency. See Simpson v. Simpson, 224 Ariz.
224, 225, ¶ 6 (App. 2010) (“The best indicator of legislative intent is the plain
language of the statute.”). Furthermore, appellants’ reading ignores the
initial language of subsection (C), which states, “[t]his section does not apply
to . . . .” Ariz. Const. art. 9, § 22(C) (emphasis added). In other words, all of
the listed exceptions in subsection (C) are exempt from the entirety of
Section 22 of the Arizona Constitution, including subsections (A) and (B).
Accordingly, it would require a contorted reading of the exception under
(C)(2) to require a statute to pass the super-majority requirement of
subsection (A), in order to then exempt fees and assessments falling within
subsection (C) from the application of Section 22 entirely.
¶17 Appellants argue this construction of the statute would
produce “absurd results” and render the intent of Article 9, Section 22
“ineffectual.” We disagree. A fee or assessment authorized by statute does
not qualify for exemption unless it is “not prescribed by formula, amount
or limit” and is “set by a state officer or agency.” Ariz. Const. art. 9,
§ 22(C)(2). Under our reading, and contrary to appellants’ contention, not
every fee or assessment passed by a simple majority is exempt from Section
22. Appellants characterize this interpretation “absurd” because it would
allow the legislature to enact an unspecified levy by a simple majority.
However, the voter information pamphlet regarding Proposition 108
explained to voters that other types of fees would not be affected by the
measure, and cited university tuition as an example of one of these
assessments.
ii) The federal approval and federal medical assistance
requirements do not place a formula or limit on the
assessment under the exception.
¶18 Finally, appellants contend the federal approval and federal
medical assistance requirements in A.R.S. § 36-2901.08(B) and (E),
respectively, act as limits on the assessment, taking it outside the Section
22(C)(2) exception.9 The appellants raise a facial challenge, and therefore
we must consider the text of the law itself and not its current application.
See Hernandez v. Lynch, 216 Ariz. 469, 472, ¶ 8 (App. 2007). The party
9 Appellants also claim the exemption factors and joint legislative
budget committee (“JLBC”) review requirements under § 36-2901.08(C) and
(D) act as a formula or limit, but conceded in their original complaint that
the director is not required to consider these factors or gain approval from
the JLBC.
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challenging the provision must demonstrate that no circumstances exist
under which the regulation would be valid. Id.
¶19 Appellants argue, citing 42 U.S.C. § 1396b(w) and 42 C.F.R.
§ 433.68, that federal law contains regulations on how the hospital
assessment can be imposed while maintaining federal funding for the
expansion program, which creates a formula or limit for the assessment. We
do not interpret a clause of this nature to be a limit on the hospital
assessment under Article 9, Section 22(C)(2). The language of subsection
(C)(2) plainly applies to state law and does not look beyond the statute
authorizing the fee or assessment, in this case A.R.S. § 36-2901.08. This is
evident when reading the entirety of subsection (C)(2), which states the
exception applies to “[f]ees and assessments that are authorized by statute,
but are not prescribed by formula, amount or limit, and are set by a state
officer or agency.” The first clause refers to state statutes only, and the final
clause specifically mentions state officers or agencies. Thus, the middle
clause applies to formulas, amounts, or limits prescribed within the state
statute. See Estate of Braden ex rel. Gabaldon v. State, 228 Ariz. 323, 326, ¶ 12
(2011) (“We do not . . . consider words in isolation when interpreting
statutes.”); see also Planned Parenthood Comm. of Phoenix, Inc. v. Maricopa
County, 92 Ariz. 231, 235 (1962) (“The rule of statutory construction, noscitur
a sociis, directs our attention to the accompanying words . . . .”).
¶20 Appellants also claim the director must administer the
assessment “in accordance with federal law,” however, that interpretation
is inaccurate. Section 36-2901.08(B) states the assessment is “subject to
approval by the federal government” to ensure federal funding continues.
This does not require the director to implement an assessment “in
accordance with federal law,” it simply provides guidelines for the director
to review before setting the assessment. The director is still free, based upon
the statute, to choose the amount of the assessment and any exemptions.10
Placing an assessment amount for a statewide program that is dependent
upon federal funding under a federal approval requirement for purposes
of sustaining the program’s funding is not a limit under Section 22(C)(2).
¶21 Nor is the federal medical assistance requirement a limit
under Article 9, Section 22(C)(2). Section 36-2901.08(E) states “[t]he
administration shall not collect an assessment . . . after the effective date of
any reduction of the federal medical assistance percentage . . . applicable to
this state to less than eighty [percent].” This acts as a condition on the entire
10 The appellants admitted the director “has full discretion” in their
complaint.
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statute, which would remove the assessment entirely if the federal
government were to change its funding of the program in the future. This
condition is not a limit on the amount or method by which the
administrator may impose the hospital assessment, but instead acts to
terminate the entire statute should federal funding fail. Accordingly, it is
not a “limit” on the assessment itself under Article 9, Section 22(C)(2).
B. Attorney’s Fees.
¶22 Appellants requested attorney’s fees pursuant to Arizona
Rule of Civil Appellate Procedure Rule 21(a), citing A.R.S. §§ 12-341, -348,
35-213, and the private attorney general doctrine. Because Appellants have
not prevailed on appeal, we decline to award fees.
CONCLUSION
¶23 A.R.S. § 36-2901.08 creates an assessment that falls within the
exception of Article 9, Section 22(C)(2) of the Arizona Constitution.
Accordingly, it was constitutionally enacted by a majority, rather than a
super-majority, of the legislature.
AMY M. WOOD • Clerk of the Court
FILED: AA
10