American Council of Life Insurers v. District of Columbia Health Benefit Exchange Authority

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 8, 2016 Decided March 1, 2016
No. 14-7206
AMERICAN COUNCIL OF LIFE INSURERS,
APPELLANT
v.
DISTRICT OF COLUMBIA HEALTH BENEFIT EXCHANGE
AUTHORITY, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:14-cv-01138)
Paul D. Clement argued the cause for appellant. With
him on the briefs were Erin E. Murphy and Barbara Smith
Grieco.
Loren L. AliKhan, Deputy Solicitor General, Office of the
Attorney General for the District of Columbia, argued the
cause for appellees. With her on the brief were Karl A.
Racine, Attorney General, Todd S. Kim, Solicitor General,
and Stacy L. Anderson, Senior Assistant Attorney General.
Before: TATEL and PILLARD, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
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Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.
WILLIAMS, Senior Circuit Judge: The District of
Columbia’s Health Benefit Exchange Authority (the
“Authority”), created under the Patient Protection and
Affordable Care Act, Pub. L. No. 111-148 (March 23, 2010),
faced a funding shortfall for at least the period immediately
after its opening in 2014. To cover the shortfall, the
Authority, with emergency authorization from the District’s
Council, levied a charge on all insurance policies above a
certain premium threshold sold by health carriers in the
District—including products, such as long-term care
insurance, that insurers cannot trade on the exchange. The
American Council of Life Insurers raises several statutory and
constitutional challenges to that charge on behalf of insurers
whose products are not sold on the Authority’s exchange but
who as a result of the charge are forced to bear its operating
costs.
The district court rejected the Council’s statutory and
constitutional arguments and dismissed the plaintiff’s
complaint for failure to state a claim. American Council of
Life Insurers v. D.C. Health Benefit Exchange Authority, 73
F. Supp. 3d. 65 (D.D.C. 2014). On appeal, the District
argues, contrary to its position in the district court, that the
district court lacked jurisdiction to hear this case because the
charge levied by the Authority was a tax rather than a fee.
We agree.
* * *
Congress has vested the Tax Division of the D.C.
Superior Court with exclusive jurisdiction over challenges to
taxes imposed by the District. D.C. Code § 11-1201 (granting
exclusive jurisdiction); id. § 11-1202 (abolishing other
remedies). This court has removed any doubt that such
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jurisdiction is exclusive, even over suits seeking relief from
District taxes on federal statutory or constitutional grounds.
Jenkins v. Wash. Convention Ctr., 236 F.3d 6, 11 (D.C. Cir.
2001). Since we have an “independent obligation to assure
ourselves of jurisdiction,” Floyd v. District of Columbia, 129
F.3d 152, 155 (D.C. Cir. 1997), we must decide whether the
charge levied by the Authority is a tax, even though both
parties agreed in the district court that it was not. Appellee
Br. 20.
There are no federal cases interpreting Congress’s grant
of exclusive jurisdiction to the District’s courts, so in
distinguishing between a tax and a fee we must look to out-of-
circuit cases, principally those interpreting the most closely
analogous provision, the Tax Injunction Act, 28 U.S.C.
§ 1341. That act bars the federal district courts from granting
injunctive or declaratory relief in suits challenging taxes
imposed by the states.
The circuits interpreting the Tax Injunction Act have
agreed in saying that the basic issue is “whether the charge is
for revenue raising purposes, making it a ‘tax,’ or for
regulatory or punitive purposes, making it a ‘fee.’” Valero
Terrestrial Corp. v. Caffrey, 205 F.3d 130, 134 (4th Cir.
2000) (citation omitted). Of course, all charges raise revenue
(at least if we put aside possible adverse effects on other
revenue streams), so that formulation sheds little light. We
believe that in practice the key question is whether a charge
raises revenue merely to cover the cost of offering a service to
the payers of the fee (including financing regulatory systems
applicable to them), or whether it also raises revenue for
purposes that aren’t especially beneficial or useful to the
payers, or required for pursuit of their businesses. In other
words, the hallmark of a fee is at least a rough match between
the sum paid and the (broadly defined) benefit provided, as
seen from the payers’ perspective. If, for example, “the fee is
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a reasonable estimate of the cost imposed [on the agency] by
the person required to pay the fee, then it is a user fee.”
Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc.,
651 F.3d 722, 728 (7th Cir. 2011) (en banc) (quoting Diginet,
Inc. v. Western Union ATS, Inc., 958 F.2d 1388, 1399 (7th
Cir. 1992)). Similarly, a close correlation between the payers’
burdens under the charge and their benefits from its
application signals a fee; indeed, this can be viewed as
substantially equivalent to Empress Casino’s “cost”
formulation.
In drawing the tax-fee distinction, courts have commonly
invoked three “factors,” which seem to overlap both with each
other and with the criterion we’ve identified as central. First,
a charge is more likely a tax if levied by the legislature than if
imposed by an administrative agency. Valero, 205 F.3d at
134. Second, the broader the population on which the charge
falls, the more likely it is to be considered a tax. Id. Third,
the wider the use of the revenue raised by the charge, and the
more it “benefits the general public,” the more likely the
charge is a tax, id., though in some cases this third criterion is
formulated in terms more directly linked to the benefit-burden
match. See, e.g., Bidart Bros. v. California Apple
Commission, 73 F.3d 925, 931 (9th Cir. 1996) (contrasting a
charge with such a broad public benefit with a charge “used
for the regulation or benefit of the parties upon whom [it] is
imposed”).
Indeed, the second and third factors seem like separate
halves of what we have suggested is central. They focus on
the breadth of, respectively, the payer base and the benefitted
group. Where the two are narrow, and match each other, the
charge looks like a fee. In rare cases it may be that breadth on
both sides is more critical than match-up; classification of the
Social Security “tax” as such, notwithstanding a fairly close
match of burdens and actuarially expected benefits, suggests
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as much. See, e.g., Bob Jones University v. Simon, 416 U.S.
725, 727, 739-40 (1974).
We particularly emphasize the correspondence between
payment and benefit because it fits the jurisdictional rule’s
purpose: to prevent federal courts from disrupting state
government functions by removing their sources of revenue.
When payers receive a benefit in exchange for a charge, they
will have less incentive to raise meritless or marginal
challenges. And when such challenges are brought, they will
disrupt only the provision of the services that the charge
finances, not the more general operations of government.
Thus lawsuits challenging fees, even when not channeled to
particular courts, are less likely to “derange the operations of
government.” Empress Casino, 651 F.3d at 726 (quoting
Dows v. City of Chicago, 78 U.S. (11 Wall.) 108, 110 (1871)).
It may seem anomalous that the very characteristic that
the plaintiff life insurer group identifies as offensive about the
charge in question here—that the payers receive none of the
benefit—militates in favor of classifying it as a tax and
therefore places their federal-law challenges outside the
jurisdiction of an ordinary federal court. But that apparent
offensiveness of course breeds the likely readiness of an
assessed party to start litigation, which the jurisdictional
provision seeks to channel to a specially chosen court.
The cases confirm that when benefit and burden do not at
least roughly correspond, a charge is a tax. For example, the
Seventh Circuit labeled as a tax a charge that collected
revenue from riverboat casinos and transferred it to a
segregated fund benefiting horse racetracks. Empress
Casino, 651 F.3d at 724-25. By contrast, where funds are
collected from regulatees to cover the costs of regulation,
courts have categorized the charges as fees. In Trailer
Marine Transp. Corp. v. Rivera Vazquez, 977 F.2d 1, 4-6 (1st
Cir. 1992), for example, an assessment for participation in a
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compulsory no-fault compensation scheme was held a fee
despite its broad benefits because of the symmetry between
payers and beneficiaries. The assessment was “collected only
from those seeking the privilege of driving on state highways,
and [was] proportioned (for motor vehicles as a class) to
compensate victims for specified damage resulting from that
activity.” Id. at 6. A similar match between payment and
benefit was present in San Juan Cellular Telephone Co. v.
Public Service Commission of Puerto Rico, 967 F.2d 683,686
(1st Cir. 1992), where the First Circuit considered a charge on
private cell phone providers, mainly to cover the Puerto Rico
Public Service Commission’s expenses in regulating those
firms. The court thought it made little difference whether the
match-up was firm-by-firm or for a class of firms, id. at 687,
and hewed to the classification of the charge as a fee despite a
provision allowing unused revenue to be diverted to Puerto
Rico’s general fund, so long as “large amounts of the
revenue” were not so diverted, id.
The plaintiffs here receive no immediate benefit in
exchange for their payment of the charge. Like the riverboat
casino operators in Empress Casino, they provide revenue
that is simply redistributed to the exchange, perhaps
benefiting the insurers that use the exchange—but not the
plaintiffs. Moreover, the match between benefit and payment
is poor even if we consider all the payers of the fee, rather
than just the plaintiffs here. If the Authority had chosen to
levy a charge only on insurance plans traded on the exchange,
raising the necessary revenue would have required a charge of
over 3% of each premium, even accepting the lowest
projection (from 2013) for 2016. Joint Appendix 47. By
assessing nonparticipating insurance plans, the Authority was
able to levy under 1% of each premium. Id. at. 48. In other
words, the majority of the funds raised by the charge come
from premiums for policies not traded on the exchange. Such
redistribution of resources marks the charge as a tax.
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We have largely neglected the first factor that courts
purport to invoke for drawing the line between taxes and
fees—the enacting body (legislature or agency). Of course
this consideration is necessarily somewhat elusive, as a
charge adopted by an agency would be invalid if it were not
authorized by the relevant legislative body. Here the
legislature directed the Authority to assess the charge as a
percentage of insurers’ premium receipts, D.C. Act 20-329
(May 22, 2014), but left the choice of actual rate to the
Authority so long as it was calculated to yield no more than
“reasonable projections regarding the amount necessary to
support the operations of the Authority,” D.C. Code § 31-
3171.03(f)(2). The charge thus falls somewhere between a
tax and a fee for these purposes, and the first factor would not
strongly affect our analysis even if we regarded it as on a par
with the benefit-burden match criterion.
Finally, the plaintiffs note that the D.C. City Council
itself declined to call its charge a tax, instead labeling it an
“assessment.” D.C. Code § 31-3171.03(f). That label,
however, “has nothing to do with any concern behind the Tax
Injunction Act,” Empress Casino, at 651 F.3d at 730, or
behind the District’s analogous provision.
Since the assessment is a tax, we vacate the district
court’s judgment for lack of jurisdiction and remand with
instructions to dismiss the case for lack of jurisdiction.
So ordered.