Liberty University, Inc. v. Geithner, No. 10-2347

Decided: Sept. 8, 2011

The plaintiffs, Liberty University and two individuals, brought suit seeking to enjoin the Secretary of the Treasury from enforcing the “individual” and “employer mandates” in the recently passed Patient Protection and Affordable Care Act (“Act”), also known as “Obamacare,” that require purchasing healthcare coverage. The individuals argued that they had made a conscious choice not to purchase healthcare and the mandate to do so was an unconstitutional penalty couched as a tax. Liberty argued that several of its employees would be eligible for tax credits or cost-sharing reductions under the Act which would subject the employer to “assessable payments” and cause undue financial hardship for the University by means of improper and unconstitutional taxation. The district court held that the exactions were not taxes; it also held that the Act was a valid exercise of Congress’s Commerce Clause powers and dismissed the action.

The Fourth Circuit vacated and remanded with instructions to dismiss the case for lack of subject-matter jurisdiction. Foregoing a Commerce Clause analysis, the majority found that the Act should be evaluated under Congress’s taxing power. The Anti-Injunction Act (“AIA”) states that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” I.R.C. § 7421(a). Where applicable, this statute strips the Circuit court of subject-matter jurisdiction. Indeed, the courts have applied the AIA even in cases where the supposed tax was alleged to be something other than a traditional “tax” as provided by the Constitution.

In concurrence, Judge Wynn wrote that on the merits the law should be upheld as constitutional under Congress’s plenary taxing power. Taxes must possess three characteristics in order to be constitutional: they must bear some reasonable relation to raising revenue, must be imposed for the general welfare, and must not infringe on other constitutional rights. Finding these conditions met, Wynn would uphold the constitutionality of the Act. However, concluding the taxes are valid requires a finding that the exactions are in fact taxes and therefore subject to the AIA’s jurisdiction-stripping provision.

Judge Davis dissented. He followed the holdings of the Sixth and Eleventh Circuits, finding that the AIA was inapplicable under a “labeling” theory of statutory interpretation; specifically, the AIA applies to taxes while the Affordable Care Act assesses penalties. Since Judge Davis believed the AIA should not apply to strip the court of jurisdiction, he felt free to reach the merits of the Act and felt it should be evaluated under a Commerce Clause analysis. Judge Davis would uphold the Act, finding uninsured healthcare costs have a substantial effect on commerce and finding no merit to the distinction between regulation of economic “activity” vs. “inactivity.”. Finally, he found no merit to the First Amendment objections to the Act, declaring it a neutral law of general applicability.

Full Opinion

-C. Alexander Cable

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