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

Decided: July 11, 2013

Upon remand from the U.S. Supreme Court, the Fourth Circuit affirmed the judgment of the district court to dismiss Liberty University and certain individuals’ (the “Plaintiffs”) action challenging the constitutionality of the employer and individual mandates of the Patient Protection and Affordable Care Act (the “Act” or the “ACA”) on religious freedom grounds.  Notably, and maybe more importantly, the Fourth Circuit also held that the Anti-Injunction Act (the “AIA”) does not bar a pre-enforcement challenge to the employer mandate and rejected the federal government’s arguments that the Plaintiffs did not have standing to challenge the mandates and, in the alternative, that the Fourth Circuit should delay its decision because the enforcement of the employer mandate has been delayed until 2015.

In a second amended complaint, the individual plaintiffs challenged the individual mandate asserting, inter alia, that they held certain Christian religious beliefs regarding abortion that should not force them to participate in the mandate because doing so would require them to facilitate, fund, and support abortions.  Liberty University also challenged the employer mandate asserting that if the federal government’s definition of “minimum essential coverage” finds the University to offer coverage insufficient under the law it would be subject to significant penalties in violation of various constitutional provisions restricting Congress’s authority.  Also, like the individual plaintiffs, Liberty University argued that, as a Christian educational institution with certain held religious beliefs that abortion constitutes “murder and [is] morally repugnant,” it should not be forced to facilitate, fund, or support abortions under the employer mandate because doing so would violate its constitutional rights.  The Plaintiffs, collectively, asserted that the mandates exceed Congress’s authority under the Commerce Clause and violated the Tenth Amendment, the Establishment and Free Exercise Clause of the First Amendment, the Religious Freedom of Restoration Act (the “RFRA”), the Fifth Amendment, the right to free speech and free association under the First Amendment, the Article I, Section 9 prohibition against unapportioned capitation or direct taxes, and the Guarantee Clause.  The Secretary of the Treasury moved to dismiss the claims for lack of jurisdiction, arguing that the Plaintiffs lacked standing and that the AIA barred the suit.  In the alternative, the Secretary moved to dismiss the complaint for failure to state a claim upon which relief could be granted.  When the Fourth Circuit first took the case up on appeal it refused to reach the merits of the case because it concluded that the AIA deprived the court of jurisdiction.  The U.S. Supreme Court vacated that judgment after its decision in NFIB v. Sebelius and directed the court to give further consideration to the case in light of that decision.

The Fourth Circuit first addressed whether the AIA barred this pre-enforcement suit to the employer mandate and whether the Plaintiffs had standing to challenge the constitutionality of the mandates.  With regards to the AIA, the Fourth Circuit noted the Supreme Court, in NFIB, “made clear that the AIA does not apply to every exaction that functions as a tax or even to every exaction that passes muster as a tax for constitutional purposes.”  Instead, the AIA applies only in situations where Congress intended for it to apply.  Similar to the Supreme Court’s reasoning in NFIB, the Fourth Circuit noted that the language of the employer mandate does not consistently refer to the mandate exaction as a “tax.”  Actually, the court identified that the ACA refers to the exaction as a “tax” only twice, yet refers to the exaction as an “assessable payment” seven other times.  The court also indicated that when the ACA does refer to the exaction as a “tax” it is inconsistent in how it cross-references that language with the Internal Revenue Code (“IRC”).  In addition to the textual inconsistencies with the Secretary’s argument, the court noted that adopting such a position would lead to an “anomalous result” as compared with the Supreme Court’s decision in NFIB to allow pre-enforcement challenges to the individual mandate provision.  As such, the Fourth Circuit held that the AIA does not bar this type of pre-enforcement action against the employer mandate.  The court next addressed the second jurisdiction issue raised by the Secretary – standing.  The court went through the obligatory explanation of the standing doctrine and focused its analysis on the Secretary’s contention that the Plaintiffs lacked standing because they failed to allege any actual or imminent injury.  For Liberty University, the Fourth Circuit held that because the university “could” be subject to an assessable payment under the employer mandate and that payment could result in negative effects on the university by increasing the cost of providing health insurance coverage, it established the requisite plausible “general factual allegations of injury” to satisfy the standing doctrine.  Moreover, the court held that such injury was imminent even though the mandate would not go into effect until 2015 because Liberty University would have to take measure to ensure compliance in advance of that date.  With respect to the individual plaintiffs, the court also held that they satisfied the requirement of establishing “general factual allegations of injury” to satisfy the doctrine and, thus, had standing to challenge the individual mandate’s enforcement.  As a result, the Fourth Circuit agreed with the Plaintiffs that they had standing to challenge the ACA and rejected the Secretary’s standing arguments and its contention that the court should delay any decision with regards to the employer mandate even though it had been delayed for a year until 2015.

The Fourth Circuit then turned to the Plaintiffs’ constitutional challenges to the mandates.   First, the court addressed Liberty University’s argument that the employer mandate exceeds Congress’s authority under Commerce Clause of the Constitution.  Even though the Supreme Court in NFIB called into question the previously identified “expansive” authority of Congress under the Commerce Clause, it did not disturb the historical understanding of Congress’s ability to regulate activity with “substantial effects on interstate commerce.”  The court noted that, by their very nature, employers are engaged in economic activity and its decision to provide health insurance to its employees is no different.  Because employers are “active in commerce” already, the Fourth Circuit held that “Congress had a rational basis for finding that employers’ provision of health insurance coverage substantially affects interstate commerce,” and, thus, the ACA’s employer mandate is a valid exercise of Congress’s authority under the Commerce Clause.

The court next quickly addressed the Plaintiffs’ argument that the employer mandate is outside Congress’s authority under the Taxing and Spending or General Welfare Clause.  The Fourth Circuit relied heavily on the Supreme Court’s rationale in NFIB upholding the individual mandate as a tax in asserting that the “essential feature” or, in the alternative, “other functional characteristics” of the employer mandate penalty establish the penalty as a tax and, as such, falls within Congress’s authority under the Taxing and Spending Clause of the Constitution.

Lastly, the Fourth Circuit addressed the Plaintiffs’ challenge to the ACA on various religious grounds.  First, with respect to the Plaintiffs’ Free Exercise Clause argument, the court held that the ACA is a “neutral law of general applicability.”  As a result, it does not violate the Clause and the court rejected the Plaintiffs’ arguments.  The court also rejected the Plaintiffs’ RFRA claims under the theory that the ACA does not “substantially burden religious practice,” as is the requirement under the RFRA in order for the court to apply strict scrutiny to the legislation.  The court then took up the Plaintiffs allegation that two religious exemptions contained within the Act violate the Establishment Clause and their Fifth Amendment equal protection rights.  The first exemption at issue was the individual mandate’s religious conscience exemption.  The court held that this exemption passed the Lemon test because it had a secular purpose and did not “advance nor inhibit” religion.  The second individual mandate exemption challenged by the Plaintiffs dealt with the health care sharing ministry exemption.  The Plaintiffs argued that the exemption unconstitutionally selected an arbitrary formation date as the eligibility cutoff.  Again, the court rejected the argument under the Lemon test.  Finally, the court addressed the Plaintiffs’ Fifth Amendment equal protection rights argument.  Because the distinctions between different groups was “rationally related to the Government’s legitimate interest in accommodating religious practice while limited interference in the Act’s overriding purposes,” the Plaintiffs failed to state a plausible claim that the Fifth Amendment provided a basis for relief.

In addition, the Fourth Circuit quickly addressed the Plaintiffs’ claims in their post-remand briefs that certain regulations implementing the Act that required group health plans to cover all FDA-approved contraceptive methods violated their religious rights.  Because these regulations were not addressed in the Plaintiffs’ amended complaints, nor were they challenged in district court, their first appeal to the Fourth Circuit, or their Supreme Court briefs, the Fourth Circuit declined to take up the issue.  The court noted that these regulations were promulgated while this case was pending and several other sister circuits are currently considering such cases that had been filed after the regulations were promulgated.  As a result, the court did not believe the Plaintiffs’ reasoning for addressing these issues some three years after the action had commenced warranted consideration by the Fourth Circuit at this time.

Full Opinion

– John G. Tamasitis