Am. Council of Life Insurers v. D.C. Health Benefit Exch. Auth.

Decision Date01 March 2016
Docket NumberNo. 14–7206.,14–7206.
Citation815 F.3d 17
Parties AMERICAN COUNCIL OF LIFE INSURERS, Appellant v. DISTRICT OF COLUMBIA HEALTH BENEFIT EXCHANGE AUTHORITY, et al., Appellees.
CourtU.S. Court of Appeals — District of Columbia Circuit

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.

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 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 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 as much. See, e.g., Bob Jones University v. Simon, 416 U.S. 725, 727, 739–40, 94 S.Ct. 2038, 40 L.Ed.2d 496 (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, 20 L.Ed. 65 (1871) ).

It may seem anomalous that the very characteristic that the plaintiff life insurer group...

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