Arizona v. Yellen

• Decision Date: 22 July 2021
• Docket Number: CV-21-00514-PHX-DJH
• Citation: 550 F.Supp.3d 791
• Parties: State of ARIZONA, et al., Plaintiff, v. Janet YELLEN, et al., Defendants.
• Court: U.S. District Court — District of Arizona

550 F.Supp.3d 791

State of ARIZONA, et al., Plaintiff,

v.Janet YELLEN, et al., Defendants.

No. CV-21-00514-PHX-DJH

United States District Court, D. Arizona.

Signed July 22, 2021

Brunn Wall Roysden, III, Drew Curtis Ensign, Joseph Andrew Kanefield, Robert John Makar, Office of the Attorney General, Phoenix, AZ, Wilson Freeman, Pro Hac Vice, Office of the Attorney General, Hyattsville, MD, for Plaintiff.

Stephen Ehrlich, Charles ET Roberts, Michael Patrick Clendenen, US Dept. of Justice, Washington, DC, for Defendants.

ORDER

Diane J. Humetewa, United States District Judge

Pending before the Court is the State of Arizona's ("Arizona" or the "State") Motion for a Preliminary Injunction (Doc. 11). The Secretary of the Treasury (the "Secretary") filed a Response (Doc. 31), and Arizona filed a Reply (Doc. 32-1). After requesting and receiving additional briefing from both parties (Docs. 48; 47), the Court heard oral argument on the matter. The parties were then allowed a final round of briefing, which concluded on July 7, 2021 (Docs. 59; 60). With the parties’ consent, the Court has consolidated the Motion with this decision on the merits (Doc. 55).¹

I. Background

The American Rescue Plan Act of 2021 ("ARPA") offers hundreds of billions of dollars to the States to support their response to the deadly and widespread COVID-19 pandemic. Broadly speaking, the funds are intended to support the States’ response to the public health emergency, to assist essential workers, to support government services, and to invest in infrastructure. 42 U.S.C. § 802(c)(1). Arizona has accepted ARPA's offer and will receive about $4.7 billion, a significant amount of money considering Arizona's annual budget is about $12.4 billion. (Docs. 1 at ¶ 40; 47 at 3).

Like many other federal grants, ARPA places restrictions and conditions on what the States may do once they accept the offered funds. Here, Arizona challenges one ARPA restriction in particular:

A State or territory shall not use the funds provided under this section or transferred pursuant to section 803(c)(4) of this title to either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.

42 U.S.C. § 802(c)(2)(A) (the "Restriction"). Arizona argues this language is ambiguous, in that it does not know "what it means to ‘indirectly offset a reduction in the net tax revenue’ of the state." (Doc. 1 at ¶ 56). One problematic interpretation, Arizona argues, is that Congress has unconstitutionally prevented States from lowering their net tax revenue in any way. (Id. at ¶¶ 63–64). Arizona also argues it was coerced into accepting ARPA funds simply because of the immense amount of the funds offered. (Id. at ¶ 41). Effectively, Arizona argues Congress named a price so high that Arizona had no choice but to risk relinquishing part of its sovereign power to tax in exchange.

The Secretary argues ARPA's Restriction is unambiguous and only applies when a State reduces its net tax revenue by offsetting that reduction with ARPA funds. (Doc. 31 at 12). The Restriction's purpose, according to the Secretary, is to ensure States use the funds for their intended purpose, not as a subsidy for tax cuts. (Id. at 11–12). In addition, the Secretary argues any perceived ambiguity is mitigated by the Interim Final Rule (the "Rule") because it explains how the Secretary will interpret and enforce the Restriction. (Doc. 31 at 12); see also Coronavirus State and Local Fiscal Recovery Funds, 86 Fed. Reg. 26,786 (May 17, 2021) (to be codified at 31 C.F.R. pt. 35).

Despite the Secretary's Rule, Arizona argues ambiguities remain. (Doc. 59 at 12). Its Complaint brings two Counts against the Secretary. Count One alleges that Restriction's ambiguity violates Congress’ spending clause powers. (Doc. 1 at ¶¶ 51–61).

Count Two alleges that, under the problematic interpretation, the Restriction unconstitutionally violates Arizona's sovereignty under the spending clause, the Tenth Amendment, the anti-commandeering principle, and the very structure of the Constitution. (Id. at ¶¶ 62–70). For relief, Arizona seeks a declaration that the Restriction is ambiguous, that it is in excess of Congress’ powers, and that it violates the Tenth Amendment. (Id. at 16). Finally, Arizona seeks to enjoin the Secretary from enforcing the Restriction on it. ( Id. )

II. Discussion

As with all matters, the Court must first consider whether it has jurisdiction over this case. Wachovia Bank v. Schmidt , 546 U.S. 303, 316, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006). Article III of the Constitution establishes that federal courts may only hear cases or controversies. Lujan v. Defs. of Wildlife , 504 U.S. 555, 559, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). To satisfy this constitutional requirement, a plaintiff must have suffered a concrete and particularized injury that is both fairly traceable to the defendant's conduct and redressable by a favorable decision. Id. at 560–61, 112 S.Ct. 2130. This "threshold requirement ensures that we act as judges, and do not engage in policymaking properly left to elected representatives." Gill v. Whitford , ––– U.S. ––––, 138 S. Ct. 1916, 1923, 201 L.Ed.2d 313 (2018).

The Secretary challenges Arizona's standing to bring the aforementioned claims. In particular, she argues any injury Arizona asserts is too "hypothetical and speculative" for standing purposes. (Doc. 31 at 14). To establish an injury in fact, "a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’ " Spokeo, Inc. v. Robins , 578 U.S. 330, 136 S. Ct. 1540, 1548, 194 L.Ed.2d 635 (2016) (quoting Lujan, 504 U.S. at 560, 112 S.Ct. 2130 ). "When we have used the adjective ‘concrete, we have meant to convey the usual meaning of the term—‘real,’ and not ‘abstract.’ " Id. Moreover, "[a]lthough imminence is concededly a somewhat elastic concept, it cannot be stretched beyond its purpose, which is to ensure that the alleged injury is not too speculative for Article III purposes—that the injury is certainly impending." Clapper v. Amnesty Int'l USA , 568 U.S. 398, 409, 133 S.Ct. 1138, 185 L.Ed.2d 264 (2013).

Arizona argues it has suffered a concrete injury in five ways. (Doc. 32-1 at 6). First, Arizona says it was injured by the Restriction's ambiguity, which prevented it from understanding the conditions it accepted. (Id. at 7). Second, and relatedly, Arizona argues that the ambiguity casts a cloud of uncertainty over Arizona policymakers’ ability to oversee the State's budgetary matters. (Id. ) Third, it argues it has been injured by ARPA's "compliance costs." (Doc. 59 at 9). Fourth, it argues there is a realistic danger it will be injured by the Restriction's enforcement. (Id. ) Finally, Arizona argues it was injured by ARPA's coercive power, which forced Arizona into accepting the Restriction, an unconstitutional condition. (Doc. 32-1 at 8).

1. Sovereign Injury

It is well-established that Congress may use its spending power "in the nature of a contract" with the States such that, "in return for federal funds, the States agree to comply with federally imposed conditions." Pennhurst State Sch. & Hosp. v. Halderman , 451 U.S. 1, 17, 101 S.Ct. 1531, 67 L.Ed.2d 694 (1981). Because States cannot knowingly accept an offer without knowing its terms, "if Congress intends to impose a condition on the grant of federal moneys, it must do so unambiguously."

Id. at 2, 101 S.Ct. 1531 ; Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy , 548 U.S. 291, 296, 126 S.Ct. 2455, 165 L.Ed.2d 526 (2006) ("States cannot knowingly accept conditions of which they are ‘unaware’ or which they are ‘unable to ascertain.’ ") (quoting Pennhurst , 451 U.S. at 17, 101 S.Ct. 1531 ).

When Congress conditions the receipt of federal funds, Arizona asserts it has a right to both know of the condition's existence and to know, without ambiguity, what the condition requires. (Doc. 59 at 12). Here, Arizona argues Congress failed to unambiguously state what the Restriction requires of Arizona. Therefore, Arizona argues, the Restriction's ambiguity violates one the State's sovereign rights.

Arizona's argument lacks support in caselaw. To begin, Pennhurst and Arlington Central do not support Arizona's position that its rights are violated by the Restriction's ambiguity. In Pennhurst , the issue before the Court was not whether an ambiguous condition on the grant of funds injured the States; it was whether there existed a condition that "imposed an obligation on the States ...." 451 U.S. at 18, 101 S.Ct. 1531. Similarly, in Arlington Central , the issue was whether the Individuals with Disabilities Education Act "furnishes clear notice regarding" the existence of a condition whereby the States were required to pay for expert testimony fees incurred through bringing claims under the Act. 548 U.S. at 296, 126 S.Ct. 2455. The Court was not tasked with determining what conditions would trigger such an obligation—the question was whether such an obligation existed at all. See id. Anything in those two cases beyond the issue of whether a condition existed, then, is dicta. Here, nobody questions the Restriction exists as a condition to Arizona accepting the funds. In that regard, Congress fulfilled its duty under Pennhurst and Arlington Central .

Arizona also argues it has standing because the Supreme Court did not question the States’ standing in N.F.I.B. v. Sebelius , 567 U.S. 519, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012). (Doc. 59 at 8). But Sebelius is of no help to Arizona's argument, either. There, several States filed a complaint the day the Patient Protection and Affordable Care Act of 2010 was...