Dragovich v. United States Dep't of The Treasury

• Decision Date: 18 January 2011
• Docket Number: No. 10–01564 CW.,10–01564 CW.
• Citation: 764 F.Supp.2d 1178
• Parties: Michael DRAGOVICH; Michael Gaitley; Elizabeth Litteral; Patricia Fitzsimmons; Carolyn Light; and Cheryl Light; on behalf of themselves and all others similarly situated, Plaintiffs,v.UNITED STATES DEPARTMENT OF THE TREASURY; Timothy Geithner, in his official capacity as Secretary of the Treasury, United States Department of the Treasury; Internal Revenue Service; Douglas Shulman, in his official capacity as Commissioner of the Internal Revenue Service; Board of Administration of California Public Employees' Retirement System; and Anne Stausboll, in her official capacity as Chief Executive Officer, CalPERS, Defendants.
• Court: U.S. District Court — Northern District of California

764 F.Supp.2d 1178

Michael DRAGOVICH; Michael Gaitley; Elizabeth Litteral; Patricia Fitzsimmons; Carolyn Light; and Cheryl Light; on behalf of themselves and all others similarly situated, Plaintiffs,

v.UNITED STATES DEPARTMENT OF THE TREASURY; Timothy Geithner, in his official capacity as Secretary of the Treasury, United States Department of the Treasury; Internal Revenue Service; Douglas Shulman, in his official capacity as Commissioner of the Internal Revenue Service; Board of Administration of California Public Employees' Retirement System; and Anne Stausboll, in her official capacity as Chief Executive Officer, CalPERS, Defendants.

No. 10–01564 CW.

United States District Court, N.D. California.

Jan. 18, 2011.

Claudia Center, Elizabeth Kristen, Shelley Ann Gregory, The Legal Aid Society-Employment Law Center, Daniel Simon Mason, Attorney at Law, Lori Rifkin, Rosen, Bien & Galvan, LLP, Patrick Bradford Clayton, Zelle Hofmann Voelbel Mason & Gette, San Francisco, CA, for Plaintiffs.Jean Lin, U.S. Department of Justice, Washington, DC, Edward George Gregory, Jennifer Lynn Morrow, Steptoe & Johnson LLP, Los Angeles, CA, for Defendants.

ORDER DENYING FEDERAL DEFENDANTS' MOTION TO DISMISS (Docket No. 25)

CLAUDIA WILKEN, District Judge.

Plaintiffs bring a constitutional challenge to section three of the Defense of Marriage Act (DOMA), 1 U.S.C. § 7, and section 7702B(f) of the Internal Revenue Code (I.R.C.), 26 U.S.C. § 7702B(f), which interfere with their ability to participate in a state-maintained plan providing long-term care insurance. Long-term care insurance provides coverage when a person needs assistance with basic activities of living due to injury, old age, or severe impairments related to chronic illnesses, such as Alzheimer's disease. Enacted on August 21, 1996, as part of the Health Insurance Portability and Accountability Act (HIPAA), section 7702B(f) provides favorable federal tax treatment to qualified state-maintained long-term care insurance plans for state employees. 26 U.S.C. § 7702B(f). Section 7702B(f) disqualifies a state-maintained plan from this favorable tax treatment if it provides coverage to individuals other than certain specified relatives of state employees and former employees. § 7702B(f)(2). The provision's list of eligible relatives does not include registered domestic partners, but does include spouses. 26 U.S.C. § 7702B(f)(2)(C); 26 U.S.C. § 152(d)(2)(A)-(G). One month later, section three of the DOMA amended the United States Code to define, for federal law purposes, the term “spouse” to mean solely “a person of the opposite sex who is a husband or wife,” and “marriage” to mean only “a legal union between one man and one woman as husband and wife.” 1 U.S.C § 7.

Plaintiffs are three California public employees and their same-sex spouses, who are in long-term committed relationships legally recognized in California as both marriages and registered domestic partnerships. California Public Employees' Retirement System (CalPERS) provides retirement and health benefits, including long-term care insurance, to many of the state's public employees, retirees, and their families. CalPERS has refused to make available its Long–Term Care (LTC) Program to the same-sex spouses of the public employee Plaintiffs.

Plaintiffs contend that section three of the DOMA and I.R.C. § 7702B(f) violate the Fifth and Fourteenth Amendment guarantees of equal protection and substantive due process.¹ Plaintiffs have named both Federal and State Defendants. Federal Defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(1), on grounds that this Court lacks subject matter jurisdiction because Plaintiffs do not have standing. In addition, Federal Defendants move to dismiss Plaintiffs' action under Federal Rule of Civil Procedure 12(b)(6) for failure to state claims for violations of equal protection and substantive due process. State Defendants have answered the complaint and do not join the motion to dismiss.

BACKGROUND

I. Facts Alleged in the Complaint

On a motion to dismiss under Rule 12(b)(6), the Court must take as true the facts alleged in Plaintiffs' complaint. The following summarizes the facts alleged.

A. Long-term care insurance and the CalPERS LTC Program

Pursuant to California law, Defendant CalPERS Board of Administration offers public employees and their families the opportunity to purchase long-term care insurance during periodic open enrollment periods. Cal. Gov't.Code § 2166(a).

Long-term care insurance has advantages which health and disability insurance, Medicare and MediCal generally do not offer. The official guide explaining the CalPERS LTC Program states that “Medicare, Medigap and health insurance may cover very limited long-term care,” and such plans “were designed to pay for hospital and doctor care—not extended, personal care.” Pls.' Compl. at ¶ 38. The CalPERS guide further warns, “Medi–Cal only pays for long-term care after [an individual has] exhausted most of [his or her] own assets and income.” Id. at ¶ 38. Furthermore, long and short term disability insurance policies generally only “replace lost income due to disability” and “most long-term care is paid directly by individuals and their families.” Id. Accordingly, the insurance offered by the CalPERS LTC Program provides control over where and how an individual receives care, allows an individual to preserve assets for other uses, and helps reduce the high financial and emotional cost of long-term care. Id. at ¶ 5. The CalPERS LTC Program, and long-term care insurance in general, are an important option for individuals and families to safeguard their financial and emotional well-being.

B. I.R.C. § 7702B

As noted above, the United States has provided important tax benefits for long-term care insurance policies. 26 U.S.C. § 7702B. Premiums for qualified long-term care contracts are treated as medical expenses and may be claimed as itemized deductions. 26 U.S.C. § 7702B(a)(4); 26 U.S.C. § 213(a), (d)(1)(D), (d)(10). Benefits received under a qualified long-term care insurance contract are excludable from gross income. 26 U.S.C. § 7702B(a)(2), (d); 26 U.S.C. § 104(a)(2).

Congress enacted these provisions because of the critical role of long term care insurance in protecting families. “The legislation ... provides tax deductibility for long term care insurance, making it possible for more Americans to avoid financial difficulty as the result of chronic illness.” 142 Cong. Rec. S3578–01 at *3608 (Statement of Sen. McCain) (Apr. 18, 1996); see also, Joint Committee on Taxation, “Description of Federal Tax Rules and Legislative Background Relating to Long–Term Care Scheduled for a Public Hearing Before the Senate Committee on Finance on March 27, 2001,” at 2001 WL 36044116 (provisions to grant tax advantages for long-term care plans were adopted “to provide an incentive for individuals to take financial responsibility for their long-term care needs.”).

A state-maintained long-term care insurance program provides its beneficiaries the same favorable federal tax treatment if the program meets the requirements of I.R.C. § 7702B(b) and is offered only to the state's current and former employees, their spouses, and certain relatives. Id. § 7702B(f). Eligible relatives include children, grandchildren, brothers, sisters, stepbrothers, stepsisters, fathers, mothers, stepfathers, stepmothers, grandparents, nephews, nieces, aunts, uncles, sons-in-law, daughters-in-law, fathers-in-law, mothers-in-law, brothers-in-law, and sisters-in-law. See I.R.C. §§ 7702B(f)(2)(C)(iii); 152(d)(2)(A)-(G).

Registered domestic partners are not included on the list of eligible relatives, 26 U.S.C. §§ 7702(B)(f)(1)-(2), 152(d)(2)(A)-(G), and because the DOMA's federal definition of spouse does not include same-sex spouses, 1 U.S.C. § 7, a state cannot allow same-sex couples to participate in its long-term care plan if it wishes the plan to qualify for favorable tax treatment. The CalPERS LTC Program is a qualified plan under § 7702B and, as such, does not permit same-sex spouses or registered domestic partners of state employees to enroll.

In their answer to Plaintiffs' complaint, California Defendants CalPERS and CalPERS Chief Executive Officer Stausboll state that “they have no choice but to follow federal tax law.” CalPERS Ans. at ¶¶ 10–11.

C. Plaintiff Couples and their California Status

As noted earlier, Plaintiffs are current California public employees—Michael Dragovich, Elizabeth Litteral, and Carolyn Light—and their same-sex spouses. Plaintiffs legally married during the window of time that California allowed civil marriage for same-sex couples, following the state supreme court's decision in In re Marriage Cases, 43 Cal.4th 757, 76 Cal.Rptr.3d 683, 183 P.3d 384 (2008) (holding that the denial of the right to marry to same-sex couples violated the state constitution, and that strict scrutiny review applies to laws burdening persons based on sexual orientation). Although Proposition 8 subsequently amended the California Constitution to prohibit civil marriage for same-sex couples, Plaintiffs' marriages remain valid under California law. Strauss v. Horton, 46 Cal.4th 364, 474, 93 Cal.Rptr.3d 591, 207 P.3d 48 (2009) (“[W]e conclude that Proposition 8 cannot be interpreted to apply retroactively so as to invalidate the marriages of same-sex couples that occurred prior to the adoption of Proposition 8. Those marriages remain valid in all respects.”).

In addition to being legally married, Plaintiff couples are registered domestic partners, pursuant to California Family Code § 297. Since January 1, 2005, California law has provided,

Registered domestic partners shall have the same rights, protections, and benefits, and shall be subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, court rules, government policies, common law, or any other...