Elec. Welfare Trust Fund v. United States

• Decision Date: 21 July 2017
• Docket Number: Civil Action No. DKC 16-2186
• Parties: THE ELECTRICAL WELFARE TRUST FUND v. UNITED STATES OF AMERICA, et al.
• Court: U.S. District Court — District of Maryland

THE ELECTRICAL WELFARE TRUST FUND v. UNITED STATES OF AMERICA, et al.

Civil Action No. DKC 16-2186

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

July 21, 2017

MEMORANDUM OPINION

Presently pending and ready for resolution is the motion to dismiss filed by Defendants Thomas E. Price,¹ in his capacity as Secretary of the United States Department of Health and Human Services (the "Secretary"), the United States Department of Health and Human Services, and the United States of America (collectively, the "United States" or the "Government"). (ECF No. 18). The issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the motion to dismiss will be granted.

I. Background²

Plaintiff Electrical Welfare Trust Fund, Inc. ("Plaintiff") is a self-funded, self-administered group health plan. Under the Patient Protection and Affordable Care Act of 2010 ("ACA"), all individuals must maintain "minimum essential" health insurance coverage, 26 U.S.C. § 5000A, and health insurance providers cannot discriminate against individuals with pre-existing medical conditions by denying them coverage, 42 U.S.C. § 300gg-3. As a result of these policy changes, Congress anticipated that the enrollment of a disproportionate number of previously uninsured, high-risk individuals into the health insurance market could cause premiums to rise for all insured individuals. To stabilize premiums during the first three years, the ACA established the Transitional Reinsurance Program ("TRP"). See 42 U.S.C. § 18061(c)(1). The TRP mandates that all "health insurance issuers, and third party administrators on behalf of group health plans, . . . make payments to an applicable reinsurance entity for any plan beginning in the 3-year period beginning January 1, 2014." Id. § 18061(b)(1)(A). The "reinsurance entities" then reallocate the money collected to health insurance issuers that incur higher costs by covering high-risk individuals. Id. § 18061(b)(1)(B).

Under the TRP provisions, the Secretary is tasked with "issu[ing] regulations setting standards for meeting the requirements . . . with respect to . . . the establishment of the reinsurance and risk adjustment programs." 42 U.S.C. § 18041(a)(1)(C). Specifically, the Secretary has the authority to determine the methodology for setting the amounts each health insurance issuer must contribute to the reinsurance entities under the reinsurance mandate. Id. § 18061(b)(3)(A). Pursuant to this authority, the Secretary issued a regulation defining a "contributing entity" with respect to group health plans as: "a self-insured group health plan . . . whether or not it uses a third party administrator" for the 2014 benefit year; and "a self-insured group health plan . . . that uses a third party administrator" for the 2015 and 2016 benefit years. 45 C.F.R. § 153.20(2). Therefore, self-insured, self-administered group health plans were subject to the reinsurance mandate and had to contribute to the TRP for 2014, but not for 2015 and 2016. Id. In rulemaking comments, the Secretary explained this change in status for such plans by noting that the statute could "reasonably be interpreted in more than one way with respect to the applicability of [the reinsurance mandate] to self-insured, self-administered plans." Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2015, 79 Fed. Reg. 13,773 (Mar. 11, 2014). The Secretary stated thatthe "better reading" was to exclude such entities from the reinsurance mandate, but that the government would include these entities for the 2014 year "in order to avoid disruption to contributing entities." Id.

Plaintiff is a self-funded, self-administered group health plan that was subject to, and paid, the reinsurance mandate for the 2014 benefit year. (ECF No. 1 ¶ 20). On June 17, 2016, Plaintiff filed this tax refund suit on behalf of itself and the putative class of similarly situated self-funded, self-administered health plans. (ECF No. 1). Plaintiff asserts that the Secretary's interpretation of the statute impermissibly included such plans among those required to pay reinsurance contributions for the benefit year 2014. It contends that the ACA is unambiguous with respect to which entities are required to abide by the reinsurance mandate and maintains that self-funded, self-administered group health plans are not among them. The Government moved to dismiss the case for lack of subject matter jurisdiction on November 28. (ECF No. 18). Plaintiff responded in opposition (ECF No. 19), and the Government replied (ECF No. 24).

II. Standard of Review

The Government moves to dismiss for lack of subject matter jurisdiction because sovereign immunity bars Plaintiff's claims. (ECF No. 18). Generally, "questions of subject matterjurisdiction must be decided first, because they concern the court's very power to hear the case." Owens-Illinois, Inc. v. Meade, 186 F.3d 435, 442 n.4 (4^th Cir. 1999). The party bringing suit in federal court bears the burden of proving that subject matter jurisdiction properly exists. See Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4^th Cir. 1999). In a Fed.R.Civ.P. 12(b)(1) motion, the court may consider evidence outside the pleadings to help determine whether it has jurisdiction over the case before it. Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4^th Cir. 1991); see also Evans, 166 F.3d at 647. A court should grant a Rule 12(b)(1) motion "only if the material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a matter of law." Richmond, Fredericksburg & Potomac R.R. Co., 945 F.2d at 768.

III. Analysis

A. Waiver of Sovereign Immunity Under 28 U.S.C. § 1346(a)(1)

The doctrine of sovereign immunity precludes suit against the United States, "'save as it consents to be sued.'" Frahm v. United States, 492 F.3d 258, 262 (4^th Cir. 2007) (quoting United States v. Sherwood, 312 U.S. 584, 586 (1941)). Congress has consented to tax refund suits under 28 U.S.C. § 1346(a)(1) (the "Tax Refund Statute"), which grants federal district courts jurisdiction over "civil action[s] against the United States forthe recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected . . . or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws." Plaintiff asserts that the reinsurance mandate constitutes an "internal-revenue tax" that was "erroneously or illegally assessed or collected" from it in 2014. (ECF No. 19, at 17). Alternatively, Plaintiff maintains that its reinsurance contributions meet the standard in the "any sum" provision of the Tax Refund Statute. (Id. at 29). The Government argues that reinsurance contributions do not qualify under either provision of the Tax Refund Statute.

1. Internal-Revenue Tax

Plaintiff contends that the reinsurance mandate is a tax. It argues that the applicable test in the United States Court of Appeals for the Fourth Circuit comes from In re Leckie Smokeless Coal Co., 99 F.3d 573 (4^th Cir. 1996). In Leckie, the court adopted a four-part test to decide whether a government imposed exaction was a tax for purposes of the Anti-Injunction Act, 26 U.S.C. § 7421(a). To protect the government's ability to collect taxes without judicial delay and interference, the Anti-Injunction Act bars all claims brought "for the purpose of restraining the assessment or collection of any tax," and instead requires taxpayers to raise such objections in tax refund suits after the taxes have been paid. Leckie, 99 F.3d at584. The court in Leckie determined whether the exaction in question was a tax "by asking whether [the exaction] had each of four features: '(a) An involuntary pecuniary burden, regardless of name, laid upon individuals or property; (b) Imposed by or under authority of the legislature; (c) For public purposes, including the purposes of defraying expenses of government or undertakings authorized by it; (d) Under the police or taxing power of the state.'" Id. at 583 (quoting United States v. City of Huntington, W. Va., 999 F.2d 71, 73 nn.4-5 (4^th Cir. 1993)).

In Pittston Co. v. United States, 199 F.3d 694, 702 (4^th Cir. 1999), the Fourth Circuit held that the same test applied to determining whether an exaction fell under the Tax Refund Statute. Noting that "the very purpose of the [Anti-Injunction Act] is 'to allow the Federal Government to assess and collect allegedly due taxes . . . and to compel taxpayers to raise their objections to collected taxes in suits for refunds,'" the court held that "a decision that a premium is a tax for the purposes of the Anti-Injunction [Act] necessarily is a decision that an objection to that assessment must be litigated in a tax refund action" under the Tax Refund Statute. Id. (quoting Leckie, 99 F.3d at 584).

Applying the test from Leckie, Plaintiff contends that its reinsurance contributions are a tax because they are "(a) an involuntary pecuniary burden, laid upon Plaintiff and Classmembers; (b) imposed by Congress; (c) for public purposes, including . . . defraying health insurance coverage expenses; (d) under the taxing power of Government." (ECF No. 19, at 21). Plaintiff also argues generally that United States Supreme Court precedent makes clear that "congressional labels have little bearing on whether an exaction qualifies as a 'tax' for statutory purposes." (ECF No. 19, at 21). Instead, it posits, the "essential character" of an exaction governs whether it qualifies as a tax. (Id. at 22).³

The Government argues that National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012) ("NFIB"), limits the applicability of the Leckie test here. (ECF No. 24, at 14-15). In NFIB, the Supreme Court considered, inter alia, whether the individual insurance mandate in the ACA, which waslabeled a "penalty" instead of a "tax,"...