Kentucky v. Yellen

• Decision Date: 24 September 2021
• Docket Number: Civil No. 3:21-cv-00017-GFVT-EBA
• Parties: Commonwealth of KENTUCKY, et al., Plaintiffs, v. Janet YELLEN, et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

563 F.Supp.3d 647

Commonwealth of KENTUCKY, et al., Plaintiffs,

v.Janet YELLEN, et al., Defendants.

Civil No. 3:21-cv-00017-GFVT-EBA

United States District Court, E.D. Kentucky, Central Division. Frankfort.

Signed September 24, 2021

Barry L. Dunn, Brett Robert Nolan, Matthew F. Kuhn, Victor B. Maddox, Attorney General's Office, Frankfort, KY, for Plaintiff Commonwealth of Kentucky.

Andree S. Blumstein, Pro Hac Vice, Brandon J. Smith, Pro Hac Vice, Sarah K. Campbell, Pro Hac Vice, Office of the Tennessee Attorney General and Reporter, Nashville, TN, for Plaintiff State of Tennessee.

Stephen Ehrlich, Charles E.T. Roberts, United States Department of Justice, Washington, DC, for Defendants.

OPINION & ORDER

Gregory F. Van Tatenhove, United States District Judge

This case is informed by an old conversation between Thomas Jefferson and Alexander Hamilton. The topic was one of trust. Hamilton put his in a strong federal government with considerable power.¹ Jefferson, the agrarian, fought against the expansion of federal power at the expense of the States.² Here, the federal government wants to give Kentucky and Tennessee a lot of money. These funds are desperately needed in the midst of a pandemic. But, they come with a price—states must forego the exercise of important flexibility and power when it comes to making their own taxing decisions.

As explained below, this is a coercive grant of federal money. The spending power of the federal government does not go so far. The price for accepting the funds is unconstitutional. Accordingly, summary judgment will be GRANTED in favor of the Commonwealth of Kentucky and the State of Tennessee.

I

President Biden signed into law the American Rescue Plan Act on March 11, 2021. Pub. L. No. 117-2, § 9901(a) (codified at 42 U.S.C. §§ 802 – 805 ). The ARPA appropriates funds in order for the States to respond to pandemic-related expenses. Id. The ARPA provides that, through December 31, 2024, the States may use the recovery funds "to cover costs incurred":

(A) to respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality;

(B) to respond to workers performing essential work during the COVID–19 public health emergency by providing premium pay to eligible workers of the State, territory, or Tribal government that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work;

(C) for the provision of government services to the extent of the reduction in revenue of such State, territory, or Tribal government due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the State, territory, or Tribal government prior to the emergency; or

(D) to make necessary investments in water, sewer, or broadband infrastructure.

Id. § 802(c)(1). The ARPA also includes restrictions or conditions on the grant of federal funds. Id. § 802(c)(2). The condition of importance here (the "Tax Mandate") prohibits a State from using the federal funds to "directly or indirectly offset a reduction in net tax revenue of such State [ ] 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)." Id. § 802(c)(2)(A). If a State accepts the funds and fails to comply with the Tax Mandate, it "shall be required to repay the Secretary [of the Treasury] an amount equal to the amount of funds used in violation [thereof]." Id. § 802(e). In other words, the State will be required to repay either the amount of funds used to offset the "reduction to net tax revenue" or "the amount of funds received," whichever is less. Id. Further, on May 17, 2021, the Treasury Department published an Interim Final Rule, seeking to clarify the Tax Mandate and the eligible uses of ARPA funds. See 86 Fed. Reg. 26,786 (May 17, 2021).

Plaintiffs Kentucky and Tennessee bring the present suit and move for summary judgment. [R. 25.] Plaintiffs seek both a declaratory judgment finding the Tax Mandate unconstitutional and a permanent injunction enjoining the Treasury Secretary's enforcement of the Tax Mandate. [ Id. ] Plaintiffs argue that they have standing on two grounds, arguing that the Tax Mandate: (1) unconstitutionally narrows the range of permissible tax policies States may enact, injuring the Plaintiffs; and (2) imposes administrative burdens, injuring Plaintiffs. [R. 25 at 23–24.] Plaintiffs then cite four different ways in which the Tax Mandate of the ARPA is unconstitutional. Plaintiffs believe that the Tax Mandate is unconstitutionally ambiguous and coercive in violation of the Spending Clause, that it is not reasonably related to the federal interest in passing the ARPA, and that it violates the anticommandeering doctrine. [R. 25.] Defendants, in response, argue: (1) that Plaintiffs are attempting to manufacture standing where it does not exist; (2) that this case is not ripe; and (3) that Congress has not exceeded the bounds of its authority for Spending Clause purposes. [R. 31.]

II

A

It is well-established that standing is a threshold inquiry in every federal case. See, e.g., Warth v. Seldin , 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) ; Planned Parenthood Ass'n of Cincinnati, Inc. v. Cincinnati , 822 F.2d 1390, 1394 (6th Cir. 1987). Each federal court is "under an independent obligation to examine their own jurisdiction, and standing is perhaps the most important of the jurisdictional doctrines." FW/PBS, Inc. v. City of Dallas , 493 U.S. 215, 231, 110 S.Ct. 596, 107 L.Ed.2d 603 (1990) (internal quotations and citation omitted).

"To satisfy the ‘case’ or ‘controversy requirement’ of Article III, which is the ‘irreducible constitutional minimum’ of standing, a plaintiff must, generally speaking, demonstrate that he has suffered an ‘injury in fact,’ that the injury is ‘fairly traceable’ to the actions of the defendant, and that the injury will likely be redressed by a favorable decision." Bennett v. Spear , 520 U.S. 154, 162, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997) (citations omitted). To show injury-in-fact, a plaintiff must show "an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical." Lujan v. Defenders of Wildlife , 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992).

In pre-enforcement challenges, like this one, the "Supreme Court has recognized that an allegation of future injury may satisfy the injury-in-fact requirement if the alleged threatened injury is certainly impending, or there is a substantial risk that the harm will occur." McKay v. Federspiel , 823 F.3d 862, 867 (6th Cir. 2016) (quoting Susan B. Anthony List v. Driehaus , 573 U.S. 149, 158, 134 S.Ct. 2334, 189 L.Ed.2d 246 (2014) (cleaned up)). More specifically, plaintiffs satisfy the injury-in-fact requirement where they allege: (1) "an intention to engage in a course of conduct arguably affected with a constitutional interest," (2) that is "proscribed by a [law]," and (3) "there exists a credible threat of prosecution thereunder." Susan B. Anthony List , 573 U.S. at 159, 134 S.Ct. 2334 (citation omitted). As sovereign entities, Kentucky and Tennessee also enjoy "special solitude in [the Court's] standing analysis." Massachusetts v. E.P.A. , 549 U.S. 497, 518–20, 127 S.Ct. 1438, 167 L.Ed.2d 248 (2007). The Court will consider, in turn, whether Plaintiffs have met each element.

In order to satisfy the first Dreihaus factor in this context, the Court must, necessarily, look to the substance of the "constitutional interest" at issue in this case. Plaintiffs Kentucky and Tennessee are alleging that the Tax Mandate, a condition attached to the receipt of funds under the ARPA, is unconstitutional on a variety of grounds. [R. 25.] The States contend that they wish to accept the funds—indeed, that they need the funds—but seek to enjoin the Treasury Department from enforcing the Tax Mandate. [Id. ] There is at least one valid argument that the Tax Mandate is unconstitutional. See generally Ohio v. Yellen , 2021 WL 2712220, 1:21-cv-00181-DRC, 547 F.Supp.3d 713 (S.D. Ohio July 1, 2021). Accordingly, the States have met the first factor. Next, the Tax Mandate may fairly be considered a guardrail as to how States may spend ARPA funds. Tennessee and Kentucky, however, interpret the Tax Mandate as proscribing use of the funds for their "preferred tax policies in the coming years." [R. 25 at 11.] The second factor is met. Finally, Treasury Secretary Yellen penned a letter to various attorneys general on March 23, 2021, indicating her intent to enforce the Tax Mandate. [See R. 1-2.] Thus, a credible threat of prosecution exists, Plaintiffs have met their burden, and this Court has standing to turn to the merits of the case.

B

Plaintiffs, in their summary judgment motion, cite four different ways in which the Tax Mandate of the ARPA is unconstitutional. [R. 25.] The Court will begin by addressing the Plaintiffs’ contention that the Tax Mandate is unconstitutionally coercive and then turn to remaining arguments, as needed.

The Spending Clause gives Congress the power "to pay the Debts and provide for the ... general Welfare of the United States." U.S. Const., Art. I, § 8, cl. 1. As a part of its Spending Clause powers, Congress may offer conditioned funds to the States. See South Dakota v. Dole , 483 U.S. 203, 208, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987) (threatening to withhold federal funds if South Dakota did not raise drinking age to twenty-one). To that end, Spending Clause legislation has often been characterized as "much in the nature of a contract " between two co-sovereigns. Pennhurst State School and...