Ohio v. Yellen

CourtUnited States District Courts. 6th Circuit. United States District Courts. 6th Circuit. Southern District of Ohio
Citation547 F.Supp.3d 713
Docket NumberCase No. 1:21-cv-181
Parties State of OHIO, Plaintiff, v. Janet YELLEN, Secretary of the Treasury, et al., Defendants.
Decision Date01 July 2021

Benjamin Michael Flowers, Ohio Attorney General's Office, Columbus, OH, Sylvia May Davis, Pro Hac Vice, Ohio Attorney General, Cleveland, OH, for Plaintiff.

Brian David Netter, Charles E.T. Roberts, Michael Patrick Clendenen, Stephen Ehrlich, DOJ-Civ, Civil Division, Federal Programs Branch, Washington, DC, for Defendants.



Through the American Rescue Plan Act ("ARPA"), Congress has exercised its power under the Spending Clause to make nearly $200 billion available to the States to assist with their COVID-19-ravaged state coffers. But that money comes at a price. To receive its share, a State must agree to be bound by certain conditions. In this action, Ohio sues the Secretary of the Treasury (who is charged with enforcing aspects of ARPA) claiming that one of those conditions—which it calls the "Tax Mandate"—exceeds Congress's authority. Ohio argues that this overstep threatens to undermine the federalist system our Constitution enacts.

Before accepting the funds ARPA made available, and thereby subjecting itself to ARPA's conditions, Ohio sought a preliminary injunction to prohibit the Secretary from enforcing the Tax Mandate while this suit is ongoing. The Court denied that request. Now, having opted in to ARPA, Ohio seeks a permanent injunction to prevent the Secretary from enforcing the Tax Mandate against the State.

Ohio's action raises fundamental constitutional concerns. The Constitution incorporates strong separation-of-powers principles. That is true both as between the federal government and the States, which the Constitution makes dual sovereigns, and within the federal government itself, where the Constitution allocates separate powers to the Legislature, the Executive, and the Judiciary. And this is not division for division's sake. At its founding, the country had just escaped a system that concentrated vast governmental power in a single person—the monarch. The Framers adopted a system of checks and balances meant to prevent that coalescence from reemerging here—a structural mechanism to promote the underlying goal of individual liberty.

Ohio's arguments here, and the Secretary's response, require the Court to consider both federal/state (sometimes called "vertical") and intra-federal (sometimes called "horizontal") separation-of-powers principles. In particular, Ohio claims that the Tax Mandate is ambiguous, and that this ambiguity violates settled Spending Clause jurisprudence that requires Congress to clearly state any conditions it imposes on federal grants offered to the States. And here, Ohio says, that violation results in an impermissible federal intrusion on the States’ sovereign authority to tax, a power that the Supreme Court has long recognized as "indispensable" to the States’ very "existence." Gibbons v. Ogden , 22 U.S. (9 Wheat.) 1, 199, 6 L.Ed. 23 (1824).

The Secretary's efforts to refute these ambiguity concerns, meanwhile, implicate horizontal separation-of-powers concerns. That is so because, according to the Secretary, even if the Tax Mandate were unconstitutionally ambiguous (which the Secretary disputes), recently issued Treasury Department regulations clarify the Tax Mandate's contours, and thus cure any potential constitutional defect. But that argument raises questions about the extent to which Congress can delegate to an agency the power to "fix" shortcomings in legislative enactments that make conditional grants to the States under the spending power, a thorny issue in its own right.

Separately, the Secretary also raises a jurisdictional challenge to this Court's power to hear the case, which is itself another aspect of the horizontal separation-of-powers framework. Under the Constitution, the judicial power extends only to "live" disputes. Here, the Secretary notes that the original harm that Ohio claimed in filing suit—the difficulty that the Tax Mandate's ambiguity created for Ohio in deciding whether to accept the funding—ended when, ambiguity notwithstanding, Ohio filed its certification with the Secretary, which bound Ohio to ARPA's terms. And the Tax Mandate's alleged ambiguity cannot harm Ohio going forward, the Secretary says, as the Treasury Department regulations have now clarified the Tax Mandate's terms.

None of these are easy questions. As to many parts of the necessary analysis, case law is sparse or itself somewhat ambiguous. Ultimately, though, the Court concludes that Ohio has articulated an ongoing harm arising from the alleged ambiguity in the Tax Mandate, thus creating jurisdiction for this Court to hear Ohio's challenge. On the merits, the Court concludes that the Tax Mandate, as written, falls short of the clarity that Supreme Court precedent requires for Spending Clause legislation that provides conditional grants to the States. And the Court also rejects the Secretary's argument that the Treasury Department regulations cure that ambiguity. In that regard, the Court stops short of holding that Congress can never authorize an agency to supply the requisite clarity, but instead holds that, under ARPA, Congress did not do so here.

Accordingly, the Court finds that the Tax Mandate exceeds Congress's power under the Constitution. The Court further finds that Ohio has met the conditions for injunctive relief to prevent the ongoing harm that this constitutional violation is causing. Thus, the Court PERMANENTLY ENJOINS the Secretary from enforcing the Tax Mandate against Ohio. But, because the permanent injunction suffices to remedy Ohio's ongoing harm, the Court DENIES Ohio's requested declaratory relief.2

A. The COVID-19 Pandemic.

As the Court explained in its previous Opinion,3 the COVID-19 pandemic has inflicted far-reaching, unprecedented consequences on nearly every aspect of life, not only in the United States, but around the world. While the United States appears to be emerging from the worst of the pandemic, at least in terms of ongoing public health and economic impacts, the lingering economic consequences of earlier pandemic-related disruptions continue to present challenges for state budgets, including Ohio's.

B. The America Rescue Plan Act.

On March 11, 2021, President Biden signed ARPA into law. ARPA represents Congress's latest effort to address the harms, including economic harms, that COVID-19 caused. It is a wide-ranging law that commits the federal government to spending up to roughly $1.9 trillion on a host of goods, services, and other forms of governmental assistance.

Central to this case, ARPA appropriates approximately $195.3 billion in funding designed to assist the States with their COVID-19-related financial woes. See 42 U.S.C. § 802(b)(3)(A). Ohio's share of that funding amounts to $5.4 billion. (Murnieks Decl., Doc. 48-1, #778). Ohio argues, and the Secretary does not dispute, that this amount reflects roughly 7.4% of the State's total spending last year. (Mot. for Prelim. Inj., Doc. 3, #33).

As is often the case with federal dollars, ARPA money comes with strings attached. In particular, to qualify for the funding, a State must "provide the Secretary [of the Treasury] with a certification, signed by an authorized officer of such State ... that such State ... requires the payment ... to carry out the activities specified in subsection (c) ... and will use any payment under this section ... in compliance with subsection (c)." 42 U.S.C. § 802(d)(1). The Secretary is to "make the payment required for the State ... not later than 60 days after the date on which th[at] certification ... is provided to the Secretary." Id. § 802(b)(6)(A)(i).

As the above language suggests, the conditions themselves are set forth in subsection (c). That subsection provides that a State shall only use the funds to cover the following types of costs incurred by the State:

(A) to respond to the public health emergency with respect to [COVID-19] or its negative economic impacts ...
(B) to respond to workers performing essential work during the COVID-19 public health emergency ...
(C) for the provision of government services to the extent of the reduction in revenue of such State ... due to the COVID-19 public health emergency relative to revenues collected in the most recent full fiscal year of the State ... prior to the [pandemic] ... or
(D) to make necessary investments in water, sewer, or broadband infrastructure.

Id. § 802(c)(1)(A)(D). And the State must use the funds for those purposes by December 31, 2024. Id. § 802(c)(1).

Ohio does not dispute the validity of any of the above conditions. But ARPA also imposes certain other terms. As relevant here, in a section labeled "Further Restriction On Use Of Funds," ARPA provides that:

(A) IN GENERAL.—A State or territory shall not use the funds provided under this section ... 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.

Id. § 802(c)(2)(A). Ohio refers to this provision as the Tax Mandate, and that provision forms the gist of the dispute here.

C. Ohio Sues The Secretary And Seeks A Preliminary Injunction.

On March 17, 2021, Ohio filed this suit claiming that the Tax Mandate is unconstitutional. This is so, Ohio says, for two reasons. First, the Tax Mandate allegedly violates the Spending Clause in two ways—it is both unconstitutionally coercive and unconstitutionally ambiguous. (Compl., Doc. 1, #9–10). And second, Ohio claims that the Tax Mandate violates the Tenth Amendment, in that it unconstitutionally commandeers state taxing...

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4 cases
  • Kentucky v. Yellen
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • November 18, 2022
    ...Tennessee still face "an unlawfully-imposed quandary in determining how to exercise its sovereign taxing power." Ohio v. Yellen , 547 F. Supp. 3d 713, 725 (S.D. Ohio 2021). The States’ legislators considering tax changes may delay, second guess, or abandon parts of tax policies because ARPA......
  • Kentucky v. Yellen
    • United States
    • U.S. District Court — Eastern District of Kentucky
    • September 24, 2021
    ...deliberate process. One district court has answered a similar legal question regarding the Tax Mandate on dissimilar grounds. see Ohio , 547 F.Supp.3d 713. The Sixth Circuit will likely consider both district court injunctions and issue its own opinion. Thereafter, the Supreme Court may cho......
  • Ohio v. Yellen
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • November 18, 2022
    ...of the Offset Provision on the ground that its terms are "unconstitutionally ambiguous" under the Spending Clause. Ohio v. Yellen , 547 F. Supp. 3d 713, 740 (S.D. Ohio 2021).The Treasury Department appeals, arguing, among other things, that the district court should never have reached the m......
  • Messing v. Provident Life & Ins. Co.
    • United States
    • U.S. District Court — Western District of Michigan
    • July 7, 2021

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