Texas v. Yellen

Decision Date08 April 2022
Docket Number2:21-CV-079-Z
Citation597 F.Supp.3d 1005
Parties The State of TEXAS et al., Plaintiffs, v. Janet YELLEN et al., Defendants.
CourtU.S. District Court — Northern District of Texas

Jeffrey Michael White, Judd E. Stone, II, Ryan Daniel Walters, Office of the Attorney General, Austin, TX, for Plaintiff State of Texas.

Justin Lee Matheny, Mississippi Attorney General Office, Jackson, MS, for Plaintiff State of Mississippi.

Elizabeth Baker Murrill, Pro Hac Vice, Louisiana Department of Justice, Baton Rouge, LA, for Plaintiff State of Louisiana.

Michael Patrick Clendenen, US Department of Justice, Washington, DC, for Defendants.



Before the Court is PlaintiffsMotion for Partial Summary Judgment ("Plaintiffs’ Motion") (ECF No. 27), filed on September 27, 2021, and DefendantsMotion for Summary Judgment ("Defendants’ Motion") (ECF No. 44), filed on October 25, 2021.1 Having considered the pleadings, evidence, and relevant law, the Court GRANTS IN PART Plaintiffs’ Motion and DENIES Defendants’ Motion. The Court DISMISSES WITHOUT PREJUDICE Count IV of Plaintiffs’ Complaint as moot. The Court ENJOINS Defendants and any other agency or employee of the United States from enforcing 42 U.S.C. § 802(c)(2)(A) against Plaintiffs or recouping funds from Plaintiffs for a violation thereof.


On March 11, 2021, President Biden signed the American Rescue Plan Act ("ARPA") into law. PUB. L. NO. 117-2, § 9901(a), 135 STAT . 4 (2021) (codified as 42 U.S.C. §§ 801 et seq. ). ARPA establishes a "Coronavirus State Fiscal Recovery Fund," which earmarks $220 billion to mitigate the fiscal effects of the COVID-19 pandemic on States, territories, and tribal governments through the year 2024. 42 U.S.C. § 802(a)(1). ARPA allocates nearly $200 billion to the States and District of Columbia. Id. § 802(b)(3)(A). States may use allocated funds in a wide range of areas to respond to the public-health emergency caused by COVID-19.

For example, through 2024, a State may use ARPA 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).

Despite the discretion ARPA affords States in using allocated funds, the statute imposes a limitation. Section 802(c)(2)(A) — called the "Tax Mandate" by Plaintiffs and the "offset provision" by Defendants — prohibits States from:

us[ing] the funds provided under [ Section 802 ] ... 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). If a State accepts ARPA funds and flouts Section 802(c)(2)(A), 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). Put differently, the State must repay funds used to offset the lesser of "the reduction to net tax revenue" or "the amount of funds received." Id.

On May 3, 2021, Plaintiffs sued Defendants for declaratory judgment and injunctive relief. ECF No. 1. Plaintiffs allege Section 802(c)(2)(A) is unconstitutional and present several claims in support of their requests for declaratory and injunctive relief. See id. First, Plaintiffs argue Section 802(c)(2)(A) violates the Spending Clause of the Constitution because it "condition[s] billions of dollars of pandemic-recovery funding ... on maintaining Congress's favored tax policies." Id. at 11–12; see also U.S. CONST. art. I, § 8, cl. 1. Second, Plaintiffs allege the provision "is ambiguous as to its scope and not reasonably related to encouraging the States’ economic recovery following the COVID-19 pandemic." ECF No. 1 at 12. They also maintain the provision "is [ ] far too overinclusive and underinclusive to bear any reasonable relationship to any legitimate purpose underlying the Act's funding provisions." Id. Plaintiffs therefore conclude Section 802(c)(2)(A) again violates the Spending Clause. Id. at 12–13. Third, Plaintiffs allege the provision "commandeer[s] the States’ sovereign authority over their own tax polic[ies] ... in violation of the Tenth Amendment." Id. at 14. Fourth, Plaintiffs contend the provision "violates [the Tenth Amendment and] the principle of equal sovereignty by targeting and invading the sovereignty only of those States that, as a matter of history and present fact, are likely to decrease taxes and other government revenues." Id. at 15. Plaintiffs have signed certifications and received ARPA funds — which they contend was the "inevitable result of Congress's coercive offer." ECF No. 28 at 15. Plaintiffs argue Section 802(c)(2)(A) continues to inflict injury upon them. Id.

On July 12, 2021, Defendants moved to dismiss Plaintiffs’ Complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). ECF No. 27. The Court denied DefendantsMotion to Dismiss, finding Plaintiffs had standing to raise their claims and stated a facially plausible claim for relief. ECF No. 50. The Court now considers PlaintiffsMotion for Partial Summary Judgment and DefendantsMotion for Summary Judgment. See ECF Nos. 27, 44. Plaintiffs move for summary judgment on all claims except their equal-sovereignty claim. ECF Nos. 27, 28. Defendants moved for summary judgment on all of Plaintiffs’ claims. ECF No. 44.


A court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). A fact is "material" if its existence or non-existence "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "[T]he substantive law will identify which facts are material." Id. at 248, 106 S.Ct. 2505. A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. The movant must inform the court of the basis of the motion and show from the record that no genuine issue of material fact exists. Celotex Corp. v. Catrett , 477 U.S. 317, 327, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his or her claim." Ragas v. Tenn. Gas Pipeline Co. , 136 F.3d 455, 458 (5th Cir. 1998).

When reviewing summary-judgment evidence, the court must resolve all reasonable doubts and draw all reasonable inferences in the light most favorable to the non-movant. Walker v. Sears, Roebuck & Co. , 853 F.2d 355, 358 (5th Cir. 1988). A court cannot make a credibility determination when considering conflicting evidence or competing inferences. Anderson , 477 U.S. at 255, 106 S.Ct. 2505. If some evidence supports a disputed allegation, so that "reasonable minds could differ as to the import of the evidence," the court must deny the motion. Id. at 250, 106 S.Ct. 2505.


The federal government possesses only enumerated powers, while the States and people retain the remainder. See U.S. CONST. amend. X ("The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."). Our system of federalism ensures "powers which ‘in the ordinary course of affairs, concern the lives, liberties, and properties of the people [are] held by governments more local and more accountable than a distant federal bureaucracy." Nat'l Fed'n of Indep. Bus. ("NFIB") v. Sebelius , 567 U.S. 519, 536–37, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012) (quoting THE FEDERALIST NO. 45, 293 (J. Madison) (C. Rossiter ed. 1961)). Federalism "serves as a check on the power of the Federal Government ... [and] ‘protects the liberty of the individual from arbitrary power.’ " Id. (quoting Bond v. United States , 564 U.S. 211, 222, 131 S.Ct. 2355, 180 L.Ed.2d 269 (2011) ).

The Spending Clause of the Constitution recites one such power. The Spending Clause confers Congress the "Power To lay and collect Taxes, Duties, Imposts, and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States." U.S. CONST. art. I, § 8, cl. 1. Simply stated, "Congress may tax and spend." NFIB , 567 U.S. at 537, 132 S.Ct. 2566. "Incident to this power, Congress may attach conditions on the receipt of federal funds, and has repeatedly employed the power ‘to further broad policy objectives by conditioning receipt of federal moneys upon compliance by the recipient with federal statutory and administrative directives.’ " South Dakota v. Dole , 483 U.S. 203, 207, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987) (quoting Fullilove v. Klutznick , 448 U.S. 448, 474, 100 S.Ct. 2758, 65 L.Ed.2d 902...

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