West Virginia v. U.S. Dep't of Treasury

• Decision Date: 15 November 2021
• Docket Number: 7:21-cv-00465-LSC
• Citation: 571 F.Supp.3d 1229
• Parties: State of WEST VIRGINIA, et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF TREASURY, et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

571 F.Supp.3d 1229

State of WEST VIRGINIA, et al., Plaintiffs,

v.UNITED STATES DEPARTMENT OF TREASURY, et al., Defendants.

7:21-cv-00465-LSC

United States District Court, N.D. Alabama, Western Division.

Signed November 15, 2021

Lindsay Sara See, David Christian Tryon, Jessica Anne Lee, Office of the West Virginia Attorney General, Charleston, WV, for Plaintiff West Virginia, State of.

Andrew Reid Harris, Edmund Gerard LaCour, James W. Davis, Steven Troy Marshall, Office of the Attorney General, Montgomery, AL, Bryan McDaniel Taylor, Bachus Brom & Taylor LLC, Birmingham, AL, for Plaintiff Alabama, State of.

Nicholas Jacob Bronni, Pro Hac Vice, Dylan L. Jacobs, Pro Hac Vice, Vincent M. Wagner, Arkansas Attorney General's Office, Little Rock, AR, for Plaintiff Arkansas, State of.

John Ptacin, State of Alaska - Attorney General's Office, Anchorage, AK, for Plaintiff Alaska, State of.

Jason H. Hilborn, Florida Office of the Attorney General, Tallahassee, FL, for Plaintiff Florida, State of.

Jeffrey S. Thompson, Iowa Attorney General's Office, Des Moines, IA, for Plaintiff Iowa, State of.

Dwight Carswell, Office of the Kansas Attorney General, Topeka, KS, for Plaintiff Kansas, State of.

David M.S. Dewhirst, Montana Department of Justice, Office of the Attorney Genera, Helena, MT, for Plaintiff Montana, State of.

Anthony J. Galdieri, NH Department of Justice, Concord, NH, for Plaintiff New Hampshire, State of.

Mithun Mansinghani, Office of the Oklahoma Attorney General, Oklahoma City, OK, for Plaintiff Oklahoma, State of.

James Emory Smith, Jr., Office of the Attorney General, Columbia, SC, for Plaintiff South Carolina, State of.

Jeffery John Tronvold, Office of the Attorney General South Dakota, Pierre, SD, for Plaintiff South Dakota, State of.

Melissa A. Holyoak, Utah Attorney General's Office, Salt Lake City, UT, for Plaintiff Utah, State of.

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

MEMORANDUM OF OPINION

L. Scott Coogler, United States District Judge

I. Introduction

On March 31, 2021, Plaintiffs West Virginia, Alabama, Arkansas, Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, and Utah (hereinafter, "the Plaintiff States") brought this action against the United States Department of the Treasury ("Treasury"), Treasury Secretary Janet Yellen in her official capacity ("the Secretary"), and Treasury Inspector General Richard Delmar in his official capacity (collectively, "the Defendants"). The Plaintiff States seek to invalidate and enjoin a provision of the American Rescue Plan Act of 2021 ("ARPA"), Pub. L. No. 117-2, § 9901, 135 Stat. 4 (2021) (codified at 42 U.S.C. §§ 802 et seq. ).

The ARPA is a $1.9 trillion economic stimulus bill that was passed by Congress and signed into law by President Biden on March 11, 2021. It was enacted to hasten the United States’ recovery from the economic impact of the COVID-19 pandemic and accompanying recession. The ARPA distributes roughly $195.3 billion directly to the States for specified purposes. 42 U.S.C. § 802(b)(3)(A). However, before a State can receive those funds, it must certify to the Secretary that it will comply with multiple conditions that the ARPA imposes. Id. § 802(d)(1). The Plaintiff States contend that one of those conditions—what this opinion will refer to as the "Tax Mandate"—exceeds Congress's power under the Spending Clause of Article I, Section 8 of the U.S. Constitution because it is ambiguous, coercive, and unrelated to the ARPA's purpose. The Plaintiff States also claim that the Tax Mandate violates the Tenth Amendment to the U.S. Constitution and the anti-commandeering doctrine because it intrudes into their sovereignty by prohibiting States from reducing taxes for the next three years. Their Complaint seeks a declaration from this Court stating as much and an order permanently enjoining enforcement of the Tax Mandate against them. (See doc. 1).

The Court has previously entered one opinion and order in this case, denying the Plaintiff States’ motion for a preliminary injunction of the Tax Mandate during the pendency of this litigation. This opinion considers three motions that are currently pending. The Wisconsin Legislature has moved to intervene as a plaintiff in this lawsuit. (Doc. 58.) Additionally, the existing parties have filed warring motions, the resolution of which will conclude this litigation: the Plaintiff States’ motion for a final judgment that would declare the Tax Mandate unconstitutional and permanently enjoin its enforcement (doc. 75) and the Defendants’ motion to dismiss the Plaintiff States’ Complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be granted (doc. 76).

After providing background information on the ARPA, the Tax Mandate, and events that occurred after its enactment, the Court will consider whether it continues to have subject matter jurisdiction over this action, concluding that it does. The Court will then explain why the Wisconsin Legislature is not entitled to intervene as a plaintiff in this action. Finally, the Court will discuss why the Plaintiff States’ motion for a final judgment and permanent injunction is due to be granted and the Defendants’ motion to dismiss is due to be denied. Accordingly, the Court will permanently enjoin the Secretary from seeking enforcement of the Tax Mandate against the Plaintiff States.¹

II. Background

The COVID-19 pandemic has caused ongoing economic harm to individuals, businesses, and state and local governments. To ease the financial strain, in March 2020, Congress provided $150 billion in direct assistance for state, local, and Tribal governments under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). See Pub. L. No. 116-137, § 5001, 134 Stat. 281, 501 (2020) (codified at 42 U.S.C. § 801 ). However, economic distress continued. Accordingly, on March 11, 2021, the 117th Congress passed, and President Joseph Biden signed, the ARPA, which appropriated approximately $1.9 trillion to provide relief to address the impact of the COVID-19 pandemic. See 42 U.S.C. § 802 et seq. Out of the roughly $1.9 trillion that the ARPA allocates for pandemic relief, around $195.3 billion is tapped for the States. Id. § 802(b)(3)(A). These funds represent an average of about 25% of the thirteen Plaintiff States’ annual budgets. (Doc. 1 ¶¶ 45–57.) In Arkansas, for instance, anticipated ARPA funding represents 29% of the State's annual budget. (Id. ¶ 117.) For West Virginia and Arkansas, it represents over 25% (id. ¶ 47, 53); for Alabama, over 21% (id. ¶ 50); and Kansas, over 20% (id. ¶ 56).

The federal funds come with certain strings attached. To qualify for the funding, a State must "provide the Secretary 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 are set forth in subsection (c). In that section, Congress specified that States must use ARPA funds to respond to the negative economic impacts of the COVID-19 pandemic in one of four specific ways: (1) providing assistance to "households, small businesses, and nonprofits" and "impacted industries such as tourism, travel, and hospitality"; (2) responding "to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers"; (3) making up for pandemic-related reductions in state government revenue; and (4) paying for "necessary investments in water, sewer, or broadband infrastructure." Id. § 802(c)(1)(A-D). The States must use the funds by December 31, 2024. Id. § 802(c)(1).

The ARPA also contains two restrictions on the States’ use of the federal funds. One limitation (not challenged here) provides that a State may not deposit ARPA funds "into any pension fund." Id. § 802(c)(2)(B). The other limitation (the Tax Mandate) provides as follows:

(2) FURTHER RESTRICTION ON USE OF FUNDS. —

(A) IN GENERAL. — A State or territory shall not use the funds provided under this section or transferred pursuant to section 603(c)(4) 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). The phrase "directly or indirectly offset" is not defined in the ARPA. The ARPA requires any State that receives funds to "provid[e] a detailed accounting" to the Secretary of "all modifications to the State's ... tax revenue sources" for the covered period, as well as "such other information as the Secretary may require for the administration of" the Tax Mandate. Id. § 802(d)(2). The Secretary can recoup funds that she interprets were used in violation of the Tax Mandate. Id. § 802(e)(1). The Tax Mandate's "covered period" extends from March 3, 2021, until all funds "have been expended or returned to, or recovered by, the Secretary." Id. § 802(g)(1). The ARPA also authorizes the Secretary "to issue such regulations as may be necessary or appropriate to carry out" the applicable statutory provisions. Id. § 802(f).

On March 16, 2021, twenty-one State attorneys general wrote a letter to the Secretary, seeking guidance as to the scope of the Tax Mandate. (Doc. 21–1 at 4.) The letter listed several tax cuts proposed by legislatures in various States and...