Supporters have embraced the tax argument because Congress has a clear authority to tax. Court rejects health law challenges

A federal appeals court on Thursday said it can’t rule on the constitutionality of the health reform law’s individual mandate until at least 2014 — an argument that, if adopted by the Supreme Court, could leave the issue unresolved for years.

The 4th Circuit Court of Appeals in Richmond ruled that the law’s penalty for not buying insurance after 2014 is essentially a tax and thus cannot be challenged in court until consumers start paying it. The panel cited the Tax Anti-Injunction Act, which requires taxpayers to pay a tax and ask for a refund before they can challenge it in court.


The court ordered the case, brought by Liberty University, back to a lower court. The court also threw out a similar challenge brought by Virginia Attorney General Ken Cuccinelli.

In a statement, Cuccinelli vowed to appeal the ruling, arguing that the court “did not even reach the merits on the key question of Virginia’s lawsuit — whether Congress has a power never before recognized in American history: the power to force one citizen to purchase a good or service from another citizen.”

Liberty University is also expected to appeal.

The Justice Department praised the ruling in a statement, comparing the legal challenges to the health law to legal challenges to other historically significant pieces of legislation “such as the Social Security Act, the Civil Rights Act and the Voting Rights Act.”

“All of those challenges failed as well. We will continue to vigorously defend the health care reform statute in any litigation challenging it, and we believe we will prevail.”

The cases, both arguing that the law’s requirement to buy insurance is unconstitutional, had a chance of reaching the Supreme Court in the upcoming term. Thursday’s rulings will put even greater focus on two similar challenges to the health reform law: a suit filed by 26 states and the National Federation of Independent Business and another filed by the Thomas More Law Center.

The Supreme Court has already received an appeal from Thomas More, which lost in the 6th Circuit Court of Appeals in June.

Last month, an 11th Circuit Court of Appeals panel ruled 2-1 that the law’s insurance mandate is unconstitutional. The federal government, which lost in that case against the 26 states, still has to announce whether it will appeal to the Supreme Court or ask the full 11th Circuit Court of Appeals to review the case again.

All of the cases make similar arguments against the individual mandate. If the Supreme Court accepts one of them and finds that the mandate is a tax under the Anti-Injunction Act — as the 4th Circuit did — it could also decide that the issue isn’t ripe for review.

Doing so would leave the question of the constitutionality of the mandate open until 2014 — or likely longer, as the cases would have to work their way up the court system again.

The 4th Circuit ruling, “if adopted by the Supreme Court, would also apply to the private plaintiffs in the [26 states] case or the 6th Circuit case,” said Kevin Walsh, a University of Richmond law professor who clerked at the 4th Circuit and for Justice Antonin Scalia.

But it’s no slam-dunk that the Supreme Court would accept the Anti-Injunction Act argument. The 4th Circuit was the first court to give it credence.

Other courts that have been presented with the argument that the penalty is a tax said that since the law doesn’t call it a tax; it’s only a penalty. Some judges have even used President Barack Obama’s words against his Justice Department, quoting his frequent argument during the health debate that the mandate doesn’t have a tax, only a penalty. The law imposes fines starting in 2014 on people who don’t get health coverage.

The law’s supporters have embraced the tax argument because Congress has a clear authority to tax.

“Simply because the Legislature uses one label or another doesn’t determine whether or not it’s a tax,” said Elizabeth Wydra, chief counsel of the Constitutional Accountability Center, which has written briefs in support of the law.

Thursday’s rulings mark a blunted legal victory for the administration. But they don’t provide much political ammunition against the law’s critics, because they didn’t focus on the merits of the law. And the law’s opponents can play down the impact of the rulings, because all of the judges were appointed by Democratic presidents — including two who were nominated by Obama.

The court said Virginia had no right to bring its lawsuit because “the sole provision challenged here — the individual mandate — imposes no obligations” on the state itself.

In the case of Liberty University, the court said the legal challenge came too soon: “Because this suit constitutes a pre-enforcement action seeking to restrain the assessment of a tax, the Anti-Injunction Act strips us of jurisdiction. Accordingly, we must vacate the judgment of the district court and remand the case with instructions to dismiss for lack of jurisdiction.”

Judge Diana Gribbon Motz, who wrote the Liberty University ruling, was nominated to the bench by former President Bill Clinton. The other two judges on the panel — Andre M. Davis and James A. Wynn Jr. — were nominated by Obama. The three were randomly selected.

Wynn and Davis wrote in opinions dissenting with various pieces of the ruling that they would have upheld the law if it reached the merits.

The 4th Circuit was widely expected to rule that Virginia had no right to bring the suit after oral arguments in May in which the panel spent most of its time discussing the so-called standing issue rather than the merits of the case.

The ruling in the Liberty case was more of a surprise. But the panel hinted it was looking at the tax question when it asked lawyers on both sides of the case for written responses to Anti-Injunction Act questions.

Both cases can be appealed, but the plaintiffs would have to spend a significant amount of time arguing the procedural issues.