Thursday, December 04, 2014

Chapter 17 (The Role of the Courts: How Courts Engage With Law: Theories of Judicial Interpretation): From "Elements of Law" to "Introduction to the Law and Legal System of the United States"--Building an Introductory Course to the Legal Curriculum for the 21st Century

(Pix (c) Larry Catá Backer 2014)

Since 2010, I have been posting on the development of a new course I have been developing for our first year law school students, "Elements of Law." The course originally had a quite modest objective--to introduce law students to legal research and reasoning through case law, statutory interpretation, and legal history, processes, and institutions. I chose to broaden its objectives within these specific parameters and development a framing and concepts course that would provide a deep foundation to law students on the legal system they were undertaking to study.
--Elements of Law 3.0: On the Relevance of a First Year Law Course Designed to Frame the Law School Curriculum).
--Developing a New Course--"Elements of Law"
--"Elements of Law" Course 2.0: A Framework Course for the U.S. Law Curriculum,  
Grounded in the principles of the sociology of law, the course has morphed into an effort to introduce students to law as a self-referencing system with its own particular structures, premises, constraints and language, with its own logic and taboos and its own means of understanding the world. That systemicity (cf. Peter Checkland, Systems Thinking, Systems Practice, Chichester : John Wiley and Sons Ltd, 1999) is then a critical element in the way in which the legal system (in this case of the United States) interacts with the world, both as a legal and as a socio-economic-political actor. The course has also expanded from its original narrow and technical focus, to a broader focus on principles and the use of language and logic to build and operate a system of law. That broadening has made it possible to offer the course not just to first year law students, but also to graduate students in the social sciences and in international affairs, as a grounding in the legal systems that are important in their respective fields.

This and the posts that follow produces some of the materials I will be presenting to the class. I offer these materials in hopes that they may prove of use and that you might share comments, perspectives and suggestions as I develop those materials on this site. Thanks.

This post includes a draft of the first chapter of Part IV (The Role of the Courts: Judicial Review, Interpretive Techniques, and Legitimacy ) -- Chapter 17 (The Role of the Courts: How Courts Engage With Law: Theories of Judicial Interpretation).
Chapter 17

The Role of the Courts: How Courts Engage With Law:
Theories of Judicial Interpretation

I. Introduction

II. Chapter Readings

·      Yule Kim, “Statutory Interpretation; General Principles and Recent Trends,”[1] Congressional Research Service Report for Congress Order Coder 97-589 (Aug. 31, 2008)
·      Richard Posner, Statutory Interpretation—In the Classroom and in the Courtroom, 50 U. Chi. L. Rev. 800 (1983) (READ PARTS II and III)
·      Theo I. Ogune, Judges And Statutory Construction: Judicial Zombism Or Contextual Activism?, 30 U. Balt. L.F. 4 (2000) (READ Part III)
·      Philip P. Frickey, From the Big Sleep to the Big Heat: The Revival of Theory in Statutory Interpretation,[2] Minnesota Law Review 77:241-267 (1992)
·      The Controversy Over Resort to Extrinsic Sources, Stephen Breyer, “On the Uses of Legislative History in Interpreting Statutes,” 65 S. Cal. L. Rev. 845 (1992).
·      The Role of Text and Precedent, John F. Manning, “Textualism and the Equity of the Statute,” 101 Columbia Law Review 1 (2001) (READ pp. 1, 3-7, 16-22) (on the role of judges and the meaning of the judicial power in the context of statutory interpretation)


Order Code 97-589
Updated August 31, 2008
Yule Kim[3]
[footnotes omitted or renumbered]


Richard A. Posner
50 U. Chi. L. Rev. 800
Spring, 1983
[footnotes omitted or renumbered]


Theo I. Ogune, Esq.
30 U. Balt. L.F. 4
Spring/Summer, 2000

* * *          



Philip P. Frickey,
From the Big Sleep to the Big Heat: The Revival of Theory in Statutory Interpretation,[106] Minnesota Law Review 77:241-267 (1992)

* * *

* * *

Stephen Breyer,
“On the Uses of Legislative History in Interpreting Statutes,”
65 S. Cal. L. Rev. 845 (1992)
[footnotes omitted or renumbered]

* * *



III. The Role of the Courts: How Courts Engage With Law: Theories of Judicial Interpretation

We have been considering the foundations for the peculiar role of courts under the American politico-judicial system. Those foundations, of course, cannot be understood without the materials we considered in Parts I and II of these readings. To  a great extent, the role of the courts in the American system is substantially connected, in part, to the American experience during the great formative period of English legal and political development centering around the debates from the time of the English Civil War[107] and the settlement of the Glorious Revolution,[108] to the rise of notions of Parliamentary supremacy in the colonial period (e.g., Kevin Phillips, The Cousins’ Wars: Religion, Politics & the Triumph of Anglo-America[109] (New York: Basic Books 1999)). As Dicey explained the concept more than a century after the founding of the Republic,

Parliament means, in the mouth of a lawyer (though the word has often a different sense in ordinary conversation), the King, the House of Lords, and the House of Commons; these three bodies acting together may be aptly described as the “King in Parliament,” and constitute Parliament.

The principle of Parliamentary sovereignty means neither more nor less than this, namely, that Parliament thus defined has, under the English constitution, the right to make or unmake any law whatever; and, further, that no person or body is recognised by the law of England as having a right to override or set aside the legislation of Parliament. (Albert Venn Dicey, Introduction to the Study of the Law of the Constitution[110](LF ed.) [1915] (Chapter I: The Nature of Parliamentary Sovereignty)).

These formative political experiences were fused with a long tradition of common law and legislative instrumentalism. It was within a context in which law was both embedded within the state and yet apart from it, and in which courts  both described and applied common law and made sense of and applied legislation (and administrative regulation).  The understanding of the traditional judicial function within common law cultures―and the granting of the judicial power to the federal courts within the general government of the United States―made the decision in Marbury v. Madison,[111] 5 U.S. (1 Cranch) 137 (1803) plausible, even if controversial, and made the decision in Cooper v. Aaron,[112] 358 U.S. 1 (1958) more controversial and less plausible, especially among traditionalists. The former case, in a sense, did no more than advance trends in English jurisprudence from the time immediately before the English civil war―holding public entities to the scope of their jurisdiction and policing their own jurisdictional limits (applying only “good” law to disputes before them). The later appeared to seek to extend the reach of judicial opinion beyond the scope of their authority, as cases, and to advocate for them a more distinctively legislative or regulatory character.  It was that distinction that then Attorney General Meese (“The Law of the Constitution,”  Tulane Law Review 61:979 (1987)) over argued in his well-known argument from the 1980s.  It is true to judicial cases are not legislation, even when they purport to hold a statute invalid as beyond the power of the enacting legislature.  At the same time, such judgments remain authoritative within the judicial sphere, as case law that may be applied by sister courts and must be applied by inferior courts, though they may be less so inthe administrative and legislative spheres.  Thus, while the holding in Marbury in a strict sense applies only to the parties to that case, the holding of Marbury would be treated as precedent[113] by courts considering similar cases thereafter.  Where the issue touches on constitutional concerns, only the courts, or the people, and not congress or the president, have the power to overturn judicial constitutional glosses.  (Dickerson v. U.S.,[114] 530 U.S. 428, 437 (2000) (Congress may not overturn a judicial constitutional gloss by legislation).  
Today we consider further one of the most important issues that touch on the judicial power―the methods courts have adopted to legitimate their authority, at least to the extent drawn in cases like Marbury, and to speak authoritatively in all cases , that is to resolve disputes in ways that litigants―winners and losers―are willing to respect and implement. It is to the methodologies of juridical authority, and the quite specific language of judicial engagement by lawyers, that the student will consider in some detail over the next several classes. (e.g., Larry Catá Backer, Retaining Judicial Authority: A Preliminary Inquiry on the Dominion of Judges,[115]William & Mary Bill of Rights Journal 12(1):117-178 (2003)(juridical authority and the cultivation of the techniques of neutrality)).  The development of a palette of legitimating techniques now mark the practice of judges and constitute the language within which the business of the courts is undertaken.  These techniques serve as the lubricant of rule of law systems, detached from yet interrelating with the state, by enhancing the ability of judges to avoid the appearance of arbitrary decision making.  (e.g., Learned Hand, “How Far is a Judge Free in Rendering a Decision?”, in The Spirit of Liberty 103 (I. Dilliard 3rd ed., 1960 (1935))) That enhancement is bound up in the techniques of common law in two respects.  The first is that courts are bound to apply the aggregated wisdom of courts expressed in opinion (or the text of the legislation that applies).  Thus arbitrariness and personal predilection is at least constrained because judges apply the collective preferences of courts rather than their own in constructing standards.  Second, errant judges may be disciplined through appellate review―again the application of collective will to constrain individual approaches to dispute resolution.

While the cases themselves provide the techniques, especially the rhetorical and dialectical techniques, for legitimating discourse, the language of the courts in interpreting statutes presents distinct problems. The late 20th century produced a legal environment in which much that passed for law was grounded in statute and regulation, rather than in common law. (E.g., Guido Calabresi, A Common Law for the Age of Statutes[116](Union NJ: LawBook Exchange, 1999 (1982)).  The readings for this section lay the context of the problem of statutory interpretation as both theory and method, and point to the techniques and general framework within which courts interpret statutes.
Statutory interpretation techniques in the contemporary United States derive essentially from formalist and functionalist approaches.  Formalist approaches focus on the text of the statute or constitutional provisions (or the administrative regulation) at issue in a dispute brought before the courts. Functionalist approaches focus on the objectives of the statute or constitution or administrative regulation at issue.  Restated in the language of contemporary American discourse, legitimating techniques of statutory construction are grounded either in text or intent.  But both textualism and intent based approaches to statutory interpretation are both shorthand for a number of sometimes inconsistent techniques, and each might be understood as exhibiting weaknesses as well as strengths.  Recall, though, that the point of these techniques and the embrace of formalism or functionalism in the form of a focus on text and intent, is meant to provide a structural framework for implementing rule of law in the work of the court by seeking methods of dispute resolution involving statutes that separate the individual judge from the decision (and thus seek to constrain the incentives for arbitrary judgment by courts and increase the deference to the discretion of legislatures and administrative units to fashion law to the extent they are empowered) and to provide the judiciary with a dense network of decision and decision disciplining structures within which cases can be made predictable and consistent.
Textualism starts with text.  At its most specific, simple textualism focuses on the specific language of the text at the heart of a dispute―the words of a statutory provision, constitutional section or administrative regulation.  To resolve ambiguity or fill gaps requires no more than the application of sound rules for reasoning through words.  These have been organized into a system of guidance commonly references as the currently much maligned canons of construction.[117] These include simple rules for the construction of word meaning―an essentially semiotic experience grounded in the language of legal grammar.  But they also include some substantive canons―rules of construction in criminal cases, rules of construction to avoid incoherence or constitutional constraints and the like. There are a number of problems with this approach of course.  Words have meaning only in context; legislative grammar may be subject to errors, and words changer meaning over time.  We consider these canons in more detail below.  A more holistic textualism would seek, sometimes in addition to the application of the rules of simple textualism, to read meaning into text by contextualizing the key text within the provisions in which it is located―either the section or chapter of the materials or the statute as a whole.  The idea here is to provide an anchor for the application of accepted rules for extracting meaning within the larger text in which the provision is found.  At its most general textualism can be come structural.  Structural textualism takes holistic textualism one step father―it seeks means meaning by deriving from the text as a whole those principles which ground the statute and then apply those principles o seek to resolve the ambiguity in the specific text in dispute. Here textualism is used as a springboard from which legal principles are derived (principles still tied to text) but which now autonomous and superior to the words in the text themselves, can be used to extract meaning from specific provisions in ways that harmonize the text of any portion of the statute with the overarching principles of the text itself.  Both structural and holistic textualism suffer similar criticisms―they are viewed as veils behind which courts may impose their own personal approaches to law without constraint.  We will consider these approaches in more detail when examining techniques of constitutional interpretation. 
Intent based approaches mirror textual approaches but the focus is different.  Rather than starting with text, one starts with the intent, or the objectives, of the legislating body.  Clearly intent and objectives may not always be the same thing, a cause for some criticism of the approach.  Intent can focus solely on the drafters of the statutes, constitutional provision or administrative regulation. Objectives based approaches may focus as much on the nature of the problem against which the statutory effort was directed as it focuses on the personal intention of those involved in the drafting of the provision.  In either case, the object, though, is to align the resolution of the statutory ambiguity or gap with the intent or objectives at the heart of the provision, that is the intent of the drafters.  At its simplest, original intent or objectives focus on the specific provision in need of construction. Sometimes a more holistic approach is used, in which intent or objective is derived from that extracted from discussion of the provision or statute as a whole.  At its broadest, and like structural textualism, intent or objective can serve as the basis for extracting a general principle which can then be applied to construe the specific provision at issue.  But unlike textual approaches, the focus here is on the construction of intent or objective, and through them text, rather than starting from text itself.  For this purpose, the courts must seek authoritative sources for intent or objectives.  Here is where this technique comes under some attack.  Fir it is not clear which sources are the most authoritative or authoritative enough.  Usually recourse is made to legislative history, but these tend to privilege the sometimes bare majorities that succeeded in passing the statute with little attention paid to those who lost.  And it tends to privilege only those discourses that have been memorialized, sometimes after the fact, rather than those who have been lost for failures of preservation. Where the focus is on objectives, courts have even more freedom to construct the shape of the problem that the statute was meant to address, although here too, purpose clauses in statutes are sometimes helpful. However focused, though, these intent or objectives based techniques, like those of textual analysis, cannot produce any assurance of absolute fidelity to whatever factor is privileged in judicial analysis. 
There is also a distinction between intent based approaches and original understanding. Originalism focuses on the original understanding of either text or objectives at the time of the making of that provision. It can be understood in two forms, original understanding and original intent.  The former touches on the common understanding of society at the time of the enactment of the provision in question. In this form it can be understood as a species of textualism, since the object usually is to authoritatively fill words at issue with meaning from a source other than the predilections of a judge.  The later touches on the intent of the framers of that legislation, and in this form constitutes a species of intent based statutory interpretation. As original understanding, it is a technique designed to privilege, in a formalist sort of way, the importance of custom and tradition, by contextualizing a provision within the specific time and culture within which it was made and vesting that time and place with its own legislative power.  One of its principal proponents has been Antonin Scalia, (e.g., Antonin Scalia, Originalism: The Lesser Evil,[118] 57 U. Cin. L. Rev. 849 (1989))  In its effect, originalism in the form of original has been criticized as presuming that a statute incorporates within it the place and culture of the time in which it was enacted.  It does so for the purest of reason―to strip later generations, and particularly later generations of courts, form reading statutes in the present tense―a hallmark, we have come to understand, of common law judicial sensibilities. Instead, it treats statutes as fundamentally incompatible with common law sensibilities and adopts a somewhat rigid premise that the legislature intended to legislate substance, time place and culture with every regulatory effort. Additionally, originalism suffers from a problem of authority.  In a large and complex society, it is not clear always whose original understanding is to be given greater weight.  That itself creates the sort of problems of authority, and the possibility of abuse, that originalist sometimes use to attack intent or objectives based functional approaches.  Thus for example, for most of the history of the Republic, originalism would favor the opinion of men, white men with property and education, far more than the vast majority of people, women, the poor and for a time slaves, whose own original understanding might have been substantially different than the pantheon of sources that have been given pride of place in this sort of analytical discourse.  Despite this, originalists tell us, is the only means of protecting statutes from the depredations of interpretation―because any interpretation that is not mechanical is legislative in character.  And the assertion of legislative power is specifically assigned only to Congress.   

But textualism and intent based techniques have traditionally taken specific forms in the United States, many of which have come under substantial attack form jurists, academics and politicians. The first reading, Yule Kim, “Statutory Interpretation; General Principles and Recent Trends,”[119] Congressional Research Service Report for Congress Order Coder 97-589 (Aug. 31, 2008), “identifies and describes some of the more important rules and conventions of interpretation” (Ibid 1) by the federal courts.
In analyzing a statute’s text, the Court is guided by the basic principle that a statute should be read as a harmonious whole, with its separate parts being interpreted within their broader statutory context in a manner that furthers statutory purpose. . . . The Court frequently relies on “canons” of construction to draw inferences about the meaning of statutory language. . . . Not infrequently the Court stacks the deck, and subordinates the general, linguistic canons of statutory construction, as well as other interpretive principles, to overriding presumptions that favor particular substantive results.(Ibid).

Kim notes that within the constellation of canons of construction, the courts tend to start with the language of the statute and will proceed no further than the text of the statute to the extent that this reading yields no ambiguity under the so-called “plain meaning” rule.  (Ibid., 2). Another foundational rule applied is the “harmonious construction” rule, that statutes should be read “as a harmonious whole, with its various parts being interpreted within their broader statutory context in a manner that furthers statutory purposes” (Ibid., 2-3). Kim acknowledges in that discussion a fundamental character of the canons―they may but need not be applied. (Ibid). This is especially true of what are described as “general canons.”(Ibid., 4-17). 

Kim then suggests the rules that may provide guidance for ignoring or subverting the canons in specific instances.  “There are a number of instances in which the Court stacks the deck, and subordinates the general, linguistic canons of statutory construction, as well as other interpretive principles, to overriding presumptions that favor particular substantive results.” (Ibid 17-31). But it is easy to misinterpret this stance.  What Kim appears to mean is that the canons of statutory construction must themselves give way to the legal principles on which both statutes and the judicial project necessary rest, some of which are derived from the Constitution, though some are more prudential in character. (Ibid., 17-18). Some of these prudential presumptions have become less powerful in contemporary jurisprudence (e.f., deference to common law, narrow scope of federal pre-emption).  Others remain important (presumption of no implied waivers of sovereign immunity, no implied retroactive application of statute, avoidance of constitutional issues in construction, disfavor of extraterritorial application of U.S. law, and the presumption in favor of administrative action on review, presumption against repeals by implication) (Ibid., 18-28).

Kim then describes what he terms miscellany, judicial practices that have come to have some consistent application in cases, everything from the legal effect of preambles to the effect of findings and purposes sections of statutes, savings clauses). (Ibid., 28-37).  The object is not so much to make a case for the great number of presumptions and judicial interpretive habits highlighted as it is to describe the scope of that universe.  Kim ends with a discussion of legislative history and the controversies over its use, in the context of the application or avoidance of the “plain meaning” canon.

Reference to legislative history for background and historical context is commonplace. . . . A distinct but related inquiry focuses not on the explanations that accompanied committee or floor consideration, but rather on the sequence of changes in bill language. . . . Explanatory legislative history is also consulted on occasion for more narrowly focused explanation of the meaning of specific statutory language that a court believes is unclear. Reliance on legislative history for such purposes may be more controversial, either because contrary indications may be present in other passages of legislative history, or because the degree of direction or detail may be an unwarranted narrowing of a more general statutory text. (Ibid., 41-44).

Kim also discusses the use of the more controversial post-enactment legislative history in the cases, as well as subsequent legislation, reenactment, acquiescence, and signing statements by presidents, methods for weighing the authority of statements (the isolated statements rule). (Ibid., 44-50).  Taken together, Kim does us a great service.  Kim presents us the state, somewhat disordered but substantially organized, of the galaxy of canons of construction of statutes and their use as guidelines by the courts.  More importantly, Kim suggests that the canons are not merely a “secret knowledge” of the courts.  Rather, the canons, by their very exposure, become elements in the political process of the passage and implementation of legislation―which is always engaged in the shadow of the canons.   What becomes clear here is that, for better or worse, and at least within the actual business of the courts, and of the legislatures and executive officials with which the courts interact, the canons of construction are alive and well, even if to some extent somewhat disorderd.

But beyond the interplay between statute and techniques of statutory construction that may guide legislators seeking to ensure that the language of a statute mirrors their intent, the canons of construction offer neither courts nor legislature any system for ensuring a consistent reading of statute separates (rule of law notions at play here) personal predilection from judicial interpretation. And the effectiveness of that separation, of course, lies at the heart of the problem of legitimacy of judicial actions (and the integrity of the judicial process under a rule of law regime that posits that judges apply law and not their own arbitrary and personal preferences in resolving disputes.  To that end, at least through the 19th century, the canons of construction provided a formal basis for pointing to the structures of judicial integrity and the application fo rule of law regimes in judging.  The canons suggested a fundamental systemicity to the formal rules of judging, in the context of the interpretation of statutes, that appeared to divorce the individual from the analysis, and to promise the likelihood of reaching, consistently, the right result the same way in similar circumstances.   But we have seen that this is not the case, and that the canons, and their associated presumptions and techniques, are merely that—guidelines whose applications provides principle but no certainty in application.  Moreover the canons themselves do not suggest a coherent and self referencing set of principles but rather merely a compilation of judicial practices reduced to something that appears aphoristic.  The canons, then, provide a language but not a structure that can reliably separate the judicial personality from the process of decision.

This state of affairs, though, has rankled the academic intelligentsia for some time. For some, it suggested that the only reliable mechanism for ensuring rule of law judging was in a retreat to formalism, and more specifically to text.  Textualism and original understanding appear to provide at least  possibility that judges will be bound by something other than their own desire or prejudice. For others, the embrace of a robust purposivism and legislative intent served a similar purpose—to separate the judge from the object of interpretation.  In the later case, reliance on intent or purpose offered the possibility of ensuring that the popular will, manifested through the legislature, rather than the judicial will, would serve as the basis for analysis. These ideological approaches, then, were meant to provide a basis for judging, and for the application fo the canons, in a way that would reduce the likelihood that judges would substitute their will for that of the people through their legislatures.  These ideological schools are well described in the readings from
Theo I. Ogune, Judges And Statutory Construction: Judicial Zombism Or Contextual Activism?, 30 U. Balt. L.F. 4 (2000).

One of the most elegant exponents of academic anomie[120] is Richard Posner. The second reading, Richard Posner, “Statutory Interpretation—In the Classroom and in the Courtroom,” 50 U. Chi. L. Rev. 800 (1983) sets them  context.  In this reading, Posner focuses on two points.  The first, that law schools ought to do a better job of teaching legislation is as true, perhaps, in the current age as it was nearly a generation ago in 1983. The second, and for our purposes here the more interesting point is that the traditional guideposts for statutory construction―the canons of construction[121] including the approaches to statutory construction identified in the Yule Kim readings―are of little use and that there must be a better and more authoritative way for judges to read statutes.

Posner starts with a premise:

The canons of statutory construction—for example, one starts with the language of the statute; repeals by implication are not favored; penal statutes are to be construed narrowly and remedial statutes broadly; expressio unius est exclusio alterius—occupy a kind of legal demimonde. To exaggerate slightly, it has been many years since any legal scholar had a good word to say about any but one or two of the canons, but scholarly opinion—and I include not just the views of professors but the views expressed in nonjudicial writings of distinguished judges such as Frankfurter and Friendly—has had little impact on the writing of judicial opinions, where the canons seem to be flourishing as vigorously as ever. . . . But judicial opinions continue to pretend far more often than they should that the interpretation of statutes is the mechanical application of well understood interpretive principles—the canons—to legislative materials. (Ibid., 805-06).

He reminds the reader of the criticism of the canons of construction so effectively leveled against them by Karl N. Llewellyn, The Common Law Tradition[122]521-35 (1960) (the absence of a rule about choosing applicable canons makes it possible to find for every canon there is an equal and opposite canon) (but see the defense of canons in the face of potential inconsistency in Kim, supra, pp. 4-5).  But Posner argues further that most of the canons are also wrong.  He rejects four defenses based on the functions of canons of construction: (1) that they serve sometimes as codes that Congress uses when they draft legislation (Posner suggests this is just not true); (2) that they are common sense  guides to interpretation (Posner rejects the notion that canons serve even as flexible rebuttable presumptions of interpretation); (3) that they provide a useful structure for constraining judicial discretion (Posner argues that the canons actually encourage the opposite of constraint); and (4) that canons  limit the delegation of legislative power to the courts, that is that the canons force the Congress to draft their legislation carefully against the canons (Posner argues that the canons as a whole do not stand for some  general principle of separation of powers and limited government). (Posner, supra, 806-807). Not everyone agrees (e.g., Andrew C. Spiropoulos, “Making Laws Moral: A Defense of Substantive Canons of Construction.”[123]Utah Law Review (fall): 915–63 (2001)(canons of construction as a useful means of permitting judges to use extrinsic principles to render sound statutory constructions while confining judicial discretion to preserve its legitimacy)).

Posner then considers his critique against foundational canons.  The first is the so-called plain meaning rule.[124] Offered as a description of what judges do, the proposition is false. The judge rarely starts his inquiry with the words of the statute, and often, if the truth be told, he does not look at the words at all. This is notoriously true with regard to the Constitution. More often than not, briefs and judicial opinions dealing with free speech, due process, the right to assistance of counsel, and other constitutional rights do not quote the language of the applicable provision—and not because all concerned know these provisions by heart. The constitutional provisions are in reality the foundations, or perhaps in some cases the pretexts, for the evolution of bodies of case law that are the starting point and usually the ending point of analysis for new cases. (Ibid., 807-808).

The same, Posner suggested, applied to statutes, offering as an example the Sherman Act. (Ibid).  What the canon reduces to, Posner suggests, “what really is intended is that the language of a statute be deemed the most important evidence of its meaning—which it normally is—or at least indispensable evidence—which it always is.” (Ibid., 808).  It is not clear, though, that what Posner has managed is so much a critique of the canon as the conformation that the canon itself does no more than what it was meant to do―draw a general and imprecise direction for analysis and a reminder of the privileged position of the text of a statute or constitutional provision.  It might be as possible to suggest that his critique fails of its own purpose by suggesting that canons operate as failed rules and that judges do not follow the canon in a precise and ironically formalistic manner. Likewise his critique of the canon―”remedial statutes are to be broadly construed” (Ibid, 808-09)― that it can be used to avoid legislative intent and the realities of the legislative process, asks both too much of the judge (who is expected to divine the nuances of legislative compromises unspecified in the statute) and too little (the judge defer the juridical function to the legislature on some sort of implied hierarchy model), especially when combined with the critique against the use of post enactment legislative materials in statutory interpretation (Ibid 809).  Similar critiques are offered for other canons because they rest on an unrealistic view of the political process (that the interpretation of a statute by an administrative agency is entitled to great deference) (Ibid 810-11); or because they appear to impute omniscience on Congress (that every word of a statute must be given significance, or that repeals by implication are not favored; that re-enactment of a statute without change incorporates prior judicial construction; and expresio unius est exclusio alterius) (Ibid., 811-14; for an interesting consideration of the way that the approach to this canon has changes consider Clifton Williams, “Expresio Unius est Exclusio Alterius,”Marquette Law Review 15:191-196 (1931)).

Posner has better things to say about three other canons, but only because they might express congruence with broader constitutional principles, separation of powers, due process, . The first is that penal statutes should be narrowly construed as an expression of due process principles.  (Ibid., 814-815).  The others are that statutes should be construed to avoid invalidation or constitutional infirmity as a buffering device to protect the institution of judicial review (Ibid 815). But these can all be collapsed into one canon, Posner argues, the rest discarded.  Therefore, he argues, the canons themselves promote the sort of judicial activism that brings discredit to the courts and reduces their legitimacy as centers of authoritative interpretation and application of statutes (whatever their remaining authority under common law).

Posner offers, as an alternative to the canons of construction, not an algorithm but “an attitude, or maybe a slogan.”  (Ibid., 817).

I suggest that the task for the judge called upon to interpret a statute is best described as one of imaginative reconstruction. The judge should try to think his way as best he can into the minds of the enacting legislators and imagine how they would have wanted the statute applied to the case at bar. (Ibid., 817).

Posner offers this approach in opposition to another approach that also rejects the value of the canons and seeks a “new way” toward preserving the legitimacy of the judicial function in interpreting statutes.  This alternative approach, dynamic statutory constriction, also emerges from the legal academy. William Eskridge, “Dynamic Statutory Interpretation”,[125]University of Pennsylvania Law Review 135:1479-1555 (1987); also Guido Calabresi, A Common Law for the Age of Statutes[126](Union NJ: LawBook Exchange, 1999 (1982)).  The approach encourages judges to develop their own common law of statutory interpretation by abandoning a formalist and artificial search for intent when faced with statutory ambiguities and instead to extract and apply policy to construe statutory ambiguities and lacunae.  In effect, these argue for a sort of functionalism, but one not tied to the search for any connection to legislative “intent.”   Legitimacy would proceed from the application of policy rather than the individual desires and agendas of the judge and disciplined by the community of judges within which such decisions are made and themselves judged on appeal and by acceptance or rejection when considered for application by other courts.

It is perhaps in this sense that such approaches, including Judge Posner’s, can be understood as grounded in the same sensibility―one that can trace itself back to the common law cultures of courts in the United States.  Legitimacy and authority, whatever the methodology, is at its core based on the independence of the judiciary, and the effectiveness of their ability to police themselves, rather than on the specifics of a “right” or “wrong” approach statutory construction.  Understood thus, the canons, or the approach of Judge Posner, or even that of dynamic statutory interpretation, are equally valid.  Indeed, the search for the “best” methodology is less relevant to the courts than to the academics on the search for which careers are made and fame assured (at least with people with political and ideological ambitions, off which they are always an abundance it seems).  What emerges an critically important, though, is the self-referencing and autonomous institution of the courts and the integrity of a process of judging and interpreting that is not dependent on the influence or power of outsiders but which may rely on the inner logic of the courts, well-disciplined and uniformly applied. It is not so much the method, as methodological integrity that is critical to legitimacy; it is not the search for the “best” approach that is vital but the protection of a communal judicial web of self-reinforcing and institutional principles designed to separate the individual judge from law and the resolution of the dispute on which the authenticity of individual judicial performance is grounded.  Every age has its own sense of which set of methodologies best suits it and its self-conceits, and lawyers must master the methodologies of the moment, and may, like our academic colleagues, champion one or another alternative not now in fashion.  But it is to the protection of the institution of the judge and the protection of the assertion of the judicial power, bound in law that remains connected to yet autonomous of the state, that continues to serve as the real lynchpin of judicial integrity and the stability of the judicial power to “say what the law is.” And this last point is as old, in the West as the Institutes of Justinian from which we started our exploration of American legal theory (Elements of Law 3.0: Notes for Readings I-A (What is Law? Introduction: The cast of characters, institutions and forms); Reading Justinian’s Institutes).[127]

It is in this context that the remainder of the suggested readings may be usefully engaged. The first, Philip P. Frickey, “From the Big Sleep to the Big Heat: The Revival of Theory in Statutory Interpretation,”[128] Minnesota Law Review 77:241-267 (1992), considers the role of emerging theoretical approaches in statutory construction.  Frickey well describes the genesis of the contemporary controversies over statutory interpretation as arising from a reaction to a century’s worth of increasingly mechanical formalism, a formalism that more and more evidenced a wide gulf between the application of formal rules and text, on the one hand, and the functional objectives of the statutes, on the other. Courts in the quest for legitimacy were increasingly sacrificing their relevance in ways that ironically also threatened the legitimacy of their role within the American polity. (Ibid., 248-250). He describes the revival of academic interest in the theory of statutory interpretative inthe 1980s with Richard Posner (imaginative reconstruction), Frank Easterbrook (literalism) and Antonin Scalia (literalism without legislative intent; the new textualism)(Ibid., 250-255). What made these people important was not so much their academic credentials so much as their appointments to the federal bench from which they could turn theory into practice and thus influence the community of judges. That, of course, may explain why the so-called new textualism is more influential that Professor Eskridge’s dynamic statutory interpretation.  The approaches like those of dynamic statutory interpretation still awaits a strong and sustained academically oriented advocate on the bench (though consider the role of Justice Stevens (Ibid, 265-66). Frickey then considers this new textualism.  He credits and faults it for its strongest characteristic, “its rigidity.” (Ibid., 258). By rejecting the value of intent―of purpose―in enacting legislation (as an essentially legislative function alien to the judicial role) it might offer a return to certainty but also to irrelevance. For Frickey, perhaps its most valuable consequence has been that it has sparks renewed academic interest in theories of statutory interpretation, including his own (Ibid., 261-262). He correctly notes, as he concludes, “the dispute about statutory interpretation transcends the law schools, and even the legal community, and appropriately belongs inthe political marketplace of our society.” (Ibid., 267).  Yet that position, taken too far, would strip the judiciary of its traditional role by reducing its autonomy and reconstructing it as entirely a creature of state, and with it, of the law of the institutions of government.  But that, also would appear to betray a fundamental understanding of the ordering on which the Republic was founded and pose challenges to the autonomous integrity of the courts. 

The second, John F. Manning, “Textualism and the Equity of the Statute,” 101 Columbia Law Review 1 (2001), considers the role of text and precedent, that is the relationship between statutory and judicial meanings. Manning reaches back to Anglo-American common law culture and the doctrine of the equity of statute, a doctrine that treated atextual, purpose based interpretation of statutes, to argue that while this doctrine was viewed as an inherent attribute of judicial authority, it did not survive the transition to Constitutional government in the United States at the end of the 18th century.  Rather, Manning argues, the formation of the Republic represented a definitive break with the common law and an embrace of a faithful servant theory. This faithful servant theory suggested that courts did not stand apart from the state nor that law was autonomous of the legislatures that represented popular power.  Rather both were subordinate to and bound to merely apply the will of the masses as articulated by its representatives in the state.  This Manning argues, ids all to the good―faithful servant theories will not lead to the sort of rigidity criticized for a century before this writing nor in detached literalism.  My sense is that this view of the nature of the judicial power is in part quite correct, but as we have seen in our earlier study, only a particular picture of the American reality after 1789.  It is true enough that there is a strong strain of “faithful servant” theory at the core of the organization of the general government.  But the incorporation of this view did not necessarily either eliminate the earlier common law view, at the core of the English experience of the 17th century and so influential in the Wars of Independence, or make the application of the earlier rule impossible.  It is also true that the English practice of the equity of the statute did not carry over unchanged within the American judicial context.  To that extent Manning is quite correct.  But centuries of American judicial construction of elaborate rules for the distilling of intent―that is of statutory object―and of giving it effect, attests to the reality that however one chooses to identify the practice, it remains a very real part of the judicial experience, even in the face of the temptation to interpret text of itself.  Rather, the American system appeared, as it has in so many other instances, absorbed both traditions and has sought to apply them simultaneously ever since.  Efforts to harmonize them have neither been wholly successful nor entirely abandoned.  Thus, to understand the judicial power of the United States as merely one that is located within the state rather than also existing autonomously of it within a judicial body whose primary function is to serve law systems and not the state   and its apparatus, is to over simplify the conceptual reality of the judicial project and its role in statutory interpretation.

The last considers, Stephen Breyer, “On the Uses of Legislative History in Interpreting Statutes,” 65 S. Cal. L. Rev. 845 (1992), considers the difficult issue of extrinsic sources in statutory interpretation. He sets for himself the task “to defend the classical practice and convince you that those who attack it ought to claim victory once they have made judges more sensitive to problems of the abuse of legislative history; they ought not to condemn its use altogether. They should confine their attack to the outskirts and leave the citadel at peace.” (Ibid., 847).  His arguments are predominantly pragmatic rather than theoretical. They rest on two assumptions:  First that courts function in part as administrative institutions.  Second that law is itself a human institution the object of which is to serve human or societal needs rather than its own. (bid). Grounded in functionalism, his arguments easily follow:  Legislative history, when not abused, can be useful.  It can be used to avoid absurd results (Ibid., 848-849); it may be used to correct obvious drafting error (Ibid., 850); and it can be used to give effect to specialized meaning (Ibid., 851-52).

But the trick is to identify a reasonable purpose―that is judicial legitimacy is furthered when the courts used  techniques that do not suggest an abuse of power or the use of the cover of the judicial power to further arbitrary results.

How does a court determine the purpose of a statutory phrase? Sometimes it can simply look to the surrounding language in the statute or to the entire statutory scheme and ask, “Given this statutory background, what would a reasonable human being intend this specific language to accomplish?” Often this question has only one good answer, but sometimes the surrounding statutory language and the “reasonable human purpose” test cannot answer the question. In such situations, legislative history may provide a clear and helpful resolution. (Ibid., 853-854).

For Justice Breyer, the principle evil of literalism is the possibility is its ability to increase rather than reduce friction among the branches precisely by relying on text to produce rifts between congressional objectives and the results of reading congressional texts literally,. (Ibid 855-56). But that leaves a large problem―how to choose among reasonable interpretations of politically controversial statutes (Ibid., 856-861). 

In sum, these five examples identify five different circumstances in which courts might turn to legislative history for help in interpreting a  statute: (1) avoiding an absurd result; (2) preventing the law from turning on a drafting error; (3) understanding the meaning of specialized terms; (4) understanding the “reasonable purpose” a provision might serve; and (5) choosing among several possible “reasonable purposes” for language in a politically controversial law. The first three are not very controversial. The last two are controversial. The last two examples suggest, however, how in certain contexts reference to legislative history can promote interpretations that more closely correspond to the expectations of those who helped create the law (and whom the law will likely affect). To that extent, its use seems likely to promote fair and workable results. (Ibid., 860-61).

Breyer acknowledges but rejects the criticisms of the use of legislative intent―its lack of utility, constitutional arguments (separation of powers), and problems of finding intent, the failures of experiences elsewhere, and the limited availability of legislative intent sources. (Ibid., 861-869). He ends by offering three institutional reasons supporting the continued use of legislative history to discern legislative intent in statutory interpretation: “First, when existing canons conflict with each other they fail to offer much guidance. . . . Second, the origins or continued justifications for some of the canons that the Supreme Court uses seem obscure.  . . . Third, can the Court legally adopt new up-to-date canons.” (Ibid., 869-71).  He urges that the existence of abuse of doctrine is not necessarily a basis for abandoning it rather than for protecting its integrity better.

Taken together, the readings suggest the contours of the scope of the issues of statutory interpretation in U.S.: courts.  It is a complex matter involving judicial culture, social and political transformation, the transformation of the state and its taste for statutes, the increasing remoteness of the common law origins of the judicial role in a world in which the forms of that practice persist even as its substance fades, and the overarching need to preserve the legitimacy of courts in their role as sites for dispute resolution, interpretation and application of law.  It also suggests the importance of methodology as a principal basis for enhancing the legitimacy of the judicial method. But we have also noted how these methods, though robust and still important in the practice of law, have sustained a deep criticism by academics and ideologues bent on its replacement with alternatives that may further their political agendas even as they purport to adjust practice to the realities of . . .practice.

We have begun to see how the jurisprudential arguments are essentially political―and that the objects of the champions of one to another academic and political movement about the character and practice of judicial interpretation of statutes essentially is meant to champion a particular political vision of the relative roles and powers of courts and legislature.  But also the readings suggest an underlying and more important theme.  These debates also represent conflicts about the relationship of law to the state, one that we have followed in Part II of the materials, and one that remains very much a lively and unresolved topic of American political theory.  That the courts are the site of this political discussion is no surprise, since the courts have been at the center of the legal construction of the American Republic and law has been the means chosen to constrain and channel the deployment of political power, even as the courts retained their traditional role as the principal institution for the resolution of private and public disputes. That multi-utility of courts, easier to understand when the United States was closer to its original roots, has been put under strain as American law has moved more robustly to law and regulation and away from the common law and the articulation of custom and tradition of private arrangements and social norms. Yet the courts remain, and law retains its character as a space both within and beyond the government of the state, however much Francis Bacon[129] of the 21st century seek to defend the power of the monarch or the Crown’s republican progeny against the autonomy of law in the American Republic. Not that Francis Bacon was wrong, just that his view only partially captured the complexity of the times.  The canons of construction capture another aspect of this complexity.  For all their failures, and these failures are great indeed, they capture an important reality of courts sometimes overlooked in the ideological debates described above―the need to deepen the rule of law by adhering to methodologies that may enhance the disconnection between the individual judge and her desires from the common understandings of the body of judges whose views and methods she is duty bound to apply.  But that is controversial.  For civil law tastes and their sympathizers in the U.S., such approaches push the judiciary perilously close to the legislative function―but the people reject the notion that common law or its culture survived to any legitimate extent in the U.S.  For others, complacency has produced the laxity and abuse nicely described in the readings but also reflect a sensibility in which the idea of legislation as a description of the entirety of the law is rejected and the role of the judiciary in relation to it is understood as more complex, an interaction in which legislation remains very much embedded within the law system the entirety of which it is for the judges to administer in a coherent manner.   That they fail is obvious; that this failure is cause to abandon the structure is less clear.

IV. Problem

What statutory construction techniques would be most helpful to each side in the following case?  Are they the same ones?  Why or why not?

DECISION BELOW: 759 F.3d 358
CERT. GRANTED 11/7/2014

Section 36B of the Internal Revenue Code, which was enacted as part of the Patient Protection and Affordable Care Act ("ACA"), authorizes federal tax--credit subsidies for health insurance coverage that is purchased through an "Exchange established by the State under section 1311" of the ACA.

The question presented is whether the Internal Revenue Service ("IRS") may permissibly promulgate regulations to extend tax-credit subsidies to coverage purchased through Exchanges established by the federal government under section 1321 of the ACA.


King v. Burwell
759 F.3d 358
United States Court of Appeals,
Fourth Circuit (2014)

Affirmed by published opinion. Judge GREGORY wrote the opinion, in which Judge THACKER and Senior Judge DAVIS joined. Judge DAVIS wrote a concurring opinion.

GREGORY, Circuit Judge:

The plaintiffs-appellants bring this suit challenging the validity of an Internal Revenue Service (“IRS”) final rule implementing the premium tax credit provision of the Patient Protection and Affordable Care Act (the “ACA” or “Act”). The final rule interprets the ACA as authorizing the IRS to grant tax credits to individuals who purchase health insurance on both state-run insurance “Exchanges” and federally-facilitated “Exchanges” created and operated by the Department of Health and Human Services (“HHS”). The plaintiffs contend that the IRS’s interpretation is contrary to the language of the statute, which, they assert, authorizes tax credits only for individuals who purchase insurance on state-run Exchanges. For reasons explained below, we find that the applicable statutory language is ambiguous and subject to multiple interpretations. Applying deference to the IRS’s determination, however, we uphold the rule as a permissible exercise of the agency’s discretion. We thus affirm the judgment of the district court.

In March of 2010, Congress passed the ACA to “increase the number of Americans covered by health insurance and decrease the cost of health care.” Nat’l Fed’n of Indep. Bus. v. Sebelius, ––– U.S. ––––, 132 S.Ct. 2566, 2580, 183 L.Ed.2d 450 (2012) (NFIB ). To increase the availability of affordable insurance plans, the Act provides for the establishment of “Exchanges,” through which individuals can purchase competitively-priced health care coverage. See ACA §§ 1311, 1321. Critically, the Act provides a federal tax credit *364 to millions of low- and middle-income Americans to offset the cost of insurance policies purchased on the Exchanges. See 26 U.S.C. § 36B. The Exchanges facilitate this process by advancing an individual’s eligible tax credit dollars directly to health insurance providers as a means of reducing the upfront cost of plans to consumers.

Section 1311 of the Act provides that “[e]ach State shall, not later than January 1, 2014, establish an American Health Benefit Exchange.” ACA § 1311(b)(1). However, § 1321 of the Act clarifies that a state may “elect” to establish an Exchange. Section 1321(c) further provides that if a state does not “elect” to establish an Exchange by January 1, 2014, or fails to meet certain federal requirements for the Exchanges, “the Secretary [of HHS] shall ... establish and operate such exchange within the State....” ACA § 1321(c)(1). Only sixteen states plus the District of Columbia have elected to set up their own Exchanges; the remaining thirty-four states rely on federally-facilitated Exchanges.

Eligibility for the premium tax credits is calculated according to 26 U.S.C. § 36B. This section defines the annual “premium assistance credit amount” as the sum of the monthly premium assistance amounts for “all coverage months of the taxpayer occurring during the taxable year.” Id. § 36B(b)(1). A “coverage month” is one in which the taxpayer is enrolled in a health plan “through an Exchange established by the State under section 1311.” Id. § 36B(c)(2)(A)(i); see also id. § 36B(b)(2)(A)-(B) (calculating the premium assistance amount in relation to the price of premiums available and enrolled in “through an Exchange established by the State under [§ ] 1311”).

In addition to the tax credits, the Act requires most Americans to obtain “minimum essential” coverage or pay a tax penalty imposed by the IRS. Id. § 5000A; NFIB, 132 S.Ct. at 2580. However, the Act includes an unaffordability exemption that excuses low-income individuals for whom the annual cost of health coverage exceeds eight percent of their projected household income. 26 U.S.C. § 5000A(e)(1)(A). The cost of coverage is calculated as the annual premium for the least expensive insurance plan available on an Exchange offered in a consumer’s state, minus the tax credit described above. Id. § 5000A(e)(1)(B)(ii). The tax credits thereby reduce the number of individuals exempt from the minimum coverage requirement, and in turn increase the number of individuals who must either purchase health insurance coverage, albeit at a discounted rate, or pay a penalty.

The IRS has promulgated regulations making the premium tax credits available to qualifying individuals who purchase health insurance on both state-run and federally-facilitated Exchanges. See 26 C.F.R. § 1.36B–1(k); Health Insurance Premium Tax 7 Credit, 77 Fed.Reg. 30,377, 30,378 (May 23, 2012) (collectively the “IRS Rule”). The IRS Rule provides that the credits shall be available to anyone “enrolled in one or more qualified health plans through an Exchange,” and then adopts by cross-reference an HHS definition of “Exchange” that includes any Exchange, “regardless of whether the Exchange is established and operated by a State ... or by HHS.” 26 C.F.R. § 1.36B–2; 45 C.F.R. § 155.20. Individuals who purchase insurance through federally-facilitated Exchanges are thus eligible for the premium tax credits under the IRS Rule. In response to commentary that this interpretation might conflict with the text of the statute, the IRS issued the following explanation:
The statutory language of section 36B and other provisions of the Affordable Care Act support the interpretation that credits are available to taxpayers who *365 obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.
77 Fed.Reg. at 30,378.

The plaintiffs in this case are Virginia residents who do not want to purchase comprehensive health insurance. Virginia has declined to establish a state-run Exchange and is therefore served by the prominent federally-facilitated Exchange known as Without the premium tax credits, the plaintiffs would be exempt from the individual mandate under the unaffordability exemption. With the credits, however, the reduced costs of the policies available to the plaintiffs subject them to the minimum coverage penalty. According to the plaintiffs, then, as a result of the IRS Rule, they will incur some financial cost because they will be forced either to purchase insurance or pay the individual mandate penalty.

The plaintiffs’ complaint alleges that the IRS Rule exceeds the agency’s statutory authority, is arbitrary and capricious, and is contrary to law in violation of the Administrative Procedure Act (“APA”), 5 U.S.C. § 706. The plaintiffs contend that the statutory language calculating the amount of premium tax credits according to the cost of the insurance policy that the taxpayer “enrolled in through an Exchange established by the State under [§ 1311] ” precludes the IRS’s interpretation that the credits are also available on national Exchanges. 26 U.S.C. § 36B(b)(2)(A), (c)(2)(A)(i) (emphasis added). The district court disagreed, finding that the statute as a whole clearly evinced Congress’s intent to make the tax credits available nationwide. The district court granted the defendants’ motion to dismiss, and the plaintiffs timely appealed.

* * *


Turning to the merits, “we review questions of statutory construction de novo.” Orquera v. Ashcroft, 357 F.3d 413, 418 (4th Cir.2003). Because this case concerns a challenge to an agency’s construction of a statute, we apply the familiar two-step analytic framework set forth in Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). At Chevron’s first step, a court looks to the “plain meaning” of the statute to determine if the regulation responds to it. Chevron, 467 U.S. at 842–43, 104 S.Ct. 2778. If it does, that is the end of the inquiry and the regulation stands. Id. However, if the statute is susceptible to multiple interpretations, the court then moves to Chevron’s second step and defers to the agency’s interpretation so long as it is based on a permissible construction of the statute. Id. at 843, 104 S.Ct. 2778.


At step one, “[i]f the statute is clear and unambiguous ‘that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.’ ” Bd. of Governors of the Fed. Reserve Sys. v. Dimension Fin. Corp., 474 U.S. 361, 368, 106 S.Ct. 681, 88 L.Ed.2d 691 (1986) (quoting Chevron, 467 U.S. at 842–43, 104 S.Ct. 2778). A statute is ambiguous only if the disputed language is “reasonably susceptible of different interpretations.” Nat’l R.R. Passenger Corp. v. Atchison Topeka & Santa Fe Ry. Co., 470 U.S. 451, 473 n. 27, 105 S.Ct. 1441, 84 L.Ed.2d 432 (1985). “The objective of Chevron step one is not to interpret and apply the statute to resolve a claim, but to determine whether Congress’s intent in enacting it was so clear as to foreclose any other interpretation.” Grapevine Imports, Ltd. v. United States, 636 F.3d 1368, 1377 (Fed.Cir.2011). Courts should employ all the traditional tools of statutory construction in determining whether Congress has clearly expressed its intent regarding the issue in question. *368 Chevron, 467 U.S. at 843 n. 9, 104 S.Ct. 2778; Nat’l Elec. Mfrs. Ass’n v. U.S. Dep’t of Energy, 654 F.3d 496, 504 (4th Cir.2011).


In construing a statute’s meaning, the court “begin[s], as always, with the language of the statute.” Duncan v. Walker, 533 U.S. 167, 172, 121 S.Ct. 2120, 150 L.Ed.2d 251 (2001). As described above, 26 U.S.C. § 36B provides that the premium assistance amount is the sum of the monthly premium assistance amounts for all “coverage months” for which the taxpayer is covered during a year. A “coverage month” is one in which “the taxpayer ... is covered by a qualified health plan ... enrolled in through an Exchange established by the State under [§ ] 1311 of the [Act].” 26 U.S.C. § 36B(b)(2)(A). Similarly, the statute calculates an individual’s tax credit by totaling the “premium assistance amounts” for all “coverage months” in a given year. Id. § 36B(b)(1). The “premium assistance amount” is based in part on the cost of the monthly premium for the health plan that the taxpayer purchased “through an Exchange established by the State under [§ ] 1311.” Id. § 36B(b)(2).

The plaintiffs assert that the plain language of both relevant subsections in § 36B is determinative. They contend that in defining the terms “coverage months” and “premium assistance amount” by reference to Exchanges that are “established by the State under [§ ] 1311,” Congress limited the availability of tax credits to individuals purchasing insurance on state Exchanges. Under the plaintiffs’ construction, the premium credit amount for individuals purchasing insurance through a federal Exchange would always be zero.

The plaintiffs’ primary rationale for their interpretation is that the language says what it says, and that it clearly mentions state-run Exchanges under § 1311. If Congress meant to include federally-run Exchanges, it would not have specifically chosen the word “state” or referenced § 1311. The federal government is not a “State,” and so the phrase “Exchange established by the State under [§ ] 1311,” standing alone, supports the notion that credits are unavailable to consumers on federal Exchanges. Further, the plaintiffs assert that because state and federal Exchanges are referred to separately in § 1311 and § 1321, the omission in 26 U.S.C. § 36B of any reference to federal Exchanges established under § 1321 represents an intentional choice on behalf of Congress to exclude federal Exchanges and include only state Exchanges established under § 1311.

There can be no question that there is a certain sense to the plaintiffs’ position. If Congress did in fact intend to make the tax credits available to consumers on both state and federal Exchanges, it would have been easy to write in broader language, as it did in other places in the statute. See 42 U.S.C. § 18032(d)(3)(D)(i)(II) (referencing Exchanges “established under this Act”).

However, when conducting statutory analysis, “a reviewing court should not confine itself to examining a particular statutory provision in isolation. Rather, [t]he meaning—or ambiguity—of certain words or phrases may only become evident when placed in context.” Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 666, 127 S.Ct. 2518, 168 L.Ed.2d 467 (2007) (internal citation and quotation marks omitted). With this in mind, the defendants’ primary counterargument points to ACA §§ 1311 and 1321, which, when read in tandem with 26 U.S.C. § 36B, provide an equally plausible understanding of the statute, and one that comports with the IRS’s interpretation that credits are available nationwide.

As noted, § 1311 provides that “[e]ach State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an “Exchange”)[.]” It goes on to say that “[a]n Exchange shall be a governmental agency or nonprofit entity that is established by a State,” apparently narrowing the definition of “Exchange” to encompass only state-created Exchanges. ACA § 1311(d)(1). Similarly, the definitions section of the Act, § 1563(b), provides that “[t]he term ‘Exchange’ means an American Health Benefit Exchange established under [§ ] 1311,” further supporting the notion that all Exchanges should be considered as if they were established by a State.

Of course, § 1311’s directive that each State establish an Exchange cannot be understood literally in light of § 1321, which provides that a state may “elect” to do so. Section 1321(c) provides that if a state fails to establish an Exchange by January 1, 2014, the Secretary “shall ... establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.” (emphasis added). The defendants’ position is that the term “such Exchange” refers to a state Exchange that is set up and operated by HHS. In other words, the statute mandates the existence of state Exchanges, but directs HHS to establish such Exchanges when the states fail to do so themselves. In the absence of state action, the federal government is required to step in and create, by definition, “an American Health Benefit Exchange established under [§ ] 1311” on behalf of the state.

Having thus explained the parties’ competing primary arguments, the court is of the opinion that the defendants have the stronger position, although only slightly. Given that Congress defined “Exchange” as an Exchange established by the state, it makes sense to read § 1321(c)’s directive that HHS establish “such Exchange” to mean that the federal government acts on behalf of the state when it establishes its own Exchange. However, the court cannot ignore the common-sense appeal of the plaintiffs’ argument; a literal reading of the statute undoubtedly accords more closely with their position. As such, based solely on the language and context of the most relevant statutory provisions, the court cannot say that Congress’s intent is so clear and unambiguous that it “foreclose[s] any other interpretation.” Grapevine Imports, 636 F.3d at 1377.


We next examine two other, less directly relevant provisions of the Act to see if they shed any more light on Congress’s intent. Food and Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132–33, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000) (“A court must ... interpret the statute as a symmetrical and coherent regulatory scheme, and fit, if possible, all parts into a harmonious whole.”) (citation and internal quotation marks omitted). First, the defendants argue that reporting provisions in § 36B(f) conflict with the plaintiffs’ interpretation and confirm that the premium tax credits must be available on federally-run Exchanges. Section 36B(f)—titled “Reconciliation of credit and advance credit”—requires the IRS to reduce the amount of a taxpayer’s end-of-year premium tax credit by the amount of any advance payment of such credit. See 26 U.S.C. § 36B(f)(1) (“The amount of the credit allowed under this section for any taxable year shall be reduced (but not below zero) by the amount of any advance payment of such credit [.]”). To enable the IRS to track these advance payments, the statute requires “[e]ach Exchange (or any person carrying out 1 or *370 more responsibilities of an Exchange under section 1311(f)(3) or 1321(c) of the [Act] )” to provide certain information to the Department of the Treasury. Id. § 36B(f)(3) (emphasis added). There is no dispute that the reporting requirements apply regardless of whether an Exchange was established by a state or HHS. . . .

The defendants argue, sensibly, that if premium tax credits were not available on federally-run Exchanges, there would be no reason to require such Exchanges to report the information found in subsections (C), (E), and (F). It is therefore possible to infer from the reporting requirements that Congress intended the tax credits to be available on both state- and federally-facilitated Exchanges. The plaintiffs acknowledge that some of the reporting requirements are extraneous for federally-run Exchanges, but note that the other categories of reportable information, i.e., subsections (A), (B), and (D), remain relevant even in the absence of credits. The plaintiffs suggest that Congress was simply saving itself the trouble of writing two separate subsections, one for each type of Exchange, by including a single comprehensive list.

The second source of potentially irreconcilable language offered by the defendants concerns the “qualified individuals” provision under ACA § 1312. That section sets forth provisions regarding which individuals may purchase insurance from the Exchanges. It provides that only “qualified individuals” may purchase health plans in the individual markets offered through the Exchanges, and explains that a “qualified individual” is a person who “resides in the State that established the Exchange.” ACA § 1312. The defendants argue that unless their reading of § 1321 is adopted and understood to mean that the federal government stands in the shoes of the state for purposes of establishing an Exchange, there would be no “qualified individuals” existing in the thirty-four states with federally-facilitated Exchanges because none of those states is a “State that established the Exchange.” This would leave the federal Exchanges with no eligible customers, a result Congress could not possibly have intended.

The plaintiffs acknowledge that this would be untenable, and suggest that the residency requirement is only applicable to state-created Exchanges. They note that § 1312 states that a “qualified individual”—“with respect to an Exchange ”—is one who “resides in the State that established the Exchange.” ACA § 1312(f)(1)(A) (emphasis added). Accordingly, because “Exchange” is defined as an Exchange established under § 1311, i.e., *371 the provision directing states to establish Exchanges, the residency requirement only limits enrollment on state Exchanges.

Having considered the parties’ competing arguments on both of the above-referenced sections, we remain unpersuaded by either side. Again, while we think the defendants make the better of the two cases, we are not convinced that either of the purported statutory conflicts render Congress’s intent clear. Both parties offer reasonable arguments and counterarguments that make discerning Congress’s intent difficult. Additionally, we note that the Supreme Court has recently reiterated the admonition that courts avoid revising ambiguously drafted legislation out of an effort to avoid “apparent anomal [ies]” within a statute. Michigan v. Bay Mills Indian Cmty., 572 U.S. ––––, ––––, 134 S.Ct. 2024, 2033, 188 L.Ed.2d 1071 (2014). It is not especially surprising that in a bill of this size—“10 titles stretch[ing] over 900 pages and contain[ing] hundreds of provisions,” NFIB, 132 S.Ct. at 2580,—there would be one or more conflicting provisions. See Bay Mills, 134 S.Ct. at 2033 (“Truth be told, such anomalies often arise from statutes, if for no other reason than that Congress typically legislates by parts....”). Wary of granting excessive analytical weight to relatively minor conflicts within a statute of this size, we decline to accept the defendants’ arguments as dispositive of Congress’s intent.


The Act’s legislative history is also not particularly illuminating on the issue of tax credits. See Philip Morris USA, Inc. v. Vilsack, 736 F.3d 284, 289 (4th Cir.2013) (considering legislative history at Chevron step one). But see Nat’l Elec. Mfrs. Ass’n, 654 F.3d at 505 (noting that, “in consulting legislative history at step one of Chevron, we have utilized such history only for limited purposes, and only after exhausting more reliable tools of construction”). As both parties concede, the legislative history of the Act is somewhat lacking, particularly for a bill of this size.2 Several floor statements from Senators support the notion that it was well understood that tax credits would be available for low- and middle-income Americans nationwide. For example, Senator Baucus stated that the “tax credits will help to ensure all Americans can afford quality health insurance.” 155 Cong. Rec. S11,964 (Nov. 21, 2009). He later estimated that “60 percent of those who are getting insurance in the individual market on the exchange will get tax credits....” 155 Cong. Rec. S12,764 (Dec. 9, 2009). Similarly, Senator Durbin stated that half of the “30 million Americans today who have no health insurance ... will qualify for ... tax credits to help them pay their premiums so they can have and afford health insurance.” 155 Cong. Rec. S13, 559 (Dec. 20, 2009). These figures only make sense if all financially eligible Americans are understood to have access to the credits.

However, it is possible that such statements were made under the assumption that every state would in fact establish its own Exchange. As the district court stated, “Congress did not expect the states to turn down federal funds and fail to create and run their own Exchanges.” *372 King v. Sebelius, No. 3:13–cv–630, 997 F.Supp.2d 415, 430–31, 2014 WL 637365, at *14 (E.D.Va. Feb. 18, 2014). The Senators’ statements therefore do not necessarily address the question of whether the credits would remain available in the absence of state-created Exchanges. The plaintiffs argue extensively that Congress could not have anticipated that so few states would establish their own Exchanges. Indeed, they argue that Congress attempted to “coerce” the states into establishing Exchanges by conditioning the availability of the credits on the presence of state Exchanges. The plaintiffs contend that Congress struck an internal bargain in which it decided to favor state-run Exchanges by incentivizing their creation with billions of dollars of tax credits. According to the plaintiffs, however, Congress’s plan backfired when a majority of states refused to establish their own Exchanges, in spite of the incentives. The plaintiffs thus acknowledge that the lack of widely available tax credits is counter to Congress’s original intentions, but consider this the product of a Congressional miscalculation that the courts have no business correcting.

Although the plaintiffs offer no compelling support in the legislative record for their argument,3 it is at least plausible that Congress would have wanted to ensure state involvement in the creation and operation of the Exchanges. Such an approach would certainly comport with a literal reading of 26 U.S.C. § 36B’s text. In any event, it is certainly possible that the Senators quoted above were speaking under the assumption that each state would establish its own Exchange, and that they could not have envisioned the issue currently being litigated. Although Congress included a fallback provision in the event the states failed to act, it is not clear from the legislative record how large a role Congress expected the federal Exchanges to play in administering the Act. We are thus of the opinion that nothing in the legislative history of the Act provides compelling support for either side’s position.

Having examined the plain language and context of the most relevant statutory sections, the context and structure of related provisions, and the legislative history of the Act, we are unable to say definitively that Congress limited the premium tax credits to individuals living in states with state-run Exchanges. We note again that, on the whole, the defendants have the better of the statutory construction arguments, but that they fail to carry the day. Simply put, the statute is ambiguous and subject to at least two different interpretations. As a result, we are unable to resolve the case in either party’s favor at the first step of the Chevron analysis.


Finding that Congress has not “directly spoken to the precise question at issue,” we move to Chevron’s second step. 467 U.S. at 842, 104 S.Ct. 2778. At step two, we ask whether the “agency’s [action] is based on a permissible construction of the statute.” Id. at 843, 104 S.Ct. 2778. We “will not usurp an agency’s interpretive authority by supplanting its construction with our own, so long as the interpretation is not ‘arbitrary, capricious, or manifestly contrary to the statute.’ A construction meets this standard if it ‘represents a reasonable accommodation of conflicting policies that were committed to the agency’s care by the statute.’ ” Philip *373 Morris, 736 F.3d at 290 (quoting Chevron, 467 U.S. at 844, 845, 104 S.Ct. 2778). We have been clear that “[r]eview under this standard is highly deferential, with a presumption in favor of finding the agency action valid.” Ohio Vall. Envt’l Coalition v. Aracoma Coal Co., 556 F.3d 177, 192 (4th Cir.2009).

As explained, we cannot discern whether Congress intended one way or another to make the tax credits available on HHS-facilitated Exchanges. The relevant statutory sections appear to conflict with one another, yielding different possible interpretations. In light of this uncertainty, this is a suitable case in which to apply the principles of deference called for by Chevron. See Scialabba v. Cuellar de Osorio, 573 U.S. ––––, ––––, 134 S.Ct. 2191, 2203, 189 L.Ed.2d 98 (2014) (“[I]nternal tension [in a statute] makes possible alternative reasonable constructions, bringing into correspondence in one way or another the section’s different parts. And when that is so, Chevron dictates that a court defer to the agency’s choice....”) (plurality opinion); Nat’l Elec. Mfrs. Ass’n, 654 F.3d at 505 (“[W]e have reached Chevron’s second step after describing statutory language as ‘susceptible to more precise definition and open to varying constructions.’ ”) (quoting Md. Dep’t of Health and Mental Hygiene v. Centers for Medicare and Medicaid Servs., 542 F.3d 424, 434 (4th Cir.2008)).4

What we must decide is whether the statute permits the IRS to decide whether the tax credits would be available on federal Exchanges. In answering this question in the affirmative we are primarily persuaded by the IRS Rule’s advancement of the broad policy goals of the Act. See Vill. of Barrington v. Surface Transp. Bd., 636 F.3d 650, 666 (D.C.Cir.2011) (“[W]hen an agency interprets ambiguities in its organic statute, it is entirely appropriate for that agency to consider ... policy arguments that are rationally related to the [statute’s] goals.” (internal quotation marks and citation omitted)); Ariz. Pub. Serv. Co. v. EPA, 211 F.3d 1280, 1287 (D.C.Cir.2000) (“[A]s long as the agency stays within [Congress’s] delegation, it is free to make policy choices in interpreting the statute, and such interpretations are entitled to deference.”) (quotation marks omitted). There is no question that the Act was intended as a major overhaul of the nation’s entire health insurance market. The Supreme Court has recognized the broad policy goals of the Act: “to increase the number of Americans covered *374 by health insurance and decrease the cost of health care.” NFIB, 132 S.Ct. at 2580. Similarly, Title I of the ACA is titled “Quality, Affordable Health Care for All Americans” (emphasis added).

Several provisions of the Act are necessary to achieving these goals. To begin with, the individual mandate requires nearly all Americans to have health insurance or pay a fine. Increasing the pool of insured individuals has the intended side-effect of increasing revenue for insurance providers. The increased revenue, in turn, supports several more specific policy goals contained in the Act. The most prominent of these are the guaranteed-issue and community-rating provisions. In short, these provisions bar insurers from denying coverage or charging higher premiums because of an individual’s health status. See ACA § 1201. However, these requirements, standing alone, would result in an “adverse selection” scenario whereby individuals disproportionately likely to utilize health care would drive up the costs of policies available on the Exchanges.

Congress understood that one way to avoid such price increases was to require near-universal participation in the insurance marketplace via the individual mandate. In combination with the individual mandate, Congress authorized broad incentives—totaling hundreds of billions of dollars—to further increase market participation among low- and middle-income individuals. A Congressional Budget Office report issued while the Act was under consideration informed Congress that there would be an “an influx of enrollees with below-average spending for health care, who would purchase coverage because of the new subsidies to be provided and the individual mandate to be imposed.” J.A. 95. The report further advised Congress that “[t]he substantial premium subsidies available in the exchanges would encourage the enrollment of a broad range of people”; and that the structure of the premium tax credits, under which federal subsidies increase if premiums rise, “would dampen the chances that a cycle of rising premiums and declining enrollment would ensue.” J.A. 108–109. As the defendants further explain, denying tax credits to individuals shopping on federal Exchanges would throw a debilitating wrench into the Act’s internal economic machinery. . .

It is therefore clear that widely available tax credits are essential to fulfilling the Act’s primary goals and that Congress was aware of their importance when drafting the bill. The IRS Rule advances this understanding by ensuring that this essential component exists on a sufficiently large scale. The IRS Rule became all the more important once a significant number of states indicated their intent to forgo establishing Exchanges. With only sixteen state-run Exchanges currently in place, the economic framework supporting the Act would crumble if the credits were unavailable on federal Exchanges. Furthermore, without an exception to the individual mandate, millions more Americans unable to purchase insurance without the credits would be forced to pay a penalty that Congress never envisioned imposing on them. The IRS Rule avoids both these unforeseen and undesirable consequences and thereby advances the true purpose and means of the Act.

It is thus entirely sensible that the IRS would enact the regulations it did, making Chevron deference appropriate. Confronted with the Act’s ambiguity, the IRS crafted a rule ensuring the credits’ broad availability and furthering the goals of the law. In the face of this permissible construction, we must defer to the IRS Rule. See Scialabba, 134 S.Ct. at 2213 (“Whatever Congress might have meant in enacting [the statute], it failed to speak clearly. Confronted with a self-contradictory, ambiguous provision in a complex statutory scheme, the Board chose a textually reasonable construction consonant with its view of the purposes and policies underlying immigration law. Were we to overturn the Board in that circumstance, we would assume as our own the responsible and expert agency’s role.”); Nat’l Elec. Mfrs. Ass’n, 654 F.3d at 505 (“[W]e defer at [Chevron’s ] step two to the agency’s interpretation so long as the construction is a reasonable policy choice for the agency to make.”) (second alteration in original).

Tellingly, the plaintiffs do not dispute that the premium tax credits are an essential component of the Act’s viability. Instead, as explained above, they concede that Congress probably wanted to make subsidies available throughout the country, but argue that Congress was equally concerned with ensuring that the states play a leading role in administering the Act, and thus conditioned the availability of the credits on the creation of state Exchanges. The plaintiffs argue that the IRS Rule exceeds the agency’s authority because it irreconcilably conflicts with Congress’s goal of ensuring state leadership. For the reasons explained above, however, we are not persuaded by the plaintiffs’ “coercion” argument and do not consider it a valid basis for circumscribing the agency’s authority to implement the Act in an efficacious manner.

The plaintiffs also attempt to avert Chevron deference by arguing that ACA §§ 1311 and 1321 are administered by HHS and not the IRS, and that as a result the IRS had no authority to enact its final rule. However, the relevant statutory language is found in 26 U.S.C. § 36B, which is part of the Internal Revenue Code and subject to interpretation by the IRS. See 77 Fed.Reg. at 30,378 (describing the IRS Rule as a valid interpretation of 26 U.S.C. § 36B). Although the IRS Rule adopts by cross-reference an HHS definition of “Exchange,” 26 C.F.R. § 1.36B–1(k), the Act clearly gives to the IRS authority to resolve ambiguities in 26 U.S.C. § 36B (“The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section”). This clear delegation of authority to the IRS relieves us of any possible doubt regarding the propriety of relying on one agency’s interpretation of a single piece of a jointly-administered statute.

Finally, the plaintiffs contend that a rule of statutory construction that requires tax exemptions and credits to be construed narrowly displaces Chevron deference in this case. However, while the Supreme Court has stated that tax credits *376 “must be expressed in clear and unambiguous terms,” Yazoo & Miss. Valley R.R. Co. v. Thomas, 132 U.S. 174, 183, 10 S.Ct. 68, 33 L.Ed. 302 (1889), the Supreme Court has never suggested that this principle displaces Chevron deference, and in fact has made it quite clear that it does not. See Mayo Found. for Medical Educ. and Research v. United States, 562 U.S. 44, 131 S.Ct. 704, 713, 178 L.Ed.2d 588 (2011) (“[T]he principles underlying our decision in Chevron apply with full force in the tax context.”); see also id. at 712 (collecting cases in which the Supreme Court has applied Chevron deference interpreting IRS regulations).

Rejecting all of the plaintiffs’ arguments as to why Chevron deference is inappropriate in this case, for the reasons explained above we are satisfied that the IRS Rule is a permissible construction of the statutory language. We must therefore apply Chevron deference and uphold the IRS Rule.6

Accordingly, the judgment of the district court is affirmed.



2014 WL 3811246 (U.S.) (Appellate Petition, Motion and Filing)
Supreme Court of the United States.
David KING; Douglas Hurst; Brenda Levy; and Rose Luck, Petitioners,
Sylvia Mathews BURWELL, as U.S. Secretary of Health and Human Services; United States Department of Health and Human Services; Jacob Lew, as U.S. Secretary of the Treasury; United States Department of the Treasury; Internal Revenue Service; and John Koskinen, as Commissioner of Internal Revenue, Respondents.
No. 14-114.
July 31, 2014.
On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Fourth Circuit
Petition for a Writ of Certiorari

* * *


The reasons for granting the petition are simple and compelling. Two federal Circuits have divided over whether the IRS has authority to spend tens of billions of dollars per year to subsidize health coverage in 36 states. If the ACA means what it says, as the D.C. Circuit held, the consequences are profound: It means millions of people are ineligible for subsidies and exempt from the ACA’s individual mandate penalty. It means hundreds of thousands of employers are free of the Act’s employer mandate. It means a fundamental change in the health insurance market in two-thirds of the country. And it means that the IRS is illegally spending billions of taxpayer dollars every month without congressional authority. Uncertainty over this issue is simply not tenable. That is why each Circuit expedited its proceedings, and it is why this Court should grant review now and resolve the matter this Term, regardless of whether the D.C. Circuit grants en banc review of Halbig.

There is a plain conflict between two federal Courts of Appeals over the validity of the IRS Rule. The D.C. Circuit in Halbig ruled that an Exchange established by HHS is plainly not “established by the State,” and therefore ordered the Rule vacated. The court below, however, believed that the statute was ambiguous on this question, and so upheld the Rule as a permissible exercise of agency discretion. The disagreement is clear and all of the arguments on both sides have been thoroughly aired. Only this Court can ultimately resolve the issue.

*12 A. Although they reached contrary conclusions, the Halbig and King panels actually agreed on a number of important points.

First, both courts agreed that the plain language of § 36B - which is the specific provision authorizing subsidies - indicates that subsidies are limited to Exchanges established by states. See Halbig, 2014 U.S. App. LEXIS 13880, at *4 (observing that § 36B, “[o]n its face,” allows subsidies only “for insurance purchased on an Exchange established by one of the fifty states or the District of Columbia”); Pet.App.16a & 18a (King panel op.) (conceding “common-sense appeal of [Petitioners’] argument,” i.e., that “the language says what it says, and that it clearly mentions state-run Exchanges under § 1311,” which it would not have done had Congress actually “meant to include federally-run Exchanges”). Indeed, as the court below noted, “[i]f Congress did in fact intend to make the tax credits available to consumers on both state and federal Exchanges, it would have been easy to write in broader language, as it did in other places in the statute.” Pet.App.16a-17a (citing reference elsewhere to “Exchange established under this Act”).

Second, both courts rejected the Government’s claims that giving § 36B its plain meaning would somehow cause “anomalies” in other parts of the Act. The Fourth Circuit below was “unpersuaded” as to the alleged anomalies. Pet.App.22a. “Both parties offer reasonable arguments and counterarguments that make discerning Congress’s intent [from these provisions] difficult.” Id. Additionally, the panel recognized that this Court just admonished courts to avoid “revising” legislation “out of an effort to avoid ‘apparent anomal[ies]’ within a statute.” Id. (quoting *13 Michigan v. Bay Mills Indian Cmty., 134 S. Ct. 2024, 2033 (2014)). As such, it “decline[d] to accept [the Government’s] arguments as dispositive of Congress’s intent.” Pet.App.22a. Halbig, too, found that the supposed anomalies did not reach the “ ‘high threshold’ of unreasonableness” necessary to allow a court to “conclude that a statute does not mean what it says.” 2014 U.S. App. LEXIS 13880, at *32-33. Accord Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 565 (2005) (“[I]t is up to Congress rather than the courts to fix” even “unintentional drafting gap[s].”). Indeed, as to one of the supposed anomalies, Halbig determined that it “creates no difficulty, let alone absurdity”; as to the other, the results “seem sensible, not absurd.” 2014 U.S. App. LEXIS 13880, at *39, *42. Accordingly, “[n]othing about the imperative to read section 36B in harmony with the rest of the ACA requires interpreting ‘established by the State’ to mean anything other than what it plainly says.” Id. at *43.

Third, both courts agreed that nothing in the Act’s legislative history contradicted § 36B’s text. As the panel below noted, the history is “not particularly illuminating on the issue.” Pet.App.22a. Accord Halbig, 2014 U.S. App. LEXIS 13880, at *47 (“[T]he scant legislative history sheds little light on the precise question of the availability of subsidies on federal Exchanges.”). Congress seemed to assume that subsidies would be available nationwide, but “it is possible that such statements were made under the assumption that every state would in fact establish its own Exchange.” Pet.App.23a-24a. After all, “Congress did not expect the states to turn down federal funds and fail to create and run their own Exchanges.” Id. As Halbig similarly observed, the *14 assumption of nationwide subsidies is “as consistent with an expectation that all states would cooperate (i.e., establish their own Exchanges) as with an understanding that subsidies would be available on federal Exchanges as well.” 2014 U.S. App. LEXIS 13880, at *47-48. Of course, the legislative history did not itself prove that Congress meant what it said in § 36B, but “clear text speaks for itself and requires no ‘amen’ in the historical record.” Id. at *46. Accord Harrison v. PPG Indus., Inc., 446 U.S. 578, 592 (1980) (“[I]t would be a strange canon of statutory construction that would require Congress to state in committee reports or elsewhere in its deliberations that which is obvious on the face of a statute.”).

Fourth, both courts recognized that there was a “plausible” reason why Congress might have wanted to condition subsidies on the establishment of state Exchanges - an account that would “comport with a literal reading” of § 36B. Pet.App.25a. Namely, Congress could quite reasonably have intended subsidies as an incentive, so that states - not the federal government - would bear this burden. Id.; accord Halbig, 2014 U.S. App. LEXIS 13880, at *52 n.ll. After all, “Congress has conditioned federal benefits on state cooperation in other contexts,” including in the ACA’s own Medicaid expansion, and a Senate committee “proposed a bill that specifically contemplated penalizing states that refused to participate in establishing” Exchanges. Id. at *48-49, *52 n.11; see also S. 1679, § 3104(a), (d), 111th Cong. (2009). Since it seemed clear that “no state would refuse so good an offer,” Halbig, 2014 U.S. App. LEXIS 13880, at *52 n.ll, using subsidies as an incentive would allow Congress to achieve both goals: state-run Exchanges and subsidies nationwide.

*15 B. Although King and Halbig thus both agreed that (i) § 36B limits subsidies to Exchanges that are established by states; (ii) such a reading would not create any anomalous or absurd results in the rest of the statute; (iii) the legislative history did not refute this plain reading of the law; and (iv) Congress had a very plausible basis for meaning precisely what it said, the two courts nonetheless diverged on whether the IRS Rule was legally valid.

The panel below, for its part, rested its result on the notion that, although § 36B limits subsidies to coverage purchased through Exchanges “established by the State,” other provisions of the ACA create ambiguity as to whether an Exchange established by HHS is somehow actually “established by the State.” Pet.App.17a-18a. In particular, the court reasoned that while § 1311 directs states to create Exchanges, § 1321 clarifies that states may decline to do so - in which case, HHS shall establish “such Exchange within the State.” ACA § 1321(c)(1), codified at 42 U.S.C. § 18041(c)(1) (emphasis added). According to the panel, this may imply a legal fiction under which HHS “acts on behalf of the state when it establishes its own Exchange,” which therefore, in some sense, could be described as “established by the State.” Pet.App.18a. While the court admitted this does not accord as closely with a “literal reading” of the Act, it found it sufficient to create ambiguity. Id.

To resolve this supposed ambiguity, the court applied deference. It reasoned that “the importance of the tax credits to the overall statutory scheme” makes it “reasonable to assume that Congress created the ambiguity” intentionally, so that the IRS could resolve it. Pet.App.27a n.4. The court rejected *16 Petitioners’ argument that a venerable canon of construction - tax credits must be expressed in “clear and unambiguous language,” Yazoo & Miss. Valley R.R. Co. v. Thomas, 132 U.S. 174, 186 (1889) - had displaced Chevron as the way to resolve ambiguity in § 36B. Pet.App.32a-33a. The court further held that deference to the IRS was proper even though the “ambiguity” arose in § 1321 of the Act, administered by HHS - not in the Internal Revenue Code. Pet.App.32a. Ultimately, because the Rule advanced “the broad policy goals of the Act,” the panel upheld it under Chevron Step Two. Pet.App.27a.

By contrast, the Halbig panel squarely rejected the argument that § 1321 of the AC A, and use of the word “such,” created relevant “equivalence” between state and HHS Exchanges. Halbig, 2014 U.S. App. LEXIS 13880, at *22-25. As the court recognized, use of the word “such” directs HHS to establish the same type of Exchange as “a state would have established had it elected to do so,” which would not otherwise have been clear. Id. at *23. Critically, though, that could not change the fact that subsidies under § 36B turn on “who established” the Exchange; a federal Exchange is not “established by the State. ” Id. at *24 (emphases added). It is established when a state refuses to establish an Exchange. Further, § 1321 does not expresly deem HHS Exchanges to be “established by the State” - a “significant” omission given that Congress did expressly provide that a U.S. territory “shall be treated as a State” if it elects to establish an Exchange. Id. (quoting 42 U.S.C. § 18043(a)). Halbig thus found “no textual basis - in sections 1311 and 1321 or elsewhere - for concluding that a federally-established Exchange is, in fact or legal fiction, established by a state.” Id. at *31.

*17 Given that conclusion, Halbig refused to “ignore the best evidence of Congress’s intent - the text of section 36B - in favor of assumptions about the risks that Congress would or would not tolerate.” Id. at *59. It therefore vacated the Rule as contrary to the unambiguous statutory text. After all, “an agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.” Util. Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2446 (2014). “And,” the court continued, “neither may we.” Halbig, 2014 U.S. App. LEXIS 13880, at *59.

C. Thus, while the Fourth and D.C. Circuits agreed on a great number of points, they diverged on the critical issue: Is there ambiguity over whether an Exchange established by the federal government under § 1321 is somehow “established by the State under section 1311”? And that divergence led one court to vacate the Rule and the other to uphold it.

Notably, this Circuit split is especially troubling given uncertainty over how the competing rulings would apply even in the Fourth Circuit’s territorial jurisdiction. On one hand, the decision below would ordinarily be thought to resolve the validity of subsidies within the states comprising the Fourth Circuit: Virginia, Maryland, North Carolina, South Carolina, and West Virginia. Yet, on the other hand, one of the Halbig plaintiffs resides in West Virginia. Further, the D.C. Circuit has long held that when it vacates a rule under the APA, such a decision has “nationwide” effect. Nat’l Mining Ass’n v. U.S. Army Corps of Eng’rs, 145 F.3d 1399, 1409-10 (D.C. Cir. 1998). This division therefore not only has the usual effect of regional disuniformity, but also creates a special sort of nationwide confusion and conflict.

* * *

If it were clear that Halbig was plainly wrong in construing § 36B as it did, perhaps this Court could safely assume that the en banc court would correct its error and no other court would follow its lead. But, to the contrary, it is the court below that plainly erred, both in finding ambiguity despite clear text, and by deferring to the IRS as a means to resolve that supposed ambiguity. Those errors make this Court’s intervention all the more inevitable.

A. As explained, the Fourth Circuit did not accept the Government’s arguments that § 36B’s plain text would create absurd results, or that the legislative history refuted that text, or that Congress could not possibly have meant to condition subsidies on state Exchanges. Rather, it acknowledged the “common-sense appeal of the plaintiffs’ argument” and admitted that it was “at least plausible” that Congress meant what it said in § 36B. Pet.App.18a, 25a. The panel nonetheless found the Act ambiguous by claiming that the provision directing HHS to establish Exchanges in states that failed to do so could be read as creating a legal fiction under which even Exchanges established by HHS are “established by the State.” That reading is obviously wrong.

First, ambiguity exists for Chevron purposes only if it remains after the court “employ[s] traditional tools of statutory construction.” Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 n.9 (1984). Yet every canon of construction confirms that “established by the State” cannot be read to include all Exchanges, even those created by HHS.

*25 On such a reading, the modifier “established by the State” in § 36B would serve no purpose, violating the “cardinal principle” that “no clause … shall be superfluous, void, or insignificant.” Duncan v. Walker, 533 U.S. 167, 174 (2001). More to the point, the problem here is not redundancy, but that § 36B specifically answers the precise question at issue; on the Government’s view, Congress added superfluous words that directly contradict its own intent. Moreover, Congress elsewhere used the broader phrase “Exchange established under this Act,” Pet.App.17a, which clearly includes HHS-established Exchanges. Giving that broader meaning to § 36B’s narrower words violates the canon that “differing language” in “two subsections” of a statute should not be given “the same meaning.” Russello v. United States, 464 U.S. 16, 23 (1983). Further, § 36B itself elsewhere refers expressly to both state- and HHS-established Exchanges distinctly, proving that the Act does not equate them: A subsection of § 36B requiring information reporting by Exchanges applies to an “Exchange under Section 1311(f)(3) or 1321(c).” 26 U.S.C. § 36B(f)(3). This proves that when Congress wanted to encompass both state- and HHS-established Exchanges, it “knew how to do so.” Custis v. United States, 511 U.S. 485, 492 (1994).

Second, the panel’s notion that HHS acts on the state’s behalf in establishing a fallback Exchange is neither correct nor relevant. The ACA does not say that HHS should establish Exchanges “on behalf of” declining states. It says that HHS should establish Exchanges “within” them. ACA § 1321(c), codified at 42 U.S.C. § 18041(c). That is language of geography not agency. And even if the Act had said that HHS should act “on the State’s behalf,” that Exchange *26 would still be established by HHS for the state, not by the state. Finally, the crucial premise allowing HHS to act in the first place is the state’s failure to. HHS thus cannot be acting “on behalf of the state,” Pet.App.18a, because the state has clearly decided that it does not want to establish an Exchange. HHS is acting instead of the state.

Third, because § 1321 describes only when and how HHS Exchanges come into existence, but says nothing about whether they may grant subsidies, Congress could have extended subsidies to those Exchanges only by “deeming” Exchanges established by HHS to be “established by the State.” Congress did just that for Exchanges established by territories: Section 1323 provides that if a territory creates an Exchange, it “shall be treated as a State” for such purposes. 42 U.S.C. § 18043(a)(1). Likewise, a House version of the ACA - which created a national Exchange but allowed states to choose to run their own - said that, if a state did so, “any references in this subtitle to the Health Insurance Exchange … shall be deemed a reference to the State-based Health Insurance Exchange.” H.R. 3962, § 308(e), 111th Cong. (2009). No equivalent language about HHS Exchanges appears in the enacted ACA; as noted, § 1321’s language comes nowhere close.

The panel below apparently believed, incorrectly, that “Congress defined ‘Exchange’ as an Exchange established by the state,” supposedly bolstering the claim that § 1321 somehow commands the literally nonsensical: “state-established” Exchanges established by HHS. Pet.App.18a. In fact, the Act defines “Exchange” as “an American Health Benefit Exchange established under section 1311.” ACA *27 § 1563(b)(21), codified at 42 U.S.C. § 300gg-91(d)(21). At most, that definition could sow doubt over the metaphysical question whether Exchanges created by HHS pursuant to § 1321 are created “under” that section or “under” § 1311. Either way, however, they are established by HHS, not the state. Indeed, this potential confusion is presumably why § 36B specifically limits the subsidies to Exchanges “established by the State under section 1311.”

Beyond the Act’s global definition of “Exchange,” the panel also cited § 1311(d)(1) of the ACA, which explains that an Exchange “shall be a governmental agency or nonprofit entity that is established by a State.” 42 U.S.C. § 18031(d)(1). The panel thought that this “narrow[s] the definition of ‘Exchange’ to encompass only state-created Exchanges,” and that a narrow focus on “state-created Exchanges” somehow supports inclusion of “HHS-created Exchanges” in § 36B. Pet.App.17a. Even the Government did not make that argument - for good reason: Section 1311 is the provision directing states to establish Exchanges. Section 1311(d)(1) simply specifies that states may do so through a state agency or nonprofit. This is not a “definition” of “Exchange,” much less one that somehow transmogrifies HHS Exchanges into Exchanges that are “established by the State.” See Halbig, 2014 U.S. App. LEXIS 13880, at *25-30.

B. The panel below erred again by deferring to the IRS Rule to resolve this supposed “ambiguity.” For four distinct reasons, deference is inapplicable.

First, for the reasons discussed, the Act’s text is unambiguous. Where Congress has “unambiguously expressed [its] intent” in the law, “that is the end of the matter.” Chevron, 467 U.S. at 842-43.

*28 Second, as this Court just reiterated, “[w]e expect Congress to speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’ ” Util. Air, 134 S. Ct. at 2444 (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 160 (2000)). Few decisions will have greater economic or political significance than one triggering hundreds of billions of dollars per year in spending and expanding major components of the ACA to more than two-thirds of the states. The panel below recognized as much, but backwardly argued that “the importance of the tax credits” makes it more “reasonable to assume that Congress created the ambiguity.” Pet.App.27a n.4. As this Court’s cases make clear, however, the opposite is true: It is inherently implausible that Congress wanted the IRS to decide on the expenditure of this huge sum of money, or on how far the ACA’s mandates should extend. The IRS Rule is thus a major policy in search of ambiguity - not a mere detail that Congress intended the IRS to fill. Indeed, that is why § 36B “directly spok[e] to the precise question” at issue, rather than leave the answer ambiguous. Chevron, 467 U.S. at 842.

Third, ambiguity may be resolved by an agency only if it remains after “employing traditional tools of statutory construction,” including presumptions that resolve ambiguity. Id. at 843 n.9. Thus, where established canons require a clear statement of Congress’s intent to infer certain results, an agency cannot impose those results through ambiguous text. See, e.g., EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 250, 258 (1991) (deference cannot “overcome the presumption against extraterritorial application”); INS v. St. Cyr, 533 U.S. 289, 320 n.45 (2001) (“[A] *29 statute that is ambiguous with respect to retroactive application is construed … to be unambiguously prospective,” so that “there is, for Chevron purposes, no ambiguity.”); Muscogee (Creek) Nation v. Hodel, 851 F.2d 1439, 1444-45 & n.8 (D.C. Cir. 1988) (refusing to defer because if law “can reasonably be construed” in Indian tribe’s favor, “it must be”).

To protect Congress’s exclusive authority over the federal purse, this Court has long held that tax credits must be expressed in “clear and unambiguous language” in statutes. Yazoo, 132 U.S. at 186. Such benefits “must rest … on more than a doubt or ambiguity.” United States v. Stewart, 311 U.S. 60, 71 (1940). If “doubts are nicely balanced,” that defeats the claimed tax benefit. Trotter v. Tennessee, 290 U.S. 354, 356 (1933). In light of this venerable rule allowing money to be drawn from the Treasury only when the congressional custodian of the federal purse has unambiguously authorized it, deference cannot apply to the proper interpretation of § 36B. The IRS cannot by regulation extend or expand the credits by resting on “doubt or ambiguity” in the ACA. Stewart, 311 U.S. at 71.

The court below contended, based on Mayo Foundation for Medical Education and Research v. United States, 131 S. Ct. 704 (2011), that this canon does not displace Chevron deference. Pet.App.33a. Actually, Mayo expressly confirmed that tax exemptions must be “construed narrowly.” Id. at 715. Because the Government construed the exemption narrowly there, Chevron and the tax-credit canon reinforced one another. Here, however, the canon has the effect of eliminating any ambiguity, giving Chevron deference no room to operate.

*30 Fourth, there is no basis for Chevron deference to the IRS, because § 36B - the only relevant provision that falls within the Internal Revenue Code - is not ambiguous on its own. Pet.App.16a-17a. Rather, it is only the distinct ACA provisions allowing for state and federal Exchanges that purportedly make it plausible to construe the Act as extending subsidies to the latter. See Pet.App.18a. Yet those provisions are codified in a chapter of Title 42 of the U.S. Code - the domain of HHS, not the IRS. See 42 U.S.C. §§ 18031, 18041. Thus, the fact that the IRS has “authority to resolve ambiguities in 26 U.S.C. § 36B,” Pet.App.32a, does not save the IRS Rule - because § 36B is not the arguably ambiguous provision. Cf. Cheney R.R. Co. v. R.R. Ret. Bd., 50 F.3d 1071, 1073-74 (D.C. Cir. 1995) (no deference to agency where issue “turn[ed] on the interpretation” of laws “not the Board’s governing statutes”).

* * *


The petition for writ of certiorari shoufl be granted.


2014 WL 4978598 (U.S.) (Appellate Petition, Motion and Filing)
Supreme Court of the United States.
David KING, et al., petitioners,
Sylvia BURWELL, Secretary of Health and Human Services, et al.
No. 14-114.
October 3, 2014.
On Petition for a Writ of Certiorari to the United States Court of Appeals for the Fourth Circuit
Brief for the Respondents in Opposition

* * *


* * *

Review is also unwarranted because the court of appeals’ decision is correct. Congress determined that the tax credits at issue here are essential to the *12 Affordable Care Act’s goals of making affordable health coverage available to all Americans and ensuring functional insurance markets. Petitioners’ argument (Pet. 24-33) that the Act denies those credits to millions of people in 34 States is contrary to the Act’s text and structure and would render the Act unrecognizable to the Congress that passed it. “Without the federal subsidies, individuals would lose the main incentive to purchase insurance inside the exchanges, and some insurers may be unwilling to offer insurance inside of exchanges. With fewer buyers and even fewer sellers, the exchanges would not operate as Congress intended and may not operate at all.” National Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2674 (2012) (Scalia, Kennedy, Thomas, and Alito, JJ., dissenting).

The Act provides that each State “shall *** establish an American Health Benefits Exchange.” 42 U.S.C. 18031(b)(1). But, in a provision expressly designed to respect the sovereign dignity of each State by affording “State flexibility,” 42 U.S.C. 18041, the Act provides two ways for that requirement to be satisfied. First, a State may elect to create the Exchange on its own. 42 U.S.C. 18041(b). Alternatively, if a State does not elect to establish the “required Exchange” itself, then HHS will “establish and operate such Exchange within the State.” 42 U.S.C. 18041(c)(1). Either choice satisfies Section 18031(b)(1)’s requirement that each State “shall *** establish an [Exchange].” The text of the Act thus makes clear that an Exchange established by HHS in a State’s stead is, as a matter of law, “an Exchange established by the State.”

*13 That interpretation harmonizes the Act’s text, structure, and purpose. Petitioners’ reading, in contrast, would transform the Act into a hash of superfluities, absurdities, and internal contradictions. It would obstruct the Act’s express purpose by denying affordable insurance to millions of Americans. It would thwart the operation of the Act’s interdependent reforms and gut the Exchanges through which those reforms are implemented. And it would destroy the Act’s model of cooperative federalism by transforming the Act’s promise of “State flexibility” into a threat that a State may forgo establishing an Exchange for itself only at the price of crippling its insurance market and depriving its citizens of the tax credits at the heart of the Act. The Act unambiguously forecloses that construction. At a minimum, the IRS’s interpretation is a permissible one meriting deference under Chevron.

1. The text of the Affordable Care Act makes clear that when HHS establishes the Exchange for a particular State, that Exchange is, as a matter of law, “an Exchange established by the State” under Section 18031. That conclusion becomes inescapable when the relevant text is considered, as it must be, “not in a vacuum, but with reference to the statutory context, ‘structure, history, and purpose.’ ” Abramski v. United States, 134 S. Ct. 2259, 2267 (2014) (quoting Maracich v. Spears, 133 S. Ct. 2191, 2209 (2013)). Petitioners’ blinkered focus on a single phrase in two subparagraphs of Section 36B considered in isolation ignores this “fundamental canon of statutory construction.” Roberts v. Sea-Land Servs., Inc., 132 S. Ct. 1350, 1357 (2012) (quoting Davis v. Michigan Dep’t of the Treasury, 489 U.S. 803, 809 (1989)).

*14 a. The Affordable Care Act provides that “[e]ach State shall *** establish an [Exchange].” 42 U.S.C. 18031(b)(1). The Act then furnishes alternative means by which, at each State’s option, that requirement may be met. Section 18041, which expressly grants “State flexibility,” allows a State to “elect[]” to establish the Exchange itself, but provides that if a State does not elect to create the “required Exchange” or is unable to do so, then HHS “shall *** establish and operate such Exchange within the State.” 42 U.S.C 18041(b) and (c)(1) (emphasis added). The use of the word “such” denotes that the Exchange established by HHS is the “required Exchange” that the State would have established had it elected to do so. See Black’s Law Dictionary 1570 (9th ed. 2009) (“such” means “[t]hat or those; having just been mentioned”). And because a federally-facilitated Exchange thus satisfies Section 18031(b)(1)’s requirement that “[e]ach State shall *** establish an [Exchange],” the Act’s text makes clear that an Exchange created by HHS is, as a matter of law, “an Exchange established by the State.”

The statutory definition of “Exchange” confirms that when a State does not set up the “required Exchange” for itself, HHS steps into its shoes and creates “an Exchange established by the State” in its stead. The Act provides that “[t]he term ‘Exchange’ means an American Health Benefit Exchange established under [42 U.S.C. 18031].” 42 U.S.C. 300gg-91(d)(21) (emphasis added); see 42 U.S.C. 18111 (incorporating this definition into Title I of the Act). As petitioners do not dispute, a federally-facilitated Exchange is an “Exchange” within the meaning of the Act. Therefore, although it is Section 18041 that provides *15 the mechanism for HHS to set up and operate the required Exchange when a State opts not to do so, that federally-facilitated Exchange is, “by definition under the statute,” Pet. App. 64a, deemed to be “established under [Section 18031]” - the provision directing that “[e]ach State shall *** establish an [Exchange].” 42 U.S.C. 18031(b)(1) (emphasis added).

Petitioners and their amici nonetheless insist the “plain language” of Subsections 36B(b)(2)(A) and (c)(2)(A) unambiguously forecloses this reading. They contend that an Exchange established by HHS cannot be “an Exchange established by the State” within the meaning of the Act, and that federal tax credits therefore cannot be made available to Americans who purchase insurance on federally-facilitated Exchanges. Pet. 12; see Cornyn Amicus Br. 4-8; Okla. Amicus Br. 4; Pac. Research Inst. Amicus Br. 5-9. But the “plain meaning that [this Court] seek[s] to discern is the plain meaning of the whole statute, not of isolated sentences.” Beecham v. United States, 511 U.S. 368, 372 (1994); accord King v. St. Vincent’s Hosp., 502 U.S. 215, 221 (1991) (“[T]he meaning of statutory language, plain or not, depends on context.”). Congress is “always” free to give statutory terms a “broader or different meaning” than they would otherwise have. Mohamad v. Palestinian Auth., 132 S. Ct. 1702, 1707 (2012). And, as explained above, the definitional and other directly applicable provisions of the Act - including provisions cross-referenced in Section 36B itself - demonstrate that the Act treats an Exchange established by HHS in a State’s stead as an Exchange “established by the State.”3

*16 Petitioners also assert (Pet. 25) that the IRS’s reading renders “the modifier ‘established by the State’ ” superfluous. That is incorrect. An Exchange is a state-specific marketplace, and the relevant provision of Section 36B includes the phrase “established by the State” because it is referring to the Exchange in the specific State mentioned earlier in the same sentence. The formula for tax credits depends on “the monthly premiums *** for [one] or more qualified health plans offered in the individual market within a State *** which were enrolled in through an Exchange established by the State under [42 U.S.C. 18031].” 26 U.S.C. 36B(b)(2)(A) (emphasis added); see 26 U.S.C. 36B(c)(2)(A) (cross-referencing Section 36B(b)(2)(A)). The Act’s other references to an “Exchange established by the State” likewise serve simply to refer to the Exchange in a particular State, typically identified elsewhere in the same provision.4

*17 In contrast, the provisions of Section 36B that discuss Exchanges as a general category (rather than the Exchange in a particular State) do not contain the same modifier. Those provisions also concern the administration of the tax credits, and if petitioners were correct that the modifier “established by the State” serves to restrict credits to residents of States that established Exchanges for themselves, the same limitation would have been repeated throughout Section 36B. But no such restriction appears: All of Section 36B’s generic references to Exchanges simply refer to “an Exchange.” 26 U.S.C. 36B(d)(3), (e)(3) and (f)(3).

In any event, “the canon against surplusage ‘assists only where a competing interpretation gives effect to every clause and word of a statute.’ ” Marx v. General Revenue Corp., 133 S. Ct. 1166, 1177 (2013) (citation omitted). The canon provides no help here because *18 petitioners’ interpretation does not “give[] effect to every word” of the relevant provisions of Section 36B. Ibid. Those provisions refer to “an Exchange established by the State under [Section] 1311 [42 U.S.C. 18031].” 26 U.S.C. 36B(b)(2)(A) and (c)(2)(A). But the Act defines “Exchange” to mean an “American Health Benefit Exchange established under [S]ection 1311.” 42 U.S.C. 300gg-91(d)(21). Because that definition already includes the phrase “established under [S]ection 1311,” Section 36B’s references to an Exchange “established *** under [Section] 1311” are surplusage under petitioners’ reading.

b. The broader structure and context of the Affordable Care Act confirm that the IRS correctly interpreted Section 36B. “[L]ike every Act of Congress,” the Act “should not be read as a series of unrelated and isolated provisions,” but rather as a “ symmetrical and coherent regulatory scheme,” Gustafson v. Alloyd Co., 513 U.S. 561, 569-570 (1995), in which all parts fit together as a “harmonious whole,” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (citation omitted). Petitioners’ reading flouts that basic principle.

On petitioners’ view, Congress imposed a fundamental geographic restriction on the availability of the federal tax credits at the heart of the Act through technical drafting in two subparagraphs of Section 36B setting forth the formula for calculating the amount of the credit available to a particular taxpayer. Yet at the same time, petitioners must ascribe to Congress complete indifference about how that purported restriction would interact with the remainder of the statutory scheme. As petitioners would have it, for example, Congress adopted reporting requirements *19 for entities with nothing to report; required the creation of federally-facilitated Exchanges on which no one may lawfully purchase coverage; and imposed obligations on Exchanges, States, and HHS that are impossible to fulfill.

i. Start with Section 36B itself, the very provision in which petitioners perceive a categorical bar to credits for residents of States with federally-facilitated Exchanges. In a subsection entitled “[r]econciliation of credit and advance credit,” Section 36B requires “[e]ach Exchange (or any person carrying out [one] or more responsibilities of an Exchange under [42 U.S.C. 18031(f)(3) or 18041(c)])” to report information to the IRS for use in the administration of the credits, including the “aggregate amount of any advance payment of such credit”; information needed to determine the taxpayer’s “eligibility for, and the amount of, such credit”; and “[i]nformation necessary to determine whether a taxpayer has received excess advance payments” of the credit. 26 U.S.C. 36B(f)(3)(C), (E) and (F). Petitioners concede (Pet. 25) that this reporting requirement unambiguously applies to “both state- and HHS-established Exchanges.” But there would have been no reason to require federally-facilitated Exchanges to make reports intended to facilitate the reconciliation of tax credits if those credits were available only on state-run Exchanges.5

*20 ii. Other provisions of the Act confirm even more powerfully that when HHS establishes the “required Exchange” in a particular State’s stead, that Exchange is, as a matter of law, “an Exchange established by the State.” In virtually every instance in which that phrase or its equivalent appears in the Act, applying petitioners’ interpretation would render the relevant provision impossible to apply, internally contradictory, or absurd.

First, if petitioners’ reading were correct, federally-facilitated Exchanges would have no customers. The Act restricts access to individual-market policies sold on Exchanges to “qualified individuals.” See 42 U.S.C. 18031(d)(2)(A), 18032(f). A “qualified individual” is defined as a person who, among other things, “resides in the State that established the Exchange.” 42 U.S.C. 18032(f)(1)(A)(ii) (emphasis added). Accordingly, under petitioners’ logic, there would be no “qualified individuals” eligible to purchase coverage in any of the 34 States with federally-facilitated Exchanges - and those Exchanges would serve no purpose.

Recognizing that Congress cannot have intended that absurd result, petitioners argued below that the provisions of the Act governing qualified individuals should be effectively “read *** out of the [Act]” or “not appl[ied] *** to federally-facilitated Exchanges.” Pet. App. 65a. In other words, petitioners *21 argued that the very language on which they rely to impose drastic limits on the availability of tax credits should be ignored when equivalent language appears in the Act’s definition of “qualified individual.” As the district court observed, petitioners’ need to distort or disregard other statutory provisions “is a telltale sign that their reading of [S]ection 36B is wrong.” Ibid.

The majority in the vacated panel decision in Halbig also strained to avoid the absurd result that federally-facilitated Exchanges would have no customers, declaring that individuals need not be “qualified” to shop on an Exchange. 758 F.3d at 405. But that reading contradicts both the obvious limiting function of the word “qualified” and other provisions of the Act. See, e.g., 42 U.S.C. 18051(e)(1) and (2) (equating “a qualified individual” with a person “eligible for enrollment in a qualified health plan offered through an Exchange”). The Halbig panel majority’s reading also yields further anomalies. It would eliminate both the Act’s requirement that an individual be a resident of a State in order to shop on that State’s Exchange and the exclusion of incarcerated persons from Exchanges. 42 U.S.C. 18032(f)(1)(A)(ii) and (B). Moreover, the Act allows a plan to be offered on an Exchange only if “the Exchange determines that making available such health plan through such Exchange is in the interests of qualified individuals and qualified employers in the State.” 42 U.S.C. 18031(e)(1)(B) (emphasis added). Under the Halbig majority’s view, a federally-facilitated Exchange could not make that determination because, by definition, there would be no “qualified individuals” in the Exchange’s State.

*22 Second, the Act provides that, as a condition of receiving federal Medicaid funds, a State may not tighten its Medicaid eligibility standards for adults between the date of the Act’s passage and the date when “an Exchange established by the State under [42 U.S.C. 18031] is fully operational.” 42 U.S.C. 1396a(gg)(1). That was intended to be a temporary transitional provision, as illustrated by the fact that the accompanying exception for States with budget deficits “end[ed] on December 31, 2013” - the day before the Exchanges become operational. 42 U.S.C. 1396a(gg)(3); see 18 U.S.C. 18031(b)(1). But petitioners’ reading would transform this transitional device into a permanent freeze in States that opted for federally-facilitated Exchanges - and would mean that several States have violated their statutory obligations by tightening Medicaid eligibility standards after their federally-facilitated Exchanges became operational.

Third, the Act requires each State, as a condition of continued participation in Medicaid, to ensure coordination between the State’s Medicaid program, its Children’s Health Insurance Program (CHIP), and “an Exchange established by the State under [42 U.S.C. 18031].” 42 U.S.C. 1396w-3(b)(1)(B), (1)(D), (2) and (4). On petitioners’ interpretation, a State with a federally-facilitated Exchange could not comply with those requirements - thus putting its Medicaid funding at risk - because no “Exchange established by the State” would exist.

Fourth, in the event of a funding shortfall in a State’s CHIP program, the Act directs the State to enroll eligible children in coverage “offered through an Exchange established by the State under [ *23 42 U.S.C. 18031].” 42 U.S.C. 1397ee(d)(3)(B). A related provision requires HHS to review the plans “offered through an Exchange established by the State under [42 U.S.C. 18031]” and to certify plans that are suitable for enrollment of CHIP beneficiaries. 42 U.S.C. 1397ee(d)(3)(C). On petitioners’ interpretation, those provisions would apply only in States that set up their own Exchanges - a result that contradicts the Act’s express directive that HHS’s obligation to review and certify “plans offered through an Exchange established by the State” applies “[w]ith respect to each State.” Ibid. (emphasis added).

These provisions demonstrate that even if petitioners’ reading of Subparagraphs 36B(b)(2)(A) and (c)(2)(A) were “plausible” when those provisions are “viewed in isolation,” it is “untenable in light of [the statute] as a whole.” Department of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 343 (1994).

hi. Petitioners’ reading also disregards the basic structural principle that Congress “does not alter the fundamental details of a regulatory scheme in *** ancillary provisions.” Whitman v. American Trucking Ass’ns, 531 U.S. 457, 468 (2001). On petitioners’ view (Pet. 3), the purported denial of tax credits to all residents of all States with federally-facilitated Exchanges is a “[c]ritical[]” and tremendously consequential feature of the Act. But no provision of the Act states directly and expressly that a State’s residents lose their eligibility for credits unless the State establishes an Exchange for itself. Instead, petitioners contend that Congress imposed that fundamental limitation only indirectly, in subparagraphs setting forth the technical formula for calculating the amount of the credit that Section 36B(a) *24 expressly makes available to “applicable taxpayer[s]” without regard to State of residence. It is implausible to think that Congress would have adopted such a sweeping prohibition - and one so at odds with the text, structure, and purposes of the Act - in such an obscure fashion. Congress “does not, one might say, hide elephants in mouseholes.” Whitman, 531 U.S. at 468.6

c. Petitioners’ interpretation of Section 36B would “frustrate Congress’ manifest purpose” in enacting the Affordable Care Act - a purpose expressly set forth in the Act itself. United States v. Hayes, 555 U.S. 415, 427 (2009). The IRS’s reading, in contrast, “give[s] effect to the statutory provisions, allowing them to accomplish their manifest objects.” Abramski, 134 S. Ct. at 2269. “That alone provides more than sufficient reason” to reject petitioners’ position. Ibid.

*25 As the court of appeals explained, “denying tax credits to individuals shopping on federal Exchanges would throw a debilitating wrench into the Act’s internal economic machinery” and obstruct the operation of the interdependent reforms through which Congress sought to address the previous failures of the individual market for insurance. Pet. App. 29a. The millions of individuals who now rely on federal tax credits obtained through federally-facilitated Exchanges would lose those subsidies, rendering illusory the statutory promise of furnishing, through tax credits, “Affordable Coverage Choices for All Americans.” Affordable Care Act, Tit. I, Subtit. E, 124 Stat. 213 (emphasis added). Some of those individuals would remain subject to the individual-coverage provision despite the loss of credits - a result that Congress could not have intended. But millions of others would fall within the unaffordability exemption, Halbig, 758 F.3d at 395, thwarting the Act’s stated objective of ensuring “near-universal coverage.” 42 U.S.C. 18091(2)(D). And, as the Halbig majority conceded, the resulting loss of participants would “bode [] ill for individual insurance markets” in the affected States, 758 F.3d at 410 n.12, which would be threatened with the adverse-selection death spirals the Act was crafted to avoid.

Petitioners’ interpretation would also eviscerate the Act’s model of cooperative federalism. The Act provides grants and other “[a]ssistance to States” to encourage them to establish Exchanges for themselves. 42 U.S.C. 18031(a). But in a provision expressly designated as affording “State flexibility,” the Act directs HHS to establish Exchanges in States that opt not to or are unable to do so. *26 42 U.S.C. 18041(c)(1). Petitioners’ reading transforms that “flexibility” into a threat: a State may forgo establishing an Exchange for itself only at the price of crippling its insurance market and depriving its citizens of the tax credits at the heart of the Act. Petitioners would impose those consequences even on a State that chose to establish an Exchange for itself but was unable to have the Exchange “operational” by the statutory deadline. 42 U.S.C. 18041(c)(1). There is no reason to believe that Congress wanted to confront States with such a threatening choice, or would have designed an alternative certain to fail. It certainly would not have done so, as petitioners implausibly suggest (Pet. 4), in the name of federalism.7

*27 Petitioners and their amici do not deny the disastrous consequences their reading would entail. To the contrary, that is what they seek. One of petitioners’ amici has proclaimed that if their position is adopted, “the structure of the [Act] will crumble.” Scott Pruitt, ObamaCare’s Next Legal Challenge, Wall St. J., Dec. 2, 2013, at A17. No sound approach to statutory interpretation would attribute to Congress the intent to create such a self-annihilating scheme. See ACF Indus., 510 U.S. at 340 (rejecting interpretation that would “subvert the statutory plan”); Sullivan v. Hudson, 490 U.S. 877, 890 (1989) (“Congress cannot lightly be assumed to have intended” a result that would “frustrat[e] *** the very purposes” of the statute).

d. If Congress actually had intended to threaten to deny affordable insurance to the States’ residents in order to encourage States to operate their own Exchanges - and to wreak havoc in the insurance markets in States that opted not to or were unable do so - there surely would have been some contemporaneous recognition of that critical feature during the lengthy congressional debate over the Act. Yet petitioners’ reading lacks “any support in the legislative history.” Pet. App. 71a; accord id. at 24a. To the contrary, that history shows that Congress understood that credits would be available in every State, including those that opted not to operate Exchanges for themselves. See Halbig, 758 F.3d at 425 (Edwards, J., dissenting) (citing sources). For example, that was the basis on which both the CBO and the *28 Joint Committee on Taxation (JCT) assessed the Act’s tax and budgetary consequences. See CBO, Premium Analysis 3-4, 19-20; JCT, Technical Explanation 12 (Mar. 21, 2010). Those assessments were critical to the Act’s framing and passage, see David M. Herszenhorn, The Numbers Come Out Just Where Obama Wanted, With No Magic Invovled, N.Y. Times, Mar. 19, 2010, at A16, and as the head of the CBO later confirmed, they were prepared on the understanding that credits “would be available in every [S]tate, including [S]tates where the insurance exchanges would be established by the federal government.” Letter from Douglas W. Elmendorf, Dir., CBO, to Rep. Darrell E. Issa, Chairman, Comm. on Oversight & Gov’t Reform (Dec. 6, 2012).

Lacking evidence that any Member of Congress shared their understanding of the Act when it was passed, petitioners rely (Pet. 14, 33) on the text of an unenacted Senate bill. But to the extent it is relevant at all, that proposal further undermines petitioners’ position. Contrary to petitioners’ characterization, that bill did not propose to condition the availability of subsidies on a State’s establishment of an Exchange. Instead, the bill would have allowed States to decide to adopt market reforms even before they became effective as a matter of federal law, and it expressly provided that tax credits would be available in a State that elected to enact such requirements whether the State established its own Exchange or allowed HHS to establish the Exchange in its stead. S. 1679, 111th Cong., 1st Sess. § 135(b) (2009); id. § 142 (proposing to add Section 3104 to the Public Health Service Act, 42 U.S.C. 201 et seq.).

*29 2. At a minimum, the court of appeals correctly held that the IRS’s interpretation is a reasonable one entitled to deference under Chevron. Section 36B authorizes the IRS to “prescribe such regulations as may be necessary to carry out the provisions of this section.” 26 U.S.C. 36B(g); see also 26 U.S.C. 7805(a). An IRS regulation promulgated pursuant to that authority “falls squarely within the bounds of, and is properly analyzed under, Chevron.” Mayo Found. for Med. Educ. & Research v. United States, 131 S. Ct. 704, 714 (2011) (Mayo Found.). And for the reasons set forth above, the IRS’s interpretation harmonizing the Act’s text, structure, and purpose is entitled to deference. See Brown & Williamson Tobacco Corp., 529 U.S. at 132 (“The meaning - or ambiguity - of certain words or phrases may only become evident when placed in context.”).

Petitioners and their amici maintain that the Chevron framework is inapplicable for three reasons, but all lack merit. First, petitioners contend (Pet. 28) that this issue is too important to be left to an administrative agency. But as this Court has explained, Chevron applies as much to “big, important” matters as to “humdrum, run-of-the-mill stuff.” City of Arlington v. FCC, 133 S. Ct. 1863, 1868 (2013). Unlike the cases on which petitioners rely, moreover, this is not a circumstance in which only one interpretation of the statute would invest an agency’s regulations with broad impact. Cf. Utility Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2444 (2014). Either interpretation of Section 36B has vast consequences. As demonstrated above, Congress itself made clear that tax credits are available in every State. But if there were any ambiguity, petitioners identify no sound reason why it should be *30 resolved in the first instance by courts rather than by the agency vested with authority to implement the Act’s comprehensive reforms in numerous respects, including specific authority under Section 36B.

Second, petitioners and their amici assert that Chevron deference is displaced in tax law by the canon that “exemptions from taxation are to be construed narrowly,” Mayo Found., 131 S. Ct. at 715 (citation omitted). See Pet. 28-29; Pac. Research Inst. Amicus Br. 10-12. But this Court has expressly held that “[t]he principles underlying *** Chevron apply with full force in the tax context.” Mayo Found., 131 S. Ct. at 713. It would be especially inappropriate to allow the canon to trump Chevron here, where petitioners themselves seek to expand exceptions to tax provisions, see 26 U.S.C. 4980H, 5000A(e)(1), and where the IRS’s interpretation is the only one consistent with the fundamental principle that federal tax laws are “to be interpreted so as to give a uniform application to a nationwide scheme of taxation” rather than in a manner that is “dependent upon state law.” Burnet v. Harmel, 287 U.S. 103, 110 (1932).

Third, petitioners argue (Pet. 30) that the IRS’s interpretation of Section 36B is not entitled to deference because HHS has authority to implement other relevant provisions of the Act. But the IRS’s regulation remains an exercise of its authority to interpret Section 36B of the Internal Revenue Code even though that interpretation was properly informed by the Act as a whole. In any event, Chevron applies where two agencies jointly charged with implementing a statute adopt a common interpretation, see *31 Coeur Alaska, Inc. v. Southeast Alaska Conservation Council, 557 U.S. 261, 277-278 (2009), and HHS has also concluded that tax credits are available on all Exchanges.8

3. The D.C. Circuit’s grant of rehearing en banc eliminated the conflict between the Halbig panel decision and the decision below, and with it the principal ground on which petitioners rely in seeking this Court’s review. See Pet. 11-22. Anticipating that possibility, petitioners briefly assert (Pet. 23) that review is warranted even in the absence of a circuit split. But neither petitioners nor their amici provide any sound reason for this Court to depart from its usual course by taking up the question presented while en banc proceedings remain pending - particularly because the Halbig panel majority did not consider the Fourth Circuit’s decision in this case and failed to grapple with many of the statutory anomalies created by its interpretation.9

*32 Petitioners and their amici argue that this Court’s intervention is necessary to resolve purported “uncertainty” about the validity of the IRS regulation implementing Section 36B. Pet. 23; Mo. Liberty Project Amicus Br. 4-15; Okla. Amicus Br. 5-18. But petitioners primarily rely (Pet. 10, 18-19, 21) on a news story published the day after the decisions in this case and in Halbig, which hypothesized that “[t]he contradictory rulings *** could inject uncertainty, confusion and turmoil into the health insurance markets.” Robert Pear, New Questions on Health Law as Courts Differ on Subsidies, N.Y. Times, July 23, 2014, at Al (emphasis added). Whatever the merits of that assessment when it was written, the grant of en banc review in Halbig vacated the panel’s judgment and eliminated any uncertainty created by its decision.

Petitioners and their amici are also wrong to assert that immediate review is necessary because taxpayers receiving credits through federally-facilitated Exchanges are “potentially incurring thousands of dollars” in mounting liability for back taxes that would be owed in the event that this Court ultimately invalidated the IRS regulation. Pet. 19; see Okla. Amicus Br. 16. Precisely because tax cases often implicate strong reliance interests, “[t]he Internal Revenue Code gives the [IRS] discretion to decline to apply decisions of this Court retroactively.” Central Laborers’ Pension Fund v. Heinz, 541 U.S. 739, 748 n.4 (2004) (citing *33 26 U.S.C. 7805(b)(8)). If this Court were ever to adopt petitioners’ position, it would “doubtless be an appropriate occasion for exercise of that discretion” by the IRS. Ibid.

Petitioners are of course correct (Pet. 18-21) that a decision striking down the IRS regulation would be tremendously disruptive for taxpayers, employers, insurers, the States, and other entities that have relied on the availability of credits. But the same argument could be made in any case in which a court of appeals rejects a challenge to a major statute or regulation: Challengers in such cases could always assert that “[u]ntenable uncertainty will persist” regarding questions of great practical significance “until this Court supplies a definitive answer.” Pet. 23. But this Court routinely denies review in such cases - particularly where, as here, the issue is actively percolating in the lower courts.

Petitioners themselves appear to recognize (Pet. 24) that their subjective belief that the decision below erroneously rejected their arguments does not provide a basis for this Court’s intervention. Their position thus ultimately rests on their prediction (ibid.) that, notwithstanding the grant of en banc review in Halbig, “the [IRS] Rule will be invalidated at some point by another court,” creating a circuit conflict warranting this Court’s review. Petitioners’ counsel made precisely the same argument in Halbig, urging the D.C. Circuit to deny rehearing en banc because “it is quite probable that the Rule will be invalidated at some point by another court, even if a majority of the en banc court reverses the panel’s decision.” Opp. to Pet. for Reh’g En Banc at 10, *34 No. 14-5018 (Aug. 18, 2014). The D.C. Circuit apparently rejected that contention, and this Court should do so as well.

As demonstrated above, petitioners’ challenge to the IRS’s interpretation of Section 36B is without merit. But even if petitioners’ prediction proved correct and the en banc D.C. Circuit or another court of appeals ultimately adopted their view, this Court could then take up the question presented with the benefit of a more complete airing of the issues in the lower courts.10


The petition for a writ of certiorari should be denied.

[3] This report was originally prepared by George Costello. It has now been updated by Yule Kim, who is available to answer questions on these issues.

1 comment:

Betita Horn said...

Que boa ideia, Larry. Parabéns pela iniciativa. Se eu dominasse a lingua inglesa, com certeza me aventuraria e fazê-lo. Lerei o material com mais cuidado.Acredite,o fato de você compartilhá-lo é maravilhoso. Muitas pessoas tem receio de compartilhar seu conhecimento, "sentam em cima dele", com medo que suas ideias sejam utilizadas, mas para que serve o conhecimento senão for aproveitado?rsrsrs Claro que existem casos e casos. E existem apropriações indébitas. Mas não podemos pensar no pior, senão não fazemos nada. Mais uma vez, obrigada por compartilhar.Abs. Betita.