On September 8, 2011, the Fourth Circuit Court of Appeals dismissed, on procedural grounds, two cases challenging the constitutionality of the Patient Protection and Affordable Care Act (PPACA).  In the first case, Commonwealth of Virginia ex. rel. Kenneth T. Cuccinelli, II v. Sebelius, No. 11-1057, brought by the State of Virginia, the court held that Virginia lacked standing to challenge the requirement that all individuals carry health insurance, known as the “individual mandate,” despite Virginia’s argument that the mandate conflicted with state law.  In the second case, Liberty University Inc., et. al. v. Geithner, No. 10-2347, brought by Liberty University and several individuals, the court held that the challenge to the individual mandate was premature because the federal tax Anti-Injunction Act (AIA) prohibits a pre-enforcement challenge to any “tax,” which it held was defined broadly for purposes of the AIA.  The Fourth Circuit is the third appellate court to consider constitutional challenges to PPACA.  The other two circuits reached the merits of the challenges but arrived at opposite conclusions making it likely that the Supreme Court will have the last word.

In the Virginia decision, the court held that Virginia lacked standing because “the sole provision challenged -- the individual mandate -- imposes no obligations on the sole plaintiff, Virginia.”  The court reached this holding despite the fact that Virginia’s General Assembly enacted the Virginia Health Care Freedom Act, which states that “[n]o resident of this Commonwealth . . . shall be required to obtain or maintain a policy of individual insurance coverage,” the day after President Obama signed PPACA into law.  Virginia argued that this conflict with state law was sufficient to create standing.  The panel was unanimous in its rejection of this argument reasoning that “[u]nder Virginia’s standing theory, a state could acquire standing to challenge any federal law merely by enacting a statute . . . purporting to prohibit the application of the federal law.”  This, in turn, would mean that “each state could become a roving constitutional watchdog of sorts; no issue . . . would fall beyond a state’s power to litigate in federal court.”

In the second case, brought by an employer, Liberty University, and several individuals, the court held that the challenge to the individual mandate was premature because the AIA controlled and barred pre-enforcement challenges to any tax.  Although both the Secretary and the plaintiffs argued in their briefs that the AIA did not apply, the court disagreed.  The relevant portion of the AIA states that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” I.R.C. § 7421(a).  The court held that “the term ‘tax’ in the AIA encompasses penalties that function as mere ‘regulatory measure[s] beyond the taxing power of Congress’ and Article I of the Constitution.”  Therefore, since the court decided that the term “tax” in the AIA encompassed taxes and penalties, the question of whether the fine individuals or employers must pay if they fail to maintain sufficient insurance coverage was a tax or penalty was largely superfluous.  This decision had a two-to-one majority with the dissent arguing that the AIA did not control and that the court should have upheld the individual mandate as a valid exercise of Congress’ powers under the Commerce Clause.

All three judges were appointed by Democratic presidents (two by Obama and the third by Clinton).

The 4th Circuit is the third court of appeals to rule on challenges to PPACA.  The Sixth Circuit upheld the constitutionality of the individual mandate by a two-to-one majority, and the Eleventh Circuit ruled against the constitutionality of the law, also by a two-to-one majority.  It is likely, therefore, that the Supreme Court will ultimately decide the issue.

A copy of Commonwealth of Virginia ex. rel. Kenneth T. Cuccinelli, II v. Sebelius, No. 11-1057, is available by clicking here, and Liberty University Inc., et. al. v. Geithner, No. 10-2347, is available here.