Understanding Why Judge O'Connor Was Wrong to Conclude Plaintiffs Had Standing to Challenge the Penalty-Less Individual Mandate

Judge O'Connor was wrong to conclude that two individuals who would prefer not to purchase health insurance had standing to challenge the law.

Last week, Judge Reed O'Connor of the U.S. District Court for the Northern District of Texas held that the entire Affordable Care Act is invalid. This opinion is flawed on multiple levels, for reasons I explained in this post (and this NYT op-ed). Among other things, Judge O'Connor completely botched the severability analysis to conclude that the entire ACA should be struck down because Congress amended the law to zero out the tax penalty that had been used to enforce the so-called "individual mandate." Yet Judge O'Connor should never have even reached the severability question, as he lacked jurisdiction to hear the states' challenge to the mandate's constitutionality.

Under Article III of the Constitution, plaintiffs in federal court must have "standing" to press their claims. Standing, in turn, requires that the plaintiff have suffered an injury-in-fact that is both actual or imminent and concrete and particularized; that this injury is fairly traceable to the allegedly unlawful action; and that the injury be redressable by a favorable court decision. The party seeking to invoke the federal court's jurisdiction—in this case, the twenty plaintiff states and the two individuals who joined the lawsuit—bears the burden of showing that the standing requirement has been met. Despite Judge O'Connor's conclusion to the contrary (and the Justice Department's inexplicable failure to raise standing in the case), none of the plaintiffs have standing here.

In a prior post, I explained why Texas and the other plaintiff states lacked standing. In his opinion, Judge O'Connor sidesteps the question of state standing, focusing instead on two individuals who joined the lawsuit. The end result should have been the same though, and largely for the same reason: Because an individual who fails to purchase qualifying health insurance faces no legal or practical consequence for their decision, there is no injury, and therefore no standing. It's that simple.

Judge O'Connor tries to get around this conclusion by suggesting that because the plaintiffs believe they are bound by the ACA's minimum coverage requirement, this is sufficient to establish standing. The problem is, there is nothing in standing caselaw to support this conclusion. Judge O'Connor writes:

In warning lower courts not to conflate the "actual-injury inquiry with the underlying merits" of a claim, the Fifth Circuit recognizes that standing can be established where a plaintiff alleges that a federal statute or regulation "deters the exercise of his constitutional rights." Duarte [ex rel. Duarte v. City of Lewisville], 759 F.3d [514] at 520 [5th Cir. 2014]. Here, the Individual Plaintiffs allege just that. They claim "Section 5000A's individual mandate exceeded Congress's enumerated powers by forcing Individual Plaintiffs to
maintain ACA-compliant health insurance coverage." Am. Compl. ¶ 49, ECF No. 27. Intervenor Defendants, meanwhile, contend the Individual Mandate remains a constitutional exercise of Congress's tax or regulatory authority. As a result, the "conflicting contentions of the parties . . . present a real, substantial controversy between parties having adverse legal interests, a dispute definite and concrete, not hypothetical or abstract." Babbitt v. United Farm Workers Nat'l Union, 442 U.S. 289, 298 (1979) (quoting Railway Mail Assn. v. Corsi, 326 U.S. 88, 93 (1945)). The Individual Plaintiffs have therefore sufficiently alleged an injury in fact that sits at the center of a live controversy.

This effort to establish standing might sound convincing to one who is not familiar with the relevant caselaw, but it utterly fails—as even a cursory review of the cases Judge O'Connor cites will show. In each of these cases, the parties seeking to establish standing were potentially subject to significant legal consequences if the laws they sought to challenge were valid as applied to them. And in each case, this threat of sanction was essential to the conclusion that the plaintiffs had standing. So, for instance, in Babbitt (in the very next sentence after the one quoted by Judge O'Connor), the Court explained: "A plaintiff who challenges a statute must demonstrate a realistic danger of sustaining a direct injury as a result of the statute's operation or enforcement."

This same point is made in Duarte, where the U.S. Court of Appeals for the Fifth Circuit (quoting prior Supreme Court precedent) noted that "it is not necessary that petitioner first expose himself to actual … prosecution to be entitled to challenge a statute that he claims deters the exercise of his constitutional rights." Because the statute at issue threatened real penalties for violating the law in question, the plaintiffs "fears of liability [were] not 'imaginary or speculative.'" As the Fifth Circuit noted subsequently in Contender Farms, L.L.P. v. U.S. Dept. of Agriculture (another case relied upon by Judge O'Connor), it was the "practical impact" of the law at issue in Duarte that "demonstrated a level of interference as to their lives that was sufficient to establish standing to challenge the regulation."

Unlike the parties in Babbitt or Duarte or Contender Farms (or any of other myriad cases that address this point), the individual plaintiffs in Texas v. U.S. cannot claim (let alone demonstrate) that they will suffer any legal liability should they fail to obtain qualifying health insurance, nor do they really try. After all, as the federal government conceded and Chief Justice Roberts explained in NFIB v. Sebelius, "Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS." And now that the required payment is zero, there is no negative legal consequence whatsoever from failing to purchase qualifying insurance.

The plaintiffs attempt to argue that they are injured because they purchased insurance in order to comply with the law, but this does not cut it either, as such self-inflicted harm is never sufficient to demonstrate standing. 4 U.S.C. §8 details how people are supposed to treat the American flag, yet no one could argue they have standing to challenge this provision of the U.S. Code because they sought to comply with this provision at their own expense. The government would like Americans to purchase "minimum essential coverage," and has said so. But unless and until the government imposes a consequence on those who fail to comply, there is no basis for challenging this provision of the U.S. Code. As Nicholas Bagley notes, in order to have standing, "it's not enough that you feel compelled; you must actually be compelled."

In a recent VC post, Professor Josh Blackman suggests some additional arguments in favor of standing here, but none of them are particularly persuasive. First, Professor Blackman notes that there are cases in which plaintiffs are able to establish standing despite the lack of a "pocketbook injury," yet in all such cases there is still an actual or imminent injury that is concrete and particularized. So, for instance, in environmental cases plaintiffs can often establish standing by showing that they regularly use or visit a specific place that is threatened by the violation of federal law. Standing is shown in such cases because the plaintiffs are able to claim that their ability to continue making use of the place in question is threatened, and this loss of opportunity is a cognizable injury (particularly given the statutory recognition of such claims). Note, however, that such plaintiffs are able to allege specific, concrete consequences to them caused by the actions they are challenging—the loss of the opportunity to continue to engage in regular activities at a particular place—something the plaintiffs cannot allege here.

As Professor Blackman notes, the Court found standing without pocketbook injuries in Arizona Christian School Tuition Organization v. Winn and Van Orden v. Perry, but this is due to a well-established (and quite controversial) exception to normal standing requirements that the Supreme Court has recognized in the Establishment Clause context. As the Court made explicitly clear in the passage Professor Blackman quotes:

Standing in Establishment Clause cases may be shown in various ways. Some plaintiffs may demonstrate standing based on the direct harm of what is claimed to be an establishment of religion, such as a mandatory prayer in a public school classroom. . . . Other plaintiffs may demonstrate standing on the ground that they have incurred a cost or been denied a benefit on account of their religion. Those costs and benefits can result from alleged discrimination in the tax code, such as when the availability of a tax exemption is conditioned on religious affiliation.

This is not particularly helpful to the Texas plaintiffs, neither of whom can identify any "direct harm" caused by 26 U.S.C. § 5000A(a). The Winn Court goes on to discuss the "narrow exception" allowing taxpayer standing in Establishment Clause cases under Flast v. Cohen, but this doesn't help the Texas plaintiffs either. Note also the plaintiffs in Winn could not establish establish standing themselves, even under the more lenient standard that prevails in the Establishment Clause context.

In search of authority to support the plaintiffs' standing claims, Professor Blackman quotes Allen v. Wright for the proposition that "'the stigmatizing injury often caused by racial discrimination' can give rise to standing, even where there is a 'noneconomic injury,' so long as that injury is personally suffered by the individual." Fair enough, but this only serves to buttress the point that the Texas plaintiffs lack standing. For while the Court in Allen noted the seriousness of such "stigmatizing injury," it emphasized that the existence of such stigma, by itself, is insufficient for Article III standing. As the Allen Court explained in rejecting this basis for standing:

There can be no doubt that this sort of noneconomic injury is one of the most serious consequences of discriminatory government action and is sufficient in some circumstances to support standing. . . . Our cases make clear, however, that such injury accords a basis for standing only to "those persons who are personally denied equal treatment" by the challenged discriminatory conduct.

In other words, the stigma, by itself, is not enough. So even though the plaintiffs in Allen could plausibly allege that the challenged government policy had economic effects that facilitated racial segregation, the Court found no standing. Thus it's immaterial that the government's declaration that all Americans must have insurance may induce some people to buy health insurance and that this may, in turn, have some effects on health care markets. Such attenuated effects are insufficient under Article III.

Professor Blackman concedes that he "was unable to find any cases where a non-economic injury was asserted in cases concerning the Commerce and Necessary and Proper Clauses," yet he nonetheless argues "whether a given case involves a challenge based on the doctrine of enumerated powers, rather than the First or Fourteenth Amendment . . . ought to be without a difference." As already noted, the Court has flatly rejected this claim in the Establishment Clause context, and in the Equal Protection context direct harm caused by the government action at issue is still required. There may not be many relevant cases involving enumerated powers, but the U.S. Reports are filled with regulatory cases in which plaintiffs allege non-economic injuries, and they all reach the same conclusion: Non-economic injuries may be cognizable, but they must be actual or imminent, concrete and particularized injuries, and they must be the direct consequence of the government action at issue.

In order to demonstrate Article III standing the plaintiffs need not establish the merits of their claim, but they must be able to allege facts that, if true, would be sufficient to satisfy the requirements of Article III. It is this that the Texas plaintiffs utterly failed to do. As a consequence of the 2017 tax bill, 26 U.S.C. § 5000A no longer imposes any legal or practical consequence on those who fail to obtain qualifying health insurance, nor are the plaintiffs able to allege otherwise. They identify no meaningful consequence that will befall them should they drop their coverage, nor does Professor Blackman.

Whatever one thinks of the other arguments in play, or the desirability of the Affordable Care Act, Judge O'Connor lacked jurisdiction to hear this case. It should have been dismissed on standing, and I like to think that the U.S. Court of Appeals for the Fifth Circuit will not repeat Judge O'Connor's mistake.