STATE OF ARIZONA V. JANET YELLEN, No. 21-16227 (9th Cir. 2022)
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Congress passed ARPA, American Rescue Plan Act, to help state, local, and tribal governments mitigate the ongoing effects of the COVID-19 pandemic. The statute contains a provision (the “Offset Provision”) – challenged in this appeal – prohibiting a State from using ARPA funds to subsidize a tax cut or otherwise a reduction in state net tax revenue. Specifically, Arizona contended that it was coerced into accepting the Offset Provision because of the size of the funds offered under ARPA and the financial situation brought on by the pandemic. Arizona sought a preliminary injunction enjoining the federal defendants from recouping funds or otherwise enforcing the Offset Provision, and declaratory relief that the Offset Provision violated the Constitution. The district court dismissed for lack of subject matter jurisdiction.
The Ninth Circuit reversed the district court’s dismissal for lack of subject matter jurisdiction and held that Arizona had standing to challenge ARPA both because there was a realistic danger of ARPA’s enforcement, and because there was a justiciable challenge to the sovereignty of the State, which alleges infringement on its authority to set tax policy and its interest in being free from coercion impacting its tax policy. The court reasoned that standing is measured at the time of the complaint, and when the complaint was filed, there was not a required compliance scheme. The court declined to consider the merits of Arizona’s constitutional claims. The court remanded for the district court to consider the merits of Arizona’s Spending Clause and Tenth Amendment claims.
Court Description: Standing. The panel reversed the district court’s dismissal for lack of subject matter jurisdiction of an action brought by the State of Arizona against federal defendants alleging that the American Rescue Plan Act (“ARPA”) violated the Constitution’s Spending Clause and the Tenth Amendment. Congress passed ARPA to help state, local, and tribal governments mitigate the ongoing effects of the COVID-19 pandemic. The statute contains a provision (the “Offset Provision”) – challenged in this appeal – prohibiting a State from using ARPA funds to subsidize a tax cut or otherwise a reduction in state net tax revenue. Specifically, Arizona contends that it was coerced into accepting the Offset Provision because of the size of the funds offered under ARPA and the fraught financial situation brought on by the pandemic. Arizona sought a preliminary injunction enjoining the federal defendants from recouping funds or otherwise enforcing the Offset Provision, and declaratory relief that the Offset Provision violated the Constitution. The district court dismissed for lack of subject matter jurisdiction, finding that Arizona did not demonstrate a cognizable injury in fact to establish standing. The panel held that Arizona had standing to challenge ARPA both because there was a realistic danger of ARPA’s enforcement, and because there was a justiciable challenge to the sovereignty of the State, which alleges infringement STATE OF ARIZONA V. YELLEN 3 on its authority to set tax policy and its interest in being free from coercion impacting its tax policy. The panel addressed Arizona’s three primary arguments for standing. First, Arizona under its compliance cost theory contended that the reporting requirements in the Treasury Department’s Interim Final Rule (explaining how it would implement ARPA and the Offset Provision) established an injury in fact by imposing a regulatory burden on the States. The panel rejected this theory because standing is measured at the time of the complaint, and when the complaint was filed, there was not a required compliance scheme. Second, Arizona alleged that the future injury it will suffer, if the Offset Provision is enforced against it, was sufficient to confer standing. In Susan B. Anthony List v. Driehaus, 573 U.S. 149, 159 (2014), the Supreme Court set forth three factors that must exist for a plaintiff to have standing to bring a pre-enforcement challenge to a law. The panel held that the first Driehaus factor – requiring an intent to do an act “arguably affected” by a constitutional interest – was met. In evaluating the second Driehaus factor, the panel determined whether Arizona’s intended future conduct was proscribed by ARPA. Here, Arizona accepted ARPA funds, certified that it will meet ARPA’s conditions, and passed a $1.9 billion tax cut. The panel held that Arizona’s tax cut would presumably lead to a reduction in Arizona’s net tax revenue, which meant that Arizona had taken all requisite steps to violate the Offset Provision short of using ARPA funds “directly or indirectly” to offset a net revenue reduction from its tax cut. This was enough to satisfy the second factor. The panel held that the third Driehaus factor, concerning whether there was a credible threat of enforcement, had dispositive weight in the case. The $1.9 billion tax cut Arizona passed was a sufficiently concrete 4 STATE OF ARIZONA V. YELLEN plan. The panel disagreed with the district court’s rejection of this theory of standing, and held that Arizona has alleged a sufficiently credible threat of enforcement to bring a pre- enforcement challenge to ARPA’s Offset Provision. Third, the panel examined Arizona’s sovereign injury theory of standing in the alternative. Arizona contended that the Offset Provision inflicted cognizable sovereign injuries upon the States by being unconstitutionally ambiguous and coercive. Because the panel was reviewing an order on a motion to dismiss, the panel took all allegations of the complaint as true. The panel saw no reason to dispute, deny, or discredit Arizona’s contention at this stage that ARPA and its Offset Provision specifically had a coercive impact on the State. Here, Arizona alleged sufficiently concrete and particularized harms to its ability to exercise its sovereign prerogatives, intangible as those prerogatives may be. The quasi-contractual funding offer at issue here can be challenged by Arizona at the outset for offering conditions that are unconstitutionally ambiguous or coercive. States have standing when an allegedly unconstitutional funding offer is made to them, and they do not need to first violate a condition of an allegedly unconstitutional contract to have standing to challenge it. The panel held that the district court erred in dismissing Arizona’s claim for lack of subject matter jurisdiction. After concluding that Arizona had standing to bring its challenge to ARPA on two theories, the panel declined to consider the merits of Arizona’s constitutional claims. The panel remanded for the district court to consider the merits of Arizona’s Spending Clause and Tenth Amendment claims. STATE OF ARIZONA V. YELLEN 5 Concurring, Judge R. Nelson agreed that Arizona had standing to challenge the Offset Provision on its theory of sovereign injury and concurred in Section II of the majority’s opinion. He disagreed with the majority’s conclusion that Arizona alleged “an intention to engage in a course of conduct arguably affected with a constitutional interest, but proscribed by a statute.” See Susan B. Anthony List, 573 U.S. at 159. Arizona never alleged that it had taken action proscribed by the Offset Provision, and this lack of such an allegation doomed Arizona’s argument for standing on this basis.
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