Brief/Memorandum in Support of Motion, State of Texas et al. v. Yellen, No. 2:21-cv-00079 (N.D. Tex.), Doc. 46 (October 25, 2021)
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Defendants' combined reply in support of their motion to dismiss, response to Plaintiffs' motion for partial summary judgment, and brief in support of Defendants' motion for summary judgment, Document 46 in Civil Action No. 2:21-cv-0079-Z, filed 10/25/21, in the U.S. District Court for the Northern District of Texas, Amarillo Division. The defendants, including Janet Yellen as Secretary of the Treasury, argue that Plaintiffs have failed to establish jurisdiction and that the offset provision is not unconstitutionally ambiguous, coercive or commandeering. They also argue that the provision is related to the purpose of the American Rescue Plan Act and that the Court should not issue a permanent injunction or declaratory judgment. The signature block names Michael P. Clendenen.
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“Brief/Memorandum in Support of Motion, State of Texas et al. v. Yellen, No. 2:21-cv-00079 (N.D. Tex.), Doc. 46 (October 25, 2021).”
Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/brief-memorandum-in-support-of-motion-state-of-texas-et-al-v-yellen-no-f2d2d151cf/
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Case 2:21-cv-00079-Z Document 46 Filed 10/25/21 Page 1 of 34 PageID 922
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
AMARILLO DIVISION
STATE OF TEXAS, et al.,
Plaintiffs,
Civil Action No. 2:21-cv-0079-Z
v.
JANET YELLEN, in her official capacity
as Secretary of the Treasury, et al.,
Defendants.
DEFENDANTS’ COMBINED REPLY IN SUPPORT OF MOTION TO DISMISS
PURSUANT TO RULES 12(b)(1) AND 12(b)(6), RESPONSE TO PLAINTIFFS’
MOTION FOR PARTIAL SUMMARY JUDGMENT, AND BRIEF IN SUPPORT OF
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
Case 2:21-cv-00079-Z Document 46 Filed 10/25/21 Page 2 of 34 PageID 923
TABLE OF CONTENTS
SUMMARY ................................................................................................................................... 1
ARGUMENT................................................................................................................................. 2
I. PLAINTIFFS HAVE FAILED TO ESTABLISH JURISDICTION. .................................................... 2
Plaintiffs have neither pleaded nor proved the required elements for
pre-enforcement standing. ................................................................................... 3
B. Plaintiffs’ purported injury to their sovereignty is not cognizable. ............... 6
C. Plaintiffs’ claims are not ripe. .............................................................................. 8
II. PLAINTIFFS FAIL TO STATE A CLAIM ON THE MERITS. ........................................................ 8
A. The offset provision is not unconstitutionally ambiguous. ............................. 9
B. The offset provision is not coercive or commandeering. ............................... 15
C. The offset provision is related to the purpose of ARPA. ............................... 19
D. The offset provision does not violate equal sovereignty principles. ........... 20
III. THE COURT SHOULD NOT ENJOIN THE OFFSET PROVISION OR DECLARE IT
UNCONSTITUTIONAL. ....................................................................................................... 22
A. Plaintiffs are not entitled to a permanent injunction...................................... 22
B. The Court should not issue a declaratory judgment. ..................................... 23
CONCLUSION ........................................................................................................................... 24
i
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TABLE OF AUTHORITIES
Cases
Arizona State Legislature v. Arizona Independent Redistricting Commission,
576 U.S. 787 (2015) ................................................................................................................... 7
Arizona v. Yellen,
2021 WL 3089103 (D. Ariz. July 22, 2021) appeal filed,
Civ. A. No. 21-16227 (9th Cir. July 26, 2021 ................................................................... passim
Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy,
548 U.S. 291 (2006) ............................................................................................................... 7, 9
Ashcroft v. Iqbal,
556 U.S. 662 (2009) ............................................................................................................. 5, 20
Ass’n of Priv. Sector Colleges & Univs. v. Duncan,
681 F.3d 427 (D.C. Cir. 2012) ................................................................................................ 14
Babbitt v. United Farm Workers,
442 U.S. 289 (1979) ............................................................................................................... 3, 6
Bennett v. Ky. Dep’t of Educ.,
470 U.S. 656 (1985) ................................................................................................. 7, 14, 15, 17
Bennett v. New Jersey,
470 U.S. 632 (1985) ................................................................................................................... 7
Benning v. Georgia,
391 F.3d 1299 (11th Cir. 2004) .................................................................................. 10, 14, 19
Bucklew v. Precythe,
139 S. Ct. 1112 (2019) ............................................................................................................... 8
Charles v. Verhagen,
348 F.3d 601 (7th Cir. 2003) ...................................................................................... 10, 14, 15
Children’s Hosp. Ass’n of Tex. v. Azar,
933 F.3d 764 (D.C. Cir. 2019) ................................................................................................ 11
ii
Case 2:21-cv-00079-Z Document 46 Filed 10/25/21 Page 4 of 34 PageID 925
City of Los Angeles v. Barr,
929 F.3d 1163 (9th Cir. 2019) .......................................................................................... 11, 19
Clapper v. Amnesty Int’l USA,
568 U.S. 398 (2013) ................................................................................................................... 6
Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd.,
527 U.S. 666 (1999) ................................................................................................................. 15
Cutter v. Wilkinson,
423 F.3d 579 (6th Cir. 2005) ............................................................................................ 10, 11
DaimlerChrysler Corp. v. Cuno,
547 U.S. 332 (2006) ................................................................................................................... 2
Davis ex rel. Lashonda D. v. Monroe Cnty. Bd. of Educ.,
526 U.S. 629 (1999) ........................................................................................................... 10, 14
eBay Inc. v. MercExchange, L.L.C.,
547 U.S. 388 (2006) ................................................................................................................. 21
Foy v. Univ. of Tex.,
146 F.3d 867 (5th Cir. 1998) .................................................................................................. 22
Georgia v. City of Chattanooga,
264 U.S. 472 (1924) ................................................................................................................. 22
Gruver v. La. Bd. of Supervisors for La. State Univ. Agric. & Mech. Coll.,
959 F.3d 178 (5th Cir. 2020) .................................................................................................. 16
Irving Indep. Sch. Dist. v. Tatro,
468 U.S. 883 (1984) ................................................................................................................. 11
Jackson v. Birmingham Bd. of Educ.,
544 U.S. 167 (2005) ........................................................................................................... 10, 14
Kansas v. United States,
214 F.3d 1196 (10th Cir. 2000) .............................................................................................. 19
Kentucky v. Yellen,
2021 WL 4394249 (E.D. Ky. Sept. 24, 2021) .................................................................... 6, 16
iii
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Lujan v. Defs. of Wildlife,
504 U.S. 555 (1992) ............................................................................................................... 3, 6
Maryland v. King,
567 U.S. 1301 (2012) ............................................................................................................... 22
Massachusetts v. Mellon,
262 U.S. 447 (1923) ................................................................................................................... 7
Mayweathers v. Newland,
314 F.3d 1062 (9th Cir. 2002) .................................................................................... 10, 11, 14
McKinley v. Abbott,
643 F.3d 403 (5th Cir. 2011) .................................................................................................... 8
Missouri v. Yellen,
2021 WL 1889867 (E.D. Mo. May 11, 2021) appeal filed,
Civ. A, No. 21-2118 (8th Cir. May 18, 2021). .................................................................. passim
Munn v. Illinois,
94 U.S. 113 (1876) ................................................................................................................... 15
Murphy v. Nat’l Collegiate Athletic Ass’n,
138 S. Ct. 1461 (2018) ............................................................................................................. 18
Nat’l Fed’n of Indep. Bus. v. Sebelius,
567 U.S. 519 (2012) .......................................................................................................... passim
New Orleans Pub. Serv., Inc. v. Council of New Orleans,
833 F.2d 583 (5th Cir. 1987) .................................................................................................... 8
New York v. United States,
505 U.S. 144 (1992) ....................................................................................................... 6, 15, 19
Nielsen v. Preap,
139 S. Ct. 954 (2019) ............................................................................................................... 20
Ohio v. Yellen,
2021 WL 1903908 (S.D. Ohio May 12, 2021) ................................................................. 23, 24
Ohio v. Yellen,
2021 WL 2712220 (S.D. Ohio July 1, 2021)...................................................................... 6, 14
iv
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Oklahoma v. U.S. Civ. Serv. Comm’n,
330 U.S. 127 (1947) ............................................................................................................. 4, 19
Pennhurst State Sch. & Hosp. v. Halderman,
451 U.S. 1 (1981) ................................................................................................................. 9, 12
Petit v. U.S. Dep’t of Educ.,
675 F.3d 769 (D.C. Cir. 2012) ................................................................................................ 11
Quill Corp. v. North Dakota By & Through Heitkamp,
504 U.S. 298 (1992) overruled on other grounds by South Dakota v. Wayfair, Inc.,
138 S. Ct. 2080 (2018) ............................................................................................................. 18
R.J. Reynolds Tobacco Co. v. Durham Cnty.,
479 U.S. 130 (1986) ................................................................................................................. 18
Reno v. Condon,
528 U.S. 141 (2000) ................................................................................................................. 15
Rostker v. Goldberg,
453 U.S. 57 (1981) ................................................................................................................... 15
Rust v. Sullivan,
500 U.S. 173 (1991) ................................................................................................................. 19
Sabri v. United States,
541 U.S. 600 (2004) ............................................................................................................. 4, 19
Sampson v. Murray,
415 U.S. 61 (1974) ................................................................................................................... 22
Shelby Cnty. v. Holder,
570 U.S. 529 (2013) ................................................................................................................. 21
Sheline v. Dun & Bradstreet Corp.,
948 F.2d 174 (5th Cir. 1991) .................................................................................................... 1
Sherwin-Williams Co. v. Holmes Cnty.,
343 F.3d 383 (5th Cir. 2003) .................................................................................................. 23
Smith v. Berryhill,
139 S. Ct. 1765 (2019) ............................................................................................................. 10
v
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South Dakota v. Dole,
483 U.S. 203 (1987) ................................................................................................. 6, 15, 17, 19
Susan B. Anthony List v. Driehaus,
573 U.S. 149 (2014) ....................................................................................................... 2, 3, 4, 6
Texas Educaction Agency v. U.S. Department of Education,
992 F.3d 350 (5th Cir. 2021) .................................................................................................. 11
Travis v. Pennyrile Rural Elec. Coop.,
399 F.2d 726 (6th Cir. 1968) .................................................................................................. 22
United States v. Butler,
297 U.S. 1 (1936) ..................................................................................................................... 17
United States v. Lipscomb,
299 F.3d 303 (5th Cir. 2002) .................................................................................................. 19
United States v. Miami Univ.,
294 F.3d 797 (6th Cir. 2002) .................................................................................................. 11
United States v. Morrison,
529 U.S. 598 (2000) ................................................................................................................. 15
United States v. Oakland Cannabis Buyers’ Coop.,
532 U.S. 483 (2001) ................................................................................................................. 22
Va. Dep’t of Educ. v. Riley,
106 F.3d 559 (4th Cir. 1997) .................................................................................................. 12
Van Wyhe v. Reisch,
581 F.3d 639 (8th Cir. 2009) .................................................................................................. 10
W. Va. Dep’t of Health & Hum. Res. v. Sebelius,
649 F.3d 217 (4th Cir. 2011) .................................................................................................. 14
Walters v. Nat’l Ass’n of Radiation Survivors,
468 U.S. 1323 (1984) ............................................................................................................... 22
Wash. State Grange v. Wash. State Republican Party,
552 U.S. 442 (2008) ................................................................................................................... 8
vi
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Statutes
4 U.S.C. § 114 .............................................................................................................................. 18
28 U.S.C. §2201 ........................................................................................................................... 23
42 U.S.C. § 802 ..................................................................................................................... passim
Internet Tax Freedom Act,
Pub. L. No. 105-227, 112 Stat. 2681 (1998) .......................................................................... 18
Internet Tax Freedom Act,
Pub. L. No. 114-125, 130 Stat. 122 (2016) ............................................................................ 18
Rules
Interim Final Rule, Coronavirus State and Local Fiscal Recovery Funds,
86 Fed. Reg. 26,786 (May 17, 2021).. ............................................................................. passim
Other Authorities
Directly, Oxford English Dictionary Online, available at
https://www.oed.com/view/Entry/53307 (last visited October 22, 2021) 13
Indirectly, Oxford English Dictionary Online, available at
https://www.oed.com/view/Entry/94534 (last visited October 22, 2021) 13
vii
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SUMMARY
Through the American Rescue Plan Act, Congress has generously provided nearly
$200 billion to mitigate the fiscal impacts of the pandemic on States and the District of
Columbia. 42 U.S.C. § 802. Congress also gave States wide flexibility to use those funds
while specifying that the federal money could not be used to directly or indirectly offset
a reduction in net tax revenue resulting from certain changes in state law, id.
§ 802(c)(2)(A), and gave the Secretary of the Treasury the power to “issue such regula-
tions as may be necessary or appropriate to carry out” Section 802, id. § 802(f). The Treas-
ury Department exercised this authority by issuing a lengthy and detailed Interim Final
Rule, Coronavirus State and Local Fiscal Recovery Funds, 86 Fed. Reg. 26,786 (May 17,
2021). In addition to implementing the permissible uses of Rescue Plan funds, the Rule
outlines a step-by-step process that Treasury will follow to determine whether States are
impermissibly using Rescue Plan funds to offset net-tax-revenue reductions. Id. at 26,807.
Indeed, all three Plaintiff States have certified that they will comply with the Act and
Treasury regulations and accepted billions of dollars in allotments. See Pls.’ Combined
Mot. & Response [“Pls.’ Mot.”] 6 n.3, ECF No. 28.
After Defendants filed their Motion to Dismiss [“Defs.’ Mot.”], ECF No. 19, the
Plaintiff States moved for summary judgment on all claims except the Equal Sovereignty
claim, ECF Nos. 27–28. Defendants now move for summary judgment in the alternative
to their motion to dismiss. See Sheline v. Dun & Bradstreet Corp., 948 F.2d 174, 176 (5th Cir.
1991) (“[S]ummary judgment is appropriate where the only issue before the court is a
pure question of law.”).
This lawsuit—seeking to prematurely enjoin the offset provision—is one of six
around the country. In two of the cases already decided, district courts in Missouri and
Arizona dismissed nearly identical complaints for lack of standing. See Arizona v. Yellen,
2021 WL 3089103, at *6 (D. Ariz. July 22, 2021), appeal filed, No. 21-16227 (9th Cir. July 26,
2021); Missouri v. Yellen, 2021 WL 1889867, at *5 (E.D. Mo. May 11, 2021), appeal filed, No.
1
Case 2:21-cv-00079-Z Document 46 Filed 10/25/21 Page 10 of 34 PageID 931
21-2118 (8th Cir. May 18, 2021). This Court should do the same because Plaintiffs lack all
three elements for pre-enforcement standing under Susan B. Anthony List v. Driehaus, 573
U.S. 149, 159 (2014). They have not plausibly pleaded, let alone proved, that the offset
provision prohibits any conduct they intend to pursue, that there is a credible threat of
enforcement from the offset provision, or that they have suffered any other cognizable
injury. And the States certainly cannot manufacture standing by misreading the offset
provision. Recoupment proceedings, should they ever occur, would be the proper context
for addressing Plaintiffs’ challenge to this grant condition.
In any event, Plaintiffs fail to state a claim on the merits. The offset provision is not
ambiguous because “nobody questions the [offset provision] exists as a condition to
[States] accepting the [Rescue Plan] funds,” and “[i]n that regard, Congress fulfilled its
duty under” the Spending Clause. Arizona, 2021 WL 3089103, at *3. Not to mention that
the offset provision provides far more information than the Spending Clause requires,
explaining the nature and scope of the funding condition. Plaintiffs’ coercion and com-
mandeering arguments fare no better and should be rejected because Plaintiffs were free
to decline Rescue Plan funds if they dislike the offset provision. Nothing happens if States
do so, a result that all Justices deemed acceptable in Nat’l Fed’n of Indep. Bus. v. Sebelius,
567 U.S. 519 (2012) [hereinafter “NFIB”]. And Plaintiffs’ unprecedented Equal Sover-
eignty claim fails because the statute is facially neutral among the States.
Not only should Plaintiffs’ summary-judgment motion be denied, but their case
should be dismissed for lack of standing and failure to state a claim. In the alternative,
summary judgment should be granted for Defendants.
ARGUMENT
I. PLAINTIFFS HAVE FAILED TO ESTABLISH JURISDICTION.
The party that invokes federal jurisdiction must establish its standing at every
stage of the litigation “for each claim [it] seeks to press,” DaimlerChrysler Corp. v. Cuno,
2
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547 U.S. 332, 352 (2006), with a burden of proof that increases “with the manner and de-
gree of evidence required at the successive stages of litigation,” Lujan v. Defs. of Wildlife,
504 U.S. 555, 561 (1992). So for final judgment, Plaintiffs must adduce actual evidence to
prevail. Id. But Plaintiffs have not sufficiently pleaded, much less proved, that they can
satisfy Article III’s requirements.
The Court should dismiss this case for lack of subject matter jurisdiction, as two
other district courts have now done in similar cases. See Arizona, 2021 WL 3089103, at *6;
Missouri, 2021 WL 1889867, at *5.
Plaintiffs have neither pleaded nor proved the required elements for pre-
enforcement standing.
As Defendants previously explained, when a plaintiff seeks to enjoin the future
enforcement of a statute, “the injury-in-fact requirement” demands that the plaintiff “al-
lege[] ‘an intention to engage in a course of conduct arguably affected with a constitu-
tional interest, but proscribed by a statute, and [that] there exists a credible threat of [en-
forcement] thereunder.’” Driehaus, 573 U.S. at 159 (quoting Babbitt v. United Farm Workers,
442 U.S. 289, 298 (1979)); see id. at 161–67 (analyzing these three elements separately).
Here, Plaintiffs lack all three elements, relying on only mistaken interpretations of
the offset provision or speculation about enforcement. First, the course of conduct that is
proscribed by statute is not changing state taxes or reducing state tax revenues. Rather,
the offset provision restricts a State only from using Rescue Plan funds to “offset a reduc-
tion in the net tax revenue . . . resulting from a change in law.” 42 U.S.C. § 802(c)(2)(A).
As other courts have put it, “State tax cuts are not proscribed by the ARPA,” and States
are “free to propose and pass tax cuts as [they] see[] fit.” Missouri, 2021 WL 1889867, at
*4; Arizona, 2021 WL 3089103, at *5 (finding that Arizona lacked standing in this context
because it did not “claim to have directly or indirectly used ARPA funds to supplement
a reduction in its net income”). Plaintiffs point to a number of changes in state tax law
3
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that they have either enacted or considered enacting. Pls.’ Mot. 11–12. But Plaintiffs nei-
ther allege nor prove that these tax changes will result in a net-tax-revenue reduction, let
alone that they intend to “offset” any such reduction with Rescue Plan funds. Because
what matters is whether their “intended future conduct” is “‘proscribed’” by the offset
provision, and because merely changing state taxes is not prohibited, Plaintiffs have not
demonstrated any intent to violate the offset provision and they cannot establish stand-
ing. Driehaus, 573 U.S. at 162–63.
For similar reasons, Plaintiffs have not engaged in a “course of conduct” that is
“arguably affected with a constitutional interest.” Driehaus, 573 U.S. at 159. Again, the
offset provision does not even arguably affect their “right under the federalism princi-
ples” to “set their own tax policies,” Pls.’ Mot. 14, because it merely restricts a State’s
ability to use federal funds distributed under the Rescue Plan to offset a reduction in net
tax revenue. No State has a sovereign interest in using federal funds for that purpose, so
the States’ “sovereign power to set [their] own tax policy is not implicated by the [Rescue
Plan].” Missouri, 2021 WL 1889867, at *4. On the contrary, the Supreme Court has repeat-
edly made clear that Congress has a sovereign interest in conditioning the receipt of fed-
eral funds “on the States’ complying with restrictions on the use of those funds, because
that is the means by which Congress ensures that the funds are spent according to its
view of the ‘general Welfare.’” NFIB, 567 U.S. at 580 (plurality opinion); see Sabri v. United
States, 541 U.S. 600, 608 (2004) (“The power to keep a watchful eye on expenditures . . . is
bound up with congressional authority to spend in the first place.”); Oklahoma v. U.S. Civ.
Serv. Comm’n, 330 U.S. 127, 143 (1947) (explaining that Congress has the “power to fix the
terms upon which its money allotments to [S]tates shall be disbursed”).
Finally, Plaintiffs have not come close to proving that there is a “credible threat of
[enforcement]” (i.e., recoupment of misspent funds). Driehaus, 573 U.S. at 159. For recoup-
ment to occur, the Plaintiff States would have to make a change in state law that reduces
4
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net tax revenue and then use Rescue Plan funds to offset that reduction in revenue. Plain-
tiffs have neither pleaded nor proved that those steps have occurred or will imminently
occur. So there is no credible claim of an actual or imminent threat of enforcement. Two
other courts have properly denied standing on this basis. See Missouri, 2021 WL 1889867,
at *4 (denying standing because “recoupment is not triggered by a reduction in State tax
revenue, it is triggered by a State’s use of federal recovery fund to offset a reduction in its
net tax revenue,” which was not imminent); Arizona, 2021 WL 3089103, at *5 (denying
standing because Arizona did not “claim to have directly or indirectly used ARPA funds
to supplement a reduction in its net income” or “even claim the tax cut will result in a
reduction in Arizona’s net income”).
The nature of the offset provision, already clear from the statutory text, is con-
firmed by the Rule, which outlines a comprehensive step-by-step process that Treasury
will follow to determine whether States are impermissibly using Rescue Plan funds to
offset net-tax-revenue reductions. See 86 Fed. Reg. at 26,807. So regardless of whether
Plaintiffs misinterpret the offset provision as prohibiting any tax reductions, the Treasury
Department—charged with enforcing the offset provision—has affirmatively rejected
that reading. Under the Rule, “[a] recipient government would only be considered to
have used [Rescue Plan] Funds to offset a reduction in net tax revenue . . . if, and to the
extent that, the recipient government could not identify sufficient funds from sources
other than the [Rescue Plan] Funds to offset the reduction in net tax revenue.” Id. And
reductions in tax revenue due to tax cuts can be permissibly offset by other changes in
tax law that increase tax revenue, by spending cuts outside areas where a State is spend-
ing Rescue Plan funds, and by organic revenue growth—increased tax revenue from ex-
isting sources due to, for example, an improved economy. Id.; 86 Fed. Reg. at 26,809–10.
Plaintiffs have said nothing concrete about any reduction in net tax revenue, how they
intend to offset it, or whether any such offsets would contravene the Rule. Pls.’ Mot. 11–
5
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12. So Plaintiffs have not presented plausible allegations—let alone evidence—that there
is any credible threat of enforcement. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
Plaintiffs’ additional citations regarding pre-enforcement challenges are unavail-
ing. Pls.’ Mot. 14. Those cases involved conditions that affected more than just how a
recipient could use new federal funds. NFIB, 567 U.S. at 540, 542 (States stood to lose
existing funding); South Dakota v. Dole, 483 U.S. 203, 205–06 (1987) (same); New York v.
United States, 505 U.S. 144, 154 (1992) (States required to take title to radioactive waste
and stood to lose access to disposal sites). At bottom, Plaintiffs have developed no factual
record demonstrating “an intention to engage in a course of conduct arguably affected
with a constitutional interest, but proscribed by a statute, and [that] there exists a credible
threat of [enforcement] thereunder.” Driehaus, 573 U.S. at 159 (quoting Babbitt, 442 U.S. at
298). Because they have not, and because such a showing is required for pre-enforcement
standing, the Court should deny Plaintiffs’ motion and dismiss this action.
Plaintiffs’ purported injury to their sovereignty is not cognizable.
As an alternative theory of injury, Plaintiffs claim that they are already suffering
harm to their sovereignty from the passage of the Rescue Plan. Pls.’ Mot. 7–13. But a pre-
enforcement injury that does not meet the requirements of Driehaus is also not sufficiently
“concrete and particularized” enough to satisfy Article III at this stage. Lujan, 504 U.S. at
560; Clapper v. Amnesty Int’l USA, 568 U.S. 398, 416 (2013) (explaining that plaintiffs “can-
not manufacture standing merely by inflicting harm on themselves based on their fears
of hypothetical future harm that is not certainly impending”). In any event, this pur-
ported injury is not cognizable.
Plaintiffs’ arguments are premised on their broad understanding of the offset pro-
vision as prohibiting any tax cut. See Pls.’ Mot. 4. But, as explained above, that is simply
not true. As Defendants, the Rule, and the Missouri and Arizona courts have all stated:
merely enacting a tax cut does not implicate—or violate—the offset provision. Defs.’ Mot.
5, ECF No. 19; 86 Fed. Reg. 26,786; Missouri, 2021 WL 1889867, at *3–4; Arizona, 2021 WL
6
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3089103, at *5.1 The offset provision is merely a limitation on how states can use federal
funds—that is, the funds cannot be used to offset purposeful net-tax-revenue reductions.
So the offset provision does not implicate any sovereign interest in setting tax policy or
narrow any tax policy options. Nor do Plaintiffs argue they have a sovereign interest in
spending conditioned federal dollars to offset reductions in net tax revenue. It therefore
makes sense that Plaintiffs can identify no case outside the Rescue Plan context to support
their novel harm-to-sovereignty theory based on federal funding (with attendant condi-
tions) that they could simply turn down.
To the contrary, the Supreme Court has specifically rejected standing premised on
“the imposition . . . of an [allegedly] unconstitutional option either to” sacrifice “a part of
[the State’s] reserved rights” or lose the conditioned funds. Massachusetts v. Mellon, 262
U.S. 447, 479–80, 485–86 (1923). Such “abstract questions . . . of sovereignty” do not create
a cognizable injury. Id. Mellon forecloses Plaintiffs’ sovereignty-as-injury argument, but
they do not even address it. Plaintiffs’ analogy to Arizona State Legislature v. Arizona Inde-
pendent Redistricting Commission, 576 U.S. 787 (2015), fares no better. See Pls.’ Mot. 13. That
case did not involve a condition on the use of federal funds, and unlike the offset provi-
sion, the statute at issue in that case completely eliminated the power of the State legisla-
ture to act. Ariz. State Legislature, 576 U.S. at 800. And Plaintiffs never demonstrate how
the offset provision concretely harms their sovereignty.
Dismissing this case will not preclude a remedy for Plaintiffs because they can still
pursue their constitutional arguments in enforcement proceedings, if they ever occur.
That is how cases addressing new conditions on the use of federal funds are most com-
monly resolved. See, e.g., Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 291
(2006); Bennett v. Ky. Dep’t of Educ., 470 U.S. 656, 669 (1985); Bennett v. New Jersey, 470 U.S.
1 Even those courts that have found the offset provision unconstitutional have not
adopted this broad misreading. See generally Kentucky v. Yellen, 2021 WL 4394249 (E.D.
Ky. Sept. 24, 2021); Ohio v. Yellen, 2021 WL 2712220 (S.D. Ohio July 1, 2021).
7
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632, 637 (1985). The limits on this Court’s Article III jurisdiction do not give way to Plain-
tiffs’ preference for a premature constitutional ruling.
PLAINTIFFS’ CLAIMS ARE NOT RIPE.
For similar reasons this case is not ripe for review. See Defs.’ Mot. 10–11; Missouri,
2021 WL 1889867, at *4–5. Plaintiffs argue that the case is ripe because the only remaining
questions are purely legal. Pls.’ Mot. 15–16 (citing New Orleans Pub. Serv., Inc. v. Council
of New Orleans, 833 F.2d 583, 586–87 (5th Cir. 1987)). However, the legal issues here are
not settled yet because there is no concrete controversy over a violation of the offset pro-
vision. As such, this case is “abstract or hypothetical.” New Orleans Pub. Serv., 833 F.2d at
586. Further factual development over how the States use the funds and whether such
use violates the offset provision or implementing regulations is required. Id. at 587 (“[A]
case is not ripe if further factual development is required.”). Moreover, because this is a
facial constitutional challenge, Plaintiffs must demonstrate that the provision is uncon-
stitutional in all respects. See Bucklew v. Precythe, 139 S. Ct. 1112, 1127 (2019); McKinley v.
Abbott, 643 F.3d 403, 408–09 (5th Cir. 2011) (citation omitted); see also Wash. State Grange
v. Wash. State Republican Party, 552 U.S. 442, 450 (2008). Further factual development is
necessary because, even if the offset provision were unconstitutional as applied in certain
circumstances, it may nevertheless be constitutional in other situations. The Court should
therefore dismiss Plaintiffs’ challenge as premature. See Missouri, 2021 WL 1889867, at *3–
5.
II. PLAINTIFFS FAIL TO STATE A CLAIM ON THE MERITS.
On the merits, Plaintiffs have not demonstrated that the offset provision is uncon-
stitutionally ambiguous, that it is coercive, or that it is unrelated to the purpose of ARPA;
nor have they pleaded facts sufficient to state an Equal Sovereignty claim.
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The offset provision is not unconstitutionally ambiguous.
Plaintiffs contend that the offset provision is unconstitutionally ambiguous. Pls.’
Mot. 22–29. But Plaintiffs’ arguments misunderstand the nature of the constitutional in-
quiry. To comply with the unambiguity requirement of Spending Clause jurisprudence,
Congress must simply make clear that acceptance of federal funds obligates States to
comply with a condition. Id. That is exactly what the Rescue Plan does: “a state official
who is engaged in the process of deciding whether the State should accept [Rescue Plan]
funds and the obligations that go with those funds” would “clearly understand that one
of the obligations of the Act is the obligation” not to use Rescue Plan funds to offset a net-
tax-revenue reduction resulting from changes in state law. Arlington Cent. Sch. Dist., 548
U.S. at 296. As one court recently held, “nobody questions the [offset provision] exists as
a condition to [States] accepting the funds,” and “[i]n that regard, Congress fulfilled its
duty under [Pennhurst] and Arlington Central.” Arizona, 2021 WL 3089103, at *3.
Precedent on Spending Clause unambiguity establishes that Congress must only
make clear that acceptance of federal money obligates the States to comply with a condi-
tion. In Pennhurst—the origin of the Spending Clause unambiguity requirement—the Su-
preme Court held that “if Congress intends to impose a condition on the grant of federal
moneys, it must do so unambiguously.” Pennhurst State Sch. & Hosp. v. Halderman, 451
U.S. 1, 17 (1981). There, the statute provided money to States and contained a “bill of
rights” provision specifying that mentally disabled citizens “have a right to appropriate
treatment, services, and habilitation for such disabilities” to be provided “in the setting
that is least restrictive of the person’s personal liberty.” Id. at 13. The Court held that these
statements “represent general statements of federal policy, not newly created legal du-
ties” and “in no way suggests that the grant of federal funds is ‘conditioned’ on a State’s
funding the rights described therein.” Id. at 23. The Pennhurst Court then explicitly rec-
ognized that a State’s obligations may be “largely indeterminate,” so long as Congress
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gives “clear notice to the States that they, by accepting funds under the Act, would indeed
be obligated to comply with” the condition. Id. at 24–25.
Numerous Spending Clause cases all confirm that States make an “informed
choice” when Congress simply makes clear that acceptance of federal money obligates
the States to comply with a condition. Id. at 25. The Supreme Court itself has repeatedly
affirmed that “there [i]s sufficient notice under Pennhurst where a statute ma[kes] clear
that some conditions [a]re placed on the receipt of federal funds.” Jackson v. Birmingham
Bd. of Educ., 544 U.S. 167, 183 (2005); Davis ex rel. Lashonda D. v. Monroe Cnty. Bd. of Educ.,
526 U.S. 629, 650 (1999). And the Circuits have done the same, holding that the Spending
Clause is satisfied where a “statute’s intention to impose a condition is expressed clearly,”
even though the operation of a funding condition “is perhaps unpredictable.” Mayweath-
ers v. Newland, 314 F.3d 1062, 1067 (9th Cir. 2002); Cutter v. Wilkinson, 423 F.3d 579, 586
(6th Cir. 2005) (“Nothing more is required under Pennhurst, which held that Congress
need provide no more than ‘clear notice’ to the states that funding is conditioned upon
compliance with certain standards.”); Charles v. Verhagen, 348 F.3d 601, 607–08 (7th Cir.
2003) (“[T]he exact nature of the conditions may be ‘largely indeterminate,’ provided that
the existence of the conditions is clear . . . .”); Benning v. Georgia, 391 F.3d 1299, 1307 (11th
Cir. 2004) (“The federal law in Pennhurst was unclear as to whether the [S]tates incurred
any obligations at all by accepting federal funds, but [the statute at issue] is clear that
[S]tates incur an obligation when they accept federal funds, even if the method for com-
pliance is left to the [S]tates.”); Van Wyhe v. Reisch, 581 F.3d 639, 650 (8th Cir. 2009)
(“[S]etting forth every conceivable variation in the statute is neither feasible nor re-
quired.”). Congress must only “make the existence of the condition itself—in exchange
for the receipt of federal funds—explicitly obvious.” Mayweathers, 314 F.3d at 1067.
Indeed, the many cases applying Chevron deference to regulations implementing
spending conditions demonstrate this point. See Defs.’ Mot. 24. Agencies are routinely
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empowered to operationalize statutory funding conditions, and courts have long de-
ferred to agency interpretations of Spending Clause legislation, such as education stat-
utes and Medicaid. “Chevron deference ‘is premised on the theory that a statute’s ambi-
guity constitutes an implicit delegation from Congress to the agency to fill in the statutory
gaps.’” Smith v. Berryhill, 139 S. Ct. 1765, 1778 (2019) (some quotation marks omitted). In
all of those cases, therefore, the details of the statutory spending condition must have been
ambiguous because otherwise there would be nothing for the agency to interpret. But
none of those cases then declared the spending conditions in question unconstitutional—
as Plaintiffs now demand—because the Spending Clause inquiry is focused only on
whether Congress made clear that acceptance of federal funds obligates States to comply
with a condition. See, e.g., City of Los Angeles v. Barr, 929 F.3d 1163 (9th Cir. 2019) (applying
Chevron deference while simultaneously finding no Spending Clause violation). Here,
Defendants are not asking the Court to defer to the Rule because Plaintiffs have not chal-
lenged it. But these cases illustrate that the unambiguity requirement of the Spending
Clause is fulfilled when Congress clearly specifies the existence of a funding condition,
even if Congress does not specify every detail of how the condition will be implemented.
If Plaintiffs were correct, then numerous statutes would be arguably unconstitu-
tional. That includes the Religious Land Use and Institutionalized Persons Act
(“RLUIPA”), which the every circuit to address the issue upheld despite repeated ac-
knowledgments that the funding condition in that statute is “unpredictable.” Cutter, 423
F.3d at 586; see also Mayweathers, 314 F.3d at 1067. Other funding regimes, like Medicaid
and education statutes, could also be called into question, even though courts have de-
ferred to regulations implementing such statutes for decades. See, e.g., Irving Indep. Sch.
Dist. v. Tatro, 468 U.S. 883, 891–92 (1984) (Education of the Handicapped Act); Children’s
Hosp. Ass’n of Tex. v. Azar, 933 F.3d 764, 770 (D.C. Cir. 2019) (Medicaid); Petit v. U.S. Dep’t
of Educ., 675 F.3d 769, 778 (D.C. Cir. 2012) (IDEA); United States v. Miami Univ., 294 F.3d
797, 811-15 (6th Cir. 2002) (Family Educational Rights and Privacy Act).
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When Pennhurst (and the legion of other cases) are properly applied, agency reg-
ulations have no bearing on the Spending Clause analysis. For this reason, it is not nec-
essary for the Court to consider Texas Educaction Agency v. U.S. Department of Education,
992 F.3d 350 (5th Cir. 2021); the fact that the statute clearly establishes that a condition
exists satisfies the Spending Clause inquiry, and there is no need to look to the regulation
to resolve the constitutional challenge. See also Defs.’ Mot. 24 n.3 (noting that Texas Edu-
cation Agency involved a condition that a State waive sovereign immunity, which is not
present here). If a statutory funding condition exists, the implementing agency could reg-
ulate the details of the condition subject to the Administrative Procedure Act and the
other typical constraints; if not, any agency regulation imposing funding conditions
would be unauthorized by the statute. That is the upshot of the Riley case cited by Plain-
tiffs. Pls.’ Mot. 28; Va. Dep’t of Educ. v. Riley, 106 F.3d 559, 568 (4th Cir. 1997) (en banc)
(reasoning that an agency could not, by regulation, act ultra vires by imposing spending
conditions that did not exist as part of the statute). And that’s exactly what Pennhurst
requires: Congress must provide only “clear notice to the States that they, by accepting
funds under the Act, would indeed be obligated to comply with” a condition. Pennhurst,
451 U.S. at 25. The idea is simply to keep Congress from “surprising participating States
with post-acceptance or retroactive conditions.” NFIB, 567 U.S. at 584 (quoting Pennhurst,
451 U.S. at 25).
Here, Congress made abundantly clear that the acceptance of Rescue Plan funds
obligates the State to comply with the offset provision, easily passing muster under bind-
ing Supreme Court precedent. 42 U.S.C. § 802(c)(2) (delineating “[f]urther restriction[s]
on the use of funds,” including the offset provision, which governs a State’s “use [of] the
funds provided under this section”). As one court recently held in this context, “nobody
questions the [offset provision] exists as a condition to [States] accepting the funds,” and
“[i]n that regard, Congress fulfilled its duty under” Spending Clause precedents. Arizona,
2021 WL 3089103, at *3.
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But the Rescue Plan does not just provide the existence of a condition; it explains
the nature and scope of the condition as well. By its plain terms, the offset provision only
applies when a State uses Rescue Plan funds to “offset” a reduction in “net” tax revenue
resulting from changes in state law. 42 U.S.C. § 802(c)(2)(A). The meaning of “offset” is
undisputed, and a state official would clearly understand that one of the obligations of
accepting Rescue Plan funds is not to use those funds as an offset for a reduction in net
tax revenue caused by state tax cuts. Taken together, the statute’s language simply en-
sures that States are not using federal funds to finance state tax cuts that decrease net tax
revenue.
Plaintiffs chiefly take issue with the use of the word “indirectly.” See Pls.’ Mot. 23–
27. But Defendants have already explained both direct and indirect offsets. See Defs.’ Mot.
13–15. For example, assuming no other changes, a State could not receive $2 billion in
Rescue Plan funds, cut its income tax by an amount equal to $2 billion, and use the Rescue
Plan funds to offset the revenue loss. That would be using Rescue Plan funds to “directly”
offset a net-tax-revenue reduction. 42 U.S.C. § 802(c)(2)(A); see Directly, Oxford English
Dictionary Online, available at https://www.oed.com/view/Entry/53307 (last visited
October 22, 2021) (defining “directly” as “[i]n a direct manner or way”). Similarly, again
assuming no other changes, a State could not use Rescue Plan funds to replace $2 billion
in planned state expenditures on COVID-19 testing and then use the $2 billion it had
originally budgeted for that purpose to offset a $2 billion reduction in state income tax.
That would be using Rescue Plan funds to “indirectly” offset a net-tax-revenue reduction.
42 U.S.C. § 802(c)(2)(A); see Indirectly, Oxford English Dictionary Online, available at
https://www.oed.com/view/Entry/94534 (last visited October 22, 2021) (defining “in-
directly” as “through some intervening person or thing”); see also 86 Fed. Reg. at 26,807,
26,810 (providing further details on how Treasury will implement the phrase “directly or
indirectly offset”).
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Plaintiffs acknowledge that “an adverb” like “directly” or “indirectly” “may not
give the word it modifies a completely different meaning.” Pls.’ Mot. 26. And Plaintiffs
do not argue that the word “offset” alone is ambiguous. The phrase “directly or indi-
rectly” in the offset provision merely underscores that a State cannot circumvent the off-
set provision by using grant funds not to pay directly for a tax cut but to pay for other
expenditures, while using funds usually directed toward those other expenditures to
cover the tax cut. Congress routinely uses the phrase “directly or indirectly” in that fash-
ion to emphasize the breadth of a statutory dictate. See, e.g., Ass’n of Priv. Sector Colleges
& Univs. v. Duncan, 681 F.3d 427, 444 (D.C. Cir. 2012) (“Congress phrased the relevant
provision broadly—employing words and phrases like ‘any’ and ‘directly or indi-
rectly.’”).
Especially in the context of an emergency aid statute that Congress enacted
quickly, “[t]here are far too many circumstances affecting the States in different ways for
Congress to have envisioned all aspects of compliance and noncompliance.” Charles, 348
F.3d at 608. Instead, “Congress permissibly conditioned the receipt of federal money in
such a way that each State is made aware of the condition and is simultaneously given
the freedom to tailor compliance according to its particular . . . circumstances.” Benning,
391 F.3d at 1307 (quoting Charles, 348 F.3d at 608). That is straightforwardly allowed by
the Spending Clause. Id. Plaintiffs’ argument—that Congress itself must essentially spec-
ify minute details of a funding condition—is wrong. See Pls.’ Mot. 27–28; Ohio v. Yellen,
2021 WL 2712220, at *12 (S.D. Ohio July 1, 2021) (“[O]ne thing is certain—exactitude is
not necessary” for funding conditions.). “[I]t is simply impossible” for Congress to “de-
lineate every instance in which a State may or may not comply with” the offset provision.
Charles, 348 F.3d at 608; Mayweathers, 314 F.3d at 1067; Arizona, 2021 WL 3089103, at *3–4.
As the Supreme Court has admonished, “every improper expenditure” need not be “spe-
cifically identified and proscribed” in the statute. Bennett v. Ky. Dep’t of Educ., 470 U.S. at
666; Jackson, 544 U.S. 167 at 183 (reiterating Bennett); Davis, 526 U.S. at 650 (same); see W.
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Va. Dep’t of Health & Hum. Res. v. Sebelius, 649 F.3d 217, 223 (4th Cir. 2011) (“Congress
need not spell out every condition with flawless precision for a provision to be enforcea-
ble.”).
The Court should find the offset provision plainly within Congress’s Spending
Clause authority because “[i]t made the existence of the condition upon which [States]
could accept funds explicitly obvious.” Arizona, 2021 WL 3089103, at *4 (citation omitted).
And States are not without recourse if they dislike the offset provision or have concerns
about its ambiguity: they may decline the Rescue Plan funds, seek a better bargain in the
halls of Congress, or work cooperatively with the Treasury Department. See Bennett, 470
U.S. at 669 (describing a conditional grant program “an ongoing, cooperative program”
in which “grant recipients ha[ve] an opportunity to seek clarification of the program re-
quirements”); Charles, 348 F.3d at 608 (explaining that States who dislike the ambiguity
of an imposed condition “certainly could have refused federal funding”). But because
declaring an Act of Congress unconstitutional is “the gravest and most delicate duty that”
federal courts are “called on to perform,” Rostker v. Goldberg, 453 U.S. 57, 64 (1981) (quo-
tation marks omitted), “[d]ue respect for the decisions of a coordinate branch of Govern-
ment demands that [courts] invalidate a congressional enactment only upon a plain
showing that Congress has exceeded its constitutional bounds,” United States v. Morrison,
529 U.S. 598, 607 (2000); Reno v. Condon, 528 U.S. 141, 148 (2000); Munn v. Illinois, 94 U.S.
113 (1876). Plaintiffs have not come close to making such a showing here.
The offset provision is not coercive or commandeering.
Plaintiffs fare no better in arguing that the offset provision violates the Tenth
Amendment and unconstitutionally coerces States into accepting Rescue Plan funds with
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the attendant conditions. Pls.’ Mot. 19–22.2 The offset provision is, by any measure, a
modest restriction on an otherwise generous outlay of federal funds. It simply ensures
that Congress’s substantial monetary outlay will be used as intended for the public-health
and economic-recovery purposes. And if Plaintiffs disliked the offset provision, they
were free to simply decline the federal money.
In arguing otherwise, Plaintiffs misconstrue or ignore governing law. As Defend-
ants previously explained, Congress has full “authority to condition the receipt of funds
on the States’ complying with restrictions on the use of those funds, because that is the
means by which Congress ensures that the funds are spent according to its view of the
‘general Welfare.’” NFIB, 567 U.S. at 580; Defs.’ Mot. 19. That is exactly what Congress
has done here: titled “[f]urther restriction on the use of funds,” the offset provision only
applies to a State’s “use [of] the funds provided under this section.” 42 U.S.C. § 802(c)(2)
(emphases added). So a coercion analysis is inapplicable because Congress is not “pres-
suring the States to accept policy changes” independent of the new federal funds. NFIB,
567 U.S. at 580. As Defendants previously explained, binding Fifth Circuit precedent es-
tablishes that spending conditions on new funds, as opposed to preexisting funds, does
not “trigger[] the coercion question” at all. Gruver v. La. Bd. of Supervisors for La. State Univ.
Agric. & Mech. Coll., 959 F.3d 178, 183–84 (5th Cir. 2020); see Defs.’ Mot. 19. Plaintiffs do
2 The Supreme Court has repeatedly affirmed that “Congress can use [its Spending
Clause] power to implement federal policy it could not impose directly under its enu-
merated powers.” NFIB, 567 U.S. at 578; Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ.
Expense Bd., 527 U.S. 666, 686 (1999) (same); Dole, 483 U.S. at 207 (same). Thus, under both
the Spending Clause and the Tenth Amendment, courts ask whether the challenged “pro-
vision is inconsistent with the federal structure of our Government established by the
Constitution.” New York, 505 U.S. at 177; NFIB, 567 U.S. at 578–79; see also Defs.’ Mot. 21.
So these two claims should be analyzed together.
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not cite Gruver, much less grapple with it. See generally Pls.’ Mot. Their failure to address
this precedent is fatal.3
And even if a coercion analysis applied, Plaintiffs would still lose under NFIB. The
key aspect of the Medicaid expansion that NFIB found to be coercive was that Congress
“penalize[d] States that choose not to participate in that new program by taking away their
existing Medicaid funding.” NFIB, 567 U.S. at 585 (emphasis added); see Defs.’ Mot. 19–
20. As one court recently explained in rejecting this exact argument, the Rescue Plan “will
not revoke any federal funding [States] enjoyed prior to accepting. The downside to de-
clining the ARPA funds is just that—[States] would not have received ARPA funds.” Ar-
izona, 2021 WL 3089103, at *5.
Plaintiffs focus primarily on the size of the federal grant relative to the States’
budgets. Pls.’ Mot. 20–21. But the amount of funding at issue in NFIB was only relevant
to the preexisting funding that would be withdrawn if States declined the Medicaid expan-
sion. See Defs.’ Mot. 20. Compare NFIB, 567 U.S. at 582 (finding that a threatened loss of
preexisting Medicaid funds—ten percent of States’ overall budgets—was coercive), with
South Dakota, 483 U.S. at 211 (finding that a threatened five-percent loss of preexisting
highway funds was not coercive). After all, “[t]hreat of loss, not hope of gain, is the es-
sence of economic coercion.” United States v. Butler, 297 U.S. 1, 81 (1936) (Stone, J., dis-
senting). And all Justices in NFIB agreed that, despite the amount of funding at issue,
“Congress could have made just the new funding provided under the ACA contingent on
acceptance of the terms of the Medicaid Expansion.” NFIB, 567 U.S. at 687–88 (joint dis-
sent); id. at 576, 585 (plurality) (same); id. at 624–46 (Ginsburg, J., concurring in part) (find-
ing no coercion). That holding defeats Plaintiffs’ claim that the sheer amount of offered
3 One district court recently held that the offset provision is unconstitutionally co-
ercive. See Kentucky v. Yellen, 2021 WL 4394249, at *6 (E.D. Ky. Sept. 24, 2021). But the
Kentucky court erred in its coercion analysis for reasons explained by Defendants here. In
any event, that court, unlike this Court, was not bound by the Fifth Circuit’s decision in
Gruver.
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funding is dispositive, regardless of whether it is being newly provided or eliminated.
Notably, the offset provision is more modest than the prospective funding condition that
all Justices in NFIB indicated was permissible: a State does not lose all of its Rescue Plan
funding if it violates the offset provision, but only the amount it uses as an improper
offset. See 42 U.S.C. § 802(e)(1).
Like maintenance-of-effort requirements—a longstanding feature of Spending
Clause legislation that ensures federal grants are used to supplement and not supplant
state spending—the offset provision is plainly constitutional. Maintenance-of-effort re-
quirements implicate a State’s spending power, a core state function, yet such require-
ments are unquestionably permissible tools to ensure that the funds appropriated by
Congress are used for their intended purposes. See, e.g., Bennett v. Ky. Dep’t of Educ., 470
U.S. at 659 (Title I of the Elementary and Secondary Education Act “prohibited the use of
federal grants merely to replace state and local expenditures”). Plaintiffs recognize that
maintenance-of-effort provisions are generally constitutional. Pls.’ Mot. 30–31. But they
attempt to distinguish the offset provision on the grounds that “States do not have to use
the [Rescue Plan] funds to supplement preexisting state spending” in specific areas and
that “States are free to supplant planned funds state spending with ARPA funds and
spend the resulting surplus as they see fit.” Id. at 31. But that distinction means the offset
provision is less intrusive on the States’ budgets than a maintenance-of-effort provision.
Plaintiffs’ argument that the former is unconstitutionally coercive cannot be squared with
their acceptance that the latter would be permissible.
Indeed, Congress routinely prohibits States from passing certain tax laws without
violating the Tenth Amendment. See, e.g., 4 U.S.C. § 114(a) (providing that States may not
“impose an income tax on any retirement income of an individual who is not a resident
or domiciliary of such State”); Pub. L. No. 105-227, 112 Stat. 2681, 2719 § 1101 (1998) (“In-
ternet Tax Freedom Act,” providing that no “State or political subdivision thereof shall
impose . . . taxes on Internet access” or “multiple or discriminatory taxes on electronic
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commerce” (made permanent by Pub. L. No. 114-125, 130 Stat. 122, 281 § 992 (2016))); see,
e.g., R.J. Reynolds Tobacco Co. v. Durham Cnty., 479 U.S. 130, 155 (1986); Quill Corp. v. North
Dakota By & Through Heitkamp, 504 U.S. 298, 318 (1992) (“Congress is [] free to decide
whether, when, and to what extent the States may burden interstate mail-order concerns
with a duty to collect use taxes.”), overruled on other grounds by South Dakota v. Wayfair,
Inc., 138 S. Ct. 2080 (2018); see also Murphy v. Nat’l Collegiate Athletic Ass’n, 138 S. Ct. 1461,
1478–79 (2018).
Because Plaintiffs had “a legitimate choice whether to accept the federal conditions
in exchange for federal funds,” NFIB, 567 U.S. at 578, their coercion and Tenth Amend-
ment arguments should be rejected. They were free to reject the federal money, and their
voters know where to turn if they like, or dislike, the States’ choice. Id. (explaining that
“state officials can fairly be held politically accountable for choosing to accept or refuse
the federal offer”); New York, 505 U.S. at 144.
The offset provision is related to the purpose of ARPA.
Plaintiffs also incorrectly argue that the offset provision is not sufficiently related
to the Rescue Plan’s purposes. Pls.’ Mot. 29–31. But the archetypal condition that is re-
lated to the purposes of federal spending is one that ensures “that public funds [are] spent
for the purposes for which they were authorized.” Rust v. Sullivan, 500 U.S. 173, 196
(1991). And that’s exactly what the offset provision does: it merely specifies how States
may use the newly appropriated federal funds to ensure that they are used for the public-
health and economic-recovery purposes of the Act. See Sabri, 541 U.S. at 608; Oklahoma,
330 U.S. at 143; see also Section II, supra. Congress did not provide the Rescue Plan funds
as a means to replace purposeful decreases in net tax revenue; it provided the money to
help States economically recover from the pandemic in ways they otherwise could not.
This is more than sufficient to meet the “minimal standard of rationality” required
of Spending Clause legislation. Benning, 391 F.3d at 1308; see also New York, 505 U.S. at 172
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(finding funding conditions sufficiently related where “both the conditions and the pay-
ments embody Congress’ efforts to address the pressing problem of radioactive waste
disposal”); Dole, 483 U.S. at 208–09 (finding that the federal interest in a uniform drinking
age was sufficiently related to States’ receipt of highway funds); United States v. Lipscomb,
299 F.3d 303, 322 & n.97 (5th Cir. 2002) (“The required degree of this relationship is one
of reasonableness or minimum rationality.” (quoting Kansas v. United States, 214 F.3d
1196, 1199 (10th Cir. 2000))). In fact, Plaintiffs point to no case, and Defendants are aware
of none, in which a court has struck down a funding condition on relatedness grounds.
See City of Los Angeles v. Barr, 929 F.3d 1163, 1175 (9th Cir. 2019) (recognizing that the
relatedness standard “is not demanding” and that “the Court has never struck down a
condition on federal grants based on this relatedness prong”).
Again, Plaintiffs’ argument is premised on the erroneous understanding that the
offset provision prohibits all “state tax cuts.” Pls.’ Mot. 30. But, as noted above, no party
is advocating for this broad interpretation of the statute, and Treasury has affirmatively
rejected that interpretation with the Rule. Section I.A., supra. And there is no reason why
this Court should depart from the statute’s text, the Rule’s implementation of that text,
or the principle that courts should avoid (rather than create) constitutional issues, Nielsen
v. Preap, 139 S. Ct. 954 (2019), all to invalidate or enjoin a broad reading of the offset pro-
vision that Defendants have not adopted. Plaintiffs’ relatedness argument should be re-
jected.
THE OFFSET PROVISION DOES NOT VIOLATE EQUAL SOVEREIGNTY PRINCIPLES.
Finally, the Court should dismiss Plaintiffs’ Equal Sovereignty claim.4 Plaintiffs do
not attempt to seek summary judgment for this claim, and instead fall back on the stand-
4 Notably, none of the amici in support of Plaintiffs have advocated for this novel
theory of Equal Sovereignty, nor have any of the States in the other five challenges to the
offset provision advanced this theory.
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ard of review under Rule 12(b)(6). Pls.’ Mot. 16–19 (arguing that Plaintiffs’ claim is “plau-
sible”); Iqbal, 556 U.S. at 678. But the question of whether the statute is unconstitutional
on Equal Sovereignty grounds is a pure question of law. Plaintiffs have not pleaded or
identified any factual dispute, and no factual development could assist the Court in rul-
ing on this issue. Dismissal of this claim is thus appropriate.
Plaintiffs admit that the offset provision is facially neutral among the States, but
say that this facial neutrality is a “ruse.” Pls.’ Mot. 18. However, the cited portions of the
Complaint contend only that some States are more “likely” to decrease taxes. Compl.
¶¶ 75–79, ECF No. 1. Nowhere do Plaintiffs explain how Congress’s passage of a facially
neutral statute is a secret scheme to target certain States and not others, let alone plead
facts to that effect. The Court should reject Plaintiffs’ “unadorned . . . accusation[].” Iqbal,
556 U.S. at 678.
As Defendants have pointed out, were Plaintiffs’ theory of Equal Sovereignty cor-
rect, it would almost eliminate Congress’s power to preempt state law under Article VI
of the Constitution because States will likely have differing policy preferences on many
issues. See Defs.’ Mot. 25. Plaintiffs do not confront this problem and instead point out
that Defendants’ cited example comes from a Commerce Clause case, rather than a
Spending Clause case. Pls.’ Mot. 18–19. But even assuming the Equal Sovereignty princi-
ple allows federal courts to second guess congressional enactments, it is not specific to
Spending Clause statutes. See Shelby Cnty. v. Holder, 570 U.S. 529, 553 (2013) (applying
Equal Sovereignty analysis to a statute passed pursuant to the Section 2 of the Fifteenth
Amendment). If Plaintiffs’ theory were to prevail, any number of statutes previously up-
held as valid exercises of Congress’s powers (under the Commerce Clause, for example)
would be subject to a renewed challenge on Equal Sovereignty grounds, so long as at
least one State dislikes the policies contained therein. The Court should reject such a
sweeping theory.
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III. The Court should not enjoin the offset provision or declare it unconstitutional.
Even if the Court finds a constitutional defect in the offset provision, neither a per-
manent injunction nor a declaratory judgment is appropriate.
A. PLAINTIFFS ARE NOT ENTITLED TO A PERMANENT INJUNCTION.
A court, in its “equitable discretion,” may enter a permanent injunction if a plain-
tiff can demonstrate:
(1) that it has suffered an irreparable injury; (2) that remedies available at
law, such as monetary damages, are inadequate to compensate for that in-
jury; (3) that, considering the balance of hardships between the plaintiff and
defendant, a remedy in equity is warranted; and (4) that the public interest
would not be disserved by a permanent injunction.
eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (citations omitted).
Plaintiffs fail each of these requirements. “An injunction against [even] threatened
legal action will not issue if the party will have an adequate opportunity to fully present
his defenses and objections in the legal action he seeks to enjoin.” Travis v. Pennyrile Rural
Elec. Coop., 399 F.2d 726, 729 (6th Cir. 1968) (citing Georgia v. City of Chattanooga, 264 U.S.
472 (1924)). Even if the Plaintiff States were to use Rescue Plan Funds to offset a reduction
in net tax revenue and face potential recoupment by the Secretary, any such recoupment
proceedings would present “an adequate opportunity” to present their defenses. Id.; see
86 Fed. Reg. at 26,811–12 (detailing the recoupment process, including a “reconsideration
process [that] provides a recipient the opportunity to submit additional information it
believes supports its request” for reconsideration). Because the Plaintiff States may assert
their constitutional argument as a “legal defense” to a recoupment action, they “therefore
[have] an adequate remedy.” Travis, 399 F.2d at 729. And if the States were unable to
succeed in such hypothetical future proceedings, the result would simply be that they
have to repay money—the quintessential example of harm that is not irreparable. See
Sampson v. Murray, 415 U.S. 61, 90 (1974); Foy v. Univ. of Tex., 146 F.3d 867 (5th Cir. 1998)
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(per curiam). With potential recoupment nowhere in sight, Plaintiffs’ challenge is “prem-
ature” and no injunction should issue. Travis, 399 F.2d at 729.
By contrast, enjoining the enforcement of an Act of Congress would unquestiona-
bly impose irreparable harm on the federal government and contravene the public inter-
est. See United States v. Oakland Cannabis Buyers’ Coop., 532 U.S. 483, 497 (2001) (emphasiz-
ing that “a court sitting in equity cannot ignore the judgment of Congress, deliberately
expressed in legislation” (quotation marks omitted)); see also Maryland v. King, 567 U.S.
1301, 1303 (2012) (Roberts, C.J., in chambers) (“[A]ny time a [government] is enjoined by
a court from effectuating statutes enacted by representatives of its people, it suffers a form
of irreparable injury.” (citation omitted)). “The presumption of constitutionality which
attaches to every Act of Congress is not merely a factor to be considered in evaluating
success on the merits, but an equity to be considered in favor of [the government] in bal-
ancing hardships.” Walters v. Nat’l Ass’n of Radiation Survivors, 468 U.S. 1323, 1324 (1984)
(Rehnquist, J., in chambers). An injunction would thus irreparably harm the United States
and undermine the public interest. That is only more evident here, where the legislation
at issue is a direct response to a national health and economic emergency of historic pro-
portions.
B. THE COURT SHOULD NOT ISSUE A DECLARATORY JUDGMENT.
A court may issue a declaratory judgment “[i]n a case of actual controversy within
its jurisdiction.” 28 U.S.C. §2201(a). Assuming the threshold requirements of standing
and ripeness are met, the Court may consider various factors in determining whether to
issue a declaratory judgment, including whether the declaratory judgment would serve
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a useful purpose in clarifying the legal relations and whether there is an alternative rem-
edy that is better or more effective. Sherwin-Williams Co. v. Holmes Cnty., 343 F.3d 383,
389–90 & n.2 (5th Cir. 2003).5
Here, a declaratory judgment is not necessary to clarify any legal relations. As dis-
cussed above, the Rescue Plan—especially in combination with the unchallenged Rule—
provides more than sufficient clarity. And if the Plaintiff States have any lingering ques-
tions, “Treasury encourages State, local, and Tribal governments in particular to provide
feedback and to engage with Treasury regarding issues that may arise regarding all as-
pects of th[e] [Rule] and Treasury’s work in administering the Fiscal Recovery Funds.”
86 Fed. Reg. at 26,788.
A declaratory judgment also should not issue because there is an alternative rem-
edy available: the States may assert their constitutional arguments as a defense to a re-
coupment action. This alternative is superior to a declaratory judgment because a recoup-
ment action may never come to pass at all, either because the States do not use Rescue
Plan funds to offset a reduction in net tax revenue or because the Secretary may exercise
her enforcement discretion not to seek recoupment. See Ohio v. Yellen, 2021 WL 1903908,
at *14 (S.D. Ohio May 12, 2021) (“[T]here is no reason to believe that the Secretary will
exercise [her recoupment] powers any time soon.”). The Plaintiffs are therefore not enti-
tled to a declaratory judgment.
CONCLUSION
For the reasons explained above, the Court should deny Plaintiffs’ motion for sum-
mary judgment and dismiss the Complaint or grant summary judgment in favor of De-
fendants.
5 Notably, Plaintiffs do not argue that the Court should enter a declaratory judg-
ment on their Motion for Summary Judgment. See generally Pls.’ Mot.; but see Compl.
¶¶ 10, 17, 20 (seeking declaratory relief).
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Case 2:21-cv-00079-Z Document 46 Filed 10/25/21 Page 33 of 34 PageID 954
DATED: October 25, 2021 Respectfully submitted,
BRIAN M. BOYNTON
Acting Assistant Attorney General
BRIAN D. NETTER
Deputy Assistant Attorney General
ALEXANDER K. HAAS
Director, Federal Programs Branch
BRIGHAM J. BOWEN
Assistant Director, Federal Programs Branch
/s/ Michael P. Clendenen
MICHAEL P. CLENDENEN
STEPHEN EHRLICH
CHARLES E.T. ROBERTS
Trial Attorneys
Civil Division, Federal Programs Branch
U.S. Department of Justice
1100 L Street, NW
Washington, DC 20005
Phone: (202) 305-9803
Email: stephen.ehrlich@usdoj.gov
Counsel for Defendants
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Case 2:21-cv-00079-Z Document 46 Filed 10/25/21 Page 34 of 34 PageID 955
Certificate of Service
On October 25, 2021, I electronically submitted the foregoing document with the
clerk of court for the U.S. District Court, Northern District of Texas, using the electronic
case filing system of the court. I hereby certify that I have served all parties electronically
or by another manner authorized by Federal Rule of Civil Procedure 5(b)(2).
/s/ Michael P. Clendenen
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