Brief - Reply, State of Arizona v. Yellen, No. 2:21-cv-00514 (D. Ariz.), Doc. 87 (November 25, 2022)
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A combined reply in support of Arizona's renewed motion for a preliminary and permanent injunction and response in opposition to a motion to dismiss, Document 87 in Case No. 2:21-cv-00514-ROS, filed 11/25/22, in the U.S. District Court for the District of Arizona. The brief is filed by the State of Arizona against Janet Yellen, in her official capacity as Secretary of the Treasury, and others. It argues that every court that has reached the merits has "held" the Tax Mandate unconstitutional, that the Ninth Circuit resolved Article III standing in Arizona's favor, and that the State is likely to prevail on its claims that the mandate is ambiguous and coercive. The certificate of service is signed s/Linley Wilson.
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“Brief - Reply, State of Arizona v. Yellen, No. 2:21-cv-00514 (D. Ariz.), Doc. 87 (November 25, 2022).”
Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/brief-reply-state-of-arizona-v-yellen-no-2-21-cv-00514-d-ariz-doc-87-n-85de6ce51f/
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Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 1 of 22
1 MARK BRNOVICH
ATTORNEY GENERAL
2 (Firm State Bar No. 14000)
3
Joseph A. Kanefield (No. 15838)
4 Drew C. Ensign (No. 25463)
5 Linley Wilson (No. 027040)
Andrew Reilly (No. 029138)
6 Robert J. Makar (No. 33579)
7 2005 N. Central Ave
Phoenix, AZ 85004-1592
8 Phone: (602) 542-8958
Joe.Kanefield@azag.gov
9
Drew.Ensign@azag.gov
10 Linley.Wilson@azag.gov
Andrew.Reilly@azag.gov
11
Robert.Makar@azag.gov
12
Attorneys for Plaintiff State of Arizona
13
UNITED STATES DISTRICT COURT
14
DISTRICT OF ARIZONA
15
16 No. 2:21-cv-00514-ROS
State of Arizona,
17 COMBINED REPLY IN SUPPORT
Plaintiff, OF RENEWED MOTION FOR A
18 v.
PRELIMINARY AND
19 Janet Yellen, in her official capacity as PERMANENT INJUNCTION
Secretary of the Treasury et al.; AND RESPONSE IN OPPOSITION
20
Defendants. TO MOTION TO DISMISS
21
22
23
24
25
26
27
28
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 2 of 22
1 TABLE OF CONTENTS
2 TABLE OF AUTHORITIES ................................................................................................. ii
3 INTRODUCTION .................................................................................................................. 1
4 ARGUMENT ......................................................................................................................... 4
5 I. The State Is Likely to Prevail on the Merits of Its Claims................................... 4
6 A. The Tax Mandate Is Unconstitutionally Ambiguous .................................... 4
7 B. The Tax Mandate Is Unconstitutionally Coercive And Violates The
Anti-Commandeering Doctrine .............................................................. 11
8
C. The Tax Mandate Is Unrelated to ARPA’s Purpose ................................... 13
9
D. Defendants Agree That Treasury’s Regulations Cannot Cure the Tax
10 Mandate’s Deficiencies........................................................................... 15
11 II. The State Has Met the Requirements for a Permanent Injunction ..................... 15
12
CONCLUSION .................................................................................................................... 17
13
14
15
16
17
18
19
20
21
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25
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i
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 3 of 22
1 TABLE OF AUTHORITIES
2 CASES
3 Alabama Ass’n of Realtors v. HHS,
141 S. Ct. 2485 (2021) .................................................................................................. 16
4
Arizona v. Yellen,
5 34 F.4th 841 (9th Cir. 2022) .............................................................................. 1, 3, 7, 11
6 Arizona v. Yellen,
550 F.Supp.3d 791 (D. Ariz. 2021) ..................................................................... 3, 12, 14
7
Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy,
8 548 U.S. 291 (2006) ................................................................................................ 4, 5, 6
9 Ass’n of Private Sector Colleges and Universities v. Duncan,
681 F.3d 427 (D.C. Cir. 2012) ........................................................................................ 9
10
Chevron U.S.A. Inc. v. Nat. Res. Defense Council, Inc.,
11 467 U.S. 837 (1984) ........................................................................................................ 9
12 City of Los Angeles v. Barr,
13 929 F.3d 1163 (9th Cir. 2019) ................................................................................... 9, 10
Ducey v. Yellen,
14
__ F.Supp.3d __, 2022 WL 2817710 (D. Ariz. July 19, 2022) ....................................... 8
15 Kentucky v. Yellen,
16 __ F.4th __, 2022 WL 17076099 (6th Cir. Nov. 18, 2022) ....................... 1, 2, 5, 7, 9, 11
17 Kentucky v. Yellen,
563 F.Supp.3d 647 (E.D. Kent. 2021) ............................................................. 1, 2, 11, 12
18
Knox v. Serv. Emps. Int’l Union, Local 1000,
19 567 U.S. 298 (2012) ........................................................................................................ 2
20 Massachusetts v. EPA,
549 U.S. 497 (2007) ........................................................................................................ 2
21
Mayweathers v. Newland,
22 314 F.3d 1062 (9th Cir. 2002) ............................................................................... 8, 9, 14
23 Missouri v. Yellen,
39 F.4th 1063 (8th Cir. 2022) ................................................................................ 7, 8, 14
24
New York v. United States,
25 505 U.S. 144 (1992) ...................................................................................................... 13
26 NFIB v. Sebelius,
27 567 U.S. 519 (2012) ...................................................................................................... 10
28 Ohio v. Yellen,
547 F.Supp.3d 713 (S.D. Ohio 2021) ............................................ 1, 2, 5, 7, 9, 10, 11, 15
ii
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 4 of 22
1 Otto v. City of Boca Raton,
981 F.3d 854 (11th Cir. 2020) ....................................................................................... 16
2
Pennhurst State Sch. & Hosp. v. Halderman,
3 451 U.S. 1 (1981) ............................................................................................................ 5
4 Sateriale v. R.J. Reynolds Tobacco Co.,
697 F.3d 777 (9th Cir. 2012) ........................................................................................... 5
5
South Dakota v. Dole,
6 483 U.S. 203 (1987) .................................................................................................. 5, 14
7 Steel Co. v. Citizens for a Better Env’t,
8 523 U.S. 83 (1998) .......................................................................................................... 3
Texas Educ. Agency v. U.S. Dep’t of Educ.,
9
992 F.3d 350 (5th Cir. 2021) ......................................................................................... 15
10 Texas v. Yellen,
11 No. 2:21-CV-079-Z, 2022 WL 1063088 (D. Tex. April 8, 2022) ............ 1, 2, 11, 13, 16
12 United States v. Thrasher,
483 F.3d 977 (9th Cir. 2007) ........................................................................................... 3
13
United Steelworkers of America AFL-CIO-CLC v. Johnson,
14 799 F.2d 402 (8th Cir. 1986) ........................................................................................... 7
15 Virginia Dep’t of Educ. v. Riley,
106 F.3d 559 (4th Cir. 1997) ......................................................................................... 15
16
West Virginia v. U.S. Department of Treasury,
17 571 F.Supp.3d 1229 (N.D. Ala. 2021) ...................................................... 1, 2, 5, 6, 9, 11
18 STATUTES
19 42 U.S.C. § 2000cc-1(b)(1) ................................................................................................. 8
42 U.S.C. § 802(a)(1) ........................................................................................................ 13
20
42 U.S.C. § 802(c)(2)(A) ........................................................................................... 5, 7, 12
21
CONSTITUTIONAL PROVISIONS
22
U.S. Const. art. I, § 8, cl. 1 .................................................................................................. 4
23 OTHER AUTHORITIES
24 ARPA, Pub. L. No. 117-2 § 9621 ..................................................................................... 14
25 ARPA, Pub. L. No. 117-2 § 9673 ..................................................................................... 14
26 Estimated Federal Disbursement to States, National Conference of State Legislatures
available at https://bit.ly/3i9yuBU (last visited November 21, 2022) .......................... 12
27
28
iii
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 5 of 22
1 INTRODUCTION
2 Every court that has reached the merits of whether the Tax Mandate is constitutional
3 has held it is unconstitutional. Every single one. The only Tax Mandate decisions that
4 went Federal Defendants’ way were based on standing grounds. But the Ninth Circuit
5 conclusively resolved Article III standing in favor of the State of Arizona (the “State”)
6 here, and Federal Defendants did not seek review of that decision. See Arizona v. Yellen,
7 34 F.4th 841 (9th Cir. 2022). So all that remains here to decide is the constitutional merits.
8 On that question, this Court should join the unanimous consensus of its sister courts.
9 Those courts have granted or affirmed injunctions against enforcement of the Tax
10 Mandate for 18 states, on a combination of ambiguity or coercion grounds. See West
11 Virginia v. U.S. Department of Treasury, 571 F.Supp.3d 1229, 1255 (N.D. Ala. 2021) (13-
12 state injunction on ambiguity grounds); Texas v. Yellen, No. 2:21-CV-079-Z, 2022 WL
13 1063088, **6-7 (D. Tex. April 8, 2022) (granting injunction to Texas, Mississippi, and
14 Louisiana on coercion grounds); Ohio v. Yellen, 547 F.Supp.3d 713, 741 (S.D. Ohio 2021)
15 (granting injunction to Ohio on ambiguity grounds) rev’d on standing grounds, __ F.4th
16 __, 2022 WL 17076102 (6th Cir. Nov. 18, 2022); Kentucky v. Yellen, 563 F.Supp.3d 647,
17 657-60 (E.D. Kent. 2021) (granting injunction to Tennessee and Kentucky on ambiguity
18 grounds), aff’d in part, Kentucky v. Yellen, __ F.4th __, 2022 WL 17076099 (6th Cir. Nov.
19 18, 2022) (“Tennessee”). Just one week ago, the Sixth Circuit Court of Appeals
20 unanimously affirmed the injunction as to Tennessee. Tennessee, 2022 WL 17076099 at
1
21 *25; see also id. at *26 (J., Nalbandian, concurring in part and dissenting in part).
22
1
23 In Tennessee, a two-judge majority held Kentucky’s (but not Tennessee’s) challenge to
the Tax Mandate was not justiciable under Article III due to the issuance of Treasury’s
24 regulations. 2022 WL 17076099, at *25. Circuit Judge Nalbandian concurred in part and
25 dissented in part, stating he concurred that the Tax Mandate “violates the Spending Clause”
and would have concluded that both Tennessee and Kentucky have standing “for reasons
26 related to the federal government’s intrusion on their sovereign-taking authority.” Id. at
*26 (Nalbandian, J., concurring in part and dissenting in part). Judge Nalbandian therefore
27
would have affirmed the injunction as to Tennessee as well. Id. at *31. But the Ninth
28 Circuit has already concluded Arizona has standing in this case. Arizona, 34 F.4th at 853.
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 6 of 22
1 These courts correctly concluded that the Tax Mandate is both unconstitutionally
2 ambiguous, see Ohio, 547 F.Supp.3d at 741, and West Virginia, 571 F.Supp.3d at 1255,
3 and unconstitutionally coercive, see Kentucky, 563 F.Supp.3d at 657; Texas, 2022 WL
4 1063088 at *6-7. The Sixth Circuit, applying the Supreme Court’s Spending Clause
5 jurisprudence, held the law is impermissibly vague, failing to provide Tennessee with
6 “‘clear notice’ about the measures required to maintain compliance.” Tennessee, 2022 WL
7 17076099, at *21. In contrast, no federal court in the nation has ever held that the Tax
8 Mandate was a constitutional exercise of Congress’s Spending Clause powers. And for
9 good reason.
10 The State has shown it is likewise entitled to a permanent injunction of the Tax
11 Mandate here. See Doc. 78 at 10-21.2 Defendants did not even cite or address a single one
12 of those district court decisions, let alone attempt to explain how all of them were wrong.
13 Defendants also do not offer reason why the State should be treated any differently than its
14 sister states, all of whom that reached the merits already obtained injunctive relief against
15 the Tax Mandate’s intrusion on state sovereignty. The State has accepted ARPA funds—a
16 total of $4.2 billion—and has made at least $2 billion in allocations to date. Doc. 78 at 9.
17
Thus while the Sixth Circuit’s analysis of Kentucky’s standing is plainly wrong because,
18
inter alia, only one party needs to have standing to establish Article III jurisdiction, see,
19 e.g., Massachusetts v. EPA, 549 U.S. 497, 518 (2007), that error is irrelevant here as
standing has already been conclusively resolved in favor of Arizona in this case.
20
Nor did Defendants ever raise a mootness argument here. But if Defendants were to rely
21 on the Treasury regulations to raise such an extremely belated argument, such an attempt
would be unavailing.
22
It is undisputed that those regulations impose compliance costs upon the State and that
23 invalidating the Tax Mandate would eliminate those compliance costs. Because an
24 injunction against enforcement of the Tax Mandate would thus continue to prevent harm to
the State, there is no conceivable mootness issue here (which, presumably, is why
25 Defendants have never raised it to date). See, e.g., Knox v. Serv. Emps. Int’l Union, Local
26 1000, 567 U.S. 298, 307 (2012) (A case is moot “only when it is impossible for a court to
grant any effectual relief whatever to the prevailing party.” (emphasis added) (cleaned up)).
27 2
All citations to page numbers herein refer to the electronic ECF page numbers of the filed
28 pleadings.
2
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 7 of 22
1 And in June 2021, the Arizona Legislature passed a massive $1.9 billion tax cut. Id.
2 Consequently, the Tax Mandate poses “a realistic danger that Arizona … will be forced to
3 repay federal funds for directly or indirectly using those funds to offset its tax cut[.]”
4 Arizona, 34 F.4th at 851.
5 Defendants urge this Court to “reiterate” its previous reasoning in the decision
6 Judge Humetewa issued in July 2021. Doc. 86 at 8 (relying on Arizona v. Yellen, 550
7 F.Supp.3d 791 (D. Ariz. 2021)); see also id. at 9, 12-13, 16 (same). But that reasoning was
8 not only flawed; it was intertwined with a standing analysis that the Ninth Circuit reversed.
9 In reversing the July 2021 decision, the Ninth Circuit concluded that the State has standing
10 and directed this Court to “make a ruling on the merits in the first instance” on the State’s
11 Spending Clause and Tenth Amendment claims. Arizona, 34 F.4th at 853.
12 Defendants’ suggestion thus fails at the outset as it violates the Ninth Circuit’s
13 mandate, which directed this Court to decide the “merits in the first instance”—not
14 reiterate what it putatively had already decided. See, e.g., United States v. Thrasher, 483
15 F.3d 977, 981 (9th Cir. 2007) (“The rule of mandate doctrine … provides … [that] the
16 [district court] is bound by the decree as the law of the case, and must carry it into
17 execution according to the mandate. That court cannot vary it, or examine it for any other
18 purpose than execution; or give any other or further relief; or review it, even for apparent
19 error, upon any matter decided on appeal.”) (cleaned up). Indeed, this Court lacks
20 jurisdiction to accept Defendants’ suggestion, as the doctrine is jurisdictional in nature. Id.
21 Rule-of-mandate-doctrine aside, the putative merits reasoning that Defendants urge
22 this Court to “reiterate” comes from a decision that expressly disclaimed reaching the
23 merits, explaining it was dismissing for “lack of subject matter jurisdiction”—thereby
24 necessarily making any consideration of the merits beyond this Court’s power and
25 improper. 550 F.Supp.3d at 799. See, e.g., Steel Co. v. Citizens for a Better Env’t, 523 U.S.
26 83, 94 (1998) (“‘Jurisdiction is power to declare the law, and when it ceases to exist, the
27 only function remaining to the court is that of announcing the fact and dismissing the
28 cause.’” (citation omitted)).
3
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 8 of 22
1 Moreover, whatever purported merits reasoning this Court may have engaged in, it
2 was necessarily intertwined with its jurisdictional analysis—and thus equally caught up in
3 the Ninth Circuit’s unanimous reversal of this Court. Moreover, that phantom reasoning
4 squarely contradicts both the reasoning and holding of Arlington Cent. Sch. Dist. Bd. of
5 Educ. v. Murphy, 548 U.S. 291 (2006)—which would have been an affirmance, rather than
6 a reversal, if Defendants’ existence-only rationale were correct. Defendants, however,
7 make almost no effort to reconcile their existence-only reasoning with that decision. But
8 what then could they say?
9 Because the State succeeds on the merits of any one of its claims, Defendants’
10 motion to dismiss must be denied. The Court should grant the State’s Renewed Motion,
11 hold the Tax Mandate is unconstitutional and enjoin its enforcement, and allow the State to
12 exercise its full sovereign-taxing authority.
13 ARGUMENT
14 I. The State Is Likely to Prevail on the Merits of Its Claims
15 The Tax Mandate exceeds Congress’s authority under the Spending Clause in
16 Article I, section 8 of the Constitution and unconstitutionally infringes on the State’s
17 sovereignty under the Tenth Amendment. See Doc. 78 at 10-21. Defendants’ arguments do
18 not show otherwise.
19 A. The Tax Mandate Is Unconstitutionally Ambiguous
20 The U.S. Constitution empowers Congress to “lay and collect Taxes, Duties,
21 Imposts and Excises, to pay the Debts and provide for the common Defence and general
22 Welfare of the United States.” U.S. Const. art. I, § 8, cl. 1. “Incident to this power,
23 Congress may attach conditions on the receipt of federal funds,” but as Defendants
24 acknowledge (Doc. 86 at 11), Congress must condition the States’ receipt of federal funds
25 “unambiguously … enabl[ing] the States to exercise their choice [whether to accept federal
26 funds] knowingly, cognizant of the consequences of their participation.” South Dakota v.
27 Dole, 483 U.S. 203, 206-07 (1987) (citation omitted). “It is undisputed that ARPA was
28 enacted pursuant to the Spending Clause.” Tennessee, 2022 WL 17076099 at *17.
4
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 9 of 22
1 Defendants maintain that the mere existence of “a condition” suffices to comply
2 with the unambiguity requirement under the Supreme Court’s leading Spending Clause
3 cases, Pennhurst and Arlington Central. Doc. 86 at 11-15 (discussing Pennhurst State Sch.
4 & Hosp. v. Halderman, 451 U.S. 1, 17 (1981), and Arlington Cent. Sch. Dist. Bd. of Educ.
5 V. Murphy, 548 U.S. 291, 296 (2006)). Other courts have rightly rejected this argument. As
6 one court aptly put it, “merely because Pennhurst stands for the proposition that Congress
7 must clearly state its intent to impose a condition does not mean that Congress need not
8 also define the condition sufficiently so that States can know how to comply with it.” West
9 Virginia, 571 F.Supp.3d at 1252. Indeed, Pennhurst states that Congress must speak “so
10 clearly that … the State [can] make an informed choice.” 451 U.S. at 25. The State cannot
11 voluntarily or meaningfully assent to ambiguous conditions. Just as vague contractual
12 provisions are unenforceable, see Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777,
13 789 (9th Cir. 2012), so too are vague conditions in Spending Clause legislation.
14 Here, the Tax Mandate, “even when read in context, fails to put the state on ‘clear
15 notice’ of its obligations.” Ohio, 547 F.Supp.3d at 731 (citing Arlington Central, 548 U.S.
16 at 296). The Tax Mandate prohibits the State from using ARPA funds “to either directly or
17 indirectly offset a reduction in the net tax revenue of such State…” 42 U.S.C.
18 § 802(c)(2)(A). States can only guess, but do not know by the statute’s text, “what it means
19 to ‘directly or indirectly’ offset tax cuts with ARPA funds.” West Virginia, 571 F.Supp.3d
20 at 1250; see also Tennessee, 2022 WL 17076099, at *17 (reasoning the Tax Mandate’s
21 “text does not clearly explain what it means to ‘indirectly offset’ revenue-reducing tax cuts
22 with ARPA funds”).
23 Defendants’ existence-only premise also squarely violates the Supreme Court’s
24 decision in Arlington Central. There, the Court addressed whether a condition was
25 sufficiently clear to require the States to pay experts fees to prevailing parties. 548 U.S. at
26 295. The existence of a condition was indisputable (and undisputed). If the Defendants’
27 argument were correct, the Supreme Court should have stopped there and affirmed. It
28 didn’t.
5
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 10 of 22
1 Instead, the Supreme Court held that condition was insufficiently clear as a
2 constitutional matter to mandate that the States pay expert fees, thus making plain that the
3 Constitution demands clarity in what the conditions are, not merely that they exist. If
4 Defendants’ existence-only argument below were correct, Arlington would necessarily
5 have been an affirmance rather than the reversal it was. Id. Nor have Defendants—in the
6 innumerable briefs filed in this Court and the Ninth Circuit—ever explained how their
7 reasoning is not completely incompatible with the holding in Arlington Central.
8 Defendants nonetheless argue they “have already explained both direct and indirect
9 offsets,” and offer examples of certain actions they believe would constitute a “direct” or
10 “indirect” offset of a reduction in net tax revenue. Doc. 86 at 16-17. Defendants propose
11 that an “indirect” use of ARPA funds to “offset a net-tax-revenue reduction” would occur
12 if the State used ARPA funds “to replace $2 billion in planned state expenditures on
13 COVID-19 testing and then use the $2 billion it had originally budgeted for that purpose to
14 offset a $2 billion reduction in state income tax.” Doc. 86 at 17. This example illustrates
15 the State’s point—that money is fungible and that there are no clear limits (if any) to the
16 Secretary’s discretion of deciding when ARPA funds are “indirectly” used to be deemed
17 non-compliant with the Tax Mandate. See Doc. 78 at 13; West Virginia, 571 F.Supp.3d at
18 1250 (reasoning that “any ARPA funds the [s]tates receive could be viewed as indirectly
19 offsetting any reduction in net tax revenue from a change in state law or policy” because
20 “[a]fter all, a decrease in one part of a State’s revenue is necessarily offset somehow to
21 achieve a balanced budget”). As the Sixth Circuit observed, “Treasury’s own Rule
22 acknowledges that the money-is-fungible interpretation is at least a plausible concern” with
23 the Tax Mandate” and “[t]he plausibility of this interpretation was the very reason that
24 Treasury had to shed so much ink attempting to disavow it with the Rule.” Tennessee, 2022
25 WL 17076099 at *18 (discussing 87 Fed. Reg. 4,338, 4,424 (Jan. 27, 2022)).
26 Moreover, the Tax Mandate provides no baseline against which to measure revenue
27 reductions. See Ohio, 547 F.Supp.3d at 732 (emphasizing “the statutory language itself
28
6
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 11 of 22
1 provides no mechanism for determining whether a State’s net tax revenues are ‘reduced’ or
2 not”). The Tax Mandate’s language—“a reduction in the net tax revenue … resulting from”
3 a tax cut “is similarly indeterminate.” Tennessee, 2022 WL 17076099 at *19 (quoting 42
4 U.S.C. § 802(c)(2)(A)). The statute does not specify “which fiscal year’s revenue” would
5 be used to decide whether a reduction occurred. This omission is even more glaring
6 because in “the provision just above [the Tax Mandate]—§ 802(c)(1)(C)—which
7 establishes one of the permissible uses of ARPA funds,” Congress specified a baseline as
8 “the most recent full fiscal year of the State.” Tennessee, 2022 WL 17076099 at *19. The
9 Tax Mandate also does not explain “how states must assess whether a reduction in tax
10 revenue ‘result[ed] from a change” in state tax policy.” Id. (quoting 42 U.S.C. §
11 802(c)(2)(A)). And the Tax Mandate fails to specify if it “prohibits a reduction in expected
12 tax revenues, which a state would be able to control ex ante, or whether it prohibits a
13 reduction in actual tax revenues, which a state could potentially determine only ex post.”
14 Id. “Yet the difference matters.” Id. Nor could Treasury’s regulation cure the violation. See
15 infra § I(D).
16 Defendants also rely on the Eighth Circuit’s decision in Missouri v. Yellen, 39 F.4th
17 1063 (8th Cir. 2022), in attempting to explain what the Tax Mandate means. Doc. 86 at 16.
18 The Court should not look to Missouri for several reasons. First, the Eighth Circuit’s
19 decision addressed only whether Missouri had standing, and concluded—contrary to the
20 Ninth Circuit’s holding that the State has standing here, see Arizona, 34 F.4th at 853—that
21 Missouri lacked standing. See 39 F.4th at 1070-71 & n.5. Thus, the Eighth Circuit’s
22 commentary about what the Tax Mandate might mean is unpersuasive dicta at best. See
23 United Steelworkers of America AFL-CIO-CLC v. Johnson, 799 F.2d 402, 404 (8th Cir.
24 1986) (where a case was decided based on plaintiff’s lack of standing, the court’s views
25 about the plaintiff’s constitutional claims “remain dicta”). Second, the Eighth Circuit
26 appears to have relied on Treasury’s Interim and Final Rules, reasoning that those
27 regulations “set forth clearly how Treasury will determine whether a recipient of ARPA
28
7
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 12 of 22
1 funds has violated” the Tax Mandate. Missouri, 39 F. 4th at 1071, 1068 n.4. But as
2 Defendants admit here, Treasury’s rules cannot cure an unconstitutional statute. See Doc.
3 86 at 14 & infra § I(D).3 Third, Missouri erroneously suggests that the Tax Mandate merely
4 prevents states from “us[ing] ARPA funds as part of [the states’] balancing process” to
5 balance a budget. 39 F.4th at 1071, 1070 n.6. The Tax Mandate does not say that, and as
6 explained above, the prohibition’s scope reaches much farther than simply prohibiting
7 states from directly offsetting reductions in revenue with ARPA funds. For all of these
8 reasons, the Court should not make the same missteps of the Eighth Circuit.
9 Defendants also misplace reliance on Mayweathers and Ducey. Doc. 86 at 13-16
10 (discussing Mayweathers v. Newland, 314 F.3d 1062 (9th Cir. 2002), and Ducey v. Yellen,
11 __ F.Supp.3d __, 2022 WL 2817710 (D. Ariz. July 19, 2022)). The Ducey decision (now
12 pending in the Ninth Circuit) has no relevance here because it interpreted a completely
13 different provision of ARPA. See Doc. 78 at 14-15 & n.6.
14 Mayweathers likewise does not support Defendants. That case involved a facial
15 challenge to the constitutionality of the Religious Land Use and Institutionalized Persons
16 Act of 2000, 42 U.S.C. § 2000cc et seq. (2000) (“RLUIPA”), on various grounds. 314 F.3d
17 at 1065. RLUIPA states that it applies to any “program or activity that receives Federal
18 financial assistance” and requires that governments not impose a substantial burden on the
19 religious exercise of prisoners unless the government can demonstrate that the burden both
20 serves a compelling government interest and is the least restrictive means of advancing that
21 interest. Id. at 1067 (quoting 42 U.S.C. § 2000cc-1(b)(1)). Plaintiffs challenged this aspect
22 of RLUIPA as ambiguous under Dole and Pennhurst. The Ninth Circuit disagreed,
23 explaining that “[t]he fact that the least restrictive means standard is perhaps unpredictable
24 because it has resulted in different determinations in different courts does not weaken the
25 express conditional language.” Id. at 1067. The Tax Mandate, by contrast, does not set
26
27 3
Defendants made the same concession in West Virginia, 571 F.Supp.3d at 1254, and in
28 Tennessee, 2022 WL 17076099 at *21.
8
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 13 of 22
1 forth an “unpredictable” standard to apply; it presents “an ‘impossible to understand’
2 standard.” Ohio, 547 F.Supp.3d at 731; see also West Virginia, 571 F.Supp.3d at 1253
3 (distinguishing RLUIPA, which imposes a legal standard that “every lawyer is familiar
4 with,” from the Tax Mandate, which provides “no way for States to comply with the ARPA
5 by looking to the text of the provision itself”). Even in Mayweathers, the Ninth Circuit
6 reiterated that “any conditions on federal grants must be unambiguous, clearly
7 communicating to states the consequences of their participation in the federally funded
8 scheme.” 314 F.3d at 1066 (emphasis added). Thus, Mayweathers is distinguishable and
9 further supports a conclusion that the Tax Mandate fails the unambiguity requirement. And
10 even if it were otherwise, it putative existence-only holding has necessarily been overruled
11 by Arlington Central, which post-dates Mayweathers and whose holding is entirely
12 incompatible with it.
13 Defendants also suggest that if the Tax Mandate is unconstitutionally vague, that
14 conclusion would jeopardize “numerous other funding regimes (like Medicaid and
15 education statutes) … even though courts have deferred to regulations implementing such
16 statutes for decades.” Doc. 86 at 17-18. Not so. Again, by Defendants’ own admission,
17 “agency regulations have no bearing on the Spending Clause analysis,” id. at 14, and the
18 State agrees, infra, § I(D). Consequently, Defendants’ cited cases involving Chevron4
19 deference (including Ass’n of Private Sector Colleges and Universities v. Duncan, 681
20 F.3d 427 (D.C. Cir. 2012), and City of Los Angeles v. Barr, 929 F.3d 1163 (9th Cir. 2019),
21 see Doc. 86 at 17-18), are inapplicable to the State’s Spending Clause challenge to the Tax
22 Mandate. See Tennessee, 2022 WL 17076099 at *22 (explaining that whether Chevron
23 deference applies in other contexts “has little relevance” to the Tax Mandate because when
24 Congress imposes conditions to control taxation, “a core aspect of state sovereignty,”
25 Congress “must do so in clear and unmistakable terms”).
26
27
4
28 Chevron U.S.A. Inc. v. Nat. Res. Defense Council, Inc., 467 U.S. 837 (1984).
9
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 14 of 22
1 In City of Los Angeles, for example, the Ninth Circuit addressed “an allocation of
2 grant funds through a competitive grant process” and reasoned that “the applicable
3 Spending Clause principles do not readily apply” to that type of program. 929 F.3d at 1175.
4 The Ninth Circuit analyzed the agency-drawn conditions on grants to states and localities
5 “under the principles of Dole and NFIB” only because “Congress delegated the task of
6 specifying these conditions to DOJ.” Id. at 1175 n.6. Unlike City of Los Angeles, however,
7 Congress has not made any delegation here (and Defendants do not argue otherwise). Doc.
8 78 at 14; see also Ohio, 547 F.Supp.3d at 738 (even assuming Congress can “delegate to an
9 agency the power to create the requisite clarity” required by the Spending Clause, “it did
10 not do so” in the Tax Mandate). The Tax Mandate “must sink or swim on its own.” Ohio,
11 547 F.Supp.3d at 739.
12 Finally, the fact that Defendants “are aware of no case,” beyond ARPA, “holding
13 that a statutory funding condition is ‘unconstitutionally ambiguous’ on its face” (Doc. 86 at
14 18) does Defendants little good. The Tax Mandate’s “directly or indirectly offset” language
15 is completely unprecedented, both in its phrasing and the extent to which it infringes upon
16 State sovereignty.
17 The Tax Mandate is not immunized from constitutional scrutiny simply because
18 Congress has never done something so audacious and dubious before, and the State need
19 not point to another similar law that has been struck down as an unconstitutional exercise
20 of Congress’s authority to prevail here. Indeed, “sometimes the most telling indication of a
21 severe constitutional problem is the lack of historical precedent for Congress’s action.”
22 NFIB v. Sebelius, 567 U.S. 519, 550 (2012) (cleaned up). That Congress has never
23 attempted anything remotely similar supports the State and not Defendants here. Moreover,
24 as discussed above, several courts have already held that the Tax Mandate “is the type of
25 federal invasion of state sovereignty that Spending Clause jurisprudence” cannot tolerate.
26 See Ohio, 547 F.Supp.3d at 734; West Virginia, 571 F.Supp.3d at 1254; see also
27 Tennessee, 2022 WL 17076099 at *22.
28
10
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 15 of 22
B. The Tax Mandate Is Unconstitutionally Coercive And Violates The
1 Anti-Commandeering Doctrine
2 Setting aside the ambiguity and vagueness defect, the Tax Mandate also coerces and
3 commandeers the State in violation of the Constitution. See Kentucky, 563 F.Supp.3d at
4 657 (“[T]he coercion presented in the ARPA is exactly the kind of intrusion on state
5 sovereignty that the Constitution prohibits”);5 Texas, 2022 WL 1063088 at *5 (“The Court
6 finds the threat to Plaintiffs’ budgets here is ‘economic dragooning’ that exerts ‘undue
7 influence’ rather than ‘relatively mild encouragement’”) (citation omitted); see also Doc.
8 78 at 16-20.
9 After citing several paragraphs of the State’s complaint, Defendants argue that the
10 State’s coercion claim “is absent” from the complaint and insist the State has alleged
11 coercion only if the Tax Mandate “prohibits the States from cutting taxes in essentially any
12 manner.” Doc. 86 at 19. In Defendants’ view, “a tax cut, on its own, does not fall within
13 the [Tax Mandate]’s ambit.” Doc. 86 at 19 (quoting Arizona, 34 F.4th at 856 (R. Nelson, J.,
14 concurring), and Missouri, 39 F.4th at 1070 n.6). But that mistaken interpretation of the
15 Tax Mandate is unavailing for the reasons described above. Supra, § I(A). In any event, the
16 State has always alleged that the Tax Mandate is coercive or commandeering—irrespective
17 of how the claim is characterized. See Doc. 78 at 10 & n.4. This claim is plainly raised in
18 Count II of the State’s Complaint. Doc. 1 at 14-16.6
19 As discussed in the State’s Renewed Motion, Congress’s offer of billions of dollars
20 in ARPA funds in exchange for acceptance of the Tax Mandate comes at a time when
21 states need money the most. Doc. 78 at 16-20. “[T]he pandemic has many state and local
22
23 5
Although the Sixth Circuit reversed “the district court’s conclusion that Kentucky’s claim
24 is justiciable and vacate[d] the injunction to the extent that it bars enforcement of the [Tax
Mandate] against Kentucky,” the Sixth Circuit did not disturb the district court’s holding
25 that the Tax Mandate is coercive in violation of the Spending Clause. See Tennessee, 2022
26 WL 17076099 at **2, 25.
6
When Defendants opposed the State’s initial motion for a preliminary injunction in April
27 2021, Defendants did not argue that the State’s coercion claim had not been pled in the
28 Complaint. See Doc. 31 at 17-25.
11
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 16 of 22
1 governments treading water.” Kentucky, 563 F.Supp.3d at 657. Millions of dollars in
2 ARPA funds (in some states, as in Arizona, billions) have been distributed to all 50 states.
3 See Estimated Federal Disbursement to States, National Conference of State Legislatures.7
4 ARPA funds amount to roughly 30% of the State’s general fund budget. Id. at 17; see also
5 Arizona, 34 F.4th at 845. “The numbers speak for themselves.” Kentucky, 563 F.Supp.3d at
6 657. The July 2021 decision grossly minimized the Tax Mandate’s inducement by stating
7 that “[t]he downside to declining the ARPA funds is just that—Arizona would not have
8 received ARPA funds.” Arizona, 550 F.Supp.3d at 799. But given the billions of dollars at
9 stake, which came at a time of severe economic hardship, the State had no real option but
10 to take the ARPA funds, along with the uncertain conditions with them. See Doc. 78 at 17-
11 18 (discussing analogy of ARPA funds available under the Tax Mandate to Medicaid
12 spending at issue in NFIB v. Sebelius, which accounted for over 20 percent of the average
13 state’s total budget). Defendants argue that the Tax Mandate is “a modest restriction on an
14 otherwise generous outlay of federal funds.” Doc. 86 at 19. But the Tax Mandate’s
15 prohibition is far from modest; states cannot “directly” or “indirectly” offset tax cuts with
16 ARPA funds. 42 U.S.C. § 802(c)(2)(A). Indeed, if the shoe were on the other foot, there is
17 every reason to believe Congress would regard such restrictions on its sovereign taxing
18 powers as expansive and egregious.
19 Defendants further argue that “ARPA is more modest than the prospective funding
20 condition” deemed permissible in NFIB because the State would only have to repay ARPA
21 funds that it “uses as an improper offset.” Doc. 86 at 21. But this is hardly any consolation,
22 given that money is fungible and it is impossible for the State to anticipate what amount
23 might eventually be subject to recoupment. Moreover, the State’s coercion claim is
24 evaluated at the time the State chose “whether to surrender [its] sovereignty or forgo
25 billions of dollars in federal funds.” Texas, 2022 WL 1063088, at *5 (rejecting notion that
26 threat of recoupment is necessary to decide whether Tax Mandate is coercive).
27
7
28 Available at: https://bit.ly/3i9yuBU (last visited November 21, 2022).
12
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 17 of 22
1 Although Congress did not expressly demand that the states adopt Congress’s
2 preferred tax policy, that much is both implicit in, and inescapably flows from, the Tax
3 Mandate’s sweeping text. The Spending Clause and Tenth Amendment do not allow
4 Congress to “order states to forgo a sovereign power by an explicit command or a
5 conditional offer a State cannot refuse.” Texas, 2022 WL 1063088, at *4. Because the Tax
6 Mandate “unduly influences a State’s power to set its own tax policies,” id. at *5, it should
7 be enjoined on this basis.
8 C. The Tax Mandate Is Unrelated to ARPA’s Purpose
9 As discussed in the State’s renewed motion, the Tax Mandate is also invalid because
10 it violates Dole’s relatedness requirement. Doc. 78 at 20-21. See New York v. United States,
11 505 U.S. 144, 167 (1992) (“some relationship” must exist between the condition imposed
12 and “the purpose of the federal spending”). The Tax Mandate fails this test because
13 prohibiting states from making any tax reductions—no matter the justification or causal
14 relationship to ARPA funds—possibly years after the impact of the pandemic has
15 dissipated, does not bear any relationship to ARPA’s stated purpose of mitigating the fiscal
16 effects of COVID-19. See 42 U.S.C. § 802(a)(1). The Tax Mandate further impedes
17 ARPA’s purpose because it allows States to spend state funds for purposes other than
18 pandemic relief, yet punishes States for providing tax relief to its citizens impacted by the
19 pandemic.
20 Moreover, the Tax Mandate is not only lacking a rational relationship to the purpose
21 of the State aid—it affirmatively violates the Act’s express (and actual) purposes. Notably,
22 the Act expends a truly enormous amount of money as stimulus through tax cuts and direct
23 payments to taxpayers: approximately $593 billion in all. See Doc. 11-2, Exs. G, Z.
24 Congress thus made its own determination through the Act that substantial tax relief (as
25 well as spending) was appropriate to stimulate the U.S. economy. Barring the States from
26 engaging in any form of stimulus through tax relief is shown as irrational by Congress’s
27 own actions. In essence, Congress’s message to the States is “Tax cuts for me, but not for
28 thee.” But this flagrant hypocrisy does not satisfy the relatedness requirement.
13
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 18 of 22
1 Similarly, Congress’s decision to apply the Tax Mandate only to the States and not
2 local governments, underscores the lack of any rational relationship between ARPA’s
3 purposes and the Tax Mandate. Either macroeconomic stimulus through tax relief serves
4 ARPA’s purposes or it does not. But Congress’s decision to hamstring States—but not
5 local governments or itself—in enacting such stimulus has no legitimate connection to
6 ARPA’s purposes.
7 Citing paragraphs 65 and 66 of the State’s Complaint, Defendants argue that the
8 State did not plead this claim in its Complaint. Doc. 86 at 23.8 Defendants are mistaken. In
9 Count II, the State alleged that “the Tax Mandate is unrelated to the asserted federal
10 interest in the national program advanced in [ARPA]” and cited Dole, 483 U.S. at 208.
11 Doc. 1 at 15. As with the State’s coercion claim, Defendants appear to argue that the
12 State’s relatedness claim can only survive if the Tax Mandate is broadly construed “under
13 the problematic interpretation,” which would prevent states from cutting taxes in
14 essentially any manner. Doc. 86 at 23 (citing Arizona, 550 F.Supp.3d at 795, and Missouri,
15 39 F.4th at 856 (R. Nelson, J., concurring)). As discussed above, however, the Tax
16 Mandate’s ambiguous and expansive text does not lend itself to any plausible narrow
17 interpretation. Supra, § I(A). The Tax Mandate does not “bear some relationship to the
18 purpose” of ARPA, see Mayweathers, 314 F.3d at 1067, because it flatly contradicts
19 Congress’s explicit endorsement of federal tax cuts as a tool for economic recovery from
20 the pandemic. ARPA, Pub. L. No. 117-2, § 9621 (expanding earned income tax credit);
21 § 9673 (exempting revitalization funds).
22
23
24
25 8
When Defendants opposed the State’s initial motion for a preliminary injunction in April
26 2021, Defendants did not argue that the State’s relatedness claim had not been pled in the
Complaint. See Doc. 31 at 19. And for good reason: it plainly was. That Defendants are
27 scraping ever deeper into the bottom of the barrel reveals the weaknesses of their
28 remaining arguments here.
14
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 19 of 22
D. Defendants Agree That Treasury’s Regulations Cannot Cure the Tax
1 Mandate’s Deficiencies
2 Finally, Defendants concede that neither Treasury’s Interim Final Rule nor Final
3 Rule implementing ARPA’s conditions could cure an unconstitutional statute. Doc. 86 at 9-
4 10 (discussing final rule), 14 & n.3 (arguing “agency regulations have no bearing on the
5 Spending Clause analysis” and this Court need not “look to the regulation”). Concession
6 aside, the Spending Clause and Supreme Court precedent demand that Congress supply the
7 requisite clarity in statutory language itself; a regulation cannot backfill the necessary
8 clarity. See Virginia Dep’t of Educ. v. Riley, 106 F.3d 559, 567 (4th Cir. 1997) (en banc);
9 Texas Educ. Agency v. U.S. Dep’t of Educ., 992 F.3d 350, 361-62 (5th Cir. 2021).
10 Thus, this Court should not rely on Treasury’s regulations when resolving the merits
11 of the State’s constitutional claims. See Doc. 78 at 13-15, 20.
12 II. The State Has Met the Requirements for a Permanent Injunction
13 Defendants argue the State cannot meet the other injunction factors, but they make
14 only cursory arguments contesting the irreparable-harm factor. Doc. 86 at 24. The State
15 pointed out that the harm caused by the Tax Mandate “manifests in several forms,”
16 including the constraint on the State’s taxing power, thus interfering with the State’s
17 sovereignty. Doc. 78 at 21-22. Defendants do not address that harm at all.
18 Instead, Defendants suggest the State “will have an ‘adequate remedy’ if
19 recoupment proceedings ever materialize.” Doc. 86 at 24 (citation omitted). That “wait-
20 and-see approach” offers no solace and does not remedy the alleged harm at all. Ohio, 547
21 F.Supp.3d at 726. “[I]t is not merely the recoupment that harms” the State because “if the
22 Tax Mandate is ambiguous as to a broad range of potential tax changes, then that
23 ambiguity will have consequences of its own.” Id. Arizona’s Legislature “may be
24 disinclined to consider any rate reduction, as to any state tax, because the Secretary could
25 interpret that reduction as triggering a right to recoupment.” Id. Defendants’ attempt to
26 minimize the harm to the State’s sovereignty, “especially when coupled with the billions of
27 dollars that are at risk based on that ambiguity,” is unpersuasive. Id.
28
15
Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 20 of 22
1 At the end of the day, if Congress has exceeded its authority under the Spending
2 Clause in a manner that putatively binds the States, that is sovereign injury. And
3 Defendants do not explain how sovereign injury could possibly be anything other than
4 irreparable harm: money damages could not remedy it, and they are not available here due
5 to Defendants’ own sovereign immunity.
6 Defendants further argue that an injunction harms the federal government when its
7 laws are enjoined. Doc. 86 at 24. That argument fails, of course, when the law at issue is
8 unconstitutional. See Otto v. City of Boca Raton, 981 F.3d 854, 870 (11th Cir. 2020)
9 (“[N]either the government nor the public has any legitimate interest in enforcing an
10 unconstitutional ordinance.”); see also Texas, 2022 WL 1063088 at *7 (emphasizing
11 Defendants “have no judicially cognizable interest in enforcing a provision—such as
12 Section 802(c)(2)(A)—that is coercive and commandeers [states], and Defendants remain
13 able to enforce the other ARPA provisions”). Ultimately, “our system does not permit
14 agencies to act unlawfully even in pursuit of desirable ends.” Alabama Ass’n of Realtors v.
15 HHS, 141 S. Ct. 2485, 2490 (2021). The Treasury Department has no legitimate interest in
16 enforcing an unconstitutional law, and does not suffer a scintilla of cognizable harm from
17 an injunction against such enforcement.
18 Indeed, Defendants’ argument is not merely wrong, but outright offensive to our
19 federal constitutional system. Defendants’ position that an unconstitutional law—and one
20 that violates the sovereign of States under our constitutional system of dual sovereigns—
21 should be permitted to remain in effect even though it is outright unconstitutional is, quite
22 frankly, beyond the pale. Is it really Defendants’ position that unconstitutional laws should
23 generally remain in place because enjoining them would harm the federal government’s
24 putative “interest” in enforcing unconstitutional statutes?
25 Because the State has satisfied all of the requirements for injunctive relief, this
26 Court should issue a permanent injunction.
27 …
28
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Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 21 of 22
1 CONCLUSION
2 The Court should grant the State’s Renewed Motion and deny Defendants’ motion
3 to dismiss.
4 RESPECTFULLY SUBMITTED this 25th day of November, 2022.
5
MARK BRNOVICH
6 ATTORNEY GENERAL
7
By
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Joseph A. Kanefield (No. 15838)
9 Drew C. Ensign (No. 25463)
Linley Wilson (No. 027040)
10 Andrew Reilly (No. 029138)
11 Robert J. Makar (No. 33579)
Assistant Attorneys General
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Attorneys for Plaintiff Arizona
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Case 2:21-cv-00514-ROS Document 87 Filed 11/25/22 Page 22 of 22
1 CERTIFICATE OF SERVICE
2 I hereby certify that on this 25th day of November, 2022, I electronically filed the
3 foregoing with the Clerk of the Court for the United States District Court for the District of
4 Arizona using the CM/ECF filing system. Counsel for all parties are registered CM/ECF
5 users and will be served by the CM/ECF system pursuant to the notice of electronic filing.
6
7 s/Linley Wilson
8 Attorney for the State of Arizona
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