Response to petition for en banc rehearing, Commonwealth of Kentucky v. Yellen, No. 21-6108 (6th Cir.), Doc. 63 (March 27, 2023)
Summary
A response of the Commonwealth of Kentucky and the State of Tennessee to a petition for rehearing en banc, Document 63, in Case No. 21-6108, in the United States Court of Appeals for the Sixth Circuit, filed March 27, 2023. The appeal is from the United States District Court for the Eastern District of Kentucky, Case No. 3:21-cv-00017, and names Janet Yellen, in her official capacity as Secretary of the Treasury, among the defendants-appellants. The table of contents lists arguments that the panel decision is correct on the merits, including that the Tax Mandate is impermissibly vague, and that the Treasury Defendants chose not to question the States' cause of action. The conclusion states that the Court should deny rehearing.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Cite this document
“Response to petition for en banc rehearing, Commonwealth of Kentucky v. Yellen, No. 21-6108 (6th Cir.), Doc. 63 (March 27, 2023).”
Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/response-to-petition-for-en-banc-rehearing-commonwealth-of-kentucky-v-28832cce86/
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Case: 21-6108 Document: 63 Filed: 03/27/2023 Page: 1
Case No. 21-6108
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
COMMONWEALTH OF KENTUCKY, and
STATE OF TENNESSEE
Plaintiffs-Appellees
v.
JANET YELLEN,
in her official capacity as
Secretary of the Treasury, et al.
Defendants-Appellants
On Appeal from the United States District
Court for the Eastern District of Kentucky
Case No. 3:21-cv-00017
RESPONSE OF THE COMMONWEALTH OF KENTUCKY
AND THE STATE OF TENNESSEE TO PETITION
FOR REHEARING EN BANC
Daniel Cameron Jonathan Skrmetti
Attorney General of Kentucky Attorney General and Reporter of Tennessee
Matthew F. Kuhn Andrée S. Blumstein
Solicitor General Solicitor General
Michael R. Wajda J. Matthew Rice
Assistant Solicitor General Special Assistant to the Solicitor General
Office of the Kentucky Office of the Tennessee
Attorney General Attorney General
700 Capital Avenue, Suite 118 P.O. Box 20207
Frankfort, Kentucky 40601 Nashville, Tennessee 37202
(502) 696-5300 (615) 741-3492
Matt.Kuhn@ky.gov Andree.Blumstein@ag.tn.gov
Michael.Wajda@ky.gov Matt.Rice@ag.tn.gov
Case: 21-6108 Document: 63 Filed: 03/27/2023 Page: 2
TABLE OF CONTENTS
TABLE OF AUTHORITIES........................................................................................ ii
INTRODUCTION ......................................................................................................... 1
BACKGROUND ............................................................................................................ 3
ARGUMENT ................................................................................................................... 7
I. The panel decision is correct on the merits. ................................................... 7
A. Every appellate court to reach the merits has correctly found the Tax
Mandate impermissibly vague under Pennhurst. ........................................... 8
B. The panel correctly found that the Tax Mandate is impermissibly vague
and cannot be saved by Treasury’s regulation. .......................................... 14
C. The Treasury Defendants chose not to question the States’ cause of
action................................................................................................................. 17
CONCLUSION ............................................................................................................. 18
CERTIFICATE OF COMPLIANCE ....................................................................... 19
CERTIFICATE OF SERVICE .................................................................................. 20
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TABLE OF AUTHORITIES
Cases
Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy,
548 U.S. 291 (2006)....................................................................................................... 9
Cutter v. Wilkinson,
423 F.3d 579 (6th Cir. 2005) ..................................................................................... 14
Dep’t of Revenue of Oregon v. ACF Indus., Inc.,
510 U.S. 332 (1994)....................................................................................................... 1
Kentucky v. Yellen,
54 F.4th 325 (6th Cir. 2022) ................................................................................passim
McWilliams v. Dunn,
582 U.S. 183 (2017)....................................................................................................... 7
Pennhurst State Sch. & Hosp. v. Halderman,
451 U.S. 1 (1981) .............................................................................................. 9, 13, 16
Sch. Dist. of City of Pontiac v. Sec’y of Dept. of Educ.,
584 F.3d 253 (6th Cir. 2009) (en banc) ................................................................... 10
West Virginia ex rel. Morrissey v. U.S. Dep’t of Treasury,
59 F.4th 1124 (11th Cir. 2023)............................................................................passim
Statutes
42 U.S.C. § 802..........................................................................................................passim
Regulations
31 C.F.R. § 35.4(a) .......................................................................................................... 11
Rules
6th Cir. I.O.P. 35(a).......................................................................................................... 2
Coronavirus State and Local Fiscal Recovery Funds, 87 Fed. Reg. 4,338
(Jan. 27, 2022) .............................................................................................................. 12
ii
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Other Authorities
Treasury Secretary and Federal Reserve Chair Testimony on COVID-19
Economic Recovery, https://www.c-span.org/video/?510059-1/treasury-
secretary-federalreserve-chair-testimony-covid-19-economic-recovery
(Mar. 24, 2021)............................................................................................................... 5
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INTRODUCTION
To help States cope with a once-in-a-century pandemic, the federal govern-
ment offered the States “a sum equal to one-fifth of their annual budgets.” Ken-
tucky v. Yellen, 54 F.4th 325, 329 (6th Cir. 2022). But this money came with a catch.
The federal government demanded that the States forsake their taxing authority
to receive this money—authority that is “central to state sovereignty.” Dep’t of
Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 345 (1994). The Tax Mandate re-
quires the States not to use the federal money to “either directly or indirectly off-
set a reduction in the net tax revenue of such State resulting from a change” in
state law. 42 U.S.C. § 802(c)(2)(A).
Because all money is fungible, this raised “thorny questions.” Kentucky, 54
F.4th at 331. A unanimous panel of this Court found the Tax Mandate impermis-
sibly vague in three respects. First, the Tax Mandate “does not clearly explain
what it means to ‘indirectly offset’ revenue-reducing tax cuts.” Id. at 348. Con-
ceivably, any time a State “enacts a revenue-reducing tax cut and expends” Rescue
Plan funds, those funds “indirectly offset” a revenue-reducing tax cut. Id. Second,
the Tax Mandate offers no method to identify a “reduction” in state tax revenue.
Id. at 350. And it is simply impossible to calculate a reduction without a baseline.
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Id. Finally, the States cannot determine whether “a reduction in tax revenue ‘re-
sult[ed] from a change’ in state tax policy.” Id. at 351 (alteration in original) (citing
Tax Mandate). The Tax Mandate does not say whether it is concerned with “ex-
pected tax revenues,” which a State can control and forecast, or “actual tax reve-
nues,” which are known only after the fact. Id.
The Treasury Defendants seek en banc review. After submitting to the
panel a 15-page opening brief focused almost entirely on jurisdiction, Appellant
Br. 6–11, the Treasury Defendants have now decided to focus on the merits. Re-
hearing should be denied. There is no precedent-setting error of exceptional im-
portance. Nor is there a direct conflict with Supreme Court or Sixth Circuit prec-
edent. 6 Cir. I.O.P. 35(a). In fact, the only other circuit court to address the con-
stitutionality of the Tax Mandate unanimously agrees with the panel’s decision.
West Virginia ex rel. Morrissey v. U.S. Dep’t of Treasury, 59 F.4th 1124, 1146 (11th Cir.
2023).
The Tax Mandate’s vagueness issues underscore the need for finality and
the undesirability of protracted en banc review. The panel noted the ongoing
harm of “expend[ing] resources to maintain compliance with the Offset Provi-
sion.” Kentucky, 54 F.4th at 342. Because the funding from the Tax Mandate ex-
pires on December 31, 2024, 42 U.S.C. § 802(a)(1), the States need finality as they
2
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expend the funds subject to the Tax Mandate. Absent finality, the States will lack
the certainty they need.
Merits aside, the Treasury Defendants do not disclaim pressing their juris-
dictional arguments again if the full Court grants review. Pet. 2 n.1. So although
the Treasury Defendants ask the full Court to resolve the constitutionality of the
Tax Mandate, the Court would likely have to first sort through (meritless) juris-
dictional arguments about which the Treasury Defendants chose not to seek re-
hearing. As a result, the Treasury Defendants seek rehearing only about merits
issues they may well ask the full Court to avoid on jurisdictional grounds.
BACKGROUND
The American Rescue Plan Act provides the States with almost two-hun-
dred billion dollars to combat the effects of COVID-19. But to receive the funds,
the States must agree to an incomprehensible condition that effectively prohibits
them from lowering their taxes.
Rescue Plan Funding. The States can spend their Rescue Plan funds on
four broad categories of COVID-19-related expenses. 42 U.S.C. § 802(c)(1). First,
the States can use the money to provide assistance to several groups and industries
affected by the pandemic—households, small businesses, nonprofits, etc. Id.
§ 802(c)(1)(A). Second, the States can fund salary increases for employees “that
3
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are performing . . . essential work.” Id. § 802(c)(1)(B). Third, the States can use
Rescue Plan funds to make up for any revenue losses caused by the pandemic. Id.
§ 802(c)(1)(C). And fourth, the States can make “investments in water, sewer, or
broadband infrastructure.” Id. § 802(c)(1)(D). The Rescue Plan funds can be used
only on these four categories and only “to cover costs incurred by the State . . . by
December 31, 2024.” Id. § 802(c)(1).
The Tax Mandate. It is not enough, however, that the States spend their
Rescue Plan funds only in approved areas. The Rescue Plan also requires the
States to refrain from lowering their taxes during any of the years they spend the
federal money.
The Rescue Plan accomplishes this through an impossibly vague restriction
on how the States “use” their funds—the Tax Mandate. Under § 802(c)(2)(A), the
States are prohibited from using Rescue Plan funds to “directly or indirectly offset
a reduction in [their] net tax revenue” caused by “a change in state law, regulation,
or administrative interpretation.” In other words, if the States change their tax
laws in a way that lowers the tax burden on their citizens, the Rescue Plan pro-
hibits the States from using federal funds to “indirectly” offset any revenue losses.
But the statute does not define what it means to “indirectly” offset a loss in
tax revenue. Nor does it identify the starting point from which the States must
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measure any reduction in their “net tax revenue,” or even whether the revenue
reduction is expected or actual. Those critical items are left to the imagination.
And when a group of States sought clarity, Secretary Yellen herself admitted that
the fungibility of money raised “thorny questions” about what the Tax Mandate
means.1
This lawsuit. Facing imminent harm, the Commonwealth of Kentucky
and the State of Tennessee sued the Treasury Defendants to prevent them from
enforcing the Tax Mandate. [Compl., R.1, PageID#1–25]. The States challenged
the Tax Mandate on two fronts. First, the States argued that the Tax Mandate
violates the Spending Clause, which prohibits Congress from imposing ambigu-
ous or coercive conditions on federal funds. The Tax Mandate is both. Second,
the States argued that the Tax Mandate violates the anti-commandeering doctrine
by using Congress’s spending authority to co-opt an essential feature of State sov-
ereignty—the power to set state tax policies.
1 Treasury Secretary and Federal Reserve Chair Testimony on COVID-19 Eco-
nomic Recovery at 58:20–59:03, https://www.c-span.org/video/?510059-
1/treasury-secretary-federalreserve-chair-testimony-covid-19-economic-recovery
(Mar. 24, 2021).
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Upon cross-motions on all claims, the district court entered summary judg-
ment in the States’ favor. The court held that the Tax Mandate is unconstitution-
ally coercive. [Op. & Order, R.42, PageID#628, 632–39]. The court explained
that “the federal government overstep[ped] its bounds” by “unduly influenc[ing]
the States’ power to set their own tax policies” during the COVID-19 pandemic.
[Id. at PageID#639]. Because “[t]he spending power of the federal government
does not go so far,” [id. at PageID#628], the district court entered a permanent
injunction prohibiting the defendants from enforcing § 802(c)(2)(A) against Ken-
tucky and Tennessee, [id. at PageID#644].
The appeal. Upon the Treasury Defendants’ appeal, the panel unani-
mously affirmed the permanent injunction as to Tennessee because it found the
Tax Mandate impermissibly vague in three respects.2 First, the Tax Mandate does
not establish “what particular conduct constitutes an ‘indirect’ offset.” Kentucky,
54 F.4th at 347. Second, it gives no notice about “how to calculate a ‘reduction’
2 As to Kentucky, the panel concluded over Judge Nalbandian’s dissent that Ken-
tucky’s challenge to the Tax Mandate was moot. Kentucky, 54 F.4th at 329. Ken-
tucky respectfully disputes that conclusion and intends to challenge it if rehearing
is granted. After all, the Eleventh Circuit disagreed with the panel on this very
issue. West Virginia, 59 F.4th at 1139 (“We disagree with this reasoning.”). Even
still, “the relief granted to Tennessee applies to Kentucky regardless.” Kentucky,
54 F.4th at 358 n.1 (Nalbandian, J., concurring in part and dissenting in part).
6
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in net tax revenue.” Id. And third, it provides States no clarity as to “whether such
a reduction resulted from a tax cut.” Id. The Treasury Defendants now seek en
banc review.
ARGUMENT
After offering only a tepid defense of the merits before the panel, the Treas-
ury Defendants now wish to contest the merits more vigorously. The Court
should reject this request. The panel decision is demonstrably correct on the mer-
its. It also aligns with the only other circuit court to consider the issue. Kentucky,
54 F.4th at 354; West Virginia, 59 F.4th at 1146. In addition, if rehearing is granted,
the Treasury Defendants have indicated that they may again press the jurisdic-
tional arguments they lost at the panel stage. Pet. 2 n.1. The Court should not
grant rehearing to give the Treasury Defendants a second bite at their jurisdic-
tional arguments—on which they do not seek rehearing.3
I. The panel decision is correct on the merits.
The Treasury Defendants claim that the panel decision “rests on errors of
law.” Pet. 6. They purport to identify four. First, the Treasury Defendants take
3 This is akin to a litigant who “persuaded us to grant certiorari on one question”
and then “chose to rely on a different argument in their merits briefing.”
McWilliams v. Dunn, 582 U.S. 183, 210 (2017) (Alito, J., dissenting) (citation omit-
ted). The Court should “not tolerate this sort of bait-and-switch tactic.” Id. at 211.
7
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issue with the panel citing Pennhurst to find the Tax Mandate impermissibly vague.
Id. Next, they argue that the Tax Mandate is clear. Id. at 10. After that, they say
that Congress can allow agencies to cure fatal ambiguities through regulations. Id.
at 12. And finally, they suggest in passing that the States lack a cause of action. Id.
at 9. Each of these arguments fails; rehearing should be denied.
A. Every appellate court to reach the merits has correctly found
the Tax Mandate impermissibly vague under Pennhurst.
Start with the clear-statement principle from Pennhurst. According to the
Treasury Defendants, Pennhurst can be used only “to resolve disputes over the
meaning of grant conditions in a grant recipient’s favor.” Pet. 6. It is “not a basis
to declare a federal statute categorically unenforceable.” Id. They claim that
“[o]ther than in this and other challenges” to the Tax Mandate, “no court of which
we are aware has ever relied on the Pennhurst clear-statement principle” to hold a
funding condition “categorically unenforceable.” Id. at 8.
As an initial matter, Congress has never used such facially vague language
to take such a large bite out of the States’ sovereignty. Nor did the panel break
new ground in its application of Pennhurst. Like many prior cases, the panel rec-
ognized that Spending Clause legislation is “unenforceable . . . when [Congress]
fail[s] to provide states with clear notice of a purported funding condition.” Ken-
tucky, 54 F.4th at 347. In this case, though, the statutory language is not simply
8
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ambiguous, such that the clear-statement rule forecloses a plausible interpretation
at the periphery. Here, the statutory language is meaningless without further ex-
plication. That is, the language is so vague as to have no clear meaning at all. The
Pennhurst clear-statement rule does not somehow disappear in such circumstances;
it operates at its zenith in protecting States.
Moreover, the Treasury Defendants’ qualification to the alleged lack of case
law—excluding “this and other challenges” to the Tax Mandate—performs her-
culean work. So far, every appellate court to reach the merits of the several chal-
lenges to the Tax Mandate has found it impermissibly vague. All six of the circuit
judges to consider the issue agree.
The unanimous panel here noted that Congress’ Spending Clause authority
“rests on whether the State voluntarily and knowingly accepts the terms of the
‘contract.’” Kentucky, 54 F.4th at 348 (citing Pennhurst State Sch. & Hosp. v. Halder-
man, 451 U.S. 1, 17 (1981)). And the States “cannot knowingly accept conditions
of which they are ‘unaware’ or which they are ‘unable to ascertain.’” Id. (citing
Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 291, 296 (2006)). So for
Congress to impose a condition, “‘it must do so unambiguously’ and with a ‘clear
voice.’” Id. (citing Pennhurst, 451 U.S. at 17).
In fact, the panel understood the Pennhurst clear-statement rule the same
9
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way this Court did in the en banc case the Treasury Defendants cite. Compare id.
at 348 (describing clear-statement rule), with Sch. Dist. of City of Pontiac v. Sec’y of
Dep’t of Educ., 584 F.3d 253, 268 (6th Cir. 2009) (en banc) (Cole, J., opinion in
favor of reversing) (describing clear-statement rule the same way), and id. at 284
(Sutton, J., concurring in the order) (describing it the same way). All agree that an
unascertainable funding condition cannot be knowingly accepted. The difference
in Pontiac is that the condition was ambiguous, not vague, and the opinions
interpreted the ambiguous condition differently. See Kentucky, 54 F.4th at 346–47
(explaining that the Tax Mandate is vague because it “lacks inherent or definite
content”). And the Treasury Defendants misread Judge Cole’s opinion, which
referenced the States’ obligation to follow the other unambiguous funding
conditions—not the condition he found ambiguous. Pontiac, 584 F.3d at 278
(Cole, J., opinion in favor of reversing). The analogy here is that the States must
still spend Rescue Plan funds only in the enumerated categories—which the States
have never contested. 42 U.S.C. § 802(c)(1).
At any rate, Congress failed to speak with the requisite clarity here. As the
panel noted, the phrase “indirectly offset” “failed to provide clear notice” about
the prohibited conduct. Id. at 350. When money is fungible, what does it mean to
“indirectly offset”? Consider the States’ example from briefing. Appellee Br. 35.
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Say a State currently spends $10 million on healthcare infrastructure and $10
million on its corrections department. It necessarily collects $20 million in
revenue. Kentucky, 54 F.4th at 337 n.5 (noting balanced-budget requirements). And
say the State receives $2 million in Rescue Plan funding, which it spends on
healthcare infrastructure. It then puts $2 million that it formerly spent on
healthcare infrastructure toward new line-items for its corrections department.
And then it reduces its prior corrections-department budget by $1 million. With
this $1 million, it enacts a tax cut of the same amount. So now, the State spends
$10 million on healthcare infrastructure and $11 million on corrections, collects
$21 million in revenue ($2 million of which are Rescue Plan funds), and provided
a $1 million dollar tax cut. Does this violate the Tax Mandate? On the one hand,
the State reduced its corrections-department budget to provide the tax cut. On
the other hand, the State could not have done so but for the $2 million in Rescue
Plan funds.
The takeaway is that the Tax Mandate offers no way for a State to know. It
can only rely on the Treasury Defendants’ whims.4 For this reason, the Tax
4 The Final Rule makes no difference to this analysis because it expressly reserves
the Secretary’s authority to enforce the Tax Mandate regardless of the Final Rule’s
provisions. 31 C.F.R. § 35.4(a).
11
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Mandate fails to provide the “clear notice” required for the federal government
to impose such a condition. Kentucky, 54 F.4th at 350.
Of course, other provisions are hopelessly vague too. What does it mean
for something to cause “a reduction” in net tax revenue? A “‘reduction’ can be
assessed only be comparing two amounts.” Id. (citing Coronavirus State and Local
Fiscal Recovery Funds, 87 Fed. Reg. 4,338, 4,426 (Jan. 27, 2022)). Not only does
this lack of a baseline make this provision entirely indeterminate—since some-
thing cannot be compared against nothing—but Congress also specified a 2019
baseline elsewhere without specifying one here. Id. And normally when Congress
writes two provisions differently, courts presume such a distinction matters. Id. at
351 n.18.
Finally, the Tax Mandate offers no method to determine whether that com-
parison-less reduction “result[ed] from a change” in state tax policy. Id. at 351 (al-
teration in original) (citing Tax Mandate). What if the State forecasts no “reduc-
tion in expected tax revenues,” but winds up with a “reduction in actual tax reve-
nues”? Id. The Final Rule, “surprisingly,” suggests that the answer “hinges on
whichever accounting method a state uses to determine the effect of the tax cut.”
Id. at 352 (citing Final Rule, 87 Fed. Reg. at 4,406–07). But again, “how were the
States supposed to know about these critical points based on the [Tax Mandate]
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alone?” Id. The panel opinion is replete with examples to which the Tax Mandate
offers no guidance. And because the Tax Mandate does not provide “‘clear notice’
about the measures required to maintain compliance,” the provision must fall. Id.
at 352 & n.20.
The Eleventh Circuit panel also unanimously found the same impermissible
vagueness. That panel first cited the same precedent requiring that Congress
“speak ‘unambiguously’ and ‘with a clear voice’ when it imposes conditions on
federal funds.” West Virginia, 59 F.4th at 1141 (citing Pennhurst, 451 U.S. at 17).
Then it found two of the same provisions lacking. First, the Tax Mandate provides
no baseline to determine whether a State reduces tax revenue. Id. at 1144. And
second, the “directly or indirectly offset” provision fails to provide the requisite
clarity. Id. at 1145. As the unanimous panel found, “because money is fungible,”
the Treasury Defendants “can view any Rescue Plan funds received” as violating
the indirect-offset provision. Id. at 1145. In effect, it provides no notice. So the
Tax Mandate “is not ascertainable and does not provide clear notice about how
to comply with it.” Id. at 1146 (cleaned up).
The unanimous Eleventh Circuit panel also rejected the Treasury
Defendants’ argument that the “unambiguous” requirement is a mere rule of
construction. Id. at 1141. It said that circuit precedent, Supreme Court precedent,
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and “basic contract principles” each “independently demand” finding the Tax
Mandate unconstitutional. Id. at 1141. In short, both the Eleventh Circuit panel
and the Sixth Circuit panel unanimously found that the Tax Mandate lacks the
required clarity.
B. The panel correctly found that the Tax Mandate is impermissi-
bly vague and cannot be saved by Treasury’s regulation.
The Treasury Defendants’ next two reasons for rehearing are not
compelling for the simple reason that the panel correctly rejected these
arguments. A quick recitation of the panel’s reasoning is enough to dispense with
them.
1. First, the Treasury Defendants claim that “Congress spoke with the clar-
ity needed under Pennhurst.” Pet. 10. They cite Cutter v. Wilkinson, 423 F.3d 579,
586 (6th Cir. 2005), as requiring notice only that there are mandatory funding
conditions, not requiring any clarity as to what those conditions might be. Pet. 11.
But the panel chided the Treasury Defendants for “misreading” and “erroneously
exaggerat[ing]” Cutter. Kentucky, 54 F.4th at 356. For starters, the parties in Cutter
pressed an “anti-retroactivity” question, not a “strict-scrutiny-is-too-indetermi-
nate” one. Id. Additionally, the portions of Cutter the Treasury Defendants
quote—both here and before the panel—“were describing a Seventh Circuit deci-
sion.” Id. The Treasury Defendants still “respectfully submit that Cutter quotes the
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Seventh Circuit’s reasoning with approval.” Pet. 11 n.2. But as the panel noted,
such language addressed a question not before the Cutter court. Kentucky, 54 F.4th
at 356. Even if Cutter did stand for what the Treasury Defendants say it does
(which it does not), the panel held that conditioning funding on complying with
the well-known strict-scrutiny test is vastly more determinate than the Tax Man-
date. Id.
Nor does the Treasury Defendants’ claim that “Congress often uses the
phrase ‘directly or indirectly’” save the Tax Mandate. Pet. 13. The panel rejected
that too. The examples the Treasury Defendants provide have “no conceivable
relevance” to the Tax Mandate. Kentucky, 54 F.4th at 357. For instance, as the
Treasury Defendants note, one rule makes it unlawful to make a false statement
of material fact directly or indirectly. Pet. 13. But an example of doing that indi-
rectly is easy to imagine—for instance, using “third-party intermediaries.” Ken-
tucky, 54 F.4th at 357. The panel found such examples “of no consequence” be-
cause “Treasury conceded that it has no example” of the directly-or-indirectly
phrase “in a Spending Clause statute, much less one in the particular context of
taxation, and, less still, one that survived ambiguity challenges in federal court.”
Id. Context is key, and the relevant phrase is “directly or indirectly offset.” Id. (citing
42 U.S.C. § 802(c)(2)(A)). That phrase “occurs exactly once in the entire U.S.
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Code”—in the Tax Mandate. Id. That statutes elsewhere use a subset of the phrase
at issue here simply has “no conceivable relevance.” Id. Neither case law nor the
Treasury Defendants’ examples save the Tax Mandate from its infirmity.
2. Second, the Treasury Defendants say Congress can “leave the particulars
of implementing the condition to the agency charged with administering the
spending program.” Pet. 12. But the Tax Mandate does not include “the sort of
particulars that . . . Congress can permissibly leave for an agency to resolve.” Id.
at 14. The Final Rule does much more than provide “implementation details”—
it “supplied content without which” the Tax Mandate “literally could not func-
tion.” Kentucky, 54 F.4th at 354. The Final Rule recognized as much: “Measuring
a ‘reduction’ in net tax revenue requires identification of a baseline. In other
words, a ‘reduction’ can be assessed only by comparing two amounts.” 87 Fed.
Reg. at 4,426. In essence, the Tax Mandate creates much too large a hole for the
Final Rule to fill—an obligation too amorphous for the States to “voluntarily and
knowingly accept[].” Pennhurst, 451 U.S. at 17.
Importantly, the Treasury Defendants admitted as much. They “categori-
cally waived reliance on the [Final] Rule to cure a vagueness defect under the
Spending Clause.” Kentucky, 54 F.4th at 353. Both to the panel and to the district
court, the Treasury Defendants conceded that “agency regulations should have no
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bearing on the Spending Clause analysis.” Id. (citation omitted). And the panel
found that proper. It rejected the Treasury Defendants’ invitation that the panel
act “as if [it] were interpreting a statute which has no implications for the balance
of power between the Federal Government and the States.” Id. at 354 (citation
omitted).
For this reason, the relevant question is not whether Congress can ever
leave implementing details to agencies. Contra Pet. 14. The relevant question is
whether Congress can leave these implementing details to the Treasury. And the
unanimous answer to that question is “no.” See Kentucky, 53 F.4th at 354; West
Virginia, 59 F.4th at 1146.
C. The Treasury Defendants chose not to question the States’
cause of action.
Finally, the Treasury Defendants briefly argue that the panel opinion
“exceeds the bounds of the cause of action supported by the complaint.” Pet. 9.
But Judge Nalbandian’s discussion of the States’ cause of action is enough to re-
ject this argument. Judge Nalbandian noted that the Supreme Court “has recog-
nized an action in cases that allege Spending Clause violations under the Consti-
tution itself.” Kentucky, 54 F.4th at 362 n.4 (collecting cases). And Judge Nal-
bandian found it “telling[]” that the Treasury Defendants did “not contest the
States’ ability to sue apart from their justiciability arguments.” Id. The Treasury
17
Case: 21-6108 Document: 63 Filed: 03/27/2023 Page: 22
Defendants cannot now complain that the States “never even attempted to iden-
tify a cause of action” when the Treasury Defendants forfeited that argument.
Pet. 9–10. As the cases cited in the footnote show, the States have a cause of
action under the Spending Clause. Kentucky, 54 F.4th at 362 n.4. The Court should
dismiss this late-arising argument out of hand.
CONCLUSION
The Court should deny rehearing.
Respectfully submitted by,
s/Michael R. Wajda s/ Andrée S. Blumstein (with permission)
Daniel Cameron Jonathan Skrmetti
Attorney General of Kentucky Attorney General and Reporter of Tennessee
Matthew F. Kuhn Andrée S. Blumstein
Solicitor General Solicitor General
Michael R. Wajda J. Matthew Rice
Assistant Solicitor General Special Assistant to the Solicitor General
Office of the Kentucky Office of the Tennessee
Attorney General Attorney General
700 Capital Avenue, Suite 118 P.O. Box 20207
Frankfort, Kentucky 40601 Nashville, Tennessee 37202
(502) 696-5300 (615) 741-3492
Matt.Kuhn@ky.gov Andree.Blumstein@ag.tn.gov
Michael.Wajda@ky.gov Matt.Rice@ag.tn.gov
18
Case: 21-6108 Document: 63 Filed: 03/27/2023 Page: 23
CERTIFICATE OF COMPLIANCE
I certify that this response complies with the type-volume limitation in Fed.
R. App. P. 35(b)(2)(A) and 35(e) because it contains 3,900 words, excluding the
parts of the brief exempted by Fed. R. App. P. 32(f) and 6th Cir. R. 32(b)(1).
This response complies with the typeface requirements of Fed. R. App. P.
32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because it has
been prepared in a proportionally spaced typeface, Garamond, in 15-point font
using Microsoft Word.
s/Michael R. Wajda
19
Case: 21-6108 Document: 63 Filed: 03/27/2023 Page: 24
CERTIFICATE OF SERVICE
I certify that on March 27, 2023, I electronically filed this response with the
Clerk of the Court for the United States Court of Appeals for the Sixth Circuit
using the CM/ECF system. I further certify that all participants in the case are
registered CM/ECF users and that service will be accomplished by the CM/ECF
system.
s/Michael R. Wajda
20
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