The Supreme Court’s trail of breadcrumbs: A legal perspective on California v. Texas

Federal agencies have until May 10 for a final appeal with the U.S. Supreme Court, but CLO industry observers do not expect the Fed or the SEC to follow through.
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Picture yourself in a conversation with a precocious 8-year old girl wearing big red plastic framed glasses when you ask her what she wants to be when she grows up. Looking up at you with complete earnestness she says “a Supreme Court Justice. That’s right folks, not a waitress, a ballerina, a doctor, or even President of the United States, but a Supreme Court Justice. If you haven’t guessed it yet, that 8-year old was me. While I’d like to think that I’ve gotten a lot less awkward over the years, my passion for all things the Supreme Court has never waned. I have of course shifted career goals slightly and I know that Assistant Secretary of Labor for the Employee Benefits Security Administration doesn’t have the same ring to it.

In any event, November 10, 2020 was game day for me. Despite the election, my eyes have been laser focused for months on California v. Texas, the most recent challenge to the Affordable Care Act. In this case, the State of Texas, joined by the Trump Administration, 17 other states and two individual plaintiffs are contending that the ACA’s individual mandate is unconstitutional and that as a result the entire ACA should be invalidated.

Over the past several months, focus on this case has intensified dramatically, especially during Justice Amy Coney Barrett’s confirmation hearings. In a particularly searing image, the Senate Democrats on the Judiciary committee abstained from voting at the confirmation hearing, instead filling their seats with large photos of ACA recipients.

This begs the very real question — is the future of the ACA really in the hands of the Supreme Court? Is there any reasonable basis to believe that the Supreme Court would actually repeal the ACA in its entirety? Will Justice Barrett’s vote make a difference here?

For some additional clues, I watched oral arguments in the case before the Supreme Court and here’s what I learned:

First, all eyes are going to be on Chief Justice Roberts and Justice Kavanaugh.

Roberts had this to say during the hearing:

“[W]as Congress wrong when it said that the mandate was the key to the whole thing, that – that we spent – spent all that time talking about broccoli for nothing?” Roberts was referencing the broccoli example from the 2012 case against the ACA. The broccoli example was a hypothetical mandate to purchase broccoli, but the government was unable to explain why upholding the mandate would not also entail upholding a federal requirement that all citizens purchase broccoli.

The majority of the 2012 Supreme Court’s 5-4 decision upholding the ACA’s constitutionality was composed of: Chief Justice Roberts, Justice Ginsburg, Justice Breyer, Justice Sotomayor, and Justice Kagan. With Justice Barrett replacing Justice Ginsburg, this means that at least two Republican appointees will need to vote in favor of the ACA for it to survive.

Before oral arguments, legal experts predicted the most likely two conservative justices to vote to uphold the ACA are Chief Justice Roberts, after all he wrote the decision in 2012 and Justice Kavanaugh. The oral arguments reinforced this belief. At times both Chief Justice Roberts and Justice Kavanaugh openly dismissed arguments made in favor of declaring the ACA unconstitutional.

It’s also worth noting, that most Supreme Court decisions are not made on a 5-4 basis, so it is possible that more of the Court will join a decision that allows the ACA to stand. This would be more likely if the decision is based on standing or severability.

Second, the federal civil procedure rules may rule the day.

Under the Federal Rules of Civil Procedures an individual must have standing to bring a lawsuit. If there is no standing, it is the Court’s job to throw the case out — meaning they never actually consider the substantive question at issue.

To have standing in federal courts, a plaintiff must show that:

  • They suffered an injury of a legally protected interest;
  • That the issue the court is looking at caused the injury; and
  • It is likely (not just speculative) that a favorable decision will repair the harm

It seemed quite clear that substantially more that half of the argument time was spent discussing if there is standing in this case. The discussion focused around whether any of the plaintiffs were actually harmed when the tax penalty for failing to comply with the individual mandate was reduced to zero. This concern seems to be shared by both ideological sides of the Court.

Third, it might not matter that the individual mandate may no longer be constitutional.

Most of the discussion around the constitutionality of the individual mandate centered around the meaning of the word “shall.” No, I am not making this up. If it gets to this question, there is a high chance the Court will rule that without a tax penalty the individual mandate is unconstitutional. That would mean it couldn’t be enforced and would be vacated. But, the mandate is already not being enforced because there is no penalty. It’s a tortured argument, but the bottom line is this really isn’t the question that matters in this case.

Fun Fact: At one point the Solicitor General of Texas noted that when he tells his kids that they shall do things it’s a command, backed by a penalty. Justice Breyer’s response: “Well, that’s a much more organized family than mine.”

Fourth, it could all come down to “severability.”

The clear runner-up in the race for oral argument airtime was the question of severability. Basically, the question is: Can the rest of the ACA stand if the individual mandate is declared unconstitutional? Detailed and complex legal theories were laid out on both sides of the issue. But, as Justice Kavanaugh aptly noted, the Court generally presumes severability. So, most legal experts doubt strongly that the entire ACA will be invalidated in its entirety. This is because to do so the Supreme Court would have to decide that the individual mandate can’t be legally separated from some or all the remainder of the ACA.

So, where does all this leave us? I try to avoid forecasting things these days, but I don’t think it’s going too far out on a limb to predict that the ACA will survive this particular challenge. We’ll all just have to wait until early Summer 2021 to find out. But, what’s a little more drama these days?

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