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Hotze v. Sebelius

United States District Court, S.D. Texas, Houston Division

January 10, 2014


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For Steven F. Hotze, M.D., Braidwood Management, Inc., Plaintiffs: Andrew L Schlafly, Attorney at Law, Far Hills, NJ.

For Kathleen Sebelius, U.S. Secretary of Health & Human Services, Defendant: Carol Federighi, U.S. Dept of Justice, Civil Div, Federal Programs Branch, Washington, DC.

Jacob J. Lew, U.S. Secretary of the Treasury, Defendant, Pro se, Washington, DC.


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Nancy F. Atlas, United States District Judge.

This case, which challenges the constitutionality of the Patient Protection and Affordable Care Act (the " Affordable Care

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Act" or " ACA" ), Pub. L. No. 111-148, 124 Stat. 119,[1] follows on the coattails of--and in some ways is derivative of--the Supreme Court's recent decision in National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012) (" NFIB " ). Plaintiffs Steven F. Hotze, M.D. (" Hotze" ) and Braidwood Management, Inc. (" Braidwood," and together with Hotze, " Plaintiffs" ) seek a declaratory judgment that the ACA is unconstitutional on two grounds not addressed by NFIB : (1) that the ACA violates the Origination Clause of the United States Constitution, U.S. Const. art. I, § 7, cl. 1; and (2) that the ACA violates the Takings Clause of the Fifth Amendment, U.S. Const. amend. V.

Before the Court is the Motion to Dismiss [Doc. # 14] of Defendants Kathleen Sebelius, U.S. Secretary of Health and Human Services (" Sebelius" ) and Jacob J. Lew, U.S. Secretary of the Treasury (" Lew," and together with Sebelius, " Defendants" ). Plaintiffs have filed a Response [Doc. # 20], to which Defendants have replied [Doc. # 25].

Having carefully considered the parties' briefing, all matters of record, and the applicable legal authorities, the Court holds that Plaintiffs have standing to contest the ACA on the grounds alleged and that this case is otherwise justiciable. The Court further concludes that Plaintiffs have failed to state a claim upon which relief can be granted under either the Origination Clause or the Takings Clause, and that there is no viable amendment to the Complaint that can rectify the deficiencies in Plaintiffs' pleadings. Accordingly, the Court grants Defendants' Motion to Dismiss. The claims against Defendants are dismissed with prejudice.


A. Statutory Background

On October 8, 2009, the House of Representatives (the " House" ) passed H.R. 3590, otherwise titled at the time the " Service Members Home Ownership Tax Act of 2009." H.R. 3590, 111th Cong., § 1 (Oct. 8, 2009). H.R. 3590 was a bill to make certain changes to the Internal Revenue Code. Specifically, the bill extended or waived the recapture of a first-time homebuyer credit for certain members of the armed forces. Id., § § 2-3. The bill also expanded exclusions from gross income of certain military-related fringe benefits. Id., § 4. Finally, the bill increased the penalty for failure to file a partnership or " S corporation" tax return from $89 to $110, and increased certain estimated corporate taxes by 0.5%. Id., § § 5-6.

Upon receipt, the Senate struck out the entirety of H.R. 3590 aside from its enacting clause.[2] In its place the Senate inserted new text under the title " Patient Protection and Affordable Care Act." H.R. 3590, 111th Cong., § 1(a) (Dec. 24, 2009). The bill passed the Senate on December 24, 2009.

The amended H.R. 3590 was then sent back to the House. On March 21, 2010, the House passed H.R. 3590 as amended. Concurrently, the House passed H.R. 4872, entitled the " Health Care and Education Reconciliation Act of 2010," which made

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certain amendments to the ACA.[3] President Obama signed H.R. 3590 into law on March 23, 2010. See Pub. L. 111-148. The Senate passed H.R. 4872 on March 25, 2010, and the President signed it into law on March 30, 2010. See Pub. L. 111-150.

Two particular provisions of the ACA are relevant to this case. First, under the ACA, individuals not otherwise exempted from the law's coverage must either maintain " minimum essential coverage" or, in the alternative, must pay " a penalty with respect to such failures." 26 U.S.C. § 5000A (the " individual mandate" or " minimum coverage provision" ). Second, where " any applicable large employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan" and where " at least one full-time employee of the applicable large employer has been certified . . . as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee," the employer will be assessed a payment.[4] 26 U.S.C. § 4980H (the " employer mandate" or " employer responsibility provision" ).[5]

B. NFIB v. Sebelius

The Supreme Court has previously addressed the constitutionality of the ACA in National Federation of Independent Business v. Sebelius (" NFIB " ). At issue in NFIB was the constitutionality of the individual mandate and the ACA's Medicaid expansion. The Supreme Court's opinion regarding the individual mandate is particularly important to the issues presented in this case.

Chief Justice Roberts, writing for the

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Court in this regard,[6] first rejected the Government's argument that the individual mandate is a " valid exercise of Congress's power under the Commerce Clause and the Necessary and Proper Clause." NFIB, 132 S.Ct. at 2585. The Commerce Clause, the Court held, " presupposes the existence of commercial activity," and the individual mandate " compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce." Id. at 2586-87 (emphasis in original). That distinction, in the Court's view, was fatal to the Government's Commerce Clause argument--the Court effectively rejected the " proposition that Congress may dictate the conduct of an individual today because of prophesied future activity." Id. at 2590.[7]

The Court, however, ultimately upheld the constitutionality of the individual mandate under Congress's power to " lay and collect Taxes." U.S. Const. art. I, § 8, cl. 1. The Court noted that " shared responsibility payment(s)" due under the ACA for those not obtaining minimum essential coverage is paid into the Treasury in conjunction with tax returns, that the provision is found in the Internal Revenue Code, and that " it produces at least some revenue for the Government." NFIB, 132 S.Ct. at 2594. The Court also rejected the argument that the payments should be considered " penalties" instead of taxes. Id. at 2595-96. Moreover, the Court stressed that although the individual mandate is designed to " induce the purchase of health insurance," there are no legal consequences for not doing so, and one who foregoes purchasing insurance and instead chooses to make a payment to the IRS has " fully complied with the law." Id. at 2596-97. Thus, the Court found the individual mandate to comply with Congress's taxing power, even though it effectively imposes a tax on individuals for their " inactivity." Id. at 2599-600. Significantly, the Court noted that " [a]lthough the payment will raise considerable revenue, it is plainly designed to expand health insurance coverage. " Id. at 2596 (emphasis added).[8]

C. Plaintiffs' Claims

Plaintiffs in this case are a Texas corporation and an individual Texas resident. Braidwood is a corporation that " manages health and wellness services for patients." [9] Braidwood has approximately 73 full-time

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employees, and currently offers a " high-deductible" health coverage plan to employees.[10] Hotze is " the founder and one of the employees of Plaintiff Braidwood." [11] He currently participates in the health plan offered by Braidwood.[12]

The claims that Plaintiffs press are different from those in NFIB. Plaintiffs here seek a declaratory judgment that the entire ACA is unconstitutional because Congress passed the law in violation of the Origination Clause.[13] U.S. Const. art. I, § 7, cl. 1. In addition, Plaintiffs seek a declaratory judgment that the ACA " constitutes a taking within the meaning of the Takings Clause of the Fifth Amendment because ACA compels Plaintiffs to pay money to other private entities: government-approved health insurance companies." [14] Plaintiffs also seek injunctive relief " prohibiting Defendants from enforcing ACA against Plaintiffs and similarly situated residents of Texas." [15]


A. Subject Matter Jurisdiction

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