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Case number 14-7206, American Council of Life Insurance Appellant versus District of Columbia Health Benefit Exchange Authority at L. Mr. Clement for the appellant, Ms.

[00:00:11] Speaker 00:
Alicon for the appellate.

[00:00:22] Speaker 02:
Good morning, Your Honors, and may it please the Court.

[00:00:24] Speaker 02:
Paul Clement for the appellants.

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I'm going to endeavor to save three minutes for rebuttal.

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This case involves a constitutional and statutory challenge to what amounts to a user fee on non-users.

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By way of very brief background, the healthcare exchanges, whether established by the federal government or the state governments, have proven costly to operate.

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Typically, the exchanges are funded primarily through user fees on participating issuers.

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The district and the district alone, however, has taken a different approach.

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So just by way of illustration, the federal government, for example, funds the federal exchange through a user fee on participating issuers that amounts to 3.5% of the premiums for the policies that are issued on the new exchanges.

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In the district, the rate is 1%.

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And the way they've gotten that far lower rate is to impose the user fee or the assessment not just on the participating issuers, but on clients, on my clients, who provide accepted benefits plans that are expressly precluded from being offered on the exchanges.

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Now, this is certainly a convenient arrangement for the participating issuers who get their user fee reduced by roughly 70%.

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But we would submit it's inconsistent with the statute and with the Constitution.

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Now, before I turn to the merits, I guess I'd like to say just a moment on the jurisdictional issue here.

[00:01:45] Speaker 05:
Good idea.

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To be very clear about this, this is not just a situation where the district failed to raise this argument in the lower courts.

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When they were asked point blank by the district court judge, is this a tax, they replied, no, it's not a tax.

[00:02:00] Speaker 05:
But you agree we still have to deal with it, correct?

[00:02:04] Speaker 05:
Well, I'm not sure I agree.

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It's jurisdictional and it doesn't make any difference.

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I think the question whether it's jurisdictional, Judge Tatel, is actually a difficult question.

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I'm happy to engage on the extent to which it's jurisdictional.

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I think the better view is that it's not and that it's ultimately waivable.

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But rather than spend a lot of time talking to you about that, I think I'd rather start at least by telling you why I think it's rather straightforward, that the district had it right the first time.

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This is, in fact, the task.

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And I think we all agree that the applicable test here is the three-factor test that I think... I think you misspoke.

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You said this is in fact a tax, but I think you meant this is in fact a tax.

[00:02:44] Speaker 02:
Yes, I'm sorry.

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I meant the opposite of what I said.

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I apologize.

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This is in fact a regulatory fee, not a tax.

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And the test to determine the difference between the two, I think all the parties agree is a test that has its origins in an opinion written by then-Judge Breyer for the First Circuit called San Juan Cellular Telephone.

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And you look to three things, and I think all three factors here are either neutral or point strongly in favor of it being a regulatory fee.

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I think the one that's maybe a bit neutral is whether or not this was imposed by the agency or by the legislature.

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And I think here what you have is a hybrid.

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You have a tax that originated with the authority and with a working group that included participating issuers and not my clients.

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But at a certain point, they realized they needed the blessing of the legislature.

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And they got the blessing of the legislature to authorize the authority then to determine the amounts of the assessments.

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So I think the first factor.

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Didn't the authority, the statute,

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The statute provides that the tax, well, whatever it is, this charge.

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The assessment they call it.

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Let's call it a charge.

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Just keep it neutral for a moment.

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Whatever it is, that it has to be sufficient to pay for the cost of the exchange, but no more.

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So the legislature really not only authorized the tax, but just

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determined its amount, didn't it?

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I mean, the only thing the authority does is calculate, right?

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They just presumably divide the costs of the exchange by the number of insurers, and that's the tax, isn't it?

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Well, Judge Tatel, I mean, whether that's all they can do, whether it's that ministerial or not, I think- Well, read the statute.

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The statute says, the amount assessed shall not exceed

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the reasonable projection regarding the amount necessary to support the operations of the authority.

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Right, and I think ultimately that helps us when we get to the third factor of the test.

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I guess what I would say for purposes of the first factor, though, it is still the authority that is the one that's supposed to impose it.

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And so, I mean, for purposes of the non-delegation argument, that may be enough direction, but I think even what we have here is a situation where the tax originated with the authority and then the legislature authorized them to impose it.

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And I think what that gets you on the first factor is maybe a wallash.

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The second and third factors, I think... Just go back a moment.

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Why should that factor be of any consequence?

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I know courts have said it is, but why should it be of any consequence, one way or the other?

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I think the way it should be of some consequence is I think there is a sort of sense that maybe the legislatures, broadly speaking, are the ones that should be imposing taxes and not agencies.

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So if it's a situation where the agency's done it, maybe it's more like a regulatory fee than it is like a tax.

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That's a particularly dispositive factor, especially when, in a case like this, it's kind of washing points in two directions.

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I think the second and third factors are more important.

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The district concedes that the second factor supports the classification of the assessment as a regulatory fee, because this is not a broadly applicable assessment.

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It's an assessment just on

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participating issuers and my clients and a few others that have accepted benefits products.

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So in that sense, it's a very narrow universe, and that's something that points in the direction of it being a fee rather than a tax.

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Eastern Trans Waste says that's the least important of the factors.

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Well, which is fine and well, because the third factor, I think which it said may be the most important, I think strongly points in our favor, which is the very provision you were reading, Judge Tatel, makes crystal clear that this isn't something that goes into the general treasury for general purposes.

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This is used exclusively for the authority to fund the exchanges that my clients are barred from participating in.

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And so it certainly is not a fee where the payors and the payees match up closely.

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Right.

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And a close matchup seems to me the best indicator of a fee.

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I would beg to differ, Judge Williams.

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I would say that the lack of a matchup is a bit of a problem on the merits.

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But for purposes of the jurisdictional... A problem for the district.

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Yes, a problem for the district on the merits.

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But I don't think it's a problem for us on the jurisdictional question.

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Because as to that, the question that the court asks is, is it broadly applicable or is it narrowly targeted?

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And to the extent there's a mismatch in the narrow targeting, I think that's a merits issue, but doesn't take it out of the third factor, which I think here strongly points in our favor.

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that in particular, the provision in the statute that says that under no circumstances shall this money be reverted to the general treasury is also an important aspect of this third factor.

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And indeed, if you go back to Judge Breyer's opinion in the San Juan Cellular Telephone Company case, that's really what ended up being dispositive in that case.

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You had a fee that was

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imposed by the sort of telecommunications arm of Puerto Rico.

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There were some factors that pointed in different directions.

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But there was a specific provision in the law there that said that once the fees came to the communications agency of Puerto Rico, they couldn't be diverted to general revenues.

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And you have the same thing here.

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Before I leave the jurisdictional issue, though, you have one other thing here.

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But I just want to ask you about that factor.

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How do you distinguish this case from

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what happened from the facts of the assessment in the Eastern waste case itself.

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There, the tax was imposed just on solid waste operators.

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That's all.

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Right?

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That's my understanding, yes.

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So isn't that just like this case?

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Well, and in fact, the court, as I read the opinion there, didn't decide this issue.

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They thought it was sufficiently close that it didn't decide the issue and went on to the merits, which doesn't strike me as the exemplar of how to deal with steel company issues.

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But in all events, that's what they did in that case.

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So it's not like that's a case where it was found that there was not jurisdiction.

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And I think that what I would say here is there is in this case, though, I think something of a tiebreaker, if you will, if you think it's close.

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And I don't think it's particularly close.

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And that's the other provision of DC law, which is DC code 472608A1.

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which basically in the context of imposing a 2% tax on insurance carriers says that that tax shall be in lieu of all other taxes with the exception of real estate charges and certain fees and charges.

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And I think that provision

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probably explains both why the district made the concession below and why, if you have any doubt here, you should err on the side of treating this as a fee, not a tax.

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Nothing is more notorious than the fact that an assessment can be a tax for some purposes but not for others.

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Absolutely, Judge Williams, but let's go to the source.

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It was that what the court said in NFIV against Stabilius is that for purposes of the jurisdictional issue,

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There it was the Anti-Injunction Act.

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You take the legislature at their word.

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And here the legislature used the word assessment, not tax.

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And unless you're going to read what they did as an implied repeal of the provision that I just referenced about no more taxes,

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then I think you have multiple reasons to take the legislature at their word and say, this is an assessment that doesn't amount to a tax.

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By the way, the reason that provision is in the code, it's not just there as a matter of happenstance.

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There are comparable provisions in the codes of other states, because if you impose taxes on top of that, you get into the possibility of retaliatory taxes by other jurisdictions on insurers.

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And so that's a very important provision.

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Mr. Clement, can you just

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Tell us a little bit more about that.

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Get into the risk of retaliatory taxes.

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I noticed that, but I didn't understand exactly how that works and how that risk arises and why that's a reason to construe this particular provision in any one way or another.

[00:11:09] Speaker 02:
here is, you know, you go back to McCarran-Ferguson, you have a lot of state regulation of insurers, but they typically regulate out-of-state insurers based on their operations in the state, and so there's a real potential for one state to impose a tax on the, say, the premiums written, another state to impose tax on income, and you get into all sorts of

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potential problems and nasty dormant commerce clause issues and I think the states have essentially reached essentially an agreement where they impose limited taxes on premiums and if the state were to go above that and start imposing additional taxes, I think it does create this risk that other states would retaliate and you would have

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whether it's a race to a bottom or not, you'd have a real problem with retaliatory taxes.

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And so that explains why the provisions in the code, it explains why I think the district... But that's assuming that... I'm still being a little bit unclear about how that operates.

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The insurers that operate in DC, your clients, are not DC insurers.

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Like, how do you retaliate against

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insured, I mean they're not DC identified, so to punish those insurers by raising taxes in Kansas or California or New Mexico, it just harms the industry, it doesn't harm DC.

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How can you retaliate against DC?

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Other states might retaliate against DC-based insurers and vice versa, because what you have is you have insurers that are licensed to do business here, their home state may be somewhere else,

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And so I think the way that DC takes 2% of the premiums right here.

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And if this is, then it's going to take a bigger percent.

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But I'm just trying to understand the mechanics of how that retaliation could even take place.

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First of all, most of your clients are not DC based.

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Are any of them?

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DC-based insurers?

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I don't know that they are, but I think there are DC-based insurers that could be subject to the retaliation in other jurisdictions.

[00:13:05] Speaker 03:
And then how can you, consistent with the Dome and Commerce Clause and or equal protection, target those insurers as opposed to insurance generally?

[00:13:12] Speaker 02:
I just don't really follow that.

[00:13:13] Speaker 02:
Well, you see, you might, in an effort to reach those insurers, you might target a broader group of insurers to try to... Right, right.

[00:13:20] Speaker 02:
But it's going to lead to essentially a race to whether you call it the bottom or the top.

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I suppose it depends on whether you're getting the revenue.

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But I think it's something that the states consciously want to avoid.

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They've kind of reached an accommodation on this.

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And that's why you have that provision that basically says, look,

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There's a 2% tax on premiums.

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It's in lieu of additional tax.

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They carve out real estate taxes.

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They carve out certain other fees and charges.

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I just think putting an additional tax on that is something that could, you know, I don't have a crystal ball.

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I don't know that it would lead to retaliation, but I think that's a real concern, and I think that's why the provisions on the books

[00:14:00] Speaker 02:
But I don't know that anything turns on why it's on the books.

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I think that the more salient point is that the district almost invites you to read the new DC code provision as an implied repeal of that.

[00:14:14] Speaker 03:
Let me ask you just about the solid waste situation.

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So as I understand it, certain of the dumps hazardous.

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And they needed, the jurisdiction needs some money to make sure that they're cleaned up.

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But not all of the dumps are being sloppy and hazardous.

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But all of the, there is a tax imposed on, or a fee imposed on all of the dumps.

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the waste collectors and depositors.

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And in your view, I mean, that has, like this case, a circumstance of some of the folks who aren't responsible for and or benefiting from the use to which the fund is being targeted having to pay it.

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And that, in your view, doesn't render that a tax either.

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That would be a fee.

[00:15:03] Speaker 02:
Well, again, I think that that question sort of straddles the merits and the jurisdictional issue a little bit.

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And I think we're harmed by the fact that the solid waste case didn't have a jurisdictional holding.

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And so I guess what I would say is on the jurisdictional point, I think this is a much stronger case.

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for a variety of reasons, not the least of which is this additional code provision that I mentioned.

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On the merits, I think the cases are quite distinguishable because when you get into a situation where you are, you know, in a sense there's a line drawing question about does everybody benefit equally?

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I think that those are the kind of questions where the courts typically defer to the legislature.

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But I think if you go to the court's cases on this, and I'm talking the Supreme Court's cases, and you start with Village of Norwood, and then you go through Miles Salt and Road Improvement District, but all the way up to Webb's Fabulous Pharmacy and the Sperry case, I think the teaching of those cases is that while we are willing to defer to the legislatures about the amount of the benefits and the like,

[00:16:06] Speaker 02:
We're not willing to defer to and approve legislative approaches that are effectively indifferent to whether somebody is benefiting in any material way.

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I mean, the test that emerges is whether the charge is a loose approximation for the benefits.

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And I think we win under that test.

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But I think if you want to look at it from even like 30,000 feet, I mean, in Village of Norwood, what did the jurisdiction do?

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It said, we're going to impose the assessment

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without regard to the extent to which the property benefits.

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And that's held impermissible.

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In mild salt, they impose an assessment for a drainage district on literally the highest and driest property in the district, in the parish.

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And the court says, no, that's problematic.

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In the rail district improvement case, they impose a higher assessment on the railroad for a highway that's likely to divert business away from the railroad.

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And in Webb's Fabulous Pharmacy, what they do is they keep the interpletor interest.

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And the court even suggests that maybe if that was being done under the guise of a user fee, it would at least be a harder case.

[00:17:10] Speaker 02:
But the Florida court's imposed a different fee.

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for using the court system, so that is kind of inexplicable.

[00:17:16] Speaker 02:
And I think you have a comparably clear case here where you have something that when the federal government imposes it, they call it a user fee.

[00:17:24] Speaker 02:
The district below even called this a user fee when it was applied to the participating issuers, but they applied the exact same fee in the exact same amount to companies that are categorically barred from using the exchange.

[00:17:38] Speaker 03:
Just a little question.

[00:17:39] Speaker 03:
Are the participating issuers not also ACLI members?

[00:17:42] Speaker 03:
No, they're not.

[00:17:43] Speaker 02:
Because the reality is the participating members are what you would think of as your classic health insurers.

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And the ACLI members are what you would think of as your classic life insurance companies.

[00:17:57] Speaker 02:
But they also provide things like long-term disability, like long-term care insurance.

[00:18:06] Speaker 02:
And I think what Congress recognized in the ACA is frankly

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Those things are more like life insurance and other things, which is why they were accepted from the ACA in a very deliberate way.

[00:18:19] Speaker 03:
And is it not the case that the proportion that your clients would have to pay has ebbed over time as more people are participating in the exchange?

[00:18:30] Speaker 02:
No, actually.

[00:18:32] Speaker 02:
And I actually think that gets to the heart of what's particularly unfair about this arrangement.

[00:18:37] Speaker 02:
I mean, what the district faced by their own sort of decision about how they were going to structure their exchange is really a two-year gap.

[00:18:47] Speaker 02:
Because they got the exchange up and running before they closed the market for small businesses.

[00:18:52] Speaker 02:
So they effectively didn't force as many customers onto the exchanges in the first two years.

[00:18:56] Speaker 02:
And that created a funding gap.

[00:18:58] Speaker 02:
But the solution that they came up with, imposing this user fee on my clients, is a permanent solution.

[00:19:06] Speaker 02:
And it actually is indifferent, precisely because they impose it on people who are never going to participate on the exchange.

[00:19:12] Speaker 03:
How can that be given the provision that Judge Tatel read about the district being prohibited to collect more than is needed if the premium base of participating insurers grows as more people sign up?

[00:19:31] Speaker 03:
Isn't it necessarily the case that they're not also drawing funding from that?

[00:19:35] Speaker 02:
No, because here's the thing.

[00:19:37] Speaker 02:
They imposed from the beginning, they imposed the fees on everybody whether or not they participated in the exchange.

[00:19:43] Speaker 02:
So as they close the exchange in later years and force more people onto the exchange, it utterly is indifferent to the amount of the assessments on everybody.

[00:19:52] Speaker 02:
But of course, my clients are still stuck because they can't possibly get on the exchange and get any benefits.

[00:19:57] Speaker 02:
You know, I'm not here to tell you that if they did this as just a two-year stopgap that we wouldn't be here, but I think part and parcel of the unfairness and I think the unconstitutionality of this is that it's a permanent solution.

[00:20:10] Speaker 02:
We're stuck paying 1% as a de facto user fee for something that we can't use in perpetuity.

[00:20:17] Speaker 02:
And again, that's why, you know, it's interesting, because in the first couple of years, when they had this hot gap problem, the charge they would have had to make on the participating users was higher than the federal rate.

[00:20:29] Speaker 02:
I think as both parties looked at the numbers, once they got everybody on the exchange, it would be about the same.

[00:20:33] Speaker 02:
But now the participating issuers are locked into a 1% rate, and so are we, even though we don't get the benefits of the exchanges.

[00:20:42] Speaker 05:
That's it.

[00:20:42] Speaker 05:
OK, thank you.

[00:20:43] Speaker 02:
Thank you, Your Honors.

[00:20:55] Speaker 01:
Good morning and may it please the court, Lauren Olly-Conn for the District of Columbia.

[00:20:58] Speaker 01:
The Establishment Act levies a tax on health care providers operating in the district, and the Superior Court in the District of Columbia is the exclusive venue for ACL members to bring a challenge to that tax.

[00:21:09] Speaker 01:
Mr. Clement and I agree on the test.

[00:21:10] Speaker 01:
We agree on the three-factor test.

[00:21:12] Speaker 01:
However, we vehemently disagree on the outcome of that test.

[00:21:15] Speaker 05:
Do you think this issue is jurisdictional for us, or is it waivable?

[00:21:18] Speaker 01:
Absolutely, it's jurisdictional, Your Honor, and that is because D.C.

[00:21:21] Speaker 01:
Code 11-1202 vests exclusive jurisdiction in the Superior Court for the District of Columbia, and that's notwithstanding any other provision of law.

[00:21:29] Speaker 01:
So in this case, it's not like the Tax Injunction Act, which is susceptible to a reading in which it might be non-jurisdictional.

[00:21:34] Speaker 01:
that Congress put into the D.C.

[00:21:37] Speaker 01:
Code, which doesn't suggest mandates that if this is a tax, it must be challenged by ACLIs members in the Superior Court.

[00:21:46] Speaker 01:
Now looking at the three-factor test,

[00:21:48] Speaker 01:
The first factor is what entity imposes the charge, and it's well established that when the legislature imposes the charge, it is a tax.

[00:21:55] Speaker 01:
When the agency levies the fee, then it's a fee and it's not a tax.

[00:21:58] Speaker 01:
And that comes from, Judge Williams asked what his underpinnings were, but the Supreme Court found that in the National Cable Association case.

[00:22:04] Speaker 01:
The next factor is what population is subject to the charge.

[00:22:08] Speaker 01:
Now, Mr. Clement would have you believe the mere fact that this is just targeted at all health insurers in the district, or all carriers, as defined by statute.

[00:22:15] Speaker 05:
Wait, could you go back to your first one?

[00:22:16] Speaker 05:
So how does that one work in this case, in your first factor?

[00:22:18] Speaker 01:
So in this case, the legislature mandated that the tax be assessed.

[00:22:23] Speaker 01:
It left to the agency the mechanics for assessing that tax, but it was the legislature that required the tax to be assessed, and it's the legislature that said the population on whom that assessment would be, and that's health carriers with greater than $50,000 in profits.

[00:22:36] Speaker 01:
The legislature also set the ceiling, and that was what the exchange's budget was going to be.

[00:22:41] Speaker 01:
So the legislature in all events is who imposed this tax and set the boundaries for it.

[00:22:46] Speaker 03:
Could the authority now do what I was envisioning when I was having my final exchange with Mr. Clement, which is decide that now that there's a more robust participation

[00:22:55] Speaker 03:
patient in the exchange that a higher proportion of this tax or fee charge should be paid by participants and either eliminate or reduce.

[00:23:05] Speaker 03:
Is that something the authority alone under the law as it's now written could do?

[00:23:08] Speaker 01:
Yes it is.

[00:23:09] Speaker 01:
So looking at the statute it's subsection F1 that in which the council imposes the tax and that's on all health carriers as defined by the statute but under subsection E1

[00:23:19] Speaker 01:
the authority is authorized to charge user fees, licensing fees, and other assessments on health carriers selling qualified health insurance plans.

[00:23:26] Speaker 01:
So to answer your question, Judge Pillard, certainly the exchange could determine, as the membership of the exchange grows and becomes more profitable, that it wishes to levy a higher user fee or charge on members that are selling qualified health plans.

[00:23:40] Speaker 01:
But that's a distinct charge or user fee from the tax that's at issue in F1.

[00:23:45] Speaker 01:
But of course, were the exchange to- But could it do that instead of the tax?

[00:23:49] Speaker 01:
Yes, it could.

[00:23:50] Speaker 01:
So less.

[00:23:50] Speaker 05:
Doesn't that completely undermine your argument?

[00:23:52] Speaker 05:
Not at all, Your Honor.

[00:23:53] Speaker 05:
Because you're just saying it.

[00:23:54] Speaker 05:
But isn't the consequence of what you're saying is that the authority could decide to not impose the tax and switch to a user fee?

[00:24:02] Speaker 01:
No.

[00:24:02] Speaker 01:
So the Council of the District of Columbia requires that the tax be assessed.

[00:24:08] Speaker 01:
Now, the tax can be no larger than the budget.

[00:24:11] Speaker 01:
So were the exchange for user fees or licensing fees that it has rulemaking authority to do,

[00:24:17] Speaker 01:
the assessment mandated would be zero.

[00:24:22] Speaker 01:
But until that is the case, the council mandates that to balance the books, the exchange must levy a tax.

[00:24:28] Speaker 04:
Does the authority decide what the actual user fee for users will be?

[00:24:35] Speaker 01:
Now, the authority could.

[00:24:37] Speaker 01:
It's charged with rulemaking authority to determine user fees or licensing fees.

[00:24:41] Speaker 04:
So I mean, is Judge Tatel right?

[00:24:42] Speaker 04:
That undermines your argument that this was decided by the legislature?

[00:24:45] Speaker 01:
No, not at all, because there are two different subsections here.

[00:24:48] Speaker 01:
F1 is the council's mandate that the exchange assess attacks on all health carriers.

[00:24:53] Speaker 01:
Now distinct from that is E1, which allows the authority, through rule-making ability, to assess things like user fees on those participating in the exchange, but they're two different sections.

[00:25:04] Speaker 04:
Well, suppose it says, suppose it is... Putting the two together, the authority can eliminate the tax.

[00:25:08] Speaker 04:
Or at least reduce it to a penny, right?

[00:25:11] Speaker 05:
The authority... Yes, the authority... In other words, it could decide to switch to impose a user fee, and you're right, the statute says, it says,

[00:25:23] Speaker 05:
The authority shall annually assess.

[00:25:26] Speaker 03:
Yes, and it can very well assess at zero.

[00:25:28] Speaker 05:
You can't exceed the budget, the cost of running the exchange, right?

[00:25:35] Speaker 05:
But it could reduce that amount to a penny and collect everything else through a user fee, right?

[00:25:45] Speaker 01:
It certainly could.

[00:25:45] Speaker 01:
It does not currently.

[00:25:47] Speaker 05:
I know, but doesn't that undermine your argument that this is determined by the legislature?

[00:25:51] Speaker 05:
I don't believe that it does.

[00:25:51] Speaker 01:
The council has authorized or mandated the authority to assess a tax to balance its books, if through other means, through fees that it's getting from the exchange, through donations, through allocation of general revenue.

[00:26:02] Speaker 05:
Yeah, but you saw, who's asking the question is, you saw from my question to Mr. Clement, I thought that this weighed heavily in your favor because

[00:26:10] Speaker 05:
I thought, as I read this, I thought the council had essentially set the amount and just allowed the authority to calculate what was needed to meet the expenses.

[00:26:21] Speaker 05:
But you've now raised a problem with that by suggesting that the authority could switch to a user fee.

[00:26:28] Speaker 01:
Now, respectfully to Tittle, I don't see that.

[00:26:29] Speaker 01:
The amount is the deficit between what the exchange is bringing in and what its budget is.

[00:26:34] Speaker 01:
That amount can fluctuate as more members come onto the exchange, as different fees are assessed.

[00:26:38] Speaker 01:
You know, if the federal government were to put grants into play again, they have to take them away.

[00:26:43] Speaker 01:
But if other monies are coming in, all that the council has authorized the exchange to do is to charge a tax to make up that difference.

[00:26:52] Speaker 01:
And whether that difference is

[00:26:54] Speaker 01:
$28 million or $1 million, the council has mandated that that stop for that deficit be made up by taxes.

[00:27:01] Speaker 05:
But whether it's $28 million or $1 million depends on whether the authority decides to impose a user fee.

[00:27:07] Speaker 01:
It is subject to a variety of things, the returns on their investments, federal spending, general revenue coming in from the council, and also, yes, user fees if they are assessed through rulemaking, to be sure.

[00:27:17] Speaker 01:
But that doesn't detract from the fact that the council has mandated that the full budget be covered by any deficit be made up by a tax on health carriers in the district.

[00:27:26] Speaker 01:
And so I think that on the first factor, the first factor about who imposes the charge means that it's the legislature that's imposing the charge, and that means that it's a tax.

[00:27:34] Speaker 01:
But going on to the second factor, the question is what population is subject to the charge.

[00:27:38] Speaker 01:
And Mr. McClint would have you believe that any charge that's not assessed in the public at large is somehow not a tax.

[00:27:44] Speaker 01:
But that's not true.

[00:27:45] Speaker 01:
We see that in all of the cases.

[00:27:47] Speaker 01:
In the Empress Casino case, what we had was the legislature in Illinois taxing riverboat casinos in order to benefit racetracks.

[00:27:54] Speaker 01:
It was a discrete population of riverboat casinos that were subject to this tax.

[00:27:58] Speaker 01:
And the Seventh Circuit sitting on bunk nevertheless said that was a tax, that was not a fee.

[00:28:03] Speaker 01:
Now, I think then that second factor weighs in favor of the district's position.

[00:28:07] Speaker 04:
And finally... Judge Poster pretty much repudiates the three-factor test anyway.

[00:28:12] Speaker 01:
So he takes it a bit of a different task.

[00:28:14] Speaker 01:
I mean, he...

[00:28:15] Speaker 01:
He looks at the case law and finds that there are multi-factor tests.

[00:28:18] Speaker 01:
He doesn't think multi-factor tests are particularly important, but to the extent that he turns on any of the case law, it is these three factors.

[00:28:23] Speaker 01:
He's looking at, is the purpose revenue generation or is it offsetting costs?

[00:28:27] Speaker 01:
Here, it's revenue generation.

[00:28:28] Speaker 04:
Actually, he has a long column listing strange factors that courts have relied on.

[00:28:33] Speaker 01:
He has an entire column in the opinion that says all of these different factors are

[00:28:37] Speaker 01:
you know, weigh one way or another.

[00:28:39] Speaker 01:
But the things that he ultimately looks at, and the things that this court has looked at, and the things that the DC Court of Appeals looked at in the Eastern waste case, are what entity imposes the charge, what population is subject to the charge, and ultimately and critically, what purposes are served by the monies obtained.

[00:28:52] Speaker 01:
And going to that.

[00:28:53] Speaker 04:
He talks about purposes, which seem to me extremely vague.

[00:28:57] Speaker 04:
But it seems to me, if you look at the way he treats particular cases, what he's really interested in is the match up between the payors and the beneficiaries.

[00:29:08] Speaker 01:
I don't think so, because the case comes out in finding that it is a legitimate tax for a riverboat casino to subsidize a racetrack.

[00:29:15] Speaker 01:
That's right.

[00:29:15] Speaker 04:
It's not a fee, because there's actually no overlap between the beneficiaries and the payors.

[00:29:21] Speaker 01:
Right.

[00:29:22] Speaker 01:
And Mr. Clement, which I believe there's no beneficiary, there's no match-up between beneficiaries here, which shows that under Amherst Casino, under Eastern Waste, and under all of the other cases that you cited in our briefs, this is a tax.

[00:29:33] Speaker 04:
The actual insurance companies that use the exchange aren't covered by this at all?

[00:29:41] Speaker 01:
No, they aren't.

[00:29:41] Speaker 01:
The taxes to all health care are justified by the statute.

[00:29:45] Speaker 04:
Yeah.

[00:29:45] Speaker 04:
So there's, I mean, it's different from Empress Casino in that respect.

[00:29:49] Speaker 01:
Well, respectfully, it might be different from every casino, but I don't believe it's different from the Eastern waste case, because there, it was the solid waste companies that were being taxed, and it was for the benefit of the public in increasing solid waste technology and recycling.

[00:30:03] Speaker 01:
But let me give you an example here.

[00:30:05] Speaker 01:
Let's say I pay income tax.

[00:30:07] Speaker 01:
Partions of my income tax go to funding schools.

[00:30:10] Speaker 01:
Because I have a child in that school system, it does not suddenly convert that tax into a user fee.

[00:30:15] Speaker 01:
It is still a tax.

[00:30:16] Speaker 01:
The mere fact that I am particularly benefiting from some aspect of that tax while others might not be does not detract from the fact that it is a general assessment for the benefit of the public.

[00:30:26] Speaker 04:
However, the matchup in that case is extremely loose, right?

[00:30:31] Speaker 04:
The huge numbers of taxpayers who have no kids in the school, right?

[00:30:36] Speaker 04:
And some people who have kids in the school who are not paying any income tax.

[00:30:39] Speaker 01:
And that's precisely what you have here.

[00:30:41] Speaker 01:
You have a significant number of health insurance companies that are participating.

[00:30:45] Speaker 01:
in the District of Columbia that are subject to this tax.

[00:30:47] Speaker 01:
And yes, there are a few that are participating in the exchange that are also subject to the tax.

[00:30:51] Speaker 01:
But that does not detract from the fact that it's an assessment across the entire population, which factors into it being a tax under the Valero factors.

[00:30:59] Speaker 01:
So we think that this is a tax.

[00:31:02] Speaker 03:
Just third factor.

[00:31:04] Speaker 01:
Sorry, I thought we were discussing third factor, but the purpose is served by the money is used.

[00:31:08] Speaker 01:
And here, the predominant factor, it's the revenue's ultimate use.

[00:31:11] Speaker 01:
And here it's for the benefit of the district as a whole.

[00:31:14] Speaker 01:
It's to increase affordable health care in the district for all residents.

[00:31:18] Speaker 01:
And the exchange is charged with not just

[00:31:21] Speaker 01:
figuring out policies for exchange participants, but for enabling all individuals to find affordable health insurance, to reduce the number of uninsured throughout the district, to educate consumers about health insurance.

[00:31:31] Speaker 01:
And so it's the public at large that's being served by this.

[00:31:34] Speaker 01:
And so in that way, we think under the Valero factor, this serves the public and is a tax.

[00:31:38] Speaker 01:
And it's like Eastern Trans Waste in that regard.

[00:31:41] Speaker 01:
Because there, the charging solid waste companies would fund the development of methods of recycling that would benefit the entire public, not just waste manufacturers.

[00:31:48] Speaker 01:
And so they would benefit.

[00:31:49] Speaker 03:
It's a little harder here when it really is the people who are participating in the exchange who are benefiting.

[00:31:55] Speaker 03:
The benefit to them benefits the society as a whole.

[00:31:59] Speaker 03:
That's a pretty attenuated version of benefit, no?

[00:32:02] Speaker 01:
No, I think the distinction is whether it's benefiting the insurers that are participating in the exchange or benefiting the members of the district residents that are getting insurance through the exchange.

[00:32:11] Speaker 01:
The public here is district residents who need affordable health care, and that's every district resident, regardless of whether or not they choose to seek that health care through the exchange or not.

[00:32:20] Speaker 01:
And that is also we know because the exchange's purposes are broader.

[00:32:24] Speaker 01:
Their attention is, yes, primarily concerned with the exchange,

[00:32:28] Speaker 01:
But they are charged by statute, and this is 3171-02B, with enabling all individuals to find affordable health insurance and to educate consumers, and all consumers, not just consumers that might participate in the health insurance market through the exchange.

[00:32:42] Speaker 01:
So we do think these are benefits that are down to the public generally.

[00:32:44] Speaker 01:
And because of that, under the third Valera factor, this is a tax.

[00:32:48] Speaker 01:
Now, I'm happy to address any of the merits arguments that Mr. Clement makes, if the court has any questions.

[00:32:54] Speaker 01:
But I think this is quite clear that it is a tax.

[00:32:56] Speaker 01:
Any questions?

[00:32:57] Speaker ?:
No.

[00:32:58] Speaker 01:
All right.

[00:32:59] Speaker 01:
Thank you.

[00:32:59] Speaker 05:
Thank you.

[00:33:00] Speaker 05:
Mr. Clement, you are out of time, but you can take two minutes.

[00:33:08] Speaker 05:
Well, Your Honor, since... Let me take up 15 of your seconds.

[00:33:11] Speaker 05:
Sure.

[00:33:13] Speaker 05:
I'll add.

[00:33:14] Speaker 05:
So going back to what we talked about right at the beginning of whether this is jurisdictional or not.

[00:33:19] Speaker 02:
Yes, it is not.

[00:33:20] Speaker 05:
And what do you do with

[00:33:23] Speaker 05:
With Jenkins, DC courts have, quote, exclusive jurisdiction over cases involving taxes.

[00:33:32] Speaker 02:
No, I don't think it's involving taxes.

[00:33:34] Speaker 02:
I think Jenkins involved an effort to get a refund.

[00:33:37] Speaker 02:
And if you actually look at the provisions of these statutes, they are directed to petitions for review and appeals of assessments and refunds.

[00:33:47] Speaker 02:
And what's going on here, if you take a step back, is that before- But Jenkins says,

[00:33:51] Speaker 05:
Jenkins says we have exclusive jurisdiction over, I'm sorry, the D.C.

[00:33:55] Speaker 05:
courts, over, quote, all challenges to D.C.

[00:33:58] Speaker 05:
taxes.

[00:33:59] Speaker 05:
All challenges.

[00:34:00] Speaker 05:
Isn't this a challenge to a D.C.

[00:34:02] Speaker 05:
tax?

[00:34:02] Speaker 02:
Well, no, it's a challenge to a fee, but it is also, I'm not going to make the same mistake twice, but it is also, I think, again, if you take a step back, what's going on here is before 1970,

[00:34:16] Speaker 02:
There was greater review in federal court of D.C.

[00:34:19] Speaker 02:
taxes than of any state tax.

[00:34:22] Speaker 02:
And all Congress did in 1970, and then these two provisions, is to restore the equity.

[00:34:28] Speaker 02:
And let me just give you another example, which is what the D.C.

[00:34:32] Speaker 02:
provision says is that the jurisdiction is exclusive to the tax subdivision of the D.C.

[00:34:38] Speaker 02:
Superior Courts.

[00:34:39] Speaker 02:
When the DC court in the ABA case, which we cite in our brief, confronted a situation where the district allowed the litigation to go forward in the civil division of the superior courts, the court decided it wasn't going to decide whether there was a stop for that or waiver for that.

[00:34:54] Speaker 02:
And so the district courts certainly don't view this as being obviously jurisdictional.

[00:34:59] Speaker 02:
And I would respect that all that's going on here is these provisions make DC the same as any state, which means there are certainly limits

[00:35:08] Speaker 02:
on when you're not challenging specifically a refund or an assessment, there are limits to how you can get into federal court.

[00:35:14] Speaker 02:
But those are under the Tax Conjunction Act, which the courts, I think the better view of the courts is that that is not jurisdictional.

[00:35:21] Speaker 02:
So I do not think these are jurisdictional.

[00:35:24] Speaker 02:
I don't think, and therefore I think that they have waived it.

[00:35:27] Speaker 02:
But I also think the fact that they said, they didn't just fail to notice this.

[00:35:31] Speaker 02:
They flat out told the court that it was not a tax.

[00:35:35] Speaker 02:
Even if it's jurisdictional, that's relevant.

[00:35:37] Speaker 02:
That's relevant to the characterization of the provision.

[00:35:41] Speaker 02:
It reinforces

[00:35:42] Speaker 02:
what the legislature itself said by calling it an assessment and not a tax.

[00:35:47] Speaker 02:
It reinforces the relationship with it with the other provisions in the code that says there will be no other taxes in lieu of this 2% tax on the premiums.

[00:35:57] Speaker 02:
So I think all of those factors

[00:35:59] Speaker 02:
reinforce the idea that this is not a tax, this is a fee.

[00:36:04] Speaker 02:
But if I could then just walk through very briefly the three factors.

[00:36:07] Speaker 02:
First of all, I think, I certainly agree with you Judge Tatel, that the colloquy with the District's counsel about how the amount of the tax is ultimately going to be set vis-a-vis the user fee, in your words, completely undermines their argument on point one.

[00:36:22] Speaker 02:
The authority is the one that's going to be determining the amount of this tax based on what they do

[00:36:27] Speaker 02:
with the user fees, which is entirely in their bailiwick.

[00:36:31] Speaker 03:
On the second factor... That doesn't really... I mean, you didn't make that argument, and that was true before she ever raised that in terms of what's the return on their investments, in terms of how many people are... I mean, there's all kinds of other things that make the shortfall fluctuate.

[00:36:48] Speaker 02:
Sure, Judge Pillard, but I did make the argument, and I continue to think it's right, that the first factor ultimately cuts in our favor because the idea for the tax started with the authority, and the legislature gave the authority, essentially, the right to impose the tax.

[00:37:03] Speaker 02:
Now, Judge Cano came back to me and said, but wait, the amount's fixed essentially by the legislature.

[00:37:08] Speaker 02:
And I think this is just consistent with my idea that the real tax here, the real power over this tax is being wielded by the authority, not by the legislature.

[00:37:18] Speaker 02:
Because on the one hand, they can pump up the amount of the user fee, and in Judge Taylor's words, if they wanted to, they could reduce the amount of this assessment to a penny.

[00:37:26] Speaker 02:
But it doesn't stop there.

[00:37:28] Speaker 02:
The second factor, as Judge Williams pointed out, this is not a situation where one set over here is being taxed to pay for this thing way over here.

[00:37:36] Speaker 02:
Instead, the people who are the principal beneficiaries of this new facility that's being funded by the district are being subjected to something that even the district calls a user fee when it's imposed on the users.

[00:37:49] Speaker 02:
And then it's also being imposed on some other people that the district thought were close enough to call them health carriers and impose the user fee on them.

[00:37:58] Speaker 02:
I think that puts the second factor plainly in our favor.

[00:38:02] Speaker 02:
And then on the third factor, again, here is where I think it cannot be that the test is simply whether or not the money is used to promote something that promotes the general welfare.

[00:38:13] Speaker 02:
Because I'm willing to stipulate for these purposes that everything the district does promotes the general welfare and benefits the citizens of the district.

[00:38:20] Speaker 02:
The point is, are you using it for a specific designated purpose, or are you using it more broadly?

[00:38:27] Speaker 02:
And as Judge Breyer said for the First Circuit, a hugely important indicator is whether the money gets funneled into the general treasury, in which place it could be funneled out to anywhere and might by happenstance come back to a particular use.

[00:38:40] Speaker 02:
Or is it a dedicated fund that's used for a very specific thing, which is the funding of the exchanges?

[00:38:47] Speaker 02:
And there's no doubt who are the principal beneficiaries of those exchanges.

[00:38:50] Speaker 05:
Property taxes are dedicated.

[00:38:53] Speaker 05:
A portion of the property tax, I think, is dedicated to the school system, right?

[00:38:57] Speaker 02:
It may be, but typically that's just sort of a provision, but all the money goes into the general treasury.

[00:39:04] Speaker 02:
And then it goes out and is allocated as part of the appropriations process.

[00:39:08] Speaker 02:
And that doesn't happen here, and it can't happen here, and that's exactly the same as in the San Juan cellular telephone case, where the money went into the communications agency and it couldn't come out to the general treasury.

[00:39:19] Speaker 02:
And I mean, it's an odd position to be in when the other side doesn't want to say anything affirmative about the merits.

[00:39:26] Speaker 02:
I wouldn't either if I were them.

[00:39:28] Speaker 02:
I think this clearly violates a principle that goes back to Village of Norwood and is manifested in a variety of cases that can't just be dismissed as Lochner-era cases.

[00:39:38] Speaker 02:
Justice Holmes joined the two cases that we cite.

[00:39:42] Speaker 02:
He was no fan of Lochner, but he was thought that Miles Salt and Railroad District Number 1 were rightly decided.

[00:39:48] Speaker 02:
This court has cited Village of Norwood in the Colorado Springs case.

[00:39:52] Speaker 02:
The Supreme Court, both the majority in the dissent, cited it in Horn.

[00:39:56] Speaker 02:
And Justice Kagan cited it in her dissent in Cummings.

[00:39:59] Speaker 02:
It's good law.

[00:40:00] Speaker 02:
Thank you, Your Honor.

[00:40:00] Speaker 05:
Thank you both.

[00:40:01] Speaker 05:
Thank you.

[00:40:01] Speaker 05:
Your case is submitted.

[00:40:02] Speaker 05:
Do you have a question?