Jones Day: Suing The Federal Government On ACA And More

Friday, August 17, 2012 - 10:35
Gregory Katsas
Michael Carvin

Gregory Katsas

Michael Carvin

The Editor interviews Gregory Katsas and Michael Carvin, Partners in the Washington, DC office of Jones Day. The firm participated as counsel for National Federation of Independent Business and others in arguing for the plaintiffs in the recent Supreme Court decision regarding the Patient Protection and Affordable Care Act.

Editor: Would each of you discuss your respective practice areas? You have both represented litigants in landmark cases before the Supreme Court. In describing your practice, please mention a few of these more recent cases.

Katsas: I have a general civil and appellate practice involving constitutional and administrative law, among other areas. Lately, I’ve been handling several products liability cases. Mike and I have had several big and interesting cases together.  Of course, our most noteworthy one was the healthcare case in the Supreme Court. We are currently representing Florida in its attempts to remove fraudulently registered non-citizens from its voter rolls, to which the Justice Department has objected. We have another great case involving a constitutional challenge to the President’s recent recess appointments to the NLRB.

Carvin: My basic practice is either suing the federal government or defending businesses and local governments against the federal government. For example, Greg and I are both active in representing R.J. Reynolds against various federal suits or regulation. In terms of Supreme Court cases, I have represented a number of thrifts in the Winstar cases, which struck down some regulations on takings and contract grounds. I represented the Free Enterprise Fund in suing the PCAOB, an agency created by Sarbanes-Oxley, which was struck down on separation-of-powers grounds. I was also engaged in a Supreme Court case striking down the Clinton administration’s effort to conduct the census through statistical analysis rather than actual head counts. Other noteworthy cases involved two landmark decisions involving Section 5 of the Voting Rights Act, the Bossier Parish cases out of Louisiana.

Editor: Could you describe your role in representing the National Federation of Independent Business before the Supreme Court in challenging the Patient Protection and Affordable Care Act? Please describe the major points in your challenge to the individual mandate to purchase health insurance.

Katsas: There were many issues in the case, but the main one was the constitutional challenge to the individual mandate. Our theory in essence was that the federal government has never before tried to regulate inactivity as commerce, and its attempt to do so here, if allowed, would create a general federal police power. The government sought to force the purchase of health insurance on the theory that when millions of people choose not to buy health insurance, those decisions, in the aggregate, substantially affect interstate commerce. If that theory were accepted, the government could force citizens to buy whatever goods and services it wants them to; the argument is inconsistent with the notion of limited and enumerated powers. That’s it in a nutshell. The tax issue was always on the periphery. Given the requirement to buy health insurance, the monetary exaction for not doing so must be understood as a penalty, not a tax.

Editor: What was your reaction to Chief Justice Roberts’ decision to uphold the law based on the congressional power to tax?

Carvin: We were obviously very disappointed, precisely because the mandate cannot be a tax under the very test that the Chief Justice himself articulated, whether or not the underlying inactivity was prohibited. In other words, is it a legal mandate or is it simply an inducement to do something subject to a tax, which is otherwise legal?  Since the law declares that you shall purchase health insurance or pay a penalty for failure to abide by that legal requirement, there is no rational way of interpreting the statute to mean that you may lawfully choose to refrain from buying health insurance, so long as you pay the tax. The majority opinion is a complete rewriting of the relevant statutory language. It runs counter to contemporaneous assurances by both the President and virtually every supporter of the bill that this was not a tax. If it had been labeled honestly as a tax, it would never have passed Congress in the first place.

Editor: How did the Chief Justice distinguish his ruling that the individual mandate was a tax for constitutional purposes from his ruling that the individual mandate was not a tax for purposes of the Anti-Injunction Act, which prohibits challenging a tax before it is actually assessed?

Katsas: We don’t think the distinction was persuasive. When he was talking about the Anti-Injunction Act, he acknowledged all of the points that Mike mentioned. Congress called the mandate a requirement, and it called the monetary exaction a penalty to be imposed for violation of the mandate.  So, the Chief Justice reasoned that Congress obviously thought it was imposing a tax and therefore, for statutory purposes under the Anti-Injunction Act, the Court respected Congress’s own understanding about what it was doing. Having done all of that for statutory purposes, though, there was no good rationale in addressing the constitutional question to retroactively recharacterize the statute as something very different from what Congress intended.

Editor: What effect do you think the failure of the Court to uphold the law on the basis of the Commerce Clause will have on future cases?

Carvin: I think it was obviously a very good decision as to the scope of the Commerce Clause. Unfortunately, what the Court took away with one hand, the Chief Justice gave back with the other. Now Congress is free to impose all sorts of mandates that are forbidden under the Commerce Clause and simply have the Court retroactively relabel them as taxes. Tomorrow they could pass a law requiring every American to eat broccoli or pay a penalty for failure to meet that legal requirement, and the Chief Justice would interpret that as a tax on not eating broccoli. In my opinion, all the good that was done in limiting the Commerce Clause was undone by the Chief Justice’s opinion on the tax issue.

Editor: While neither of you participated in this part of the case, what is the significance of the Court’s holding to make optional the Medicaid expansion mandate instead of making it mandatory ? How do you think the states will respond?

Katsas: I think this could be potentially very significant. This was the first case in history where the Supreme Court struck down a spending-clause program as overly coercive. I was frankly surprised at the decision. Just as the tax argument was the weakest argument on the government’s side of the case, I thought the Medicaid expansion argument was the weakest one on our side of the case. Given the novelty of this ruling, it is unclear how it will play out in future cases.

Rather than striking down the whole expansion of Medicaid, the Court gave the states the right to opt out of the new Medicaid program. My guess is that states will find it difficult to forego this massive amount of federal money, despite all of the strings that come attached to it. Nonetheless, some states have suggested that they’re seriously considering the possibility of opting out.  While the law provides that the federal government will pay all of the costs for the first three years and 90 percent of the costs going forward, the costs imposed on the states are still enormous.

Editor: Please describe some other significant cases in which Jones Day has challenged the U.S. government in court.

Carvin: In addition to the cases I have mentioned involving the PCAOB and the census, Jones Day was successful in stopping the Justice Department’s effort to get $280 billion in disgorgement from the tobacco companies in the D.C. Circuit. We are currently challenging the constitutionality of Section 5 of the Voting Rights Act; we filed a cert petition in the Supreme Court on that quite recently. Greg alluded to the fact that we are currently challenging President Obama’s recess appointments to the National Labor Relations Board in the D.C. Circuit, and we are also the lead counsel for a number of Catholic organizations that are challenging the Obama administration’s decision to force them to subsidize contraceptives for their employees under the Affordable Care Act, in violation of their religious beliefs and conscience.

Editor: Turning to other cases during the past term, which ones strike you as particularly important for business?

Katsas: Besides healthcare, let me mention two.  One is Mayo v. Prometheus, which involves the patentability of treatment protocols. This implicates an enormously important issue in the biotech area – determining the extent to which processes are not patentable because they are laws of nature. Jones Day has a very significant case that may be headed to the Supreme Court on the extent to which isolated human genes are patentable. The second case having business implications is the Torture Victim Protection Act case, Mohamad v. Palestinian Authority.  It doesn’t sound like a business case, but there has been an unfortunate development in recent years of human rights groups using statutes like the TVPA and the Alien Tort Statute to sue American businesses that do business in underdeveloped countries abroad for alleged complicity in human rights violations. These charges are being used not only as a means for extracting large sums of money from businesses operating overseas but also as a wedge to forcibly reshape American foreign policy towards countries that the human rights groups do not like. Mohamad shuts down such lawsuits under the TVPA by holding that only natural persons can be sued under that statute. And there is a related case now pending in the Supreme Court, the Kiobel case, which we are hoping will shut down such lawsuits under the Alien Tort Statute by holding that the statute doesn’t apply to businesses, or that it doesn’t apply outside the United States, or that it doesn’t apply to aiding and abetting, which is the usual theory that these groups bring against business defendants.  This is one of the most significant business cases that the Supreme Court will decide next term.

Editor: Are there cases that you feel have been overlooked by the press or perhaps misinterpreted in their impact?

Katsas: In terms of sleeper cases, the Alvarez case, which struck down the Stolen Valor Act, could be significant in terms of how it plays out in future cases. The Court held for the first time that there is general First Amendment protection for false statements, which the government can only prohibit in specific contexts where there’s a traditional proscription on the speech and a particularized showing of harm. It will be interesting to see whether this holding will curtail government efforts to bring new and exotic fraud theories against defendants where there is not the traditional showing of reliance and damage.

Carvin: While Alvarez would not normally fall within the purview of business cases, it is noteworthy that the government has been very aggressive in both the fraud context, particularly against tobacco companies, and in the FDA context, against pharmaceutical companies, in trying to make companies liable for speech about matters of public concern about the safety and efficacy of their products. I think Alvarez will make the government’s burden much more difficult in that area because all nine justices indicated that when you are talking about scientific truth, courts should be extraordinarily reluctant to decide, if not completely prohibited from deciding, whether a claim is false, and they certainly should not label it false because it bucks the scientific consensus.

Just as a matter of interest, when Greg was at the Justice Department, he helped develop the position that the Alien Tort Statute could not be applied outside the United States or under aiding and abetting theories. We are currently advancing those arguments to the Second Circuit in a case in which we prevailed representing Chevron, which is being held pending the Kiobel decision.


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