Orthodontists Who Braced For Mandate Can’t Challenge Delays

An employer that expended time and money in 2013 to determine how to comply with the Patient Protection and Affordable Care Act’s (ACA) employer mandate does not have standing to challenge the Department of the Treasury’s (Treasury) decision to delay the mandate, the Eleventh Circuit U.S. Court of Appeals has ruled. The case is Kawa Orthodontics, LLP v. Treasury (No. 14-10296).

Background. The ACA requires certain employers to offer employees health insurance that meets minimum requirements. Employers can be subject to a tax penalty if they fail to provide adequate insurance. In addition, the ACA imposes reporting obligations on those employers.

Between early 2013 and the end of June 2013, Kawa Orthodontics, LLP expended time and money to determine how to comply with the employer mandate. After Kawa incurred these expenses, on July 2, 2013, the Treasury announced it would not enforce the mandate for a transition period of one year—until the end of 2014. Treasury later extended the transition relief for certain employers, including Kawa, for a second year.

In October 2013, Kawa filed a complaint in federal district court challenging Treasury’s decision to postpone enforcement of the mandate. Kawa did not seek the return of the money that it paid to research its upcoming obligations under the ACA. It also did not seek return of any money attributable to the monetary value of the time it spent in this endeavor. Instead, Kawa sought a declaratory judgment and an injunction setting aside Treasury’s transition relief. The district court dismissed the complaint, finding that Kawa lacked Article III standing. Kawa filed an appeal.

Three-prong test. Applying the three-prong Article III standing test, the Eleventh Circuit found that Kawa lacked standing to challenge Treasury’s delay of the mandate. First, the allegations in Kawa’s complaint did not state a concrete and particularized injury. Although Kawa asserted it would have waited to research its ACA obligations, Kawa did not allege that its ACA research is objectively worth less. The bare allegation that Kawa lost the “value of the time and resources it expended in 2013” sets out an injury that is too abstract and indefinite to confer Article III standing. The substantive requirements for complying with the employer mandate remain unchanged and Kawa is still subject to them, the court noted.

Second, Kawa’s claim of standing failed on the causation requirement because Treasury did not play a role in determining when or how Kawa allocated its resources in preparation for the ACA’s employer mandate and reporting requirements. “Any injuries associated with the timing of Kawa’s compliance expenses, including any opportunity costs, are attributable to the ACA itself,” the court wrote.

Third, the court found that Kawa could not meet the redressability requirement because it did not and could not seek money damages. Granting the requested declaratory and injunctive relief would not redress Kawa’s injury because it would not recoup the compliance expenses or any value associated with the time and resources expended in 2013. Thus, the court affirmed the district court’s dismissal of the complaint for lack of standing.

Dissent. Circuit Judge Beverly Martin dissented, writing that Kawa met all three prongs of the standing test. Kawa sustained an injury due to the mandate’s delay because it spent money on compliance costs two years earlier than necessary and, thus, lost two years of interest on those expenditures. In addition, Kawa showed causation because the delay in enforcement was responsible for Kawa’s injury, which was the lost time value of the expenditures, not just the expenditures themselves. Finally, Judge Martin found that compensation is not the only means of redress. Although Kawa might not be able to recoup the interest it lost between Jan. 1, 2014, and now, “if a court required the government to enforce the employer mandate going forward, that decision would end the continued injury Kawa faces from each new day of unearned interest on the money it prematurely used for those legal expenditures.”

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