A Tale of Two Cases: A Fish and an Insurance Exchange

      Is a fish a “tangible object”? Is an insurance exchange created by the federal government one “created by a State”?  The first question was just answered by the Supreme Court; the second question is at the heart of King v. Burwell, the latest challenge to Obamacare.  So what can we learn from the Court’s decision in Yates v. United States, in which a plurality concluded that a fish is not a tangible object, at least for purposes of criminal liability under the Sarbanes-Oxley act?
     John Yates, a commercial fisherman, took undersize groupers.  A federal fish inspector ordered him to return to port and surrender the undersize fish for further investigation.  Instead, he tossed them over the side.  He was charged under SOX with the knowing destruction of a tangible object with the intent “to impede, obstruct, or influence” a federal investigation.  His conviction was overturned by the Court, 5-4.  Four justices -- Ginsburg, Roberts, Breyer, and Sotomayor --–said that the term “tangible object” was ambiguous, given the “specific context” in which it appeared and “the broader context of the statute as a whole.” The broader context was SOX’s focus on the problem of corporate fraud and related financial reporting.  Enacted in the  wake of Enron and other financial scandals it was designed to deal with these crimes and the particular section under which Yates was charged was intended to deter destruction of relevant evidence of those crimes.  The Ginsburg four thought that the section was not applicable to destruction of evidence hat might impede a federal investigation of something far removed from the financial misdeeds that were the subject of SOX. Justice Alito’s fifth vote was a bit narrower, as he thought that the term “tangible object:” should be construed in light of the specific nouns and verbs in which it was clothed.  Because all of those words referred to books, records, documents, and other tangible indicia of financial fraud, a fish was not a tangible object for purposes of this law.
     The dissenters - Kagan, Scalia, Kennedy and Thomas - all agreed that the law was unambiguous.  A fish is a tangible object and Yates deliberately destroyed it with the intent of hindering a federal investigation.  End of case.  Yet, the dissenters bemoaned the tendency of Congress to expand federal crimes beyond their obvious intended limits.  While that observation is food for further thought, it isn’t germane to what Yates may mean for King v. Burwell, the Obamacare case.
     If dry logic were the only thing in play, we might expect a group of Kagan, Scalia, Kennedy, Thomas and Alito to strike down the subsidies on federal exchanges.  The phrase is clear - just as a fish is a tangible object, an exchange created by the federal government is not one created by a state.  And there are no adjacent nouns or verbs that could serve to narrow or expand the meaning of a state created exchange.  But logic is not at work here.  Justice Kagan has already signaled her view that the subsidies are permissible because the overall purpose of Obamacare was to provide national subsidies. A fish may be a tangible object, but a federal exchange is really a state exchange because it needs to be. The Ginsburg group (with the possible exception of Chief Justice Roberts) is both logically and ideologically committed to the idea that, no matter what the phrase says, it must be reworded to accommodate the larger purposes of the Affordable Care Act.  So the swing voters are Roberts and Kennedy, but for different reasons.
     If Roberts adheres to his fish-is-not-a-tangible-object approach it is possible that he will side with the government’s approach to King. But there are big differences between SOX and the ACA. The ACA is a sprawling text with multiple incentives and coercions.  It is not clear what Congress may have intended by the state exchange subsidy limitation.  It may have been designed to pressure the states to adopt exchanges; it may have been sloppy and hasty drafting, or it may have been something else.  SOX, by contrast, is focused on financial charlatans in the corporate world.  That clear focus may have been enough to motivate Roberts to conclude that because Yates was no Enron operative he couldn’t have been intended to be swept up in the SOX fishnet.  But Obamacae is not so clear. Congress did not explicitly say that subsidies are to be available to consumers on any exchange - federal or state.  Without that clarity, the limitation of subsidies to state exchanges is akin to a fish as a tangible object.  
     Justice Kennedy’s defection from his Yates position, should it occur, would be rooted in the desire to avoid a constitutional issue.  If subsidies are limited to state exchanges it could be said that Congress gave the states the choice of creating subsidy-eligible exchanges or watching their local health insurance markets implode.  That choice is not a constitutional problem so long as it is clear and not coercive.  So far, the only coercion the Court has identified is the absolute loss of Medicaid funds if states refused to expand Medicaid, not the failure to gain subsidies. The implosion of the insurance market is triggered as much by the remaining provisions of Obamcare as the simple decision to not create a state exchange, If Kennedy sees this issue in this light the constitutional issue largely evaporates, and he may stay with his Yates logic.  If not, he will defect on the grounds that the statute needs to be construed to avoid a constitutional issue.  But if he thinks a fish is a tangible object he ought to also think a federal exchange is not a state exchange.  Whether avoidance of a possible constitutional issue is enough to induce rewriting the law is Justice Kennedy’s dilemma.  
   

Comments

[John Jacob]

42 U.S. Code § 18041(c) - State flexibility in operation and enforcement of Exchanges - and related requirements clearly says - "the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate **such** Exchange within the State and the Secretary shall take such actions as are necessary to **implement such other requirements.**"

I don't know how much clearer the statute needs to get. Just because some Republican judges find it politically convenient to read four words in complete isolation doesn't mean the statue is unclear. Can't we just be adults and agree that members of the Supreme Court routinely engage in motivated reasoning?

Yes, it will be fascinating to see what reasoning SC justices use to support their predetermined positions.

[My $.02]

"The phrase is clear - just as a fish is a tangible object, an exchange created by the federal government is not one created by a state."

Yeah, pretty much what JJ said. The statute authorizing the creation of a federal exchange specifically says that if a state fails to create an exchange under Section 1311, the HHS secretary will establish "such Exchange" on its behalf. "Exchange" is defined to be a state-established exchange. The use of the term "such" preceding it in Section 1321 makes it at least ambiguous -- and arguably unambiguous in the government's favor -- that 1321 exchanges are deemed to be 1311 exchanges for purposes of the ACA.

I understand it can be counterintuitive that a federally-operated exchange under Section 1321 could be deemed to be an "Exchange established by a state under Section 1311," but that's what the statute says, or at least it could be interpreted to say depending on how you view "such." Sorry.

[Anon]

It seems to be an academic exercise at best to pretend that there is something to be gleaned from how a justice ruled in Yates and how he will rule in King. The Court continues to fall further into politically-based / outcome determinative rulings and further from reasoned and consistent legal reasoning. I guess it might be fun to try and draw insight from Yates as it applies to King, but it is far from convincing that there is anything to be learned about a justice's approach to the law. King is politics pure and simple. Perhaps Yates is too. Maybe that's the lesson.