[NOT YET SCHEDULED FOR ORAL ARGUMENT] No. 19-5125

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 11 of 44Estate of Boyland v. USDA,913 F.3d 117 (D.C. Cir. 2019) . 5Harmon v. Thornburgh,878 F.2d 484 (D.C. Cir. 1989) . 26King v. Burwell,135 S. Ct. 2480 (2015) . 18Kisor v. Wilkie,139 S. Ct. 2400 (2019) . 11Lesesne v. Doe,712 F.3d 584 (D.C. Cir. 2013) . 27Lexmark Int’l, Inc. v. Static Control Components, Inc.,572 U.S. 118 (2014) . 7MDPhysicians & Assocs., Inc. v. State Bd. of Ins.,957 F.2d 178 (5th Cir. 1992) . 12National Cable & Telecommc’ns Ass’n v. Brand X Internet Servs.,545 U.S. 967 (2005) .12, 17, 25NLRB v. SW Gen., Inc.,137 S. Ct. 929 (2017) . 21Pennsylvania ex rel. Shapp v. Kleppe,533 F.2d 668 (D.C. Cir. 1976) . 4, 5, 7Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon,541 U.S. 1 (2004) . 3, 24, 25Simpkins v. District of Columbia Gov’t,108 F.3d 366 (D.C. Cir. 1997) . 27Wyoming v. Oklahoma,502 U.S. 437 (1992) . 4, 5x

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 12 of 44Statutes:Health Insurance Portability and Accountability Act of 1996,Pub. L. No. 104-191 . 20Public Health Service Act, Pub. L. No. 78-410 . 2026 U.S.C. § 414(m) . 2126 U.S.C. § 4980H . 2226 U.S.C. § 4980H(c)(2)(A) . 2229 U.S.C. § 1002(5) . 2, 10, 11, 13, 15, 19, 20, 21, 2529 U.S.C. § 1135 . 10, 1842 U.S.C. § 300gg-91(a)(1) . 1942 U.S.C. § 300gg-91(d)(5)-(6) . 18, 1942 U.S.C. § 300gg-91(d)(6) . 2542 U.S.C. § 300gg-91(e)(2) . 1942 U.S.C. § 18024(b)(4)(A) . 21Regulations:26 C.F.R. § 54.4980H-1(a)(16) . 2229 C.F.R. § 2510.3-5(g) . 2645 C.F.R. § 144.103 . 20Legislative Material:Activity Report of the Comm. on Educ. & Labor,H.R. Rep. No. 94-1785 (1977) . 12xi

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 13 of 44Other Authorities:Ctrs. for Medicare & Medicard Servs.:Application of Individual and Group Market Requirements (Sept. 1, 2011),https://go.usa.gov/xyv7c . 19, 20Insurance Standards Bulletin No. 02-02 (Aug. 2002)https://go.usa.gov/xyvfu . 2062 Fed. Reg. 16,894 (1997) . 2079 Fed. Reg. 8544 (2014) . 2283 Fed. Reg. 28,912 (2018) .6, 9, 12, 13, 15, 16, 17Internal Revenue Serv., Q&A on Employer Shared Responsibility Provisions,No. 18 (last updated Mar. 26, 2019), https://go.usa.gov/xmY7y . 23xii

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 14 of 44GLOSSARYACAPatient Protection and Affordable Care ActAPAAdministrative Procedure ActCMSCenters for Medicare and Medicaid ServicesERISAEmployee Retirement Income Security Act of 1974HIPAAHealth Insurance Portability and Accountability Actof 1996IRSInternal Revenue Service

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 15 of 44SUMMARY OF ARGUMENTThe plaintiff States have challenged a rule issued by the Department of Laborto make it easier for employers to acquire affordable, high-quality healthcare coveragefor their employees. The district court held that the States had standing; that theDepartment lacked authority under the Employee Retirement Income Security Act(ERISA) to adopt the rule’s two principal provisions; and that the rule must bevacated nationwide. That judgment was erroneous in every respect, as our openingbrief explained. And the States have failed to rehabilitate the court’s reasoning.With respect to standing, the States cannot dispute that the rule does notcommand any State to take, or to refrain from taking, any action. They argue onlythat the rule injures them by (1) depriving them of tax revenues, and (2) “forcing”them to spend resources because association health plans might engage in fraud andmismanagement. But, among other defects, those injuries are self-inflicted. The ruledoes not restrict the States’ ability to tax association health plans if they choose, andthe States are not required to choose to spend money to protect their citizens fromthe (speculative) possibility that yet-to-be-formed associations might behaveimproperly. Additionally, the States have articulated no reason why they fall withinERISA’s zone of interests. ERISA regulates employee benefit plans to protect theinterests of their participants and beneficiaries. Yet the States’ asserted injuries can beremedied only by vacating the rule’s expansion of affordable, high-quality healthcarecoverage—relief that is unrelated to, and indeed inconsistent with, ERISA’s purposes.

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 16 of 44As to the merits, the States have failed to demonstrate that the Departmentlacked statutory authority to adopt the rule’s alternative criteria for establishingassociation health plans. In the most critical respects—the degree and nature ofemployer control of the association health plan—those criteria establish standardsequally or more stringent than the indisputably lawful factors the Department hashistorically used to ensure that an association acts “indirectly in the interest of anemployer,” 29 U.S.C. § 1002(5). The States nevertheless argue that, because theremaining criteria do not prohibit an association from offering healthcare coverage asits principal purpose, the Department’s interpretation of ERISA is unreasonable. Butneither the text nor context of ERISA imposes such a requirement, let aloneunambiguously. And although the States contend that the criteria fail to ensure thatassociations will act in their members’ interests, the States’ arguments merely secondguess the Department’s expert judgment. The rule’s reasonable construction ofERISA warrants Chevron deference.The States next argue that the criteria conflict with the Patient Protection andAffordable Care Act (ACA). These arguments, which the district court did not adopt,lack merit as well. The relevant ACA provisions incorporate the very ERISA definitionsthe challenged rule construes, and thereby foreclose the States’ suggestion that theACA stripped the Department of its preexisting authority to interpret ERISA as ithas. In any event, the challenged rule does not govern how the ACA applies toassociation health plans created under it. That responsibility resides in two other2

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 17 of 44agencies: the Centers for Medicare and Medicaid Services (CMS) and the InternalRevenue Service (IRS). Even if those agencies have applied the ACA incorrectly—which they have not—any such error would not justify vacating the Department’sseparate rule.The States likewise have failed to demonstrate that the rule’s working-ownerprovision unreasonably implements ERISA. The States acknowledge that a workingowner can be both an employer and an employee for purposes of establishing andparticipating in an ERISA-covered benefit plan. Raymond B. Yates, M.D., P.C. ProfitSharing Plan v. Hendon, 541 U.S. 1 (2004). Contrary to the States’ contention, neitherthe Supreme Court’s decision in Yates nor ERISA’s text unambiguously forecloses theDepartment’s reasonable conclusion that a working owner who has no otheremployees may participate in association health plans.Finally, the States are not entitled to nationwide vacatur of the rule. BothArticle III and foundational principles of equity establish that any vacatur must be nobroader than necessary to provide full relief to the States the rule actually injures. Inordering otherwise, the district court has prevented the Department from maintainingthe rule in the many States that support it—to the detriment of employers that wouldotherwise use it to obtain affordable, high-quality healthcare coverage for theiremployees.3

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 18 of 44ARGUMENTI.The States Lack A Cognizable Injury Providing A Basis ToChallenge The Rule.A.The States’ assertions of lost tax revenue do not provide abasis to challenge the rule.Lost tax revenues are “generally not cognizable as an injury-in-fact for purposesof standing.” Arias v. DynCorp, 752 F.3d 1011, 1015 (D.C. Cir. 2014) (citingPennsylvania ex rel. Shapp v. Kleppe, 533 F.2d 668, 672 (D.C. Cir. 1976)); Br. 19-22.Standing will exist only when the State can allege a “fairly direct link between thestate’s status as a collector and recipient of revenues” and the “administrative actionbeing challenged.” Kleppe, 533 F.2d at 672. No such link exists here. By the States’own admission (Resp. Br. 29-30), the challenged rule does not directly mandatebehavior that would reduce their tax revenues. The rule instead expands thehealthcare-coverage options available to employers by making it easier for them toform association health plans. The rule will reduce States’ tax revenues only becausesome States have voluntarily chosen not to tax coverage obtained through such plans.Such incidental injuries are insufficient to support standing. Kleppe, 533 F.2d at 670.The States argue (Resp. Br. 30) that, under Wyoming v. Oklahoma, 502 U.S. 437(1992), standing exists as long as they identify a “specific” revenue stream the rule willincidentally affect. But Wyoming reaffirmed Kleppe’s rejection of injuries based onincidental loss of tax revenues. Id. at 438 (explaining that Kleppe did not “involve[] adirect injury in the form of a loss of specific tax revenues—an undisputed fact here”);4

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 19 of 44id. at 450 (“[Wyoming’s] severance tax revenues are directly linked to the extractionand sale of coal and have been demonstrably affected by the Act.”); id. at 451 (“[Thechallenged] Act . . . directly affects Wyoming’s ability to collect severance taxrevenues.”). The direct link present in Wyoming—that the challenged law itselfregulated the conduct of severance-tax-paying utility companies—is not present here.The challenged rule imposes no restrictions on the independent and unfetteredchoices of tax-paying third parties.The States also argue (Resp. Br. 30-31) that Kleppe is inapposite because theasserted injury resulted from a natural disaster, not governmental action. Thatdistinction is illusory. In assessing standing, courts must assume arguendo the merits ofa plaintiff’s legal claims. Estate of Boyland v. USDA, 913 F.3d 117, 123-24 (D.C. Cir.2019). Accordingly, Kleppe assumed the plaintiff States’ premise that the government’sfailure to remedy the disaster was unlawful; that conduct, of course, itself injured theirbusinesses and, by extension, themselves. 533 F.2d at 671 & n.14. What matteredwas not that the harm had originally been caused by the disaster, but that theincidental effect of the government’s failure to remedy the disaster on the taxescollected was insufficient to confer standing.The States next suggest (Resp. Br. 29-31) that a reduction in their tax revenuesis not an incidental effect but the rule’s intended consequence. They emphasize thepreamble’s observation that the rule would allow employers to avoid the “potentiallysignificant cost to comply with State rules that apply to large group issuers,” such as5

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 20 of 44premium taxes. 83 Fed. Reg. 28,912, 28,943 (2018). But the States omit the very nextsentence, which confirms that States retain the authority to tax association healthplans. Id.In all events, therefore, the States fail to overcome the government’s showing(Br. 22) that, because they retain control over their own tax policies, any reduction intax revenue would be self-inflicted, and even more attenuated from the challengedrule than the injuries identified in Kleppe. There, no tax restructuring could haveeliminated the harm allegedly inflicted on the States by the government’s disasterrelief decisions. Similarly, in Wyoming, the State could not recoup lost tax revenues byimposing a different tax on out-of-State utility companies. Here, by contrast, theextent of the States’ losses depends entirely on their own taxation decisions—thussupplying an independent ground to reject this assertion of injury. Br. 26-27.Finally, the States have failed to explain how this self-inflicted injury bringsthem within the zone of interests of ERISA—or even of the ACA, insofar as thatstatute is purportedly relevant to their claim (but see infra pp. 17-18). The States believe(Resp. Br. 31-32) that, because ERISA and the ACA “preserve[] the States’ historicrole in regulating traditional insurance,” they fall within both statutes’ zones ofinterests. But the rule does not disturb the States’ regulatory role. The States’complaint is that the rule may reduce the tax revenue they collect, and they seek topreserve this revenue at the expense of depriving employees of the expanded accessto affordable, high-quality healthcare that the rule enables. This injury is “so6

USCA Case #19-5125Document #1799106Filed: 07/25/2019Page 21 of 44marginally related to”—indeed, “inconsistent with”—the interests protected byERISA and the ACA “that it cannot reasonably be assumed that Congress intended topermit the suit.” Clarke v. Securities Indus. Ass’n, 479 U.S. 388, 399 (1987

Commerce & Industry, Wisconsin Manufacturers & Commerce, the Greater Fairbanks Chamber of Commerce (Alaska), the East Valley Chambers of Commerce Alliance (Arizona), the Tucson Metro Chamber (Arizona), the Greater Miami Chamber of Commerce (Florida),