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The Government’s Loss at the Supreme Court Today May Signal a More Important Win Down the Road

February 25, 2015

With the Supreme Court scheduled to hear oral argument in King v. Burwell next week, those looking for clues as to what the Court will decide later this year when it rules in King need look no further than a very different case the Court decided today.  In Yates v. United States, the Court held, in a fractured 4-1-4 decision, that a provision of the Sarbanes-Oxley Act that bars the destruction of “tangible object[s]” does not apply to the destruction of fish (specifically, red grouper).  In their opinions in Yates, the plurality and the dissent didn’t agree about much, but there’s one thing they did agree on, and that principle is key to why the government should win in King: when you’re interpreting a law, context matters. 

In King, the Court has been asked to decide whether the tax credits that put the “affordable” in the Affordable Care Act are available to all Americans who meet the income criteria, or only to those who purchase their insurance on state-run Exchanges.  When one looks at the whole statute in King, the answer is clear: tax credits are available to all Americans who qualify based on income, regardless of whether they purchase insurance on a state-run or a federally-facilitated Exchange.  The argument made by the law’s challengers rests on a facile reading of four words—“established by the State”—that appear in the formula for calculating the amount of the tax credit (not eligibility for it), as well as the argument that one need not look any further than those four words when trying to understand what the statute means.  Today’s opinion in Yates makes clear how wrong those arguments are.

In Yates, the Court made clear that when judges or other government officials are interpreting a statute, they can’t just look at a few words in isolation, they must look at the statute as a whole.  As Justice Ginsburg wrote in the plurality opinion joined by Chief Justice Roberts, “Whether a statutory term is unambiguous . . . does not turn solely on dictionary definitions of its component words.  Rather, ‘[t]he plainness or ambiguity of statutory language is determined [not only] by reference to the language itself, [but as well by] the specific context in which that language is used, and the broader context of the statute as a whole.’”  Put somewhat differently, Justice Ginsburg also wrote, “In law as in life . . . the same words, placed in different contexts, sometimes mean different things.”

This isn’t news, of course.  It’s a fundamental canon of statutory interpretation, as evidenced by Justice Ginsburg’s citation to other cases that make the same point.  One of those cases explained that it is a “fundamental principle of statutory construction (and, indeed, of language itself) that the meaning of a word cannot be determined in isolation, but must be drawn from the context in which it is used.”  Indeed, while the dissenters in Yates disagreed strongly about how the text and context should be interpreted in this case, they agreed on this fundamental point of statutory interpretation.  As Justice Kagan wrote in dissent (in an opinion joined by Justices Scalia, Kennedy, and Thomas), “I agree with the plurality (really, who does not?) that context matters in interpreting statutes.  We do not ‘construe the meaning of statutory terms in a vacuum.’  Rather, we interpret particular words ‘in their context and with a view to their place in the overall statutory scheme.’” 

When one construes the words “established by the State” in the context of the ACA, it’s clear why tax credits should be available on all Exchanges.  The ACA expressly provides that a tax credit “shall be allowed” for any “applicable taxpayer,” and it defines who qualifies as an “applicable taxpayer[s]” based on income level, not state of residence.  While the formula for calculating the amount of the credit does refer to an “Exchange established by the State,” that language is there to make clear that the relevant Exchange for calculating the amount of the credit is the Exchange in the specific state where the individual purchased his or her insurance, whether the Exchange is state-run or federally facilitated.  Indeed, other provisions in the ACA make clear that when states elect not to set up their own Exchanges, the federal government may set up “such Exchange[s]” in their stead and those federally-facilitated Exchanges are the functional equivalent of state-run Exchanges.  The law’s challengers want the Justices to ignore all of that context, but today’s opinions in Yates underscore why they shouldn’t. 

In her plurality opinion (again joined by the Chief Justice), Justice Ginsburg made another point that seriously undermines the case made by the ACA’s challengers in King.  They have long argued that Congress intentionally limited the tax credits under the ACA to state-run Exchanges to encourage states to set up their own Exchanges; the law’s defenders have long responded that it would have made no sense to bury such an important provision in the formula for calculating the amount of the tax credit.  Justice Ginsburg made a similar point in Yates:  “It is highly improbable that Congress would have buried a general spoliation statute [i.e., a statute preventing the destruction of evidence] covering objects of any and every kind in a provision targeting fraud in financial record-keeping.”  Elsewhere, Justice Ginsburg noted that if Congress had meant to do that, one would “have expected a clearer indication of that intent.”  Indeed, that’s exactly what members of Congress said in an amicus brief filed in King: “Drawing the connection between the tax credits and the Exchanges so obliquely . . . would hardly have made sense if, as [the law’s challengers] argue, the purpose of the tax credit was to induce States to establish their own Exchanges.”

With the King argument just a week away (and no doubt on the minds of the Justices), the ACA’s challengers can’t be happy to see the Court’s opinions in Yates.  And the government, although surely disappointed by its loss today, should be taking some solace in the reasons for that loss.  It may well be that the government’s loss today signals a more important win down the road.