Virginia court rejects two challenges to Obama’s healthcare law

Reporting from Washington —  A federal appeals court in Virginia rejected two challenges to President Obama’s healthcare law, saying the legal dispute over whether the government can require Americans to buy medical insurance should be put off for three years until the first taxpayers are hit with a penalty.

The decision injects a new element into a brewing election-year court showdown over Obama’s signature accomplishment. Though the Supreme Court is poised to take up the issue early next year, the Virginia-based court decided that federal law forbids judges from ruling on tax challenges until a tax penalty has been levied.

“This ruling has the potential to throw the mandate litigation for a big loop,” said University ofRichmond law professor Kevin C. Walsh, a former Supreme Court clerk to Justice Antonin Scalia. “It could delay a ruling on the merits.”

Obama administration lawyers have been confident that the high court will ultimately uphold the law and rule that Congress has broad power to regulate the health insurance market. So far, however, the lower courts have been split.

In late June, the U.S. 6th Circuit Court of Appeals in Cincinnati upheld the law in a 2-1 decision. For their part, Republican state attorneys and conservative activists say it is unconstitutional for Washington to force people to buy a private product, and they won a 2-1 ruling from the U.S. 11th Circuit Court of Appeals in Atlanta last month.

Walsh said the Supreme Court was still likely to take up the issue in the next year and then decide whether to rule on the constitutional issue or defer a decision until later.

Both sides were expecting the U.S. 4th Circuit Court of Appeals in Richmond to side with the administration. All three judges who heard the case were Democratic appointees, and two were named by Obama. But the rationale for their ruling was new.

Chief Judge Diana Gribbon Motz cited an old but obscure law known as the Anti-Injunction Act, which says judges may not decide lawsuits challenging a tax before it has been collected. The Affordable Care Act signed by Obama last year says that beginning in 2014, the Internal Revenue Service shall impose a $95 penalty on a taxpayer who has a taxable income but does not maintain minimum insurance coverage. The penalty, which some have asserted is not a tax, rises to $325 in 2015 and $695 in 2016.

Lawyers for Liberty University, a Christian school in Lynchburg, Va., founded by the Rev. Jerry Falwell, filed suit on the day Obama signed the bill and said the mandate should be declared unconstitutional. But Judge Motz said the law bars her and other judges from ruling on this issue before the tax takes effect.

“Because this suit constitutes a pre-enforcement action seeking to restrain the assessment of a tax, the Anti-Injunction Act strips us of jurisdiction,” she wrote in Liberty University vs. Geithner. “A taxpayer can always pay an assessment, seek a refund directly from the IRS and then bring a refund action in federal court,” she said. Judge James Wynn of North Carolina agreed with her, but also said the mandate was constitutional.

The panel’s third member, Judge Andre Davis from Maryland, said the penalty was not a tax. However, he also said the entire law was constitutional because Congress has broad power to regulate the interstate market in health insurance.

In a second decision, the appeals court threw out a suit brought by Virginia Atty. Gen. Kenneth Cuccinelli. Last year, Cuccinelli won the first ruling striking down the law when U.S. District Judge Henry Hudson declared the individual mandate unprecedented and unconstitutional.

But on Thursday, the 4th Circuit said Cuccinelli had no standing to sue and the judge had no basis for ruling on his claim. The attorney general was not suing as a taxpayer but instead claimed to be defending the sovereignty of the state.

Motz said the “significance of the questions at issue here” called for “waiting for an appropriate case to reach the merits. This is not such a case.”

So far, no appeals court has ruled that states or state officials have standing on their own to sue over the healthcare mandate.

Former U.S. Solicitor General Walter Dellinger said the legal ban on advance suits against tax assessments “raises a very serious question about this litigation. In fact, this is a payment that would be made by federal taxpayers on their tax forms,” he said.

david.savage@latimes.com