Ducey v. Yellen

• Court: District Court, D. Arizona
• Decided: July 19, 2022
• Docket: 2:22-cv-00112
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8

Douglas A. Ducey, ) No. CV-22-00112-PHX-SPL ) 9 ) 10 Plaintiff, ) ORDER vs. ) ) 11 ) Janet Yellen, et al., ) 12 ) 13 Defendants. ) ) 14 )

15 Before the Court is Defendants’ Motion to Dismiss (Doc. 19). For the reasons that 16 follow, the Motion will be granted.1 17 I. BACKGROUND 18 On January 21, 2022, Plaintiff Douglas A. Ducey, Governor of the State of 19 Arizona, filed a Complaint against Defendants Janet Yellen, Secretary of the Treasury 20 (the “Secretary”); Richard K. Delmar, Acting Inspector General of the Department of 21 Treasury; and the United States Department of the Treasury (“Treasury”). (Doc. 1). The 22 Complaint arises out of the American Rescue Plan Act of 2021 (“ARPA”), specifically 23 42 U.S.C. § 802, which was signed into law on March 11, 2021. (Doc. 1 ¶¶ 6, 17). 24 Section 802 of the ARPA created the Coronavirus State and Local Fiscal Recovery Fund 25 (“SLFRF”) by appropriating more than $219 billion to be distributed to states to mitigate 26

27 1 Because it would not assist in resolution of the instant issues, the Court finds the pending motion is suitable for decision without oral argument. See LRCiv. 7.2(f); Fed. R. 28 Civ. P. 78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998). 1 the fiscal effects of the COVID-19 pandemic. (Doc. 1 ¶¶ 6, 19). Section 802(c)(1) 2 provides an exclusive list of four permissible uses for SLFRF funds, the first of which is 3 as follows: 4 to respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID-19) or its negative 5 economic impacts, including assistance to households, small 6 businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality . . . . 7 42 U.S.C. § 802(c)(1)(A); (Doc. 1 ¶ 20). The ARPA also includes a recoupment remedy 8 that requires a state that fails to comply with § 802(c) to repay any misused funds to 9 Treasury. 42 U.S.C. § 802(e); (Doc. 1 ¶ 24). The Secretary may also reduce amounts 10 payable to the state by the amount to be recouped. 42 U.S.C. § 802(b)(6)(ii)(III); (Doc. 1 11 ¶ 25). Finally, the statute gives the Secretary “authority to issue such regulations as may 12 be necessary or appropriate to carry out this section.” 42 U.S.C. § 802(f); (Doc. 1 ¶ 26). 13 On May 17, 2021, Treasury published an Interim Final Rule implementing the 14 SLFRF. 86 Fed. Reg. 26786; (Doc. 1 ¶ 7). The Interim Final Rule detailed permissible 15 uses for SLFRF funds, which included addressing the educational impacts of the COVID- 16 19 pandemic as a response to the pandemic’s negative economic effects. (Doc. 1 ¶¶ 31– 17 32). 18 On May 21, 2021, the Governor’s Office of Strategic Planning and Budgeting 19 signed Treasury’s certification form, authorizing Treasury to make SLFRF payments to 20 the State of Arizona (the “State”). (Doc. 1 ¶ 36). The State then received its first SLFRF 21 payment. (Doc. 1 ¶ 37). On August 17, 2021, Plaintiff announced the establishment of 22 two education programs funded by SLFRF dollars: the Education Plus-Up Grant Program 23 (“Plus-Up”) and the COVID-19 Educational Recovery Benefit Program (“ERB”), 24 collectively, the “Programs.” (Doc. 1 ¶¶ 38, 42). Plus-Up “made $163 million in ARPA 25 funds available to Arizona school districts and charter schools” that met certain financial 26 parameters, did not require the use of face coverings, and remained open for in-person 27 instruction during the 2021–2022 school year. (Doc. 1 ¶¶ 38–41). The ERB program 28 1 “supplied $10 million in ARPA monies for K-12 students and families facing financial 2 and educational barriers due to school closures and mandates.” (Doc. 1 ¶ 42). The ERB 3 program provided up to $7,000 per student for school tuition, tutoring, and childcare fees 4 for students whose household income fell below a certain threshold and whose “current 5 school is requiring the use of face coverings.” (Doc. 1 ¶ 43). 6 On October 5, 2021, Treasury wrote a letter to Plaintiff’s office asserting that the 7 Programs “undermine evidence-based efforts to stop the spread of COVID-19” and that 8 programs undermining such efforts or discouraging compliance with evidence-based 9 solutions for stopping the spread of COVID-19 are not permissible uses of SLFRF funds. 10 (Doc. 1 ¶¶ 46–48). Treasury required Plaintiff to respond to the letter with a remediation 11 plan and warned that “failure to respond or remediate may result in administrative or 12 other action.” (Doc. 1 ¶ 51). On November 4, 2021, Plaintiff responded to Treasury by 13 detailing how the Programs aimed to address the negative economic impacts of the 14 pandemic, as permitted by the ARPA, by addressing educational disparities. (Doc. 1 ¶¶ 15 52–56). 16 On January 6, 2022, Treasury issued a Final Rule, effective April 1, 2022, 17 adopting the Interim Final Rule with amendments. (Doc. 1 ¶¶ 57, 63). One of those 18 amendments was the addition of the following language: 19 A program or service that imposes conditions on participation in or acceptance of the service that would undermine efforts 20 to stop the spread of COVID-19 or discourage compliance 21 with recommendations and guidelines in [Center for Disease Control and Prevention (“CDC”)] guidance for stopping the 22 spread of COVID-19 is not a permissible use of funds. In 23 other words, recipients may not use funds for a program that undermines practices included in the CDC’s guidelines and 24 recommendations for stopping the spread of COVID-19. 25 87 Fed. Reg. 4338, 4353; (Doc. 1 ¶ 58). The Court will refer to this provision as the 26 “Restriction.” The Final Rule provided as examples of impermissible uses “programs that 27 impose a condition to discourage compliance with practices in line with CDC guidance” 28 and “programs that require . . . entities not to use practices in line with CDC guidance as 1 a condition of receiving funds.” 87 Fed. Reg. 4338, 4353; (Doc. 1 ¶ 59). 2 On January 14, 2022, Treasury wrote another letter to Plaintiff stating that the 3 Programs “as currently structured are ineligible uses of SLFRF funds.” (Doc. 1 ¶ 64). The 4 letter stated that Plaintiff must either redirect SLFRF funds to eligible uses or remediate 5 the Programs to comply with the Restriction. (Doc. 1 ¶ 69). It further stated that Treasury 6 “would welcome the opportunity to discuss” its concerns with Plaintiff and that it “is 7 committed to working with recipients to take advantage of the many eligible uses and 8 great flexibility available under the SLFRF program.” (Doc. 1-7 at 3). Treasury stated 9 that “failure to take either step within sixty (60) calendar days may result in Treasury 10 initiating an action to recoup SLFRF funds used in violation of the eligible uses” and that 11 it “may also withhold funds from the State of Arizona’s second tranche installment of 12 SLFRF funds until Treasury receives information that confirms” that Plaintiff had 13 redirected the funds or remediated the Programs. (Doc. 1 ¶ 70). The Final Rule provides 14 for specific administrative processes prior to recoupment, including an initial notice and 15 an opportunity for reconsideration. 31 C.F.R. § 35.10. 16 On January 21, 2022, Plaintiff filed his Complaint, alleging four counts: 17 (1) violation of the Administrative Procedure Act (“APA”) based on the Final Rule; 18 (2) violation of the APA based on the January 14 letter; (3) violation of the Spending 19 Clause, Article I, § 8, cl. 1 of the Constitution; and (4) violation of the nondelegation 20 doctrine. (Doc. 1). Plaintiff seeks declaratory and injunctive relief. (Doc. 1). On March 21 22, 2022, Defendants filed the instant Motion to Dismiss, which has been fully briefed. 22 (Docs. 19, 20, 22, 23). 23 II. DISCUSSION 24 Defendants move to dismiss the Complaint for lack of jurisdiction based on 25 justiciability issues and for failure to state a claim. The Court will first address the 26 justiciability issues and will then move to the merits. 27 /// 28 /// 1 a. Justiciability 2 Defendants’ Motion raises four justiciability issues, which will be addressed in 3 sequence: (1) standing, (2) ripeness, (3) administrative exhaustion, and (4) reviewability 4 under the APA. 5 i. Standing 6 “[S]tanding is an essential and unchanging part of the case-or-controversy 7 requirement of Article III.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). To 8 establish standing, the plaintiff must establish “(1) an injury in fact that is (a) concrete 9 and particularized and (b) actual or imminent; (2) causation; and (3) a likelihood that a 10 favorable decision will redress the injury.” Wolfson v. Brammer, 616 F.3d 1045, 1056 11 (9th Cir. 2010). Only the first element is at issue in this case. To establish injury when 12 bringing a pre-enforcement challenge to a law, “[t]he plaintiff must allege (1) an 13 ‘intention to engage in a course of conduct arguably affected with a constitutional 14 interest,’ (2) ‘but proscribed by a statute,’ and (3) there must be ‘a credible threat of 15 prosecution’ under the statute.” Arizona v. Yellen, 34 F.4th 841, 849 (9th Cir. 2022) 16 (quoting Susan B. Anthony List v. Driehaus, 573 U.S. 149, 159 (2014)). 17 Arizona v. Yellen applies squarely here. In that case, the State of Arizona 18 challenged a restriction of the ARPA’s SLFRF provision that prohibits states from using 19 funds to subsidize a tax cut or otherwise offset state tax revenue reductions. Id. at 845– 20 46. After the law was enacted and without any specific threat of enforcement of the 21 provision having been made against Arizona, the State challenged it as a violation of the 22 Spending Clause and the Tenth Amendment. Id. at 845, 847. The district court held that 23 Arizona did not have standing because it lacked a cognizable injury, but the Ninth Circuit 24 reversed. Id. at 845, 847–48. 25 As to the first Driehaus factor, in Arizona, the Ninth Circuit held that it “must 26 accept—for standing purposes—[Arizona’s] allegations that the condition is 27 unconstitutionally ambiguous and coercive,” because “standing in no way depends on the 28 merits.” Id. at 849 (internal quotation marks omitted). Likewise, here, the Court must 1 accept Plaintiff’s allegations that the ARPA and the Final Rule violate the Constitution 2 and the APA, respectively.2 Thus, Plaintiff has satisfied the first factor. 3 With respect to the second Driehaus factor, the Court must determine what 4 conduct is proscribed by the ARPA and the Final Rule and evaluate whether Plaintiff’s 5 desired course of conduct falls under their sweep. See id. Here, it is Defendants’ own 6 position, according to the January 14 letter, that the Programs “as currently structured are 7 ineligible uses of SLFRF funds” pursuant to the ARPA and the Final Rule. (Doc. 1-7 at 8 3). The second factor is therefore satisfied. 9 The third Driehaus factor—whether there is a credible threat of prosecution—is 10 where the primary dispute lies in this case. When considering whether a threat of 11 enforcement is sufficiently genuine to confer standing, courts in the Ninth Circuit 12 consider “(1) whether the plaintiffs have articulated a concrete plan to violate the law in 13 question, (2) whether the prosecuting authorities have communicated a specific warning 14 or threat to initiate proceedings, and (3) the history of past prosecution or enforcement 15 under the challenged statute.” Arizona, 34 F.4th at 850 (internal quotation marks 16 omitted). The third prong “carries little, if any weight” where a challenged statute is new, 17 as the ARPA is. Id. 18 Defendants argue that there is no credible threat of prosecution “because Treasury 19 has not initiated recoupment proceedings or even stated unequivocally that it would do 20 so.” (Doc. 19 at 14). But in Arizona, the Court held that, even though no threat of 21 enforcement had been made against Arizona specifically, the following was sufficient 22 evidence to show an intent to enforce the provision at issue: (1) that the federal 23 government had not disavowed enforcement of it; (2) a letter from the Secretary 24 confirming that the provision would be enforced “in a cooperative fashion inviting

25 2 To be sure, the first Driehaus factor refers specifically to a plaintiff’s 26 constitutional interest. Driehaus, 573 U.S. at 159. But the Court sees no reason why the same analysis should not apply to an alleged violation of the APA, and there is Ninth 27 Circuit case law that supports such an application. See United States v. Szabo, 760 F.3d 997, 1006–07 (9th Cir. 2014) (citing Driehaus to suggest that a pre-enforcement 28 challenge of a regulation under the APA would have been available). 1 ‘ongoing dialogue’ between the Treasury and the States”; and (3) the detailed and 2 specific recoupment process outlined in Treasury’s regulation. Arizona, 34 F.4th at 850. 3 Those same pieces of evidence are present here: Defendants have not disavowed that the 4 Restriction will be enforced; the January 14 letter confirms that the Restriction will be 5 enforced, even if it suggests a cooperative approach; and the same detailed recoupment 6 regulation applies. Following the Ninth Circuit’s holding in Arizona, where the third 7 Driehaus factor carried “dispositive weight,” Plaintiff has alleged a credible threat of 8 prosecution sufficient to confer standing. Id. 9 There is one notable distinction between the Arizona case and this case: whereas 10 the State is the plaintiff in Arizona, Governor Ducey is the Plaintiff here. Defendants here 11 argue that “any conceivable harm arising out of the allegations in the Complaint runs to 12 the State of Arizona,” not Governor Ducey. (Doc. 19 at 13). To the contrary, Plaintiff 13 argues that “[t]he Final Rule directly regulates Governor Ducey by substantially 14 restricting his authority and discretion to use SLFRF monies.” (Doc. 20 at 7–8). 15 Plaintiff’s argument is based on A.R.S. § 41-101.01(A), which provides that “[t]he 16 governor . . . is authorized to accept and expend any . . . funds made available to the state 17 through any federal statute.” 18 The Court agrees with Plaintiff. Pursuant to Arizona law, it is for Plaintiff to 19 decide whether to accept SLFRF funds and how such funds should be spent. Plaintiff 20 alleges that the ARPA and the Final Rule improperly limit his ability to put the funds 21 towards the Programs. Accordingly, the statute and regulation “purport[ ] to regulate the 22 plaintiff’s primary conduct” and “alter[ ] his rights, obligations, privileges, powers, or 23 liabilities” such that Plaintiff is their “object” and has standing to challenge them. Desert 24 Water Agency v. U.S. Dep’t of the Interior, 849 F.3d 1250, 1254 n.3 (9th Cir. 2017). 25 Plaintiff’s claims will not be dismissed for lack of standing. 26 ii. Ripeness 27 The purpose of the ripeness inquiry is “to prevent the courts, through avoidance of 28 premature adjudication, from entangling themselves in abstract disagreements over 1 administrative policies, and also to protect the agencies from judicial interference until an 2 administrative decision has been formalized and its effects felt in a concrete way by the 3 challenging parties.” Ohio Forestry Ass’n, Inc. v. Sierra Club, 523 U.S. 726, 732–33 4 (1998) (internal quotation marks omitted). Ripeness has both constitutional and 5 prudential components. See Safer Chems., Healthy Fams. v. U.S. Env’t Prot. Agency, 943 6 F.3d 397, 411 (9th Cir. 2019). For constitutional ripeness, “a case must present issues that 7 are definite and concrete, not hypothetical or abstract.” Id. (internal quotation marks 8 omitted); see also Lee v. Oregon, 107 F.3d 1382, 1387 (9th Cir. 1997) (“While standing 9 is primarily concerned with who is a proper party to litigate a particular matter, ripeness 10 addresses when that litigation may occur.”). For prudential ripeness, the Court must 11 consider “the fitness of the issues for judicial decision and the hardship to the parties of 12 withholding court consideration.” Colwell v. Dep’t of Health & Hum. Servs., 558 F.3d 13 1112, 1124 (9th Cir. 2009). An agency regulation 14 is not ordinarily considered the type of agency action ‘ripe’ for judicial review under the APA until the scope of the 15 controversy has been reduced to more manageable 16 proportions, and its factual components fleshed out, by some concrete action applying the regulation to the claimant’s 17 situation in a fashion that harms or threatens to harm him. 18 Id. (quoting Lujan, 497 U.S. at 891). 19 Here, the issues are sufficiently concrete and fit for judicial review. The January 20 14 letter states in no uncertain terms that the Programs “as currently structured are 21 ineligible uses of SLFRF funds.” (Doc. 1-7 at 3). Although Defendants have not actually 22 initiated an enforcement proceeding, they have applied the ARPA and Final Rule to the 23 Programs and concluded that the Programs are impermissible uses of the funds. The 24 dispute thus has a manageable scope and concrete facts to guide this Court’s review. 25 Finally, as explained above, Plaintiff has alleged a credible threat of enforcement. 26 Accordingly, this case is ripe. Cf. Colwell, 558 F.3d at 1125–28 (finding an agency’s 27 policy guidance was not ripe for review where the text of the guidance was ambiguous 28 and contained discretionary language and where the parties provided no examples of the 1 agency’s use of the policy guidance). 2 iii. Administrative Exhaustion 3 Defendants argue that Plaintiff must exhaust his administrative remedies under 31 4 C.F.R. § 35.10(e) before he can seek judicial review. (Doc. 19 at 16). That provision 5 states in part, “A recipient must invoke and exhaust the procedures available under this 6 subpart prior to seeking judicial review of a decision under § 35.10,” referring to a 7 recoupment decision by the Secretary of the Treasury. C.F.R. § 35.10(e). Here, however, 8 Plaintiff is not challenging a recoupment decision but rather the Final Rule and the ARPA 9 themselves. Thus, no exhaustion requirement applies, and the Court has no discretion to 10 impose one. See Darby v. Cisneros, 509 U.S. 137, 154 (1993). Plaintiff’s claims will not 11 be dismissed for failure to exhaust administrative remedies. 12 iv. APA Reviewability of the January 14 Letter 13 Finally, with respect to Plaintiff’s second cause of action—violation of the APA 14 based on the January 14 letter—Plaintiff alleges that the letter is reviewable under the 15 APA as a “final agency action.” (Doc. 1 ¶ 86); see 5 U.S.C. § 704. Defendants’ Motion to 16 Dismiss argues that the letter is not, in fact, a final agency action. In his Response, 17 Plaintiff states, “Because [Defendants] concede that the Final Rule is a final agency 18 action under the [APA], its focus on whether the January 14 Letter independently 19 provides grounds for APA review is extraneous.” (Doc. 20 at 10 (citation omitted)). 20 Plaintiff then goes on to make a conclusory statement that the letter meets the standard 21 for a final agency action. (Doc. 20 at 10–11). The Court is somewhat perplexed by 22 Plaintiff’s position given that the Complaint sets forth two separate causes of action 23 under the APA—one based on the Final Rule and one based on the letter. In light of 24 Plaintiff’s position that the reviewability of the letter is extraneous and, at least as 25 importantly, his failure to substantively respond to Defendants’ arguments, the Court 26 finds that Plaintiff has conceded that the letter is not a final agency action.3 See, e.g., M.S.

27 3 Regardless, the Court finds Defendants’ arguments as to the letter to be well- 28 taken. An agency action is final when it (1) “mark[s] the consummation of the agency’s 1 v. County of Ventura, No. CV 16-03084-BRO (RAOx), 2017 WL 10434015, at *24 n.20 2 (C.D. Cal. Mar. 7, 2017) (“Failure to respond to the merits of one party’s argument 3 constitutes a concession of that argument.”). Accordingly, the Court lacks jurisdiction 4 over Plaintiff’s second cause of action, which will be dismissed. See Cabaccang v. U.S. 5 Citizenship & Immigr. Servs., 627 F.3d 1313, 1315 (9th Cir. 2010). Still, Plaintiff’s other 6 causes of action are justiciable, so the Court will proceed to the merits of the Complaint. 7 b. Rule 12(b)(6) 8 To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient 9 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” 10 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 11 544, 570 (2007)). A claim is facially plausible when it contains “factual content that 12 allows the court to draw the reasonable inference” that the moving party is liable. Id. 13 Factual allegations in the complaint should be assumed true, and a court should then 14 “determine whether they plausibly give rise to an entitlement to relief.” Id. at 679. Facts 15 should be viewed “in the light most favorable to the non-moving party.” Faulkner v. ADT 16 Sec. Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013). The Court will consider Plaintiff’s 17 first, third, and fourth causes of action in turn.

18 decision-making process” rather than being “of a merely tentative or interlocutory nature,” and (2) is “one by which rights or obligations have been determined, or from 19 which legal consequences will flow.” S.F. Herring Ass’n v. Dep’t of the Interior, 946 F.3d 564, 577 (9th Cir. 2019) (internal quotation marks omitted). “The imposition of an 20 obligation or the fixing of a legal relationship is the indicium of finality in the administrative process.” Cabaccang v. U.S. Citizenship & Immigr. Servs., 627 F.3d 1313, 21 1315 (9th Cir. 2010). Here, the letter does not meet the first prong because it is not Defendants’ “last word” with respect to the Programs. See Or. Nat. Desert Ass’n v. U.S. 22 Forest Serv., 465 F.3d 977, 984 (9th Cir. 2006). Rather, the letter states only that Treasury “may” initiate a recoupment action or withhold SLFRF funds. (Doc. 1-7 at 3); 23 cf. Or. Nat. Desert Ass’n, 465 F.3d at 984 (holding that an agency action is final where the agency “arrive[s] at a definitive position . . . and put[s] that decision into effect” 24 (emphasis added)). Likewise, the letter does not meet the second prong because it does not have legal force, does not have a “direct and immediate effect on the day-to-day 25 business” of Plaintiff, does not determine any rights or obligations, and does not impose legal consequences. See id. at 987. Instead, it sets forth potential, non-final, future 26 consequences. Thus, if the Court were to review the letter, it would “intrude on the agency’s turf and thereby meddle in the agency’s ongoing deliberations.” S.F. Herring 27 Ass’n, 946 F.3d at 578. It bears noting, however, that the parties agree that the Final Rule is a final agency action under the APA, and that nothing precludes the letter from being 28 used to demonstrate the threat of enforcement. 1 i. First Cause of Action: APA 2 Plaintiff’s first cause of action states that “the Final Rule far exceeds the limited 3 statutory authority granted to Treasury by ARPA.” (Doc. 1 ¶ 77). Plaintiff claims that 4 nothing in the ARPA authorizes Treasury to restrict SLFRF funds from being put towards 5 programs that undermine COVID-19 mitigation efforts. Specifically, Plaintiff notes that 6 permissible uses of SLFRF funds enumerated in the statute include “to respond to the 7 public health emergency with respect to [COVID-19] or its negative economic impacts.” 8 42 U.S.C. § 802(c)(1)(A) (emphasis added). 9 In the Motion to Dismiss, Defendants argue that the Final Rule is “appropriate” to 10 carrying out the ARPA, pursuant to § 802(f)’s authorization for the Secretary to “issue 11 such regulations as may be necessary or appropriate to carry out this section.” They assert 12 that the ARPA’s broad grant of authority to the Secretary encompasses the “common- 13 sense conclusion” that States “may not undermine one purpose of the [ARPA] while 14 claiming to advance another purpose.” (Doc. 19 at 20). 15 “When a party challenges agency action as inconsistent with the terms of a statute, 16 courts apply the familiar analytical framework set forth in Chevron, U.S.A., Inc. v. 17 Natural Resources Defense Council, Inc.,” 467 U.S. 837 (1984). Corrigan v. Haaland, 12 18 F.4th 901, 906–07 (9th Cir. 2021). First, the Court “must determine whether Congress 19 has directly spoken to the precise question at issue, or, instead, whether the statute is 20 ambiguous.” Id. at 907 (internal quotation marks omitted). At this step, courts use 21 “traditional tools of statutory construction, including an examination of the statute’s text, 22 the structure of the statute, and (as appropriate) legislative history.” Id. (internal quotation 23 marks omitted). “If the intent of Congress is clear, that is the end of the matter; for the 24 court, as well as the agency, must give effect to the unambiguously expressed intent of 25 Congress.” Id. (internal quotation marks omitted). But “if the statute is silent or 26 ambiguous with respect to the specific issue,” the Court proceeds to the second step. 27 Chevron, 467 U.S. at 843. “At step two, the question for the court is whether the agency’s 28 action is based on a permissible construction of the statute.” Corrigan, 12 F.4th at 907 1 (internal quotation marks omitted). A court must defer to the agency’s construction “if it 2 is a reasonable one, even if it is not the construction the court would arrive at.” Id. 3 (internal quotation marks omitted). 4 To reiterate for the purposes of the Court’s textual analysis, the relevant statutory 5 language states that “a State . . . government shall only use the funds provided under a 6 payment made under this section . . . to respond to the public health emergency with 7 respect to [COVID-19] or its negative economic impacts” among other permissible uses 8 not applicable here. 42 U.S.C. § 802(c)(1). The first question under Chevron is whether, 9 Congress unambiguously intended to allow states to use SLFRF funds for programs that 10 mitigate the negative economic impacts of the COVID-19 pandemic without regard for 11 their effect on the public health emergency. Plaintiff argues that the use of “or” suggests 12 “that Congress gave the states discretion to choose a singular ‘purpose’ of the [ARPA] to 13 be advanced by any particular SLFRF program” and that the Final Rule impermissibly 14 elevates the public-health purpose over all others. (Doc. 20 at 12). 15 Plaintiff’s argument, however, takes too narrow a view of the statute. See W. 16 Watersheds Project v. Interior Bd. of Land Appeals, 624 F.3d 983, 987 (9th Cir. 2010) 17 (“Whether statutory language is sufficiently plain or not is ‘determined by reference to 18 the language itself, the specific context in which the language is used, and the broader 19 context of the statute as a whole.’” (quoting Robinson v. Shell Oil Co., 519 U.S. 337, 340 20 (1997)). Section 802(a) appropriates the funding for the SLFRF “for making payments 21 under this section to States, territories, and Tribal governments to mitigate the fiscal 22 effects stemming from the public health emergency with respect to [COVID-19].” In line 23 with the explicit purpose of the SLFRF as stated in § 802, the statute at least carries the 24 possibility that SLFRF funding may not be used for programs with conditions that 25 undermine public health guidance, as such programs would exacerbate rather than 26 mitigate the pandemic’s fiscal effects. This proposition is axiomatic: a program that 27 addresses fiscal effects of the pandemic but contains a condition that would promulgate 28 the spread of the virus prolongs the pandemic and its resulting fiscal effects—thereby 1 failing to provide mitigation of either. Despite the use of “or” in § 802(c)(1), the same 2 could be said of that provision’s “economic impacts”: a program that responds to the 3 pandemic’s negative economic impacts but discourages compliance with public health 4 efforts creates more negative economic impacts by perpetuating the pandemic. At the 5 very least, then, the statute is ambiguous as to whether a state may impose a condition 6 that undermines public health efforts on a program that addresses the COVID-19 7 pandemic’s economic impacts. 8 Because the ARPA is ambiguous, the Court proceeds to consider whether the 9 Final Rule permissibly construes the statute. Based on the axiom explained above, the 10 Restriction against conditions that undermine public health guidance is certainly a 11 reasonable construction of the ARPA. This is particularly true in light of Congress’s 12 authorization for the Secretary “to issue such regulations as may be necessary or 13 appropriate to carry out this section.” 42 U.S.C. § 802(f). That language gives the agency 14 broad regulatory discretion. See Bear Lake Watch, Inc. v. Fed. Energy Regul. Comm’n, 15 324 F.3d 1071, 1074 (9th Cir. 2003). Certainly, the decision to prohibit states from 16 conditioning participation in a program that furthers one purpose of the ARPA on 17 undermining another interconnected purpose falls within that discretion. Because a 18 program that requires noncompliance with public health guidelines may exacerbate the 19 pandemic and create more negative economic impacts and fiscal effects—contrary to the 20 express statutory purpose of the SLFRF funds—the Final Rule’s construction of the 21 ARPA is reasonable and appropriate. 22 For similar reasons, the Court rejects Plaintiff’s argument that Congress would 23 have spoken clearly if it intended to give Treasury expansive authority to restrict the use 24 of SLFRF funds. (Doc. 20 at 14). In fact, Congress authorized Treasury to issue 25 regulations, including those on the use of funds, “as necessary or appropriate” to carry 26 out the statute—which is itself a clear statement of Congress’s intent. And Plaintiff’s 27 contention that public health matters are traditionally regulated at the state level is off 28 base for an additional reason: the issue here is not regulation of public health matters, but 1 rather, regulation of the use of federal funding, which falls squarely within the federal 2 purview. See Nat’l Fed’n of Indep. Bus. v. Sibelius, 567 U.S. 519, 580 (2012). The 3 Restriction does not contradict or exceed the authority given to Treasury by the ARPA, 4 so Plaintiff has not stated a plausible claim for violation of the APA. 5 ii. Third Cause of Action: Spending Clause 6 Plaintiff’s third cause of action asserts that “[i]f the Final Rule is authorized by 7 statute, then it violates the Spending Clause because the [ARPA] is ambiguous in the 8 strings it attaches to the use of SLFRF monies.” (Doc. 1 ¶ 97). “Congress has broad 9 power to set the terms on which is disburses federal money to the States, but when 10 Congress attaches conditions to a State’s acceptance of federal funds, the conditions must 11 be set out unambiguously.” Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 12 291, 296 (2006) (internal citations and quotation marks omitted). This is not a 13 particularly high bar, however, as “conditions may be ‘largely indeterminate,’ so long as 14 the statute ‘provides clear notice to the States that they, by accepting funds under the Act, 15 would indeed be obligated to comply with the conditions.’” Mayweathers v. Newland, 16 314 F.3d 1062, 1067 (9th Cir. 2002). While Congress need not “list every factual instance 17 in which a state will fail to comply with a condition,” it must “make the existence of the 18 condition itself—in exchange for the receipt of federal funds—explicitly obvious.” Id. 19 The Court must view the statute “from the perspective of a state official who is engaged 20 in the process of deciding whether the State should accept [SLFRF] funds and the 21 obligations that go with those funds.” Arlington Cent. Sch. Dist., 548 U.S. at 296. 22 Defendants argue that Plaintiff has not pled a plausible Spending Clause claim 23 because the statute’s enumeration of permissible uses of SLFRF funds, together with its 24 authorization for the Secretary to issue all “necessary or appropriate” regulations, put 25 Plaintiff on notice of the existence of the conditions associated with the acceptance of 26 funds. The Court agrees. 27 In Mayweathers, the defendants argued that the Religious Land Use and 28 Institutionalized Persons Act (“RLUIPA”), 42 U.S.C. § 2000cc, was unconstitutional. 1 314 F.3d at 1066. Specifically, they argued that RLUIPA’s provision that “any institution 2 receiving federal funds must not substantially burden the exercise of religion absent a 3 showing that the burden is the least restrictive means of serving a compelling government 4 interest” imposed an ambiguous condition. Id. at 1067. The Ninth Circuit rejected that 5 argument, finding that even though RLUIPA’s standard was “perhaps unpredictable,” it 6 still unambiguously set forth the condition. Id. 7 Similarly, here, the ARPA clearly provides that states “shall only use [SLFRF] 8 funds” for specific purposes, including responding to the COVID-19 pandemic or its 9 negative economic impacts. 42 U.S.C. § 802(c)(1). Like the language of the RLUIPA, 10 that language “unambiguously creates” a condition on the use of funds. Mayweathers, 11 314 F.3d at 1067. Even though the ARPA’s language is broad and undoubtedly does not 12 specify every use that would violate the condition, Congress is not required to provide 13 such specificity. See id. Instead, here, Congress delegated to the Secretary the authority to 14 issue “such regulations as may be necessary or appropriate to carry out this section”— 15 which would certainly include greater specificity as to permissible uses. 42 U.S.C. § 16 802(f). While in Mayweathers, it was left to the courts to determine how RLUIPA’s 17 condition would apply, resulting in “different determinations in different courts,” 314 18 F.3d at 1067, allowing Congress to delegate to an agency the authority to provide more 19 specific regulations, as the ARPA does, is better aligned with the judiciary’s role and 20 provides greater predictability for regulated parties in advance of litigation. Thus, the fact 21 that the ARPA gives the Secretary authority to determine how the statute should apply to 22 more specific facts rather than leaving it to the courts, as in Mayweathers, does not 23 change the outcome. In short, the ARPA’s condition is no more ambiguous than the 24 condition that the Ninth Circuit approved in Mayweathers, and, as explained previously, 25 Treasury has permissibly construed the ARPA to prohibit programs that require or 26 encourage noncompliance with public health guidelines. 27 Defendants’ citation to Biden v. Missouri further bolsters this Court’s conclusion. 28 142 S. Ct. 647 (2022). There, the Supreme Court found that a rule issued by the Secretary 1 of Health and Human Services fell within his statutory authority. Id. at 652. The Supreme 2 Court summarized that statutory authority stating, “Congress has authorized the Secretary 3 to impose conditions on the receipt of Medicaid and Medicare funds that ‘the Secretary 4 finds necessary in the interest of the health and safety of individuals who are furnished 5 services.’” Id. (quoting 42 U.S.C. § 1395x(e)(9)). The Court did not question the 6 constitutional propriety of such a broad and indefinite grant of authority to impose such 7 conditions. Likewise, here, there is no constitutional infirmity with the ARPA because it 8 unambiguously puts recipients on notice that SLFRF funding is conditioned on 9 appropriate use pursuant to the statute and its associated regulations. Plaintiff has failed 10 to plead a plausible Spending Clause claim. 11 iii. Fourth Cause of Action: Nondelegation Doctrine 12 “The nondelegation doctrine bars Congress from transferring its legislative power 13 to another branch of Government.” Gundy v. United States, 139 S. Ct. 2116, 2121 (2019). 14 Still, the Supreme Court has recognized that “in our increasingly complex society, replete 15 with ever changing and more technical problems, Congress simply cannot do its job 16 absent an ability to delegate power under broad general directives.” Mistretta v. United 17 States, 488 U.S. 361 (1989). Accordingly, the Court has repeatedly held that “a statutory 18 delegation is constitutional as long as Congress lays down by legislative act an 19 intelligible principle to which the person or body authorized to exercise the delegated 20 authority is directed to conform.” Gundy, 139 S. Ct. 2116 at 1213 (internal quotation 21 marks omitted). This is “an exceedingly modest” and “not demanding” standard, and 22 “[p]revailing on a non-delegation challenge is thus a tall order.” United States v. Melgar- 23 Diaz, 2 F.4th 1263, 1266–67 (9th Cir. 2021). The Supreme Court has “repeatedly turned 24 down many non-delegation challenges, including in cases involving very broad conferrals 25 of authority.” Id. at 1267; see also Gundy, 139 S. Ct. at 2130–31 (Alito, J., concurring) 26 (“[S]ince 1935, the Court has uniformly rejected nondelegation arguments and has upheld 27 provisions that authorized agencies to adopt important rules pursuant to extraordinarily 28 capacious standards.”). 1 Here, 42 U.S.C. § 802(f) provides that “[t]he Secretary shall have the authority to 2 issue such regulations as may be necessary or appropriate to carry out this section.” 3 Plaintiff argues that this provides Defendants “an incomprehensibly broad swath of 4 legislative power, in violation of the nondelegation doctrine.” (Doc. 20 at 18). The Court 5 disagrees. 6 Defendants’ citation to Beecher v. Commissioner of Internal Revenue is 7 instructive. 481 F.3d 717 (9th Cir. 2007). There, the plaintiffs challenged a provision of 8 the Internal Revenue Code, 26 U.S.C. § 469(l) that provides, “The Secretary shall 9 prescribe such regulations as may be necessary or appropriate to carry out the provisions 10 of this section,” followed by an inclusive list of such regulations. Id. at 723. The Ninth 11 Circuit rejected the plaintiffs’ nondelegation argument, holding that “[s]uch direction is 12 sufficient to avoid offending the Constitution, and ample when compared to other 13 statutory schemes that courts have held to be lawful.” Id. (citing cases). 14 The delegation in this case is virtually identical to the one in Beecher, save for the 15 absence of a list of regulations that fall within the grant of authority. But the nonexclusive 16 list found in the statute at issue in Beecher does nothing to narrow the Secretary’s 17 authority to prescribe regulations “necessary or appropriate to carry out the provisions of 18 this section.” 26 U.S.C. § 469(l). Thus, the delegation here is no broader than the one 19 approved by the Ninth Circuit in Beecher. Under the ARPA, the Secretary may 20 promulgate only those regulations necessary and appropriate to carrying out the SLFRF 21 program within the parameters of the statute. Because Congress has thereby provided an 22 intelligible principle to guide the Secretary’s exercise of authority, Plaintiff has failed to 23 state a plausible claim for which relief can be granted based on the nondelegation 24 doctrine. 25 III. CONCLUSION 26 Leave to amend a deficient complaint should be freely given “when justice so 27 requires.” Fed. R. Civ. P. 15(a)(2). When dismissing for failure to state a claim, “a district 28 court should grant leave to amend even if no request to amend the pleading was made, 1 | unless it determines that the pleading could not possibly be cured by the allegation of 2| other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (internal quotation marks omitted). Here, the deficiencies could not be cured with additional facts as 4| Plaintiff's claims are based on the text of the ARPA and Final Rule, so leave to amend will not be given. Accordingly, 6 IT IS ORDERED that Defendants’ Motion to Dismiss (Doc. 19) is granted. Plaintiffs Complaint is dismissed with prejudice. 8 IT IS FURTHER ORDERED that the Clerk of Court shall enter judgment in favor of Defendants and terminate this action. 10 Dated this 19th day of July, 2022. 11 12 Honorable Teven P. Légan B United States District Jadge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28