Today (Tuesday, January 20) the Supreme Court is hearing arguments in Armstrong v. Exceptional Child Center. It’s a hugely important case that will shape the contours of federal spending statutes (here, Medicaid) and of federalism.  While the dispute is between a state (Idaho) and Medicaid providers, there is more to learn from two amici: the administration, which gets the case admirably right; and the Chamber of Commerce, which gets it horridly wrong.

The legal issues are gently described as esoteric. (I once put the Armstrong question on a FedCourts exam but then yanked it, as simply too mean.) Bear with me, though. What happens in these weeds matters greatly to the constitutional order; and with friends like the Chamber, we don’t need enemies.

The Issue

Feds pass a statute such as Medicaid, saying: “If you (state) provide x, y, and z to your poor citizens, we’ll reimburse 60 percent of the cost.” When the state accepts the deal but fails to comply, the statute permits the feds to yank the funding. Question: can private parties—either the beneficiaries, or providers—enforce the federal-state bargain in court?  Private suits of that sort have for decades been the engine of the American entitlement state: you (feds) promised us; the state won’t comply; now give us. But where does the right to launch such suits come from?

The statutes, said the Brennan Court: every federal obligation imposed on a state under a spending statute implies a private right of action. (I’m simplifying here and throughout, but not by much.) When the Rehnquist Court rejected the implied-right jurisprudence, Justice Brennan pulled another card from his sleeve: the statutory obligations are enforceable under Section 1983. No need to know what that is because the Supreme Court has long rejected that maneuver, too. With that, the poverty lobby was out of luck in the courts: no Medicaid beneficiary would ever have a cognizable claim.

Advocacy groups did not go gently into that good night. Rather, they cranked up a theory that would still permit providers to sue. Let’s say the federal statute envisions reimbursement rate “A.” State enacts some law (to control costs) that effectively means reimbursement rate A minus 1. That state law, providers say, is “preempted” by the federal statute; so they sue. Under what? The Supremacy Clause of the Constitution, which says that federal law trumps state law. And huzzah: the transfer state shall live and flourish.

The Exceptional Child Center sued Idaho on that theory. Can it be right?

Only if every spending case of the past three decades was wrongly decided. Those cases say, time and again, that spending statutes aren’t preemption statutes. Rather, they are bargains between states and the feds. That’s why “implied rights” and 1983 claims don’t cut it: they are third-party claims. Congress may permit such claims and states may agree to be amenable to such suits, as part of the federal-state bargain. But the parties really have to say so; and under Medicaid, they didn’t. By that same token, the preemption claim doesn’t cut it. Supremacy Clause or not: if the state said “no” to the entire federal program, the providers would have no federal claim to any reimbursement. And the state’s participation in the program in no way entails an acceptance of the providers’ claims.

So far, so clear. Now, the complications.

Fed Courts Esoterics

If Medicaid providers can’t sue states on a preemption or Supremacy Clause claim, what is one to make of actual preemption claims? A federal statute requires a firm to comply with standard “x” and says that no state shall require anything more or different. State requires “x plus 2”; firm sues. Happens all the time; and surely, the firm should win. But where does that claim come from, if (as is common) no statute provides for it? If you now say “the Supremacy Clause,” the Exceptional Child Center will say: that’s what we are suing on, too. Nothing exceptional here.

Really?  There must be a difference, you’d think, between an ordinary claim not to be regulated and an exceptional claim to be the beneficiary of a federal-state bargain. And so there is. However, translating the distinction into legal doctrine  hangs on recognizing that neither claim has anything to do with the Supremacy Clause. The reimbursement claim, to repeat, doesn’t implicate the Supremacy Clause because a spending statute (such as Medicaid) has no preemptive effect at all: if the state says “no,” the federal statute has the legal status of a press release, and there’s no cognizable claim on that. Yet. And a genuine federal preemption claim—“you (state) can’t regulate me because federal law prohibits it”—isn’t a claim on the Supremacy Clause or anything else in the Constitution or other federal law, either. It’s just an anticipatory defense that a regulated firm would have if the state were to proceed against it. That claim—federal preemption as a shield—is okay; in fact, it’s foundational to the Constitution and its liberal legal order (John Marshall’s opinion in Osborn v. Bank of the United States is the true and correct cite.) The providers’ claim isn’t a defense of any kind. They want to wield the Supremacy Clause as a sword, to compel state performance on a bargain with the feds. Sorry, guys: that isn’t our system.

Compelling, no? Actually, it depends on your views on Ex Parte Young, a case decided cover a century ago. (Railroads sued state officials on the theory that the state’s rates violated the Fourteenth Amendment.) The “anticipatory defense” interpretation of that case appears in a brilliant article by Professor John Harrison. The regulated parties’ claims, he says, are really common law claims; the only way the Constitution enters into the picture is by way of making state attempts to mess with your business ultra vires. The rival interpretation of Ex Parte Young is that claims can be brought directly under the Constitution, including the Supremacy Clause. That theory rattles through the Bible on this stuff: Hart & Wechsler’s Federal Courts.

On the Harrison view, regulated entities can fight back against government any day of the week, whereas provider claims of the sort here at issue are deeply suspect. On the Hart & Wechsler view, the “supreme” Constitution oozes through the legal landscape and third-party providers can sue wayward states. Incidentally, that helps to protect and promote the entitlement state that Congress had in mind when it enacted Medicaid and 600 other spending statutes.

If you think Harrison has this right, give glory, laud and honor to the Obama Administration. If you believe Hart & Wechsler, send a check to the Chamber of Commerce.

Political Economy

The feds’ brief in Armstrong rolls out the Harrison theory in full regalia (cites and all) and then says, wisely and correctly: you (justices) need not go anywhere near the FedCourts metaphysics. Whatever you think of bona fide preemption claims (and we think they’re okay), Medicaid reimbursement claims aren’t anything like it. Just so. How did this administration manage to get this right?

Probable answer: the Affordable Care Act, and medical cost control. Health care providers have deliberately turned themselves into public utilities; and that, the government says (albeit not in haec verba) means that we set the rates. You providers should have contemplated that scenario before helping the ACA over the hurdle. Now, get a straw and suck it up. That seemingly cynical position actually takes courage. The administration has been under enormous pressure from the welfare lobby and assorted hangers-on to go the other way. The Armstrong question has been rattling through the courts for many years. Throughout, the administration temporized: don’t grant cert, we’re thinking about it. But once the question came to a head, the officials made the right call. Kudos.

The Chamber of Commerce, in sharp contrast, takes the opposite, welfare-state-maximizing position: the Supremacy Clause, all the way. Why would they do such a thing?

Because it’s also the organizational support-maximizing position. The Chamber can tell its cronies-of-the-government constituents that it’s fighting for their money. (Go look at the list of corporate amici in Armstrong, in addition to the Chamber: starting with the American Hospital Association, it’s like the attendance roster for Rentseekers United.) The Chamber can tell the remaining five percent of its membership that it’s once again taking a firm stance in defense of preemption. Never mind that the “preemption” claim here at issue is just window-dressing for the welfare state claims that the Supreme Court has tried to wring out of the system for well-nigh a generation.

In taking this stance, the Chamber missed a rare opportunity to explain a few things: here is how preemption claims work, and why they are the rock bottom of the federal order. And here is how they differ from tarted-up claims to appropriate rents, which is this case. In tossing out this particular baby, be mindful of the constitutional bathwater. No such luck. Instead, the Chamber fell back on an easy default: criminally bad lawyering, in defense of social democracy as a corporate racket.

There’s no way they will get their way. In a terrific opinion (dissenting, on behalf of four justices, from the majority’s inexplicable decision to remand the question now presented in Armstrong) the Chief cranked the Supremacy Clause slider out of the ballpark. That view will prevail in Armstrong: the justices aren’t going to sacrifice three decades worth of federalism jurisprudence to a made-up theory.

The Chamber and its lawyers are too smart not to know this; and that’s precisely what is bad about this. We earnest intellectuals can noodle over law and liberty all we want: at the end of the day, getting the right things done will require people with muscle. It would help if those people took a bit more care with their advocacy.