IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF WISCONSIN. v. Case No. 2:15-cv-855 RESPONSE IN OPPOSITION TO MOTION TO DISMISS

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1 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF WISCONSIN STATE OF WISCONSIN, et al., Plaintiffs, v. Case No. 2:15-cv-855 TOM VILSACK, et al., Defendants. RESPONSE IN OPPOSITION TO MOTION TO DISMISS INTRODUCTION In January 2015, Governor Scott Walker proposed a biennial budget for the State of Wisconsin that included many changes aimed at developing Wisconsin s workforce and increasing workforce readiness. One proposal included changes to the FoodShare program, which is Wisconsin s implementation of the Supplemental Nutrition Assistance Program (SNAP), the federal food-stamp program. The proposal called for screening, testing, and treating certain FoodShare beneficiaries for the unlawful use of controlled substances. Even before this proposal was signed into law, however, Defendants asserted that federal law prevents the States from drug testing food-stamp beneficiaries. And just weeks before the budget passed, Defendant Susan Holzer who is in charge of the SNAP program for the Midwest region warned Wisconsin that the reforms would be preempted by federal law. Case 2:15-cv CNC Filed 12/23/15 Page 1 of 25 Document 13

2 Wisconsin enacted the FoodShare reforms into law in July, including the drug-testing requirements. Then, given the uncertainty cast over the program by Defendants and their repeated statements claiming federal preemption, Wisconsin filed this lawsuit seeking a declaration that the FoodShare reforms were not preempted by federal law. The reason for the timing of the lawsuit was simple: Wisconsin had to make a choice as to whether to implement its new drug-testing program. Wisconsin thus sought a declaration from this Court that, contrary to Defendants position, Wisconsin did not risk losing millions of dollars in federal SNAP program funds if it drug tested food-stamp recipients. If there was any doubt as to Defendants position on the legality of the FoodShare reforms, that doubt was eliminated immediately after Wisconsin filed this lawsuit. Specifically, Defendant Tom Vilsack, the Secretary of Agriculture and the official ultimately responsible for the federal food-stamp program nationwide, stated definitively and publicly that Wisconsin s drug-testing provision was unlawful and preempted by federal law. Despite these definitive statements, Defendants moved to dismiss Wisconsin s complaint, claiming that the complaint was insufficient because it did not allege that Defendants had taken a final legal position concerning the FoodShare reforms (among other things). So in response, Wisconsin amended its complaint to include Defendant Vilsack s definitive statements and several additional causes of action under the Administrative Procedures Act Case 2:15-cv CNC Filed 12/23/15 Page 2 of 25 Document 13

3 Defendants have again moved to dismiss. They now claim that despite the definitive legal position articulated by Defendant Vilsack, Wisconsin must first wait until the federal government suspends millions of dollars in FoodShare program funds before it can obtain judicial review. Then, after the federal government has penalized Wisconsin and in the course shaken the fiscal foundation of the entire food-stamp program in Wisconsin this Court might be able to decide whether federal law preempts the FoodShare reforms. But this is exactly the type of purely legal dispute that should be settled by a federal court now, instead of later, after the suspension of millions of dollars of FoodShare program funds. The straightforward legal issue at the heart of this case is entirely ripe of resolution, there are no administrative remedies that must be exhausted, and several causes of action are available to this Court. This Court may and should decide whether federal law preempts Wisconsin s FoodShare reforms. Defendants motion to dismiss should therefore be denied. FACTS I. In the 1996 Welfare Reform, Congress permitted the States to drug test welfare recipients, including those participating in the SNAP program. Congress created the federal food-stamp program in the Food Stamp Act of 1964 now SNAP providing that each participating State would employ eligibility standards subject to the approval of the Secretary [of Agriculture]. Food Stamp Act of 1964, 5, 78 Stat Under SNAP, a state must submit a plan to the Secretary. 7 U.S.C. 2020(d). If the plan is approved, then federal funds will flow Case 2:15-cv CNC Filed 12/23/15 Page 3 of 25 Document 13

4 into the SNAP program and the State will distribute the federal benefits to its citizens. Id. As the law stood in 1977, no State could unilaterally drug test SNAP recipients as a condition of eligibility for participation in the SNAP program. Specifically, in 1977, Congress directed that no SNAP plan may be submitted by a State agency... unless the standards of eligibility meet those established by the Secretary, and no State agency shall impose any other standards of eligibility as a condition for participating in the program. 7 U.S.C. 2014(b) (emphasis added) (language added by the Food and Agriculture Act of 1977, 1301, 91 Stat. 913). 1 One of the federal eligibility requirements is a work requirement, which the States must enforce. 7 U.S.C. 2015(d)(1); 7 C.F.R (a), (c). And one way to satisfy this requirement is participation in a State-established employment and training program. 7 U.S.C. 2015(d)(1)(A). Each State must establish such an employment training program. Id.; 7 U.S.C. 2015(d)(4)(A). The Secretary has not approved any requirements for drug testing SNAP recipients as part of this work requirement or otherwise. In 1996, Congress enacted Personal Responsibility and Work Opportunity Act, commonly known as Welfare Reform. 110 Stat (1996). The Act reformed 1 The USDA has duplicated this prohibition in its regulations at 7 C.F.R (a)(1) Case 2:15-cv CNC Filed 12/23/15 Page 4 of 25 Document 13

5 federal welfare programs, including SNAP. 2 As relevant here, Congress specifically provided: Notwithstanding any other provision of law, States shall not be prohibited by the Federal Government from testing welfare recipients for use of controlled substances nor from sanctioning welfare recipients who test positive for use of controlled substances. 21 U.S.C. 862b (emphasis added). It is Wisconsin s position that this provision displaced 7 U.S.C. 2014(b) s prohibition that no State agency shall impose any other standards of eligibility as a condition for participating in SNAP (7 U.S.C. 2014(b)), to the extent the standard of eligibility involves drug testing. As such, each State has the right to drug test SNAP recipients at its sovereign option, as part of a SNAP employment training program or otherwise, without first seeking permission from the Secretary or justifying such testing in its SNAP plan. II. Wisconsin exercises its right to drug test SNAP recipients. FoodShare is Wisconsin s SNAP program, which provides federally funded welfare benefits to no- and low-income households to purchase food. Wis. Stat ; FAC 3. 3 Wisconsin law provides a means of satisfying SNAP s federal work requirement through the FoodShare Employment Training Program, also known as FSET. Wis. Stat (10); FAC 7. FSET provides education, skills, 2 Title VIII of the act specifically reforms the federal food-stamp program. Title IX, entitled Miscellaneous, includes the drug-testing provision in Section 902. See 902, 110 Stat References to the First Amended Complaint will be FAC _ Case 2:15-cv CNC Filed 12/23/15 Page 5 of 25 Document 13

6 and work experience to enable FoodShare recipients to obtain competitive employment and enhance earning potential. Wis. Stat (9); FAC 7. As part of its biennial budget, Wisconsin invoked its right to drug test welfare recipients participating in the State-administered SNAP program Wis. Act. 55, 1833; FAC 2. Specifically, Wis. Stat (9)(d), which went into effect on July 14, 2015, requires Plaintiff Rhoades and the Wisconsin Department of Health Services to screen and, if indicated, test and treat certain FSET participants 4 for the use of controlled substances without a valid prescription. Wis. Stat (9)(d)(1) (hereafter Drug Testing Statute ). Individuals who are subject to the FoodShare work requirement and who are rendered ineligible for FSET under the Drug Testing Statute would be rendered ineligible to participate in FoodShare, unless they satisfy the FoodShare work requirement in some other way. Wis. Stat (10); FAC 9. III. Defendants take a final position that federal law preempts Wisconsin s Drug Testing Statute. Even before Wisconsin enacted its Drug Testing Statute, Defendants warned the States that they believed that any testing of SNAP receipts would violate federal law. In 2014, Defendants sent a letter to the State of Georgia explaining that their policy prohibits States from mandating drug testing of SNAP [food stamp] applicants and recipients. FAC 44. Defendants stated that, in their view, [r]equiring SNAP applicants and recipients to pass a drug test in order to receive 4 Wisconsin s drug testing provision only applies to able-bodied adults without children. (FAC 8.) Case 2:15-cv CNC Filed 12/23/15 Page 6 of 25 Document 13

7 benefits would constitute an additional condition of eligibility, and therefore, is not allowable under law. Defendants relied specifically on the language embodied in 7 U.S.C. 2014(b) and 7 C.F.R (a) that no State agency shall impose any other standards of eligibility as a condition for participating in SNAP, without reference to the contrary limitation embodied in the Welfare Reform statute. 7 U.S.C. 2014(b). Less than a year later, and while Wisconsin was considering its proposal to drug test FoodShare recipients, Defendant Holzer sent a similar message to Wisconsin. In an , Defendant Holzer described the FoodShare drug-testing proposal and stated that such reforms are prohibited under Federal law. FAC 43. After the reforms passed, Wisconsin filed this lawsuit on July 14, 2015, to seek a ruling as to whether the Drug Testing Statute was preempted by federal law. Dkt. 1. Motivating Wisconsin was the threat that Defendants could suspend funds used to administer the FoodShare program. 7 C.F.R (b); 7 U.S.C. 2023, In response to the present lawsuit, Defendant Vilsack definitively announced that Wisconsin s FoodShare reforms violate federal law. FAC Defendant 5 Defendant Vilsack s statements were widely reported in the news media. See, e.g., USDA s Vilsack: Federal law bars drug testing of food stamp recipients that Wisconsin plans, Associated Press, July 15, 2015, Case 2:15-cv CNC Filed 12/23/15 Page 7 of 25 Document 13

8 Vilsack is the Secretary of Agriculture, and the individual responsible for overseeing the entire federal food-stamp program. FAC 15. Defendants responded to the lawsuit with a motion to dismiss. Dkt. 6. And as permitted by Fed. R. Civ. P. 15(a)(1)(B), Wisconsin filed an amended complaint on November 6, 2015, which added allegations regarding Defendant Vilsack s comments made after the filing of the original complaint. FAC 45. The amended complaint also adds several causes of action under the Administrative Procedures Act (APA). FAC STANDARD OF REVIEW Under Rules 12(b)(1), a defendant may seek to dismiss a complaint for lack of subject matter, Fed. R. Civ. P. 12(b)(1), or for failure to state a claim upon which relief can be granted under Fed. R. Civ. P. 12(b)(6). Under either rule, however, the Court must accept as true all of Wisconsin s allegations in the complaint and all reasonable inferences will be drawn in favor of Wisconsin. Scanlan v. Eisenberg, 669 F.3d 838, 841 (7th Cir. 2012) (Rule 12(b)(1)); McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d 873, 879 (7th Cir.2012) (Rule 12(b)(6)). The Seventh Circuit, in particular, does not require a rigorous factual specificity to survive a motion to dismiss: the plaintiff must give enough details about the subject-matter of the case to present a story that holds together. Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010). A court, therefore, will read a complaint liberally when considering a motion to dismiss. Sapperstein v. Hager, 188 F.3d 852, 855 (7th Cir. 1999) Case 2:15-cv CNC Filed 12/23/15 Page 8 of 25 Document 13

9 ARGUMENT I. There is no basis to delay adjudicating the purely legal issue that is in dispute between the parties. A. Whether Wisconsin s Drug Testing Statute is preempted by federal law is a purely legal issue that is ripe for resolution. Pre-enforcement challenges will be evaluated to determine both the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration. Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967). 6 A legal claim is presumptively ripe when the issue is one purely of congressional intent. Id. Accordingly, when a claim presents a purely legal issue, a petitioner need not demonstrate individual hardship unless the agency identifies institutional interests favoring postponement of review. Owner-Operator Indep. Drivers Ass n, Inc. v. Fed. Motor Carrier Safety Admin., 656 F.3d 580, 586 (7th Cir. 2011). Regardless of the institutional interests at stake, however, a plaintiff may demonstrate hardship simply by showing that he is forced to choose between administrative penalties and foregoing lawful behavior. See Smith v. Wisc. Dept. of Agric., Trade, & Consumer Prot., 23 F.3d 1134, (7th Cir. 1994). Lawsuits seeking pre-enforcement review of a purely legal issue are presumptively ripe and have become the norm. Owner-Operator, 656 F.3d at 586. In Owner-Operator, for example, a truck-drivers association challenged a federal rule regarding the use of electronic monitoring in commercial trucks. 6 The Supreme Court has held that ripeness arguments, such as the arguments raised by Defendants in this case (basically arguing that more facts should be developed), are prudential considerations, not constitutional considerations. Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2347 (2014) Case 2:15-cv CNC Filed 12/23/15 Page 9 of 25 Document 13

10 Id. at 585. The federal government, in opposition, claimed that the petitioners claims were unripe because only motor carriers currently subject to a remedial directive should be able to challenge the rule. Id. at 586. The Seventh Circuit held that the legal issue in dispute was ripe for resolution, explaining that in light of the fact that purely legal claims are presumptively reviewable, a petitioner need not show hardship where the federal government fails to identify institutional interests favoring postponement of review. Id. In any event, the Seventh Circuit continued, hardship need not take the form of an actual enforcement action; the threat of enforcement is sufficient.... Id. The court explained that the threat of enforcement is enough because a person made to live in the shadow of a law that she believes to be invalid should not be compelled to wait and see if a remedial action is coming. Id. The threat of costly sanctions... is enough detriment to make a petition ripe. Id. at 587 (citation omitted). Likewise, in Metropolitan Milwaukee Association of Commerce v. Milwaukee County, a business association brought an action challenging a county ordinance requiring certain businesses to negotiate labor peace agreements with unions. 325 F.3d 879, 881 (7th Cir. 2003) (hereafter Metro Milwaukee ). Because the provisions of the ordinance were never applied to the association, the district court held that the lawsuit was not ripe. Id. In reversing, the Seventh Circuit explained that if the lawsuit raises almost purely legal issues, then the claim is quintessentially fit... for present judicial resolution. Id. at 882 (citation omitted). Furthermore, [w]hen a party is faced with the choice between the disadvantages of complying with an Case 2:15-cv CNC Filed 12/23/15 Page 10 of 25 Document 13

11 ordinance or risking the harms that come with noncompliance, we are satisfied that an actual case or controversy exists that allows a court to act. Id. at 883 (citation omitted). In this case, Wisconsin presents a purely legal question: is Wisconsin s Drug Testing Statute preempted by federal law? See FAC 49, 58, 64, 71, 77, 81. Wisconsin argues that its Drug Testing Statute is not preempted in light of the fact that 21 U.S.C. 862b s permission that States shall not be prohibited by the Federal Government from testing welfare recipients for use of controlled substances applies to State testing of SNAP recipients. 21 U.S.C. 862b; FAC 10, 39. Defendants disagree, claiming that pre-1996 prohibition that no State agency shall impose any other standards of eligibility as a condition for participating in SNAP still governs. FAC At its core, therefore, this issue is presumptively reviewable question of congressional intent. Abbott Labs., 387 U.S. at 149. Furthermore, this is case presumptively ripe especially in the absence of any institutional interests identified by Defendants. Owner-Operator, 656 F.3d at 586. While Defendants do not identify any specific institutional interests favoring the postponement of review, Owner-Operator, 656 F.3d at 586, they seem to claim that they have an interest in taking action to suspend or disallow SNAP program funds. Def. Br. at 17. Defendants cite no case even suggesting that an appropriate institutional interest is the imposition of the exact penalty that the plaintiff seeks to avoid through pre-enforcement review Case 2:15-cv CNC Filed 12/23/15 Page 11 of 25 Document 13

12 Regardless of the institutional interests, however, Wisconsin is presented with a clear hardship, just like the plaintiffs in Owner-Operator and Metro Milwaukee. Wisconsin must choose between enforcing its own state law and facing the specter of losing millions of federal dollars, or not enforcing its own state law. This is precisely the type of dilemma recognized as hardship by the Seventh Circuit. As the Seventh Circuit explained in Owner-Operator, the threat of costly sanctions... enough detriment to make a petition ripe. 656 F.3d at 587 (citation omitted). Defendants make two additional arguments as to why this case is not ripe. Each argument, however, is foreclosed by controlling caselaw and, in any event, does not come close to rebutting Plaintiffs showing that this purely legal issue is presumptively reviewable. First, like the federal defendants in Owner-Operator, Defendants argue that Wisconsin must first be subjected to a formal administrative decision or action to suspend or disallow SNAP program funds before this case is ripe. Def. Br. at This could only occur, according to Defendants, after Defendants subject Wisconsin to an administrative penalty. Def. Br. at 15. But as the Seventh Circuit has 7 Defendants also mention standing in passing, but do not specifically make a standing argument. They also conflate the standing analysis with their main ripeness argument. Smith v. Wis. Dept. of Trade & Consumer Prot., 23 F.3d 1134, 1141 (7th Cir. 1994) ( standing is about who can sue while ripeness is about when they can sue. ). Regardless, as in Owner-Operators, standing is easily met because Plaintiffs are the object of the action. Owner-Operators, 656 F.3d at 585. Defendants definitive legal position as to the validity of Wisconsin s FoodShare program is aimed directly at Wisconsin and Plaintiff Kitty Rhoades. These parties are responsible for implementing the FoodShare drug-testing requirements, and so they are the object of Defendants legal position Case 2:15-cv CNC Filed 12/23/15 Page 12 of 25 Document 13

13 recognized, a party need not wait until the imposition of a punitive sanction before seeking relief. Owner-Operator, 656 F.3d at 586. The mere threat of costly sanctions... is enough detriment to make a petition ripe. Id. at 587 (citation omitted). Second, Defendants argue that this claim is not ripe because there has been no impact on Plaintiffs. Def. Br. at Yet the uncertainty created by Defendants threats has created hardship: The principle at work in the hardship analysis is that a plaintiff should not be required to face the Hobson s choice between forgoing behavior that he believes to be lawful and violating the challenged law at risk of prosecution. Smith, 23 F.3d at In any event, as the Seventh Circuit made clear in Owner-Operator, no showing of specific impact is required where, as here, the issue is a purely legal one. 656 F.3d at 587. B. There is no requirement that Wisconsin exhaust administrative remedies. Defendants spend a significant portion of their brief discussing the various administrative procedures that could be followed under the SNAP program, in order to support their argument that the Plaintiffs have not exhausted administrative remedies. See, e.g., Def. Br. at 5, 17, 23. These arguments are entirely irrelevant for three independently sufficient reasons. First, it is well established that exhaustion of administrative remedies is not required... when a claim involves a purely legal question. VanDenBerg v. Appleton Area Sch. Dist., 252 F. Supp. 2d 786, 789 (E.D. Wis. 2003); accord Pihl v. Mass. Dep t of Ed., 9 F.3d 184, 190 (1st Cir. 1993) ( Exhaustion may not be Case 2:15-cv CNC Filed 12/23/15 Page 13 of 25 Document 13

14 required... when the issues raised involve purely legal questions. ); accord Athlone Indus., Inc. v. CPSC, 707 F.2d 1485 (D.C. Cir. 1983). This case involves a straightforward, legal issue regarding the proper interaction between two one-sentence statutory mandates. See supra pg. 11. This is a textbook example of a purely legal dispute, not subject to any exhaustion requirement. Notably, Defendants do not explain what could possibly be gained from forcing Wisconsin to risk losing millions of dollars in federal SNAP funds to bring this purely legal issue to federal court. They vaguely speculate that might be able to grant Plaintiffs effective relief during the administrative process, including after Plaintiffs have... presented... FNS with proposed changes to Wisconsin s employment and training program in the context of a proposed State plan. Def. Br But that is precisely the point. Wisconsin believes that 21 U.S.C. 862b authorizes State drug testing of SNAP without seeking permission from USDA. Wisconsin should simply be permitted to exercise its sovereign authority to drug test SNAP recipients, as specifically authorized by Congress in 1996, without having the sword of Damocles in the form of a multi-million dollar loss of federal funds hanging over its head. Second, Defendants fail to identify any statutory requirement that Wisconsin must exhaust administrative remedies before bring this lawsuit to court. Administrative exhaustion is a prerequisite to judicial review only when expressly required by statute.... Courts are not free to impose an exhaustion requirement as a rule of judicial administration where the agency action has already become final Case 2:15-cv CNC Filed 12/23/15 Page 14 of 25 Document 13

15 under [the APA]. Darby v. Cisneros, 509 U.S. 137, 154 (1993). As explained below, the agency s position that Wisconsin s Drug Testing Statute is unlawful is a final agency action under the APA. See infra pg. 16. Defendants do not identify any statute that would require Wisconsin to risk losing millions of dollars before bringing its ripe, final dispute with Defendants into federal court. Third, exhaustion is not required where requiring such exhaustion would subject the plaintiff to irreparable harm. Bowen v. City of New York, 476 U.S. 467, 484 (1986). Wisconsin has enacted a state law that requires it to drug test SNAP recipients, and faces unequivocal statements from Defendants that enforcing this law is illegal under federal law. FAC Those Defendants have the authority to suspend the payment of millions of dollars from the State. Def. Br. at 5. Defendants strategy is plain: they hope that their threats and definitive legal conclusion will scare Wisconsin into simply refusing to enforce its own law, so as to avoid a multi-million dollar loss of funds and uncertain legal battle. This strategy imposes irreparable harm upon Wisconsin, and thus would excuse any failure to exhaust administrative remedies. See Maryland v. King, 133 S. Ct. 1, 3 (2012) (Roberts, C.J., in chambers) (any time a state cannot effectuate statutes enacted by representatives of its people, it suffers a form of irreparable injury. ) Case 2:15-cv CNC Filed 12/23/15 Page 15 of 25 Document 13

16 II. Wisconsin s claims are all permissible bases to resolve the pure legal issue raised by this lawsuit. A. Wisconsin s APA claims survive because Defendants have taken a definitive legal position that constitutes final agency action. In determining finality under the APA, the core question is whether the agency has completed its decisionmaking process, and whether the result of that process is one that will directly affect the parties. Franklin v. Massachusetts, 505 U.S. 788, 797 (1992). The Seventh Circuit applies a pragmatic, practical test for the finality, holding that a communication from a federal decision maker to the regulated party, which stakes out the agency s final, definitive position on an issue, and creates the mere potential for serious consequences in the future, constitutes final agency action for purposes of the APA. See First National Bank v. Comptroller, 956 F.2d 1360, 1364 (7th Cir. 1992); W. Ill. Home Health Care, Inc. v. Herman, 150 F.3d 659, 662 (7th Cir. 1998). Recently, the Supreme Court has taken a similarly pragmatic approach to finality. See Sackett v. EPA, 132 S. Ct (2012). For example, in Western Illinois Home Health, the U.S. Department of Labor (DOL) sent a single letter to two jointly owned companies. W. Ill. Home Health Care, Inc., 150 F.3d at 660. The letter described the two companies, the applicable DOL regulation at issue, and then concluded that a joint employment relationship exists in this situation. Id. at 661. The letter went on to state that DOL was closing [the] investigation, no penalty [is] being assessed. Id. Upon receiving the letter, the joint owners sued under the APA, seeking a declaration that DOL s Case 2:15-cv CNC Filed 12/23/15 Page 16 of 25 Document 13

17 interpretation of the regulation at issue was wrong as a matter of law. Id. at 660. In response, the federal defendants claimed that there was no final agency action. The Seventh Circuit rejected this argument, holding the letter conveying DOL s final legal position on the application of the DOL regulation. Id. at 663. The Seventh Circuit explained: the letter is not at all tentative or interlocutory in nature. [The DOL] uses a simple, declarative sentence.... There is nothing hypothetical or tentative about this letter. Id. Indeed, the only issue that gave the Seventh Circuit pause was the fact that the DOL investigator was a subordinate official at DOL. Id. at 665. The Seventh Circuit reached a similar conclusion in First National Bank v. Comptroller, 956 F.2d 1360 (7th Cir. 1992). In that case, the Seventh Circuit decided that a letter to a bank conveying the legal position of the Comptroller of the Currency was a final agency action. Id. at The bank had asked the Comptroller for an interpretation of a regulation so that it could disperse money from a trust in a particular way the court specifically mentioned the enormous potential liabilities resulting from an improper disbursement. Id. The Comptroller responded with a letter stating that the bank was not permitted to make the desired distribution: He said flat out that the bank could not restructure the fund as it wanted to do. Id. While the letter doesn t look much like final formal agency action, it conveying the agency s position as to a proposed action by the bank, was a final agency action subject to review. Id Case 2:15-cv CNC Filed 12/23/15 Page 17 of 25 Document 13

18 In 2014, Defendants communicated a definitive position to the State of Georgia concerning any States right to drug test food-stamp recipients: FNS policy prohibits States from mandating drug testing of SNAP applicants and recipients. FAC 44. And while Wisconsin was finalizing its state budget, Defendant Holzer warned Wisconsin about the applicability of Defendants legal position to FoodShare, noting that the drug-testing requirements are prohibited under Federal law. FAC 11. Then, after Wisconsin enacted the reforms, Secretary of Agriculture Vilsack made Defendants legal position crystal clear: Defendant Vilsack issued a public statement claiming that Wisconsin s FoodShare reforms... violate federal law. FAC 44. Defendants communications especially Vilsack s statement are clear, simple, and declarative, and thus final under Seventh Circuit law. See W. Ill. Home Health Care, 150 F.3d at 663. It is the position of the highest official at the Department of Agriculture not merely the subordinate official involved in Western Illinois Home Health that Wisconsin s Drug Testing Program is preempted by federal law. FAC 44. This unequivocal position carries enormous potential liabilities for Wisconsin. First Nat. Bank, 956 F.2d at Defendants brief recounts that if Wisconsin imposes conditions that Vilsack deems illegal under Federal law, then the Secretary shall proceed to withhold funds for administrative costs..., which in Wisconsin amounts to millions of dollars annually. Def. Br. at 5. This is exactly the type of situation the Seventh Circuit has described as final: In these cloudy circumstances, for the bank to make so controversial a distribution Case 2:15-cv CNC Filed 12/23/15 Page 18 of 25 Document 13

19 without an authoritative determination of its right to do so would expose it to enormous potential liabilities for breach of trust, which is why trustees traditionally are allowed to seek direction from the court before embarking on a controversial course of action. First Nat. Bank, 956 F.2d at Defendants make four arguments against finality, but each is meritless. First, Defendants attack Plaintiffs allegation related to Defendant Vilsack, suggesting a factual dispute as to his claims that Wisconsin s law is preempted. See Def. Br. at 9, n. 4, 22. But at the motion to dismiss stage, a court must construe the complaint in the light most favorable to the plaintiff, accepting as true all wellpleaded facts alleged, and drawing all possible inferences in [Plaintiffs ] favor. Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008). Plaintiffs specifically alleged that Vilsack issued a public statement claiming that Wisconsin s FoodShare reforms... violate federal law. FAC 44. This allegation, which must be assumed as true, satisfies the standard the Seventh Circuit set for final agency action under Western Illinois Home Health and First National Bank. Notably, Defendant Vilsack s statement was reported in the press. See, supra, pg. 7, fn. 5. Defendant s apparent disagreement with the Plaintiffs as to the content and meaning of Vilsack s statement is not a matter that a court should attempt to sort out on a motion to dismiss. Sanner v. Bd. of Trade of City of Chicago, 62 F.3d 918, 925 (7th Cir. 1995). Second, Defendants seem to argue that statements from high governmental officials cannot ever constitute final agency action, relying almost entirely on Case 2:15-cv CNC Filed 12/23/15 Page 19 of 25 Document 13

20 out-of-circuit caselaw. Def. Br. at 21. But at least in the Seventh Circuit, communications from the decision-maker official to regulated parties can constitute final agency action. See W. Ill. Home Health Care, 150 F.3d at 662; First Nat. Bank, 956 F.2d at The only two Seventh Circuit cases Defendants discuss in their finality argument Home Builders Association of Greater Chicago v. U.S. Army Corps of Engineers, 335 F.3d 607 (7th Cir. 2003), and American Trucking Association, Inc. v. U.S., 755 F.2d 1292 (7th Cir. 1985) are inapposite. Home Builders involved a challenge to a procedural framework under which the [agency] intend[ed] to operate. 335 F.3d at The increased administrative costs or minor delays resulting from the framework were not sufficient for final agency action. Id. Here, in contrast, Wisconsin is not concerned were mere procedural delays, but with a potential loss of millions of dollars in federal funds. And American Trucking Association involved an agency report that really purports to be an educational undertaking toward the end that a greater understanding may be gained of the pricing techniques now being developed by the trucking industry. Id. at Nothing in Defendants statements suggest that Defendants are simply surveying Wisconsin s practices and offering an educational undertaking by definitively concluding that Wisconsin is breaking the law. 8 8 The D.C. Circuit cases Defendants rely upon do not support their position, and are not applicable in the Seventh Circuit in any event. For example, in In re Murray Energy Corp., 788 F.3d 330, 336 (D.C. Cir. 2015), the D.C. Circuit held that there was no final agency action because the statement was made in the context of an Case 2:15-cv CNC Filed 12/23/15 Page 20 of 25 Document 13

21 Third, Defendants claim that there has been an insufficient impact upon Wisconsin for this action to be final. Def. Br. at Again, this argument is contrary to Seventh Circuit caselaw. A definitive statement from an federal agency official with the authority to sanction, which creates a cloud[ ] of uncertainty or involves enormous potential liabilities, constitutes final agency action under the APA. First Nat. Bank, 956 F.2d at 1364 (emphasis added) Fourth, Defendants assert that Wisconsin must first promulgate rules to implement a drug screening, testing, and treatment policy and then exhaust administrative remedies before any final action can take place. Def. Br. at 20. Under Defendants theory, there is no final agency action until Wisconsin takes action, then Defendants penalize Wisconsin. That is not the law in this Circuit, which recognizes that agency threats including in letters that specifically declared that no penalty [is] being assessed can constitute final agency action in appropriate circumstances. See W. Ill. Home Health Care, 150 F.3d at 662. ongoing proposed rulemaking, and [f]ormally speaking, such a statement is a proposed view of the law. The other D.C. Circuit cases cited by the Plaintiffs, Def. Br , did not involve the head of the deciding agency unequivocally declaring that the plaintiff was violating federal law. In any event, the D.C. Circuit appears to take a more stringent view of the finality of agency statements than does the Seventh Circuit. See Rhea Lana, Inc. v. U.S. Dep t of Labor, 74 F.Supp.3d 240, 244, 246 n.7 (D.D.C. 2014) (rejecting application of the Seventh Circuit s decision in Western Illinois Home Health on the specific issue of agency communications to regulated parties by citing longstanding D.C. Circuit precedent ) Case 2:15-cv CNC Filed 12/23/15 Page 21 of 25 Document 13

22 B. Wisconsin s claim that its own law is not preempted is proper under the Declaratory Judgment Act and the Federal Question Statute. It has been well-established at least since the Supreme Court s decision in Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983), that a party may bring an action under Declaratory Judgment Act, 28 U.S.C. 2201(a), and the Federal Question Statute, 28 U.S.C. 1331, in order to obtain a judgment as to whether a state law is preempted by federal law. Accord Verizon Maryland Inc. v. Pub. Serv. Comm n, 535 U.S. 635 (2001); Illinois Ass n of Mortgage Brokers v. Office of Banks & Real Estate, 308 F.3d 762, 765 (7th Cir. 2002); Planned Parenthood v. Sanchez, 403 F.3d 324, (5th Cir. 2005). To bring such a preemption-based declaratory claim, a plaintiff need only show that there exists an actual controversy between the parties as to whether the federal law preempts the State law. 28 U.S.C. 2201(a); see Klinger v. Conan Doyle Estate, Ltd., 755 F.3d 496, 499 (7th Cir. 2014). While Shaw and its progeny have arisen in the context of a private plaintiff using the Declaratory Judgment Act and Federal Question Statute to seek protection against a state law that the plaintiff believes is preempted, Shaw s principle applies equally to a state seeking a declaration that its own law is not preempted, where there exists an actual controversy as to that issue with the federal government. As Hart & Wechsler explain, under the principles announced by the Supreme Court in Shaw, federal courts have jurisdiction over a complaint in which a state seeks only a declaratory judgment that state law is not preempted by Case 2:15-cv CNC Filed 12/23/15 Page 22 of 25 Document 13

23 a federal statute. HART AND WECHSLER S THE FEDERAL COURTS AND THE FEDERAL SYSTEM 812 (Richard Fallon et al., eds., 6th ed. 2009). 9 In Count 4, Wisconsin alleges that there exists a real and continuing controversy concerning whether Wis. Stat (9)(d) has been preempted by federal law, or is specifically authorized by federal law. FAC 77. This is a standard preemption claim under Declaratory Judgment Act and the Federal Question Statute, which this Court has ample authority to adjudicate. 10 Furthermore, this count is based on a threat of harm to Wisconsin: either Wisconsin forgoes enforcement of its own state law, or it faces significant economic sanctions imposed by Defendants. This is exactly the type of claim the Declaratory Judgment Act was designed to resolve. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, (2007). Defendants assertion (Def. Br. at 25 26) that this preemption claim cannot be brought because of Armstrong v. Exceptional Child Center, Inc., 135 S. Ct Hart & Wechsler explain (id.) that the only exception would be in a case like Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1 (1983), where the State has brought a lawsuit in state court, and sought to pre-litigate a federal preemption defense that the defendant might raise. In such a case, the lawsuit was not properly removed to federal court because, as a matter practicality and necessity, States have a variety of means by which they can enforce their own laws in their own courts, and they do not suffer if the preemption questions such enforcement may raise are tested there. Id. at 20. This practicality principle which Hart & Wechsler explain is a matter of abstention has no application to the present lawsuit, given that the dispute between the federal government and Wisconsin as to the preemptive effects of the federal law on Wisconsin s administration of the federal SNAP program cannot ever be brought in state court. 10 Wisconsin s claim in this regard is a standard preemption claim under the Declaratory Judgment Act, not an implied claim under the Supremacy Clause Case 2:15-cv CNC Filed 12/23/15 Page 23 of 25 Document 13

24 (2015), is wrong. Armstrong held that the plaintiffs preemption-based claims were abrogated based on express and implied statutory limitations in the Medicaid Act. Id. at This case does not involve the Medicaid Act, and Defendants have not pointed to any express and implied statutory limitations that would displace the equitable relief that is traditionally available to enforce federal law. Id. at Similarly irrelevant is City of New York v. FCC, 486 U.S. 57 (1988). That case said nothing about federal court s subject matter jurisdiction, or whether or when a State can bring a claim under the Declaratory Judgment Act and the Federal Question Statute, to seek a declaration that its state law is not preempted by federal law For the same reasons, Count V should survive as a claim that federal law, namely 21 U.S.C. 862b, supersedes any contrary action by Defendants. Defendants, for their part, simply argue the merits, which is not the appropriate inquiry at this stage. See Def. Br. at 26 ( there has been no improper delegation of legislative power here. ) Case 2:15-cv CNC Filed 12/23/15 Page 24 of 25 Document 13

25 CONCLUSION For the forgoing reasons, Defendants motion to dismiss should be denied. Dated this 23rd day of December, Office of the Solicitor General Wisconsin Department of Justice Post Office Box 7857 Madison, Wisconsin (608) (608) (Fax) Respectfully submitted, BRAD D. SCHIMEL Attorney General MISHA TSEYTLIN Solicitor General s/daniel P. Lennington DANIEL P. LENNINGTON Deputy Solicitor General State Bar # Attorneys for Plaintiffs Case 2:15-cv CNC Filed 12/23/15 Page 25 of 25 Document 13