Sherley v. Sebelius

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 12, 2010 Decided June 25, 2010

No. 09-5374

JAMES L. SHERLEY, ET AL.,

APPELLANTS

v.

KATHLEEN SEBELIUS, IN HER OFFICIAL CAPACITY AS

SECRETARY OF THE DEPARTMENT OF HEALTH AND HUMAN

SERVICES, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:09-cv-01575-RCL)

Thomas G. Hungar argued the cause for appellants. With

him on the briefs were Bradley J. Lingo, Ryan J. Watson,

Blaine H. Evanson, Samuel B. Casey, and Steven H. Aden.

Stephanie R. Marcus, Attorney, U.S. Department of

Justice, argued the cause for appellees. On the brief were

Mark B. Stern, Alisa B. Klein, and Abby C. Wright, Attorneys.

R. Craig Lawrence, Assistant U.S. Attorney, entered an

appearance.

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Before: GINSBURG, BROWN, and KAVANAUGH, Circuit

Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge: An array of variously situated

plaintiffs sued the Department and the Secretary of Health

and Human Services and the National Institutes of Health and

its Director, challenging newly promulgated guidelines that

authorize the NIH to fund more research projects involving

human embryonic stem cells than it had previously done. The

district court dismissed the suit for want of a plaintiff with

standing and dismissed as moot the plaintiffs’ motion for a

preliminary injunction. All the plaintiffs appeal those rulings,

but they defend the standing of only two of their number, Drs.

James Sherley and Theresa Deisher.

We conclude the two Doctors have standing. Therefore,

we reverse the order of the district court insofar as it

dismissed their claims and we reinstate the motion for a

preliminary injunction.

I. Background

Because a stem cell can develop into any one of many

specialized cells in the human body, it can be used in the

treatment of a variety of diseases. There are two basic kinds

of mammalian stem cells relevant to this case: embryonic

stem cells (ESCs), which are found in human embryos, and

adult stem cells (ASCs), which are found in the human body

and in tissues discarded after birth.

Scientists, often with financial support from the NIH,

have done research involving ASCs for about 50 years. They

have done research involving ESCs only since 1998, and the

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NIH did not fund such research until 2001, when President

Bush authorized it to do so subject to the limitation that only

ESCs derived from then-extant stem cell lines be used.

In 2009 President Obama removed that limitation,

directing the “Secretary of Health and Human Services ...

through the Director of NIH, [to] support and conduct

responsible, scientifically worthy human stem cell research,

including human embryonic stem cell research, to the extent

permitted by law” and to “issue new NIH guidance on such

research that is consistent with this order.” Exec. Order No.

13,505, 74 Fed. Reg. 10,667, 10,667 (Mar. 9, 2009). Pursuant

to the resulting Guidelines for Human Stem Cell Research, 74

Fed. Reg. 32170 (July 7, 2009), the NIH may now fund more

projects involving ESCs than was previously possible.

The plaintiffs alleged the issuance of the Guidelines

violated the Administrative Procedure Act because, among

other reasons, the “promulgation and implementation of the

Guidelines are not in accordance with law,” Compl. ¶ 67; see

5 U.S.C. § 706(2)(A), to wit, the Dickey-Wicker Amendment,

which the Congress has attached every year since 1996 to the

Acts appropriating money for the DHHS and which prohibits

federal funding of research in which a human embryo is to be

harmed or destroyed, e.g., Omnibus Appropriations Act of

2009, Pub. L. No. 111-8, div. F, Title V, § 509(a)(2), 123 Stat.

524. The defendants moved to dismiss the case on the ground

that none of the plaintiffs had standing to challenge the

issuance of the Guidelines. Sherley v. Sebelius, 686 F. Supp.

2d 1 (D.D.C. 2009).

The plaintiffs whose standing is at issue here are Drs.

Sherley and Deisher, both of whom “specialize in adult stem

cell research” and who, respectively, have received and plan

to seek NIH grants for research involving ASCs. Id. at 3.

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They claimed to have “competitor standing” because the

Guidelines would “result in increased competition for limited

federal funding and [would] thereby injure [their] ability to

successfully compete for ... NIH stem cell research funds.”

Id. at 4. The district court rejected that contention. First,

relying upon Hardin v. Kentucky Utilities Co., 390 U.S. 1, 6

(1968), the court reasoned that a party may assert competitor

standing only when the “particular statutory provision ...

invoked” reflects a purpose “to protect a competitive interest”

and that the Doctors had not shown they had a protected

interest in receiving research funds from the NIH. Sherley,

686 F. Supp. 2d at 6. The court further concluded the cases

upon which the Doctors relied established only that

competitor standing applies to participants in “strictly

regulated economic markets,” whereas the Doctors were

“applicants for research grants.” Id. at 7. Finally, the court

opined that even if the Doctors qualify as “competitors,” they

would still lack standing because the “application process to

receive NIH funding is [already] extremely competitive,” id.,

i.e., the additional competition made possible by the

Guidelines would “not ‘almost surely cause [them] to lose’

funding,” id. (quoting El Paso Natural Gas Co. v. FERC, 50

F.3d 23, 27 (D.C. Cir. 1995)).

The district court also held none of the other plaintiffs

had standing. On appeal, those plaintiffs make no argument

to the contrary, wherefore we take their lack of standing as

conceded. See, e.g., Sitka Sound Seafoods, Inc. v. NLRB, 206

F.3d 1175, 1181 (D.C. Cir. 2000) (argument not raised in

opening brief on appeal is forfeited).

II. Analysis

In reviewing de novo the district court’s decision to

dismiss this suit on the ground that the Doctors lack standing

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to sue, Young Am.’s Found. v. Gates, 573 F.3d 797, 799 (D.C.

Cir. 2009), we “accept[] as true all of the factual allegations

contained in the complaint and draw[] all inferences in favor

of the nonmoving party,” City of Harper Woods Employees’

Ret. Sys. v. Olver, 589 F.3d 1292, 1298 (D.C. Cir. 2009). The

Doctors’ burden is to show they have standing not only under

Article III of the Constitution of the United States but also

under our doctrine of prudential standing. See Shays v. FEC,

414 F.3d 76, 83 (D.C. Cir. 2005).

A. Article III Standing

In order to establish their Article III standing, the Doctors

must both identify an “injury in fact” that is “actual or

imminent” and “fairly ... trace[able] to the challenged action

of the defendant,” and show it is “likely, as opposed to merely

speculative, that [their] injury will be redressed by a favorable

decision.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560

(1992) (internal quotation marks omitted). The doctrine of

competitor standing addresses the first requirement by

recognizing that economic actors “suffer [an] injury in fact

when agencies lift regulatory restrictions on their competitors

or otherwise allow increased competition” against them. La.

Energy & Power Auth. v. FERC, 141 F.3d 364, 367 (D.C. Cir.

1998); accord New World Radio, Inc. v. FCC, 294 F.3d 164,

172 (D.C. Cir. 2002) (“basic law of economics” that increased

competition leads to actual injury); see also Canadian Lumber

Trade Alliance v. United States, 517 F.3d 1319, 1332 (Fed.

Cir. 2008) (doctrine of competitor standing “relies on

economic logic to conclude that a plaintiff will likely suffer

an injury-in-fact when the government acts in a way that

increases competition or aids the plaintiff’s competitors”).

The form of that injury may vary; for example, a seller facing

increased competition may lose sales to rivals, or be forced to

lower its price or to expend more resources to achieve the

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same sales, all to the detriment of its bottom line. Because

increased competition almost surely injures a seller in one

form or another, he need not wait until “allegedly illegal

transactions ... hurt [him] competitively” before challenging

the regulatory (or, for that matter, the deregulatory)

governmental decision that increases competition. La.

Energy, 141 F.3d at 367.

In considering whether the Doctors have Article III

standing, we address only the question whether they allege a

legally adequate injury-in-fact. That is the only element of

constitutional standing upon which the parties focus, for it is

clear the alleged injury is traceable to the Guidelines and

redressable by the court.

We do not agree with the district court’s suggestion that

only a “participant[] in [a] strictly regulated economic

market[]” may assert competitor standing. Sherley, 686 F.

Supp. 2d at 7. We see no reason any one competing for a

governmental benefit should not be able to assert competitor

standing when the Government takes a step that benefits his

rival and therefore injures him economically. In this vein, we

have applied the doctrine of competitor standing to the

political “market,” holding incumbent congressmen had

standing to challenge new campaign finance regulations that

made it easier for rival candidates to compete against them for

election. Shays, 414 F.3d at 87.

The district court also concluded the doctrine of

competitor standing applies only where the “particular

statutory provision ... invoked” reflects a purpose “to protect a

competitive interest.” Sherley, 686 F. Supp. 2d at 6 (quoting

Hardin, 390 U.S. at 6). The requirement of a protected

competitive interest, however, “goes to the merits” of a

plaintiff’s claim, not to his Article III standing. See Ass’n of

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Data Processing Serv. Orgs., Inc. v. Camp, 397 U.S. 150, 153

(1970).

In order to bring themselves within the scope of the

doctrine of competitor standing, the Doctors invoke our

holding in Associated Gas Distributors v. FERC, 899 F.2d

1250 (1990), and similar holdings in other cases, that

plaintiffs may “establish their constitutional standing by

showing that the challenged action authorizes allegedly illegal

transactions that have the clear and immediate potential to

compete with [their] own sales,” id. at 1259, and argue they

are injured because “[a]s a result of the new Guidelines,

[they] now face more competition for [NIH] research grants

than they did before.” For context, we note it is uncontested

that, at least in the short run, the amount of money available

from NIH for research grants is fixed notwithstanding the

greater range of stem cell research projects made eligible for

funding by the Guidelines.

The Government has two responses. First, it maintains

the Doctors have not shown “an increase in funding for

embryonic stem cell research ... require[s] a diminution in

funding for adult stem cell research.” To that we say: Nor

need they do so. The Doctors need show only that they

themselves will suffer some competitive injury, not that the

NIH will spend less overall to fund projects involving ASCs.

Second, the Government argues the specific process by

which the NIH awards grants makes it “entirely conjectural”

whether the Doctors will face increased competition for

funding. Each funding cycle proceeds in two stages. In the

first, a peer-review committee assigns a preliminary score to

each grant application. Each application with a score above

the median then goes to one or more of the 24 Institutes and

Centers (ICs) at the NIH. Each such component has its own

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budget and awards grants to projects that address its particular

mission; for instance, the National Cancer Institute funds

research relating to cancer. In the second stage of the process,

each IC decides which grant applications to fund.

The Government reasons that the Guidelines will not

cause an increase in competition at the first stage because the

NIH will always pass along to the ICs half the applications it

receives. Therefore, each application, regardless how many

there are, will still have a 50% chance of reaching the second

stage of the process.

At the second stage, moreover, “it is ... entirely

conjectural whether an application submitted by [one of the

plaintiffs] would actually ‘compete’ with proposals involving

[ESCs]” because the doctor’s project would both have to “be

ranked low enough to fall below the [IC’s] funding capacity

and be outranked by an [ESC] project.” In other words,

according to the Government, there is no certainty that an

application for research involving ESCs will arrive at an IC in

the same funding cycle as an application from one of the

Doctors; even if the two applications do compete in the same

funding cycle, there is no guarantee the one for research

involving ESCs will get funding that would otherwise have

gone to one of the Doctors. This mere possibility of injury

does not establish competitor standing, argues the

Government, which, as did the district court, reads our cases

to require that a plaintiff asserting competitor standing show a

challenged agency action will “almost surely cause [him] to

lose business.” El Paso, 50 F.3d at 27.

As the parties’ arguments demonstrate, our cases

addressing competitor standing have articulated various

formulations of the standard for determining whether a

plaintiff asserting competitor standing has been injured.

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Regardless how we have phrased the standard in any

particular case, however, the basic requirement common to all

our cases is that the complainant show an actual or imminent

increase in competition, which increase we recognize will

almost certainly cause an injury in fact.

For instance, in Louisiana Energy, we held one seller of

electric energy had standing to challenge a decision of the

FERC that allowed a current competitor to sell energy at

market-based rates. 141 F.3d at 366. We recognized the

petitioner would “be injured by increased price competition”

and that such injury was “imminent.” Id. at 367 (explaining

“parties suffer constitutional injury in fact when agencies lift

regulatory restrictions on their competitors or otherwise allow

increased competition”). In contrast, in DEK Energy Co. v.

FERC, we held the plaintiff, a supplier of natural gas in

Northern California, did not have competitor standing to

challenge a decision of the FERC that would have allowed

another company to ship a quantity of natural gas to Oregon

and to sell it at a lower price than that at which DEK could

sell its gas. 248 F.3d 1192, 1196 (2001). Although increased

competition from lower-priced gas would likely cause DEK

“to lose business or drop its prices,” we concluded that

increased competition was not imminent; there was only

“some vague probability that any gas” sold by DEK’s

competitor would “actually reach [the] market” in which DEK

sold its gas. Id. (noting decision of the FERC will not “almost

surely” cause DEK “to lose business”).

The Doctors have met the basic requirement for

competitor standing. This is not a situation like that in El

Paso, in which it was uncertain whether a new seller would

enter the market. 50 F.3d at 27. There can be no doubt the

Guidelines will elicit an increase in the number of grant

applications involving ESCs; indeed, the Government never

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suggests otherwise. Because the Guidelines have intensified

the competition for a share in a fixed amount of money, the

plaintiffs will have to invest more time and resources to craft

a successful grant application. That is an actual, here-and-

now injury.

The Doctors will suffer an additional injury whenever a

project involving ESCs receives funding that, but for the

broadened eligibility in the Guidelines, would have gone to

fund a project of theirs. They are more likely to lose funding

to projects involving ESCs than are researchers who do not

work with stem cells because ASCs and ESCs are substitutes

in some uses. The Doctors illustrated this point in a post-

argument letter in which they report Dr. Sherley recently

submitted a grant for a project in which ASCs will be used to

create a surrogate for a human liver and suggest his “chief

competitor” will be a company that “engages in similar

research using [ESCs].” Although no one can say exactly

how likely the Doctors are to lose funding to projects

involving ESCs, having been put into competition with those

projects, the Doctors face a substantial enough probability to

deem the injury to them imminent. See, e.g., DEK Energy

Co., 248 F.3d at 1195 (“substantial (if unquantifiable)

probability of injury” shifts injury from “conjectural” to

“imminent”).

B. Prudential Standing

Parties “claiming standing under the APA must show ...

their claims fall ‘arguably within the zone of interests to be

protected or regulated by the statute in question.’” Shays, 414

F.3d at 83 (quoting Nat’l Credit Union Admin. v. First Nat’l

Bank & Trust Co., 522 U.S. 479, 488 (1998)). This

requirement “is not meant to be especially demanding” and

there “need be no indication of congressional purpose to

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benefit the would-be plaintiff”; it excludes “only those parties

whose interests are not consistent with the purposes of the

statute in question.” Amgen, Inc. v. Smith, 357 F.3d 103,

108–09 (D.C. Cir. 2004) (internal quotation marks omitted).

Here the parties disagree about whether the injury the

Doctors assert lies within the zone of interests protected by

the Dickey-Wicker Amendment. The Doctors argue that

pursuit of their interests furthers the purposes of that

Amendment, which they say are “to fund permissible

research, such as the adult stem cell research for which [they]

seek funding, and ... [to] provide[] that federal funds could not

be used for [ESC] research.” The Government responds that

the Amendment “was intended to protect [not] the financial

interests of researchers engaging in adult stem cell research ...

[but rather] society’s interest in not funding ‘research in

which a human embryo ... [is] destroyed.”

We conclude the Doctors have prudential standing. The

Dickey-Wicker Amendment clearly limits the funding of

research involving human embryos. Because the Act can

plausibly be interpreted to limit research involving ESCs, the

Doctors’ interest in preventing the NIH from funding such

research is not inconsistent with the purposes of the

Amendment. Under the standard of Amgen, quoted above,

that is all that matters.

III. Conclusion

We reverse the order of the district court dismissing the

plaintiffs’ claims for lack of standing insofar as it applies to

the Doctors and affirm that order in all other respects. As a

result, we also reverse the order dismissing as moot the

plaintiffs’ motion for a preliminary injunction.

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The Doctors ask us to consider the merits of their motion,

but it is not the usual practice of this court to grant a motion

for a preliminary injunction that the district court denied

without having considered its merits. “It falls to the district

court in the first instance ... to balance the four factors [of the

test for a preliminary injunction] in order to decide whether”

the motion should be granted. Belbacha v. Bush, 520 F.3d

452, 459 (D.C. Cir. 2008).

This matter is remanded to the district court for further

proceedings consistent with the foregoing opinion.

So ordered.