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
 10
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.