Tri-State Memorial Hospital v. United States of America, Case No. 2:25-cv-00181-TOR (E.D. Wash. May 28, 2026)

For practitioners engaged in tax litigation, especially concerning federal pandemic-related credits, understanding judicial interpretation of statutory language is paramount. The recent decision regarding a complex claim under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides useful guidance on interpreting key terms such as “partial suspension” and causation requirements for eligibility testing.

Note: on the same date this opinion was issued, a contrary opinion from the Court of Federal Claims, found in a separate article on this site, came to the exact opposite conclusion rejecting “but for” standard for whether a government order caused a partial suspension under the law in Northeast Health Services, LLC v. United States, No. 24-2096T (Fed. Cl. May 28, 2026).

Background of the Dispute

The matter before the United States District Court for the Eastern District of Washington concerned Tri-State Memorial Hospital ("Plaintiff") versus the United States of America ("Defendant"). The core dispute centered on Plaintiff’s claim that it was "wrongfully denied a tax refund for the first, second, and third quarters of 2021 under the Employee Retention Credit ('ERC') under the Coronavirus Aid, Relief, and Economic Security Act (‘CARES act’)."

Plaintiff asserted its right to this credit based on the requirements set forth in 26 U.S.C. § 3134. The statutory provision permits an eligible employer—such as a hospital facility—to receive the tax credit if it meets one of three additional criteria, including:

The operation of the trade or business was fully or partially suspended due to orders from a governmental authority (the “Suspension Test”).
Gross receipts were less than 80 percent of the gross receipts for the same quarter in 2019 (the “Gross Receipts Test”).
The employer qualifies as a recovery startup business.

The Taxpayer’s Request for Relief and Factual Allegations

Plaintiff contended that its operations, a healthcare facility, were materially interrupted by governmental actions stemming from COVID-19 restrictions, making it eligible under the Suspension Test. Plaintiff argued that Proclamation 20-24.2, issued by the Governor of Washington State, mandated specific and restrictive protocols. These required changes included:

Implementing “over 30 separate requirements,” including mandatory screening procedures for all persons entering the facility.
Requiring physical distancing, specialized cleaning, and establishing isolation protocols (EFC No. 25 at 14).
Diverting institutional resources by transforming units, such as converting the Minor Care Center into a vaccination and testing clinic (EFC No. 32 at 16-17).
Limiting access to patient care: Plaintiff cited instances where it was "required to cancel non-urgent services, surgeries, and procedures when surge limits were exceeded," resulting in reduced inpatient revenue for 2021 (EFC No. 32 at 15).

In summary, the Plaintiff sought a determination that these mandated changes constituted sufficient facts demonstrating a “partial suspension” of its business operations due to government order.

Legal Standards and Statutory Interpretation

The Court’s analysis was framed by established principles of federal civil procedure and statutory construction. Regarding procedural matters, the court reiterated the plausibility standard: "For a plaintiff to survive a motion to dismiss under Rule 12(b)(6), 'a complaint must contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.’'"

In addressing the statutory language of the CARES Act, the court applied foundational canons of interpretation. The controlling principle affirmed was that "United States v. Torres... [requires] courts must consider 'the provisions of the entire law, including its object and policy, to ascertain the intent of Congress.'" Furthermore, regarding ambiguity, the Court noted: "When the words of a statute are unambiguous, then, this Court must begin with the text of the statute to determine if the plain language is unambiguous."

Interpreting “Partial Suspension”

A key point of contention was defining whether the term “partial suspension,” used in the statute, required more than simply adjusting normal business operations. The Defendant argued for a narrow interpretation, suggesting that any disruption must be "comparable to a closure that surpasses basic economic impact that all employers faced during the pandemic."

The Court rejected this overly restrictive reading of the statutory plain language. After analyzing both dictionary definitions and the parties’ agreed-upon terms, the Judge ruled: "Based on the parties agreed upon definitions, the plain text of the statute, and the ordinary dictionary definitions, a 'partial suspension' is a temporary delay, interruption, or termination of a portion an employer’s business."

Crucially, the Court adopted external administrative guidance as persuasive evidence for interpretation. The Judge stated: "IRS clarified, 'an employer that operates an essential business may be considered to have a partial suspension of operations if, under the facts and circumstances, more than a nominal portion of its business operations are suspended by a governmental order.' This guidance clearly provides insight into how the ERC should be interpreted and considered. Accordingly, the Court recognizes its persuasiveness to this issue." The final interpretation adopted was that "a 'partial suspension' is a temporary delay, interruption, or termination of a more than nominal portion of an employer’s business."

Interpreting Causation: “Due To” Government Order

The Defendant further contended that Plaintiff must prove that any suspension was "due to" a qualifying governmental order, arguing for a strict requirement where the event must be the "proximate, independent and sufficient cause."

The Court firmly refuted this argument based on pure statutory grammar. The Judge held that since both parties agreed on the plain meaning of “due to” as "because of," the legal inquiry was limited by common usage: "Both Plaintiff and Defendant agree that the plain meaning of 'due to' is 'because of.' The meaning is plain and unambiguous." Applying established precedent, the Court ruled that such language necessitates only a "but-for causation requirement," citing cases like Burrage v. United States.

Application of Law to Facts and Conclusions

The court proceeded to apply these strict interpretive standards—plausibility, but-for causation, and partial suspension defined broadly—to Plaintiff's specific operational facts.

Regarding the cause ("due to"), the Court found that "Plaintiff has alleged sufficient facts that but-for the Proclamation, Plaintiff’s operations would not be partially suspended." Furthermore, when Defendant attempted to argue that only the government order could constitute the proximate cause, the Judge countered: “The Proclamation provided the guidance and procedures that the businesses were required to adhere to and follow to be compliant with the order.”

In conclusion, after reviewing all elements—from the requirement of plausible facts under Rule 12(b)(6) to the plain meaning requirements governing statutory terms—the Court issued its final determination. The court concluded: "All in all, Plaintiff has provided sufficient plausible facts that its operations were 'partially suspended' as required under the ERC."

The ruling culminated in an order stating: "Defendant’s Motion to Dismiss (ECF No. 28) is DENIED."

Prepared with assistance from LM Studio google/gemma-4-26b-a4b.