Burwell v. Hobby Lobby Stores; Conestoga Wood Specialties Corp. v. Sebelius

Issues 

  1. Does the Religious Freedom Restoration Act protect for-profit corporations?
  2. Does the contraceptive-coverage Mandate of the Patient Protection and Affordable Care Act of 2010 violate corporations’ religious exercise rights?
Oral argument: 
March 25, 2014

As part of the Affordable Care Act ("ACA"), the Department of Health and Human Services ("HHS") adopted a mandate requiring that employment-based health plans covered by the Employment Retirement Income Security Act ("ERISA") include twenty contraceptive methods. Two corporations, Hobby Lobby and Conestoga Wood, sued, objecting on religious grounds to the inclusion of four of the methods because they prevent the implantation of a fertilized egg. The corporations argue that the Mandate offends their religious rights under the Religious Freedom Restoration Act ("RFRA") and the Free Exercise Clause. The government argues that corporations do not have these rights; and, in any case, the Mandate is statutorily and constitutionally permissible. The Supreme Court will consider whether for-profit corporations can sue under RFRA or the Free Exercise Clause, and whether this mandate violates corporations’ right to exercise religion. The Court’s ruling may significantly impact foundational principles of corporate law and the scope of corporations’ First Amendment rights. This case will also impact the Affordable Care Act’s power to mandate health plans.

Questions as Framed for the Court by the Parties 

Sebelius v. Hobby Lobby Stores

The Religious Freedom Restoration Act of 1993 (RFRA) 42 U.S.C. 2000bb et seq., provides that the government “shall not substantially burden a person’s exercise of religion” unless that burden is the least restrictive means to further a compelling governmental interest. 42 U.S.C. 2000bb-1(a) and (b). The question presented is whether RFRA allows a for-profit corporation to deny its employees the health coverage of contraceptives to which the employees are otherwise entitled by federal law, based on the religious objections of the corporation's owners.

Conestoga Wood Specialties Corp. v. Sebelius

Whether the religious owners of a family business, or their closely-held business corporation, have free exercise rights that are violated by the application of the contraceptive-coverage Mandate of the Patient Protection and Affordable Care Act of 2010 (“ACA”).

Facts 

Under the Patient Protection and Affordable Care Act (“ACA”), employment-based health care plans covered by the Employee Retirement Income Security Act (“ERISA”) are required to provide coverage for certain preventative health services. The Health Resources and Services Administration (“HRSA”) of the Department of Health and Human Services (“HHS”) adopted a recommendation from the Institute of Medicine to require that health plans must include coverage for contraceptive methods approved by the Food and Drug Administration (“FDA”). The twenty approved methods include sixteen methods that prevent fertilization and four methods that prevent implantation of an egg after fertilization.

Respondent Hobby Lobby, Inc. (“Hobby Lobby”) is a closely-held family business organized as an S corporation with about 13,000 employees. The business is owned and operated by the Green family. The Green family operates their business to reflect their religious beliefs. Similarly, Mardel, joining in this suit and also owned by the Green family as an affiliate of Hobby Lobby, describes itself as a faith-based company. One of the Green family’s religious beliefs is that human life begins at the moment of conception. As a result, the Green family believes that facilitating the death of a human embryo is immoral. The Greens do not object to providing coverage for the sixteen contraceptive methods that prevent fertilization; however, they do object to providing coverage for the four methods that prevent implantation of a fertilized egg, which include Ella, Plan B, and two intrauterine devices (“IUD”).

Petitioner Conestoga Wood Specialties (“Conestoga”) is a Pennsylvania corporation with 950 employees. The Hahn family, practicing Mennonites, own 100 percent of the voting shares of Conestoga stock. The Hahns believe that it is a sin to terminate a fertilized embryo; as a result, the Hahns object to providing health coverage for Ella and Plan B.

On September 12, 2012, Hobby Lobby filed suit in the United States District Court for the Western District of Oklahoma under the Religious Freedom Restoration Act (“RFRA”), the Free Exercise Clause of the First Amendment of the Constitution, and the Administrative Procedure Act (“APA”). Hobby Lobby sought relief from the ACA Mandate to comply with providing contraceptive services by July 1, 2013. Hobby Lobby filed a motion for preliminary injunction based on their RFRA and Free Exercise Clause claims, which the district court denied. Hobby Lobby appealed the denial and also moved for injunctive relief pending appeal, but was denied the motion for injunctive relief. Hobby Lobby then unsuccessfully sought emergency relief from the United States Supreme Court under the All Writs Act. As a result, Hobby Lobby moved for en banc appeal consideration by the United States Court of Appeals for the Tenth Circuit.

The Tenth Circuit granted the motion for en banc appeal, as well as Hobby Lobby’s motion to expedite consideration of the appeal to accommodate the July 1, 2014 compliance deadline of the ACA. The Tenth Circuit, reversing the district court’s denial of a preliminary injunction, held that Hobby Lobby has standing to bring claims under RFRA. However, the Tenth Circuit remanded the case to the district court to address the likelihood of success under the two remaining factors—the public interest and the balance of equities in the case—to be considered when deciding whether to grant or deny a preliminary injunction. The Solicitor General, Donald Verrilli Jr., on behalf of Kathleen Sebelius, the Secretary of HHS (“the government”) as Respondent, petitioned for a writ of certiorari to the Supreme Court.

Conestoga filed suit in the United States District Court for the Eastern District of Pennsylvania, seeking declaratory and injunctive relief from the ACA mandate under the RFRA and the Free Exercise Clause. The district court granted a temporary restraining order but denied a preliminary injunction, holding both that a for-profit corporation could not exercise religion under the Free Exercise Clause or RFRA, and that the ACA mandate did not substantially burden the Hahn family’s exercise of religion. Conestoga appealed and moved for an injunction pending appeal, which was denied by the United States Court of Appeals for the Third Circuit. The Third Circuit also affirmed the district court’s denial of the preliminary injunction. Conestoga petitioned for a writ of certiorari to the Supreme Court.

On November 26, 2013, the Supreme Court granted the petitions from the government and Conestoga to resolve the circuit split between the Tenth and Third Circuits. The Supreme Court consolidated the two cases and will determine whether RFRA allows a for-profit corporation to deny employees health coverage for contraceptives based on the religious beliefs of the corporation’s owners.

Analysis 

In 1990, the Supreme Court held in Employment Division v. Smith that the First Amendment’s Free Exercise Clause “does not relieve an individual of the obligation to comply with a valid and neutral law of general applicability,” even when a person’s religious exercise is substantially burdened. Congress responded to this decision by passing the Religious Freedom Restoration Act (“RFRA”) which provides “a claim or defense to persons whose religious exercise is substantially burdened by [the] government.” A valid RFRA claim can be overcome, however, if the government has a compelling interest and the law is the least restrictive means of furthering it—or, in other words if the law passes strict scrutiny.

In this case, the Court will consider whether for-profit corporations can sue under RFRA. If the Court determines that for-profit corporations can sue, the Court must also consider whether Hobby Lobby or Conestoga’s religious exercise is substantially burdened by the contraceptive coverage Mandate, and whether this Mandate is the least restrictive means of advancing a compelling interest. The Court must also consider Conestoga’s claim that the Mandate violates the Free Exercise Clause of the First Amendment.

DOES RFRA ALLOW CLAIMS BY FOR-PROFIT CORPORATIONS?

Hobby Lobby and Conestoga argue that RFRA’s protection of a “person’s exercise of religion” includes for-profit corporations. First they point out that the Dictionary Act—which provides rules for determining the meaning of Acts of Congress—defines a “person” as including corporations. The corporate parties argue that this definition controls since RFRA does not specifically define “person,” though it defines other words, and nothing in RFRA suggests any limitation on the Dictionary Act’s definition. Additionally, the corporate parties point out that RFRA’s text cross-references the Religious Land Use and Institutionalized Persons Act (“RLUIPA”) which recognizes that persons and entities can exercise the religious rights that RLUIPA grants.

The government disagrees with the corporations' application of the Dictionary Act to RFRA’s use of “person.” Rather, the government maintains, the word must be construed together with the phrase “exercise of religion,” and that the Dictionary Act does not address whether corporations are “persons” that engage in the “exercise of religion.” Moreover, reliance on the Dictionary Act would raise practical problems, according to the government, because large publicly traded corporations would be “persons” and could seek exemptions from generally-applicable laws based on a corporation’s asserted religion—which itself might trigger shareholder battles over a corporation’s religious identity.

The government also argues that RFRA was enacted to restore a person’s pre-Smith rights; and that no pre-Smith cases held that for-profit corporations had religious beliefs. The government insists that Braunfeld v. Brown and United States v. Lee,two cases on which the Tenth Circuit in Hobby Lobby relied, involved owners of sole proprietorships who faced personal liability and lost on the merits. Moreover, the government points to the Court’s plurality in Gallagher v. Crown Kosher Super Mkt. of Mass., Inc. and its opinion to expressly reserve the question of a corporation's right to assert a free-exercise claim, as evidence that the Court had not yet afforded such a right to for-profit corporations. Finally, the government argues that treating the religious beliefs of the owners as the belief of the corporation would run afoul of the “bedrock principle” of corporate law that a corporation and its stockholders are separate and distinct entities.

Hobby Lobby disagrees with the government’s assertions, arguing that the Court should not look to pre-Smith cases, but rather to RFRA’s text. Nonetheless, Hobby Lobby argues, the Court’s pre-Smith cases recognized a profitable business’s free exercise of religion. According to Hobby Lobby, the fact that these cases involved sole proprietorships is immaterial because none of the Court’s cases suggest that an entity’s particular form determines whether it or its owners can exercise religion. Additionally, Hobby Lobby argues that there is no reason that RFRA should apply to non-profits—a point that the government concedes—but not to for-profits. Furthermore, Hobby Lobby points out that five of the justices in Gallagher assumed that a commercial corporation could challenge the law under the Free Exercise Clause. Similarly, Conestoga points out that lower courts have recognized that business corporations can assert free exercise, and, that at the time of RFRA’s passage, it was established that religious exercise may occur in business. Finally, Hobby Lobby argues that the fact that a corporation is distinct from its owners in some respects does not mean that it is distinct in other ways, like religious exercise.

DOES THE CONTRACEPTIVE COVERAGE MANDATE SUBSTANTIALLY BURDEN RELIGIOUS EXERCISE?

The government argues that the owners’ exercise of religion is not burdened by a regulation of the corporation. First, the government argues that the owners of the corporation cannot personally sue because the Mandate requires the corporation rather than the owner to provide contraceptive coverage—and thus the owners suffer no personal liability. The government avers that corporations are distinct, and owners receive both the advantages and disadvantages of the corporate form. One rule of corporate law, the government declares, is that shareholders cannot bring claims to redress injuries to a corporation. Nor can the managers of the corporation sue based on their religious beliefs according to the government. The government argues that allowing managers to sue would be “unprecedented” and would seemingly allow any human resource manager to sue under RFRA for an exemption for the entire corporation. Moreover, the government submits that the Mandate requires payment into an undifferentiated fund and that it is the employee’s decision to use contraceptives, not the employer’s. Finally, the government argues that, while the Court may not question the sincerity of a religious belief, it can decide whether the belief is substantially burdened.

Both Hobby Lobby and Conestoga submit that their owners—the Greens and the Hahns, respectively—exercise their religion through their corporations. Both argue that the Mandate will directly burden their owners through their livelihood. The Mandate itself, the corporate parties assert, burdens their sincere religious belief to not support the destruction of human embryos by requiring them to cover four abortifacient contraceptives. Moreover, if it is forced to carry out the Mandate, Conestoga argues, the Hahn family will be the ones who actually have to carry it out; and thus, the only avenue for people like the Hahns, who do not want to abandon their religious beliefs, is to sell their family business and abandon the business world altogether—a substantial burden. Additionally,Conestoga asserts that the fact that the government exempts certain religious organizations shows that the Mandate’s burdens are substantial. Finally, Hobby Lobby argues that the fines for non-compliance, which Hobby Lobby suggest ranges in the millions of dollars a year, imposes a substantial burden.

DOES THE CONTRACEPTIVE COVERAGE MANDATE PASS STRICT SCRUTINY?

The government argues that even if the Mandate causes a substantial burden on religious exercise, the Mandate passes strict scrutiny. The government first asserts the Affordable Care Act advances the compelling interest of ensuring comprehensive insurance to employees. The government argues that this interest is further evinced by the fact that the provision is an amendment to ERISA, which is a comprehensive scheme to promote employee interests, and which is incompatible with religious exemptions. Additionally, the government claims that the contraceptive-coverage provision is a means of advancing the government’s compelling interest in public health and providing women equal access to health-care services. The government alleges that the Mandate is the least restrictive means of accomplishing these interests, and that the corporate parties’ alternatives for providing contraceptives—expanding federal programs, like Medicaid, or funding for state contraceptive programs—would not implement Congress’s goal of allowing employees to have access to preventive services through their current plans.

The corporate parties argue that the government has not established a compelling interest because the asserted interests of public health and gender equality are too broadly formulated. Furthermore, the corporate parties point to the numerous exceptions to the Mandate as proof that it does not serve a compelling interest. Finally, the parties argue that the alternatives, like expanding government programs, are a workable and less restrictive means than the contraceptive-coverage Mandate.

DOES THE CONTRACEPTIVE COVERAGE MANDATE VIOLATE THE FREE EXERCISE CLAUSE?

Conestoga also argues that the mandate violates the Free Exercise Clause because the Mandate is neither generally applicable nor neutral. First, Conestoga points to the numerous exceptions, such as for grandfathered plans and religious non-profits, as showing that the Mandate is not generally applied. Second, Conestoga argues that the fact that some religious organizations are exempted, but Conestoga is not, shows that the Mandate is not neutral. Conestoga asserts that this distinction is arbitrary because Conestoga’s religious objection is of the same quality as those religiously exempted and the costs of Conestoga’s exemption would be the same as the secular organization that are exempted. Conestoga thus argues this lack of neutrality and generality subjects the Mandate to strict scrutiny.

The government counters that the Court has never held that for-profit corporations have rights under the Free Exercise Clause. Moreover, the government argues that an exemption for Conestoga, based on religious faith, would directly burden Conestoga’s employees, and the Court has never suggested that the Constitution requires exemptions that impose a commercial employer’s religious faith on their employees. Finally, the government asserts that the Mandate reflects no religious animus towards Conestoga.

Discussion 

This case presents the Supreme Court with the opportunity to resolve a circuit split in the lower courts over whether RFRA allows for-profit corporations to deny employees health plan coverage of contraceptives based on the religious beliefs of a corporation’s owners. The government argues that the ACA imposes a general obligation upon corporations and not their individual owners. Accordingly, the government argues that RFRA does not apply because for-profit corporations are not persons with religious beliefs. Hobby Lobby argues that because RFRA does not separately define “person,” and because the Dictionary Act provides that it includes natural persons and corporations, RFRA should also protect corporations. Similarly, Conestoga argues that the tax code distinction between for-profit and non-profit entities should not extend to First Amendment and RFRA claims. The Supreme Court’s decision will implicate the tension between private and public interests, the boundaries of the Free Exercise Clause and RFRA, and the evolution of the corporate form.

BALANCING PUBLIC CONCERNS WITH PRIVATE INTERESTS

The government and supporting amici argue that the contraceptive coverage requirement in the ACA advances compelling government interests in promoting public health, employee rights, and gender equality using the least restrictive means. In particular, ninety-one members of Congress contend that the ACA's legislative history reflects goals of combating gender discrimination through preventative care. The ninety-one Representatives argue that the ACA achieves this by ameliorating the disparities between the disproportionate share of out-of-pocket costs borne by women and the lack of access to female-specific preventative care. California and fifteen other states agree, emphasizing the public health importance of providing affordable access to contraceptives while also citing the potential economic benefits from providing greater access. These benefits include possible reductions in the state burden to provide publicly-funded care for medical costs related to unintended pregnancies and the increased ability of women to contribute to the economy after receiving affordable access to contraceptives. Moreover, the American College of Obstetricians and Gynecologists and supporting professional health organizations caution that carving out this exemption in the ACA Mandate will compromise the integrity of the provider-patient relationship by allowing employers to dictate a patient’s available medical options.

Hobby Lobby, Conestoga, and supporting amici argue that the government has not met its burden of establishing that the ACA Mandate is the least restrictive means of advancing a compelling government interest. The Institute notes that the ACA derived coverage recommendations from an Institute of Medicine report, which excluded research indicating health risks such as the increased incidence of certain cancers associated with hormonal contraceptives. The Institute argues that by relying on this report, the ACA Mandate may actually be detrimental to the public health. Consequently, the Thomas More Law Center argues that the ACA Mandate is a government intrusion into the rights of private employers that is not supported by a compelling government interest. The Reproductive Research Audit also contends that granting an exemption from the mandate for religious purposes would not unduly limit access to affordable contraceptive services, as there are already government programs in place that could provide the same access while respecting employers' private concerns.

THE BOUNDARIES OF RFRA, THE FREE EXERCISE CLAUSE, AND THE CORPORATE FORM

In its support of the government, California argues that allowing corporations to assert the religious beliefs of their owners would contravene the foundational principle of corporate law that corporations have a legal identity distinct from that of their shareholders. California acknowledges that corporations can exercise many legal rights, but such rights should not extend to purely personal guarantees like the free exercise of religious beliefs. A number of corporate and criminal law professors agree and caution that allowing religious values to “pass through” the corporate veil, which gives corporations the privilege of limited liability, would enable corporations to selectively take advantage of the legal separation between the corporate form and the controlling shareholders. In their view, permitting religious values to pass through the corporate veil in only one direction would undermine a foundational principle of corporate law that is also recognized by criminal and agency law. The professors foresee that, if religious values are attributed to the corporation, federal courts would encounter more RFRA and Free Exercise Clause claims that would present difficult questions concerning the legitimacy of religious values, degrees of ownership and control, and disagreements over specific religious identities.

In support of Hobby Lobby and Conestoga, the Cato Institute argues that, contrary to the professors’ objections, the corporate form is not inconsistent with the right to exercise personal beliefs. The Cato Institute submits that prohibiting a religious exemption from the ACA Mandate would force potential entrepreneurs to choose between limiting their liabilities and exercising their religious freedom. In fact, a number of comparative law and religion scholars describe the growing legal support for exercises of corporate conscience. These scholars argue that exercises of corporate conscience can take many forms, including religious and moral exercises. Given the broad protection of general corporate conscience initiatives, the scholars contend that excluding protection for religious and moral values constitutes discrimination against businesses with religious values in their corporate consciences.

Conclusion 

In this case, the Supreme Court will consider whether RFRA allows a for-profit corporation to deny health coverage of contraceptives based on the religious beliefs of the corporation’s owners. In doing so, the Court will also determine whether the ACA mandate substantially burdens the rights, if any, of a corporation to exercise religious beliefs and whether the ACA mandate is the least restrictive means of furthering a compelling state interest. The Court’s decision will implicate foundational principles of corporate law and the interpretation of the protections conferred by the Free Exercise Clause and RFRA. The ruling will also substantially impact the viability of the contraceptive coverage provision of the ACA mandate, which in turn will dictate whether many employees will have affordable access to contraceptives and certain preventative care services.

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