July 16, 2014
Hobby Lobby and Hybrid Firms
Posted by Haskell Murray

Shortly after the Burwell v. Hobby Lobby opinion was issued Professor Usha Rodrigues wrote the following in her excellent post on the case:

I was wondering if the Court would mention benefit corps.  Kind of surprised the majority does, because one could see the existence of a hybrid form as undermining the Hobby Lobby/Conestoga argument, i.e., if you were serious about your religion, why didn't you pick a different form?  I'm looking at you, Haskell Murray.

In this post, I will attempt to address Professor Rodrigues’ sensible question.

Justice Alito does not make clear why he mentions benefit corporations. As my co-blogger at Business Law Prof Blog Professor Ann Lipton has noted, Justice Alito’s analysis, from a corporate law perspective, leaves much to be desired. That said, I think there is a logical reason for Justice Alito mentioning benefit corporations in this case, even though neither Hobby Lobby nor Conestoga chose to use the benefit corporation form. 

The logical reason for mentioning benefit corporations in Hobby Lobby is that the mere existence of benefit corporations illuminates the increasing difficulty in differentiating between “non-profit” and “for-profit” firms. Professor Ronald Colombo described that difficulty in his post earlier today.

Just this morning I met with a group of social entrepreneurs. Some of the entrepreneurs ran 501(c)(3)s with a significant commercial component. Some ran LLCs, benefit corporations, or traditional for-profit corporations with a significant social mission. The legal form of each organization was not apparent from the descriptions of the organizations; I had to ask.

Justice Ginsburg, in her dissent, tries to distinguish religious for-profits from religious non-profits when she writes:

Religious organizations exist to foster the interests of persons subscribing to the same religious faith. Not so of for-profit corporations. Workers who sustain the operations of those corporations commonly are not drawn from one religious community.

This attempted distinction fails. Many religious non-profits also engage non-believer workers, perhaps most notably, non-profits that train the chronically unemployed for the workplace. For example, Spring Back Recycling, a 501(c)(3) organization that originated from a student project at Belmont University (disclosure: my employer) has no religious requirement for its workers despite the fact that the organization is sponsored by a local church ministry. Similarly, non-profit Catholic hospitals routinely hire (and treat) non-Catholics. Speaking of hospitals, making distinctions between non-profit and for-profit hospitals has long been difficult and debated. St. Thomas Hospital, whose west branch is around the corner from my house, has a pretty detailed mission integration page on its website, but frankly, I am not 100% sure that it is non-profit (though I assume it is) and, assuming that it is non-profit, I am not sure I could tell the difference between it and the local for-profit hospitals if you removed the signage.   

With the emergence of hybrid firms the distinction between “for-profit” and “non-profit” corporations is becoming even more difficult. The Delaware approach and some states' versions of the Model approach (like South Carolina) to benefit corporation law expressly allow a religious purpose for the legal entities. As I mention in a new article, I approve of the transparency promoted in the Delaware public benefit corporation law, which requires disclosure of the corporation's specific public benefit purpose, religious or otherwise, in its certificate of incorporation. (The Model approach makes disclosure of the specific public benefit purpose optional.) Especially over the last decade, we have seen increasing convergence in the organizational models; for-profits are increasingly focusing on social problems and non-profits are increasingly using commercial methods. Hybrid firms are a part of this convergence. 

After Hobby Lobby, in other areas, some have started to argue against exemptions for religious non-profit corporations as well as for-profit corporations, and I think logic has to take them there; as Justice Alito wrote, "[n]o known understanding of the term "person" includes some but not all corporations." However, the argument against accommodations/exemptions for religious non-profit corporations (and incorporated churches) will be a much broader argument, and much more difficult politically, than an argument solely against accommodations/exemptions for traditional for-profit corporations. 

Many thanks to Usha Rodrigues (and her co-bloggers) for asking me to contribute; I look forward to reading the other posts, responses, and comments.  

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