July 19, 2014
Who, exactly, is exercising religion? And why does the contraceptive coverage rule burden that religious exercise?
Posted by Marty Lederman

Thanks once again to the Conglomerate for inviting me, an interloper ‘round these parts, to contribute to this extraordinarily rich and provocative forum.  Brett McDonnell notes that the contributors have not said much about the Court’s actual application of RFRA, and its ramifications, “given our comparative advantage as corporate law scholars.”  Well, for better or worse I do not suffer from that comparative advantage, and therefore you can, if you’re interested, find loads of my musings about the RFRA merits issues over on Balkinization (links to posts compiled here).

In light of the readership and contributors here at the Conglomerate, however, perhaps this is an appropriate place for this ConLaw guy to offer a few thoughts about the corporate law issues that have unduly dominated public discourse about the case (not to mention dominating the pages of the Alito and Ginsburg opinions).  I'll also, and more importantly, discuss the Court's failure to explain how federal law burdens the religious exercise that is actually at issue in these cases—namely, the exercise of the corporate directors acting in their decision-making capacities.

1.  Corporations' religious exercise?

Ronald Colombo kicked off this symposium by characterizing the Court as having held that business corporations are persons “capable of exercising religion” for purposes of RFRA; and many of the posts in the forum have discussed whether, in what manner, and under what circumstances corporations can be said to exercise religion, or have religious beliefs.  As I explained in an earlier Conglomerate forum on the eve of oral argument in Hobby Lobby, however, that is the wrong question to ask in this case.  And I think the Court’s decision in Hobby Lobby in effect confirmed that point.

In this forum, Ronald and Amy Sepinwall offer a very interesting back-and-forth on the question of corporate religious exercise.  They agree that corporations, whether nonprofit or for-profit, can act in accord with particular religious precepts, or in order to advance religious objectives.  They appear to disagree, on the other hand, about whether that should count as a corporation’s “exercise of religion” for purposes of RFRA.  However that debate should ultimately be resolved, Amy is surely right that the particular religious claims in Hobby Lobby and Conestoga Wood cannot be asserted by the corporations themselves.  The fundamental assertion in these cand related contraception-coverge cases is that federal law requires someone to choose between compliance with a civil obligation and adherence to a religious obligation taking the form of a prohibition  (roughly speaking:  “Thou Shalt Not Cooperate With Evil”).  This is not the sort of burden that can be imposed on a for-profit corporation’s religious exercise—not because the corporation doesn’t have a “conscience” (neither does a church) or because it cannot advance religious objectives (surely it can), but because the corporation does not have any religious obligations.  It would be absurd to allege—and more to the point, the parties in these cases do not do so—that a religion imposes duties or injunctions on for-profit corporations such as Hobby Lobby Stores, Inc.

There are a couple of places in his opinion where Justice Alito somewhat sloppily refers to “free exercise” rights of the corporations (even though the decision is based upon RFRA, not the Free Exercise Clause); and the Court ultimately holds, of course, that a corporation itself can bring a RFRA claim.  But there can be very little dispute, I think, that the Court’s reasoning and holding are ultimately predicated on the idea that RFRA protects the religious exercise of the individual plaintiffs here—the members of the Green and Hahn families. 

“Congress did not discriminate . . . against men and women who wish to run their businesses as for-profit corporations in the manner required by their religious beliefs,” writes Justice Alito.  He echoes this theme repeatedly throughout the opinion ("Congress provided protection for people like the Hahns and Greens"; "the Hahns and Greens have a sincere religious belief that life begins at conception.  They therefore object on religious grounds to providing health insurance that covers methods of birth control . . . ."; etc.).  Most importantly, the Court ultimately holds that it should protect the so-called “free-exercise rights” of corporations such as Hobby Lobby in order to “protect[] the religious liberty of the humans who own and control those companies."

I think the Court’s reference to corporate “free exercise rights,” and its holding that Hobby Lobby can sue, don't make much sense conceptually--as noted above, the corporations’ religious exercise could not be burdened in the manner alleged in these cases.  Instead of holding, as it did, that the corporations’ RFRA rights are derivative of the rights of the Greens and the Hahns, it would have made much more sense for the Court simply to say that the Greens and Hahns can sue under RFRA, and to leave for another day the question of when, if ever, corporations can do so, as well.

In any event, it’s clear that the Court's holding is based upon the assumption that federal law burdens the individual plaintiffs’ exercise of religion.  For our purposes here, then, it is more useful, and more instructive, to think of the case as though it were captioned Burwell v. Green.  And that means we need to focus further on the question of how federal law is said to burden the religious exercise of the Greens and the Hahns.

2.  Shareholders’ religious exercise?

The complaints in Hobby Lobby and Conestoga Wood are maddeningly imprecise on exactly how federal law is said to implicate or undermine the individual plaintiffs’ religious obligations.  In particular, they are not at all clear on what, exactly, federal law requires or induces the individual plaintiffs to do that would implicate them in their employees’ use of contraception.  Are they burdened in their capacity as shareholders?  As employees?  As board members?  As directors of the companies?  The complaints never specify.  Instead, the allegations indiscriminately and unhelpfully toggle back and forth among different and vague characterizations of the burden on the the individual plaintiffs.

Many of my fellow symposium participants appear to presume that the Court has afforded protection to the Greens and the Hahns in their capacities as shareholders of the corporations.  Unfortunately, Justice Alito offers ammunition for that view of the case—he indiscriminately scatters throughout his opinion sentences such as “The companies in the cases before us are closely held corporations, each owned and controlled by members of a single family.”

I think it is a mistake, however, to view Hobby Lobby as a case about shareholders’ rights.  For one thing, Hobby Lobby itself does not involve shareholders:  Hobby Lobby Stores, Inc. and Mardel, Inc. are owned by a trust, not by the Greens.  Therefore a shareholder rights theory would not have been sufficient for the Court to resolve one of the two companion cases.  To be sure, according to the complaint in the other case, Conestoga Wood, the Hahns are collectively the “principal[]” owners of the shares of Conestoga Wood.  But even that complaint does not say what percentage of the stock they own.

More importantly, even if the cases had been pleaded and argued as shareholders’ rights cases, the Court would then have had to grapple with a state-law question of whether and when shareholders can sue to vindicate their individual rights when someone (a private party or a government) takes actions against the corporation that derivatively harm them—that is to say, whether owners of a firm must take the bitter with the sweet, and abandon any individual claims they would otherwise have in exchange for the immunities that they realize when they take advantage of incorporation.  This is, in short, the so-called “insider reverse veil-piercing" question that Professor Bainbridge has emphasized.  I have already explained at length, both here at the Conglomerate and on Balkinization, why I think the Court would have had to reject such a shareholder claim (or at a minimum certify the question to the Pennsylvania Supreme Court).  There’s no need to repeat that argument here, however; the important point for present purposes is that the Court did not in any meaningful way discuss the rights of shareholders, or the state law that would have governed that question.  Notably, Justice Alito did suggest (pp. 30-31) that shareholders would not be able to bring a RFRA claim in a case where the majority of their fellow shareholders did not support their religious objection to application of a federal law, and that state law would control the disposition of such a case.  That may be significant to the Greens’ and Hahns’ claims, for a reason I discuss below.  But the Court did not even address what state law would have to say about a claim by a majority of shareholders that federal law substantially burdened their religious exercise . . . and thus the “insider reverse veil-piercing" question about shareholders’ rights to bring federal statutory claims remains unresolved.

3.  Corporate directors’ religious exercise?

In my earlier posts, I explained that a careful reading of the briefs reveals that the gravamen of the plaintiffs' complaint is that they are allegedly being required to violate religious obligations in their capacities as corporate directors, or decision-makers, rather than in their capacities as shareholders or managers or employees.  This is the key passage of the Hobby Lobby brief, for example:

It is undisputed that the Greens have committed themselves to conducting their business activities according to their religious beliefs.  See, e.g., Pet.App.8a.  Hobby Lobby and Mardel are closely-held corporations controlled entirely by the Greens.  JA129-30, 134; Pet.App.7a-8a.  Thus, Hobby Lobby and Mardel act only through the Greens.  The record amply demonstrates how the Greens have pursued their religious commitments through their business activities, Pet.App.8a, and there is no dispute about the precise religious exercise at issue here:  the Greens cannot in good conscience direct their corporations to provide insurance coverage for the four drugs and devices at issue because doing so would “facilitat[e] harms against human beings.”  Pet.App.14a.

The “precise religious exercise at issue here,” then, is the Greens’ alleged violation of a religious injunction if and when they “direct their corporations to provide insurance coverage for the four drugs and devices at issue.”

And, fairly read, that is also the issue the Court addresses in its Hobby Lobby opinion.  Justice Alito repeatedly identifies the problem as the so-called legal requirement that the Greens and Hahns “provide” employee insurance that covers IUDs, or that they “arrange” for such coverage.

So if that decision--to provide or not to provide IUD coverage--is at the heart of the "substantial burden" argument, how does federal law substantially burden the Greens and Hahns in their capacity as corporate directors?  Who knows?  Eric Orts laments that the Court’s concept of corporate personality is “radically undertheorized.”  Well, “radically” barely begins to describe how undertheorized is the Court’s explanation of the causal relationship between federal law and the alleged burdens on the individuals’ purported religious obligations in their capacities as corporate directors.

A series of simple hypotheticals might help to illustrate the problem:

Imagine that at Time A, before enactment of the Affordable Care Act, the Hahn family members collectively own Conestoga Wood, an unincorporated firm.  They are also the directors—the decision-makers—of the company.  And there are two types of employee insurance plans out there:  some that include IUD coverage, and others that don’t.  The Hahns sincerely believe that they are required to act in all of life’s affairs—including in their capacity as Conestoga directors—in a way that does not violate their understanding of their religion’s doctrine of complicity-with-sin.  Therefore they choose to have Conestoga offer the plan without the IUD coverage.  If, by contrast, the Hahns affirmatively chose to offer employees an insurance plan that included IUD coverage, and chose not to offer a competing plan that excluded such coverage (both options being available under the law), at least some observers (most importantly including the Hahns themselves) might reasonably conclude that the Hahns were morally responsible for the choice that they had thus made, just as many people concluded that corporate directors and CEOs were responsible for the decisions to have those corporations invest in apartheid South Africa.

Then, at Time B, the Hahns incorporate Conestoga Wood, Inc.  Let’s assume they no longer control the corporation in that they do not own a majority of the shares, but that the Conestoga shareholders nevertheless affirmatively delegate decision-making authority to the Hahns in their capacities as corporate directors, and (to eliminate Alan Meese’s complication) the shareholders also specifically approve of the Hahns’ decision, expressly based upon their religious dictates, to exclude IUDs from the insurance plan that Conestoga offers to employees.  In this case it remains reasonable to attribute responsibility for that decision—or for the contrary decision to cover IUDs—to the Hahns (although the shareholders might be morally implicated, too).

Finally, at Time C, Congress passes the ACA, and HHS promulgates the preventive services rule, which provides that if an employer offers an employee health plan, that plan must include cost-free coverage of a series of preventive services, including IUDs.  In that event, once the HHS Rule goes into effect it would not be the Hahns who “chose,” in any practical sense, to cover contraception in the Conestoga employee benefit plan:  That would, instead, be a legal requirement imposed by the government that will apply to any and all such plans throughout the nation.  It would be Sylvia Burwell, in other words, rather than the Hahns, who would be the relevant decision-maker--who would "direct" the employee benefit plan to provide reimbursement for contraceptive services that include IUDs.  (The only choice remaining for the corporate directors to make in that case would be whether to discontinue the plan altogether.  I discuss that option ad infinitum in a series of posts.)

It’s important to emphasize that the gravamen of the Hahns' claim is not that the use of their labor, or their funds, or their expertise, or their property, would make them complicit in wrongdoing.  Because the Hahns' possible complicity in the use of contraception is, instead, attributable to their decision, as officers-directors of the companies, to choose one type of benefit plan rather than another (to "direct" the plans to cover certain services or not), then the fact that the government has eliminated the option of operating a for-profit employer plan that doesn't include contraception coverage means that the Hahns have no relevant choice to make in their capacity as directors, and thus none for which they can be morally culpable.  Indeed, the Hahns (and the Greens) have not attempted to explain or articulate—nor does Justice Alito—why their religion would make them morally culpable in such a case, where the decision has been taken out of their hands and where they therefore would not be responsible for "directing" the Conestoga and Hobby Lobby plans to include IUD coverage.  Therefore, without more, it would appear that the Hahns and Greens have not alleged facts that would explain why the law imposes a substantial burden on their religious exercise in their capacities as corporate directors.

Think about this in terms of the apartheid example above:  If federal law had required all companies to invest in South African stocks, as a condition of doing business, then many people might have concluded that the federal government itself was morally complicit in evil.  And perhaps some would conclude that certain corporate officers were morally complicit to the extent they took steps to benefit from the required South African investments.  But very few people would have concluded that a particular corporation's CEO, or Board of Directors, was culpable merely for "choosing" to have the company comply with federal law.

Or better yet—to tie this discussion more closely to the issues that my fellow symposium participants have flagged—let’s assume a Time B-prime, still before the ACA, in which a majority of Conestoga Wood shareholders decided to reject the Hahns’ decision, and opt instead to include coverage of IUDs in the Conestoga employee plan.  Under Pennsylvania law, the Hahns-qua-directors would be required in that case to choose a plan that includes IUDs—what Alan Meese refers to as the “shareholder primacy approach.”  But in such a case wouldn’t it be absurd for the Hahns to complain that Pennsylvania law substantially burdens their religious exercise by giving effective control over the decision to the shareholders, thereby making the Hahns “complicit” in the Conestoga Wood employees’ eventual use of IUDs?  Of course it would—which is why even Justice Alito concludes that the Hahns would not be able to raise a RFRA claim in such a case. 

So why isn’t the same true here, where it’s HHS officials (acting pursuant to authority conferred by Congress), rather than the shareholders (acting pursuant to authority conferred by the Pennsylvania legislature), who tell the Hahns how they are to act in their capacity as Conestoga Wood directors?

I can imagine at least two responses, but I don’t think either is persuasive.  First, one might say that the Hobby Lobby opinion, by its terms, applies only where the religious individuals in question control (or “closely control”) the corporation, and my Time B-prime hypo has removed the corporate directors’ control over the IUD decision, by shifting it to the majority of shareholders.  But that’s the point:  The federal government has likewise removed control over that same exact decision from the Hobby Lobby and Conestoga Wood directors, which ought to eliminate any possible complicity on their part that would be the predicate for a RFRA claim.

Second, one might say that this only shows that Hobby Lobby must be a decision about shareholders’, not corporate directors’, exercise of religion.  But if that were the case, as I explained above, the Court would have had to contend with state law, which generally provides that shareholders cannot complain about harms they suffer by virtue of regulation of (or injuries to) the corporation.

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