March 25, 2014
If CJ Roberts wants a narrow ruling, I've got the vehicle he needs
Posted by Steve Bainbridge

The Wall Street Journal live blog of the contraception mandate cases before the Supreme Court reports that:

Chief Justice John Roberts suggested he was thinking of a narrow ruling allowing closely held companies like Hobby Lobby Stores Inc. to claim a religious exemption, while leaving aside more-complicated ownership structures of publicly traded corporations to another day — a position that Justice Stephen Breyer indicated he might, or might not, be open to.

If you'll pardon one more episode of self-promotion, reverse veil piercing would provide the basis for just such a narrow ruling. As I observed in A Critique of the Corporate Law Professors’ Amicus Brief in Hobby Lobby and Conestoga Wood, which is now available in final form at the the Virginia Law Review Online:

In another red herring, the Brief argues that:

If this Court were to accept the arguments being advanced by Hobby Lobby and Conestoga, it would … invite … disruptive proxy contests … regarding whether the corporation should adopt a religion and, if so, which one.

Proxy contests are principally an issue for public corporations, while RVP-I—like forward veil piercing—is exclusively an issue for close corporations. The claim is thus disingenuous, at best. Nevertheless, this claim—while false—does provide a valuable opportunity for reminding the reader that the Brief’s concern for minority shareholders with diverse interests is largely irrelevant. As this author has noted:

[A] public corporation with many shareholders holding diverse views is a poor candidate for RVP-I. In contrast, a closely held corporation – even if quite large by metrics such as assets or employees – with a small number of shareholders holding common religious beliefs is a good candidate.

Courts routinely differentiate cases for piercing the veil from cases in which the veil should not be pierced based on, inter alia, the number of shareholders in the corporation. There is no reason why they could not do the same in cases like those brought by Hobby Lobby and Conestoga Wood.

So here is a proposed narrow test, taken from my article Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers, 16 Green Bag 2d 235 (2013):

Analysis of the RVP-I cases thus suggests a three-pronged version of RVP that should be adopted in the mandate cases:

  1. Is there such substantial identity of the shareholder(s)’s religious beliefs and the manner in which the corporation is operated and the purposes to which it is devoted that the corporation is effectively the shareholder’s alter ego?
  2. How strong is the government’s interest in ensuring that the corporation’s employees get the mandated insurance coverage?
  3. Would reverse piercing this corporation’s veil advance significant public policies?

As to the first prong, Judge Walton’s analysis in Tyndale provides a useful model for future courts to follow.

  • Veil piercing is a close corporation doctrine.39 In this context, in particular, a public corporation with many shareholders holding diverse views is a poor candidate for RVP-I. In contrast, a closely held corporation – even if quite large by metrics such as assets or employees – with a small number of shareholders holding common religious beliefs is a good candidate.
  • Do the corporation’s articles of incorporation include a statement of purpose referencing religious beliefs and goals?
    Is the ownership structure of the corporation designed to ensure continuity of its religious purposes even after the original founders have retired or died?
    Are the directors and officers of the corporation obliged to share the founders’ religious beliefs? If so, are they required to document that fact, such as by signing a statement of faith?
    Are religious practices such as devotions, prayer, scripture reading, or worship services routinely made a part of corporate meetings?
    Are such practices made available to employees?
    Is some substantial portion of the corporation’s profits donated to religious charities or otherwise used to advance the founders’ religious beliefs? The biblical concept of a tithe springs to mind here as a possible metric.

The more of these factors that a court finds to be present, the more willing the court should be to treat the corporation as the shareholder’s alter ego.

Turning to the second prong, the government contends it has an interest in ensuring that Americans have access to the health insurance coverage required by the mandate. Whether or not that interest rises to the level of a compelling one that would justify infringing on free exercise and RFRA rights remains to be deter- mined. In evaluating the government’s interest, however, courts should note that the government has already undermined the mandate by carving out exemptions for grandfathered plans, employers with fewer than 50 employees, “member[s] of a recognized religious sect or division thereof” who have religious objections to the con- cept of health insurance, or religious employers [as defined in the regulations].” As Judge Walton observed, a “law cannot be regarded as protecting an interest of the highest order . . . when it leaves appreciable damage to that supposedly vital interest unprohibited.”

As for the final prong, the government has tried to minimize the significance of the issues at stake by referring to the plaintiffs’ interests rather than their rights. Conduct that is motivated by religious belief is accepted as one of the ways in which people exercise their religious freedom, however, even when the conduct occurs in a commercial setting. As such, the strength of the public policy issues at stake in the mandate cases go far beyond the homestead policy at issue in the seminal Minnesota cases. The issues at stake here arise out of the First Amendment, not a mere statute.

The values protected by the religious freedom clauses of the First Amendment “have been zealously protected, sometimes even at the expense of other interests of admittedly high social importance.” Accordingly, “no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opin- ion or force citizens to confess by word or act their faith therein.” Because that is precisely what the plaintiffs in the mandate cases claim the government is forcing them to do, the policy prong of the RVP-I standard strongly favors the plaintiffs. 

Health Care, Hobby Lobby, Religion, Supreme Court | Bookmark

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