March 26, 2014
Is the Mandate mandatory?
Posted by Brett Scharffs

Professor Lederman scolds me for saying that the mandate, indeed the entire Affordable Care Act, does not apply to employers with fifty or fewer employees. He asserts, “That’s just wrong,” and provides a link.

Under a headline, “The mythical ‘small employer” exception,” Marty explains:

"Small employers that choose to offer health insurance plans to their employees must provide coverage for recommended preventive services -- including contraceptive services -- without cost-sharing, just as larger employers do.

Conestoga Wood points out that the ACA does not require employers with fewer than 50 full-time employees ”to offer healthcare coverage at all.”  That’s true."                                

This is what I meant when I said the ACA does not apply to employers with fewer than 50 employees. They may choose not to offer health care without suffering a penalty. When I talk to my neighbor across the street who is a small businessman who is capping his workforce at 49, it is because he does not want to become subject to the ACA’s requirements or its penalties. 

Professor Lederman continues: 

"But as I’ve explained at great length in previous posts, the ACA doesn’t require any employer to offer healthcare coverage.  If an employer -- large or small -- does not offer an employee plan, its employees will be eligible for coverage on a government-subsidized exchange, which must include the required preventive services."

On Marty’s reading, not only is the mandate not mandatory, the entire ACA is optional. I guess we can all call it a day. In a sense this is technically true. If Hobby Lobby choses to drop its health care plan, it will be required to pay what the justices yesterday were describing as a “penalty” or (in a nod to Chief Justice Roberts’ earlier ACA opinion) a “tax” of $2,000 per employee, or about $26 million. On the other hand, if Hobby Lobby continues to offer health care but excludes the contraceptives at issue here, then they will be subject to a daily fine of about $1.3 million, which is where the $475 million number came from that appeared in the exchange between Hobby Lobby’s lawyer, Paul Clements and Justice Kagan. 

In that exchange, Justice Kagan said, “These employers could choose not to give health insurance and pay not that high a penalty – not that high a tax.” 

Mr. Clement answered, “Well, just to put this in concrete terms, for Hobby Lobby, for example, the choice is between paying a 500 – a $475 million per year penalty and paying a $26 million per year coverage.”

Justice Kagan responded, “No, I don’t think that that’s the same thing, Mr. Clement. There’s one penalty that is if the employer continues to provide health insurance without this part of the coverage, but Hobby Lobby could choose not to provide health insurance at all. And in that case Hobby Lobby would pay $2,000 per employee, which is less than Hobby Lobby probably pays to provide insurance to its employees.” 

Thus, technically speaking the mandate is not mandatory, but Hobby Lobby will be subject to taxes of $26 million if it discontinues its health care plan, or penalties of $475 million if it refuses to bend to the ACA’s contraceptive mandate. Justice Kagan seemed to be suggesting that at least the $26 million option might not constitute a substantial burden since that might be the approximate cost of providing health care. Chief Justice Roberts injected that he understood Hobby Lobby to feel a religious obligation to provide health care to its employees, and the discussion then shifted to how this might affect how much Hobby Lobby would have to pay employees if they dropped their health care plan. Also interesting are the implications for whether imposing the health care mandate on Hobby Lobby furthers a compelling state interest in the event the mandate is not mandatory at all.

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Corporate Law in the Arguments
Posted by Lyman Johnson

I briefly highllight a few pertinent corporate law-specific points that were made during yesterday's argument. Much of the proceeding, of course, was focused on burdens and compelling interest and alternatives, including the posing of many hypotheticals. And I too was as struck as Rick at the large number of interruptions. I resolve to be a more polite listener.

The Solicitor General conceded, in response to a question by Justice Alito, that the corporate form per se was not inconsistent with a free exercise claim; instead, it was the pursuit of for profit activity. It strikes me that this move, designed to preserve the current government stance against these two closely held corporations, potentially would permit a future attack by the government against an individual's free exercise claim. At a time when the government would seemingly want to cabin off the for profit corporate sector as unable to make a free exercise claim, that seemed an odd move.

In a classic half empty/half full exchange with Justice Scalia, the SG conceded that there was not a single case holding that a for profit corporation does not have a free exercise claim.

Again, in an exchange with Justice Scalia, the SG ruminated over the position of a minority shareholder in a close corporation who disagrees with the controlling shareholders about policy. Scalia curtly replied that those in control of the company make the decisions. To the SG's suggestion that that might be oppression, CJ Roberts replied that that was a state corporate law question. Three cheers for some answers our 2L law students could have made about corporate governance. Maybe we corporate types don't know con law but we have our own arguments they could brush up on, a point I made in my opening post on Monday.

Finally, even late in the SG's argument, Justice Breyer pressed him yet again on why corporate form should matter to a free exercise claim. The SG moved to the employees' interests and how they needed to be considered.

Who can predict such things, but my impression is as stated Monday: this case will, however narrowly, conclude that these two companies have a free exercise claim. Whatever the outcome of the case(given the other steps in the RFRA analysis), that initial ruling will, as I will post tomorrow, have intriguing consequences for corporate law, not just con law.

Lyman Johnson

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Rick Garnett: “the position and the rights of . . . the employees”
Posted by Gordon Smith

The following is from Rick Garnett at Notre Dame Law School:

Thanks very much to Gordon for including me in this very rich and thoughtful discussion.  The care and civility with which the various questions raised in the Hobby Lobby case are being handled here at The Conglomerate is a model, and should be an inspiration, for all of us.

I had the chance, yesterday afternoon, to read the transcript of the oral arguments in the case.  The usual caveats apply:  it is difficult and dangerous to make confident predictions about the Court based on oral arguments.  That said, it appears that at least three justices are highly skeptical regarding Hobby Lobby’s RFRA claim and also that at least four justices are similarly skeptical -- as I think they should be -- with respect to the notions that (a) “corporations” or “businesses” are categorically excluded from RFRA’s protections; (b) that it would violate the Establishment Clause to accommodate Hobby Lobby; and (c) that the contraception-coverage provisions at issue do not “substantially burden” Hobby Lobby’s exercise of religion.

One thing that stood out, for me, in the argument (besides some of the justices’ maddening habit of so frequently interrupting counsel and each other as to make the arguments near useless) was Paul Clement’s exchange with Justice Kennedy about “the position and the rights of . . . the employees.”  In some places, it has been suggested that accommodating the religious-liberty rights of the employer would violate the religious liberty of an employee who did not share the employer’s religious beliefs.  (An example “close to home”:  some have argued that it would violate the religious freedom of Notre Dame faculty or students who do not accept Catholic teaching regarding the use of contraception to exempt Notre Dame from the contraception-coverage rules.)  In my view, this suggestion is not convincing -- it conflates state-imposed burdens and state coercion with the presumptive right of non-state institutions, including employers, to act in accord with a religious mission or character.  In any event, I don’t think Justice Kennedy was making this suggestion.  His concern seemed, instead, to be with accommodations that put the employees of some employers in a “disadvantageous position.”

Paul Clement was (sigh) interrupted by another justice before he was able to answer Justice Kennedy but it appeared to me that he wanted to make the point (and he did say something like this in conversation with Justices Sotomayor and Kagan) that we should not regard it as “imposing a burden on” or “disadvantaging” an employee to say that it was not lawful – because it violated RFRA – to require the employer to provide a benefit to that employee in the first place.  This is, of course, the “where’s the baseline?” point with which we law professors are so familiar.  (For more on this, take a look at this short essay I did for the Vanderbilt Law Review’s “En Banc” feature.)

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March 25, 2014
The Ave Maria Mutual Funds
Posted by Ronald Colombo

Jennifer kicks off her last post by asking whether a mutual fund can have a religion.  I would ask that in response to that interesting question, we consider the example of the Ave Maria Mutual Funds.

Calling itself "America’s Largest Family of Catholic Mutual Funds," the Ave Maria Mutual Funds represent just one of many mutual funds that cater to socially responsible investors. 

In addition to seeking a return on investment, the Ave Maria Mutual Funds employ a "Catholic Advisory Board" which "is loyal to the Magisterium of the Church [and] sets the criteria for screening out companies based on religious principles. They actively seek the advice and counsel of Catholic clergy in making these determinations."

To me at least, the question of whether a mutual fund can have a religious identity seems moot.  Some already do.

And I see no reason why a business corporation couldn't just as explicitly adopt a religious persona.  To be clear, that's not what Hobby Lobby and Conestoga have done.  And from my perspective, that is a factor that seriously undermines their claims.  As I suggested a few posts below, I do not believe that a corporation is necessarily the religion of its shareholders. Rather, a corporation's religion is the religion the corporation, as an enterprise, chooses to embrace: in its practices, policies, and, preferably, in its charter as well. 

All that said, in today's oral argument, the Court didn't seem particularly fixated on this particular issue.


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Does Your Mutual Fund Have a Religion?
Posted by Jennifer Taub

Does your mutual fund have a religion?  If so, how would you find out what it is? If it changes, would the fund's investment adviser have to inform you? These questions came to mind after reading the transcript for today's argument in the Hobby Lobby and Conestoga Wood cases. Don't get me wrong. None of the justices or attorneys mentioned mutual funds. But let me explain why they should have. 

Mutual funds own approximatley 25 percent of U.S. equities. Thus if a Supreme Court majority determines that corporations may have religious beliefs (for purposes of the Religious Freedom Restoration Act and/or the Free Exercise Clause of the First Amendment), it will be necessary to come up with a methodology for determining what a given corporation's religion is. If the Court decides that the religion of the shareholders (as opposed to that of its employees, for example) dictates the religion of the corporation, one would need to know who the shareholders are as of the particular point in time when the sincerity of the religious belief is being measured. 

Of course this poses challenges in a world of high-frequency trading. But that would not be insurmountable as a practical matter; we do have record dates for other purposes. But it would make a mockery of religious beliefs if they can shift in fractions of a second. And, it becomes additionally complicated when the owners of shares are not real people, but instead institutional investors. About 70 percent of U.S. equities are owned by institutional investors (with mutual funds taking up a large slice).

If religion is determined by shareholder vote, would that be acquired through a management resolution on the proxy ballot? What would happen when even a single corporation in an index held such a vote?  Would the funds abstain? Or would the fund that held that corporation's shares vote in support of management's religious resolution? If so, would that single vote establish the religion for that fund, thus precluding it from voting in favor of a different corporation's suggestion religion? Or, can a single fund be one religion for purposes of one stock in its portfolio and a different religion for another? And who decides? Do fund shareholders get a say on the fund's religion?

This line of thought may seem far-fetched, given that the parties in this case are closely-held corporations owned by family members. Yet Justice Roberts acknowledged that a decision that a for-profit corporation has religious beliefs and rights could go beyond the facts presented today. He said:

"Whether it applies in the other situations is a question that we'll have to await another case when a large publicly­ traded corporation comes in and says, we have religious principles, the sort of situation, I don't think, is going to happen."

But these are the very real concerns. And, it was associated practical questions that Justice Sotomayor raised with Paul Clement, counsel for the corporations. Sotomayor asked him:

"[H]ow do we determine when a corporation has that [religious] belief? Whos says it? The majority of shareholders? The corporate officers? The––is it 51 percent? What happens to the minority? And how much of the business has to be dedicted to religion? 5 percent 10 percent? 3 percent?"

Clement responded:

"You look to the governance doctrines. . .And I think that's a really critical question, which is ultimately, I think this line of questioning goes to a question of sincerity."

Am I sincere? This is a thought exercise, and a scary one at that. The idea that the Court may actually permit a for-profit corporation to pierce the veil for purposes of gaining benefits that deprive its employees of rights under federal law, but use the veil to shield its shareholders from personal liability is, in my sincere opinion, absurd.


Update: In response to Ron's insightful response, I should note that I was referring to "mainstream" mutual funds and not SRI funds. I should have made that more clear, particularly given that I have written about them in the past.  

That said, the existence of SRI funds or shareholder activists that invest in or engage with corporations to encourage them to pursue envriomental, social, and/or governance agendas, whether motivated by religious views or otherwise is separate from the problem presented by the case at hand. As noted above, if this door opens, there will be a need to determine whether a corporation's religious beliefs are sincere and to the extent that involves polling the shareholders, this is fraught with challenges, not the least of which is shareholder turnover. In contrast, the current system which does allow for SRI funds and other activists to influence corporate governance does not require the fiction of a consistent adherence to a particular religious belief system for a legal entity with fluctuating shareholders.

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The myth of "exemptions" that are said to undermine the government's compelling interests
Posted by Marty Lederman

I have no time just now to respond to some of the thoughtful reactions to my earlier post.  But a quick follow-up is in order to refute the repeated assertions by Professors Scharffs and Bainbridge that the law is shot through with exemptions, thereby undermining the government's compelling interest in reducing unintended pregnancies (and abortions) by ensuring that women have affordable access to the FDA-approved contraceptive methods.

For one thing, even if there were many exemptions, that would not undermine the government's compelling interest, any more than the numerous legal exemptions to tax laws, antidiscrimination laws, wage and hour laws, etc., undermine the compelling interests that have historically sufficed to justify denial of religious exemptions under those statutes.  See, e.g., Tony & Susan Alamo Foundation, 471 U.S. at 300 n.21 (although Fair Labor Standards Act contains many exceptions to the definition of “employee” (see 29 U.S.C. 203(e)) and to the requirement of minimum wages (see 29 U.S.C. 213(a)), the Court deemed them to be “not relevant here,” and denied the requested religious exemption); Hernandez, 490 U.S. at 700 (“The fact that Congress has already crafted some deductions and exemptions in the Code . . . is of no consequence . . . .”); see also the examples in the government's reply brief at 19-22.

More to the point, the Professors fundamentally misunderstand this law.  As I’ve explained in previous posts, with one minor exception, the purported “exemptions” the Professors identify are not exemptions at all; in each case, women will be entitled to cost-free contraception insurance.  And that one exception—HHS’s exemption for churches—will affect very few female employees who would otherwise make claims for cost-free contraception coverage.  The contraceptive coverage here, therefore—like all of the other preventive care services the statute requires, such as immunizations and colo-rectal cancer screening—is a benefit to which virtually all women in the United States will be entitled, and the government has a compelling interest in ensuring that remains the case. 

(Also, one important specific correction on a major misunderstanding:  Professor Scharffs writes that "the mandate (indeed the entire Affordable Care Act) does not apply to employers with fifty or fewer employees."  That's just wrong.)

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Least Restrictive Means
Posted by Brett Scharffs

The argument that there is no less restrictive means of accomplishing the government’s interest in providing contraceptives to women would appear to be even weaker than the argument that the government has a compelling state interest in imposing the burden of the contraceptive mandate on Hobby Lobby. There is a wide range of alternative ways the government could accomplish the objective of providing contraceptives to women who work at the small handful of companies that object to providing contraceptives or abortifacient drugs.

For example, the government could provide contraceptives to these employees through public clinics, or programs such as Planned Parenthood that receive large amounts of government funding. For those who do not live near a clinic, internet based systems and mail delivery could be used.

Or the government could provide a tax credit to women who work for employers with religious objections to providing the drugs in question. Such employees could make the certification themselves, and it could be checked in the way that other fraudulent claims are checked by the IRS.

Or the government could provide such employees with vouchers that they could use to obtain contraceptives.

Or the government could reimburse pharmacies that provide contraceptives to people who work for employers who have a religious objection to providing coverage.

These are just the alternatives I came up with after thinking about it for five minutes. Some strike me as better than others. Surely there are other alternatives that would relieve people with conscientious objections from being forced to provide contraceptives or abortifacient drugs. My point is simply this – this problem could easily be solved if we were living in an environment where there was a right and fulsome respect for religious conscience.

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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. 

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Religious Obligations in the Corporation
Posted by Lyman Johnson

I look forward to reading the transcript of today's arguments. In the meantime, a comment on Marty's post.

I am glad that he has concluded the same thing as me, i.e., that of the burdens on natural persons here, it is on those persons as directors; see the reasons I stated yesterday. But I disagree with him that a corporation cannot have a religious obligation.

Imagine an incorporated church. Of course that organization, as an organization, has obligations of a religious nature, whether that be calling a minister, providing worship services, conducting communion, prayer meetings, and so on. There is no corporate law reason, as explained yesterday, that a for profit corporations cannot pursue profits and do some of those ecclesiastical activities. Indeed, I believe Hobby Lobby employs three chaplains. Moreover, in the Christian tradition, much of the directives are not just to individual believers but to the Body of Christ, which is the church, a group of people. And the word "corporation" derives from the root word for "body." People carry out religious activity in groups, that is, "corporately," and the law provides a ready-made vehicle for doing so, the "corporation."

But even if one accepts arguendo that the company qua company has no religious obligations, the natural person directors on the boards of these two companies certainly do. And they owe fiduciary duties to the serve the company's interests. If, because the company here is assumed to have no religious obligation, and therefore must comply with the Affordable Care Act in toto, and if, as fiduciaries, the board members must serve those interests even as they themselves, personally, have religious obligations that forbid them from doing so, then those natural persons are being forced to choose between violating their duties or violating their beliefs and obligations. I understand this to supply the scenario that Marty thought was absent.

Better in my view, to see that, for the reasons explained yesterday and above, a for-profit business corporation can be(it need not be but it can be) a mixed purpose entity advancing profits and one or more other purposes, maybe religious but maybe another social or environmental purpose, as Ron notes. And those walking, breathing people who serve as directors, in "exercising" their individual beliefs and their governance duties to the corporation, can simultaneously draw on and seek to advance individual and "corporate" obligations.

And to the nexus of contracts point, it is well taken as a theory matter. I think, however, in the world of legal doctrine the distinct legal personhood of the corporation is entrenched, subject to piercing, and this is where the 44 professors and Steve join issue.  But as noted yesterday, such separateness is no impediment to the business founders here. This is because it is in their capacity as directors that these natural persons must, by corporate statute,  "exercise" corporate responsibilites, and they seek to do so in this litigation by vindicating their "free exercise" religious right as individuals discharging this corporate function.


Lyman Johnson

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Hobby Lobby Symposium: Can A Corporation Have A Conscience?
Posted by David Zaring

My always insightful colleague Amy Sepinwall has published an op-ed in the Washington Post on the Hobby Lobby case.  A taste:

it is worth noting that this controversy has arisen because of our choices about the kind of health-care system we want. Our resistance to single-payer national health care means that employers, whether corporations or individuals, stand as middlemen between employees and their coverage. (Or between women and their reproductive freedom.) There would be no need for a contraceptive mandate, and no need to entertain objections to it, if the federal government were in charge of dispensing health insurance in the first place.

Of course, even national health care wouldn’t solve the problem of conscience: Under a national system, it would be individual taxpayers, instead of employers, who would contend that they were being forced to fund conduct that conflicted with their religious beliefs. But the complaint would be much less compelling coming from a taxpayer, as tax dollars already fund contraception, including the “morning after” pill, under Medicaid, as well as other programs and expenses that many citizens oppose, such as capital punishment, research using embryonic stem cells and so on.

Living in a country where tax dollars are used for ends that some citizens disagree with may be the inevitable price of democracy. Having to offer contraception that conflicts with one’s religious beliefs, or having access to contraception turn on one’s place of employment, needn’t be.

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Compelling State Interest
Posted by Brett Scharffs

In a previous post, I speculated that the reason the government insists that Hobby Lobby has no conscientious interests and that the Greens’ free exercise interests are not burdened by the contraception mandate may be because the arguments regarding compelling state interest and least restrictive means are so weak.

If Hobby Lobby (or the Greens) have suffered a substantial burden on their Free Exercise rights, this triggers balancing under the compelling state interest test. The government can justify the burden by showing that it is necessitated by a weighty interest, and there is no less restrictive means of achieving that interest.

This post will focus just on the question of compelling state interest.

The contraception mandate is a new subsidy that did not exist prior to the enactment of Obamacare, so it is difficult to see the state’s interest as suddenly becoming compelling. Some employer plans are exempted by a grandfather clause. More significantly, by its terms, the mandate (indeed the entire Affordable Care Act) does not apply to employers with fifty or fewer employees, which means it does not apply to approximately 90% of all private employers in the United States, and does not apply to about 50% of all employees. Furthermore, in February 2014, President Obama announced that he was delaying the implementation of ObamaCare for employers with between 50 and 100 employees for another year, until 2016. Unilateral executive postponement of the ACA would be extremely problematic if it were a violation of compelling state interests. Finally, under settled doctrine, the state must establish not just a general interest in providing contraceptives to some women, it must establish a compelling interest to impose this mandate on this employer.

The contraception mandate seems primarily to be a cost shifting mechanism, moving the expense of providing contraceptives from individuals and the government to private businesses. It is odd to claim that there is a state interest so strong that we must force Hobby Lobby to offer these services in violation of sincerely and strongly held religious beliefs, when there is not enough of a compelling state interest to apply this law to 90% of all employers, especially when the President can unilaterally postpone the implementation of the statute for another large group of midsized employers.

In my next post I’ll explain why the claim that the contraception mandate is the least restrictive means for accomplishing the government’s interest in providing contraceptive coverage is, if anything, even weaker.

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The Confusion Created by Imprecise Concepts
Posted by David Zaring

This post comes from Brian McCall.

The Hobby Lobby case and the debate surrounding it is plagued by a modern amalgamation of concepts that should be considered distinctly.  The word religion has gone from being a precisely understood concept to becoming one of the most amorphous, vague and ill-defined concepts.  As a result its application to corporations, another concept which lacks clarity in modern philosophy, has become muddled.  Part of this confusion stems from the transmutation of the term from an objective concept about reality to a subjective feeling or immanent impulse.  In classical thought religion (coming from the Latin to bind again) was the external practice of the worship of God.  The external acts rebind human creatures to the Divine by means of fulfilling their obligation in justice to render the homage due to a Supreme Being.  The practice of religion referred to these acts of public cult and was a distinct, although obviously related, concept from ethics or morality, or more precisely Natural Law.  Natural Law contained precepts that served as guidance for making correct decisions about human action.  Natural Law was related to religion in that both had a reference to God but not in the same sense.  For Natural Law, God was the lawgiver and the ultimate tribunal for the enforcement of Natural Law.  Yet, the relationship to God expressed by Natural Law was distinct from the religious relationship, although the two refer to the same Divine Person the manner of relation is different. 

Human beings and societies and associations they form can practice religion.  In a context in which the members of a corporate association do not share a common religion the exercise of religious practice by a corporation is not likely to be practical.  Yet, in a different context it is certainly possible.  For example, a Catholic hospital or a religious school organized as a corporation can practice religion in the sense defined above and should therefore possess the same freedom to practice that religion.  The aforesaid institutions can build and operate a chapel display religious iconography for veneration and hold public acts of worship on corporate property. 

The HHS mandate and the law on which it is based do not impinge the exercise of religion.  Rather they compel particular human action, requiring the provision of specific forms of contraceptives by corporations and their insurer agents to their employees.  Now human law is free to compel human action, individually or by corporate associations.  Yet, a law compelling human action which violates the Natural Law is beyond the authority of human laws and according to St. Augustine, St. Thomas and thousands of years of Natural Law jurists, a law which requires a subject to violate the Natural Law is no law at all but rather a violation of law which does not bind in conscience.  Corporations, like other legal persons, have obligations to obey the law, using law in the broadest sense to include law all the way up to Natural and Eternal Law.  Thus corporations like natural persons must conform to the human law unless that law is iniquitous by compelling violation of higher law.  A blog post is insufficient space to examine why this particular law does violate two principle precepts of Natural Law (we ought to preserve human life and we ought to procreate and rear children).  Yet, it is on this ground that Hobby Lobby should be refusing to obey the human law and not because it violates the exercise of religion.  The Nuremburg trials stand as the most recent historical example that even in a juridical world dominated by Legal Positivism we still recognize the truth that human laws compelling one to violate the Natural Law do not excuse moral responsibility.  As Ronald Colombo succinctly argues elsewhere in this symposium, corporate social responsibility has reminded all of us that we cannot achieve moral limited liability by using corporations to complete human acts.  Corporations have to obey the law, again in the broadest sense not limited to particular enactments.  If the HHS mandate violates Natural Law by compelling acts contrary to Natural Law, Hobby Lobby and any other corporations are not bound to obey such a law and this should be their defense.  In a fallen world with a far from perfect legal system, their defense may fail and they may unjustly suffer illegal consequences but the point is corporations as human institutions are not exempted from the obligations of Natural Law and have the same right to refuse obedience to iniquitous laws.   By accepting the imprecise use of the term religion, our entire First Amendment jurisprudence exemplified in this case suffers from blurring this important distinction between religion and the right and duty to disobey iniquitous laws.

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Gierke, Coase, and Hobby Lobby
Posted by Nate Oman

One of the things that is striking to me in the corporate scholars amici brief to the Court is how oblivious it seems to what I'd always taken to be the dominant contemporary theoretical approach to corporate law, namely that the idea of the corporation as a nexus of contracts and of corporate law as a series of default terms for what is in effect a relational contract between the constituents of the firm.

Brett has already noted the extreme formalism in claiming that the owners of a closely held corporation are in no way burdened when the state regulates their corporation.  More broadly the fixation on the normative significance of the legal personality of the firm strikes me as theoretically antedilluvian.  Saying that a firm is a distinct legal person doesn't represent some metaphysical judgment about its normative status.  It is just a practical device for dealing with pragmatic considerations like asset partitioning and the consolidation of contracting and dispute resolution.

To be sure, there was a time when the fictive personality of the firm was deemed to rest on something more substantial than convenience.  The so-called "real theory" of the corporation was imported into American legal discourse from Germany at the end of the 19th century.  Built on the work of figures like Otto Von Gierke it tried to argue that the legal personality of the firm actually rested on some real distinction between the firm and its shareholders.  As summarized by Ernst Freund in The Legal Nature of Corporations (1900), it held:

Above the existence of the individual there is the existence of the species, and the corporation is nothing but the legal expression of this fact, which appears as a reality in the physical person, so the higher will of the species is embodied in numerous and various forms of assocation, and as a result we find, beside the individual, entities of a higher order endowed with the volition and acting capaicty.  And where the law recognizes such embodied will as a person, we have a juristic person or a corporation.

Interest in the real theory of the corporation largely disappeared in the United States, however, with the publication of John Dewey, “The Historic Background of Corporate Legal Personality,” 35 Yale Law Journal 655 (1926).  A decade later, Ronald Coase published "The Nature of the Firm," 4 Economica 386 (1937) arguing that corporations were simply a response to high transaction costs, an alternative mechanism for pursuing essentially contractual goals.  Given the dominance of the nexus of contracts view of the firm, it seems bizarre to me that people in 2014 would argue that there is some kind of metaphysical mistake in suggesting that corporations are a means by which people engage in religious exercise.  If corporations aren't a means by which people act in the world, what on earth would they be?

Now the fact that a corporation has lots of constituents and consists of many different contracts might well be relevent to the question of how religious we should see its actions as being and the extent to which laws are burdening religious exercise.  To claim, however, that applying the ideas of religious conscience or exercise to a corporation is a category mistake or to suggest  -- as Marty does -- that no religion claims that corporations could have religious obligations strikes me an attempt to place corporations in some metaphysical category distinct from human activity.

I don't think metaphysics and legal personality really has anything to do with it.  A corporation is just a set of contracts, agreements between individuals to pursue some shared goal.  Regulating corporations is, as a normative matter, just another way in which we regulate collective and contractual activity.

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The Threshold Issue
Posted by Brett Scharffs

The threshold issue in the Hobby Lobby case is whether there is a substantial burden on the free exercise of religion. This in turn depends upon whether Hobby Lobby is a person under the Religious Freedom Restoration Act, or in the alternative, that as owners of the business the Green's religious freedom is substantially burdened.

Secretary Sebelius takes the position that 1) Hobby Lobby has no free exercise interests and that 2) the Green's interests are not implicated. Not just that the free exercise interests are outweighed by important government interests, but that there are no cognizable free exercise interests implicated at all. The government makes two arguments to support the first proposition and one to support the second. 

The government says Hobby Lobby has no free exercise interests because it is a for-profit corporation. The government's brief says, "For profit corporations 'are different from religious non-profits in that they use labor to make a profit, rather than to perpetuate a religious values-based mission.'" When corporations enter the marketplace, the argument goes, they subject themselves to legislation designed to protect health, safety, and welfare of their employeess. But we expect corporations to have and pursue values. Secretary Sebelius lavishly praised CVS when it announced it would stop selling tobacco products, even though this will cost the cmopany millions in sales, reduce shareholder profits, inconvenience customers, and perhaps result in employees losing their jobs. CVS was not scolded by the government for not sticking to its knitting of maximizing shareholder profit; it was lauded for prsuing moral values -- the protection of human health -- in spite of the fact that it might detract from corporate profits.

Being a for-profit corporation does not prevent a corporation from having conscientious interets. As Apple CEO Tim Cook explained just a few weeks ago to a shareholder angry that the company was wasting money on green energy initiatives, Apple does "a lot of things for reasons besides profit motive." Cook said, "We want to leave the world better than we found it." Then addressing the shareholder directly, Cook exhibited a rare flash of anger: "If you want me to do things only for ROI [return on investment] reasons, you should get out of this stock."

The government's second argument for saying that Hobby Lobby has no religious freedom interests has to do with the structure of the corporation as a separate entity from its owners. Granting corporations religious rights, Secretary Sebelius argues, would "disregard fundamental tenets of American corporation law," since a corporation is a "distinct legal entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who creted it, who own it, or whom it employs."

Here the government misrepresents the significance of seprate corporate legal existnce. Calling a corporation a person is a legal fiction to be sure, but a useful one that is employed broadly. We treat corporations as persons allowing them to own property and enter into contracts. Separate corporate personhood is used to shield owners from being held personally liable for the debts and obligations of the corporation. There are a few exceptions, such as piercing the corporate veil. But the separate corporate existence of corporations is not to separate the values of the corporation from the values of the owners and managers of the corporation -- where else would a corporation get its values if not from its owners and managers? It makes no sense to say as the government does that the beliefs of owners must not be "imputed" to corporations.

The key question is whether we treat corporations as entitites that can be expected to act conscientiously. The answer is clearly, yes. Corporations can be held liable in both civil and criminal law (along with their owners and managers), we expect them to be good citizens, to behave responsibly, to exercise corporate social responsibility. We even treat corporations as capable of having human rights, and we certainly expect them to be respectful of the human rights of others. We do not limit expectations of moral behavior to non-profit corporations, to "expressive associations," or closely held businesses. Our expectations concerning matters of conscience are much broader and extend to all corporations.

If corporations are "persons" under RFRA, then the question is whether the contraceptive mandate imposes a "substantial burden" on free exercise interests. Asking a corporation to be complicit in taking human life is clearly a substantial burden. Imposing millions of dollars in fines for refusing to do so is also a substantial burden.

What about the Greens themselves? The government argues that the Greens' free exercise rights are not violated because the HHS mandate applies only to the corporation, not to them as individuals. Argues the government: "Federal law does not require the Greens to provide health insurance, particular health benefits, or any other form of compensation to the corporation's employees. The Greens do not personally employ the 13,000 individuals who work for Hobby Lobby; the corporation does."

To argue that forcing a company to do something does not have implications for its owners is an extreme instance of legal formalism. This logic would mean that the government could (without even implicating free exercise interests) compel a cmpany owned by those who conscientiously object to military service to channel all their production into the building of weapons of war; that the government oculd force a Jewish butcher who does business as a corporation to process pork; or to force any business to provide abortion coverage or assisted suicide coverage in their health plans. This is a view that project a statist authority far beyond anyting we have come to view as acceptable in our pluralistic liberal democracy with its commitment to individual rights and fredoms.

In an amicus brief filed in the case on behalf of a number of international law and religion scholars and institutions, we noted that there is an unsettling "heads we win, tails you lose" quality to the government's argument. On the one hand, Hobby Lobby is said to have no free exercise interests at all; on the other hand, the Greens are said to not have their free exercise interests burdened because it is just their company that is being compelled. In actuality, restrictions on collective expression of religion by for-profit corporations may substantially burden the free exercise rights of both corporations and owners.

This does not mean Hobby Lobby, or the Greens, win. If there is a substantial burden on religious exercise, it means the government must bear the burden of proving there is a compelling state interest that justifies imposing the burden, and that the contraceptive mandate is the last restrictive means for protecting that state interest. My own suspiscion is that it is because the government's argument that there is a compelling state interest justifying the contraceptive mandate and that the contraceptive mandate is the least restrictive means of protecting that interest is so weak that the government argues so strenuously that there is no burden at all because Hobby Lobby is a corporation. I'll address these questions in a later post.


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Corporate Rights and Responsibilities
Posted by Ronald Colombo

I'd like to briefly address a point raised by both Marty and Brett: that of corporate obligations.

Marty points out that corporations "don’t have religious obligations."  But, as Brett points out, we do indeed expect our corporations to behave responsibly. 

Indeed, the entire corporate social responsibility movement is replete with morally laden rhetoric, suggesting that corporations have very real obligations to society as a whole -- and not just to their shareholders.

Once that bridge is crossed (and I think it has been), it becomes very difficult to deny the argument that for some corporations, these obligations might be religious in nature.  Just as a corporation that styles itself as environmentally friendly takes on, I would suggest, genuine moral obligations to be environmentally friendly, a corporation founded upon a particular set of religious values has a genuine moral obligation to remain true to those values.

And this implicates the perennial linkage of rights with responsibilities.  If a person (or entity) has a particular moral responsibility, he or she (or it) ought to have the rights necessary to discharge that responsibility.

Thus, to the dismay of pretty much everyone I know, I suggest that a corporation's rights and responsibilities ought to rise and fall in tandem.  If we're going to take CSR seriously, we need to take corporate First Amendment rights seriously as well (and vice versa). 


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