I'm very grateful to Gordon for inviting me to post on the Conglomorate about the Hobby Lobby and Conestoga Wood cases--in particular, to summarize some of the arguments I've made about the cases over on Balkinization and SCOTUSblog.  Links to my posts about various different aspects of the cases, and to some posts of others, are collected here.  As for the issues of particular interest to Conglomorate readers . . . well, I'm afraid I think there's less there than meets the eye as to several of them.

The Hobby Lobby and Conestoga Wood cases do not require the Court to decide, once and for all, whether and under what circumstances for-profit corporations can ever have religious beliefs or consciences; whether they can exercise religion; or whether they can be “persons” under RFRA.

Those formulations pitch the question at far too broad a level of generality, and one untethered from the facts of these particular cases.  The issue in these cases is much narrower than that. 

This is not a case about whether a particular corporation can "advance" a religious agenda, take steps to further a religious mission (such as by selling religious books), or promulgate religious doctrine; indeed, it's not a case in which the state is alleged to be preventing a corporation from doing anything at all.  Therefore it bears no resemblance to, say, a law restricting for-profit religious bookstores from selling certain books.  The particular burden being alleged here is that the HHS Preventive Services Rule allegedly coerces a violation of religious duties--thatis to say, rather than restricting a religious practice, HHS is alleged to be focring someone to act in a manner contrary to religiously inspired limitations.  The federal government allegedly is putting someone to a choice between compliance with a civil obligation and adherence to a restrictive religious injunction (roughly speaking:  “Thou Shalt Not Cooperate With Evil”).

If there is such a burden on religious exercise here, it is not one that is imposed on the corporations—on Hobby Lobby Stores, Inc., Mardel, Inc. (in the Hobby Lobby litigation) or on Conestoga Wood Specialties Corp.  That's not because those corporations don’t have “consciences”—neither do churches—or because they cannot advance religious objectives (perhaps they can), but because they don’t have religious obligations.  I’m not aware of any religion that imposes duties or injunctions on for-profit corporations.  And, more to the point, the complaints in these cases make countless allegations about religious duties and how the government allegedly is compelling certain parties to violate those duties, but they nowhere allege that any of the three corporations here are subject to any religious obligations.

2.  A conclusion that the HHS Rule does not substantially burden any religious exercise of these corporate plaintiffs, however, hardly resolves the cases.  As you will see if you begin to peruse the plaintiffs' complaints and briefs, the crux of the alleged burden in these cases is not on the corporations’ alleged exercise of religion, but instead on the purported religious exercise of the individual plaintiffs—five members of the Green family in Hobby Lobby, and five members of the Hahn family in Conestoga Wood.

For starters, the federal legal obligations in these cases run against the corporations themselves, and/or their insurance plans, not against the shareholders.  So the shareholders are not directly burdened by federal law.  The question, then, is whether shareholders nevertheless can obtain relief for injuries that they allegedly suffer derivatively, by virtue of the state's regulation of the corporation, notwithstanding the black-letter law that corporations and their shareholders are distinct entities for purposes of liability and benefits.  

Individuals typically form a corporation so that they will not be personally liable for any claims against the corporation--indeed, that's one of the principal reasons state law creates the corporate form.  Does it follow that shareholders cannot complain about injuries they suffer derivatively when other actors, including the government, take action against the corporation?  By accepting the “sweet” (limited liability), must shareholders also accept the “bitter,” in the form of abandonment of rights they otherwise might have had to recover for injuries they suffer by virtue of their ownership of the corporate shares?  As Judge Matheson put the question in his separate concurrence in Hobby Lobby, should “[t]he structural barriers of corporate law give [one] pause about whether the plaintiffs can have their corporate veil and pierce it too”?

In response to this question, Professor Bainbridge published an article suggesting that the Court should make use of a corporate law doctrine called "insider reverse veil piercing" in order to allow the Greens and the Hahns to assert RFRA claims as shareholders notwithstanding the fact that they are generally immune from liability for any wrongs committed by their corporations--i.e., to allow them to reap the sweet and also avoid the bitter.

Subsequently, a group of 44 corporate and criminal law professors filed an amicus brief arguing that "reverse veil piercing" would be inappropriate here, and that the Court should not allow the plaintiffs to sue as shareholders.

Professor Bainbridge has now responded with a follow-up article critiquing the corporate law professors' brief.  He argues again that the Court should use "insider reverse veil piercing," or "RVP-I," "to allow . . . shareholder standing to sue if the [C]ourt is unwilling to allow the corporation to do so." 

What (if anything) should the Court make of this corporate law dispute about RVP-I? 

a.  First of all, it's not clear that these cases are even about injuries to the individuals in their capacities as shareholders.  Indeed, it appears that the individual plaintiffs in Hobby Lobby, members of the Green family, are not shareholders of Hobby Lobby and Mardel, the two corporate plaintiffs in that case; they are, instead, trustees of a management trust that owns the companies.  The Greens do not allege that they own the companies; and unless I've missed something, their complaint does not allege any way in which their funds would be used to "pay for" contraception.  As I explained in a recent post, Hobby Lobby's brief confirms that the case is not fundamentally about coercing the Greens to pay forcontraception, or about the Greens' religious exercise in their capacity as shareholders.  The Greens' fundamental complaint, instead, is that federal law coerces them to violate a religious obligation in their capacities as corporate directors, i.e., decision-makers.  "[T]he precise religious [religious] exercise at issue here," the brief explains, is that "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.'”  

A decision by the Court limited to shareholder rights, therefore, would not resolve Hobby Lobby.

That leaves the Conestoga Wood case.  The individual plaintiffs in that case, members of the Hahn family, also primarily complain about federal law burdening them in their capacity as corporate directors, or decision-makers.  In addition, however, paragraph 11 of their complaint alleges that the Hahns are collectively the “principal[]” owners of the shares of Conestoga Wood.  So perhaps the RVP-I question does arise vis-a-vis the Hahns, whose shareholder funds presumably would be used, not to pay for contraception reimbursement directly, but instead to pay for part of the overall premiums to the plan insurance carrier.  (Remarkably, the Conestoga Wood complaint does not specify whether CW has a self-insured employee health insurance plan or a plan issued through an independent insurer.  But in its Supreme Court brief, it refers to its (unidentified) "issuer" as having "inserted coverage of the contraceptives into its plan over Petitioners’ objection" after the district court denied a preliminary injunction.)  So, in some very attenuated sense, the Hahns' shareholder funds are subsidizing the plan's reimbursement for employees' use of contraception . . . and the complaint might be read to suggest that this use of the Hahns' funds would make the Hahns complicit in their employees' use of so-called "abortifacients" in the rare case (if any) in which use of certain contraceptive methods prevented a fertilized egg from implanting in the uterine wall. 

b.  But even if the "shareholders' complicity" issue is teed up in Conestoga Wood . . . Honestly? 

Can it really be the case that the Supreme Court of the United States ought to decide Conestoga Wood based upon the assumption that the corporate law "RVP-I doctrine" would apply in this unprecedented context?  This is a state law question, the answer to which depends upon the legal relationship between a corporation and its principal shareholders . . . presumably under Pennsylvania law.  

Professor Bainbridge cites as his primary authorities two 30-year-old state-law cases--one from Minnesota, the other from Michigan--both involving questions far-flung from the RFRA context in Conestoga Wood.  To be sure, he also cites one Pennsylvania case--Barium Steel Corp. v. Wiley, 108 A.2d 336(1954).  But in that case, which was decided 60 years ago, the Pennsylvania Supreme Court split 3-3 on what we (well, what corporations law professors) would today apparently call an "insider reverse veil piercing" theory, in a case that has almost nothing in common with Conestoga Wood.  And the three Pennsylvania Justices who would not have recognized the RVP-I in Barium Steel wrote this:  "The decisions in this State will be searched in vain for a single instance where a piercing of the corporate veil has been judicially sanctioned in order to confer a benefit upon the ones responsible for the presence of the veil.  Certainly, the opinion for this court in the instant case cites no such decision."

That exhausts my knowledge of how Pennsylvania law treats insider reverse veil-piercing.  Perhaps Professor Bainbridge is right that Pennsylvania (and other state) courts would or should "reverse-pierce" the veil in this RFRA context, in which a federal statute is implicated.  Perhaps he's wrong.  But how should the Supreme Court of the United States resolve that question?  

Bainbridge argues that courts have historically "pierced the corporate veil" in 13.41% of RVP cases, and that the Court should decide whether Conestoga Wood should be among that number based upon the simple test of whether piercing here would advance a "significant public policy."  But he does not cite any other Pennsylvania authority in support of this view, or any case at all involving RVP and RFRA, or RVP and shareholders' religious exercise more broadly, from any jurisdiction.  

This absence of precedent ought to be a serious problem for his RVP-I argument, particularly in light of the principal case cited in the corporate professors' brief (and in the government's brief), Domino's Pizza, Inc. v. McDonald, 546 U.S. 470 (2006).  

McDonald was the sole shareholder of a Nevada corporation.  He alleged that Domino's had broken contracts with that corporation because of racial animus toward him, in violation of 42 U.S.C. § 1981.  The Court held that section 1981 offers relief to a plaintiff when racial discrimination impairs an existing contractual relationship, so long as the plaintiff himself has or would have rights under the existing or proposed contractual relationship.  Of course, the contracts themselves, between corporations, did not afford McDonald any rights, because he was merely a shareholder.  Citing some of the same Minnesota cases Professor Bainbridge cites, however, McDonald argued that "under state law shareholders are at times permitted to disregard the existence of the intermediate corporate entity where failing to do so would impair full enforcement of important . . . statutes."  Resp. Br at 32 n.34. 

At oral argument, Justice Kennedy identified this claim as "kind of an inverse corporate veil piercing," and asked:  "[A]re there any cases where we pierced the corporate veil in order to help the shareholder?"  (The answer, of course, is that the Court has never done so.)

Not surprisingly, the Court unanimously rejected McDonald's inverse veil piercing claim.  Justice Scalia's opinion for the Court explained that "it is fundamental corporation and agency law—indeed, it can be said to be the whole purpose of corporation and agency law—that the shareholder and contracting officer of a corporation has no rights and is exposed to no liability under the corporation's contracts."   

The Court presumably was able to issue such a categorical interpretation of state law because it had been offered no examples, in any jurisdiction, of reverse veil piercing to vindicate shareholder contract rights.  To be sure, Conestoga Wood does not involve shareholders' contract rights, so McDonald does not directly resolve the RVP-I question here.  But the Hahns have the burden to show a RFRA burden, and neither they nor Professor Bainbridge have cited any case, from Pennsylvania or elsewhere, in which shareholders have been permitted to use RVP-I to allege harms to their religious exercise, under a state or local RFRA, resulting from a law that has an impact on corporate funds.  The Court presumably should, therefore, treat the RVP-I argument here the way in which it treated the equally unsupported and unprecedented argument in Domino's--i.e., summarily reject it.      

Domino's appears to be the one and only occasion in which the Supreme Court has specifically considered the relationship between the "RVP" doctrine and a federal statute.  You'd think, therefore, that Professor Bainbridge would devote serious attention to the case.  His analysis of Domino's is relegated to a footnote, however.  And his efforts to distinguish the holding in that case are unpersuasive.  For example, he notes that the shareholder in Domino's raised "only" contractual and statutory rights.  ButConestoga Wood's claim here (the only claim with any traction, anyway) is based on a federal statute (RFRA), just as McDonald's was.  Bainbridge's suggestion that the federal statutory right established by RFRA is more "fundamental" than the federal statutory right against race discrimination established by section 1981--indeed, so much more "fundamental" that it ought to result in an about-face on the Court's RVP-I holding--is so implausible that it doesn't warrant a response.  

His principal argument fares no better.  He insists that Domino's is a "weak precedential reed" because the Court in that case "made no effort to analyze the issues raised by RVP, but simply dismissed it out of hand," without addressing "any of the points made [by Prof. Bainbridge] in defense of the doctrine."  In other words, Bainbridge thinks that the Court should ignore its unanimous holding in Domino's because the Court did not do its homework in that case, even after Justice Kennedy had specifically teed up the question as whether the Court should recognize a claim of "inverse corporate veil piercing."  Suffice it to say that that argument is unlikely to have any traction with the Court.  Moreover, it misses the point:  The Court rejected the RVP-I claim in Domino's because the plaintiff there gave the Court absolutely no basis for concluding that state law would recognize such an exception to the default "fundamental corporation and agency law" principle that a corporate shareholder has no rights and is exposed to no liability under the corporation's contracts.  The same thing is true in this case:  Neither the Hahns nor Professor Bainbridge has offered the Court any authority at all in support of the proposition that the Pennsylvania Supreme Court -- or other state courts, for that matter -- would recognize an RVP-I claim in a case involving RFRA.

Moreover, even if the Court were somehow able to answer the RVP-I question as a matter of Pennsylvania law (after certifying it to the Pennsylvania Supreme Court, perhaps?), that state-law-based judgment would not govern similar cases arising in the other 49 states and the District of Columbia, and therefore would hardly be a satisfactory resolution of the question on which the Court granted certiorari in Conestoga Wood.  (And it wouldn't have any impact on a non-shareholder case such as Hobby Lobby.)

* * * *

In the absence of any indication that Pennsylvania law would allow RVP-I in this novel context, the more appropriate approach for the Court would be to follow its example in Domino's, and simply move on from a shareholder-injury inquiry to address the principal question raised both in Conestoga Wood and in Hobby Lobby--namely, whether federal law coerces the individual plaintiffs (the Hahns and the Greens) to violate religious injunctions in their capacities as decision-makers, or directors, of the three corporations in question in these two cases.  In an earlier post, I discuss why I think the plaintiffs have failed to adequately plead facts to support such a claim.

4.  Finally, and most importantly, in posts at both SCOTUSblog and Balkinization, I've tried to explain that, wholly apart from the questions regarding corporations and shareholders, a broad ruling in favor of Hobby Lobby and Conestoga Wood could mark a sea-change in the way the Court has traditionally resolved claims for religious exemptions in the commercial sector, with potentially dramatic ramifications for an array of laws involving taxes, wages and hours, antidiscrimination norms, etc.  This is so because, when it comes to regulation of commercial activities, the Supreme Court—and virtually every other court and legislature, for that matter—has consistently construed the Free Exercise Clause and religious accommodation statutes not to require religious exemptions from generally applicable regulations.  The Supreme Court, in particular, has rejected such claims in at least nine cases, from 1944 through 1990--and has almost always done so without a dissenting vote.

This long line of consistent denials of exemptions to actors in the commercial sphere reflects the view of Justice Jackson in the first such case (Prince v. Massachusetts), in which he wrote in his concurrence that “money-raising activities on a public scale are, I think, Caesar's affairs, and may be regulated by the state so long as it does not discriminate against one because he is doing them for a religious purpose and the regulation is not arbitrary and capricious, in violation of other provisions of the Constitution.” 

A unanimous Court put the point this way in U.S. v. Lee, in 1982:   “When followers of a particular sect enter into commercial activity as a matter of choice, the limits they accept on their own conduct as a matter of conscience and faith are not to be superimposed on the statutory schemes which are binding on others in that activity,” at least where “[g]ranting an exemption . . . to an employer operates to impose the employer’s religious faith on the employees.” 

Whether or not this was a stand-alone “holding” in Lee, there is no doubt that the statement did—and continues to—fairly reflect the Court’s unbroken line of decisions over many decades.  (The singular exception to the rule is Hosanna-Tabor, which, unlike Hobby Lobby, involved the right of nonprofit, specifically religious organizations to determine the “ministers” who speak on their behalf.) 

And the Lee statement further points to the principal reason for this uniform treatment of religious exemption claims in the commercial sphere—namely, that in such cases it is virtually always the case that conferral of an exemption would require third parties (customers, employees, competitors) to bear significant burdens in the service of another’s religion, something the Court has understandably been loath to sanction.  As I wrote on SCOTUSblog,

Contrary to the views of some, I think it overstates matters to say that such a significant third-party burden invariably renders a permissive religious accommodation unconstitutional.  The Court’s jurisprudence in the area of permissive accommodations is not so unequivocal.  But this much is clear:  Such a significant third-party burden at a minimum raises profound constitutional concerns.  For that reason, as Chip Lupu and Bob Tuttle explain, the Court has regularly construed permissive accommodation statutes – using the avoidance canon either expressly or implicitly – to recognize a compelling government interest in avoiding the imposition of significant third-party harms. 

The Court’s decision in Hobby Lobby is likely to have a profound effect upon how other courts treat state and federal RFRA claims in the commercial sector going forward.  If the Court were to hold that RFRA requires an exemption in these cases—and were to hold, in particular, in the case brought by a very large for-profit employer, that the law substantially burdens plaintiffs’ religious exercise and that the government lacks a compelling interest in denying religious exemptions—that would be a groundbreaking departure from the judiciary’s (and Congress’s) historical practice, one that could pave the way for claims for “myriad exceptions flowing from a wide variety of religious beliefs” (Lee) by commercial enterprises with respect to many other statutes, including nondiscrimination requirements, zoning regulations, taxes, and so on. 

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Hi, Gordon, et al, I'm looking forward to discussing Hobby Lobby with you this week. It isn't too often that a case involving my two primary interests, corporate law and law and religion intersect, so it should be fun. The big question of corporate conscience I find fascinating. We urge corporations to be socially responsible and to be good corporate citizens, and we praise Coca Cola for its interest in arctic wildlife, but somehow Hobby Lobby is told they aren't behaving like a corporation should when they express a conscientious interest in protecting human life. I may or may not agree with their views about when human life begins, but it seems odd that they are treated as not behaving as a business should when the conscientious views of their owners are injected into the corporation's life.

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As mentioned in my opening post, I think a key issue in the contraception mandate cases is whether form should trump substance. In my second post, I discussed my article, Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers, 16 Green Bag 2d 235 (2013), in which I proposed that courts should use reverse veil piercing to provide a more coherent doctrinal framework for analyzing when substance out to trump form. As I noted in that post, some 44 corporate law professors filed an amicus brief in these cases that, at least in part, was intended to attack my argument.

I responded 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 it, I argued, as the abstract explains, that:

The Patient Protection and Affordable Care Act (ACA) effected numerous changes in the legal regime governing health care and health insurance. Among the ACA’s more controversial provisions is the so-called contraceptive mandate, which requires employer-provided health care insurance plans to provide coverage of all FDA approved contraceptive methods. 

On March 25, 2014, the Supreme Court will hear oral argument in the Hobby Lobby and Conestoga Wood cases, in which the shareholders of two for-profit family-owned corporations argue that requiring them to comply with the contraception mandate violates the Religious Freedom Restoration Act. 

Forty-four law corporate law professors filed an amicus brief in these cases, arguing that the essence of a corporation is its “separateness” from its shareholders and that, on the facts of these cases, there is no reason to disregard the separateness between shareholders and the corporations they control. The Brief is replete with errors, overstated claims, or red herrings, and misdirection.

Contrary to the Brief’s arguments, basic corporate law principles strongly support the position of Hobby Lobby and Conestoga Wood. In particular, the doctrine known as reverse veil piercing provides a clear and practical vehicle for disregarding the legal separateness of those corporations from their shareholders and thus granting those shareholders standing to assert their free exercise rights.

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Thank you to Gordon Smith and the organizers of this symposium for allowing me to participate.

Rather than repeat the very fine comments and observations that have already been posted, I'd like to take this opportunity to say something that I have not heard said before:

Although Hobby Lobby and Conestoga have been treated identically by commentators, perhaps there is a means by which they could be distinguished.

As i read Hobby Lobby, an effort is made to claim that the company itself has a religious identity.  In Conestoga, however, that claim isn't really pressed.  I think this may be an important distinction.

For as I see things, a corporation's ability to avail itself of Free Exercise rights should turn largely on its categorization as a(n) (religiously)  expressive association.  Justice O'Connor's reservations notwithstanding, it would seem to me as though corporations can indeed be expressive associations (and some apparently are).  Although Dale calls the expressive / non-expressive dichotomy into question, it does so by making the test even more lenient -- not stricter.  Thus, to the extent that a corporation qualifies as an expressive association, I believe it ought to be able to bring forth a free exercise claim.  (Shameless plug:  I expound upon this in The Naked Private Square, 51 Hous. L. Rev. 1 (2013)).

However, the mere fact that a corporation's shareholders happen to be religious do not, I suggest, transform the corporation itself into a religiously expressive association.

Now, there may be other reasons to find in favor of the free exercise claimants in such cases.  For example, Prof. Bainbridge's arguments on PCV strike me as compelling.  But those arguments are different, I suggest, than the arguments why a genuinely religiously expressive corporation ought to be able to avail itself of the Free Exercise Clause.

-Ron Colombo

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Hobby Lobby and corporate separateness

Thanks to Gordon, Lisa, and the rest of the Glommers for inviting me to participate in this Symposium on Hobby Lobby.  Hobby Lobby and the related cases are extremely interesting and important from a corporate law perspective.   There are two interesting questions.  First, can a for-profit corporation have religious exercise rights?  Second, more interesting, I think, can as the shareholders of Hobby Lobby and Conestoga claims can shareholders suffer an injury because of government regulations imposed on the corporation?

I think we can all stipulate that no matter how many times, the Green family brings the certificate of incorporation of Hobby Lobby with it to church on Sundays, Hobby Lobby isn’t going to heaven.  So, if Hobby Lobby can’t go to heaven, what are we talking about?  That Hobby Lobby – a for-profit Oklahoma corporation – has rights under the First Amendment and RFRA to the free exercise of religion. I side with the Hobby Lobby dissent with respect to the conclusion that it is a dubious proposition. As the dissent in Hobby Lobby notes:

At the time of RFRA’s passage, the Supreme Court had never addressed whether, let alone recognized that, a for-profit corporation possessed free exercise rights under the First Amendment. In other words, during the 200-year span between the adoption of the First Amendment and RFRA’s passage, the Supreme Court consistently treated free exercise rights as confined to individuals and nonprofit religious organizations.

In fact, the majority in Conestoga found:

General business corporations do not, separate and apart from the actions or belief systems of their individual owners or employees, exercise religion. They do not pray, worship, observe sacraments or take other religiously-motivated actions separate and apart from the intention and direction of their individual actors. ...

Since Conestoga is distinct from the Hahns, the Mandate does not actually require the Hahns to do anything. All responsibility for complying with the Mandate falls on Conestoga. Conestoga "is a closely-held, family-owned firm, and [we] suspect there is a natural inclination for the owners of such companies to elide the distinction between themselves and the companies they own." … But, it is Conestoga that must provide the funds to comply with the Mandate — not the Hahns. We recognize that, as the sole shareholders of Conestoga, ultimately the corporation's profits will flow to the Hahns. But, "[t]he owners of an LLC or corporation, even a closely-held one, have an obligation to respect the corporate form, on pain of losing the benefits of that form should they fail to do so." ... "The fact that one person owns all of the stock does not make him and the corporation one and the same person, nor does he thereby become the owner of all the property of the corporation." .... The Hahn family chose to incorporate and conduct business through Conestoga, thereby obtaining both the advantages and disadvantages of the corporate form. We simply cannot ignore the distinction between Conestoga and the Hahns. We hold — contrary to Townley and Stormans — that the free exercise claims of a company's owners cannot "pass through" to the corporation.

The second question has perhaps more corporate law implications.  In both Hobby Lobby and Conestoga, the plaintiffs, as shareholders, claimed that they were personally injured by the government regulation of the corporation.  The claim goes that that requirement on the corporation that it comply with the ACA causes a direct injury to the shareholder.  If that were true, then that raises some serious implications for corporate separateness. 

One wonders if the Supreme Court decides that shareholders are injured because the corporation is required to comply with certain regulations, how does that work exactly?  And, how does it jive with our basic understanding about the corporate law that the business and affairs of the corporation are managed by the board and not the stockholders?  I mean, why is it that the shareholders and not the board are injured by the government's regulatory acts?

It would seem odd that on the one hand a shareholder would seek to benefit from the state franchise that recognizes corporate separateness and grants shareholders limited liability for their investments and protection from the liabilities of the corporation, but would then seek to break through that separateness to claim some direct personal injury to themselves because of costs imposed on the corporation.  Remember that no one is arguing that the corporation is a sham or that formalities have disregarded.  The argument is that shareholders believe themselves personally injured because of regulatory requirements on the corporation.  Absent other facts, that seems like a real stretch.

In any event, perhaps tomorrow will show us all how much the Court is enthralled by questions of the corporate law, but somehow, I doubt they are! 

 -Brian Quinn

Insert:

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As mentioned in my opening post, I think a key issue in the contraception mandate cases is whether form should trump substance. If Hobby Lobby were David Green's sole proprietorship, there is no question but that he would be able to assert his RFRA and First Amendment claims. Should that change simply because he incorporated his business?

Unfortunately, whether they have allowed incorporated employers to raise such claims or not, courts have failed to articulate a coherent doctrinal justification for their holdings. 

In my article, Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers, 16 Green Bag 2d 235 (2013), I proposed that courts should use reverse veil piercing to provide a more coherent doctrinal framework.

Reverse veil piercing (RVP) is a corporate law doctrine pursuant to which a court disregards the corporation’s separate legal personality, allowing the shareholder to claim benefits otherwise available only to individuals. The thesis of this article is that RVP provides the correct analytical framework for vindicating certain constitutional rights.

Assume that sole proprietors with religious objections to abortion or contraception are protected by the free exercise clause of the First Amendment and the Religious Freedom Restoration Act (RFRA) from being obliged to comply with the government mandate that employers provide employees with health care plans that cover sterilizations, contraceptives and abortion-inducing drugs. Further assume that incorporated employers are not so protected. This article analyzes whether the shareholders of such employers can invoke RVP so as to vindicate their rights.

At least one court has recognized the potential for using RVP in the mandate cases, opining that these cases “pose difficult questions of first impression, including whether it is “possible to ‘pierce the veil’ and disregard the corporate form in this context.” The court further opined that that question, among others, merited “more deliberate investigation.” This article undertakes precisely that investigation.

Invoking RVP in the mandate cases would not be outcome determinative. Instead, it would simply provide a coherent doctrinal framework for determining whether the corporation is so intertwined with the religious beliefs of its shareholders that the corporation should be allowed standing to bring the case. Whatever demerits RVP may have, it provides a better solution than the courts’ current practice of deciding the issue by mere fiat.

This proposal met with some considerable hostility from a segment of the corporate law academy, which will be the subject of my next post.

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I thank Gordon and my other friends here for inviting me to write about Hobby Lobby/Conestoga Wood. I will not address the "substantial burden" or "compelling interest" aspects of the analysis, which I think will turn out to be decisive precisely because I believe the Court will recognize the two companies as having a free exercise right. In a later post I will address what I think are the intriguing possibilities of such a ruling for those of us who seek corporate reform(me from the right and many from the left) and will  argue that those who want real reform are backing the wrong pony if they side with the government in these two cases. But first to some straight corporate law points.

I think certain corporate statutory points have not been clearly made, or if they have been made, I missed them. I think the chief brief by Conestoga Wood does the best job but it still falls a bit short. Understanding these might obviate the extensive emphasis on the corporate separateness argument made by the 44 law professors and Stephen Bainbridge's reverse piercing rejoinder. What are these?

First, there is nothing in RFRA to suggest that Congress meant to displace or preempt state corporate law, here that of Oklahoma and Pennsylvania. Numerous Supreme Court cases recognize that states endow corporations with the attributes they possess. Thus, not only does the federal Dictionary Act define a "person" to include a corporation, there is nothing to indicate a federal override of state law's role in defining corporateness. Using the Pennsylvania statute and Conestoga Wood as my example, what does that corporate statute say? First, like section 3.02 of the Model Business Corporation Act, the PA statute section 1501 states that a corporation shall have the same legal capacity of individuals to act But how does a corporation act? Through its board of directors, all the members of which must be natural persons. Thus PA section 1721, like section 8.01 of the Model Act, states that all CORPORATE powers shall be "exercised by" the board of directors(please note that the term "exercised" here is the same term as in the First Amendment "free exercise" clause). When the board acts, it is not an act of the board for itself, it is an act of the corporation. Moreover, as the board acts, its natural person members can indeed do what the Third circuit wrongly said a corporation cannot do: they can worship and pray and otherwise "exercise"(in the corporate and First Amendment senses) rights in their board meeting, and they do so in their "corporate" capacity. And it is the board itself that is the key decisionmaker, not employees or others in corporate governance. The two boards here have made the key decisions. Second, PA section 102 is very interesting. It says that "a"(not "the") purpose of a corporation can be to "purse"(not "maximize") profit, and that profit may be an "incidental" (not sole) purpose of a for-profit corporation. Thus, for-profit corporations in Pennsylvania, by statute, can have multi-purposes, only one of which need be to pursue profits. That further blurs the line between so-called "non-profit" corporations(a misnomer anyway because many make profits they just can't distribute them; since the government concedes on non-profits does the First Amendment really turn on whether dividends can be paid?) and for-profit corporations, the latter of which can be hybrid purpose companies. Here, the two companies pretty clearly seek to make money and also to carry out a board-fashioned CORPORATE religious mission.

Thus, it is via the usual channels of corporate governance that individuals play a key role in corporations acting. It need not be as owners. I honor corporate separateness but think corporate powers are and must be, as here,  "exercised" by board members in pursuit of a well-articulated, and utterly lawful under state law, corporate purpose that has a religious dimension. This all could have been made clearer before tomorrow's arguments.

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I'm lucky to be able to say I'll be in the courtroom on Tuesday morning for the arguments in the Hobby Lobby and Conestoga cases.  Whether the Justices will ask -- or care -- about corporate law issues remains to be seen.  The vast bulk of the 84 amicus briefs filed in the cases explore the historical origins of the Free Exercise Clause, the legislative history of the Religious Freedom Restoration Act, reproductive technology, women's equality, and employees' rights.  Only two -- the Corporate and Criminal Law Professors' brief and the brief filed on behalf of the U.S. Women's Chamber of Commerce -- deal almost exclusively with corporate law principles.  Will corporate law be the tail that wags this dog? 

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Like Steve, I am not a con law maven.  I am also not a corporate law scholar, although I sometimes try to play one in my Business Associations class.  I am, however, interested in markets, law, and religion.  So from my point of view, what makes Hobby Lobby so fascinating is what it reveals about how we might think about the way that the law regulates the relationship between religion and commerce.  I have a number of thoughts and ideas about the case, but I'll throw out one to begin with: The problem of complicity.

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My thanks to Gordon et al, for inviting me to join them in discussing the upcoming contraception mandate cases. I've been blogging extensively about them over at my usual haunt, ProfessorBainbridge.com, and have published two law review articles on the case.

What's a nice corporate law guy like myself doing in this constitutional law arena? My interest in the contraception mandate cases was piqued when a friend sent me a transcript of a hearing held by U.S. District Court Judge Reggie Walton in the Tyndale House Publishers, Inc. v. Sebelius case, which raises issues similar to those in Hobby Lobby and Conestoga Wood. 

At one point, there was  a telling colloquy between Judge Walton and U.S. Department of Justice lawyer Benjamin Berwick. Berwick argued that employers who chose to incorporate their business are precluded from raising First Amendment free exercise of religion-based objections to regulations affecting their business. In response, Judge Walton posed the following hypothetical:

[M]y wife has a medical practice. She has a corporation, but she’s the sole owner and sole stock owner. If she had strongly-held religious belief and she made that known that she operated her medical practice from that perspective, could she be required to pay for these types of items if she felt that that was causing her to violate her religious beliefs?

Berwick replied that the corporation and its shareholders are separate legal persons. The judge thereupon summarized his understanding of the government’s position as being that his wife would “have to go as an individual proprietor with no corporation protection in order to assert her religious right.” Berwick did not contest that characterization.

In effect, Berwick wanted the judge to elevate form over substance. Corporate law often elevates form over substance, of course, but not always. The question in every context thus must be asked: Is this an appropriate case for form to triumph or is this one in which substance should prevail?

As a corporate law matter, that's the basic issue in these cases.

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