ACA Mandate Cases Proceed in High Court As For-Profit Firms, Government File Briefs

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By Mary Anne Pazanowski

Feb. 11 -- A decision on whether secular, for-profit corporations are entitled to an exemption, on religious grounds, from federal regulations that require them to offer health insurance plans that cover contraception services came a step closer Feb. 10 as the parties filed their latest briefs in two U.S. Supreme Court cases (Sebelius v. Hobby Lobby Stores, Inc. , U.S., No. 13-354, response brief filed 2/10/14; Conestoga Wood Specialties Corp. v. Sebelius , U.S., No. 13-356, response brief filed 2/10/14).

The briefs came in response to opening briefs filed Jan. 10 in two cases that ask the high court to decide whether portions of the Affordable Care Act's preventive services mandate for women that require employee health plans to cover, at no cost to the employee, contraceptive drugs and devices, sterilizations and related medical counseling substantially burden the employers' exercise of religion in violation of the Religious Freedom Restoration Act (RFRA), 42 U.S.C. § 2000bb.

The Supreme Court Nov. 26 granted review of decisions from the U.S. Court of Appeals from the Tenth Circuit and the U.S. Court of Appeals for the Third Circuit .

The Tenth Circuit, en banc, held that two for-profit, family-owned companies and their owners likely would succeed on their claim that the contraceptive mandate violates RFRA . The government challenged that decision in a petition for review filed Sept. 19 .

The Third Circuit, on the other hand, found that RFRA didn't apply to protect the rights of a secular corporation, despite the religious beliefs of its owners. The company, Conestoga Wood Specialties Corp., also sought review from that decision Sept. 19 .

The cases were consolidated for oral argument, which will be heard March 25.

'Straightforward' Case

Answering the Obama administration's claim that the Tenth Circuit erred in finding that RFRA applies to for-profit, secular corporations, Hobby Lobby Stores Inc. and Mardel Corp. and their owners argued that “this is one of the most straightforward violations” of RFRA “this Court is likely to see.” RFRA states that the “Government shall not substantially burden a person's exercise of religion even if the burden results from a rule of general applicability.”

The plaintiffs' “religious beliefs prevent them from providing health coverage for contraceptive drugs and devices that end human life after conception. Yet the government mandate at issue here compels them to do just that, or face crippling fines, private lawsuits, and government enforcement. That is a textbook 'substantial burden' on religious exercise under RFRA,” they said.

The government, in its earlier brief, contended that RFRA never was intended to apply to for-profit corporations. The law was enacted, it said, simply to overturn the Supreme Court's ruling in Employment Division v. Smith, 494 U.S. 872 (1990), which held that the First Amendment's free exercise clause doesn't require religion-based exemptions from neutral laws of general applicability. RFRA was intended to restore the rule that the federal government may not substantially burden a person's exercise of religion absent a compelling governmental reason, the government said.

Definition of 'Person.'

One sticking point for the parties is RFRA's use of the word “person.” The government argued that a for-profit corporation isn't a “person” within the meaning of the law because none of the court's pre-Smith decisions suggested that for-profit corporations could exercise religion. Congress's understanding of the word “person,” when it passed RFRA, didn't encompass for-profit corporations, it said.

“The idea that federal law would require corporate employees (such as the 13,000 employees of Hobby Lobby) to give up statutorily protected rights in order to accommodate the asserted exercise of religion of a for-profit corporation would have been a foreign concept to the Congress that enacted RFRA,” the government said.

The Hobby Lobby plaintiffs agreed that RFRA was a direct response to Smith, but said the law didn't exclude for-profit corporations from its reach. Absent a specific definitional provision, the Dictionary Act supplies the meaning of terms used in a federal statute, the plaintiffs said. That act defines “person” as including corporations.

“Nothing else in RFRA suggests any limitation on the Dictionary Act's definition,” the plaintiffs said. The law doesn't have a “specialized or limited definition” of the term and Congress didn't limit the statute's protections to “a subset of artificial entities or 'persons.'”

Relevance of Corporate Form

The plaintiffs also argued that the fact that Hobby Lobby's owners, members of the Green family, chose to do business in the corporate form made no difference. “The fact remains that the Greens exercise their faith through Hobby Lobby and Mardel, and those beliefs are entitled to protection under a statute that draws no distinction between natural or corporate persons, let alone between for-profit and non-profit corporations,” they said.

The government, on the other hand, argued that RFRA doesn't authorize courts to disregard fundamental tenets of corporate law. As the Supreme Court has said, “incorporation's basic purpose is to create a distinct legal entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who created it, who own it, or whom it employees,” the government said. A corporation and its owners are separate entities, the government said. Thus, “there is no basis on which to impute the individual respondents' religious beliefs to the corporate respondents.”

The plaintiffs also disputed the claim that the companies' for-profit status made a difference. Even in pre-Smith cases, the Supreme Court held that the compelling interest test applied to federal regulations that impacted for-profit commercial entities, they said. The government, however, pointed out in its brief that those cases didn't involve corporations, but rather considered the rights of entities such as sole proprietorships.

Hobby Lobby's petition was filed by S. Kyle Duncan, Eric C. Rassbach, Luke W. Goodrich, Hannah C. Smith, Mark L. Rienzi, Lori H. Windham and Adele Auxier Keim, of the Becket Fund for Religious Liberty, Washington; Joshua D. Hawley, of the University of Missouri, Columbia, Mo.; Paul D. Clement and Michael H. McGinley, of Bancroft PLLC, Washington; and Peter M. Dobelbower, of Hobby Lobby Stores Inc., Oklahoma City.

The government is represented by Donald B. Verrilli Jr., Stuart F. Delery, Ian Heath Gershengorn, Edwin S. Kneedler, Joseph R. Palmore, Mark B. Stern and Alisa B. Klein, of the Department of Justice, Washington.

Arguments Flip-Flopped

In a similar case, the plaintiffs, Conestoga Wood Specialties Corp. and its owners, the Hahn family, are seeking reversal of a Third Circuit decision that held the corporation wasn't entitled to RFRA's protection.

In its Feb. 10 response brief, the Obama administration argued that the Third Circuit's decision was correct. Exempting the corporate plaintiff “from a neutral and generally applicable law regulating the health benefits of its employees (whose religious beliefs may differ from those of the corporation's owners) would mark an unprecedented departure from this Nation's traditions, this Court's Free Exercise Clause jurisprudence, and the evident intent of Congress when it enacted” RFRA, the government said.

Echoing the Third Circuit, the government argued that a for-profit corporation isn't a “person exercising religion within the meaning of RFRA.” It also said Conestoga's RFRA claim violates fundamental corporate law principles by attributing the beliefs of the corporation's owners to the corporation itself. Conestoga's alternate argument, that the mandate violates the Hahns' rights under RFRA, likewise failed, the government said, because the mandate didn't impose any personal obligation on the company's owners.

Allowing a for-profit, secular corporation to avoid the mandate on religious grounds, moreover, “would also have the perverse effect of undermining the special place of religious institutions in our society,” the government said. Congress has extended religious accommodations to many entities, it said, but has “drawn the line at for-profit corporations.” If the plaintiffs' contention that the line is arbitrary is accepted by the court, it would “discourage Congress” from providing further accommodations out of fear that doing so automatically would entitle all for-profit corporations to the same accommodation, the government said.

Conestoga had argued, in its Jan. 10 brief, that there was “no separating” the Hahns' faith from their business or its actions. The Mennonite Christian family practices its faith in everything it does, including running its business, the plaintiffs said. The government's argument “is inconsistent with the reality of religious activity in Americans' daily lives,” they said.

The Conestoga plaintiffs maintained that the mandate burdens their exercise of religion by forcing them to choose between violating their religious convictions and incurring substantial fines. “No compelling interest justifies imposing such a Hobson's choice, particularly given the government's exclusion of thousands of other employers from the Mandate's scope,” they said.

The government is represented in the case by Donald B. Verrilli Jr., Stuart F. Delery, Ian Heath Gershengorn, Edwin S. Kneedler, Joseph R. Palmore, Mark B. Stern and Alisa B. Klein, of the Department of Justice, Washington.

Conestoga is represented by David A. Cortman, Kevin H. Theriot and Rory T. Gray, of Alliance Defending Freedom, Lawrenceville, Ga.; Jordan W. Lorence, Steven H. Aden, Gregory S. Baylor and Matthew S. Bowman, of Alliance Defending Freedom, Washington; Charles W. Proctor III, of the Law Offices of Proctor Lindsay & Dixon, Chadds Ford, Pa.; and Randall L. Wenger, of Independence Law Center, Harrisburg, Pa.

The parties' reply briefs are due March 12.

To contact the reporter on this story: Mary Anne Pazanowski in Washington at

To contact the editor responsible for this story: Fabia Mahoney at