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For-Profit, Closely Held Corporations Can Opt Out of Contraceptive Mandate

Tuesday, July 1, 2014

By Mary Anne Pazanowski  

June 30 — In what Justice Samuel A. Alito Jr. called a “very specific” ruling, the U.S. Supreme Court said that the contraceptive coverage regulations implementing the Affordable Care Act's preventive services mandate for women violate the Religious Freedom Restoration Act (RFRA) with respect to closely held corporations.

The highly anticipated decision June 30 answered some, but not all, of observers' questions. For example, although the majority of the justices said that a corporation is a “person” for purposes of RFRA, they didn't go so far as to say that a corporation has religious rights under the First Amendment.

In fact, according to Malcolm J. Harkins III, a partner at Proskauer Rose in Washington, the majority opinion was very narrow. It's a statutory decision, not a constitutional decision, Harkins told Bloomberg BNA.

But Mark Rienzi, senior counsel for the Becket Fund for Religious Liberty and an attorney for Hobby Lobby Stores Inc., in a telephone conference called the decision “a strong win for religious liberty.” He said Alito offered a “very broad, very strong analysis” that undercuts the federal government's “check your religious liberty at the door” policy.

Wilson R. Huhn, distinguished professor and C. Blake McDowell Jr. professor of law at University of Akron Law School in Akron, Ohio, however, told Bloomberg BNA the decision “crosses an important line”—“the difference between conduct involving oneself, one's family, and one's church to conduct involving other people.”

Former acting Solicitor General Walter Dellinger, now with O'Melveny & Myers in Washington, said during an American Constitution Society for Law & Policy teleconference that the case presents a “major development,” in that the court never before has allowed an exemption that transfers to a third party the burden of providing a benefit the exempted party was supposed to provide.

Many others also weighed in on the impact of the decision.

Alito was joined in the majority by Chief Justice John G. Roberts Jr. and Justices Antonin Scalia (who wasn't in the courtroom for the announcement of the decision), Anthony M. Kennedy and Clarence R. Thomas.

Kennedy wrote a concurring opinion, in which he said the decision didn't have the sweep and scope attributed to it by the dissent. He said the court simply held that the government hadn't proved that the contraceptive mandate was the least restrictive means of promoting the government's interests.

Justice Ruth Bader Ginsburg authored the principal dissent, joined by Justice Sonia Sotomayor and, in part, by Justices Stephen Breyer and Elena Kagan. Ginsburg called the decision one of “startling breadth” that gives “commercial organizations” the right to “opt out” of any general legislation that they deem contrary to their religious beliefs. Breyer and Kagan filed a separate dissenting opinion.

Closely Held Corporations

Alito's decision makes clear that the court decided the case only from the viewpoint of corporations that aren't publicly traded, namely, Hobby Lobby Stores Inc.; it sister company, Mardel Inc.; and Conestoga Wood Specialties Corp.

Hobby Lobby and Mardel are owned by the Green family, which opposes the coverage of abortifacient contraceptives on religious grounds.

The U.S. Court of Appeals for the Tenth Circuit held that the Hobby Lobby plaintiffs weren't likely to succeed on their claim that the contraceptive mandate violates RFRA.

The Conestoga Wood Specialties Corp., owned by the Hahn family, lost on its bid before the U.S. Court of Appeals for the Third Circuit, which held that the corporation wasn't a person within the meaning of RFRA.

The court said, over Ginsburg's strenuous objections, that the owners didn't forfeit their RFRA rights when they elected to do business in the corporate form. RFRA, which says that the government may not substantially burden a person's right to freely exercise his or her religion unless the means used are the least restrictive available to further a compelling governmental interest, incorporates the Dictionary Act's definition of “person,” which includes a corporation, the court said.

Though this holding seemingly would apply equally to publicly traded corporations, that question wasn't before the court, and, according to Alito, likely wouldn't come up anyway. Thus, the decision was limited to closely held companies.

Ginsburg, in her dissent, said RFRA shouldn't apply to for-profit corporations at all. For-profit companies are in business to make money, not to assert religious beliefs, she said. Harkins, who was in the courtroom as Ginsburg read from her statement in dissent, said there is a “big difference” between corporations organized for profit and those organized to uphold religious beliefs.

Huhn told Bloomberg BNA that Ginsburg's interpretation was more in line with the legislative history. It's clear from that history, he said, that no one in Congress intended to extend religious rights to corporations.

In some ways, Harkins said, this part of the decision reflected the split between the Third and Tenth circuits. Caroline Mala Corbin, a professor at the University of Miami School of Law, said during the ACS briefing that the decision allows corporations to “have their cake and eat it, too.” Corporations, at least closely held corporations, may now use their religious beliefs to avoid objectionable regulations but still take advantage of the corporate form to avoid personal liability for corporate wrongdoing, she said.

Substantial Burden on Employers' Rights

The majority found that the requirement that the corporations provide insurance coverage for all Food and Drug Administration-approved contraceptive products and services substantially burdened the employers' rights. This was because, the court said, the regulations gave the employers a “Hobson's choice.”

Either the employers provided the mandated coverage, contrary to their religious beliefs, or they paid large fines, the court said. For example, if Hobby Lobby refused to provide contraceptive coverage but still paid for employee health insurance, it would incur a fine of about $485 million per year, the court said. If it ceased providing any coverage at all, it would be in debt to the government for about $26 million per year.

Huhn suggested that paying for coverage that excludes birth control may cost corporations more in the long run. If birth control isn't covered, there may be more pregnancies—and more complicated pregnancies among female employees, leading to more insurance payouts. Birth control coverage, in itself, doesn't really cost anything, he said.

The court went on to say that the substantial burden on the employers' religious beliefs wasn't the least restrictive means of furthering the government's compelling interest in women's health. In fact, Alito referred to the accommodation granted by the Health and Human Services Department to nonprofit religious corporations as an alternative that could have been offered to the for-profit corporations.

Accommodation as Viable Alternative

The experts were torn as to the viability of the accommodation as an alternative for for-profit companies. Under the compromise worked out by the government, the nonprofit groups may opt out of providing contraceptive coverage by self-certifying that they are nonprofits, that they hold themselves out as religious organizations and that they object on religious grounds to providing the coverage.

Once a group executes the self-certification and delivers it to its insurer or third-party administration, the duty to provide the coverage falls on the insurer or TPA.

There are several problems with offering the accommodation to for-profit closely held companies, the experts said. For one thing, according to Harkins, the possibility was posed to the corporations' attorney at oral argument, and he said he didn't know what their reaction to be—whether they'd accept the idea or not.

Another problem is that the nonprofits themselves are opposed to the accommodation, arguing that the very act of self-executing the Form 700 violates their RFRA rights. Rienzi confirmed that plaintiffs such as the Little Sisters of the Poor view the accommodation as a way of facilitating access to contraceptives, which they can't do in accordance with their religious beliefs.

The experts also were split as to whether the court's apparent championing of the accommodation would resolve the dispute playing out in the lower courts over it. Most people said they weren't sure, but Rienzi was confident that it wouldn't.

The accommodation was just one example posed by the majority of possible alternatives to the contraceptive mandate that might be offered to employers. The June 30 opinion in no way ends the challenges posed by the religious nonprofits.

Rienzi added that he believes the accommodation isn't “long for this life.”

Employer-Focused Ruling?

Harkins suggested to Bloomberg BNA that Alito's majority opinion focused on the employer's rights, as opposed to those of the employees. Ginsburg, by contrast, emphasized the impact the decision would have on employees, especially women who don't share the employer's views about contraception.

Harkins said the majority appeared to approve of the employer's imposition of its beliefs on its employees. Huhn went further, saying the decision champions the rights of the employer, while ignoring “the rest of us.” Huhn said the opinion opens the way for employers to treat people however they want and justify it by citing their religious beliefs.

Despite Alito's insistence that the opinion doesn't open the door to discrimination against, for example, same-sex couples, the opinion does just that, Huhn said. Challenges to, say, a photographer's refusal to provide services at a gay wedding may be treated differently by the courts, but this decision opens the way for the photographer to refuse, he said.

Rienzi sees it differently, saying the decision gives religious dissenters a means to fight against regulations that force them to take actions that aren't in compliance with their beliefs.

The test for the future, Rienzi and Huhn both said, is whether the government has a compelling interest in whatever it is trying to force individuals to do.

Alito said the decision might have no impact on, for example, whether the government may require health insurance coverage for vaccinations or blood transfusions. Ginsburg, however, saw that as part of a slippery slope. The experts said this is where the compelling interest test will come into play.

To contact the reporter on this story: Mary Anne Pazanowski in Washington at mpazanowski@bna.com.

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com

Text of the opinion is at http://www.bloomberglaw.com/public/document/Burwell_v_Hobby_Lobby_Stores_Inc_No_13354_and_13356_US_June_30_20.

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