Seventh Circuit Rules for Secular Companies In Fight Over ACA's Contraceptive Mandate

BNA’s Health Care Daily Report™ sets the standard for reliable, high-intensity coverage of breaking health care news, covering all major legal, policy, industry, and consumer developments in a...

By Mary Anne Pazanowski  

Nov. 12 --The U.S. Court of Appeals for the Seventh Circuit Nov. 8 became the fifth federal appeals court to weigh in on the contraceptive mandate controversy, holding that the Obama administration may not enforce the Affordable Care Act's preventive services mandate for women against for-profit, secular corporations whose owners object on religious grounds (Korte v. Sebelius , 7th Cir., No. 12-3841, 11/8/13).

The two-judge majority, in an opinion written by Chief Judge Diane S. Sykes, held that the small, closely held corporations were “persons” within the meaning of the Religious Freedom Restoration Act (RFRA), 42 U.S.C. § 2000bb, and were entitled to assert, along with their owners, that the mandate substantially interferes with their free exercise rights.

The preventive services mandate, also known as the contraceptive mandate, requires employers with 50 or more employees to provide health plans that cover contraceptive drugs, including emergency contraception, contraceptive devices and related services at no cost to their employees.

The Seventh Circuit joined the U.S. Court of Appeals for the Tenth Circuit, which held June 27 that two small, for-profit corporations were “persons” entitled to bring suit under RFRA and that they were likely to succeed on the merits of their claim . The U.S. Court of Appeals for the Third Circuit July 26 found for the administration, saying secular corporations don't engage in religious exercise .

Also ruling for the Obama administration was the U.S. Court of Appeals for the Sixth Circuit, which held companies aren't “persons” protected by RFRA . More recently, the U.S. Court of Appeals for the District of Columbia Circuit issued a split decision holding that, although the companies themselves may not challenge the mandate, their owners may do so .

Petitions for review have been filed in the U.S. Supreme Court in all four cases .

Companies Challenge Mandate

The Seventh Circuit decided two cases, consolidated for purposes of appeal, Korte v. Sebelius, No. 12-3841, and Grote v. Sebelius, No. 13-1077. In both cases, the plaintiffs were Catholic families and their closely held corporations, one a construction company in Illinois (Korte & Luitjohan Contractors Inc.) and the other an automobile safety systems manufacturing company in Indiana (Grote Industries Inc.).

The companies are secular and for-profit but, according to the court, are operated in conformity with their owners' religious beliefs. The owners “follow the teachings of the Catholic Church regarding the sanctity of human life from conception to natural death and the moral wrongfulness of abortion, sterilization, and the use of abortifacient drugs and artificial means of conception,” the court said.

The plaintiffs filed lawsuits alleging that the contraceptive mandate violates their rights under RFRA and the First Amendment's free exercise clause because the coverage required by the provision conflicts with their religious convictions.

The trial courts in both cases denied the plaintiffs' motions for preliminary injunctions . The Seventh Circuit, however, granted injunctions pending appeal in both cases .

Ruling Against Administration

Ruling on the appeals from the preliminary injunction denials, the Seventh Circuit held that both the companies and their owners may challenge the mandate. It further held that compelling the companies to cover the contraceptive services substantially burdens their free exercise rights. The court reversed the trial courts' decisions and remanded with instructions to enter preliminary injunctions barring the government's enforcement of the mandate against the companies.

The court saw the cases as presenting two issues: Is a secular, for-profit corporation a “person” under RFRA and does the contraceptive mandate substantially burden the free exercise rights of either the individuals or the corporations?

The court answered both questions in the affirmative: The corporate plaintiffs are “persons” for purposes of RFRA, and the contraceptive mandate substantially burdens the religious exercise rights of all the plaintiffs.

Before reaching those questions, however, the court said both the companies and their owners had standing to challenge the mandate. The companies would be affected directly by the provision because it would force them to include contraceptive coverage in their employee health plans or face “onerous” penalties. The Kortes and the Grotes, the controlling shareholders, also had standing, it said, because the mandate's “indirect effect on [their] financial interests” was a “concrete injury.”

Additionally, the court said, the individual owners had an “intangible but no less concrete injury to their religious-exercise rights” in that the mandate would force them to purchase coverage that conflicted with their beliefs, “albeit as agents of their companies and using corporate funds.”

“Compelling a person to do an act his religion forbids, or punishing him for an act his religion requires, are paradigmatic religious-liberty injuries sufficient to invoke the jurisdiction of the federal courts,” the court said.

The shareholder standing rule, which holds that shareholders may not sue to enforce the rights of the corporation, didn't apply here, the court added, because an exception to the rule allows “a shareholder with a direct, personal interest in a cause of action to bring suit even if the corporation's rights are also implicated.” The Kortes and Grotes fell “comfortably within the exception,” it said.

Companies Are 'Persons.'

One central question, the court said, is whether RFRA applies to protect the rights of corporations. The law 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,” unless the application of the burden “(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.”

The government argued that RFRA doesn't apply because corporations aren't “persons” under the statute. The court disagreed. Although RFRA doesn't define “person,” the Dictionary Act states that, in determining the meaning of any legislation, “person” includes corporations “unless the context indicates otherwise.” The court said that “[n]othing in RFRA suggests that the Dictionary Act's definition of 'person'” doesn't include corporations exercising religious rights.

The court also made two “doctrinal points,” saying that the free exercise clause protects religiously motivated conduct, as well as belief and exercise, and that individuals and organizations, whether incorporated or not, can exercise religion. It is “common ground,” the court said, that nonprofit religious organizations exercise religion, so “unless there is something disabling” about seeking profit, for-profit corporations also have religious rights.

The court acknowledged that the “Supreme Court has never considered whether a for-profit corporation may assert a free-exercise claim” but said the court's approval of the free-exercise rights of individuals engaged in profit-making activities suggested that it would see the matter in the same way as the present court. The Supreme Court's prior decisions “show that far from categorically excluding profit-seekers from the scope of the free-exercise right, the Supreme Court has considered their claims on the merits, granting exemptions in some and not in others based on the compelling-interest test,” the court said.

Substantial Burden

The court went on to find that the contraceptive mandate substantially burdens the plaintiffs' exercise of religion. At a minimum, the court said, a substantial burden exists when the government requires a person to perform acts at odds with his fundamental religious beliefs. A burden on religious exercise also exists when the government puts “substantial pressure” on a person to modify his behavior in a way that violates his religious beliefs.

There “can be little doubt that the contraception mandate imposes a substantial burden on the plaintiffs' religious exercise,” the court said. If they don't comply with the mandate, the court said, the companies would face a fine of $100 per day per employee, leaving the Grote plaintiffs with a potential liability of almost $17 million.

The court also said the contraceptive mandate failed the compelling interest test. The two public interests identified by the government, that the mandate is needed to promote public health and gender equality, are too general, it said. “There are many ways to promote public health and gender equality, almost all of them less burdensome on religious liberty,” the court noted.

It acknowledged the legitimacy of the government's stated interests but said the government had “not even tried” to show that the mandate is the least restrictive means of furthering those interests.


Judge Ilana Diamond Rovner, in a lengthy dissent, argued that neither the companies nor their owners may avoid compliance with the contraceptive mandate on the ground that it interferes with their religious exercise.

Rovner called the majority's holding “an unprecedented and unwarranted re-conception of both what the free exercise of religion entails and what constitutes a substantial burden on that exercise.” The majority “extends a highly personal right to a secular corporation, a man-made legal fiction that has no conscience enabling belief or worship,” she wrote.

The majority's decision also “permits the plaintiffs to invoke their free exercise rights offensively rather than defensively, in a way that circumscribes the rights Congress has given to employees, by permitting the corporate employers to rewrite the terms of the statutorily-mandated health plans they provide to their employees,” Rovner said. “As a result, employees are left without a highly important form of insurance coverage that Congress intended them to have.”

Rovner said the majority's decision “establishes a precedent which invites free-exercise challenges to a host of federal laws by secular corporations which, in reality, have no religious beliefs of their own and cannot exercise religion.”

Edward Lawrence White, of the American Center for Law & Justice, Ann Arbor, Mich., represented the Korte plaintiffs. Michael A. Wilkins, of Broyles, Kight & Ricafort, Indianapolis; Bryan Beauman, of Sturgill Turner Barker & Moloney, PLLC, Lexington, Ky.; Matthew Scott Bowman, of Alliance Defending Freedom, Washington; and Michael J. Cork, of Bamberger, Foreman, Oswald & Hahn, Indianapolis, represented the Grote plaintiffs. Bradley P. Humphreys and Alisa B. Klein, of the U.S. Department of Justice, Washington, represented the government.


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

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