Annex Medical Inc. v. Sebelius is one of the cases in which plaintiffs are seeking exemptions under the Religious Freedom Restoration Act from the abortion and related reproductive services insurance mandates imposed by Obamacare (a.k.a., the Affordable care Act). A brief filed by one of the amicus in that case (2013 WL 1332879) cites a draft of my article Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers, 16 Green Bag 2d 235 (2013), and quotes from it extensively:
A recent research paper by a UCLA School of Law professor advocates the use of the reverse pierce in contraceptive mandate cases such as the case at bar, the Sharpe Holdings case, and the many others. Stephen B. Bainbridge, Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporate Employers, UCLA School of Law -- Law and Economics Research Paper Series,available at http://ssrn.com/abstract=2229414 (last visited March 14, 2013). “In *12 corporate law . . . courts regularly pierce the corporate veil in both forward and reverse directions,” and in this instance, a plaintiff such as Mr. Lind or Mr. Sharpe would be “asking the court to disregard the corporation's separate legal personhood so as to allow [him] to vindicate his constitutional rights.” Id. at 11. Bainbridge argues that reverse veil piercing provides courts in these cases with the “doctrinal justification” for holding that business owners maintain their individual religious rights in the operation of their for-profit businesses. Id. at 7.
Bainbridge proposes that a three-prong test--based on a three-factor test provided in Cargill, supra--should be adopted in the mandate cases. Id. at 12. The test is as follows:
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?
Id. at 12. The first factor requires a factual analysis; Bainbridge notes several factors pointed out in Tyndale House Publishers, Inc. v. Sebelius, 2012 WL 5817323 (D. D.C. 2012), such as whether the corporation has many shareholders with diverse views or whether ownership is concentrated, as in the case at bar and Sharpe Holdings. Id. Analyzing the second prong, Bainbridge points out what has *13 been noted repeatedly by plaintiffs in these cases-- that the “government has already undermined the mandate by carving out” sizeable exemptions. Id. at 13. As to the third prong, Bainbridge cites the great respect courts have given to the First Amendment and religious liberty in general: “the First Amendment has ‘been zealously protected, sometimes even at the expense of other interests of admittedly high social importance,’ ” id. (citing Wisconsin v. Yoder, 406 U.S. 205, 214 (1972)), and accordingly, “ ‘no official, high or petty, can prescribe what shall be orthodox in politics, nationalism, religion, or other matters of opinion or force citizens to confess by word or act their faith therein.” Id. (citing West Virginia Bd. of Ed. v. Barnette, 319 U.S. 624, 642 (1943)) (emphasis added by Bainbridge).
The reverse veil piercing theory, as such, has not been expressly used by any of the courts in the for-profit mandate challenges, but its logic has been applied. The court in Newland v. Sebelius, 881 F. Supp. 2d 1287 (D. Colo. 2012), granting a motion for preliminary injunction in a case similar to that at bar, said 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.” Id. at 1296. Courts have recognized the “alter ego” aspects of these cases by pointing out concentrated ownership-- see Korte v. Sebelius, 2012 WL 6757353 at *3 (7th Cir. Dec. 28, 2012) (individual plaintiffs “own nearly 88% of K & L Contractors”); Monaghan v. Sebelius, 2012 WL 6738476 at *1 (E.D. Mich. Dec. 30, 2012) *14 (individual plaintiff is the “owner and sole shareholder of Plaintiff Domino's Farms Corp.”)--or by specifically stating the alter ego theory but not tying it to the corporate veil. Tyndale, supra, at *8 (noting precedent finding that “when the beliefs of a closely-held corporation and its owners are inseparable, the corporation should be deemed the alter-ego of its owners for religious purposes”).
Thus, the case law on the subject, as well as Professor Bainbridge's article, provide a doctrinal framework--“reverse veil piercing”--that is a legally cognizable perspective allowing the courts to honor and enforce the plain language of both RFRA and the First Amendment, even when for-profit corporations are involved.
I'm delighted to see that my work is having an impact. Instead of the SSRN draft, however, folks should be using the final version, which is available at the Green Bag's website.
William Jacobson blogged back in February about the 8th Curcuit's decision to greant a preliminary injunction in favor of the plaintiffs pending the present appeal:
The interesting twist in this case is that because it had fewer than 50 employees, Annex Medical was not required to provide health insurance (unlike a prior litigant, O’Brien). But Annex alleged that if felt morally obligated to provide health insurance, and once it did so, the Obamacare provisions as to what type of insurance kicked in. As summarized in a concluding footnote by the Court:
3. The appellants here and the appellants in O’Brien both say a requirement that they purchase group health insurance with objectionable coverage provisions constitutes a substantial burden on their exercise of religion. The nature of the “requirement,” however, is different in the two cases. The O’Brien appellants were required by statute to purchase health insurance for employees on pain of substantial financial penalties; Lind and Annex Medical (as a smaller employer) are not required by statute to purchase insurance, but Lind alleges that his religion compels him to purchase health insurance for Annex Medical’s employees. In the limited briefing on the motion for injunction pending appeal, the appellees do not urge that this distinction is material, and we conclude that further exploration of that point is best reserved for plenary review after full briefing and argument.