The Federalist Society is sponsoring a teleforum this afternoon on The Contraceptive Mandate in the Supreme Court: Sebelius v. Hobby Lobby Stores, Inc.:
The contraceptive mandate case is being argued in the U.S. Supreme Court next week. Hobby Lobby Stores is an incorporated chain of arts and crafts supply stores. Its owners have no moral or other objection to the use of 16 of 20 contraceptives required by the contraceptive mandate, but cite their deeply held religious beliefs in objecting to providing or paying for four others they see as possibly life-threatening. Does the Religious Freedom Restoration Act of 1993 (RFRA), which provides that the government “shall not substantially burden a person’s exercise of religion” unless that burden is the least restrictive means to further a compelling governmental interest, allow Hobby Lobby to deny its employees the health coverage of those contraceptives? Our experts will preview the merits of the case on the eve of oral arguments.
Prof. Stephen M. Bainbridge, University of California at Los Angeles School of Law
Prof. Gerard V. Bradley, University of Notre Dame Law School
Prof. Martin S. Lederman, Georgetown University Law Center
Prof. Nelson Tebbe, Brooklyn Law School
Herewith my opening remarks:
My interest in the Hobby Lobby case was piqued by a telling colloquy between U.S. District Court Judge Reggie Walton and U.S. Department of Justice lawyer Benjamin Berwick in the Tyndale House Publishers, Inc. v. Sebelius case, which raised essentially the same issues as Hobby Lobby.
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. The problem is that he failed to explain why form ought to prevail over substance in this case, where allowing it do so would defeat basic rights to freely exercise one's religious beliefs.
In my article, Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers, which appeared in The Green Bag journal and is available on line, I proposed that the Supreme Court use reverse veil piercing to avoid putting form over substance.
Reverse veil piercing 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.
Invoking reverse veil piercing 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.
Specifically, I propose that the Supreme Court adopt a three-pronged test for deciding whether the shareholders of Hobby Lobby and Conestoga Wood be allowed to bring their claims:
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?
In my view, all three prongs are satisfied here. Hobby Lobby is a closely held family owned business (albeit a large one) in which the religious values of its shareholders play a prominent role.
The government interest here is weak, as demonstrated by the government having already undermined the mandate by carving out exemptions for grandfathered plans, employers with fewer than 50 employees, “member[s] of a recognized religious sect or division thereof” who have religious objections to the concept of health insurance, or religious employers.” As Judge Walton observed in the Tyndale case, a “law cannot be regarded as protecting an interest of the highest order . . . when it leaves appreciable damage to that supposedly vital interest unprohibited.”
Finally, the free exercise issues that would be vindicated by using reverse veil piercing are of the highest order. As the Supreme Court put it in West Virginia Board of Education v. Barnette, “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.” Accordingly, as the Court observed in the Yoder case, the values protected by the religious freedom clauses of the First Amendment “have been zealously protected, sometimes even at the expense of other interests of admittedly high social importance.”
Critics of my argument include 44 corporate law professors, who filed an amicus brief in support of the government. I have a reply to them coming out in the Virginia Law Review’s online edition next week. I’d be happy to discuss their various objections in the Q&A.
But one point deserves mention. Some critics argue that the Supreme Court has already decided this issue. They point to Domino's Pizza, Inc. v. McDonald, 546 U.S. 470 (2006), which raised the ability of a "shareholder and contracting officer of a corporation" to raise claims under 42 U. S. C. §1981 in connection with the termination of contracts between Dominos Pizza and the corporate franchisee. A section 1981 claim requires that plaintiff first establish the existence of a contractual relationship to which the plaintiff is a party or otherwise has rights. Id. at 476. The Court ruled that plaintiff was unable to do so because "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." Id. at 475.
As I explain in the version of my response coming out next week, I don't take McDonald very seriously as a problem for my argument. First, the Court made no effort to analyze the issues raised by reverse veil piercing, but simply dismissed it out of hand. Indeed, the quoted passage on which my opponents place so much weight is the full extent of the court's "analysis." There is no citation of authority, no justification of the claims made, and no effort to address the points I have been making in my articles. All of which makes McDonald a fairly weak precedential reed.
Second, the McDonald case involved solely contractual and statutory rights as opposed to the fundamental First Amendment concerns presented here.
Finally, the Court relied on the plain text of §1981 to hold that "plaintiffs must identify injuries flowing from a racially motivated breach of their own contractual relationship, not of someone else's." Id. at 479. No such statutory limitation is at issue here.
All of which is why McDonald is anything but dispostive of the issues.