Don’t Do This to Her!

Chas Rutledge

With all these healthcare.gov glitches I almost forgot about any actual legal problems in Obamacare – and, for some, there are still too many unanswered questions after NFIV v. Sebelius. For example, the ACA requires employers to cover contraception if they provide health insurance. Contradicting the Tenth Circuit’s ruling in Hobby Lobby, the Sixth Circuit recently decided that a for-profit corporation engaged in high-volume manufacturing could not challenge the mandate under the Religious Freedom Restoration Act (RFRA) because a corporation is not a “person” capable of “religious exercise” as required by the RFRA.

Both courts discussed how the RFRA was enacted to protect the constitutional right to the Free Exercise of religion as it existed before Employment Division v. Smith. Hobby Lobby held that corporations did in fact have Free Exercise rights before Smith, while the Sixth Circuit in Autocam explained that these rights were “confined” to individuals, non-profit religious organizations, and some sole proprietors. According to the Sixth Circuit, neither Autocam nor Hobby Lobby can “exercise” a religion, even though Hobby Lobby is a closely held family business with an explicit Christian mission defined in its governing principles. With narrow exceptions, Autocam limits RFRA claims to individuals. Unlike the owners in Autocam, however, the owners of Hobby Lobby may indeed have standing in the Sixth Circuit, as the shareholder-standing rule that prohibited an individual claim in Autocam is only a problem for publicly traded corporations. Neither company in Hobby Lobby was publicly traded, and even Hobby Lobby agreed that the situation of a publicly traded corporation “would certainly raise difficult questions about how to determine the corporation’s sincerity of belief.”

As Autocam demonstrated, it can be difficult for executives of a publicly traded company to freely exercise a religion, but, here, it’s not impossible. The Kennedys, Roman Catholics who own a controlling interest in Autocam, argue “that if Autocam complies with the mandate, it will only be because they have directed Autocam to comply by violating their religious beliefs.” For the Kennedys, this amounts to impermissible “material cooperation,” even though their only other option has the corporation incurring a $19 million “tax.” Their legal argument, however, framed the dilemma as a choice and may have portrayed slight insincerity. If it is wrong to permit the funding of contraception in any way, then the Kennedys’ only real choice is to do everything they can to keep Autocam from funding contraception. The only option then would be to take the penalty, but the Kennedys never claimed that they simply could not comply with the mandate.

The harm advanced by the Kennedys is not a “cognizable injury” separate from the corporation’s only because the injury “stems derivatively from their fiduciary duties.” The court never mentioned that one of those duties also exposes the Kennedys to possible litigation if they take the $19 million fine. If the Kennedys had claimed that their only option was to breach a fiduciary duty, their belief would appear more sincere. More importantly, the Kennedys might acquire individual standing if they are harmed by a derivative suit that amounts to an injury that is “sufficiently distinct” from any suffered by the corporation. Instead, the Kennedys did not appear to value their religion over their company, failing to even play a bluff for the court to call.

My only real concern with this ruling has to do with retroactive ramifications of the mandate. Hobby Lobby might suggest that the Kennedys are religious individuals who “enter the for-profit realm intending to demonstrate to the marketplace that a corporation can succeed financially while adhering to religious values.” Of course, that intention may or may not be successful and is only fair when the shareholders understand its implications. Yet, just like shareholders may not expect executives to take a penalty to avoid violating religious beliefs, the Kennedys made the decision to form the corporation before the ACA was enacted and before the Kennedys knew that the decision might lead to a mandate to cover contraception and thus a violation of their religious beliefs. In its own defiant words the court may still be “without authority to ignore the choice the Kennedys made to create a separate legal entity to operate their business.” If not the Pope, maybe the Supreme Court will be more understanding.