Friday, July 4, 2014

Hobby Lobby, Business Corporations and Religious Liberty

Protected Liberty

Did Not

On Monday the Supreme Court announced its decision in Burwell v. Hobby Lobby Stores, Inc., 573 U.S. _____ (2014).  In an opinion by Justice Alito, pictured above, the Court held that the so-called "contraception mandate" imposed pursuant to the Affordable Care Act imposed a substantial burden on Hobby Lobby's exercise of religion.   The Court also identified a less restrictive means of achieving the very same objective as the mandate, a means that did not require Hobby Lobby to purchase those four contraceptives it declined to provide its employees. As a result, the Court concluded that the Administration's contraception mandate flunked RFRA's demanding test for evaluating regulations that infringe religious liberty.

The Court's decision depended upon two threshold determinations.  First, the Court concluded that for-profit corporations are "persons" within the meaning of the Religious Freedom Restoration Act.  Second, the Court also determined that closely-held firms such as Hobby Lobby are capable of "exercising religion" for purposes of RFRA.  The Court recognized that such corporate religious exercise enhances the religious freedom of individuals, who employ for-profit corporations and other artificial entities, including non-profits, to achieve their objectives in the real world.  The Court saw no reason in law or logic to distinguish for-profit corporations from non-profit corporations or other for-profit enterprises such as partnerships or sole proprietorships.  As the Court explained, modern corporate law empowers business corporations to pursue "any lawful purpose or business," and there is no indication that pursuit of a religious purpose at the behest of shareholders contravenes corporate law principles, even if such pursuit might reduce corporate profits.  Justice Ginsburg, joined on this point only by Justice Sotomayor, opined that individuals who choose to conduct business under the aegis of for-profit corporations thereby forfeit their ability to pursue religious objectives in the commercial context.

This blogger believes that the Hobby Lobby Court's determination that business corporations are RFRA persons was undoubtedly correct.  Indeed, in an essay published this past May, this blogger and co-author Nate Oman reached the same conclusion as the Court, based on a similar rationale.  See Alan J. Meese and Nate Oman, Hobby Lobby, Corporate Law and the Theory of the Firm: Why For-Profit Corporations are RFRA Persons, 127 Harv. L. Rev. Forum 273 (May 20 2014).  In particular, the essay explains that modern corporate law empowers shareholders to employ various tools that induce business corporations to engage in religiously-motivated practices, whether closing on the owners' Sabbath, declining to sell alcohol, or selling only Kosher food.  The essay also explains that state corporate law authorizes business corporations to pursue "any lawful business or purpose."  Thus, when it comes to the capacity to exercise religion, business corporations, particularly those that are closely held, are indistinguishable from sole proprietorships and partnerships.  All such entities are instrumentalities individuals may employ to achieve personal objectives, including religious ones.  Indeed, many scholars and courts have referred to closely held corporations as “chartered partnerships,” “incorporated partnerships,” or “corporations de jure and partnerships de facto.”  It is of course true that business corporations possess limited liability and entity status, legal attributes that distinguish such firms from sole proprietorships.  However, churches, synagogues and mosques also possess entity status, and their members enjoy limited liability.  Even the Obama Administration concedes that such entities are RFRA persons capable of exercising religion.

It is thus no surprise that business corporations, particularly those that are closely held, have been engaged in religiously-motivated practices for decades or more, or that such practices have passed without corporate law objection.   For instance, in 1961, the Supreme Court entertained a free exercise clause challenge to a Massachusetts Sunday closing law by a supermarket located in the Springfield, Massachusetts.  See Gallagher v. Crown Kosher Supermarket of Massachusetts, Inc., et al., 366 U.S. 617 (1961).  The Court reported that: "Appellees are Crown Kosher Super Market, a corporation whose four stockholders, officers and directors are members of the Orthodox Jewish faith."  The Court also reported that the corporate plaintiff did not conduct business "from sundown on Friday until sundown on Saturday" because "the Orthodox Jewish religion requires its members to refrain from any commercial activity on the Sabbath."  While the Court rejected the challenge on the merits by a divided vote, no Justice opined that the corporate plaintiff was legally incapable of exercising religion.  Moreover, so far as we are aware, no scholar or practitioner of corporate law has ever opined that the firm's religiously-motivated business practices contravened corporate law.

For a more detailed summary of this essay, see this post on the blog Conglomerate:   For a summary of reactions to this essay on various blogs and a video summarizing its conclusions, go here.

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Human liberty includes the right to collaborate with other individuals in pursuit of common objectives, including religious ones. Society can encourage such liberty-enhancing collaboration by creating legal devices that facilitate such cooperation.  Corporate law is just such a device, and the Hobby Lobby Court bolstered individual liberty by recognizing that, like other artificial entities, business corporations are capable of furthering the religious beliefs of the individuals who create and own them.