by Christopher Dunn

When Mitt Romney famously declared while campaigning in Iowa in August 2011 that “corporations are people,” he was widely mocked – at least by those on the left. Yet, as a matter of constitutional principle he was largely right. And last week the Supreme Court announced it will decide whether to extend that principle to for-profit corporations seeking to invoke religious beliefs as a shield against a mandate in the Patient Protection and Affordable Care Act that requires them to provide contraceptive coverage to their employees.

The abortion issues underlying the two cases the Court agreed to review – one from the Tenth Circuit, the other from the Third – undoubtedly will generate even more heated debate about the Affordable Care Act. From a constitutional perspective, however, the major tension in these cases is between respecting freedom of religion on the one hand and opening the door to corporate discrimination in the guise of religious conviction on the other. Given that for-profit corporations have never before been held to have First Amendment free exercise rights and given the potential consequences of such a holding, these cases bear close watching.

Corporations and the Bill of Rights
The interplay between the Bill of Rights, which speaks largely of individual rights, and corporations, which are separate legal entities largely designed to shield individuals from legal responsibility, is a complex one. In sorting out which constitutional rights are available to corporations and which are not, the Supreme Court has drawn a distinction between “purely personal” rights, which cannot be invoked by corporations, and other rights:

Corporate identity has been determinative in several decisions denying corporations certain constitutional rights, such as the privilege against compulsory self-incrimination or equality with individuals in the enjoyment of a right to privacy, but this is not because the States are free to define the rights of their creatures without constitutional limit. Otherwise, corporations could be denied the protection of all constitutional guarantees, including due process and the equal protection of the laws. Certain “purely personal” guarantees, such as the privilege against compulsory self-incrimination, are unavailable to corporations and other organizations because the “historic function” of the particular guarantee has been limited to the protection of individuals. Whether or not a particular guarantee is “purely personal” or is unavailable to corporations for some other reason depends on the nature, history, and purpose of the particular constitutional provision.

Focusing on the First Amendment, under this approach it long has been established that the free speech clause extends to corporations, including for-profit ones such as the New York Law Journal and The New York Times. Similarly, it long as been recognized that the First Amendment’s free exercise clause extends to nonprofit religious corporate entities, such as the Catholic Church.

But the courts have not previously held that a for-profit corporation can invoke the free exercise clause as a vehicle for asserting its own claimed religious beliefs or those of its owners. Thus, it arguably is an open question whether the Law Journal or The Times, like the Catholic Church, could invoke the First Amendment in defending a decision that women are not fit to serve as their priests, i.e., editors.

Adding to the analysis is the Religious Freedom Restoration Act (“RFRA”). Congress enacted RFRA in 1993 in response to a Supreme Court decision that largely eliminated free-exercise challenges to religion-neutral government rules that applied generally but nonetheless had a substantial impact on specific religious practices (in that case, a general prohibition on use of a drug that one group used in its religious practices). Though the Court subsequently held that RFRA was unconstitutional as applied to states and localities, the statute remains in effect for the federal government and thus plays a key role in the Affordable Care Act challenges the Supreme Court has agreed to take up.

Obamacare and Religion
Among the myriad legal challenges to the Affordable Care Act are ones to a mandate that employers provide to their employees heath coverage that includes contraceptive measures to which some object for sincere religious reasons. In the two cases headed to the Supreme Court, for-profit corporations assert that they have religious rights under the free exercise clause and under RFRA that shield them from this mandate. On this important question of constitutional law, the Tenth Circuit in June became the first federal appeals court to hold that for-profit corporations have free exercise rights. One month later, the Third Circuit rejected that position, setting up a circuit split for the Supreme Court to resolve.

The plaintiffs in the Tenth Circuit case, Hobby Lobby Stores, Inc. v. Sebelius, are Hobby Lobby Stores, Mardel, Inc., and the individuals who own the two businesses. For-profit Hobby Lobby is an arts-and-crafts chain with over 500 stores and about 13,000 full-time employees. Mardel is an affiliated for-profit chain of 35 bookstores with just under 400 employees that sells only Christian books and materials. The two corporate businesses are owned and operated by members of a family who have sincere religious beliefs that guide certain aspects of the businesses’ operations.

The principal issue the en banc Tenth Circuit addressed was whether Hobby Lobby and Mardel were “persons” under RFRA, an issue that required examination of whether for-profit corporations had rights under the First Amendment’s free exercise clause. On this key point, the Tenth Circuit started with proposition that the free exercise clause is not a “purely personal” guarantee, as evidenced by the fact the Supreme Court long had held that not-for-profit religious organizations have free exercise rights. The appeals court then noted that the Supreme Court also had held that individuals engaged in for-profit activity have free exercise rights. “In short,” the court concluded, “individuals may incorporate for religious purposes and keep their Free Exercise rights, and unincorporated individuals may pursue profit while keeping their First Amendment rights.” Finally, the court pointed to Citizens United v. Federal Elections Commission, the momentous 2010 campaign-finance decision premised on the proposition that for-profit corporations have free-speech rights.

Given this situation, the Tenth Circuit saw “no reason the Supreme Court would recognize constitutional protection for a corporation’s political expression but not its religious expression.”

First, we cannot see why an individual operating for-profit retains Free Exercise protections but an individual who incorporates—even as the sole shareholder—does not, even though he engages in the exact same activities as before. This cannot be about the protections of the corporate form, such as limited liability and tax rates. Religious associations can incorporate, gain those protections, and nonetheless retain their Free Exercise rights.

Moreover, when the Supreme Court squarely addressed for-profit individuals’ Free Exercise rights . . . , its analysis did not turn on the individuals' unincorporated status. Nor did the Court suggest that the Free Exercise right would have disappeared, using a more modern formulation, in a general or limited partnership, sole professional corporation, LLC, S-corp, or closely held family business like we have here.

In addition, sincerely religious persons could find a connection between the exercise of religion and the pursuit of profit. Would an incorporated kosher butcher really have no claim to challenge a regulation mandating non-kosher butchering practices? The kosher butcher, of course, might directly serve a religious community—as Mardel, a Christian bookstore, does here. But we see no reason why one must orient one's business toward a religious community to preserve Free Exercise protections. A religious individual may enter the for-profit realm intending to demonstrate to the marketplace that a corporation can succeed financially while adhering to religious values. As a court, we do not see how we can distinguish this form of evangelism from any other.

As for the prospect that its approach was opening the door to widespread religious discrimination by employers, the Tenth Circuit suggested that its ruling posed no such threat because Hobby Lobby and Mardel were not publicly traded companies:

Hobby Lobby and Mardel are not publicly traded corporations; they are closely held family businesses with an explicit Christian mission as defined in their governing principles. The Greens, moreover, have associated through Hobby Lobby and Mardel with the intent to provide goods and services while adhering to Christian standards as they see them, and they have made business decisions according to those standards. And the [individual owners] are unanimous in their belief that the contraceptive-coverage requirement violates the religious values they attempt to follow in operating Hobby Lobby and Mardel. It is hard to compare them to a large, publicly traded corporation, and the difference seems obvious.

In a dissent, Chief Judge Mary Beck Briscoe provided a roadmap of the issues that the Supreme Court might follow in questioning the Tenth Circuit’s reasoning. As a starting point, she noted that “not a single case, until now, has extended RFRA’s protections to for-profit corporations.” Turning to the majority’s reasoning that no basis existed for distinguishing individuals operating for profit from corporations doing the same when it comes to free exercise claims, she pointedly noted, “The obvious response to this is that, in the latter situation, a new entity separate from the natural individual has been formed.” She also characterized as “nothing short of a radical revision of First Amendment law” the suggestion that for-profit corporations can operate as evangelical enterprises for purposes of the First Amendment. Finally, she derided the claim that a meaningful distinction could be drawn, as the majority suggested, between publicly-traded corporations and the 13,000-employee Hobby Lobby chain.

One month after the Tenth Circuit decided Hobby Lobby in June, the Third Circuit took up a similar case. The plaintiff in Conestoga Wood Specialities Corp. v. Secretary of United States Department of Health & Human Services is a Pennsylvania for-profit corporation that manufactures wood cabinets, has 950 employees, and is owned by Mennonites who object to the Affordable Care Act’s contraception coverage mandate. Like Hobby Lobby, Conestoga argued that, as a for-profit corporation, it had free exercise rights. It also argued that it could invoke the free exercise rights of its Mennonite owners.

In contrast to the lengthy analysis offered by the Tenth Circuit, the Third Circuit summarily rejected these claims. Noting that it knew of no case other than Hobby Lobby that extended free-exercise rights to for-profit corporations, it distinguished Citizens United as being limited to the free speech clause. (Amusingly – at least for those of us attentive to punctuation – it gave short shrift to the company’s claim that Citizens United controlled free exercise claims because “the authors of the First Amendment only separated the Free Exercise Clause and the Free Speech Clause by a semi-colon, thus showing the intent between the two.”) More substantively, the Third Circuit viewed the very notion of free exercise as being contrary to for-profit businesses:

[T]he purpose of the Free Exercise Clause “is to secure religious liberty in the individual by prohibiting any invasions thereof by civil authority.” And as the District Court aptly noted in its opinion, “[r]eligious belief takes shape within the minds and hearts of individuals, and its protection is one of the more uniquely ‘human’ rights provided by the Constitution.” We do not see how a for-profit “artificial being, invisible, intangible, and existing only in contemplation of law” that was created to make money could exercise such an inherently human right.

Looking Forward
As is evident from Citizens United, the current Supreme Court is prepared to risk havoc in pursuing its views of the First Amendment. And given that a majority of the Court is sympathetic to anti-abortion views, one could readily imagine that some members of the Court might seriously entertain the claim that for-profit corporations should be able to challenge Obamacare mandates about contraceptive coverage.

Nonetheless, a ruling that a large for-profit company like Hobby Lobby can invoke free exercise rights to shield itself from government regulation to which it objects on religious grounds could open the door to unprecedented religious discrimination in our society. Beyond the enormous impact such a ruling might have on employees, for-profit corporations with free exercise rights presumably could also exercise them when it comes to their customers. And the prospect of businesses across the country imposing religious-based litmus tests on customers ought to give pause to even the most ardent of free-exercise proponents.

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