First Amendment Free Exercise of Religion Doesn’t Apply to For Profit Corporation - Corporation Forced to Buy Insurance

    By Barry Zalma, Attorney and Consultant

It is the dream of every business that its customers be required by law to enter into a contract to buy the product of the business. Insurance is, by definition a contract freely entered into between a person, the insured and the insurer. The parties to the insurance contract establish the terms and conditions of the contract with each having the unquestioned right to select those who it will insure or be insured by and the terms of the contract. The law euphemistically called “Obama Care” changes the rights of the parties by compelling people to buy insurance coverages mandated by the law not the choice of the parties.

In Conestoga Wood Specialties Corporation v. Secretary of United States Department of Health & Human Services, 13-1144 (3d Cir. 07/26/2013), 2013 U.S. App. LEXIS 15238 [enhanced version available to lexis.com subscribers], the Third Circuit was called upon to provide an injunction to prevent the government from compelling Conestoga Wood Specialties Corporation (“Conestoga”), Norman Hahn, Elizabeth Hahn, Norman Lemar Hahn, Anthony Hahn, and Kevin Hahn (collectively, “the Hahns”) from buying insurance for their employees that is in violation of the Hahns’ religious beliefs.

In their Complaint, Appellants allege that regulations promulgated by the Department of Health and Human Services (“HHS”), which require group health plans and health insurance issuers to provide coverage for contraceptives, violate the Religious Freedom Restoration Act, 42 U.S.C. § 2000bb [enhanced version available to lexis.com subscribers] (“RFRA”) and the Free Exercise Clause of the First Amendment of the United States Constitution. The District Court denied a preliminary injunction, concluding that Appellants were unlikely to succeed on the merits of their claims.

ISSUE

May a for-profit, secular corporation engage in religious exercise under the Free Exercise Clause of the First Amendment and the RFRA?

In 2010, Congress passed the Patient Protection and Affordable Care Act, Pub. L. No. 111-148 (March 23, 2010) (“ACA”). The ACA requires employers with fifty or more employees to provide their employees with a minimum level of health insurance. The ACA requires non-exempt group plans to provide coverage without cost-sharing for preventative care and screening for women in accordance with guidelines created by the Health Resources and Services Administration (“HRSA”), a subagency of HHS. See 42 U.S.C. § 300gg-13(a)(4) [enhanced version available to lexis.com subscribers] .

The HRSA delegated the creation of guidelines on this issue to the Institute of Medicine (“IOM”). The IOM recommended that the HRSA adopt guidelines that require non-exempt group plans to cover “[a]ll Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for women with reproductive capacity.” These recommended guidelines were approved by the HRSA. On February 15, 2012, HHS, the Department of the Treasury, and the Department of Labor published final rules memorializing the guidelines. Under the regulations, group health plans and health insurance issuers are required to provide coverage consistent with the HRSA guidelines in plan years beginning on or after August 1, 2012, unless the employer or the plan is exempt. Appellants refer to this requirement as the “Mandate.” Employers who fail to comply with the Mandate face a penalty of $100 per day per offending employee. The Department of Labor and plan participants may also bring a suit against an employer that fails to comply with the Mandate.

The Hahns own 100 percent of the voting shares of Conestoga. Conestoga is a Pennsylvania for-profit corporation that manufactures wood cabinets and has 950 employees. The Hahns practice the Mennonite religion. Specifically, the Hahns object to two drugs that must be provided by group health plans under the Mandate that “may cause the demise of an already conceived but not yet attached human embryo.” To the Appellants it is immoral and sinful to intentionally participate in, pay for, facilitate, or otherwise support these drugs. Conestoga has been subject to the Mandate as of January 1, 2013, when its group health plan came up for renewal.

A party seeking a preliminary injunction must show: (1) a likelihood of success on the merits; (2) that it will suffer irreparable harm if the injunction is denied; (3) that granting preliminary relief will not result in even greater harm to the nonmoving party; and (4) that the public interest favors such relief. A plaintiff seeking an injunction must meet all four criteria.

FIRST AMENDMENT CLAIMS

First, we turn to Conestoga’s claims under the First Amendment. Under the First Amendment, “Congress shall make no law respecting the establishment of religion or prohibiting the free exercise thereof.” The issue to be resolved is whether Conestoga, a for-profit, secular corporation, can exercise religion.

Appellants asserted two theories under which the Third Circuit could conclude that Conestoga can exercise religion:

(a) directly, under the Supreme Court’s recent decision in Citizens United, and

(b) indirectly, under the “passed through” method that has been articulated by the Court of Appeals for the Ninth Circuit.

In Citizens United, the Supreme Court held that “the Government may not suppress political speech on the basis of the speaker’s corporate identity,” and it accordingly struck down statutory restrictions on corporate independent expenditure. Citizens United v. Fed Election Comm’n, 558 U.S. 310, 365 (2010) [enhanced version available to lexis.com subscribers]. Citizens United recognizes the application of the First Amendment to corporations generally without distinguishing between the Free Exercise Clause and the Free Speech Clause, both of which are contained within the First Amendment. Accordingly, whether Citizens United is applicable to the Free Exercise Clause is a question of first impression.

Corporate identity has been determinative in several decisions denying corporations certain constitutional rights, such as the privilege against compulsory self-incrimination 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.

In Citizens United, the Supreme Court pointed out that it has recognized that First Amendment protection extends to corporations. Citizens United is grounded in the notion that the Court has a long history of protecting corporations’ rights to free speech. The Third Circuit could find no precedent in which a for-profit, secular corporation was itself found to have free exercise rights.

After all the purpose of the Free Exercise Clause is to secure religious liberty in the individual by prohibiting any invasions thereof by civil authority. Religious 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. To provide the relief requested the Third Circuit was required to conclude that 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.

General business corporations do not, separate and apart from the actions or belief systems of their individual owners or employees, exercise religion. They do not pray, worship, observe sacraments or take other religiously motivated actions separate and apart from the intention and direction of their individual actors.

Appellants argue that Conestoga can exercise religion under a “passed through” theory, which was first developed by the Court of Appeals for the Ninth Circuit in EEOC v. Townley Engineering & Manufacturing Company, 859 F.2d 610 (9th Cir. 1988)  [enhanced version available to lexis.com subscribers], and affirmed in Stormans, Inc. v. Selecky, 586 F.3d 1109 (9th Cir. 2009)  [enhanced version available to lexis.com subscribers]. In Townley and Stormans, the Ninth Circuit held that for-profit corporations can assert the free exercise claims of their owners.

There is a natural inclination for the owners of such companies to anul the distinction between themselves and the companies they own. But, it is Conestoga that must provide the funds to comply with the Mandate—not the Hahns.

THE RFRA CLAIM

Under the RFRA, government shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability unless the burden is in furtherance of a compelling governmental interest; and is the least restrictive means of furthering that compelling governmental interest. [42 U.S.C. §§ 2000bb"1(a)"(b)]

The Third Circuit concluded that a for-profit, secular corporation cannot assert a claim under the Free Exercise Clause necessitates the conclusion that a for-profit, secular corporation cannot engage in the exercise of religion. Since Conestoga cannot exercise religion, it cannot assert a RFRA claim.

THE HAHNS CLAIM

Finally, we consider whether the Hahns, as the owners of Conestoga, have viable Free Exercise Clause and RFRA claims on their own. For the same reasons that we concluded that the Hahns’ claims cannot “pass through” Conestoga, we hold that the Hahns do not have viable claims.

The Mandate does not impose any requirements on the Hahns. Rather, compliance is placed squarely on Conestoga. As the Hahns have decided to utilize the corporate form, they cannot move freely between corporate and individual status to gain the advantages and avoid the disadvantages of the respective forms

The Third Circuit claimed that its decision is in no way intended to marginalize the Hahns’ commitment to the Mennonite faith. The Hahns sincerely believe that the termination of a fertilized embryo constitutes an “intrinsic evil and a sin against God to which they are held accountable and that it would be a sin to pay for or contribute to the use of contraceptives which may have such a result. The Third Circuit concluded that the law has long recognized the distinction between the owners of a corporation and the corporation itself. A holding to the contrary—that a for-profit corporation can engage in religious exercise—would eviscerate the fundamental principle that a corporation is a legally distinct entity from its owners.

JORDAN, Circuit Judge, dissented

This case is one of many filed against the government in recent months by for-profit corporations and their owners seeking protection from the Mandate. So far, most of those cases have reached the preliminary injunction stage only, and a clear majority of courts has determined, unlike the majority of the Third Circuit, that temporary injunctive relief is in order. Justice Jordan joined that consensus including Hobby Lobby Stores, Inc. v. Sebelius, __ F.3d __, 2013 U.S. App. LEXIS 13316 (10th Cir. June 27, 2013) (en banc) [enhanced version available to lexis.com subscribers].

Justice Jordan stated:

The government’s assertion and the Majority’s conclusion that Conestoga lacks any right to the free exercise of religion is flawed because the Constitution nowhere makes the for-profit versus non-profit distinction invented by the government, and the language and logic of Supreme Court jurisprudence justify recognizing that for-profit corporations like Conestoga are entitled to religious liberty.

First, to the extent it depends on the assertion that collective entities, including corporations, have no religious rights, it is plainly wrong, as numerous Supreme Court decisions have recognized the right of corporations to enjoy the free exercise of religion. [Church of the Lukumi Babalu Aye, Inc. v. City of Hialeah, 508 U.S. 520, 525-26 (1993) [enhanced version available to lexis.com subscribers], (recognizing the petitioner as a corporation whose congregants practiced the Santeria religion, and concluding that city ordinances violated the corporation's and its members' free exercise rights); Corp. of Presiding Bishop of the Church of Jesus Christ of Latter-day Saints v. Amos, 483 U.S. 327, 330 (1987) [enhanced version available to lexis.com subscribers], (recognizing the petitioner as a corporation in a case concerning free exercise rights); Bob Jones Univ. v. United States, 461 U.S. 574, 604 n.29 (1983) [enhanced version available to lexis.com subscribers], (allowing two corporations that operated schools but could not be characterized as "churches or other purely religious institutions" to assert free exercise rights).]

To recognize that religious convictions are a matter of individual experience cannot and does not refute the collective character of much religious belief and observance. Contrary to the Majority’s conclusion, there is nothing about the “nature, history, and purpose” of religious exercise that limits it to individuals. Quite the opposite; believers have from time immemorial sought strength in numbers. Assuming, rashly, that the government had the competence to decide who is religious enough to qualify as a “religious organization,” there is no reason to suppose that the Free Exercise guarantee is as limited as the government claims or the Majority accepts. Acknowledging “the Hahns’ commitment to the Mennonite faith” on one hand, while on the other acting as if the Hahns do not even exist and are not having their “uniquely human rights” trampled was more than a little jarring to Justice Jordan.

In my view, the Mandate is not generally applicable, and it is not neutral. A law fails the general applicability requirement if it burdens a category of religiously motivated conduct.

Because the government demanded that the Hahns and Conestoga capitulate before their appeal was even heard, and because the District Court denied preliminary injunctive relief, the severe hardship has begun. Faced with ruinous fines, the Hahns and Conestoga are being forced to pay for the offending contraceptives, including abortifacients, in violation of their religious convictions, and every day that passes under those conditions is a day in which irreparable harm is inflicted. The loss of First Amendment freedoms, for even minimal periods of time, unquestionably constitutes irreparable injury. The Majority’s ruling guarantees that grievous harm will go on and, as the days pile up, worsen.

This is a controversial and, in some ways, complex case, but in the final analysis it should not be hard for us to join the many courts across the country that have looked at the Mandate and its implementation and concluded that the government should be enjoined from telling sincere believers in the sanctity of life to put their consciences aside and support other people’s reproductive choices.

ZALMA OPINION

Please excuse the length of this summary but the case is important and I did not have time to make it shorter.

This case, and the claims of the government, point out the essential flaw in the Affordable Care Act (Obamacare) where the government contends it is dealing with insurance. “Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.” [California Insurance Code Section 22]

When the government requires one to purchase insurance against loss, damage or liability arising from a certain and known event – pre-existing conditions, it is not insurance but a compulsion on both the insurer and the insured to do something neither wish to do. Rather than a freely entered into contract the “insurance” mandated by Obamacare requires a corporation to enter into a contract with an insurer to indemnify its employees against losses it did not believe were appropriate to buy or be forced out of business by egregious fines. In the case of Conestoga, it would be required to pay fines of $95,000 a day unless it fired 901 of its employees, sold the company to another, or changed to individual rather corporate ownership.

Obamacare, and the insurance it requires, is not insurance it is government fiat.

Reprinted with Permission from Zalma on Insurance, (c) 2013, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma or zalma@zalma.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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