Supreme Court Update: Burwell v. Hobby Lobby Stores, Inc. (13-354), Conestoga Wood Specialties Corp. v. Burwell (13-356) and Order List

July 7, 2014 Supreme Court Update

Greetings, Court fans!

The Court ended its Term in familiar fashion, with a blockbuster Obamacare ruling. In Burwell v. Hobby Lobby Stores, Inc. (13-354) and Conestoga Wood Specialties Corp. v. Burwell (13-356), the Court considered whether the Religious Freedom Restoration Act of 1993 (RFRA) excuses for-profit corporations that object on religious grounds from having to comply with Obamacare's mandate that employers provide insurance coverage for their employees' contraceptive medications and devices. In a sharply divided 5-4 decision, the Court sided with the plaintiff corporations.

The case involved the Affordable Care Act's employer mandate for group health insurance coverage to include cost-free preventive care for women, and related HHS regulations requiring coverage for all FDA-approved contraceptive methods. HHS exempted religious institutions and certain nonprofit corporations organized for religious purposes. If one of those nonprofit groups certified its religious objection, then the group's insurer would exclude contraceptive coverage from the insurance plan and the insurer would fund the covered women's contraceptive costs (with no net loss to the insurer due to the savings in health costs from women using the contraception).

Hobby Lobby (with 13,000 employees in 500 stores) and Conestoga (with 950 employees) are for-profit corporations, but closely held in that each is owned by a small number of family members. The owners of Hobby Lobby and Conestoga aim to run their businesses in accordance with their religious principles and therefore objected to specific contraceptives ("morning-after" pills and IUDs) that they believe are abortifacient. Both companies sought relief from the mandate, arguing that it amounted to a substantial incursion on their free exercise rights under RFRA.

The Court, in an opinion authored by Justice Alito and joined by the Chief and Justices Scalia, Kennedy, and Thomas, went through each of the statutory elements of RFRA and held that: (1) for-profit corporations are "persons" for purposes of RFRA's prohibition against the federal government substantially burdening a person's exercise of religion even with a law of general applicability; (2) the federal mandate substantially burdens the plaintiff corporations' exercise of religion; (3) the government may nevertheless be able to justify the mandate as furthering a compelling governmental interest (though the Court did not decide that disputed issue); (4) but even if the interest is compelling, the mandate violates the plaintiffs' rights under RFRA because it is not the least restrictive means of furthering that governmental interest.

Starting with the first statutory element, Justice Alito wrote passionately that corporations are owned and run by human beings, and that corporations have legal rights that protect the interests of those people. Given the strong protection for religious liberty in RFRA, Congress could not have intended either to exclude business owners from that protection if they chose to incorporate or to cause them to avoid that form of business organization in order to secure their liberty. The Dictionary Act (how often do we get to cite 1 U.S.C. § 1?) defines "person" to include corporations unless the context indicates otherwise. Moreover, nonprofit corporations have been recognized by the Court and by HHS as persons under the RFRA. According to Justice Alito, there is no basis for defining "personhood" under RFRA based upon the pursuit of profit. The pursuit of profit does not prevent a corporation under state law from also being organized around owners' religious principles, at least for closely held corporations. The Court was not troubled by the prospect of publicly traded corporations making RFRA claims, as none had done so and it was most improbable that unrelated shareholders could agree to run a business based on a set of sincere religious beliefs as Hobby Lobby and Conestoga have done.

Justice Ginsburg, joined by Justice Sotomayor, vigorously dissented from treating corporations as "persons" under RFRA, stating that the Dictionary Act takes context into account, corporations do not exercise religion, no precedent holds that they do, and the government's past special solicitude toward religion-based nonprofits recognized only that these organizations are typically drawn from one religious community to serve its interests, unlike commercial enterprises drawing from diverse communities and prohibited by law from making religious distinctions in employment. If a sole proprietor chooses the corporate form to escape personal responsibility for corporate obligations, then that individual has separated herself from the entity. Justices Ginsburg and Sotomayor also could not see how the Court's logic would not extend to corporations of any size, publicly or closely held, and noted the enormous size of some closely held corporations like Mars, Inc. and Cargill, Inc. (Justices Breyer and Kagan took no position on this first element of the RFRA analysis.)

Moving on to RFRA's second statutory element, the Court's majority thought the contraceptive mandate plainly burdened the plaintiffs' exercise of religion. Requiring the companies and their owners to arrange for coverage of birth control methods that may destroy a fertilized egg would violate their religious beliefs, and the statutory financial penalties for either ignoring the contraceptive mandate or dropping employee insurance coverage entirely would be burdensome. The Court thought little of the argument that simply offering health insurance coverage, with the employee making the choice of what medicines to take, does not substantially burden the exercise of religion. Yet, that is precisely the argument that the four dissenters (Justice Ginsburg, joined now by Justices Breyer and Kagan, in addition to Sotomayor) accepted, as the companies merely direct money into an undifferentiated fund for financing various benefits under a health plan and how the benefits are used is the employee's decision in consultation with her physician.

Under RFRA's third statutory element, the federal government may justify the burden if it furthers a compelling governmental interest. The majority chose not to tackle this issue head-on and, for purposes of its analysis, assumed that "the interest in guaranteeing cost-free access to the four challenged contraceptive methods is compelling within the meaning of RFRA." The four dissenting Justices went further and explained at length the compelling interest in protecting public health and women's well-being. In their view, no religious accommodation should ever be granted where the accommodation would be harmful to third parties.

The Court's decision therefore turned on RFRA's fourth statutory element, whether the contraceptive mandate was the least restrictive means of upholding the government's compelling interest. The majority deemed this test "exceptionally demanding," going beyond what the Constitution's guarantee of the free exercise of religion would require. The contraceptive mandate flunked. After all, the government could simply assume the cost of providing the contraceptives directly, as there is no evidence that this will be a significant cost to the government in relation to the overall cost of the Affordable Care Act and a small price to pay to achieve the compelling government interest. The majority rejected the notion that RFRA cannot be used to require creation of a new government program, although it acknowledged that cost could at some level factor into the least-restrictive-means analysis. In any case, HHS had already demonstrated another less restrictive means of achieving the Government's interest, in its accommodation of churches and religious nonprofits who are exempted from the mandate. The majority was careful, however, not to endorse that accommodation as necessarily complying with RFRA "for purposes of all religious claims."

Justice Alito closed by countering the concern of a slippery slope -- there was no evidence of a flood of requests for religious exemptions from any coverage mandate other than the contraceptive mandate, such as blood transfusions or vaccinations. The Court had already rejected religious objections to social security taxes, and "there simply is no less restrictive alternative to the categorical requirement to pay taxes." The majority posited its own slippery slope: That accepting HHS's position "would permit the Government to require all employers to provide coverage for any medical procedure allowed by law in the jurisdiction in question -- for instance, third-trimester abortions or assisted suicide." Because owners of many closely held corporations would object to that coverage, "HHS would effectively exclude these people from full participation in the economic life of the Nation. RFRA was enacted to prevent such an outcome."

Justice Kennedy, who fully joined the Court's opinion, wrote separately to emphasize "that the Court's opinion does not have the breadth and sweep ascribed to it by the respectful and powerful dissent." While the majority equivocated whether the government had a compelling interest, but assumed it to be the case, Justice Kennedy affirmed the compelling interest "in the health of female employees." But he also emphasized that the record shows there is an existing and workable alternative to the contraceptive mandate already in place for nonprofit religious organizations, and the government cannot meet its burden of showing that it cannot accommodate the for-profit corporations in the same manner. Somewhat in tension with the majority opinion, which did not fully embrace the nonprofit accommodation over a government-pay system, Justice Kennedy extolled this accommodation over the government itself creating a new program by funding the contraceptives. He believed that the existence of the accommodation distinguished this case from others where a corporation might argue for religious exemption from a different mandate.

The four dissenting Justices put no stock in the majority's view of an adequate, less restrictive means of furthering the government's compelling interest. The dissenters believed that trying to set up and administer any system other than the existing employer-based system of health insurance would impose logistical and administrative burdens on women seeking coverage. Plus, the dissenters wrote, the majority hedged whether the nonprofit accommodation would actually be acceptable to companies like Hobby Lobby and Conestoga. Also, unlike the majority, they did not see a logical stopping point to granting religious exemptions to for-profit corporations beyond the contraceptive mandate. In their view, distinguishing between a religious objection to contraceptives and an objection to other medicines or procedures would itself put the courts in the impermissible business of deciding which religious beliefs are more worthy of accommodation than others. As Justice Ginsburg wrote, "The Court, I fear, has ventured into a minefield."

Indeed, just a few days after Hobby Lobby was released, the Court issued an order in Wheaton College v. Burwell (13A1284), granting the Illinois religious college's emergency application for an injunction (previously refused by the Seventh Circuit) pending appeal of the District Court's denial of a preliminary injunction exempting it from the requirement that it use a specific HHS form certifying its religious objection to trigger the nonprofit accommodation for the contraceptive mandate. In the college's view, submitting that form to its insurance carrier, as HHS requires, makes the college complicit with the provision of the objectionable contraceptives. The college is willing, however, to notify HHS directly of its objection (without the form), and the Supreme Court's order found that sufficient for now without opining on the ultimate merits of the challenge to this part of the nonprofit accommodation. Justice Sotomayor, joined by Justices Ginsburg and Kagan, wrote a lengthy dissent from the order, finding no grounds for emergency interlocutory relief and questioning how using the form could burden religious belief, as well as noting how the Court had just relied on the nonprofit accommodation in the Hobby Lobby case to grant relief to for-profit corporations under RFRA.

Well, that wraps up another Term! We'll leave you with these questions, which the Court has agreed to take up next Term:

Mach Mining, LLC v. EEOC (13-1019): "Whether and to what extent may a court enforce the EEOC's mandatory duty to conciliate discrimination claims before filing suit?"

Mellouli v. Holder (13-1034): "[M]ust the government prove the connection between a drug paraphernalia conviction and a substance listed in section 802 of the Controlled Substances Act" to trigger deportability under 8 U.S.C. § 1227(a)(2)(B)(i)?

United States v. Wong (13-1074): Is the six-month time bar for filing suit in federal court under the Federal Tort Claims Act, 28 U.S.C. 2401(b), subject to equitable tolling?

Relatedly, United States v. June (13-1075) asks: Is the two-year time limit for filing an administrative claim with the appropriate federal agency under the Federal Tort Claims Act, 28 U.S.C. 2401(b) subject to equitable tolling?

Gelboim v. Bank of America Corp. (13-1174): "Whether and in what circumstances is the dismissal of an action that has been consolidated with other suits immediately appealable?"

Young v. United Parcel Service, Inc. (12-1226): "Whether, and in what circumstances, an employer that provides work accommodations to nonpregnant employees with work limitations must provide work accommodations to pregnant employees who are ‘similar in their ability or inability to work.'"

Kellogg Brown & Root v. United States (12-1497): (1) "Whether the Wartime Suspension of Limitations Act—a criminal code provision that tolls the statute of limitations for ‘any offense' involving fraud against the government ‘[w]hen the United States is at war,' 18 U.S.C. § 3287 … applies to claims of civil fraud brought by private relators, and is triggered without a formal declaration of war, in a manner that leads to indefinite tolling;" and (2) "Whether … the False Claims Act's so-called ‘first-to file' bar, 31 U.S.C. § 3730(b)(5)—which creates a race to the courthouse to reward relators who promptly disclose fraud against the government, while prohibiting repetitive, parasitic claims—functions as a ‘one case- at-a-time' rule allowing an infinite series of duplicative claims so long as no prior claim is pending at the time of filing."

Oneok, Inc. v. Learjet, Inc. (13-271): "Does the Natural Gas Act preempt state-law claims challenging industry practices that directly affect the wholesale natural gas market when those claims are asserted by litigants who purchased gas in retail transactions?"

B&B Hardware, Inc. v. Hargis Industries, Inc. (13-352): Whether a finding by the Trademark Trial and Appeal Board that Hargis's "SEALTITE" mark created a likelihood of confusion with B&B's "SEALTIGHT" mark "precludes Hargis from relitigating that issue in infringement litigation, in which likelihood of confusion is an element;" and (2) "Whether, if issue preclusion does not apply, the district court was obliged to defer to the TTAB's finding of a likelihood of confusion absent strong evidence to rebut it."

Reed v. Gilbert, AZ (13-502): Whether the Town of Gilbert's "mere assertion of a lack of discriminatory motive render its facially content-based sign code content-neutral and justify the code's differential treatment of Petitioners' religious signs?"

Alabama Dept. of Revenue v. CSX Transportation (13-553): (1) "Whether a State ‘discriminates against a rail carrier' in violation of 49 U.S.C. §11501(b)(4) when the State generally requires commercial and industrial businesses, including rail carriers, to pay a sales-and-use tax but grants exemptions from the tax to the railroads' competitors;" and (2) "Whether, in resolving a claim of unlawful tax discrimination under 49 U.S.C. §11501(b)(4), a court should consider other aspects of the State's tax scheme rather than focusing solely on the challenged tax provision."

Wellness Int'l Network v. Sharif (13-935): (1) "Whether the presence of a subsidiary state property law issue in a 11 U.S.C. § 541 action brought against a debtor to determine whether property in the debtor's possession is property of the bankruptcy estate means that such action does not ‘stem[] from the bankruptcy itself' and therefore, that a bankruptcy court does not have the constitutional authority to enter a final order deciding that action"; and (2) "Whether Article III permits the exercise of the judicial power of the United States by the bankruptcy courts on the basis of litigant consent, and if so, whether implied consent based on a litigant's conduct is sufficient to satisfy Article III."

Direct Marketing Association v. Brohl (13-1032): Whether the Tax Injunction Act, 28 U.S.C. § 1341, "bars federal court jurisdiction over a suit brought by non taxpayers to enjoin the informational notice and reporting requirements of a state law that neither imposes a tax, nor requires the collection of a tax, but serves only as a secondary aspect of state tax administration?"

Finally, the Court asked for the SG's views on the petition for certiorari in Teva Pharmaceuticals USA v. Superior Court of California (13-956), which would ask whether the California Court of Appeal erred when it held that "federal law does not preempt state tort claims predicated on allegations that a generic drug manufacturer violated the [federal Food, Drug, and Cosmetic Act] by failing to immediately implement or otherwise disseminate notice of labeling changes that the United States Food and Drug Administration had approved for use on a generic drug product's brand name equivalent."

Thanks for following the 2013-2014 Term with us! We'll be back in the fall.

Kim, Jenny & Tadhg