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From Health Law Daily, September 20, 2013

Supreme Court asked to hear Hobby Lobby case, religious exemption to contraceptive coverage requirement at issue

By Kelly J. Rooney, JD

The U.S. government has requested that the Supreme Court hear the case of Hobby Lobby Stores, Inc. v Sebelius, in which the craft store (along with another chain owned by the family) requested an exemption from the Affordable Care Act mandate to provide contraceptive coverage to its employees on the basis of religious objection by the owners. The Petition of a Writ of Certiorari was filed by the U.S. Departments of Health and Human Services, Labor, and the Treasury, along with their respective Secretaries (Kathleen Sebelius, Thomas E. Perez, and Jacob J. Lew). The Tenth Circuit previously ruled that for-profit corporations could deny coverage that employees are otherwise entitled under federal law based on the religious objections of the individuals controlling the corporation. The government requests review, claiming in part that the Tenth Circuit’s holding conflicts with recent decisions of other appeals courts, and that the companies are not entitled to raise individual rights to raise religious exemptions when they chose to create a corporate entity.

Background. Hobby Lobby, a chain of arts-and-craft stores, along with Mardel, Inc., an affiliated chain of bookstores owned by the same family (the Greens), provide group health coverage for their employees. The Greens believe that human life begins at conception, and thus, on the basis of their religious beliefs, reexamined its insurance policies following the enactment of the contraceptive mandate and decided to exclude contraceptives that prevented the implantation of a fertilized egg, namely certain intrauterine devices (IUDs), Plan B, and Ella. They brought suit, claiming that this requirement violates the Religious Freedom Restoration Act (RFRA) (P.L. 103-141), which provides that the government “shall not substantially burden a person’s exercise of religion” unless it is the least restrictive means to further a compelling government interest, and the Free Exercise Clause of the First Amendment.

Procedural history. The procedural history is extensive, and has been previously reported at length in Health Law Daily. The U.S. District Court for the Western District of Oklahoma considered the companies’ request for a preliminary injunction in November 2012. The district court denied the injunction, finding that the companies could not meet the burden of showing that they were likely to succeed on the merits of their First Amendment claims because they were secular, for-profit corporations lacking free exercise rights like individual “persons,” and that the companies did not show they would be substantially burdened by the contraceptive mandate. The Tenth Circuit, on June 27, 2013, found that the RFRA and the Free Exercise Clause applied to the two companies and owners so that they (1) were able to bring claims under the RFRA, (2) showed a likelihood of success that their rights under RFRA were substantially burdened by the contraceptive mandate, and (3) established irreparable harm. Thus, the Tenth Circuit reversed the district court’s ruling denying the companies’ motion for a preliminary injunction. Following the Tenth Circuit’s decision and remand to the district court, on July 19th, the district court granted the companies’ emergency motion for preliminary injunction and stayed the proceedings until October 1, 2013, to allow the government time to determine whether it would appeal to the Supreme Court. In its Petition, the government presents several reasons it believes the petition should be granted.

RFRA arguments. The government argues that RFRA does not allow for a for-profit corporation to deny its employees the benefits to which they are otherwise entitled by federal law. First, the government claims that the corporations are not “person[s] exercis[ing] religion” as are covered by RFRA. To that end, the government states that when RFRA was enacted, there was no case law that gave free-exercise right to for-profits, or granted them exemptions from corporate regulations because of religion, and yet, the Tenth Circuit held that “the religious beliefs of the Greens…trump the rights of the corporations’ 13,000 full-time employees and their family members to receive the health coverage to which they are entitled by federal law.”

Second, the government claims that the Tenth Circuit did not present evidence that Congress meant to disregard the corporate entity with respect to RFRA and treat owners as individuals. It is not the Greens individually that are required to provide health coverage to the corporations’ employees, or to pay their salaries, the government reasons, but rather, it is the obligation of the corporations. Citing the Conestoga Wood Specialties Corp. v HHS decision, it states that “[t]he Greens ‘chose to incorporate and conduct business through [corporations], thereby obtaining both the advantages and disadvantages of the corporate form” and cannot now “move freely between corporate and individual status to gain the advantages and avoid the disadvantages of the respective forms.”

Third, the government argues that the burden that is placed on the companies here is not “substantial” because it is too attenuated. The employees’ insurance plan covers many medical services, and the decision whether to “use contraception, treat an infection, or have a hip replacement” is best left to the individual and her doctor.

Last, the government argues that companies’ argument under heightened scrutiny also fails because the contraceptive coverage requirement is the least restrictive means of advancing compelling government interests. The compelling government interest in mandating contraceptive coverage is the promotion of public health, and the use of contraceptives decreases the likelihood of negative health consequences for both women and children, the government maintains. The government states, in response to the declaration by the Tenth Circuit that “Hobby Lobby and Mardel do not prevent employees from using their own money to purchase the four contraceptives at issue here,” that the women’s health preventive services requirement was enacted because women have disproportionately higher out-of-pocket health care costs than men, and the Tenth Circuit’s declaration is contrary to Congress’ intentions. Further, the companies argued that they are only excluding four types of contraceptives from coverage, but the government states that certain types are contraindicated for women with certain risk factors or conditions, so coverage of all methods are required.

Conflict with other Circuits. As the government notes, this question is “of exceptional importance concerning asserted RFRA rights of for-profit corporations,” and points out that contrary holdings have been reached by both the Third and Sixth Circuits in the Conestoga Wood and Autocam Corp. v Sebelius cases. [Comparable claims are also pending in the Seventh, Eighth, Eleventh, and D.C. Circuits.] Both involved similar RFRA and free exercise arguments against the contraceptive coverage requirement brought by secular, for-profit corporations. In Conestoga Wood, the Third Circuit rejects the company’s claims, stating that it was “not aware of any case preceding the commencement of litigation about the [contraceptive-coverage requirement], in which a for-profit, secular corporation was itself found to have free exercise rights” and rejected the company’s argument that the corporate form should be disregarded and treat the corporation as if it were indistinguishable from the individual shareholders. The Third Circuit said that if the individuals chose to utilize the corporate form to begin with, they cannot now request to be treated as individuals.

The Sixth Circuit found in the Autocam case that if the free exercise clause were expanded to cover corporations as if they were persons, it would “lead to a significant expansion of the scope of the rights the Free Exercise Clause [previously] protected.” The RFRA claims raised by Autocam’s owners were also dismissed for lack of standing because of a longstanding rule barring claims by shareholders “intended to redress injuries to a corporation.”

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