Federal Court Rules PPACA Contraceptive Coverage Mandate Unconstitutional
From the moment it was first proposed, the mandate issued by the Dept. of Health and Human Services that required all employer provided health insurance plans to include coverage for contraceptives at no additional cost to employees has been the subject a great deal of controversy. At the beginning, much of the criticism came from religious institutions like the Catholic Church that run seemingly non-religious operations such as schools and hospitals who objected that being required to cover contraceptives, some of which arguably could be considered abortifacients because of the manner in which they work, would require them to go against their religious beliefs in violation of their rights under both the First Amendment and a Federal Law known as the Religious Freedom Restoration Act. Quickly, though, those objections from employers who were also religious organizations started being echoed by private employers who claimed that complying with the mandate would also violate their religious beliefs.
It didn’t take long for lawsuits to be filed, of course, and over the course of the last year or so we’ve gotten a handful of Federal Court rulings on the issue, some of which have gone in favor of the employer and some of which have gone in favor of the government. The latest such decision came out this week from the highly influential D.C. Circuit Court of Appeals, where a three-judge panel issued a divided ruling striking down the mandate:
WASHINGTON — A federal court on Friday ruled that the health care law’s mandate that employers provide free coverage for contraception infringed on individual religious liberty.
The case, Gilardi v. the Department of Health and Human Services, was the latest setback for the Obama administration as it struggles to fix the crippled insurance enrollment website, HealthCare.gov. However, the fight over the mandate long preceded the law’s enactment and will most likely go to the Supreme Court.
The mandate “trammels the right of free exercise,” Judge Janice Rogers Brown wrote for a divided three-judge panel of the Court of Appeals for the District of Columbia Circuit.
The ruling was largely in line with most others around the country so far. Of nearly 40 challenges, only a handful of courts have upheld the government’s requirement that employer health plans provide free birth control, emergency contraception and sterilization.
Francis A. Gilardi Jr. and Philip M. Gilardi, brothers from Sidney, Ohio, should not have to provide contraception coverage to employees of the companies they own if it goes against their Catholic faith, the court ruled. However, those companies themselves, Freshway Foods and Freshway Logistics, do not have the right to challenge the mandate on religious grounds, the court said.
As a result, the ruling was only a “partial victory” for mandate opponents, according to a statement from the American Center for Law and Justice, which represented the Gilardis. The organization said it planned to ask the Supreme Court to settle the question.
“While this is a victory for the individual plaintiffs,” said Francis J. Manion, who argued the case, “the appeals court rejected a critical argument that the rights of the companies be protected as well.”
However, the question of companies’ rights is just a “procedural technicality,” said Eric Baxter, a senior counsel at the Becket Fund for Religious Liberty, which has represented other high-profile challengers to the ban, including the craft store chain Hobby Lobby. The Supreme Court is expected to decide before Thanksgiving whether to review that or other cases about the mandate, Mr. Baxter said.
Judge Harry T. Edwards wrote a dissent to the main part of the ruling, calling the Gilardis’ claim that a requirement on their companies imposed a burden on their freedom of religion “specious.”
Judge Edwards continued, “It has been well understood since the founding of our nation that legislative restrictions may trump religious exercise.”
SCOTUSBlog’s Lyle Denniston sums up the ruling this way:
Judge Janice Rogers Brown wrote the main opinion issued on Friday, which drew varying support from her two colleagues. Her opinion first concluded that the Freshway corporations are not individually “persons” capable of exercising a religious belief, and therefore cannot pursue a claim that the mandate offends the firms’ faith. In this context, she wrote, “person” means an individual human being, for purposes of both the Constitution and the federal Religious Freedom Restoration Act.
That part of her opinion had the support of Senior Judge Harry T. Edwards, but it drew a dissent from Senior Judge A. Raymond Randolph, who argued that the panel did not need to reach that issue.
The second part of Brown’s opinion concluded that, because the Freshway companies are run as closely held corporations, each with just two owners, the brothers may sue in that capacity to assert their own religious objections to the mandate. That right-to-sue part of the ruling was unanimous, with the support of both Judges Edwards and Randolph.
While the panel did not rule finally that the brothers’ challenge ultimately will win, the panel split two to one in declaring temporarily that the brothers’ challenge is likely to win in in the end, so the government was currently barred from enforcing the mandate against the brothers. On that point, Judge Randolph joined with Judge Brown for the majority, and Judge Edwards dissented.
Of particular interest is this portion of Judge Brown’s opinion on the religious liberty issues involved in the case:
The contraceptive mandate demands that owners like the Gilardis meaningfully approve and endorse the inclusion of contraceptive coverage in their companies’ employer provided plans, over whatever objections they may have. Such an endorsement—procured exclusively by regulatory ukase—is a “compel[led] affirmation of a repugnant belief.” See id. That, standing alone, is a cognizable burden on free exercise. And the burden becomes substantial because the government commands compliance by giving the Gilardis a Hobson’s choice. They can either abide by the sacred tenets of their faith, pay a penalty of over $14 million, and cripple the companies they have spent a lifetime building, or they become complicit in a grave moral wrong. If that is not ”substantial pressure on an adherent to modify his behavior and to violate his beliefs,” we fail to see how the standard could be met. See Thomas, 450 U.S. at 718.
In suggesting that no substantial burden lies with the Gilardis, the government invokes the principles undergirding the bargain for the corporate veil. True, it is an elementary principle of corporate law that “incorporation’s basic purpose is to create a distinct legal entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who created it, who own it, or whom it employs.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163 (2001). And as part of that fiction, shareholders forgo certain rights pertaining to the corporation. See Grote v. Sebelius, 708 F.3d 850, 858 (7th Cir. 2013) (Rovner, J., dissenting). But we cannot simply stop there. Shareholders make such a sacrifice because the corporation can generally exercise some analogue of the forgone right. As a corporation is “capable of making and executing contracts, possessing and owning real and personal property in its own name, suing and being sued,” a shareholder cannot expect to exercise the right to take these actions in his or her personal capacity. See 1 W. FLETCHER CYCLOPEDIA OF THE LAW OF CORPORATIONS § 25 (2006). This is no less true with constitutional rights. See Franks v. Rankin, Nos. 11AP-934, 11AP-962, 2012 WL 1531031, at *10 (Ohio Ct. App. May 1, 2012) (rejecting a shareholder’s due process claim brought on behalf of the corporation).
Mindful of these principles, consider the ramifications of the government’s argument. It contends free exercise is an individual right. If the Gilardis had run their businesses as sole proprietorships, they would presumably have a viable RFRA claim under the government’s theory. Cf. Braunfeld, 366 U.S. at 601 (describing individual merchants who challenged a Sunday closing law under the Free Exercise Clause). But the government, relying on what is perhaps an incomplete understanding of corporate law, argues the Gilardis lose the ability to make such a claim by taking advantage of state incorporation law. And as a corollary to the government’s expansive theory, the party being regulated—the corporation—cannot make a free-exercise claim, as it is not an individual capable of exercising religion. So, in the government’s view, there is no corporate analogue, and the individual right disappears into the ether.
This interpretation is perplexing and troubling. It is perplexing because we do not believe Congress intended important statutory rights to turn on the manner in which an individual operates his businesses. The government’s logic is also quite troubling because it would eventually reach First Amendment free-exercise cases. The same language, ”exercise” “of religion,” appears both in the Constitution and RFRA. Compare U.S. CONST. AMEND. I (“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof . . . .”), with 42 U.S.C. § 2000bb-1(a) (“Government shall not burden a person’s exercise of religion . . . .”). Thus, if the government is correct, the price of incorporation is not only the loss of RFRA’s statutory free-exercise right, but the constitutional one as well. And that would create a risk of an unconstitutional condition in future cases. See Perry v. -Sindermann, 408 U.S. 593, 597 (1972) (“[T]his Court has made clear that even though a person has no ‘right’ to a valuable governmental benefit and even though the government may deny him the benefit for any number of reasons, there are some reasons upon which the government may not rely. It may not deny a benefit to a person on the basis that infringes on his constitutionally protected interests . . . .” (emphasis added)).
In other words, individuals don’t lose their Constitutional rights when they incorporate their business. This would seem to be an axiomatic proposition, actually, especially when what we’re talking about isn’t a large publicly traded corporation like General Electric or Google but smaller businesses and/or closely held corporations where all, or almost all, of the shares are owned by a small number of people who are, in many cases family members or related in some way or another. The fact that they have chosen to incorporate or form an LLC, something which is largely done for purposes such as tax planning and shielding individual assets from corporate creditors, should not be a significant influence on the question of whether or not they are still able to exercise their Constitutional rights. As Judge Brown notes, if these brothers had decided to continue operating as a Sole Proprietorship, or even a General Partnership, then they would clearly still retain the Constitutional rights that they are seeking to exercise here. Given that, there’s no rational reason why they shouldn’t be able to exercise them under the current legal form in which they have chosen to operate their business.
As for the merits of this issue, I think the arguments of the employers have merit. Initially, I was skeptical about the arguments that even religious institutions were making regarding the religious liberty issues involved in this issue, but as the cases have made their way through the Federal Courts it’s become clear to me that there is far more merit to these arguments than I had initially thought. In many ways, the arguments are similar to those to a case out of Oregon that was handed down in February 2012. In that case, a Federal Court ruled that a pharmacist who had religious objections could not be forced to sell the so-called “morning after” pill. As National Review’s Ed Whelen recognized when that decision was handed down, the Judge’s reasoning in that case suggested strong that religious employers had a strong argument against the HHS mandate under both the First Amendment and the Religious Freedom Restoration Act. To make a very long argument short, the basic idea is that the government cannot impose a burden on religious faith without a compelling reason to do so and, as the Court goes on to find in the D.C. Circuit Court case here, the argument presented by the government simply doesn’t create a compelling enough interest to justify the abrogation of the Constitutional and statutory rights of employers.
This issue is inevitably headed to the Supreme Court. There are have already been several rulings on this issue at the Circuit Court of Appeals level, and there is a definite split of opinion on whether or not the contraceptive coverage mandate is constitutional. Several of those cases, including, potentially, this one, are at a point in the litigation where they could be considered by the Court during its current term with a decision being handed down by June of next year. So, we’re likely to get something resembling a final decision on this issue in the relatively near future.
Here’s the decision: