Third Circuit Ruling Against Challenge to HHS Mandate

by Ed Whelan

Last Friday, a divided Third Circuit panel ruled that “for-profit, secular corporations cannot engage in religious exercise” and on that basis affirmed a misguided district court ruling that denied preliminary injunctive relief to plaintiffs challenging the HHS mandate under the federal Religious Freedom Restoration Act and the First Amendment. The panel ruling creates a conflict with the en banc Tenth Circuit’s ruling one month ago in the Hobby Lobby case and thus substantially increases the prospect that the Supreme Court will soon address the issue.

The particular plaintiffs in this case are Conestoga Wood Specialties Corporation and the five members of the Hahn family who together own 100% of Conestoga’s shares and each of whom is a member of Conestoga’s board of directors.

Some observations:

1. I’ve previously highlighted law professor (and Becket Fund lawyer) Mark Rienzi’s essay and law-review article explaining that “there is no principled basis for excluding profit-making businesses and their owners from the protection of our religious liberty laws.” In his extensive dissent, Third Circuit judge Kent Jordan does an excellent job of dismantling the majority’s reasoning. As Volokh Conspirator Will Baude puts it, “the majority’s reasoning is pretty strange,” for what it says about the religious corporations known as churches “cuts against everything it has just said about corporations not having ‘beliefs’ or ‘religiously-motivated actions separate and apart’ from their members.”

2. As for the individual plaintiffs: The Third Circuit majority fails to keep in mind the Hahns’ dual roles as shareholders of Conestoga and as members of Conestoga’s board. Referring only to the Hahns as Conestoga’s “owners,” the Third Circuit majority argues that the claim that they have religious-liberty rights “rests on erroneous assumptions regarding the very nature of the corporate form.” It likewise contends that the HHS mandate “does not actually require the Hahns to do anything.” (Emphasis in original.) But the HHS mandate in fact requires that the Hahns, as Conestoga’s board members, comply with its terms in operating Conestoga. In other words, it constrains how the Hahns exercise their authority as board members in conducting Conestoga’s operations. And by virtue of their other role as owners, the Hahns face a substantial economic penalty if they fail to operate Conestoga consistent with the HHS mandate.

(It is no answer to say that the Hahns could escape the compulsion of the HHS mandate by resigning from Conestoga’s board. As the Supreme Court made clear in Sherbert v. Verner, the question under the Free Exercise regime that RFRA restored as a matter of federal statutory law is not limited to whether a law “directly compel[s]” a person to act contrary to his religious beliefs but extends as well to “indirect” burdens.)

3. Given the conflict between the Third Circuit and the Tenth Circuit, the Supreme Court will likely soon have the opportunity to address whether for-profit corporations have the capacity to engage in religious exercise for purposes of RFRA and the First Amendment. If it decides (as it should) to address that question, the Court should invite full briefing on the intertwined question whether the individuals who own the shares of a closely held corporation and sit on its board of directors (or who similarly exercise ultimate policymaking authority for the corporation) have religious-liberty rights in the corporation’s operation by virtue of those dual roles.

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