Does Hobby Lobby Even Have Standing?

March 26, 2014
Guest Post

by Brandon L. Garrett, Roy L. and Rosamond Woodruff Morgan Professor of Law, University of Virginia School of Law. Since the 2011 publication of Convicting the Innocent: Where Criminal Prosecutions Go Wrong, Professor Garrett has written widely on issues of criminal procedure, scientific evidence, corporate crime, and the law. This fall, Harvard University Press will publish his new book, Too Big to Jail: How Prosecutors Compromise with Corporations.

Yesterday the Supreme Court heard arguments in the long awaited cases of for-profit corporations arguing that Obamacare's contraception mandate endangers their constitutional and statutory religious exercise rights.  Both Hobby Lobby Stores Inc., a national arts and crafts store chain, and Conestoga Wood Specialties Corp., a small kitchen cabinet maker, argued that they should be exempt from the health insurance regulations due to not just their owners’ beliefs, but their corporate consciences. Rather than focus on whether a company is a "person" that "has" a statutory or constitutional right to free exercise of religion, the Justices could have pushed harder on a constitutional question that comes first: whether the lawsuit even belongs in a federal court.

During the arguments, Justice Elena Kagan noted: “I'm not sure I understand it as a threshold claim that . . . the claim is not recognizable at all.” And Justice Anthony Kennedy asked: “You say profit corporations just don't have any standing to vindicate the religious rights of their shareholders and owners.” Does Hobby Lobby have standing to sue?  For a federal judge to hear a case, Article III of the Constitution requires there to be a “Case or Controversy.” The Supreme Court has interpreted the requirement to mean that a plaintiff must suffer a "concrete injury" to its own interests – and not those of others – in order to sue. The Court has kicked out cases holding that a "mere interest in a problem" was not concrete enough. The Court has only in unusual cases allowed a third-party to sue on behalf of another, like an employee, owner, or customer. 

These companies say that they suffer direct harm: the contraception mandate costs them money. That is what the Tenth Circuit in Hobby Lobby briefly noted: the companies “face an imminent loss of money, traceable to the contraceptive-coverage requirement.” But even if that is true (which was the subject of tough questions at the arguments), paying that money does not directly affect any individual’s ability to freely exercise religion. Only the employees and officers can directly exercise their individual religious beliefs. And they are not the ones paying to comply with the regulations. They are separate from the company.

Separateness is the essence of a corporation. As an amicus brief (one that I signed) put it well, a corporation and its owners are strictly separate; the “veil” that divides the two can only legally be “pierced” in highly unusual circumstances. Even a corporation with a sole owner is separate.  A for-profit corporation is obligated to maximize profits and owes no duty to fulfill any beliefs of its owners or employees. At the same time, the owners are protected from debts the corporation takes on. 

In contrast, a church or religious organization or a non-profit can readily assert religious views or beliefs on behalf of its members. That is because a non-profit or religious organization is like a membership organization or an association, which benefit from generous standing rules. A religious organization, whether incorporated or not, exists to promote the religious exercise of their members: as the Supreme Court has explained, “[f]or many individuals, religious activity drives meaning in large measure from participation in a larger religious community.”  

At yesterday's arguments, the Solicitor General noted sometimes a company might assert third-party standing, say, on behalf of customers.  The Supreme Court has only permitted third parties to assert the rights of others with which they have a very close relationship, such as by permitting doctors to sue for patients. However, the Court demands a strong assurance that the third-party is “full, or very nearly” as effective an advocate for the constitutional right, often alongside some good reason why a claim by the individual party would otherwise not be reviewed. We have no reason to think that a company like Hobby Lobby is standing up for the views of all of its employees or that it is an effective advocate for those views. And shareholders can typically only sue derivatively, and not on their own behalf, even if financially affected by the corporation's decisions.  For such reasons, the Court has long held that Fifth Amendment rights are purely individual, and that no type of collective entity has standing to assert them.

Corporate personhood is not the problem. Of course corporations can sue and be sued. They can be prosecuted for the crimes of employees. But only a voluntary association of people with likeminded beliefs or a religious group or a nonprofit can stand for the beliefs of others.  A for-profit corporation stands for its profits. 

At the arguments yesterday, Justice Samuel Alito, Jr. succinctly asked if for-profits would simply be unable to challenge some laws on religious grounds.  The answer is yes.