How do Corporate Believers Stand?

July 2, 2014
Guest Post

by Brandon L. Garrett, Roy L. and Rosamund Woodruff Morgan Professor of Law, University of Virginia School of Law

Now a corporation can have sincere religious beliefs of legal significance.  Was yesterday’s long-awaited ruling in the Hobby Lobby case, a “narrow” ruling?  The Supreme Court majority did suggest that perhaps just “closely-held” for-profit companies, as believers, would be exempt from contraceptive coverage under the Affordable Care Act of 2010. And the Court said it would not address whether a company could have First Amendment free exercise rights.  Was that notable restraint?  Even if so, the Court utterly lacked restraint in silently dodging a larger constitutional question: whether a company has standing under Article III of the Constitution to sue based on the religious beliefs of its separate owners.  

Article III of the Constitution requires that there be a “Case or Controversy” and that a plaintiff suffer a “concrete injury” in order to sue.  To be sure, the parties did not push the issue, although lower courts considered and bitterly divided over the question.  None other than John G. Roberts, as a practicing lawyer, pointed out that just because Congress passes a law entitling someone to sue, does not mean they can constitutionally sue absent a concrete injury; he then called it a crucial principle of “judicial restraint.”  And yet in Hobby Lobby, the Court never directly addressed Article III standing.  The Court suggested that since the Religious Freedom Restoration Act (RFRA) of 1993, used the word “person,” and that the federal “Dictionary Act” statute defines persons to include all manner of corporations, this was somehow enough.  Just saying that a corporation is a “person” though is not enough to allow it to sue on behalf of the beliefs of others.  

After all, corporate persons have “no beliefs,” as Justice John Paul Stevens put it well, to no avail, in his dissent in Citizens United.  The best Justice Samuel Alito could come up with in the majority opinion in Hobby Lobby was a shaky 1961 decision including individual sole proprietor merchants – who all lost their religious exercise claim because the Court said it was not enough that a law made things “more expensive” for them.  As Justice Ruth Bader Ginsburg put it in her dissent, there is no discussion or suggestion in that case or in a similar 1961 case, that corporations have standing; “the exercise of religion is characteristic of natural persons, not artificial legal entities.”  

The companies, Hobby Lobby Stores Inc., a national arts and crafts store chain, and Conestoga Wood Specialties Corp., a small kitchen cabinet maker, are closely-held and family owned.  But it was the owners who claimed to have sincerely held religious beliefs. Justice Alito said much about what the owners “believe” on a “religious and philosophical question.”  But Justice Alito also slipped into describing the “sincerity” of the company’s own religious beliefs, and not just those of the owners.  Things then got truly weird when Justice Alito discussed how corporations can serve to protect “the religious liberty of the humans who own and control” the companies.  

Just because the owners of a company have beliefs does not mean that they can sue on behalf of the company, which itself must comply with the law.  Nor does it mean that the company can make legal claims by relying on the views of the owners.  Separateness is the fundamental feature of the corporate form.  Owners can only sue derivatively on behalf of a company, and not for themselves, under very limited circumstances.  At least, that was the law until now. Justice Alito did not reach whether the owners could sue in their own names to protest regulations; if they simply cannot then there are stronger reasons to allow the company to sue. 

In the past, the Supreme Court had also been very clear that there is a special Article III concern (and free-exercise concern) with potential conflicts of interest.  Employees can directly exercise their religious beliefs, but they were not part of the lawsuit.  In fact, many if not most of Hobby Lobby and Conestoga female employees might very well disagree with the personal position of the owners.  Doctors can sometimes sue on behalf of patients denied access to contraceptives because doctors may share a close relationship with patients, as the Court has said in well-known cases.  But are the owners of Hobby Lobby like doctors who are chosen and trusted to decide what is best for the health of their employees and also their covered dependents?  The decision, as Justice Ginsburg pointed out “would deny legions of women who do not hold their employers’ believes access to contraceptive coverage."  

And what does this say about all of the cases where the Court has turned away organizations from the courthouse steps?  How about the environmental non-profits that have sued to protest actions endangering wildlife?  The Supreme Court has said that such injuries may be too “hypothetical.”  It sounds more and more as if these constitutional rules for who has a right to sue reflect nothing more than the Justices’ own personal preferences.  For-profit corporations – let them sue without discussing standing requirements – even if that means ignoring corporate form and the health and interests of employees.  Non-profit environmental groups – they are a “special interest” not worth recognizing.

It is the Court’s ruling that “flies in the face of modern corporate law.” Five Justices adopted a surprising new view suggesting no meaningful difference between types of organizations.  A religious non-profit or a membership association have long been able to sue on behalf of their members - because they have members.  Religious groups exist to promote and foster beliefs of those sharing a common faith.  But for-profit corporations are separate and have no “members.”  An amicus brief (that I signed) drove this point home, and it was of course ignored.  The Court suggests a radical idea that the largest corporations are no different from sole proprietors or associations or non-profits.  To be sure, the Court here and there said that its holding was limited to the RFRA statute and the topic of for-profit closely-held corporations.  But as the dissent pointed out, closely held does not mean small and the opinion’s “logic extends to corporations of any size, public or private."  Hobby Lobby is a sizable company.  The Court took pains to say that since for-profit companies may pursue “worthy objectives” like charitable causes or the public interest, there is no “sharp line” between non-profits and for-profits.  The line is sharp and it is important.  And what if various corporate owners disagree?  The Court says state corporate law can resolve conflicts – all the while ignoring the fundamental feature of state corporate law, that owners are legally separate.

Corporations can sue and be sued.  They can be prosecuted.  But a for-profit company cannot have "beliefs," even if it can pursue acts of public benefit.  The owners may have beliefs, but if they choose to form a corporation, they are legally separate.  That is why a company can be separately prosecuted for crimes – even if it is closely held – and even if the owners did not commit the acts.  That is why owners are not liable for the company’s debts – even if the owners' business plans led the company into ruin.  Somehow the Court found legal separation “quite beside the point.”  Separation is the precise point of a corporation.  The legal absurdities that the Hobby Lobby decision raises will only become magnified over time.  Have no doubt that the case is a tacitly constitutional case, as well as a not-so-silent rewriting of corporate law.  The Court ignored the Constitution – not just by avoiding the First Amendment issue – but by ignoring the limits on its own power to hear an artificial “controversy."  We may see an explosion in novel corporate constitutional litigation as a result.