Monday, June 30, 2014

No clear lines in the sand

From Anne Tucker (who is off filming academic videos this afternon--whatever that means!):

Today’s Supreme Court decision in Burwell v. Hobby Lobby Stores Inc. et al. exempted closely held corporations from complying with the contraceptive mandate in the Affordable Care Act.  There is plenty to debate about the opinion—corporations are persons under RFRA and can exercise religion as well as a host of choice quotes from the SCOTUS about “modern corporate law”—and I will leave that fun for another time.  I want to highlight three initial reactions:    

  1. There is no definition of closely held in today’s opinion.  Will we draw lines based on state corporate codes and elections to be S corp?  Will we rely upon the IRS definition of a closely held company?  It is unclear.  There is NOTHING in the opinion that prevents today’s ruling from applying to publically traded, closely held corporations like Wal-Mart.  The line drawing engaged by the SCOTUS in Hobby Lobby is not such a neatly drawn, tight circle, but is a wide net.  I discussed this briefly in a HuffPost Live segment earlier today—here.
  2. This is a statutory, not a constitutional ruling.  On its face.  Of course Congress could amend RFRA and exclude corporations, but there are exactly zero people holding out hope for that solution, at least in our present climate.  The language of the opinion, however, gives strong dicta supporting religious rights and identities of corporations, whether for profit or not.  [“Any suggestion that for-profit corporations are incapable of exercising religion because their purpose is simply to make money flies in the face of modern corporate law.”]
  3. Today, the Court weighed in on the moral dilemma of performing an “innocent” act (i.e., providing health care coverage) that enables an “immoral” act (i.e., using an IUD whether for family planning or medical reasons).  May companies object to coverage that includes screening for sexually transmitted diseases because unwed employees may use it ensure safe, premarital sex?  The answer would seem to be yes. Of course, we can imagine that the Court would find a compelling interest here like they did with contraceptives, but what about the least restrictive means?  In Hobby Lobby, the Court found the existing program for the government to pay for contraceptives (for exempted nonprofit entities) as evidence of a less restrictive alternative.  So the government pays for the thing that for-profit corporations don’t want to pay for.  In other words, we now subsidize corporate religious beliefs. And if you are a corporation do you want to pay for something that competitors don’t have to?  The sincerity of the belief might be an issue, but if corporate law teaches us one thing, it is how to build a record.

-Anne Tucker

Formatting changes/errors are all mine.

Great work, Anne!

Anne Tucker, Business Associations, Corporate Governance, Corporations, Current Affairs, Religion | Permalink


To your first reaction, Anne, some folks, Jennifer Taub included, have been trying to ascertain where the Supreme Court got its definition of closely held from. I do not know what the Supreme Court relied on for its characterization. But, as I noted to Jennifer, I am pretty sure that the Court did not rely on other legal conceptions of the term--ones we all teach in our Business Associations classes. Those legal conceptions vary from state to state, and I differentiate (in teaching this material) between statutory close corporations and common law closely held corporations. But in each case, the definitions rely on some combination of a small number of owners, identity of owners and managers, and identification of that owner-manager group as "family and friends"--folks with some connection to and history with each other (at least at the time the court decision is rendered). The Supreme Court gives us only the following to chew on, unless I am missing something: "The companies in the cases before us are closely held corporations, each owned and controlled by members of a single family." What I do not see in the court's decision is a focus on the number of owners. Justice Ginsburg's dissent points this out in FN 19. The Court seems to be focused on family control only. Do you agree?

Posted by: joanheminway | Jul 1, 2014 10:14:16 AM

Thanks for the good comment Joan. I agree that there the definition of closely held is nuanced and not subject to a clear, bright line. The Court was focused on family-owned because those were the petitioners before it. My sense though from reading the opinion is that the Court's reasoning could extend beyond it. "Any suggestion that for-profit corporations are incapable of exercising religion because their purpose is simply to make money flies in the face of modern corporate law. My guess is that if a public company, for example, wanted the same exemption extended to Hobby Lobby, the issue wouldn't be the ownership-structure per se, but rather the practical difficulty of determining the "sincerity of the belief." My point about WalMart is that over 50% of its stock is controlled by the Walton family even though a great many number of other individuals (and institutions) own stock in the company.

Posted by: Anne Tucker | Jul 1, 2014 12:52:22 PM

Got it, Anne. I guess we'll have to see what transpires. Since the "closely held" term/language pervades the opinion, any widening of the effects of the holding will require either congressional action or further litigation. More fun to which we all can look forward!

Posted by: joanheminway | Jul 1, 2014 1:01:39 PM

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