Friday, November 01, 2013

D.C. Circuit: Contraceptive Mandate Imposes Substantial Burden On Small Business Owners' Free Exercise

In an important development today, the D.C. Circuit Court of Appeals, in a 2-1 decision producing three separate opinions, held that the Catholic owners of a for-profit small business were likely to succeed on the merits of a RFRA challenge to the Affordable Care Act. The appeals court reversed the district court's denial of a preliminary injunction, and remanded the case for the district court to make findings about the other preliminary injunction factors. In Gilardi v. U.S. Department of Health and Human Services, (DC Cir., Nov. 1, 2013), two brothers, Francis and Philip Gilardi, owners of Freshway Foods and Freshway Logistics, both Ohio corporations, claim that their free exercise rights, and those of their businesses, are burdened by the requirement that they furnish their employees health insurance covering contraception, sterilization and abortion.

The court's opinion written by Judge Brown held that secular corporations do not enjoy free exercise rights:
When it comes to corporate entities, only religious organizations are accorded the protections of the Clause. And we decline to give credence to the notion that the for-profit/non-profit distinction is dispositive, as that, too, is absent from the Clause’s history. Fortunately, we need not opine here on what a “religious organization” is, as the Freshway companies have conceded they do not meet that criterion.
The court also rejected the claim that the corporations may assert their owners' free exercise rights:
In [EEOC v. Townley Engineering & Manufacturing Co.] , the Ninth Circuit concluded— without much in the way of legal substantiation—that the corporation was “merely the instrument through and by which [the owners] express[ed] their religious beliefs.”... 
Admittedly, there is a certain theological congruence to Townley’s  characterization. The Bible says “faith without works is dead.” James 2:26.... As amici point out, not only are Catholic employers morally responsible for the management of their companies, “instructing or encouraging someone else to commit a wrongful act is itself a grave moral wrong—i.e., ‘scandal’—under Catholic doctrine.” ... When even attenuated participation may be construed as a sin, ... it is not for courts to decide that the corporate veil severs the owner’s moral responsibility. But dogma does not dictate justiciability....
Judge Edwards, while dissenting as to other parts of the decision, joined in the portions of Judge Brown's opinion rejecting the corporate claims.  Judge Randolph did not join in this part of Judge Brown's opinion, believing that the court need not reach this issue.

Judge Brown went on, in a section of her opinion joined by all three judges, to hold that the individual owners of the business have standing to assert their claim under RFRA:
If the companies have no claim to enforce—and as nonreligious corporations, they cannot engage in religious exercise—we are left with the obvious conclusion: the right belongs to the Gilardis, existing independently of any right of the Freshway companies. Thus, the Gilardis’ injury—which arises therefrom—is “separate and distinct,” providing us with an exception to the shareholder-standing rule.
In his separate concurring opinion, Judge Randolph added another reason that the Gilardi brothers have standing.  The corporations had elected pass-through treatment under Subchapter S for federal tax purposes.  This means that the tax penalties will directly affect the shareholders' individual tax returns.

Then, in a portion of the opinion joined by Judge Randolph, Judge Brown concluded that the contraceptive coverage mandate imposes a "substantial burden" on the Gilardis free exercise rights, so that strict scrutiny is triggered.  She emphasized that government's arguments that no substantial burden was present turned on the claim that the mandate impacted the corporations, not the individual shareholders. She rejected this, arguing:
If the Gilardis had run their businesses as sole proprietorships, they would presumably have a viable RFRA claim under the government’s theory..... [W]e do not believe Congress intended important statutory rights to turn on the manner in which an individual operates his businesses.
The opinion then concluded that the strict scrutiny standard had not been met, and that there are less restrictive means to achieve the government's interests:
The government cites several concerns to bolster its claim that the contraceptive mandate serves a compelling interest (or interests), but its recitation is sketchy and highly abstract.....  [T]he government does little to demonstrate a nexus between this array of issues and the mandate.
Judge Edwards, in his separate opinion, dissented from the granting of a preliminary injunction because, in his view, the claim that the mandate imposes a "substantial burden" on the Gilardis "is specious." He argued:
The Supreme Court has never applied the Free Exercise Clause to find a substantial burden on a plaintiff’s religious exercise where the plaintiff is not himself required to take or forgo action that violates his religious beliefs, but is merely required to take action that might enable other people to do things that are at odds with the plaintiff’s religious beliefs....
Just as the Government does not directly encourage religion when it provides vouchers that recipients may choose to spend on religious schools, the Gilardis do not directly encourage the use of contraception when they provide insurance coverage that recipients may choose to spend on contraceptives.
He went on to argue that even if the mandate does impose a substantial burden, the government has shown that it is the least restrictive means of furthering a compelling interest. AP reports on the decision. This case has been seen by the Justice Department as the test case for many pending in the D.C. circuit. (See prior posting.) [Thanks to Luke Goodrich and Doug Velardo for the lead.] 

UPDATE: In a press release issued shortly after the decision was handed down, American Center for Law & Justice announced that the corporate entities will petition  the U.S. Supreme Court to grant certiorari on the issue of their separate free exercise rights.