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Federal Judge Issues National Preliminary Injunction against ACA Regulation Banning Gender Identity Discrimination

Posted on: January 1st, 2017 by Art Leonard No Comments

In an eleventh-hour action, U.S. District Judge Reed O’Connor (N.D. Texas, Wichita Div.) issued a nationwide preliminary injunction on December 31, barring the federal government from enforcing part of a new regulation that was scheduled to go into effect on January 1, 2017, which interpreted the prohibition on discrimination because of sex under the Affordable Care Act to extend to discrimination because of “gender identity” and “termination of pregnancy.” Franciscan Alliance v. Burwell, Civ. Action No. 7:16-cv-00108-O.  Judge O’Connor’s action echoed his earlier issuance, on August 21, 2016, of a nationwide preliminary injunction against the enforcement by the federal government of Title IX of the Education Amendments of 1972 to protect transgender schoolchildren from discrimination, in State of Texas v. United States of America, 2016 WL 4426495 (N.D. Texas, August 21, 2016).  In both opinions, O’Connor rejected the Obama Administration’s position that discrimination because of gender identity or expression is a form of “sex discrimination” that is illegal under federal laws, a question that the U.S. Supreme Court may address if it gets to the merits in G.G. v. Gloucester County School Board, 822 F.3d 709 (4th Cir.), cert. granted, 136 S. Ct. 2442 (No. 16A52)(2016).  Judge O’Connor’s analytical task was “simplified” because the ACA anti-discrimination provision, Section 1557, incorporates by reference the sex discrimination ban in Title IX that was the subject of the judge’s prior preliminary injunction ruling.

The ACA authorizes the Department of Health and Human Services (HHS) to adopt regulations through the procedures of the Administrative Procedure Act (APA) to give detailed substance to the broad terms of the statute. The ACA provides in Section 1557 that health programs or activities receiving federal financial assistance not discriminate on grounds prohibited by four federal statutes.  Title IX, which bans sex discrimination in educational programs receiving federal money, was one of the listed statutes and thus incorporated by reference into the ACA.  (Others deal with discrimination because of race, national origin or disability.)  The Title IX regulations adopted by the Education Department in the 1970s include an express religious exemption provision, so that religiously-controlled educational institutions are exempt from Title IX compliance to the extent that compliance would violate their religious tenets.  After the ACA was enacted in 2010, the Department of Health and Human Services began the APA process, drafting proposed regulations, publishing them for comment, and publishing a final regulation that, with respect to the provisions in dispute in this case, was to go into effect on January 1, 2017.  During the Obama Administration, several different federal agencies responsible for interpreting and enforcing sex discrimination bans have been working through the issue of how these relate to gender identity.  The Equal Employment Opportunity Commission (EEOC) was the first to issue a ruling, in the context of adjudicating a federal job applicant’s complaint, that gender identity discrimination was actionable under Title VII’s sex discrimination ban, but in so doing it was actually following earlier case law, most specifically from the 6th Circuit, which used sex stereotyping analysis first accepted by the Supreme Court in 1989 in Price Waterhouse v. Hopkins, a Title VII case.  The HHS regulation drafters adopted similar reasoning to include “gender identity” in their proposed regulation, and included gender identity in the final Rule published in the federal register on May 18, 2016.  81 Fed. Reg. 31376-31473 (codified at 45 CFR Sec. 92).  By the time of that publication, the Education Department had taken the position that Title IX bans gender identity discrimination, in the context of a restroom access dispute in the %Gloucester County School District% case and a subsequent “Dear Colleague” letter published on its website and distributed to school districts nationwide.  However, HHS did not include in its proposed or final rule the religious exemption language from Title IX.

Several states and some religious health care providers joined together to challenge the new HHS Rule, not in its entirety but in a focused attack on the inclusion of “gender identity” and “termination of pregnancy” in the non-discrimination provisions. Blatantly forum shopping, they filed their suit in the U.S. District Court in Wichita Falls, an outpost of the Northern District of Texas where Judge O’Connor, the only judge assigned to that courthouse, sits a few days every month. (O’Connor’s chambers are in Fort Worth, the location of his home courtroom.)  Filing in a major city would subject the plaintiffs to a random assignment of a judge; filing in Wichita Falls guaranteed that their case would be heard by Judge O’Connor. O’Connor, who was appointed by President George W. Bush, has a propensity to issue nationwide injunctions against regulatory actions of the Obama Administration on grounds that they exceed executive branch authority.  His August 21 preliminary injunction in the Title IX case was not his first.  There is no logical reason why this case should have been filed in the Wichita Falls court, but plaintiffs can claim proper venue there by pointing to local members of the co-plaintiff Christian Medical & Dental Association (CMDA), a national organization, who may reside within the geographical confines of the Wichita Falls court, or to local Texas state agencies whose operation in that area would be affected.  (The court does not engage in a venue analysis, despite the obvious forum-shopping.)  Other private plaintiffs are Franciscan Alliance, Inc. and its wholly owned entity Specialty Physicians of Illinois LLC.  The public plaintiffs are the states of Texas, Wisconsin, Nebraska, Kansas, Louisiana, Arizona, Kentucky and Mississippi.  The heavy hand of Texas Attorney General Ken Paxton looms over the litigation, since Paxton has said, in effect, that his job is to sue the federal government every day on behalf of the right of Texas to operate free of federal regulatory constraints. Plaintiffs moved for partial summary judgment or, in the alternative, a preliminary injunction, on October 21, 2016, and the court agreed to expedite briefing and hearing so as to be able to rule, at least on the preliminary injunction, before the Rule could go into effect on January 1.

There is a basic argument between the parties as to the requirements imposed by the Rule. The plaintiffs argue that under the rule they would be required to provide gender transition surgery and abortions or suffer liability to patients and potential loss of federal funding eligibility.  They claim that this would violate their rights under the Religious Freedom Restoration Act, and that the government’s interpretation of the ban on sex discrimination to cover “gender identity” and “termination of pregnancy” went beyond regulatory authority.  HHS argues that the rule does not compel either procedure in every case, merely banning discrimination on these bases.  Thus, for example, it could be argued, if a health care provider/institution performs mastectomies, it may not take the position that it will perform a mastectomy for a woman as a treatment for breast cancer but will not perform a mastectomy for a transgender man as part of his transition process, as this would be sex discrimination. Both women and transgender men are entitled to mastectomies.  Similar arguments are made for a variety of the component parts of procedures, including, for example, hormone therapy, sterilization procedures and the like.  A woman suffering an estrogen deficiency can receive hormone therapy, and so can a transgender woman; depriving the transgender woman of estrogen therapy because she was identified male at birth is sex discrimination.  In effect, argue the private plaintiffs, the non-discrimination requirement would inevitably require them to perform procedures that violate their religious views, and, argue the public plaintiffs, would require them to violate various state laws and regulations, such as banning the termination of pregnancies in state facilities or the use of state Medicaid funds for gender transition or pregnancy termination procedures.  Judge O’Connor agreed with the private plaintiffs that however the dispute over interpretation is resolved, there is a likelihood that their exercise of religion would be substantially burdened.

A portion of the decision, not detailed here, goes through the analysis of jurisdiction, ripeness and administrative exhaustion, finding that none of those doctrines would require a finding against the court’s jurisdiction to grant the requested relief on this motion. Proceeding to the merits, Judge O’Connor provided a detailed discussion of the tests for issuing a preliminary injunction.

First, as to likelihood of success on the merits, he found that Title IX does not on its face ban discrimination because of “gender identity” or “termination of pregnancy.” Most of the discussion focuses on the “gender identity” issue, and channels the discussion accompanying his August 21 preliminary injunction against Title IX enforcement in gender identity cases.  The discussion regarding the abortion issue focuses on the failure of HHS to incorporate in its new regulation the religious and abortion exemptions in existing Title IX regulations, arguing that Congress’s wording of the Section 1557 non-discrimination provision led to the conclusion that such incorporation was intended by Congress.

“The precise question at issue in this case is: What constitutes Title IX sex discrimination?” he wrote. “The text of Section 1557 is neither silent nor ambiguous as to its interpretation of sex discrimination.  Section 1557 clearly adopted Title IX’s existing legal structure for prohibited sex discrimination.  42 U.S.C. sec. 18116(a).  For the reasons set out more fully below, this Court has previously concluded: the meaning of sex in Title IX unambiguously refers to ‘the biological and anatomical differences between male and female students as determined at their birth.’  Texas v. United States, No. 7:16-cv-00054, 2016 WL 4426495, at *14 (N.D. Tex. Aug. 21, 2016).”  Judge O’Connor reinforced this reference with a citation to the federal district court ruling in %Johnston v. Univ. of Pittsburgh of Com. Sys. of Higher Educ.%, 97 F. Supp. 3d 657, 674 (W.D. Pa. 2015), %appeal dismissed% (Mar. 30, 2016), rejecting a Title IX gender identity discrimination claim by a transgender college student with restroom access issues, but omits reference at this point to the contrary ruling the 4th Circuit in the Gloucester County case.  Because he finds Title IX unambiguous on this point, he concludes that the HHS Rule is not entitled to Chevron deference that would normally be accorded a regulation adopted under the APA, and proceeds to apply his own interpretation of the statute, in which he finds Congress’s “binary definition of sex” to be shown by references in the statute to “students of one sex,” “both sexes,” and “students of the other sex.”  He also appeals to “ordinary meaning,” to the failure of Congress to spell out any intent to cover “gender identity,” and to the fact that as of the time the ACA was enacted, federal agencies had not yet begun to treat “gender identity” discrimination as cognizable under sex discrimination statutes.

He wrote that “even if, as Defendants argue, the definition of sex discrimination was determined in 2010 when the ACA incorporated Title IX’s prohibition of sex discrimination, the Court is not persuaded it was passed with the Rule’s expansive scope in mind because: (1) Congress knew how but did not use language indicating as much, and (2) in 2010 no federal court or agency had interpreted Title IX sex discrimination to include gender identity.” (To this point he quoted a Washington Post article from 2015 stating that the new HHS Rule “for the first time includes bans on gender identity discrimination as a form of sexual discrimination, language that advocacy groups have pushed for and immediately hailed as groundbreaking.”)  And, of course, he notes that before the ACA was passed and “for more than forty years after the passage of Title IX in 1972, no federal court or agency had concluded sex should be defined to include gender identity” in a Title IX case.  In a footnote, he rejected the government’s attempt to bolster its case by reference to Price Waterhouse, pointing out that it was Title IX, not Title VII, which was incorporated by reference into the ACA.

As to the failure of the Rule to incorporate Title IX’s religious exemption language, he wrote, “The text of Section 1557 prohibits discrimination ‘on the ground prohibited under Title IX of the Education Amendments Act of 1972 (20 U.S.C. 1681 et seq.).’ . . . That Congress included the signal ‘et seq.’, which means ‘and the following,’ after the citation to Title IX can only mean Congress intended to incorporate the entire statutory structure, including the abortion and religious exemptions.  Title IX prohibits discrimination on the basis of sex, but exempts from this prohibition entities controlled by religious organizations when the proscription would be inconsistent with religious tenets.  20 U.S.C. sec. 1681(a)(3).  Title IX also categorically exempts any application that would require a covered entity to provide abortion or abortion-related services. 20 U.S.C. sec. 1688.  Therefore, a religious organization refusing to act inconsistent with its religious tenets on the basis of sex does not discriminate on the ground prohibited by Title IX,” and any attempt by HHS to impose the non-discrimination requirement without including the religious exemption violates Congressional intent.  O’Connor bolstered this point by invoking the Supreme Court’s Hobby Lobby decision, finding that the Rule “places substantial pressure on Plaintiffs to abstain from religious exercise” by forcing them to provide services contrary to their religious tenets, and that the government’s desire to expand access to “transition and abortion procedures,” even if deemed a “compelling interest” for purposes of the federal Religious Freedom Restoration Act, was not the least restrictive alternative for providing such access, and thus failed under Hobby Lobby.  Taking his cue from Justice Samuel Alito’s opinion in that case, O’Connor pointed out that the government could offer to pay for transition and abortion services to be provided by those who did not have religious objections to them in order to avoid burdening the Plaintiff’s religious rights.

In another point worth noting, O’Connor cited to an HHS study showing that the medical community is not unanimous on the value and necessity of performing transition procedures, particularly on minors, undermining the “compelling interest” that the government must show under RFRA to justify substantially burdening health care providers with sincere religious objections to performing such procedures.

Having concluded that the plaintiffs were likely to succeed on the merits of their attack, O’Connor found that they easily satisfied the other requirements for preliminary injunctive relief, noting in particular that an ongoing investigation of the state of Texas’s practices made the potential of harm to the Plaintiffs more than hypothetical, as did the looming requirement for the private Plaintiffs to change the range of services they offer or risk loss of federal funding. More significantly, as to the scope of the injunction, he cited authority that “the scope of injunctive relief is dictated by the extent of the violation established, not by the geographical extent of the plaintiff class,” and that “a nationwide injunction is appropriate when a party brings a facial challenge to agency action under the APA.”  In this case, he pointed out, “CMDA’s membership extends across the country and the Rule applies broadly to ‘almost all licensed physicians,’” quoting the HHS description published in the Federal Register.  “Accordingly, the Rule’s harm is felt by healthcare providers and states across the country, including all of CMDA’s members, and the Court finds a nationwide injunction appropriate.”  Noting a severability provision in the Rule, he observed that the injunction only applied to the inclusion of “gender identity” and “termination of pregnancy” under the definition of sex discrimination, and did not bar enforcement of any other part of the Rule.  A preliminary injunction stays in effect until the court issues a ruling on the merits, unless it is reversed on appeal.  As of December 31, the Obama Administration had barely three weeks left in office, to be succeeded by an administration much less likely to defend the Rule, so while this is merely preliminary relief for the Plaintiffs, it signals a major and probably long-term setback to efforts by transgender people to obtain non-discriminatory health care, including coverage for medically-necessary transition procedures.

Federal Court Allows Transgender Challenge to NY Medicaid Regulations to Continue

Posted on: July 7th, 2015 by Art Leonard No Comments

U.S. District Judge Jed Rakoff in Manhattan  denied most of New York State’s motion to dismiss a lawsuit challenging various limitations in the state’s Medicaid program relating to treatment for gender dysphoria.   Judge Rakoff did not immediately issue a written opinion supporting his June 26 ruling, indicating that one would be issued later.  The case is Cruz v. Zucker, No. 14-CV-4456 (JSR)(GWG) (S.D.N.Y., June 26, 2015).

Medicaid is a joint federal-state program to provide health care coverage for medically needy people who lack the financial resources to pay for adequate health care.  States are not required to have a Medicaid program, but if they do they must comply with federal standards in order to be eligible for federal money to help pay for the program.  In general, the federal program requires coverage for medically necessary care.

The lawsuit was brought on behalf of a class of transgender Medicaid-eligible New Yorkers seeking various medical procedures as a part of their gender transition.  It was originally filed in June 2014 to challenge a New York State Medicaid regulation banning all coverage for sex reassignment treatments and procedures, which had been adopted during the Pataki Administration in 1998.  The lawsuit arose from frustration about lack of response by the Cuomo Administration to continuing demands to change the policy, in an environment where federal Medicaid and Medicare programs had been evolving towards greater coverage in this area.  Indeed, the U.S. Tax Court ruled just a few years ago that costs for gender transition treatment could be tax deductible as medically necessary, reversing a long-time policy, and just weeks ago the federal Office of Personnel Management notified insurance companies covering federal employees that they were required to cover such expenses.  This New York lawsuit soon triggered a response from the state, which adopted a new regulation effective on March 11, 2015.

However, the new regulation only went part way towards the plaintiffs’ goal of achieving complete coverage for sex-reassignment procedures under Medicaid.  They quickly filed an amended complaint, attacking the failure of the new regulation to provide complete coverage.

The old regulation was a blanket prohibition, stating: “Payment is not available for care, services, drugs, or supplies rendered for the purpose of gender reassignment (also known as transsexual surgery) or any care, services, drugs, or supplies intended to promote such treatment.”

The new regulation states that “payment is available for medically necessary hormone therapy and/or gender reassignment surgery for the treatment of gender dysphoria.”  Payment for hormone therapy is available even if the individual is not seeking surgical reassignment.  Two qualified New York State licensed health care professionals must certify that the individual suffers from gender dysphoria  and that surgery is medically necessary.  The regulation excludes coverage for people under age 18, and will not cover gender reassignment surgery that would render somebody sterile unless they are at least 21.  This is most significant for transgender women, since the removal of male genitalia and reproductive system organs incident to transition always produces sterility.  The regulation explicitly excludes a long list of procedures that are deemed “cosmetic” and thus not “medically necessary,” but that transgender individuals may need in order to accomplish a complete transition consistent with their gender identity.

The lawsuit challenges the exclusions of coverage for younger transgender people, and sharply disputes the contention that the various procedures labeled as “cosmetic” should be excluded.  The mindset of those who drafted the regulation is exemplified by its explanation that “cosmetic surgery, services, and procedures refers to anything solely directed at improving an individual’s appearance.”  Of course, Medicaid would cover these procedures in other contexts, such as reparative and cosmetic surgery for somebody who has suffered disfiguring injuries in a fire, auto crash or similar catastrophe, even though in such circumstance “improving an individual’s appearance” may be the primary goal of a particular procedure.  The point is that these procedures are not sought by transgender individuals solely to improve their appearance, but rather to bring their appearance into more full accord with their gender identity.

The plaintiffs argue that these additional procedures can be centrally important for a successful gender transition process.  The goal is not just to eliminate or modify unwanted genitalia and internal organs.  It is rather to assist the individual in achieving a physical form that is consistent with their gender identity and how it is expressed to the world.  The Complaint filed in this case spells out the problems encountered by some of the plaintiffs who were unable to access these procedures, which, they argue, are necessary for them to be able to present themselves in their desired gender.  An incomplete transition makes their transgender status obvious, “outing” them and leaving them vulnerable to harassment or worse.

The legal theory behind the lawsuit is that denial of these services to those under 18, and the blanket denial of a range of procedures that are necessary to effectuate a successful gender transition, violates the state’s obligations under the federal Medicaid statute to cover medically necessary care and also raises constitutional issues of unequal treatment, as transgender people are being excluded from access to treatments and procedures that are covered in other contexts.  The Complaint also alleges a violation of the non-discrimination requirements of the Affordable Care Act (ACA).

The Attorney General’s office quickly responded to the Amended Complaint by filing a motion to dismiss the case.  The office’s brief, submitted in the name of Attorney General Eric Schneiderman by Assistant Attorneys General John Gasior and Zoey S. Chenitz, argued that the 11th Amendment bars the plaintiffs’ constitutional claims, and that the Medicaid statute’s requirements are not enforceable by individuals in a federal lawsuit.  Furthermore, they argued, the exclusion of those under age 18 would not violate any provisions of the statutes that the plaintiffs rely upon, the denial of coverage for cosmetic procedures was not “ripe” for review based on the factual allegations in the Complaint, and, they argued, the Complaint did not even raise a plausible claim for violation of the specific Medicaid regulation upon which the plaintiffs are relying.

Judge Rakoff rejected most of the Attorney General’s arguments, at least at this early stage of the lawsuit for purposes of determining whether the case should be thrown out or allowed to continue.

According to a summary of his ruling published by the New York Law Journal on June 30, he refused to dismiss the claims based on “refusal to fully fund the treatment of gender identity disorder or gender dysphoria” including “refusing surgery for those under 18.”  He also refused to dismiss a sex-based discrimination claim under the ACA, but granted the state’s motion to dismiss an ACA claim for youth hormone therapy for those under 18.  He also dismissed a claim under a section of the Medicaid law requiring the state to have reasonable standards for determining eligibility for the extent of medical assistance.  Rakoff noted that the parties had agreed to dismiss the constitutional claim.  An explanation for his rejection of the arguments made by the Attorney General’s office in its brief awaits publication of an opinion.

The plaintiffs are represented by the Sylvia Rivera Law Project and the Legal Aid Society, with pro bono assistance from lawyers at the firm of Willkie Farr & Gallagher LLP.   Sumani Lanka, a Legal Aid Society attorney, told the Law Journal, “The state doesn’t really understand what gender identity is.  Gender identity isn’t just reassignment surgery – it has to do with how a person perceives themselves and identifies themselves.  It shouldn’t be that the state arbitrarily limits treatment that is medically necessary for gender dysphoria.”

Another Circuit Court Rules against Free Exercise of Religion Claim by a Business Corporation

Posted on: September 18th, 2013 by Art Leonard No Comments

A third federal circuit court of appeals has weighed in on the question whether for-profit business corporations have a right under the 1st Amendment to free exercise of religion, and thus to claim a religious exemption from compliance with a valid general law.  As in Hobby Lobby Stores, Inc. v. Sebelius, 2013 WL 3216103 (10th Cir., June 27, 2013), and Conestoga Wood Specialties Corp. v. Sec’y of U.S. Dep’t of Health & Human Servs., 2013 WL 3845365 (3rd Cir., July 26, 2013), the case of Autocam Corp. v. Sebelius, 2013 U.S. App. LEXIS 19152 (6th Cir., Sept. 17, 2013), arises in the context of implementation of the Affordable Care Act regulations requiring that employer-provided health insurance plans include coverage for contraception for women.  The spreading circuit splits will likely lead to Supreme Court review of the underlying constitutional question, which would be significant for enforcement of laws banning discrimination by businesses.

As in the earlier cases, the corporate defendants are not publicly-traded, but rather are closely held corporations owned entirely by individuals or groups of individuals whose religious beliefs deem contraception to be immoral.  In Autocam, a 6th Circuit panel lines up with the 3rd Circuit in finding that such a business corporation cannot claim a right to free exercise of religion, either under the 1st Amendment directly or under the Religious Freedom Restoration Act (RFRA), which was passed by Congress in reaction to the Supreme Court’s 1990 ruling in Employment Division v. Smith, 494 U.S. 872, which had upheld the right of legislators to pass a “valid and neutral law of general applicability” outlawing conduct or requiring conduct that may be contrary to the teachings of a particular religion.

Both the 1st Amendment and RFRA speak in terms of protecting the right of “persons” to free exercise of religion, and the 3rd and 6th Circuits construe that to mean that neither the 1st Amendment nor RFRA protect business corporations from having to comply with valid general laws that contradict the religious beliefs of their shareholders.

The 10th Circuit, by contrast, holds that as for-profit corporations are treated as “persons” for purposes of due process, equal protection, and freedom of speech, they should also be treated as persons who are capable of exercising the practice of religion.  See, e.g., Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), holding that corporations are protected by the 1st Amendment from restrictions on their expenditures in political campaigns under the Freedom of Speech Clause.

The Autocam court stated its agreement with the Obama Administration’s position, presented in this case by the Justice Department, that preliminary injunctive relief against implementation of the statutory requirement should not be granted and that claims asserted by the owners of Autocam Corporation under RFRA should be dismissed.

While acknowledging that the Supreme Court has recognized free speech rights for corporations under the 1st Amendment, Circuit Judge Julia Smith Gibbons wrote for the court, “No analogous body of precedent exists with regard to the rights of secular, for-profit corporations under the Free Exercise Clause prior to the enactment of RFRA.  The Free Exercise Clause and the Free Speech Clause of the First Amendment have historically been interpreted in very different ways.  Therefore, the Court’s recognition of rights for corporations like Autocam under the Free Speech Clause nearly twenty years after RFRA’s enactment does not require the conclusion that Autocam is a ‘person’ that can exercise religion for purposes of RFRA.”  The court noted that Congress had specifically stated that it did not intend by enacting RFRA to expand 1st Amendment free exercise rights beyond what they had been prior to the ruling in Employment Division v. Smith, and no prior Supreme Court ruling had found any corporate exemption from compliance with general laws due to the religious beliefs of the corporation’s owners.

We previously suggested that it was likely that the Supreme Court would grant certiorari in one or more of these cases, since the Court has never previously ruled on the question presented here:  Whether somebody who has decided to run their sole proprietor or family-owned business as a for-profit corporation may assert his or her individual free exercise of religion rights through the control of the corporation to avoid the requirements of a valid general statute.  The question has great importance for LGBT legal rights, of course, since recognition of a right of business corporations to avoid complying with general laws based on the religious beliefs of their owners could undermine the application of enforcement against such corporations of laws forbidding discrimination in employment, housing and public accommodations, such as, for example, the recent New Mexico Supreme Court decision in  Elane Photography, LLC v. Willock, 2013 N.M. LEXIS 284, 2013 WL 4478229 (August 22, 2013), holding that the owner of a wedding photography business did not enjoy a religious exemption from the state’s public accommodations law based on the owner’s religious objection to same-sex commitment ceremonies.

Circuit Split May Take Religious Exemption Issue to Supreme Court

Posted on: July 31st, 2013 by Art Leonard No Comments
A divided panel of the U.S. Court of Appeals for the 3rd Circuit ruled on July 26 that a for-profit business corporation has no right to free exercise of religion under the 1st Amendment, rejecting a contrary doctrine that had been adopted by the 9th and 10th Circuits and setting up the possibility that the Supreme Court may intervene on a question that has become very salient in the context of marriage equality: Can business owners with religious objections to providing particular services claim an exemption from statutory requirements to provide those services? 

The 3rd Circuit ruling came in one of several challenges that have been filed by businesses to the requirement under the Affordable Care Act that health insurance plans provided to employees include coverage for prescription contraceptives for women.  Business owners who have religious objections to providing such coverage have asserted 1st Amendment free exercise claims.  In Conestoga Wood Specialties Corp. v. Secretary of Health and Human Services, 2013 WL 3845365, the 3rd Circuit panel voted 2-1 to affirm District Judge Mitchell S. Goldberg’s denial of a preliminary injunction to the plaintiff.  Conestoga is a corporation wholly owned by members of the Hahn family, who are all Mennonites who are opposed to any contraceptive that acts in effect as an abortifacient by preventing the development of a fertilized egg.  Two such medications are included in the formulary required under regulations promulgated by the Department of Health and Human Services to be covered under employee group health insurance.  Conestoga became subject to this requirement as of January 1, 2013, and due to the denial of preliminary injunctive relief, the company has been providing this coverage.

The Hahns rely heavily on the Supreme Court cases finding that corporations have 1st Amendment free speech rights, as well as 5th and 14th Amendment Due Process and Equal Protection rights, but the panel majority found that the Supreme Court has never ruled that corporations, across the board, are entitled to every constitutional right enjoyed by individuals.  In particular, Circuit Judge Cowen wrote for the court, the Supreme Court’s recognition of religious free exercise rights for corporations has been limited to religious corporations, and has never been extended to business corporations based on the religious beliefs of their owners.  Cowen pointed out that the Supreme Court has stated that the purpose of the Free Exercise Clause is to “secure religious liberty in the individual,” and stated, “We do not see how a for-profit ‘artificial being, invisible, intangible, and existing only in contemplation of law,’ that was created to make money could exercise such an inherently ‘human’ right.” 

The ruling brings the 3rd Circuit into conflict with the 10th Circuit’s recent ruling in Hobby Lobby Stores, Inc. v. Sebelius, 2013 WL 3216103 (10th Cir., June 27, 2013), which held that a family-owned corporation that wanted an exemption from the ACA requirements on religious grounds could maintain a Free Exercise claim.  There is also a conceptual conflict with the 9th Circuit’s rulings in EEOC v. Townley Engineering & Manufacturing Co., 859 F.2d 610 (9th Cir. 1988) and Stormans, Inc. v. Selecky, 586 F.3d 1109 (9th Cir. 2009), that adopted the so-called “pass through” theory under which a closely-held corporation whose small proprietor group had religious objections to a statutory requirement could assert their individual free exercise claims on behalf of their corporation.  The 3rd Circuit specifically rejected the reasoning of the 9th Circuit cases, finding that once business people have adopted the corporate form of business, they have created an entity distinct and apart from themselves, which should be subject to commercial regulations of the civil rights laws as well as such public welfare regulations as the insurance requirements.

Similar arguments are now playing out in various cases where businesses are claiming that they should not be required to provide services to same-sex couples for commitment ceremonies or weddings, due to the business owners’ religious objections to same-sex marriage.  The significance of recognizing corporate free exercise privileges to evade statutory rights of gay couples prompted amicus participation in these cases, including briefs filed by the ACLU and Lambda Legal.