Academic journal article The University of Memphis Law Review

Dangling Threads: Hobby Lobby and Corporate Law Issues

Academic journal article The University of Memphis Law Review

Dangling Threads: Hobby Lobby and Corporate Law Issues

Article excerpt

The United States Supreme Court's decision in Burwell v. Hobby Lobby Stores, Inc.1 threw into question aspects of previously settled corporate law. These include issues of corporate personhood, corporate purpose, and the agency relationship between a corporation and its shareholders.

These issues are primarily matters of state law and, therefore, one can treat the Court's analysis as dictum to the extent it exceeds the ambit of federal statute. The Court surfaced powerful questions, and it is likely that state courts will respond. it is not clear what those responses will be.

I.The Hobby Lobby Decision

The issue in Hobby Lobby was simple: did governmental regulations implementing the Patient Protection and Affordable Care Act of 2010 ("ACA" or "Obamacare") violate the Religious Freedom Restoration Act of 1993 ("RFRA") by requiring three closely held corporations to provide health-insurance coverage for contraceptive methods that violated the sincerely held religious beliefs of the corporations' shareholders?2 The Court concluded that regulations pursuant to the ACA violated RFRA. First, the Court held that RFRA protects corporations since "the plain terms of RFRA make it perfectly clear that Congress did not discriminate . . . against men and women who wish to run their businesses as for-profit corporations in the manner required by their religious beliefs."3 In reaching this conclusion, the Court rejected arguments that use of the corporate form distinguishes closely held corporations from "sole proprietorships or general partnerships."4 Second, the Court held that the HHS regulations substantially burden the exercise of religion and do not constitute the least restrictive means for serving a compelling governmental interest.5 Thus, the HHS regulations, as applied to the appellee corporations, violated RFRA.6

The Court's decision that RFRA applies to corporations required consideration of questions about corporate personhood and corporate purpose. First, is a business corporation a person under RFRA? Second, assuming it is a person, can such a corporate person exercise religion?

The Court addressed the first question by noting that RFRA applies to "a person's" exercise of religion and that RFRA does not define "person."7 Therefore, the Court considered the Dictionary Act, which applies "in determining the meaning of any Act of Congress, unless the context requires otherwise."8 The Court decided that RFRA's context does not "indicate[] otherwise," and it ruled that, under the Dictionary Act, "the wor[d] 'person' includes corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals."9 The Court's context-indicatingotherwise analysis is somewhat mysterious. Rather than endeavoring to place RFRA's use of "person" into the religion-based context of RFRA, the Court simply accepted the government's concession that nonprofit corporations can be persons for RFRA purposes, and it stated that "[n]o known understanding of the term 'person' includes some but not all corporations."10 One wonders whether an objective analysis would have yielded a different result had the Government not conceded the nonprofit-corporation question. One also wonders what the Court's conclusion would have been if it had discussed the obvious question of whether an administrative agency has a valid basis for differentiating religiously based nonprofit corporations from other nonprofit and for-profit corporations, thereby creating a "known definition" even if one had not previously existed.11

The Court then focused on the government's primary argument that RFRA does not protect for-profit corporations because they cannot "exercise religion."12 The Court concluded that corporations can exercise religion, but rather than provide a positive basis for its conclusion that state corporate law permits corporate religious exercise, the Court debunked several straw arguments. …

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