Blurring Lines between Churches and Secular Corporations: The Compelling Case of the Benefit Corporation’s Right to the Free Exercise of Religion (with a post-Hobby Lobby Epilogue)

Abstract

The United States Supreme Court will soon hear oral arguments on two cases, Sebelius v. Hobby Lobby Stores, Inc. and Conestoga Wood Specialties Corp. v. Sebelius. Both cases present similar questions with regard to the applicability of the First Amendment’s “Free Exercise Clause” to corporations.

In Hobby Lobby, the Tenth Circuit found that Free Exercise rights existed for a corporation, without regard to its status as a non-church, profit-seeking entity.

In Conestoga, however, the Third Circuit agreed that a corporation could have Free Exercise rights, but such rights did not apply if the corporation happened to be “secular” and “for-profit”, defining characteristics which appear nowhere in the Constitution and which are contrary to recent First Amendment jurisprudence and other precedent, including the seminal case of Citizens United v. Federal Election Commission.

Why would there be such a distinction relating to a right as fundamental as the exercise of religion?

According to the Conestoga court, it all comes down to profit. A legal entity that exists to produce profits for those who organized it can’t exercise religion, but one that exists without an interest in profits miraculously is vested with the right to exercise religion.

In Hobby Lobby, the court summarized (and subsequently rejected) the government’s position as being a black and white distinction between non-profit religious organizations, which have Free Exercise rights, and for-profit secular organizations, which have no such rights. The government made the same argument in Conestoga, and in that case the majority adopted the government’s position.

Not only is the government’s distinction arbitrary and without logical or legal basis, it is utterly at odds with recent developments in corporate law.

The advent of the “Benefit Corporation” (or “B-Corp”) has formally established a gray area between the black of the non-profit religious organization and the white of the for-profit secular organization with respect to First Amendment rights generally and Free Exercise rights specifically.

Indeed, a corporation organized as a B-Corp can be religious and formed for purposes other than the sole pursuit of profit. Such a creature was apparently beyond the knowledge of the Conestoga court.

Well, not the entire Conestoga court. Judge Kent Jordan, in his meticulously argued dissent, touched upon the radical upheaval in the law occasioned by the recent establishment of the B-Corp in many states, pointing out that a B-Corp, like a religious non-profit corporation, is a legal entity that exists for purposes other than the solitary pursuit of profit; in fact, B-Corps can be formed in furtherance of religious purposes, much like a religious non-profit.

The purpose of this paper is to elaborate on Judge Jordan’s discussion of B-Corps in his Conestoga dissent and further, to argue that not only should Free Exercise rights apply to corporations that have a religious purpose, such as B-Corps, but also such rights should exist for what I refer to as “de-facto B-Corps.”

This paper concludes with an epilogue that summarizes the decision in the Hobby Lobby/Conestoga case and discusses the implications of any Congressional attempt to undermine the Supreme Court's decision through changes to RFRA or any other statute that would purport to strip free exercise rights from for-profit corporations. In such a case, the Supreme Court would have an opportunity to decide the case on First Amendment grounds. This paper argues that the Hobby Lobby/Conestoga opinion set out the groundwork for future courts to use strict scrutiny (the same standard under which RFRA cases are decided) under the Smith “individualized” exemption doctrine to strike down any Congressional attempts to deprive for-profit corporations of their First Amendment Free Exercise rights.

Keywords: Benefit corporation, Hobby Lobby, Conestoga, Sebelius, Free Exercise, ACA, Obamacare, Burwell, Alito, Ginsburg, RBG, RFRA, Smith, individualized exemption, reid, murray, udall

JEL Classification: K22, K00, K10, K20, I00, I18, I28, I11, K19, K23, K31, K32