The Prudential Third Party Standing of Family-Owned Corporations
15 Pages Posted: 11 Jan 2014 Last revised: 2 Oct 2015
Date Written: January 9, 2014
On November 26, 2013, the Supreme Court agreed to decide whether for-profit corporations or their shareholders have standing to challenge federal regulations that implement the Patient Protection and Affordable Care Act (ACA). At issue in the two cases consolidated for appeal, Hobby Lobby and Conestoga Wood Specialties, are regulations mandating that employers with fifty or more employees offer health insurance that includes coverage for all contraceptives approved by the Food and Drug Administration (FDA). The plaintiffs assert that providing certain types of contraceptive care would be contrary to their religious beliefs and allege, therefore, that the mandate violates the Religious Freedom Restoration Act of 1993 (RFRA) as well as the First Amendment’s Free Exercise Clause.
The government does not dispute that the family owners of Hobby Lobby and Conestoga Wood Specialties are sincere in their religious objections. However, the mandate applies only to employers and imposes no direct duties upon corporate shareholders. Thus, a threshold issue in these cases and dozens of other pending cases involving for-profit corporations is whether any plaintiff has standing to challenge the mandate. Some courts have concluded that religious objections to the mandate are simply nonjusticiable. Other courts have found standing, either by endorsing the novel proposition that a for-profit business corporation is, itself, a person capable of religious exercise, or by allowing individual owners who have no personal obligations or liability under the ACA’s mandate to nevertheless interpose a religious objection.
We offer the Court a way to resolve the cases before it that, unlike the approaches advocated by the parties, avoids the need to decide questions of ﬁrst impression regarding the free exercise rights of for-proﬁt corporations. Under well-established exceptions to the prudential rule against third-party standing, one party can sometimes assert the interests of a third party. Allowing Hobby Lobby and Conestoga Wood Specialties to litigate religious objections to the mandate on behalf of their shareholders obviates the need for the Court to venture into uncharted territory. The crucial insight is that the corporation’s injury need not be religious in nature for the religious objections to the ACA regulations to be adjudicated. So long as the corporate plaintiff is injured economically by the regulations, it has standing under Article III to challenge them. At that point, the corporation’s assertion of the constitutional or statutory rights of absent third parties is properly analyzed under the rubric of third-party standing.
Keywords: Standing, Justiciability, Article III, Family Business, Close Corporation, Third Party Standing, First Amendment, Free Exercise, Corporate Law, Affordable Care Act, Hobby Lobby, Conestoga
JEL Classification: K22, K23, K32
Suggested Citation: Suggested Citation