Amicus Curiae Brief — Conestoga Wood Specialties Corp. v. Sebelius

RECORD a

ta ‘LED ,

Alin Nos. 13-354 and 13-356 ’

BRD S In the & ; of the Gini

KATHLEEN SEBELIUS, SECRETARY OF HEALTH AND

HUMAN SERVICES, ET AL., PETITIONERS

Vv.

HOBBY LOBBY STORES, INC., ET AL., RESPONDENTS

OFFICE OF THE CLERK

CONESTOGA WOOD SPECIALTIES CORP., ET AL.,

PETITIONERS

Vv.

KATHLEEN SEBELIUS, ET AL., RESPONDENTS

ON WRITS OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH AND THIRD CIRCUITS

AMICUS CURIAE BRIEF OF CORPORATE AND

CRIMINAL LAW PROFESSORS IN SUPPORT OF

PETITIONERS

AARON M. KATZ RYAN M. MALONE

SUSANNA G. DYER Counsel of Record for Amici Law

RoPES & GRAY LLP Professors

Prudential Tower ROPES & GRAY LLP

800 Boylston Street One Metro Center

Suite 900

Washington, DC 20005

(202) 508-4600

Ryan. Malone@ropesgray.com

WiLSOn-EPes PRinTING Co., Inc. — (202) 789-0096 ~ VYASHINGTON, D. C2007

Litrery of Cenortsa

- —

i

TABLE OF CONTENTS

pe Pi Sigs 1 1g | ~ Se iv

INTEREST OF AMICI CURIAE..........1..s.scssssssseeees 1

SUMMARY OF ARGUMENT ................:.scsssssssssesene 2

Ene en eae ONE ET 3

I. ATTRIBUTING TOA

CORPORATION THE RELIGIOUS

IDENTITY OF ITS

CONTROLLING

SHAREHOLDERS IS CONTRARY

piu hk Evy 5 | Seen 3

A. A CORPORATION IS A LEGAL

ENTITY, SEPARATE AND DISTINCT

FROM ITS SHAREHOLDERS.. ..................-- 3

B. THE CORPORATION’S SEPARATE

EXISTENCE PROTECTs ITS

SHAREHOLDERS FROM LIABILITY

FOR CORPORATE DEBTS, THEREBY

ENCOURAGING INVESTMENT,

INNOVATION, AND JOB

CRITTER ATION. enccnceccccccccccccecccccccccecccccssososenns 6

ii

THE CORPORATION’S SEPARATE

EXISTENCE PERMITS A BUSINESS

TO OPERATE NOTWITHSTANDING

THE DEATH OR DISABILITY OF ITS

FOUNDERS OR CHANGES IN

SHARE OWNERSHIP, THEREBY

PROMOTING STABILITY AND

PREDICTABILITY IN BUSINESS

ET 8

THE SEPARATION BETWEEN A

CORPORATION AND ITS

SHAREHOLDERS IS A PRINCIPLE

NOT ONLY OF CORPORATE LAW,

BUT ALSO OF AGENCY LAW AND

TEL 10

THIS COURT SHOULD Not ALLOW

HOBBY LOBBY AND CONESTOGA TO

SELECTIVELY DISREGARD THE

CORPORATE VEIL THAT

SEPARATES THEM FROM THEIR

I cresdlanetipcnenntincnontcoien 13

“REVERSE VEIL PIERCING” HAS

No APPLICATION TO THE FACTS IN

ET ee 16

Il. RECOGNIZING “VALUES PASS-

THROUGH” AND/OR “REVERSE

VEIL PIERCING” WOULD BE

DISRUPTIVE TO BUSINESS AND

HAVE IMPLICATIONS FAR

BEYOND THE CONTRACEPTIVE

MANDATE ..... piieaieeiiiaeneitanieaniinninnes

A. PERMITTING CONTROLLING

SHAREHOLDERS TO IMBUE THE

CORPORATION WITH THEIR

RELIGIOUS IDENTITY WOULD

INVITE INTRAFAMILIAL AND

INTERGENERATIONAL DISPUTES

AND GENERATE COSTLY

IIT scussslecsssiicascanisceinieaetibitcutsicidesetibiaiiaie

B. PERMITTING CONTROLLING

SHAREHOLDERS TO IMPOSE THEIR

RELIGIOUS BELIEFS ON

CORPORATIONS WOULD OPEN THE

COURTS TO MANY ISSUES NOT

RELATED TO CONTRACEPTION..........222-

C. PERMITTING CORPORATIONS TO

USE PUTATIVE RELIGIOUS

BELIEFS TO AVOID LEGAL

OBLIGATIONS GIVES THOSE

CORPORATIONS COMPETITIVE

ADVANTAGES AND INCENTIVIZES

NU TIIIIE sncscaisicicddesbineasianntbetialopaanenlabienatani

eT Nr

APPENDIX A

iv

TABLE OF AUTHORITIES

Page(s)

CASES

Anderson v. Abbott,

Se Te a Se I ins cesnaccesinchaneiciubigeciapchcionciinespicenstidad 17

Atlas Subsidiaries of Fla., Inc. v. O & O, Inc.,

166 So. 2d 458 (Fla. Dist. Ct. App. 1964) .................. 17

Bangor Punta Operations, Inc. v. Bangor &

Aroostook R.R.,

Se Se I icshetinatsiecsnisernicsiisiesiiinsisnsalepinainisinabainibe 15, 16

Barium Steel Corp. v. Wiley,

Be ee I ls TE eicnictcecsticticccniescsisttissnnitbatinnaniesicle 5

Bellis v. United States,

Ee I ihsccscieshastisiceiasekiepleiteliiecestntuleiebapiedensibinc 12

Bhd. of Locomotive E'ng’rs v. Springfield Terminal

Ry. Co.,

3 be Be” Le | CNN ENT 17

Braswell v. United States,

i I ei acscestetsiievescecstniinlipiesteshicnsadeidteilabihitiielddal 13

Burnet v. Clark,

Se ee I sinitn isncciotnctivervecsesiesinscshicencsidiaspiiaamclasiea’ 4

Cargill, Inc. v. Hedge,

375 N.W.2d 477 (Minn. 1985) .................scccsceccessessees 17

v

Cede & Co. v. Technicolor, Inc.,

Be Fe ee ile. IID cenccccccensscncnccstesensesacensssnncemenns 21

Cedric Kushner Promotions, Ltd. y. King,

ey SR cinnsianisctinsinnenicminnitninnmonsiangs 4,11

Citizens United vy. FEC,

8 IRE Sm can eee a= meen ene l

Crosby v. Beam,

A I i iiiiccicntikictinitediieniieraiininticamminiionn 10

Dobry v. Yukon Elec. Co.,

re Se, IS Gls Be cecccnsnensnccscasenccnsencsonsesnenes 5

Domino's Pizza, Inc. v. McDonald,

8 RET aN 14, 15

Donnell v. Herring-Hall-Marvin Safe Co.,

TAT Sa aE 4

Deikowski v. Friedlander,

411 B.R. 434 (Bankr. S.D. Fla. 2009) 0000000000000... 16

EEOC v. Townley Eng’g & Mfg. Co.,

ee Gis SID cascctniciccnenseccnesensinnisnsenncensil 23

Gould v. Reufenacht,

si eeaieadiigieel 20

Hale v. Henkel,

201 US. 43 (1906) ........002022202000000+. esiinmhimeandaiileds —

Hunt v. Wash. State Apple Adver. Comm'n,

ee TIE cccesicinisnssieiieniisescstasinindencansitnlanlaadiiel il

vi

lll. Bell Tel. Co. v. Global NAPS Iii., Inc.,

Se Be Ee COREE Cle BIIUD cecccccccccceccccscecescosecsncnssonees 17

Kelly v. Blum,

No. 4516-VCP, 2010 WL 629850 (Del. Ch. Ct.

Klein v. Bd. of Tax Supervisors of Jefferson Cnty.,

Ky.,

| ELMER LER SRO ae SR eR OE RAT as 4

Kurtz v. Clark,

290 P.3d 779 (Okla. Civ. App. 2012) 00.0.0... cccccceecensenees 5

Miller v. Am. Tel. & Tel. Co.,

Be ee Fe Ie Gs BT crccsctassccecnecencsetecnseneiectesnie 24

Moline Props., Inc. v. Comm’r,

EES a 14

New Colonial Ice Co. v. Helvering,

rr IY CITI iscshismetiiadianisiedtsisiintetictinendtansiin 4

Paramount Comm'n Inc. v. QVC Network Inc.,

RE Can 20

Postal Instant Press, Inc., v. Kaswa Corp.,

77 Cal. Rptr. 3d 96 (Cal Ct. App. 2008)................... 16

Rawoof v. Texor Petroleum Co.,

pe yy iy Lt Sen 10

Schenley Distillera Corp. v. United States,

ES CEILS LEER CR oA N eee 14

State Bank in Eden Valley v. Euerle Farms, Inc.,

441 N.W.2d 121 (Minn. Ct. App. 1989) .......0..00......... 17

vii

State v. Christy Pontiac-GMC, Inc.,

te NE Tn BO Is BUD cccerntcscnncessccnnccnstntcsesnacsnes 11

The Queen v. Arnaud, (1846) 115 Eng. Rep. 1485

Sst cinscsiithisiahsesiacitelciaesiserseuedetisacatansiaienssdbeiatdsciasiniehialinpescciidt 5

Thomas v. Review Bd.,

etal aealslacciical 26

Tooley v. Donaldson, Lufkin & Jenrette, Inc.,

ee ee I BI cctrscccecrsocnesoneesscessonscscontecnseses 11

Uniboard Aktiebolag vy. Acer Am. Corp.,

118 F. Supp. 2d 19 (D.D.C. 2000)...........:cccsscsserseseseees 17

United States v. Bestfoods,

ici aaiact a ciasalticaenptiitcednsteiabiletal 4

United States v. White,

ER nan Oe ee 12

Zimmerman v. Crothalil,

62 A.3d 676, 699-700 (Del.Ch. 2013) -.0000000000.eeeceeeeeee 20

STATUTES

Ia a I css csteniidailitdisiinntlaiaiennuinen 24

EE ae 24

8 8) EEE ae cee Sa ne a eee 10

ER 8) ERED eo ee 10

Model Bus. Corp. Act § 14.30.........ccccccccscsrccccscscsersecceseesees 19

Model Bus. Corp. Act § 3.02(15) 0000.00... cececsceseensensennenee 24

MISCELLANEOUS

Ellen S. Podgor et al, HORNBOOK ON WHITE

COLLAR CRIME § 2.7 (2013).........0..00000020. wnianne 11

F. Hodge O’Neal & Robert B. Thompson,

1 OPPRESSION OF MINORITY SHAREHOLDERS

AND LLC MEMBERS §§ 7.3-9 (2010)... eee 19

F’. Hodge O’Neal & Robert B. Thompson, 1

O’NEAL AND THOMPSON’S CLOSE CORPORATIONS

AND LLC’s: LAW AND PRACTICE § 1:10 (3d ed.

Faith Stevelman, Going Private at the Intersection

of the Market and the Law, 62 Bus. Law. 775

Si isihiatsctsinenscosectinnsieenenosoboneniiesiintilsdsiasiisnisaniiaianaaananee 19

Fred R. Harris, The American Negro Today, 10

Wm. & Mary L. Rev. 550 (1969) 00.0... eeeecsseeneeeee 23

George D. Hornstein, CORPORATION LAW AND

EE © Oe GD cccenccccencsenccessnicianesionssinstiimmaiall 7

James D. Cox & Thomas Lee Hazen, BUSINESS

ORGANIZATIONS LAW §§ 7.01 & 14.12 (3d ed.

ix

Kent Greenfield, Ultra Vires Lives! A Stakeholder

Analysis of Corporate Illegality (With Notes on

How Corporate Law Could Reinforce

International Law Norms), 87 Va. L. Rev. 1279

Margaret M. Blair, Locking in Capital: What

Corporate Law Achieved for Business

Organizers in the Nineteenth Century, 51 UCLA

EE >

Michael Kent Curtis, A Unique Religious

Exemption from Antidiscrimination Laws in

the Case of Gays? Putting the Call for

Exemptions for Those Who Discriminate

Against Married or Marrying Gays in Context,

47 Wake Forest L. Rev. 173 (2012)...........0....0.c.c00 23

Stephen M. Bainbridge, Using Reverse Veil

Piercing to Vindicate the Free Exercise Rights

of Incorporated Employers, 16 Green Bag 2d 235

EE 16

Thomas E. Rutledge, A Corporation Has No Soul—

the Business Entity Law Response to the

PPACA Contraceptive Mandate, 5 Wm. & Mary

Bus. L. Rev. (forthcoming 2014) ..0............::c:ccccceee 22

William Blackstone, 1 COMMENTARIES ON THE

LAWS OF ENGLAND 456-67 (U. Chicago Press

Sa sssusnmesviuonenonvenovesses 4

William W. Cook, THE PRINCIPLES OF

CORPORATION LAW 19 (1925)...............:scc0sccsesesessseeseess 6

INTEREST OF AMICI CURIAE

Amici are forty-four law professors whose

research and teaching focus primarily on corporate and

securities law and criminal law as applied to

corporations. See Appendix A (listing the individual

law professors joining this brief). This brief addresses

those issues that are specifically within amici’s particular

areas of scholarly expertise.”

' Conestoga Wood Specialties Corporation (Conestoga) and

Petitioners Kathleen Sebelius, Secretary of Health and Human

Services, et al previously filed with the Court letters

consenting to the filing of amicus curiae briefs. Hobby Lobby

Stores, Inc. (Hobby Lobby) separately consented to the filing

of this brief, such consent letter which is lodged herewith.

Pursuant to Rule 37.6, amici also state that this brief was not

authored in whole or in part by counsel for any party and that

no one other than amici and their counsel made any monetary

contribution to the preparation or submission of this brief.

*Thus, this brief does not address (1) whether the Patient

Protection and Affordable Care Act (PPACA) contraceptive

mandate “substantially burdens” the “exercise of religion”

within the meaning of the Religious Freedom and Restoration

Act (RFRA); or (2) whether this Court’s decision in Citizens

United v. FEC, 558 U.S. 310 (2010), which concerned the First

Amendment’s Free Speech Clause, has any bearing on the

outcome of Hobby Lobby’s and Conestoga’s RFRA claims.

Amici understand that experts in religion and constitutional

law will file amicus briefs addressing such issues. In addition,

because Hobby Lobby and Conestoga are for-profit

corporations, this brief does not specifically address non-profit

corporations, limited liability companies, or partnerships.

2

SUMMARY OF ARGUMENT

Hobby Lobby and Conestoga each asserts that the

religious values of its present controlling shareholders

should pass through to the corporation itself. This

Court should reject any such “values pass-through”

concept. To do otherwise would run contrary to

established principles of corporate law.

1. The essence of a corporation is_ its

“separateness” from its shareholders. It is a distinct

legal entity, with its own rights and obligations,

different from the rights and obligations of its

shareholders. This Court has repeatedly recognized

this separateness.

2. Shareholders rely on the corporation’s separate

existence to shield them from personal liability. When

they voluntarily choose to incorporate a business,

shareholders cannot then decide to ignore, either

directly or indirectly, the distinct legal existence of the

corporation when it serves their personal interests.

3. The separateness between shareholders and the

corporation that they own (or, in this case, own and

control) is essential to promote investment, innovation,

job generation, and the orderly conduct of business.

This Court should not adopt a standard that chips away

at, creates idiosyncratic exceptions to, or calls into

question this legal separateness.

4. On the facts of these cases, there is no basis in

law or in fact to disregard the separateness between

shareholders and the corporations they control. Hobby

Lobby’s and Conestoga’s attempt to “reverse veil

pierce”—that is, to imbue the corporation, either by

shareholder fiat or a board resolution, with the

religious identity of certain of its shareholders—should

3

be rejected. The concept of “reverse veil piercing” is

wholly inapplicable on these facts.

5. Adoption by this Court of a “values pass-

through” theory here would be disruptive to business

and generate costly litigation. It would encourage

intrafamilial and intergenerational disputes. It would

also encourage subterfuge by corporations seeking to

obtain a competitive advantage.

6. Adoption by this Court of a “values pass-

through” theory would also have potentially dramatic

and unintended consequences with respect to laws

other than PPACA, such as _ the _ Public

Accommodations and Employment Discrimination

provisions of the Civil Rights Act of 1964. Rather than

open up such a Pandora’s box, the Court should simply

follow well-established principles of corporate law and

hold that a corporation cannot, through the expedient

of a shareholder vote or a board resolution, take on the

religious identity of its shareholders.

ARGUMENT

I. ATTRIBUTING TO A CORPORATION THE RELIGIOUS

IDENTITY OF ITS CONTROLLING SHAREHOLDERS IS

CONTRARY TO CORPORATE LAW.

A. A CORPORATION IS A LEGAL ENTITY, SEPARATE

AND DISTINCT FROM ITS SHAREHOLDERS.

The first principle of corporate law is that for-

profit corporations are entities that possess legal

interests and a legal identity of their own—one

separate and distinct from their shareholders. This is

true whether the for-profit corporation has one, one

hundred, or one million shareholders. In each scenario,

4

the corporate entity is distinct in its legal interests and

existence from those who contribute capital to it.

This Court has repeatedly recognized this principle

of strict separation. As this Court has recognized, a

“corporation and its stockholders are generally to be

treated as separate entities.” Burnet v. Clark, 287

U.S. 410, 415 (1932); see also New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 442 (1934). This Court has

gone so far as to call this “a general principle of

corporate law deeply ingrained in our economic and

legal systems * * * .” United States v. Bestfoods, 524

US. 51, 61 (1998) (quoting William O. Douglas & Carrol

M. Shanks, Insulation from Liability Through

Subsidiary Corporations, 39 Yale L.J. 193 (1929), and

citing Burnet). “After all,” the Court has emphasized,

“incorporation’s basic purpose is to create a distinct

legal entity, with legal rights, obligations, powers, and

privileges different from those of the natural

individuals who created it, who own it, or whom it

employs.” Cedric Kushner Promotions, Ltd. v. King,

533 U.S. 158, 163 (2001).

The centrality of corporate “separateness” is well-

established in the United States. More than a century

ago, Justice Holmes observed: “A leading purpose of

[corporation] statutes and of those who act under them

is to interpose a nonconductor, through which, in

matters of contract, it is impossible to see the men

behind them.” Donnell vy. Herring-Hall-Marvin Safe

Co., 208 U.S. 267, 273 (1908); see also Klein v. Bd. of

Tax Supervisors of Jefferson Cnty., Ky., 282 U.S. 19, 24

(1930) (explaining that a corporate entity “is a person

and its ownership is a nonconductor that makes it

impossible to attribute an interest in its property to its

members.”).

5)

Indeed, this legal separateness—sometimes called

legal “personhood”—has been the very basis of

corporate law at least since the 18th Century. See

William Blackstone, 1 COMMENTARIES ON THE LAWS OF

ENGLAND 456-67 (U. Chicago Press 1979) (“[I]t has

been found necessary, when it is for the advantage of

the public to have any particular rights kept on foot

and continued, to constitute artificial persons, who may

maintain a perpetual succession, and enjoy a kind of

legal immortality. These artificial persons are called

bodies politic, bodies corporate, * * * or corporations.”);

see also The Queen v. Arnaud, (1846) 115 Eng. Rep.

1485 (Q.B.) (holding that a British corporation with

non-British members was entitled to register a vessel

under a law limiting vessel registration to British

subjects).

Today, legal separateness is recognized in every

state, including Oklahoma, the home of Hobby Lobby,

and Pennsylvania, the home of Conestoga. See Kurtz

v. Clark, 290 P.3d 779, 785 (Okla. Civ. App. 2012)

(recognizing “the legal concept of corporate entity

under which stockholders as such lose their

individualities in the individuality of the corporation as

a separate and distinct person” (quoting Dobry v.

Yukon Elec. Co., 290 P.2d 135, 137 (Okla. 1955)));

Barium Steel Corp. v. Wiley, 108 A.2d 336, 341 (Pa.

1954) (“It is well established that a corporation is a

distinct and separate entity, irrespective of the persons

who own all its stock. The fact that one person owns all

of the stock does not make him and the corporation one

and the same person, nor does he thereby become the

owner of all the property of the corporation. The

shares of stock of a corporation are essentially distinct

and different from the corporate property.”).

6

B. THE CORPORATION’S SEPARATE EXISTENCE

PROTECTS ITS SHAREHOLDERS FROM

LIABILITY FOR CORPORATE DEBTS, THEREBY

ENCOURAGING INVESTMENT, INNOVATION,

AND JOB GENERATION.

Because the corporation is a separate entity, its

shareholders are not responsible for its debts. This

“privilege of limited liability,” as protected by the

corporate veil, is “the corporation’s most precious

characteristic.” William W. Cook, THE PRINCIPLES OF

CORPORATION LAW 19 (1925).

Although the term “corporation” sometimes calls

to mind large, publicly-traded corporations,

incorporation provides equally critical benefits to

smaller, private businesses. One of the most

compelling reasons for a small business to incorporate

is so that its shareholders can acquire the protection of

the corporate veil. By incorporating a business, the

founders and investors do not put their personal assets

at risk. Absent significant misconduct and fraud, a

shareholder in a corporation cannot lose any more than

her original investment. If the corporation cannot pay

its bills, the creditors—not the shareholders—bear the

loss, with only very narrow exceptions.”

’ The leading treatise on closely-held corporations notes that, in

addition to limited liability,

{t]here may [be other benefits] from the

recognition of the separate entity[:] the

participants in the enterprise may be entitled to

claim benefits as an employee for purposes of

workers’ compensation, social security,

unemployment compensation oor other

7

Even where a single shareholder owns 100% of the

corporation’s shares, the corporate veil cannot be

pierced absent significant misconduct or fraud on the

part of the shareholder. This impermeability of the

corporate veil has been confirmed by “thousands of

instances where a sole shareholder was held not liable

for either tort or contract obligation of his wholly-

owned corporation.” George D. Hornstein,

CORPORATION LAW AND PRACTICE § 751 (1959).

The rationale behind the corporate veil is simple:

by creating the corporate veil, legislators wanted to

encourage entrepreneurial activity by founders,

investment by passive investors, and risk-taking by

corporate managers. The corporate veil is a simple

device that helps to achieve all three of these goals.

Allowing a corporation, through either shareholder

vote or board resolution, to take on and assert the

religious beliefs of its shareholders in order to avoid

having to comply with a generally-applicable law with a

entitlement statutes. A corporate officer or

employee who is also the sole or controlling

shareholder of the corporation has sometimes

been able to assert successfully a claim as an

employee for workers’ compensation. Similarly,

some courts respect the separate entity of a

close corporation x80 that shareholder-

employees qualify for social security benefits

for which they would not be eligible if self-

employed.

F. Hodge O’Neal & Robert B. Thompson, 1 O’NEAL AND

THOMPSON’S CLOSE CORPORATIONS AND LLC’s: LAW AND

PRACTICE § 1:10 (3d ed. 2004).

8

secular purpose is fundamentally at odds with the

entire concept of incorporation. Creating such an

unprecedented and idiosyncratic tear in the corporate

veil would also carry with it unintended consequences,

many of which are not easily foreseen. For example,

adopting a “values pass-through” theory or “reverse

veil piercing” in this case could make the raising of

capital more challenging, recruitment of employees

more difficult, and entrepreneurial energy less likely to

flourish. As a matter of policy, as well as well-

established principles of corporate law, this Court

should reject Hobby Lobby’s and Conestoga’s claims.

C. THE CORPORATION’S SEPARATE EXISTENCE

PERMITS A BUSINESS TO £OPERATE

NOTWITHSTANDING THE DEATH OR

DISABILITY OF ITS FOUNDERS OR CHANGES IN

SHARE OWNERSHIP, THEREBY PROMOTING

STABILITY AND PREDICTABILITY IN BUSINESS

OPERATIONS.

In addition to the corporate veil separating

shareholders from the corporation, another key feature

of corporations is what known as “capital lock-in.”

Once an investor makes a capital contribution to the

corporation, the money stays with the corporation,

subject only to the decision of the board of directors to

deploy it, reinvest it, or distribute it to shareholders in

the form of dividends. See Margaret M. Blair, Locking

in Camtal: What Corporate Law Achieved for

Business Organizers in the Nineteenth Century, 51

UCLA L. Rev. 387, 388-89 (2003). Thus, for example, if

a shareholder dies, her money stays in the corporation.

Similarly, if shareholders become unhappy with

management, they cannot demand their money back.

This piece of the corporate architecture—a departure

9

from the traditional laws of partnership—is essential to

the stability of incorporated businesses, the confidence

of lenders, and the willingness of trading partners to do

business with a corporation. See zd. (arguing that

capital “lock-in” is one feature that has “made the

corporate form so useful in the development of modern

industrial economies”).

Capital lock-in also permits what has long been

known as the “perpetual existence” of corporations.

Perpetual existence simply means that, as shareholders

die, distribute their shares to following generations, or

sell their shares to newcomers, the corporation does

not founder or dissolve. Instead, the corporation keeps

operating—even if the new shareholders hold different

religious, social, political, or business views from those

who came before them. Such transitions in ownership

are not limited to publicly-traded corporations. Such

transitions happen to closely-held and family-owned

corporations as well due to, inter alia, death, disability,

divorce, or generational shifts.

If this Court were to accept the arguments being

advanced by Hobby Lobby and Conestoga, it would

encourage disruptive and inefficient disputes as share

ownership is transferred down through the

generations. It would invite contentious shareholder.

meetings, disruptive proxy contests, and expensive

litigation regarding whether the corporation should

adopt a religion and, if so, which one. Even where the

controlling shareholders are not religious at all,

directors installed by the prior controlling shareholders

may be. In addition, non-religious shareholders or

directors might decide that voting the corporation a

religious identity will provide the corporation an

advantage over its competitors (namely, by relieving

10

the corporation of its obligation to comply with a

generally-applicable law). Indeed, it is not difficult to

foresee the possibility that a shareholder would bring a

derivative suit if the board of directors refuses to

imbue the corporation with a religious identity that

might relieve the corporation of the obligation to

comply with generally-applicable laws and regulations

and thereby give it a competitive business advantage.

None of this is good for the stability—or profitability—

of the corporation. And it is avoidable, simply by

rejecting the values pass-through theory.

D. THE SEPARATION BETWEEN A CORPORATION

AND ITS SHAREHOLDERS IS A PRINCIPLE Nor

ONLY OF CORPORATE LAW, BUT ALSO OF

AGENCY LAW AND CRIMINAL LAW.

Many different areas of law build upon the

fundamental principle that a corporation is an entity

separate and distinct from its shareholders. In agency

law, for example, shareholders have no authority to act

on behalf of the corporation or to bind the corporation

to any legal commitments. James D. Cox & Thomas

Lee Hazen, BUSINESS ORGANIZATIONS LAW § 7.01 (3d

ed. 2011).

Under both federal and state procedure,

shareholders generally do not have standing to bring

suit on their own behalf for injuries suffered by the

corporation. See Rawoof v. Texor Petroleum Co., 521

F.3d 750, 757 (7th Cir. 2008) (“[A] shareholder

generally cannot sue for indirect harm he suffers as a

result of an injury to the corporation.”). Such suits

may only be brought derivatively, in the name of the

corporation and in the corporation’s behalf, when the

corporation has improperly failed to assert a corporate

11

claim. See Fed. R. Civ. P. 23.1; see also, e.g., Del. Ch.

Ct. R. 23.1."

By the same token, corporations should not be able

to sue to assert the rights of their shareholders. For-

profit corporations are not like membership

organizations, which are deemed to share the values of

their members and have standing to sue on their

members’ behalf. See Hunt v. Wash. State Apple

Adver. Comm'n, 432 U.S. 333, 343 (1977). Corporations

are legally distinct entities whose shareholders may

have idiosyncratic investment objectives and

distinctive—and changeable—economic needs.

That a corporation is distinct from its individual

constituents is also firmly rooted in criminal law

doctrine. See generally Cedric Kushner, 533 U.S. 158

(holding that sole shareholder and president was a

“person” distinct from the corporate “enterprise”

under RICO statute). Because of this, a corporation

may be found guilty while the sole shareholder is

acquitted. See State v. Christy Pontiac-GMC, Inc., 354

N.W. 2d 17 (Minn. 1984). Similarly, a shareholder may

be found guilty while the corporation is not charged

with a crime. See Ellen S. Podgor et al., HORNBOOK ON

WHITE COLLAR CRIME § 2.7 (2013) (detailing situations

where high-level executives are charged and found

* Although some states allow shareholders to bring a direct

action in narrow circumstances—specifically, when the

shareholder has suffered a “separate and distinct injury,”

Crosby v. Beam, 47 Ohio St. 3d 105, 107 (1989)—the Delaware

Supreme Court has rejected this putative exception to the

derivative rule. See Tooley v. Donaldson, Lufkin & Jenrette,

Inc., 845 A.2d 1031, 1085 (Del. 2004).

12

guilty while the corporation enters into a non-

prosecution or deferred prosecution agreement).

The separateness of corporations and their

individual shareholders is also exemplified by the

rights afforded to individuals that do not pass to the

corporate entity. The “entity exception” limits the

rights of “persons” under the Fifth Amendment to

“natural persons.” See generally Hale v. Henkel, 201

US. 43 (1906), overruled on other grounds by Murphy

v. Waterfront Comm’n of N.Y. Harbor, 378 U.S. 52

(1964). In Hale, this Court noted the policy reasons for

distinguishing between individual rights and corporate

rights under the Fifth Amendment:

{[Tjhe corporation is a creature of the

state. It is presumed to be incorporated

for the benefit of the public. It receives

certain special privileges and franchises,

and holds them subject to the laws of the

state and the limitations of its charter.

* * * While an individual may lawfully

refuse to answer incriminating questions

unless protected by an immunity statute,

it does not follow that a corporation,

vested with special privileges and

franchises, may refuse to show its hand

when charged with an abuse of such

privileges.

Id. at 74-75. This principle was reaffirmed in United

States v. White, 322 U.S. 694, 700 (1944), where this

Court stated: “The framers of the constitutional

guarantee against compulsory self-disclosure, who

were interested primarily in protecting individual civil

liberties, cannot be said to have intended the privilege

13

to be available to protect economic or other interests of

such organizations so as to nullify appropriate

governmental regulations.” Thus, while individuals can

claim a Fifth Amendment privilege, entities are

precluded from equivalent rights. The entity exception

has been applied even when the entity embodied

personal as well as group interests. See Bellis v.

United States, 417 U.S. 85 (1974) (applying the entity

exception to partnership records).

Importantly, moreover, this Court has recognized

the distinction even between a sole shareholder and the

corporation for purposes of the Fifth Amendment. In

Braswell v. United States, 487 US. 99 (1988), this

Court ruled that the sole shareholder of a corporation

has no Fifth Amendment right to resist a subpoena to

the corporation for corporate documents that

personally incriminate him.

The principle of corporate separateness is both

strong and enduring. Nothing in the cases now before

this Court should cause this Court to disregard the

principle or to call it into any question, or to allow a

corporation through either direct shareholder action or

a board resolution, to simply “take on” the religious

identity of its shareholders.

E. THIS CourRT SHOULD Not ALLOW HOBBY

LOBBY AND CONESTOGA TO SELECTIVELY

DISREGARD THE CORPORATE VEIL THAT

SEPARATES THEM FROM THEIR

SHAREHOLDERS.

In the present cases, Hobby Lobby and Conestoga

argue that they should be exempt from federal law

because of the religious values of their controlling

shareholders, while seeking to maintain the benefits of

14

corporate separateness for all other purposes. These

corporations have benefited from their separateness in

countless ways, and their shareholders have been

insulated from actual and potential corporate liabilities

since inception. Yet now they ask this Court to

disregard that separateness in connection with a

government regulation applicable solely to the

corporate entity.

Hobby Lobby and Conestoga want to argue, in

effect, that the corporate veil is only a one-way street:

its shareholders can get protection from tort or

contract liability by standing behind the veil, but the

corporation can ask a court to disregard the corporate

veil on this occasion.

Hobby Lobby and Conestoga cannot have it both

ways. This Court has repeatedly held that

corporations and their controlling shareholders cannot

invoke the corporate veil on the one hand and ask

courts to disregard it on the other. See Schenley

Distillers Corp. v. United States, 326 U.S. 482, 437

(1946) (“One who has created a corporate arrangement,

chosen as a means of carrying out his business

purposes, does not have the choice of disregarding the

corporate entity in order to avoid the obligations which

the statute lays upon it for the protection of the

public.”); Moline Props., Inc. v. Comm’r, 319 U.S. 436

(1943) (holding that even a sole shareholder cannot

seek to sidestep a corporation’s “separateness” to gain

a personal tax advantage).

Hobby Lobby’s and Conestoga’s position—that the

personal religious values of a corporation’s controlling

shareholders may be “passed through” to, or injected

into, the corporation they own—is inconsistent with

15

the protection that the corporation’s separate existence

provides to the shareholders, i.e., the corporate veil.

Moreover, this Court’s ruling in Domino’s Pizza, Inc.

v. McDonald, 546 U.S. 470 (2006), flatly repudiates the

major premise on which Hobby Lobby’s and

Conestoga’s argument rests.

In McDonald, an African-American individual was

the sole shareholder of a corporation that had entered

into several contracts with Domino’s. Alleging that

Domino’s breach of those contracts was racially

motivated and violated his civil rights, he brought a

claim under 42 U.S.C. § 1981. This Court rejected his

claim, explaining that

it is fundamental corporation and agency

law—indeed, it can be said to be the

whole purpose of corporation and agency

law—that the shareholder and

contracting officer of a corporation has no

rights and is exposed to no liability under

the corporation’s contracts. * * * The

corporate form and the rules of agency

protected his personal assets, even

though he negotiated, signed, performed,

and sought to enforce contracts for [the

corporation]. The corporate form and the

rules of agency similarly deny him rights

under those contracts.

Id. at 477 (internal quotation marks omitted). Under

McDonalds reasoning, the religious values of Hobby

Lobby’s and Conestoga’s shareholders cannot be

“passed through” to the corporate entity, and any

“burden” that the contraceptive mandate imposes on

16

the corporate entity does not constitute a cognizable

“injury” to the individual shareholders.”

F. “REVERSE VEIL PIERCING” Has NO

APPLICATION TO THE FACTS IN THESE CASES.

One corporate law scholar has recently suggested

that the practice of “reverse veil-piercing” might

justify a “religious values pass-through” from

controlling shareholders to the corporation. Stephen

M. Bainbridge, Using Reverse Veil Piercing to

Vindicate the Free Exercise Rights of Incorporated

Employers, 16 Green Bag 2d 235 (2013). This

argument fundamentally misunderstands the reverse

piercing remedy.

As a general rule, reverse piercing is an equitable

remedy, employed to permit creditors of an individual

shareholder to reach the assets of a corporation in

*'This Court previously has recognized that “the corporate

form may be disregarded in the interests of justice where it is

used to defeat an overriding public policy.” Bangor Punta

Operations, Inc. v. Bangor & Aroostook R.R., 417 U.S. 708, 713

(1974). But this does not advance Hobby Lobby’s and

Conestoga’s arguments here. Bangor Punta was not a case

where the corporation was asking that a court disregard the

veil that served to protect it and its shareholders. Instead,

invoking equitable principles, this Court held that a

shareholder who had acquired a 99% controlling interest in a

company at a fair price could not then succeed in a derivative

action against the company’s former owner for alleged

corporate waste and mismanagement that had occurred long

before the purchase. /d. at 705, 716 (holding that, were such a

suit allowed to be maintained, the new owner would “reap[] a

windfall”).

17

which she holds stock. See, eg., Dzikowski v.

Friedlander, 411 B.R. 434, 441 (Bankr. S.D. Fla. 2009).

What Hobby Lobby and Conestoga seek in these cases

is to engage in a discredited variation on reverse veil

piercing, known as “insider reverse piercing.” In a

“typical” insider reverse piercing case, “a corporate

insider, or someone claiming through such individual,

attempt[s] to pierce the corporate veil from within so

that the corporate entity and the individual will be

considered one and the same.” Postal Instant Press,

Inc., v. Kaswa Corp., 77 Cal. Rptr. 3d 96, 101 (Cal. Ct.

App. 2008).

The law strongly opposes insider reverse veil

piercing. The reasoning behind this opposition is

straightforward: veil piercing is a doctrine of equity,

guided by equitable considerations, and reverse veil

piercing at the request of an insider who has

consciously chosen the corporate form by which to do

business is hardly equitable. See, eg., Uniboard

Aktiebolag v. Acer Am. Corp., 118 F. Supp. 2d 19, 25

(D.D.C. 2000) (“[TThe law generally does not allow the

option of ‘reverse piercing’ the corporate veil when it

suits the corporation’s owner.”).

Moreover, Hobby Lobby’s and Conestoga’s

position is not supported by cases that pierce the

corporate veil in order to fulfill a federal or state

directive. In such cases, federal and state courts may

invoke veil piercing because a corporation was created

for the transparent purpose of evading state or federal

policy. See, ¢.g., Anderson v. Abbott, 321 U.S. 349, 362-

63 (1944); Ill. Bell Tel. Co. v. Global NAPS IIL, Inc.,

551 F.3d 587, 598 (7th Cir. 2008); Bhd. of Locomotive

Eng’rs v. Springfield Terminal Ry. Co., 210 F.3d 18,

26-27 (ist Cir. 2001). By contrast, there is no allegation

18

that Hobby Lobby’s or Conestoga’s shareholders

created their respective corporations as a contrivance

in order to evade a federal or state directive. Thus,

these facts are different from, for example, cases in

which state usury laws limited to individuals are

evaded by the borrower purposely incorporating so as

to obtain a loan at rates usurious if applied to

individuals.’ See, e.g., Atlas Subsidiaries of Fla., Inc.

v.0 &O, Inc., 166 So. 2d 458 (Fla. Dist. Ct. App. 1964).

In short, well-established corporate law principles

do not support the suggestion that the religious

identity of the corporation’s controlling shareholders

should pass through to and exempt those corporations

from compliance with generally applicable laws and

regulations. Because Hobby Lobby and Conestoga

have taken full advantage of the benefits of

incorporation, they cannot now disregard the wall of

separation that incorporation requires.

*This is also not a case where the decision to incorporate a

family farm has threatened a shareholders homestead

exemption. See, ¢.g., Cargill, Inc. v. Hedge, 375 N.W.2d 477

(Minn 1985) (ignoring the fact that a farm had been

incorporated in order to permit the sole owner of the

corporation to keep her homestead exemption); State Bank in

Eden Valley v. Euerle Farms, Inc., 441 N.W.2d 121 (Minn. Ct.

App. 1989) (same).

19

Il. RECOGNIZING “VALUES PASS-THROUGH”

AND/OR “REVERSE VEIL PIERCING”

WOULD BE DISRUPTIVE TO BUSINESS AND

HAVE IMPLICATIONS FAR BEYOND THE

CONTRACEPTIVE MANDATE.

A. PERMITTING CONTROLLING SHAREHOLDERS

TO IMBUE THE CORPORATION WITH THEIR

RELIGIOUS IDENTITY WOULD INVITE

INTRAFAMILIAL AND INTERGENERATIONAL

DISPUTES AND GENERATE COSTLY

LITIGATION.

Shareholders in closely-held and family-owned

businesses often find themselves in disputes over

values. Factions emerge; majority shareholders gang

up on minority shareholders; dissenters lose their jobs

and are excluded from decision-making; dividends

previously paid and relied upon are discontinued; etc.

In such circumstances, minority shareholders find

themselves with no economic return on their share

ownership. Corporate law casebooks are filled with

these dramas.

This factionalizing and exclusion of minority

shareholders is statutorily known as “oppression.” See

Model Bus. Corp. Act § 14.30. Sometimes oppression

gives rise to injunctive relief, imposition of damages,

forced buy-backs of shares, and even dissolution of the

corporation. Cox & Hazen, supra, at § 14.12; F. Hodge

O’Neal & Robert B. Thompson, 1 OPPRESSION OF

MINORITY SHAREHOLDERS AND LLC MEMBERS

§§ 7.3-9 (2010). Sometimes, it merely results in

heartache and fractured families.

Running a family business is difficult enough, even

without infusing disruptive and personal issues such as

20

religion into the mix. Under a values pass-through

theory, one can imagine majority shareholders

“freezing out” family members who do not adhere to

the majority’s religious beliefs. Would failure to attend

church, or to participate in the majority's favored

religious practices, form a legitimate basis for exclusion

in a values pass-through regime? See Faith Stevelman,

Going Private at the Intersection of the Market and the

Law, 62 Bus. Law. 775 (2007) (describing “freeze out”

transactions in which majority shareholders can

eliminate minority shareholders from the corporation

without providing a business justification and at less

than full value).

If this Court were to agree that, as a matter of

federal law, shareholders holding a control bloc of

shares in a corporation may essentially transfer their

religious beliefs to the corporation, the results could be

overwhelming. Federal courts faced with RFRA and

Free Exercise Clause lawsuits would be forced to

resolve questions about what degree of ownership

constitutes “control.” They would also be forced to

"Such determinations are usually a matter of state law. See

Zimmerman v. Crothall, 62 A.3d 676, 699-700 (DeLCh. 2013)

(defining standards for when a shareholder is a controlling

shareholder under Delaware law). The state law standards for

who is a controlling shareholder often involve case by case

determinations. Under Delaware law, a shareholder is

“controlling” if the shareholder “either owns more than 50% of

the voting power of the company, or exercises ‘actual control’

over the board of directors during the course of a particular

transaction.” Jd. at 699-700. Both of these tests for whether a

controlling shareholder exists can become the subject of

extensive litigation. See, ¢.g., Kelly v. Blum, No. 4516-VCP,

2010 WL 629850, at *12 (Del Ch. Ct. 2010) (defining powers

21

resolve difficult questions about the “legitimacy” of

controlling shareholders’ efforts to imbue the

corporation with a religious identity.’

State courts, too, could become clogged with

business disputes between shareholders who disagree

over what religious identity, if any, their corporation

that shareholder must possess to be a controlling shareholder,

and citing Paramount Comm'n Inc. v. QVC Network Inc., 637

A.2d 3A, 43 (Del. 1994)); see also Gould v. Reufenacht, 471 U.S.

701, 706 (1985) (recognizing the complexities of determining

what constitutes corporate “control” in_ closely-held

businesses).

“Furthermore, questions regarding the “legitimacy” of the

corporation’s religious identity might not necessarily reduce to

an inquiry into the beliefs of the controlling shareholders. For

example, suppose that the controlling shareholders are

concededly non-religious and yet, for business reasons,

installed a set of directors who happen to be extremely

religious. If, after receiving permission from the controlling

shareholders, the directors were to pass a corporate resolution

providing that the corporation adopts the directors’ religious

identity, would that resolution be “legitimate”? Or, suppose

that, out of respect for a minority shareholder’s strong

religious beliefs, the corporation’s non-religious controlling

shareholders agree to amend the corporate charter in order to

make clear that the corporation adopts the religious identity of

the minority shareholder. Would that transaction qualify as

“legitimate”? Or, suppose that a corporation’s founding

shareholders placed into the corporate charter a provision

under which the corporate entity adopts their religious

identity. If the founding shareholders were subsequently to

bequeath their shares to their concededly non-religious

grandchildren, would it be “legitimate” for the corporation to

rely on its charter in seeking a RFRA-based regulatory

exemption?

22

should adopt. The dispute might be between

shareholders who agree that the corporation should

adopt a religious identity but disagree over which one.

Or, the dispute meyht be between majority

shareholders who, for purely non-economic reasons, are

opposed to having the corporation adopt a religious

identity that would exempt it from certain regulations

and minority shareholders who are focused on reducing

the corporation’s regulatory-compliance costs.

Conversely, over the objection of minority

shareholders who are solely interested in maximizing

profit, the majority shareholders might seek to have

the corporation adopt a religious identity even they

anticipate that doing so will cause the corporation to

lose customers.”

This Court should not take even a small step down

this path. Rather than embracing a rule that says that

shareholders claiming control of a corporation can

impose their personal religious beliefs on minority (or

even majority) shareholders and employees, the Court

should reject the values pass-through theory.

* Many states hold that controlling shareholders owe an

absolute duty of loyalty to minority shareholders. See, e.g.,

Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993).

23

B. PERMITTING CONTROLLING SHAREHOLDERS

TO IMPOSE THEIR RELIGIOUS BELIEFS ON

CORPORATIONS WOULD OPEN THE COURTS TO

MANY ISSUES Not RELATED TO

CONTRACEPTION.

These cases raise not only questions of

contraceptive and related women’s health care.

Allowing, or even compelling, corporations to adopt the

religious beliefs of their shareholders could result in

challenges to scores of other medical products or

procedures that shareholders might deem

objectionable. See Thomas E. Rutledge, A

Corporation Has Ne Soul—the Business Entity Law

Response to the PPACA Contraceptive Mandate, 5

Wm. & Mary Bus. L. Rev., at n. 74 (forthcoming 2014)

(enumerating plausible’ religious objections to

corporate funding of psychiatric care, treatment of

illnesses related to the use of alcohol or tobacco, blood

transfusions, delivery of babies born out of wedlock,

and vaccination against the HPV virus). “The scope of

the [contraceptive] Mandate is only a small subset of

the medical procedures to which a Free Exercise

objection could be raised.” Jd.

This case, moreover, raises not only questions

under PPACA but also under the Civil Rights Act of

1964. Corporations have not raised the religious

objections of shareholders as a basis for non-compliance

with the public accommodations provisions of the Civil

Rights Act. But, under a values pass-through theory,

an incorporated business that withholds service from a

person on the basis of race, gender, or religion, might

24

try to invoke the religious convictions of its

shareholders as a defense.”

Similarly, there may be shareholders who have

sincere religious convictions that women’s place is in

the home, or that men should not be engaged in work

such as nursing or child care. Could the corporation,

which the majority shareholders control, be allowed to

invoke the _ religious beliefs of the majority

shareholders as a defense to an employment

discrimination claim brought under Title VII?”

Recognizing or allowing any kind of religious

values pass-through from shareholders to corporations

’ In resisting enactment of the Civil Rights Act, clergymen and

senators invoked the “will of God,” the “Christian way,” and

“God’s color line” based on biblical texts. See Michael Kent

Curtis, A Unique Religious Exemption from

Antidiscrimination Laws in the Case of Gays? Putting the

Call for Exemptions for Those Who Discriminate Against

Married or Marrying Gays in Context, 47 Wake Forest L.

Rev. 173, 174-77 (2012) (surveying the climate surrounding the

enactment of the Civil Rights Act); see also, Fred R. Harris,

The American Negro Today, 10 Wm. & Mary L. Rev. 550, 555-

56 (1969) (recounting biblical justifications for slavery and Jim

Crow laws).

" At least one Title VII case might come out differently were

the plaintiffs’ arguments in these cases to prevail. See EEOC

v. Townley Eng’g & Mfg. Co., 859 F.2d 610 (9th Cir. 1988)

(holding that, notwithstanding the deeply-held beliefs of the

shareholders, a manufacturing company could not require a

non-religious employee to attend a mandatory “devotional

service” each week). One can imagine the range of Title VII

claims that would erupt if for-profit businesses were permitted

to impose religious job requirements based on the religious

beliefs of the controlling shareholders.

25

would create a slippery slope that is easily avoidable.

Thus, this Court should hold that the religious identity

of a for-profit corporation’s controlling shareholders,

whether expressed through direct shareholder action

or a board resolution, cannot excuse the corporation

from strict compliance with generally applicable laws

and regulations.

C. PERMITTING CORPORATIONS TO USE

PUTATIVE RELIGIOUS BELIEFS TO AVOID

LEGAL OBLIGATIONS GIVES THOSE

CORPORATIONS COMPETITIVE ADVANTAGES

AND INCENTIVIZES SUBTERFUGE.

Corporations have a duty, enforceable within

corporate law itself, to obey the law. See Model Bus.

Corp. Act § 3.02(15) (authorizing a corporation to “do

any other act, not inconsistent unith law, that furthers

the business and affairs of the corporation” (emphasis

added)). Indeed, in every American jurisdiction,

corporations are chartered only for lawful purposes and

illegal acts have long been considered ultra vires. See

generally Kent Greenfield, Ultra Vires Lives! A

Stakeholder Analysis of Corporate Illegality (With

Notes on How Corporate Law Could Reinforce

International Law Norms), 87 Va. L. Rev. 1279 (2001).

Oklahoma and Pennsylvania both acknowledge the

obligation for corporations to act lawfully. See 18 Okla.

Stat. § 1005 (“A corporation may be incorporated * * *

to conduct or promote any lawful business or

purposes.”); 15 Pa. Cons. Stat., § 1301 (“Corporations

may be incorporated under this subpart for any lawful

purpose or purposes.”).

A related principle of corporate law holds that a

corporation may not knowingly violate the law, even if

26

the board authorizes it. See Miller v. Am. Tel. & Tel.

Co., 507 F.2d 759 (3rd Cir. 1974) (holding that the board

was not insulated by the business judgment rule when

it authorized non-collection of unpaid telephone bills in

violation of the Communications Act of 1934).

The reasons for this insistence on legal obedience,

beyond the obvious importance of legality to society at

large, include the urgency of maintaining a fair and

level playing field for all businesses. A competitive

marketplace depends on the principle that competition

among firms should be on grounds of efficiency, and

should not depend on which companies are better at

skirting legal obligations.

As a general matter, a corporation will enjoy a

competitive advantage in the marketplace if it is

exempted from otherwise generally applicable laws

and regulations (namely, because the exemption will

reduce the corporation’s costs of doing business). In

this case, Hobby Lobby and Conestoga are asking to be

relieved from providing a standard of health care

coverage that their competitors are required to

provide. Regardless of the companies’ purpose, the

effect of their legal arguments would be to skew the

level playing field of the market, giving an advantage

to companies claiming regulatory exemptions.

Companies that do not assert religious beliefs will find

themselves competing at a disadvantage, on grounds

that have nothing to do with efficiency.

If this Court were to accept Hobby Lobby’s and

Conestoga’s arguments, what would prevent a

corporation from invoking religion essentially at will in

order to obtain exemptions from generally applicable

laws and regulations that the corporation finds too

27

costly? Are federal courts prepared to adjudicate

complex (and potentially intrusive) questions of

whether a given corporation is invoking religion merely

as a subterfuge to gain an economic advantage over

competitors, rather than in “good faith” (however a

court might define that term)?” And, if federal courts

are not prepared to entangle themselves in such

questions, will boards of directors be duty-bound to

shareholders to adopt some form of religious identity,

so as to exempt the corporation from the greatest

number of generally applicable laws and regulations?

These questions do not represent a mere parade of

horribles. Rather, it is very easy to imagine how

companies would react if this Court were to rule in

favor of Hobby Lobby and Conestoga. Companies

suffering a competitive disadvantage will simply claim

a “Road to Damascus” conversion. A company will

adopt a board resolution asserting a religious belief

inconsistent with whatever regulation they find

obnoxious, whether it be a state’s insistence that

companies not discriminate on the basis of sexual

orientation, Title VII’s obligation that women be paid

the same as men, or PPACA’s requirement of

* Even assuming that federal courts were permitted to engage

in such an inquiry, they would be stepping outside of their

traditional area of expertise. See Thomas v. Review Bd., 450

U.S. 707, 716 (1981) (“{I}t is not within the judicial function and

judicial competence to inquire whether the petitioner or his

fellow worker more correctly perceived the commands of their

common faith. Courts are not arbiters of scriptural

interpretation.”).

28

providing health insurance that includes contraceptive

coverage.

Unless federal courts were authorized and

prepared to make inquiries into the “legitimacy” or

good faith nature of the corporation’s putative religious

beliefs, then the only checks on all of this would be

labor unrest or consumer disgust. And, even if federal

courts were authorized and prepared to enmesh

themselves in the chore of determining whether a

corporation’s assertion of religious beliefs is in good

faith or a mere subterfuge, this chore would not be

easy. The evidence typically will be no more, and no

less, than what is present in this case: the views of

shareholders that the regulation burdens their

personal beliefs and a board resolution adopting those

beliefs as the corporation’s own.

CONCLUSION

Hobby Lobby’s and Conestoga’s RFRA claims rest

on arguments that are contrary to well-established

principles of corporate separateness that are

recognized by corporate law, criminal law, and agency

law. The judgment of the Tenth Circuit should be

reversed and the judgment of the Third Circuit should

be affirmed.

Respectfully submitted,

RYAN M. MALONE

AARON M. KATZ

SUSANNA G. DYER

ROPES & GRAY LLP

JANUARY 2014

APPENDIX

APPENDIX A

Jennifer H. Arlen

Norma Z. Paige Professor of Law

New York University School of Law

40 Washington Square South, 411D

New York, NY 10012

Jayne W. Barnard

James Goold Cutler Professor of Law

William & Mary Law School

P.O. Box 8795

Williamsburg, VA 23185

Barbara Black

Charles Hartsock Professor of Law

Director, Corporate Law Center

University of Cincinnati College of Law

PO Box 210040

Cincinnati, OH 45221-0040

Douglas M. Branson

W. Edward Sell Chair of Business Law

University of Pittsburgh School of Law

Barco Law Building

3900 Forbes Avenue

Pittsburgh, PA 15260

Marilyn Blumberg Cane

Professor of Law

Nova Southeastern University

Shepard Broad Law Center

3305 College Avenue

Fort Lauderdale-Davie, FL 33314-7796

John C. Coates

John F.. Cogan, Jr. Professor of Law and Economics

Research Director, Program on the Legal Profession

Harvard Law School

1563 Massachusetts Avenue

Cambridge, MA 02138

Morgan Cloud

Charles Howard Candler Professor of Law

Emory University School of Law

1301 Clifton Road NE

Atlanta, Georgia 30322

James D. Cox

Brainerd Currie Professor of Law

Duke Law School

Box 90360

Durham, NC 27708-0360

Lisa M. Fairfax

Leroy Sorenson Merrifield Research Professor of Law

The George Washington University Law School

2000 H Street, N.W

Washington, DC 20052

Tamar Frankel

Professor of Law & Michaels Faculty Research Scholar

Boston University School of Law

765 Commonwealth Avenue

Boston MA 02215

Brandon L. Garrett

Roy L. and Rosamond Woodruff Morgan Professor of

Law

University of Virginia School of Law

580 Massie Road

Charlottesville, VA 22903-1738

Erik Gerding

Associate Professor of Law

University of Colorado Law School

Wolf Law Building

2450 Kittredge Loop Road

Boulder, Colorado 80309

Kent Greenfield

Professor of Law and Dean’s Research Scholar

Boston College Law School

885 Centre Street

Newton Centre, MA 02459

Daniel J. H. Greenwood

Professor of Law

Maurice A. Deane School of Law

Hofstra University

Hempstead, NY 11549

Lawrence A. Hamermesh

Ruby R. Vale Professor of Corporate and Business

Law

Widener Law School

P.O. Box 7474

Wilmington, DE 19803

Matthew Jennejohn

Associate Professor of Law

Brigham Young University Law School

Provo, UT 84602

Jennifer J. Johnson

Erskine Wood Sr. Professor of Law

And Dean-Designate

Lewis & Clark Law School

10015 S.W. Terwilliger Blvd.

Portland, OR 97219

Renee M. Jones

Associate Professor

Boston College Law School

885 Centre Street

Newton Centre, MA 02549

Anita K. Krug

Assistant Professor

University of Washington School of Law

William H. Gates Hall

Box 353020

Seattle, WA 98595

Andrew C.W. Lund

Associate Professor of Law and

Associate Dean for Research and Faculty Development

Pace Law School

78 North Broadway

White Plains, New York 10603

Daniel J. Morrissey

Professor of Law

Gonzaga University School of Law

PO Box 3528

721 N Cincinnati St.

Spokane WA 99220-3528

Joseph F’. Morrissey

Professor of Law

Stetson University College of Law

1401 61st Street South

Gulfport, Florida 33707

Donna Nagy

C. Ben Dutton Professor of Law and

Interim Executive Associate Dean for Academic

Affairs

Maurer School of Law

Indiana University

Bloomington, IN 47405-7001

Lisa H. Nicholson

Professor of Law

Louis D. Brandeis School of Law

University of Louisville

Louisville, KY 40292

Marleen A. O’Connor

Professor of Law

Stetson University College of Law

1401 61st Street South

Gulfport, Florida 33707

Stefan J. Padfield

Professor of Law

University of Akron

School of Law

C. Blake McDowell Law Center

Akron, OH 44325-2901

Alan Palmiter

Associate Dean of Graduate Programs

Howard L. Oleck Professor of Business Law

Wake Forest University School of Law

1834 Wake Forest Road

Winston Salem, NC 27109

Frank Partnoy

George E. Barrett Professor of Law and Finance

University of San Diego School of Law

5998 Alcala Park

San Diego, CA 92110

Tamara R. Piety

Phyllis Hurley Frey Professor of Law

University of Tulsa

JRH H-North

Tulsa, OK 74104-9700

Ellen S. Podgor

Gary R. Trombley Family White-Collar Crime

Research Professor

Professor of Law

Stetson University College of Law

1401 61st Street South

Gulfport, Florida 33707

Brian JM Quinn

Associate Professor of Law

Boston College Law School

885 Centre Street

Newton Centre, MA 02459

Theresa J. Pulley Radwan

Associate Dean for Administration and Business

Affairs and Professor of Law

Stetson University College of Law

1401 61" Street S

Gulfport, FL 33707

Paul Rose

Associate Professor of Law

Co-Director, Law & Capital Markets @OSU

Moritz College of Law

Ohio State of University

55 West 12th Avenue

Columbus, OH 43210-1391

Margaret V. Sachs

Robert Cotton Alston Chair in Corporate Law

University of Georgia School of Law

225 Herty Drive

Athens, GA 30602-6012

J. Kelly Strader

Professor of Law

Southwestern Law School

3050 Wilshire Blvd.

8

Los Angeles, CA 90010-1106

Faith Stevelman

Visiting Professor

University of Washington School of Law

William H. Gates Hall

Box 353020

Seattle, WA 98195-3020

Lynn Stout

Distinguished Professor of Corporate & Business Law

Cornell Law School

253 Myron Taylor Hall

Ithaca, NY 14853-4901

Jennifer S. Taub

Associate Professor of Law

Vermont Law School

164 Chelsea Street

P.O. Box 96

South Royalton, VT 05068

Kellye Y. Testy

James W. Mifflin Professor of Law and Dean

University of Washington School of Law

William H. Gate Hall

Box 353020

Seattle, WA 98195-3020

Ciara Torres-Spelliscy

Assistant Professor of Law

Stetson University College of Law