By Brittany Knutson

The majority opinion in Burwell v. Hobby Lobby StoresInc. shows a lack of understanding of relevant corporate law precedent and the arguments it makes for a corporation’s right to “exercise religion” are flawed.[1]This article first asserts that the majority inappropriately used Braunfeld v. Brown[2] to demonstrate that the Religious Freedom Restoration Act (“RFRA”) should apply to for-profit corporations. Second, this post argues that the existence of benefit corporations and corporate charitable giving do not support the conclusion that corporations can exercise religion.

In the business world, there are many different types of business associations including sole-proprietorships, partnerships, closely-held corporations, benefit corporations and publicly-help corporations, and many more. When starting a business, owners must select a form that will best meet the company’s needs, and each form has unique legal characteristics which, importantly, also determine the body of law that will apply to the company.[3] In a partnership for example, all partners (owners) have unlimited liability for the company’s debts.[4]Alternatively, if the owners chose to incorporate, their personal assets are protected and they are said to have “limited” liability. The limited liability is created by the fact of incorporation, upon which the corporation becomes a unique, distinct, legal entity that is separate from the owner’s legal identity.[5]

Upon incorporation, an identity is created through the articles of incorporation, which must include the general nature of the business and information about the managerial and governance structure.[6] In a publicly-held corporate form, shareholders (owners) do not have any managerial rights, but rather the company is operated by a board of directors elected by the shareholders.[7] This procedural requirement is quite different from a sole-proprietorship or partnership where owners maintain their managerial rights and may freely contract. A closely held corporation, such as the plaintiffs’ businesses in Hobby Lobby, is a quasi-merged form in that its articles of incorporation govern the company, but an owner likely expects to have a participatory role in management.[8]

In Hobby Lobby, two closely held corporations brought a challenge to the contraceptive mandate included in the Affordable Care Act (“ACA”) under the RFRA, claiming that providing contraceptive coverage violated the sincerely held beliefs of the corporations’ owners.[9] As a threshold issue, the Court had to decide if a close corporation was a “person” under the act.[10] The Court held that that because there was no dispute whether RFRA covers nonprofit corporations, that there was no conceivable definition of “person” that would include natural persons and nonprofit corporations, but not for-profit corporations as well.[11]

Because a closely held corporation allows for partnership-like contracting freedom and management style, it is understandable that the Supreme Court viewed the Hobby Lobby plaintiff-companies like partnerships.[12] However, corporate law has clearly established that when a company voluntarily choses a corporate form, it must then be treated as a corporation.[13] The Massachusetts Supreme Court case ofDonahue v. Rodd Electrotype Co., by way of incorrectly treating a close corporation like a partnership, helped the courts clarify that closely-held corporate owners, even if small in number and involved in management, still must be viewed as distinct from the legal identity of the corporation.[14] Following the Donahue decision, other courts made clear that owners in closely held corporations should not be viewed as partners and that the corporation’s legal identity must be viewed as separate and unique.[15] Essentially, an owner must decide how important various aspects of control and liability are to him when choosing a business entity to operate under, as such an owner may not have his cake (the benefits of managerial and contracting freedom associated with partnership form) and eat it too (the benefits of limited liability).

In Hobby Lobby, citing Braunfield,[16] the Court determined that despite its for-profit closely held corporation status, the owners could express their religious views through the corporation.[17] In Braunfeld, Jewish merchants in Philadelphia challenged Pennsylvania’s Sunday-closing laws because the laws allegedly infringed on their free exercise of religion.[18] The merchants argued that their religion required that they close their business on Saturday, and that the additional legal requirement to close on Sunday would harm them economically and place them at a competitive disadvantage with their non-Jewish competitors.[19] The Hobby Lobby majority intimates that because these merchants had a free exercise claim triggered by the law’s affect on their business, then so too should the Hobby Lobby defendants have a claim under RFRA.[20] The majority claims that precluding for-profit corporations from RFRA protections would “put these merchants to a difficult choice: either give up the right to seek judicial protection of their religious liberty or forgo the benefits available to their competitors, of operating as corporations.”[21]

Such a conclusion utterly ignores the most basic tenant of corporate law – that a corporation has its own legal identity.[22] The Braunfieldmerchants chose a non-corporate form and maintained their status as sole-proprietors. Because they are one, unified legal entity, its is legally sound to view the business as having the same religious views as the owner. The Braunfield case is clearly distinguishable from Hobby Lobbywhere the owners voluntarily chose the closely held corporate form. The owners in Hobby Lobby likely weighed the pros and cons of each type of business association and concluded the closely held form best fit their business needs. This decision resulted in the creation of a new legal identity and is one that should not be merged with that of the owners.[23] Therefore, the Hobby Lobby owners rightfully have a RFRA claim while the corporate legal identity of Hobby Lobby itself should not.

The Court also disregards the choice of form decision when it points out that “[s]tates have increasingly adopted laws formally recognizing hybrid corporate forms . . . [like] the “benefit corporation,” a dual-purpose entity that seeks to achieve both a benefit for the public and a profit for its owners.”[24] Under Delaware law, a benefit corporation is “a for-profit corporation . . . intended to produce a public benefit . . . managed in a manner that balances the stockholders’ pecuniary interests, the best interests of . . . the public benefit(s) or public identified in its certificate of incorporation.”[25] Clearly, a corporation needs to indicate what it will be benefiting from at the time of incorporation. Even a benefit corporation is defined by its corporate charter, not its owners.[26] TheHobby Lobby plaintiff-companies are not incorporated as benefit corporations.[27] Therefore, the Court’s discussion of benefit corporations does not advance the Court’s premise that corporations can “exercise religion.”[28]

The majority further demonstrates its ignorance of corporate law when it analogizes a for-profit corporation’s right to “express religion” with a for-profit corporation’s rights to support charitable causes.[29] The majority writes that “for-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives . . . [such as] pollution-control and energy conservation.”[30]While it is true that for-profit corporations may engage in advancing such worthy causes, they may not do so as freely as the Court suggests.[31] A corporation may only engage in these types of activities if there is a “valid corporate purpose.”[32] Such a purpose does not have to directly increase profits, but it must be rationally related to maximizing profits in some other form, for example, by creating positive publicity, generating goodwill, or functioning as advertising.[33]

This requirement was made clear nearly 100 years ago in Dodge v. Ford Motor Co. when majority shareholder, Henry Ford, argued that he could refuse to pay dividends and make operational decisions that would result in lower profits.[34] Ford argued that he wanted to make automobiles that the workingman could afford.[35] His philanthropic goal, however, did not stand up as a valid corporate purpose because he failed to show that maintaining a low price point for the product would result in higher overall sales.[36] In holding that Ford’s philanthropic goal was not authorized by the company’s charter, the court made clear that a corporation can not freely participate in a purely altruistic activity unrelated to maximizing profits.[37]

With this requirement in mind, it is hard to understand how the Court in Hobby Lobby could find that corporate charitable giving demonstrates that a corporation should also be able to “exercise religion.”[38] Although a corporation may chose to donate to a cause that aligns with the owner’s religious or moral views, it is not able to do so without a related corporate purpose. Further, this is not a case about charitable giving, but rather about a corporation removing an employee benefit based on its owner’s moral objections. The majority’s assertion that example of corporate charitable giving demonstrates that a corporation can “exercise religion” is flawed.

Even applying business law precedent, it remains wholly unclear how the majority determined that for-profit closely held corporations are capable of exercising religion. In what appears to be a blatant disregard for the legal consequences of incorporation, the Court has granted a certain form of personhood to these for-profit corporations. Although the Court limits this holding to RFRA and closely-held corporations, it is clearly a stepping stone to granting additional first amendment rights to all corporations. Hobby Lobby and another recent Supreme Court case,Citizens United v. FEC,[39] both demonstrate that the Court is trending towards granting additional rights to entities once described as “artificial [], invisible, intangible, and existing only in contemplation of law.”[40]Where corporate “free speech” has blackened the democratic process by allowing corporations unprecedented influence by way of political contributions, and where corporate “exercise of religion” has denied women the right to choose their own contraceptives, these corporations seem to be anything but invisible.


[1] 134 S. Ct. 2751 (2014).

[2] 366 U.S. 599 (1961).

[3] Harwell Wells, The Rise of the Close Corporation and the Making of Corporate Law, 5 berkeley Bus. L. J. 263, 263 (2008).

[4] Id.

[5] This explanation is very simplified. There are at least six different general forms a business can incorporate under, each of which has its own body of law. However, this simplification is sufficient for the purpose of this paper.

[6] See, e.g., Del. Code Ann. tit. 8 § 102 (2013).

[7] See, e.g., Exadaktillos v. Cinnaminson Realty Co., 400 A.2d 554, 560 (N.J. Super. Ct. Law Div. 1979) (“Large corporations are usually formed as a means of attracting capital through the sale of stock to investors, with no expectation of participation in corporate management or employment.”).

[8]8 Del. C. 1953, § 341. (Delaware is the only state with a “Close Corporation” statute, but “closely held” corporations are not unique to Delaware. Typically, closely held corporations must have less than 31 shareholders and cannot have public offerings for stock.)

[9] 134 S. Ct. 2751 (2014).

[10] Id.

[11] Id. at 2768.

[12] Id.

[13] Wells, supra note 3, at 276.

[14] 328 N.E.2d 505 (Mass. 1974).

[15] See, e.g., Toner v. Baltimore Envelope Co., 498 A.2d 642, 647-54 (Md. 1985); Delahoussaye v. Newhard, 785 S.W.2d 609, 611-12 (Mo. Ct. App. 1990); Nixon v. Blackwell, 626 A.2d 1366, 1376 (Del. 1993).

[16] Braunfield v. Brown, 366 U.S. 599 (1961).

[17] Hobby Lobby, Inc., 134 S. Ct. at 2768-75.

[18] 366 U.S. at 601.

[19] Id.

[20] Hobby Lobby, 134 S. Ct. at 2766

[21] Id.

[22] Wells, supra note 3, at 276.

[23] Braunfield366 U.S. at 605 (examining how the Court failed to distinguish the types of business association in question and that the court cherry-picked information from the case and failed to acknowledge the extremely relevant Braunfield observation that “the statute at bar does not make unlawful any religious practices of appellants; the Sunday law simply regulates a secular activity and, as applied to appellants, operates so as to make the practice of their religious beliefs more expensive”).

[24] Hobby Lobby, Inc., 134 S. Ct. at 2751.

[25] Del. Code Ann. tit. 8 (2013) (emphasis added).

[26] See 8 Del. C. § 362.

[27] Hobby Lobby, Inc., 134 S. Ct. at 2771.

[28] Id

[29] Id.

[30] Id.

[31] See Dodge v. Ford Motor Co., 204 Mich. 459 (1919).

[32] See generally Clark W. Furlow, Good Faith, Fiduciary Duties, and the Business Judgement Rule in Deleware, 2009 Utah L. Rev. 1061 (2009).

[33] Id.

[34] Dodge, 204 Mich. at 501.

[35] Id.

[36] Id.

[37] Id.

[38] Hobby Lobby, Inc., 134 S. Ct. at 2771.

[39] 558 U.S. 310 (2010).

[40] Hobby Lobby, Inc., 134 U.S. at 2751 (citing Trustees of Dartmouth Coll. v. Woodward, 17 U.S. 518 (1819)).

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