Korte v. Sebelius, 110813 FED7, 13-1077

Docket Nº:12-3841, 13-1077
Opinion Judge:Sykes, Circuit Judge.
Party Name:Cyril B. Korte, Jane E. Korte, and Korte & Luitjohan Contractors, Inc., Plaintiffs-Appellants, v. Kathleen Sebelius, Secretary of Health & Human Services, et al., Defendants-Appellees. William D. Grote, III; William Dominic Grote, IV; Walter F. Grote, Jr.; Michael R. Grote; W. Frederick Grote, III; John R. Grote; Grote Industries, LLC; and Grote In
Judge Panel:Before Flaum, Rovner, and Sykes, Circuit Judges. Rovner, Circuit Judge, dissenting.
Case Date:November 08, 2013
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

Cyril B. Korte, Jane E. Korte, and Korte & Luitjohan Contractors, Inc., Plaintiffs-Appellants,


Kathleen Sebelius, Secretary of Health & Human Services, et al., Defendants-Appellees.

William D. Grote, III; William Dominic Grote, IV; Walter F. Grote, Jr.; Michael R. Grote; W. Frederick Grote, III; John R. Grote; Grote Industries, LLC; and Grote Industries, Inc., Plaintiffs-Appellants,


Kathleen Sebelius, Secretary of Health & Human Services, et al., Defendants-Appellees.

Nos. 12-3841, 13-1077

United States Court of Appeals, Seventh Circuit

November 8, 2013

Argued May 22, 2013

Appeal from the United States District Court for the Southern District of Illinois. No. 3:12-CV-01072-MJR — Michael J. Reagan, Judge.

Appeal from the United States District Court for the Southern District of Indiana, New Albany Division. No. 4:12-cv-00134-SEB-DML — Sarah Evans Barker, Judge.

Before Flaum, Rovner, and Sykes, Circuit Judges.

Sykes, Circuit Judge.

These consolidated appeals challenge the federal government's "contraception mandate, " a regulatory requirement imposed by the Department of Health and Human Services ("HHS") to implement the terms of the 2010 Patient Protection and Affordable Care Act. The mandate requires employers to provide coverage for contraception and sterilization procedures in their employee health-care plans on a no-cost-sharing basis. Noncompliance carries heavy financial penalties and the risk of enforcement actions.

The plaintiffs are two Catholic families and their closely held corporations—one a construction company in Illinois and the other a manufacturing firm in Indiana. The businesses are secular and for profit, but they operate in conformity with the faith commitments of the families that own and manage them. The plaintiffs object for religious reasons to providing the mandated coverage. They sued for an exemption on constitutional and statutory grounds.

Center stage at this juncture is the Religious Freedom Restoration Act of 1993 ("RFRA"), 42 U.S.C. §§ 2000bb et seq., which prohibits the federal government from placing substantial burdens on "a person's exercise of religion, " id. § 2000bb-1(a), unless it can demonstrate that applying the burden is the "least restrictive means of furthering … [a] compelling governmental interest, " id. § 2000bb-1(b). Focusing primarily on their RFRA claims, the plaintiffs in each case moved for a preliminary injunction. The district judges denied relief, holding that the claims were not likely to succeed. We provisionally disagreed and enjoined enforcement of the mandate pending appeal.

The appeals have now been briefed and argued and are ready for decision. Plenary review has confirmed our earlier judgment. These cases—two among many currently pending in courts around the country—raise important questions about whether business owners and their closely held corporations may assert a religious objection to the contraception mandate and whether forcing them to provide this coverage substantially burdens their religious-exercise rights. We hold that the plaintiffs—the business owners and their companies—may challenge the mandate. We further hold that compelling them to cover these services substantially burdens their religious-exercise rights. Under RFRA the government must justify the burden under the standard of strict scrutiny. So far it has not done so, and we doubt that it can. Because the RFRA claims are very likely to succeed and the balance of harms favors protecting the religious-liberty rights of the plaintiffs, we reverse and remand with instructions to enter preliminary injunctions barring enforcement of the mandate against them.

I. Background

A. The Contraception Mandate

On March 23, 2010, Congress adopted the Affordable Care Act, a sweeping legislative and regulatory overhaul of the nation's health-care system. The Act "aims to increase the number of Americans covered by health insurance and decrease the cost of health care." Nat'l Fed'n of Indep. Bus. v. Sebelius ("NFIB"), 132 S.Ct. 2566, 2580 (2012). One feature of the Act is a requirement that employee health-care plans governed by ERISA1 provide certain minimum levels of coverage to plan participants and beneficiaries. See 29 U.S.C. § 1185d (applying the requirements of part A of Title XXVII of the Public Health Services Act as amended by the Affordable Care Act to ERISA-governed group health plans). More specifically, the Affordable Care Act establishes a general requirement that employer-sponsored group health-care plans cover "preventive care and screenings" for women on a no-cost-sharing basis; Congress instructed HHS to fill in the details:

A group health plan and a health insurance issuer offering group or individual health insurance coverage shall, at a minimum provide coverage for and shall not impose any cost sharing requirements for—

(4) with respect to women, such additional preventive care and screenings not described in paragraph (1) as provided for in comprehensive guidelines supported by the Health Resources and Services Administration ["HRSA, " an agency within HHS] for purposes of this paragraph.

42 U.S.C. § 300gg-13(a); see also 29 U.S.C. § 1185d.

Before promulgating regulations pursuant to this statutory directive, the HRSA sought advice from the Institute of Medicine at the National Academy of Science about what services to include in the preventive-care mandate. Based on the Institute's recommendations, the HRSA issued comprehensive guidelines requiring coverage of (among other things) "[a]ll Food and Drug Administration ["FDA"] approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity." Health Res. & Servs. Admin., Women's Preventive Services Guidelines: Affordable Care Act Expands Prevention Coverage for Women's Health and Well-Being, http://www.hrsa. gov/womensguidelines/ (last visited Nov. 7, 2013). These include oral contraceptives ("the pill"), barrier methods, implants and injections, emergency oral contraceptives ("Plan B" and "Ella"), and intrauterine devices.2 On February 15, 2012, HHS published final regulations incorporating the HRSA guidelines. See Group Health Plans and Health Insurance Issuers Relating to Coverage of Preventive Services, 77 Fed. Reg. 8725 (Feb. 15, 2012). The agency made the mandate effective in the first plan year on or after August 1, 2012.3 See 45 C.F.R. § 147.130(b)(1).

Noncompliance with the contraception mandate is punished by steep financial penalties and other civil remedies. For example, failure to provide the mandated coverage brings a tax penalty of $100 per day per employee—$36, 500 per year per employee. See 26 U.S.C. § 4980D(a), (b)(1). If an employer discontinues offering a health plan altogether, the penalty is $2, 000 per year per employee. See id. § 4980H(a), (c). In addition, noncomplying employers face potential enforcement actions by the Secretary of Labor and plan participants and beneficiaries under ERISA. See 29 U.S.C. §§ 1132, 1185d.

Like many of the other employer mandates in the Affordable Care Act, the contraception mandate applies to employers with 50 or more full-time employees. See 26 U.S.C. § 4980H. Smaller employers—those with fewer than 50 full-time employees—are not required to provide a health plan for their employees and apparently are not subject to the coverage minimums, including the contraception mandate. See id. We say "apparently" because it's not entirely clear that the mandate is categorically inapplicable to small employers; the government takes the position that if a small employer not otherwise required to provide an employee health-care plan nonetheless chooses to do so, the regulatory scheme requires inclusion of the mandated contraception coverage.

Health plans in existence when the Act was adopted are "grandfathered" and do not need to comply with the coverage minimums—including the contraception mandate—unless the plan sponsor makes certain changes to the terms of the plan. See 42 U.S.C. § 18011. Grandfathering is a transitional measure; this category will shrink as employer-based plans existing prior to March 23, 2010, undergo changes. The government estimates that the number of plans in grandfathered status will dwindle fairly rapidly as older health-care plans are updated and renewed. See Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan, 75 Fed. Reg. 34, 538, 34, 552 (June 17, 2010).

Finally, some religious employers are exempt from the contraception mandate, see 45 C.F.R. § 147.130(a)(1)(iv)(A), but "religious employer" was initially defined quite narrowly:

[A] "religious employer" [for purposes of an exemption from the contraception mandate] is an organization that meets all of the following criteria:

(1)The inculcation of religious values is the purpose of the organization.

(2) The organization primarily employs persons who share the religious tenets of the organization.

(3) The organization serves primarily persons who share the religious tenets of the organization.

(4)The organization is a nonprofit organization as described in section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended [covering the tax status of churches and their integrated auxiliaries, conventions or associations of churches, and the exclusively religious activities of religious orders].

Id. § 147.130(a)(1)(iv)(B).

B. The Religious-Employer Controversy

The contraception mandate was instantly controversial.4The religious-employer exemption did not leave room for conscientious religious objectors other than houses of worship, their integrated affiliate organizations, and...

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