Sharpe Holdings, Inc. et al v. United States Department of Health and Human Services et al

Filing 20

MEMORANDUM AND ORDER IT IS HEREBY ORDERED that the motion of plaintiffs Sharpe Holdings, Inc., Charles N. Sharpe, Judi Diane Schaefer, and Rita Joanne Wilson for a temporary restraining order is sustained. IT IS FURTHER ORDERED that defendants are T EMPORARILY RESTRAINED from enforcing the ACA Mandate regulations regarding abortifacient devices and related counseling. See 42 U.S.C. § 300gg-13(a)(4), 26 U.S.C. § 4980D, § 4980H, and 29 U.S.C. § 1132. IT IS FURTHER ORDERED that the motion of plaintiffs for a preliminary injunction is set for further hearing on January 14, 2013, at 10:00 a.m. Signed by Magistrate Judge David D. Noce on 12/31/12. (KXS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
NORTHERN DIVISION
SHARPE HOLDINGS, INC., et al.,
Plaintiffs,
v.
UNITED STATES DEPARTMENT OF
HEALTH AND HUMAN SERVICES, et al.,
Defendants.

)
)
)
)
)
)
)
)
)
)

No. 2:12-CV-92-DDN

MEMORANDUM AND ORDER
This action is before the court on the motion of plaintiffs for a temporary restraining
order and a preliminary injunction under Federal Rule of Civil Procedure 65. The parties
have consented to the exercise of plenary authority by the undersigned United States
Magistrate Judge pursuant to 28 U.S.C. § 636(c). The court heard oral arguments on
December 31, 2012.
I. BACKGROUND
On December 20, 2012, plaintiffs Sharpe Holdings, Inc., Charles N. Sharpe, Judi
Diane Schaefer, and Rita Joanne Wilson commenced this action against defendants United
States Department of Health and Human Services, Kathleen Sebelius in her official
capacity as Secretary of Health and Human Services, the United States Department of the
Treasury, Timothy Geithner in his official capacity as Secretary of the Treasury, the United
States Department of Labor, and Hilda Solis in her official capacity as Secretary of Labor.
Defendants are the departments and officials responsible for adopting, administering, and
enforcing the federal laws and regulations at issue.
By their pending motion, plaintiffs seek immediate injunctive relief prohibiting
defendants from applying and enforcing against plaintiffs certain portions of the Patient
Protection and Affordable Care Act, Pub. L. 111-148 (March 23, 2010), and the Health
Care and Education Reconciliation Act, Pub. L. 111-152 (March 30, 2010) (collectively the
“Affordable Care Act” or the “Act”). Defendants oppose the issuance of injunctive relief.
At this initial, pre-discovery stage of the case, plaintiffs’ entitlement to immediate
injunctive relief depends upon the allegations of their complaint and their pending motion

and the affidavits submitted in support. At the December 31, 2012 hearing, neither party
offered evidence.
The Affordable Care Act, enacted in March 2010, regulates the national health
insurance market by directly regulating group health plans and health insurance issuers.
The Act contains a preventive services coverage provision which states:
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[,] with respect to
women, such additional preventive care and screenings . . . as provided for
in comprehensive guidelines supported by the Health Resources and
Services Administration for purposes of this paragraph.
42 U.S.C. § 300gg–13(a)(4).
The Health Resources and Services Administration has issued guidelines requiring
coverage for “[a]ll Food and Drug Administration approved contraceptive methods,
sterilization procedures, and patient education and counseling for all women with
reproductive capacity.”
Guidelines,

Women's Preventive Services: Required Health Plan Coverage

Health

Resources

and

Services

Administration,

http://www.hrsa.gov/womensguidelines/ (last visited Dec. 31, 2012).

The FDA has

approved several contraceptive methods, including Plan B, Ella, and copper intrauterine
devices

(IUDs).

1

Birth

Control

Guide,

FDA

Office

of

Women's

Health,

www.fda.gov/downloads/ForConsumers/ByAudience/ForWomen/FreePublications/UCM2
82014.pdf.
The government issued a regulation (ACA mandate) that adopted the Health
Resources and Service Administration guidelines as final.

77 Fed.Reg. 8725.

Group

health plans and health insurance issuers are required to provide coverage consistent with
the guidelines, without cost sharing, in plan or policy years beginning on or after August
1, 2012. Id. at 8725-26.
Employers failing to meet the requirements of the Act and ACA mandate subject
themselves to a number of liabilities.

First, failure to provide an employee health

insurance plan is penalized with a fine in the amount equal to one-twelfth of $2000
multiplied by the number of full-time employees on a monthly basis. 26 U.S.C. § 49890H.
Further, failure to meet the group plan health requirements is penalized in the amount of
Plaintiffs refer to these particular contraceptive methods as abortifacients. This
appellation is supported by the cited Birth Control Guide which indicates for each of the
Plan B, Ella, and copper intrauterine devices that, among the ways the respective device
may work is to prevent attachment or implantation of the fertilized egg to the uterus wall.
Defendants do not deny this assertion.
1

-2-

$100 per day for each affected employee. 26 U.S.C. § 49890D. Additionally, 29 U.S.C. §
1132 authorizes private enforcement suits for failure to meet the requirements of the Act.
The ACA mandate is subject to several exceptions. First, the Department of Health
and Human Services issued a regulation that exempts religious employers from the
requirement of providing contraceptive services. 76 Fed.Reg. 46621-01. The regulation
defines religious employer as an employer that meets all of the following criteria:
(1)
(2)
(3)
(4)

The inculcation of religious values is the purpose of the organization.
The organization primarily employs persons who share the religious
tenets of the organization.
The organization serves primarily persons who share the religious
tenets of the organization.
The organization is a non-profit organization as described in the
[Internal Revenue Code].

Id.; 45 C.F.R. § 147.130(a)(1)(iv)(B).
Next, individuals are not required to terminate group health plans or health
insurance coverage if they enrolled in such plans or for such coverage by March 23, 2010.
42 U.S.C. § 18011. More specifically, these grandfathered plans are not subject to the
requirements of 42 U.S.C. § 300gg–13(a) or the ACA mandate. Id. Additionally, employers
with fewer than 50 full-time employees are not subject to penalties and fines for failure to
provide minimum essential coverage under an eligible employer-sponsored plan.

26

U.S.C. §§ 4980D, 4980H. Finally, members of a recognized religious sect or division that
conscientiously objects to the acceptance of public or private insurance funds and
members of health care sharing ministries are exempt from the requirement to obtain
minimum essential coverage. 26 U.S.C. §1402(d)(1); 26 U.S.C. § 5000A(d)(2).
Plaintiff Sharpe Holdings, Inc. is a Missouri corporation that employs more than 50
full-time individuals in industries including farming, dairy, creamery, and cheese-making
and offers health insurance to employers through a self-insured program. (Doc. 4-2 at ¶¶
6,11.) Plaintiff Charles N. Sharpe is the founder, owner, chairman of the board, and chief
executive officer of Sharpe Holdings and sets all policies governing the business conduct of
Sharpe Holdings. (Id. at ¶ 4.) By their unopposed affidavits, plaintiffs Judi Diane Schaefer
and Rita Joanne Wilson are employed by Sharpe Holdings and pay a portion of the
required premiums and enjoy the benefits of the self-insured program.
In accordance with their sincerely held religious beliefs and practices, the
individual plaintiffs oppose the use, funding, provision, or support of abortion on demand
and believe that the use of Plan B, Ella, and copper IUDs constitutes abortion on demand.
(Doc. 4-2 at ¶¶ 13,14,17; Doc. 4-3 at ¶¶ 4-7; Doc. 4-4 at ¶¶ 4-7.) At the hearing held on
December 31, 2012, counsel for plaintiffs stated that they are not contesting the merely
-3-

contraceptive characteristic of the three devices.

Rather, the focus of their claims for

injunctive relief is the ability of these devices to prevent a fertilized egg from implanting in
the wall of the uterus, thereby leading to the ejection of the fertilized egg from the woman’s
body, in other words, the abortion of the live fetus. Plaintiffs’ adherence to these tenets is
integral to them. (Docs. 4-2, 15-1, 4-3, 4-4.)
In their complaint, plaintiffs allege violations of the Religious Freedom Restoration
Act (RFRA), the First Amendment’s Free Exercise and Establishment Clauses, the right
against compelled speech, the right of expressive association, and the Administrative
Procedure Act.

Plaintiffs seek (a) declarations by the court that the ACA mandate and

defendants’ enforcement thereof violate the First and Fifth Amendments, RFRA, and the
Administrative Procedure Act; (b) an order prohibiting defendants’ enforcement of the ACA
mandate with respect to Plan B, ella, copper IUDs, and related education and counseling;
and (c) costs and reasonable attorney and expert fees under 42 U.S.C. § 1988.
II. SUBJECT MATTER JURISDICTION
Defendants argue that the court is without subject matter jurisdiction because
plaintiffs lack standing, an issue the court is constrained to take up at the outset.

If a

plaintiff lacks standing to sue, federal subject matter jurisdiction under Article III of the
Constitution is lacking.

ABF Freight System, Inc. v. International Broth. of Teamsters,

645 F.3d 954, 958 (8th Cir.

2011).

The Eighth Circuit stated the constitutional

minimum of standing requires the plaintiffs to show an injury-in-fact that is likely
traceable to the challenged action of the defendant and that is likely to be redressed by a
favorable decision by this court. Id. (quotation marks and internal citation omitted).
Defendants originally argued that plaintiffs had only conclusorily alleged that their
group health plan is not in a “grandfathered” status and thus exempt from the operation of
the ACA mandate.

However, after the conclusion of the hearing earlier today, the parties

resolved this issue; they do not dispute that plaintiffs’ group health plan is not
grandfathered for exemption from the application of the ACA mandate.
The court concludes from the record of the penalties to be imposed on them by
violation of the ACA mandate that plaintiffs have made a sufficient initial showing of
standing to sue under Article III.
Defendants argue, that even if plaintiffs show standing under Article III, they
cannot show that the ACA Mandate imposes a substantial burden on their religious
exercise.

For the reasons set forth below, the court disagrees and concludes, for the

-4-

purposes of these initial proceedings in this action, that the record shows that plaintiffs
would suffer an imminent injury from the operation of the challenged regulations.
The court concludes that it has subject matter jurisdiction over this action.
III. MOTION FOR TEMPORARY RESTRAINING ORDER
AND PRELIMINARY INJUNCTION
Plaintiffs move for a temporary restraining order and preliminary injunction
prohibiting defendants from applying and enforcing against them the statutory and
regulatory provisions that require their employee benefit health plan to cover Plan B, Ella,
and copper IUDs, and related patient education and counseling. Specifically, plaintiffs
take issue with the requirements of 42 U.S.C. § 300gg-13(a)(4), and the liabilities imposed
by 26 U.S.C. § 4980D, § 4980H, and 29 U.S.C. § 1132.
Plaintiffs argue that immediate relief is required because they must identify a
health plan and complete the enrollment process immediately, because the renewal date of
their current employee health benefit plan is January 1, 2013 and because otherwise
failure to follow the ACA Mandate will result in significant fines and penalties. They argue
that they will likely succeed on their claims that the ACA Mandate violates RFRA, the Free
Exercise Clause, the Establishment Clause, and the right against compelled speech.
“Whether a preliminary injunction should issue involves consideration of (1) the
threat of irreparable harm to the movant; (2) the state of the balance between this harm
and the injury that granting the injunction will inflict on other parties litigant; (3) the
probability that movant will succeed on the merits; and (4) the public interest.” Dataphase
Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). “In balancing the equities
no single factor is determinative.” Id. These factors are also considered to determine the
propriety of a temporary restraining order. See S.B. McLaughlin & Co., Ltd. v. Tudor Oaks
Condo. Project, 877 F.2d 707, 708 (8th Cir. 1989).
The relevant inquiry is “whether the balance of equities so favors the movant that
justice requires the court to intervene to preserve the status quo until the merits are
determined.” Dataphase, 640 F.2d at 113. The burden of proof is on the party seeking
injunctive relief.

Gelco Corp. v. Coniston Partners, 811 F.2d 414, 418 (8th Cir. 1987);

United States v. Dorgan, 522 F.2d 969, 973 (8th Cir. 1975).
IV. DISCUSSION
A. RFRA

-5-

Plaintiffs argue that the government violated RFRA, contending that the ACA
mandate imposes a substantial burden on the exercise of their religion, that the
government cannot demonstrate a compelling governmental interest, and that the
mandate is not the least restrictive means to achieve any interest.
Under RFRA, the federal government may not substantially burden the exercise of
religion unless it demonstrates that the burden is in furtherance of a compelling
governmental interest and that the burden is the least restrictive means of furthering that
compelling governmental interest. 42 U.S.C.A. § 2000bb-1.
As a threshold inquiry, plaintiffs must show that a federal policy or action
substantially burdens their sincerely held beliefs. United States v. Ali, 682 F.3d 705, 709
(8th Cir. 2012).

“In the First Amendment context, substantially burdening one's free

exercise of religion means that the regulation ‘must significantly inhibit or constrain
conduct or expression that manifests some central tenet of a person's individual religious
beliefs; must meaningfully curtail a person's ability to express adherence to his or her
faith; or must deny a person reasonable opportunity to engage in those activities that are
fundamental to a person's religion.” Id.
From the record before the court, the court concludes that plaintiffs have shown
that the enforcement of the ACA mandate, and its substantial financial penalties, on their
health plan would substantially burden their religious beliefs. Such would force them to
subsidize coverage for drugs and devices used to induce abortion against their religious
beliefs and principles, or force them to suffer very substantial economic consequences.
Plaintiffs also argue that that the government cannot demonstrate a compelling
governmental interest. The Supreme Court has articulated that “only those interests of
the highest order and those not otherwise served can overbalance legitimate claims to the
free exercise of religion” and that “[t]he conduct or actions so regulated have invariably
posed some substantial threat to public safety, peace or order.” Wisconsin v. Yoder, 406
U.S. 205, 215 (1972); Sherbert v. Verner, 374 U.S. 398, 403 (1963).
The government has proffered the interests of public health and gender equity in
support of the ACA mandate, but plaintiffs contend that these interests are insufficient to
meet the government’s burden. Particularly, plaintiffs argue that the various exceptions
provided by the Act and mandate undermine the government’s claim that such interests
are compelling. Plaintiffs point to the fact that the Act does not require employers with
fewer than 50 employees to provide employee health insurance and that the ACA mandate
does not apply to grandfathered plans. While these factual assertions by the plaintiffs are
not gainsaid by defendant, their impact on plaintiffs’ ultimate entitlement to relief requires
-6-

further hearing and consideration.

For the purposes of these proceedings,

this

unresolved issue does not detract from plaintiffs’ entitlement to relief at this stage of the
case.
Plaintiffs further argue that the ACA mandate is not the least restrictive means of
achieving the interests of public health and gender equity. To support their argument,
plaintiff suggest offering incentives to provide contraceptive services through tax benefits,
directly reimbursing citizens, directly providing to citizens, and providing incentives for
pharmacies, physicians, and health clinics to offer the contraceptives free of charge as less
restrictive means. Defendants argue it is not for plaintiffs to devise alternative programs
that avoid their involvement with the ACA mandate.
B. First Amendment
Plaintiffs argue that the ACA mandate violates the Free Exercise Clause of the First
Amendment, contending that the mandate is not neutral or generally applicable and
cannot withstand strict scrutiny. The Free Exercise Clause states, “Congress shall make
no law respecting the establishment of religion, or prohibiting the free exercise thereof.”
Under the Free Exercise Clause, an individual's freedom of religious belief is absolute, but
freedom of conduct is not. See e.g., Bowen v. Roy, 476 U.S. 693, 699 (1986). A neutral
law of general applicability that incidentally burdens religious exercise need only satisfy
rational basis review, not strict scrutiny. Employment Div. v. Smith, 494 U.S. 872 (1990).
However, “[a] law burdening religious practice that is not neutral or not of general
application must undergo the most rigorous of scrutiny.” Church of the Lukumi Babalu
Aye, Inc. v. City of Hialeah, 508 U.S. 520, 546 (1993). “Neutrality and general applicability
are interrelated” and “failure to satisfy one requirement is a likely indication that the other
has not been satisfied.” Id. at 531-32.
Plaintiffs argue that the Act must withstand strict scrutiny because it is not neutral
nor generally applicable.

They contend that because the Act provides preferential

treatment for some religious institutions by way of exemption, the ACA mandate lacks
neutrality. “[I]f the object of a law is to infringe upon or restrict practices because of their
religious motivation, the law is not neutral.” Id. at 533.
Plaintiffs have shown to the court’s satisfaction for the purposes of these initial
proceedings, that the ACA mandate is not generally applicable because it does not apply to
grandfathered health plans, religious employers, or employers with fewer than fifty
employees. Specifically, plaintiffs argue that the ACA mandate’s exemptions clearly prefer
secular purposes over religious purposes and some religious purposes over other religious
-7-

purposes. Burdens cannot be selectively imposed only on conduct motivated by religious
belief. Id. at 543. “[W]here the State has in place a system of individual exemptions, it
may not refuse to extend that system to cases of ‘religious hardship’ without compelling
reason.” Employment Div., Dept. of Human Res. of Oregon v. Smith, 494 U.S. 872, 884
(1990).
While the parties contest whether or not compelling governmental reasons justify
the categorical exemptions to the ACA mandate, the court concludes that this issue need
not be finally resolved now.

Suffice it to say that plaintiffs have shown a reasonable

likelihood of success on the merits that has not been overcome at this time.

See O’Brien

v. U.S. Dept. of Health and Human Services, No. 12-3357, Order (8th Cir. Nov. 28,
2012)(order granting stay pending appeal from district court dismissal); Korte v. Sebelius,
No. 12-3841 (7th Cir. Dec. 28, 2012)(order granting injunction pending appeal); American
Pulverizer Co. v. United States Dept. of Health and Human Services, No. 12-3459-CV-SRED (W.D. Mo. Dec. 20, 2012)(order granting preliminary injunction); Conestoga Wood
Specialties Corp. v. Sebelius No. 12-6744 (E.D. Pa. Dec. 28, 2012) (order granting
temporary injunctive relief).
C. Remaining Equitable Factors
Plaintiffs argue that remaining factors of the equitable balancing required by
Dataphase also tip in their favor. As stated above, these factors include irreparable harm,
harm imposed on other parties by granting the injunctive relief, and public interest.
Plaintiffs argue that they will suffer irreparable harm due to deprivation of First
Amendment freedoms and violations of RFRA.

They have shown that they must act

immediately to implement a new employee health plan due to its January 1, 2013 renewal
date in compliance with the law. Injunctive relief will permit plaintiffs to implement a plan
consistent with their religious beliefs without the threat of liabilities imposed due to failure
to follow the arguably unconstitutional ACA mandate.
“The loss of First Amendment freedoms, for even minimal periods of time,
unquestionably constitutes irreparable injury.” Elrod v. Burns, 427 U.S. 347, 373 (1976).
Violations of RFRA also can constitute irreparable harm. See Kikumura v. Hurley, 242
F.3d 950, 963 (10th Cir. 2001).
Plaintiffs further argue that any arguments that injunctive relief would harm the
government are frivolous. According to plaintiffs, the government has stayed imposition of
the ACA mandate upon thousands of employers and millions of employees, and that the
government cannot argue convincingly that injunctive relief in this case would cause it any
-8-

harm.

Whether or not plaintiffs’ argument in this regard is accurate, it has not been

shown to be otherwise at this time. Further proceedings may contest this issue.
The court concludes that the balance of harms presented at this time tips clearly in
favor of the plaintiffs. The court is not strongly persuaded by the government’s arguments
that plaintiffs’ delay in bringing these proceedings for 16 months should work against their
entitlement to short term injunctive relief. No substantial case has been shown for the
government being prejudiced by this passage of time.
The court has concluded that plaintiffs are entitled to injunctive relief that
maintains the status quo until the important relevant issues have been more fully heard.
D. Bond
Plaintiffs argue that no bond should be imposed.

“The court may issue a

preliminary injunction or a temporary restraining order only if the movant gives security in
an amount that the court considers proper to pay the costs and damages sustained by any
party found to have been wrongfully enjoined or restrained.” Fed. R. Civ. P. 65(c). “The
amount of the bond rests within the sound discretion of the trial court.” Stockslager v.
Carroll Elec. Co-op. Corp., 528 F.2d 949, 951 (8th Cir. 1976).

Since there is no

substantial risk of monetary loss to the government by the grant of temporary injunctive
relief maintaining the status quo in this case, the court does not order plaintiffs to submit
security for the relief. American Pulverizer Co. v. United States Department of Health and
Human Services, Inc., No. 12-3459 CV-S-RED at 9.
V. CONCLUSION
For the reasons stated above,
IT IS HEREBY ORDERED that the motion of plaintiffs Sharpe Holdings, Inc.,
Charles N. Sharpe, Judi Diane Schaefer, and Rita Joanne Wilson for a temporary
restraining order is sustained.
IT IS FURTHER ORDERED that defendants are TEMPORARILY RESTRAINED from
enforcing the ACA Mandate regulations regarding abortifacient devices and related
counseling. See 42 U.S.C. § 300gg-13(a)(4), 26 U.S.C. § 4980D, § 4980H, and 29 U.S.C. §
1132.

-9-

IT IS FURTHER ORDERED that the motion of plaintiffs for a preliminary injunction is set
for further hearing on January 14, 2013, at 10:00 a.m.

/S/ David D. Noce______________
UNITED STATES MAGISTRATE JUDGE
Signed on December 31, 2012.

-10-