you mentioned contractors. an agency can, you know, suspend or debar the contracting firm. if they think it's just a problem with an individual, they can direct that that individual not work on that contract or you can suspend or debar the individual. and we're looking at all of the accountability measures for both federal employees and contractors to make sure that only the people who should have access to our facilities and our sensitive information do at any given time, not just when they're cleared. >> you know, just human nature being what it is, if simply saying, well, there might be a consequence or -- the point that i'm getting at is a mandated, this is going to happen if you don't self-report. and mr. contractor, we don't know this. it's your job to help us enforce. it is your job to report back to us, and if you don't, black mark on you. you won't be a government contractor very long. and so that's -- that's the level at which i have passion for this issue, that we should

not be letting -- when we give them the good housekeeping seal of approval, which is what this security clearance is, that ought to mean something. and if they breach it, that ought for something that we consider very serious with very serious consequences. and so i applaud your work. i would like to know how many have actually been discharged or disciplined for either lying on applications. obviously they wouldn't get the clearance. but not reporting after the fact. mr. chairman, again, thank you for the time. >> thanks. those were tough questions. senator mccaskill. >> i think one of the most revealing things this morning is the realization that while an arrest report may be part of a background check, there is not a requirement that the underlying police report be obtained. and i tell you why this is a shocking revelation. like senator ayotte, i'm a former prosecutor, and the vast majority of cases that would

review a mental disturbance will not have a disposition. the criminal justice system does a very bad job of adjudicating the mentally ill, because the mentally ill really, for a prosecutor's standpoint, if they haven't hurt anyone, putting them in prison sometimes creates more problems than it solves. so most prosecutors, when they are confronted with a mentally ill issue, like someone who says they've heard voices, someone where the police has been called to a motel room on a disturbance where someone says there's microwaves coming through the vents and someone is -- people are here to get me, they will do a police report and most of the time the police department won't even try to file charges. that is a disturbance call that is related to someone in their minds, they do this all the

time. now, that is not something that -- especially in a city as large as seattle or a city as large as kansas city or a city as large as st. louis, that kind of disturbance call, where someone is making a racket because they are mentally disturbed, most police departments won't even take it to the prosecutor for a disposition. in fact, we are horrific in this country with even getting that person the mental health services. and the vast majority of these shootings are not going to be around the issue of whether or not someone has shown violent tendencies but whether or not they've shown tendencies of having a mental issue. so the notion that we are saying, well, if a police department won't give us a report, we've checked the box. and i think if we do a gut check on this issue, we will realize that a lot of the work we have been doing around this is checking boxes.

now, i get it, that we can't go out and do one-on-one and pull every thread on every application for clearance. although if we did that, we would probably make them so expensive we would be much more disciplined about deciding who gets them. but the notion that you're calling what you're doing quality control, ms. kaplan, is probably i think offensive, because i think there's just a lot of checking boxes going on. was this report obtained? yes. was this report obtained? what i don't -- where i don't have confidence is there's even on a random basis a more thorough examination. and i think that's something -- and i'm glad to hear you have a working group. what i'd like to see us do as a committee is ask for some specific recommendations on who is getting clearances and are

they all necessary and all of this is risky. i mean, we can say we are doing too many and then we can have a bad thing happen and then we'd be back saying, why didn't they have a security clearance? on the other hand, what we're doing now is the worst of all situations because we're giving the impression in a all these millions of people who have -- that all these millions of people who have security clearances, we've checked them out. we're confident that they're mentally stable, they're not criminals and they obey the law. we have no idea if that's true. we are clueless as to whether or not that's true. because this process has become in a way a pro forma kind of process with contractors, and the reason the contractors were off the reservation is because they bid an amount and that contractor wanted to make money so that was time to cut corners. you wanted to make your number, you wanted to make money, you just turned it in, you just

pretended like you did. so i agree with the chair and the ranking member that this is time for all of us to really, you know, quit nibbling around the edges on this thing and let's get to the meat of the matter. saying that seattle doesn't ve a police report, that dog doesn't hunt in this context. that just doesn't work. and mr. lewis, i have a specific question for you. my subcommittee has learned that we have a bunch of felons on navy installations. e have learned that the navy was giving these contractors 28 temporary passes at the git-go without any checks on anybody. is that true? >> this was a subject of a d.o.d. i.g. report and the navy has looked into these specific circumstances. i believe there are about 50 people identified who were

convicted felons who were given access without the proper checks. and the navy has taken corrective action, removing individuals who did not warrant access from the installations. in other instances, given the date that some of the felony convictions were quite old, made a decision to allow them to continue to have access. but the fundamental issue is there was a failure to conduct the required checks for installation access and the navy has taken corrective action on that. >> and so no more -- no more temporary passes? >> the passes would have to be based on the required checks. the national criminal investigative check, as well as the terrorism database check. so that would bring up a felony conviction.

>> ok. so what you're doing -- is there a different status for certain kind of pass than for a permanent pass now? are you saying they're doing something before they get a temporary pass, or are they getting the full compliment of checks? >> for installation access, there are two basic criteria. one is someone that's going to be on the installation on a temporary basis. those individuals require a degree of vetting, the check against -- criminal records check and terrorism database check. for individuals who are going to have ongoing access, there is a requirement for a national agency check with written inquiries and other checks, which is the minimum standard for that issuance. >> so we corrected the problem that someone was getting temporary passes without any check? >> yes. >> is this going on in other branches, temporary passes with no checks? >> we're not aware of that, but

we are certainly engaged with the components on this particular issue. >> ok. well, i would like a report back that this is not going on in any of the other branches. >> yes, ma'am. we'll do that. >> who made the -- whoever made the decision to allow that to happen to go around, were there any consequences to that individual that actually made the decision? >> there's an ongoing navy review of what occurred at the navy yard that day to include all of the aspects that went into that and that's an ongoing review. >> could we hear back from the -- from you, this committee, when the review is completed as far as the consequences to the person who made that decision? >> the navy review, the overall

d.o.d. reviews and ear reviews that are being -- and other reviews that are being conducted will be brought together in an o.m.b. final review overarching security practices, and i expect that to be part of the review. >> well, my specific question is a report back to the committee, was somebody held accountable for going outside the curve, that's my problem is accountability in federal government. it's accountability. and all i want to know is what were the results of holding -- did we hold whoever made that decision accountable? >> i'd appreciate if you could close the loop at the end of the day for us, if you would, please. >> yes, we'll do that. >> ok. thank you. senator portman, please, welcome. >> thanks, mr. chairman. appreciate you holding the hearing. i think it's been constructive because we've raised obviously a lot of troubling issues and had the opportunity to hear

from some senators who have a lot of interest and background in this. at the federal work force subcommittee, we held some hearings. in june, we held one regarding background investigations and specifically the inability of the o.m.b. inspector general to effectively audit the revolving fwund and really the background investigation process. and that's where the score act was developed. senator mccaskill was still there. senator tester and the chair and ranking member and others. i'm pleased we were able to get that done. just a couple weeks ago we got it off the senate floor. it is a small step but it does fix that i.g. issue. i know, brenda, you worked with us on that. we got another hearing in a fwue weeks to continue look -- few weeks to continue looking at this issue and others. senator tester was here earlier. we're going to stay on this at the subcommittee level.

i'm going to focus on something that i think is critical if we're really going to get at this issue. i guess the tragic example recently at the navy yard is unfortunately a perfect example of it. but it's not a new issue. it's this whole issue of continuous evaluation. and whether it's the five-year cycle or 10-year cycle this is to me the critical issue that we're missing. and we saw it not just with regard to the navy yard but also with this ricky elder case. this is a specialist, ricky elder, who in 2012 shot and killed his commanding officer at fort bragg and then turned the weapon on himself. his clearance timeline was actually reminiscent of aaron alexis'. his background investigation was done in 2006. over the next five years, after

2006, weighs charged twice with assault, once with d.u.i. hit nd run, once with felony assault. none of which was reported in his personnel chain. aaron alexis, similar. after receiving a security clearance, he received nonjudicial -- disorderly conduct. another nonjudicial punishment for being drunk and disorderly and arrest for firearm discharge. a month prior to the incident that would have highlighted his mental health problems, and none of these triggered a re-y valuation of his access -- re-evaluation to his access of classified material, classified facilities, none of those. and i think this is -- i mean, every issue raised here today is important, but if we can't get to this, the interim period between a clearance and, again, whether it's a five or 10-year cycle, i think we'll continue

to have these tragic instances. in 2005, interesting, a year before ricky elder enlisted in the army, two years before aaron alexis enlisted in the navy, the department of defense testified to this committee, and this was in june of 2005, about the automated continuous evaluation system. and you all said you are going continuously evaluate the background. mr. prioletti, in your written statement, you noted three years earlier in 2008 -- three years later, from the 2005 testimony you gave before his committee, president bush said individual is eligible for -- shall be subject to continuous evaluation. that was an executive order back in 2008. i know we heard today, we're working on this.

we heard we have an interagency working group. we're developing a concept of operations. wroit this down. we're doing research. this has going on now for a decade. a decade. if you testified in 2005, was going on in 2004, maybe more than a decade. so here we are. it's five years after the executive order, eight years after this committee heard about the plans, and we're dealing with the tragedy at the navy yard. i don't know who would like to talk about it. mr. lewis, maybe you can talk about d.o.d. by the way, you're talking about putting something in place but not for another three years and then it would be d.o.d. only. i glass i'd like to hear what is happening. and mr. lewis, since d.o.d. is trying to take the lead to get this in place, i see from the technical report on the project there have been some pilot projects. , and some 600 people

have had clearances suspended or revoked due to derogatory discoveries. your search algorithms have found problems. buff 3,600 people is a drop in the bucket when we have over five million people with security clearances. this has been 10 years that we have told that lessons learned is being incorporate understood database that will be in place in 2005, and here we are 2013. taxpayers have paid $11 million for this i don't know what the development costs are. we're trying to find out. or the cost after 2014 to fully demonstrate its capability at d.o.d. so can you explain the reasons why this capability will take over a decade to field? can you give us some sense of a total cost for this and what it's going to cost to field it over at the department of defense?

>> i can't speak to the total cost. i would have to come back with hat information, but i can give you a status of how the automated continuous evaluation system sbg used. it -- is being used. it has the capability of flagging concern. so that's an existing capability. as you mentioned, it was used in an army project. ut of 3,300-odd individuals, a total of 100 personal actions were taken as a result of information identified during those queries. in addition, the defense security enterprise is developing a continuous evaluation concept demonstration, which would take this a step further. aces, the automated continuous evaluation system, does a one-time snapshot in

time query, this concept demonstration would have real time updates so that as information became available it would be pushed into the system. and the concept demonstration is currently scheduled to run from april to october of 2014. the anticipated population would be 100,000 cleared military, civilian and contractor personnel. and so we're anxiously looking forward to completing that concept demonstration. in their interim, we're uses aces for continuous evaluation checks. again, testing the concept, guess getting more validation. looking at things like privilege users and some other groups of contractor employees. so this is an ongoing effort. we get results from it on a

regular basis. and we are looking to take that to the next level in terms of a continue -- true continuous evaluation, which would give feedback to the system as it is developed. so if an individual gets arrested tomorrow, the system would push that back to d.o.d. instead of waiting for d.o.d. to make that query. >> you weren't here in this job nine years ago when we heard that it was going to be in place by 2005, but you're here now. and so, you know, one question i could ask you is, why has it taken so long? and you might say, i don't know. i wasn't in charge. but you're in charge now, and you're saying that you're going to have this fully operational in three years, is that correct? >> for the automated continuous evaluation system, as it currently stands, it is -- it's an operational system. it's still in a research and

development mode, but it is an operational system. the limits right now -- i mean, when i say operational -- >> i mean, when i say operational, i mean it would cover a small percentage of people in between their clearances. you're talking about taking to from 3,600 to 100,000. how many security clearances do you have about d.o.d.? >> we have 2.5 million people who are eligible and in access to classified people. >> when will we cover those people? >> this -- the system, and one of the things we're examining is can we expand the capability of the system to handle that larger volume? and that is a work in progress and something we could -- >> do you think it's important? >> we, we do -- yes, we do. we need to address what happens between investigations. >> so what are you looking for in order to get this done?

you're going to get back to us as to what the costs are. >> yes. >> have you sought additional funding? are you thinking that's the problem? >> it's a question of having the right criteria in place to conduct the evaluations and then what we do with the data once it's generated from the system. how you evaluate that and how you take action based on that. >> my time is up and i apologize, mr. chairman. i think we've got to have some answers on this. if it we don't fix this problem, the initial clearance is incredibly important. we need to get arrest records. in the case of aaron alexis, it was clear as day. yet, there was no system to incorporate that data. prioletti to mr. and the intel side, i want to hear what you're doing, too. we don't have time but i hope

you get back in writing what you're doing. we're talking about d.o.d. here. finally, i hope g.a.o. can help us on this to establish some metrics, let's come up with a timeline that makes sense. if you're looking for additional resources, let us know. if it's going to take another 10 years, because we're doing more pilots and more research and so on, that is unacceptable. thank you, mr. chairman. >> thank you, senator. senator coburn and then i'll wrap it up. >> mr. jordan, can you explain to me the difference in the fieldwork contract and the supply services contract you have with uscis? one. wo, are contractors -- are these contractors from the same company? >> i can answer the first part. yes, contractors perform background investigations, yes, contractors can perform quality

reviews on those investigations but only government employees make a determination as to whether to grant security clearance to someone. >> but my question is, is it the same company that's validating the work of their colleagues doing the investigation? is that correct? >> i'd have to defer to o.p.m. >> no. the companies that are doing the investigations have an only fwation under the contract to also do a quality review but then we do another quality review and the purpose of their quality review is we would like them to catch errors before the file gets to us but we do a quality review as well. >> so o.p.m. is the final validator of the completeness of the investigation? >> to some extent. i think another thing that validates the completeness of the investigation, it gets sent to an adjudicator who may want more information.

ultimately it's a collaborative effort. they may send something back to us but we are the arbiter of whether we have provided an adequate investigative product. >> is every investigation validated by you? >> every investigation is reviewed for quality. >> by o.p.m.? >> yes. >> one other question, then i'll submit the rest of my questions. here's a fund where you charge agencies for this. there's $2 billion in it. has it ever been audited? >> i've told it has not by the o.i.g. because they told us they don't have the resources which is why we're supporting their request to draw from the revoing fund to give to them the resources they need to do that. > thank you. >> i suspect you'll have to provide a number of anns for the

record, but thank you for your answers so far today. today at 12:00, we have a new senator being sworn in and we'll start voting beginning around 10 minutes after 12:00. we'll wrap up here probably about 12:0678 the last question i'll ask -- 12:20. the last question i'll ask each of you, sometimes i say, when you see something awful has happened and you hope some good will come of it. sometimes it does, sometimes it doesn't. a few things could be much worse than -- few things could be much worse than losing a loved one. ones in as lost loved navy yard not far from here. they would like to know something good will come out of something that was awful for them. i think the american people feel that way as well. one of the last things i'll ask you to do is to reflect on what you have said here today or

heard here today and give those families some assurance that out of the tragedy they've suffered through, some good will come and what that might be. so just, last comment. >> i just want to follow up, when you say o.p.m. validates, do you use a contractor to value tate? >> -- to value dade. >> -- validate. >> federal employees. they do a review but we do one as well. >> so it's federal employees who do a check on the information that comes in? >> yes. >> i want to come back to, i think, a question was maybe asked by senator ayotte and senator highcamp and i want to give you a chance to respond to it. i think it dealt with using social media and the continuous

evaluation program. could you give us some thoughts on that briefly, please? >> yes, senator. what i was referring to there is, we are seeking to provide as much of the comprehensive capabilities as possible in the overall investigation of the individual. the more information we can gain, the more enlightened the decision can be on whether or not to grant the access to classify or access to a sensitive position. one of the obvious sources, potential sources of information is social media. publicly available electronic information. what i refer to in terms of the research with the idea -- was the idea that we need to look at both what possible sources of information are out there, which ones would be of most benefit to adjudicatively relevant information and how do we do that in the best way to protect the personal rights of the

individual as well as the veracity and the coverage of the united states government? >> ok, thank you. a couple of questions, a series of questions, if i could, for youing before i ask the questions let me just make a short statement, but when an investigator fails to discover or disclose crucial information during a background investigation, that's an obvious failure. what could be more troubling is the report that efforts by agencies to measure and improve the quality of investigations have fallen short. the office of personnel management is supposed to review the investigative file and make sure it meets minimum standards. the agency responsible for granting security clearance also has a responsibility to review the file. yet when g.a.o. looked into what o.p.m. and others were doing in 2008 to review the quality of background investigations, it found almost 90% of the reports

that d.o.d. was using to evaluate an applicant for a security clearance were missing required documentation. three questions. first, how often were agencies making a security clearance decision without having all of the required information? and what motive did agencies have for doing this? that's the first question. >> the answer is, we do not know ageause g.a.o. performed this sthoifs completeness of the documentation in 2006 and 2009. so we do not know outside of d.o.d. the naffings you're asking for. this is the type of oversight that we're saying is needed. >> all right. second question. what type of information is missing? can you give us some idea? >> employment verification and discussions with the employers. social references, especially the number of social references in order to determine someone's

carblingt. completeness of the application which should be the very first step as we noted before which should be done before you move forward. >> thank you. the third question, has g.a.o. had an opportunity to take another look at the issue since 2008? if you have, has there been any noted improvement? >> we have continued to monitor o.p.m.'s actions to implement ea the recommendation we made at that time. as i noted in 2010, we were very encouraged that there was agreement among o.m.b., o.p.m., d.o.d. and the d.m.i. as far as metic reck -- metrics of the quality of the investigation. there was somewhat of a plan to move forward beyond that. we have continued to monitor but at this time, all we know is that that plan has fallen apart. >> ok, thank you. y next question would be for

mr. pieletti and mr. lewis. according to some news reports, the company that hired alexis, a company called the experts, had phoned his hotel room in rhode island in august saying he was unstable and that the company was bringing him home. according to news reports, the human resources director of question the experts talked to the mother of aaron alexis on august 9 and she informed the company of her son's past pair noid behavior and state head probably needed therapy. i would ask first of all if the company had hired alexis had become aware of the increasingly troubled behavior, do you think the contractor should have a duty to report the behavior to the department of defense? and did they report it? >> senator, in this particular case that you just described, in

terms of a national security perspective, it behaves everyone to report any unusual activity they see, whether it be a colleague, a co-worker or a subordinate that works for you. >> and the second half of my question was, did they report it? >> to the best of my knowledge, sir, it was reported to the mother, as you described there. i am not positive whether or not they reported it to d.o.d. >> i ask both you and mr. lewis to answer that question for the record. i'll give mr. lewis a chance to answer it right now. >> the contractor is required to report any derogatory information coming to their attention regarding a cleared employee. the defense security service has done a followup review at the experts and they've determined that the company was aware of the indications of mental

instability on mr. alexis' part and they failed to report that information. >> all right, thank you. mr. lewis, stay with this area of questioning, what do you think should be the role of d.o.d. contractors in monitoring the suitability of their employees to hold a clearance? >> this is part and parcel of their responsibilities as a cleared contractor. as a prerequisite for getting a company cleared, they must execute a security agreement and part of that security agreement is the national industrial security program operating manual. they have been required to do this literally for decades. this is an established process and contractors must execute that responsibility. >> ok, thank you.

i ask you to think about a question, i'll give you a little time to think about it, what can you say to those who lost their loved ones, their husbands, their wives, their moms and dads, brother, sister what can you say to them that might give them some comfort to know that out of a horrible tragedy in their lives, our country's life, what can we say today to make them feel some good is going to come out of this? mr. jordan. >> thank you, mr. chairman. i would first say we owe the survivors of this tragedy and the american people a comprehensive and thoughtful review. what information do we look at? when do we review people in the suitability and security clearance process? how can we improve on all these aspects? the review i talked will be done collaboratively. the reviews, the department of defense reviews and the overarch

regular view which all our agencies are involved in. we will act on any improvements as quickly as possible. where there are gaps, we will close them. where there were failures we'll correct them. if i was one of the families of the victims, i wouldn't just want to hear about prophecies and proceed yiffers, i would have some concerns that there's a blue ribbon type creation as opposed to actual improvements to prevent this happening again. i would just say to them, i live near the navy yard. on the morning of september 16, my wife and my 2-year-old son were playing in a park across the street when they were cleared by police as the trang diwas unfolding in the navy yard. we lost a husband of a senior member of our acquisition community. i would tell them that getting this right is personal to me and we will to everything we can to improve our processes and everything under our power to make sure nothing like this happens again. >> good, thank you.

>> of course i would echo what joe said. our hearts were broken that day for the families and for the folks we lost, the federal employees and the contractors and i think in addition to what joe said, this is getting attention at the highest levels. the president is the one that ordered that review and i am sure and i know that he feels very strongly in the same way that joe just articulated that this was an awful loss and we have to do whatever we can to prevent it from happening again. >> thank you. mr. pierletti. >> i would like to echo the comments of ms. kaplan and mr. jordan. there are no words to describe this loss. a gashe teed commitment that we'll continue

to work to find the solution. this is an evolutionary process as we find gaps in our processes and the way we do our business, we will continue to utilize those to come up with the best possible process to improve how we do our business on behalf of the u.s. government as well as the u.s. citizens. >> thank you, sir. >> in addition to what my fellow witnesses have had to say, i would just add that we need to make a commitment and effectively ensure that what happens between investigations is something that is tracked. we've had people -- we vet people, we trust them with our classified information and access to sensitive facilities and we have an obligation to ensure that we're looking at people between investigations and taking appropriate corrective action as needed. >> thank you. >> i would say it's unfortunate

that the tragedies we saw at the navy yard focuses attention on this process but we have seen the dedicated leadership from these executive branch agencies in the past and when they make their minds up to take on a problem and solve it they do it. and now is the time for actions, not just review. >> a lot of folks in the room know that the general accountability office, g.a.o., is regarded as a watchdog. an arm of the legislative branch of our government to be a watchdog for really the whole expansion of the federal government a huge job. we have a lot of people to do it, probably not enough. but we need your can't continued vigilance to help us do our job and that's the oversight role. i think probably the most two

most quoted things ronald reagan ever said, one, he said to mr. gorbachev, mr. gorbachev, tear down this wall, at the berlin walling and it was torn down. he also used to say when he was trying to negotiate, reductions in nuclear arms with the soviet union, he would say, trust but verify. all of us on this committee, our staffs as well, trust you. we trust the good will of the folks with whom you work, who are responsible for carrying through on these reforms to make sure it's not just words but actions to back it up. o we are trustful. but we're going to be doing some verification along the way. ms. kaplan, as you go off to your next assignment, we wish you well. and we again appreciate the time

you've given being with us today. en more, we appreciate the help of those who follow you and those who make sure that these words, that this promise is a promise we keep. that having been said this hearing is adjourned. thanks so much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013]

today a federal court ruled the affordable care ask contraception coverage mandate violates religious freedom and imposes an undue burden on employers.

the d.c. circuit court of appeals ruled 2-1 against the government in the case of gilardi versus hhs. the court hate oral argument on the case in september. this is 40 minutes. >> good morning your honors. i am francis manion representing the appellate in this case. the central christian in this case should be whether the government has shown a compelling interest in forcing this particular family business to include contraception in its health plans against the family's religious beliefs at the same time the government has decided not to impose that same requirements on millions of other employers for both religious and nonreligious region -- reasons. the district court never reach this question because contrary to supreme court's teaching in the case it focused on the formal identity of the parties instead of on the law that we say and that the government

acknowledges implicates religious liberty interests. the district court did answer these two questions first whether or not gilardi is substantially burdened by the hhs this -- hhs mandate and the court encrypt they said no. the court incorrectly said no. had the court answered either of these crackly nephew it would have received a strict scrutiny test which should've been easy given the massive holes in the scope of the coverage written to this mandate and the ready availability of less restrictive means of achieving the government schools. as we see this case there are four tabs or roots to get to strict scrutiny. the first one is to look at the gilardi's as individuals and whether or not there's a burden on them. the second is the companies as persons exercising religion. the third is what some courts have referred to as they pass

through standing whereby a closely held family type corporations such as this one can assert the free exercise rights of its owners and forth is a roots that only judge walton in the district here used which is the third-party standing doctrine. i would like to begin by looking at the claims of the gilardi's as individuals. several things are undisputed. the gilardi's control and make the decisions for the companies including what goes in and what's kept out of the company health plans. third the gilardi have a well-documented religious or four of the hhs mandate challenge here today requires the companies to include those things and their plans for face significant lines.

and five those things should only be included in the plan if francis philip gilardi direct them to be included. given those undisputed facts it's our view that the court should have applied the test of the thomas case and asked whether the hhs mandate put substantial pressure on the gilardi's to modify their long-standing behavior and violate their religious police. the responses of course it does. they either abandon their religious belief that they can't have their company pay for these things or go out with business. they lose their families livelihoods and while the compulsion may be in direct s., says upon free exercise is the less substantial. speak in my asked just a process question to begin? if we conclude that the gilardi's as individuals what is the limiting principle because they are a corporation and their shareholders of this corporation

so does that mean if you are a shareholder you could likewise assume free exercise of your right? >> it think the limiting principle is control of the decisions made by the corporate entity so it's the ceo. >> not unless the ceo which i wouldn't think would be the case can make decisions for the corporations that are not ratified by the board of directors. in other words the principle is shipping control. a. [inaudible] >> i would think so. >> the same. >> yes. >> the discussion of that in the austin case the supreme court

austin case which was the cave that citizens united overruled justice scalia goes into that whole principle and of course that's under the concept of free speech that essentially says it's not that difficult to determine who makes decisions ultimately were corporation and whatever that process is, the board of directors or some other set up that is what controls. >> in the cases in which petitioners can file the third circuit is there any issue that is not contained within the question? >> i don't think so. >> taking the two cases together , yeah. in the common law case they didn't reach at least the majority did not reach. that's simply about corporate free exercise but in the third circuit case both issues are discussed.

>> if we decide that the gilardis could bring this suit as individuals but we don't think the corporations have the free exercise right what happens to the injection? how does that work? >> is currently in place. >> in other words and injunction would be issued by the district court. how would that work? >> that's an interesting question your honor. you would have decided the gilardis could bring a case as individuals and presumably the strict scrutiny that the government has not carried its burden. the injunction would be against the government enforcing the mandate. it would make sense if it's not also applicable to corporations obviously. >> there's a soul procedure that covers that talks about injunctions being binding not

only on the individual but in favor of this case the gilardis but also entities and people -- [inaudible] >> focusing on the gilardis as individuals the government's response is the gilardis aren't forced to do anything. because they have chosen to operate under the corporate form there is no burden on them at the corporate veil is not an iron curtain. there are exceptions particularly in the area of first amendment rights. the court of citizens united specifically listed the kinds of special advantages the corporations enjoy the specifically limited liability. the supreme court said there that the state cannot exact the price of these corporative first amendment rights.

>> substantial burden is that the mandate requires my clients to do something that their religion tells them they cannot do. >> which of course we know is permissible in our constitutional scheme when that happens. you are merely saying it that way does not answer the question. there are lots of cases in which -- i mean and no one seems to it tends to look at that carefully and i looked at all the other cases and those on your side of the issue skimmed past it. i don't know how you get past the united states versus leave. you cited the proposition that is uninteresting to me for the question that i would pose. the court was very clear they are in saying every person cannot be shielded from all the burdens incident to the exercise and every aspect of the right to practice religious beliefs. and on and on it does goes so a very strong statement.

there was no question the court said it was absolutely a burden on religious free exercise. those who opposed the social security system the court didn't doubt it for a minute that they said we are commercial operations and you decide to come into the market. there are some things that you have to adhere to for the better good because there's a larger interests and there are many cases like that. the title vii handicapped there are many cases the court is routinely held that you can't prevail. >> the passage referring to lee is a strict scrutiny analysis. we are not saying that there is an absolute right. speeds for this case taken all the way down the line i don't know how you get past lee. i don't see how the government doesn't prevail. i don't see what's different about this case or you have five national mandate and you have a

requirement is lots of employers have to follow. your employer is not obliged to do anything other than contribute to the program. gorton player is not obliged to give contraceptives to anyone or to endorse abortion. your contract can do what is required and put up signs that say i strongly oppose abortion or strongly oppose contraception. whatever they want. there's a burden but it's not acknowledged and lee has never been overturned. >> we are quite comfortable that are case fits within lee. >> i don't think you are and i'm trying to figure out why. speedily court found there was a burden on mr. lee's religious beliefs. that is where the strict scrutiny comes in and we get strict scrutiny there's no way the government can justify it because when you talk about the national scheme that is not we

have here. according to some chords calculations 191 exemptions from this mandate. >> i think what i'm hearing you say is you can't prevail under lee as is but for your assertion that this is fundamentally a discriminatory system. >> yes and i think that's the analysis that the supreme court has to follow. but the supreme court says his government has to justify the application of its mandate or law to the particular claimant and in no center of the government granted exemptions for hundreds of thousands of data but was unwilling to make exemption for the hundred and 30 so legislators in that case. here it's far worse than that. in the federal register we have 90 million and some courts have calculated 190 million exemptions from religious and

nonreligious reasons. there's no way that this is comparable to leave. >> your corporation a commercial operation does not purport to be a religious operation with those companies that are exempt under those terms. >> those are the only companies that are exempt. >> they are small companies that are grandfathered. >> the government says it is a right and you can maintain it indefinitely. >> lets assume it's limited in the statute. it's a pass-through period and in a certain. makkah goes away. where is this vast sea of exemptions that are relevant? >> well -- >> you certainly can't equate yourself with religious corporations. this is not a religious corporation. in my view just so you understand what i'm thinking the grandfathering group is an

insignificant group and you can't equate yourself frankly with the non-profits can you? it's a commercial operation. so we are not talking about a large group. >> candidly i would disagree with your honor. it is a large group. >> again i don't see anything with lee. you said there's a vast sea of exemptions. i don't see any vast sea of exemptions. i see some exemptions clearly explained in terms we haven't understand in terms of case law. >> i disagree with your assessment of the grandfathering exemptions. the regulation itself says it's a right and indefinite. >> it hinges on how we construe the grandfathering. >> not necessarily because the other exemptions would have to be taken into account as well. >> did i miss some? >> no that that's the point. they are insignificant. >> they are not religious

corporations, you can't argue that. >> that is why we are here. we don't qualify. we are saying that rfra requires to begin an exemption because of those other exemptions. what we do say is the exercise of religion is not necessarily limited to people in the quote unquote religion business any more than in that the latte case. the did the approach that the supreme court is limited to corporations and the speech business so i frankly disagree with your honor's assessment of the scope of the exemptions. they are massive. >> i don't believe you cited the case that supports the proposition in favor of the supreme court case. >> not familiar with that your honor. >> it's not religion or speech and justice stephenson in his

opinion dealing with this says there's a flaw in the governance case. the operation of the statute is so pierced by exemptions and inconsistencies that the government cannot exonerate it and it's an advertising. the supreme court struck it down. the district court never got that. >> that's correct. >> the threshold question here is identifying whose religious beliefs are being burdened. the next question is -- i just want you to answer the question -- i can't remember the procedural posture of this case. [inaudible] >> notated not. >> is the case comes to us we have allegations of your clients that run their company in the manner that the mandate requires

and violates their religious beliefs. that is uncontested. >> that is uncontested. >> the question then becomes what is the relevance of the corporate structure? unless there is another religious -- that says if your company is a corporation that you have absolutely no moral obligation to to run it in a manner consistent with the catholic teachings. >> our clients interpret their catholic faith the opposite way that they are required to run it in a manner consistent with their religious faith and that is what they have done as long as i can find records for. >> is there any significance to the fact that they would be subject to part of the internal revenue code and under the internal revenue code at least for income tax purposes the court would disregard it because this is a --

[inaudible] >> it may well be and it's an s corp. even though there's this corporate form the next result of the penalties goes on frank and phil gilardi separate income tax returns on a schedule came out. exactly. >> that's true for limited liability party. >> i think when we are dealing with a law that impinges upon fundamental first amendment freedoms the supreme court has taught we don't allow for him to triumph over substance and that is what we are arguing here. >> is that what lee says? if you are in the commercial market you have to give up some for the greater good. >> it does say that but what we say is that's part of the strict scrutiny. >> congress has some exemptions as well. >> that is your case. you are saying the exemptions are so overwhelming, so large in

their number because you can't possibly get around lead. lee had exemptions in the court gave at the back of the hand. they said of course congress can make those decisions. that is what we do. you cannot come in they say and impose your religious values on society and denied to your employees who are larger than you are what congress has decided is the better good and they should be entitled to it. that is the way that lee looks at it. you can't bring your religious free exercise and overtake the larger good of society. >> employees are certainly free to buy and use contraceptives anytime they like. the gilardis are simply saying -- >> how is it different than paying them wages?

>> detzel line they draw in the thomas case. the court may not second-guess. the line has to do with principles of moral theology about cooperation with evil. >> i don't get what the plaintiffs -- has to do other than contribute to a national scheme. they are not in anyway applies to give up their beliefs. >> they have to literally check off and join dependence. contraceptive sterilization and abortion is not the same as a national scheme for social security or income taxes. it's quite different. >> are these employers applies to take the contraceptive benefits? >> under the hhs mandate they will be. >> they are obliged blacks. >> right. i see that my time has expired. thank you your honors.

>> may it please the court. the -- for the federal government. if i may begin with the threshold points that the sixth circuit recently made which is the claims they are and hearing all of these contraceptive coverage cases are asking the court to interpret rfra in a way that would disregard the corporate and the supreme court etc.. kashmir has made clear that the principle tenet that a shareholder is distinct from the corporation holds true and it has interpreted the federal rico statute in accordance with that back on common law principle. there are other examples that we have cited in our search petition.

this is not a contested proposition so the question we have here is it a statutory interpretation and what to rfra do if the congress enacted in 1993? >> it defines persons as corporations. >> unless the context indicates otherwise in the language of rfra is persons exercise of religion so when you say the claim is by regulating the fresh way foods corp. and that would be any form of regulation that is tantamount to personally burdening frank and philip gilardi as individuals and we are not aware of any support in the 200 years before it was enacted. >> but that's a religious question. >> this is a statutory question. >> whether regulating fresh way as you say burdens the gilardis exercised in the tenets of the catholic church doesn't depend

on the statute which is they say it does. they say it verdon's and that allegation is so outstanding that government hasn't contested it. will you contest that? will you say the catholic church or the catholic religion does not recognize the burden of the gilardis from running their companies solely on the company in that way? >> i'm distinguishing distinguishing between this and stared at the time and the legal question. we are not asking the question. >> is their basic argument that to run the company and the way that the government is requiring us to do through funds violates our religious beliefs? that's at the heart of the decision. do you contest better do you not? >> we have not contested the sincerity of the claim. at this point we have no reason

to. >> so you accept that? >> as a matter for all we are saying that does not state a prima facie case under rfra and it would be wrong to interpret rfra to about -- i'm not sure where the line is the controlling shareholder officer whatever the client is to say we regulate a corporation is the for-profit businesses the corporation that you then reverse and say this is for legal purposes a substantial burden on the individual who owns the company and is the ceo. >> to follow up on that if the gilardis had established their business as a partnership i assume you would then agree that they have standing? >> yes. all of our other arguments would be the same and would not acknowledge that particular burden of which they claim is substantial. we argue that scrutiny --

>> they clearly had standing individuals and your argument would be that the mandate does not impose a substantial burden on them? >> that's correct. their number of independent arguments but the threshold problem with the claims here and hobby lobby and most of these are s corp. says the same point which is that you do not interpret rfra or other federal statutes in a way that disregards the background visible that the supreme court reiterated that has been said many times, a corporation is distinct from its shareholders ceo president. >> that's not under the internal revenue code code though is that? >> there's a specific provision in the tax code that gives a tax benefit to certain corporations. s corporations that have fewer than 100 shareholders and that

avoids double taxation. >> under subchapter s this fresh ways only has one shareholder, right? >> these corporations have two. >> they are only treated as one. >> correct. i believe that's right. many of these pending cases it's the share -- sole shareholder. they have several but there are cases that have the sole shareholder and are exactly the same. >> your view then that the corporate form itself has this effect, doesn't that mean then that the state which allows them to incorporate is actually imposing an unconstitutional condition and basically saying if you get these benefits you have to give up certain constitutional rights to do it.

>> first there is no constitutional claim before the court. there is no viable free exercise. the only question before this board is the statutory one and 4200 years no corporation or sole shareholder has ever obtained an exemption from any form of regulation on the theory that is being urged here which is that the pass-through the corporation treat corporate regulation as if it were regulation of the ceo or the controlling shareholder. there is no support in any supreme court case. the plaintiffs here and elsewhere for life on ninth circuit decision called townley in which the ninth circuit went on to reject the free exercise claims that essentially there's a difference between a closely held corporation and its controlling shareholders but it did not address any of the

supposed that are crucial here and the third circuit and the sixth circuit exclusively rejected the townley pass-through theory. and if i can make sure to address this strict scrutiny point. >> let's suppose we have a religion and one of the beliefs in the sacred text was that if you own and run a company and your company, corp. violates your moral principles you are just as guilty of a sin as if you did it yourself. say that's the religious principle. would your argument still be that the corporate form trumps the religion, the religious precepts? >> yes as a matter of law under rfra. we are taking as a given that your hypothetical is their

belief that they sincerely believe that their teachings of the catholic church prevent them from i don't know acting as officers of the corporation that complies with the federal law and that compliance -- we are not taking out the sincerity. we are taking as a matter of law at congress in an act of rfra -- [inaudible] >> how did you get to that proposition? just to treat persons not as a corporation but individual how do you get to the proposition that recognize this precept? >> a few different points. first we have hobby lobby, 200 years between the adoption of the first amendment and rfra which is meant to restore the supreme court's rfra

jurisprudence. there has never been a claim like that. >> if there's never been a claim like that -- >> you are asking what was congress doing when it enacted rfra and you have to say it's restoring something. i conclude for the first time it's authorizing courts to disregard the corporate forum and look past the regulation of the general business corp. and treated as if this were a burden on the individual's who are officers of the company. >> i think the court should recognize that the over rulings -- >> i know it said so when restores jurisprudence. >> any exercise. >> i mean the court has been very clear. when you are looking to the body of president you look to the

pre-smith jurisprudence and conspicuously what you have our are claims by natural persons like sherbet and yoder which are the two cases cited in rfra and some claims by churches which is not surprising. these are organizations formed in order to exercise religion. in all of rfra's supreme court precedent nothing in the debates nothing in the legislative history that the court is inclined to look at. a lot of background federal employment law federal employment statutes in which there are specific exemptions for certain types of employers that those have been confined to essentially churches, religious institutions. >> let me ask you in that regard is it limited to nonprofit corporations? >> are argument of understand the question that a for-profit corporation -- yes if that's the question our argument here and we have

different arguments and their pending cases in district court brought by a nonprofit religious institutions that are challenging the new rules issued in july. i'm flagging those at the cases in the courts are petitions, it is sufficient that we are talking about for-profit corporations. >> that is your way of distinguishing the corporate -- >> the supreme court has said that congress good in title vii exempts not just the church's religious sect 70's but it could go all the way to the church's nonprofit activities. it was the mormon church that ran a nonprofit gymnasium and the reasoning was it was devoid of entitlement concerns. for church a church to have to predict in advance whether a court would regard its soup kitchen or other activities as religious or secular is itself automatic so congress couldn't

go beyond the core exemption and get to the mormon church running a nonprofit gymnasium. but there is nothing that would take the step to the war profit business because it has directors and officers and shareholders. >> is a 501(c)(3) corporation corporation? >> i just want to be careful not to step into issues that may be the subject of litigation in the district court that nonprofit religious institutions -- [inaudible] >> i don't believe that is part of the definition but there are piggybacks of other established -- >> the district court's opinions of dave 501(c) stats which raises a question in my mind, if you have a distinction indeed

may deny this but if you're distinction rests on the treatment of a particular section of a 501(c) then why isn't an s corporation exempt -- not exempt the wide is the shareholders of the s corporation -- >> again this court's president interpreting the title vii exemptions and the university of great falls cases interpreting the nl are a exception but on title vii principles. talks about nonprofit but i don't understand this court to say that s is tantamount to 501(c)(3). essentially if you look at the employment law statutes it gives which congress enacted rfra there is precedent to exempt not just the church but the church's nonprofit activities whether or not they hard court might regard those activities as religious or

secular. is this court claimed in the great falls case it's hard to decide whether church's activities are secular but there's a bright line easy way to distinguish between nonprofit activities and for-profit activities. >> i want to make sure i understand the governments argument here. are you saying that the government takes the position that for religiously observant owners of corporations there is no free exercise right, or are you saying in fact that if it's a neutral and generally applicable law no one has free exercise? >> we are saying as a matter of interpretation of rfra there is no substantial burden on the controlling shareholder officer based on general applicable regulation.

>> the reason there's no substantial burden in your view is because it's the corporation that has to implement the mandate? >> it's the corporation that has all of the obligations. it's not the personal responsibility of mr. gilardi. >> regardless of religious tenants, does it matter in a religious sense that you can't excuse yourself from a the violation of the moral code by claiming it's the corporation but that doesn't matter to the government treats the we are we are not asking the court to question that. i'm sorry. >> even if they brought this suit as individuals there still would not be substantial burden. >> there are plaintiffs in this case and we thinks the sixth circuit there is neither

standing for this substantive and supple. just trying to understand. you said just a moment ago that because it is a corporation that has all the word if implementation there's no substantial burden on the gilardis but you also said even if they brought it as individuals you would argue -- you would make all the same arguments that there's an assist and sheberghan? >> that's exactly right. >> on the one hand it's because the corporation is doing all the implementation but you are arguing that even if they brought it as individuals they would be no burden? that's what i'm trying to understand. >> if the question is forget about the corporaticorporati on in this were just a sole proprietor the argument would still be that there is no violation of the reasons would be different. you would then be dropping down to our other arguments that this particular burden is too attenuated and strict scrutiny is satisfied and to make sure i

respond to the grandfathering argument. from my recollection of the survey to the extent district courts with the tenth circuit have ruled against us at spin on the basis really of the grandfathering provision and we just think that's a fundamental misunderstanding of the grandfathering provision. >> they claim the regulations go on indefinitely. >> we are saying the same thing in different ways. if you raise co-payments race to dockable's and decrease employer contributions and materially reduce benefits all the things that claimants do all the time it's a grandfather status. sometimes the term grandfather means you are forever protected and this is not a sense that the affordable care act is using grandfathering. if there are no further questions, thank you.

>> thank you year honors. what the argument comes down his heads the government lands tails the claimant always loses biggest presents a situation where the supreme court -- so if you have a kosher deli owner who goes into business and decide i'm going to incorporate and allows pass requiring all establishments to sell pork or some violation of kosher regulations. no one could bring a rfra claim. if you have a sabbath observer who for sound business reasons decides to incorporate to encourage economic growth requires all businesses having more than two employees to be open seven days a week, no one could bring a rfra challenge there. >> again the supreme court has addressed this. to maintain a society that guarantees religious freedom to

a great variety of faith require some religious practices yield to the common good. the cases go on and on. we can't have equal just announced i firmly and absolutely believe in x and x happens to be inconsistent with the case. i believe it strongly and it comes from whoever the great leader is in this particular moment and no one doubts it at that notion is not a viable notion. that's not the way we run it. rfra was enacted to overturned. >> did not overturn lee. the principles and lee have been recited by the supreme court over and over again. they are viable principles that sometimes free exercise has to give way to the common good depending upon whether the government is shown there is a way.

>> a restr