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THE FOLLOWING IS AN ABRIDGED VERSION OF GARRY BLUM’S NOTE SUBMISSION TO THE MAIN JOURNAL. HE HOPES THAT THE READER FINDS THIS HISTORY OF CORPORATE PERSONHOOD INTERESTING AND COMPELLING:

 

INTRODUCTION

Over the last 200 years, corporations have fought to establish themselves as “persons” under the law; that is, they have argued that corporate entities are entitled to all or nearly all of the same constitutional rights and procedures as any natural person residing in the United States.[i] At the same time, scholars seeking to restrain corporate power have lobbied similar arguments –––that corporations are a special kind of “legal person” and thus more vulnerable to regulation than natural persons.[ii] These arguments have fostered significant debate about “corporate personhood” and the nature of corporations.

This article explores the leading analytical frameworks underlying this idea of “corporate personhood”. At a high level, corporate personhood refers to the idea that corporations enjoy a status under the law, more or less, as persons. For all kinds of organizations, this so-called fiction has enabled highly productive forms of organization, allowing for strategic accumulation and implementation of assets. Beyond its advantages, however, this idea has posed challenging social, philosophical, and legal questions.”

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THREE FRAMEWORKS FOR CORPORATE PERSONHOOD

“Along the timeline of corporate personhood and corporate rights, three broad viewpoints have persisted among commentators. First, there is the “associational view”[iii] in which a corporation can be characterized as an association of its members from whom the corporate entity derives constitutional rights.[iv] On this account, the corporate entity is not a person under the law. Rather, by ignoring the traditional separation between a corporate entity and its members, the associational view essentially asks courts to treat corporations like common partnerships for the purpose of determining their constitutional rights. That is, a court should treat the entity as the property of the association. In the corporate law context, this move is similar to “piercing the corporate veil,” or asking a court to disregard the fiction traditionally used to separate corporations from its members.[v] By ignoring the separation, the associational view seeks to link corporations with their constituent members such that the entity may derive constitutional rights through the connection. This view struggles to explain which members the corporation represents.

Second, there is the “artificial entity view”[vi] in which corporations are viewed primarily as creatures of the State, independent entities formed under the approval of the State’s while also representing the will of its founding members.[vii] This view was most popular when most corporations were still generally directed towards the public good. This framework relies heavily on the relationship between corporations and the State; that is, a corporation may only exist by grant of corporate charter by the State. On this view, corporations are subject to the greatest amount of State control but still retain some core rights and protections against the State, especially with respect to property and contract rights. Typically, courts which have applied the artificial entity view have only extended those rights necessary for the corporation to lawfully carry out its business.[viii] This view, however, has struggled under the advent of general incorporation laws.[ix] Prior to general incorporation, corporate charters were granted by the legislature, resulting in a much more arduous process. Additionally, the decline of the ultra vires doctrine has further weakened the link between corporations and the State. With the relationship between the State and corporate charters diminished, the artificial entity view has become less attractive.

Third, there is the “real entity theory”[x] which “views the corporation as neither the sum of its owners nor an extension of the state, but as a separate entity controlled by its managers.”[xi] On this account, rather than a product of positive law, a corporation owes its existence to the natural activity of private individuals.[xii] The entity which results from these efforts is then placed in the trust of managers who represent it. Compared to the other two frameworks, this view attempts to better reflect the realities of the modern corporation where managers and shareholders are typically insulated from liability and directors are often given wide latitude with respect to business operations.[xiii] Furthermore, by predicating the existence of corporations on private efforts, the real entity theory has encouraged the privatization of corporate law.[xiv]

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SANTA CLARA COUNTY V. SOUTHERN PACIFIC RAILROAD COMPANY

The 14^th Amendment provides that “No State shall … deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” This amendment was ratified to ensure that recently freed African American slaves would be afforded the same protections under the Constitution as any other person within the Union.[xv] Santa Clara County v. Southern Pacific Railroad Company is often described as the first case in which corporations are included as persons under the 14^th Amendment.[xvi] The case centers on unpaid taxes assessed against several railroad corporations operating within the State of California.[xvii] Despite its significance in the canon of corporate constitutional rights, readers will find very little discussion of the Constitution in the body of the opinion itself, nor will they find any explicit holding or analysis with respect to the status of corporations under the constitution. Instead, readers will find that the tax issue is settled purely as an issue of California state law, leading to the question: How does Santa Clara stand for corporate personhood?

The answer lies in the case’s syllabus, the summary of the case provided by the Supreme Court’s Court Reporter. The Syllabus, authored by J.C. Bancroft, a man who never had been nor would be a justice of the Supreme Court, included the following summary before the start of Justice Harlan’s opinion:

“One of the points made and discussed at length in the brief of counsel for the defendants in error was that ‘Corporations are person within the meaning of the Fourteenth Amendment of the Constitution of the United States.’ Before argument Mr. Chief Justice Waite said: The court does not wish to hear argument on the question to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporation. We are all of the opinion that it does.”[xviii]

The discussion of corporate rights drew rebuke from the Chief Justice, who instructed the parties to refrain from such arguments. Regardless, through dishonest and opportunistic lawyering, this excerpt would come to be known as the official holding of Santa Clara, and corporations would come to be included as “persons” under the 14^th Amendment.[xix]

Bringing corporations into the fold of the 14^th Amendment allowed for the incorporation of the real entity theory into American jurisprudence. Over the next 130 years, corporations would achieve a body of caselaw under which they would be extended the rights of religion and speech and property pursuant to their “personhood” under the Fourteenth Amendment.

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BURWELL V. HOBBY LOBBY STORES, INC.

In Burwell v. Hobby Lobby Stores, Inc., the question before the court was whether the Religious Freedom Restoration Act (RFRA) of 1993 allowed a closely held, for-profit corporation to deny its employees the health coverage of contraceptives to which the employees are otherwise entitled by federal law, based on the religious objections of the corporation’s owners.[xx] The Green Family, the owners of Hobby Lobby, held strong Christian beliefs that it would violate their religion to facilitate access to the contraceptive drugs which were being mandated by the Department of Health and Human Services pursuant to the Affordable Care Act (ACA).[xxi] However, it was not the Green Family who would be asserting their religious rights in this case. Rather, in a 5-4 majority written by Justice Alito, the Court held that the contraceptive mandate infringed on the corporation’s religious rights under RFRA.[xxii] Here, the Court asserted that a for-profit corporation was capable of holding religious beliefs.

Both the government and the dissent argued that for-profit corporations are not protected by RFRA because corporations are incapable of exercising religion. [xxiii] In response, Justice Alito tackled the corporate identity and the for-profit motives separately. With respect to the corporate identity, Alito writes:

“Is it because of the corporate form? The corporate form alone cannot provide the explanation because, as we have pointed out, HHS concedes that nonprofit corporations can be protected by RFRA. The dissent suggests that nonprofit corporations are special because furthering their religious ‘autonomy . . . often furthers individual religious freedom as well.’ But this principle applies equally to for-profit corporations: Furthering their religious freedom also “furthers individual religious freedom.’ In these cases, for example, allowing Hobby Lobby [] to assert RFRA claims protects the religious liberty of the Greens[].”[xxiv]

Here, without much explanation, Justice Alito simply asserts that a for-profit corporation can, in the same way as a non-profit organization (e.g. a church or religious charity), serve to further the religious interests of its controlling shareholders. To Justice Alito this alignment is possible because, to him, “[a] corporation is simply a form of organization used by human beings to achieve desired ends.…And protecting the free-exercise rights of corporations like Hobby Lobby [] protects the religious liberty of the humans who own and control those companies.”[xxv] However, what Justice Alito fails to recognize, is that corporation are formed with their purpose ex ante, via the articles of incorporation on which they are founded.[xxvi] Accordingly, if a corporation, even a for-profit one, chooses to “exercise” some religion, it must be generally understood under their charter.

Yet, Justice Alito would then dismiss the significance the for-profit ends of a for-profit corporation. Invoking Braunfeld v. Brown the Justice asks: “If, as Braunfeld recognized, a sole proprietorship that seeks to make a profit may assert a free-exercise claim, why can’t Hobby Lobby [] do the same?”[xxvii] By posing this question, Justice Alito set himself up to argue that a for-profit status does not necessarily speak to the purpose or ends of the corporation.[xxviii] Rather, “organizations with religious and charitable aims might organize as for-profit corporations because of the potential advantages of that corporate form, such as the freedom to participate in lobbying for legislation or campaigning for political candidates who promote their religious or charitable goals.”[xxix] Again, Alito would diminish the significance of the formalities of establishing a corporation. On Alito’s’ account, it is difficult to understand what role the articles of incorporation play in establishing the boundaries of a corporation’s responsibilities and powers with respect to its shareholders or beneficiaries.

The best way to make sense of Justice Alito’s views in Hobby Lobby is to impose an associational view of corporations. He is allowing the corporation to completely adopt the rights and views of it controlling shareholders. The corporation, like a common partnership, becomes a tool subject to the ends of its owners. There is no separation between the two. However, as this view presents significant complications. What were to happen if shares in the corporation caused divisions within and between management, directors and shareholders? Whose views would the corporation adopt?

 

FOOTNOTES

[i] To date, corporations have acquired rights, including but not limited to: free speech, see Citizens United v. Federal Election Com’n, 558 U.S. 310 (2010); free exercise rights, see Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682 (2014); to sue or be sued, see Bank of U.S. v. Deveaux, 9 U.S. 61 (1809); For a brief, but comprehensive, history centered on the case law, see generally Edward J. Schoen, Corporations Have Almost as Many Constitutional Rights as Individuals: How Did This Happen? (2020).

[ii] See generally Kent Greenfield, Corporations Are People Too: And They Should Act like It (2018).

[iii] Hovenkamp, Herbert, The Classical Corporation in American Legal Thought, 76 Geo. L. J. 1593, 1597 (1988). Some scholars have also called this the “aggregate view,” see Rueven S. Avi-Yonah, Citizens United and the Corporate Form, 2010 Wis. L. Rev. 999, 1001 (2010).

[iv] Hovenkamp, supra note 3, at 1599.

[v] William T. Allen et al., Commentaries and Cases on the Law of Business Organization 108 (Sixth edition ed. 2021). Courts typically use veil piercing to disregard limited liability protection for unscrupulous corporate and business actors. Id at 154.

[vi] Some scholars have also called this the “fictional view,” see Hovenkamp, supra note 3, at 1597.

[vii] Avi-Yonah, supra note 3, at 1007 (“Even though its object is to promote governmentally approved aims, this does not make corporations into mere interests of government. Instead the corporations exists to represent the interests of the founder and his descendants in the aims for which it was founded”). See also David Millon, Theories of the Corporation, 1990 Duke L.J. 201, 206 (1990).

[viii] Compare Hale v. Henkel, 201 U.S. 42 (1906) (the Court declines to extend the right against self-incrimination to corporations) with First Nat. Bank of Boston v. Bellotti, 435 U.S. 765 (1978), (the Court strikes down a restriction on corporate speech, rejecting the argument that “speech that otherwise would be protected by the First Amendment loses that protection simply because its source is a corporation that cannot prove, to the satisfaction of a court, that the subject of the speech has a material effect on the corporation’s business or property.”)

[ix] Avi-Yonah, supra note 3, at 1008.

[x] Some scholars have also called this the “natural entity theory”. Millon, supra note 8 at 203.

[xi] Avi-Yonah, supra note 3, at 1001.

[xii] Millon, supra note 8, at 203.

[xiii] In contrast to the associational view, the real entity theory maintains a separation between members and the corporate entity, which acknowledges the significance of limited liability to the corporate form. Then, with respect to the artificial entity view, the real entity theory attempts to account for the decline in ultra vires doctrine as well as the rise of the business judgment rule by emphasizing the separation between corporations and the States.

[xiv] Avi-Yonah, supra note 3, at 1008.

[xv] The U.S. National Archives and Records Administration, 14th Amendment to the U.S. Constitution: Civil Rights (1868), https://www.archives.gov/milestone-documents/14th-amendment.

[xvi] Winkler, We The Corporations: How American Businesses Won Their Civil Rights 151-53.

[xvii] Santa Clara Cnty. v. S. Pac. R.R. Co., 118 U.S. 394 (1886).

[xviii] S. Pac. R.R. Co., 118 U.S. at 394.

[xix] Winkler, supra note 16, at 153.

[xx] Sandra Fung & Jacob Brandler, Burwell v. Hobby Lobby Stores; Conestoga Wood Specialties Corp. v. Sebelius, Legal Information Institute, https://www.law.cornell.edu/supct/cert/13-354.

[xxi] Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682, 684 (2014).

[xxii] Id.

[xxiii] Id.

[xxiv] Id at 709 (citations omitted).

[xxv] Id. Alito also takes a similar posture when responding to the holding of the Third Circuit below, whose case was consolidated with Hobby Lobby: “In holding that Conestoga, as a ‘secular, for-profit corporation,” lacks RFRA protection, the Third Circuit wrote as follows:

‘General business corporations do not, separate and apart from the actions or belief systems of their individual owners or employees, exercise religion. They do not pray, worship, observe sacraments or take other religiously-motivated actions separate and apart from the intention and direction of their individual actors.’

All of this is true—but quite beside the point. Corporations, ‘separate and apart from’ the human beings who own, run, and are employed by them, cannot do anything at all.” Hobby Lobby Stores, Inc., 573 at 707.

[xxvi] Compare Burwell v. Hobby Lobby Stores, Inc, 682 U.S. 706-07, with Allen, supra note 5, at 103-06.

[xxvii] Hobby Lobby Stores, Inc, 682 U.S. at 710. See also Braunfeld v. Brown, 366 U.S. 599 (1961).

[xxviii] Hobby Lobby Stores, Inc, 682 U.S. at 712.

[xxix] Id.

[xxx] Here, Hobby Lobby had the advantage of being closely held, suggesting that there is a closer relationship between the corporation and its owners; although, nothing in the opinion appeared to be limited by this observation.

 

Suggested Citation: Garry Blum, Mx. Corporation (Excerpt), Cornell J.L. & Pub. Pol’y, The Issue Spotter (April 24, 2024), http://jlpp.org/blogzine/mx-corporation-excerpt.