Tomorrow, the Supreme Court will take up Hobby Lobby’s suit to be exempt from the contraceptive provisions of the ACA, on the grounds that its owners, a single family, objects on religious grounds.
A ruling in favor would be a disaster on many levels, but this is the court that previously ruled that corporations are “persons” who have free speech rights. There’s no guarantee that the court won’t do something breathtakingly stupid.
But I’m starting to see a silver lining in that event. In order to rule in favor of Hobby Lobby, the Supreme Court would have to tear a big hole in the “corporate veil”, the legal fiction that the corporation exists independently of its shareholders, and that shareholders and officers of a corporation can’t be held legally liable for the actions of the corporation. This is the essence of the concept of a “limited liability company”.
I was reading an amicus curae brief filed by 44 corporate law professors this morning that addresses this point. Sadly, the authors chose to lock it against copying, so I can’t show you the 6-point summary….awww f-it, it’s worth taking the time to type in by hand. All typos and infelicitations are mine.
SUMMARY OF ARGUMENT
Hobby Lobby and Conestoga each asserts that the religious values of its present controlling shareholders should pass through to the corporation itself. This Court should reject any such “values pass-through” concept. To do otherwise would run contrary to the established principles of corporate law.
1. The essence of a corporation is its “separateness” from its shareholders. It is a distinct legal entity, with its own rights and obligations, different from the rights and obligations of its shareholders. This Court has repeatedly recognized this separateness.
2. Shareholders rely on the corporation’s separate existence to shield them from personal liability. When they voluntarily choose to incorporate a business, shareholders cannot then decide to ignore, either directly or indirectly, the distinct legal existence of the corporation when it serves their personal interests.
3. The separateness between shareholders and the corporation that they own (or, in this case, own and control) is essential to promote investment, innovation, job generation, and the orderly conduct of business. This Court should not adopt a standard that chips away at, creates idiosyncratic exceptions to, or calls into question this legal separateness.
4. On the facts of these cases, there is no basis in law or in fact to disregard the separateness between shareholders and the corporations they control. Hobby Lobby’s and Contestoga’s attempt to “reverse veil pierce”–that is, to imbue the corporation, either by shareholder fiat or a board resolution, with the religious identity of certain of its shareholders–should be rejected. The concept of “reverse veil piercing” is wholly inapplicable on these facts.
5. Adoption by this court of a “values passthrough” theory here would be disruptive to business and generate costly litigation. It would encourage intrafamilial and intergenerational disputes. It would also encourage subterfuge by corporations seeking to obtain a competitive advantage.
6. Adoption by this court of a “values passthrough” theory would halso have potentially dramatic and unintended consequences with respect to laws other than PPACA, such as the Public Accommodations and Employment Discriminations of the Civil Rights Act of 1964. Rather than open up such a Pandora’s Box, the Court should simply follow well-established principles of corporate law and hold that a corporation cannot, through the expedient of a shareholder vote or a board resolution, take on the religious identity of its shareholders.
In other words, they’re making a thoroughly conservative appeal to preserve the status quo against the radical change in basic corporate law sought by Hobby Lobby.
Which is why I’m wondering about a silver lining. What if the Supreme Court does the breathtakingly-stupid yet hardly unprecedented thing and sides with Hobby Lobby? If these law professors are correct, and I think they are, the result will be a potentially fatal undermining of the very thing that gives our modern corporations their crushing size and power. It’s the limitation on liability that opens up investor wallets, lets corporations grow to monstrous size, gives corporations monopolistic and oligarchic power, and lets sociopathic CEOs indulge their every destructive whim while hiding behind that “corporate veil”.
As the professors point out, the Hobby Lobby hole would work both ways, and by exposing corporate shareholders and officers to liability once again, it could well usher in an era of unprecedented corporate transparency. That’s quite a silver lining in my opinion.
I think the Hobby Lobby case will have implications reaching far beyond the fate of the ACA and the right’s hatred of the black guy in the White House. It may turn out to be a case of rightwing overreaching like nothing we’ve ever seen before…and that’s saying a lot. Can you say “Pyrrhic Victory”?