Sunday, July 6, 2014

The Role of Corporate Personality Theory in Hobby Lobby

Let me start by publicly announcing a forthcoming panel discussion at this year’s AALS Annual Meeting, tentatively titled “The Role of Corporate Personality Theory in Corporate Regulation.” As the organizer of this panel, I am extremely grateful to Stephen Bainbridge, Margaret Blair, Lisa Fairfax, and Elizabeth Pollman for agreeing to participate in what promises to be a thoroughly enjoyable discussion. For those of you who like to plan ahead, the panel is scheduled for Monday, Jan. 5, from 2:10 to 3:10 (part of the Section on Socio-Economics Annual Meeting program).

Given Stephen Bainbridge’s pending participation, I was interested to read a couple of his posts from a few weeks ago wherein he asked (here), “When was the last time anybody said anything new about corporate personhood?” and concluded (here), “I struggle to come up with anything new to say about the issue, when people have been correctly disposing of the legal fiction of corporate personality for at least 126 years!”

While I understand that asserting there is nothing new to say on a topic is not necessarily the same thing as saying it is not worth talking about, I still find myself motivated to explain why I think talking about corporate personality theory continues to constitute valuable scholarly activity (and, yes, I will connect all this to Hobby Lobby).

First of all, some qualifiers: (1) I distinguish corporate personality theory from corporate personhood because a thumbs up on corporate personhood (i.e., acknowledging that corporations can sue and be sued, etc.) still leaves a number of important questions regarding the nature of this “person,” which I believe theories of corporate personality (typically: artificial entity theory, real-entity theory, or aggregate theory) are well-positioned to answer. (2) While theories of corporate governance (typically: shareholder primacy, director primacy, or team-production theory) are distinct from theories of corporate personality, I believe there are at least some legal issues that are profitably analyzed by viewing both sets of theories as constituting a pool from which to choose an answer. With those introductory propositions in place, here are three reasons why I believe corporate personality theory still matters:

1. Supreme Court justices continue to make decisions informed by, if not derived from, theories of corporate personality (even though they are prone to ignore/deny this fact).

In Citizens United, Justice Stevens declared in his dissent that: “Nothing in this analysis turns on whether the corporation is conceptualized as a grantee of a state concession, a nexus of explicit and implicit contracts, a mediated hierarchy of stakeholders, or any other recognized model.” 558 U.S. 310, 465 (citations omitted). However, Stephen Bainbridge was quick to identify the concession theory (a.k.a. artificial entity theory) roots of Stevens’s dissent, authoring a post (here) titled: “Citizens United v. FEC: Stevens' Pernicious Version of the Concession Theory.” I agree with Bainbridge’s characterization, and have argued further that the majority opinion, while silent on the issue, was likewise founded on corporate personality theory – specifically, the aggregate view of the corporation.

Now, in Hobby Lobby, we have Usha Rodrigues noting (here) that one of the takeaways from that opinion is: “Entity theory rejected--anyone for a nexus-of-humans theory?” Given that the humans Alito seems primarily concerned with here are the controlling shareholders, I’d say his position is squarely rooted in aggregate theory.

On the other side, I believe Justice Ginsburg’s dissent clearly conveys strong artificial entity (a.k.a., concession theory) undertones:

“The Dictionary Act's definition [of ‘person’], … controls only where ‘context’ does not ‘indicat[e] otherwise.’ Here, context does so indicate. RFRA speaks of ‘a person's exercise of religion.’ Whether a corporation qualifies as a ‘person’ capable of exercising religion is an inquiry one cannot answer without reference to the ‘full body’ of pre-Smith ‘free-exercise caselaw.’ There is in that case law no support for the notion that free exercise rights pertain to for-profit corporations.

Until this litigation, no decision of this Court recognized a for-profit corporation's qualification for a religious exemption from a generally applicable law, whether under the Free Exercise Clause or RFRA. The absence of such precedent is just what one would expect, for the exercise of religion is characteristic of natural persons, not artificial legal entities. As Chief Justice Marshall observed nearly two centuries ago, a corporation is ‘an artificial being, invisible, intangible, and existing only in contemplation of law.’ Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 636, 4 L.Ed. 629 (1819). Corporations, Justice Stevens more recently reminded, ‘have no consciences, no beliefs, no feelings, no thoughts, no desires.’ Citizens United v. Federal Election Comm'n, 558 U.S. 310, 466, 130 S.Ct. 876, 175 L.Ed.2d 753 (2010) (opinion concurring in part and dissenting in part).”

Burwell v. Hobby Lobby Stores, Inc., 13-354, 2014 WL 2921709 (U.S. June 30, 2014) (internal citations omitted in part).

I could say more on this (for example, how Ginsburg appears to adopt a communitarian view by including employees for purposes of determining whether corporations should be treated like other communities of believers in this context), but for now I’ll simply suggest that if Supreme Court justices are still thinking in corporate personality theory terms, then we scholars should probably not ignore that fact.

2. Not expressly talking about corporate personality theory may simply equate to implicitly talking about corporate personality theory.

Corporate personality theory is typically understood to offer three choices when answering the question: “What is a corporation?” Artificial entity / concession theory focuses more on the publicness of corporations as state-created entities, and thus typically grants government a great deal of freedom in determining the rights and responsibilities of corporations. Meanwhile, real-entity theory and aggregate theory focus more on the private nature of corporations, with either the board of directors or shareholders constituting the “association of citizens” that gets to assert constitutional and other rights to fend off various forms of governmental regulation aimed at reining in corporations. (Pretty much everything I just said is subject to various caveats, but that disclaimer likely applies to this entire post in some fashion.) Even if one adds corporate governance theories to the universe of existing theoretical justifications for determining the scope of corporate regulation, one is still left with only one theory – concession theory – that is deferential to government regulation. Thus, saying that corporate personality theory is irrelevant is effectively simply a form of arguing against government regulation without having to go to the trouble of addressing the pros and cons of concession theory. Cf. Darrell A.H. Miller, Guns, Inc.: Citizens United, McDonald, and the Future of Corporate Constitutional Rights, 86 N.Y.U. L. Rev. 887, 943 (2011) (“[O]ne must consider the consequences of the Court's attempt to dodge corporate personhood, by focusing, Citizens United-style, on the scope of the right, rather than on the party asserting it. . . . [A]ttempting to sidestep the corporate form by focusing on the right simply assumes the equivalence of the corporate person and the natural person.”).

3. You ignore corporate personality theory at your own political risk.

When I discuss this stuff with non-lawyers (and they stay awake), the idea that the corporation is anything other than an artificial state creation subject to rigorous state regulation frequently strikes them as shocking. I think a recent AP story headlined, “Corporations Are People? It's a Real Legal Concept,” lends some objective support here. (“There may be more to that ‘we the people’ notion than you thought.”) Given that all of this is ultimately a political issue, I believe one ignores the “stories” that resonate with voters at one’s own risk.

So, I think we should continue to talk about corporate personality theory, even if simply to argue there is nothing new to say about it (and educating folks on what has been said about it), or that swinging from the extreme of ignoring it to relying exclusively on it arguably constitutes “stupidity, arrogance, or mendacity” and is perhaps the province of "naive metaphysicians."

For more on these issues, feel free to liberally download my related SSRN essays:

The Silent Role of Corporate Theory in the Supreme Court’s Campaign Finance Cases

Rehabilitating Concession Theory

Corporate Social Responsibility & Concession Theory (I plan on updating this one shortly)

http://lawprofessors.typepad.com/business_law/2014/07/the-role-of-corporate-personality-theory-in-hobby-lobby.html

Business Associations, Constitutional Law, Corporate Governance, Corporations, Current Affairs, Religion, Stefan J. Padfield | Permalink

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