Sunday, September 14, 2014

Hobby Lobby Redux: 7 Corporate Law/Theory Quotes

This coming Tuesday, I am scheduled to provide a brief overview of the corporate law/theory aspects of Hobby Lobby as part of the University of Akron’s Supreme Court Roundup.  What follows are the seven key quotes from the opinion that I plan to focus on (time permitting) in order to highlight what I see as the key relevant issues raised by the opinion. Comments are appreciated.

Issue 1: Did corporate theory play a role in Hobby Lobby?

While I believe the majority made a pitch for applying a pragmatic, anti-theoretical approach (“When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of … people.” Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2768 (2014)), the following quote strikes me as conveying an underlying aggregate view of corporations:

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.” 724 F.3d, at 385 (emphasis added). 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.

134 S. Ct. at 2768.


Issue 2: Can corporations exercise religion?

In the following quote the majority finds nothing inherent in corporate status or profit-seeking that precludes exercising religion.  The argument that the combination of profit-seeking in the corporate form may create unique concerns cautioning against free-exercise rights is, I believe, ignored.

According to HHS and the dissent, these corporations are not protected by RFRA because they cannot exercise religion. Neither HHS nor the dissent, however, provides any persuasive explanation for this conclusion. 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…. If the corporate form is not enough, what about the profit-making objective? In Braunfeld, 366 U.S. 599, 81 S.Ct. 1144, 6 L.Ed.2d 563, we entertained the free-exercise claims of individuals who were attempting to make a profit as retail merchants, and the Court never even hinted that this objective precluded their claims.

134 S. Ct. at 2769-70.

Issue 3: Does state law make corporate pursuit of religious freedom ultra vires?

Interesting follow-up question here: Could a state prohibit for-profit corporations organized under its laws from exercising religion?  I have some related thoughts on that here.  Here’s what the majority says:

Some lower court judges have suggested that RFRA does not protect for-profit corporations because the purpose of such corporations is simply to make money. This argument flies in the face of modern corporate law. “Each American jurisdiction today either expressly or by implication authorizes corporations to be formed under its general corporation act for any lawful purpose or business.”

134 S. Ct. at 2770-71.

Issue 4: Does Hobby Lobby have something new to say about corporate social responsibility or fiduciary duties?

Go here for why I say no.  The majority says:

While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives. Many examples come readily to mind. So long as its owners agree, a for-profit corporation may take costly pollution-control and energy-conservation measures that go beyond what the law requires. A for-profit corporation that operates facilities in other countries may exceed the requirements of local law regarding working conditions and benefits. If for-profit corporations may pursue such worthy objectives, there is no apparent reason why they may not further religious objectives as well.

134 S. Ct. at 2771.

Issue 5: Did corporate theory play a role in Hobby Lobby? (Part 2)

Justice Ginsburg and Justice Sotomayor appear to rely in part on a concession / artificial entity theory in dissent.

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).

134 S. Ct. at 2794.

Issue 6: Do we just ignore the employees?

Justices Ginsburg and Sotomayor press back on why only the controlling shareholders seem to matter in the majority’s analysis.  Again, one may argue that the divergence here turns at least in part on different conceptions of what a corporation is.

Religious organizations exist to foster the interests of persons subscribing to the same religious faith. Not so of for-profit corporations. Workers who sustain the operations of those corporations commonly are not drawn from one religious community. Indeed, by law, no religion-based criterion can restrict the work force of for-profit corporations…. The distinction between a community made up of believers in the same religion and one embracing persons of diverse beliefs, clear as it is, constantly escapes the Court's attention. One can only wonder why the Court shuts this key difference from sight.

134 S. Ct. at 2795-96.

Issue 7: Is the majority undermining limited liability?

One of the main criticisms of aggregate / contractarian theories of the corporation is that they significantly undermine the justification of limited liability for shareholders, which is an essential feature of corporate existence.  Here is what Justices Ginsburg and Sotomayor say in dissent:

Citing Braunfeld v. Brown, the Court questions why, if “a sole proprietorship that seeks to make a profit may assert a free-exercise claim, [Hobby Lobby and Conestoga] can't ... do the same?” But even accepting, arguendo, the premise that unincorporated business enterprises may gain religious accommodations under the Free Exercise Clause, the Court's conclusion is unsound. In a sole proprietorship, the business and its owner are one and the same. By incorporating a business, however, an individual separates herself from the entity and escapes personal responsibility for the entity's obligations. One might ask why the separation should hold only when it serves the interest of those who control the corporation.

134 S. Ct. at 2797 (internal citations omitted).

Business Associations, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Religion, Social Enterprise, Stefan J. Padfield, Unincorporated Entities | Permalink


Just remember: The Supreme Court knows just about as much about corporate law theory as I know about string theory. So take anything it says with a grain of salt.

Posted by: Stephen Bainbridge | Sep 17, 2014 10:40:30 AM

I look forward to working that comment into my next presentation / article!

Posted by: Stefan Padfield | Sep 17, 2014 11:11:55 AM

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