July 02, 2014
The Supreme Court's View of the Corporation in Burwell v. Hobby Lobby
Posted by Usha Rodrigues

Home from teaching bar prep, I've just finished the Burwell v. Hobby Lobby opinion.  What does the opinion teach those highly stressed would-be attorneys about corporate law--or at least, the justices view of it?  Let's see, shall we?

Justice Alito's majority opinion:

Entity theory rejected--anyone for a nexus-of-humans theory?:

A corporation is simply a form of organization used by human beings to achieve desired ends. An established body of law specifies the rights and obligations of the people (including shareholders, officers, and employees) who are associated with a corporation in one way or another. When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people. For example, extending Fourth Amendment protection to corporations protects the privacy interests of employees and others associated with the company. When rights, whether constitutional or statutory, are extended to corporations, the purpose is to protect the rights of these people...Corporations, “separate and apart from” the human beings who own, run, and are employed by them, cannot do anything at all.

(UR: this sounds like my first day of BA speech, where I reassure the humanities majors that "business law is all about relationships, relationships between people and groups of people).

Shareholder wealth maximization vs. corporate social responsibility:

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.” 1 J. Cox & T. Hazen, Treatise of the Law of Corporations §4:1, p. 224 (3d ed. 2010) (emphasis added); see 1A W. Fletcher,Cyclopedia of the Law of Corporations §102 (rev. ed. 2010).  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.

(UR: Kumbaya, my friends!  Shareholder wealth maximization does not rule with the majority, that's for sure.  Milton Friedman be damned, CSR is alive and well on the Supreme Court.

Tax is always with us:

For example, 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.

(UR: those pesky IRS 501(c)(3) restrictions! I always stress the importance of tax in BA.)

New corporate forms:

In fact, recognizing the inherent compatibility between establishing a for-profit corporation and pursuing nonprofit goals, States have increasingly adopted laws formally recognizing hybrid corporate forms. Over half of the States, for instance, now recognize the “benefit corporation,” a dual-purpose entity that seeks to achieve both a benefit for the public and a profit for its owners.

(UR: I was wondering if the Court would mention benefit corps.  Kind of surprised the majority does, because one could see the existence of a hybrid form as undermining the Hobby Lobby/Conestoga argument, i.e., if you were serious about your religion, why didn't you pick a different form?  I'm looking at you, Haskell Murray.)

General incorporation statutes, internal affairs doctrine, and ultra vires:

In any event, the objectives that may properly be pursued by the companies in these cases are governed by the laws of the States in which they were incorporated—Pennsylvania and Oklahoma—and the laws of those States permit for-profit corporations to pursue “any lawful purpose” or “act,” including the pursuit of profit in conformity with the owners’ religious principles. 15 Pa. Cons. Stat. §1301 (2001) (“Corporations may be incorporated under this subpart for any lawful purpose or purposes”);Okla. Stat., Tit. 18, §§1002, 1005 (West 2012) (“[E]very corporation, whether profit or not for profit” may “be incorporated or organized . . . to conduct or promote any lawful business or purposes”); see also §1006(A)(3); Brief for State of Oklahoma as Amicus Curiae in No. 13–354.

Closely-held vs. public corps. 

These cases, however, do not involve publicly traded corporations, and it seems unlikely that the sort of corporate giants to which HHS refers will often assert RFRA claims. HHS has not pointed to any example of a publicly traded corporation asserting RFRA rights, and numerous practical restraints would likely prevent that from occurring. For example, the idea that unrelated shareholders—including institutional investors with their own set ofstakeholders—would agree to run a corporation under the same religious beliefs seems improbable. In any event, we have no occasion in these cases to consider RFRA’s applicability to such companies. The companies in the cases before us are closely held corporations, each owned and controlled by members of a single family, and no one has disputed the sincerity of their religious beliefs.

(UR: what's a closely held corporation, you ask.  I"m so glad you did.  Here's Steve Bainbridge's excellent post on the subject, and Anne Tucker with a solid but shorter treatment.) 

(UR2: One limitation for closely-held is Section 12(g) of the Exchange Act--which requires companies to make public filings when they reach 2000 investors (I'm omitting a lot, but that's the gist).  Look for me for more on this topic soon).

The certificate of incorporation governs the corporation:

The owners of closely held corporations may—and sometimes do— disagree about the conduct of business. 1 Treatise of the Law of Corporations §14:11. And even if RFRA did not exist, the owners of a company might well have a dispute relating to religion. For example, some might want a company’s stores to remain open on the Sabbath in order to make more money, and others might want the stores to close for religious reasons. State corporate law provides a ready means for resolving any conflicts by, for example, dictating how a corporation can establish its governing structure. See, e.g., ibid; id., §3:2; Del. Code Ann., Tit. 8, §351 (2011) (providing that certificate of incorporation may provide how “the business of the corporation shall be managed”). Courts will turn to that structure and the underlying state law in resolving disputes.

(UR: Alito is dead right about this--if you want to change the default rules, don't settle for a puny bylaw--get it in the charter).

Now we move to Justice Ginsburg's dissent.  She doesn't talk about the corporate form or corporate law as much--except to distinguish nonprofits from for-profits (if only she'd cited me!). I'll give one highlight:

Limited liability:

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.

I also note that while the conservative majority moves to embrace progressive CSR-style rhetoric, Justice Ginsburg resists the counter-move that for-profit corporations exist to maximize profit or shareholder wealth. 

 

Corporate Law, Hobby Lobby, Humor, Supreme Court | Bookmark

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