First Amendment and the Corporation | Brett Johnson | December 07, 2014

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First Amendment and the Corporation

In recent years, the Roberts Court has pursued an aggressive expansion of First Amendment rights for corporations. Underlying all of the court's opinions in this area is the proposition that there is no separation between stockholders and the corporation for purposes of the First Amendment and regulation of corporate speech. It's important to recognize that this view of the corporation is at odds with state corporate law where the default is separation between the legal existence of the corporation and its stockholders.

In Citizens United, the court protected speech rights of corporations by analogizing that corporations are nothing more than "associations of citizens." The court would not sanction government restrictions on speech merely because citizens had decided associate themselves together in the corporate form.  

In Hobby Lobby, the Roberts Court reads into the corporation the religious views of its stockholders. Much like in Citizens United, Justice Alito rationalizes extending constitutional rights to corporations because of the people associated with the corporation:

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.

Citizens United and Hobby Lobby represent a distinct departure from earlier cases where the court expressed a high degree of deference for the corporate form.  Take, for example Domino's Pizza v. McDonald (546 US 470, 2006). In Domino's, John W. McDonald, the sole shareholder and employee of JWM, Inc., brought a civil rights claim against Domino's arguing that Domino's discriminated against JWM, Inc. (a Domino's vendor) because McDonald himself was African-American. In that case, the Supreme Court had no problem in seeing a clear difference between the sole shareholder and the corporation and dismissed McDonald's claim for lack of standing because McDonald had signed the contracts in question in his capacity as an officer of JWM, Inc. and not in his personal capacity.

McDonald's complaint does identify a contractual relationship, the one between Domino's and JWM. But it is fundamental corporation and agency law—indeed, it can be said to be the whole purpose of corporation and agency law—that the shareholder and contracting officer of a corporation has no rights and is exposed to no liability under the corporation's contracts. McDonald now makes light of the law of corporations and of agency—arguing, for instance, that because he "negotiated, signed, performed, and sought to enforce the contract," Domino's was wrong to "insist that [the contract] somehow was not his `own.'" Brief for Respondent 4. This novel approach to the law contradicts McDonald's own experience. Domino's filed a proof of claim against JWM during its corporate bankruptcy; it did not proceed against McDonald personally. The corporate form and the rules of agency protected his personal assets, even though he "negotiated, signed, performed, and sought to enforce" contracts for JWM. The corporate form and the rules of agency similarly deny him rights under those contracts.

 

 

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What do you make of the Court's observation that a corporation is an "association of citizens" in Citizens United?  Is that true as a factual matter? Given the court's view on corporations, how might you articulate a "Federal" theory for the firm?

We have already seen that the default rule for courts is to treat stockholders and the corporation as separate for purposes of dealing with creditors.  If the Supreme Court's new "Federal" theory of the corporate form were adopted widely what might become of limited liability?

If the Supreme Court were to apply state-level veil piercing doctrines to the question of imputing a group of stockholders' religious views to the corporation, what might that “reverse veil piercing” doctrine look like?  In that case, what would have to be true before the court might impute the religious views of stockholders to the corporation?

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December 07, 2014

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