Respectfully submitted by Lawrence E. Rafferty (rafflaw)-Weekend Contributor
We have heard the phrase for quite some time now. “Corporations are people”. It sounds so simple, but what does it mean in practice? The corporate structure is designed to protect individual shareholder assets from creditors of the corporation. If you maintain your corporate structure requirements and corporate book, the individual’s assets cannot be attached or claimed by a creditor of the corporation.
Corporations are also afforded special tax breaks and tax rates that individual persons cannot take advantage of. How has the Hobby Lobby decision altered or not altered the corporate veil protection provided to corporations?
Mother Jones described very simply what the corporate veil does. “Here’s one more reason to worry about the Supreme Court’s Hobby Lobby decision, which allowed the arts and crafts chain to block insurance coverage of contraception for female employees because of the owners’ religious objections: It could screw up corporate law.
This gets complicated, but bear with us. Basically, what you need to know is that if you and some friends start a company that makes a lot of money, you’ll be rich, but if it incurs a lot of debt and fails, you won’t be left to pay its bills. The Supreme Court affirmed this arrangement in a 2001 case, Cedric Kushner Promotions vs. Don King:
linguistically speaking, the employee and the corporation are different “persons,” even where the employee is the corporation’s sole owner. After all, incorporation’s basic purpose is to create a distinct legal entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who created it, who own it, or whom it employs.” Mother Jones
While the Kushner case gave a very succinct definition of the protections provided by the corporate structure, it did not get in the way of the Hobby Lobby majority that further extended the concept that corporations are people. If corporations truly are people and can make decisions based on its owners religious beliefs, how can that corporation take advantage of the protections that the fictional entity was designed to provide?
Can corporations still take advantage of the corporate tax breaks in lieu of the Hobby Lobby decision? Will creditors be able to use the Hobby Lobby decision to attack any corporation that takes advantage of the Hobby Lobby decision to avoid what may be additional costs in including contraception in the health insurance plans for its employees?
Forty-five law professors signed an amicus brief for the Hobby Lobby court suggesting that allowing the piercing of the corporate veil for the religious claims of its owners could have unforeseen circumstances.
“By letting Hobby Lobby’s owners assert their personal religious rights over an entire corporation, the Supreme Court has poked a major hole in the veil. In other words, if a company is not truly separate from its owners, the owners could be made responsible for its debts and other burdens.
If religious shareholders can do it, why can’t creditors and government regulators pierce the corporate veil in the other direction?” Burt Neuborne, a law professor at New York University, asked in an email.
That’s a question raised by 44 other law professors, who filed a friends-of-the-court brief that implored the Court to reject Hobby Lobby’s argument and hold the veil in place. Here’s what they argued:
Allowing a corporation, through either shareholder vote or board resolution, to take on and assert the religious beliefs of its shareholders in order to avoid having to comply with a generally-applicable law with a secular purpose is fundamentally at odds with the entire concept of incorporation. Creating such an unprecedented and idiosyncratic tear in the corporate veil would also carry with it unintended consequences, many of which are not easily foreseen.” Mother Jones
Those unforeseen circumstances that the friend of the court briefed warned about have occurred in past decisions where the Supreme Court claimed their decision was one limited to specific narrow circumstances. One author gave examples of how the Supreme Court’s allegedly narrow decision in Bush v. Gore was used by later courts.
“As Alito no doubt knows, that’s not how Supreme Court jurisprudence works. The justices often try to limit their decisions to a narrow set of facts. But they’re still setting legal precedent, and their logic is certain to be used in future cases in lower courts—often in unintended ways. There are no take-backsies for Supreme Court decisions.