Congress, Constitutional Law, Courts, Justice, Lawyering, Politics, Supreme Court

Corporate Veil and Hobby Lobby

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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.

Bush v. Gore, the 2000 Supreme Court case that shut down the Florida recounts and handed Bush the presidency, is the most famous example of the Supreme Court trying to dissuade other federal courts from referencing its decision in future rulings.
“Our consideration is limited to the present circumstances,” the majority wrote in that opinion. But the justices’ attempt to limit the impact of Bush v. Gore didn’t work: Several campaigns have cited the ruling when challenging voter suppression laws, and during the 2012 election, a federal court in Ohio bought an argument from the Obama campaign that said the state’s efforts to roll back early voting violated the equal protection concepts endorsed by the Supreme Court in Bush v. Gore”  Mother Jones/Caldwell
The Bush v. Gore case is just one example how courts have used a narrow Supreme Court decision and used its holding to enlarge its use, even beyond what the Supreme Court intended.  But of course, as the author above noted, the Justices know how Supreme Court jurisprudence works so the Justices should understand how their narrow decision can be enlarged by lower courts.
Since the Supreme Court has decided that corporations are people, shouldn’t there only be one tax code?
If a corporation chooses to take this ACA exemption provided by the Supreme Court majority in Hobby Lobby, shouldn’t their creditors be able to go after the individual assets of the owners?  If the corporate veil is indeed pierced by this Hobby Lobby decision, how do corporations like Hobby Lobby undo the damage? Or can they?  What do you think?
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120 thoughts on “Corporate Veil and Hobby Lobby”

  1. How the Justices Shape Our Democracy NY Times (Dialogue)
    Published: November 9, 2013
    http://www.nytimes.com/2013/11/10/opinion/sunday/sunday-dialogue-how-the-justices-shape-our-democracy.html?pagewanted=all&module=Search&mabReward=relbias%3Ar

    Stacking the Court
    WHEN a majority of Supreme Court justices adopt a manifestly ideological agenda, it plunges the court into the vortex of American politics.
    http://query.nytimes.com/search/sitesearch/#/stacking+the+supreme+court/

  2. http://baselinescenario.com/2010/10/31/foreign-money-national-security-and-the-midterm-elections/
    Foreign Money, National Security, And The Midterm Elections
    Posted on October 31, 2010 by Simon Johnson | 114 Comments
    Campaign contributions by non-citizens are a huge issue lurking behind every major election….;
    “Americans have a long-standing and well-founded aversion to foreign involvement in their politics, and it is well-established that this can happen in part through corporate “commercial” structures.”
    Simon Johnson

  4. Kevin c. Murphy: Uphill All the Way…
    http://www.kevincmurphy.com/uatw-politics-newberryism.html
    [excerpted quote]
    “Money has come to be the moving power of American politics,” lamented William Borah in August of 1921. “Let us hope that…exposure will arouse the whole country to the necessity of dealing with a problem which has assumed the proportion of a great national evil.” But the Newberry and Smith-Vare battles aside, progressives lost the war when it came to keeping money out of politics in the New Era. “The news item to the effect that the two parties are to spend twenty million in this campaign seems incredible,” Borah said seven years later, in August 1928. “It is impossible to spend twenty million dollars in this campaign without transgressing every rule of decency and common honesty. It would be nothing less than an attempt to debauch the American electorate.” And it would not be stopping any time soon.1

  5. The ACA was a bad law, now we have bad court decisions expanding on that bad law. Alito said Congress has authority to tax anything they want, they can even tax something you don’t have if they call it a tax. He said it is a political decision what is taxed. But of course when they passed ACA they said it wasn’t a tax, it was a fine. Then when it went in front of the court they said it was a tax. So it seems you can call something anything want as long as you get your way.

    So I call Congress a bunch of pigs, is it time to eat bacon?

  6. The logical answer to the question posed here is that HL means that corporations can no longer expect to enjoy the protections for their shareholders afforded by the corporate form. Unfortunately, with the current SUPREME CORPORATE COURT it won’t matter what the law is or should be after HL they only know that religion and corporations are good and should be protected at all costs. Consistency, predictability, legality and democracy mean nothing to the right wing members of the Court. As a result the impactS of the HL include the creation of religious privilege for corporations as well as a solid basis for the adoption and creation of more religious privileges. It is truly a slippery slope into theocracy. Whenever a religious leader se ses that his flock doesn’t want to follow his dictates he will turn to the government for help and is likely to get it.

  7. rafflaw

    Gigi,
    If any corporation can opt in and out of legal rules, are they still entitled to the protection the corporate structure gives them? Hobby Lobby’s owners had the right to not become a corporation, but they made that choice. Shouldn’t they have to follow the same rules of corporations in their state?
    Secondly,
    You may want to re-read the Hobby Lobby decision. The court didn’t allow they to opt out of abortions. They allowed them to opt out of having to pay for contraception that they believe kills a fetus. Hobby Lobby’s science is not accurate, but the Supremes bought it.

    Some people believe that conception is a fetus you know. It’s a religious belief. And some IUD’s are simply not safe. I went into this on the last post regarding my Mother carrying a dead baby and myself with severe inflammatory pelvic disease. Unless you have ever had a misplaced IUD and gotten pregnant from it because you did not know or got a puncture like from Mirena – one of the ones Hobby Lobby won’t use. Thank goodness the Justices listened and were compassionate towards women. This is the information on just Mirena – Mirena IUD Lawyers

    Motley Rice is reviewing potential Mirena lawsuits involving patients who were implanted with the intrauterine contraceptive device Mirena® but had to have the device surgically removed after it migrated, perforating the uterine lining. Motley Rice is also reviewing potential lawsuits involving patients who were implanted with Mirena and suffered idiopathic intracranial hypertension (IIH), otherwise known as pseudotumor cerebri (PTC) or increased pressure around the brain.

    3 years after my mother suffered an ectopic pregnancy and was told to carry the baby an extra month dead in 1968 by Dr William H Masters. That’s right – of Masters and Johnson – famous sex team based in St. Louis Mo. True. That is where I am from. Anyway, 3 years later, she had a massive Cerebral Hemorrhage and passed away when I was 19 years old. Complained of Headaches all the time and her blood pressure had gone up so high.

    Another potential serious side effect is idiopathic intracranial hypertension (IIH), sometimes referred to as pseudotumor cerebri (PTC), benign intracranial hypertension or pressure around the brain. IIH is a disorder that involves unexplained intracranial hypertension and elevated inner skull pressure due to higher levels of cerebrospinal fluid, a clear, colorless fluid found in the brain and spine. Symptoms of IIH can include:

    Double or blurred vision
    Ringing in ears
    Severe headaches
    Swelling of the optic nerves (papilledema)

    Now. – I always suspected this. I just read this. I am in shock. Don’t even try to tell me Copper is safe – Copper builds up in the brain and in the liver causing neurological … a great anti-inflammatory effect and have reduced the pressure quite a bit. I am not going to post this link now but I will post this one
    http://www.motleyrice.com/medical-devices/mirena-iud-lawyers?gclid=Cj0KEQjw3IieBRDl1oG0gr_PweoBEiQAwGHVwyQ54Ajl7GpmtKJ8A9PqNKNC13A_VLH4LpOyHVaRkkwaAo9t8P8HAQ

  8. Perhaps corporate political contributions should be listed on the ingredients labels of what we purchase?

  9. The Supreme Court upholds a traditional mistake in judicial history of American Railroads vs. small town public America and, like Frankenstein’s personification of a non-living entity it has raised and ratified the creation of artificial persons. But where in the perversion of history did these persons of many dead parts become a citizen?

    Ultimately we pay for what is essentially influence peddling and virtual bribery made legal every time we purchase an item from a corporation that has politicized its price structure.

  11. I was a kid about age 17 working a summer job for a company that made 105 mm shells which were promptly sent to Nam for the war effort. We figured that every third shell that we made ended up killing someone. The owner came by one day to the lunch room and a couple of us cornered him. He was a devout Mormon. We asked if what we did for money and what he did for money had any consequences when our time came to answer to Saint Peter. His reply was that his “corporate entity made the shells”. He said : “I only make a salary. “You guys are on your own with God. I am ok.”
    I don’t know how it worked out for him with the interview with Saint Peter back in 2001 when he croaked. I still don’t know what my excuse will be. I top of this I live in a death penalty state. The state kills people in my name quite often. The Sixth Commandment looms over all of our heads. No corporate veil will shield us when our time comes. No black robe will shield the Supreme Court Justices later on at their interview with Saint Peter when they have in life approved a death case. Nuff said.

  12. If there is a list of religious views acceptable in cases of corporations claiming to have one that is unconstitutional on its face, promoting religion(s).

    If there is no limit on religious views acceptable then … who knows the minds of jurists.

  13. Eschew obfuscation.

    It is a case of promoting religion. Giving a break for religious reasons. How big does the religion have to be? My daughter and I are founding a church which doesn’t allow income taxes to be collected. Tithing is forbidden to members of our church no matter to whom tithe is given.(A “tithe” is any percentage of income.) All business is done by our corporation of which we are the sole owners.
    I’ll pay excise taxes, sales taxes, but income taxes are not kosher.

  15. Mark,

    The fact that a corporation enjoys more immunity than a human is its raison d’être. It had nothing to do with majority’s decision to afford it the same rights as an individual; much as you wished it were so at the time.

    You know damn well, as Rafflaw discusses, that a corporation is not an association of people– especially when we’re talking about piercing the veil. Yet you agreed with the majority’s distortion of the definition of a corporation in Citizens United; i.e. treating said legal entity more like a partnership than a corporation for purposes of concocting it’s fairy tale holding.

    Finally, the endowment of inalienable rights from a “creator” to individuals in the state of nature is the order of operations unanimously agreed upon by the founders as set forth in your buddy Jefferson’s Declaration.

    It’s the order of operation that matters; thus it matters not if one is an atheist.

  16. I know Obama is not liberal for the uber left. But, by most objective standards he’s pretty damn liberal. He is owned by big some big corporate sectors for sure. But, there are few politicians left who are not. I’m more upset by his ineptness.

  17. Obama is creating many new conservatives. Schooling has been bad for decades. Personal hygiene is much worse in Europe, where liberals rule.

  18. nick:

    Obama is not even liberal and that incessant gunfire you hear is the conservative caucus shooting their feet off.

  19. If you’re not lockstep w/ Obama, you must be a conservative. You’re w/ or against us. The wagons are circled and they’re shooting @ everything that moves.

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