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. Maybe JT needs to incentivize retrieval, a buck for each save. That will help even the playing field.

  2. You fit the profile of a low priority retrieval. You are not liberal.

  3. Squeeky, There is a pecking order in getting your comments retrieved. Not by all, but by some.

  5. I am waiting to see a corporation invoke the 4th and 5th Amendments. They may even claim it is against their religion to pay taxes. Has anyone even considered this?

  6. @Bob

    That the HobbyLobby case will not provide a viable “veil piercing’ justification. Corporations typically take on “causes ” and there has been no “piercing” increase that I am aware of. It would be a hard sell to a jury, if the argument survived one of those limine thingies, or a relevancy objection.

    Further, the “piercing” argument fails at the most theoretical level. The reason to pierce in the first place is because there is an “abnormality ” at the corporate level. For example, books are not kept or expenditures not recorded, or basic corporate formalities not met. Or yearly franchise fees not paid. However, SCOTUS has clearly placed HobbyLobbyish behavior within the gambit of acceptable corporate behavior. If anything, this makes piercing a more difficult endeavor.

    45 legal professors whatever just made maroons out of themselves presumably for free.IMHO

    Squeeky Fromm
    Girl Reporter

  8. Squeeky,

    Without the hypothetical, what exactly are you saying or asking?

  9. @Bob

    Well, if you will notice above at 5:17 pm I responded to messpoo that it depended on the state, and on the nature of the claim. Now that YOU havd confirmed it, perhaps he will believe it.

    You have also confirmed the possibility of a separate action of “veil piercing ” to collect on a judgement against a corporate entity. As a separate action, the shareholder / owner would not have had to be named in the original complaint. (In fact, I am not sure a “veil piercing” action could be filed or maintained without an underlying judgement.) Again, something I previously related to messpoo.

    I think where he went off the rails was to assume ” driver negligence ” wherein the brief hypothetical was clearly based on a “judgement ” and then subsequent collection action. That was not a totally unwarranted assumption on his part, but when I flatly told him it was a separate action, he should have let loose and reexamined his response. Instead, he doubled down even after I pointed out that he had mistakenly assumed driver negligence. Why??? Who knows.

    Anyway, thanks for the link! I am still awaiting a substantive response or argument as opposed to quibbling about the hypothetical.

    Squeeky Fromm
    Girl Reporter

  10. mespo727272

    Thanks, rafflaw for some sanity on a crazy topic opened up by Citizens United. People are like corporations as termites are like dunghills. We make ‘em; we aren’t them and sometimes they stink.
    =======================
    Exactly.

    The dementia caused by propaganda spreads and it could be the final plague.

  11. I concur that the case for “corporations are people” is a bit of a stretch. So, I have a solution: Let’s just say since they are not people, and we all agree that they cannot vote, then they cannot be taxed. No taxation without representation. There. That solves a whole bunch of issues, doesn’t it.
    AC Falk

  12. Squeeky: “Obviously, Mary ‘s attorney did not think he needed to name Bob since he was operating under the mistaken idea that he could proceed against Bob under a separate action of “piercing the veil.””

    Not all states permit the pleading of piercing the corporate veil as a separate cause of action.

    “The appellants Fiber Optek Interconnect Corp. (hereinafter Fiber Optek) and Michael S. Pascazi correctly contend that New York does not recognize a separate cause of action to pierce the corporate veil. Accordingly, those branches of the defendant’s motion which were to dismiss the plaintiff’s fifth cause of action insofar as asserted against Fiber Optek and Pascazi should have been granted (see Old Republic Natl. Tit. Ins. Co. v Moskowitz, 297 AD2d 724, 725 [2002]; see also Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141 [1993]). Fiber Consultants, Inc. v Fiber Optek Interconnect Corp. 2008 NY Slip Op 09026 [56 AD3d 605]
    November 18, 2008

    This also the rule in Texas, Michigan, and Connecticut. … “But in jurisdictions where the concept is seen as a separate claim, plaintiffs may file a complaint against a corporation and its shareholders, officers, directors, and parent or related entities in one action. In addition, plaintiffs may file a separate suit against individuals to collect a judgment against a corporation.”

    http://apps.americanbar.org/litigation/committees/businesstorts/articles/summer2013-0713-trends-in-jurisprudence-piercing-the-corporate-veil.html

    Nonetheless, your case would have been dismissed in Texas for failing to state a cause of action.

    Furthermore, every objection raised by Mespo was correct; your hypothetical was sloppy.

    Other than that, your hypothetical fails to address the issues raised by negative implication in Hobby Lobby.

  13. Corporations now have bought and purchased all areas of government. That means they get the best of all worlds.

    They are a person when that is to their advantage and they are a faceless corporate entity when that is to their advantage.

  14. @Annie

    No, I seem them more as mentally lazy than delusional. They thought they could just bluff and bluster their way through without doing the heavy – duty legal thinking like I did.

    Squeeky Fromm
    Girl Reporter

  16. @JamesK

    Well, where I come from (Texas) when the other side skedaddles out of town, or merely states CONCLUSIONS, then I win the argument. To date, I have not seen any actual argument presented, particularly countering my “SCOTUS normalizing this as acceptable corporate behavior” point. Similarly, my point about howcum we didn ‘ t hear this stuff about left leaning corp behavior.

    Poor messpoo couldn’t even read the hypothetical without going off on a tangent. Sooo, as far as I am concerned, I have beat y ‘all like carpets over a clothesline on this one!!!

    Squeeky Fromm
    Girl Reporter

  18. Nick S.:

    Hey, I’ve also been looking for an opportunity to say, “I unfriend you,” but somebody told me that I have to have one first.

  19. I am dismayed, my hero MikeA, listens to Geico commercials. Our heroes will always break our hearts.

  20. Great topic, raff.

    And Bob Esq.’s legal reasoning is accurate and precise. Therefore, rather than repeat what Bob said, I will only note that my reaction to Justice Alito’s sophisms is best expressed by the frustrated lady in the Geico ad when she declares, “That’s not how it works! That’s not how any of this works!”

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