We the Corporations: How American Businesses Won Their Civil Rights

Preliminaries

• The text of the Constitution does not explicitly recognize corporations.
• Corporate personhood: A corporation has independent legal standing, with rights and duties separate from those of its members (e.g., managers, employees, and stockholders are not personally responsible for its debts).
• “Piercing the corporate veil”: when a court looks through the corporate form and bases the corporation’s rights on the rights of the members associated together within it.
• The 14th Amendment, adopted in 1868, protected the rights of newly freed slaves.
  • But, by 1912, there were 604 cases regarding the 14th Amendment. 28 cases involved African Americans, who usually lost. 312 cases involved corporations, many of which won rulings striking down laws that regulated business.
• Per a recent study, Justice Samuel Alito is the most pro-business justice in decades. Chief Justice John Roberts is the second most pro-business, and Justices Clarence Thomas, Anthony Kennedy, and Antonin Scalia were all in the top ten.

America’s Corporate Beginnings

• America was first colonized by a business corporation—the Virginia Company of London—in the early 1600s.
• The settlers were primarily business employees and investors sent to make money. 
• The Company authorized the creation of a General Assembly, the first representative assembly in America. The Company created it to entice high-minded men to immigrate.
• As more corporations created colonies, they also created charters, which the Constitution subsequently mirrored: establishing government offices, imposing limits on government authority, electing a chief executive, forming individual rights, etc.
• John Winthrop, a Massachusetts Puritan leader, created proxy voting, as many colonists could not attend assembly due to weather and distance. He urged the company he worked for to allow the voters to select representatives to vote on their behalf—it was a more convenient way of managing the corporation.
• The colonists believed that British taxes and policies attacked their rights under the charters, and this sentiment fueled the desire for Revolution.

Bank of the United States v. Deveaux (1809): Corporations may access federal court.

• The Bank of the United States, created by Alexander Hamilton, was a for-profit corporation with publicly traded stock that stabilized the nation’s finances.
  • Hamilton advocated for expansive constitutional rights for corporations.
  • Opponents like Thomas Jefferson accused the Bank of having too much political and economic power, and sought to limit corporate rights.
• In 1808, Georgia tried to tax the Bank, the Bank refused to pay, and a tax collector went into the Bank’s Savannah branch and took two boxes of silver coins.
  • The Bank filed suit in federal court. The Constitution limits federal court jurisdiction; one way to appear before federal court is if the lawsuit is between citizens of different states (known as diversity jurisdiction).
  • Was a corporation a “citizen” under this part of the Constitution?
• Attorney Horace Binney, representing the Bank, argued that the Bank might not be a citizen, but its members were (“piercing the corporate veil”). 
  • Specifically, because a corporation’s members are associations of individuals, corporations should be able to assert their rights, so the members’ residence should determine whether a corporation can sue or be sued in federal court.
• Chief Justice John Marshall held: The purpose of diversity jurisdiction was to protect people against biased state courts, so SCOTUS must grant corporations access to federal court. And because members within the corporation were the actual parties, their citizenships should control.

Dartmouth College v. Woodward (1819): Corporations are private entities—as opposed to public entities—so the government has less control over them.

• New Hampshire’s lawmakers enacted legislation to take over Dartmouth College (technically a corporation). It was unclear if Dartmouth was a public entity subject to government control or a private entity where the state had limited authority.
• Daniel Webster, on behalf of Dartmouth, argued that the college was a private entity, and the law violated the college’s contract with the state.
• Marshall found that Dartmouth the corporation was, in the eyes of the Constitution, a private entity, which had rights like an individual person.
  • Marshall also pierced the corporate veil, finding that this case was about the property rights of the corporation’s members. 
• This meant that the government doesn’t create corporations, people do, specifically to pursue private purposes, not public ones. In the decade after, the number of corporations grew at an astonishing rate.

Chief Justice Roger Taney

• In 1836, Taney succeeded Marshall. Taney thought states should have broad authority over business, and that corporations had only limited constitutional rights. 
• By embracing corporate personhood, rather than piercing the corporate veil, the Taney court imposed numerous boundaries on corporations. 
• By 1853, the Taney Court had rejected the Bank of the United States rule and replaced it with one that held that a corporation’s citizenship (for the purposes of, for example, diversity jurisdiction), is determined by the state in which the corporation is incorporated, which is still the law today.

Santa Clara County v. Southern Pacific Railroad Company (1886): This case has been manipulated to hold that corporations are entitled to the protections of the 14th Amendment.

• A railroad company challenged a California law that prohibited railroads, but not individuals, from deducting mortgages when calculating the value of land for tax purposes.
• Justice Stephen J. Field (very pro-business) was on the bench. Field supported broad constitutional protections for corporations and generally granted them rights by piercing the corporate veil.
• Ultimately, SCOTUS sided with the railroad, finding the tax invalid, but didn’t say anything about corporate rights, emphasizing that the case did not address any other constitutional issues.
• Then, J.C. Bancroft Davis, the Supreme Court reporter, published an incorrect summary of the official opinions, stating that SCOTUS had ruled that corporations were entitled to 14th Amendment protections.
• Justice Field saw an advantage. In a subsequent case, Field said that corporations were “persons,” declaring: “It was so held in Santa Clara.” 
  • This was clearly false, and he was aware of its falsity, but he resorted to deception when it came to the cause of corporate rights.
• Justices then repeatedly cited Santa Clara for deciding that corporations were entitled to certain 14th Amendment protections, though that holding was never endorsed by the decision itself.

Lochner v. New York (1905): A New York law that capped the number of hours bakers could work was unconstitutional. The ruling made it harder for states to regulate workplaces, and from 1897 – 1936, known as the Lochner era, justices struck down multiple efforts to regulate business.

Hale v. Henkel (1906): Corporations gain 4th Amendment protections.

• In the early 1900s, President Theodore Roosevelt launched an investigation into tobacco companies for potential violations of the Sherman Antitrust Act.
  • Trusts were monopolistic entities that controlled the major firms within an industry to reduce competition and control prices and profits.
  • Roosevelt wanted to curtail corporate power by expanding the federal government, calling for maximum-hour laws, workplace safety laws, and enforcement of the federal antitrust law.
• There were agreements between American Tobacco (a huge tobacco company) and licorice companies under the Tobacco Trust (American Tobacco controlled 95% of the licorice trade and raised the prices nearly 50%).
  • The question hovering around this case: Can a corporation be criminally liable for wrongdoing, and if so, does the Bill of Rights offer protection?
  • A tobacco representative, who was being interrogated, pled the 5th Amendment (protect against self-incrimination) and stated that the 4th Amendment protected him from unreasonable searches, so the government should not subpoena the company’s documents.
• SCOTUS held that corporations didn’t have a 5th Amendment right against self-incrimination and the representative would have to testify, but corporations did have a 4th Amendment right to be free from unreasonable searches and seizures, so the subpoena was unenforceable.
  • By denying corporations the right against self-incrimination, SCOTUS prohibited them a right associated with bodily autonomy. But the 4th Amendment was like a property right, and corporations already had property rights.
• In 1906, American Tobacco and over sixty affiliated companies were indicted for violating the Sherman Act.

The Beginning of Corporate Campaign Finance

• Marcus Alonzo Hanna, an Ohio businessman and senator, created the first modern political campaign of systematic advertising, which involved a lot of corporate money.
• People were worried that corporate political contributions corrupted politicians. Such campaign contributions forced the people who bought policies from the company to associate with partisan politics against their will. And, the contributions mostly helped upper management, not the regular people who purchased policies from the company.
• The New York legislature ordered an investigation into financial mismanagement in J.P. Morgan’s life insurance industry. 
  • There was a mysterious, unaccounted for $48,000 expenditure, which turned out to be a contribution to Roosevelt’s campaign fund, even though the company’s officials had sworn under penalty of perjury that they made no political contributions, and Roosevelt denied receiving corporate gifts.
• Further investigation revealed that many insurance companies contributed money to the Republican National Committee in three presidential elections.
• In 1907, Congress enacted the Tillman Act, the first significant effort to emphasize that corporations had no right to influence electoral politics.

Grosjean v. American Press Company (1936): Newspaper corporations have First Amendment rights, launching the start of corporations’ liberty rights.

• Huey Long, governor of Louisiana in 1928, proposed to raise taxes on oil, which urban newspapers claimed would lead to a spike in unemployment. 
• Outraged, Long introduced an advertising tax law, which imposed a 2% tax on advertising receipts for periodicals with a weekly circulation of 20,000 or more. This applied only to 13 urban newspapers, all except one of which opposed Long.
  • The newspapers argued that his tax was a threat to free speech and free press, especially because newspapers play a special role in democracy by disseminating information to voters.
• SCOTUS found that the tax was a deliberate tool to limit the circulation of certain information to which the public is entitled—thus, newspaper corporations have the First Amendment right of freedom.
  • SCOTUS glossed over the subject of corporations, simply stating that a corporation is a person within the meaning of the Equal Protection Clause and the Due Process Clause.

Virginia Pharmacy Board v. Virginia Citizens Consumer Council (1976): Commercial speech rights expand.

• Lynn Jordan, a consumer, realized that prices for the same dosage of a type of medicine varied wildly, but pharmacists could not advertise the prices of prescription drugs. 
  • Advertising was considered commercial speech, which the 1st Amendment did not protect. But Alan Morrison and Ralph Nader (popular advocates for limiting corporate power) wanted the court to protect commercial speech so that other professions might be more vocal.
• This regulation applied only to pharmacists, and none of the plaintiffs were pharmacists. 
  • Instead of focusing on how censorship harmed the silenced speaker, Morrison focused on harm to the audience deprived of the information.
  • Specifically, the ad ban restricted the consumer’s right to listen to a pharmacist, which should be an independent constitutional right; this was especially important because the ban injured consumers, not pharmacists.
• SCOTUS accepted this argument: The 1st Amendment protects commercial information from its source and to its recipients (the listeners’ rights theory of free speech).
• In the following years, this doctrine was mostly used by tobacco companies challenging restrictions on advertising, gaming interests challenging laws on casinos, etc.

Business reaction

• In the late 1960s and early 1970s, Ralph Nader advocated powerfully to curb corporate power, creating an era of concern for the consumer.
• Before his SCOTUS nomination, Lewis F. Powell Jr. wrote a highly influential memorandum for the Chamber of Commerce, outlining how business could defeat corporate repression. 
  • The Chamber’s politics became increasingly hostile to regulation, opposing proposals for healthcare reform, campaign finance law, consumer protection laws, and environmental legislation. 
  • In 2012, the Chamber spent $58 million on campaigns and over $135 million on lobbying. No organization, other than political parties, spent more on politics.

First National Bank of Boston v. Bellotti (1978): Corporations can influence ballot measures.

• In the late 1970s, corporations could not spend money on elections, but they could spend money on ballot measures materially affecting the corporation. People sought to amend the Massachusetts Constitution to include a graduated income tax that imposed higher rates on those who earned the most. 
• Eventually, Massachusetts law prohibited corporations from spending on any ballot measure related solely to individual taxation, and the measure placed on the ballot was explicitly limited to individuals. 
  • A bank chairman sued, arguing that it violated his bank’s right to free speech.
• Justice Powell, through some clever persuasion, held that: The case isn’t about corporations’ 1st Amendment rights. Instead, because the law restricted political speech valuable to the public, it was unconstitutional regardless of the speaker’s identity.
• Thus, corporations could finance ads on ballot measure campaigns, and as corporations, could raise enormous amounts of money to become the loudest voices.
  • In 2014, the top contributors to ballot measure campaigns were corporations.

Citizens United v. Federal Election Commission (2010): Corporations triumph.

• Citizens United is a conservative political advocacy group. It intended to broadcast a documentary on Hillary Clinton right before her 2008 primary through video-on-demand, and it had used corporate money from its general treasury to finance the project.
• The Bipartisan Campaign Reform Act prohibited corporate money to fund electioneering communications (ads about candidates on TV immediately before an election). And, SCOTUS had prohibited attempts to affect elections with general treasury funds.
• Ted Olson represented Citizens United and made very narrow arguments: He stated that the law was meant to apply to ads, not feature-length documentaries, so BCRA should not apply to the film about Clinton.
  • But then Alito asked: If Congress could prohibit an ad about a candidate because it was financed with corporate money, could Congress also prohibit the publication of an equivalent book if it were financed with corporate money?
    • The government attorney said, “Yes.”  Alito pressed:  “The government’s position is that the First Amendment allows the banning of a book if it’s published by a corporation?” (Banning books isn’t a good look, ever). 
    • After this, the justices asked multiple questions about books; Alito successfully transformed this small case into one about broad questions of speech and censorship. 
  • Roberts drafted an initial opinion, which held that a feature-length documentary financed with a trivial amount of corporate money and aired over video-on-demand wasn’t covered by BCRA—a narrow holding.
    • Kennedy, Alito, Scalia, and Thomas wanted to declare that BCRA’s corporate provisions violated the 1st Amendment, and Roberts agreed. 
    • Justice David Souter, infuriated, felt that this violated the tradition of not reaching questions that had not been briefed and argued by the parties. That is, Olson never asked SCOTUS to decide whether BCRA provisions were unconstitutional. Souter accused the majority of deciding, without following the proper procedures, hugely impactful questions of law.
• Ultimately, Kennedy held: Corporations and unions had a 1st Amendment right to make expenditures (from general treasury funds) in political elections. BCRA’s corporate spending restrictions unconstitutionally burdened this right.
  • Kennedy didn’t mention corporate personhood. Instead, he allowed the corporation to assume its members’ rights (“piercing the corporate veil”).
  • He also stated that there was no abuse that shareholders couldn’t correct.
• The majority had manipulated the case so they could decide a major constitutional issue that had not originally been briefed and argued. SCOTUS also struck down key provisions of a congressional law and overturned fairly new precedent. 
  • But it was also the culmination of corporations’ two-hundred-year struggle for constitutional rights. 
• Spending in the 2012 presidential election cycle spiked. 
  • Businesses gave over $70 million publicly, while trade associations and 501(c) organizations sent $300 million in undisclosed money.
  • There was nearly $1 billion in new political spending on federal elections traceable to Citizens United.
• Leo Strine, chief justice of the Delaware Supreme Court and corporate law expert, criticized the case (60% of the Fortune 500 companies are incorporated in Delaware).
  • Those displeased with corporate political spending can’t really do anything. Most stockholders who own stock through intermediaries, such as pension and mutual funds, may not vote in corporate elections or choose which stocks to invest in.
  • For 401(k) investments, if a person takes money out, there’s a high tax. 
  • It’s not credible to equate a corporation’s view with those of its diverse (and possibly tens of thousands of) stockholders.

Burwell v. Hobby Lobby, Inc. (2014): Corporations triumph some more with religious liberty.

• The Affordable Care Act (ACA) required large employers to include birth control in their employees’ health insurance plans. The conservative family that owns Hobby Lobby claimed that corporations were people and the ACA violated their rights under the Religious Freedom Restoration Act (RFRA) by requiring them to provide birth control.
  • Under RFRA, the federal government cannot interfere with a “person’s” exercise of religion.
  • Under the Dictionary Act, which defines terms in federal statutes, the word “person” includes corporations, companies, firms, etc., and individuals.
• Alito wrote the 5-4 opinion, holding: Hobby Lobby, although a for-profit company, had religious liberty rights under RFRA and was exempt from the birth control requirement; privately-held corporations have religious freedom.
  • Alito pierced the corporate veil by stating that a corporation is a form of organization used by human members to achieve desired ends. When rights are extended to corporations, the purpose is to protect those members’ rights.
  • Note: This case grants privately-held corporations religious freedom under a federal statute (not the First Amendment).
• After Hobby Lobby, a number of businesses asserted a religious right to discriminate against same-sex couples.
• Strine felt that, by allowing Hobby Lobby to claim its members’ religious rights, SCOTUS abandoned the principles of corporate personhood.

• An extensive history on the creation of the first corporation in Rome, and how corporations evolved into their current form
• Details on living conditions in the U.S. colonial era and how they affected the rise and dependence on corporations and their subsequent charters
• Background on how the 1st Amendment, not vibrantly protected for many years, came to be at the forefront of civil rights issues for individuals and corporations
• The effect of Ralph Nader and the Powell Memorandum on American law and politics
• Information on how SCOTUS justices dealt with cases and wrote opinions, the inner workings of the elite Supreme Court bar, and how being able to afford the lucrative pay of the best attorneys has expanded corporations’ access to more rights
• A fascinating retelling of Citizens United, not only from a legal perspective, but also from the perspectives of David Bossie, Jim Bopp, and Ted Olson
• The beginnings of PACs and Super PACs
• An extremely helpful timeline of corporations and their drastic evolution