Relevant and even prescient commentary on news, politics and the economy.

Can the SEC prohibit publicly-traded corporations from making political expenditures (and, eventually, direct campaign contributions) unless the corporation first gets approval from a majority of shareholders?

It’s already become something of a favorite parlor game among liberals, especially among liberal law geeks, to speculate about when the Supreme Court will strike down state and federal statutes that prohibit corporations from making direct campaign contributions to candidates and political parties. In Citizens United, the court killed statutory bars to corporate and union political so-called-independent expenditures, and, in McCutcheon, removed aggregate limits to human beings’ direct contributions to candidates and parties.  But, for now, state and federal laws prohibiting direct corporate and union contributions–some of these laws dating back to the early part of the last century, as I understand it–remain intact.

To the surprise of some (but not me), the Court refused last week to hear a challenge by an incorporated nonprofit political organization.  The most obvious likely reason that they declined is that, as a public relations matter, it simply is too soon after McCutcheon for them to take this step in what everyone by now recognizes as a juggernaut.

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What the Supreme Court’s refusal today to agree to decide whether to strike down the federal statute that bars corporations from making contributions directly to candidates and political parties might suggest about the outcome of Hobby Lobby

When donors furnish widely distributed support within all applicable base limits, all members of the party or supporters of the cause may benefit, and the leaders of the party or cause may feel particular gratitude. That grati­tude stems from the basic nature of the party system, in which party members join together to further common political beliefs, and citizens can choose to support a party because they share some, most, or all of those beliefs. … To recast such shared interest, standing alone, as an opportunity for quid pro quo corruption would dramatically expand government regulation of the politi­cal process.

– John Roberts, McCutcheon v. FEC, Apr. 2, 2014

My reaction when I read that last: OMG! You mean it’s finally occurred to Roberts and Kennedy that CEOs of publicly-held corporations don’t actually necessarily share the same political views as all those other members of these “associations of citizens” from whom the CEO, er, the corporation, derives its First Amendment speech rights?  (And religious rights, too, although that’s another case, isn’t it?)

Actually, that was a comment I posted to a Slate article last week about McCutcheon that included the above quote from that opinion.  The religious-rights cases I had in mind were, of course, the Hobby Lobby Stores v. Sebelius and Conestoga Wood Specialties v. Sebelius, the for-profit-corporation ACA-contraceptive-mandate cases, which were argued at the court on Mar. 25.

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Turns out Alito isn’t the only justice who conflates the Securities Exchange Act with state-law corporate-structure statutes. Roberts does, too! (Unless, that is, racial-minority-owned corporations are denied access to restaurants and hotels when traveling. Or something.)

Roberts suggested that he believes Hobby Lobby and Conestoga Wood can bring forth claims of religious freedom, saying courts have held that “corporations can bring racial discrimination claims as corporations” and that “those cases involve construction of the term ‘person.'”

John Roberts Offers Conservatives A Way Out Of Birth Control Dilemma, Sahil Kapur, TPM, yesterday

Late Tuesday afternoon, after I’d read two or three early reports on the argument at the Supreme Court that morning in the Hobby Lobby and Conestoga Wood cases, I posted a piece here titled:

“My early take on the ACA-contraception-mandate-case argument: Alito conflates the Securities Exchange Act with state-law corporate-structure statutes (yikes); Kennedy really, really wants to give corporations the full complement of human constitutional rights; and Scalia really, really needs to limit this ruling to an interpretation of the Religious Freedom Restoration Act.”

That post harked back to one I’d posted the day before about what to look for in the upcoming argument.  What to look for, I said? Mainly whether “the court will back away somewhat from its Citizens United claim that corporate CEOs can, in the name of the corporation, access the constitutional rights of citizen-association members.”  I predicted that it would–that the Court “will find some way to segregate speech rights from other constitutional rights, and will rule against the plaintiffs in these two cases.” I wrote:

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My early take on the ACA-contraception-mandate-case argument: Alito conflates the Securities Exchange Act with state-law corporate-structure statutes (yikes); Kennedy really, really wants to give corporations the full complement of human constitutional rights; and Scalia really, really needs to limit this ruling to an interpretation of the Religious Freedom Restoration Act.

When [U.S. Solicitor General Donald] Verrilli said the Court has never found a right to exercise religion for corporations, Alito wondered if there was something wrong with the corporate form that it would not be accorded religion freedom rights.  Did Verrilli agree, Alito said, with a lower court’s view that the only reason for a corporation to exist was to “maximize profits?”  Verrilli said no, but Alito had made his point.

Argument recap: One hearing, two dramas, Lyle Denniston , SCOTUSblog, reporting on this morning’s Supreme court argument in Sebelius v. Hobby Lobby Stores and Conestoga Wood Specialties v. Sebelius

That paragraph was one of two in Denniston’s recap that dismayed me, albeit only momentarily. Unquestionably, a threshold issue in these cases is whether or not the proverbial corporate veil–a shorthand legal term that conveys that the very purpose of the state-created corporate structure is a severance of the rights and liabilities of corporations from those of its shareholders–can be “pierced” in order to allow the shareholders in these two closely-held corporations to confer to the corporation their personal legal right of religious exercise under the First Amendment or under a federal statute called the Religious Freedom Restoration Act, the latter which expressly uses the term “person” to identify its beneficiaries.  I addressed this in detail in this post here yesterday.

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What to look for in tomorrow’s Supreme Court arguments in the Hobby Lobby/Conestoga Wood ACA-contraception-coverage cases

[The] conception of corporate personhood has profound and beneficial economic consequences. It means that the obligations the law imposes on the corporation, such as liability for harms caused by the firm’s operations, are not generally extended to the shareholders. Limited liability protects the owners’ personal assets, which ordinarily can’t be taken to pay the debts of the corporation. This creates incentives for investment, promotes entrepreneurial activity, and encourages corporate managers to take the risks necessary for growth and innovation. That’s why the Supreme Court, in business cases, has held that “incorporation’s basic purpose is to create a legally distinct 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.”

In recent constitutional law cases, however, the justices seem to have forgotten this basic principle of corporate law. In Citizens United, the court effectively held that corporations enjoyed the same free speech rights as ordinary individuals. Contrary to popular belief, however, the court did not base that holding on the idea that corporations are people. Instead, the justices said that corporations are “associations of citizens”—and those citizens who make up the corporation have constitutional rights.

Yes, Corporations Are People. And that’s why Hobby Lobby should lose at the Supreme Court., Adam Winkler, Slate, Mar. 17

Among the inundation of articles about Sebelius v. Hobby Lobby Stores, Inc.  and Conestoga Wood Specialties Corp. v. Sebelius in the months since the Supreme Court agreed to hear these cases–one, Hobby Lobby, in which the corporation won in the lower appellate court, the other, Conestoga Wood, in which the corporation lost–there are very among the ones I’ve read that make what I think is the critical point about these cases: the critical interplay between the Citizens United opinion and these two cases, and the reason why. It’s a point I made (or tried to) in a post on AB last fall, but Winkler is a constitutional law prof. at UCLA and, according to his mini-bio at the end of his slate article, he’s writing a book about the constitutional rights of corporations, so I was happy to read the paragraphs I quote above in an article published on a mainstream-media website.

For all the jokes about corporations attending church or being bar mitzvahed–yes, I plead guilty, but writing that post was so much fun!–the fact is that the corporations in those cases claim not that they are people but instead that they derive their First Amendment right to the free exercise of religion not from the state’s grant of corporate status but rather from the constitutional rights of its shareholders.  This argument–that corporations’ constitutional rights are derivative of their shareholders’ constitutional rights and therefore are not limited to, say, protecting the property that the corporation itself owns or to the ability to enter into business contracts on behalf of itself–comes courtesy of Citizens United, pure and simple.  Hobby Lobby and Conestoga Wood, unlike Citizens United, are for-profit corporations.  They both also are closely held, rather than publicly traded, corporations, and in both cases, the shareholders (members of a single family, in each case) are parties to the lawsuit along with the corporations themselves.

Mitt Romney’s ill-fated pronouncement that corporations are people, my friend, was funny, but it actually was an inarticulate adoption of Citizens United’s actual declaration: that corporations are “associations of citizens” whose members, as human individuals, have the familiar panoply of constitutional rights. One obvious problem with this derivative-constitutional-rights thing, though–albeit a problem that the Citizens United majority didn’t acknowledge–is that the individual shareholders of at least publicly-traded corporations don’t all hold the same political views.  Some shareholders are shareholders by virtue of participation in  large mutual funds, and others by dint of ownership in pension funds.  Some of them even in public-union pension funds!

Then again, at a recent oral argument at the Court in a case that, although it’s not an ACA  or religion case, I believe has implications for these two cases, Samuel Alito suggested that public unions are unconstitutional as a violation of … something. (Of his political views, I think.) If he prevails on this when that case, Harris v. Quinn, is decided, that would eliminate the problem of Democrats who are contributors to public union pension funds having Republican CEOs of mega-corporations serve as proxies to derivatively exercise the pension-fund contributor’s First Amendment speech rights. But the fact will remain that Democrats–who, contrary to Fox News reports, are people, my friend–have been known to own stock in large corporations, directly or through mutual funds or pension funds or some such.*

A seminal part of Citizens United, in other words, is its conflation of the CEO’s constitutional rights with those of the corporation’s–er, association’s–other citizens. The corporation itself may not be a person, my friend, but it derives its First Amendment rights from one (only one) of its citizen members.  Or, at least, only that one member serves as proxy on the derivative rights. (If the CEO is not a citizen, he or she can still serve as proxy for human members who are.) But what the plaintiffs are arguing in Hobby Lobby and Conestoga Wood is that these corporations derive their constitutional rights from all of these associations’ members: the family members who comprise the entire membership of this association of people.

The title of the Winkler article says that corporations are people.  By which he means, they are indeed associations of citizens.  Associations of citizens (and, probably, non-citizens) that, for purposes of healthcare insurance coverage, include the corporation’s employees. What Citizens United means in saying that corporations are associations of citizens is that the shareholders comprise an association of citizens whose proxy, for constitutional-rights purposes, is (apparently) its CEO.  But Citizens United did not address whether this association of citizens is necessarily limited to shareholders.  If corporations have constitutional rights derived from its individual members because they are associations of citizens, and if the association of citizens includes, by definition, employees as well as shareholders (no green-card holders or foreign shareholders allowed!)–and under Citizens United, there is no reason why it shouldn’t–then the act of incorporation itself confers derivatively to the corporation the constitutional rights of its employees.  Who have the constitutional right to have the same benefits of the ACA as similarly situated employees of other corporations.

Okay, my eve-of-oral-argument hunch is that the court will back away somewhat from its Citizens United claim that corporate CEOs can, in the name of the corporation, access the constitutional rights of citizen-association members.  The Court will find some way to segregate speech rights from other constitutional rights, and will rule against the plaintiffs in these two cases.  That’s because, well, apparently a slew of other associations of citizens–e.g., the business community at large–are making it known, including in amicus briefs to the court, that they’re downright scared to death of this end-to-the-corporate-veil/corporations-are-groups-of-citizens (who can be held individually responsible for their for-profit association’s liabilities) thing.

Or maybe they’re just scared to death at the thought of ExxonMobil or Amazon marauding through their towns bearing AK-47s in exercise of their derivative Second Amendment rights. It could be time for some for-profit associations of citizens to pray.


*Paragraph edited after publication to correct a cut-and-paste error and to add the name of the referenced Supreme Court case, Harris v. Quinn.

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The Kosher Butcher Who Was Not a Person Until He Incorporated Himself*

Religious liberty, [Tenth Circuit Court of Appeals] Judge Tymkovich wrote, cannot turn on whether money changes hands. “Would an incorporated kosher butcher really have no claim to challenge a regulation mandating non-kosher butchering practices?” he asked.

Court Confronts Religious Rights of Corporations, Adam Liptak, New York Times, today

Why, yes, Judge Tymkovich, of course an incorporated kosher butcher really would have a claim to challenge a regulation mandating non-kosher butchering practices.  But that’s because the kosher butcher also is an actual human and was one even before he incorporated himself, er, his butcher shop.

The butcher would have a claim as, um, the butcher–Ira Greenberg, human being, exercising his religious right to use kosher-butchering practices to kill his own food, and his religious right to obtain kosher meat in order to limit his meat eating to kosher.  He also would have a due process right to practice his trade and make a living, unencumbered by an utterly arbitrary and irrational prohibition (or, to use legal formality, a prohibition that has no legitimate governmental interest). And Ira Greenberg Kosher Meats, Inc., would have a similar due process claim, a constitutional claim that, unlike campaign-contribution claims or free-exercise-of-religion claims, could be invoked legitimately by a corporation, because it, unlike political contributions and religious practice, actually would concern the right to operate as the sort of business that it is.

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