April 18th, 2014
On March 25, 2014, the Supreme Court of the United States heard arguments in two cases—Sebelius v. Hobby Lobby Stores, Inc. and Conestoga Wood Specialties v. Sebelius—challenging the validity of the Affordable Care Act’s (“ACA”) mandate that employer-sponsored health plans cover all FDA-approved contraceptives (the “Contraceptive Mandate”). In each case, closely held plaintiff corporations contend that the Contraceptive Mandate illegally infringed upon the corporations’ freedom to exercise religion.
The cases attracted attention because the Supreme Court had agreed to hear yet another challenge to the validity of the ACA’s provisions, but it has been less noticed that both cases, and others like them, implicate a fundamental question that the Supreme Court has never decided; on what basis, if any, is a corporation a “person” entitled to assert the constitutional and statutory rights of natural persons. Without denying the significance of the challenge to the ACA’s Contraceptive Mandate, the Supreme Court’s failure to define a principled corporate person theory has had—and continues to have—important and pervasive implications for the American legal system beyond the present cases.
Typically, legal concepts creating and regulating societal rights and obligations, like the corporate personhood concept, come into being incrementally in an extended evolutionary process. That evolutionary process is characterized by a dialectic give and take in which the principles justifying—or precluding—application of the concept in a variety of different factual scenarios are gradually clarified, defined and developed through a series of judicial decisions. The problem confronting the Supreme Court as it considers the Hobby Lobby and Conestoga Wood cases is that the concept of corporate personhood did not develop gradually or in an evolutionary process in which the meaning of the concept was developed and defined. Instead, the concept of the corporate person was imposed on the law ipse dixit, that is, by judicial fiat and without definition, in a series of late nineteenth century Supreme Court cases.
Further, the opinions asserting that the existence of the corporate person had been definitively established all were written by the same Supreme Court Justice, Stephen J. Field, who, if not beholden to railroad interests, was certainly a devoted friend of the railroads. Moreover, Field had no occasion to explain the reasons that corporations possessed the rights of natural persons because, in every one of those cases, the Supreme Court held that, person or not, the corporation had no viable claim. As a result, the concept of the corporate person lacks a principled definition and, therefore, seems to expand, or contract, depending on the circumstances and on the personal predilections of the speaker.
Individuals concerned with health policy would be well-advised to follow Hobby Lobby and Conestoga Wood closely because the question whether an entity—corporate or natural—is a “person” able to claim protected legal rights cannot be easily cabined to corporations or to the ACA. It happens that the plaintiffs in Hobby Lobby and Conestoga Wood are corporations, but the next case to implicate the meaning of legal “personhood” could just as easily involve a different type of entity. In addition, legal principles are rarely confined to discrete pigeon holes because the law seeks to identify unifying principles that can be applied in a variety of analogous contexts. Thus, the resolution of the legal issue in Hobby Lobby and Conestoga Wood will not necessarily be limited to the meaning of corporate personhood. Rather, the more fundamental question the cases raise is what attributes entitle an entity—whether artificial or natural—to claim the status of a legal person protected by the Constitution and statutes of the United States.
The answer to that broader question, should the Supreme Court choose to address it, has health policy implications well beyond the Affordable Care Act. For example, the outcome of Roe v. Wade—which held that women had a constitutionally protected right to abortion—turned to a significant extent on whether—or when—an embryo or fetus is a legal person with a right to life which the state had a legitimate interest in protecting. Thus, a ruling in Hobby Lobby and Conestoga Wood establishing a principled definition of legal personhood could either reinforce, or undermine, the holding of cases such as Roe that turn, at least in part, on whether an entity is a legal person.
The corporate person issue is central in both Conestoga Wood and Hobby Lobby for two reasons: First, in each case, the plaintiffs’ allege that the Contraceptive Mandate violates the Religious Freedom Restoration Act (“RFRA”). RFRA provides that the “Government shall not substantially burden a person’s exercise of religion”. Thus, unless the corporation is a‘person’, the statute provides no protection. Second, in each case, the plaintiffs also alleged that the Contraceptive Mandate violated the Free Exercise Clause of the First Amendment to the Constitution. The First Amendment’s Free Exercise Clause provides that “Congress shall make no law . . . prohibiting the free exercise [of religion].” The Free Exercise Clause clearly secures the rights of natural persons, but the government argued that the Clause affords no protection to for-profit corporate entities.
To be sure, the Supreme Court on many occasions has held that both for-profit and non-profit corporations may assert constitutional and other rights, including rights protected by the First Amendment. Recently, for example, in Citizens United v. Federal Election Commission the Supreme Court held that a for-profit corporation’s right to engage in political speech is protected by the First Amendment. Yet, although corporations have been treated as legal persons capable of exercising at least some of the rights of natural persons since Colonial times (See Note 1) and despite urban legends to the contrary (See Note 2), the Supreme Court has never provided a rationale that explains why, or when, a corporation is allowed to assert the rights of a natural person.
The earliest case—which even the Supreme Court frequently cites as having resolved the meaning of the corporate person, County of Santa Clara v. Southern Pacific Railroad Company—expressly refused to decide the corporate person question. Moreover, the Court refused to decide the question despite the vigorous objection of Associate Justice Stephen J. Field, who decried the Court’s failure to do “its duty [and] decide the important constitutional question involved. . . . ” Nevertheless, the Supreme Court Reporter, despite having been told in writing by the Chief Justice that the Court had “avoided meeting the constitutional [corporate person] question in the decision,” (C. Peter Magrath, Morrison R. Waite: The Triumph of Character 223-24 (MacMillan 1963)), appended to the official report of the decision an erroneous headnote asserting that the Court, in fact, had decided that corporations were persons.
Despite the significance some people later accorded the erroneous headnote, it is blackletter law that a headnote is not the work of the Court, does not state the Court’s decision, and “is simply the work of the reporter, giv[ing] his understanding of the decision . . . for the convenience of the [legal] profession” and, therefore, is entitled to no precedential value whatsoever. (See Note 3) Any doubt that the issue had not been decided should have been eliminated by the Supreme Court’s decision less than two years later in The California Railroad Tax Cases (127 U.S. 1 (1888)), which characterized the issues in that case as “substantially similar to Santa Clara Co. v. Railroad Co., reported in 118 U.S. 394” and expressed relief that, as in Santa Clara, it was unnecessary to decide the constitutional corporate person question. Astoundingly, the Supreme Court Reporter’s headnotes in The California Railroad Tax Cases expressly stated that the cases “all involved . . . the same constitutional questions . . . as those which were argued (and not decided) in Santa Clara County v. Southern Pacific Railroad Company, 118 U.S. 394.”
Despite that four of the Supreme Court’s justices were on record that Santa Clara had not decided the corporate person question, Justice Field—a longtime ally of railroad interests—wrote seven opinions for the Court in the roughly ten and one-half years between the May 10, 1886 Santa Clara decision and his retirement from the Court on December 1, 1897 asserting that the existence of the corporate person had been definitively settled. In all seven opinions, the corporate plaintiffs are denied relief because the Supreme Court found that none of their rights had been violated, but Field, nonetheless, gratuitously asserts that the corporations are persons entitled to constitutional protection. Four of the decisions assert that the existence of the corporate person was confirmed in Santa Clara; the other three decisions make no reference to Santa Clara, merely asserting that the existence of the constitutional corporate person is settled law. Significantly, however, none of Field’s Supreme Court opinions addressed the important questions of what it means to be a corporate person and why a corporation possesses at least some rights of a natural person.
As he neared retirement, Field’s debilitated physical condition prevented active involvement in the work of the Court and Field did not write on the corporate person question after 1892, but the corporate person drumbeat continued. Four additional corporate person cases came before the Court between 1896 and early 1898 in Field’s last years on the Court. All four decisions assert that the existence of the constitutional corporate person question was settled by Santa Clara as evidenced by the web of conclusory, cross-corroborating assertions about the existence of the corporate person in the seven opinions written by Justice Field.
Remarkably, three of the decisions were written by Justice John Marshall Harlan, who had written the Santa Clara opinion expressly refusing to reach the question. The fourth decision was written by Justice David Brewer who, perhaps coincidentally, perhaps not, was the nephew of Justice Field. Unlike the decisions Field wrote, all of which rendered judgments denying the corporate plaintiff relief, the Harlan-Brewer decisions both asserted that corporations were constitutionally protected ‘persons’, found that the corporations’ rights had been violated and awarded judgments in favor of the corporations. As was the case with Field’s opinions, none of the Harlan-Brewer decisions explained or defined the meaning or scope of corporate personhood, seemingly assuming that it was self-evident.
Not much has changed with respect to the corporate person since the late nineteenth century. The Supreme Court continues to recognize the existence of the constitutional corporate person, but still has never explained the reasons that corporations are able to exercise rights normally associated with natural persons. That failure had led to confusion, uncertainty and conflicting rulings by courts, especially in cases, like the ACA challenges, that raise controversial issues and affect fundamental personal values and beliefs.
The Conestoga Wood and Hobby Lobby ACA challenges are paradigms of the uncertainty and problems caused by the Court’s ad hoc approach to corporate personhood. On virtually identical facts and arguments, the Third Circuit in Conestoga Wood held that a for-profit corporation had no protected Free Exercise rights, but the Tenth Circuit in Hobby Lobby held that such a corporation was, indeed, a “person” with protected rights. Moreover, the two courts were deeply divided on the meaning of corporate personhood. Indeed, eleven sitting circuit judges produced a total of eight separate opinions between them.
This post first reviews the conflicting approaches taken by the Third and Tenth Circuits. The implications of the Supreme Court’s refusal to adopt a principled approach to corporate personhood are outlined briefly. Finally, this article argues that it is long past time for the Court to end the confusion and adopt a principled theory of corporate personhood.
The Conestoga Wood and Hobby Lobby ACA Challenges
The ACA requires employer-sponsored health insurance plans “to provide coverage without cost-sharing for preventative care and screening for women in accordance with guidelines created by the Health Resources and Services Administration (“HRSA”), a sub-agency of [the Department of Health and Human Services (“HHS”)].” HRSA, however, delegated responsibility for development of the guidelines to the Institute of Medicine (“IOM”), a private, non-governmental entity that “works outside of government to provide unbiased and authoritative advice to decision makers and the public.” HHS, the Department of the Treasury and the Department of Labor ultimately promulgated regulations incorporating the IOM’s recommendation that health plans cover “[a]ll Food and Drug Administration approved contraceptive methods . . . for women with reproductive capacity.” In total, the regulations required coverage of twenty different contraceptive medications and devices.
Citing deeply held religious beliefs, the Hobby Lobby and Conestoga Wood plaintiffs objected to providing coverage for two “emergency contraception” drugs, commonly known as the “morning-after” pills. According to the plaintiffs, such drugs are abortifacients that take human life in contravention of their religious beliefs by preventing implantation in the uterus “of an already conceived but not yet attached human embryo.” For the same reason, the Hobby Lobby plaintiffs objected to covering two types of intrauterine devices. None of the plaintiffs objected to providing coverage for any of the sixteen remaining contraceptives.
The Third Circuit’s Conestoga Wood Decision
In the Third Circuit, the corporate plaintiff argued that it could assert Free Exercise Rights in its own name. Alternatively, the corporate plaintiff argued that it could assert the Free Exercise rights of individual owners on a “passed through” theory. The individual owner-plaintiffs also asserted claims that their personal Free Exercise rights were impermissibly burdened by the Contraceptive Mandate.
Characterizing the issue as a “threshold” question, the Third Circuit rejected the corporate plaintiff’s claim that “a for-profit, secular corporation, can exercise religion.” Despite recognizing that the Supreme Court repeatedly has held that the application of other First Amendment rights may not [be] suppress[ed] on the basis of . . . corporate identity,” the Third Circuit nonetheless stated that: “[c]orporate identity has been determinative in denying corporations certain Constitutional rights . . . .”
Emphasizing its perception of the distinction between for-profit corporations and non-profit corporations, the Third Circuit concluded that “we simply cannot understand how a for-profit, secular corporation” that was created to make money can exercise religion apart from its owners. Because it had concluded that “Conestoga cannot exercise religion,” the Third Circuit declined to “decide whether such a corporation is a ‘person’ protected by RFRA.”
The Third Circuit also rejected the corporate plaintiff’s argument that the corporation could assert the rights of its individual owners on a “passed through” theory because it rested “on erroneous assumptions regarding the very nature of the corporate form.” The Third Circuit held that allowing a corporation to assert the rights of its owners “fails to acknowledge that, by incorporating their business, the [owners] themselves created a distinct legal entity that has legally distinct rights and responsibilities from . . . the owners of the corporation.”
The Conestoga Wood dissent rejects the majority’s premise “that Conestoga lacks any right to the free exercise of religion . . . because the Constitution nowhere makes the ‘for-profit versus non-profit’ distinction invented by the government and the language and logic of Supreme Court jurisprudence justify recognizing for-profit corporations like Conestoga are entitled to religious liberty.” Further, the dissent also argues that, while religious convictions may be a matter of individual belief and experience, religious observance is exercised collectively, noting that “there is nothing about the ‘nature, history, and purpose’ of religious exercise that limits it to individuals. Quite the opposite; believers have from time immemorial sought strength in numbers.”
The dissent adopts the plaintiff’s “passed through” approach, arguing that a corporation has the right to Free Exercise for the same reason that a corporation has Free Speech rights: “because the people who form and operate [corporations] do, and we are concerned in this case with people even when they operate through the particular form of association called a corporation.” Thus, in the dissent’s view, failure to afford the corporate entity Free Exercise protection is, for all practical purposes, a denial of the Free Exercise rights of the corporation’s owners because it is they who must direct the corporation to comply with the Contraceptive Mandate.
The Tenth Circuit’s Hobby Lobby Decision
In contrast to the Third Circuit, the Tenth Circuit held that the Hobby Lobby corporate plaintiffs could assert Free Exercise challenges to the ACA under the RFRA. Because “RFRA provides . . . that Government shall not substantially burden a person’s exercise of religion”, the Tenth Circuit first addressed the question “whether [the corporate plaintiffs] are ‘persons’ exercising religion for purposes of RFRA.” The Tenth Circuit held that the “first resource in determining what Congress meant by ‘person’ in RFRA is the Dictionary Act”. According to the Dictionary Act, “[i]n determining the meaning of any Act of Congress, unless the context indicates otherwise . . . the word ‘person’ . . . include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.” The Tenth Circuit then held that “we could end the matter here since the plain language of the [RFRA’s] text encompasses ‘corporations’ including ones like Hobby Lobby . . . .”
The Tenth Circuit continued, stating “courts have recognized a right to associate for the purpose of engaging in those activities protected by the First Amendment—speech, assembly, petition for the redress of grievance, and the exercise of religion . . . as an indispensable means of preserving other individual liberties.” Noting that the Supreme Court in Citizens United had recognized that the First Amendment protected the right of for-profit corporations to express themselves for political purposes, the Tenth Circuit could “see no reason why the Supreme Court would recognize protection for corporation’s political expression, but not its religious expression.”
The principal dissent rejected the majority’s conclusion that corporate plaintiffs could allege RFRA and Free Exercise claims, asserting that it rested on the novel characterization of the plaintiff for-profit corporations as “faith-based companies and businesses with a religious mission.” According to the dissent, “neither the United States Supreme Court nor any federal circuit court, until now, has ever used the phrase ‘faith-based company’, let alone recognized such a distinct legal category of for-profit corporations.” The dissent argued that it was “simply unreasonable to allow the individual plaintiffs in this case to benefit, in terms of tax and personal liability, from the corporate/individual distinction, but to ignore that distinction when it comes to asserting claims under RFRA.”
As the ACA challenges illustrate, because there is no definition of what it means to be a legal person and no specification of the attributes of the corporation which have legal significance to the determination of what, if any, rights a corporation may assert, advocates and judges have used the corporate person concept in the same fashion that Lewis Carroll’s Humpty Dumpty used words—to “mean just what [they] choose [them] to mean—neither more nor less.” Consequently, and especially when the issues implicate vigorously contested political issues touching on important personal and societal values like Free Speech, Free Exercise, Freedom of Association and access to affordable health care, the absence of a settled, principled understanding of the meaning of corporate personhood results in confusion and inconsistent results. Until the Supreme Court provides a principled basis explaining why and when corporations are to be protected as legal persons that courts can apply to determine what, if any, rights corporations may assert and in what circumstances, the confusion, inconsistencies and divisiveness that characterizing Conestoga Wood and Hobby Lobby will continue to be the rule.
In order to define the meaning of corporate personhood, the Court must recognize that there are several possible theories of corporate personhood, that all theories ultimately are metaphors that analogize corporations to natural persons based on historical and policy considerations and that case law utilizes all three metaphors from time-to-time and sometimes has used more than one metaphor in the same case. For example, in Conestoga Wood, the Third Circuit starts its analysis with the assertion that States “are [not] free to define the rights of their creatures [i.e. corporations] without constitutional limit” because “[o]therwise corporations could be denied the protection of all constitutional guarantees, including due process and the equal protection of the laws.” The Third Circuit’s caveat is based on the assumption that corporate existence is imbued with some inherent, inalienable rights not granted by the State when it created the corporation. The difficulty is that the basis for that assertion is not immediately obvious and the Third Circuit fails to articulate any explanation of the source or basis for such corporate rights. The source of the corporate person’s rights is critical because, in theory, rights conferred by the state may be taken away, or limited, by the state whereas corporate rights derived from, or exercised on behalf of, natural persons may be inalienable.
The Third Circuit’s statement—although something of a throw-away-line—seems to reflect the “real entity” theory of corporate personhood. As one commentator has explained, “[t]he real entity theory generally views the corporate entity as a natural creature, to be recognized apart from its owners, existing autonomously from the state.” The Conestoga Wood majority opinion, however, also relies on a second corporate person metaphor—the artificial entity theory—seemingly without recognizing the potential doctrinal differences or the conflict with the real entity approach. The “artificial entity” approach argues that, because corporations are created by the state, the state can decide what, if any, rights a corporation possesses and may exercise. Thus a corporation may be a ‘person’ but the scope of the rights of the corporate person are determined and fixed by the state.
Without explanation or analysis, Conestoga Wood appears to predicate its holding directly on the artificial entity theory or, perhaps, on a conflation of the artificial entity and real entity theories: “We do not see how a for-profit artificial being, invisible, intangible, and existing only in contemplation of law . . . that was created to make money could exercise such an inherently ‘human’ right.” One difficulty—not recognized or addressed by the Third Circuit—is that the artificial entity theory posits that corporations have the rights given them by government and, in this case, the Dictionary Act—as the Tenth Circuit pointed out—expressly includes corporations in the definition of “persons” protected by RFRA’s Free Exercise guarantee. Moreover, all corporations, whether for-profit or non-profit, must make money if they are to survive, but the Third Circuit never explains why the corporate plaintiff’s for-profit status precludes it—but not a non-profit—from claiming Free Exercise rights.
The Tenth Circuit—also without argument or much analysis—appears to rest primarily on a third theory of corporate personhood: corporation aggregate. The corporation aggregate approach posits that a corporation is merely an amalgam, an association of individuals, including natural persons who have come together to pursue, collectively, some joint purpose. This “corporation aggregate” theory asserts that individuals, by associating in a collective, do not thereby surrender their constitutional rights. Indeed, because the Constitution explicitly protects freedom of association, government action denying such individuals the ability to protect their personal and property rights would effectively penalize joint actors for exercising their constitutional right to associate in otherwise legal ventures and entities.
In sum, Hobby Lobby and Conestoga Wood diverge on several foundational points that the Court should address. First, when a corporation seeks to assert constitutional or statutory rights, what basis, if any, supports the conclusion that the corporation itself, as distinct from its owners, has been vested with the right the corporation seeks to vindicate? Second, when a corporation claims constitutional protection, is the corporation treated as a legal person because it is asserting rights possessed by its owners on a derivative or “passed through” basis? Third, whether a corporation can assert constitutional rights on its own or derivatively on behalf of its owners or not, may the individual owners assert that the burdens and obligations imposed directly on the corporation effectively deny their personal constitutional rights? Finally, because all corporations necessarily must earn income to survive, what, if any, relevance does the corporation’s for-profit versus non-profit status have on the corporation’s ability to claim the rights of a legal person?
Those involved in the formulation or implementation of health policy must recognize that the question whether a corporation is a legal person entitled to constitutional protections has potential implications well beyond the ACA. Notwithstanding that court cases always arise in the context of specific facts and specific plaintiffs and defendants, resolution of legal claims depends upon the application of broad, unifying principles and there is no obvious basis to limit impact of a definition of the attributes of a legal person to either the ACA or to corporations.
To illustrate, Roe v. Wade’s holding establishing a constitutional right to abortion rested, in part, on the Supreme Court’s largely unexplained assertion “that the word ‘person’ as used in the Fourteenth Amendment, does not include the unborn.” A Supreme Court decision identifying the attributes that allow an entity, artificial or natural, to claim the status of a legal person may confirm, or provide a basis to reexamine, Roe’s assertion about the meaning of the term “person” as used in the Fourteenth Amendment. If that seems to push the argument too far, it ought to be remembered that the corporate personhood debate in San Mateo and Santa Clara asked the same question, albeit from a different perspective: did the protection afforded “persons” by the Fourteenth Amendment include corporations.
As the RFRA claims alleged in Hobby Lobby and Conestoga Wood illustrate, the Fourteenth Amendment is merely one among many constitutional and statutory provisions affording protection only to legal persons. Consequently, resolution of Hobby Lobby and Conestoga Wood may have impact far beyond the ACA claims at issue in those cases.
Rather than creating uncertainty and risk, the law should promote citizens’ ability to choose the benefits and burdens of proposed conduct—in Hobby Lobby and Conestoga Wood, to weigh their right of Free Exercise and the effect on their religious beliefs of lawfully engaging in business in one form or another. The time is long past due for the Supreme Court to end the conundrum and define the constitutional corporate person.
Note 1. The Soc’y for the Propagation of the Gospel in Foreign Parts v. The Town of New-Haven, 21 U.S. 464 (1823) (Interpreting ‘person’ in the treaty ending the Revolutionary War to include corporations); United States v. Amedy, 11 Wheat. 392, 412-13 (1826) (Story, J.) (interpreting ‘person’ in criminal statute to include corporations).
Note 2. First Nat’l Bank of Boston v. Bellotti, 435 U.S. 765, 780 n.15 (1978); see also id. at 822 (Rehnquist, J., dissenting). Cf. Donald J. Smythe, The Rise of the Corporation, the Birth of Public Relations, and the Foundation of the Modern Political Economy, 50 Wash. L.J. 635, 662 (2010-2011).
Note 3. United States v. Detroit Timber and Lumber Co., 200 U.S. 321, 337 (1905). See also Smythe, supra note 8 at 662. The Supreme Court Reporter who was responsible for the Santa Clara headnote was notorious for appending inaccurate headnotes to the Court’s decisions. See, e.g., Willard L. King, Melville Weston Fuller: Chief Justice of the United States 1888-1910 174-75 (MacMillan 1950). In fact, even when the justices sent the Reporter corrections to the headnotes, the Reporter frequently failed to make the changes. Id. at 175.Email This Post Print This Post
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