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Burwell v. Hobby Lobby: The Dangers of Protecting First Amendment Rights of Corporations & The Rapid Expansion of “Corporate Personhood”

by Katharine Suominen

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Imagine Occupy Wall Street protests break out again, but this time, the mayor directs the NYPD to let the protesters stay in various private public spaces, like the lobby of a corporate office building. Barclays decides that it does not want to risk bloody confrontations between its own security guards and the occupiers. Instead, it releases a specially programmed fleet of drones to direct air or sound at the occupiers until they leave the premises. New York’s city council then proposes legislation to ban the corporate use of drones. Barclays decides to challenge the ordinance as an unconstitutional restriction on its corporate right of self-defense. The Supreme Court agrees with the corporation and extends Second Amendment rights to all corporations.

This hypothetical may seem dramatic and highly unlikely, but it is actually not that farfetched. In recent years, the Supreme Court has vastly expanded the constitutional rights of corporations. Traditionally, constitutional rights were reserved for individuals; however, over time courts began to consider corporations “persons,” a sort of legal fiction, and extend constitutional rights to them. This was the beginning of the legal concept known as “corporate personhood.”

The Expansion of Corporate Personhood

Corporate personhood began with the extension of contract rights to corporations, but corporate personhood slowly expanded as corporations received additional protections under the Fourteenth Amendment, the Fourth Amendment, and the Fifth Amendment’s double jeopardy protection, to name only a few. However, in a mere four years (2010-2014), the Supreme Court has given corporations unrestricted political speech rights and then, in Burwell v. Hobby Lobby, First Amendment religious freedom rights.  And there is no indication that the Court intends to stop, or even slow, the expansion of corporate personhood.

The American legal concept of “corporate personhood” has its supporters and critics alike.  On the one hand, supporters of corporate personhood embrace the aggregate theory of corporate personhood, which argues that the corporation is more than just a creature of law. Instead the corporation is representative of the people who make up the corporation because corporations themselves cannot literally “act” or “decide” or “intend” apart from their human members.

On the other hand, critics of expansive corporate personhood follow the artificial entity theory, which argues that the corporation is merely a legal construct, a fictional entity, or an artificial creation of the natural persons who form the corporation for their own purposes. The corporation is simply a creature of statute and is dependent on the law to give it form and function.

Neither the supporters nor the critics of corporate personhood suggest that the concept is problematic in itself. They merely differ from a normative standpoint as to the breadth the concept should have. It is the recent expansion of the breadth of this concept that raises many red flags.

Hobby Lobby: One Step Closer to the “Super Corp.”

In Hobby Lobby, a 5-member family, deeply wedded to their Christian beliefs and values, owned and operated an arts and crafts chain throughout the United States. Hobby Lobby argued that President Obama’s Affordable Care Act contraceptive mandate violated its Free Exercise rights under the First Amendment and sought protection under the Religious Freedom Restoration Act (RFRA), which prevents the passage of laws that substantially burden a person’s right to free exercise of religion. The Supreme Court concluded that “person” under the RFRA included corporations. The United States Department of Health and Human Services conceded that “person” includes non-profit corporations, so the Court reasoned that there was no “conceivable definition of ‘person’ that includes natural persons and nonprofit companies, but not for profit corporations, [like Hobby Lobby].” Thus, Hobby Lobby and other “closely-held corporations” were permitted to seek the protections of the RFRA. In other words, “closely-held corporations,” a vaguely defined term, have free exercise rights under the First Amendment.

Since the majority opinion did not distinguish corporations from other business forms, such as sole proprietorships, the decision will inevitably extend to corporations of any size, public or private. Thus, the Court’s extension of the RFRA to for profit corporations is bound to have, as Justice Ginsburg argued, “untoward effects.”

The Unintended Consequences: From Veil Piercing to Armed Corporations

In issuing its decision, the Court in Hobby Lobby clearly missed a few key unintended consequences for corporate law. The first unintended consequence is that this expansion of corporate personhood enhances the ability for creditors to pierce the corporate veil. The second unintended consequence is that the Court’s reasoning could be extended to grant corporations other constitutional rights, thereby allowing corporations to morph into “super corporations.”

Everyone remembers the Enron crisis. The Enron shareholders had no obligation to repay any of the company’s creditors because of the limited liability protection granted to corporations. However, if the shareholders and employees were held personally liable for the debts and actions of the corporate entity people would be less likely to invest in corporations. As the line between the corporation and its shareholders becomes more blurred, federal district courts and state courts are more likely to pierce the corporate veil and hold the shareholders liable for those debts and actions.

“Veil piercing” is a legal decision in which the court treats the rights and duties of a corporation as the rights and duties of the shareholders or owners. This usually happens when the court determines that the corporation is no longer separate and distinct from its owners and forfeits the limited liability protection. If a corporation goes bankrupt, the last thing the shareholders want is to have to pay back their corporate debts from their personal assets. When the veil is pierced, creditors can go after the homes, bank accounts, investments, and other personal assets of the corporation’s owners, shareholders, or members of the corporation in order to satisfy the corporate debt. Thus, there is, arguably, no other business tool more powerful than incorporation because it protects shareholders from personal financial ruin.

Hobby Lobby has potentially devalued this once essential and powerful business tool. These closely held corporations, which seek to invoke the RFRA protections, might be opening themselves up to veil piercing as they are extending their own personal beliefs to the corporate entity. While the Supreme Court may not pierce the corporate veil under these circumstances, lower courts might use the Hobby Lobby decision as precedent to do so.

As for the second unintended consequence, religious rights and the free exercise thereof were once considered “purely personal,” meaning the Free Exercise clause was reserved for individuals and could not be extended to corporations.  The “purely personal” limitation on the extension of constitutional rights to corporations is a long-standing legal doctrine. However, in Hobby Lobby the Supreme Court did not address this distinction between “purely personal” constitutional rights and rights which may be granted to corporations. This departure sets the stage for future courts to disregard this distinction and continue the expansion of corporate personhood.

Prior to Hobby Lobby, most people would have scoffed, if not laughed, at the thought of corporations having religious rights; and yet, now they do. Thus, it may not be as improbable as people may think for corporations to have Second Amendment rights. Following Hobby Lobby, the extension of Second Amendment rights seems quite likely. The Court ascribes similar purposes to both the First and Second Amendments—self-actualization and government deterrence. Therefore, the logic used to extend First Amendment rights to corporations could be used to extend Second Amendment rights to corporations as well.

With both First and Second Amendment rights, corporations become “super corporations” with all the essential constitutional rights of the natural person, but with even greater protections than natural persons. Under this hypothetical the U.S. would shift from “We the People” to “We the Corporations.” It is therefore essential for the Court to return to the artificial entity theory of corporate personhood and limit its expansion of this legal concept. Unfortunately, given Hobby Lobby it seems unlikely that this is the path the Supreme Court is on.

Katharine Suominen is a third-year law student at St. John’s University School of Law. After serving as an Executive Notes and Comments Editor for the St. John’s Journal of Civil Rights and Economic Development, Katharine will be a litigation associate at a global firm in New York. She currently serves a legal writing Teaching Assistant at St. John’s University School of Law.

The pictures used herein and in the slider are not the property of the author and can be found at the following web addresses:

http://politicalhumor.about.com/od/supremecourt/ig/Supreme-Court-Cartoons/We-The-Corporations.1-BQ.htm