The derivative nature of corporate constitutional rights.

AuthorBlair, Margaret M.
PositionAbstract through II. Corporations in Early and Pre-Twentieth Century America, p. 1673-1708

Abstract

This Article engages the two-hundred-year history of corporate constitutional rights jurisprudence to show that the Supreme Court has long accorded rights to corporations based on the rationale that corporations represent associations of people from whom such rights are derived. The Article draws on the history of business corporations in America to argue that the Court's characterization of corporations as associations made sense throughout most of the nineteenth century. By the late nineteenth century, however, when the Court was deciding several key cases involving corporate rights, this associational view was already becoming a poor fit for some corporations. The Court's failure to account for the wide spectrum of organizations labeled "corporations" became increasingly problematic with the rise of modern business corporations that could no longer be fairly characterized as an identifiable group of people acting in association. Nonetheless, the Court continued to apply the associational rationale from early case law and expand corporate rights into the realm of speech and political spending without careful analysis of when the associational approach would be appropriate.

We set forth a theoretical framework that we believe is consistent with the underlying logic of the Court's jurisprudence, based on the concepts of derivative and instrumental rights. Specifically, we argue that the Court, to date, has not granted constitutional rights to corporations in their own right. Instead, it has granted rights to corporations either derivatively, when necessary to protect the rights of natural persons assumed to be represented by the corporation, or instrumentally, when necessary to protect the rights of parties outside the corporation. Further, we consider the implications that this framework, with a more nuanced view of the spectrum of corporations in existence, would have if applied to recent corporate rights cases, such as Citizens United. We believe this framework provides a principled path forward for the difficult line drawing between corporations that needs to be done.

TABLE OF CONTENTS INTRODUCTION I. EARLY SUPREME COURT JURISPRUDENCE CONCERNING CORPORATE CONSTITUTIONAL RIGHTS II. CORPORATIONS IN EARLY AND PRE-TWENTIETH CENTURY AMERICA A. Late Eighteenth and Early Nineteenth Century: Business Corporations Before General Incorporation Acts B. 1840-1895: Rapid Growth in the Use of Business Corporations C. 1895-Early 1900s: Mergers and Consolidations and the Rise of Modern Corporations III. THE SUPREME COURT'S TWENTIETH-CENTURY CORPORATE RIGHTS JURISPRUDENCE AND APPROACH TO THE RISE OF MODERN CORPORATIONS A. Giant Corporations Emerge B. Corporate Criminal Liability, Related Protections, and Other Early Twentieth-Century Legal Developments C. Corporate Rights Jurisprudence on the First Amendment IV. TOWARDS A CONSISTENT FRAMEWORK FOR ANALYZING CORPORATE CLAIMS TO CONSTITUTIONAL PROTECTIONS A. Using the Logic of the Derivative Rights Rationale B. Conceptual Challenges in Corporate Rights Determinations CONCLUSION INTRODUCTION

Many Americans believe that the Supreme Court surely must have gotten it wrong in Citizens United v. FEC when the Court held that corporations can spend unlimited amounts of corporate treasury money on independent political expenditures. (1) Politicians and grassroots organizations have called for a fix to Citizens United in the courts or through the political process. (2) Legal scholars have examined Citizens United in depth--both defending and criticizing the case on a number of grounds--often engaging with the case primarily in the context of the First Amendment, campaign finance jurisprudence, or modern business law. (3)

Justice Frankfurter once observed that "[t]he history of American constitutional law in no small measure is the history of the impact of the modern corporation." (4) In that spirit, we add to the contemporary debate by examining corporate history from the earliest corporations in America through today's multinational conglomerates to shed light on the Court's recent corporate rights jurisprudence, to help us see its logic and its flaws, and to provide insight into future cases. The story of Citizens United, as well as of other recent cases, such as Burwell v. Hobby Lobby Stores, Inc., concerning the religious liberty rights of business corporations, (5) are but a chapter in a much longer tale about the history of corporations in America and their treatment under the Constitution.

In this Article, we take up a set of questions about the history of corporations and corporate rights jurisprudence to better understand what the Supreme Court has wrought: What was the Court's understanding of the nature of corporations at the time that it decided some of the key early cases on the constitutional rights of corporations? Was this consistent with the population of corporations at the time? How did the Court's understanding evolve as it decided subsequent cases? Was the Court's understanding consistent with the role and function that corporations have played in society? And if not, how might a different or better understanding of corporations have led to a better outcome of corporate constitutional rights decisions by the Court?

In examining these questions, we find that the Court accorded constitutional rights based on a view of corporations as associations of persons, and that this view was largely consistent with what the actual population of corporations in the United States looked like during the period of the Court's earliest jurisprudence. But this characterization was already a poor fit for some corporations by the late nineteenth century. Furthermore, the Court's characterization of corporations as associations has not properly evolved to account for the wide spectrum of organizations labeled "corporations." This has become increasingly problematic as the Court has moved from early case law concerning the property and contract rights of corporations to the realm of corporate speech, political spending, and exercise of religion.

We then articulate a theoretical framework which we believe is consistent with the underlying logic of the Court's jurisprudence, based on the concepts of derivative and instrumental rights. We consider the implications of applying this framework, along with an appreciation of the spectrum of corporations in existence, to recent corporate rights cases, such as Citizens United. We argue that this framework provides a path forward in the very difficult and necessary project of line drawing between corporations. In this way, we attempt to draw upon a richer history of corporations and case law concerning the scope of their constitutional protection to theorize a more nuanced and grounded treatment of corporations.

This Article proceeds in four parts. In Part I, we review Supreme Court decisions involving corporations and constitutional rights through the nineteenth century to show that even if not clearly articulated, the Court's reasoning in these cases was based on an understanding of corporations as associations of individuals--more like partnerships or membership organizations than the large, publicly traded business corporations of today. This tracing of early case law shows that despite public perceptions, the Court has never based its corporate rights jurisprudence on the idea that a corporation is a constitutionally protected "person" in its own right. The Court has instead granted constitutional rights to corporations to derivatively protect the rights of the natural persons that are assumed to be represented by the corporation, or that are interacting with the corporation.

In Part II, we observe that the Court's view of corporations as associations of persons was largely consistent with what the actual population of corporations in the United States looked like until the late nineteenth century. However, by that time, when the Court was deciding several important cases on the constitutional rights of corporations, it was becoming problematic to regard all corporations as associations. American businesses were undergoing a dramatic transformation. Some business corporations were becoming much larger, with business activities that spanned the continent and even extended internationally. A number of huge corporations were formed by the merging together of groups of smaller corporations. Some of the larger corporations had thousands of employees. They were also quickly becoming publicly traded, with hundreds, and sometimes thousands of passive investors. They were becoming professionally managed, so that they no longer reflected the goals, aspirations, and efforts of a founder or a few individual investors. They were taking on identities--often tied to brands--that were truly separate from any of their individual investors, directors, or managers, and their separate corporate identities were being promoted to facilitate their interactions with customers, suppliers, employees, and the communities in which they operated.

By about 1910, a sizable class of very large, branded, publicly traded corporations had emerged, and for these entities, it was no longer credible that they would be seen as proxies for the interests of a well-defined and identifiable group of individual investors or other participants. Although there might have been some matters in which such a corporation could appropriately be viewed as representing the aggregate interests of its investors (or perhaps of its managers, employees, or customers), in many matters, its interests could not be clearly identified with any particular group of individuals. Meanwhile, the corporate form continued to be used for nonprofits, cooperatives, political units, clubs, and advocacy associations, for which the idea of the corporation as a proxy for an association of individuals remained valid. Thus, the spectrum of types of organizations encompassed by the term...

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