Corporate Rights and Organizational Neutrality

• Author: Vincent S.J. Buccola
• Position: Assistant Professor, Legal Studies & Business Ethics Department, The Wharton School, University of Pennsylvania
• Pages: 499-541

Corporate Rights and Organizational Neutrality Vincent S.J. Buccola* ABSTRACT: Public clamor over the Supreme Court’s recent decisions in Citizens United and Hobby Lobby can be explained at least in part by the absence of any consistent rationale in corporate-rights adjudication. As many scholars have noted, the Court has never supplied a coherent explanation of corporate rights—where they come from and how to discern their existence and limits. Group rights derive from individual rights, we are told, but little other guidance is forthcoming. As a consequence each new judgment is open to the charge of unprincipled fiat. This Article contends that, despite its opacity, the case law implies a deep and tractable logic. In particular, the Article argues that the corporate-rights jurisprudence reflects an unstated principle of “organizational neutrality.” Constitutional rights are ascribed to corporations such that entrepreneurs are neither rewarded nor punished for choosing the corporate form over other modes of coordination (for example, contract, proprietorship, partnership, or cooperative). That is, the Constitution is presumed neutral as between the form of governance through which entrepreneurs organize productive activity. The same neutrality principle explains the corporate-rights jurisprudence in statutory cases, albeit as a presumption about Congress’s meaning rather than a binding constraint on its authority. Moreover, insights from transaction-cost economics supply a ready justification of the neutrality principle. Entrepreneurs choose their governance mechanisms—ranging from the more hierarchical to the more market mediated—with an eye to minimizing the social costs of production. A group-rights jurisprudence favoring one or another mode of organization would bias this choice and encourage marginal enterprises to pick wasteful governance structures. Critiques of the Court’s corporate-rights jurisprudence ought * Assistant Professor, Legal Studies & Business Ethics Department, The Wharton School, University of Pennsylvania. The author thanks Ilya Beylin, Anthony Casey, Nico Cornell, Gwen Gordon, Todd Henderson, Sarah Light, Eric Orts, Elizabeth Pollman, Amy Sepinwall, Fred Tung, David Zaring, and participants at the annual meeting of the Canadian Law & Economics Association and the National Business Law Scholars Conference for their conversation and their criticism of previous drafts. © 2015 [Vincent S.J. Buccola]. 500 IOWA LAW REVIEW [Vol. 101:499 therefore to explain why a non-neutral rule is, in a particular context, worth the measure of inefficiency it is apt to introduce. I. INTRODUCTION ............................................................................. 501 II. THE APPARENT INDETERMINACY OF CORPORATE-RIGHTS JURISPRUDENCE ............................................................................. 506 III. A THEORY OF ORGANIZATIONAL NEUTRALITY .............................. 511 A. A N E FFICIENCY J USTIFICATION .................................................. 511 B. O RGANIZATION -N EUTRAL A TTRIBUTIONS OF C ORPORATE R IGHTS ................................................................................... 516 1. Rights Against Expropriation ....................................... 516 2. Civil Procedural Rights ................................................. 517 3. Criminal Process Rights ................................................ 518 4. Speech Rights ................................................................ 520 5. Rights Against Racial Discrimination........................... 522 C. O RGANIZATION -N EUTRAL N ON -A TTRIBUTIONS OF C ORPORATE R IGHTS ................................................................................... 523 1. Franchise Rights ............................................................ 523 2. Criminal Process Rights ................................................ 524 3. Privacy Rights ................................................................. 525 4. A Note on “Liberty” Rights ........................................... 526 D. “B UT S EE ”: P OLITICAL S PEECH , P RIVILEGES , AND I MMUNITIES .. 527 1. Political Speech Rights.................................................. 528 2. Privileges and Immunities ............................................ 528 IV. IN DEFENSE OF H OBBY L OBBY ’S CORPORATE LAW ......................... 532 A. T HE D ECISION ......................................................................... 532 B. A S HAREHOLDER -P RIMACY R EADING ........................................ 534 C. A N O RGANIZATION -N EUTRAL R EADING .................................... 536 V. ENDURING PUZZLES: RELIGION AND OTHER IMMUTABLE CHARACTERISTICS ......................................................................... 539 VI. CONCLUSION ................................................................................ 541 2016] CORPORATE RIGHTS & ORGANIZATIONAL NEUTRALITY 501 I. INTRODUCTION Corporate ontology is back in vogue. The Supreme Court’s recent decisions in Citizens United v. Federal Elections Commission (“FEC”) 1 and Burwell v. Hobby Lobby Stores, Inc. , 2 have reinvigorated a century-old academic debate about the nature of the firm. 3 At the same time, public reaction to the cases has underscored the practical importance of perennial questions about the attribution of rights to corporations, including the source as well as the content and limits of such rights. 4 The Court’s pronouncements have done little to resolve doubts about the extent of the corporation’s legal entitlements, much less its enduring essence. Over the course of 200 years, the Court has articulated inconsistent theories of the corporation—theories which seem to yield predictably unpredictable judgments about the existence of a corporate right. 5 When the Justices conclude that a regulation burdening incorporated firms is valid, they tend to emphasize the “artificial” nature of corporations. Because corporations come into being only by virtue of the State’s affirmative charter, the State may regulate them in a way it could not regulate natural persons. The power to create implies the power to regulate. When, on the other hand, the Justices conclude that a corporation is entitled to object to government 1. Citizens United v. Fed. Election Comm’n, 558 U.S. 310 (2010). 2. Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014). 3. Speculation about the nature of the corporation, as well as its implications for the potency of reformist regulatory efforts, was at the center of much academic scholarship early in the 20th century. For a history of this literature, see ERIC W. ORTS, BUSINESS PERSONS: A LEGAL THEORY OF THE FIRM 21–51 (2013); William W. Bratton, Jr., The New Economic Theory of the Firm: Critical Perspectives from History , 41 STAN. L. REV. 1471, 1517–27 (1989); Morton J. Horwitz, Santa Clara Revisited: The Development of Corporate Theory , 88 W. VA. L. REV. 173, 179–83, 203–07, 216–22 (1985); and Gregory A. Mark, Comment, The Personification of the Business Corporation in American Law , 54 U. CHI. L. REV. 1441, 1467–78 (1987). See generally John Dewey, The Historic Background of Corporate Legal Personality , 35 YALE L.J. 655, 667–69 (1926) (describing the debate and arguing its fruitlessness). 4. By “right” I mean a power to object to government regulation, including indirect regulation through the creation of private rights of action, on constitutional or statutory grounds. For reasons of economy, this Article sets aside correlative questions of corporate obligation, except in passing. As the reader might anticipate, the analysis here suggests a symmetric approach there, but one which this Article will not seek to demonstrate. 5. See, e.g. , Brandon L. Garrett, The Constitutional Standing of Corporations , 163 U. PA. L. REV. 95, 98 (2014) (“What theory explains why corporations have some constitutional rights and not others? The Supreme Court has not offered a general theory.”); Elizabeth Pollman, A Corporate Right to Privacy , 99 MINN. L. REV. 27, 32 (2014) (arguing that “the Court has not developed a coherent method or test for” determining which rights corporations hold); see also Margaret M. Blair & Elizabeth Pollman, The Derivative Nature of Corporate Constitutional Rights , 56 WM. & MARY L. REV. 1673, 1679 (2015) (“[T]he Court has not carefully analyzed its legal theory of corporate rights, nor has it expressly articulated a framework for thinking about corporations that could guide its decision making in a consistent way.”); Bratton, supra note 3, at 1503 (describing the Court’s approach to recognizing corporate constitutional rights as a “situational practice”); Darrell A.H. Miller, Guns, Inc.: Citizens United , McDonald , and the Future of Corporate Constitutional Rights , 86 N.Y.U. L. REV. 887, 908 (2011) (describing the Court’s corporate-rights jurisprudence as “incoherent”). 502 IOWA LAW REVIEW [Vol. 101:499 action, they typically employ the logic of the “aggregate” theory of the corporation. The State’s authority is limited because firms are composed of individuals who themselves have interests the State is bound not to trample. 6 If the selection of one or the other trope were predictable, the Court’s inconsistent rhetoric would be unremarkable. Yet, one searches the case law in vain for a comprehensive explanation. Apparently incompatible conceptions of the firm might feature, without comment, in a single opinion. In Hale v. Henkel , for example, the Court held that corporations may not invoke the Fifth Amendment privilege against self-incrimination but also that they may rely on the Fourth Amendment’s protection against unreasonable searches and seizures. 7 The Fifth Amendment was out of bounds because, after all, as the Court saw it, “the corporation is a creature of the State.” 8 Yet, the Fourth Amendment was in play because “[a] corporation is, after all, but an association of individuals under an assumed name and with...