WHAT CORPORATE VEIL?

• Author: Macey, Joshua C.
• Position: Book review

WE THE CORPORATIONS: HOW AMERICAN BUSINESSES WON THEIR CIVIL RIGHTS. By Adam Winkler. New York and London: Liveright Publishing Corporation. 2018. Pp. xxiv, 395. Cloth, $28.95; paper, $19.95.

INTRODUCTION

A crucial turning point in the development of corporate constitutional rights was built on a fabrication. (1) In 1881, the Southern Pacific Railroad Company argued that a California tax on railroad property was unconstitutional discrimination under the Fourteenth Amendment's Equal Protection Clause. (2) At the time, this was an audacious argument. After the Civil War, Congress passed the Fourteenth Amendment to protect the rights of freed slaves and guarantee equality before the law. (3) The text itself guarantees equal protection rights to "persons." (4) It does not say anything about corporations. Yet a brilliant and uniquely qualified lawyer named Roscoe Conkling appeared before the justices and argued that the drafters wrote the Fourteenth Amendment to apply to corporations as well as to people. (5)

Conkling would know. He was the last surviving member of the congressional committee that drafted the Fourteenth Amendment, and he had twice been nominated to the Supreme Court, declining on both occasions due to financial hardship (p. 114). At oral argument, Conkling told the justices that he had brought his personal journal, which he claimed included notes about the committee's deliberations (p. 133). He told the Court that his notes showed that the drafting committee had purposefully replaced the word "citizens" with "persons" in order to make sure that corporations also enjoyed Fourteenth Amendment protections. (6) This change, he said, was intended to ensure that the Amendment applied to corporations as well as people (p. 130).

The problem with Conkling's argument is that it was not true. His journal did record the congressional committee's deliberations, but it did not say that the committee changed the word "citizen" to "person" or even mention that the committee ever thought about whether the Amendment would apply to corporations (pp. 134-36). In short, Conkling lied, but the case ultimately supported numerous Supreme Court decisions extending constitutional protections to corporate entities. While the Supreme Court decided to duck this constitutional question in Southern Pacific by ruling for the corporation on other grounds, the Court eventually agreed with Conkling and granted Fourteenth Amendment protections to corporations. (7) It now regularly cites Southern Pacific to defend decisions to extend Fourteenth Amendment protections to corporations. (8)

Southern Pacific is at the heart of Adam Winkler's We the Corporations: How American Businesses Won Their Civil Rights. (9) The book, a finalist for the National Book Award, (10) is provocative and important, and it is filled with stories documenting the case law that has, by now, put corporations on nearly the same constitutional footing as individuals. We the Corporations surveys over three hundred Supreme Court cases. What emerges is a fascinating and original picture about the development of corporate constitutional rights.

Specifically, Winkler identifies the legal foundations of these rights and traces their historical development over a four-hundred-year history. What is perhaps most surprising, however, is that--despite creative and daring legal arguments such as those brought by Conkling--it is a more prosaic argument that ultimately put corporations on nearly the same constitutional footing as people. In fact, Conkling's view that corporations are "persons" has repeatedly failed to convince the Court to extend constitutional protections to corporate entities. (11) Although it is common to criticize the notion--popularized by Republican presidential candidate Mitt Romney (12)--that corporations are people, (13) on Winkler's account, the legal foundation of corporate constitutional rights lies not in the Supreme Court's recognition that corporations have a "separate personhood" but rather in the doctrine that corporations are simply "associations of citizens." (14) Conkling, in short, embraced the wrong legal theory.

This thesis is somewhat counterintuitive. Corporations can be thought of alternatively as either an aggregation of individual persons--the shareholders and managers who own and operate the company--or as legal entities separate and distinct from their investors and managers. (15) Although politicians often mock the idea that corporations are separate legal entities, Winkler argues that it is actually the theory that corporations are "associations of people" that has historically provided the legal justification for recognizing corporate constitutional protections. Time and again, Winkler shows, the Supreme Court has found that such protections are necessary to vindicate the rights of the citizens who own and manage private companies.

Winkler persuasively frames his book as a liberal critique of the Supreme Court cases that conferred constitutional rights on corporations, and he is right to do so. In demonstrating that the development of corporate constitutional rights is contingent on a particular conception of the corporation, Winkler challenges readers to reject the status quo and suggests that it is possible for judges and legislators to narrow the scope of corporate constitutional rights.

But Winkler's characterization of the legal theory the Supreme Court embraces in corporate-rights cases is somewhat misleading. He claims that the Supreme Court is piercing the corporate veil when it extends constitutional protections to corporations. (16) This is not quite true. Winkler is correct that the Supreme Court treats corporations as associations of persons, but he is incorrect that this treatment constitutes piercing the corporate veil. Winkler is undoubtedly aware that piercing the corporate veil describes the technical doctrine by which courts determine that the corporate form is a sham--that a corporation is being used for some illicit purpose, such as to shield personal assets from personal liability. (17) Still, it is worth noting that the court does not pierce the corporate veil in the corporate-rights cases Winkler analyzes. When a court pierces the corporate veil, it performs a practical, fact-based inquiry in which it determines whether the corporation is truly a separate juridical entity from its shareholders, creditors, and directors. (18) If the court determines that there is no legal separateness, then it can hold shareholders personally liable for the obligations of the corporation. (19)

The Supreme Court does not provide any such analysis in the cases Winkler discusses. Rather than consider whether a particular corporation has acted in a manner that suggests that it is not truly a separate juridical entity, the Supreme Court seems to assert that corporations are never distinct from their shareholders when they are claiming constitutional protections. (20) And the Court has offered no legal or theoretical defense for that assertion.

Winkler may be using the language of veil-piercing in a metaphorical sense simply to describe situations in which the Court treats corporations as mere associations of shareholders. But in doing so, he downplays the degree to which the Supreme Court has embraced--without justifying--a theory of the corporation in constitutional cases that bears little resemblance to the theory of the corporation that attaches in other contexts.

Based on this observation, I argue that the phenomenon Winkler observes (though mislabels) provides a powerful, albeit undertheorized, critique of hundreds of years of corporate-rights jurisprudence. Both veil-piercing and treating the shareholders as an association of persons look behind the corporate form, but the way the Court has treated corporations in corporate-rights cases is more radical and less justifiable than Winkler's metaphor suggests. What Winkler has identified is not that the Supreme Court "pierces the corporate veil" in constitutional cases but rather that the Supreme Court refuses to recognize the very existence of the corporate form in those cases altogether. In describing this phenomenon as "piercing the corporate veil," Winkler implies that the Supreme Court's treatment of the corporation in constitutional cases is part of a sensible and coherent corporate law doctrine. In this way, Winkler's use of the phrase "piercing the corporate veil" legitimates a practice that bears little resemblance to the doctrine and softens the full force of his criticism of the canonical corporate-rights cases. What Winkler actually shows is that the Supreme Court's existential theory of the corporation in constitutional rights cases is radically at odds with the existential theory of the corporation it adopts in every other area of the law.

Winkler correctly implies that the Supreme Court's constitutional cases are based on a suspect--or at least undertheorized--analytical foundation, (21) and he is right that this argument flows logically from the historical analysis he conducts in We the Corporations. To reach that conclusion, however, one must recognize that the United States treats corporations as associations of people in some circumstances and as distinct legal entities in others, and that the Court's decision to abandon the theory of the corporation that it applies in other contexts requires at least some explanation. Winkler's claim that the Court is piercing the corporate veil--whether used metaphorically or not--masks larger inconsistencies in its reasoning.

This is not to say that every corporate constitutional rights case has been wrongly decided. In forthcoming work, Chief Justice Leo Strine and Professor Jonathan Macey argue that the majority in Citizens United embraced an indefensible theory of corporate personhood. (22) My view is somewhat different. I agree that the theory of the corporation in Citizens United is at odds with the...