In the Hobby Lobby and Conestoga Wood cases currently pending before the Supreme Court, a fundamental issue of religious freedom is at stake:
The HHS [Obamacare] mandate requires the family-owned business to provide insurance coverage for the “morning after pill” and “week after pill” contrary to their religious convictions or pay fines to the IRS. The Greens believe that Hobby Lobby cannot fulfill its mission while paying for these drugs (the “morning after pill” and “week after pill”) that conflict with their beliefs. That is why on Wednesday, Sept. 12, Hobby Lobby filed suit in an effort to defend its constitutional freedom to carry out its mission in a way consistent with its owners’ religious principles.
In my article, Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers, 16 Green Bag 2d 235 (2013), I argued that:
Reverse veil piercing (RVP) is a corporate law doctrine pursuant to which a court disregards the corporation’s separate legal personality, allowing the shareholder to claim benefits otherwise available only to individuals. The thesis of this article is that RVP provides the correct analytical framework for vindicating certain constitutional rights.
Assume that sole proprietors with religious objections to abortion or contraception are protected by the free exercise clause of the First Amendment and the Religious Freedom Restoration Act (RFRA) from being obliged to comply with the government mandate that employers provide employees with health care plans that cover sterilizations, contraceptives and abortion-inducing drugs. Further assume that incorporated employers are not so protected. This article analyzes whether the shareholders of such employers can invoke RVP so as to vindicate their rights.
At least one court has recognized the potential for using RVP in the mandate cases, opining that these cases “pose difficult questions of first impression, including whether it is “possible to ‘pierce the veil’ and disregard the corporate form in this context.” The court further opined that that question, among others, merited “more deliberate investigation.” This article undertakes precisely that investigation.
Invoking RVP in the mandate cases would not be outcome determinative. Instead, it would simply provide a coherent doctrinal framework for determining whether the corporation is so intertwined with the religious beliefs of its shareholders that the corporation should be allowed standing to bring the case. Whatever demerits RVP may have, it provides a better solution than the courts’ current practice of deciding the issue by mere fiat.
This argument apparently has so scared the proponents of forcing people of faith like the Green family to fund health insurance covering contraceptives and abortificants that they got three Ropes and Gray lawyers--Ryan M. Malone, Aaron M. Katz, and Susanna G. Dyer (plus who knows how many associates and paralegals behind the scenes)-to write an amicus brief that they found 44 corporate law professors to sign for the principal purpose of rebutting my argument. Download the law professor brief here.pdf (129.0K)
The brief is replete with errors, red herrings, and disingenuous arguments. I'm working up a reply. But since I'm badly outnumbered, I'm looking for help. If you're a lawyer or law student who is on the side of the angels on this issue (sorry, but this is too important for me to rely on lay folk, no matter how well meaning), you could help by tackling one of the following questions and sending me a short memo for inclusion in a blog post or short article:
1. The brief claims that “Hobby Lobby and Conestoga are for-profit corporations, this brief does not specifically address non-profit corporations, limited liability companies, or partnerships.” But why should the rules be different for for-profit corporations and those other forms?
2. The brief asserts that “The centrality of corporate “separateness” is well- established in the United States.” (p. 4)
a. What is the earliest case in US law in which a court pierced the corporate veil?
b. What is the earliest reference in law review articles or treatises to the doctrine of piercing the corporate veil?
3. The brief is a paean to the merits of corporate personhood. From page 5, for example: “Indeed, this legal separateness—sometimes called legal “personhood”—has been the very basis of corporate law at least since the 18th Century.” Since many (most) of these professors are social liberals (I suppose that went without saying), I'd be willing to bet that at least some of them have had some rather nasty things to say about corporate personhood in connection with Citizens United or other cases in which corporate personhood gored the liberal ox. Track that down.
4. The brief asserts that “Creating such an unprecedented and idiosyncratic tear in the corporate veil would also carry with it unintended consequences, many of which are not easily foreseen.” (p. 8) What is the earliest precedent for the proposition that reverse veil piercing is allowed?
5. The brief argues that “In addition to the corporate veil separating shareholders from the corporation, another key feature of corporations is what known as “capital lock-in.” Once an investor makes a capital contribution to the corporation, the money stays with the corporation, subject only to the decision of the board of directors to deploy it, reinvest it, or distribute it to shareholders in the form of dividends.” (p. 8) Didn’t Larry Ribstein demonstrate that you can achieve capital lock in without needing to incorporate? If so, why is capital lock in relevant to the analysis?
6. The brief claims that “If this Court were to accept the arguments being advanced by Hobby Lobby and Conestoga, it would encourage disruptive and inefficient disputes as share ownership is transferred down through the generations. It would invite contentious shareholder meetings, disruptive proxy contests, and expensive litigation regarding whether the corporation should adopt a religion and, if so, which one.” (p. 9) This argument strikes me as especially disingenuous. Veil piercing is almost exclusively an issue of private corporations, so the potential for proxy contests—principally a creature of public corporations—is a red herring. Find and cite other examples of cases in which the brief makes arguments that are relevant only to public corporations and thus inapplicable to the closely held corporations with which we are concerned here.
a. Adapt the argument in Hall, Matthew I. and Means, Benjamin, The Prudential Third Party Standing of Family-Owned Corporations (January 9, 2014). University of Pennsylvania Law Review Online, Forthcoming; UGA Legal Studies Research Paper No. 2014-1. Available at SSRN: http://ssrn.com/abstract=2376849 to make point that we are not dealing with the universe of public corporations, but with closely held family businesses.
7. The brief claims that “By the same token, corporations should not be able to sue to assert the rights of their shareholders.” The argument made by Hall and Means will be helpful in rebutting that claim, I think. Explain why.
a. Also didn't Larry Ribstein (possibly in his book The Corporation and the Constitution) with Henry Butler argue that corporations have constitutional status precisely to vindicate the rights of their shareholders? Summarize argument.
8. One of the brief’s worst misrepresentations is the claim that “Hobby Lobby and Conestoga want to argue, in effect, that the corporate veil is only a one-way street: its shareholders can get protection from tort or contract liability by standing behind the veil, but the corporation can ask a court to disregard the corporate veil on this occasion.” Have Hobby Lobby or Conestoga Wood ever argued that piercing the corporate veil doesn’t apply to them?
9. Another gross misrepresentation in the brief is the transparent effort to cabin reverse veil piercing to cases in which “the decision to incorporate a family farm has threatened a shareholder’s homestead exemption.” (p. 18 n.6) Find cases in which reverse veil piercing was used to effect and advance other corporate policies.
10. The brief rather absurdly claims that “Many states hold that controlling shareholders owe an absolute duty of loyalty to minority shareholders. See, e.g., Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993).” (p. 22 n.9) Find cases citing proposition that controlling shareholders have some rights of selfish ownership.
11. The brief acknowledges the difference between insider and outsider reverse veil piercing, claiming that insider reverse veil peircing (which is what Hobby Lobby would be doing) is a "discredited variation on reverse veil piercing." That's exactly backwards. It is outsider reverse veil piercing that is the real problem. Find support for that claim.