In reviewing today's Supreme Court decisions on Obamacare and disparate impact, I'm feeling pretty betrayed by Roberts and Kennedy. Why is it that so many purportedly conservative justices slide so far to the left once they're on the court?
In any case, Black Thursday prompts me to observe that the opposite of schadenfreude is gluckschmerz - i.e., experiencing pain from observing someone else's pleasure - which is precisely what I'm feeling about liberals and the SCOTUS.
Taub, Jennifer, Is Hobby Lobby a Tool for Limiting Corporate Constitutional Rights? (May 20, 2015). Constitutional Commentary, Forthcoming. Available at SSRN: http://ssrn.com/abstract=261242:
Critics lament that with Burwell v. Hobby Lobby Stores, Inc., the Supreme Court further expanded corporate personhood powers. This article offers an alternative reading. It suggests that Hobby Lobby might actually provide a tool for limiting previously recognized corporate constitutional rights. To those who oppose the decision, this assertion might seem unduly optimistic. After all, the court did determine that three family-owned business corporations were “persons” with sincere religious beliefs entitled to use the Religious Freedom Restoration Act (“RFRA”) to deprive employees of federally mandated healthcare insurance coverage. Given that the Court determined that certain “closely held” business corporations possessed statutory rights previously thought reserved to real human beings, it would not seem to presage the future restriction of corporate constitutional rights. However, by designating (thus far) just closely-held corporations as persons with free-exercise rights under RFRA the Court invites us to question whether other corporations (that lack similar attributes) would be denied such personhood. And, if so, whether a distinction between closely-held corporations and others could be applied to curtail corporate constitutional rights.
Determining how Hobby Lobby restricts corporate personhood rights is not a mere thought experiment. It has become immediately necessary as a practical matter. Because the Court held that the contraceptive mandate under The Patient Protection and Affordable Care Act (“ACA”) as applied to the three corporate litigants violated RFRA, the Department of Health and Human Services (“HHS”) was obligated to fashion an exemption for them and similar organizations. Yet, notwithstanding the apparent importance of the term to its central holding, the Court majority failed to define what it meant by a “closely-held corporation.” Moreover, there is no uniform state or federal law defining this now critical category. Further, the decision seemed to discourage “discriminating” between classes of corporate entities. Wrestling with this apparent indefiniteness, HHS sought through a proposed rulemaking to create a diagnostic test (what I will refer to as a type of “Hobby Lobby Tool”) to identify the circumstances when business corporations could become eligible for the exemption from the contraceptive mandate.
The Hobby Lobby majority opinion does provide some guidance. The Court’s threshold determination that the three corporations were persons under RFRA appears to have depended upon the existence of three conditions. First, upon looking-through the corporate entity, the Court was able to see human owners that were co-extensive with the corporation. This move ignored the “separateness” that state corporate law recognizes between a corporation and its owners. Second, it appears that only because the identified human owners held (or agree to share) the same sincere religious beliefs, and third, openly ran the corporation in accordance with those beliefs, did the Court conclude the beliefs of these human beings could be attributed to the corporate entity. Arguably, only with these three factors present, did the Court determine that the contraceptive mandate substantially burdened the sincere religious beliefs of each corporation. The majority opinion, written by Justice Samuel Alito, suggests that to be deemed a person under RFRA, a corporation would not need to be closely-held. Thus, so long as each of these three conditions was met a corporation could be considered a person under RFRA. Conversely, not all closely held corporations could meet the test.
The decision arguably provides tools to curtail certain corporate constitutional rights. The rights that could be subject to restriction are those that the Court has recognized as deriving from looking through the entity to the owners. This would include the First Amendment corporate political spending rights recognized in Citizens United. A statute should be upheld that limits corporate political spending to those entities where there is an identity of interest between the human owners and the corporation, where there is majority shareholder consent to the specific spending, and where there is public disclosure of such spending.
It's an interesting and thoughtful article, which I recommend, but I basically don't buy it. As Jennifer notes, "Many corporate law scholars have studied the opinion seeking guidance to distinguish between those business corporations that could or should have free-exercise rights."
IMHO, all of these scholars are making the same basic mistake, which is that they think there is something coherent going on in the Supreme Court's corporate personhood doctrine. But that's just wrong. The Supreme Court has no idea what it is doing in this area and is just making it up as it goes along. Precedent and stare decisis mean a lot less than constructing an opinion that can somehow attract the votes of 5 justices.
As I noted in an earlier post:
The Economist's Schumpeter has an interesting column on corporate personhood in the most recent issue. He (?) argues:
The legal conceit that companies are natural persons is vital to capitalism. It simplifies litigation greatly: companies can act like individuals when it comes to owning property or making contracts. Timur Kuran of Duke University argues that the idea of corporate personhood goes a long way to explaining why the West pulled ahead of the Muslim world from the 16th century onwards. Muslim business groups were nothing more than temporary agglomerations which dissolved when any partner died or withdrew. Legal personhood gave Western firms longevity. ...Western companies turbocharged the industrial revolution and laid the foundations for mass prosperity.
I agree, as regular readers know. I also agree with Schumpeter's implicit concern that US law confers personhood on the corporation without a coherent theory of why it does so or where the boundaries of that legal fiction are to be located. As I complained after the recent AT&T decision:
Chief Justice Roberts could have summed up his opinion far more succinctly: "Because at least 5 of us say so."
The Citizens United decision last term attracted much criticism--not least from Con Law Professor-in Chief Obama--for holding that a corporation is a person and as such has certain constitutional rights. While I agreed with the holding, I was disturbed that the Chief Justice's majority opinion for the Supreme Court so obviously lacked a coherent theory of the nature of the corporation and, as such, also lacked a coherent theory of what legal rights the corporation possesses.
The utterly specious word games that drive this opinion simply confirm that Chief Justice Roberts has failed to articulate a plausible analytical framework for this important problem.
"We are like dwarfs sitting on the shoulders of giants. We see more, and things that are more distant, than they did, not because our sight is superior or because we are taller than they, but because they raise us up, and by their great stature add to ours." Hence, at a minimum, we have an obligation to cite those giants.
Apropos of which, I've been reading a lot of articles lately about the constitutional rights of corporations that fail to cite--let alone engage--the seminal work done by the late Larry Ribstein. In my view, these failures are not just sloppy, they are shoddy.
So if you're writing on this topic, stop what you're doing and go read:
Right now. Go. Shoo.
As Ian Millhiser illustrates in his trenchant, persuasive, and profoundly dispiriting book Injustices, the Supreme Court has consistently and unapologetically used its authority to thwart progress and perpetuate inequality. The child labor disaster is, if you can believe it, one of the less appalling stories in the book. For as long as the court has held the power to strike down laws—a power it created—its justices have used this authority to impose their own antiquated, antidemocratic ideas on the country at large. Millhiser repeatedly ponders why the court has so persistently hindered self-rule and social progress. The better question to ask about the court, however, is a more basic one: Why do we still put up with it?
I suppose it would be bootless to remind Slate and its readers that not so long ago the shoe was on the other foot:
Ann Lipton offers an interesting analysis of the pleading implications of the Supreme Court's recent Omnicare decision, which dealt with whether and when opinions can give rise to 1933 Act Section 11 claims.
What is it about Omnicare, Inc., that generates such awful judicial opinions? The Delaware supreme court's decision in Omnicare v. NCS Healthcare, 818 A.2d 914 (Del. 2003), was one of that Court's worst decisions.
And now in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, Justice Kagan gets off on the wrong foot with her very first sentence:
Before a company may sell securities in interstate commerce, it must file a registration statement with the Securities and Exchange Commission (SEC).
Granted, she recovered almost immediately by observing in the next paragraph that:
With limited exceptions not relevant here, an issuer may offer securities to the public only after filing a registration statement.
But, as a FB friend of mine observed, why didn't somebody correct the over broad opening sentence?
As for the merits of the decision, Richard Booth aptly observes that "The bottom line is that Omnicare resolves an issue that most thought settled already, while ignoring the standard(s) of care that remain applicable under the 1933 Act." Alison Frankel similarly noted that:
This is getting to be an annual rite. The U.S. Supreme Court agrees to take a case that could significantly reshape the securities class action business. Defendants get their hopes up, loading the docket with amicus briefs calling on the justices to impose new restrictions on the cases. But ultimately the justices leave the status quo more or less intact, to the relief of shareholder lawyers across the land.
A while back, I noted that I had filed an amicus brief with the Supreme Court in Whitman v. United States, a case raising serious questions about the current state of insider trading law.
Justice Scalia joined the rest of the High Court in refusing to hear hedge-fund manager Doug Whitman ’s appeal of his insider-trading conviction. But joined by Justice Clarence Thomas , Justice Scalia made clear he isn’t happy with the way the law is being interpreted.
“A court owes no deference to the prosecution’s interpretation of a criminal law,” wrote Justice Scalia, while raising the related question: “Does a court owe deference to an executive agency’s interpretation of a law that contemplates both criminal and administrative enforcement?”
The Second Circuit Court of Appeals thought a court does owe such deference, and so it sustained Whitman’s conviction based on the Securities and Exchange Commission’s interpretation of insider-trading law. Justice Scalia wrote that he doubts such “pretensions to deference,” and said “the rule of lenity requires interpreters to resolve ambiguity in criminal laws in favor of defendants.”
Scalia's separate statement concludes:
Whitman does not seek review on the issue of deference, and the procedural history of the case in any event makes it a poor setting in which to reach the question. So I agree with the Court that we should deny the petition. But when a petition properly presenting the question comes before us, I will be receptive to granting it.
If and when Scalia does find such a case, he might also encourage the Court to consider whether the incredible vagueness of the current insider trading prohibition violates due process (it does). The Court might also consider the serious federalism issues we raised in Whitman.
Hopefully the case will also give the Court an opportunity to consider the validity of SEC Rule 10b5-2, to which lower courts have unthinkingly, supinely, and asininely given Chevron deference.
Lyman Johnson organized a group of law professors including yours truly to provide comments to HHS on its rulemaking to implement the Supreme Court's Hobby Lobby decision. Lyman put together a very interesting group. Eclectic in every dimension. Protestants, Catholics, agnostics. Liberals, progressives, moderates, conservatives. All brought together by a shared respect for religious liberty and diversity.
Citation: Lyman Johnson, and Stephen M. Bainbridge, Ronald J. Colombo, Brett McDonnell, David Millon, Alan J. Meese, and Nathan B. Oman, Comments on the HHS' Flawed Post-Hobby Lobby Rules (October 21, 2014), available at SSRN: http://ssrn.com/abstract=2513620.
Abstract: In late August 2014, after suffering a defeat in the Supreme Court Hobby Lobby decision when the Court held that business corporations are "persons" that can "exercise religion," the Department of Health and Human Services ("HHS") proposed new rules defining "eligible organizations." Purportedly designed to accommodate the Hobby Lobby ruling, the proposed rules do not comport with the reasoning of that important decision and they unjustifiably seek to permit only a small group of business corporations to be exempt from providing contraceptive coverage on religious grounds. This comment letter to the HHS about its proposed rules makes several theoretical and practical points about the Hobby Lobby holding and how the proposed rules fail to reflect the Court's reasoning. The letter also addresses other approaches to avoid in the rule-making process and argues for rules that, unlike what the HHS has proposed, align with the Supreme Court's reasoning while being consonant with generally applicable precepts of state law and principles of federalism.
Brett McDonnell has posted The Liberal Case for Hobby Lobby (October 22, 2014), available at SSRN: http://ssrn.com/abstract=2513380:
The recent Supreme Court decision in Burwell v. Hobby Lobby Stores, Inc. has stirred strong objections from political liberals. This article argues that those objections are unwarranted, and that the Court’s opinion reflects core liberal values. The decision has two main parts, and liberal objections to each part are misguided.
In the first part, the Court held that in some circumstances for-profit corporations committed to religious goals may invoke the religious liberty protection of the Religious Freedom Restoration Act (RFRA). Liberals have treated this as an appalling and/or humorous extension of rights which should apply only to humans. However, the Court’s decision rightly recognizes that corporations can and sometimes do pursue goals other than shareholder profits. This fits well with the stress on corporate social responsibility one finds in progressive corporate law scholarship such as the author’s. Where religious beliefs shape a corporation’s purposes, the protections of RFRA may rightly apply. The article suggests a detailed framework for determining when particular corporations are engaged in the exercise of religion, looking to both organizational and ownership dimensions of commitment to religion. This framework clarifies the somewhat sketchy analysis of the Court and more firmly roots that analysis in corporate law and theory.
In the second part of the opinion, the Court held that the contraceptive mandate of the Affordable Care Act substantially burdens the religious exercise of employers, and that the mandate is not the least restrictive means of achieving a compelling governmental objective. Liberals fear that this holding aggressively extends the protection of RFRA while undermining the compelling goal of the contraceptive mandate. The article argues that the holding is quite nuanced and limited, and that much liberal reaction reflects discomfort with RFRA itself. That is a shame, as creating a diverse society where persons and groups with differing beliefs are able to co-exist should be a core liberal commitment. The article suggests that liberals may have lost sight of this commitment as the groups invoking RFRA’s protection have shifted from social outcasts to more mainstream religious conservatives. That may explain, but does not justify, liberal opposition to Hobby Lobby.
As you can imagine, I disagree with the first for reasons well rehearsed in this space many time before.
The second point is one that I think makes a lot of sense. Sadly, however, I do not believe that today's modern liberals value a diverse society when the diversity is expressed along religious lines and, in articular, when diversity requires toleration of opinions that differ from the politically correct liberal catechism. Hence, where Brett says "liberals may have lost sight" of their commitments to religious diversity and freedom, I would say "liberals have definitely lost sight" thereof.
David Millon sent along a response to my post "Corporate Law after Hobby Lobby":
A couple of brief thoughts on your remarks about the freedom of shareholders in closely held corporations to depart from a corporate law profit maximization requirement. First, I had not realized that you considered profit maximization to be a default rather than mandatory rule. Your view would appear to be inconsistent with at least some of the few judicial precedents involving closely held firms that profit maximization proponents cite in support of their view that corporate law mandates that corporate objective, namely the eBay case and also Dodge v. Ford (although, as we explain in our article, that case does not actually mandate profit maximization). Second, I don¹t see the legal basis for distinguishing closely held from public corporations on this point. The law could draw such a distinction, but I don¹t see where it has. Not in the corporate statutes and not in case law either. There may be policy reasons for such a distinction and as a practical matter it is probably impossible for shareholders qua shareholders in a public corporation to redefine the firm’s purpose, but it¹s hard to see where the closely held/public distinction exists in the law. Finally, to be clear, certainly a profit maximization default would be preferable to a mandatory rule, but we don’t think that even a default rule exists on this issue.
Lyman Johnson and David Millon have just posted a very interesting paper on Corporate Law after Hobby Lobby, THE BUSINESS LAWYER, Vol 70 - November 2014, available at SSRN: http://ssrn.com/abstract=2507406:
We evaluate the U.S. Supreme Court's controversial decision in the Hobby Lobby case from the perspective of state corporate law. We argue that the Court is correct in holding that corporate law does not mandate that business corporations limit themselves to pursuit of profit. Rather, state law allows incorporation 'for any lawful purpose.' We elaborate on this important point and also explain what it means for a corporation to 'exercise religion.' In addition, we address the larger implications of the Court's analysis for an accurate understanding both of state law's essentially agnostic stance on the question of corporate purpose and also of the broad scope of managerial discretion.
The point at which I would most strongly join issue with their argument is the claim (at 14) that:
State corporate law does not require corporations to prioritize profits over competing considerations. This fact has ramifications that extend far beyond the particular activities- religious observance — at issue in the Hobby Lobby cases. All business corporations (and non- profits too, for that matter) must generate profit in order to survive. That is simply a fact of life. But corporate law confers on them broad discretion to determine the extent to which they choose to temper the pursuit of profit by regard for other values.
Well, yes, but. As I noted in Does Hobby Lobby sound a death knell for Dodge v. Ford Motor Co.?:
I think it's critical to remember that Hobby Lobby is very explicitly a case about closely held corporations.
“As a leading commentator in the field has observed: ‘unlike the typical shareholder in the publicly held corporation, who may be simply an investor or a speculator and cares nothing for the responsibilities of management, the shareholder in a close corporation is a co-owner of the business and wants the privileges and powers that go with ownership. …’” Simms v. Exeter Architectural Products, Inc., 868 F.Supp. 677, 682 n. 1 (M.D.Pa.1994) (citing (O'Neal, Close Corporations [2d Ed.], § 1.07, at pp. 21–22 [n. omitted]).
I also refer you to Baran v. Baran, 1947 WL 2915, which held of close corporations that "It is not in violation of any rule or principle of law for stockholders, who own a majority of the stock in a corporation, to cause its affairs to be managed in such way as they may think best calculated to further the ends of the corporation, and for this purpose to appoint one or more proxies, who shall vote in such a way as will carry out their plans." In that case, the court upheld an agreement among the shareholders to elect one another to corporate office. But why should the same rule not apply to a consensus among shareholders of a close corporation to define the ends of the corporation in religious terms?
Hobby Lobby's meaning will be contested on many levels for a long time to come, but I think it is best understood as recognizing the well-established principle that shareholders of a closely held corporation can alter the default rules of corporate law, including the issue of corporate purpose. I don't think Hobby Lobby should be understood as changing the default rule, especially by why of what is arguably dicta.
OTOH, see the discussion in Lyman and David's paper at 36-37, which argues that Hobby Lobby is not so limited.
Also pertinent to this debate is my recent paper Corporate Social Responsibility in the Night Watchman State: A Comment on Strine & Walker (September 9, 2014). UCLA School of Law, Law-Econ Research Paper No. 14-12. Available at SSRN:http://ssrn.com/abstract=2494003:
Delaware Supreme Court Chief Justice Leo Strine and Nicholas Walter have recently published an article arguing that the U.S. Supreme Court’s decision in Citizens United v. FEC undermines a school of thought they call “conservative corporate law theory.” They argue that conservative corporate law theory justifies shareholder primacy on grounds that government regulation is a superior constraint on the externalities caused by corporate conduct than social responsibility norms. Because Citizens United purportedly has unleashed a torrent of corporate political campaign contributions intended to undermine regulations, they argue that the decision undermines the viability of conservative corporate law theory. As a result, they contend, Citizens United “logically supports the proposition that a corporation’s governing board must be free to think like any other citizen and put a value on things like the quality of the environment, the elimination of poverty, the alleviation of suffering among the ill, and other values that animate actual human beings.”
This essay argues that Strine and Walker’s analysis is flawed in three major respects. First, “conservative corporate law theory” is a misnomer. They apply the term to such a wide range of thinkers as to make it virtually meaningless. More important, scholars who range across the political spectrum embrace shareholder primacy. Second, Strine and Walker likely overstate the extent to which Citizens United will result in significant erosion of the regulatory environment that constrains corporate conduct. Finally, the role of government regulation in controlling corporate conduct is just one of many arguments in favor of shareholder primacy. Many of those arguments would be valid even in a night watchman state in which corporate conduct is subject only to the constraints of property rights, contracts, and tort law. As such, even if Strine and Walker were right about the effect of Citizens United on the regulatory state, conservative corporate law theory would continue to favor shareholder primacy over corporate social responsibility.
In his very important and provocative article, Why Did Law Professors Misunderestimate the Lawsuits Against PPACA, 2014 U. ILL. L. REV. 805, Professor David Hyman argued that:
Almost without exception, elite law professors dismissed the possibility that the Patient Protection and Affordable Care Act (variously called “PPACA,” “Obamacare,” and the “Affordable Care Act,”) might be unconstitutional—but something went wrong on the way to the courthouse. What explains the epic failure of elite law professors to accurately predict how Article III judges would handle the case? ...
[1.] Most law professors have little practical experience. ... Thus, law professors unduly discounted the practical difficulties associated with defending PPACA, in no small part because they failed to notice that a majority of the Supreme Court no longer shared their views on the Commerce Clause. ...
 Did constitutional law professors have a strong emotional stake in the outcome of the litigation over PPACA, sufficient to trigger motivated reasoning on the part of those opining? There is good reason to think so. The law represented the signature domestic policy achievement of the Obama Administration—and the culmination of decades of effort by the Democratic Party. Previous research has demonstrated that law professors skew heavily Democratic, with massive underrepresentation of Republicans, conservatives, and evangelical or fundamentalist Christians. ...
 Law professors are not known for their modesty. But even among this group, those who teach and write about constitutional law stand out. ...
 Making predictions is hard. ...
 The preceding factors may help explain how elite constitutional law professors got it so wrong prior to oral argument before the Supreme Court. But, what explains their conduct after oral argument, when it became clear that the constitutionality of PPACA was in serious jeopardy? Rather than admit error, or rethink their original assessment of the probabilities, many of the nation’s elite law professors participated in an extraordinary campaign threatening the Supreme Court (more specifically, threatening Justices Kennedy and Roberts, the plausible swing justices), with de-legitimization if they didn’t rule the “right” way. ...
This strategy substantially raised the political stakes of the dispute, which were high to begin with. For elite constitutional law professors, already inclined to view the Supreme Court as both a political and legal institution, and, as a group, generally committed to an expansive view of federal power, such measures were perfectly reasonable. This was an explicitly bare-knuckles political campaign, waged by a group of elite law professors convinced that they were right and the Supreme Court was about to be wrong. By pursuing politics through other means, the campaign was effectively a declaration of war on those who did not share the academic consensus on the scope of federal power.
To summarize, our nation’s elite law professors organized the aca- demic equivalent of a vigilance committee to enforce what they had defined for themselves as the range of acceptable, mainstream views when it came to the Constitution—just as they had done several decades previously when Robert Bork was nominated to the Supreme Court.
Personally, I've always thought Hyman's second and fifth points were the most plausible explanations. Indeed, if you a sixth factor-aggressive secularism and, in particular, anti-Catholicism among the legal academy--they also explain the legal academy's remarkable harsh reaction to the Hobby Lobby decision. (See, e.g., the over- the-top corporate law professors brief in that case.)
In any case, my friend and co-author Mark Ramseyer has a response piece out that is very much worth reading, because it is written with Mark's typical verve and intelligence:
Is dear reader shocked that our colleagues could so uniformly “misunderestimate” the constitutional problems in the Act? Is he shocked that the 130 signers of an amicus brief supporting this hyperpartisan Democratic statute included no one who had donated to a Republican campaign? Is he shocked that the twenty-two constitutional law scholars surveyed gave ninety-eight percent of their political contributions to Democratic campaigns?
Is dear reader shocked? Captain Renault may have been “shocked, shocked to find that gambling is going on” at the Cafe Americain, but the politics of the constitutional law guild is no secret. One need not down many drinks to learn Ilsa Lund’s politics, and one need not eat many faculty-club sandwiches to learn the politics of the constitutional law crowd. Of intellectual diversity, only feminist jurisprudence and critical race theory have less.
Mark goes on to demonstrate in exquisite detail the left-liberal and secular bias of the academy. He concludes:
Hyman brilliantly details the way constitutional law scholars missed the unconstitutionality of the PPACA. They missed it because they so badly wanted the Act—because they so badly wanted to believe a national health insurance program was possible. They missed it because they let political loyalties trump their judgment—because they let their “moral engagement” block analysis.
And so, once again, the take home lesson is that law schools desperately need intellectual diversity, because right now they are a Democrat /secular humanist monoculture. Time for some affirmative action for "Republicans, conservatives, and evangelical or fundamentalist Christians," not to mention Catholic conservatives.