Kent Greenfield has posted an amicus brief he submitted in pending religious freedom litigation in the State of Washington: Brief for Professor Kent Greenfield As Amicus Curiae in Support of Respondents, State of Washington vs. Arlene's Flowers and Ingersoll vs. Arlene's Flowers.
This amicus curiae brief addresses a fundamental state-law premise of Appellants’ constitutional claims that has gone largely unexplored in the prior briefing: whether Arlene’s Flowers, a Washington for-profit corporation, may obtain an exemption from generally applicable laws based on the religious beliefs of a shareholder, Mrs. Stutzman. Citing the U.S. Supreme Court’s decisions in Burwell v. Hobby Lobby Stores and Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission, Appellants assert that “Arlene’s free-exercise rights are synonymous with Mrs. Stutzman’s.” Those two cases, however, had nothing to do with Washington corporate law and took no stance on the authority of Washington corporations to raise constitutional claims of their shareholders. The assertion that Mrs. Stutzman’s rights are synonymous with the corporation depends on Washington state law and runs counter to the foundational Washington corporate law principle, expressed in Grayson v. Nordic Constr. Co., that “[a] corporation exists as an organization distinct from the personality of its shareholders.”
This amicus curiae brief addresses the significance of corporate separateness to Washington’s law of corporations and explains how Appellants’ arguments rest on a conflation of those distinctions. This Court’s consideration of the constitutional claims in this case will be aided by a full understanding of these important, antecedent aspects of Washington law.
A couple of thoughts. First, although Greenfield does a commendably thorough job of analyzing what Washington state courts say about veil piercing, I'm not convinced Washington courts practice what they preach. The empirical evidence suggests that courts applying Washington state corporate law in fact pierce the corporate veil with not inconsiderable regularity. Bob Thompson's famous 1991 study found that Washington courts pierced in 44.44% of the cases (table six on p. 1051). Importantly, the national pricing rate was 40.18% (table one on p. 1048). And over 30 states had lower piecing rates than Washington (table 6 on p. 1051). To be sure, there were only 27 Washington cases in his database, which makes drawing firm statistical conclusions difficult, but 44% is still 44%. And Washington was still above the national rate and there were still a lot of states with lower piercing rates.
Peter Oh's 2010 study found an almost identical piercing rate by courts applying Washington law at 44.93% (table 6 at p. 116). His study did suggest that Washington law was slightly more reticent about veil piercing than the national norm, as 25 states had a piercing rate of 50% or higher (p.114). Overall, state courts pierced 48.89% of the time (table 5 at p.112), which puts Washington law slightly below the norm.
Even so, however, the bottom line would seem to be that courts applying Washington state law are not as reluctant to pierce as their rhetoric claims.
Second, it is certainly true that I am not a fan of the veil piercing doctrine. Oh's claim that "Stephen Bainbridge ... despises veil-piercing" (p.96) puts it a tad more strongly than I might, but it's not an unfair comment.
Having said that, however, I continue to think that courts would do well to adopt the doctrine of reverse veil piercing as a tool for deciding when a corporation may assert constitutional religious freedom claims on behalf of its shareholders. To put it crudely, veil piercing stinks, but it stinks less than the other options.
in my article, Using Reverse Veil Piercing to Vindicate the Free Exercise Rights of Incorporated Employers, which was published in The Green Bag, Vol. 16, No. 3, Spring 2013, and is available at SSRN: https://ssrn.com/abstract=2229414, 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.
In my subsequent article, A Critique of the Corporate Law Professors’ Amicus Brief in Hobby Lobby and Conestoga Wood, 100 Virginia Law Review Online 1 (2014), available at SSRN: https://ssrn.com/abstract=2399638, I took on 44 corporate and criminal law professors (including Greenfield), arguing that:
The Patient Protection and Affordable Care Act (ACA) effected numerous changes in the legal regime governing health care and health insurance. Among the ACA’s more controversial provisions is the so-called contraceptive mandate, which requires employer-provided health care insurance plans to provide coverage of all FDA approved contraceptive methods.
On March 25, 2014, the Supreme Court will hear oral argument in the Hobby Lobby and Conestoga Wood cases, in which the shareholders of two for-profit family-owned corporations argue that requiring them to comply with the contraception mandate violates the Religious Freedom Restoration Act.
Forty-four law corporate law professors filed an amicus brief in these cases, arguing that the essence of a corporation is its “separateness” from its shareholders and that, on the facts of these cases, there is no reason to disregard the separateness between shareholders and the corporations they control. The Brief is replete with errors, overstated claims, or red herrings, and misdirection.
Contrary to the Brief’s arguments, basic corporate law principles strongly support the position of Hobby Lobby and Conestoga Wood. In particular, the doctrine known as reverse veil piercing provides a clear and practical vehicle for disregarding the legal separateness of those corporations from their shareholders and thus granting those shareholders standing to assert their free exercise rights.
In it, by the by, I passed along what I thought was a particularly keen observation by a prominent practitioner:
Corporate law expert Keith Paul Bishop conducted a thought provoking analysis of the Brief by substituting “social responsibility” for “religious” in some of the Brief’s most breathless passages. He notes that, if the transfer of stockholder religious beliefs to the corporation would be ‘overwhelming,’ why wouldn’t the same be true of beliefs regarding climate change, the environment, or other beliefs animating the corporate social responsibility movement?” Keith Paul Bishop, 44 Law Professors Make A Case Against Corporate Social Responsibility, California Corporate & Securities Law Blog (Feb. 10, 2014), http://calcorporatelaw.com/2014/02/44-law-professors- make-a-case-against-corporate-social-responsibility/. He concludes that, “[i]f corporations can’t have religious beliefs, then it follows that they can’t believe in climate change, sustainable investment or any other beliefs embraced by the corporate social responsibility movement.” Id.
Indeed.
Note that I am emphatically not taking a position on how the pending cases should come out. I have not grappled with, among other things, the procedural posture of the cases. Greenfield may well be correct in his arguments about the factual specifics of those issues. indeed, given that he's a careful scholar, I assume he is.
Given that courts applying Washington law pierce almost half the time, however, to the extent veil piercing is at issue in these cases perhaps the Washington courts should consider reverse veil piercing as a way of solving the basic legal problem.
