Corporate personhood

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Corporate personhood is a term used to describe the legal fiction used within United States law that a corporation, under the concept of legal entity, has a limited subset of the same constitutional rights as a human being. The choice of the word 'person' in 'personhood' arises from the way Section One of the 14th Amendment to the United States Constitution was worded and from earlier legal usage of the word 'person'.

Corporations as legal entities have always been able to perform commercial activities, similar to a person acting as a sole proprietor, such as entering into a contract or owning property. Therefore corporations have always had some limited amount of 'personhood', which has allowed corporations to conduct business while shielding individual stockholders from personal financial risk (i.e., protecting personal assets which were not invested in the corporation).

The stronger concept of corporate personhood is often traced to the 1886 U.S. Supreme Court case Santa Clara County v. Southern Pacific Railroad Company (118 U.S. 394), which provided some greater degree of protection from arbitrary state action. In their decision, the justices gave no explanation of how an amendment about the rights of former slaves should also apply to corporations.

Also see creature of statute.

1 History of corporate personhood
2 Twenty-first century developments
3 See also
4 External links
- 4.1 Notable U.S. Supreme Court cases

[edit] History of corporate personhood

The history of corporate law in the United States can be directly tied to the ebb and flow of the debate first enunciated between Alexander Hamilton and Thomas Jefferson over how centralized the government of the United States should be, how much power the member states should have over their own affairs, and how much say citizens and citizen organizations should have in public affairs.

While both Hamilton and Jefferson participated in the creation of the more centralized United States out of the original confederation by the Federalist Party, they had very different ideals as to what the new creation should be. Hamilton believed in a strong central government, which he believed necessary for an industrialized nation, while Jefferson believed in a de-centralized, more agrarian nation (see Jeffersonian democracy). When Hamilton, as the first US Treasury Secretary created a national bank for the new country (see First Bank of the United States), Jefferson was much against the idea. Later, President Andrew Jackson did his best to emasculate the Second Bank of the United States (see Jacksonian democracy).

The Federal Constitution of 1788 did not mention corporations, thereby leaving the chartering of corporations to the states, since the Constitution did not explicitly say otherwise. In the late 1700s and early 1800s, corporations began to be chartered by the states. Corporations already existed in the new nation, but these were primarily educational corporations or institutions chartered by the British crown which continued to exist after the new nation was created from the Confederation. Due to experience as British Colonies and the accompanying corporate colonialism from British corporations chartered by the crown to do business in North America, new corporations were greeted with mixed feelings. Thomas Jefferson said, "I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government in a trial of strength, and bid defiance to the laws of our country."

As with banks, so with other corporations, especially perhaps colleges, the degree of permissible interference was controversial from the earliest days of the nation. In 1790, John Marshall, a private attorney and a veteran of the Continental Army, represented the board of the College of William and Mary, in litigation that required him to defend that corporation's right to reorganize itself and in the process remove professors, The Rev John Bracken v. The Visitors of Wm & Mary College (7 Va. 573; 1790 Supreme Court of Virginia). The Supreme Court of Virginia ruled that the original crown charter provided the authority for the Visitors to make changes including the reorganization.

Thomas Jefferson claimed in his autobiography that he had a hand in the reorganization when he was elected a Visitor of William and Mary after being appointed the Governor of the Commonwealth in June of 1779. His main reason for the reorganization was to move the college from a curriculum rooted in theology to a curriculum rooted in science, fine arts, and languages.

In 1818, the United States Supreme Court heard arguments in another such matter, Dartmouth College v. Woodward 17 U.S. 518 1819. Daniel Webster was the advocate for Dartmouth. He concluded his argument in the following emotional fashion, directly addressed to that same John Marshall, now chief justice. Webster equated the property rights of the donors and their trustees with the cause of literature and science, in short, with civilization itself.

"Sir, you may destroy this little institution; it is weak; it is in your hands! I know it is one of the lesser lights in the literary horizon of our country. You may put it out. But if you do, you must carry through your work! You must extinguish, one after another, all those great lights of science which, for more than a century, have thrown their radiance over our land. It is, Sir, as I have said, a small college. And yet, there are those who love it."

At this point, the Chief Justice is said to have become teary. The following year, he read from the bench the court's decision in that matter.

The key paragraph in the decision is as follows: "The opinion of the Court, after mature deliberation, is that this corporate charter is a contract, the obligation of which cannot be impaired without violating the Constitution of the United States. This opinion appears to us to be equally supported by reason, and by the former decisions of this Court."

A public outcry ensued. State courts and legislatures, supported by many of their constituents, declared that state governments had an absolute right to amend or repeal a corporate charter. (Richard L Grossman and Frank T. Adams, Taking Care of Business, Citizenship and the Charter of Incorporation (Cambridge: Charter, Ink., 1993), p. 11-12).

Seven years after the Dartmouth College opinion, the Supreme Court decided Society for the Propagation of the Gospel in Foreign Parts v. Town of Pawlet, (1823) in which an English corporation dedicated to missionary work, with land in the U.S., sought to protect its rights to that land under colonial-era grants against an effort by the state of Vermont to revoke the grants. Justice Joseph Story, writing for the court, explicitly extended the same protections to corporation-owned property as it would have to property owned by natural persons.

The notion of corporate personhood, then, has roots in the early history of the republic. Still, as the 19th century matured, manufacturing in the US, became more complex as the British Industrial Revolution generated new inventions and business processes which US industry copied. US industry was largely protected by tariffs from British and other foreign competition. The favored form for large businesses became the corporation. And as these corporations came to dominate business life, they also began to dominate America's politicians, lawyers, courts and culture.

The Civil War accelerated the growth of manufacturing and the power of the men who owned the large corporations. The systematic bribing of Congressmen was instituted by Mark Hanna, sugar trust magnate Henry O. Havemeyer, and Senator Nelson Aldrich and their associates. (Jonathan Shepard Fast and Luzviminda Bartolome Francisco, Conspiracy For Empire, Big Business, Corruption and the Politics of Imperialism in America, 1876-1907 (Quezon City, Foundation for Nationalist Studies, 1985), p. 92-97).

Beginning in the 1870s, corporate lawyers became bolder about using the Webster/Marshall theory of corporations as persons, arguing that as such they were entitled to some of the legal protections against arbitrary state action accorded also to natural persons.

It should be understood that the term 'artificial person' was in long use, prior to the Dartmouth College decision, and was in principle distinct from any contention that corporations have the rights of natural persons. 'Artificial person' was used because there were certain resemblances, in law, between a natural person and corporations. Both could be parties in a lawsuit; both could be taxed; both could be constrained by law. In fact the corporations had been called artificial persons by courts in England as early as the 16th century because lawyers for the corporations had asserted they could not be convicted under the English laws of the time because the laws were worded "No person shall..."

In the late 1800s, railroads were the most powerful corporations in the country. Most of the nation's farmers were dependent on them to haul their produce; even the manufacturing corporations were at their mercy when they needed coal, iron ore, finished iron, or any other materials transported. In four cases that reached the Supreme Court (94 U.S. 155, 94 U.S. 164, 94 U.S. 179, 94 U.S. 180 (1877)), railroads tried to argue that the 14th Amendment prevented states from regulating the maximum rates they could charge. These cases did not rely on just an interpretation of the 14th Amendment as most also tied in the Interstate Commerce clause as well. In each case the Court refused to render an opinion as to whether the 14th Amendment applied to corporations instead couching their decision on the Interstate Commerce clause.

Similarly, in 1877, in Munn v. Illinois (94 U.S. 113 (1876)), the Supreme Court decided that the 14th Amendment did not prevent the State of Illinois from regulating charges for use of a business's grain elevators, ignoring the question of whether Munn & Scott was a person.

In Santa Clara County v. Southern Pacific Railroad Company (118 U.S. 394 (1886)), at the lower court levels the question of whether corporations were persons had been argued, and these arguments were submitted in writing to the Court. However, before oral argument took place, Chief Justice Waite announced: "The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does."

Was the 14th Amendment about corporations? One of the 1886 judges, Samuel F. Miller, had not thought so in 1872, only six years after the Amendment had become law, when the court was "called upon for the first time to give construction to these articles." In the Slaughterhouse Cases (83 U.S. 36 (1872)), Miller delivered the majority opinion and discussed the Thirteenth Amendment and the Fifteenth Amendment as well as the Fourteenth as follows:

The most cursory glance at these articles discloses a unity of purpose, when taken in connection with the history of the times, which cannot fail to have an important bearing on any question of doubt concerning their true meaning. Nor can such doubts, when any reasonably exist, be safely and rationally solved without a reference to that history, for in it is found the occasion and the necessity for recurring again to the great source of power in this country, the people of the States, for additional guarantees of human rights, additional powers to the Federal government; additional restraints upon those of the States. Fortunately, that history is fresh within the memory of us all, and its leading features, as they bear upon the matter before us, free from doubt.

...

We repeat, then, in the light of this recapitulation of events, almost too recent to be called history, but which are familiar to us all, and on the most casual examination of the language of these amendments, no one can fail to be impressed with the one pervading purpose found in them all, lying at the foundation of each, and without which none of them would have been even suggested; we mean the freedom of the slave race, the security and firm establishment of that freedom, and the protection of the newly made freeman and citizen from the oppressions of those who had formerly exercised unlimited dominion over him.

(Graham, Howard Jay, Everyman's Constitution, State Historical Society of Wisconsin, 1968. See also Graham, Howard Jay, "The Conspiracy Theory of the Fourteenth Amendment," The Yale Law Journal, Vol. 47: 341, 1938)

It has been argued that the men who wrote the 14th Amendment specifically meant for the word person to be a loophole which you could drive a giant corporation through. Apparently in one of the railroad cases an attorney who had been on the committee that drafted the amendment waved a paper before the court claiming that it documented such; but the paper was not entered as evidence, nor apparently was it shown to anyone, nor was it saved. However, careful research has shown that, John A. Bingham the member of Congress who is known to have been chiefly responsible for the phraseology of Section One when it was drafted by the Joint Committee in 1866, had, during the previous decade and as early as 1856-1859, employed not one but all three of the same clauses and concepts he later used in Section One. More important still, Bingham employed these guarantees specifically and in a context which suggested that free Negroes and mulattoes rather than corporations and business enterprise unquestionably were the persons' to which he then referred.

Later, in Northwestern Nat Life Ins. Co. v. Riggs (203 U.S. 243 (1906)), having accepted that corporations are a type of people, the court still ruled that the 14th Amendment was not a bar to many state laws that effectively limited a corporation's right to contract business as it pleases.

Two Supreme Court judges, Hugo Black and William O. Douglas, later rendered opinions attacking the doctrine of corporate personhood. Quoted here is the conclusion of Justice Black's opinion:

If the people of this nation wish to deprive the states of their sovereign rights to determine what is a fair and just tax upon corporations doing a purely local business within their own state boundaries, there is a way provided by the Constitution to accomplish this purpose. That way does not lie along the course of judicial amendment to that fundamental charter. An amendment having that purpose could be submitted by Congress as provided by the Constitution. I do not believe that the Fourteenth Amendment had that purpose, nor that the people believed it had that purpose, nor that it should be construed as having that purpose.

(Hugo Black, dissenting, Connecticut General Life Insurance Company v. Johnson (303 U.S. 77, 1938).)

Justice Black was not alone in his questioning of the legitimacy of corporate personhood. Justice Douglas, dissenting in Wheeling Steel Corp. v. Glander (337 U.S. 562, 1949), gave an opinion similar to, but shorter than, the one quoted above, to which Justice Black concurred.

[edit] Twenty-first century developments

The understanding of corporate personhood in the United States may be changing as a result of developments in bankruptcy law and mass tort litigation.

Near the end of the 20th century, several major corporations entered chapter 11 (i.e., judicial protection from creditors, on the basis of their liability for harm done or allegedly done to actual or potential plaintiffs by asbestos). Owens-Corning, an insulation manufacturer, was perhaps the most high-profile of these.

Owens-Corning was, formally speaking, not one corporation but several, and it has maintained in the bankruptcy proceedings that the several corporations must be treated separately in any court-directed re-organization.

In 2004, a federal district court ordered the substantive consolidation of the different corporations that operate under the Owens-Cornings name for purposes of re-organization. This is still a hotly disputed matter, and that order was overturned on appeal, but it may prove a landmark in the willingness of courts to pierce the corporate veil.