T.J. Stiles on Hobby Lobby

1 07 2014

Historian and business biographer T.J. Stiles has posted some thoughts about the Hobby Lobby decision here.

 

The Supreme Court’s decision in the Hobby Lobby case raises a very interesting question. It has now created a distinct category of for-profit corporations—the closely held corporation; for that category it has broken down the distinction between the shareholders and managers and the corporation itself, as a legal entity. It has ruled that what the closely held corporation does is now what the shareholders and managers do. How far does that go? Has limited liability been erased? Can the shareholders and managers now be sued or prosecuted for the actions of corporation, or made liable for its debts? The court has breached a legal wall between the corporation and those who own its shares or manage it, and what will pour through is anyone’s guess.

 

I’m neither a lawyer nor a legal historian. I’m a simple business historian who knows a bit about the history of corporate law. I’m inclined to agree with Stiles that this decision may have all sorts of unintended consequences, perhaps along the lines he has anticipated, perhaps things we can’t imagine today. I agree with Megan McArdle that the practical results of this decision are fairly minor. The precedents and implications for legal theory are more momentous, perhaps. Or perhaps not. After all, I’m not a lawyer and even lawyers can’t predict the future. 

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2 responses

2 07 2014
Jonathan J. Weisman

Predicting the future is certainly hard, Andrew. But I think your more restrained take is correct. There is ample precedent for endowing corporations with mental facilities, and without distinguishing religious belief from other kinds of mental structures, a Court would find it difficult to say that a corporation cannot practice religion.

Imposing liability on corporations can require determining the corporation’s “intention”. Since “Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd”, [1915] AC 705 or so, the corporation’s intent is found by examining its “directing mind(s)” — the person(s) whose actions are those of the company itself. The presumption is that the director is that directing mind, but it can be shown that someone else is actually the directing mind.

Mostly, this has been used in situations where a corporation is to be convicted of criminal acts (requiring mens rea) or sued on grounds which require evidence of malice or other purposes (conspiracy, eg.)

It’s hard to accept that one can grant a body corporate intent for punitive or retributive purposes but deny it the same for beneficial purposes. You could decide to eliminate corporate liability for crimes/torts of intent if you wanted to reform the issue. That would not affect the liability of employees/directors/agents who used the corporation as the instrument of criminal or tortious acts, so someone would still be left holding the bag. Presumably the corporation would insure them against such liability on the same terms it does now, so there wouldn’t necessarily be cause for concern over the loss of available funds for compensatory or restitutionary judgments.

I’m also not certain that the decision goes so far as to create separate categories of corporations. It recognizes that the determination of such beliefs may be difficult, but refuses to distinguish corporations on that basis.

4 07 2014
andrewdsmith

Always nice to have an actual lawyer’s opinion on this. Re separate categories of corporations, I suppose it remains to be seen whether the distinction between closely-held and widely-held corporations made in this ruling will have unintended consequences when it is cited by other courts. I’ve been reading a great deal about the SEC and securities law recently and have thus been thinking about such unintended consequences.

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