We the Corporations Page 13
The railroads also transformed the stock market. The capital demands of buying land, grading and laying tracks, and operating the lines could not be met by the personal wealth of a handful of partners. Banks, scared by the cutthroat competition that often led to new railway lines being sited right next to existing ones, saw the roads as risky investments. To raise money, railroad corporations turned instead to the stock market. In 1830, before the exponential growth of the railroads, the New York Stock Exchange had days when fewer than fifty shares were traded. By the outbreak of the Civil War in 1861, however, when railroad stocks were pervasive, tens of thousands of shares were traded daily.57
Railroad corporations were easily able to manipulate the rule of Bank of the United States. Courts would often look to a corporation’s directors in determining the state of citizenship of that corporation’s members. So when railroads wanted to escape federal court they would add a director from the same state as the plaintiff, thus destroying the necessary diversity of citizenship. The logic of piercing the corporate veil meant that corporations could often choose for themselves whether they would be subject to suit in federal court.58
Like many of the emergent interstate businesses, the B&O wanted Alexander Marshall’s case about the broken lobbying contract to be heard in state court—preferably in Maryland, where the B&O was among the most influential businesses in the state. If the original Bank of the United States fretted about anticorporate bias in the state courts, the B&O was counting on the state court to be biased in its favor. The federal courts, by contrast, were filled with populist judges less likely to lean in favor of corporate interests. So while the Taney court agreed that corporations should have some access to federal court, Taney’s vision of that right was different. He objected to the easy manipulability of Bank of the United States’s piercing rationale and sought to establish a rule that would make corporations more easily and reliably amenable to suits in federal court by those who sought to hold the emergent insterstate businesses accountable.
The Taney court first made that clear in another railroad case of the era, Louisville, Cincinnati & Charleston Railroad Company v. Letson. Decided in 1844, the same year as Morse’s telegram, Letson was the first Taney court case to suggest that a corporation could not use the citizenship of its members to keep itself out of federal court. Observing that Bank of the United States had “never been satisfactory to the bar” and suggesting, improbably, that John Marshall himself later thought the case wrongly decided, the Taney court insisted that the citizenship of “the members, who cannot be sued,” was irrelevant. “The corporators, as individuals, are not defendants in the suit,” the court explained. The suit was against the railroad itself, so “nothing must be looked at but the legal entity.” The Louisville was incorporated in South Carolina, its home state, and that, not the citizenship of the Louisville’s members, should control. The court explicitly relied on corporate personhood: a corporation “seems to us to be a person, though an artificial one, inhabiting and belonging to that state, and therefore entitled for the purposes of suing and being sued to be deemed a citizen of that state.”59
In Marshall v. Baltimore & Ohio Railroad Company, the court continued to divorce itself from the corporationalist logic and reasoning of Bank of the United States. The court’s 1853 decision refused to allow the B&O to remove its case to state court. For purposes of federal court jurisdiction, the railroad’s state of incorporation was determinative, regardless of the citizenship of the directors, stockholders, or any other members. The corporation had a right to sue and be sued in federal court, but that right was not based on the rights of members. It was based on the rights appropriate for a corporate person created and established under the laws of a particular state. The court held that no inquiry into the citizenship of the members would even be allowed. The corporation was, the court said, a “juridical person”—an independent legal actor in the eyes of the law whose rights were separate from the rights of its members.60
To this day, when corporations are sued in federal court on diversity grounds, the Taney court’s decisions remain the law of the land. Corporations can sue and be sued in federal court, but their citizenship is determined by their state of incorporation or by their principal place of business. The courts do not look to the citizenship of the corporation’s directors or stockholders. Corporations continue to enjoy the basic constitutional right to sue and be sued in federal court first extended to them in Bank of the United States, yet because of the Taney court’s interventions the right today is different in scope and effect than it was under Marshall. Here, at least, corporations were people, with their own independent legal identity and rights.
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DESPITE THEIR HEATED BATTLES over the rights of corporations, Daniel Webster and Roger Taney would both have their legacies deeply impacted by another great American fight over equal rights. Slavery would stamp the historical memories of both men with a measure of dishonor. Taney, of course, would forever be associated with Dred Scott v. Sandford, the Supreme Court’s 1857 decision holding that blacks were not citizens under the Constitution. The “peculiar institution” took its toll on Webster too when, in 1850, at the end of his career and desperate to save the Union from being torn apart, the longtime opponent of slavery endorsed the Compromise of 1850, which allowed slavery in the southern territories. Webster’s constituents in Massachusetts, the hub of abolitionism, were outraged. After four months of withering attacks, Webster was forced to resign from the Senate in humiliation.
America in the 1850s was roiled by debates over slavery. After decades of avoiding direct confrontation, elected officials in Washington were forced by westward expansion to confront, once and for all, the future of involuntary servitude in America. The results were bloody, from the plains of Kansas, where a small-scale civil war foreshadowed a larger one, to the floor of Congress, where Senator Charles Sumner was caned nearly to death after making an antislavery speech. The Constitution only exacerbated the growing sectional tensions. Because the Constitution guaranteed each state two votes in the Senate, a representative in the House, and votes in the Electoral College, each side in the slavery debate fought to win the admission of more and more states sympathetic to it.
Slavery tainted Taney’s legacy, Webster’s memory, and nearly everything else in the years before the Civil War—including the rights of corporations. Indeed, when the Supreme Court decided Marshall v. Baltimore & Ohio Railroad Company, slavery was foremost on the minds of several of the justices. Peter Daniel, John Campbell, and John Catron were three southern justices and strong defenders of slavery. Although they agreed with Taney that corporations should not have expansive rights, they went even further than the chief justice on the issue of the corporation’s right of access to federal court. They argued that Bank of the United States should be overturned in its entirety, and that corporations should have no right whatsoever to sue in federal court. Race was their reason. A definition of “Citizens” loose enough to include a purely legal person like a corporation might also be broad enough to include slaves, who were after all real, living human beings. And if slaves were citizens, they too would have constitutional rights.61
Whether blacks were “Citizens” under Article III was the precise question at issue in Dred Scott. Dred Scott claimed to have been liberated when he was taken through “free” territory, and he sued in federal court to clarify his legal status. Just like the Bank of the United States before him, Dred Scott argued that he was a citizen entitled to sue in the federal courts. Justices Daniel, Campbell, and Catron need not have worried that expansive rights for corporations would translate into expansive rights for the racially oppressed. Taney’s majority opinion in Dred Scott dismissed Scott’s claim of constitutional citizenship. The Framers of the Constitution did not intend for blacks to be citizens, Taney argued, and the Constitution “must be construed now as it was understood at the time of its adoption.” It was a principle of constitutional interpretation the T
aney court did not apply in the context of corporations; there was no evidence the Framers understood Article III to include corporations. Taney, who wrote the infamous line about African Americans having “no rights which the white man was bound to respect,” thought blacks were not legal persons but corporations were.62
Taney’s decision in Dred Scott would go down as one of the worst decisions in Supreme Court history. Taney imagined it would have precisely the opposite legacy, that it would calm the growing tensions over slavery and put the country on a sound foundation going forward. If anything, it hastened the resort to arms and a conflict that would take the lives of over 600,000 Americans. The Civil War, however, also led to broad new protections being added to the Constitution to protect the rights of racial minorities. Yet for several decades, the intended beneficiaries would have little to show for their newfound constitutional guarantees. Corporations, by contrast, would use those same provisions to greatly expand the civil rights of business. And the story of how they did is one of the most bizarre and disturbing in the history of the Supreme Court.
PART THREE
PROPERTY RIGHTS, NOT LIBERTY RIGHTS
KNOWN AS THE “OCTOPUS” FOR ITS GRIP ON POLITICS IN THE WEST, THE SOUTHERN PACIFIC RAILROAD COMPANY ALSO FOUGHT IN COURT TO SECURE CONSTITUTIONAL PROTECTIONS FOR CORPORATIONS.
CHAPTER 4
The Conspiracy for Corporate Rights
THE FOURTEENTH AMENDMENT TO THE CONSTITUTION, adopted after the Civil War, is one of the brightest stars in the constellation of liberty. As everyone knew when it was ratified in 1868, the amendment’s guarantees of equal protection and due process were designed to secure the rights of the newly freed slaves and protect them from discrimination by the states. Nearly a decade and a half later, however, in December of 1882, the esteemed Roscoe Conkling told the justices the Fourteenth Amendment was also written to protect the rights of corporations like his client, the Southern Pacific Railroad Company.
Although no lawyer could approach Webster’s soaring rhetoric, Conkling was also known as a master orator and had the respect of the justices, as well as their ear. “No man ever came into our court who was listened to with more undivided attention than Roscoe Conkling,” said Chief Justice Morrison Waite, who presided over the Southern Pacific’s case. Justice Samuel Miller, whose previous opinions seemed to foreclose Conkling’s argument that the Fourteenth Amendment applied with equal force to corporations, nonetheless agreed that “for the discussion of the law and the facts of the case Mr. Conkling is the best lawyer who comes into our court.”1
Conkling was the leader of the Republicans in Congress for nearly two decades immediately after the Civil War, when Republicans dominated Washington. A member of the House and then the Senate, Conkling was often rumored to be a presidential candidate. Although he never became his party’s presidential nominee, he was twice nominated to the Supreme Court. The second time was just months before he made his argument on behalf of the Southern Pacific. Even though the Senate voted to confirm him, Conkling declined, pleading poverty. Like Webster, Conkling, who spent his career in public service, needed the money—especially the kind a lawyer could make representing the Southern Pacific, one of the largest, most politically powerful corporations of the late nineteenth century.2
Conkling was especially persuasive when it came to the meaning of the Fourteenth Amendment. He had, after all, helped write it. Back in 1866, Conkling served on Congress’s Joint Committee on Reconstruction, which drafted the Fourteenth Amendment. Now, a decade and a half later, who would know more than Conkling about what was on the mind of the drafters when they wrote it? By 1882, Conkling was the last surviving member of the Joint Committee. With no one to refute him, Conkling told the justices that he and the other drafters intended to protect business corporations in addition to the freed slaves. The amendment was designed to protect not just the weakest and most subjugated people in the nation but also the most powerful and wealthy corporations. Even the Southern Pacific, whose grip on politics in the West earned it the nickname “the Octopus,” was entitled to the protections of the Fourteenth Amendment—and could use those protections to overturn laws burdening the railroads.
Like Webster, Conkling had a flair for showmanship, and he backed up his claim with a surprising piece of evidence: a journal that included the never-before-published record of the deliberations of the Joint Committee as it drafted the Fourteenth Amendment. The journal, Conkling told the justices, supported his recollection about the intent of the drafters. While obviously the freedmen were the primary concern of the committee, Conkling pointed to passages of the journal which showed, he said, that the wording of the amendment had been purposefully changed during the drafting process to include corporations. The amendment as finally ratified provided in relevant part, “No State shall . . . deprive any person of life, liberty, or property without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.” Conkling told the justices that an early version had used the word “citizen” instead of “person.” The latter was ultimately chosen, however, because the drafting committee had received many complaints from businesses about discriminatory state laws, such as the types of restrictions on interstate commerce endorsed by the Taney court in Bank of Augusta v. Earle. To protect those businesses, the drafters used the word person because corporations, according to Blackstone, had been recognized to be legal persons.
Conkling’s extraordinary argument was an admission of a conspiracy of constitutional dimensions. He was saying that there had been a concerted effort by the men who drafted the Fourteenth Amendment, working at the highest levels of the government, to protect corporations under the guise of protecting the freedmen. The drafters had inserted the word persons instead of citizens with the goal of covering corporations but never told anyone of their purpose or of the effect of the word choice. As a result, the constitutional rights of corporations were not mentioned in any of the ratification debates over the amendment. Nevertheless, corporations now had rights of equal protection and due process.3
Conkling’s account of the drafting history was fanciful. There was no conspiracy by the drafters of the Fourteenth Amendment to sneak broad new protections for corporations into the Constitution. Congress had not hoodwinked the American people. Rather, the fraud was Conkling, who purposefully misled the justices about the original meaning and intent of the Fourteenth Amendment.
If there was any conspiracy, it was not in the drafting of the Fourteenth Amendment back in the 1860s but involved instead a quartet of corporationalists more than a decade later who doggedly sought a ruling by the Supreme Court extending Fourteenth Amendment rights to corporations. They included Conkling, who in a moment of personal and financial crisis was willing to say anything to win his case; Justice Stephen J. Field, an influential pro-business jurist with questionable scruples who was once arrested for murder; and J. C. Bancroft Davis, a self-aggrandizing court reporter who sought to write his own views about the rights of corporations into the law books. The fourth “person” in the quartet was one only by the lights of the law: the Southern Pacific Railroad Company, whose fight for constitutional protections would lead it to employ some of the same affirmative, strategic litigation tactics that would later be used by civil rights activists in the 1940s and 1950s.
THE PUSH TO EXTEND FOURTEENTH AMENDMENT RIGHTS TO CORPORATIONS WAS LED BY ROSCOE CONKLING
JUSTICE STEPHEN J. FIELD
J. C. BANCROFT DAVIS
THE SOUTHERN PACIFIC RAILROAD.
We do not know if these four ever explicitly agreed to work together to expand the rights of corporations. Yet there was significant interaction among them, and as a result of their combined, if perhaps not coordinated, efforts the Fourteenth Amendment was converted from a shield for the rights of racial minorities—who found little protection from the Supreme Court for the next half-century—into a weapon for corporations to use against state laws regulating business activity.
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WHEN ROSCOE CONKLING ADDRESSED the justices of the Supreme Court on December 20, 1882, the courtroom was packed. The justices were now holding court in the former Senate Chamber, off what journalist E. V. Smalley described as a “rather dingy and ill-lighted passage” in the United States Capitol. The entryway, said Smalley, looked like a “closet door.” Inside there were rows of benches covered with red velvet cushions, where a coterie of Washington’s society women could often be found. They were not necessarily there for the love of the law. Smalley noted that the Supreme Court had “the only really comfortable seats for public use to be found in the Capitol.”4
In fact, the spectators in the plush benches had a plethora of entertainment options, a by-product of the Gilded Age. After the Civil War, the American economy, fueled by industrialization and urbanization, experienced unprecedented growth, nearly doubling in size between 1877 and 1893. American workers moved from farms to factories, and their increasing employment by corporations meant fewer working hours, more leisure time, and more dependable—and disposable—income than could be found in agriculture. Leisure activities, once the exclusive province of the wealthy, were now beginning to become available to the emerging middle class, which eagerly embraced spectator sports, like baseball and boxing; amusement parks, circuses, and dime museums; and the ribald comedy of burlesque shows. The novel forms of entertainment were all born of, or quickly transformed into, commercial enterprises. Entertainment became a product to sell to the masses.