We the Corporations Page 8
Binney told the justices they should pierce the corporate veil. To decide this case, they ought to look right through the corporate form and allow the Bank to sue in federal court because the Bank’s members were “Citizens.” “A corporation is a mere collection of men,” Binney insisted. The “residence and inhabitancy [of] the particular members” ought to determine whether a corporation can sue or be sued in federal court. The Farmers guaranteed the right of access to the federal courts to protect people from the biases of local judges, and denying the corporation’s members such access “would be a result clearly contrary to the intention and spirit of the constitution.”30
Another lawyer who appeared before the Supreme Court at the same time as Binney was John Quincy Adams. At 44, the son of the second president of the United States had already been a US senator and a professor at Harvard, and was about to be named minister to Prussia. Just months after the Bank case, Adams would be nominated and confirmed to the nation’s highest court himself. He declined, thinking the Supreme Court position somewhat of an insult; after all, he was by then busy negotiating the fate of the world with the tsar. Yet back in February, Adams was still practicing law, which was what brought one of the most legendary figures in American history to Long’s Tavern at the same time as Binney. Adams’s case, Hope Insurance v. Boardman, would be his last appearance in the Supreme Court for thirty-two years, when he returned in 1841 as the former president to argue in the famous Amistad case for the rights of African slaves caught at sea.31
Historians have written off the Hope Insurance case as “of little consequence.” Yet, along with the Bank of the United States case, it was part of the first set of corporate rights cases. And much as he would later argue for the rights of slaves, Adams argued here for the constitutional rights of corporations. Adams was representing two Boston men whose case against the Hope Insurance Company, a Rhode Island insurance corporation, raised the same issue of corporate citizenship under the Judiciary Act and Article III. Adams, however, was seeking to vindicate the other side of the corporation’s right to sue: the right to be sued. Recall that Blackstone described the corporation as typically having the right to sue and to be sued. The corporation’s legal standing could be used by the corporation when it sued someone, as in the Bank’s case, or by others when they sued the corporation. The latter was the type of case Adams had. His clients wanted to sue in federal court because they thought the judiciary of Rhode Island, where Hope Insurance was located, would be biased in favor of the company. Although Binney and Adams were coming at the problem from different angles, they ended in the same place: corporations, both argued, should have the right to sue and be sued in federal court.32
FUTURE PRESIDENT JOHN QUINCY ADAMS ARGUED THAT CORPORATIONS, LIKE CITIZENS, HAD THE RIGHT TO SUE AND BE SUED IN FEDERAL COURT.
Rounding out the all-star cast of lawyers were Jared Ingersoll, a former member of the Constitutional Convention of 1787 who was appearing on behalf of Hope Insurance, and Philip Barton Key, who represented Peter Deveaux, the Georgia tax collector. Key, the uncle of “The Star-Spangled Banner” lyricist Francis Scott Key, was perhaps in some ways the most extraordinary of the remarkable figures who gathered in Long’s Tavern. Key had fought in the Revolutionary War on the side of the British, but he became the rare Loyalist welcomed back into the upper echelons of American society after Independence. He was elected to Congress, served for a short time as a federal judge, and then returned to private practice, where he represented powerful clients. In 1805, for instance, four years before the Bank case, Key successfully defended Supreme Court justice Samuel Chase in his impeachment trial, establishing a precedent—still adhered to today—that federal judges should not be impeached for political reasons. So when Key appeared before the justices in the corporate rights case, he could count on the personal gratitude of one justice and the warm appreciation of all the others.33
Key’s argument for limiting corporate rights was centered on corporate personhood. “But it is said that you may raise the veil which the corporate name interposes, and see who stand behind it,” said Key, in response to Binney. The Bank’s lawsuit, however, “is brought in the corporate name.” The members “expressly averred themselves to be a body corporate, and to sue in that capacity.” The Bank itself, “not the individual stockholders,” was the plaintiff. Using an argument that populists would make often in the two hundred–plus years of corporate rights cases, Key insisted that the corporation and its members must be deemed separate and distinct under the law. “No corporation . . . can derive aid from the personal character of its members; nor does it incur any disability from [their] disabilities,” Key told the justices. The purpose of the corporation was to be an independent legal actor, separate and apart from the people who create it. The court, Key argued, was without the “power to examine the character of the individuals to ascertain whether the corporation has a right to sue in a certain court.” The question was whether corporations were “Citizens” under the Judiciary Act and Article III, not whether their members were.
IN THE FIRST CORPORATE RIGHTS CASE, PHILIP BARTON KEY ARGUED FOR LIMITING THE RIGHTS OF CORPORATIONS BY RECOGNIZING THEIR UNIQUE LEGAL PERSONHOOD.
When Adams rose to address the justices, he was forced to admit Key’s point, that under the law a corporation was traditionally deemed a person with its own separate legal identity. A corporation’s “powers, its duties and capacities are different from those of the individuals of whom it is composed,” Adams recognized. “It can neither derive benefit from the privileges, nor suffer injury by the capacities, of any of those individuals.” Nonetheless, he argued, the court should still ignore the corporate form. The justices, he advised, should rule that corporations were citizens under Article III because that would serve the basic purposes of diversity jurisdiction—perhaps even more so in the case of a corporation than in one involving an individual. “If there was a probability that an individual citizen of a state could influence the state courts in his favor, how much stronger is the probability that [the courts] could be influenced in favor of a powerful moneyed institution which might be composed of the most influential characters in the state?” In determining whether corporations had constitutional rights, Adams argued, the justices should not be “limited by the letter of the constitution” but should instead promote the broad purposes of the document.
Bank of the United States v. Deveaux and its companion case, Hope Insurance, thus presented the Supreme Court with two different ways of thinking about the constitutional rights of corporations. Like the populist Justice Johnson, Key argued that corporations were people—independent entities with legal rights and obligations separate and apart from the people who make them up. Due to that legal separation, the rights and duties of the members did not transfer to the corporation, or vice versa. The question facing the court was whether corporations, as such, were citizens guaranteed the right to sue in federal court. Horace Binney and John Quincy Adams argued conversely that corporations were associations—collectivities that enjoyed the same rights and obligations as their members. According to this more corporationalist perspective, the court should pierce the corporate veil and ask whether the corporation’s members were citizens guaranteed the right to sue in federal court.34
These two contrasting ways of thinking about corporations were first introduced to American law in the Bank of the United States and Hope Insurance cases. Ever since, the history of corporate rights has largely been a struggle between the disparate poles of personhood and piercing, between populists and corporationalists. Today’s critics of Citizens United often blame corporate personhood for the Supreme Court’s expansive protection of corporate rights. Yet historically, the logic of personhood has usually been employed by populists seeking to narrow or limit the rights of corporations. By contrast, expansive constitutional rights for corporations have frequently been a product of the corporationalist logic of piercing. When the Supreme Court has ignored the corporate form and lo
oked to the rights of the individuals who made up the corporation, the rulings naturally tended to give corporations nearly all the same rights as individuals. Expansive constitutional rights for corporations were built into the logic of piercing.
After the hearing, Adams confided in his diary that his presentation to the justices had not gone well. “The ground which I was obliged to take appeared to the court untenable, and I shortened my argument, from the manifest inefficacy of all that I said to produce conviction upon the minds of any of the Judges.” He need not have been so worried. For despite Jefferson’s appointment of justices like Johnson to the Supreme Court, Hamiltonian justices like Chief Justice John Marshall and Samuel Chase, who favored corporate rights, remained in control.35
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IN THE BANK OF THE UNITED STATES case, Hoarce Binney was asking the Surpeme Court to exercise its fundmental power of judicial review—the authority to determine the constitutionality of laws and strike them down. Binney and the Bank ultimately hoped to have Georgia’s tax on the Bank declared unconstitutional and void. The origins of this power of courts to invalidate duly passed laws have long been obscure. At the time of the Revolution, English courts did not have this ability to review acts of Parliament. For many years, Chief Justice Marshall was credited with inventing judicial review “out of the constitutional vapors” (in one historian’s memorable description) in the celebrated 1803 case of Marbury v. Madison. In truth, however, judicial review is another of the distinctive features of American constitutionalism that can be traced back to the corporation.36
Recall that Blackstone wrote that corporate bylaws “contrary to the laws of the land . . . are void.” As an earlier treaty from 1659 phrased it, bylaws must not be “repugnant to the Laws of the Nation.” In England, where there was no written constitution, the “laws of the land” were those adopted by Parliament. Colonial corporate charters explicitly referenced this principle of repugnancy. The Virginia Company’s revised charter of 1611, for example, provided that the corporation could enact bylaws for its own governance if they “be not contrary to the laws and statutes of this our realm of England.” The principle of repugnancy grew to serve as a restriction on colonial legislatures, the bodies empowered by the charters to adopt bylaws for the colonies. The Privy Council in England reviewed over 8,500 acts of the colonial legislatures for repugnancy before the Revolution. That practice of repugnancy review was gradually transformed from a limit on English corporations into a limit on colonial lawmaking.37
In England, the laws passed by Parliament were the supreme law of the land. In nascent America, however, the supreme law of the land was found in the Constitution of the United States. Hamilton referred to this in Federalist 78, where he famously described the duty of the judicial branch “to declare all acts contrary to the manifest tenor of the Constitution void.” The repugnancy principle also appeared in the Judiciary Act of 1789, which authorized the Supreme Court to review state laws alleged to be “repugnant to the constitution, treaties or laws of the United States.” Marshall’s opinion in Marbury referred to this key principle that grew out of corporate law too. The question in that case, Marshall wrote, was “whether an act, repugnant to the Constitution, can become the law of the land.” A “law repugnant to the Constitution is void,” Marshall explained, and therefore the courts were obliged to invalidate it.38
Over the course of American history, the power of judicial review would be used by the Supreme Court to transform the nation. Most famously, the court would employ this authority in the civil rights era to tear down Jim Crow in cases like Brown v. Board of Education, voiding laws requiring racially segregated schools, and Loving v. Virginia, holding prohibitions on interracial marriage contrary to the Constitution. The court used the power of judicial review to vindicate the rights of women in the 1970s, the rights of the disabled in the 1980s, and the rights of gays and lesbians at the turn of the twenty-first century. For most of American history, though, the Supreme Court used judicial review to benefit business. And one of the earliest examples was the Bank case of 1809, in which Chief Justice Marshall and the Supreme Court established the first constitutional right for corporations.
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LIKE ALEXANDER HAMILTON, John Marshall favored the growth of corporate enterprise and supported the Bank of the United States in particular. In his opinion for the court in Bank of the United States v. Deveaux, Marshall enthusiastically embraced Horace Binney and John Quincy Adams’s theory about how to think about corporations under the Constitution. (Despite Adams’s poor performance, the future president won his case, too. Although there was no separate opinion in Hope Insurance, the Supreme Court reporter directed readers to see the opinion in Bank of the United States, which decided the same issue, “the right of a corporation to litigate in the courts of the United States.”)39
Marshall’s opinion admitted that the question involved in the case was “one of much . . . difficulty.” First he examined the Bank’s charter of incorporation to see if Congress, in creating the Bank, had explicitly conferred upon it the right to sue and be sued in federal court. Although the charter did explicitly grant the Bank “a capacity to make contracts and acquire property, and enables it ‘to sue and be sued’ ”—the three core rights identified by Blackstone—Marshall said that was insufficient. Congress could have meant only to grant the Bank the right to sue and be sued in state court. To extend to corporations the right of access to federal court, however, would have required Congress to say so explicitly.40
CHIEF JUSTICE JOHN MARSHALL WROTE THE OPINION IN BANK OF THE UNITED STATES V. DEVEAUX (1809), THE FIRST SUPREME COURT DECISION RECOGNIZING CORPORATE RIGHTS.
The question, then, turned not on the meaning of the Bank’s charter but on the meaning of the Constitution. Although Marshall recognized that the law often deemed a corporation to be a legal person—“for the general purposes and objects of a law,” the corporation was often “included within terms of description appropriated to real persons”—a corporation was “certainly not a citizen.” That title was reserved to human beings, and there was no evidence from the founding period that the citizens referred to in Article III included corporations.
Yet that still did not answer the question conclusively, Marshall explained, because constitutions were to be read expansively. “A Constitution, from its nature, deals in generals, not in detail. Its framers cannot perceive minute distinctions which arise in the progress of the nation, and therefore confine it to the establishment of broad and general principles.” The purpose of diversity jurisdiction under Article III was to protect people against potentially parochial and biased state courts. The court was obliged to read Article III to fulfill that promise, which in Marshall’s view meant extending the right to sue and be sued in federal court to corporations—regardless of the fact that corporations were not citizens.
While Marshall embraced John Qunicy Adams’s argument about broadly reading the Constitution, he also pierced the corporate veil as Horace Binney had suggested. Corporations might not be citizens, but their members were. Marshall described the corporation as an “invisible, intangible, and artificial being,” employing a phrase he would use again in another corporate rights case, Dartmouth College v. Woodward, decided a decade later. Although some have mistakenly interpreted that language in Dartmouth College to mean that Marshall embraced corporate personhood, in fact he meant the opposite. Marshall was saying that corporations were too ethereal to be the basis for constitutional rights and that, instead, the court should focus on the corporation’s members. “Substantially and essentially, the parties in such a case” are the “members of the corporation.” The corporation was just a stand-in for a group of “individuals who, in transacting their joint concerns, may use a legal name.” Because the people who associated together within the corporation were the real parties to the case, Marshall held, their citizenship should control. According to Elizabeth Pollman and Margaret Blair, two of the few scholars to have carefully stud
ied the Bank of the United States case, Marshall “looked to the natural persons composing a corporation.” As Marshall himself stated in the opinion, the court was obliged to “look beyond the corporate name and notice the character of the individual.”41
An astute legal craftsman, Marshall knew that his reasoning ran counter to the traditional way the law had treated corporations—as independent legal entities with rights and obligations separate and distinct from those of their members. His opinion surveyed a series of English cases dealing with the ability of corporations to sue and be sued more generally, admitting sheepishly that they provided “more strong” support for treating a corporation as its own legal person rather than “to consider the character of the individuals who compose it.” Nevertheless, Marshall insisted, “this technical definition of a corporation” should be set aside to protect the rights of the corporation’s members, who undoubtedly were citizens.
Although Marshall based a corporation’s ability to sue in federal court on the citizenship of its members, the esteemed jurist never identified who exactly counted as a member of a corporation. Was it the stockholders? The employees? The directors? Bank of the United States v. Deveaux offered no answer, even though the logic of piercing made this question vitally important. In 1806, three years prior to the Bank of the United States case, the Supreme Court held in another case involving diversity jurisdiction that the parties must be completely diverse; all of the plaintiffs must be from different states than all of the defendants. Even today, the requirement of complete diversity remains the law of the land. Yet because Marshall did not specify who counted as a member of the corporation, he never bothered to ask whether, in fact, all of the Bank’s members were diverse from Peter Deveaux. Given the Bank’s relatively large class of stockholders, it was likely that at least one hailed from Deveaux’s home state of Georgia, which meant there would not be complete diversity. Marshall skipped right over this key issue and declared that the Bank had the right to sue the tax collector in federal court. He declared the rights of the members paramount, but the actual membership remained abstract, undefined, and unexamined. This would become a common theme in the corporate rights cases to come; the courts would base corporate constitutional protections on the rights of the members without ever seriously questioning who the members were or what the members wanted.