We the Corporations Page 9
Chief Justice Marshall’s embrace of piercing was nevertheless so complete that Bank of the United States, although mostly overlooked today as a constitutional law case, is from time to time still cited for establishing the business law doctrine of veil piercing. As previously noted, however, piercing the veil in business law cases is limited to rare cases involving fraud or abuse; it is the exception, not the rule. In constitutional law, by contrast, the exception would become the rule. And although modern corporate rights cases like Citizens United do not cite Bank of the United States, the court’s approach in that ancient case nonetheless features prominently throughout the two centuries of corporate rights jurisprudence that followed in its wake. Piercing the veil, and allowing a corporation to claim the rights of its members, would be the conceptual tool the court would use to justify the extension of a wide variety of constitutional rights to corporations.
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THE BANK OF THE UNITED STATES was a constitutional first mover. Although the text of the Constitution did not explicitly grant any protections to corporations, the Bank set out to secure an authoritative ruling by the Supreme Court recognizing the Bank’s rights. In time, other movements would follow a similar pathway to secure their civil rights. Yet the Bank’s victory was both long-lasting and short-lived. It was durable in that the general principle established by the decision—that corporations have constitutional protections—remains firmly embedded in American law. The triumph was temporary in that the Bank would not survive long enough to exercise its newfound constitutional freedom.
When Chief Justice Marshall handed down the court’s ruling in March of 1809, the Bank of the United States faced the threat of imminent closure. While modern corporations typically enjoy perpetual life, Congress had only chartered the Bank for twenty years as a compromise to attract the votes necessary to pass Hamilton’s controversial law. That meant the Bank would need to obtain a new charter from Congress in 1811 if it were to carry on. Hamiltonian backers of the Bank had already begun lobbying Congress to renew the charter when Bank of the United States v. Deveaux was argued before the Supreme Court. Jeffersonians remained firmly opposed, and the bitter partisanship of the earlier Bank debate manifested itself once again.
That larger context explains why an important question in the Bank of the United States case was left unanswered by the court. Marshall’s opinion said nothing about the legal issue that led the Bank to sue in the first place: Did the Constitution permit a state like Georgia to tax a federal corporation like the Bank? Students of constitutional law will recognize that to be the same question at issue in McCulloch v. Maryland, a landmark Supreme Court case from 1819 that held states could not impose such taxes on federal entities. McCulloch remained to be decided only because Marshall had ducked that same question a decade earlier in the first corporate rights case. Marshall’s opinion avoided the issue entirely, returning the case to the lower court for consideration instead. It was not an oversight. Marshall was trying to protect the Bank. A Supreme Court ruling prohibiting states from taxing the Bank would only inflame populists opposed to reissuing the Bank’s charter.42
In the congressional deliberations over extending the charter, the Bank’s prospects appeared at first quite dim. Then the Bank received unexpected support from two of its most vociferous and abiding critics, James Madison and Thomas Jefferson. Although both men had opposed the original creation of the Bank, their views ultimately changed, likely due to having subsequently seen the issue from the vantage point of the White House. Madison, who was president during the debate over renewal of the charter, and Jefferson, who had just finished his two terms in office, came to recognize how the Bank strengthened the economy, stabilized the nation’s finances, and eased credit—everything Hamilton, the father of the Bank, had said it would. By endorsing the renewal of the Bank’s charter, Madison, who had once insisted that the Framers never gave Congress the power to create corporations, revealed that not even the author of the Constitution believed it truly necessary to adhere to the original understanding. Jefferson, meanwhile, simply abandoned his Jeffersonianism.43
Madison and Jefferson’s support buoyed the northern commercial interests who favored extending the life of the Bank, but it was not enough. In Congress, the Bank’s renewal lost by a single vote and the charter expired. The Bank of the United States was shut down. The Bank died an early death, but its impact on the Constitution and corporate rights would be profound. The Bank had fought and won the first case affording corporations rights under the Constitution, and many corporations to come would build on that foundation in seeking additional protections. Frequently, those cases would present the court with the same choice between two different ways of conceptualizing the corporation—as a person or as an association. Is a corporation, as Blackstone said, a legal person with rights of its own? Or is a corporation, as Binney and Marshall said in Bank of the United States, best understood to be an association of people whose rights are derived from its members?
One of the corporations to carry on the Bank’s fight would be its younger sibling, the Second Bank of the United States. In 1812, a year after the first Bank’s renewal vote, America went to war with Britain, and the absence of a national bank made financing the military effort difficult. President Madison finally succeeded in pushing Congress to charter a new bank in 1816. Like the original Bank, the Second Bank would also pursue constitutional rights in the Supreme Court. And the Second Bank would be represented by perhaps the most famous lawyer ever to practice before the high court, Daniel Webster. Corporate rights would help make Webster’s name legendary—but would also lead, in his own lifetime, to despair.
CHAPTER 3
The Corporation’s Lawyer
DANIEL WEBSTER IS FREQUENTLY RECOGNIZED AS ONE OF the most influential lawyers ever to argue before the Supreme Court of the United States. Webster distinguished himself in numerous positions of prominence over the course of his career: secretary of state (twice), US senator (twice), presidential candidate (thrice), and longtime leader of the Whig Party, the pro-business successor to Hamilton’s Federalist Party. Yet his advocacy before the nation’s highest court remains his greatest achievement. Known as “the leading lawyer of his generation” and “one of the most important in the nation’s history,” he was indisputably a magnificent orator. It was said Webster was so persuasive that when he went fishing, the trout jumped straight into his pocket, knowing there was no sense fighting him. He argued an extraordinary 223 Supreme Court cases between 1814 and 1852, a time when the scope and meaning of many provisions of the Constitution were being interpreted for the first time. No lawyer argued as many important cases or equaled his influence on such a wide variety of constitutional doctrines. Webster came to be known as the “Defender of the Constitution.”1
With equal accuracy, Webster could also have been called the Defender of the Corporation. Throughout his career, Webster’s clients were among the wealthiest businesses in the nation. They included manufacturers, mercantile companies, insurance companies, railroads, banks, and shipping houses; “businessmen of every type engaged his services.” Webster was the Corporation’s Lawyer, and in many of the cases that made him famous he argued for broad protections for corporations under the Constitution. In one of those cases, Webster’s client was not even a business corporation, yet he was still able to establish a landmark precedent that benefited businesses by imposing new constitutional limits on the ability of states to regulate corporations of any type.2
Lawyers like Webster played an unusually profound role in the expansion of corporate constitutional rights. Of course, lawyers have starred in all the great constitutional struggles; think of Thurgood Marshall in civil rights and Ruth Bader Ginsburg in women’s rights. To obtain judicial recognition of constitutional rights, there must be lawyers to bring the cases, write the briefs, and persuade the justices. Litigation in other rights movements, however, has usually been coupled with broad-based, political mobilization of the masses
. Corporations never paraded with placards demanding their rights, nor did they always engage in public advocacy to gain constitutional protections. Corporate rights have largely been won in the courts, not in the streets, and have developed largely without much public scrutiny—even though many of the lawsuits leading to corporate rights were highly publicized in their time.
DANIEL WEBSTER, KNOWN AS THE GREATEST ADVOCATE IN THE HISTORY OF THE SUPREME COURT, ARGUED FOR EXPANSIVE CONSTITUTIONAL PROTECTIONS FOR BUSINESS.
To gain these rights, corporations employed the most elite lawyers in the nation. Certainly Webster fit that description. Not only was he the most illustrious lawyer of his time, he was also reportedly the highest paid. His corporate clients were more than willing to pay his inordinately high fees because, for business, hiring the best lawyers to defeat regulation is often well worth the investment. In contrast to dispossessed and subjugated people, who often cannot afford to pay for the best representation, corporations have long used their deep pockets to finance legal challenges to laws burdening their rights. One reason corporations have been so effective in obtaining an ever-greater share of individual rights under the Constitution is that they have the financial means to hire the best lawyers to pursue cutting-edge, push-the-boundaries lawsuits.
Webster charged his clients so much because he desperately needed the money. With extravagant tastes and a notorious inability to manage his finances, Webster lived nearly all his life in debt. Indeed, it is no exaggeration to say that one reason Webster had such an enormous influence on the Constitution over the course of so many years was that he never had enough money to retire. So he could pay his bills, he was forced to try cases right up until his death, at the age of 70, in 1852.3
The trajectory of Webster’s career maps the rise and fall of corporate rights in the early years of the United States. Between 1809 and 1835, the years immediately after Bank of the United States v. Deveaux, Webster succeeded in expanding constitutional rights for corporations. The Supreme Court under the leadership of Chief Justice John Marshall was receptive to Webster’s corporationalist arguments about the need to protect business from excessive state regulation. Yet the court changed with Marshall’s death in 1835, and with it so did Webster’s fortunes. Marshall’s successor, Roger Taney, was a populist who thought corporate rights should be strictly circumscribed.
Although he presided over thousands of cases in his nearly thirty years as chief justice of the United States, Taney’s historical reputation is defined by one: Dred Scott v. Sandford. His opinion in that 1857 case, which held that blacks were not “Citizens” under the same provision of Article III at issue in Bank of the United States, is deservedly condemned for its racism and shortsightedness. Dred Scott, however, obscures other aspects of Taney’s wide-ranging jurisprudence, including one that many opponents of Citizens United might nonetheless appreciate. Taney was a corporate reformer who, unlike Marshall and Webster, believed states should have broad regulatory authority over business. As a result, Taney thought corporations had only limited rights under the Constitution. The Taney court was one of the few in American history to rule against expansive constitutional protections for corporations, which did not bode well for Webster. Taney was no trout.
The Taney court’s corporate rights cases hold other surprises too. It was the Taney court, not the Marshall court, that first embraced the concept of corporate personhood. The Taney court justices treated the corporation as if it were a person—that is, as an independent legal entity with rights and responsibilities distinct from those of the people who form it. Whereas Webster and the Marshall court followed Horace Binney’s way of thinking about corporations—piercing the corporate veil to look past the corporate entity and allow companies to exercise the same rights as their members—the Taney court saw corporate personhood as a way to limit the rights of corporations. Moreover, as we will see, the Taney court’s approach to corporate rights would eventually be challenged and influenced by the same issues that have defined Taney in history’s memory: race and slavery.
Webster and his relationships with Marshall and Taney offer a revealing window into the early years of corporate rights in the Supreme Court. From Webster’s first corporate rights cases in the Marshall court to his final ones in the Taney court, Webster’s career illustrates how constitutional protections for corporations became more firmly embedded in American law—and how the first limits on corporate rights were justified. His example also highlights the vital role that lawyers played throughout the more than two-centuries-long struggle over corporate rights. Webster, however, also reminds us that a lawyer’s influence is inevitably a function of the judges who preside over the cases. Moreover, for those today who wish to see the Supreme Court restrict the constitutional rights of corporations, looking back to Webster’s era reveals a potential model. By embracing corporate personhood, rather than piercing the corporate veil, the Taney court imposed boundaries on the rights of corporations.
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“IT WAS IN THE YEAR 1818 that an occasion occurred, which is as memorable as any in the professional life of Mr. Webster, and brought him before the nation, if not in a new light, at least in a more striking light than any in which he had hitherto been seen,” recalled Joseph Story, the Supreme Court justice. Story, whose influence on early American constitutional law was second only to that of John Marshall, was referring to Webster’s magnificent argument in Dartmouth College v. Woodward:
He began by unfolding the facts in that brief but exact manner, for which he is so remarkable. . . . As he went on he kindled into more energetic action, and if one may say so, he scintillated at every step. . . . And when he came to his peroration, there was in his whole air and manner, in the fiery flashings of his eye, the darkness of his contracted brow, the sudden and flying flushes of his cheeks, the quivering and scarcely manageable movement of his lips, in the deep guttural tones of his voice, in the struggle to suppress his own emotions, in the almost convulsive clenchings of his hands without a seeming consciousness of the act, there was in these things what gave to his oratory an almost superhuman influence.4
Not many lawyers have enraptured the justices of the Supreme Court as Webster did in the Dartmouth College case. Of course, Webster was no ordinary lawyer and Dartmouth College was no ordinary case. “Few Supreme Court decisions have had more influence through American history,” wrote historian Francis Stites. Dartmouth College has been called “one of the most important precedents in the history of the Supreme Court.” The decision “played a key role in the rise of the American business corporation” and helped pave the way for modern corporate rights cases like Citizens United and Hobby Lobby.5
Dartmouth College, Webster’s client, was not a business corporation but a school, run as a nonprofit (or, in the terminology of the day, “eleemosynary”) institution. Dartmouth was, however, formed as a corporation, and the central question in the college’s case had a direct bearing on all corporations, business or otherwise: Are corporations public or private? Are they public entities subject to broad governmental control? Or are they private entities over which the state has only limited regulatory authority? Today, we take for granted that corporations are private entities. In the early 1800s, however, the question of whether corporations were public or private remained unsettled. Webster’s Dartmouth College case would largely settle it.
Like all corporations of its day, Dartmouth College had both public and private parentage. On the private side was Eleazar Wheelock, a Puritan minister who ran Moor’s Indian Charity School in Connecticut in the 1760s. Short on students and funds, Wheelock solicited financial support back in England from a number of notables, including the Earl of Dartmouth, after whom the school would be renamed. Wheelock also solicited a royal charter from the governor of New Hampshire—Dartmouth’s public progenitor—who issued one in 1769 on condition the school relocate to that colony. The charter afforded Dartmouth the basic rights typically enjoyed by all corporations: the right to own pr
operty, to form contracts, and to sue and be sued in courts of law “as a natural person, or other body politic or corporate, is able to do.” The charter also recognized a new mission for the school. In addition to teaching Indians, the college was to be “enlarged and improved to promote learning among the English.”6
Daniel Webster, Class of 1801, was among those who benefited from Dartmouth’s new calling. As a student there, he honed the rhetorical skills for which he later gained fame. After graduation, Webster started a thriving law practice in Boston, where a booming factory sector was fueling economic growth. When Dartmouth came seeking representation for its impending legal battle, Webster, as a loyal alumnus, readily agreed. The goal was to have the courts declare that Dartmouth College was a private, not public, corporation, with rights secure from state interference.7