It is beyond refute that the conservatives on the nation’s High Court went on a rampage beginning in 2010 to serve the interests of corporations over those of the people. Whether it was giving personhood to corporations in Citizens United, disallowing class action lawsuits against corporate giant Walmart, or giving religious liberty to “closely-held” corporations in the Hobby Lobby case, the conservatives on the court have reliably given corporations anything their hearts’ desired. However, in their religious zeal to bestow another gift on corporations in the Hobby Lobby case, the Christian conservative males on the Court gave all corporations a gift they did not want and may live to regret.
The principle behind incorporating a business is to delineate the owner from the corporation so when a company makes a lot of money, the owners get rich and spirit the profits away in their personal accounts apart from the corporation. However, if the incorporated business falls into debt, declares bankruptcy, and fails, the owner(s) are not held accountable for any corporate debt or liability because they are completely separate from the “corporation.”
For businesses owners, legal separation is a safeguard according to most business scholars because it encourages entrepreneurialship with a guarantee that if a new, or old, business fails, the owner(s) will not lose their personal assets such as their home(s), savings, yachts, jets, or retirement accounts along with their business. Incorporation was devised to precisely “distinguish the corporation’s activities from those of the owners.” Until Hobby Lobby, a corporation was not its owners, and that separateness was the “foundational principle of corporate law.” The principle is known as “the corporate veil,” because regardless the personal fortune earned through the corporation, creditors have no legal recourse to recoup their losses, and federal regulators can never pursue a corporation’s owners for malfeasance; that all changed dramatically with one very ill-advised Supreme Court ruling.
When the Catholic conservatives on the High Court ruled that Hobby Lobby Incorporated and the Green family are one in the same due to “its” religion, they effectively tore away the corporate veil making owner(s), shareholders, employees and CEOs personably liable for anything the corporation does. In fact, the Hobby Lobby ruling contradicted a 2001 Supreme Court ruling that said, “Linguistically speaking, the employee and the corporation are different “persons,” even where the employee is the corporation’s sole owner. After all, incorporation’s basic purpose is to create a distinct legal entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who created it, who own it, or whom it employs.” That fundamental principle of different entities, or “corporate veil,” according to legal and business scholars, and affirmed by the Supreme Court in 2001, vanished when the Supreme Court allowed Hobby Lobby’s owners to assert their religious rights over the entire corporation. The ruling said a company is not truly separate from its owners, and because the conservatives ruled that all closely-held corporations are recipients of their religious largesse, it means that over 90% of all businesses in America lost the delineation between corporation and owner(s).
According to a law professor from New York University, Burt Neuborne, “If religious shareholders can do it, why can’t creditors and government regulators pierce the corporate veil in the other direction?” The same question was raised by 44 other law professors who filed a friends-of-the-court brief that implored the Court to reject Hobby Lobby’s argument and keep the corporate veil in place. They argued that, “Allowing a corporation, through either shareholder vote or board resolution, to take on and assert the religious beliefs of its shareholders in order to avoid having to comply with a generally-applicable law with a secular purpose is fundamentally at odds with the entire concept of incorporation. Creating such an unprecedented and idiosyncratic tear in the corporate veil would also carry with it unintended consequences.”
It is why, despite Republicans cheering the Hobby Lobby decision as a major victory for business over the federal government, the U.S. Chamber of Commerce and every Fortune 500 company stayed clear of siding with Hobby Lobby. The conservatives exposed why the largest corporations were concerned over a favorable decision for the Green-Hobby Lobby entity when they said, “The purpose of extending rights to corporations is to protect the rights of people associated with the corporation, including shareholders, officers, and employees. Protecting the free-exercise rights of closely held corporations thus protects the religious liberty of the humans who own and control them.”
That means then, that Hobby Lobby and the Greens, or any corporation and its owners, shareholders, and employees are indistinguishable legal entities that decimates the concept of incorporation and opens the door for future lawsuits against a corporation’s owners specifically. Writing for the dissenters, Justice Ginsburg gave a portent of future lawsuits against a corporation’s owner or shareholders where a plaintiff can argue that “the separation should not hold only when it serves the interests of those who control the corporation.” According to the conservative Justice’s ruling, it cannot hold after they rent the corporate veil in two and opened the floodgates for legal actions against any corporation’s owner(s), shareholders, or CEO.
Religious zeal is a powerful motivator, and the conservatives on the Court let their religious objection to contraceptives overrule their devotion to corporations. Justice Alito may have thought writing that “the decision should be narrowly applied to the peculiarities of the case” instead of the decision IS narrowly applied to the peculiarities of the case would give religious corporations free reign to discriminate legally, but he did not think about the damage to corporate owners. The five conservatives on the Court, in their infinite wisdom, exposed wealthy corporate owners to a rash of unintended consequences, and unleashed a means to dismantled the protections inherent to corporations they are so devoted to.
As despicable, and dangerous, as the conservative justices’ ruling is, and it is extremely dangerous, the silver lining is the very premise of incorporation has been dismantled and corporate owners can no longer claim they are separate entities apart from their corporations. They have the conservatives on the Supreme Court to thank for the gift, and it is undeniably a gift they did not want.