Could The Hobby Lobby Decision Destroy The 'Corporate Veil'?

By Tim Peacock

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One of the lesser discussed unintended outcomes of the recent Supreme Court Hobby Lobby decision revolves around an issue we've discussed here frequently: the corporate veil. That's the legal separation an owner has from his/her business that protects him/her from the consequences of that business (litigation, bankruptcy, etc.). The veil - which the Supreme Court reaffirmed in Cedric Kushner Promotions vs. Don King thirteen years ago - stated in part:

"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."

Lower courts even attempted to reference this decision and the corporate veil when issuing their opinions against Hobby Lobby - something the five Catholic justices in the Supreme Court Hobby Lobby decision's majority intentionally chose to ignore. One such opinion - handed down by Judge Leonard Garth in the Conestoga Wood concurring opinion - said in part:

[F]or-profit corporate entities, unlike religious non-profit organizations, do not—and cannot—legally claim a right to exercise or establish a “corporate” religion under the First Amendment or the RFRA. As the District Court noted, “[g]eneral business corporations … do not pray, worship, observe sacraments or take other religiously motivated actions separate and apart from the intention and direction of their individual actors.” Unlike religious non-profit corporations or organizations, the religious liberty relevant in the context of for-profit corporations is the liberty of its individuals, not of a profit-seeking corporate entity. 

Conestoga further claims that it should be construed as holding the religious beliefs of its owners. This claim is belied by the fact that, as the District Court correctly noted, “‘[i]ncorporation’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’ . . . . It would be entirely inconsistent to allow the Hahns to enjoy the benefits of incorporation, while simultaneously piercing the corporate veil for the limited purpose of challenging these regulations.”  

Alas, the Supreme Court decided in favor of Hobby Lobby and held that the owners of "closely-held" corporations may impose their religious beliefs narrowly on one gender's ability to obtain specific, expensive contraceptive care options. Except that narrow ruling has already prompted hundreds of challenges including prisoners at Guantanamo Bay and religious colleges and institutions who want to deny all forms of contraception. And now, several law experts believe the Supreme Court may have dealt a devastating blow to the corporate veil. Alex Park at Mother Jones reported on the new gaping hole in the corporate veil today stating in part:

"Now, thanks to the Hobby Lobby case, it's in question. By letting Hobby Lobby's owners assert their personal religious rights over an entire corporation, the Supreme Court has poked a major hole in the veil. In other words, if a company is not truly separate from its owners, the owners could be made responsible for its debts and other burdens.  

'If religious shareholders can do it, why can’t creditors and government regulators pierce the corporate veil in the other direction?' Burt Neuborne, a law professor at New York University, asked in an email. That's a question 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 hold the veil in place."

In the above-mentioned friend-of-the-court brief, those law professors stated in part:

"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, many of which are not easily foreseen."

 As Park mentioned later in his article, most corporations remained silent during the majority of the Hobby Lobby proceedings - perhaps for this very reason. This puncture in the corporate veil opens up corporations ("closely-held" companies, at least) to litigation for its debts, liabilities and wrongdoing. Whether the puncture works as a two-way street is yet to be seen and will probably make it all the way up to the Supreme Court again. 

About Tim Peacock:

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For virtually his entire life, Tim has been writing. Over the years he's dabbled in mainstream fiction, science fiction, dystopian fiction, and personal essays. The one consistent thread through his entire writing career has been blogging - he's been doing it since 1997 in one form or another. In addition to writing Tim has frequently worked and volunteered as a civil rights advocate including on campus LGBT advocacy as well as interning with the Colorado Civil Rights Division.

You can find Tim online at Peacock Panache as well as his personal website. You can also find him on LinkedIn as well as on Twitter as @timsimms

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