Introduction: Contesting Personhood
The plain meaning of words can get mangled in the hands of a clever lawyer. One word that is heavily contested in the American legal context is “person”—and by extension—who counts as a member of “we the people.” For instance, Chief Justice Roger B. Taney had a case before him in 1857 where a man was trying to claim his status as a free man because he had long lived in a free territory of the United States. In Chief Justice Taney’s hands, Mr. Scott was not a person at all. He was property to be bought, sold, and inherited, and the only rights Chief Justice Taney would protect were the property rights of his owner. In Dred Scott, the Supreme Court concluded that African Americans were not included in “we the people” in the preamble of the U.S. Constitution. The Court concluded that blacks “had no rights which the white man was bound to respect. . . .”
This racist conclusion of the Supreme Court fencing out African Americans from counting as “persons” was controversial in its day. In response to Dred Scott, ex-slave Frederick Douglass gave a speech before the American Anti-Slavery Society. He said of the U.S. Constitution’s preamble, the text says,
“We, the people”—not we, the white people—not we, the citizens, or the legal voters—not we, the privileged class, and excluding all other classes but we, the people; not we, the horses and cattle, but we the people—the men and women, the human inhabitants of the United States. . . .
Courts continue to this day to wrestle with the basic question of who or what counts as a person with protectable rights. Flash forward to 2010 when the Supreme Court ruled in Citizens United v. FEC that corporations have First Amendment political rights to buy ads in all American elections. If the logical flaw in Dred Scott was mistaking a person (Mr. Scott) for a piece of property, the blunder in Citizens United was mistaking a piece of property (a corporation) for a person. (For a longer analysis of the Scott decision, see Crooms-Robinson’s article that begins on page 2.)
Through Article V amendments to the Constitution, the American people decided that individuals who had long been excluded from being considered part of “we the people,”
The Evolution of the Corporate Form
Corporations have evolved radically since America became a nation at the end of the eighteenth century. Justice Louis Brandeis, in his famous dissent in Liggett, 288 U.S. at 554–56, Louis K. Liggett Co. v. Lee (1933), explained the historical path of the expansion of corporations from single-purpose entities with limited terms of existence into the multipurpose, immortal behemoths we have today. As Justice Brandeis wrote:
Limitations upon the scope of a business corporation’s powers and activity were also long universal. At first, corporations could be formed under the general laws only for a limited number of purposes—
As Justice Brandeis noted, the purposes of corporations were once narrow and are now incredibly broad.
One of the big changes from the founding to today is that, at the founding, only a special legislative act could create a corporation. By contrast, now, under general incorporation statutes, incorporators can file a few administrative papers, pay a few fees, and be the proud owner of their very own corporation. And many take advantage of this ease and convenience. Approximately 2 million corporations are incorporated annually in the United States. Delaware has clearly won the race for corporate charters, as the majority of U.S. corporations are incorporated in Delaware, America’s second smallest state.
Additionally, at the founding, corporations were created for a limited purpose, like building a road from point A to point B. Now, while incorporators could limit the purpose of a corporation in its articles of incorporation, few do. Rather, the norm presently is for entrepreneurs to establish corporations for “any lawful purpose.” This allows modern firms to do multiple lines of business as well as assert the ability to act in non-business fora.
After Citizens United was decided in 2010, bumper stickers appeared stating: “I’ll believe a corporation is a person when Texas executes one.” What this clever catchphrase captures is the fact that corporations are not corporeal. Contemporary corporations, unlike their human counterparts, can exist in perpetuity, hence why they are sometimes referred to as being “immortal.” Cryogenics aside, although Walt Disney the man died, the Walt Disney Company shows no signs of going anywhere anytime soon.
This wasn’t always the case. Until 1875, corporate franchises were for a limited term of years. But eventually, as states competed in a race to the bottom for corporate charters, they all eventually allowed corporations to continue in perpetuity. So now, anyone can incorporate a corporation, and those corporations do not have to be for a limited purpose, or for a limited time. This, of course, could be changed if state laws, like those in Delaware, were changed to require corporations only for limited terms.
Today, immortality is a feature of modern corporations, not a bug. But this may be why granting corporations the same rights as individuals
As corporations themselves grew, simultaneously the diffusion of stock ownership grew dramatically. At the founding, the owners of a corporation would typically be a small circle of people. As such, a small group of investors could easily keep an eye on how their investments were being managed. But with the modern publicly traded corporation, millions of people may own stock in a single firm. Shareholders are geographically dispersed, and because each one typically owns only a fraction of a percent of the firm, the incentive to keep a watchful eye over management is diminished. In the 1930s, Professors Berle and Means worried that this separation of management from control would prove troublesome. And time has shown that Berle’s and Means’s instincts were correct. Whether the issue is executive compensation or other aspects of corporate governance, shareholders have collective action problems that inhibit the coordination of large numbers of investors, and they also have a rational disinterest in not monitoring corporate insiders on a regular basis. Corporate managers, thus, may act in undisciplined and self-serving ways at the expense of shareholders, like helping themselves to generous retirement packages or the use of perks like corporate jets.
This is known as an agency problem—corporate managers are the shareholders’ agents within the firm, and the managers have a fiduciary duty to act in the shareholders’ best interest, but because the shareholders are not continually monitoring the behavior of managers, the managers may produce suboptimal returns for investors because of self-serving behaviors like enjoying expensive perks on the company’s dime. The worries raised by the agency theory become more acute as firms become larger and the temptation for managers to tap corporate resources for personal reasons—like backing a favorite political cause at shareholder expense—grows.
At the same time that statutory powers of corporations expanded, the Supreme Court also decided which constitutional rights could attach to the corporate form. The Supreme Court’s approach to the rights for corporations can be divided into two distinct strains of case law. Interestingly, while the Court has concluded that corporations are “persons” within the meaning of the Equal Protection Clause of the Fourteenth Amendment, the Court has been quite reticent to concede that corporations are “citizens” for the purpose of the Privileges and Immunities Clause.
Corporate Personhood Expands
There is a widely held misconception that Citizens United was the first case to create corporate personhood. This claim lands quite wide of the mark. First, the phrase “corporate personhood” does not appear in the opinion at all. Second, Citizens United did not grant corporations personhood. Corporations already had it.
Throughout American legal history, corporations have been near the first in line to claim various constitutional rights. This was true when it came to corporations’ claiming rights protecting private property and rights protecting the right to contract. The Supreme Court considered the property rights of corporations in Terrett v. Taylor, 13 U.S. 43 (1815). In Terrett, the Episcopal Church (a corporation) asserted property rights over certain land. The Supreme Court stated that the property rights were not disturbed by the Revolutionary War. And as the Supreme Court stated: “[T]he dissolution of the regal government no more destroyed the right to possess or enjoy this property than it did the right of any other corporation or individual to his or its own property[.]”
The Supreme Court in very early cases decided that corporations were covered by the Contract Clause of the Constitution. Article I of the Constitution says, “[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts. . . .” This means that a state, like New Hampshire, could not pass a law that interfered with a pre-existing contract between two parties. In the Dartmouth College case in 1819, the college (a corporation) claimed protection under the Constitution’s Contract Clause. The Supreme Court agreed that it applied, ruling even the Revolutionary War had not changed contractual rights for educational corporations like the college. Despite recognizing differences between corporations and actual citizens in the case, the Supreme Court ultimately held that New Hampshire had violated the Contracts Clause when the state essentially tried to take over the private college.
Equal Protection and Corporations
The first big leap in corporate personhood from holding mere property and contract rights to possessing more expansive rights was a claim that the Equal Protection Clause applied to corporations. One of the strangest twists in American constitutional law was the moment that corporations gained personhood under the Equal Protection Clause of the Fourteenth Amendment. It occurred in a case called Santa Clara County, and what was odd was that the Supreme Court did not really even decide the matter in the actual opinion. It only appeared in a footnote to the case.
Corporations were very aggressive in asserting Fourteenth Amendment rights after the Civil War. We have the likes of former U.S. Senator Roscoe Conkling to thank for the extension of Equal Protection to corporations. Conkling helped draft the Fourteenth Amendment. He argued as an expert witness in 1882 in San Mateo County v. Southern Pacific Rail Road that the Fourteenth Amendment is not limited to natural persons. He produced a journal that seemed to show that the Joint Congressional Committee that drafted the Fourteenth Amendment vacillated between using “citizen” and “person” and the drafters chose “person” specifically to include corporations. According to historians, Conkling was simply lying. Nonetheless, the Supreme Court embraced Conkling’s reading of the Fourteenth Amendment, not in the San Mateo County case, but rather in a footnote four years later in 1886 in Santa Clara County v. Southern Pacific Rail Road.
In the 1970s, Santa Clara was used to
Not Citizens Under the Comity Clause
Article IV’s Privileges and Immunities Clause cases are one of the few areas of law where the Supreme Court has refused to extend the rights of humans to corporations. This clause of the Constitution reads: “[T]he Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” The point of the Privileges and Immunities Clause, also known as the Comity Clause, is to stop a given state from treating out-of-staters worse than it treats its own citizens. Alexander Hamilton, in Federalist No. 80, argued that the Comity Clause was “the basis of the union.” The Comity Clause helps safeguard the principle that Americans have the same rights no matter where they are within the United States.
In contradistinction to the Supreme Court’s approach under the Fourteenth Amendment of treating humans and corporations as functional equivalents, under the Comity Cause the Court has not extended corporations “citizenship.” The Supreme Court’s holding that corporations are not covered by the Comity Clause traces back to Bank of Augusta v. Earle, 38 U.S. 519, 587 (1839), where the Court concluded that “[t]he only rights [a corporation] can claim are the rights which are given to it in that character, and not the rights which belong to its members as citizens of a state.” (Also note that “corporations are neither persons nor partners, but artificial bodies politic, created by
Courts have been willing to grant expansive rights to corporations, but they have not granted corporations and people identical rights. To this day, the Supreme Court has been of at least two minds when it comes to corporations—they are treated as “persons” who are covered by the Equal Protection Clause (and Contracts Clause among others), but they are excluded from the definition of “citizens” under the Comity Clause. One of the reasons why the anticorporate citizenship cases are so important is that they serve as a legal basis to challenge the direction of the
What’s at Stake in Jesner v. Arab Bank
While the Supreme Court (outside of the Comity Clause exception) has given more corporate rights to corporations, especially in the areas of Equal Protection and the First Amendment, the Supreme Court has also puzzlingly excused corporations from certain human rights suits. This Supreme Court term, the Court may dig itself into an even bigger hole in its peculiar treatment of corporations. The case that affords this opportunity is Jesner v. Arab Bank. The plaintiffs in Jesner could not be more sympathetic. They are the victims of suicide bombings and the families of victims killed in terrorist attacks. Their case was scheduled to be heard by the justices on October 11, 2017. The issue in the case is one that has been rattling around the U.S. legal system for years, and it is now on a roundtrip back to the Supreme Court. This issue is simply: Can corporations be sued for their human rights violations abroad in U.S. federal courts under the Alien Tort Statute?
If the issue in Jesner sounds familiar, it should. This was one of the questions in Nestle USA v. Doe in 2015. The Supreme Court denied cert. in the Nestle USA case in January 2016. It was also the issue in Kiobel v. Royal Dutch Petroleum in 2013 (Kiobel II). In Kiobel II, after two oral arguments, the Supreme Court punted on the core questions of corporate liability and instead decided that in “
In Jesner v. Arab Bank, the Arab Bank (a corporation) stands accused of, among other things, helping to finance terrorist attacks and incentivizing suicide bombings by paying funds to the families of so-called “martyrs” who carry out the bombings. In other words, the bank helped to pay the families of the perpetrators of the violence (not the families of their victims).
The way that the Arab Bank may get away with this alleged morally troubling behavior, even though it has a New York branch, is by reasserting the basic argument that was made in Nestle USA and Kiobel II: that the federal Alien Tort Statute was not intended to apply to corporations full stop. Given other cases in this area like Mohamad v. PLO, which held the word “individual” in the Torture Victim Protection Act means a natural person and does not impose any liability against organizations, the Arab Bank’s
There are multiple federal Circuit Courts which have shot down the argument that corporations are immune from suit under the Alien Tort Statute. The lone outlier is the Second Circuit, which decided in 2010 that corporations are excused from suit in Kiobel I. This is the case that was appealed to the Supreme Court and became Kiobel II. Jesner v. Arab Bank was litigated in the Second Circuit. One question in Jesner was what exactly did Kiobel II do to Kiobel I. So far in the litigation, Jesner concluded that Kiobel I and its conclusion that corporations can’t be sued in federal court using the Alien Tort Statute remained the controlling law of the Second Circuit.
So, what is the new Supreme Court likely to do in Jesner v. Arab Bank? No one can know for sure. If the Supreme Court cares to notice, most federal Circuit Courts have decided that liability for corporations under the Alien Tort Statute is appropriate, and the Second Circuit still stands alone in its aggressive reading of the law that corporations simply are not liable. It’s also possible that the justices could find the victims of suicide bombings more sympathetic than the widow in Kiobel II whose husband was executed in Nigeria after a widely decried show trial against African environmentalists who protested against Shell’s pollution of their land.
What we are likely to have at the conclusion of the Supreme Court term is corporations that are empowered to spend in American elections because of Bellotti and Citizens United; corporations that can make religious objections thanks to Hobby Lobby; and if Jesner turns out as badly as I predict, corporations will be able to aid and abet human rights violations abroad with impunity. It’s not a pretty picture. If corporations are going to be treated as legal persons, they should have personal accountability too, especially for human rights abuses.
Ciara Torres-Spelliscy is an associate professor of law and the Leroy Highbaugh Research Chair at Stetson University College of Law and a fellow at the Brennan Center for Justice at New York University School of Law. She is the author of Corporate Citizen? An Argument for the Separation of Corporation and State.