A Corporation and
Its Shareholders are Distinct
A recent decision of the
District Court for the Western District of Oklahoma has (in my view correctly)
applied the principle that a business corporation and its shareholders are
legally distinct, and the attributes of one will not be applied to the
other. Hobby Lobby Stores, Inc. v Sebelius, No. Civ-12-1000-HE (W.D. Okla.
Nov. 19, 2012). This suit involved a
request by the Hobby Lobby stores and its controlling shareholders for an
injunction against those provisions of the Affordable Care Act mandating that
certain insurance plans provide coverage for contraceptive medicines, devices
and related counseling. Essentially, the
owners of the Hobby Lobby stores, the Green family, alleged that theses
contraceptive medicines, devices and counseling violated their religious
beliefs, and for that reason those provision of the Affordable Care Act could
not be enforced against the corporation.
While the Court repeatedly acknowledge dthe sincerity of the Green family’s beliefs, it noted as
well that Hobby Lobby, as well as Mardel, Inc., a similarly controlled
corporation, are “secular, for-profit companies” (Slip op. at 5) and “privately
held for-profit corporations.” (Slip. op at 4).
Against this, quoting the complaint, the Court observed that:
The Green family’s religious beliefs
prohibit them from deliberately providing insurance coverage for prescription
drugs or devices inconsistent with their faith, in particular abortion-causing
drugs and devices. Hobby Lobby’s
policies have long explicitly excluded – consistent with their religious
beliefs – contraceptive devices that might cause abortions and
pregnancy-termination drugs like RU 486.
Slip op. at 5, quoting Complaint at ¶¶ 53-54.
The
Court also observed:
Plaintiffs maintain they exercise
their religion by complying with their religious beliefs which prohibit them
from providing coverage, or access to coverage, for abortion-causing drugs or
devices or related education and counseling.
The mandate forces them, plaintiffs argue, to violate their religious
beliefs and substantially burdens their religious exercise. Slip op. at 10.
When viewed against this pair
of statements, it is the word “them,” referring to the Green family, that
ultimately decides the outcome. In fact,
it was not “them,” the Green family, that is subject to the Affordable Care
Act’s mandate to provide the objected-to goods and services, but rather Hobby
Lobby, that secular, for-profit corporation.
Ultimately, as corporations do not have religious beliefs the religious
beliefs of those obligated to provide the benefits could not be violated.
The purpose of the free exercise clause
is “to secure religious liberty in the individual by prohibiting any
invasions thereof by civil authority.” Sch. Dist. of Abington Twp. v. Schempp,
374 U.S. 203, 223 (1963) (emphasis added). Churches and other religious
organizations or religious corporations have been accorded protection under the
free exercise clause, see Hosanna-Tabor
Evangelical Lutheran Church & Sch. v. EEOC, ___ U.S. ___, ___, 132
S.Ct. 694, 706 (2012); Lukumi, 508
U.S. at 531-32, because believers “exercise their religion through religious
organizations.” Corp. of Presiding Bishop
of Church of Jesus Christ of Latter-day Saints v. Amos, 483 U.S. 327, 341 (1987) (BRENNAN, J. concurring) (internal
quotations omitted). However, Hobby Lobby and Mardel are not religious
organizations. Plaintiffs have not cited, and the court has not found, any case
concluding that secular, for-profit corporations such as Hobby Lobby and Mardel
have a constitutional right to the free exercise of religion. See Anselmo v. Cnty. of Shasta, ___
F.Supp.2d ___, 2012 WL 2090437, at *12 (E.D.Cal 2012) (“Although corporations
and limited partnerships have broad rights, the court has been unable to find a
single RLUIPA case protecting the religious exercise rights of a non-religious
organization such as Seven Hills.”). The court concludes plaintiffs Hobby Lobby
and Mardel do not have constitutional free exercise rights as corporations and
that they therefore cannot show a likelihood of success as to any
constitutional claims they may assert. Plaintiffs’ ability to show a likelihood
of success therefore depends on evaluation of the claims of the individual
plaintiffs — the Greens. Slip op. at
11-12, footnote omitted.
Clearly the distinction between
the Green family, the ultimate shareholders of Hobby Lobby, and the corporation
through which they engage in profit-making activities, must be correct. There exist fundamental boundaries between
the corporation and its shareholders.
While the corporation is liable for its debts and obligations, the
shareholders are not similarly liable for the corporation’s debts and
obligations. See, e.g., MBCA § 6.22;
KRS § 271B.6-220. The property of the
corporation is its own, and the shareholders do not have a beneficial ownership
interest in that property save and except upon the corporation’s
dissolution. See, e.g., I Thomas C. Spelling, A Treatise on the Law of
Private Corporations at 9 (1892), “[The corporation’s] franchises and
property are vested in it and not in the members ….” In this way, the corporation satisfies Bierce’s
definition of a corporation, namely “[a]n ingenious device for obtaining
individual profit without individual responsibility.” Ambrose Bierce, The Devil’s Dictionary 44 (The Folio
Society 2003). As observed in the course
of the debate as to whether the corporate form could be utilized for law firms,
it was observed:
The first and most delightful of
such reasons [against the corporate form for law firms] is that a corporation
has no soul, this being on the generally accepted theory that no one but God can
create a soul and that the legislature is not a proper substitute.
H.H. Walker Lewis, Corporate Capacity to Practice Law, A Study in Legal Hocus-Pocus, 2
Md. L. Rev. 342, 343 (1938).
Corporations, lacking souls, have no
religion and therefore no free exercise rights.
