In the RFRA context, moral responsibility is what we’re talking about. The
Green’s religious exercise is burdened because they are being required to
violate the moral obligations of their faith.
I agree about the effects of limited liability in tort and contract. I should
have been more clear that, as the child porn example suggested, that I was
thinking of criminal responsibility. An individual cannot insulate himself from
criminal prosecution by setting up a corporation that he wholly controls and
then causing the corporation to violate the law. There are also non-criminal
regulatory examples, such as the liability of controlling shareholders under
the securities laws.
I am no expert in these areas and can’t cite you a string of cases, although I
could cite a few. But a closely held corporation is not a get-out-of-jail-free
card. And it doesn’t really matter whether the government says the controlling
individuals are liable for what the corporation did, because they controlled
it, or are liable for what they did individually in their roles as
shareholders, directors, or officers. Either way you formulate it would be
equally applicable to the Greens.
Douglas Laycock
Robert E. Scott Distinguished Professor of Law
University of Virginia Law School
580 Massie Road
Charlottesville, VA 22903
434-243-8546
From: Daniel J. Greenwood [mailto:daniel.greenw...@hofstra.edu]
Sent: Wednesday, June 11, 2014 4:55 PM
To: Douglas Laycock; Law & Religion issues for Law Academics
Subject: RE: Simple Hobby Lobby question
I think this is not a correct statement of corporate law.
The owners of a closely held corporation are morally responsible for the
corporation's actions. After all, the shareholders (or the trustees) are the
voters for the board that is the corporation's ultimate decisionmaker, and if
the shareholders are able to act unanimously, they can call an election at any
time, so that, functionally if not legally, the directors serve at their
pleasure. So the Greens are correct to feel responsible for Hobby Lobby's
actions in their beneficiary of the shareholder trust role. (If I understand
the facts correctly, they are also directors of the firm. In that role, they
have actual control, within the constraints of fiduciary duty, and certainly
are morally responsible for their actions.)
However, the main point of corporate status is that the shareholders are not
legally responsible for the corporation's actions. This is almost certainly why
the Greens chose to organize the firm as a corporation. If Hobby Lobby poisons
its customers or employees or neighbors, or if it attempts to sell products
that no one is willing to buy, the shareholders have no legal obligation at
all. The corporation, to be sure, is liable for its torts and contracts. But
if the default is large enough to leave the corporation insolvent, the victims
are out of luck. The shareholders have no obligation to pay corporate
obligations, to fund the corporation adequately, to replenish its capital or to
return dividends or other payments it may have made to them in the past
(assuming they were proper when made).
Moreover, the shareholders, as shareholders, have no responsibility at all for
the actions of directors they elected or employees the directors hired, even if
the shareholder knew, or should have know, the directors were acting in
violation of their fiduciary duties.
The only time the shareholders are legally responsible for the corporation's
actions is if they disregard corporate form -- for example, by seeking to
control the corporation in their shareholder role, by extracting funds from it
in violation of corporate law, or by treating corporate assets as their own.
Similarly, directors ordinarily are also immune from legal responsibility for
their actions, even if those actions wrong another. The victims must sue the
corporation, and the corporation alone. The corporation would have a
claim-over against the directors if they violated their fiduciary duty, but
under the business judgment rule the directors are not liable for ordinary
negligence or for mistakes of judgment. More importantly, only the directors
or the shareholders have standing to bring this suit – so it is irrelevant in a
closely held corporation where the directors and the shareholders have a
unified interest.
In short, the primary reason to organize as a close corporation is to avoid
legal responsibility.
Note that the Greens' decision to adopt corporate form was entirely voluntary
and the directors and shareholders may reverse it at any time. If they want to
be legally responsible for the actions of their firm, they need only organize
as a partnership.
In this case, they appear to be attempting to be a corporation when it is to
their advantage – that is, they have organized it as a corporation with the
shares held by a trust in order to establish that they are NOT responsible for
the corporation’s torts, contracts, taxes or violations of law. But at the
same time, they want to ignore the corporation when that is to their advantage,
claiming that the corporation’s actions to purchase health insurance are their
actions or made with their money, as if the corporation didn’t exist at all.
There is something quite wrong about a plaintiff, having taken advantage of the
extraordinary privilege of irresponsibility, then turning around and saying, in
effect, “never mind, right now and for this purpose only, I want to be
responsible – but only so long as it helps me.”
If this were a corporate law case instead of a constitutional law case, that
two-sidedness would be clear evidence of fraud and a basis to conclude that the
corporation doesn’t really exist at all – to pierce the corporate veil and
disregard corporate form.
-----Original Message-----
From: Douglas Laycock [mailto:dlayc...@virginia.edu]
Sent: Tuesday, June 10, 2014 10:23 PM
To: Law & Religion issues for Law Academics; Daniel J. Greenwood
Subject: Re: Simple Hobby Lobby question
The thoughts below may well be right for a corporation with religiously diverse
ownership. But Hobby Lobby is closely held, with a voting trust created in part
to ensure that the business would be run consistently with the family's
religious commitments.
In public opinion, and often in law, we hold controlling shareholders morally
and often legally responsible for the wrongdoing of the corporation. It is
hardly unusual or counter normative for the Greens to feel morally responsible
for what they do with the corporation's money.
If their bookstore affiliate were selling child porn instead of Christian
books, we would hardly excuse the owners who made all the decisions for the
corporation on the ground that it wasn't them that did it, it was the
corporation.
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