By Zephyr Teachout, March 5, 2018, NYTimes.com
WE THE CORPORATIONS
How American Businesses Won Their Civil Rights
By Adam Winkler
Illustrated. 472 pp. Liveright Publishing. $28.95.
Around 300 B.C., the Romans invented a new way for a group of people to buy property and enter into contracts. Instead of making deals with a partner or set of partners, people could use a legal fiction that they were an entity, a societas publicanorum. This new institution was owned and controlled by investors, but legally separate from them. The privilege to act as a societas publicanorum was rare, and required a decree by the Roman Senate or the emperor.
Nearly 2,000 years later, versions of this legal innovation came to be used by English businesses, churches, guilds and cities, and by the investors behind the Virginia Company in colonial America. They were known as corporations. Like the societas publicanorum, corporations required a special charter from the king, giving its owners powerful but limited rights: the right to collectively hold property, form contracts and have access to the courts. Corporations were quasi-public, and each corporate charter was unique, comprising highly detailed rules including how much the corporation could charge for its products. Eventually, corporate investors gained a special prize: the privilege of limited liability, which allowed them to avoid personal legal responsibility for the corporation’s actions.
These corporations did not merely come to America; according to Adam Winkler, a law professor at the University of California, Los Angeles, arguably they founded it. From 1607, when the Virginia Company established the Jamestown colony, corporations have been inextricably embedded in American life, Winkler maintains in his excellent and timely new book, “We the Corporations.” The corporation of the British East India Company inspired the colonists in a different way. The bailout of the company by England — including the Tea Act of 1773, which lowered the price of tea in the colonies while preserving the tax colonists paid on it — infringed the colonial charters and led to the protests that were instrumental in sparking the Revolutionary War.
Winkler’s chief contribution is to show how corporations have been some of the most important innovators in American law, shaping it for good and often ill. Since the early days of the Republic, corporations have invested substantial capital in some of the country’s most talented and charismatic lawyers, pushed risky lawsuits and been on the “cutting edge” of rights-making. They have not been passive recipients of legal change but, rather, among its most significant architects.
Winkler frames this history provocatively, as an ongoing “civil rights” movement for corporations, which “have pursued a longstanding, strategic effort to establish and expand” their rights in American constitutional law. He proves his thesis by recounting two dozen critical moments when corporations pushed the limits of existing law and mostly won new rights. While the corporation of early America was an “artificial person” — Blackstone’s term — for purposes of property ownership, contracts and lawsuits alone, Winkler shows how “today corporations have nearly all the same rights as individuals: freedom of speech, freedom of the press, religious liberty, due process, equal protection, freedom from unreasonable searches and seizures, the right to counsel, the right against double jeopardy and the right to trial by jury.”
Corporations have rarely won rights by trumpeting their own importance, or openly arguing for civil rights. Instead, over generations, they have succeeded by claiming that corporate rights are necessary and useful tools for vindicating the rights of others — of people. In the first major corporate-rights case, in 1809, the issue was whether a bank had the right to sue in federal court. Given the politics of the time, the bank was likely to lose in state court. The problem was that the Constitution gave access to federal court only to “citizens.” Instead of trying to argue that a corporation is a person qua person, the bank’s lawyer insisted that the rights of the owners — an association of people — would be trampled on if the bank couldn’t be heard in federal court. The Supreme Court acquiesced.
One hundred and seventy years later, in another bank case, the question was similar but more momentous: Did Massachusetts have the right to limit corporate spending around popular referendums? In this case, First National Bank of Boston v. Bellotti, the Supreme Court concluded that it violated the First Amendment rights of the people of Massachusetts for the state to discriminate among different sources of information. It was not that the bank had a right to speak but that the public had a right to hear the views of the bank, and the state had no right to outlaw those communications merely because they came from a corporation. The bank won the lawsuit, because it stood in for the rights of the people who might want to hear its political views. Winkler contributes fascinating original reporting to this case, uncovering notes between justices and clerks that changed the outcome of the case, which in turn laid the groundwork for the decision in Citizens United.
Much of the value of Winkler’s book lies in his elegant stitching together of 400 years of diverse cases, allowing us to feel the sweep and flow of history and the constantly shifting legal approaches to understanding this unusual entity — Blackstone’s “artificial person.” Four hundred years is a lot of time, and Winkler does a wonderful job of finding illustrative details without drowning in them, and of giving each case enough attention to make it come alive. However, there is one somewhat shocking lacuna. He fails to consider the revolution in monopoly law in the last 40 years. Beginning in the 1970s, a group of activist lawyers associated with the University of Chicago persuaded courts to gut well-established principles designed to protect open markets and decentralized power, and to replace them with an ideology of efficiency that has contributed to our current crisis of monopoly capitalism and inequality. Winkler mentions the Chicago school in passing, but he doesn’t address the post-1980 antitrust cases, a striking oversight because they fit neatly into his theory: Corporate monopolies gained rights by asserting that they benefited the rights of others (in this case, consumers).
Despite this omission, Winkler’s book provides a masterful retrospective map at a time when people are feeling bewildered and enraged by growing corporate power. In essence, he offers an important answer to the question “How did we get here?” Of course, there are two kinds of answers to that question — the literal and the structural. The literalist will tell you what buses and trains and ferries you took to get from your old house to your new house; the structuralist will explain why you moved across the country in the first place. Winkler is largely in the literalist camp. One case follows another; the justices change; a mistake is made and exploited and ripples through time; a magnetic lawyer sways the Supreme Court. History is made by people, by accident, by ambition, by carelessness, even by lies that get repeated often enough that they become true — a mishmash of purpose, greed, intelligence and errata.
Winkler’s historical lens is both maddening and refreshing, for the same reason. It’s maddening because he often deals lightly with major forks in the road. In 1946, the Supreme Court justice Hugo Black proposed an alternative way to think about big corporations, as quasi governments. Black wrote the majority opinion in Marsh v. Alabama, arguing that when corporations take on the role of governments, they must be subject to the limitations we put on governmental power. Had Black’s logic been taken more seriously, it would have reshaped American rules regarding corporate power. Winkler spends several pages on the case but doesn’t persuasively explain why Black’s argument never took hold. In Dartmouth College v. Woodward, a pathbreaking case from 1819 establishing that corporations are private entities over which a state has limited control, much of Winkler’s narration focuses on Daniel Webster’s mesmerizing advocacy skills. History has reasons, but in Winkler’s telling those reasons are often dependent on individuals, not broad ideological shifts.
Yet this breeziness is refreshing because the book is anti-deterministic. Winkler chronicles the comically bad legal arguments made by the ethics-challenged Louisiana attorney general Gaston Porterie in a 1936 case about the constitutionality of an advertising tax — and the scope of the freedom of the press protection. If something as small as Porterie’s gaffe in citing the wrong clause of the Constitution changed history, history can change again with a strong push in a different direction. By nailing down the absurdities of the past, Winkler allows us to see how the future becomes more open.
We need neither abolish corporations nor accept them as they are; we can instead fight for new laws and for new Supreme Court justices. If we don’t like how corporations have appropriated civil rights in the name of citizens, we can change that.
Zephyr Teachout is an associate professor of law at Fordham University and the author of “Corruption in America: From Benjamin Franklin’s Snuff Box to Citizens United.”
The Atlantic – ‘Corporations Are People’ Is Built on an Incredible 19th-Century Lie
That corporation was the Southern Pacific Railroad Company, owned by the robber baron Leland Stanford. In 1881, after California lawmakers imposed a special tax on railroad property, Southern Pacific pushed back, making the bold argument that the law was an act of unconstitutional discrimination under the Fourteenth Amendment. Adopted after the Civil War to protect the rights of the freed slaves, that amendment guarantees to every “person” the “equal protection of the laws.” Stanford’s railroad argued that it was a person too, reasoning that just as the Constitution prohibited discrimination on the basis of racial identity, so did it bar discrimination against Southern Pacific on the basis of its corporate identity.
It was a trust Conkling would betray. As he spoke before the Court on Southern Pacific’s behalf, Conkling recounted an astonishing tale. In the 1860s, when he was a young congressman, Conkling had served on the drafting committee that was responsible for writing the Fourteenth Amendment. Then the last member of the committee still living, Conkling told the justices that the drafters had changed the wording of the amendment, replacing “citizens” with “persons” in order to cover corporations too. Laws referring to “persons,” he said, have “by long and constant acceptance … been held to embrace artificial persons as well as natural persons.” Conkling buttressed his account with a surprising piece of evidence: a musty old journal he claimed was a previously unpublished record of the deliberations of the drafting committee.
Years later, historians would discover that Conkling’s journal was real but his story was a fraud. The journal was in fact a record of the congressional committee’s deliberations but, upon close examination, it offered no evidence that the drafters intended to protect corporations. It showed, in fact, that the language of the equal-protection clause was never changed from “citizen” to “person.” So far as anyone can tell, the rights of corporations were not raised in the public debates over the ratification of the Fourteenth Amendment or in any of the states’ ratifying conventions. And, prior to Conkling’s appearance on behalf of Southern Pacific, no member of the drafting committee had ever suggested that corporations were covered.
There’s reason to suspect Conkling’s deception was uncovered back in his time too. The justices held onto the case for three years without ever issuing a decision, until Southern Pacific unexpectedly settled the case. Then, shortly after, another case from Southern Pacific reached the Supreme Court, raising the exact same legal question. The company had the same team of lawyers, with the exception of Conkling. Tellingly, Southern Pacific’s lawyers omitted any mention of Conkling’s drafting history or his journal. Had those lawyers believed Conkling, it would have been malpractice to leave out his story.
When the Court issued its decision on this second case, the justices expressly declined to decide if corporations were people. The dispute could be, and was, resolved on other grounds, prompting an angry rebuke from one justice, Stephen J. Field, who castigated his colleagues for failing to address “the important constitutional questions involved.” “At the present day, nearly all great enterprises are conducted by corporations,” he wrote, and they deserved to know if they had equal rights too.
The rules of judicial ethics were not well developed in the Gilded Age, however, and the self-assured Field, who feared the forces of socialism, did not hesitate to weigh in. Taxing the property of railroads differently, he said, was like allowing deductions for property “owned by white men or by old men, and not deducted if owned by black men or young men.”
So, with Field on the Court, still more twists were yet to come. The Supreme Court’s opinions are officially published in volumes edited by an administrator called the reporter of decisions. By tradition, the reporter writes up a summary of the Court’s opinion and includes it at the beginning of the opinion. The reporter in the 1880s was J.C. Bancroft Davis, whose wildly inaccurate summary of the Southern Pacific case said that the Court had ruled that “corporations are persons within … the Fourteenth Amendment.” Whether his summary was an error or something more nefarious—Davis had once been the president of the Newburgh and New York Railway Company—will likely never be known.
Field nonetheless saw Davis’s erroneous summary as an opportunity. A few years later, in an opinion in an unrelated case, Field wrote that “corporations are persons within the meaning” of the Fourteenth Amendment. “It was so held in Santa Clara County v. Southern Pacific Railroad,” explained Field, who knew very well that the Court had done no such thing.
His gambit worked. In the following years, the case would be cited over and over by courts across the nation, including the Supreme Court, for deciding that corporations had rights under the Fourteenth Amendment.
Indeed, the faux precedent in the Southern Pacific case would go on to be used by a Supreme Court that in the early 20th century became famous for striking down numerous economic regulations, including federal child-labor laws, zoning laws, and wage-and-hour laws. Meanwhile, in cases like the notorious Plessy v. Ferguson (1896), those same justices refused to read the Constitution as protecting the rights of African Americans, the real intended beneficiaries of the Fourteenth Amendment. Between 1868, when the amendment was ratified, and 1912, the Supreme Court would rule on 28 cases involving the rights of African Americans and an astonishing 312 cases on the rights of corporations.
The day back in 1882 when the Supreme Court first heard Roscoe Conkling’s argument, the New-York Daily Tribune featured a story on the case with a headline that would turn out to be prophetic: “Civil Rights of Corporations.” Indeed, in a feat of deceitful legal alchemy, Southern Pacific and its wily legal team had, with the help of an audacious Supreme Court justice, set up the Fourteenth Amendment to be more of a bulwark for the rights of businesses than the rights of minorities.