Jess Bravin: Sotomayor Issues Challenge to a Century of Corporate Law

Sotomayor Issues Challenge to a Century of Corporate Law
by Jess Bravin
Wall Street Journal

In her maiden Supreme Court appearance last week, Justice Sonia Sotomayor made a provocative comment that probed the foundations of corporate law.

During arguments in a campaign-finance case, the court's majority conservatives seemed persuaded that corporations have broad First Amendment rights and that recent precedents upholding limits on corporate political spending should be overruled.

But Justice Sotomayor suggested the majority might have it all wrong -- and that instead the court should reconsider the 19th century rulings that first afforded corporations the same rights flesh-and-blood people have.

Judges "created corporations as persons, gave birth to corporations as persons," she said. "There could be an argument made that that was the court's error to start with...[imbuing] a creature of state law with human characteristics."

After a confirmation process that revealed little of her legal philosophy, the remark offered an early hint of the direction Justice Sotomayor might want to take the court.

"Progressives who think that corporations already have an unduly large influence on policy in the United States have to feel reassured that this was one of [her] first questions," said Douglas Kendall, president of the liberal Constitutional Accountability Center.

"I don't want to draw too much from one comment," says Todd Gaziano, director of the Center for Legal and Judicial Studies at the conservative Heritage Foundation. But it "doesn't give me a lot of confidence that she respects the corporate form and the type of rights that it should be afforded."

For centuries, corporations have been considered beings apart from their human owners, yet sharing with them some attributes, such as the right to make contracts and own property. Originally, corporations were a relatively rare form of organization. The government granted charters to corporations, delineating their specific functions. Their powers were presumed limited to those their charter spelled out.

"A corporation is an artificial being, invisible, intangible," Chief Justice John Marshall wrote in an 1819 case. "It possesses only those properties which the charter of its creation confers upon it."

But as the Industrial Revolution took hold, corporations proliferated and views of their functions began to evolve.

In an 1886 tax dispute between the Southern Pacific Railroad and the state of California, the court reporter quoted Chief Justice Morrison Waite telling attorneys to skip arguments over whether the 14th Amendment's equal-protection clause applied to corporations, because "we are all of opinion that it does."

That seemingly off-hand comment reflected an "impulse to shield business activity from certain government regulation," says David Millon, a law professor at Washington and Lee University.

"A positive way to put it is that the economy is booming, American production is leading the world and the courts want to promote that," Mr. Millon says. Less charitably, "it's all about protecting corporate wealth" from taxes, regulations or other legislative initiatives.

Subsequent opinions expanded corporate rights. In 1928, the court struck down a Pennsylvania tax on transportation corporations because individual taxicab drivers were exempt. Corporations get "the same protection of equal laws that natural persons" have, Justice Pierce Butler wrote.

From the mid-20th century, though, the court has vacillated on how far corporate rights extend. In a 1973 case before a more liberal court, Justice William O. Douglas rejected the Butler opinion as "a relic" that overstepped "the narrow confines of judicial review" by second-guessing the legislature's decision to tax corporations differently than individuals.

Today, it's "just complete confusion" over which rights corporations can claim, says Prof. William Simon of Columbia Law School.

Even conservatives sometimes have been skeptical of corporate rights. Then-Associate Justice William Rehnquist dissented in 1979 from a decision voiding Massachusetts's restriction of corporate political spending on referendums. Since corporations receive special legal and tax benefits, "it might reasonably be concluded that those properties, so beneficial in the economic sphere, pose special dangers in the political sphere," he wrote.

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