Corporations

Subscribe to Corporations via RSS

They really don’t. 

To be clear, this is not a post bashing corporations (or government). It’s not really extolling the virtues of corporations, either. Instead, it’s just to make the point that, notwithstanding Citizens United or Hobby Lobby and other cases of their ilk, the idea that corporations are people is still a legal fiction.  A useful and important one, but a fiction nonetheless.  

On April 11, Corey Booker posted the following on Facebook:

In awful years past, corporations polluted the Passaic river to the point that it ended the days where people could eat from it, swim in it, and use it as a thriving recreation source. Today we announced a massive initiative to clean the Passaic river and bring it back to life again. The tremendous clean up effort will create hundreds of jobs and slowly over time restore one of New Jersey’s great rivers to its past strength and glory.

The river needs the clean-up, and I applaud the effort. Still, the reality is corporations did not pollute the Passaic River, at least not literally.  People working for the corporation did. It is agency law that allows a corporation to act in the first place, because the…

As I discussed briefly last week, I think reverse veil piercing in the Hobby Lobby case is a bad idea, in part because it uses a doctrine designed to prevent fraud to impute characteristics to the entity. One of the reasons this concerns me is that there are other recent decisions that imply courts may be missing the point about the separate and distinctive nature of entities, even as the individual rights of entities appear to be expanding. 

In a recent West Virginia case, for example, a lower court allowed a wildly improper use of the statutory provision, “Unknown claims against dissolved corporation” to be the basis what became a $25 million jury award for punitive damages for emotional impact to a former entity’s shareholders. In the Order Addressing AIG Posttrial Motions (pdf) of May 1, 2012 (“Order”) Ryan Environmental, Inc. v. Hess Oil Co., Inc., Civil Action No. 10-C-20, the court adopted a plaintiff’s argument that, under W. Va. Code § 31D-14-1407(d), “the interests of the shareholders are joined with the interests of the corporation after a corporation’s dissolution.” See Order at 7.  The court later explained its view that, because the plaintiff’s former entity was dissolved, damages and hardships attributable to the shareholders were a sufficient basis for the defendants’ liability directly to the shareholders and that such damages and hardships did not need to attributed to the former entity.  That is, the defendants’ liability ran to the entity’s shareholders post-dissolution even though the harms claimed were never attributable to the entity.  Click below to read more.

Right? 

I understand that I may be one of the few people who seems to actually care about such a thing, but it seems to me courts really should be careful about their descriptions of limited liability entities.  I have written about this before (here, here, and here), but it continues to frustrate me.  

One of the things that got me thinking about this again (but let’s be honest, it seems I am always thinking about this) is a post over at The Conglomerate.  There, Christine Hurt (who, to be clear, is a lot smarter and more knowledgeable than I) discusses the Illinois governor’s interest in generating more jobs by shifting to “the $39 limited liability company.”  In her post, she makes a couple references to incorporation in the context of LLC formation.  But, in fairness, that’s a blog post, and I can’t claim that I have always been as precise as I should be in my blog writing, either.  

Courts, however, should be more careful.  The U.S. Court of Appeals for the Ninth Circuit, for example, loves to call limited liability companies “limited liability corporations” in their cases.  Take, for example, CarePartners, LLC v. Lashway, 545 F.3d…

A recent study, Who Owns West Virginia? (full report pdf), gives a glimpse into the land ownership in the state.  The report finds that much of the state’s private land is “owned by large, mainly absentee corporations, [but] the list of top owners – once dominated by energy, land holding and paper companies – now includes major timber management concerns.”  

As reported by Ken Ward Jr. in the Charleston Gazette, the report finds that “[n]one of the state’s top 10 private landowners is headquartered in West Virginia.”  Although it is accurate that the top ten owners are not indivdual owners,  I will note that not all of the top ten owners are “corporations.”  There is at least one master limited partnership and one limited liability company (LLC).  That may not mean much in the sense of absentee ownership, but it is a doctrinal distinction I maintain is still important.  

It’s not shocking that these entity owners would be out of state, especially because that was true back in 1974, too, when the last study was done.  There are relatively few large entities chartered or headquartered in West Virginia, and it appears that many of the…

Early this month, the United States
District Court for the Middle District of
Pennsylvania decided Gentex Corp. v. Abbott, Civ. A. No. 3:12-CV-02549,  (M.D.Pa. 10-10-2013).  The outcome of the case is not really objectionable (to me), but some of the
language in the opinion is. As with many courts, this court conflates LLCs and
corporations, which is just wrong.  The
court repeatedly applies “corporate” law principles to an LLC, without
distinguishing the application.  This is
a common practice, and one that I think does a disservice to the evolution of
the law applying to both corporations and LLCs.

I noted this in a Harvard Business Law Review Online article a while back:

Many courts thus seem to view LLCs as close cousins to corporations, and many even appear to view LLCs as subset or specialized types of corporations. A May 2011 search of Westlaw’s “ALLCASES” database provides 2,773 documents with the phrase “limited liability corporation,” yet most (if not all) such cases were actually referring to LLCs—limited liability companies. As such, it is not surprising that courts have often failed to treat LLCs as alternative entities unto themselves. It may be that some courts didn’t even appreciate that fact. (footnotes omitted).

To be…

Lewis Lazarus recently posted Directors Designated By Investors Owe Fiduciary Duties to the Company as a Whole and Not to the Designating Investor at the Delaware Business Litigation Report.  In his article, he explained

[The Delaware] cases teach that directors designated by particular stockholders or investors owe duties generally to the company and all of its stockholders.  Where the interests of the investor and the company and its common stockholders potentially diverge, the directors cannot favor the interests of the investor over those of the company and its common stockholders.

Professor Bainbridge weighs in (here), agreeing that the above is the general rule, but that in some cases that may not be best.  He gives a few examples, such as a struggling company granting a union nominee a board position or a time when preferred shareholders can elect a board majority because no dividends were paid for a sufficient period of time. He then notes that a director’s “sponsor might reasonably expect the directors not just to ‘advocate’ for the shareholder’s position, but to vote for it and take other action.”  Professor Bainbridge concludes that he still doesn’t “think the sponsor should be able to punish…