Is there a constitutional right to corporate separateness?

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10 Responses

  1. Calvino says:

    Honest question:

    Who cares that Marco is a graduate of Yale Law School? Does it matter for this post? Does he introduce himself that way at parties?

  2. Marco Simons says:

    Honest response: I’m a guest here, and was told to put in that blurb ahead of my posts. At parties I usually just say, “I sue oil companies.”

  3. I, for one, appreciate learning of the educational background of bloggers.

  4. Calvino says:

    Honest sur-response (?):

    I like that line much better.

  5. Joe says:

    The intro blurb provides a mini-bio, which might not be the way it is handled in parties, and education info is pretty common there, isn’t it?

  6. TJ says:

    I don’t think you are framing the question quite right. Daimler is not arguing that “the Constitution requires that it be treated separately from its subsidiary” as much as it is arguing that principles of corporate law require that an stockholder be treated separately from an owned corporation, and that, given this principle of corporate law, it then violates Due Process to deem its subsidiary’s contacts its own.

    The difference in articulation matters quite a bit, I think. When I first read your title, I thought the proposition that the constitution establishes a right to corporate separate personality to be ludicrous, since nothing in the Constitution requires corporations to exist at all. But if the proposition is really that, once Delaware chooses to establish a corporation that is legally separate from its stockholders, the Due Process clause obliges California to recognize this principle, I think that proposition is eminently defensible.

  7. Douglas Levene (@DouglasLevene) says:

    Is the question whether there is a constitutional prohibition against haling into a US court a foreign entity whose only contact with the US is owning shares in a US subsidiary? Or or there other contacts asserted?

  8. Marco Simons says:

    TJ – Although that distinction is made primarily by the US in its amicus brief, I don’t think it is defensible. Delaware’s (or in this case Germany’s) internal rules on corporate separateness – which have never purported to be for all purposes, but general establish limited liability – have little bearing on the constitutional limits on California’s exercise of its judicial power. And indeed, numerous jurisdictions do disregard corporate separateness in a number of circumstances, and it’s never been thought of as a violation of due process. (Actually the US brief doesn’t even go that far; it is essentially says that California, or Congress, could choose to disregard corporate separateness for purposes of personal jurisdiction, but that the current California statute does not give notice to corporations that that’s what’s going to happen.) What if Delaware allowed corporations to hold subsidiaries but California deemed this illegal (as all states did in the 19th Century)? The Supreme Court has, for example, had no problem agreeing that California can disregard corporate separateness in the taxation context, and take a more functional economic approach.

    Framing it in terms of Delaware vs. California presents one set of issues, but I think the question is set in clearer relief if you look at it in terms of Germany vs. the United States. What if the U.S. Congress were to pass a law saying that foreign multinationals who do business here through subsidiaries are subject to general jurisdiction in the forums where their subsidiaries are present? Are you suggesting that due process would forbid such a statute, simply because Germany has chosen to endow its corporations with a certain set of privileges? In my view, that’s effectively what has been done here. Federal law – in the form of the FRCP – allows federal courts to exercise personal jurisdiction according to the rules of the states in which they sit. (If the Supreme Court thinks this rule is bad policy or too permissive, they could turn to the body with authority to change the Federal Rules… which happens to be the Supreme Court.) California has chosen to extend personal jurisdiction to the limits of due process. So if Congress could pass that law, and jurisdiction would be constitutional, then it should be allowed here as well.

    Douglas – that’s basically the question presented, yes. In this case all of the asserted contacts were attributed to the parent from the wholly-owned, indirect US subsidiary.

  9. TJ says:

    I really was trying to make a point about accuracy in framing rather than saying that your ultimate position was wrong. My point is that the principle of the corporate veil is coming from Delaware corporate law, not from the Due Process clause. The analytical question being presented is whether, and in what circumstances, Due Process permits a state to pierce the corporate veil, not whether the Due Process clause mandates that a corporate veil exist.

    That said, I do regard the opposing argument as at least defensible. Two points. First, the fact that the Due Process clause permits California to pierce the corporate veil established by another state in some contexts (taxation) is relevant to, but not dispositive of, whether it permits California to do so in the personal jurisdiction context. Second, I think your framing of the question as U.S. versus Germany misses the point I was making. Of course Congress can pass and enforce your hypothetical statute, but that is because it has authority over the U.S. subsidiary and could simply preempt Delaware law by holding that U.S. corporations have no corporate veil for personal jurisdiction purposes (or even that they have no corporate veil as against non-human owners). It requires nothing to do with the German parent or German law whatsoever. And this precisely illustrates why the question at issue is not whether Due Process itself requires corporate separateness (it doesn’t, and Congress can eliminate it) but only whether it requires a state to honor a corporate veil that is established by another state’s law.

  10. Marco Simons says:

    TJ – In the context of a parent and subsidiary, I guess I don’t really see the distinction; you can only meaningfully talk about parents and subsidiaries if there is a corporate veil of some form, so the question is whether the Constitution requires that that separation be honored in all circumstances. I do think that’s accurately framed as a right to corporate separateness – if two corporations exist, and one owns the other, does due process mandate that they be treated separately? That is the question here.

    And the question has not been framed in terms of whether California needs to honor a Delaware corporate veil; I think the question would be presented in the same way if it were a California corporation. The question has been framed as whether California can disregard corporate separateness for jurisdictional purposes in broader circumstances than it does so for liability purposes.

    I don’t think the hypothetical statute can depend only on the US ability to regulate a US subsidiary, because it wouldn’t need to be a US subsidiary. A German parent could incorporate a German subsidiary that does extensive business in the US and, under traditional rules, is subject to general jurisdiction here. Would Congress be restricted in any way from applying whatever test it wanted to exercise jurisdiction over the German parent? I don’t think so, but the President has yet to see fit to place me on the Supreme Court.