Wednesday, July 2, 2014

Corporations are people, right? Redux

A few months ago, I wrote a tongue-in-cheek entry about how a corporation I own was suing me to stop me from dissolving it, on the basis that it is a "person" and therefore has the right to life.  The point of my entry was to demonstrate how utterly ridiculous it is to think of corporations as having "rights" that can only really be exercised by natural persons.

The rationale for the existence of corporations is rather simple.  Let's say John owns a truck that he uses in his (unincorporated) business.  John's truck is being driven by his employee, Tom, who is making deliveries.  Tom isn't paying attention, and he crashes John's truck into Mary's car, causing her a lot of damage.

Because John personally owns the truck and the business it was serving, he is personally liable for all of the damage he caused.  That damage could far exceed what John has ever put into or gotten out of his business, and it could far exceed what the business is worth.

As you might can see, that situation would discourage people who have lots of assets from investing in businesses.  After all, why would you put money into a business if you could lose not only your investment, but also everything else you have, due to someone else's negligence?

In order to solve that problem, the corporation was devised.  A corporation is created by the government at the request of one or more individuals, who supply capital to the corporation in exchange for an ownership share.  The major feature of a corporation is that it is a device to provide for limited liability to shareholders.  In the event that the corporation incurs liability to another person, the only thing that can happen to the shareholders is that they lose their investment in the corporation.  Their assets are protected.*

* - There are two rather large exceptions to that rule.  First, you cannot use your status as a corporate shareholder to insulate you from liabilities incurred because of your personal conduct.  Second, if you operate the corporation in a way that disregards the separate existence of the corporation, as discussed below, the corporation is said to be your alter ego and your limited liability protection is disregarded.

In order to accomplish this, the corporation is said to be legally a separate entity from its shareholders.  There are some important consequences to this concept.  There are formalities that have to be observed, like maintaining separate bank accounts, having a board of directors, having regular board and shareholder meetings, filing separate tax returns, and a whole host of other activities designed to demonstrate that the corporation is, in fact, a separate entity from its shareholders.

Historically, courts have considered corporations to be "persons," a term that has a great deal of meaning in the law, because only "persons" are subject to laws and liabilities.  There is no law, for example, that makes it illegal for a dog to bite a human.  A dog cannot be held legally liable for the injuries it inflicts upon the human it bites.  You can't sue a dog.

But if limited liability is going to work, you have to be able to sue a corporation.  So we consider corporations to be "persons," at least for limited purposes.

Now, to the fatal flaw in this week's Hobby Lobby case at the Supreme Court.  (There are actually at least two other unrelated flaws, which I'll get to in a moment.)

Hobby Lobby sued the government based upon the ACA requirement that it provide its employees with health insurance that covers, among other things, a list of birth control medications and devices.  Hobby Lobby is a corporation.  It is owned by a family of Christians who claim a moral opposition to abortion.  Those family members believe that four of the types of birth control that the ACA requires the insurance to cover are "abortifacients," that is, devices or medications that cause abortions to occur.**

** - "Belief" is the only word to describe it, because it is certainly not fact.  IUDs work either by making the uterus so inhospitable to sperm that they are destroyed, or by thickening the cervical mucus so that sperm cannot reach the uterus.  The other medications, which are so-called "morning after" pills, work by suppressing ovulation so that there is no egg for the sperm to fertilize.  There is a medication--mifeprestone--that causes already-fertilized eggs to be aborted by causing the endometrial lining to be shed from the uterus (essentially an immediate period), but that medication need not be covered under the mandate.

Hobby Lobby argued--and the five old Catholic men who made the decision agreed--that because it is owned by anti-abortion Christians who have sincere, if misguided, beliefs about certain types of birth control, requiring the corporation to pay for insurance that covers these types of birth control is a violation of the corporation's religious liberty.

The problem with this theory, of course, is that the corporation itself is a separate entity from its shareholders.  It has no religious beliefs.  It has no beliefs at all.  It is a fictional entity that is specifically designed to be separate from and indeed insulated from the characteristics of its owners, for their benefit, to avoid unlimited personal liability for the corporations misdeeds.  

Requiring Hobby Lobby, the corporation, to pay for comprehensive insurance for its employees is not an imposition of anything upon the corporation's shareholders.  It is a liability of the corporation.  There is literally nothing that would have prohibited the shareholders from operating Hobby Lobby as a partnership--and if they did, they would have an excellent argument about the violation of their individual liberties.  The only tradeoff is that they don't get the benefit of limited liability.

The majority complained that this position requires business owners to choose between the corporate form and maintaining their own individual liberties, and that's unfair.  But it's not unfair.  The business owners maintain their own individual liberties regardless.  No one is demanding that David Green, the majority owner of Hobby Lobby, personally pay for his employees' birth control.  What the government sought to require is that the corporation, a separate entity, pay for minimum-standard insurance for its employees.

The Supreme Court, in its zeal to protect questionable religious liberty--or, probably more likely, the wealth of corporations and wealthy individuals--has obliterated the carefully crafted bargain that corporations represent, making corporations both a shield and a sword.

A further flaw in the Court's approach is in its consideration of what Hobby Lobby is required to pay for.

Let's be clear:  Hobby Lobby doesn't have to pay for ANYTHING its employees might consume as health care.  The ACA requires Hobby Lobby to supply its employees with insurance.  In order to comply with the law, the insurance Hobby Lobby purchases must include coverage for ten general categories of care, including birth control medications and devices.  But Hobby Lobby isn't paying for anything that insurance covers.  The insurance policy includes a set of contracts among the insurance company, the insured person, and the health care providers.  The insurance company, not Hobby Lobby, pays for the health care the insured person consumes.  Hobby Lobby isn't writing any checks for hospitalization, or wart removal, or abortion, or anything else, other than the premiums.

Consider for a moment that a woman who works at Hobby Lobby has an unintended pregnancy and decides to have an abortion.  She goes to Planned Parenthood, pays her $500 or so (or whatever it costs), and has the abortion.  The money for the abortion comes from her work at Hobby Lobby.

Does that mean Hobby Lobby paid for her abortion?  Of course not.  But there is absolutely no difference between paying an insurance company for an insurance policy as a part of that woman's compensation for her work, and paying that woman wages for her work.  And don't forget that the government requires Hobby Lobby to pay the woman for her work.  We don't seem to have a problem with giving the woman agency over how she spends her wages, but for some reason, Hobby Lobby gets to control what she does with the insurance she earns?

Ultimately, then, Hobby Lobby's position is about control.  The company views its ability to select a health insurance plan for its employees as an opportunity to control how its employees behave.  That is not a matter of religious liberty.  It is the heavy boot of Christian Pharisees on the necks of those who work for them.

Which brings us to the third flaw in the Hobby Lobby decision--the assertion that the objection to these forms of birth control is based upon a principled, sincere religious belief.  I have already explained why the Greens are simply wrong about how these birth control methods work.  But if these beliefs were sincere, Hobby Lobby would avoid any connection to them at all.  As has been documented elsewhere, Hobby Lobby's 401(k) plan--which is fully in management's control, and which makes investment decisions based upon management's directives--is heavily invested in companies that profit from these birth control methods.  That makes them hypocrites, and it obviates any supposed infringement of their religious liberty based upon that so-called objection.

Ultimately, this decision is the poster child for single-payer insurance.  In an effort to maintain the existing system of employment-based coverage, the Obama administration created an impossibly complex, highly inefficient system that makes it difficult to determine whose obligations are what.  With single-payer, none of this would be an issue.  Most importantly, hypocrites like the people who own Hobby Lobby would be stripped of their ability to control what their employees do with their lives. 

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