The court and the corporation: Jurisprudence, localism, and federalism

Supreme Court Review

Volumn 1997, Issue 1, 1997, Pages 403-436

  Mark, Gregory A ^a  

^a Lewis and Clark Law School   (United States)

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EID: 0346572773     PISSN: 00819557     EISSN: None     Source Type: Book Series    
DOI: 10.1086/scr.1997.3109747     Document Type: Article

References (124)

1. See Alfred F. Conard, Corporations in Perspective § 3 (Foundation Press, 1976).
2. See, for example, William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 Yale L J 663 (1974); Liggett v Lee, 288 US 517, 549 (1933) (Brandeis, J, dissenting); Lincoln Steffens, New Jersey: A Traitor State, Part II - How She Sold Out the United States, 25 McClure's Magazine 41 (1905).
3. See, for example, William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 Yale L J 663 (1974); Liggett v Lee, 288 US 517, 549 (1933) (Brandeis, J, dissenting); Lincoln Steffens, New Jersey: A Traitor State, Part II - How She Sold Out the United States, 25 McClure's Magazine 41 (1905).
4. See, for example, William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 83 Yale L J 663 (1974); Liggett v Lee, 288 US 517, 549 (1933) (Brandeis, J, dissenting); Lincoln Steffens, New Jersey: A Traitor State, Part II - How She Sold Out the United States, 25 McClure's Magazine 41 (1905).
5. The claim that the competition inherent in a federal system is beneficial is most fully developed in the realm of public economics. It has been elaborated in a number of settings and deployed by legal academics in many contexts, though none of them to my knowledge historical, except in debates over charter competition. The economics that lies behind such claims is, however, more complicated and leads to more problematic conclusions than most legal academics have acknowledged. See William W. Bratton and Joseph A. McCahery, The New Economics of Jurisdictional Competition: Devolutionary Federalism in a Second-Best World, 86 Georgetown L J 201 (1997). This is not the place to apply Brarton's and McCahery's conclusion. Rather, this essay suggests that the reason corporate charter competition is the paradigmatic example of successful competition is inadvertent and owes a great deal to the ways in which competitive choices were foreclosed by the universalizing jurisprudence of early Supreme Court cases.
6. The seminal article in what has become a rich literature was authored by then professor, now judge, Ralph Winter. See Ralph K. Winter, State Law, Shareholder Protection, and the Theory of the Corporation, 6 J Legal Stud 251 (1977).
7. Roberta Romano, The Genius of American Corporate Law 1 (AEI Press, 1993). Professor Romano's claim is itself historically contingent, based on, or at least facilitated and legitimated by, other phenomena. Perhaps the corporate product of America's governmental structures appears to be the work of genius because it is, for all intents and purposes, unique among the important economies of the world. More likely, however, American corporate law appeared in 1993, and appears today, in a flattering light because the American economy is comparatively successful, both when compared with the relatively stagnant economies of the other great market powers, Japan and Germany, and with the collapsed economies of the formerly centrally planned economies, especially the Soviet Union. Perhaps also the federalist organization appears to have been a factor in the resurgence of America's economy following the relative doldrums of the 1970s. Certainly the vision of devolutionary genius more than coincides with the scholarly attention (in the form of the public choice school) to the beneficial effects of a governmental regime in which units of government are said to compete with one another for the attention, affection, and capital of individual human beings.
8. A conspicuous exception is Henry A. Butler, Nineteenth-Century Jurisdictional Competition in the Granting of Corporate Privileges, 14 J Legal Stud 129 (1985).
9. See Conard § 4 at 6 (cited in note 1).
10. Id.
11. Id.
12. In exploring the role courts played, we should avoid anachronism. While the federal courts today play a small role in formulating corporate law (except for securities law, of course), their historical role is of much greater significance.
13. Willard Hurst made this claim more generally some years ago, arguing "There were institutional reasons why the Court, rather than Congress, led in protecting multi-state areas of economic maneuver. It was a bold step when the Court originally seized the initiative to define public policy of such scope. But once it had done this, the Court was better adapted than the Congress for the detailed protection of private freedom." James Willard Hurst, Law and the Conditions of Freedom in the Nineteenth-Century United States 50 (University of Wisconsin Press, 1956). Though many of Hurst's claims in that classic work have been subject to criticism and revision, this claim about the governmental preferences of Americans has not been one of them.
14. Gordon S. Wood, The Creation of the American Republic, 1776-1787 353 (Norton, 1969).
15. Dartmouth College v Woodward, 17 US 518 (1819).
16. Id at 643-44.
17. Joseph Stancliffe Davis, 1 Essays in the Earlier History of American Corporations 8 (Harvard, 1917; reprint ed, Russell & Russell, 1965) (footnote omitted).
18. Articles of Confederation, Art II ("Each State retains its sovereignty, freedom and independence, and every power, jurisdiction and right, which is not by this confederation expressly delegated to the United States, in Congress assembled.").
19. See Davis, 2 Essays at 24 (Table I) (cited in note 15).
20. Id.
21. James Wilson, II The Works of James Wilson 824-47 (R. G. McCloskey, ed, Harvard, 1967).
22. James Madison to Edmund Pendleton, January 8, 1782, in Gaillard Hunt, ed, 1 The Writings of James Madison 167-69 (Putnam, 1900).
23. Id.
24. Pa Const of 1776, Plan or Frame of Government for the Commonwealth or State of Pennsylvania, § 9, in Francis Newton Thorpe, V The Federal and State Constitutions, Colonial Charters, and Other Organic Laws of the States, Territories, and Colonies Now or Heretofore Forming the United States of America 3081, 3084-85 (Government Printing Office, 1909).
25. Vt Const of 1786, Chapter II, § IX, in Thorpe, VI Constitutions at 3749, 3755.
26. See Davis, 2 Essays at 24 (Table I) (cited in note 15).
27. Id.
28. Ronald E. Seavoy, The Origins of the American Business Corporation, 1784-1855: Broadening the Concept of Public Service During Industrialization 113 n 20 (Greenwood, 1982).
29. Charles C. Tansill, ed, Documents Illustrative of the Formation of the United States 724 (Government Printing Office, 1927) (Madison's notes).
30. Id.
31. Id. The notion that states would be divided, that they would compete for federally incorporated businesses, is apparent in his remarks that follow, in which he noted the "contention" between Philadelphia and New York for a bank.
32. Id (emphasis in original).
33. Id at 725.
34. Report on a National Bank, Dec. 13, 1790, in Samuel McKee, Jr., ed, Papers on Public Credit, Commerce and Finance by Alexander Hamilton 53 (Columbia, 1934).
35. Opinion on the Constitutionality of a Bill for Establishing a National Bank, Feb. 15, 1791, in Julian P. Boyd, ed, 19 Papers of Thomas Jefferson 275 (Princeton, 1974).
36. Final Version of an Opinion on the Constitutionality of an Act to Establish a Bank, Feb. 23, 1791, in Harold C. Syrett, ed, 8 Papers of Alexander Hamilton 97 (Columbia, 1965).
37. See Bray Hammond, Banks and Politics in America from the Revolution to the Civil War 118 (Princeton, 1957).
38. See Davis, 2 Essays at 24 (Table I) (cited in note 15).
39. See, for example, Seavoy at 39-76, 255-74 (cited in note 26) (discussing New York business corporations); John W. Cadman, Jr., The Corporation in New Jersey: Business and Politics 1791-1875 205-39 (Harvard, 1949) (noting in particular that "the manufacturing operations of nearly all the companies were to be carried on in New Jersey," id at 216).
40. See James Willard Hurst, The Legitimacy of the Business Corporation in the Law of the United States 1180-1920 31, 38 (University Press of Virginia, 1970).
41. Id at 42.
42. See Lawrence M. Friedman, A History of American Law 196 (Simon & Schuster, 2d ed 1985).
43. Id at 194-95.
44. See, for example, Cadman at 72-74 (cited in note 37).
45. See, for example, id at 16-17, 25-26, 75-83 & n 211.
46. See, for example, id.
47. See Butler at 153 (Table 1) (cited in note 6).
48. Report on Manufactures, Dec. 5, 1791, in Saul K. Padover, ed, The Mind of Alexander Hamilton 300 (Harper & Brothers, 1958).
49. The Court, of course, was unable to grant charters itself. What it could, and did, do was to legitimate the exercise of national power and limit the capacity of states to restrict corporate functioning.
50. Tony Allan Freyer, Forums of Order: The Federal Courts and Business in American History (JAI, 1979).
51. The Court's nationalist impulses were, of course, constrained not just by the nature and number of cases involving corporations which were appealed to it. Other phenomena, notably slavery, may have limited the Court's efforts to nationalize what were perceived as traditional state functions by many, no matter how weakly those functions were in fact grounded at the state level.
52. Conducting a search for cases using the word incorporation and its derivatives yields many more cases, most of which are irrelevant, as the word is used as a verb, as when one "incorporates by reference." I thus treat the cases using corporation and its derivatives as the definitive sample.
53. See Cadman at 177-81 (cited in note 37).
54. See Hurst, Legitimacy at 146 (cited in note 38).
55. US Const, Art I, § 8, cl 3.
56. US Const, Art I, § 10, cl 1.
57. Stanley Kutler, Privilege and Creative Destruction: The Charles River Bridge Case (Johns Hopkins, paperback ed 1990; J.B. Lippincott, 1971).
58. 2 Cranch 127, 167 (1804).
59. 5 Cranch 61 (1809).
60. Id at 65.
61. Id at 64.
62. 4 Wheat 316 (1819).
63. 4 Wheat 518 (1819).
64. Id at 325.
65. Though Congress failed to exercise its legislative imagination, the European, and especially the English, tradition of trading companies, the mercantilist plans of Hamilton and others, and a multitude of textual references, including the powers to create the post office and postal roads, to grant patent and other rights, to maintain the military, and, of course, to regulate commerce, among other powers - all could have served as the basis for further federal incorporations. The Court's invitation to Congress to act could hardly have been more explicit: "That a corporation must be considered as a means not less usual, not of higher dignity, not more requiring a particular specification than other means, has been sufficiently proved. If we look to the origin of corporations, to the manner in which they have been framed in that government from which we have derived most of our legal principles and ideas, or to the uses to which they have been applied, we find no reason to suppose, that a constitution, omitting, and wisely omitting, to enumerate all the means for carrying into execution the great powers vested in government, ought to have specified this. . . . If a corporation may be employed, indiscriminately with other means, to carry into execution the powers of the government, no particular reason can be assigned for excluding the use of a bank, if required for its fiscal operations." 4 Wheat at 421-22.
66. Id at 406-12.
67. Id at 411, 435 (discussing, respectively, exercise of sovereign power in creating corporations and the capacity of states to tax their own creations).
68. Id at 423.
69. Id at 424.
70. 9 Wheat 738 (1824).
71. The argument that Marshall's rhetoric and jurisprudence are inseparable has been most ably voiced recently. See Christopher L. Eisgruber, John Marshall's Judicial Rhetoric, 1996 Supreme Court Review 439, 440-41 ("Marshall . . . had to address the legitimacy of American law in general, including statutory law. The early judiciary's claim to speak for the American people was contested, but so too were the claims of Congress and the state legislatures. Marshall accordingly approached the legitimacy of judicial review from a different perspective than the one adopted by modern judges: rather than trying to convince people that the judiciary posed no threat to majoritarian institutions, Marshall tried to convince people that national institutions, including the federal judiciary, would govern well."). I am wholly in accord with Eisgruber's view. Marshall's conception of the nation and his views of political economy were inextricably linked, and his rhetorical tactics were always in service to the larger strategic vision.
72. 9 Wheat at 861-63.
73. Marshall's definition of corporations was problematic for another reason. Even were it clear that corporations were and had been considered contracts, whether such contracts were covered by the Contracts Clause is itself debatable. At least one historian has recently surveyed both the primary literature and secondary interpretations and has concluded that "Federalists and Antifederalists held a wide range of opinions about the meaning of the clause." See Steven R. Boyd, The Contracts Clause and the Evolution of American Federalism, 1789-1815, 44 Wm & Mary Q 529, 531 (1987).
74. 4 Wheat at 651.
75. Id at 675.
76. 11 Pet 257 (1837).
77. 2 Cranch at 166.
78. 5 Cranch at 80.
79. 6 Cranch 192 (1810).
80. 11 Pet 420, 583 (1837).
81. Id.
82. See Bank of the United States v Planters' Bank of Georgia, 9 Wheat 904, 907 (1824).
83. 12 Wheat 64 (1827).
84. Id at 67 (footnote omitted).
85. 11 Pet 257 (1837).
86. Id at 328.
87. Id at 544-47.
88. Id at 544-48.
89. Id at 583.
90. Id.
91. 6 How 301 (1848).
92. Id at 322-23.
93. Id at 327.
94. Id at 338.
95. 2 Cranch at 168-69.
96. 7 Cranch 299, 306.
97. 4 Wheat at 640-41.
98. Id at 663.
99. Id at 665 ("They contracted for a system, which should, so far as human foresight can provide, retain forever the government of the literary institution they had formed, in the hands of persons approved by themselves.").
100. Id at 662.
101. Id at 681. Justice Story was not about to leave managers unsupervised. He feared state legislative interference with managers. He did not fear other forms of supervision, especially judicial supervision. Not only did he note the "visitorial" power of the state to check managerial abuse of discretion, id at 673-74, he also explicitly affirmed the chancery power of the courts in the superintendence of managers, id at 676.
102. Gozsler v Corporation of Georgetown, 6 Wheat 593 (1821).
103. Fleckner v Bank of the United States, 8 Wheat 338 (1823).
104. Bank of Metropolis v Guttschlick, 14 Pet 19 (1840).
105. 6 Wheat at 597-98.
106. Id at 595 ("Like all power, it is susceptible of abuse. But it is trusted to the inhabitants themselves, who elect the corporate body, and who may therefore be expected to consult the interests of the town.").
107. 8 Wheat at 358-60.
108. Id at 362.
109. 1 Pet 299 (1828).
110. Id at 69.
111. Id at 71.
112. Id at 70.
113. Id at 69-73.
114. The common law role of the Court is, at first glance, surprising, until one remembers that before the Civil War Alexandria was part of the District of Columbia. Thus, the local courts were federal courts, and, though the bank had received a federal charter, it was as a local bank. Nonetheless, the Court did not distinguish its common law role in this case from its role in any cases involving national banks or locally chartered banks. See, for example, id at 70 (comparing the case to Bank of United States v Dandridge).
115. Still the best work is Gerard Carl Henderson, The Position of Foreign Corporations in American Constitutional Law (Harvard, 1918).
116. 2 How 497 (1844).
117. 13 Pet 519 (1839).
118. Id at 589.
119. Id at 586.
120. Id.
121. Id at 586-87.
122. Id at 586.
123. Id.
124. Id.