A Short Dialogue on Santa Clara County v. Southern Pacific Railroad Company

John of Salisbury: I see that Brad DeLong is getting smacked down from the left and from the right.

Thrasymakhos: Something that would make the world a better place if it happened more often, but about what, exactly?

John of Salisbury: Well, DeLong wrote down an off-the-cuff list of ten "constitutional moments" when American judges had changed the law. Fourth on his list is:

• The post-Civil War empowering of corporations with exorbitant privileges of citizenship and limited liability at the expense of government regulators and creditors.

Justinian: And?

Edward Coke: Nathan Newman accused him of Amnesia on the Death of Reconstruction--when the Grant administration was trying to suppress the anti-Negro terrorist insurgency in the U.S. South in the 1870s, the Supreme Court betrayed it and broke the legal tools it was using. Because the Supreme Court threw its weight onto the scales, Newman argues, the terrorists won.

Thrasymakhos: And what does DeLong say?

John of Salisbury: He wimps out. Something about the Supreme Court being a bit player--the main actors being executive and legislative.

Thrasymakhos: But the Supreme Court was active?

John of Salisbury: Very.

Thrasymakhos: Seems like Nathan has a fair point.

Justinian: And what else?

John of Salisbury: This is interesting. I can't claim to fully understand it. From the right, Stephen Bainbridge cheered on by Glenn Reynolds, takes aim at DeLong's example number 4:

I assume that DeLong's talking about the post-Civil war cases [like Santa Clara County v. Southern Pacific Railroad Company].... Congress substituted the word "person" for the word "citizen" [in the text of the Fourteenth Amendment] precisely so that the provisions so affected would protect not just natural persons but also legal persons, such as corporations, from oppressive legislation.... (Admittedly... the legislative history is not uncontroverted.)...

The... cases establishing the corporation as a legal person with constitutional rights were (a) required by the legislative history of the 14th amendment and (b) made good policy sense. Hence, my conclusion that's you're "wrong" was intended to suggest that # 4 doesn't belong on your list. It was also intended to suggest that your rehetorical claim that the post-Civil War cases provided corporations with "exorbitant" privileges was, frankly, over the top. I should have thought that was apparent...

Justinian: I don't understand. Is Bainbridge defending the ruling of the Supreme Court in Santa Clara County v. Southern Pacific Railroad Company because the Court had a choice as to how to rule and chose the just result--the one that made "good policy sense"--or because the Court had no choice as to how to rule, being contrained by the plain meaning of the text?

Thrasymakhos: Neither.

Justinian: Neither?

Thrasymakhos: Neither. Notice that Bainbridge claims not that the Court was constrained by the meaning of the text, but by the legislative history of the amendment. He can't claim that the text requires his interpretation: it doesn't. And notice that Bainbridge cannot claim that justice alone--the fact that this interpretation would make "good policy sense"--is sufficient to justify his interpretation. That would mean that good judges are "activists" because they can make choices, and Bainbridge is certain that good judges aren't activists.

Edward Coke: No, that's not it at all. What good judges do is that they understand the law at a deeper level than other people. They see more clearly than others what the law always meant--but what their predecessors were too blurry-eyed to see.

Thrasymakhos: But the Fourteenth Amendment was then only sixteen years old.

Edward Coke: But the real Constitution--the Constitution that is true justice--had always included a Fourteenth Amendment. The drafters in 1787 had simply failed to see that it did. The life of the law, after all, is reason. The law that is written down is simply crystalized reason itself, to the extent that we can understand and follow it. So it had to be the case that true justice required and the properly-interpreted Fourteenth Amendment required that corporations be persons with the right to the equal protection of the laws. Anything else would be unreasonable.

John of Salisbury: Are you Edward Coke or G.F.W. Hegel?

Justinian: But this "required"? How can claims made about legislative history that are "not uncontroverted" "require" anything?

Edward Coke: Got me.

Justinian: How does this Fourteenth Amendment read?

Edward Coke: Like this:

Section. 1. All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens.... No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Section. 2. Representatives shall be apportioned... counting the whole number of persons in each State....

Justinian: So if you have more corporations in your state, you get more representatives in the legislature?

John of Salisbury: No, no, no! "Persons" in Section 2 refers only to human beings...

Edward Coke: And "persons" at the start of Section 1 refers only to human beings...

John of Salisbury: Only "persons" at the end of Section 1 refers to legal persons, i.e. corporations, as well as human beings...

Justinian: If anybody had tried to place such a strained interpretation on one of my laws...

John of Salisbury: Yes. Justices Hugo Black and William O. Douglas had things to say about Bainbridge's "required":

Wheeling Steel Corporation v. Glander , 337 U.S. 562 (1949): Mr. Justice DOUGLAS, with whom Mr. Justice BLACK concurs, dissenting.

It has been implicit in all of our decisions since 1886 that a corporation is a 'person' within the meaning of the Equal Protection Clause of the Fourteenth Amendment. Santa Clara Co. v. South. Pacific R. Co.... [I]t wrote no opinion on the point.... There was no history, logic, or reason given to support that view.... The Fourteenth Amendment became a part of the Constitution in 1868. In 1871... Mr. Justice Woods (then Circuit Judge) held that 'person' as there used did not include a corporation.... [I]n 1873. Mr. Justice Miller... adverted to events 'almost too recent to be called history' to show that the purpose of the Amendment was to protect human rights--primarily the rights of a race which had just won its freedom....

[W]hat was clear to these earlier judges was apparently plain to the people who voted to make the Fourteenth Amendment a part of our Constitution.... There was no suggestion in [the amendment's] submission that it was designed to put negroes and corporations into one class and so dilute the police power of the States over corporate affairs....

[H]ow strained a construction it is of the Fourteenth Amendment so to hold.... It requires distortion to read 'person' as meaning one thing, then another within the same clause and from clause to clause....

History has gone the other way..... But now that the question is squarely presented I can only conclude that the Santa Clara case was wrong and should be overruled...

Edward Coke: And things get worse. If you look in Justice John Marshall Harlan's opinion in Santa Clara Co. v. South. Pacific R. Co. you see no holding that a corporation is a "person." The Court does not reach the question:

Santa Clara County v. Southern Pacific Railroad Company: The special grounds of defense by each of the defendants were: (1) That its road... a... franchise... derived from the United States, cannot, without their consent, be subjected to state taxation. (2) That the provisions of the constitution and laws of California... are in violation of the fourteenth amendment... denying to it the equal protection of the laws....

Mr. Justice FIELD overruled the first of the special defenses... but sustained the second.... The propositions embodied in the conclusions reached in the circuit court... belong to a class which this court should not decide unless their determination is essential.... [If not,] there will be no occasion to consider the grave questions of constitutional law....

[T]he court below might have given judgment... upon the ground that the assessment... included property... the state board was without jurisdiction to assess.... As the judgment can be sustained upon this ground, it is not necessary to consider any other questions...

Justinian: So Harlan writes explicitly that the Supreme Court is not deciding this question, and people like Bainbridge assert that the Supreme Court did decide the question?

Edward Coke: Yep.

Justinian: Wow.

[Pause]

Justinian: But Bainbridge talks about the legislative history. He says the legislative history requires his reading of the Fourteenth Amendment.

John of Salisbury: Now we get to the interesting case of Roscoe Conkling. Roscoe Conkling claimed that the drafters of the Fourteenth Amendment had used the word "persons" in the equal protection clause so that subsequent courts could use it to protect corporations from legislatures--and that the drafters had kept this secret throughout the ratification process, and that he was only now in 1882 revealing the true meaning of what the states had ratified.

Justinian: Under what theory of ratification is a Court "required" to adopt a secret meaning of a law--a meaning unknown to those who adopted it?

Edward Coke: Got me.

Justinian: If Roscoe Conkling had written an extra clause on the original of the Amendment text in invisible ink, and the Amendment had then been ratified, would Bainbridge say that the invisible ink text was a valid part of the Constitution?

Edward Coke: Got me.

Justinian: Is Bainbridge serious when he writes that this claim by Conkling "requires" that judges adopt Conkling's reading of the Fourteenth Amendment?

Edward Coke: Apparently.

Thrasymakhos: It gets worse: Conkling appears to have misquoted his own diary, and to have done so deliberately: Howard Jay Graham (1938) "The 'Conspiracy Theory' of the Fourteenth Amendment," Yale Law Journal.

Justinian: Your modern jurisprudents appear to be a scurvy lot.

Edward Coke: I cannot disagree.

John of Salisbury: It's your fault.

Edward Coke: My fault?!

John of Salisbury: Yes. You started this practice of pretending that what judges wanted to do was in fact what precedent demanded that they must do. You with your "Great Charter" business--the rights of Englishmen against arbitrary arrest dating back to 1215. If anybody had shown up before Queen Elizabeth I demanding that someone she held in the Tower be released because of the "Great Charter"--well you, you as her Speaker blocked a proposed reaffirmation of it, didn't you? But you wanted to curb the power of a Scottish-born king, and pretending that Magna Carta had always been good law since 1215, and that it had always applied not just to barons with knights in the field but to all crown subjects was just the tool you needed. Modern lawyers have a nasty habit of making false claims about the past--that such and such a reading is "required" because of the past--in the hope that their claims will be true about the future. And it's your fault.

Justinian: I'm still stuck at this "required by the legislative history" business...

Thrasymakhos: It doesn't make "sense." It's not supposed to make sense. It's simply a way of avoiding admitting that the post-Civil War Supreme Court made choices about how American corporate law was to develop, and those choices could have gone different ways...

Comments

[Paul G. Brown]

Conjugate the

"My sound legal judgement is founded on *mumbles*legislative*mumbles* precident."

"Your foolish judgements are founded on *mumbles*socio/historical*mumbles* precident."

"That damn fool's judgements are founded on *cough*moral*cough* precident."

[Steve Bainbridge]

So you concede you're wrong about limited liability?

Deleting this comment will be taken as an implied admission.

[Yes, states passed general incorporation laws giving everybody who wanted access to the limited liability form of corporate ownership.

But then things get complicated. It's not clear to me why such laws survived Supreme Court review. Had I been Joseph Story, I would have struck down a New Hampshire general incorporation law with limited liability on the grounds that it impaired the obligation of contracts, which it does...

More generally, I had always thought (and I may be wrong) that limited liability started out as a form of sovereign immunity: the corporation was a public or at least a state-function entity rather than a particular legal form of private commercial partnership, and so it made sense to make the people who acted for it judgment-limited because their actions were somewhat state actions. And then you get the transformation of limited liability into a shield for owners in debt--even when there are none of the "difficulty of monitoring" and "desirability of risk-spreading" considerations that we economists use to provide a rationale for limited liability...]

[Randal Roman]

The interesting question, it seems to me, is whether any of this about corporations having the protection afforded to persons had any real meaning in the economic development of the US. The decision regarding the 14th Amendment did not apply to Sweden, nor Germany, nor Britain. Yet all those countries had very similar development paths to the US, and all have powerful corporations the posess many protections at law. The comparison and contrast is what should yield some understanding, in this case.

[anon]

This post is a gem! I have utterly enjoyed it.

[ken]

Bainbridge has never struck me as being very smart. I don't think even he realizes that his position is based on his prejudice and not on precedent, law, or legislative history.

[andres]

Brad, you really ought to think about collecting and publishing your Platonic dialogues--they really are cleverly written and entertaining.

["Q" the Enchanter]

DeLong, you are a DeLight.

OK, I get where corporations are allowed to represent the property rights of their shareholders. That came when John Marshall agreed to hear the Dartmouth College case in 1818.

Shareholders can transfer property rights to corporations in some implicit, limited power of attorney.

But, where did the courts agree that shareholder property responsibilites do not go along with property rights?

If I invest in a corporation for the purpose of committing crime, then where did the courts lose the right to prosecute me, as a shareholder? If a shareholder has advanced knowledge of corporate negligence, and still remains a "partner" then the shareholder is liable.

Did I miss a constitutional provision that separates our rights from our liabilities?

[Robert Waldmann]

Justinian: If Roscoe Conkling had written an extra clause on the original of the Amendment text in invisible ink, and the Amendment had then been ratified, would Bainbridge say that the invisible ink text was a valid part of the Constitution?

Edward Coke: Got me.

Justin: If Arlen Specter's legislative aids snuck a bit of text into the patriot act renewal and didn't tell any single senator (including Specter) until the Senate had voted on the alleged bill, would Bainbridge say that the text, unknown to any senator at the time of the vote, was US law ?

Edward Cokehead: Got 8 US attorneys who will serve indefinitely without Senate confirmation

Robert Waldmann: Hey Justin you seem pretty learned for an illiterate.

Brad. Don't don't don't attempt parody.
They will consider it a useful suggestion.

[jp]

Regarding the interpolation in Steve Bainbridge's comment at 6:35 pm --

I disagree with the proposition that state general incorporation laws impaired contracts. If one state (NH, for example) adopts a law enabling business owners to create corporations and thereby to obtain limited liability w/r/t corporate activity, the limited liability is purely prospective. Anyone thereafter contracting with a NH corporation would be on notice that he could look to the corporation only, not its owners, for performance. Since his contract would be made under the condition of limited liability, limited liability would not impair the contract.

[Which proves too much: without limited liability a debtor could write contracts that gave the creditor recourse to the holdings of the corporation only. A more sophisticated theory of why default legal forms matter is needed here.]

If the objection is that an agent of a corporation could make a contract without disclosing that he's acting for a person with limited liability, the princinples of agency law would normally protect the expectations of the other party, and thus contracts would again not be impaired. If the objection is that victims of tortious conduct by corporations would not have recourse against the owners, this situation, involving torts rather than contracts, likewise would not entail impairment of contracts.

[Robert Waldmann]

Justinian: If Roscoe Conkling had written an extra clause on the original of the Amendment text in invisible ink, and the Amendment had then been ratified, would Bainbridge say that the invisible ink text was a valid part of the Constitution?

Edward Coke: Got me.

Justin: If Arlen Specter's legislative aids snuck a bit of text into the patriot act renewal and didn't tell any single senator (including Specter) until the Senate had voted on the alleged bill, would Bainbridge say that the text, unknown to any senator at the time of the vote, was US law ?

Edward Cokehead: Got 8 US attorneys who will serve indefinitely without Senate confirmation

Robert Waldmann: Hey Justin you seem pretty learned for an illiterate.

Brad. Don't don't don't attempt parody.
They will consider it a useful suggestion.

[Judge Dire]

Brad -

Looks like Coke & Jus & John S overlooked the case summary that precedes Harlan's opinion in Southern Pacific v. Santa Clara.

[No they don't. Black and Douglas talk about this: Waite says it before the argument, but Harlan--writing for the Court--explicitly says that the Court does not reach the question.]

[The summary is omitted in Findlaw, but appears in Lexis.] Specifically:

"One of the points made and discussed at length in the brief of counsel for defendants in error was that 'Corporations are persons within the meaning of the Fourteenth Amendment to the Constitution of the United States.' Before argument MR. CHIEF JUSTICE WAITE said: The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of opinion that it does." 118 US at 296.

[jp]

Prof. D. -- Thanks for the response. While what you say is no doubt correct, it goes to changing ground rules rather than changing rules in the middle of the game. The former does not normally provide a basis for holding a law unconstitutional because it impairs contracts.

[Jacob T. Levy]

Are you Edward Coke or G.F.W. Hegel?

Without reaching the merits, this made me laugh very hard, because it was almost exactly what I was thinking in response to the previous line's massive overexpansion of the idea that the life of the law is reason.

[Ian Whitchurch]

Whats John of Salisbury doing commenting on a legal case ?

The guy was a headkicker, in charge of making sure Henry II of England didnt make any rash decisions regarding antipopes being shopped around Europe by the Emperor.

Me, I'd be going for a decent Bartolist, at least. They do consulting work reasonably cheap.

Ian Whitchurch

PS I have some sharp and pointed questions for Mr Salisbury about his correspondance, specifically his circa 1159 letter to Peter abbot of Celle 'et licet Mandrogerus grunniat, Trimalchio intabescat, ridiat Bromius, et Mercularialium clientum coetus michi patronum subtrahat, uel Coridone patrocinate adiutus' ... specifically is that Trimalchio reference regarding a certain dinner party written about by a certain Petronius - yeah, that one, the fashionista at Nero's court ? If so, why doesnt the Satyricon turn up in any listings of manuscripts held by any reputable library in Europe at or about when Mr Salisbury could have read it ?

[Stuart Buck]

But then things get complicated. It's not clear to me why such laws survived Supreme Court review. Had I been Joseph Story, I would have struck down a New Hampshire general incorporation law with limited liability on the grounds that it impaired the obligation of contracts, which it does...

Another comment that seems to reflect an elementary misunderstanding of constitutional law. The Contracts Clause only applies (if at all) to "pre-existing contracts". http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=US&vol=503&invol=181 I.e., A has a contract with B, and the state passes a law allowing A to escape liability on that pre-existing contract. (See also McCracken v. Hayward, which noted that the "obligation of a contract" "depends on the laws in existence when it is made," and that the Contracts Clause question is whether " any subsequent law affect[s] to diminish the duty, or to impair the right.") http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=search&court=US&case=/us/43/608.html

The Contracts Clause would never have been implicated, to my knowledge, merely because a state law allowed people to incorporate and form new contracts that had limited liability in some respect.

[I think the interaction of state-chartered corporations and state bankruptcy laws is more complicated. And there is a more basic point: you're talking about what the law now is; I'm talking about what the law might have turned out to be.]

[Stuart Buck]

And of course, I forgot to mention one of the most famous cases in the history of constitutional law: Ogden v. Saunders, which held that the Contracts Clause applies only "retrospectively."
http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=25&invol=213

"It is thus most apparent, that, which ever way we turn, whether to laws affecting the validity, construction, or discharges of contracts, or the evidence or remedy to be employed in enforcing them, we are met by this overruling and admitted distinction, between those which operate retrospectively, and those which operate prospectively. In all of them, the law is pronounced to be void in the first class of cases, and not so in the second."

As the Court explained, any other holding would basically mean that states were not allowed to regulate contracts at all. That is, if the Contracts Clause applied insofar as a state law affected *future* contracts:

"it is very apparent, that the sphere of State legislation upon subjects connected with the contracts of individuals, would be abridged beyond what it can for a moment be believed the sovereign States of this Union would have consented to; for it will be found, upon examination, that there are few laws which concern the general police of a state, or the government of its citizens, in their intercourse with each other, or with strangers, which may not in some way or other affect the contracts which they have entered into, or may thereafter form. For what the laws of evidence, or which concern remedies-frauds and perjuries-laws of registration, and those which affect landlord and tenant, sales at auction, acts of limitation, and those which limit the fees of professional men, and the charges of tavern keepers, and a multitude of others which crowed the codes of every State, but laws which may affect the validity, construction, or duration, or discharge of contracts?"

[James Killus]

You know, I always thought that it was only fringe crackpots and nitwits who wrote things like "failure to reply to this will be taken as your concession that I am right," or "Deleting this comment will be taken as an implied admission."

Oh, wait a minute...