Veil Piercing and the Untapped Power of State Courts

Abstract

The Supreme Court in recent years has embraced an antimajoritarian trend toward providing constitutional protections for the elite who own or control corporations. This trend is especially troubling as it threatens to undermine the balance found in state corporate law between private ordering for internal corporate matters and government regulation to police the negative externalities of the corporate form. The Court’s interventions also have the potential to leave vulnerable groups without the protection of religiously-neutral laws designed to prevent discrimination, protect workers, or provide essential services such as health care. While the Supreme Court has not yet explicitly preempted what has traditionally been the province of states, the Court has relied, both implicitly and explicitly, on its own controversial definitions of state law as the foundation on which to create speech rights for corporations and religious rights for corporate owners. Absent explicit federal preemption, states can and should fight back against this creeping federalization of state corporate law. This Article provides a roadmap. It suggests modest changes to the veil piercing doctrine that can help to restore, at least in part, the balance of power between states and their corporate creations. A state court signaling to business owners even a potential for piercing, and thus the potential for unlimited personal liability, could discourage corporations doing business in the state from seeking religious exemptions to neutrally applicable laws. Most importantly, these changes do not threaten to undermine the corporate control mechanisms that have allowed for efficient private ordering within corporations, nor will they allow corporations to avoid these third-party protections by reincorporating in a different state. Forcing the federal courts to confront state assertions of their right to limit and define corporations will, at the very least, require the Supreme Court to be transparent about the extent to which it intends to federalize state corporate law, advancing rule of law values like certainty and predictability that are important to individuals and corporations alike.