by Adam Winkler
Despite the lower tea prices, taxes more generally had become a source of conflict in the colonies, especially as the economy suffered under the weight of the East India Company’s financial struggles. Since the mid-1760s, colonists like Samuel Adams in Massachusetts and Patrick Henry in Virginia had been organizing protests against taxes imposed by Parliament, arguing that Parliament lacked the authority to tax the colonists. It was not just that colonists did not have any representation in Parliament; Adams, Henry, and other patriots also framed their objections in corporate terms. By taxing the colonies, Parliament was infringing the colonists’ fundamental right of self-government—the right to pass bylaws and legislation as specified in their colonial charters.43
This corporate frame was visible in the vigorous public debate over the Stamp Act of 1765, the law that imposed a tax on printed materials. Newspapers, pamphlets, deeds, court documents, and even playing cards had to be printed on paper affixed with a special stamp. Colonists argued that the law violated their charter provisions, like that in Connecticut which gave that colonial corporation the right to “Make, Ordain, and Establish all manner of wholesome, and reasonable Laws, Statutes, [and] Ordinances.” The town of Rowley declared the tax “an invasion upon our charter rights and privileges.” Througout Massachusetts, the tax was said to be “universally esteemed here as arbitrary and unconstitutional, and as a breach of charter and compact between K[ing] and subject.”44
This notion of colonial corporate charters as contracts between the colonists and the Crown made concrete the idea that Parliament was overstepping its bounds by interfering with colonial governance. In the years before the Declaration of Independence announced that all men were “endowed by their Creator with certain unalienable rights,” the colonists insisted that their right to enact bylaws for their colonies could not be denied because it had been freely bargained for with the king. According to Sir William Meredith, a British supporter of the colonists who weighed in on the issue in the House of Commons in 1778, “the foundation of every unalienable right is this; when he who is competent to convey, conveys; and he who is competent to receive, accepts; such conveyance on one hand, and acceptance on the other . . . constitute a right, which, by the law and constitution of England, is unalienable; and, unless by consent or forfeiture, cannot be taken away.”45
Meredith’s view, however, was in the minority in Parliament, where most members took the view that colonial charters were subject to revision by Parliament just like the charters of any other corporation. Lord Mansfield insisted that Parliament could regulate the colonies “all on the same footing as our great corporations in London.” Soame Jenyns, who wrote an influential defense of colonial taxes, argued that colonial charters “are undoubtedly no more than those of all corporations, which empower them to make bylaws and raise duties for the purposes of their own police . . . they can have no more pretense to plead an exemption from this parliamentary authority, than any other corporation in England.” “All charters granted by our Kings,” wrote one tax supporter, “are subject to be revised or annihilated by the legislature whenever they operate against the general interest of the British nation.”46
Whatever the niceties of English corporate law, the proponents of colonial taxes had all the power, leaving the colonists little option but to protest. After the Stamp Act was passed, the outcry in the colonies took increasingly violent form. After rioters in Massachusetts ransacked the houses of Andrew Oliver, a tax collector, and Thomas Hutchinson, the deputy governor, it was reported that men of the army “who have seen towns sacked by the enemy, declared they never before saw an instance of such fury.” Soon not a single tax collector for the Stamp Act could be found in the colonies. A more peaceful form of protest was the boycott of products subject to taxes, such as tea. Housewives gave up the brew, even though it was at the center of their social lives, and began drinking coffee. Students at Harvard College—incorporated in 1650 as the “President and Fellows of Harvard College” and today the oldest nonbusiness corporation in America—promised to forsake tea for the duration of their studies.47
Paradoxically, one of the main reasons the colonists objected to the Tea Act was that, by lowering the price of tea, it threatened to undermine the tea boycott. Cheaper tea was more likely to attract purchasers. The Tea Act also threatened local merchants, who had made a good business out of purchasing tea in the London auctions and selling it back home in the colonies. Many of the middlemen whom the East India Company was now allowed to cut out were colonists. Fear spread that Parliament might adopt similar rules for other products, harming any number of local businesses and further deepening the economic downturn in the colonies. Even if the tax on tea was small, it continued to represent the assertion of Parliament’s power to tax the colonies, which was the essence of Adams and Henry’s complaint.48
So when the Dartmouth, a ship carrying 114 chests of the East India Company’s tea, arrived in Boston harbor in November of 1773, Adams determined to prevent that tea from ever being sold in the colony. The Sons of Liberty, an informal organization of patriots of which Adams was a leader, posted notices around Boston: “Friends, brethren, countrymen—The worst of plagues, the detested tea shipped for this port by the East India Company, is now arrived in the harbor. The hour of destruction, or manly opposition to the machinations of tyranny, stares you in the face.” At a meeting of the townspeople at the Old South Meeting House, it was decided that armed guards would be sent to the wharf and the tea would not be allowed off the ship. The ship would be forced to return to England. When the king’s men discovered the plan, the royal governor of Massachusetts forbade the ship from leaving port. A stalemate ensued, soon ensnaring two more ships that arrived carrying East India Company tea.49
The ship owners, who were American colonists, had no choice but to keep the ships docked and the tea unloaded. This was not a viable long-term solution, however, as English law only permitted ships to remain in port for twenty days without unloading their cargo; after that, the ships’ goods were subject to seizure by customs officials. Town meetings were held throughout early December as the colonists debated what to do. Finally, the deadline came. December 16 marked the Dartmouth’s twentieth day in port. If the tea was still on board at midnight, a confrontation between the Sons of Liberty’s armed guards and royal troops, who were sure to come to collect the tea, was inevitable.50
After a final meeting at the Old South Meeting House, a group of men, many dressed as natives, set out for the wharf at dusk. They were disciplined; there was no rioting or collateral violence. They boarded the three ships, hoisted up the tea, broke open the chests, and dumped the leaves overboard. With quiet efficiency, they destroyed more than £18,000 (over $3 million today) worth of the East India Company’s tea in just a few hours. The locally owned ships were left unharmed, with some reports suggesting that after the tea was dumped, the men even swept the decks clean. The targets of the protest were the East India Company and its tea.51
It would be another fifty years before the incident came to be known as the “Boston Tea Party,” but the impact of the event in the colonies was felt right away. All up and down the coast, colonists refused to allow tea ships to unload their cargo. Parliament responded by ordering the closure of Boston harbor until the colonists repaid the East India Company for all the tea it had lost. Parliament also enacted new legislation abrogating Massachusetts’s charter. Assemblies were forbidden without the consent of the royally appointed governor, and the power to choose members of the executive council (what had once been the company’s board of directors) was transferred to the Crown. To many colonists, Parliament had lawlessly overridden their sacred charters and it was finally time to take up arms.
Although we rightly call it the Revolution, there were clear lines of continuity with America’s corporate past. After Independence, the Framers would eventually adopt the Constitution, the most potent symbol of the new nation—and one that preserved many of the features of the colonial c
orporate charters. Just as the colonial corporations were bound by written charters that specified limits on the power of officeholders and guaranteed the rights of members, so was the new nation. The Constitution was America’s charter, its founding document, and the Constitution’s shape and scope reflected the Framers’ experience with corporate governance.
Indeed, as we have seen, democracy and constitutionalism were intimately tied up with the corporation from the very beginning. America was founded by the Virginia Company, fundamentally shaped by the colonists’ experience with the Massachusetts Bay Company, and inspired to Independence by the East India Company. Although the Founders at the Constitutional Convention never considered whether corporations should be afforded individual rights under the Constitution, the idea of the corporation nonetheless influenced the constitutional system they established.
Once the Constitution was ratified, it would not be long before corporations would invoke it to secure their own rights in an effort to win greater freedom from business regulation. In a harbinger of what was to come, the first corporate rights case was brought to the Supreme Court by what was then the nation’s most politically powerful corporation, the Bank of the United States. The Bank’s lawsuit would be the beginning of another revolution, this one in favor of constitutional protections for corporations.
PART TWO
THE BIRTH OF CORPORATE RIGHTS
THE BANK OF THE UNITED STATES WAS THE FIRST GREAT AMERICAN CORPORATION—AND THE SUBJECT OF THE FIRST CORPORATE RIGHTS CASE IN THE SUPREME COURT.
CHAPTER 2
The First Corporate Rights Case
THE CONSTITUTION OF THE UNITED STATES WENT INTO effect in 1789, but it took nearly seventy years before the Supreme Court heard its first case explicitly addressing the constitutional rights of African Americans, Dred Scott v. Sandford, in 1857. The court in that case held that African Americans had “no rights which the white man was bound to respect.” The first women’s rights case, Bradwell v. Illinois, on whether women had a right to practice law, was not heard until 1873, and the Supreme Court ruled against the woman. Conversely, the first corporate rights case in the Supreme Court was decided decades earlier, in 1809, and the corporation won.
That 1809 case is one of the buried landmarks of American constitutional law, and the company behind it was the nation’s first great corporation, the Bank of the United States. The brainchild of Alexander Hamilton, the Bank was chartered by the first Congress in 1791 and carried the name of the new nation, yet was what Americans today would think of as a private business. It was a for-profit corporation with publicly traded stock, managed by executives who were accountable to stockholders. At a time when the handful of existing American corporations were local concerns—operating, say, a toll bridge across the Charles River—the Bank was the first truly national enterprise, with headquarters in Philadelphia and branches from Boston to New Orleans.1
Like so many of the giant corporations that feature in the history of the corporate rights movement—the Southern Pacific Railroad, Standard Oil, Philip Morris—the Bank of the United States provoked considerable controversy in its day. Opponents accused the Bank of having too much political and economic power. Today’s critics of Citizens United who worry about corporate corruption of American democracy would have found an ally in fiery Kentucky Whig Henry Clay, who complained of the Bank that “our liberties” were in the hands of “a body, who, in derogation of the great principle of all our institutions, responsibility to the people, is amenable only to a few stockholders.” When Georgia passed a law to limit the Bank’s influence in that state, the nation’s most powerful corporation simply refused to comply. The Bank’s civil disobedience led to the earliest Supreme Court case on whether corporations had constitutional protections, two centuries before Citizens United.2
The Supreme Court’s decision in Bank of the United States v. Deveaux has been largely lost to modern memory. Although occasionally cited by courts, the case is not featured in modern constitutional law books or even in very many of the tomes on American legal history. Yet back in the first decade of the nineteenth century, the drama surrounding the case was well known. It pitted the legacies of two Founding Fathers, Alexander Hamilton and Thomas Jefferson, against each other. Their split over the Bank is already justly famous for giving birth to the two-party system. Less well known, however, is how their conflict spilled over into the struggle over constitutional protections for corporations. On this issue, Hamiltonians were corporationalists—proponents of corporate enterprise who advocated for expansive constitutional rights for business. Jeffersonians, meanwhile, were populists—opponents of corporate power who sought to limit corporate rights in the name of the people. The competing views of Hamiltonian corporationalists and Jeffersonian populists would set the terms of debate over constitutional protections for business for much of the next two centuries. Over the course of that history, the corporationalists would prove to be far more successful.
Another issue on which corporationalists and populists disagreed was corporate personhood. From the start, the Supreme Court has wrestled with whether corporations should be considered “people” under the Constitution and what exactly that might mean. Some critics of Citizens United argue that the reason corporations have constitutional rights today is that the Supreme Court has said that corporations are people. Indeed, one proposed response to Citizens United has been a constitutional amendment to clarify that corporations are not people under the language of the Constitution and do not have the rights of people. Yet, as we will see, corporate personhood has played only a small role in the expansion of constitutional rights to corporations. While the Supreme Court has said from time to time that corporations are people, the justices have more frequently offered other reasons to justify constitutional protections for corporations—often obscuring and hiding the corporate person rather than exalting it.
Beginning with Bank of the United States v. Deveaux, and for most of American history, corporate personhood has been deployed in precisely the opposite way from how today’s critics of Citizens United imagine. Counterintutively, it has usually been populist opponents of corporations who have argued in favor of corporate personhood. For them, treating corporations as people was a way to limit the rights of corporations. And many of the most important Supreme Court decisions extending rights to corporations did not rely on corporate personhood at all. More commonly, the Supreme Court rejected the idea that a corporation was an independent, legal person with rights and duties all its own, and instead allowed the corporation to claim the rights of its members.
To understand the role of corporate personhood in American constitutional law requires a careful examination of the Bank of the United States case, which was the first Supreme Court case on the constitutional rights of corporations and laid the foundation for the many corporate rights cases to come. Oddly enough, the justices would preside over the case not in the usual Supreme Court courtroom but in a working pub, and the charismatic group of lawyers who participated in this mostly forgotten yet profoundly important case included a future president of the United States, a founder of Harvard’s Hasty Pudding social club, and a British Loyalist who fought against Independence in the Revolutionary War. They would argue over what might appear to be an esoteric issue: Did corporations have a constitutionally guaranteed right to sue in federal court? For the Bank, however, it was a matter of life or death. If forced to litigate the lawfulness of the Georgia tax in the Georgia courts, the Bank was sure to lose. For the nation, the case was even more significant. Bank of the United States v. Deveaux would graft onto the Constitution the first of many constitutional rights for corporations.
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THE MISSION OF THE BANK of the United States was nothing less than to save America. Hamilton, George Washington’s first secretary of the treasury, was the Founding Father most preoccupied with stabilizing the nascent nation’s precarious economy. At the time, there was no national currency; each bank issued its o
wn notes. Yet the notes at the existing state-created banks were unreliable. A federal bank, backed by Congress, would have the resources to guarantee its notes. Hamilton also thought the Bank would be a more secure place for the federal government to stash deposits. Indeed, once established the Bank was a tremendous success and, according to historians, helped “to place American finance on a sound footing.” Within five years of the Bank’s creation, the United States had the highest credit rating in the world. Hamilton, then, was also the Founding Father of surely one of the most important corporations in American history.3
Hamilton had been inspired by the success of an earlier bank, the Bank of North America, founded during the Revolutionary War. Washington’s army was short on rations and pay, soldiers were on the verge of mutiny, and the war had depreciated American currency to near worthlessness. The Bank of North America was proposed, like the later Bank of the United States, to create more reliable notes and insure liquidity. The plan worked to the benefit of both the nation and investors, who received annual dividends of 13–14 percent. The Bank of North America was transformed into a private state bank in 1786, and today, after more than two centuries of mergers and reorganizations, remains a tiny part of Wells Fargo.4