U.S. Supreme Court

The Colorado man who refused to bake a wedding cake for a gay couple—a dispute now at the heart of a U.S. Supreme Court case—isn't the only party to his challenge. His company, Masterpiece Cakeshop, is also a party, and a decision in favor of the baker could have wider implications for corporations and shareholders.

More than 40 amicus briefs have been filed on each side of the case, which the justices will hear in December. But only one brief—on behalf of 34 corporate law professors—addresses the role of Masterpiece Cakeshop Ltd. itself in the claims brought by Jack Phillips. Phillips has argued that a Colorado anti-discrimination law cannot force him to create something—a wedding cake—in violation of his speech and religion rights.

Kent Greenfield of Boston College Law School, a constitutional and corporate law scholar, teamed up with Daniel Rubens, a former clerk to Justice Ruth Bader Ginsburg and a senior appellate associate in Orrick, Herrington & Sutcliffe's New York office, to write the brief in support of the gay couple, Charlie Craig and David Mullins, and the Colorado Civil Rights Commission.

Masterpiece Cakeshop's website boasts “great cakes since 1993” and features photos of Phillips at work on a cake. Phillips' lawyers said in their brief to the Supreme Court that Masterpiece Cakeshop, a Colorado corporation, is wholly owned by Phillips and his wife.

The Colorado Civil Rights Commission named Masterpiece Cakeshop, and later Phillips, as the party that allegedly violated the anti-discrimination law.

Phillips' brief to the Supreme Court is “replete” with assertions that Colorado's public accommodations law burdens his own religious beliefs. The problem from a corporate law angle, according to Rubens and Greenfield, is that Phillips wants to assert his beliefs are burdened when the corporation is required to act as a public accommodation under the state law.

“The claim really turns on Mr. Phillips' beliefs,” Rubens said. He added: “The main point is that the claim here implicitly requires conflating the long-standing and fundamental distinction between corporation and shareholder.”

That distinction between the corporation and shareholder is the reason founders of companies choose the corporate form, Rubens and Greenfield said in their amicus brief. The right to limited liability and other benefits flow from the principle.

What if that “separateness” is ignored?

“We wanted to show the court that once you go down this rabbit hole, the rabbit hole is deep,” Greenfield said. There could be “immense” difficulties about definitions, triggering proxy fights and litigation over the extent of shareholder control necessary to permit corporations to assert shareholders' beliefs as their own.

The amicus brief raised a host of questions: “How should courts determine which shareholder class's views and beliefs are to be projected onto the company? If a corporation dominated by a religious shareholder organizes its business in multiple layers of wholly owned subsidiaries, which is routine, would the shareholder's religious beliefs be projected onto the parent company only, or flow throughout the entire enterprise? Should courts distinguish between corporations chartered in the state asserting the regulation and those chartered in Delaware or elsewhere, as is routine? And what if the enterprise asserting religious beliefs changes its corporate form over time, as Masterpiece Cakeshop did?”

When the cakeshop was incorporated in 1992, Phillips was listed as one of four initial incorporators and directors, according to the brief Rubens and Greenfield filed on behalf of the corporate law professors. In 2012, the business was reincorporated as a nonprofit corporation. This year, Masterpiece filed papers to become a limited liability company with management vested in “one or more managers” and not in “the members.”

Greenfield raised similar issues in an amicus brief in Burwell v. Hobby Lobby. The justices in that case decided that the Religious Freedom Restoration Act protected the religious right of a closely held corporation and its owners to refuse to provide contraceptive insurance to the employees. But Hobby Lobby was a statutory case, not a constitutional case, said Greenfield, and does not control in Masterpiece Cakeshop. Rubens clerked in the high court during the Hobby Lobby term.

Besides his free exercise of religion claim, Phillips also claims a free speech right. In free speech law, corporations stand in their own shoes, the amicus brief said, and “courts should not merely presume that corporations act as conduits for the shareholders' points of view or have standing to assert their shareholders' constitutional interests.”

If the court accepts Phillips' arguments, Rubens said, corporations would be empowered to invoke the political or religious views of their shareholders in order to obtain exemptions from generally applicable laws and regulations they find too costly, such as minimum wage laws, pollution limits, and state or federal parental leave requirements.

The closest counterpoint to the corporate law professors' brief is an amicus brief by David French of National Review Institute on behalf of 33 family policy organizations.

Among other arguments, French wrote: “Indeed, given the urgency of American political discourse, citizens often demand to know where their favorite companies stand on the great issues of the day. They seek to enlist those companies in political crusades, to shift and shape public debate. This is true regardless of whether the corporate expression itself makes a specific statement (like a Confederate Flag or a product containing a slogan or explicit message) or whether the decision to do business is the statement.”

The U.S. Justice Department, which filed a brief in support of Phillips, does not address the corporate angle and neither does Phillips in his main brief.

“The constitutional difficulties with equating companies and shareholders are so immense I hope the court does focus on it,” Greenfield said. “We don't know whether it will make a difference in this case or futures cases, but we were convinced it was an important argument to make.”

Read the amicus brief from the corporate law professors here:

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