Have we finally discovered a disadvantage to corporate personhood?

Posted on October 9, 2007

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For decades now corporations have been granted the rights of people without the commensurate responsibilities. Finally, there’s a chance that this will be partly reversed. The Supreme Court heard today the case of Stoneridge Investment Partners vs. Scientific-Atlanta Inc., a case that is being billed by many securities law experts as the “Roe v. Wade” of securities law. The gist of the case is that the plaintiffs (Stoneridge Investment Partners) want to be able to sue the defendants (Scientific-Atlanta Inc., now owned by Cisco) for their part in a fraud that artificially boosted the stock price of Charter Communications, and that the fraud resulted in the investors losing a great deal of money. The problem is that it’s not presently clear if third parties, namely vendors, banks, insurance agencies, etc., who are party to the fraud but are not the primary defrauding corporation itself are liable for the fraud.

If the Supreme Court rules that third parties are liable, then the banks that helped Enron defraud it’s investors could be sued for damages. If the Supreme Court rules that third parties cannot be held liable, or that existing laws aren’t clear enough to determine Congressional intent, then third parties would be immune to lawsuits until Congress passed a law (and the President didn’t veto it) to make them expressly liable.

35 states have submitted “friend of the court” briefs in support of the investors, but the Bush administration, banks, insurance companies, and manufacturers are supporting Scientific-Atlanta. An interesting aside is that the SEC believe that investors should be permitted to sue, but the President personally intervened and said “no, we’ll be supporting the third parties instead.” Presently, the SEC is permitted to sue on behalf of investors, but not investors themselves, based on a Supreme Court decision in 1994, Central Bank vs. First Interstate Bank.

If you’re a person, though, and you aid and abet the commission of fraud, you’re considered an accessory. True, you’re not going to face the strictest penalties that the primary criminal will, but you’re still considered responsible for your aiding and abetting. So, given that third parties are “juristic persons” according to the law and Supreme Court precedents, third parties should be held similarly responsible for aiding and abetting.

Of course, we shouldn’t expect a logical outcome in this case based on the corporate personhood argument. After all, the Bush administration overruled the SEC, Congress has permitted corporate personhood to exist, and there are a number of misguided Supreme Court precedents that all point to a “pro-business” outcome. In other words, an outcome that benefits manufacturers and limits liability even though it makes no logical sense.

As if we needed more reasons to hate corporate personhood….

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