Corporations Corporation law has traditionally been the domain of state legislatures and state courts, although nothing in the Constitution prohibits a federal role in corporate governance. The influence of the United States Supreme Court on corporation law until recently has therefore been decidedly secondary to that of the state courts, especially those of Delaware and New York. Nevertheless, before World War II, several Supreme Court decisions had momentous consequences for the place of corporations in American society. Since 1950, the Court has come to exercise an ever‐expanding influence on corporation law, due partly to the impact of securities regulation on corporate affairs and partly to an increasing nationalization of corporation law.
Dartmouth College v. Woodward (1819) marked the debut of the private profit‐making corporation because it extended the protection of the
Contracts Clause of Article I, section 10 of the Constitution to corporate charters, treating them as contracts between the state and entrepreneurs.
Dartmouth College prevented arbitrary state interference with charters, thereby giving some security to investors.
Charles River Bridge v. Warren Bridge (1837) contributed a salutary counterpoise to
Dartmouth College because of Chief Justice Roger B.
Taney's insistence that states could reserve a right to amend the charter when they issued it. Taney refused to read implied grants of monopolies into charters, thereby establishing a creative balance between the demands of investors and the need for state regulatory power. In
McCulloch v. Maryland (1819), Chief Justice John
Marshall upheld the power of Congress to charter banking corporations as one of the
implied powers that Alexander
Hamilton had identified in his 1791 arguments on the constitutionality of the bill to charter the first Bank of the United States.
For a century after
Charles River Bridge, the Supreme Court had little direct involvement with the law of corporations, except for the offhand dictum of Chief Justice Morrison R.
Waite in
Santa Clara County v. Southern Pacific Railroad (1886) that corporations were “persons” within the meaning of the
Fourteenth Amendment's Equal Protection Clause. The Court's various substantive
due process and freedom of
contract decisions between 1890 and 1937 strengthened the hand of corporations in their dealings with employees, unions, consumers, and state legislatures. Another instance of constitutional protection for the corporate entity came in
First National Bank v. Bellotti (1978), where the Court extended the
First Amendment's protection to corporate political speech.
The expansion of various bodies of federal law after World War II has had an extensive impact on corporations. Because federal courts have exclusive jurisdiction of cases under the Securities Exchange Act of 1934 and concurrent jurisdiction with state courts over nearly all the remainder of federal securities statutes, the Supreme Court has had an immeasurable influence on the securities‐regulation domain of corporation law (e.g., the definition of insider trading in cases like
Chiarella v. United States, 1980). In
J. I. Case Co. v. Borak (1964), a proxy solicitation case, the Supreme Court created the implied private right of action and the role of “private attorney general,” greatly enhancing the enforceability of federal securities statutes. In a bankruptcy case,
Taylor v. Standard Gas & Electric Co. (1939), the Court invented the so‐called Deep Rock doctrine, which subordinated the debt claims of a corporate shareholder to the claims of outside creditors.
Extensive criticism of state regulatory law, especially Delaware's, led to demands for federal corporation law—statutory, administrative, common law, or a combination of all three—in the 1960s and 1970s. The Supreme Court emphatically rebuffed attempts to accomplish this through expansion of the SEC's rule 10b‐5 prohibition of fraud in
Santa Fe Industries v. Green (1977), thus reaffirming the primacy of the states in all aspects of corporate governance except securities regulation.
While eschewing responsibility for the law of corporations directly, the Court has considerably affected the development of that law in cases involving the rights of corporations or those who deal with them.
See also
Capitalism;
Private Corporation Charters.
Bibliography
Robert C. Clark , Corporate Law (1986).
William M. Wiecek
