Reverse Veil Peircing and The Duty of Majority Shareholders

Professor Stephen M. Bainbridge is the William D. Warren Distinguished Professor of Law at UCLA, a friend of this blog, and a nationally recognized corporate law expert who is often cited in opinions of the Delaware courts. He is a prolific scholar who has written countless books and articles. His latest article examines “reverse veil piercing” (as compared to piercing the corporate veil to find shareholders liable). The article also discusses the duty of majority shareholders–but in the context of his rebuttal to an amicus brief filed by other corporate law professors in a pending case before the U.S. Supreme Court. A partial synopsis of the article follows:

On March 25, 2014, the Supreme Court will hear oral argument in the Hobby Lobby and Conestoga Wood cases, in which the shareholders of two for-profit family-owned corporations argue that requiring them to comply with the contraception mandate [of The Affordable Care Act] violates the Religious Freedom Restoration Act. Forty-four corporate law professors filed an amicus brief in these cases, arguing that the essence of a corporation is its “separateness” from its shareholders and that, on the facts of these cases, there is no reason to disregard the separateness between shareholders and the corporations they control. The Brief is replete with errors, overstated claims, or red herrings, and misdirection.

Contrary to the Brief’s arguments, basic corporate law principles strongly support the position of Hobby Lobby and Conestoga Wood. In particular, the doctrine known as reverse veil piercing provides a clear and practical vehicle for disregarding the legal separateness of those corporations from their shareholders and thus granting those shareholders standing to assert their free exercise rights.