Did Hobby Lobby Open the Door to the 'Reverse Pierce'? - In House
In House - The FindLaw Corporate Counsel Blog

Did Hobby Lobby Open the Door to the 'Reverse Pierce'?

The Supreme Court's Hobby Lobby decision ruffled the feathers of all of us who believe women's health issues belong between a woman and a doctor, not a woman, a doctor, and middle management. Unforeseen issues of corporate governance and liability have also escaped from the Pandora's Box that is Hobby Lobby.

On NPR's "All Things Considered" this week, correspondent Wade Goodwyn came up with another unexpected result: the loss of the corporate veil. Goodwyn talked to Gregory S. Crespi, whose law review article "The Reverse Pierce Doctrine" was cited in Hobby Lobby's briefing. The article, published in 1990 in Journal of Corporate Law, posits a model framework for analyzing and deciding cases where a person with a claim against a "corporate insider" is actually trying to treat the insider and the corporation as a single entity.

'Reverse Pierce' Is Not a Bond Villain

Why would anyone want to do this? Here's why: because corporations usually have deeper pockets than individual shareholders, and when a shareholder does something that hurts the corporation, a lawsuit would normally be able to recover only from the shareholder. But with reverse piercing, if it can be argued that the shareholder and the corporation are alter-egos (just like "regular" corporate veil-piercing), then the plaintiff can come after the corporation for the wrongdoings of the shareholder.

As Crespi told Goodwyn on NPR, "[I]f the owner himself, as in Hobby Lobby, has asserted, the corporation and I are one, complete congruence, we're not separate -- that could be turned around conceivably against them when a creditor of the corporation is trying to sue and the owner now wants to put some distance between himself and the corporation."

The Effects of a Reverse Pierce

For Hobby Lobby, the reverse pierce premise -- that the corporation and a shareholder or director are one and the same -- could be a good thing: It allowed the corporation to assume the religious liberty rights of its owners. All corporations, however, probably wouldn't be that crazy about charging boldly into the unchartered waters of expanded liability.

What about corporations with iconic executives? Think Apple under Steve Jobs, Microsoft under Bill Gates, or Disney under Michael Eisner. The owners' religion was all it took for Hobby Lobby to suddenly have a protected religious interest as a corporation. What about an owner's personality and the goodwill that comes along with it? If one of these bombastic CEOs did something fraudulent, a plaintiff could conceivably argue that Steve Jobs is Apple, that Bill Gates is Microsoft, and as a result, the corporation's checkbook gets opened up whenever a creditor wants more cash than they could get from the executive individually.

Of course, not everyone buys this. One California appellate court called the reverse pierce doctrine "flawed." In some sense, if you didn't like the Hobby Lobby decision, you might call this karma. With great power comes great responsibility, a wise man once said, and if Hobby Lobby wants the corporation to have ascribed to it the religion of its directors, then that should come with a whole host of other caveats.

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