Proprietors of Charles River Bridge v. Proprietors of Warren Bridge (1837)

US Constitutional Law

Charles River Bridge
‘City Scape (From Across the Charles River, Boston)’ by Frederick Kubitz

The suggestion of implied terms and the dutiful exercise of police powers, lie central to a case involving contracting parties whose pecuniary expectations lay in direct conflict with the need to serve the public interest, and who in turn held any notion of progress unconstitutional to the last.

Having been granted an Act of incorporation by the State for the purposes of constructing a bridge over the Charles River, Massachusetts in 1785, the plaintiffs in error were required to exact a toll on those travelling the bridge for a period not longer than forty years, while in 1792 the legislature extended the toll agreement by a further thirty years on the proviso that the bridge would then become the property of the State, and the tolls would cease, to which the plaintiffs in error acquiesced and undertook their prescribed duties without complaint or failure.

However in 1828, the State commissioned the defendants in error to build another bridge some 800 metres downriver, while on that occasion assuming full title some six years after its opening and application of a similar toll, upon which the plaintiffs in error quickly filed an injunctive suit in the Massachusetts Supreme Court on grounds that the planned construction of the second bridge was a breach of contract between the legislature and themselves, and was therefore violative of art. 1 of the U.S. Constitution, which reads in relevant part that:

“No State shall….pass any Bill of attainder, ex post facto law, or law impairing the obligation of contracts.…”

In the first instance the court dismissed the suit, and so the matter was presented to the U.S. Supreme Court under writ of error, whereupon the Court took the opportunity to review the argument and the facts at hand, while the plaintiffs in error fundamentally argued that when agreeing to commission the erection of the second bridge the State had by implication, retroactively controverted their express agreement to allow the plaintiffs in error a continued right to revenue and profit for the full seventy years.

Here the Court turned first to Satterlee v. Mathewson, in which it held that:

“[R]etrospective laws which do not impair the obligation of contracts, or partake of the character of ex post facto laws, are not condemned or forbidden….”

And that:

“There is nothing in the constitution of the United States, which forbids the legislature of a State to exercise judicial functions.”

While the Court further noted how in Watson v. Mercer it had held that:

“The constitution of the United States does not prohibit the states from passing retrospective laws generally; but only ex post facto laws.”

And so the Court reasoned that while the agreement between the State and the plaintiffs in error was one binding upon both parties, there was no single mention of any right to charge tolls, and so when the original Act expired, so too did the privilege to incur costs upon the community, while the Court also noted that the argument was one based solely upon implied rights alone, and how there was simply no written evidence upon which to bring a claim, while also referring to Providence Bank v. Billings, wherein it had held that:

“[T]he constitutionality of a measure depends, not on the degree of its exercise, but on its principle.”

And so on this occasion the plan and agreement to build the first bridge was by all rights fulfilled, therefore when allowing for population and socio-economic changes faced, it was nothing less than prudent governance to erect another bridge that allowed for free travel to the benefit of those using it, thus the legislature were merely exercising their police powers in the interests of its people, whereupon the Court upheld the Massachusetts Supreme Court judgment in full, while holding that:

“[A] state law may be retrospective in its character, and may divest vested rights, and yet not violate the constitution of the United States, unless it also impairs the obligation of a contract.”

Lifting the Corporate Veil

Insight | March 2017

Lifting the Corporate Veil
Image: ‘NY City Brooklyn Bridge’ by Ylli Haruni

As a doctrine under question, the effects of lifting the corporate veil can be far-reaching if supported through case law, and yet it appears that the judiciary are reluctant to apply it unless under extreme circumstances, and even then with some trepidation.

The primary function of ‘lifting’ or ‘piercing’ the veil of corporations is one of transparency. As is no stranger to the world of enterprise, many an entrepreneur has undoubtedly found themselves at odds with where the boundaries are with conversion of assets, or even fiduciary duties in line with corporate ownership. When matters reach a level that requires legal intervention, the venturing of the courts into financial accounts and expenditure records, is something that rests uneasily on the shoulders of judges.

It is not uncommon after all for businessmen and investors to construct fake companies to provide cover for illegal dealings, no more than shareholders to dominate the actions of their corporations under the guise of boardroom decision making. Paradoxically, it is precisely this subterfuge that beckons court intrusion, and yet for reasons that can be appreciated in their overall meaning, it does not bode well for the victims of those immoral undertakings when the rule of law refuses to fully extend.

Starting at the roots of this clearly under utilised principle, it is important to understand  that supply always creates demand, and so examination of how this doctrine has flourished reveals that the limited liability of incorporation almost invites abuse, regardless of the stakes in hand.

Salomon v Salomon, which dates back to 1897, is considered the birthplace of limited liability, as during the liquidation of a failed business, the shareholder and company were held as separate entities, and therefore unencumbered by obligation to one another. This perhaps dangerous distinction, served well the rule of law, but consequently opened the way to defendants establishing unaccountability for the deviances behind insolvency, or the withholding of property release during matrimonial disputes, as was seen in Prest v Petrodel Resources Ltd and Others, where despite having grounds to ‘pierce’, the judges went instead with beneficial interest accrued through powers conferred under the Matrimonial Causes Act 1973. Since Prest is now considered the leading authority on the protection or exposure of corporate misdeeds, it might pay to look at overseas opinion.

Despite taking a similar vein in most U.S. courts, the small State of Delaware has become reputed as the home for around sixty-five percent of the Fortune 500 companies, and the reasons are clear. Aside from most other county-wide laws shared between States, there appears to be consolidated support for the protection of the corporate veil, under the strongly held belief that without it, the wheels of commerce simply cannot turn. A notable 2014 case Cornell Glasgow LLC. v. Nichols, is now considered the poster boy for the prevention of access to corporate transactions in middle America, however when the facts of the case are examined, there appears no justifiable reason to pierce the corporate veil, despite such clandestine and unprofessional behaviours on the part of the defendants. In fact, when taken in its proper context, the whole matter was tantamount to a classic breach of contract and nothing more.

This over complication of the argument does beg the question of whether claimants are all too quick to attack the character of those accused, in order to alleviate doubts as to a right of claim, where proper evaluation of the facts would likely reveal a swift path to justice that allows reduced costs and minimised court time.

In Canada, the controversial Chevron Corp. v. Yaiguaje has now become the watermark for corporate exposure, coming close to setting a precedent for foreign enquiry into asset liability and covert misdeeds, after the indigenous peoples of Ecuador were subject to extreme pollution through the actions of an overseas corporate subsidiary. While pursuing them through the Canadian courts, and almost becoming a pivotal argument for the extension of ‘piercing’ qualification, it was ultimately overturned in the Superior Court by Justice Hainey, who explained:

“Chevron Canadaʼs shares and assets are not exigible and available for execution and seizure by the plaintiffs in satisfaction of the Ecuadorian judgment against Chevron Corporation.”

This overruling stance (amongst other cases) also fell back on the domestic line taken in Adams v Cape Industries Plc, where it had been decided that:

“Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.”

While this principle already poses great resistance to those seeking damages, the primary reason the courts declined to lift the corporate veil in Chevron, was simply that since the inception of the claim, no suggestions of fraudulent behaviour were levelled toward the defendants, so no matter how aggrieved the claimants felt, it was held inequitable to overstep the boundaries set by the incorporation and limited liabilities enjoyed by many firms, in order to achieve remedy for damages arising from contractual breach on the part of the actual offending party Texaco; who soon after acquiescing to the judgment bought against them in Ecuador, were taken over by Chevron California (the parent company). In fact quite why the claimants were pursuing Chevron Canada is frankly unfathomable given the background to the matter, therefore it comes as no great surprise that the ruling to ‘pierce’ was quickly dismissed.

So to summarise, it would suggest that on the strength of the cases discussed, it is not really an issue of judicial reluctance as much as a failure for the right matter to present itself. It would also pay to exercise caution when supporting foreign claims that display absolutely no logical bearing on (i) how this confused claim should ever have been initiated, and (ii) why any jurisdiction would move to lend credence to such a fruitless endeavour; while from an equitable perspective, the principle of traceability immediately springs to mind when seeking restitution from companies no longer in existence, and whose assets have long since been laundered.