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The New Supreme Court Justice and Your Business

What does the new Supreme Court Justice and your business have to do with each other?

With all of the hullabaloo surrounding the election of 2016, it’s easy to forget that there is a vacancy on the Supreme Court that will be filled by this president.  Many will forget a president’s decisions over his or her term of office. The next administration may even revers them. But the ability to leave a lasting impression on the American justice system is an example of the power of the office of President of the United States.

The Presidential Decision

A president’s term is only 4-8 years, but the decisions they make in those years are crucial for America’s future. Since Supreme Court justices serve for life, whoever is appointed will influence our legal system for decades.

Some of the historical decisions that have impacted the US were:

  • Marbury v. Madison (judicial review over Congress)
  • McCulloch v. Maryland (federal power over states)
  • Gideon v. Wainwright (right to attorney)
  • Roe v. Wade (right to abortion)
  • Obergefell v. Hodges (same-sex marriage)

While there are many of good (and bad) examples of how the Supreme Court has shaped the United States, it is crucial to note the significance and importance of a Supreme Court Justice nominee.

(Before any nominations are made, it’s wise to analyze areas in your company that would be impacted by a Supreme Court decision. To do this, check out our free External Analysis whitepaper by clicking here.)

President-Elect Trump’s Potential Nominees

Justice Antonin Scalia’s untimely death in February 2016 created a vacancy on the US Supreme Court. President-Elect Donald Trump has compiled a list of potential replacements – with the majority having a conservative agenda. Additionally, the two liberal-leaning justices are also approaching retirement. With 1 vacancy and 2 potential vacancies in Trump’s tenure as President, he will potentially have 3 positions to fill.

As a result of these positions being empty and the need for them to be filled, the landscape of the business environment will dramatically be shaped due to changing policies, justice, and rulings.

According to Business Insider, Trump’s potential nominees are as follows: (links are attached for biographies)

  1. Keith Blackwell
  2. Charles Canady
  3. Steven Colloton
  4. Allison Eid
  5. Neil Gorsuch
  6. Raymond Gruender
  7. Thomas Hardiman
  8. Raymond Kethledge
  9. Joan Larsen
  10. Mike Lee
  11. Thomas Lee
  12. Edward Mansfield
  13. Federico Moreno
  14. William Pryor
  15. Margaret A. Ryan
  16. Amul Thapar
  17. Timothy Tymkovich
  18. David Stras
  19. Diane Sykes
  20. Don Willett
  21. Robert Young

So Why Does This Affect Your Business?

As we discussed earlier, decisions made by the judges have the ability to change the course of the economy, justice system, and social system. With the new justices, however, decisions that have already been decided on may be reviewed again.

A Supreme Court Justice and your business go hand in hand due to the close nature that business has with policy, social, and economic issues.

Example: Affordable Care Act & Gay Marriage

The Supreme Court has already ruled on the Affordable Care Act and the legalization of gay marriage during President Barack Obama’s tenure. While these may seem like social issues – right to basic health care and right to gay marriage – there are huge implications for businesses as well.

Who gets benefits?

Previously, only the employee, their spouse (heterosexual), and their children have the opportunity to be provided healthcare through their company or through Obamacare.

But with the legalization of gay marriage, more people are open to healthcare. Although this is great for the people affected, companies will foot the bill. After talking to multiple small businesses (1-10 employees) across Texas, I’ve seen companies go out of business due to Obamacare and others that are now spending over $12,000 more than what they were previously spending.

Companies must provide benefits to all marriages (401k, health, parental leave, etc.). This leaves companies paying more than before for benefits. While this is great news to these employees, it’s a great example of just how Supreme Court decisions impact the bottom line of companies.

Review

Due to the extreme discontent among businesses nationwide, the Affordable Care Act will be amended and potentially reviewed again by the Supreme Court with a different justices. With a new set of justices (with a potentially different ideology), decisions could be overturned.

Review isn’t always bad though. After looking through our rough history with segregation and slavery alone, reform and change is necessary to keep the country (and business) moving forward.

Want to know how to make decisions easier for your company? Download our External Analysis whitepaper to take control of your business during this unpredictable time!

How Supreme Court Decisions Impact Businesses

supreme court justices and businessBefore we go into how Supreme Court decisions impact business, we must go over how cases get to the Supreme Court. Cases reach the Supreme Court in 1 of 3 ways – including original jurisdiction (dealing with mostly foreign affairs and diplomats), state Supreme Courts, and Federal Courts. A case progresses from the lower courts upward. Then if granted appeal enough times, a case can reach the Supreme Court. However, the lower court’s previous ruling stands if there is not a majority decision.

The Supreme Court also has checks and balances on the other branches of government. Their main priority is to uphold and interpret the Constitution; therefore the 9 (8 current) Supreme Court justices will try anything debated as unconstitutional in Congress or the executive office.

Nine Supreme Court Justices make decisions about the constitutionality of matters brought before them. Consequently, businesses are impacted because money is involved in most of these matters.

What Areas You Should Watch For

Fortune Magazine outlined several areas to watch for, especially after Scalia’s death. The Supreme Court could impact these following 5 areas in the new year are:

For example, United States v. Texas deals with immigration and DAPA (Deferred Action for Parents of Americans). As one of the states that did not join the original suit, Texas faces the decision that 2.2 million illegal aliens residing in Texas (out of the 3.6 million total illegal aliens) are eligible for DAPA. This potential decision will then increase competition for jobs, increase benefits and taxes for those added employees. In addition, it will increase unemployment rates due to the millions being added to the limited job pool.

Oil, gas, and mining companies can expect major change stemming from a Supreme Court decision on pollution regulations.

Expect change in technology and medical companies when it comes to intellectual property, patent law and potential changes to the Affordable Care Act.

Companies located in northern America will face adjustments in union laws, since the majority of unions are located there.

Conclusion

Whatever industry you are in, it’s important to know what type of decisions will greatly impact your company. Conduct an external analysis to start your path towards capitalizing on strengths and opportunities alongside minimizing the negative impact of weaknesses and threats. Get your free copy of our External Analysis whitepaper here.

New Supreme Court Justice and Your Business

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New Supreme Court Justice and Your Business

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Keep Your Corporate Veil Closed

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Corporate Veil

How to Keep Your Corporate Veil Closed

The State of Texas has long prided itself in being a very corporate friendly state. Laws were created that made it extremely difficult to pierce the corporate veil and impose corporate liabilities upon its individual shareholders, officers, directors, parent companies and subsidiaries. However, in recent years, this protection has started to recede through an emerging legal theory called the “single business enterprise.” This doctrine creates a path for litigants to go beyond the company directly liable for its damages and reach other companies formerly protected.

This article focuses briefly upon the history of the corporate veil in Texas, the current status of the law under the “single business enterprise” theory, and finally on some tips to keep your companies separate to avoid joint liability. Before we go into how to keep your corporate veil closed, let’s get the background of the corporate veil.


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The Corporate Veil

The corporate veil has long existed in Texas. However, in 1986, in the landmark case of Castleberry v. Branscum, the Texas Supreme Court set out various methods available to pierce the corporate veil and hold individuals liable for the acts of their corporations. Among those mechanisms was the theory of alter ego. “Alter ego applies when there is such unity between corporation and individual that the separateness of the corporation has ceased and holding only the corporation liable would result in injustice.”

Castleberry v. Branscum

The legislature was quick to react to the very unpopular holding in Castleberry. In 1989, they passed several amendments to Texas Business Corporation Act that limited Castleberry to tort claims. It also provided that for contract claims the corporate fiction will not be disregarded unless there is a showing of actual fraud.

In 1996, the legislature extended that coverage to all contractual obligations of the corporation and any matters relating to or arising from the obligation. If a particular claim against a corporation falls within a contractual cause of action, then the veil may not be pierced absent a showing of actual fraud. The commentary following the 1996 amendments suggests that the actual fraud requirement should be applied, by analogy, to tort claims. This is especially true for those those arising from contractual obligations. Under Section 2.21 of the Texas Business Corporation Act, the person attempting to pierce the corporate veil must show the following:

(1) actual fraud (which has six independent elements);

(2) in relation to the specific transaction; and

(3) primarily for the direct personal benefit of the shareholder.

The Comments to this section note that this language “reflects public policy that the corporate fiction should be recognized absent compelling circumstances to the contrary.”

The strength of the protection afforded by § 2.21 was long recognized by Texas Courts. Under the Act, a plaintiff seeking to pierce the corporate veil must prove actual fraud which involves dishonesty of purpose or intent to deceive.

Importance of the Corporate Veil

The corporate veil is extremely important in keeping the debts and liabilities of one company inside that company. It is a shield that protects not only the officers, directors, and shareholders of a company, but also other commonly owned and operated companies. The shield protects parent companies for the acts of its subsidiaries, and vice versa. It is the insurance that most business owners rely upon in continuing to make business decisions and take risk. Without this protection, most individuals and small businesses cannot afford the risk of doing business and its associated potential liabilities.

The Single Business Enterprise

“The ‘single business enterprise’ theory involves corporations that ‘integrate their resources to achieve a common business purpose…’ In determining whether two corporations were not maintained as separate entities, the court will consider the following factors: (1) common employees; (2) common offices; (3) centralized accounting; (4) payment of wages by one corporation to another corporation’s employees; (5) common business name; (6) services rendered by the employees of one corporation on behalf of another corporation; (7) undocumented transfers of fund between corporations; and (8) unclear allocation of profits and losses between corporations.” Superior Derrick Servs. v. Anderson, 831 S.W.2d 868, 874 (Tex. App. – Houston (14th Dist.) 1992, writ denied).

Conspicuously missing from this list of elements is a showing of any kind of fraud.

Single Business Enterprise Theory

First, it is important to note that the Texas Supreme Court has yet to adopt the single business enterprise theory as a mechanism of applying the liability of one company to that of another. However, the intermediate courts of appeals in Texas have not only adopted it, but are actively using it to spread liability between companies. And while the Texas Supreme Court, even as recently as 2007 in PHC-Minden, L.P. v. Kimberly-Clark Corp., noted that it has yet to formally adopt this theory, by not issuing an express holding renouncing or rejecting the theory, it remains alive and kicking at the trial courts and appellate levels of litigation (where most litigation occurs).

Example 1

Consider the following example: Company X buys and sells goods for consumption inside the United States. Over the years, it develops an international market; however, because of the increased risk in dealing with a variety of international issues, the owners of Company X create a new company, Company X International to handle the international aspect of the business. Both companies are run from the same location, and while most of their employees are separate, they do share the same in house accounting, human resources, and legal departments. Those employees are all paid by Company X. There is no accounting of Company X International reimbursing for those expenses. And while the two companies have separate bank accounts and separate books of account, they can freely transfer money between the two companies to cover a variety of costs.

This example is not unlike how many businesses run their subsidiaries or sister corporations. It happens every day at every level of business. However, Company X and Company X International meet every element of a single business enterprise. If anything were to happen to Company X International, exposing it to losses, the original Company X is just a liable.

Example 2

Consider a bigger example: a large oil, telecommunications, or computer company. While there may be one large parent (imagine Exxon Mobile, AT&T, or the like), there are hundreds of subsidiaries. But, there are common owners, common names, shared employees, shared expenses, and an unclear allocation of profits between the many companies. They created these subsidiaries to protect the larger parent. This also protects other related companies from devastation should any of the others go under. Under the current status of Texas law, those protections no longer exist.

Avoiding Common Liability

The answer to this seems somewhat obvious: keep everything separate. Probably the most important area for separateness is in the financial arena. Document all transfers between the companies. Don’t be afraid to have inter-company contracts (i.e. lease agreements, notes, and contribution agreements). Allocate expenses (including salaries) between the companies so that each pays its share. Have policies in place and in practice keeping everything about the businesses separate. Consider having separate boards of directors and offices if that is practical. The problem is that this is not always convenient or practical for many commonly owned companies. Therefore, remember, the more you separate, the better off you are.

There are no promises in litigation. There is also nothing anyone can do to ensure that they won’t be sued. However, there are things you can do to help make sure you win you case. The more prepared you are for these kinds of issues, the more protection you have.

Keep your corporate veil closed

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