Monday, November 25, 2013

The Nuclear Option: What if the U.S. Senate was a Corporation?

The news media and blogs have been filled with discussions of the “nuclear option” adopted by U.S. Senate Democrats last week. No, Senate Democrats are not threatening the Republicans with weapons of mass destruction (well, not all the Senate Democrats). It’s just a new way to end a filibuster. A simple majority vote is now sufficient to stop filibusters of executive and some judicial nominations.

I’m sure your first thought about the nuclear option had nothing to do with politics or judicial appointments. Your first thought was undoubtedly the same as mine: what would happen if the Senate were a closely-held corporation? (What? That wasn’t your first thought? I guess I’m too much of a business law geek.)

Duties of Controlling Shareholders; Oppression

As I’m sure you know, many jurisdictions impose a stronger fiduciary duty on those in control of a closely held corporation. See, e.g., Donahue v. Rodd Electrotype Co. of New England, Inc., 328 N.E.2d 505 (Mass. 1975). Actions that disadvantage the minority are subject to careful review. In addition, many corporate statutes allow courts to dissolve the corporation if those in control of the corporation have acted oppressively. See, e.g., Revised Model Business Corporation Act section 14.30(a)(2)(ii).

The Democratic rule change could violate its fiduciary duty to the minority Republican Senators and constitute oppression. The Republican Senators would argue that the rule change unfairly deprives them of most of their power over corporate affairs, upsetting the reasonable expectations they had when they entered the Senate.

That claim would be difficult for the Democrats to refute. The filibuster rule is a longstanding one and the express purpose of the change was to take away power from the minority. But that’s not the end of the matter. The Democrats could still win if they could show a legitimate business purpose for the action and no less drastic means of accomplishing that purpose. See, e.g., Wilkes v. Springside Nursing Home, 353 N.E.2d 657 (Mass. 1976).

The Democrats will argue that they had a legitimate “corporate” purpose: ensuring that our nation’s courts have sufficient judges. Moreover, they would say, they tried other, less drastic means to end the stalemate, with little success.

As with many of these majority-minority disputes, the resolution of these arguments by the court would depend on what the judge had for breakfast.

Dissolution for Deadlock

Of course, if the Senate were a closely held corporation, the Democratic senators might not have needed to resort to the nuclear option. Instead, they could have taken advantage of provisions like section 14.30(a)(i) of the Revised Model Business Corporation Act, which allows a court to dissolve the corporation if

the directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock.

Because of the filibuster rule, the directors (the Senators) were deadlocked and the shareholders (the voters) have been unable to break that deadlock for quite a while now. But is that deadlock causing irreparable injury to the country? Judges aren’t being appointed but there are, after all, other judges. The nation’s courts haven’t ground to a halt. And many people would argue that the business and affairs of the Senate have never been conducted to the advantage of the shareholders generally; if so, it’s hard to say that’s “because of the deadlock.”

I have a better idea: let’s imagine the Senate as a general partnership. Then, we can hold them all personally liable for their actions.

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I seriously enjoyed this one. Wish we could wind them up too and end with the s**t.

Posted by: Puneet | Nov 26, 2013 10:56:12 AM

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