Tuesday, March 21, 2017
I write often about how courts often incorrectly treat LLCs as corporations. Last week, I reported on a case about a court that misstated, in my view, the state of the law regarding LLCs and veil piercing. When I do so, I often get comments about how veil piercing should go away. Prof. Bainbridge replies similarly here.
I am on record as being open to the elimination of veil piercing (I am actually, at least in theory, working on an article tentatively called Abolishing Veil Piercing Without Abolishing Equity), and I am especially open to the idea of abolishing veil piercing with regard to contract-based claims. (Texas largely does this by requiring "actual fraud" for cases arising out of contract. For a great explanation of Texas law on the subject, please see Elizabeth Miller's detailed description here.)
Several courts over the years, most notably the Wyoming court in Flahive, have extended the concept of veil piercing to LLCs, even where a statute did not explicitly provide the concept of veil piercing. Although I think these courts got it wrong, now that concept of veil piercing is well established for corporations and LLCs in virtually all (if not all) U.S. jurisdictions, I think any rollback must properly be done by statute.
In the past, I have been critical of courts like the one in Flahive, because I agree with Prof. Bainbridge and others who argue that veil piercing, when not expressly stated, may well have not been intended. Minnesota, for example, has at least made the concept clear. Minnesota LLC law provides:
322B.303 PERSONAL LIABILITY OF MEMBERS AS MEMBERS.
Subdivision 1. Limited liability rule.
Subject to subdivision 2, a member, governor, manager, or other agent of a limited liability company is not, merely on account of this status, personally liable for the acts, debts, liabilities, or obligations of the limited liability company.
Subd. 2. Piercing the veil.
The case law that states the conditions and circumstances under which the corporate veil of a corporation may be pierced under Minnesota law also applies to limited liability companies. . . . .
Like most states, Minnesota courts are willing to pierce the corporate veil where (1) an entity ignores corporate formalities and serves as the alter ego of a shareholder and (2) enforcing the liability limitations of the corporate form leads to injustice or is fundamentally unfair. I have often used this example of how a state should, if they want to have LLC veil piercing, proceed. That is, although I would not advocate for doing so, if a state is going to have veil piercing of LLCs, it should be expressly stated. The statute may be flawed in concept, but that's a call for the legislature.
The Minnesota statute is well crafted to achieve its apparent goals, in that it makes clear that one can, in fact, be "personally liable for the acts, debts, liabilities, or obligations of the limited liability company" merely on account of being a member of an LLC. That is, the general rule is that members are not liable for the LLC's debts, but where an LLC veil is pierced, all members become personally liable for the debts, regardless of the their actions. In Minnesota, this includes "corporate formalities" as a factor for corporate veil piercing and thus it applies to LLCs, even though LLCs have few, if any, statutory formalities (and many states disclaim formalities as an obligation to maintain limited liability for an LLC).
This seems wrong to me, especially the part about making those who did not participate in the bad behavior potentially liable and adding a corporate-formalities requirement to an entity that is not supposed to have them. As Prof. Bainbridge argues in Abolishing Veil Piercing, "Abolishing veil piercing would refocus judicial analysis on the appropriate question-did the defendant-shareholder do anything for which he or she should be held directly liable." I agree.
Still, because veil-piercing of entities is well-settled law, I don't think judges have latitude to eliminate it. Judges must focus on proper limitations and clarity of the law that is still subject to interpretation (or plainly inconsistent with the law), where possible. At this point, abolishing veil piercing must be done by statute. Maybe some bold legislators will heed the call.
Tuesday, March 14, 2017
A new case, out just yesterday from the Southern District of Ohio, makes a mess of LLC veil piercing law. It appears that the legal basis put forth by the court in granting a motion to dismiss a veil piercing claim was probably right, but the statement of veil piercing law was not quite there.
The case is ACKISON SURVEYING, LLC, Plaintiff, v. FOCUS FIBER SOLUTIONS, LLC, et al., Defendants., No. 2:15-CV-2044, 2017 WL 958620, at *1 (S.D. Ohio Mar. 13, 2017). Here are the parties: the defendant is FTE Networks, Inc. (FTE), which filed a motion to dismiss claiming a failure to state a claim. FTE is the parent company of another defendant, Focus Fiber Solutions, LLC (Focus). The plaintiff, Ackison Surveying, LLC (Ackison) filed a number of claims against Focus, added an alter ego/veil piercing claim against FTE. Thus, Ackison is, among other things, seeking to pierce the veil of an LLC (Focus). Focus appears to be a Pennsylvania LLC, based on a search here.
Pennsylvania law provides the liability cannot be imposed on a member of an LLC for failing to observe formalities. The law states:
The failure of a limited liability partnership, limited partnership, limited liability limited partnership, electing partnership or limited liability company to observe formalities relating to the exercise of its powers or management of its activities and affairs is not a ground for imposing liability on a partner, member or manager of the entity for a debt, obligation or other liability of the entity.
(1) grossly inadequate capitalization,(2) failure to observe corporate formalities,(3) insolvency of the debtor corporation at the time the debt is incurred,(4) [the parent] holding [itself] out as personally liable for certain corporate obligations,(5) diversion of funds or other property of the company property [ ],(6) absence of corporate records, and (7) the fact that the corporation was a mere facade for the operations of the [parent company].
Tuesday, February 28, 2017
I don't know if it's the time of year or if I am just a little off, but I am generally grumpy today. So, I am going to vent a bit.
First, a regular irritation that is no shock to regular readers is the "limited liability corporation." I probably should have stopped the Westlaw alert for that terms, which comes through nearly every single day with multiple cases and news items. A new case from the U.S. District Court in Kansas, Pipeline Prods., Inc. v. Horsepower Entm't, No. CV 15-4890-KHV, 2017 WL 698504, at *1 (D. Kan. Feb. 22, 2017), is typical. The court states:
Pipeline Productions, Inc. is a Kansas corporation with its principal place of business in Lawrence, Kansas. Backwood Enterprises, LLC is an Arkansas limited liability corporation with its principal place of business in Lawrence, Kansas. . . .The Madison Companies, LLC is a Delaware limited liability company with its principal place of business in Greenwood Village, Colorado. Horsepower Entertainment, a Delaware limited liability company, is a wholly-owned subsidiary of Madison with its principal place of business in Greenwood Village, Colorado.
Irritation 1: Arkansas does not have an entity called a "limited liability corporation." Arkansas, as is typical, has a corporation entity and a limited liability company entity. They are different. The fact that the court gets the entity right for the two Delaware LLCs suggests to me that the filings from Backwood Enterprises, LLC, is the likely source of the language. Still, courts should be getting this right. (It won't shock me if my obsession with this is irritating more than one reader. C'est la vie.)
Irritation 2: The case also references a "wholly-owned subsidiary." This is a common reference, but "wholly owned" does not need a hyphen when used a compound adjective. This source cites the one I tend to follow, from my public relations days:
When a compound modifier–two or more words that express a single concept–precedes a noun, use hyphens to link all the words in the compound except the adverb very and all adverbs that end in -ly. —AP Stylebook, 2013 edition. Boldface added.
Spot on. The site also provides a good hint:
*Warning: Not every word that ends in -ly is an adverb. Watch out for nouns like family and supply, and adjectives like only. For example, “family-oriented websites”; supply-side economics”; “only-begotten son.”
Since Americans (in particular) love threes, I will follow the Rule of 3s, and add one more.
Irritation 3: The word "articulate." Yeah, this is kind of random, but I am done with that word. I cannot come up with a time when another word won't serve as a good substitute, and the loaded way in which the term has evolved means it should be skipped. See, e.g., here. This article provides more good background and quotes Condoleezza Rice's former communications counselor, Anna Perez:
The word perfectly conveys, to quote George Bush, the soft bigotry of low expectations. It literally comes down to that. When people say it, what they are really saying is that someone is articulate ... for a black person.
Before anyone wants to get mad at me for being too "PC," calm down. I am not saying you can't say it. I am saying you will irritate me if you do. And if you say it to or about an African-American person, you probably are showing the bias Ms. Perez described. And, yeah, I have heard it said about and to African-Americans in my presence, and it's usually pretty clear the bias is there. It's an irritation to me, and it's demeaning, even though I think it is, from time to time, well intentioned, if ignorant. Time to move forward. What was once "progressive thinking" is not anymore. Try to catch up if you're really trying to be nice.
I know, everyone has things that irritate them. It's good to vent now and again. No person attacks or freak outs. Just a good, old-fashioned vent. Happy Mardi Gras.
Tuesday, February 21, 2017
Later this week, I will be on the road to Los Angeles to take one of our teams to a LawMeet Transactional competition. The competition is described as follows:
The National Transactional LawMeet is the premier “moot court” experience for students interested in a transactional practice. The National Transactional LawMeet is a part of the LawMeet family of live, interactive, educational competitions designed to give law students a hands-on experience in developing and honing transactional lawyering skills.
I worked with a team last year that made it to the finals in New York City (their work and talent got them there, to be clear), and it was a great experience. They did the regional on their own last year, so I am hoping I don't get in their way this time around.
I have worked with moot court teams for years, including taking teams to the Evans Moot Court Competition at the University of Wisconsin Law School and the Mardi Gras Moot Court Competition at Tulane Law School, and they were good experiences, I think, for the students. And I have helped with our West Virginia University College of LawNational Energy & Sustainability Moot Court Competition, which I think is both unique and well done (I am not unbiased, I admit, but I am confident I am right.)
Still, it was great to go to a transactional competition. The LawMeet competition was impressive. It's hard to isolate a deal simulation, but the organizers did well. And after their negotiation sessions, the students got reviewed by some incredibly talented people. One of the reviewers was a very big deal M&A partner at a very big deal New York firm. And he was kind, thoughtful, while providing an incisive critique. I disagreed with him on one tactic (I kept my mouth shut), because I was exposed to a different viewpoint for a very big deal partner at a very big deal New York firm some years ago. It wasn't a big point, but it was actually great opportunity to talk about philosophy and tactics with my students (later) using a deal setting as the basis for discussion.
Anyway, I am happy this opportunity is out there for students aren't seeking to litigate, but want to go live (or close to it). Go Business Law!
Tuesday, February 14, 2017
I hope this Valentine's Day is a good one for you, dear readers. Mine started with a random (minor) dog bite on my morning run, followed by some time with some very nice health care professionals and quite a few less pleasant needles.
A friend alerted me to the law-related Twitter hashtag #AppellateValentines. Some of them are quite funny. See, e.g.,
Your wish is my mandamus. #AppellateValentines— Emil J. Kiehne (@EmilKiehne) February 14, 2017
There is also a #BusinessValentines hashtag, which is less creative, but has its moments. Of course, there was no #BusinessLawValentines, but there should be and there is now. I went first. Join in, if you're so inclined.
Even if we lived in Delaware, I'd never disclaim my duty of loyalty to you #BusinessLawValentines— Joshua Fershee (@jfershee) February 14, 2017
If you loved me back, we could be Citizens United #BusinessLawValentines— Joshua Fershee (@jfershee) February 14, 2017
And, of course, I could not resist:
Tuesday, February 7, 2017
According to CNN/Money, 2016 was a record year for women. The report:
America hit a milestone in 2016: The most female CEOs ever. There are now 27 women at the helm of S&P 500 companies.The good news is it's a new record for women in business, according to S&P Global Market Intelligence. It's also 22% more -- a big jump -- from last year, when only 22 women led S&P 500 companies.
Tuesday, January 31, 2017
Sound energy policy begins with the recognition that we have vast untapped domestic energy reserves right here in America. The Trump Administration will embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans. We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own. We will use the revenues from energy production to rebuild our roads, schools, bridges and public infrastructure. Less expensive energy will be a big boost to American agriculture, as well.
It is certainly true that we "have vast untapped domestic energy reserves right here in America." It has brought some wealth and prosperity to the nation, and low oil prices because the country "embrace[d] the shale oil and gas revolution to bring jobs and prosperity to millions of Americans." However, low oil and gas prices (which largely remain) have slowed that growth and expansion because shale oil and gas exploration and production was wildly successful.
The President says, "We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own." But it's not clear how that's helpful. That is, selling our (the American people's) assets when the market is at or near record lows doesn't seem like very good asset management.
The plan is to "use the revenues from energy production to rebuild our roads, schools, bridges and public infrastructure." I am very fond of all of these things, though I am skeptical that the federal government should take a leading role in all of them. I am open to the discussion. But, if we're selling our assets at pennies on the dollar of historic value, I am particularly skeptical of the benefits.
"Less expensive energy will be a big boost to American agriculture, as well." Low energy costs do help agriculture. That is certainly true. But notice that making energy even less expensive means we get less for our assets, and we're dumping more cheap energy into a market where private businesses in the oil and gas sector are already having a hard time.
Facilitating a boom from cheap energy means investing in new jobs to use the energy, not just getting more of the energy. Plants that use our cheaper fuels to make and build new products could help, but it's never easy. High energy prices can stifle an economy, but low ones rarely spur growth. About a year ago, an Economist article from January 2016 remains accurate, as it explained that sudden and major price increases can slow an economy rapidly, as we saw in Arab oil embargo of 1973. However, "when the price slumps because of a glut, as in 1986, it has done the world a power of good. The rule of thumb is that a 10% fall in oil prices boosts growth by 0.1-0.5 percentage points."
The article further explains:
Cheap oil also hurts demand in more important ways. When crude was over $100 a barrel it made sense to spend on exploration in out-of-the-way provinces, such as the Arctic, west Africa and deep below the saline rock off the coast of Brazil. As prices have tumbled, so has investment. Projects worth $380 billion have been put on hold. In America spending on fixed assets in the oil industry has fallen by half from its peak. The poison has spread: the purchasing managers’ index for December, of 48.2, registered an accelerating contraction across the whole of American manufacturing. In Brazil the harm to Petrobras, the national oil company, from the oil price has been exacerbated by a corruption scandal that has paralysed the highest echelons of government.
I am all for a new energy plan to help the economy grow, and I support continued energy exploration and production as long as it is done wisely, which I firmly believe can be done. But adding new competitors (by allowing more exploration on federal lands) simply won't help (and it really won't help increase coal jobs). More supply is not the answer in an already oversupplied market. And the current proposal is just giving away assets we will want down the road.
Tuesday, January 24, 2017
Friend and co-blogger Marcia Narine Weldon sent me a news article from Alaska discussing a "piercing of the corporate veil" claim for an LLC.
The City and Borough of Juneau demolished the Gastineau Apartments and is trying to get hold members of Gastineau Apartments LLC, apparent owners of the building liable for the $1.4 million demolition costs. Demolition cost more than the land is worth, so the suit is seeking to have the owners of the LLC, Camilla and James Barrett, pay the bill because they missed deadlines to repair or demolish the property.
The article reports:
At issue before Juneau Superior Court Judge Philip Pallenberg is the legal concept of “piercing the corporate veil.” It would allow legal action against the Barretts, who controlled Gastineau Apartments LLC.
Defense Attorney Robert Spitzfaden had argued that the Barretts should remain shielded from liability. But the judge noted that the defendants had allowed their limited liability corporation to be dissolved after missing filing deadlines with the state.
“It’s clear that the Barretts were not always clear to observe the formal legal requirements of their LLC,” Judge Pallenberg said from the bench.
A quick review of Alaska LLC law did not make clear to me that LLCs in the state have formal requirements that would be implicated in this case. If the main reason that the LLC did not pay the bills was a mere lack of money, there is no reason to pierce the veil. It's just a failed venture. Sure, the Barretts should have gone followed the appropriate processes, but it cannot be that the fact that the Barretts "allowed their limited liability corporation [author's note: it's an LLC] to be dissolved after missing filing deadlines with the state" is sufficient to support veil piercing."
Imagine the same scenario, but the building had value. Would missing deadlines and allowing the land owned by LLC to be automatically transferred to the Barretts? Even if there were other creditors? I think not.
Perhaps there is more to this case than the article reveals, but this looks a lot like a lack of entity funds is the only issue, and a lack of funds (on its own) should not be sufficient for veil piercing, especially in a property case where the property can be forfeited. If the city or state wants to make a law making individuals liable, then fine, but this looks like a bad case for veil piercing and a possible summary judgment case. I look forward to seeing if Alaska analyzes this one right at trial.
Tuesday, January 17, 2017
Here we go again. Oregon Federal District Court has a new rule on the books:
In diversity actions, any party that is a limited liability corporation (L.L.C.), a limited liability partnership (L.L.P.), or a partnership must, in the disclosure statement required by Fed. R. Civ. P. 7.1, list those states from which the owners/members/partners of the L.L.C., L.L.P., or partnership are citizens. If any owner/member/partner of the L.L.C., L.L.P., or partnership is another L.L.C., L.L.P., or partnership, then the disclosure statement must also list those states from which the owners/members/partners of the L.L.C., L.L.P., or partnership are citizens.
The certification requirements of LR 7.1-1 are broader than those established in Fed. R. Civ. P. 7.1. The Ninth Circuit has held that, “[L]ike a partnership, an LLC is a citizen of every state of which its owners/members/partners are citizens.” Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). Early state citizenship disclosure will help address jurisdictional issues. Therefore, the disclosure must identify each and every state for which any owner/member/partner is a citizen. The disclosure does not need to include names of any owner/member/partner, nor does it need to indicate the number of owners/members/partners from any particular state.
For federal law purposes, it appears that the rule has excluded LLCs, despite the intent (and likely specific purpose) of the rule. Interestingly, Oregon law, has extended "unless context requires otherwise" the concept of LLCs to apply to partnership and corporate law. Oregon law provides:
Unless the context otherwise requires, throughout Oregon Revised Statutes:
(1) Wherever the term “person” is defined to include both a corporation and a partnership, the term “person” shall also include a limited liability company.(2) Wherever a section of Oregon Revised Statutes applies to both “partners” and “directors,” the section shall also apply:(a) In a limited liability company with one or more managers, to the managers of the limited liability company.(b) In a limited liability company without managers, to the members of the limited liability company.(3) Wherever a section of Oregon Revised Statutes applies to both “partners” and “shareholders,” the section shall also apply to members of a limited liability company.
Tuesday, January 10, 2017
I am happy to say I just received my new article, co-authored with a former student, S. Alex Shay, who is now a Trial Attorney in the Office of the United States Trustee, Department of Justice. The article discusses property law challenges that can impeded business development and negatively impact landowners and mineral owners in shale regions, with a focus on the West Virginia portion of the Marcellus Shale. The article is Horizontal Drilling Vertical Problems: Property Law Challenges from the Marcellus Shale Boom, 49 John Marshall Law Review 413-447 (2015).
If you note the 2015 publication date, you can see the article has been a long time coming. The conference it is linked to took place in September 2015, and it has taken quite a while to get to print. On the plus side, I was able to do updates to some of the issues, and add new cases (and resolutions to cases) during the process. I just received my hard copies yesterday -- January 9, 2017 -- and I received a notice it was on Westlaw as of yesterday, too.
I always find it odd when law reviews use a specific year for an issue, as opposed to the actual publication year. I can understand how a January publication might have a 2016 date. That would have made sense, but dating the issue back to 2015, when I discuss cases decided in 2016 seems a little weird. I know there is a certain level of continuity that the dates can provide, but still, this seems too long.
When I was editor in chief of the Tulane Law Review, one of the things we prided ourselves on was not handing off any issue from our volume to the next board. A few years prior to our arrival, a committed group of Law Review folks caught up everything -- publishing, if memory serves (and legend was correctly passed on), two and a half volumes. And Tulane Law Review publishes six issues a year. They, apparently, did not sleep.
I am happy to have the article our, and the editors did good work. It just would have been nice to have it appear a little more timely and relevant than I think this "new" article does. For anyone who is interested, here's the abstract (article available here):
This article focuses on key property challenges appearing as part of the West Virginia Marcellus Shale play. The paper opens with an introduction to the Marcellus Shale region that is the focus of our analysis. The paper explains the horizontal drilling and hydraulic fracturing process that is an essential part of shale oil and gas development. To help readers understand the property challenges related to shale development, we include an introduction to the concept of severed estates, which can create separate ownership of the surface estate and the mineral estate. The article then focuses on two keys issues. First, the article discusses whether horizontal drilling and hydraulic fracturing constitute a “reasonably necessary” use of surface land to develop mineral rights, and concludes they are, at least in most instances. Second, the article discusses difficulties in analyzing deed language related to minerals rights and royalty interests, which has created challenges for mineral owners, leasing companies, and oil and gas developers. Please note that although the publication date is 2015, the article was not in print until January 2017 and discusses cases from 2016.
Ultimately, the article concludes, legislators and regulators may choose to add surface owner protections and impose other measures to lessen the burden on impacted regions to ease the conflict between surface owners and mineral developers. Such efforts may, at times, be necessary to ensure continued economic development in shale regions. Communities, landowners, interest groups, companies, and governments would be well served to work together to seek balance and compromise in development-heavy regions. Although courts are well-equipped to handle individual cases, large-scale policy is better developed at the community level (state and local) than through the adversarial system.
Tuesday, January 3, 2017
Today is my annual check-up on the use of "limited liability corporation" in place of the correct “limited liability company.” I did a similar review last year about this time, and revisiting the same search led to remarkable consistency. This is disappointing in that I am hoping for improvement, but at least it is not getting notably worse.
Since January 1, 2016, Westlaw reports the following using the phrase "limited liability corporation":
- Cases: 363 (last year was 381)
- Trial Court Orders: 99 (last year was 93)
- Administrative Decisions & Guidance: 172 (last year was 169)
- Secondary Sources: 1116 (last year was 1071)
- Proposed & Enacted Legislation: 148 (last year was 169)
As was the case last year, I am most distressed by the legislative uses of the phrase, because codifying the use of "limited liability corporation" makes this situation far murkier than a court making the mistake in a particular application.
New York, for example, passed the following legislation:
Section 1. Subject to the provisions of this act, the commissioner of parks and recreation of the city of New York is hereby authorized to enter into an agreement with the Kids' Powerhouse Discovery Center Limited Liability Corporation for the maintenance and operation of a children's program known as the Bronx Children's Museum on the second floor of building J, as such building is presently constructed and situated, in Mill Pond Park in the borough of the Bronx. The terms of the agreement may allow the placement of signs identifying the museum.
NY LEGIS 168 (2016), 2016 Sess. Law News of N.Y. Ch. 168 (S. 5859-B) (McKINNEY'S).
This creates a bit of a problem, as Kids' Powerhouse Discovery Center Limited Liability Corporation does not exist. The official name of the entity is as Kids' Powerhouse Discovery Center LLC and it is, according to state records, an LLC (not a corporation). Does this mean the LLC will have to re-form as a corporation so that the commissioner of parks and recreation has authority to act? It would seem so. On the one hand, it could be deemed an oversight, but New York law, like other states, makes clear that an LLC and a corporation are distinct entities.
Several other states enacted legislation using “limited liability corporation” in contexts that clearly intended to mean LLCs. Hawaii, West Virginia (sigh), Minnesota, Alabama, California, and Rhode Island were also culprits.
There was one bit of federal legislation, too. The “Communities Helping Invest through Property and Improvements Needed for Veterans Act of 2016” or the “CHIP IN for Vets Act of 2016." PL 114-294, December 16, 2016, 130 Stat. 1504. This act authorizes the Secretary of Veterans Affairs to carry out a pilot program in which donations of certain property (real and facility construction) donated by the following entities:
(A) A State or local authority.
(B) An organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and is exempt from taxation under section 501(a) of such Code.
(C) A limited liability corporation.
(D) A private entity.
(E) A donor or donor group.
(F) Any other non-Federal Government entity.
I have to admit, it is not at all clear to me why one needs any version of (C) if one has (D) as an option. Nonetheless, to the extent it was not intended to be redundant of (D), part (C) would appear to be incorrect.
I addition, I'd be remiss not to note the increase to 1116 uses in secondary sources last year, though only 43 were in law reviews and journals. That part is, at least a little, encouraging.
Last year, I wished “everyone a happy and healthy New Year that is entirely free of LLCs being called ‘limited liability corporations.’” This year, I have learned to temper my expectations. I still wish everyone a happy and healthy New Year, but as to the use of “limited liability corporations” I am hoping to reduce the uses by half in all settings for 2017, and I hope at least three legislatures will fix errors in their existing statutes. That seems more reasonable, if not any more likely.
Tuesday, December 27, 2016
New Book from Martin & Kunz: When the Levees Break: Re-visioning Regulation of the Securities Markets
My friend and colleague, Jena Martin's coauthored book (which she wrote with another West Virginia University professor Karen Kunz) has just been released: When the Levees Break: Re-visioning Regulation of the Securities Markets. I have just started the book, and I look forward to working my way through it. I cannot say Prof. Martin and I always see eye to eye on things (though we often do), she always has a thoughtful and interesting take. It's been an interesting read so far, and I recommend taking a look. Following is a synopsis of the book:
The stock markets. Whether you invest or not, the workings of the stock market almost certainly touch your life. Either through your retirement fund, your mutual fund or just because you work for a place that invests (or is invested in)—the reach of the securities markets is expanding, like an ever growing tidal wave.
This book discusses what happens when that wave hits the shore. Specifically, this book argues that, given the mounting deluge from misplaced regulation, fast-paced technology, and dominant financial players, the current US regulatory structure is woefully inadequate to hold back the tide.
Using vivid imagery and plain language, Karen Kunz and Jena Martin take the problems involved in regulating the complex world of securities head on. Examining everything from the rise of technology and the role of hedge funds to our bloated agency system, Kunz and Martin argue that the current structure is doomed to fail and, when it does, the consequences will be disastrous.
Sending out a call to action, the authors also offer a bold vision for how to fix the mess we’ve made—not by tinkering around the edges—but instead by building a whole new structure, one that can withstand the next storm that is sure to come.
Tuesday, December 20, 2016
During the recent presidential campaign, there was a lot of talk the evil of “political correctness” or (PC). A lot has been said about this concept on social media, and I got to thinking about the legal applications of what PC means. This post is my first look the concept from a legal perspective and looks briefly at the legal origins and applications of the idea.
Speechwriter (and author and columnist) Barton Swaim has said that “Political correctness is an insidious presence in American life.” PC is generally seen (and criticized) as a product of the political left.
And the political right has a companion, “patriotically correct,” and that idea was recently explained in a popular article by Alex Nowrasteh, an immigration policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity. Nowrasteh notes that political correctness has been a “major bugaboo of the right” in recent years and explains:
[C]onservatives have their own, nationalist version of PC, their own set of rules regulating speech, behavior and acceptable opinions. I call it “patriotic correctness.” It’s a full-throated, un-nuanced, uncompromising defense of American nationalism, history and cherry-picked ideals. Central to its thesis is the belief that nothing in America can’t be fixed by more patriotism enforced by public shaming, boycotts and policies to cut out foreign and non-American influences.
As for a definition of political correctness, I will borrow from Swaim again:
Political correctness, if I could venture my own admittedly rather clinical definition, involves the prohibition of common expressions and habits on the grounds that someone in our pluralistic society may be offended by them. It reduces political life to an array of signs and symbols deemed good or bad according to their tendency either to include or exclude aggrieved or marginalized people from common life.
But where did the concept come from? The first cited U.S. legal use of it appears to be one of the foundational Supreme Court cases, which ultimately led to passage of the Eleventh Amendment, states:
Sentiments and expressions of this inaccurate kind prevail in our common, even in our convivial, language. Is a toast asked? ‘The United States,‘ instead of the ‘People of the United States,‘ is the toast given. This is not politically correct. The toast is meant to present to view the first great object in the Union: It presents only the second: It presents only the artificial person, instead of the natural persons, who spoke it into existence.
Chisholm v. Georgia, 2 U.S. 419, 462, 1 L. Ed. 440 (1793) (emphasis added). This doesn’t seem to apply to the modern concept of what it means to be politically correct. The fact that the case draws a distinction between the artificial person (in this case, the United States of America) and the natural persons who make up the nation. That's concept that has application in the business law world, to be sure.
The phrase “politically correct” appears in 259 cases per a search on Westlaw, and the phrase took 191 years off after Chisholm v. Georgia. The phrase resurfaced in 1984, with a use that seems to combine the more modern usage with the 1793 use. Am. Postal Workers Union v. U.S. Postal Serv., 595 F. Supp. 1352, 1362 (D.D.C. 1984), aff'd in part, vacated in part sub nom. Am. Postal Workers Union, AFL-CIO v. U.S. Postal Serv., 764 F.2d 858 (D.C. Cir. 1985) (stating that a union “could find out what party a worker is affiliated with and, if not ‘politically correct,’ exert pressure on the worker to change).
In 1991, the phrase comes into more common usage, and we see a particularly modern spin in a Minnesota appeals court dissent in a case upholding a trespassing conviction against abortion protestors:
Both the issues of war and abortion produce a deep split in America's fabric. Oftentime an ugly split. Although it is not pretty, at least it proves that Americans feel strongly on both sides of the issue. Courts do not determine whether anti-war protests are more “politically correct” than abortion protests. It is not up to courts to pass judgment on the “worthiness” of appellants' cause. Trespass is a crime. This is a criminal case. I do not bother my head with whether appellants should protest against “X” (because I disagree with “X”) but not protest against “Y” (because I agree with “Y”). As criminal defendants, appellants are entitled to certain constitutional rights. We do not differentiate between “good” defendants and “bad” defendants. We treat all the same.
State v. Rein, 477 N.W.2d 716, 723 (Minn. Ct. App. 1991) (Randall, J., dissenting).
From a legal perspective, this 1991 case is a jumping off point for modern legal usages of the PC concept. The idea almost always connotes something negative. Take, for example, the most recent case in which a judge used the phrase as part of the opinion (there are more recent cases in which the court quotes others using the phrase). Here, again is a dissent, this time a Fourth Circuit case upholding a District Court order allowing a transgender student to use their restroom of choice:
Somehow, all of this is lost in the current Administration's service of the politically correct acceptance of gender identification as the meaning of “sex”—indeed, even when the statutory text of Title IX provides no basis for the position.
G.G. v. Gloucester Cty. Sch. Bd., 824 F.3d 450, 452 (4th Cir. 2016) (Niemeyer, J., dissenting), cert. granted in part Gloucester Cty. Sch. Bd. v. G.G. ex rel. Grimm, 137 S. Ct. 369 (2016).
I find it interesting that my quick search (admittedly not exhaustive), only revealed the term being used by courts in dissents. As such, when in the majority, the label is deemed unnecessary, even in discussing a counterargument. Is is just a matter of time, or is it more that the majority is deciding not to take a victory lap when on the winning side?
That's the quick look at the legal landscape of political correctness. Does it lead us anywhere? I don't know. At a minimum, I think we should try not to offend others when we can avoid it. And if we do offend others, apologize and try to move forward.
Beyond that, I have to get back grading. So far, not one person has called an "LLC" a "limited liability corporation." Doing so would be decidedly un-PC.
Tuesday, December 13, 2016
U.S. Securities and Exchange Commission Chair Mary Jo White has vowed to press on in her efforts to adopt new rules related to derivatives and mutual funds, among other issues, says a Reuters report. The Senate Banking Committee’s top two Republicans, Chairman Richard Shelby and Mike Crapo of Idaho, sent a letter asking her to stop the rule making process while the Trump administration reviews the SEC's agenda. She declined.
Chair White replied that the SEC must “exhibit a spirit of firm independence” in continuing its work “without fear or favor.” She further wrote, “I am not insensitive to the issues raised by your letter and have carefully considered what impact, if any, the election should have on the current work of the Commission.” (Reuters saw the letter, but I have not found a copy.)
I am on record as saying (e.g., here and here) I'd like to see the SEC and Congress take a break from new regulations and focus on enforcement, though I know some of the proposed rules are (at least in some form) required by Dodd-Frank. Still, even where I disagree with some of the proposals, I think it's right for independent agencies to continue on with their work. Each such agency can be respectful of the incoming administration, while continuing on with their workload. Just because the incoming Congress and president may disagree with some of the policies or rationales, the SEC has statutory obligations to put forth rules, and the business of the country doesn't stop between terms. Ultimately, I'd be quite content to see the SEC decide to put the a lot of these rules on hold (or make them more narrow) because the Commission thinks that's the best course of action, but not because the top Senate Banking Committee members asked.
Tuesday, December 6, 2016
The political discourse of this election cycle, and the respective postures of the two main political parties, suggest that social justice and economic prosperity are in opposition to one another. At times, it seems that some believe pursuing racial and gender equality are (at best) distractions from “real problems” like jobs and the economy. Others seem to think any form of business or industrial development is essentially sanctioning the destruction of the Earth and its people. Both are wrong.
Equity and fairness are not anathema to economic progress. In fact, in the big picture, they are essential. There is nothing inconsistent about being pro-business and supporting social justice. One can believe in social justice and still think there are too many regulations that hamper businesses. There are, for example, regulations that disproportionately keep women and minorities from opening their own businesses. And there are laws and regulations that create barriers to entry and help maintain market power businesses where competition is both warranted and necessary..
My colleague, Haskell Murray recently posted Faith and Work in Universities, which lists some resources related to religion and scholarly activity, particularly as it related to business. This is a worthwhile discussion, and far too often we see discussions of business and morality as separate areas – silos related to separate and competing goals.
This is not unlike the separation in environmental law and energy law I discussed in a recent short piece about the changing role of natural gas in the clean energy movement where I noted:
Electricity generation for industrial and residential consumers was one of the major drivers behind environmental regulation, but despite this long-standing connection, environmental law and energy law have often operated in separate silos. This fact has led to disjointed and ineffective policy and a poor understanding of the full scope of legal, regulatory, and business issues in the energy sector. (footnote omitted)
This is true in the broader business and social justice realm, as well. As Haskell’s compilation shows, though, that business and social justice (including, but not limited to, religion) are interrelated is hardly novel. When Pope Francis visited the U.S. Congress, he explained:
The right use of natural resources, the proper application of technology and the harnessing of the spirit of enterprise are essential elements of an economy which seeks to be modern, inclusive and sustainable. "Business is a noble vocation, directed to producing wealth and improving the world. It can be a fruitful source of prosperity for the area in which it operates, especially if it sees the creation of jobs as an essential part of its service to the common good" (Laudato Si', 129).
Social justice and economic development are not either-or propositions, despite what recent election choices may have implied. There is, I think, a vast underrepresented center in America that cares both about pragmatic economic decisions and basic fairness and equity. This past election, I hope and believe, demonstrated more about the priorities of various voters rather than clear divides about the issues themselves. To be sure, there are large numbers of people for whom this is not true -- there is some fundamental disagreement out there -- but I think the vast majority of people are decent caring people who have different ideas about the hierarchy of what is most important to move the country forward.
This is not to ignore the repugnant behavior, language and acts, from some people before and since the election. There have been outrageous acts of violence and intimidation. Shortly after the election, some of our law students were victims of such acts. As examples, one student was spit upon and racial epithets were shouted at another. There is no place hateful behavior, and it is unacceptable. A recent speaker invited to our campus said hateful and hurtful things about a valued faculty member. Free speech is a virtue, but this is simply not how we should treat each other, and it is shameful. And although racism, misogyny, anti-LGBT and anti-religious sentiment, and xenophobia have been part of virtually every government at some point, no government has found lasting peace or prosperity based on any of those things.
My point is not intended to suggest a Pollyanna-esque view of the world. I am not blindly asking, “Can’t we all just get along?” I am asking whether we can agree to try.
It's going to take a lot of work, and there are no simple answers. But we must start somewhere. Here are three modest principles to get started moving forward together:
- Stop succumbing to base and visceral reactions. We need to stop assuming everyone is lying and cheating and taking something from us so that we notice those who really are lying and cheating and taking something from us.
- Be skeptical of uncompromising absolutists. There are some absolutes in this world, to sure, but not nearly as many as we have been led to believe. And this is not a conservative or liberal issue. It’s an issue. Anyone who thinks they are right all the time is wrong.
- Reaffirm our nation’s founding principles and self-evident truths, that all people are “created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” I think it is right to say we have evolved from knowing such rights belong to men to know such rights belong to us all.
These principles require seeing compromise as valuable. Virtually all of us agree about that, because most of us have jobs and friends and loved ones. Compromise is a big reason why or we wouldn’t have those people in our lives. Compromise does not mean sacrificing one’s beliefs or values. It means recognizing the value and autonomy of others. It means seeing the mutual value of others in the world around us. But also, to be clear, compromise is not one side listening and being nice while the other side sits obstinately waiting to get what they want. Compromise requires that both sides work and give up something. Compromise is not, and cannot be, unilateral disarmament.
Let’s debate vigorously the best way to achieve economic prosperity. Let’s argue respectfully about how best to care for the nation’s poor and elderly. But let’s value and respect each other. In short, let’s get out of our own way. We have work to do.
Tuesday, November 29, 2016
When it comes to regulations and economic policy, I am quite conservative. Not a Republican-type conservative (probably more Libertarian in a political sense), but in the sense that I often advocate for less regulation, and even more often, for less changes to laws and regulations. People need to be able to count on a system and work within it. As such, whether it is related to securities law, energy and environmental law, or other areas of the law, I find myself advocating for staying the course rather than adding new laws and regulations.
For example, a while back, co-blogger Joan Heminway quoted one of my comments about securities law, where I noted "my ever-growing sense that maybe we should just take a break from tweaking securities laws and focus on enforcing rules and sniffing out fraud. A constantly changing securities regime is increasingly costly, complex, and potentially counterproductive."
After the BP oil blowout of the Deepwater Horizon well in the Gulf of Mexico, I similarly argued that we should approach new laws with caution, and that we might be better served with existing law, rather than seeking new laws and regulation in a hasty manner. I explained,
[T]here are times when new laws and regulations are necessary to handle new ways of perpetrating a fraud or to address new information about what was previously viewed as acceptable conduct. But often, new laws and regulations are not a reaction to new information or technology; they are a reaction to a unique and unfortunate set of facts that is more likely related to timing or circumstances than an emerging trend. Other times, it is a lack of enforcement of existing protections meaning the problem is not the law itself; it is the enforcement of the law that is the problem.
Choosing a Better Path: The Misguided Appeal of Increased Criminal Liability After Deepwater Horizon, 36 Wm. & Mary Envt'l L & Pol. Rev. 1, 19 (2011) (footnotes omitted). More recently, I have taken the same view with regard to hydraulic fracturing regulations:
There may well be a need for new regulations to improve oversight of hydraulic fracturing and other industries that pose environmental risks, but new regulations do not necessary lead to better oversight. . . . There is a strong argument that the problems related to hydraulic fracturing (and, for that matter, coal extraction, chemical storage, and hazardous waste operations) are more linked to a lack of enforcement and not a lack of regulation.
Facts, Fiction, and Perception in Hydraulic Fracturing: Illuminating Act 13 and Robinson Township v. Commonwealth of Pennsylvania, 116 W. Va. L. Rev. 819, 847 (2014).
I swear I have a point, beyond just quoting myself. Here it is: I'd like to urge the President-Elect and the 115th Congress to sit back and stay the course for a little bit to see where things are headed. I have a strong suspicion things are headed in the right direction from an economic perspective. This is not to suggest that there are not holes in the economy or people in desperate need of jobs, training, and education (there are -- I live in West Virginia. I know.). But with a White House and a Congress controlled by the same party, the GOP play should be simply: we're in charge now, and the economy is ready to move ahead.
We have already seen it -- the stock market is up and economic indicators look better. And there has been no new legislation or regulation (or repeals of either). It's just consumers believing the economy will get better. And consumer confidence is key to expansion. Who cares that it started before the election? What matters is whether we're going in the right direction. And it seems we are. The Financial Times reported today:
A gauge of US consumer sentiment has hit a post-recession high, painting a positive outlook ahead of the key holiday shopping season as recent data point to a strengthening US economy.
The Conference Board’s consumer confidence index climbed to 107.1 in November from 100.8 in October, the highest since July 2007 and above analysts’ forecast of 101.5.
Most of the survey was conducted before the presidential election on November 8. But “it appears from the small sample of post-election responses that consumers’ optimism was not impacted by the outcome,” said Lynn Franco, director of economic indicators at the Conference Board. “With the holiday season upon us, a more confident consumer should be welcome news for retailers.”
And, just to reinforce that is not a post-election position, I have been making this argument on this blog since at least 2010, when I wrote, How to Fix the "Broken" Financial System: Stop Trying to Fix It.
So, let's stay the course for a bit and see how people respond to a little stability. Let's see what a surge in consumer confidence can do for the U.S. and world economies. Let's make sure it's broken (and if so, how), before anyone tries to fix it. And maybe, in the meantime, we can spend a little time treating each other better.
Wednesday, November 23, 2016
I have been thinking about the long-short term investment horizon debate, definitions, empirics and governance design consequences for some time now (see prior BLPB post here and also see Joshua Fershee's take on the topic). This has been on mind so much that I am now planning a June, 2017 conference on that very topic in conjunction with the Adolf A. Berle Jr. Center on Corporations, Law & Society (founded by Charles “Chuck” O’Kelley at Seattle University School of Law). In planning this interdisciplinary conference where the goal is to invite corporate governance folks, finance and economics scholars, and psychologists and neuroscientist, I have had the pleasure of reading a lot of out-of-discipline work and talking with the various authors. It has been an unexpected benefit of conference planning. I also want some industry voices represented so I have reached out to Aspen Institute, Conference Board and a new group, Focusing Capital on the Long Term (FCLT), which I learned about through this process.
I share this with BLPB readers for several reasons. The first is that the FCLT, is a nonprofit organization, a nonprofit organization for BUSINESS issues created and funded by BUSINESSES. In July 2016, the Canada Pension Plan Investment Board, McKinsey & Company together with BlackRock, The Dow Chemical Company and Tata Sons founded FCLT. Other asset managers, owners, corporations and professional services firms (approximately 20) have joined FCLT as members. Rather than the typical application of a chamber of commerce style organization or trade industry group, here the stated missing of FCLT is to “actively engage in research and public dialogue regarding the question of how to encourage long-term behaviors in business and investment decisions.”
Second, FCLT has access to otherwise proprietary information—like C-suite executive surveys---and is conducting original research and publishing white papers and research reports on the issues of management pressures, and governance designs that may promote a long-term time horizon.
I know for some folks reading, especially those strongly aligned with a shareholder rights camp, will view this with skepticism as a backdoor campaign to promote executive/management power and bolster the reputation of professional service firms hired by those managers.** For me, though the anecdotal experience is a valuable component to considering all sides to the debate. It also helps articulate why and how the feedback loop of short-term pressures—even if it is only perceived rather than structurally quanitifable—may exist.
Third, I found some of the materials, particularly the Rising to the Challenge of Short-termism, written by Dominic Barton, Jonathan Bailey, and Joshua Zoffer in 2016 to be a useful reading for my corporate governance seminar. It helped to explain the gap between the law and the pressure of short-termism. It also helped provide a window into at least some aspects of decision making and payoffs in the governance setting. It can be quite hard to give students a window in the C-suite and BOD dynamics that they are naturally curious about while in law school. Even if you ideologically or empirically disagree with the claim of short-termism when trying to structure balanced reading materials that provide an introduction to the full scope of measures, these are resources worth considering.
Rising to the Challenge of Short-termism, written by Dominic Barton, Jonathan Bailey, and Joshua Zoffer in 2016, draws upon a McKinsey survey of over 1,000 global C-Suite executives and board members. The report describes increasing pressures on executives to meet short-term financial performance metrics and that the window to meet those metrics was decreasing. The shortening time horizon shapes both operations decisions as well as strategic planning where the average plan has shrunk to 2 years or less. Culture matters. Firms with self-reported long-term cultures reported less willingness to take actions like cut discretionary spending or delay projects when faced with a likely failure to meet quarterly benchmarks compared with firms that didn’t self-report a long-term culture. Sources of the pressure are perceived to come from within the board and executives, but also cite to greater industry-wide competition, vocal activist investors, earning expectations and economic uncertainty. The article concludes with 10 elements of a long-term strategy as a mini action plan.
Straight talk for the long term: How to improve the investor-corporate dialogue published in March 2015.
Investing for the future: How institutional investors can reorient their portfolio strategies and investment management to focus capital on the long term, published in March 2015. The paper identifies 5 core action areas for institutional investors focusing on investment beliefs, risk appetite statement, bench-marking process, evaluations and incentives and investment mandates to evaluate investment horizons.
A roadmap for focusing capital on the long term: A summary of ideas for asset owners, asset managers, boards of directors, and corporate management to focus on long-term value creation, published March 2015.
Long-term value summit in 2015 with a published discussion report made available February 2016. “120 executives, investors, board members, and other leaders from around the world gathered in New York City for the Long-Term Value Summit. Their mandate: to identify the causes and mechanisms of the short-term thinking that has come to pervade our markets and profit-seeking institutions and, more importantly, to brainstorm actionable solutions”
**The initial board of directors, announced on September 28, 2016 at the first board meeting, include some well positioned folks within BlackRock (Mark Wiseman), McKinsey & Co. (Dominic Barton), Dow Chemical (Andrew Liveris), Unilever (Paul Polman) and more. The BOD will be advised by Larry Fink, Chairman and CEO of BlackRock, as well.
Tuesday, November 22, 2016
Back in May, I discussed Donald Trump’s campaign dubious promises to bring back coal jobs to places like West Virginia and Kentucky. He promised (and continues to promise) that reduced regulation and elimination of the Clean Power Plan will bring back job. Voters in West Virginia bought the claim, and they believed it from incoming governor, Democrat Jim Justice, a billionaire coal magnate.
Trump and Justice spoke the other day, with the Governor-Elect saying in a statement:
“It’s an exciting day for West Virginia because we now have a pathway to the White House and a president-elect who is totally committed to putting our coal miners back to work. President-elect Trump made it clear that he won’t forget about West Virginia when it comes to our nation’s energy policies. I will work closely with the President-elect and his administration on clean coal technology, rolling back the job-killing EPA regulations on coal, and growing West Virginia’s other job opportunities.”
How this will work to improve coal jobs remains an open question. Trump has yet to announce his energy-related appointments, which will include the EPA, Department of Energy, and Department of Interior. His energy secretary short list (and possibly Interior) still includes Harold Hamm, CEO of the oil and gas company, Continental Resources. Forrest Lucas (of Lucas Oil) remains on the list, as well. So, how are oil and gas executives going to help coal? Well, by “rolling back the job-killing EPA regulations on coal,” of course. (Note: that is really an EPA issue, not a Department of Energy issue.)
The problem with this for coal country, as I have noted before, is that rolling back these regulations also has the effect of rolling back regulations that impact the natural gas industry, meaning that even as coal gets cheaper, so does natural gas.
Further, there is talk in the administration about opening up more federal lands to coal mining and oil and gas exploration. (This would be a Department of Interior action, not Energy.) This move, too, is curious, as it is hard to see how increased access to more supply is going to move up prices to support the struggling industries. A greater supply of oil or gas or coal will lead to even lower prices. Lower taxes and reduced regulations equals means a lower cost of exploration and production, which leads to more resources and lower prices.
Absent a commitment to increasing the cost of natural gas, coal is simply not going to compete. Natural gas burns cleaner than coal, is substantially more flexible, and despite criticisms of the process of hydraulic fracturing, it is environmentally preferable to coal mining. With oil and gas executives playing a large role in the new administration, there is no reason to expect coal will get a preference over natural gas. Perhaps renewable energy sources will be less attractive, though the prices of those sources continues to drop, and natural gas can actually work to facilitate those such energy sources. Recent reports suggest renewables and natural gas are the future. This does not bode well for coal.
Increased research on clean coal would have value. There are still millions of people around the world without access to electricity, and millions more getting power from old coal-fired plants that create health and environmental problems. But that research is not likely to change markets in the near term, and it is not likely to benefit U.S. coal miners as long as cheap natural as remains. And it is expected to remain.
Finally, reduced regulations may help move the energy sector forward more quickly, and it may help facilitate related businesses who use natural resources as a feedstock or energy-intensive processes. That remains to be seen. Any plan that does that, though, still likely leaves coal, and the people who work in the industry, behind. Just saying you will save coal jobs, doesn’t make it true. But apparently it does make some people feel better. I doubt that will last very long.
The Penn State Journal of Law & International Affairs (“JLIA”) is conducting a call for papers for an upcoming publication in spring 2017. The publication will focus on areas of taxation, corporate law, banking and finance, and related subject areas. Current papers accepted for publication cover areas of international taxation, international financial regulation for cryptocurrencies, and regulations resulting from the global financial crisis.
JLIA is an interdisciplinary journal that is jointly published by Penn State’s Law School and the Penn State School of International Affairs. As a result, deference will be given to papers that incorporate international elements. However, papers with a purely domestic focus will be given full consideration based on their fit within the publication.
Submissions will be considered for publication on a rolling basis. Authors interested in submitting papers should refer to http://elibrary.law.psu.edu/jlia/policies.html for submission procedures and policies. Please note that text and citations should conform to The Bluebook: A Uniform System of Citation, and that submissions through ExpressO are the best way to ensure quick response times as it is the internal platform for reviewing all official submissions to JLIA.
Tuesday, November 15, 2016
Rep. John Shimkus (R-Ill.) has already started soliciting support as he seeks to chair the House Energy & Commerce Committee. He says in his letter:
[W]e will use our oversight and investigative authority to rebalance the federal government, recommending changes so future administrations won’t have the same ability to abuse their power. In particular, this will entail building the case against the Chevron Deference, which has enabled executive agencies to upend congressional intent through the courts.
Our success in this area will restore Congress as the sole lawmaking apparatus of the federal government.
This is rather funny to me. First of all, Chevron was a case during the Reagan Administration in which the Administration decided to take a view of the Clean Air Act with which the Natural Resources Defense Council, Inc. disagreed. The court sided with the Administration. The power of deference has value to who ever is in charge of the executive branch.
More important, though, Congress has always been the sole lawmaking apparatus of the federal government. Congress can eliminate Chevron deference by statute. Congress can repeal Massachusetts v. EPA by statute. Congress has the power. They are just unwilling or unable to wield it. This is true as to the EPA and SEC and FCC and any other agency. So, sure, one can blame the role of the courts and the executive if they don't like how agencies operate. But I'd suggest that, for members of Congress who don't like that, the first place they should look is in the mirror.