Wednesday, July 23, 2014
As someone who teaches and researches both business law and energy law, I often focus on the overlap of the two areas, which I find to be significant. One of my most recent projects has been to write a new casebook, Energy Law: A Context and Practice Casebook, which will be available for courses taught this fall. I wrote a detailed description of the book in a guest post at the Energy Law Professor blog, but here I wanted to highlight the business aspects of the book.
The second chapter of my book is titled The Business of Energy Law. That chapter begins with some key vocabulary, and I then provide students with a client issue to frame the reading for the chapter. The issue:
Your firm has just taken on a new client who is a large shareholder in many companies. She is particularly concerned about her holdings in Energex, Inc., a publicly traded energy company. Energex was founded in 1977 by a oil and gas man from Louisiana who is still the CEO and a member of the board of directors. The client is concerned that the CEO is taking opportunities for himself that she thinks belong to Energex. As you read the following sections, consider: (1) What are the potential conflicts of interest the CEO might have? (2) Is it a conflict of interest if the activity is permitted under the CEO’s employment contract? (3) What kind of documents might be publicly available for review and where would you find them? (4) If it goes to litigation, what other information might you seek? From whom?
The first part of the chapter covers Business Organizations and Employment Law as Energy Law, including derivative suit and executive compensation contracts. The chapter also has the following sections: Antitrust as Energy Law, Mergers and Acquisitions, and Entity Structure and Fiduciary Duties.
Over the years, as I have taught my Energy Law Survey course and Business Organizations (as I do again this fall), I found that I can help make sense of things for students in each class when I borrow examples from the other class. My book helps make the connection concrete, and I hope it will help students understand more of the "why "to go along with the "what." As I often tell (preach to?) students, understanding business organizations is critical to all aspects of practice, regadless of where you intend to focus, whether it's energy law, environmental law, criminal law, or even family law.
This fall should be fun. For me, at least.
Tuesday, July 22, 2014
Steve Bradford yesterday posted a thoughtful (as is usual for his posts) critique of law reviews. I had drafted a comment, but Steve suggested that I should post links to my prior posts separately, so here goes, along with (what has turned out to be a lot of) additional commentary.
I think Steve has some valid (and compelling) points. As I have written before, though, I can’t go as far as he does. I won’t rehash all that I have written before on this subject, but one of my earlier posts, Some Thoughts for Law Review Editors and Law Review Authors covers a lot of that ground. Please click below to read more:
Tuesday, July 15, 2014
The Hobby Lobby decision states:
No known understanding of the term "person" includes some but not all corporations. The term "person" sometimes encompasses artificial persons (as the Dictionary Act instructs), and it sometimes is limited to natural persons. But no conceivable definition of the term includes natural persons and nonprofit corporations, but not for-profit corporations. 20 Cf. Clark v. Martinez, 543 U. S. 371 , 378 (2005) ("To give th[e] same words a different meaning for each category would be to invent a statute rather than interpret one").
The decision continues:
Under the Dictionary Act, "the wor[d] 'person' . . . include[s] corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals." Ibid .; see FCC v. AT&T Inc., 562 U.S. ___, ___ (2011) (slip op., at 6) ("We have no doubt that 'person,' in a legal setting, often refers to artificial entities. The Dictionary Act makes that clear"). Thus, unless there is something about the RFRA context that "indicates otherwise," the Dictionary Act provides a quick, clear, and affirmative answer to the question whether the companies involved in these cases may be heard.
Thus, unless otherwise stated, any place a person can recover claims, so can “corporations, companies, associations, firms, partnerships, societies, and joint stock companies.” There are opinions that have distinguished the “fictional person” from the “natural person.” See, e.g., All Comp Const. Co., LLC v. Ford, 999 P.2d 1122, 1123 (Okla. App. Div. 1 2000) (stating that an LLC was a "fictional 'person' for legal purposes and thus any damages due to the LLCs would be "due to it as a fictional person," and thus certain damages were not recoverable because LLCs are not "capable of experiencing emotions such as mental stress and anguish"). RFRA, per Hobby Lobby, though, does not make such a distinction.
As such, it seems to me there are places where federal law uses the term person that might now extend potential recovery to entities for things like pain and suffering or mental anguish. Maybe I am missing something here. Any ideas come to mind? Maybe civil rights laws?
The ripples, it seems, are just beginning.
Tuesday, July 8, 2014
A recent article discussing the American Society of Civil Engineers' Report Card on U.S. infrastructure explains:
Without adequate investment on infrastructure the US could face a $2.4 trillion drop in consumer spending by 2020, a $1.1 trillion loss in total trade and experience the loss of 3.5 million jobs in 2020 alone.
This is just a sliver of the doom and gloom the American Society of Civil Engineers predicted this week with the release of their final report in the “Failure to Act” series that focuses on the impacts associated with continued infrastructure deterioration. The latest installment of the ASCE reports focuses on specifically on economic impacts.
Under current investment trends, only 60% of the investment funding required by 2020 will be secured and this underinvestment in infrastructure will have a “cascading impact on the nation’s economy” and culminate in a “gradual worsening of reliability over time,” Gregory E. DiLoreto, ASCE President told the participants on a conference call.
Back in 2007, I published an article titled, Misguided Energy: Why Recent Legislative, Regulatory, and Market Initiatives are Insufficient to Improve the U.S. Energy Infrastructure (here). In that article, I argued:
Soaring energy prices, natural gas supply shortages, and blackouts in major areas of the United States have led to a flurry of legislative and regulatory activity. Through this activity, lawmakers and regulators purport to resolve problems regarding natural gas and electricity supplies and service reliability. A major goal of these actions has been to address the overall energy crisis by increasing investment in the U.S. energy infrastructure. However, as is often the case with political remedies for difficult problems, what is being done and what legislators and policymakers claim is being done are two entirely different things. Recent legislative and regulatory policies are simply ill-equipped to have any substantial impact on the nation’s energy infrastructure in the foreseeable future. Although some of the policies provide long-term hope for increasing the amount and sources of capital available for investment, they are not adequate solutions to a current, and progressing, energy crisis.
Little has changed, but Congress's lack of focus remains. So here's the suggestion, for both energy infrastructure and business regulation: If we're going to add new rules or policies, let's make them clear, transparent, and focused. No 700-page laws or convoluted regulations. If we want to reduce fossil fuel consumption, add a carbon tax. If we want to get transmission infrastructure sited, give federal eminent domain authority for siting.
For now, from the SEC to FERC, let's just give it a try. Otherwise, we don't tend to facilitate markets, we tend to create carve outs that entrench existing powers. And we know how well that works.
Monday, June 30, 2014
Rather than try to rehash what is now done, I will pose a different question: How does one reconcile this religious exercise with the profit-seeking mandate that the Delaware court imposes from time to time. As Chancellor Chandler noted in eBay v. Newmark (more here):
The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment.
Note that “purely” is not an entirely accurate modifier here. Craigslist made a profit and had some ventures that raised money. They just did not monetize the majority of the endeavors
So what about an entity that operates for purely religious ends? Hobby Lobby and those similarly situated seem to be saying that religion trumps profit (see, e.g., Chik_Fil-A closing on Sundays). This is not the argument that our business model is stronger because of our choices, which I have argued before should be protected, but this is saying we choose religion over profit.
As Chancellor Chandler noted in eBay, if there are no shareholders to complain, then perhaps it is not an issue. Still, as soon as a shareholder disagrees, will decisions such as limiting healthcare options (thus limiting the talent pool for employees) or closing on Sunday? It seems to me the Hobby Lobby decision has opened the door for several fiduciary duty fights down the road.
Can a corporation now choose to give a majority of its funds to a church, even if it harms the entity? I think no, but I hope, for the sake of businesses everywhere, the Court did not just create a First Amendment out to such fiduciary duties.
Tuesday, June 24, 2014
The WVU College of Law's Center for Energy and Sustainable Development is seeking a fellow for 2014-16, and the details are below. As I have written before, the Future of Business is the Future of Energy. Just today, the New York Times Dealbook has an article, Norway’s Sovereign Wealth Fund Ramps Up Investment Plans, which notes:
Norway’s giant sovereign wealth fund said on Tuesday that it would manage its $884 billion portfolio more aggressively over the next three years, taking larger stakes in companies and increasing its real estate portfolio.
. . . .
The fund’s investments have grown increasingly sophisticated under Yngve Slyngstad, the chief executive of Norges Bank Investment Management, who came to the fund in 1998 to build an equity portfolio and became C.E.O. in 2008. Since the end of 2007, equities have increased as a percentage of the portfolio to about 61 percent from 42 percent.
Mr. Slyngstad has also diversified the holdings into smaller companies and into emerging markets, but the stock investments remain concentrated in Europe and North America. The fund’s largest equity holdings are all companies based in Europe, including Nestlé, Novartis, HSBC Holdings, the Vodafone Groupand Royal Dutch Shell.
The fund has been under pressure from environmental groups and some political parties in Norway to shed investments in oil and natural gas and coal companies and to increase its green investments. The government has so far largely resisted. It created a panel of experts this year to study the issue.
Understanding the interplay between energy, finance, and the environment is becoming more and more critical to businesses (and their lawyers). Please share this opportunity with anyone you know who might have an interest in exploring this area.
ENERGY AND SUSTAINABLE DEVELOPMENT LAW
Accepting Applications Until June 30, 2014
West Virginia University College of Law’s Center for Energy and Sustainable Development is now accepting applications for a Fellowship in Energy and Sustainable Development. The fellowship combines the opportunity to work with attorneys, faculty and students at the Center for Energy and Sustainable Development with the opportunity to obtain the WVU Law LL.M. degree in Energy and Sustainable Development Law. The LL.M. program provides a uniquely deep and balanced curriculum in perhaps the nation’s richest natural resource region. The fellowship position involves policy and legal research and writing, and assisting with organizing projects such as conferences and workshops.
The Center for Energy and Sustainable Development
The Center is an energy and environmental public policy and research organization at the WVU College of Law. The Center conducts objective, unbiased research and policy analyses, and focuses on promoting practices that will balance the continuing demand for energy resources—and the associated economic benefits—alongside the need to reduce the environmental impacts of developing the earth’s natural resources. One mission of the Center is to train the next generation of energy and environmental attorneys. The Center benefits from being located on the campus of a major research institution, with expanded opportunities for inter-disciplinary research and an integral role for the Center in providing the policy, legal and regulatory analyses to support the technical research being conducted across the WVU campus.
LL.M. in Energy and Sustainable Development Law
The WVU College of Law LL.M. in Energy and Sustainable Development Law is the only LL.M. program in the United States that provides a balanced curriculum in both energy law and the law of sustainable development. Working with WVUCollege of Law’s Center for Energy and Sustainable Development, LL.M. students will develop the expertise to advise clients and provide leadership on matters covering the full range of energy, environmental and sustainable development law. The LL.M. in Energy and Sustainable Development Law provides a broad and deep offering of courses, experiential learning opportunities, and practical training for every part of the energy sector. Our broad spectrum of courses allows our students to prepare to be lawyers serving energy companies, investors, environmental organizations, landowners, utilities, manufacturing companies, lawmakers, policymakers, regulators and land use professionals.
Energy and Sustainable Development Law Fellow
This fellowship is a part-time (at least twenty hours per week), two-year position from August 2014 through July 2016. The Fellow will receive an annual stipend of $20,000 and tuition remission for the LL.M. program. The Fellow would take 6-7 credits per semester allowing time for part-time work at the Center. The Fellow will further the work of the Center by pursuing research on issues relating to energy and sustainable development law and policy, under the direction of the Center’s Director and the WVU Law faculty associated with the Center. The Fellow will be expected to generate policy-oriented written work to be published through the Center and other venues such as law journals. The Fellow will also assist with projects relating to the Center’s programs, including organizing conferences and other events, and public education and outreach efforts. Efforts will be made to match project assignments with the Fellow’s interest.
Candidates should possess a J.D.; a strong academic record; excellent analytical and writing skills; a demonstrated interest and background in energy, sustainability or environmental law and policy; and admission to the LL.M. program at West Virginia University College of Law (application for LL.M. admission can occur concurrently with the fellowship application).
Applicants should apply to Samatha.Stefanov@mail.wvu.edu. Please submit a letter discussing qualifications and interests, a resume, a law school transcript, a recent writing sample and contact information for three references.
We are now accepting applications. The application deadline is June 30, 2014(concurrent with the deadline for admission to the LL.M. program) or until the post is filled.
Visit our website at http://energy.law.wvu.edu/ for more information about our programs.
West Virginia University College of Law is an equal opportunity employer and has a special interest in enriching its intellectual environment through further diversifying the range of perspectives represented by its faculty and teaching staff.
Tuesday, June 17, 2014
A new poll, conducted by Greenberg Quinlan Rosner Research, suggests that the desire for new Wall Street regulations has not been maximized by candidates for political office. Here are some of the poll's key findings. The release about the poll states:
A strong, bipartisan majority of likely 2014 voters support stricter federal regulations on the way banks and other financial institutions conduct their business. Voters want accountability and do not want Wall Street pretending to police themselves: they want real cops back on the Wall Street beat enforcing the law.
As evidence, the release notes that David Brat's upset win over Eric Cantor in the Virginia 7th District Republican primary, may have been related to Brat's attack on Wall Street, sharing Brat's words from a radio interview: "The crooks up on Wall Street and some of the big banks — I'm pro-business, I'm just talking about the crooks — they didn't go to jail, they are on Eric's Rolodex."
The poll found that voters consider Wall Street and the large banks as "bad actors," with 64% saying, “the stock market is rigged for insiders and people who know how to manipulate the system.” Another 60% want “stricter regulation on the way banks and other financial institutions conduct their business.” Finally,
Voters believe another crash is likely and that regulation can help prevent another disaster. An 83 percent majority of voters believe another crash is likely within the next 10 years, and 43 percent very likely. Another 55 percent, however, agree “Stronger rules on Wall Street and big financial institutions by the federal government will help prevent another financial collapse.”
I don't doubt that voters believe this, but I also don't think this poll data will lead to much (if any) significant change. I concede the poll shows that the issue resonates with voters, but I think Brat's quote shows where the wiggle room is (and perhaps how other astute Republicans, particularly, may use the issue in their races). That is, I think the majority of Americans are "pro-business" and anti-crooks. That's not news. When it comes time to vote on new regulation, though, I expected Mr. Brat (should he win the election) would find that the proposals before him would only "hurt business" and "not punish crooks."
I could be wrong, of course, but I doubt it. Like "energy independence" and "good schools," I think this poll shows us another one of those issues where voters care more about hearing that the system needs to be fixed rather than an issue where voters will be keeping score to see if progress is made.
Tuesday, June 10, 2014
A few weeks ago, Tim Carney wrote a piece in the Washington Examiner that is stuck in my mind. The piece titled Conservatives, big government and the duty to care for the poor discusses what Carney sees as a shift in the rhetoric conservatives are using in reference to the poor and other vulnerable populations. Carney notes tha Senate Minority Leader Mitch McConnell (R-KY) recently referenced a “shared responsibility for the weak.” Carney continues:
Step away from policy debates and think about that phrase. Do you have a responsibility to help the weak? Do you have a responsibility to feed the hungry? To aid the poor?
I think I do. I think everyone does. The Catholic Church teaches us we do.
Conservatives sometimes shy away from this idea, though. One reason is a strong (and overblown) distaste to "helping the lazy." Another reason is that conservatives fear it implies the Left’s answer: big federal programs.
But, in fact, you can grant that you have a duty to the poor and the weak, and then have a really good debate:
Is that duty individual, or some sort of a communal duty?
Does the government have the legitimate right to transfer wealth to satisfy that duty, or is it solely an individual responsibility to fulfill that duty.
If aiding the poor is a legitimate government role, at what level is the aid appropriately delivered — local, state, federal?
I really don't see this as a new debate, but I agree it is a shift from the poverty debate I have seen over the past decade or so. This shift, though, goes back (at least) to the debates of what I remember in the 1980s and early 1990s. The question then, as I recall my vigorous (sometimes informed) college and early career discussions, was not whether the poor needed help. The question was how best to provide that help. (I'll note that even then, conservatives were likely to call me liberal, and liberals often called me conservative. Some things remain the same, I guess.)
Carney frames the conversation appropriately, and asks the right questions because it starts with the right assumption: that helping the poor is required. He notes:
Then there’s plenty of very practical debates: Are federal programs inevitably too bloated and inflexible? Or alternatively, maybe only the federal government has the economies of scale (and ability to make its own money) needed to run a safety net, particularly in economic downturns.
So, what does this have to do with business law? Well, in part, if we agree there is a duty, we must talk about whose duty it is. Is it individual? Is it a communal governmental duty? A communal non-governmental duty? Is it a duty of all people, including corporate persons? To what extent?
Further, the role of government in protecting the weak extends beyond poverty programs. It applies to securities regulation, environmental regulation, and tax policy, all of which are directly, or at least very closely, related to business law. In all of these cases, I think the question of the poverty debate carries through: how do we carry out, as Sen. McConnell put it, our “shared responsibility for the weak?”
The conversation that follows that question is a good one because it does not reduce all arguments to some version of "caveat emptor" or only the "government/market will fix it." Instead, the questions can be, for example: Does less regulation increase risks to vulnerable parties or increase access to opportunities for such parties? If the answer is both, as it often is, how do we balance those risks and opportunities?
The market is often the best solution, but one still needs to explain why that's true, rather than blindly relying on some amorphous, all-knowing "market." And as those of us who work closely with regulated industries know, we need to acknowledge that all markets have rules (public and/or private), and those rules impact how effective that market will be and for whom. As such, the poverty debate is also largely a regulatory debate. In all cases, if we start in the right place, better policy is likely to follow.
Tuesday, June 3, 2014
The Louisiana Supreme Court recently denied the state's attempt to collect sales tax on the sale of an RV to a Montana LLC. Thomas v. Bridges, No. 2013-C-1855 (La. 2014). The LLC was formed for the sole purpose of avoiding RV sales tax (saving the buyer as much as $47,000). The state argued that the LLC veil should be pierced and the tax should be assessed to the LLC's sole member claiming fraud. The court disagreed, explaining that "taking actions to avoid sales tax does not constitute fraud. Although tax evasion is illegal, tax avoidance is not."
There were problems with the state's attempt from the outset. First, the sale occurred in Louisiana, but the RV was housed in Mississippi. Even if the LLC were to be disregarded, Mississippi, it seems to me, would be the state that should be asserting the claim. Second, the state attempted to collect from the LLC's member before ever trying to collect from the LLC. Thus, the veil-piercing claim was being used as a post hoc justification for the attempt to recover from the LLC's member and was not properly raised below.
This "legal loophole" (which is redundant because if it's a loophole, it's legal and if not, it's fraud), can be fixed by legislation, as Justice Guidry concurred,
While I concur in the majority analysis and result, I write additionally to encourage the legislature to revisit this area of the law on foreign limited liability corporations formed solely for the purpose of sales tax avoidance on purchases made in Louisiana. As the facts of this case suggest, the law may be susceptible to abuse.
Justice Clark's concurrence goes a step further:
Because I see no actual violation of the letter of the law in this matter, I concur with the result reached by the majority. However, I am concerned that the spirit of the law is not being protected. The potential for abuse in allowing the creation of sham entities to avoid the payment of taxes has policy implications that are worthy of the legislature’s attention.
I agree with Justice Guidry, but I think Justice Clark goes too far. I just don't see this as a sham entity. It does seem a bit shady, I admit, but shady does not equal a sham. The entity here is a tax avoidance vehicle, but the entity is real, and the entity was apparently properly formed. There was no allegation that the entity was not real, not disclosed, or otherwise used to perpetrate fraud. There are other ways to try to ensure taxes are paid in a state where the RV is housed. (As a side note, though, one should always be sure to make it very clear that one is signing for the entity and not in one's individual capacity.)
And like the competition for entity formation, states often compete for business in a variety of ways. Maine, for example, has long-term leasing for trailers, including 8-, 12-, 20- and 25-year terms, that latter of which requires registration of at least 30,000 trailers.
Other states choose to charge annual personal property taxes on vehicles like my home state of West Virginia. Similarly, the State of Virginia assesses personal property tax on vehicles kept by non-residents in the state, as long as the tax is paid somewhere:
Any person domiciled in another state, whose motor vehicle is principally garaged or parked in this Commonwealth during the tax year, shall not be subject to a personal property tax on such vehicle upon a showing of sufficient evidence that such person has paid a personal property tax on the vehicle in the state in which he is domiciled.
It seems Montana is using entity law to make a few dollars on state LLC formations, but that the benefit will likely be short lived. I would expect many states will respond to reduce the effectiveness of this behavior. The more interesting response, though, would be if Montana were to pass an annual RV property tax on entities (not individuals) that own such vehicles. Montana natural persons, of course, don't need entities to avoid RV sales tax, so the tax would only (or mostly) impact out-of-state individuals who would have to pay taxes for their Montana entity. Because these nonresidents can't vote in the state, it would be hard for these folks to raise too much of a ruckus.
Whether it is Montana or the location the RV is stored, the loopholes may start to close quickly. That, though, is a cost of doing business, even if the only business the entity tries to conduct is tax avoidance.
Tuesday, May 27, 2014
A New York Times article this weekend explained that many U.S. Supreme Court decisions are altered after they have been published, sometimes quickly and other times much later. Article author Adam Liptak explains:
The Supreme Court has been quietly revising its decisions years after they were issued, altering the law of the land without public notice. The revisions include “truly substantive changes in factual statements and legal reasoning,” said Richard J. Lazarus, a law professor at Harvard and the author of a new study examining the phenomenon.
The court can act quickly, as when Justice Antonin Scalia last month corrected an embarrassing error in a dissent in a case involving the Environmental Protection Agency.
But most changes are neither prompt nor publicized, and the court’s secretive editing process has led judges and law professors astray, causing them to rely on passages that were later scrubbed from the official record.
I have followed this particular change because of my interest in the EPA case, but I suspect this article is the first many people had heard of it. It makes some sense that articles would be fixed before going to final print, but the idea that opinions have been changed years later is rather remarkable to me, especially without some sort of formal notice. Now that we all know they can go back and fix opinions, though, I have one I’d like the court to revisit.
In 1992, the court heard Quill v. North Dakota, 504 U.S. 298, deciding that a state may not impose a tax collection obligation on a business that lacks a physical presence in the state. The court noted, though, that Congress could change that reality with legislation. In Quill, in declining to apply a bright-line rule, the court referred to an energy law case, Public Utils. Comm’n of R.I. v. Attleboro Steam & Elec. Co., 273 U.S. 83 (1927).
In Attleboro, that Court determined that a Rhode Island Commission order allowing an electricity seller to increase its price in a wholesale electric requirements contract between a Rhode Island utility (seller) and a Massachusetts utility (buyer) “place[d] a direct burden upon interstate commerce.” Id. at 84. The Court stated that neither state could regulate the interstate transaction because such regulation was only permissible at the federal level. This decision led Congress to pass the Federal Power Act (FPA), which was created (in part) to close what was dubbed the “Attleboro Gap.”
The U.S. Supreme Court has confirmed this more than once:
[T]he original FPA did a great deal more than close the gap in state power identified in Attleboro. The FPA authorized federal regulation not only of wholesale sales that had been beyond the reach of state power, but also the regulation of wholesale sales that had been previously subject to state regulation.”
New York v. FERC, 535 U.S. 1, 20-21 (2002) (citing Attleboro).
Similarly, in another case, the Court stated that the FPA
intended to “fill the gap”—the phrase is repeated many times in the hearings, congressional debates and contemporary literature—left by Attleboro in utility regulation. Congress interpreted that case as prohibiting state control of wholesale rates in interstate commerce for resale, and so armed the Federal Power Commission with precisely that power.
United States v. Public Utils. Comm’n of Cal., 345 U.S. 295, 307-08 (1953). (For a detailed description of Attleboro’s history, see Frank R. Lindh & Thomas W. Bone Jr.’s Energy Law Journal article, State Jurisdiction Over Distributed Generators (pdf here).
Returning to the Quill case, there Court stated:
Attleboro distinguished between state regulation of wholesale sales of electricity, which was constitutional as an "indirect" regulation of interstate commerce, and state regulation of retail sales of electricity, which was unconstitutional as a "direct regulation" of commerce.
Id. at 317. As I see it, this statement is wrong, though I admit I find this exerpt useful for getting students to discuss these concepts in Energy Law. Again, Attelboro held that direct regulation of retail sales was permissible, but that the regulation of interstate wholesale rates was not permissible by either state. As the cases above show, Quill did not change the state of the law, but Quill still mischaraterizes the law of Attleboro. So, this is my request: Should any Supreme Court Justices or their clerks (or others who can help) be reading the Business Law Prof Blog, please consider putting pen to paper and cleaning up Quill. Or, as Oscar Rogers likes to say, "Fix it!"
Tuesday, May 20, 2014
The New York Times ran two articles this week about administrator and executive pay that struck a chord with me. One piece was about a new report linking student debt and highly paid university leaders. The article discusses a study, “The One Percent at State U: How University Presidents Profit from Rising Student Debt and Low-Wage Faculty Labor.” The study reviewed “the relationship between executive pay, student debt and low-wage faculty labor at the 25 top-paying public universities.”
Then-Ohio State President E. Gordon Gee was the highest-paid public university president for the time period review. The study found that
Ohio State was No. 1 on the list of what it called the most unequal public universities. The report found that from fiscal 2010 to fiscal 2012, Ohio State paid Mr. Gee a total of $5.9 million. [$2.95 million per year.] During the same period, it said, the university hired 670 new administrators, 498 contingent and part-time faculty — and 45 permanent faculty members. Student debt at Ohio State grew 23 percent faster than the national average during that time, the report found.
[In the interest of full disclosure, I should note that President Gee is the president of my institution, for the second time, and he’s my neighbor. He also makes considerably less money here.]
The other article was about the health care industry, titled: Medicine’s Top Earners Are Not the M.D.s. That article reports that doctors, “the most highly trained members in the industry’s work force,” are in the middle of the pay scale for medical salaries. The article explains:
That is because the biggest bucks are currently earned not through the delivery of care, but from overseeing the business of medicine.
The base pay of insurance executives, hospital executives and even hospital administrators often far outstrips doctors’ salaries, according to an analysis performed for The New York Times by Compdata Surveys: $584,000 on average for an insurance chief executive officer, $386,000 for a hospital C.E.O. and $237,000 for a hospital administrator, compared with $306,000 for a surgeon and $185,000 for a general doctor.
And those numbers almost certainly understate the payment gap, since top executives frequently earn the bulk of their income in nonsalary compensation.
Is there a place where it isn't the case that administrators make more than those actually carrying out the endeavor? Maybe sports and entertainment, to a degree. There has been a significant change in those areas over the past 30 or so years. Owners (and production entities) often still make tons of money, but top player salaries often dwarf those of key executives, coaches, and managers. That was not always the case. Take the NBA for example. The average NBA salary in 1970 was $35,000 (equal to about $207,000 today.) Today’s average salary: $5 million. Actors and musicians take home a lot more than they used to, also, at least among those at the top.
I am not one to bash educational administrators. I have been one, so that may be part of it, but even before that, I appreciated that there are things that need to happen to deliver the full educational experience that are not part of the classroom. Still, it also seems that the number of people who are there to support the delivery of services, like education and medicine, continue to grow at an absurd rate. Even counting contingent and part-time faculty, Ohio State hired more than 1.23 new administrators for every new teacher in the test period.
Law faculty members can legitimately disagree about the best way to educate law students. But our goal should be to provide the best education we can, within the cost constraints we face. If professors at some law schools don’t take that responsibility seriously, we might lose students to schools focusing more on enrollment than education. If so, it’s sad for the profession, but at least we’ll go down fighting for what we know is right.
The same is true at the administrative level in law schools. We should commit to allocating resources to administrative support that supports the educational process of preparing students for practice and for ensuring students actually get to practice, if that is what they seek. This is often true for areas like career services, bar passage, and experiential learning. We should be educating students to be able to be good lawyers and sound professionals, but we also need to help ensure they have things they need to practice (e.g., bar admission) and the ability to practice (i.e., a job).
Sometimes that means new administrators in new or expanded roles, but that may mean reallocating resources from one area to another rather than adding new roles. The challenge, of course, is knowing whether the new administrative hires are delivering services that our students need or are they jobs that are serving the institution at the expense of our students. All institutions need to make a serious attempt to answer that question because it's not just about the number of administrators. It's also about what those administrators do.
Doing what’s right for our students is not always the same as doing what they want. Still, as faculty and administrators, we also need to be clear that doing what we want is often not the same as doing what is best for our students.
Wednesday, May 14, 2014
Before I went to law school, I worked in the video game industry, first for the industry trade association, the Interactive Digital Software Association (now known as the Entertainment Software Association). From there I moved to public relations for the public relations firm Golin/Harris in Los Angeles where my work was focused on product launches for Nintendo. (This was from 1998-2000.) In those jobs, I had the chance to work with some amazing people (and clients), and the experience has served me well, even as I went on to become a lawyer and professor.
One of those people was the managing director of the Los Angeles Golin/Harris office when I was hired, Fred Cook, who is now the CEO of Golin/Harris. Fred recently wrote a book that has caught the attention of the business world and is a top-25 book for corporate customers according to 800-CEO-READ. His book is Improvise: Unconventional Career Advice from an Unlikely CEO, and it’s worth a look.
Here’s an excerpt:
People entering the business world today are a commodity. They’ve gone to the same schools, taken the same courses, read the same books, and watched the same movies. Every summer they’ve dutifully worked at internships in their chosen field in hopes of landing the perfect job the day they graduate from college.
. . . .
While a college education is a prerequisite for most jobs, a life education should also be required. School delivers information. Life delivers ideas. Ideas that drive business. Twitter was an idea. Red Bull was an idea. South Park was an idea.
When I participate on industry panels, someone in the audience always asks what attributes make for a successful employee. My fellow panelists rightly answer that they’re looking for skilled writers, articulate communicators, and aggressive self-starters. My response? I would trade ten of the above for one person with a big idea. But brilliant ideas aren’t created in a vacuum. They’re formed by the experiences we have and the people we meet.
As usual, what Fred is talking about here is broader than just business or public relations. It applies to business lawyers, and non-business lawyers, and law professors, and pretty much everyone else who has a life to live and goals for a fulfilling career. We all have the chance to find our passion, if we’re willing to live, take chances, and find out what we are capable of doing.
Fred’s unique path to being a CEO is rather similar to my path to becoming a law professor in that it would be reasonable to call me an “unlikely law professor.” I was a mostly terrible undergraduate student at three major universities, and I did not go to a top-14 law school. I did well in law school (and practice) and that made it such that when I went on the job market a leading business law academic told me that my candidacy was “plausible.” And so it was. Fred is an unlikely CEO, perhaps, but he is most certainly an appropriate one. I like to think the same is true for me in my role.
My life experiences helped me in practice and helped me get my job as a law professor, and those experiences continue to help me as a lawyer, a scholar, and a teacher. By having had a career outside the law, I have additional experiences that inform my thinking about the law and the legal profession. I know (among other things) what it means to hire and fire people, make media calls, and schedule caterers for huge events. Of course, lawyers can do these things, too, but it’s different as a lawyer.
Beyond that, the people you meet along the way inform you, and guide you, and help you see the kind of person you want to be. I’m thankful for the large number of good people who have been a part of my work-life experience so far, and Fred is one of those people. I’m glad he has written a book that will share some of his insight with a much broader audience. Check it out.
Tuesday, May 13, 2014
The Supreme Court of Appeals of West Virginia recently had the opportunity to address the role (if any) of veil piercing in West Virginia LLCs. The state statute is silent on the subject, but the court determined veil piercing was there, anyway. It was close, though, as the West Virginia Circuit Court took on the following question with the corresponding answer:
Does West Virginia's version of the Uniform Limited Liability Company Act, codified at W. Va. Code § 31B el seq., afford complete protection to members of a limited liability company against a plaintiff seeking to pierce the corporate veil?
Kubican v. The Tavern, LLC, 2012 WL 8523515 (W.Va.Cir.Ct.)
Under West Virginia LLC law:
[T]he debts, obligations and liabilities of a limited liability company, whether arising in contract, tort or otherwise, are solely the debts, obligations and liabilities of the company. A member or manager is not personally liable for a debt, obligation or liability of the company solely by reason of being or acting as a member or manager. . . . The failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of its company powers or management of its business is not a ground for imposing personal liability on the members or managers for liabilities of the company.
W. Va. Code § 31B-3-303 .
The Supreme Court of Appeals of West Virginia recently took the certified question and disagreed, determining that veil piercing is permitted in LLCs in the state. Kubican v. The Tavern, LLC, 752 S.E.2d 299, 313 (W. Va. 2013) (pdf here). There are legitimate arguments on both sides of this issue, so it was proper for the court to answer the question. The reasoning behind the court’s decision, though, is not very satisfiying.
The Supreme Court explained, in the syllabus, the law on veil piercing for corporations, as follows:
[T]o ‘pierce the corporate veil’ in order to hold the shareholder(s) actively participating in the operation of the business personally liable ..., there is normally a two-prong test: (1) there must be such unity of interest and ownership that the separate personalities of the corporation and of the individual shareholder(s) no longer exist (a disregard of formalities requirement) and (2) an inequitable result would occur if the acts are treated as those of the corporation alone (a fairness requirement).” Syllabus point 3, in part, Laya v. Erin Homes, Inc., 177 W.Va. 343, 352 S.E.2d 93 (1986).
For LLCs, the court eliminates the “disregard of formalities requirement” in part one, but kept the rest of the corporate veil-piercing test the same. The court provided:
To pierce the veil of a limited liability company in order to impose personal liability on its member(s) or manager(s), it must be established that (1) there exists such unity of interest and ownership that the separate personalities of the business and of the individual member(s) or managers(s) no longer exist and (2) fraud, injustice, or an inequitable result would occur if the veil is not pierced.
The problem, of course, is that part one of the LLC test is the same as that of the corporate veil piercing test, minus the explanation that part one is “the disregard of formalities requirement.” The court is comfortable saying that the veil piercing test:
is a fact driven analysis that must be applied on a case-by-case basis, and, pursuant to W.Va. Code § 31B–3–303(b) (1996) (Repl. Vol. 2009), the failure of a limited liability company to observe the usual company formalities or requirements relating to the exercise of its company powers or management of its business may not be a ground for imposing personal liability on the member(s) or manager(s) of the company.
However, now that the “unity of interest and ownership” test no longer looks at corporate formalities and looks simply to other factors to make the determination. The court notes the nineteen factors that can be used in corporate veil-piercing cases, like undercapitalization, commingling of funds, etc., and explains that similar considerations may apply for LLCs. The court is right to point out that other states have made the same determination on similar statutes, but that doesn’t clearly make those decisions correct. See, e.g., Bainbridge, Abolishing LLC Veil Piercing (pdf here). In addition, West Virginia’s veil-piercing test under Laya stated more clearly than other states have that corporate formalities are the main issue for the unity of interest test.
Courts continue to look to veil piercing to rectify harms such as commingling of funds or using entity funds for personal endeavors. This does not inherently warrant veil piercing. Instead, courts can find such uses of funds fraudulent transfers or improper uses of entity funds that the member needs to pay back. That is not veil piercing; that is simply requiring the member to put back in the entity that which was wrongfully withdrawn.
Further, there are other arguments that can be made to hold LLC members liable for the entity’s debts. If the members pay directly the bills for the entity, it may be that the members have become guarantors for the entity. In the Kubican case, the allegation was that the members used the entity credit cards for things like visits to the chiropractor, dinners, and even a trip to Myrtle Beach. Again, though, if true, all of those funds should be returned to the entity to pay any claims the plaintiff is awarded from the LLC, but it does not need to be that the limited liability veil must be disregarded in full.
It is at least an open question whether the West Virginia legislature intended to preserve veil piercing for LLCs. The often cited Flahive case in Wyoming determined it was a mere oversight of that state’s legislature to provide veil piercing in the LLC context expressly. Since then, though, states have shown they know how to include LLC veil piercing by statute (see, e.g., Minnesota: Minn. Stat. § 322B.303(2) (2003) & North Dakota: N.D. Cent. Code § 10-32-29(3)). If the legislature determines that veil piercing is proper in LLCs, then so be it. Until then, though, courts should ensure entity funds are available for entity debts, but they should also be far more willing to follow the statute as written and respect the unique nature of LLCs.
Tuesday, May 6, 2014
The New York Times Dealbook Blog reports that France is opposing GE's attempt to acquire a large portion of Alstom:
“While it is natural that G.E. would be interested in Alstom’s energy business,” France’s economy minister, Arnaud Montebourg, said in a letter to Jeffrey R. Immelt, the G.E. chairman and chief executive, “the government would like to examine with you the means of achieving a balanced partnership, rejecting a pure and simple acquisition, which would lead to Alstom’s disappearing and being broken up.”
The government’s legal means for stopping a deal would appear to be limited, though it could refuse to approve such an investment on national security grounds. The government does not hold Alstom shares, but the company is considered important enough to have received a 2.2 billion euro bailout in 2005. And Mr. Montebourg noted in the letter on Monday that the government was Alstom’s most important customer.
Alstom’s energy units, which make turbines for nuclear, coal and gas power plants, as well as the grid infrastructure to deliver electricity, contribute about three-quarters of the company’s 20 billion euros, or about $30 billion, in annual sales.
Alstom is France's largest industrial entity, and the government says the deal, as the Times put it, "should be reconfigured on a more equitable footing." France is concerned about "maintain[ing] its technological sovereignty.”
That's fine, I suppose, but it seems to me this kind of forced restructuring is more likely to result in a weaker Alstom long term, even if it extends the life of the entity as it now appears. There may be times when foreign ownership of an entity is a real threat to national security, but this appears more likely to be national pride, than national security because the security concerns can be addressed in other ways. Sometimes foreign ownership is better the alternative, even if it makes a major, traditional company a more international conglomerate. Right, Chrysler?
Thursday, May 1, 2014
The NBA’s handling of what the NBA concluded was Donald Sterling’s now-infamous, racist-language-laden phone call with V. Stiviano has generated a lot of commentary (including my own). As one might expect, the incident has led to some oft-repeated assertions that are not quite right. So, in taking a break from my grading, I thought I’d deal with a couple of those issues right now.
To start, if Sterling is forced to sell the Clippers, the NBA and the other team owners are not “taking” anything away from him that he has a right to keep. He is an owner subject to an agreement that, according to NBA Commissioner Adam Silver, allows the league to force Sterling to sell upon a three-fourths vote of other league owners. As such, the league has, and has always had, the power to decide if Sterling would be allowed to own a team. (Why the league owners didn’t act twenty years ago is a legitimate question, but one for another day.)
That Sterling can be forced to sell should not be news to lawyers, at any rate. This case reminds me of Lawlis v. Kightlinger & Gray, 562 N.E.2d 435 (Ind. App. 4th Dist. 1990). The case is taught in many Business Organizations courses. In that case, Lawlis was a partner the Kightlinger & Gray law firm. At some point, his alcoholism became a problem, and eventually he told the partners of his issues. Lawlis and his partners reached an agreement about how to move forward (one with a “no-second chances” provision). Lawlis got things together for a bit, then returned to drinking, and he was given a second chance. Lawlis apparently got sober and eventually insisted the firm should increase his partnership participation. Instead, the firm decided to expel him by a 7-to-1 vote (Lawlis was the sole vote against expulsion). Lawlis sued.
The court was not convinced, and I would hope any court would look the same way at a vote to remove Sterling as an NBA owner. Even if they needed cause, I would opine that the league has it, but the likely don't need it. The Lawlis court explained:
All the parties involved in this litigation were legally competent and consenting adults well educated in the law who initially dealt at arm’s length while negotiating the . . . agreements here involved. At the time the partners negotiated their contract, it is apparent they believed . . . the “guillotine method” of involuntary severance, that is, no notice or hearing, only a severance vote to terminate a partner involuntarily need be taken, would be in the best interests of the partnership. Their intent was to provide a simple, practical, and above all, a speedy method of separating a partner from the firm, if that ever became necessary for any reason. We find no fault with that approach to severance.
Where the remaining partners in a firm deem it necessary to expel a partner under a no cause expulsion clause in a partnership agreement freely negotiated and entered into, the expelling partners act in “good faith” regardless of motivation if that act does not cause a wrongful withholding of money or property legally due the expelled partner at the time he is expelled.
Lawlis,562 N.E.2d at 442-43.
Some have lamented that Sterling will still be a rich man from this, no matter what. That is true, and the NBA has no way to change that. Sterling must be properly compensated if he were forced to sell the team. But that’s the point. In America, Sterling (like anyone else) is permitted (within the bounds of the law) to say racist and misogynist things and be a generally awful person without anyone taking away property. On the other hand, it appears Sterling agreed to buy a team in a league with an agreement that has a guillotine clause that allows the league to force him to sell. So be it.
Here are five other related points worth noting (at least, I think so), even if they are not as business-law focused. Click below for more.
Tuesday, April 29, 2014
Unless you have been under a rock, you’ve probably heard about the racially offensive (and morally repugnent) comments apparently made by Donald Sterling, owner of the NBA’s Los Angeles Clippers, made about African-Americans, including Magic Johnson. Just moments ago, the league announced how it would respond.
NBA Commissioner Adam Silver announced that an NBA investigation has concluded that Sterling was the voice reflecting hateful speech, views that are “deeply offensive and harmful.” (Note that the investigation was done by the Wachtell Lipton firm.)
Commissioner Silver apologized for Sterling’s comments and vowed action. The result: Effective immediately, Sterling is banned for life from games, practices, facilities, and player personnel decisions, and he is barred from executive meetings. In addition, the maximum fine of $2.5 million is levied, which will for to charities selected jointly by the NBA and the player’s association. Silver said he will do everything in his power to help force a sale of the team.
Silver said, “We stand together in condemning Mr. Sterling’s views. They have no place in the NBA.” Sterling said that a three-fourths vote of owners could force Donald Sterling to sell. He did not know how it would proceed, but Silver said he would encourage owners to force Sterling to sell, and the process will begin immediately.
Last week, I posted about the need for open debate in the context of Mozilla CEO Brendan Eich’s resignation, and the ability for people to have cordial discussions about different views, even if one thinks the other’s views are wrong. In that post, I explained my view that rushing to fire people for expressing different political views might be in the power of a company, but that calling for someone’s ouster because they have different views is not productive.
I still believe that, but I also think the NBA has acted appropriately here, and I hope the owners follow through to oust Sterling. As I explained in my post about Mozilla:
Certainly, one can imagine a scenario where a CEO’s prior political or organizational giving would create problems for the organization. For example, an environmental organization may not be comfortable with a CEO who had given money to a group fighting climate legislation. But, in that circumstance, the hiring body, and likely the CEO, would, or at least should, have known that support for climate change initiatives would be expected as part of the job. Top employees often become the face of the organization, and that comes with job, but if a particular political view is deemed necessary for the job, it would help if the CEO knew it during the interview process.
Unlike Eich’s situation, Sterling’s apparent statements indicate a level of animus that required a strong response. I am also certain that the NBA would have considered Sterling’s views on race to be a huge problem for the league and the team, at least if displayed publicly. Despite a long list of Sterling’s past statements, there is little doubt Sterling knew that such statements, at least made publicly, would be damaging. It's unfortunate that Sterling would decide that it’s the public part of the view that are the concern (and not the views themselves), but that’s a different issue.
Organizations like the NBA work in their own best interest, and the role of the NBA is to promote and perpetuate the NBA and its teams. In taking (and hopefully sustaining) action against Sterling, they are doing that. They also happen to be, in my view, responding morally and ethically, as well. (I’ll note that there are legitimate questions about whether the NBA should have acted a long time ago, but for the moment, I’ll stick with “better late than never.”) If the NBA does not ultimately, and relatively quickly, eliminate Sterling from an ownership role, though the entire league will suffer. Frankly, if the league and its owners don’t follow through, they should suffer.
The NBA is, in many ways, a snapshot of capitalism. In the market, where consumers have full information, the market works. Now that Sterling’s views are out in public, I suspect all of the NBA owners understand just what that means. I rather hope so.
Friday, April 25, 2014
Regular readers know of my view that energy and energy law are closely related to business and business law. Further to that point: Last week, a group of 20 organizations, including those representing the interests of business, oil, coal, aggregate, farm, and power sent an open letter to Pennsylvania state legislators stating their concerns about the state supreme court's decision in Robinson Township v. Commonwealth of Pennsylvania. That decision overturned Act 13, which largely eliminated local government's ability to prevent oil and gas operations in their jurisdictions through zoning. The letter explains:
The opinion undermines the traditional and long-recognized authority of the Legislature to balance environmental and economic interests on a statewide basis, leading to the spectra of multiple levels of government and a myriad of agencies second guessing each other in deciding whether to approve particular developments and how to manage natural resources. This expansive, broad and vaguely case-by-case application of the Environmental Rights Amendment threatens to reestablish the very uncertainty and ambiguity that Act 13 and many other statutes were originally intended to address through adoption of a holistic, comprehensive regulatory program that carefully balances the Commonwealth twin interests in economic progress and environmental stewardship.
The plurality opinion opens the door to a myriad of litigation, at all levels of government, attempting to thwart virtually any type of industrial, agricultural, commercial or residential facility and development. The affects of this ruling will be felt by employers in all industries and will certainly adversely impact efforts to promote job creation throughout the state.
I agree with these organizations on a number of issues here. First, I think they are right the state legislature had the power to pass Act 13, or at least something similar. I also agree that the plurality opinion unnecessarily invites litigation in a variety of contexts that could negatively impact both business and the environment. On the other hand, I think that the legislature took an unnecessarily heavy-handed approach to the legislation when a more modest version of the act could have been similarly effective.
As I have explained previously, though there are very real risks related to hydraulic fracturing for oil and gas, much of the public, many politicians, and (in this case) judges are too easily distracted by risks that seem like they could be associated with the process, but aren't. When judges assume facts, bad law (and bad policies) are very likely to follow. Building on that assessment, I have posted my article, Facts, Fiction, and Perception in Hydraulic Fracturing: Illuminating Act 13 and Robinson Township v. Commonwealth of Pennsylvania on here on SSRN. Please click below to continue reading.
Wednesday, April 23, 2014
In March, the Fourth Circuit held in Carnell Construction Corp. v. Danville Redevelopment & Housing Authority, that racial identity can be imputed to a corporation for purposes of standing under Title VI, citing to case precedent from the several circuits allowing 1981 claims to be raised by corporations.
“[W]e observe that several other federal appellate courts have considered this question, and have declined to bar on prudential grounds race discrimination claims brought by minority-owned corporations that meet constitutional standing requirements.”
The Fourth Circuit had to deal with the following language in Arlington Heights, 429 U.S. 252, 263 (1977): “As a corporation, MHDC has no racial identity and cannot be the direct target of the petitioners' alleged discrimination. In the ordinary case, a party is denied standing to assert the rights of third persons.” In Arlington Heights, the Supreme Court however did not need to “decide whether the circumstances of this case would justify departure from that prudential limitation and permit MHDC to assert the constitutional rights of its prospective minority tenants. For we have at least one individual plaintiff who has demonstrated standing to assert these rights as his own.” (citations omitted). The dicta in Arlington Heights was not a barrier to imputing a racial identity to the corporation in the Fourth Circuit case.
In a clear statement, the Fourth Circuit concluded that:
“We agree with the Ninth Circuit that a minority-owned corporation may establish an “imputed racial identity” for purposes of demonstrating standing to bring a claim of race discrimination under federal law. We hold that a corporation that is minority-owned and has been properly certified as such under applicable law can be the direct object of discriminatory action and establish standing to bring an action based on such discrimination.”
Chief Justice Roberts was concerned about the connection of racial identities for corporations and corporate free exercise of religion as raised in the Hobby Lobby and related cases. Note that fellow BLPB blogger Josh Fershee wrote about the racial identity of a corporation on BLPB here arguing why religious discrimination claims by corporations should be allowed and how the analysis would work. Professor Bainbridge weighed in on the issue as well.
Here is my best response as to why holding that corporations can have a racial identity is not necessarily fatal to the claim that corporations cannot have a religious identity for purposes of free exercise under the 1st Amendment, and why religious discrimination cases for corporations may also be more difficult than racial discrimination cases.
Line drawing. In the Carnell case as well as in others, the corporations at issue had been certified as a minority/women owned business at the state level, which is treated as a form of pre-requisite for such standing to assert a racial discrimination claim. There is no similar bright line test or religious entity process for a for-profit corporations. Indeed the very process of such a certification may implicate other 1st Amendment protections for freedom of speech and association.
Third Parties & Equity. Second, imputing the racial identity to the corporation for purposes of a Title VI claim of racial discrimination upholds the minimum anti-discrimination standard against third parties. So in the race cases, the identity of the owners is imputed to the corporation to prevent third parties from evading a legal standard. In the corporate free exercise of religion context, the owners are requesting that their individual religious beliefs be imputed to the corporation to allow it to evade compliance with a law. Anti-discrimination laws are applied generally and don’t allow a person to discriminate whether it is with an individual or through a corporation rather than exempting a corporation from a neutrally-applied, generally applicable law.
This last points get to the debate, in part, about the relevance of reverse veil piercing (RVP) on which Professor Stephen Bainbridge has advocated as a framework to resolve the mandate issue in Hobby Lobby. The corporate veil is rejected in both CVP and RVP when equity requires and that is usually dependent upon a third party interest that is best protected by rejecting the legal fiction of a separate corporate form. In the anti-discrimination/racial identity there is an equitable argument that the third party cannot discriminate against the corporation simply because it is owned by minorities. What is the equitable argument in Hobby Lobby? The fairness rationale is weakened here, especially in light of the interests of the 13.5K employees receiving health care coverage as a form of compensation for their work for the company. Instead RVP, it must rest, if at all, on the public policy justification advanced by Professor Bainbridge. But again, the public policy argument cuts both for and against RVP. There is a public policy argument in protecting/promoting religious freedom as there is in facilitating access to health care, including forms of health care that Congress has determined to be necessary for women (and families) under the ACA.
Tuesday, April 22, 2014
Over at realclearpolitics.com, a number of leading thinkers, including some leading business law folks such as Richard Epstein and Jonathan Adler, among others, have signed a public statement: Freedom to Marry, Freedom to Dissent: Why We Must Have Both. Following is a portion of the statement:
The last few years have brought an astonishing moral and political transformation in the American debate over same-sex marriage and gay equality. This has been a triumph not only for LGBT Americans but for the American idea. But the breakthrough has brought with it rapidly rising expectations among some supporters of gay marriage that the debate should now be over. As one advocate recently put it, “It would be enough for me if those people who are so ignorant or intransigent as to still be anti-gay in 2014 would simply shut up.”
The signatories of this statement are grateful to our friends and allies for their enthusiasm. But we are concerned that recent events, including the resignation of the CEO of Mozilla under pressure because of an anti-same-sex- marriage donation he made in 2008, signal an eagerness by some supporters of same-sex marriage to punish rather than to criticize or to persuade those who disagree. We reject that deeply illiberal impulse, which is both wrong in principle and poor as politics.
For those who don’t know, former Mozilla CEO Brendan Eich resigned following the public outcry when it was revealed that he had donated $1,000 to support Proposition 8, a 2008 California ballot initiative and constitutional amendment designed to ban same-sex marriage in the state.
To be clear on my stance: I strongly support same-sex marriage, and I fundamentally disagree with Prop 8. Still, punishing people, as opposed to criticizing people, for contrary and even wrong-headed political views is neither productive nor proper. (Nonetheless, there are multiple examples of people who felt Eich needed to resign. See, e.g., here, here, and here.)
Admittedly, if it’s clear that the head of any organization, whether it is a profit or nonprofit entity, doesn’t further the goals of the organization, then there is a bad fit. Furthermore, this isn’t about Mr. Eich’s free speech rights in that there is no government actor here. This was a private response to a private person’s actions. Mozilla has the power to act to replace Mr. Eich, and members of the public have a right to call for his ouster. It just doesn’t make it inherently right or wise.
Certainly, one can imagine a scenario where a CEO’s prior political or organizational giving would create problems for the organization. For example, an environmental organization may not be comfortable with a CEO who had given money to a group fighting climate legislation. But, in that circumstance, the hiring body, and likely the CEO, would, or at least should, have known that support for climate change initiatives would be expected as part of the job. Top employees often become the face of the organization, and that comes with job, but if a particular political view is deemed necessary for the job, it would help if the CEO knew it during the interview process.
Even if Mozilla was responsible for the mistake (in hiring someone with political views that were not accepted to many employees and customers), as an entity, the company was not improper to respond in what it deemed to be in the best interest as the organization. Just as important, though, is the community response to Mozilla as an entity. The free market allows us all to choose with whom we wish to do business. But when we make such decisions, we need to be careful about who we are punishing and why.
People have a right to be upset and to protest Mr. Eich’s views. I think Prop 8 was dead wrong, and I don’t like that anyone supported it. Still, I don't think calling for Mr. Eich or anyone else to lose their job is proper simply because I disagree with their views. I would feel differently if there were evidence that Mr. Eich discriminated against gay employees. There just doesn't seem to be any support for that proposition.
We need to be careful to avoid a world where every portion of what we do becomes politicized and polarized. Although there are core values each of us holds, we should also recognize that not everyone shares all of our core values, all of the time. Nor can they. My wife and I agree on a lot of things, and it is a big reason why we’re together. Still, some of my best learning has been when we don’t agree. Sometimes I change my mind, and other times I don’t, but even then I have learned more about my views and why I hold them.
I don’t want to live in a world where politicians and news outlets and companies operate in lockstep to a specific set of ideals. There are too many examples of that already to make me comfortable. I don’t want to choose only from a Republican burger joint or a Democratic sub shop. We need more. We need a populist pizza place, and a libertarian ice cream shop, and everything in between. In my view, the litmus test should be whether people do a good job at doing their job, and whether they treat others well (employees and customers), regardless of their ideological differences.
Open public discourse is a right under our Constitution, but it is not socially required. When respectful and thoughtful, open discourse helps all of us be better citizens and better people. If we commit ourselves as individuals to respecting others and listening, even when (and especially when) we disagree, good things will follow. It is one thing to dismiss views with which we disagree; it is another to dismiss, out of hand, the people who hold such views. For all the complaints about the evils of business, I have a suspicion that if we expected more of ourselves, businesses would follow our lead.
Tuesday, April 15, 2014
They really don't.
To be clear, this is not a post bashing corporations (or government). It's not really extolling the virtues of corporations, either. Instead, it's just to make the point that, notwithstanding Citizens United or Hobby Lobby and other cases of their ilk, the idea that corporations are people is still a legal fiction. A useful and important one, but a fiction nonetheless.
On April 11, Corey Booker posted the following on Facebook:
In awful years past, corporations polluted the Passaic river to the point that it ended the days where people could eat from it, swim in it, and use it as a thriving recreation source. Today we announced a massive initiative to clean the Passaic river and bring it back to life again. The tremendous clean up effort will create hundreds of jobs and slowly over time restore one of New Jersey's great rivers to its past strength and glory.
The river needs the clean-up, and I applaud the effort. Still, the reality is corporations did not pollute the Passaic River, at least not literally. People working for the corporation did. It is agency law that allows a corporation to act in the first place, because the fictional corporate person needs a natural person to act. (For a simple explanation, see here.) The corporation is liable for the harm caused by its agents. (And, in certain cases, the individuals would also be liable directly if their actions were, for example, illegal.)
Government doesn't really do anything, either. The clean-up proposal that Booker was referencing is a $1.7 billion Superfund river remediation project that was proposed by the EPA. Of course, government works through agents, too, and there are real people behind the proposal. Real people, through concerted action between corporations and government will actually do the clean up, too.
This is a point I have made before, but I think it's an important one. We need to remember that people are at the root of all corporate and government actions. This is important in two directions. First, for those criticizing a corporate or government action, it is critical for them to remember that there are people carrying out the action. A corporation or a government may act in an inappropriate manner, but it is also likely that the person carrying out the action is doing so with the intent to do well in the capacity in which they were fired.
Second, for people working for corporations or governments it is equally critical that they recognize that the their employer doesn't carry out actions without their help. That is, people who work for corporations or governments must recognize that they are carrying out the will of the entity they represent (and they should hold themselves responsible for doing do). Perhaps it is their boss who gave them the order (also a natural person), or even the board of directors (a group of natural people), but the charge is in fact, if not legally, being given by natural people.
Why does this matter? When we vilify or exalt the action of entities (like corporations or governments) we disconnect ourselves from the realities of the world, or at least our responsibilities within it. We become more susceptible to Groupthink in either direction. We are able to shirk our responsibilities -- as employees, as agents, as lawyers, as voters, as shareholders, as people -- to make decisions the are conscious of the world around us. In our daily lives and in our representative capacities, we all must make difficult decisions from time to time.
Sometimes, tough decisions require a cost-benefit analysis that means someone else will be worse off because of our decision. It's hard, but it's what people do. Often, it's what we must do. In doing so, though, it is essential that we hold ourselves and other people accountable as people for what we've done. Regardless of the rhetoric we often hear, the amalgamations of people who make up both governments and corporations have done some amazing and impressive things. Both have also done some horrendous and outrageous things. The people in charge, and the people who follow, are accountable in both circumstances.
In this instance, I am making a conceptual argument, not a legal one. There are legal regimes, sometimes effective, sometimes not, for holding both entities and their agents accountable for their actions (and rewarding them, where appropriate). How we think about corporations and governments and each other, though, has a broader impact. Without us -- all of us -- there are no corporations and there is no government. If we remember that, our responses to challenges are more likely to be more targeted, more effective, and more reasonable. Just because we don't always agree, doesn't mean we aren't all in this together. Whether we like it or not, we are, and it's time we acted like it.