Constitutional Law

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These days it is easy to get discouraged on how divided our nation seems to be on a number of issues. John Inazu, Distinguished Professor of Law, Religion, and Political Science at Washington University, maps a way forward in his book Confident Pluralism (2016).

The book is divided into two parts: (1) Constitutional Commitments, and (2) Civic Practices.

The first part “contend[s] that recent constitutional doctrine has departed from our longstanding embrace of pluralism and the political arrangements that make pluralism possible.” (8) Further, the first part offers guideposts for future decisions and political solutions. The first part argues for both inclusion and dissent, for the free formation of voluntary groups, for meaningful access to public forums, and for access to publicly available funding for diverse organizations. Provocatively, Inazu claims that Bob Jones case – which stripped tax-exempt status from Bob Jones University due to its prohibition of interracial dating/marriage – is “normatively attractive to almost everyone, [but] is conceptually wrong.” (75) Inazu claims that “[t]he IRS should not limit tax-exempt status based on viewpoint of ideology.” (79) He extends the argument to “generally available resources.” While the Trinity Lutheran case was decided by the Supreme Court after publication…

UC Irvine law professor, David Min, has a new article titled, Corporate Political Activity and Non-Shareholder Agency Costs, in theYale Journal on Regulation.  Professor Min examines corporate constitutional law  in recent examples such as Citizens United, through the lens of nonshareholder dissenters.  

The courts have never considered the problem of dissenting nonshareholders in assessing regulatory restrictions on corporate political activity. This Article argues that they should. It is the first to explore the potential agency costs that corporate political activity creates for nonshareholders, and in so doing, it lays out two main arguments. First, these agency costs may be significant, as I illustrate through several case studies. Second, neither corporate law nor private ordering provides solutions to this agency problem. Indeed, because the theoretical arguments for shareholder primacy in corporate law are largely inapplicable for corporate political activity, corporate law may actually serve to exacerbate the agency problems that such activity creates for non-shareholders. Private ordering, which could take the form of contractual covenants restricting corporate political activity, also seems unlikely to solve this problem, due to the large economic frictions facing such covenants. These findings have potentially significant ramifications for the Court’s corporate political speech

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Lately, I’ve been researching the twelve nation Trans-Pacific Partnership Treaty (“TPP”) because I am looking at investor-state dispute settlements (ISDS) in my work in progress proposing a model bilateral investment treaty between the U.S. and Cuba.

The TPP, which both Trump and Clinton oppose, has the support of U.S. business. Although President Obama has pushed the treaty as part of his legacy, just this morning, Vice-President Biden added his pessimistic views about its passage. More interestingly, over 220 law and economics academics, led by Harvard’s Laurence Tribe, have come out publicly to oppose TPP, stating:

ISDS grants foreign corporations and investors a special legal privilege: the right to initiate dispute settlement proceedings against a government for actions that allegedly violate loosely defined investor rights to seek damages from taxpayers for the corporation’s lost profits. Essentially, corporations and investors use ISDS to challenge government policies, actions, or decisions that they allege reduce the value of their investments… Through ISDS, the federal government gives foreign investors – and foreign investors alone – the ability to bypass th[e] robust, nuanced, and democratically responsive legal framework. Foreign investors are able to frame questions of domestic constitutional and administrative law as treaty claims…

The enticing facts of insider trading have me writing about the topic again (see an earlier post here) as the US Supreme Court prepares to hear oral argument in Salman v. US on October 5th.  In Salman, the Supreme Court is asked to draw some careful lines in the questions: what benefit counts and how to prove such a benefit under Dirks v. SEC.  

Recall that in Dirks, the Supreme Court focused the test on whether an insider benefitted—either by trading or by tipping in exchange for a benefit from the person to whom she tipped material nonpublic information. After Dirks, the 10b inquiry is whether the insider breached a duty by conveying the information for the insider’s personal benefit, and whether the tippee knows or at least should know of the breach. The Court explained that even in a case against a tippee who trades “Absent some personal gain [by the insider], there has been no breach of duty to stockholders. And absent a breach by the insider, there is no derivative breach [by the tippee].”

The Salman case highlights a circuit split:  the Second Circuit case United States v. Newman and the Ninth…

Last spring, in the wake of Justice Scalia’s passing, I blogged about Justice Scalia’s final business law case: Americold Realty Trust v. ConAgra Ltd. The oral argument signaled that the Court’s preference for a formalistic, bright line test that asked whether the entity involved was an unincorporated entity, in which case the citizenship of its members controlled the question of diversity, or whether it was formed as an corporation, in which a different test would apply.  The Supreme Court issued its unanimous (8-0) opinion in March, 2016 holding that the citizenship of an unincorporated entity depends on the citizenship of all of its members. Because Americold was organized as a real estate investment trust under Maryland law, its shareholders are its members and determine (in this case, preclude) diversity jurisdiction.   

S.I. Strong, the Manley O. Hudson Professor of Law at the University of Missouri, has a forthcoming article, Congress and Commercial Trusts: Dealing with Diversity Jurisdiction Post-Americold, forthcoming in Florida Law Review.  The article addresses the corporate constitutional jurisprudential questions of how can and should the Supreme Court treat business entities.  What is the appropriate role of substance and form in business law?  Her article offers a decisive reply:

Commercial

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Legal commentators and the media have been abuzz with news of President Obama’s nomination of Judge Merrick Garland to the Supreme Court.  If there was ever reason to be abuzz, in the world of legal news, this is it.  Try to find a summary of Judge Garland’s record in dealing with business law issues, however, and you are met with a silent, dark internet.  Aside from mentions of Judge Garland having taught anti-trust at Harvard there is little discussion of his business jurisprudence.  The D.C. Circuit court hears an administratively heavy caseload, but Judge Garland has been on the bench for nearly 20 years! I set out to uncover his business law barometer.   My initial searches produced  19 opinions that he authored on business law matters, which are mostly securities cases but also include a piercing the corporate veil and contracts claims among others.  While I am no online search wizard and am positive that I have missed some relevant cases, this is what I produced after such wide-net casting as “business law”, “corporations”, “partnership”, “board of directors”, “shareholders” etc.  You get the idea, I ran several undeniably broad searches.  The initial case list is provided below, and was generated (along with annotations) through WestLaw.  Please comment if you have relevant cases to add.  I may add commentary on the cases in a future post if there is interest… (and time).

Securities Law Cases 

  1. Horning v. S.E.C., 570 F.3d 337 (D.C. Cir. 2009)

SECURITIES REGULATION – Brokers and Dealers. Mid-trial correction of sanction the SEC sought did not deprive broker-dealer firm’s former director of due process.

  1. Graham v. S.E.C., 222 F.3d 994 (D.C. Cir. 2000)

SECURITIES REGULATION – Fraud. Registered representative aided and abetted customer’s fraud.

  1. Katz v. S.E.C., 647 F.3d 1156 (D.C. Cir. 2011)

SECURITIES REGULATION – Brokers and Dealers. Former registered representation made unsuitable investment recommendations for her customers.

Strine

I haven’t seen his name on any of the short lists to replace Justice Scalia, but I would love to see the current Chief Justice of the Delaware Supreme Court, Leo Strine, get the nomination.

The benefits of nominating Chief Justice Strine include:

  • Promise of an entertaining nomination process. With all that he has said and written, there would be a lot of fodder, but he would be sure to hold his own. 
  • A nominee whose wit and writing style could rival Justice Scalia’s.
  • Diversity. Chief Justice Strine went to Penn for law school, not Harvard or Yale. (Granted, he does teach at Harvard).
  • Serious corporate law knowledge, and, at least on this blog, we know the Supreme Court of the United States needs help in this area.
  • Extremely bright, curious, and widely read. He likely has knowledge of and an opinion on most areas of law, well outside of just corporate law.

Anyway, I am sure President Obama will go with a more conventional pick, but I do hope to see a Supreme Court justice with corporate law expertise on the court eventually.

Justice Scalia’s sudden passing has generated a tidal wave of media and academic attention on the future of the Supreme Court.   As a corporate law scholar, I have to admit to a tinge of jealousy to be seemingly outside of this controversy, the hand wringing, and the political equivalent of Dungeons and Dragons that has ensued as people examine the various maneuverers available to our elected politicians and those vying-to be elected.

My solution? I searched for pending corporate cases hanging in the balance of the new, and indeterminate, vacancy on the Supreme Court.  I wanted to know if there were any cases pending  that would likely be decided differently in a post-Scalia court, or at least hang in a 4-4 split and thus uphold the lower court ruling.  There isn’t a big juicy corporate law case pending, or at least one that I readily identified.

Not to be deterred, however, there is a case worth highlighting. Americold Realty Trust v. ConAgra Foods, Inc., was argued on January 19th before the Supreme Court (transcript available here).  The issue before the Supreme Court in Americold was how to establish the citizenship of a real estate trust for purposes…

On Saturday, January 9, 2016, I will be spending the day at the AALS Section on Socio-Economics Annual Meeting at the Sheraton New York Times Square Hotel.  Among other things, I will be part of a panel discussion from 9:50 – 10:50 AM, Death of the Firm: Vulnerabilities and the Changing Structure of Employment.  My co-panelists will be June Carbone and Katherine Stone (I am very tempted to give up my 15 minutes and just sit back and listen to these two great scholars, but please don’t use the comments section to encourage me to do that).  As I understand it, the gist of the discussion will be that while firms once supported a significant part of the safety net that provided employee health and retirement benefits, they have recently abdicated more and more of these responsibilities.  At the same time, however, what may be described as subsidies granted by the state to firms — particularly corporations — as part of a social contract whereby these firms provided the aforementioned benefits, have not been correspondingly reduced.  In fact, the rights of corporations have been expanded by, for example, cases like Citizens United and Hobby Lobby — suggesting a possible windfall…

Kent Greenfield, Professor of Law and Dean’s Research Scholar at Boston College Law School, recently posted a provocative piece on the CLS Blue Sky Blog (here) in which he argues, among other things, that progressives have “flipped” from supporting “corporate citizenship” pre-Citizens United, to supporting “shareholder primacy” post-Citizens United.  (Kent has stressed to me that he does not believe this characterization extends to progressive corporate law scholars.) The piece is short, so I recommend you go read it before continuing on to my comments below, because I will simply be taking some short excerpts from his post and providing some responses, which will likely benefit from the reader having reviewed Kent’s post first. As just one disclaimer, Kent’s post is based on his article, “Corporate Citizenship: Goal or Fear?” – and I have not yet read that paper. Also, I consider the following to be very much an in-progress, thinking-out-loud type of project, and thus welcome all comments.

1. In 2010, the Supreme Court decided Citizens United v Federal Election Commission, ruling that corporations had a First Amendment right to spend money from general treasury funds in support of political candidates.