It is pretty fishy to argue that tenure deprives students of the right to an education (as opposed to being a reasonable call by the legislature that it is a way to vindicate that right), and one is taking one's chances when the first citation in an opinion is to Brown v. Board of Education, but that's what a California court just held and did. I'm guessing the deans at the state's various law schools will wait to see how this one plays out before sending out the pink slips.
I have no time just now to respond to some of the thoughtful reactions to my earlier post. But a quick follow-up is in order to refute the repeated assertions by Professors Scharffs and Bainbridge that the law is shot through with exemptions, thereby undermining the government's compelling interest in reducing unintended pregnancies (and abortions) by ensuring that women have affordable access to the FDA-approved contraceptive methods.
For one thing, even if there were many exemptions, that would not undermine the government's compelling interest, any more than the numerous legal exemptions to tax laws, antidiscrimination laws, wage and hour laws, etc., undermine the compelling interests that have historically sufficed to justify denial of religious exemptions under those statutes. See, e.g., Tony & Susan Alamo Foundation, 471 U.S. at 300 n.21 (although Fair Labor Standards Act contains many exceptions to the definition of “employee” (see 29 U.S.C. 203(e)) and to the requirement of minimum wages (see 29 U.S.C. 213(a)), the Court deemed them to be “not relevant here,” and denied the requested religious exemption); Hernandez, 490 U.S. at 700 (“The fact that Congress has already crafted some deductions and exemptions in the Code . . . is of no consequence . . . .”); see also the examples in the government's reply brief at 19-22.
More to the point, the Professors fundamentally misunderstand this law. As I’ve explained in previous posts, with one minor exception, the purported “exemptions” the Professors identify are not exemptions at all; in each case, women will be entitled to cost-free contraception insurance. And that one exception—HHS’s exemption for churches—will affect very few female employees who would otherwise make claims for cost-free contraception coverage. The contraceptive coverage here, therefore—like all of the other preventive care services the statute requires, such as immunizations and colo-rectal cancer screening—is a benefit to which virtually all women in the United States will be entitled, and the government has a compelling interest in ensuring that remains the case.
(Also, one important specific correction on a major misunderstanding: Professor Scharffs writes that "the mandate (indeed the entire Affordable Care Act) does not apply to employers with fifty or fewer employees." That's just wrong.)
I'm very grateful to Gordon for inviting me to post on the Conglomorate about the Hobby Lobby and Conestoga Wood cases--in particular, to summarize some of the arguments I've made about the cases over on Balkinization and SCOTUSblog. Links to my posts about various different aspects of the cases, and to some posts of others, are collected here. As for the issues of particular interest to Conglomorate readers . . . well, I'm afraid I think there's less there than meets the eye as to several of them.1. For example, it is widely believed that the central issue in the cases is whether corporations, or for-profit corporations in particular, can exercise religion, or have religious "consciences." But I don't think the Court needs to, or should, consider that broad question in the abstract. As I explained in one post, even if for-profit corporations can exercise religion in certain contexts, the particular religious claims in Hobby Lobby and Conestoga Wood cannot be asserted by the corporations themselves:
The Hobby Lobby and Conestoga Wood cases do not require the Court to decide, once and for all, whether and under what circumstances for-profit corporations can ever have religious beliefs or consciences; whether they can exercise religion; or whether they can be “persons” under RFRA.
Those formulations pitch the question at far too broad a level of generality, and one untethered from the facts of these particular cases. The issue in these cases is much narrower than that.
This is not a case about whether a particular corporation can "advance" a religious agenda, take steps to further a religious mission (such as by selling religious books), or promulgate religious doctrine; indeed, it's not a case in which the state is alleged to be preventing a corporation from doing anything at all. Therefore it bears no resemblance to, say, a law restricting for-profit religious bookstores from selling certain books. The particular burden being alleged here is that the HHS Preventive Services Rule allegedly coerces a violation of religious duties--thatis to say, rather than restricting a religious practice, HHS is alleged to be focring someone to act in a manner contrary to religiously inspired limitations. The federal government allegedly is putting someone to a choice between compliance with a civil obligation and adherence to a restrictive religious injunction (roughly speaking: “Thou Shalt Not Cooperate With Evil”).
If there is such a burden on religious exercise here, it is not one that is imposed on the corporations—on Hobby Lobby Stores, Inc., Mardel, Inc. (in the Hobby Lobby litigation) or on Conestoga Wood Specialties Corp. That's not because those corporations don’t have “consciences”—neither do churches—or because they cannot advance religious objectives (perhaps they can), but because they don’t have religious obligations. I’m not aware of any religion that imposes duties or injunctions on for-profit corporations. And, more to the point, the complaints in these cases make countless allegations about religious duties and how the government allegedly is compelling certain parties to violate those duties, but they nowhere allege that any of the three corporations here are subject to any religious obligations.
2. A conclusion that the HHS Rule does not substantially burden any religious exercise of these corporate plaintiffs, however, hardly resolves the cases. As you will see if you begin to peruse the plaintiffs' complaints and briefs, the crux of the alleged burden in these cases is not on the corporations’ alleged exercise of religion, but instead on the purported religious exercise of the individual plaintiffs—five members of the Green family in Hobby Lobby, and five members of the Hahn family in Conestoga Wood.
For starters, the federal legal obligations in these cases run against the corporations themselves, and/or their insurance plans, not against the shareholders. So the shareholders are not directly burdened by federal law. The question, then, is whether shareholders nevertheless can obtain relief for injuries that they allegedly suffer derivatively, by virtue of the state's regulation of the corporation, notwithstanding the black-letter law that corporations and their shareholders are distinct entities for purposes of liability and benefits.
Individuals typically form a corporation so that they will not be personally liable for any claims against the corporation--indeed, that's one of the principal reasons state law creates the corporate form. Does it follow that shareholders cannot complain about injuries they suffer derivatively when other actors, including the government, take action against the corporation? By accepting the “sweet” (limited liability), must shareholders also accept the “bitter,” in the form of abandonment of rights they otherwise might have had to recover for injuries they suffer by virtue of their ownership of the corporate shares? As Judge Matheson put the question in his separate concurrence in Hobby Lobby, should “[t]he structural barriers of corporate law give [one] pause about whether the plaintiffs can have their corporate veil and pierce it too”?
In response to this question, Professor Bainbridge published an article suggesting that the Court should make use of a corporate law doctrine called "insider reverse veil piercing" in order to allow the Greens and the Hahns to assert RFRA claims as shareholders notwithstanding the fact that they are generally immune from liability for any wrongs committed by their corporations--i.e., to allow them to reap the sweet and also avoid the bitter.
Subsequently, a group of 44 corporate and criminal law professors filed an amicus brief arguing that "reverse veil piercing" would be inappropriate here, and that the Court should not allow the plaintiffs to sue as shareholders.
Professor Bainbridge has now responded with a follow-up article critiquing the corporate law professors' brief. He argues again that the Court should use "insider reverse veil piercing," or "RVP-I," "to allow . . . shareholder standing to sue if the [C]ourt is unwilling to allow the corporation to do so."
What (if anything) should the Court make of this corporate law dispute about RVP-I?
a. First of all, it's not clear that these cases are even about injuries to the individuals in their capacities as shareholders. Indeed, it appears that the individual plaintiffs in Hobby Lobby, members of the Green family, are not shareholders of Hobby Lobby and Mardel, the two corporate plaintiffs in that case; they are, instead, trustees of a management trust that owns the companies. The Greens do not allege that they own the companies; and unless I've missed something, their complaint does not allege any way in which their funds would be used to "pay for" contraception. As I explained in a recent post, Hobby Lobby's brief confirms that the case is not fundamentally about coercing the Greens to pay forcontraception, or about the Greens' religious exercise in their capacity as shareholders. The Greens' fundamental complaint, instead, is that federal law coerces them to violate a religious obligation in their capacities as corporate directors, i.e., decision-makers. "[T]he precise religious [religious] exercise at issue here," the brief explains, is that "the Greens cannot in good conscience direct their corporations to provide insurance coverage for the four drugs and devices at issue because doing so would 'facilitat[e] harms against human beings.'”
A decision by the Court limited to shareholder rights, therefore, would not resolve Hobby Lobby.
That leaves the Conestoga Wood case. The individual plaintiffs in that case, members of the Hahn family, also primarily complain about federal law burdening them in their capacity as corporate directors, or decision-makers. In addition, however, paragraph 11 of their complaint alleges that the Hahns are collectively the “principal” owners of the shares of Conestoga Wood. So perhaps the RVP-I question does arise vis-a-vis the Hahns, whose shareholder funds presumably would be used, not to pay for contraception reimbursement directly, but instead to pay for part of the overall premiums to the plan insurance carrier. (Remarkably, the Conestoga Wood complaint does not specify whether CW has a self-insured employee health insurance plan or a plan issued through an independent insurer. But in its Supreme Court brief, it refers to its (unidentified) "issuer" as having "inserted coverage of the contraceptives into its plan over Petitioners’ objection" after the district court denied a preliminary injunction.) So, in some very attenuated sense, the Hahns' shareholder funds are subsidizing the plan's reimbursement for employees' use of contraception . . . and the complaint might be read to suggest that this use of the Hahns' funds would make the Hahns complicit in their employees' use of so-called "abortifacients" in the rare case (if any) in which use of certain contraceptive methods prevented a fertilized egg from implanting in the uterine wall.
b. But even if the "shareholders' complicity" issue is teed up in Conestoga Wood . . . Honestly?
Can it really be the case that the Supreme Court of the United States ought to decide Conestoga Wood based upon the assumption that the corporate law "RVP-I doctrine" would apply in this unprecedented context? This is a state law question, the answer to which depends upon the legal relationship between a corporation and its principal shareholders . . . presumably under Pennsylvania law.
Professor Bainbridge cites as his primary authorities two 30-year-old state-law cases--one from Minnesota, the other from Michigan--both involving questions far-flung from the RFRA context in Conestoga Wood. To be sure, he also cites one Pennsylvania case--Barium Steel Corp. v. Wiley, 108 A.2d 336(1954). But in that case, which was decided 60 years ago, the Pennsylvania Supreme Court split 3-3 on what we (well, what corporations law professors) would today apparently call an "insider reverse veil piercing" theory, in a case that has almost nothing in common with Conestoga Wood. And the three Pennsylvania Justices who would not have recognized the RVP-I in Barium Steel wrote this: "The decisions in this State will be searched in vain for a single instance where a piercing of the corporate veil has been judicially sanctioned in order to confer a benefit upon the ones responsible for the presence of the veil. Certainly, the opinion for this court in the instant case cites no such decision."
That exhausts my knowledge of how Pennsylvania law treats insider reverse veil-piercing. Perhaps Professor Bainbridge is right that Pennsylvania (and other state) courts would or should "reverse-pierce" the veil in this RFRA context, in which a federal statute is implicated. Perhaps he's wrong. But how should the Supreme Court of the United States resolve that question?
Bainbridge argues that courts have historically "pierced the corporate veil" in 13.41% of RVP cases, and that the Court should decide whether Conestoga Wood should be among that number based upon the simple test of whether piercing here would advance a "significant public policy." But he does not cite any other Pennsylvania authority in support of this view, or any case at all involving RVP and RFRA, or RVP and shareholders' religious exercise more broadly, from any jurisdiction.
This absence of precedent ought to be a serious problem for his RVP-I argument, particularly in light of the principal case cited in the corporate professors' brief (and in the government's brief), Domino's Pizza, Inc. v. McDonald, 546 U.S. 470 (2006).
McDonald was the sole shareholder of a Nevada corporation. He alleged that Domino's had broken contracts with that corporation because of racial animus toward him, in violation of 42 U.S.C. § 1981. The Court held that section 1981 offers relief to a plaintiff when racial discrimination impairs an existing contractual relationship, so long as the plaintiff himself has or would have rights under the existing or proposed contractual relationship. Of course, the contracts themselves, between corporations, did not afford McDonald any rights, because he was merely a shareholder. Citing some of the same Minnesota cases Professor Bainbridge cites, however, McDonald argued that "under state law shareholders are at times permitted to disregard the existence of the intermediate corporate entity where failing to do so would impair full enforcement of important . . . statutes." Resp. Br at 32 n.34.
At oral argument, Justice Kennedy identified this claim as "kind of an inverse corporate veil piercing," and asked: "[A]re there any cases where we pierced the corporate veil in order to help the shareholder?" (The answer, of course, is that the Court has never done so.)
Not surprisingly, the Court unanimously rejected McDonald's inverse veil piercing claim. Justice Scalia's opinion for the Court explained that "it is fundamental corporation and agency law—indeed, it can be said to be the whole purpose of corporation and agency law—that the shareholder and contracting officer of a corporation has no rights and is exposed to no liability under the corporation's contracts."
The Court presumably was able to issue such a categorical interpretation of state law because it had been offered no examples, in any jurisdiction, of reverse veil piercing to vindicate shareholder contract rights. To be sure, Conestoga Wood does not involve shareholders' contract rights, so McDonald does not directly resolve the RVP-I question here. But the Hahns have the burden to show a RFRA burden, and neither they nor Professor Bainbridge have cited any case, from Pennsylvania or elsewhere, in which shareholders have been permitted to use RVP-I to allege harms to their religious exercise, under a state or local RFRA, resulting from a law that has an impact on corporate funds. The Court presumably should, therefore, treat the RVP-I argument here the way in which it treated the equally unsupported and unprecedented argument in Domino's--i.e., summarily reject it.
Domino's appears to be the one and only occasion in which the Supreme Court has specifically considered the relationship between the "RVP" doctrine and a federal statute. You'd think, therefore, that Professor Bainbridge would devote serious attention to the case. His analysis of Domino's is relegated to a footnote, however. And his efforts to distinguish the holding in that case are unpersuasive. For example, he notes that the shareholder in Domino's raised "only" contractual and statutory rights. ButConestoga Wood's claim here (the only claim with any traction, anyway) is based on a federal statute (RFRA), just as McDonald's was. Bainbridge's suggestion that the federal statutory right established by RFRA is more "fundamental" than the federal statutory right against race discrimination established by section 1981--indeed, so much more "fundamental" that it ought to result in an about-face on the Court's RVP-I holding--is so implausible that it doesn't warrant a response.
His principal argument fares no better. He insists that Domino's is a "weak precedential reed" because the Court in that case "made no effort to analyze the issues raised by RVP, but simply dismissed it out of hand," without addressing "any of the points made [by Prof. Bainbridge] in defense of the doctrine." In other words, Bainbridge thinks that the Court should ignore its unanimous holding in Domino's because the Court did not do its homework in that case, even after Justice Kennedy had specifically teed up the question as whether the Court should recognize a claim of "inverse corporate veil piercing." Suffice it to say that that argument is unlikely to have any traction with the Court. Moreover, it misses the point: The Court rejected the RVP-I claim in Domino's because the plaintiff there gave the Court absolutely no basis for concluding that state law would recognize such an exception to the default "fundamental corporation and agency law" principle that a corporate shareholder has no rights and is exposed to no liability under the corporation's contracts. The same thing is true in this case: Neither the Hahns nor Professor Bainbridge has offered the Court any authority at all in support of the proposition that the Pennsylvania Supreme Court -- or other state courts, for that matter -- would recognize an RVP-I claim in a case involving RFRA.
Moreover, even if the Court were somehow able to answer the RVP-I question as a matter of Pennsylvania law (after certifying it to the Pennsylvania Supreme Court, perhaps?), that state-law-based judgment would not govern similar cases arising in the other 49 states and the District of Columbia, and therefore would hardly be a satisfactory resolution of the question on which the Court granted certiorari in Conestoga Wood. (And it wouldn't have any impact on a non-shareholder case such as Hobby Lobby.)
* * * *
In the absence of any indication that Pennsylvania law would allow RVP-I in this novel context, the more appropriate approach for the Court would be to follow its example in Domino's, and simply move on from a shareholder-injury inquiry to address the principal question raised both in Conestoga Wood and in Hobby Lobby--namely, whether federal law coerces the individual plaintiffs (the Hahns and the Greens) to violate religious injunctions in their capacities as decision-makers, or directors, of the three corporations in question in these two cases. In an earlier post, I discuss why I think the plaintiffs have failed to adequately plead facts to support such a claim.
4. Finally, and most importantly, in posts at both SCOTUSblog and Balkinization, I've tried to explain that, wholly apart from the questions regarding corporations and shareholders, a broad ruling in favor of Hobby Lobby and Conestoga Wood could mark a sea-change in the way the Court has traditionally resolved claims for religious exemptions in the commercial sector, with potentially dramatic ramifications for an array of laws involving taxes, wages and hours, antidiscrimination norms, etc. This is so because, when it comes to regulation of commercial activities, the Supreme Court—and virtually every other court and legislature, for that matter—has consistently construed the Free Exercise Clause and religious accommodation statutes not to require religious exemptions from generally applicable regulations. The Supreme Court, in particular, has rejected such claims in at least nine cases, from 1944 through 1990--and has almost always done so without a dissenting vote.
This long line of consistent denials of exemptions to actors in the commercial sphere reflects the view of Justice Jackson in the first such case (Prince v. Massachusetts), in which he wrote in his concurrence that “money-raising activities on a public scale are, I think, Caesar's affairs, and may be regulated by the state so long as it does not discriminate against one because he is doing them for a religious purpose and the regulation is not arbitrary and capricious, in violation of other provisions of the Constitution.”
A unanimous Court put the point this way in U.S. v. Lee, in 1982: “When followers of a particular sect enter into commercial activity as a matter of choice, the limits they accept on their own conduct as a matter of conscience and faith are not to be superimposed on the statutory schemes which are binding on others in that activity,” at least where “[g]ranting an exemption . . . to an employer operates to impose the employer’s religious faith on the employees.”
Whether or not this was a stand-alone “holding” in Lee, there is no doubt that the statement did—and continues to—fairly reflect the Court’s unbroken line of decisions over many decades. (The singular exception to the rule is Hosanna-Tabor, which, unlike Hobby Lobby, involved the right of nonprofit, specifically religious organizations to determine the “ministers” who speak on their behalf.)
And the Lee statement further points to the principal reason for this uniform treatment of religious exemption claims in the commercial sphere—namely, that in such cases it is virtually always the case that conferral of an exemption would require third parties (customers, employees, competitors) to bear significant burdens in the service of another’s religion, something the Court has understandably been loath to sanction. As I wrote on SCOTUSblog,
Contrary to the views of some, I think it overstates matters to say that such a significant third-party burden invariably renders a permissive religious accommodation unconstitutional. The Court’s jurisprudence in the area of permissive accommodations is not so unequivocal. But this much is clear: Such a significant third-party burden at a minimum raises profound constitutional concerns. For that reason, as Chip Lupu and Bob Tuttle explain, the Court has regularly construed permissive accommodation statutes – using the avoidance canon either expressly or implicitly – to recognize a compelling government interest in avoiding the imposition of significant third-party harms.
The Court’s decision in Hobby Lobby is likely to have a profound effect upon how other courts treat state and federal RFRA claims in the commercial sector going forward. If the Court were to hold that RFRA requires an exemption in these cases—and were to hold, in particular, in the case brought by a very large for-profit employer, that the law substantially burdens plaintiffs’ religious exercise and that the government lacks a compelling interest in denying religious exemptions—that would be a groundbreaking departure from the judiciary’s (and Congress’s) historical practice, one that could pave the way for claims for “myriad exceptions flowing from a wide variety of religious beliefs” (Lee) by commercial enterprises with respect to many other statutes, including nondiscrimination requirements, zoning regulations, taxes, and so on.
Before returning to the legal boundaries of monetary policy, I wanted to briefly highlight some interesting contract and regulatory issues lurking just beneath the surface of an unusual Kansas state court order declaring a sperm donor to be the legal father of a child, against the wishes of all persons involved.
In 2009, a Topeka man answered a Craigslist ad soliciting sperm donations. The ad was placed by a lesbian couple, Jennifer Schreiner and Angela Bauer. The man supplied a donation. Schreiner became pregnant and delivered a baby. Schreiner began receiving Kansas welfare benefits for the child. Seeking child support payments, the state sued the sperm donor to establish paternity. The state argued that the donor—who lacks any relationship with the child or the couple (now estranged) beyond supplying the donation—was the child’s legal father, and therefore must pay child support.
This is where the case gets interesting as a matter of private ordering and trade regulation.
Prior to the donation, all persons involved—the donor and both members of the couple—signed a non-paternity agreement in which the donor waived his parental rights and was released from his parental obligations.
Both mothers opposed the state’s campaign to declare the donor the child's legal father.
Nevertheless, the court granted the state’s paternity petition, which means it can now seek to compel the donor to provide child support. The paternity finding also appears to give the donor a good shot at asserting parental rights (though he seems unlikely to try).
Justifying its decision to ignore the wishes of both parents and the donor, the court intoned:
A parent may not terminate parental rights by contract, however, even when the parties have consented.
Well, maybe this case is a morality tale about those who would seek a father for their child on Craigslist. A warning from a heartland state to those who would selfishly try to contract around their sacred parental obligations. A sign that courts place the welfare of the child above all else. Right?
Haha, of course not!
Kansas law makes it easy to conclusively terminate the parental rights and obligations of sperm donors by contract. Care to guess what you need to do, besides sign a contract?
Pay a doctor.
The court explained:
Through K.S.A. 23-2208(f) [PDF], the Kansas legislature has afforded a woman a statutory vehicle for obtaining semen for [artificial insemination] in a manner that protects her and her child from a later claim of paternity by the donor. Similarly, the legislature has provided a man with a statutory vehicle for donating semen to a woman in a manner that precludes later liability for child support. The limitation on the application of these statutory vehicles, however, is that the semen must be “provided to a licensed physician." [FN1] (emphasis added)
The parties failed to do this.
So, the upshot is that you are free to find a father for your child on Craigslist—and you can even count on the State of Kansas to keep him out of your child’s life in the future—so long as you hire a doctor to do the procedure. Similarly, you can spend your free time fathering children on Craigslist without losing sleep over child support suits—as long as you kick some of the action upstairs to an M.D.
It’s not just Kansas; California, Illinois, and as many as 10 other states [FN2] follow the same law, the Uniform Parentage Act of 1973.
I’m not a family law expert, but it seems to me that a complete list of legitimate and unique public policy concerns that are implicated when a couple and a third-party sperm donor settle their parental obligations by contract looks something like this:
- Ensuring that the state can identify who can be held legally responsible for supporting the child.
Nevertheless, let’s assume there are also truly compelling public health reasons to involve a physician in artificial insemination. After speaking with a few doctors, I’m skeptical that this is the case, but even if it were here are ten points that I think are worth considering:
- Should a mother who became pregnant by artificial insemination be forced to share parental rights with a stranger who donated sperm simply because she decided not to hire a doctor for the procedure?
- Conversely, should the scope of a sperm donor’s rights and responsibilities as a father turn on the decision whether to enlist a doctor to oversee the procedure?
- Should the adequacy of a child support scheme turn on whether couples using sperm donors choose to hire a doctor?
- There are sound public policy reasons to be concerned about voluntariness in agreements that waive paternity. But if this case is really about ensuring voluntariness, why is enlisting doctors the solution? Establishing consent during contract formation is not some novel problem. Hiring a doctor is a novel solution, but as an evidentiary device it is not very probative.
- Hiring doctors for artificial insemination is not cheap. A single attempt through a physician’s office costs about $3,000, and sometimes multiple attempts are necessary. Unsurprisingly, the American Fertility Association (a trade group for the fertility industry) applauded the court’s decision.
- This rule looks even more like an attempt to extract rents when you consider that for many people, the price of artificial insemination without physician assistance may be zero.
- If the state interest in the use of doctor-assisted artificial insemination is so compelling, maybe the law should simply require it on penalty of criminal sanction. I have never even heard this idea floated, probably because it would be perceived (rightly) as an excessive intrusion on various important freedoms…
- …yet while they do not provide criminal sanctions, about 13 states are willing to provide unbelievably harsh "family-law sanctions." If a woman declines to hire a doctor, she is placing herself and her child in eternal jeopardy; at any time, the donor or the state can move to declare the donor to be the legal father, which would put the donor in a position to seek full parental rights—even if he is a stranger. (The same is true in reverse re: child support.) It is unsurprising that both mothers opposed the state’s petition.
- Although facially neutral, this rule is almost certainly discriminatory in practice. It means that lesbian couples must either hire a doctor or adopt—there is no other way they can safely preclude the donor from being granted parental rights. And of course this is just one of many unofficial taxes gays and lesbians must pay, especially in states like Kansas that do not allow them to marry. It seems to me that there’s a good argument the law should fail rational basis or equal protection review, but I will leave that brief to the con law scholars.
- Finally, beyond any constitutional infirmity, this law should serve as a reminder that protectionist regulations—which often take the form of onerous occupational licensing restrictions and NIMBY zoning rules—frequently have regressive distributional consequences, because they tend to favor powerful incumbents. And although probably not the case here, such laws can harm the broader economy as well by stifling innovation.
I welcome your comments. And I hope my doctor friends still talk to me.
* * * *
[FN1] It should be noted that under the letter of the statute as well as a 2007 Kansas Supreme Court decision (PDF) on this issue, the court did not have an obvious alternative to finding for the state. The problem, such as there is one, is with the statute.
[FN2] An accurate count is not possible without doing a full 50-state survey. As I have written about previously, the Uniform Law Commission’s Enactment Status Maps are often unreliable or imprecise (see FNs 163 & 188).
After spending a great few days in Boston, I decided to broaden my reading list. (Law & Society seems to attract about 10x the number of hipsters as AALS). A few samples:
He loves to take the punch bowl away: Ben Bernanke questions meritocracy (among other things), at, of all places, Princeton's commencement.
Too close to home: Does Colorado have a republican form of government? Or did a anti-tax amendment to the state constitution deprive us of one?
Stride la vampa!
I go to see a lot of presentations, job talks, workshops, roundtables, symposia, colloquia and named lectures. Today, I was in the audience as Professor Lawrence Lessig delivered the David C. Baum Memorial Lecture on Civil Rights and Civil Liberties, and I walked away thinking how much I felt sorry for everyone that missed it. The title was The Other Side of Madison's Dilemma: When the Problem of Civil Rights Becomes the Problem of Minority Factions. The gist was that because .25% of "the people" finance 100% of congressional and presidential elections, would-be candidates have to bend themselves to those .25% ("the funders"). Not only do politicians heed the funders to get elected, but also while elected to secure post-politics employment. Though James Madison believed that the problem of minority factions would be outnumbered in a large society of the people, this theory doesn't hold true in a society of the funders.
I'm sure I'm not doing it justice, but I found a video of a version of this presentation here. Not only was the lecture substantively interesting, the presentation was amazing. At one point, I was convinced that Prof. Lessig was controlling the video with either his retinas or his brainwaves.
Prof. Lessig's novel solution would be "one person, one voucher," rebating $50 of federal tax (income, payroll, gasoline, etc.) to each citizen, which can be used to give to a campaign. Candidates would have to pledge to only use vouchers to receive any.
I did steal a response that I hope to use at my next paper presentation. When asked a question that was basically "how does your solution solve this other, vaguely related problem," Prof. Lessig replied, "First, let's talk about what the structure of a solution is."
Now that Elena Kagan has been nominated to the Supreme Court, the preparations for the hearings begins. Expect some version of the following exchange:
[Ed. Note: Much of the usual Senatorial flourishes (aka the blah-blah) edited out]:
GOP Senator: Ms. Kagan [Ed Note: or will she be called "General Kagan"?] could you walk through your analysis of whether [health care legislation][insert other statute or past Obama Administration action] is constitutional?
SG Kagan: With all due respect, Senator, as I mentioned before, it would be inappropriate for me to comment on matters on which I might be called to later judge should I be confirmed to the Court.
GOP Senator: But you would obviously have to recuse yourself on matters on which you have worked on as SG, and you have worked on this [issue du jour] and advised the President on this haven't you? Wouldn't that mean that you would have to recuse yourself? So there is no risk of prejudging a case, is there? So, you can go ahead and answer the question, so that we may see how you analyze complex constitutional questions. [Ed Note: I know the question is long, but have you ever heard any Senator ask a snappy question?]
SG Kagan: Senator, without knowing the full facts of a case, I cannot say for sure whether I would recuse myself. I also anticipate that even if I would recuse myself on litigations that are pending before the court, that the same issue may arise in a later case. Again, I do not want to prejudge any case and any case ruling would turn on the facts before me at that point. [Ed Note: this could lead to an interesting volley about the recusal standard.]
GOP Senator: Let's assume you are arguing [issue du jour] before the Court as solicitor general, tell me your opinion as SG to whether [statute][action] is constutitional.
SG Kagan: Without a clear question presented and all the facts of a particular case, I cannot outline the arguments I would make as solicitor general. [If Kagan argues that there is some client confidentiality, expect a series of questions on "who is the client of the SG?"]
GOP Senator: But you would clearly argue that the [statute] is constitutional? The President did [sign the statute][take the action]. It is your role to argue for the United States.
SG Kagan: I should underscore that my role as solicitor general is quite different than my role would be as an associate justice should I be confirmed.
GOP Senator: But would you defend [statute] as an advocate?
Ok - timeout - enough playwriting. I'm obviously no Samuel Beckett. (Or maybe my characters are not behaving as I planned and I need to get all post-modern on you, by stepping out of the narrative).
Where is this play going? The "John Yoo Trap" is basically to try to box Elena Kagan to admitting that if she has defended in the past or would defend a the constitutionality of a particular statute/administration decision as solicitor general, she must be implicitly saying she would rule the same way as judge -- that the action is constitutional. Because -- the argument goes -- doesn't she agree with the criticisms of John Yoo (and the US Attorney firing scandal and various other DoJ episodes during the George W. Bush Administration) that a senior DoJ official is in a unique role? That is, she doesn't merely enact the wishes of the President, but must provide counsel and dissuade the President from a course of action she believes to be unconstitutional?
Don't get me wrong, this "trap" is not inescapable. I'd be stunned if Kagan is not confirmed and doesn't perform very well at her hearings. The overally point is that when Solicitor General Kagan talks about the different role she plays as Solicitor General as from a justice, a Republican (or even a Democratic) Senator will likely ask about the arguments levelled against Yoo and other DoJ officials for failing to provide independent counsel that might check the Administration. How much do DoJ attorneys need to make independent decisions on the constitutionality of actions -- particularly on executive power -- versus accept the decision of the President who was elected and empowered under Article II?
The argument that Kagan is different than Yoo because Yoo went far beyond the pale, invites classic questions of line drawing, how do we know when an Administration lawyer is over the line, and who gets to make the call. All of this would be a discussion well worth having. Heaven forbid, we might actually learn something about "the Law" in a confirmation hearing.
[Note to colleagues: don't worry! I am not interested in switching to constitutional law. Financial regulation is plenty fun.]
As I mentioned earlier several tobacco companies, including Commonwealth Brands, Lorillard and RJ Reynolds, brought a lawsuit in the Western District of Kentucky challenging the constitutionality of many aspects of the Family Smoking Prevention and Tobacco Control Act of 2009 which brought the regulation of tobacco under the aegis of the FDA. Plaintiffs had a veritable cornucopia of claims about the ways in which the Act violated their rights under the First Amendment (my favorite might be that the prohibition on free samples was a First Amendment issue).
The district court issued an opinion in January of 2010, granting in part and denying in part the plaintiff companies' motion for summary judgment. Opinion. Most of the First Amendment arguments the plaintiffs raised were rejected except for two: the ban on color and graphics in advertising and the ban on implying that a tobacco product is safer because of FDA regulation. [The last issue illustrates one of the thorny problems with giving over the regulation of tobacco to the FDA because there does not appear to be any safe use of tobacco and this is in some tension with the FDA's consumer safety mission.] This latter involved concerns about vagueness and overbreadth and since it is possible the Act could be amended to overcome this problem, it is the first issue, involving the use of color and brand symbols, that I think is the more interesting one.
The district court wrote "[The plaintiffs] are clearly right when they say that images of packages of their products, simple brand symbols, and some uses of color communicate important commercial information about their products, i.e., what the product is and who makes it. The government's contrary suggestion -- that all uses of images in tobacco labels and advertising create noninformative associations of the sort likely to encourage minors to use a tobacco product -- is plainly wrong." (Opinion at 14).
The court may have felt that the attempt to link these associations to the use by minors was the "plainly wrong" part. And it could be the weakness in the argument. But consider that the "important commercial information" is the brand information and that branding is inextricably linked with all of the advertising and marketing efforts which attempt to make emotional associations with the brand. Doesn't this argument raise questions about what it means for something to be "informational"?
In any event, I think what we are really talking about here are the property interests in the brand, not the informational aspects of the brand; which is part of why the First Amendment is not a good fit (in my view) for the interests which plaintiffs seek to protect. And it is worth walking their claims in this case back a bit to consider the interests which led the Supreme Court to create the commercial speech doctrine in the first place and whether the tobacco companies' arguments further those interests or obstruct them. Virginia Pharmacy created a new category of protected speech labeled "commercial speech" on the grounds that commercial speech was important to listeners. It was the interests of the consumers that both justified the protection and which dictated that protection be reserved for truthful speech. The case did not focus on the speakers' right to engage in promotional speech. This makes sense if you are concerned about regulating false or misleading commercial speech. Nevertheless, the Virginia Pharmacy Court apparently thought that truthful commercial speech might be subject to regulation given a governmental interest that was sufficiently compelling to outweigh the speech interests involved.
If we look at the marketing of cigarettes it seems like there are at least three interests that might be called speech interests: (1) the interest of the speaker (here the tobacco companies) in marketing a legal product; (2) the interest of consumers in receiving truthful information about the health consequences of smoking (and perhaps even their interest in being shielded from attempts to manipulate their interest in smoking); and (3) consumer interest in receiving brand information about the product.
The consumers' interest in receiving the promotional information really looks like the least compelling of the possible speech interests. And when weighed against the legitimate governmental interest in promoting public health, it seems particularly puny; especially when you consider that the government's interest in public health converges with the consumers' purported First Amendment interest in receiving truthful information about the health consequences and dangers of smoking. The interest in consumers receiving the "information" involves in the brand associations seems to me to be far less about the consumers' interests and more about the property interests of the manufacturers.
Of course, at the end of the day these interests can't be neatly or clearly unraveled. But I think protecting branding as a First Amendment issue in this context is not really about speech but about protecting the economic value in the brand. And that does look a lot like Lochner all over again.
Only time will tell whether the courts will continue down this path of converting property interests into speech interests. For the time being I suspect they will. But I predict that at some point this movement will begin to reverse. In terms of tobacco the First Amendment argument seems to be the last best hope for keeping the industry on life support, given that public acceptance of smoking appears to continue to decline.
I mentioned last week that there were more interesting arguments raised in connection with the cert. petition in the Philip Morris case which bear on on my claim that Citizens United will be used to bolster arguments for more protection for commercial speech. As I observed, The Washington Legal Foundation and the National Association of Manufacturers asserted in an amicus brief that Citizens United supported their argument about commercial speech. Here it is:
(1) Because the health consequences of tobacco use is a matter of public concern; and
(2) Because much of the communication on which liability was predicated took place in the form of newspaper articles, op-eds, congressional testimony, press releases, and television appearances and was in response to public criticism the speech in question was speech on "a matter of public concern."
(3) Because it was speech on a matter of public concern it should have been fully protected.
[Notice that the same thing that makes something a matter of public concern is also was makes it a legitimate object of governmental regulatory efforts. So it can't be enough to say that full protection follows from the observation that something involves a matter of public concern.]
The trial appellate courts apparently failed to give this speech the protection to which, in the Foundation's view, it was entitled "because the speakers had an economic motive for their communications." (Brief at 6). The brief go on to say, "But economic motive is insufficient to transform fully protected speech into commercial speech. See Citizens United v. Federal Election Comm'n, 130 S.C. 876, 899 (2010) ('First Amendment protection extends to corporations.')." (Id.)
It seems to me that the connection between the reference to economic motive and the observation about the rights of corporations is a non sequitur unless the Foundation is making the following assumptions: (1) "corporations" in this sentences = for-profit corporations; and (2) all speech by for profit-corporations has an economic motive. I make these same assumptions; so I think they are fairly reasonable and I understand why the authors believe Citizens United supports their cause. I think it does too, even though I disagree that commercial speech ought to be fully protected. However, I've often encountered objections to these same assumptions when I make them (i.e., "But not all corporations are for-profit!"; or "Not everything a for-profit corporation says is commercial speech!"). But as you can see; these arguments aren't original to me. I got them from the proponents of full First Amendment protection for commercial speech.
I've also argued that many of these proponents are essentially arguing for a constitutional right to lie. See Grounding Nike: Exposing Nike's Quest for a Constitutional Right to Lie. Some think this overstates it. But the Washington Legal Foundation's brief seems to corroborate it. In footnote 2 the Foundation argues that although the Court of Appeals did not "explicitly label" the speech in question "commercial" that must have been the standard the Court was applying because it rejected the First Amendment defenses "solely on the grounds that the speech was (in the court's view) fraudulent" and that only commercial speech could be "punish[ed]" (?!) on that ground; fully protected speech "even if false - is entitled to 'breathing space'...."
Res ipsa loquitur.
A dear former colleague used to argue with me that the First Amendment didn't protect fraud and that there was no "right to lie" even under the strict protection offered in N.Y. Times v. Sullivan. There may not be an right in the abstract to lie. But that can be the practical effect of a high evidentiary standard. As any litigator can tell you (and I have been one), there is a difference between an abstract principle and how it plays out "on the ground." I will have more on that later. Suffice it to say that the "breathing space" the Foundation argues for here would cover an awful lot of fraud.
And that brings me to the next point. How do you prove that a corporation has the specific intent necessary for fraud?
The Foundation claims that the judgment below was flawed because the government did not show sufficient evidence of specific intent to prove fraud because the government relied on a collective intent theory. (Id. at 8). It argues that the court should have looked to the state of mind of the individual officer and employees because "a company - as opposed to an individual - can never entirely know what information it possesses." Just so. Sounds awfully close to an argument that the company, qua company, can never commit a fraud because it can never have specific intent.That certainly turned out to be the Achilles heel of the prosecution of the Arthur Andersen accounting firm in the wake of the Enron scandal.
I actually think there may be something to this argument and it is part (not all) of the problem I see with imposing criminal liability on entities like corporations. Without revisiting the whole issue of corporate criminal law though it is sufficient for my purposes here to note that this argument too would increase the difficulty in restraining fraud. I'm not sure that we should be too sanguine about throwing up additional legal obstacles to prosecuting fraud.
In any event, the record, all 1700 or so pages of findings of fact and conclusions of law, offers what seems to me to be ample evidence of specific intent and plenty of false statements (including that by now notorious false testimony before Congress. See some of it in this clip from 1994 here). For a summary of some of Judge Kessler's findings in this case, as well as a summary of tobacco company marketing efforts to children and the addictive properties of nicotine from the Campaign for Tobacco Free Kids see this.
Is it really a matter of constitutional significance that tobacco companies be able to advertise in Rolling Stone or market their products in pink packages or other specific trade dress?
This was a civil RICO case filed by the United States in 1999 against several tobacco companies and two of their non-profit organizations, the Council for Tobacco Research and the Tobacco Institute. The lawsuit accused these entities of engaging in a conspiracy, taking place over a period of approximately 50 years, to mislead the public about a number of issues related to smoking including: the potential health consequences of smoking; the dangers of environmental smoke (second-hand smoke); whether nicotine was an addictive substance; whether the tobacco companies were manipulating nicotine content; whether the tobacco companies were intentionally targeting youth in their advertising and promotional efforts; whether they were intentionally marketing cigarettes as "light" or "low tar" to imply health benefits (or less detriment) the companies knew did not exist because of a phenomenon known as "compensation," and other claims.
The case went to trial in 2004 and lasted for about 9 months. In 2006 D.C. District Court Judge Kessler, issued an opinion with findings of fact and conclusions of law that ran about 1700 pages. The evidence buried in these pages is unequivocally damning.
Several years later, in 2009 the D.C. Circuit Court affirmed most of these findings in the per curiam opinion above. The defendants (and the government) filed petitions for cert. The petitions of the parties are available here. Whether the Supreme Court will agree to hear the case is unknown, but with the government seeking review as well it may do so. And issues of commercial speech and the First Amendment are raised through out the case. Indeed, the amicus brief filed by the Washington Legal Foundation and the National Association of Manufacturers explicitly says this case offers the Court the opportunity to answer the question that it left open in Nike v. Kasky, writing "This Court has recently reaffirmed that the speech of corporate actors may be entitled to full First Amendment Protection" (Page 19 of the brief which you can view here citing yes, Citizens United).
The 5th case down in the Table of Authorities is Citizens United and it is cited twice in the argument. The brief argues the lower court ignored that much of the misleading speech took place in the form of editorials, op-eds, press releases and the like and involved issues of "public concern" and thus was fully protected speech. Mind you these press releases, so-called informational pamphlets (some sent to school children purporting to educate them about the "debate"), came from a group of defendants who the record amply demonstrates did meet together with their public relations and law firms to come up with a strategy to manufacture a debate that really didn't exists since their problem was that there was scientific consensus on the basic facts about the health risks of smoking and that these facts would be very damaging to future business. Their strategy is succinctly captured in the phrase found in some internal documents and widely reported on since, "Doubt is our product." It is important to be clear on what they are asking for; they are asking for constitutional protection for the manufacture of a phony debate, to obfuscate rather than to clarify information about a product for which there is no safe level of use.
This seems an appropriate juncture to raise Justice Jackson's admonition that "the Constitution is not a suicide pact." It seems like the government ought to be able to regulate a potentially lethal product, and that regulation of advertising and marketing is a necessary part of such appropriate regulation in the public interest. Such a regulation has recently been passed in the form of the Family Smoking Prevention and Tobacco Control Act, Pub. L. 111-31, 123 Stat. 1776 (2009). The Act permits the FDA to regulate tobacco products and includes very strict limitations on permissible forms of advertising and promotion.
But a group of tobacco companies is attacking this statute in a District Court in Western Kentucky (much forum shopping there?) on the grounds (among others) that it violates the First Amendment. The companies even wanted to claim First Amendment protection for marketing practices like giving out free samples! The district court denied most these claims, but nevertheless found that some of the statute's regulation of color and trade dress did violate the First Amendment. The opinion is here It was issued before Citizens United came down. But taken together with the arguments raised by the Washington Legal Foundation in the Philip Morris RICO case, I think we can expect Citizens United may well be used in the future in this case as well. Only time will tell. I would worry about giving them ideas, but the connection between Citizens United and commercial speech protection claims is clearly already out there amongst firms litigating these issues.
Later I will post some other aspects of the Philip Morris case which may be of interest to Glom readers, in particular whether a corporations can commit conspiracies or have specific intent.
Much of the outcry about Citizens United has focused on its anticipated impact on elections, see here and here, as well it might since the decision was, after all, one about the proper interpretation of the Bipartisan Campaign Reform Act, aka McCain-Feingold. However, for my money (no pun intended), its most pernicious impact is likely to be not on elections (there was already a lot of corporate money in elections), but rather its influence on the future interpretation of the commercial speech doctrine. The commercial speech doctrine permits the regulation of commercial speech for its truth.
What has this got to do with political speech you might say? Nothing, unless one considers why for-profit corporations get into campaign finance or lobbying in the first place. They do so for the same reasons they engage in commercial speech; to further the economic interests of the corporation (and/or the shareholders if you prefer). Even though the Supreme Court did not hold in Citizens United that a corporation enjoys the same First Amendment rights as a human being, the rhetoric in the opinion, what I call the "anti-discrimination rhetoric," is likely to be used as if the Court had said just that and in support of an argument that the Court should not "discriminate" against commercial speech and relegate it to the category of an intermediate scrutiny test but rather should apply to it a strict scrutiny test, a New York Times v. Sullivan test. Suffice it to say that this permits regulation in theory, but little in practice.
There is evidence that Citizens United will be used this way if you look at how at how Bellotti was used. Bellotti was another corporate election law case. It was decided in 1978, only two years after Virginia Pharmacy, the case in which the commercial speech doctrine was first announced. It has been repeatedly used to argue for expanded protection for commercial speech. Most recently in the Supreme court in 2003 in the Nike v. Kaksy case. See here, here and here.
Theoretically Bellotti was a case that had nothing to do with commercial speech. Nevertheless, it has regularly showed up, as it did in Nike, in arguments in favor of more protection for commercial speech, supposedly for the proposition that speech is not less valuable because a corporation utters it. May be. But consider this, if we (or the Court) gets this argument tangled up with some notion that First Amendment protection is offered on the basis of some anti-discrimination principle we may be in very deep waters indeed, because for a business corporation its political expression is surely tangential to its main organizing purpose. It's core expressive activity is commercial speech. If we are protecting the speaker then it would seem that its core expressive activity ought to be protected. However, going that way would seemingly wreak havoc on any sort of regulation of commerce. How can you regulate commerce if you can't regulate commercial speech? If the Court goes the way of offering strict scrutiny protection to a lot of commercial speech it may make debate about reform of the financial sector moot. Not to mention the idea that corporations need protection against discrimination is a fairly difficult one to swallow. (It makes for some good editorial cartoons though! This month's Vanity Fair has a great one which you can only see if you buy the magazine; but you can find in the table of contents here under the Vanities section. A similar cartoon showed up earlier in the Boston Phoenix and that one you can view here .)
This is not just a theoretical proposition. There is a case now pending before the Supreme Court which (arguably) involves commercial speech and at least one amicus brief suggests that this is the case in which the Court can resolve the status of commercial speech (in favor of more protection, natch) and answer the question raised but not answered in Nike v. Kasky. Guess which case is included in its list of authorities? Yep. Citizens United. I will save for another post which case this is and where else Citizens United is popping up. But this is one of those First Amendment cases that could have very widespread impacts on all sorts of regulation of business. That may be a happy thing if you think less is more in the regulatory arena for business. May be not so happy if you think the government should have more of a hand in the regulation of the safety of food, drugs or... financial services.
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While on Spring Break, I missed the$7500 settlement of the case challenging Wisconsin's practice of licensing U. of Wisconsin and Marquette University law school graduates without their having to take that pesky bar. (Law Blog blurb here.) The case involved graduates of out-of-state law schools who claimed discrimination under the dormant Commerce Clause in having to take the bar when the in-staters didn't have to sit for the bar.
Here is Gordon's post on why the diploma privilege isn't entirely irrational. Here is my post after the Seventh Circuit reversed the district court's dismissal of the case and sent it back for trial. As regular readers know, Gordon and I taught at Wisconsin and Marquette, respectively.
So, why did the case settle? Vaguely reminiscent of many cases in my Con Law book so many years ago, the case was destined to fail for mundane procedural reasons. First, the case kept losing its "ripeness." First, Christopher Wiesmueller, a graduate of Oklahoma City University School of Law, was representing himself and a class of others similarly situated pro se. However, once he passed the Wisconsin bar, his case was moot. So, he substituted as the name plaintiffs Heather Devan and his wife, Corinne Wiesmueller. However, during the course of case, Devan passed the Wisconsin bar, leaving only Ms. Wiesmueller. But then it gets even more complicated.
The case was first certified as a class for injunctive relief in 2008 by District Judge Barbara Crabb. However, after the Seventh Circuit remanded, Weismueller moved for summary judgment for plaintiffs. In denying that fairly aggressive motion on October 30, 2009, Judge Crabb orders a hearing to reexamine the certification of the class, noting that Rule 23 requires a judge to consider whether class counsel has the experience and resources to effectively serve the interests of the class. I will spare you the gory details of Judge Crabb's analysis of Wiesmueller's experience and resources, but suffice it to say that she believed he was "over his head." (Wiesmueller v. Kosobucki, 667 F.Supp.2d 1001 (W.D. Wis. Oct. 30, 2009 -- maybe good scare material for legal writing/appellate procedure professors). She encouraged him, in preparation for the hearing, to associate himself with others with more federal practice experiences and resources to undertake what she felt would be an involved discovery process.
Perhaps proving Judge Crabb right, Wiesmueller then moved for the judge to recuse herself on the basis of herself being a 1962 Wisconsin graduate, having received an award from an alumni association, for having interns from the two Wisconsin school, for berating him unfairly, and for irrationally requesting Wiesmueller "sua sponte" to remove former Supreme Court Justice Louis Butler as a defendant in that capacity because he was no longer a member of that court. Not unsurprisingly, Judge Crabb denied that motion on December 2, 2009 (Westlaw citation: 2009 WL 4667576), held a hearing as to whether Wiesmueller had the experience to lead the class on December 3, 2009, and ruled he did not on December 4 and so de-certified the class (Westlaw citation: 2009 WL 4722197). Judge Crabb reminded Wiesmueller that he could represent individual plaintiffs in the case, but not the class. The remaining individual plaintiff was his wife, Ms. Wiesmueller, who is scheduled to take the bar in July.
So, the case ends with a whimper (although a fairly interesting and complex one), not a bang. Wiesmueller says he was tired of the case and his only plaintiff was about to lose standing.
So how do rules like the Diploma Privilege go away? I can't see a lot of Wisconsin legislators wanting to be the ones to repeal that rule, and it didn't look like a lot of Wisconsin attorneys were lining up to be co-counsel with Wiesmueller, either. Standing will always be an issue as few law school graduates are going to move to Wisconsin, declare an interest in taking the bar and then wait multiple years for the court case to end without getting on with their lives.
And I do think it would be better for both law schools and the state to do away with the rule. There are few positives to the rule that I can see. If the diploma privilege attracts students to those schools, then those students by definition are looking for a way to practice law without any unnecessary work. Not the driven Type A students that make a name for themselves and the school. It may also encourage graduates to stay in-state, but again those on the margins that stay because of the privilege may be the least ambitious. Of course, many, many of the students who go to those law schools do not do so because of the privilege, but because they like the schools. And, a lot of graduates stay in Wisconsin not because of the privilege but because they want to live in Wisconsin. So, the positive aspects of the privilege seem small. And I do think there are negatives. Law schools gain national reputations by having their graduates fly away to other places and spread the good name of their institution far and wide. To the extent that the privilege disincentivizes graduates to do that, then it is a negative thing. My impression was that Milwaukee and the other smaller legal markets in Wisconsin could not absorb all the good attorneys coming out of the two law schools.
But, there won't be any changes for awhile!
I couldn’t agree with Rachel more. The discussion on the role of corporations in society is not over, in fact two seemingly separate stories from last week – the standoff between Google and China and the landmark Supreme Court decision in Citizens United –together signal that we are a watershed moment in this question. I don’t claim to have done the type of deep thinking that Rachel or Gordon or Lisa or other corporate scholars who have written on corporate social responsibility have. But at the risk of interloping into territory others know and think about far deeper and better than I, consider a few quick thoughts on how contrasting Google/China with Citizens United suggests we are returning to some very old questions about the twin risks of not having corporations separated from government power and not having governments separated enough from corporate power.
I would argue that Google’s threat to leave China because of government intrusion into its operations can be seen as a victory for those who advocate for corporate social responsibility. And the Citizens United decision obviously represents a victory for those who want to see corporations as not being creatures of the state, but rather as persons that can check government action. But these two victories pose thorny intellectual problems for the victors. These problems, in turn, reveal something about the horrible tangle we find ourselves in after the financial crisis as we cut our way between the risks of government being captured by corporate interests and corporations becoming the playthings of the state. Bear with me, because I think these two stories also have something to tell us about New Governance and the need for even greater cross pollination between public and private law in scholarship and the classroom.
Google v China: Do we know corporate social responsibility when we see it?
Many (I won’t even attempt to embed links) have applauded Google’s threat to pull out of China on account of state censorship and cyberattacks on Google’s servers as a victory for corporate social responsibility. Some scholars, like Ribstein, complicate this interpretation, in part, because Google’s actions may stem more from pure economic self interest. Given Google’s business model -- particularly their need to reassure users of the sanctity of personal information -- it may be impossible to disentangle definitively whether this resistance to China is an example of self-interest or social responsibility.
Let me ask a more basic question. How do we define what corporate social responsibility is? And who gets to define it? When we discuss corporate social responsibility at the end of my Business Associations class, there inevitably seems to be widespread consensus in the classroom about what responsible behavior means. Everyone seems to agree that dumping mercury in the Rio Grande or employing child laborers is irresponsible. But then I ask students what if social activists were pushing a corporation either to include abortion coverage in their health plans or to exclude same sex partners from employee health benefits. Consensus evaporates.
Do we define corporate social responsibility through the public law process? There are real dangers with treating corporate social responsibility as a matter of positive law and state determination. Consider that Google may not be a good corporate citizen if you look through the lens of the Chinese government. They are violating Chinese law. That of course is an extreme, rhetorical example. But there is a deep concern though that by implicating public law or government intervention – however light and well-intentioned -- in the core purposes of corporations we are slouching towards treating corporations as a plaything of the state rather than as a potential check on government power. Which is the role many lauded Google for playing.
So the Google victory poses several questions for advocates of corporate social responsibility, including how do we know what is corporate social responsibility, who decides, and are we comfortable that we can draw principled distinctions that will ensure the public does not subsume the private? Are corporate social responsibility advocates putting great faith in the political process to check abuses?
Citizens United: spheres unseparated
Meanwhile, Google and all other corporations received a huge boost to their political power and their ability to check and shape government regulation by virtue of the Supreme Court’s landmark decision in Citizens United. I won’t pretend to be a public law scholar, but the sweeping aside of restrictions on corporate political speech clearly represents the culmination of a centuries long evolution of case law -- running from Dartmouth College to Bellotti – that has given corporations more and more of the constitutional rights of natural persons. If last week’s Supreme Court decision means anything, it is a clear refutation of the ancient idea that corporations are creatures of the state.
But in this victory too lies a deep intellectual challenge for the victors. In the precursor of the current debate on social responsibility, Berle espoused a view of corporations and government as existing in “separate spheres” a view that echoed 19th century political thought and was in turned echoed later by Milton Friedman and others who later argued against corporate social responsibility. To render a fine idea into a quick sausage: governments should set the rules of the game for corporations then stay out, and corporations play by the rules.
From a pure descriptive standpoint, after the Citizens United decision, it seems impossible to argue that these spheres can be neatly separated. Corporations are not just playing by the rules, they have the right to participate in setting them. Moreover, they may be the 800 lb gorilla in the room. One interesting morsel in reading through the dissent was to see Justice Stevens grappling, even briefly, with corporate law scholarship questioning whether shareholders have the realistic ability to control corporate speech through corporate governance.
More deeply, do we now need to worry more that corporate law rules are not merely the product of competition and economic efficiency but set through management’s use of the political process. (For an interesting comparative study of the intersection of politics and corporate governance, see Peter A. Gourevitch & James Shinn, Political Power & Corporate Control (Princeton 2005). There seems to be a danger of management using the political process to hardwire not only management entrenchment but the political preferences of those in control of corporations. Aren't those who laud Citizens United placing great faith in the capacity of markets and the competition for corporate control to prevent agglomerations of political power? If the Google/China standoff lays bare for the need for the separation of corporations from state control, Citizens United raises the question of how we ensure that governments can retain sufficient independence from corporate control.
Strange constellations: the alignment of corporate law scholars after the financial crisis
I don’t think these concerns about corporations capturing the government or the government overreaching into the private sector are just dystopian constructs. The bailouts during the financial crisis reveal that these concerns are festering. There is plenty in the bailout for people across the political spectrum to lament. Progressives lament that bailing out AIG and other firms represents government capture and the socialization of loss and the privatization of profit. Conservatives lament the government interference in the discipline of the marketplace and now government using its leverage from the bailouts to justify interventions such as in executive compensation.
In the wake of the financial crisis, is government becoming the plaything of corporations? Are corporations becoming the playthings of government? Or is the reality some complex and perverted mix of both? Forgive the metaphor, but we seem to be stuck in bad remake of some scene from Eyes Wide Shut. It’s not clear from the tangle and the masks who is in control, but it’s clear it is not G-rated.
Problems of power and the dangers of a lack of clarity between public and private power point to a reason to ask tough questions of New Governance – which I admit to being only at the beginning of understanding. Cindy Williams politely told me that there are different versions of New Governance. At its core, New Governance seems to look to public/private partnership in regulation. But blurring the lines between public and private, even in experiments, has dangers. Progressives should fear regulatory capture. Libertarians should fear government co-opting the private sector.
Further afield, experimentation to insulate government decision-making from the political process has again become a constitutional issue as revealed by the Supreme Court taking up the challenge to the Public Company Accounting Oversight Board. This case – about an obscure and odd agency duckling created in the wake of the Enron scandal to insulate the regulation of the accounting profession from the political influence of the accounting profession – brought together strange constellations of law professors to support and oppose the constitutionality of the agency. If you look at the professors who filed briefs as amici, you might seem some striking lineups. I don’t presume to place scholars in political pigeonholes, but their previous scholarship suggests we have seen truly strange alliances of professors with very different political beliefs. And within the various alliances, the professors likely have very different opinions on the relative risks of state versus corporate power. I am sorry I missed the AALS Hot Topic Panel on the case, because I hear it cast a sharp spotlight on the strangeness of these political constellations.
Is this a one-off phenomenon, or are we seeing an ideological realignments in the legal academy? If you are outside the academy, you might ask: who care what we eggheads think on this technical topic? It sounds trite, but ideas matter and will spill over into the political arena -- perhaps after years of gestation. Perhaps the gestation period will be much shorter; the political arena seems ripe for a tectonic shift. We already see stark examples of strange political bedfellows – the Kuciniches of the left and the Pauls of the right -- in Congressional opposition to bailouts and to the political independence of the Federal Reserve itself.
Unchecked Power – Public and Private
So in debating the risks of concentrated corporate power versus concentrated government power, we are likely revisiting the same debates we had at the turn of the last century. History didn’t end. Nor does it repeat. It rhymes and samples. Indeed, to sample from my favorite poem, “All the new thinking is about concentrated power. In this it resembles all the old thinking…”
We are also likely to hear some familiar motifs in the political noise – such as calls to break apart corporate conglomerates to reduce perceived threats to democratic values. Is this perhaps an unspoken aim of the Volcker plan to limit the size of financial institutions. Will we return to trust busting?
If we are concerned about democratic values, we need to pay attention to agglomerations of control in the media. Without a critical and independent media, we will have no way of gauging how corporate and state powers are intersecting. But we may come to find a genie let out of the bottle during the Clinton presidency when few were watching closely. If few really understood what the repeal of Glass Steagall would mean for the consolidation of power in the financial sector, are we considering enough what the Telecommunications Act of 1996 means for the consolidation of power in the media industry? Do we understand how competition and consolidation among broadcast, cable, phone, internet, newspaper, radio corporations will play out in terms of concentrations of political power? I certainly don’t because communications law and the economics of those industries lie far outside my understanding.
When historians look back to the Clinton era, they will likely see the most radical shifting in economic and political control since FDR – all the more radical because its magnitude was obscured by its technicality and by the fact that the President who squired it cast himself as part of some “Third Wave” in politics. Beware those selling easy ways to transcend and triangulate across political divides. Here is a third example of a statute passed during the Clinton years that will have far reaching consequences for concentrations of political power: cyberlaw scholars have been trying to get us for years to pay attention to what the Digital Millenium Copyright Act of 1996 means for who holds the power over the intellectual commons.
Looking for checks
Cyberlaw scholars first made their mark by alerting us to the subtle and far-reaching consequences of seemingly technical questions on how both the state and corporations could use the internet as a means of social control. So we are now full circle to the conflict between Google and China. One of those scholars, Larry Lessig advocated making the “code” of the internet “open” to allow civil society to check these subtle forms of control. This last fall, Lessig notably balked at a broadbrush application of these same open source ideas to making politics more transparent.
Indeed, citizens would have trouble making sense of raw government transparency – in terms of the volume of information and the complexity of issues. This is not because people are stupid, but no individually has time to master complex issue and process reems of raw data. We need to rely on experts to edit and filter information for us. The forms of political, economic, and technological control are subtler and potential threats to democratic value harder to grasp.
But how do we trust those experts? Trust throughout society has long been thought to have been declining for decades, and perhaps accelerating in an age of political polarization. Moreover, we also decry how the digital age has left us with shorter attention spans. We also live famously in an age of irony. It is often remarked now that some of our most intelligent commentators on public affairs are fake newscasters. This irony may lead to a particularly unfunny kind of political paralysis (“Ha ha – that’s really funny what Colbert said about our country going to hell. LOL ;-).”)
It’s not easy to make sense of the new dangers of concentrations of political power. Bolshevism and trusts were simple compared to understanding interconnections between complex corporate ownership structures, telecommunications regulations, and how the technology of the internet functions.
Understanding this landscape requires the involvement of scholars who are independent of corporate and government power. Which is why sources of university financing during an age of budget cuts looms as so large an issue.
All the New Thinking: cross pollination in legal scholarship and public law in the business law curriculum
If legal scholars must play a valuable role in sorting through the risks of concentrating political power, it suggests that faculties need to foster greater dialogue among private and public law scholars. Understanding new constellations of power might require minds in corporate law, constitutional law, cyberlaw, communications law …
Integrating scholarship in corporate law with public law is not a new idea. In fact, this essay has clearly trampled all over ground covered by many scholars who’ve looked at the intersection of public law and corporate law -- Kent Greenfield, Larry Mitchell, Lyman Johnson, Lynn Stout, Cindy Williams, Margaret Blair, Lynn Dallas. Not to mention our own Lisa and Gordon and our guest Rachel. I’m likely making enemies galore by the dozens of scholars I am leaving out including scholars -- like Bainbridge -- critical of corporate social responsibility.
There is also a question of whether we corporate law scholars need to build a bigger public law component into basic business law courses. This is also not a novel idea. I admit being resistant to doing this; law students need to learn the nuts and bolts in order to get a job and have the intellectual tools to practice as effective lawyers. But I am reconsidering, because law students also need a set of intellectual tools to exercise their duties as citizens.
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Gordon pointed you to Donna Nagy's brief (and Larry Ribstein's) yesterday for the Free Enterprise Fund v. PCOAB case, in which she and a number of other eminent law professors point out the constitutional problems with the Board, which, they argue, is inconsistent with constitutional separation of powers principles.
I wanted to follow up a bit here, because the Board is a strange entity indeed - a pretty independent creature of the SEC, which is itself pretty independent from presidential control. There are not many (or even any) agencies set up like it. How did Congress think it up? I think the Nagy brief has an interesting point here:
So in other words, PCAOB is set up like an SRO, which is constitutional, but SROs are private entities, while PCAOB is a public entity. It is the public-private distinction which she thinks has tripped up the government - and it wouldn't be the first time. While I don't know if this is a dealbreaker, it is an interesting exercise in how laws get made by looking to the old models ... something that would be rationalizers of our financial regulatory system are realizing to their chagrin.