County in New Mexico purports to ban oil/gas extraction, assign legal rights to rivers, wetlands and other natural features, declare all water a public trust, create an enforceable legal right to a “sustainable energy future,” strip corporations of various current constitutional rights, and make the whole thing self-executing against private parties. Federal court: uh, no, guys [Eugene Volokh on decision in Swepi, LP v. Mora County, striking down ordinance on various grounds including Supremacy Clause, First and Fifth Amendments.]
In New York that’s getting to be a regular pattern in the settlement of charges against financial firms; although Eliot Spitzer, known for creative methods of corporate decapitation, may have departed office, Spitzerism lives on. I explain in a new Cato post on the state’s Ocwen Financial pact.
Related: Tactics the federal government used to seize control of insurer American International Group (AIG) away from Hank Greenberg, now made public despite years spent resisting disclosure [Gretchen Morgenson, New York Times]
Six months ago the Delaware Supreme Court upheld the right of an enterprise to include a loser-pays provision in its bylaws, specifying that losing shareholder-litigants would have to contribute reasonable legal fees to compensate what would otherwise be loss to other owners. Since then there’s been a concerted campaign to overturn the ruling, either in the Delaware legislature or if necessary elsewhere. But as I argue in a new Cato post, allowing scope for freedom of contract of this sort is one of the best and most promising ways to avert an ever-rising toll of litigation. Contractually specified alternatives to courtroom wrangling have played a vital role, and are under attack for that very reason, in curbing litigation areas like workplace and consumer arbitration, shrinkwrap and click-through disclaimers of liability, and risk disclaimers at ballparks and elsewhere. (& Stephen Bainbridge).
To the extent America has made progress in recent years in rolling back the extreme litigiousness of earlier years, one main reason has been the courts’ increased willingness to respect the libertarian and classical liberal principle of freedom of contract. Most legal disputes arise between parties with prior dealings, and if they have been left free in those dealings to specify who bears the risks when things go wrong, the result will often be to cut off the need for expensive and open-ended litigation afterward.
More on the Delaware bylaw controversy: D & O Diary (scroll), Andrew Trask on state of the merger class action, WSJ Law Blog first and second, Daniel Fisher, and ABA Journal in June, Alison Frankel/Reuters (forum selection bylaws).
Steve Bainbridge has a wish list for reforms to financial and securities law in the new Congress, especially the damaging Dodd-Frank and Sarbanes-Oxley laws. Included: repeal of conflicts minerals disclosure, “say on pay,” and pay ratio disclosure; more leeway for public companies to opt out of various regulatory obligations to shareholders that their own shareholders have not contractually seen fit to impose; and litigation reform.
Meanwhile, my Cato colleague Mark Calabria points out that there “are numerous protectors of the status quo in both major political parties,” which may frustrate the relatively free-market instincts of the responsible committee chairs, Sen. Richard Shelby and Rep. Jeb Hensarling. “But at least financial regulation is unlikely to get any worse.”
- Corporate charter revocation, a goofy cause, naturally enjoys support of RFK Jr. [Bainbridge, more]
- Jury finds Arab Bank liable in terror finance lawsuit [Daniel Fisher first, second, third posts; Kevin Funnell first, second posts]
- “And since most cases do settle, the scope of the law is actually being determined by the DOJ rather than the courts.” [Thomas Vartanian, American Banker] “Lloyds settlement latest example of the shadow regulatory state” [James Copland, City A.M.]
- Gideon Kanner is covering the AIG trial that just started;
- Do the benefits of mandatory investor disclosures outweigh the costs? [Elisabeth de Fontenay, Regulation (PDF) via Matthew Feeney]
- Albany lawprofs on board with scheme to expropriate underwater mortgages through eminent domain and compensate just 60 percent of face value [SSRN, earlier]
- Transparency in whistleblowing: we’ll see what the SEC wants us to see [Daniel Fisher]
- Federally run consumer complaint database at CPSC has been unfair and unreliable mess, so naturally CFPB wants one of its own [Kevin Funnell]
- Los Angeles, Miami, Providence, and Cook County among municipalities piling on lenders with mortgage and disparate-impact suits [same]
- “Just one way to stop corporate tax inversions: cut taxes” [Chris Edwards, NYT/Cato; more]
- “The IPO is dying. Marc Andreessen explains why.” [Timothy Lee, Vox via Tyler Cowen]
- No mercy for the Swiss: feds’ “fierce campaign” on overseas tax compliance “doing more harm than good” [The Economist; Doreen Carvajal, New York Times]
- “Pretty much everything George Dvorsky says at io9 about corporate personhood is wrong” [Bainbridge] Dodd-Frank turns four, alas [same]
- “There was no evidence, period.” Preet Bharara loses one as jury acquits in insider trading case [Ira Stoll, Future of Capitalism]
CALPERS, the giant California public-sector pension fund, is among the nation’s leading scolds of corporate governance. So as Ira Stoll points out, it’s kind of newsworthy that its CEO over most of the 2000s just pled guilty to taking $200,000 in bribes from a contractor, the money handed over in paper bags and a shoebox. [New York Sun]
…the Roman invention, adopted and largely developed in modern systems of law, of constituting the official character of the holders for the time being of the same office, or the common interest of the persons who for the time being are adventurers in the same undertaking, into an artificial person or ideal subject of legal capacities and duties.
To put it differently, the law’s handling of enterprises as people was old news in Roman times. More on the misguided attack on rights-bearing by business organizations: Josiah Neeley, Matt Yglesias (“5 mistakes liberals make about corporate personhood and Hobby Lobby”).
The Cato Institute has submitted an amicus brief in the Hobby Lobby and Conestoga cases, which test the extent to which the Religious Freedom Restoration Act (RFRA) and the First Amendment restrain the federal government from requiring employers to participate in employee benefit arrangements that violate the conscience of the individuals who own and run the company. More on the other amicus briefs from Rick Garnett at PrawfsBlawg and commenters. Prof. Bainbridge takes issue with a brief signed by a group of law professors on whether a corporate enterprise can be treated as an alter ego for its owners for purposes of imputing to it their rights (“reverse veil piercing”), and has some further thoughts on the legal principle — sometimes ideologically contested, but seldom in a consistent way — of corporate personhood. Related earlier here.