Pension emoluments: The California and NY pensions are definitely state entities

Yesterday, Reuters reported that seven pensions are paying millions in management fees to a real estate investment firm CIM, which then immediately pays millions in management fees to Trump. I blogged about it yesterday. We are finding more and more evidence that the word “emolument” was used regularly by lawyers to describe private payments and benefits, not just salaries or office-related payments.

There are two legal questions about whether these are emoluments from the state to Trump:

  1. Are the public employee pensions extension of the state?

For the two biggest pensions, the answer is clearly yes as a matter of law.  CalPERS is the creation of California law, as codified in the California Public Employees’ Retirement Law, Section 20002, which states: “The Public Employees’ Retirement System created by Chapter 700 of the Statutes of 1931, as amended, is continued in existence under this part. This system is a unit of the Government Operations Agency” (emphasis added).

The New York State Common Retirement Fund, supervised by the State Comptroller, is treated explicitly by the federal courts as a state entity covered by state sovereign immunity. See McGinty v. New York, 251 F.3d 84, 100 (2d Cir. 2001). For more on the structure of NYS CRF:
http://www.osc.state.ny.us/reports/pension/NYSCRF_Fiduciary_and_Conflict_of_Interest_Review_2016.pdf

2. Do the pensions have enough control or accountability over CIM, the real estate firm,  to make CIM’s payments to Trump a legal extension of the state pensions?  My sense is that an emolument does not depend upon the intent or control of the state entity, but merely that state payments are going to the person in the office of the president, in either a personal or official capacity.  But given that the state pensions constitute a majority of CIM’s capital investment, and given how this issue is analogous to corporate law’s 5% or 10% threshold for legal control, I think one can argue confidently that the state pensions are paying Trump and have the power to stop. But this issue needs to be fleshed out by the experts, and I certainly am not an expert in this field.

Reuters: State pension funds paying millions in Emoluments to Trump

This morning, Julia Harte at Reuters published a story showing how seven state governments are paying millions of dollars a year to Trump. The story seems complicated, but it’s not. There are only two steps:

  1. State pensions from New York, California, Texas, Montana, Missouri, Michigan, Arizona (all state entities or semi-state entities, managed by state officials) pay millions of dollars to CIM, a real estate investment firm.
  2. CIM pays millions to a Trump LLC. And Trump LLC is the legal alter ego of Donald Trump because he is a) the sole beneficiary of the trust, b) takes profits at any time, and has recently taken profits, from the trust, and c) can revoke the trust at will anytime.

So it’s only two steps. And it really is only one step as a formal legal matter, because the state pensions together make up a majority of CIM’s payment funds to Trump. As a matter of corporate law, 10% control is enough to constitute legal control, and in some contexts, 5% is the relevant legal threshold. Most of these states, if not all, cross that line to become legally accountable for these payments.

There is some legal question about which of these pensions are fully public or mixed public-private. But they all seem to be state-run, and state officers are investing and paying public money to Trump LLCs. If you take a look at the structure of CalPERS, it’s a public fund run by state officials:

https://www.calpers.ca.gov/page/about/board/board-members

And the NY Common Retirement Fund, supervised by the State Comptroller:
http://www.osc.state.ny.us/reports/pension/NYSCRF_Fiduciary_and_Conflict_of_Interest_Review_2016.pdf

[Update: I confirmed this analysis with a California statute and a 2d Circuit precedent here].

Harte’s article has a helpful chart to clarify the steps, but remember that all those arrows really are just one legal arrow from state coffers to Trump’s pockets.

It’s also important to take a step back and observe a shocking fact: state officials were risking millions from their employees’ pension by investing in a bankruptcy artist fraudster in 2015 — after Trump University had been exposed as a fraud, after the entire American banking industry would not lend him a dollar for the last two decades. Regardless of the emoluments question, this investing strategy was a risky fiduciary breach for a state pension.

In 2015, CIM purchased the Trump SoHo hotel. Public pension funds made up about half of CIM’s investment, and CIM has struggled to sell condos since then.  The California Public Employees’ Retirement System (CalPERS) is the largest investor at about $700 million. New York State Common Retirement Fund and the Teacher Retirement System of Texas are the next biggest investors at about $225 million each. The state pensions continue to pay quarterly management and performance fees to CIM. CalPERS has paid $6 to $9 million per year to CIM. CIM turns around and pays millions each quarter to the Trump LLC.

It started out as an unwise investment, and seems to have been a big mistake financially and morally. Now it’s an unconstitutional emolument.  We are working on the meaning and context of the word “emolument,” and it is increasingly clear that the word regularly applied to private business transactions and payments, not just office-based transactions. See John Mikhail’s excellent work, and more is forthcoming.

Ron Fein, my emoluments partner in anti-crime, blogged about this news here.

So what can YOU do about any of this unconstitutional conduct?

New York: Contact Attorney General Eric Schneiderman. @A, 800-771-7755.

The NY Office of the Comptroller is in charge of the New York State Common Retirement Fund. Call (212) 681-6403

California: Contact Attorney General Xavier Becerra. @ (800) 952-5225. Tell the California pension, @, the nation’s biggest public pension, to divest 888-225-7377

Texas: Contact the Teacher Retirement System of Texas, @TRSofTexas, 1-800-223-8778

Out-Standing News: CREW adds new plaintiffs with solid standing

As I’ve posted before, a challenge to the Emoluments suit against Trump is “standing,” the requirement that a plaintiff show an actual injury to be able to get into court at all.  Tonight’s breaking news is excellent news for the suit’s first procedural steps. CREW has added two new plaintiffs: a non-profit, Restaurant Opportunities Centers United, which represents over 25,000 restaurant workers and over 200 restaurants; and Jill Phaneuf, who books events for two Washington hotels. Both have solid claims that they are injured by President Trump’s emoluments, using his office as an illegal market advantage over his competitors by drawing business from foreign entities and from federal and state spending.

In order for a plaintiff to sue in federal court, they must have a “case or controversy” as required by Article III of the federal Constitution, and thus they must have “standing” through an injury in fact. A plaintiff must have some “concrete and particular” injury, which is “actual or imminent,” not “conjectural or hypothetical.” Federal courts have often differentiated concrete and specific injuries from abstract and general claims of injury. The CREW lawsuit initially faced an uphill battle on standing, because as a non-profit, it had an indirect injury claim that stretched the interpretation of past precedents (see Havens). I argued that voters had standing to challenge emoluments as an injury to the democratic process, but CREW’s new plaintiffs have an even stronger argument: economic harm from unfair competition.

A 1970 Supreme Court case, ADPSO v. Camp (“Data Processing”), is often credited with establishing the “injury in fact” requirement for standing. ADPSO represented data processing companies, and it was challenging a ruling by a part of the executive branch (the Comptroller of the Currency) that banks may make data processing services available. The data processing companies were not directly affected by the ruling, but the banks would be able to compete with the data processing companies, and that competition was enough to establish an injury in fact. The Court did note that ADPSO presented more than just speculation about future competition, that it identified two customers being targeted for competition by banks. In the case of emoluments, it is probably sufficient for these two plaintiffs to show that their hotels directly compete with the Trump hotels for specific business. In antitrust cases, an injury through an unfair general competitive advantage is enough for standing. The same should be true here. They can certainly point to this infamous story of the Kuwaiti Embassy cancelling its huge event at the Four Seasons and suddenly rescheduling it at Trump’s new DC hotel. Two DC restaurants are making a similar claim of unfair competition.

ADPSO also established a “zone of interests” test: “The question [is] whether the interest sought to be protected by the [plaintiff] is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.” Later cases clarified that this test “is not meant to be especially demanding; in particular, there need be no indication of congressional purpose to benefit the would-be plaintiff.”  The question is more abstractly about the interests protected. Clarke v. Securities Industry Association, 479 U.S. 388 (1987); NCUA v. First National Bank & Trust Co., 522 U.S. 479 (1998). Here, there is no need to show evidence that the Constitution’s framers and ratifiers meant to benefit hotels, only that they were interested in guarding against corruption, which creates unfair competition and unfair markets.

Two other requirements for standing are causation (the plaintiff’s injury must be “fairly traceable” to defendant’s illegal behavior) and redressability (the court must be able to redress or remedy the injury). Both plaintiffs meet these requirements at this stage: they can argue that the office of the President draws business away (as emoluments) from these hotels, and they can argue that an injunction to stop taking such business would end the harm.

As a side note on standing and state attorneys general, the quo warranto strategy in state court does not have these standing problems, because the state statutes give the state attorneys general “statutory standing,” specifying that they have the power to challenge the Trump LLCs’ participation in emoluments. In some states, citizens are given statutory standing to raise such claims.  I have argued that they may have “voter” standing under Akins v. FEC, as well.

Update: Jonathan Adler asks, “What is the precedent for enjoining third party to cure injury?”  His point is that the suit is against defendant President Trump, but he assumes the injunction is only against the Trump Corporation. 1) The injunction could be directly against Trump to divest and/or sell the assets and put them into a blind trust. 2) The injunction could be against the Trump Corporations, because the corporate entities are the “alter ego” of Trump the actual human, and corporate law allows courts to “pierce the corporate veil” in these kinds of cases. Trump is the sole beneficiary of the “trust,” he can revoke the trust at will at any time to retake direct control, and he can take profits from the trust personally at any time.

There is no immunity, because the Emoluments Clause says “No person holding an office of trust…”, meaning that liability under the emoluments clause is personal, not official.

 

 

 

 

 

The Emoluments Clauses and Akins “Voter” Standing

 

I was teaching standing last week as part of Administrative Law, and it seems to me that the Emoluments challenges have standing under Akins v. FEC.  The “standing” problem for private citizens challenging Trump’s emoluments suits is that person must have a “case or controversy,” which means they must have “standing,” some particular claim, rather than a general or abstract complaint. A plaintiff must have some “concrete and particular” injury, which is “actual or imminent,” not “conjectural or hypothetical.” The problem is that government officials often impact the general public and create diffuse problems, so that the harm is broad, not particular to a smaller set of people. In the 1970s and 1980s, standing too often was based on economic injuries, which seemed too quick to dismiss non-economic injuries to rights and democratic values.

By a 6-3 majority, the Supreme Court extended standing to voters to protect the democratic process, a very general harm, but nevertheless concrete enough to give them “voter” standing.

Here are the basics: The Federal Election Commission had not been treating AIPAC (the American Israel Political Action Committee) as a “political committee” under the relevant statute, which required disclosures of funding. The question is whether a group of voters — as voters — had standing to challenge the FEC. Justice Breyer answered yes for the Court, including Chief Justice Rehnquist and Justice Kennedy. Only Justices O’Connor, Scalia, and Thomas dissented.  Here is the most relevant passage for voters having standing to protect fundamental rights and the democratic process [citations omitted]:

[T]he Court has sometimes determined that where large numbers of Americans suffer alike, the political process, rather than the judicial process, may provide the more appropriate remedy for a widely shared grievance.The kind of judicial language to which the FEC points, however, invariably appears in cases where the harm at issue is not only widely shared, but is also of an abstract and indefinite nature-for example, harm to the “common concern for obedience to law.”

Often the fact that an interest is abstract and the fact that it is widely shared go hand in hand. But their association is not invariable, and where a harm is concrete, though widely shared, the Court has found “injury in fact.” See Public Citizen, 491 U. S., at 449-450 (“The fact that other citizens or groups of citizens might make the same complaint after unsuccessfully demanding disclosure … does not lessen [their] asserted injury”). Thus the fact that a political forum may be more readily available where an injury is widely shared (while counseling against, say, interpreting a statute as conferring standing) does not, by itself, automatically disqualify an interest for Article III purposes. Such an interest, where sufficiently concrete, may count as an “injury in fact.” This conclusion seems particularly obvious where (to use a hypothetical example) large numbers of individuals suffer the same common-law injury (say, a widespread mass tort), or where large numbers of voters suffer interference with voting rights conferred by law. Cf. Lujan, supra, at 572; Shaw v. Hunt, 517 U. S. 899, 905 (1996). We conclude that, similarly, the informational injury at issue here, directly related to voting, the most basic of political rights, is sufficiently concrete and specific such that the fact that it is widely shared does not deprive Congress of constitutional power to authorize its vindication in the federal courts.

The key here is to frame the Emoluments challenge as a challenge to the democratic process, concentration of political power through corruption, and the values of voting.  Akins was about money flowing to PACs and into politics. Emoluments are similar. “Taxpayer standing” remained narrow after Akins, as Scalia’s dissent emphasizes.  Akins involved a congressional statute that extended standing, and there is no such statute for Emoluments claims, but the decision and the dissent may suggest that the statute may not have been necessary for voter standing. The bottom line is that Akins standing offers another possible avenue for voters to challenge Trump’s emoluments.

Spicer on Hitler: It’s both not as bad and also worse than you might think

I was paying more attention to other stories about tyrants killing Jews this week, so I’m just catching up now to new stories.  Folks, Spicer was not actually denying the Holocaust. Was that actually a mainstream claim?

Spicer is obviously a moron and a joke of press secretary, but he mostly was just a propagandist thinking in terms of a absurdly narrowly defined event of dropping chemical weapons on a residential area, and that’s true. Hitler did use them against Russian troops, and he obviously used them in the Holocaust, and then there’s the troubling way that Spicer so reflexively used the phrase “his own people” without thinking twice, but I don’t think Spicer ever thinks once about what he says, he just spouts talking points, spin, and lies, which is probably worse than a single independent racist thought emerging spontaneously.
However, I do think there are two other reasons that Spicer’s claim is deeply troubling.
First, Spicer’s comment reflects more than embarrassing ignorance. If you spend enough time around the Alt-Right, white nationalists, and anti-Semites, you get acculturated to Alt-Right thinking: the Alt-Right/white nationalists regularly seek to put Hitler in context and to question the conventional wisdom that Hitler is a different degree of evil, claiming that his actions were one of many wrongs in the 20th Century.  The Alt-Right trolls on-line sometimes claim that Hitler’s actions are more comparable to other 20th C. mass killings like Stalin’s, Pol Pot’s, the Chinese Cultural Revolution, and North Korea’s. I have read some of the arguments they throw around on-line: “Hitler never used chemical weapons though they were available.”  These Alt-Right sources are making a few points: that the Left/Communists are worse than conventional wisdom if you add up total numbers of deaths. But this “total number of deaths” goes hand-in-hand with Nazi sympathizers and Holocaust denier, who do explicitly revise downward the number of Jews murdered.  So my sense is this: Spicer reads and talks to more Alt-Right nuts than he might care to admit, and his unthinking claims reflect how deeply that thinking has infected the Trump staff, even if they might not be conscious of that anti-Semitic thinking. And that’s a whole different kind of disturbing.
Second, this is how Americans get themselves locked into dumb foreign policy.  Members of the George H.W. Bush administration compared Saddam Hussein to Hitler often in 1990-91, and those exaggerations were part of the drive to war and also fed the outrage on the right when Bush didn’t “finish the job.” I think George W. Bush’s motivations to go after Saddam, beyond the assassination plot against his father, were shaped by the exaggerated campaign against Saddam. Don’t get me wrong, Saddam was a very very bad guy. But comparing your enemies to Hitler tends to foreshadow badly planned wars that don’t go well.

My “bar mitzvah” theory of American history

I was quite relieved to read this NY Times story that Steve Bannon reads solid American history, summarized here. Their historical theory is that American history moves in predictable 80-year cycles of crisis and renewal, from the revolution to the Civil War to World War II to the present Trumpian moment. Totally. (And it just happens to be popular in Leninist and Alt-Right circles).

So this is my chance to share my bar mitzvah theory of American history, a turning point every 12 or 13 years (it can become a “bat mitzvah” theory after the 19th Amendment in 1920, but I’m not sure America is ready for that even today). Trust me, it ends with a progressive president, single payer  health care, and world peace by 2021.

1756-63: the Seven Years War/”French and Indian” War that leads to the Revolution.

1774-75: The Intolerable Acts and Lexington and Concord start the Revolution (1776 is so overrated).

1787: The Constitutional Convention

1800: The Jeffersonian revolution and the first-ish peaceful democratic transition in power in human history

1812-14: The War of 1812

1824: Andrew Jackson wins a plurality of the Electoral College, but Henry Clay helps JQ Adams “steal” the presidency. The beginning of the “Jacksonian revolution”?

1837: The Panic of 1837 destroys the economy, and transforms state banks and state constitutions. See my book.

1846-1850: Mexican American War to the Compromise of 1850, a turning point in slavery politics.

1861: The Civil War

1873: The Colfax massacre and the real end of Reconstruction

1886: Haymarket! May Day! Or for Admin nerds: 1887, Congress creates the ICC. See my article.

1898: The Spanish-American War on the rise of American imperialism 

1912: The election of Woodrow Wilson, ushering in a wave of progressive legislation.

I could keep going, but why not just write a crazy book about it, and see if a crazy presidential advisor will buy it?