When “the President is unable to discharge the powers and duties of his office…”: The Cabinet Math of the 25th Amendment

Section 4 of the 25th Amendment, the presidential “inability”/incapacity amendment, has never been invoked. After four weeks of the Trump administration and especially after yesterday’s press conference, it is time for a sincere conversation about how it might be invoked and its mechanics: Pence plus a majority vote of the cabinet. Which of the cabinet members might be just independent enough from the Trump/Bannon orbit to weigh Trump’s incapacities seriously? And shouldn’t the Senate Democrats — plus a handful of concerned Senate Republicans — vote on cabinet confirmations with that question in mind?

Section 4 of the 25th Amendment states:

“Whenever the Vice President and a majority of either the principal officers of the executive departments or of such other body as Congress may by law provide, transmit to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office, the Vice President shall immediately assume the powers and duties of the office as Acting President.”

My generous colleague Dean John Feerick literally wrote the book on this subject (an award-winning book). What is the conceivable path to a majority if the Trump crazy degenerates, and/or if a true crisis exposes his emotional/intellectual incapacity? I consider two factors: Is the cabinet member from inside or outside the Trump/Bannon circle? Does the cabinet member have a strong external base of support? And importantly, how much would the cabinet member approve of a Pence presidency in any event?

Here is the list of the cabinet members who have been confirmed, with my oversimplified best guess on a scale of 0 (vote “no” on inability) to 5 (vote “yes”). (I think 48% of America is already at 6 to 10, so I am already grading on a curve.)

State: Rex Tillerson. 4. Not the Trump/Bannon circle, independent base in the business world, unhappy with Trump’s immigration debacle and getting frozen out of those plans, happy with the establishment pro-business Pence.

Defense: Mattis. 5. Way outside the Trump/Bannon world, and seems to be increasingly critical of the Bannon agenda. He is the best of the Trump cabinet. Independent base in the defense world. Probably comfortable with Pence.

Treasury: Mnuchin. 0. Fahgeddeboutit. Total Trump toady.

Attorney General: Sessions. 1. The Mercury of the Trump/Bannon solar system. Small, alternately blazingly hot and ice cold, unsustainable for life as we know it, and racist. (Wait, sorry, Mercury wasn’t racist. Sorry, Mercury.) The only reason to think he is a maybe is because he was a Senator for two decades, and he is not part of the Trump business crony world. He is probably fine with Pence.

Homeland Security: Kelly. 5. The same as Mattis.

HHS: Price. 4. As a veteran Congressman, Price still has an independent base. His crusade is against the Affordable Care Act, and I can only imagine how frustrating Trump’s La La Land health care promises have been for Price. Trump makes Price’s job harder, Pence makes it easier.

Education: DeVos. 2. She is probably the closest to Pence’s fundamentalism, but she is weak, shallow, and stunningly ignorant about the world. She will follow a majority, but she won’t lead it.

Transportation: Elaine Chao. 4. She is very independent of the Trump world, and very much part of the GOP establishment (8 years as Labor Secretary under W., married to Sen. McConnell). If Trump’s insanity and unpopularity become a threat to her husband’s power as majority leaders, she will be among the first to vote yes. And a Pence presidency would play out fine in Kentucky.

Veteran Affairs: Shulkin. 5. A serious doctor from far outside the Trump world, probably Trump’s most unassailable, professional choices. He cares deeply about good management. His father was a psychologist. He knows crazy when he sees it, and I can only imagine how concerned he must be already. I want to believe he is an 8, but then I might be crazy.

UN Ambassador: Haley. 2. She was already a sharp Trump critic in the primaries. But she has presidential ambitions herself, and she is probably more worried about the Trump voters in the primaries of 2020 or 2024. And I bet she would see Pence as a threat to her immediate White House ambitions. She will only follow a majority.

OMB: Mulvaney: 3 or 4. Former Congressman, very much establishment GOP, fiscal conservative, zealous pro-lifer. He must think a Pence presidency would be preferable. An OMB head isn’t going to lead this vote, but he would jump on board in a crisis.

CIA: Pompeo. 4. I’m not a fan, but he is serious about national security and stable executive leadership. He is a Congressional veteran and a professional. In a deep crisis, he would be a “yes” vote to put country over party. This position probably doesn’t count formally in cabinet anyway.

Small Business. Linda McMahon from the WWF. 0. Not even worth an explanation.

(I believe Priebus does not count as a cabinet-level officer under the 25th amendment, so I’m not counting him, but he would be a 1. A craven hack who would only follow.)

Of the already confirmed cabinet-level nominees, I count seven out of 12 as being open to voting “yes” on incapacity. (I’m not counting Haley or DeVos, because they would only be followers).  That’s a bare majority. Every new confirmation could tip the balance, and the balance is very close:

Maybes: Zinke (Interior) and Perdue (Ag) are political veterans, a recent Congressman and a recent Governor. 3s or 4s? The media reports that Perdue is getting cold feet about serving anyway. Acosta, the new Labor pick, is a solid choice, a veteran of the DOJ and the W. administration, a reputable law school dean. He’s probably a 4. Coats (DNI) is like Pompeo, a 4 or 5.  USTR Lighthizer? A Reagan official/Skadden partner/steel industry lawyer. He is not a Trump troll, but he is not in a strong cabinet leadership position. A 3 or 4.

Zeroes: Rick Perry (Energy) is a humiliated has-been who depends on Trump entirely for getting back into power. Carson (HHS) knows crazy, and he loves it. Ross (Commerce) is a Trump crony. Those three guys are zeroes.

I’m not yet counting Pruitt, because he has serious email problems that are going to delay if not kill his confirmation. He may be too weakened to have any independent political life after Trump, so I would count him as a 1. [Update: So maybe I am the crazy one. I thought Pruitt’s record plus email legal troubles would stall him when I posted this. Four hours later, he was confirmed. But the upside is that ethics issues don’t seem to weaken Republicans within their own party! So he is not too weakened to vote “yes” on Trump being too crazy for even this Republican party. He is now a “3.”

If Pence quietly initiated a 25th Amendment process behind the scenes, are there leaders in the cabinet who might be open to agreeing?  Yes. By my count, there might be a very narrow majority, and the unconfirmed nominees also might sustain that narrow majority for the 25th amendment math.

My best guess in light of the 25th Amendment: Confirm Pompeo, Coats, and Lighthizer soon. Ask more questions quietly about Perdue, Zinke, and Acosta, but don’t delay them. Slow down the process (or block) Perry, Carson, Ross, and Pruitt.  And that’s a more likely path to stopping the insanity than impeachment.

Update: Christian Turner asks about the rest of the Amendment, the role for Congress to resolve a dispute over inability after the cabinet majority vote. Congress would need a 2/3 vote in both Houses to keep Pence over Trump.  Here is the rest of the text:

“If the Congress, within twenty-one days after receipt of the latter written declaration, or, if Congress is not in session, within twenty-one days after Congress is required to assemble, determines by two-thirds vote of both Houses that the President is unable to discharge the powers and duties of his office, the Vice President shall continue to discharge the same as Acting President; otherwise, the President shall resume the powers and duties of his office.”

Once Pence, an establishment/solid fundamentalist Republican, and a cabinet moves on this, the political dynamics in Congress would change dramatically. Congress would have so much political cover from the cabinet, and I think once there is a majority vote in the cabinet, a few followers like Haley, DeVos, and other “2s” or “3s” in my scale would jump in to increase the cabinet vote to a two-thirds vote. Keep in mind that I am talking about a scenario where Trump’s insanity becomes more obvious and more dangerous. The word from the conservative media today (including former GOP rep. Joe Scarborough) is GOP Congressmen and Senators were “panicked” after Trump’s unhinged press conference. I’ll bet they are having some similar conversations as the one here.

 

 

 

 

 

 

 

Update: Quo Warranto

A few updates:
According to Kira Lerner at ThinkProgress, N.Y. Attorney General Eric Schneiderman’s office is telling the media that he “will review the letter” we sent on Wednesday to start quo warranto proceedings to dissolve the Trump corporation or seek other remedies against the illegal emoluments and other frauds.
Dahlia Lithwick at Slate finds the logic “persuasive.” My favorite line: “Shugerman’s approach uses a whole lot of Latin words.” My second favorite line: “This quo warranto business may feel airy and academic. But the logic behind it is persuasive, and the impacts of this legal theory could be very real.”
Emily Bazelon covered us on Slate Plus, on the Political Gabfest. (One comment: Emily says the quo warranto is a criminal proceeding. It’s civil, not criminal, and that’s important to me. I am worried about the criminalization of political disagreements, especially when there are reasonable civil measures for constitutional questions.)
Over the weekend, I will be on WNYC’s “On the Media” with Bob Garfield talking about “Stop Using the Word ‘Treason.’ We don’t need to.” (See my post below). And maybe they’ll keep a bit about emoluments and quo warranto!
My original post is here:

Stop using the word “treason.” We don’t need to.

[Update: I was interviewed on WNYC’s On the Media by Bob Garfield on this piece. Listen here.]
In the last 24 hours, I have seen people on the left and right throw the term “treason” at each other: “Flynn/Trump committed treason!” “No, the intelligence community/leakers committed treason!” Soon people will accuse each other of treason for making an accusation of treason. This is the sad repressive history of the charge of treason: the cycle of criminalizing political disagreements and criminalizing foreign policy or diplomacy we don’t like.
The Framers of the Constitution wisely defined treason — and wisely defined it narrowly — in Article III, Section 3: “Treason against the United States, shall consist only in levying war against them, or in adhering to their enemies, giving them aid and comfort. No person shall be convicted of treason unless on the testimony of two witnesses to the same overt act, or on confession in open court.” The legal consensus is that the charge of treason is only applicable during wartime, and only when one assists a wartime enemy or assists acts of war against the U.S.  The Framers knew their history and learned from it. In England and throughout human history, governments used the charge of “treason” to criminalize their opponents. If you did not support a government’s policies, then you did not support the government, and you were betraying your country or giving support to the country’s rivals. The charge of “treason” has a history entangled with authoritarianism, political repression, and the abuse of criminal prosecution. In medieval England, the government had expanded the common law of treason in precisely this repressive way. Eventually, Parliament passed the Treason Act of 1351 to define the charge of treason more narrowly in order to limit its use. But in the 18th century, Parliament expanded the law of treason and created too much ambiguity and discretion in bringing treason charges, all part of a century of religious and political struggles (see the Treason Acts of 1702 and 1708).
The Framers’ lesson was, “Enough with the treason talk already.” They adopted a narrow definition and a restrictive procedure to limit the abuse of treason charges.
We may not think of Putin and Russia as allies, but we are not at war with them under any definition of the word “war.”
There are other crimes that Trump and others may have committed:
1. Did Trump conspire with Russia to steal electronic information from public or private sources during the campaign? (High crime).
2. Did Trump make quid pro quo deals with Russia on Ukraine policy? (High crime).
3. Did Trump or others lie to the FBI about Russian contacts? (Obstruction of justice, high crime).
4. Emoluments are not a felony, but Randolph, one of the Framers, said that the refusal to return an emolument was impeachable.
5. I didn’t even mention the Logan Act of 1799, which has never produced a conviction for unauthorized negotiations with foreign countries. But we have never witnessed events like this before, and we could be seeing history being made.

Emoluments, Part 2: Trump Companies are Invalid Entities as Litigants

I am following up on the Quo Warranto/state AG strategy for enforcing the Emoluments Clause against Trump and his businesses.  My original blog post is here, my Law360 op-ed is here, and a story/interview by ThinkProgress’s Judd Legum is here (he kindly called it a “legal breakthrough.” I hope so!)

I have a new idea for enforcing emoluments in court, a kind of “full-court press” and even a kind of legal jujitsu flipping Trump’s litigiousness against him. The idea sparked by reading old Quo Warranto cases. In Bissell v Michigan S. & N. Ind. R.R. Cos., 22 N.Y. 258 (1860),  the highest court in New York (the Court of Appeals) heard a tort claim by a  passenger against a railroad. The defendant was actually a combination of two companies, one incorporated in Michigan, the other in Indiana. Their defense was the ultimate in legal chutzpah: the two railroads claimed that their combination into one railroad was illegal and “ultra vires” because this restructuring exceeded their corporate authority in each state. Thus, the victim’s lawsuit was against a fictional defendant that was void under the law. The Court of Appeals rightly rejected the defendant’s convenient timing in conceding illegality. (It turns out that other corporations in the nineteenth century tried to dodge debts and lawsuits by conveniently that their incorporation was void).

Judge Nelson, after discussing the quo warranto issue as  background, held that the victim’s tort suit was valid, despite the corporation’s invalidity. The problem remained: when should an “ultra vires” (unauthorized) corporation be held valid or invalid? I offer a long passage below:

“It is said that there will be no restraint upon the acts and dealings of corporate bodies, if we uphold them when in excess of rightful authority. To this I answer, that the most ample restraints will be found in the principles here advocated; while, on the other hand, if we concede to corporations immunity in all cases when they do wrong, we invite and reward the very abuse. It is also said, in order to render this doctrine less offensive to the reason and conscience, that the innocent dealer may, upon the voidness of the contract and a disaffirmance of it, recover back the value or consideration with which he has parted. This position necessarily concedes that the corporation, as a legal person, made the unauthorized contract, and received the money, or value, under and according to it; thus overthrowing the main objection to its liability to respond directly upon the contract. It also concedes the innocence of the other contracting party; thus, according to all the analogies of the law, refuting the only other objection (illegality) on which the absolute invalidity of such dealings is claimed to rest: for, surely, after conceding that the corporation actually made the contract, it will not be contended that it can set up that it ought not to have made it, against an innocent person who has given up his money or property on the faith of the same contract. But I answer, further, that while in many cases the remedy of a suit in disaffirmance of the agreement, and to recover back the consideration, will be sufficient to prevent wrong, in many others it will be entirely worthless. All collateral securities must fall to the ground with the principal contract, and all its consequences and results. The present case will afford the best illustration. The defendants, in consideration of a trifling sum received from the plaintiff for fare, agreed to perform the service of carrying him in their cars, perhaps some two hundred miles. By the negligent performance of that agreement, they inflicted on him injuries for which a jury has said the proper compensation was $2,500. This being the measure of damages for the breach of the contract, the absurdity, not less than the injustice, of confining him to the remedy of disaffirmance because the agreement was ultra vires, must be quite apparent.” (Bissell, 22 N.Y. at 277).

The basic idea is that courts should not give a corporation the advantages from an invalid/ultra vires incorporation, but it should disadvantage those invalid corporations when appropriate, explicitly with crafting a deterrent strong enough to deter the illegal actions. In this railroad case, Judge Nelson observed that the remedy of invalidating the contract was too weak, because the railroad would happily return the price of a train ticket rather than pay for a serious injury.  Invalidating a contract was not enough of a deterrent.  The New York court is clear that the remedy should be tailored to “prevent wrong” and to “restrain” illegal behavior, rather than to “invite or reward” such conduct.

How does this apply in the Emoluments context?  Whenever a Trump entity sues another party (whether contract, tort, property, debt), the court should consider whether the Trump entity is ultra vires and an invalid party because it serves to violate the U.S. Constitution. Even if there is a meritorious legal claim against a defendant, the court should consider the basic corporate doctrines of ultra vires, that incorporation is a state-created legal fiction for special rights and privileges, but comes with basic responsibilities of obeying the law in order to exist at all.  The court should also consider its duty to choose remedies to serve deterrence. Refusing to treat Trump entities as legally valid in everyday torts, property, and contracts cases would be one way to enforce the rule of law. There may be additional ways courts can consider this ultra vires problem when the Trump corporation is a defendant, case by case.

I am not sure how many cases the Trump organization is currently litigating as plaintiff, but Trump’s litigiousness can be flipped against him in a legal jujitsu move. Those lawsuits in federal or state courts could be invalidated, and the plaintiffs suing Trump entities could, in some cases, get some additional consideration as private attorneys general against Trump’s overall illegal behavior.

 

Calhoun College is now Hopper. Kudos, Salovey and Witt!

Yale Pres. Salovey fixes a mistake with a home run, changing Calhoun to Hopper, an extraordinary alum. These names are not just historical markers. They are the names by which students identify and around which they rally. In 1992, as a freshman, I had an eye-opening conversation with African-American students who could not believe they were assigned to “John C. Calhoun” College and were expected to show allegiance to Calhoun. They felt alienated and disrespected before they even arrived on campus.  Asking freshmen to identify as Calhounies was insulting and degrading. Asking students to identify as Hoppers is an honor and an inspiration. Kudos to John Witt, the committee chair!

 

State Attorneys General Can Enforce the Emoluments Clause with Quo Warranto vs. Trump’s Hotels

The Foreign Emoluments clause of the U.S. Constitution states, “no person holding any office of profit or trust under them, shall, without the consent of the Congress, accept of any present, emolument, office, or title, of any kind whatever, from any king, prince, or foreign state.” Article I, Section 9, Cl. 8.  The Compensation (or Domestic Emoluments) clause prohibits the president from receiving, on top of his salary, “any other Emolument from the United States, or any of them.” Article II, Section 1, Cl. 7. An emolument is a kind of payment or benefit. Others have argued persuasively that President Trump has been violating this clause, because foreign states and officials are paying “emoluments” to Trump through the hotels as business conduits. New documents this week show that even though Trump has put his businesses in a trust, he is the exclusive beneficiary of the trust, and he can revoke the trust at any time.

My purpose in this post is to address a procedural question:

  1. If there are procedural problems (such as standing) in suing the President directly, is there any other way to enforce the Emoluments clause?

In a follow-up post, I will address a substantive question:

  1. If “emoluments” might not be any kind of payment, but only an office-related payment, would foreign payments (or state or federal payments) to Trump hotels be a violation of the Emoluments clause?

My answers are yes and yes. The bottom line is that state attorneys general in states with a Trump corporation (and perhaps a Trump LLC, a statutory limited liability company) can bring a quo warranto proceeding to access information about whether the entities are conduits for illegal emoluments, to enjoin those activities, to force President Trump to divest, and/or to dissolve those entities. The Trump Organization is incorporated in both Delaware and New York, and it has business entities (LLCs) that could be conduits for emoluments in Florida, Illinois, New Jersey, California, Hawaii, and an increasing number of states as Trump expands his Trump and Scion brand hotel chains. “Emoluments” arguably might not be a payment of any kind, and indeed they may need to be office related. However, if a foreign official (or federal or state official) seeks to do business with a Trump entity because of Trump’s status as president or pays above market value as an effect of Trump’s office, then the payment is related to the office and it would be an emolument. The possibility of such intent or overpayment — by the foreign or state official, regardless of Trump’s specific awareness of the deal — would be enough of a factual claim to survive a motion to dismiss. Arguably, the rent payments from the Secret Service and Defense Department, forced to stay in Trump buildings in New York City become an office-related emolument. The remedy is total divestment or dissolution of the corporation.

A lot of ink and pixels have been spilled recently on Emoluments. If you want to read more about the Emoluments clause, I recommend: Zephyr Teachout’s book Corruption in America, the suit by the non-profit Center for Responsibility and Ethics in Washington, their Atlantic article, “A Note on the Original Meaning of Emolument,” by Georgetown law professor John Mikhail; and a post by Joshua Matz and Lawrence Tribe. As a particularly thoughtful counterpoint, please read Andy Grewal’s thorough paper, which I will address in a future post.

Let’s return to the first question:

  1. Procedure: If there are procedural problems (such as standing) in suing the President directly, is there any other way to enforce the Emoluments clause?

Yes. Let me first explain the challenge of trying to enforce this clause or other officials’ other legal duties. For an individual to sue, 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. Over the past three decades, conservatives on the Supreme Court have built up obstacles for private citizens trying to sue the government by increasing the requirement for injury, causation, and “zone of interests.” Counterintuitively, when a government official harms the public more widely, it is often harder for any individual citizen to have particular standing. And counterintuitively, when the government official is more powerful, the harms are more diffuse, and there are a mix of rules making it harder to see him or her (e.g., qui tam rules; Congress exempting the president from conflict of interest laws). The valid concern is too much litigation against public officials, by too many people with less compelling claims. A good pro-plaintiff argument for standing is that challengers to government misconduct are best served when courts must choose the plaintiff with the most compelling, most sympathetic case. But standing rules go too far when they completely insulate government officials from the citizens and the courts. The CREW emolument law suit and other suits by private parties against President Trump will have to overcome these excessive standing rules.

I suggest a solution: Instead of private parties suing the public official (Trump), public officials can sue the private parties (the Trump hotels and other business entities). The  public officials in the Department of Justice – the U.S. Attorney General or the U.S. Attorneys – could theoretically open an investigation, but it’s not a realistic hope. However, the state attorneys have the power through state courts. Could the state attorneys sue President Trump directly for violating the U.S. Constitution? That is a different Fed Courts questions for a different day. But corporations are a creature of state law, not federal law, and state attorneys general have a special role in making sure that corporations adhere to federal and state law.

Quo Warranto in England

The longstanding procedure for state attorneys general to stop corporate violations of the law is “quo warranto,” an old English writ meaning “what authority,” i.e., by what authority do you exercise power? Quo Warranto was one of many prerogative writs created in medieval and early modern England to check the abuse of government powers (see also Habeas Corpus, Mandamus, Prohibition, Certiorari, Declarations and Applications, cf. Qui Tam). Quo Warranto was first created by statute in 1189 (Baker, p. 125), but then faded until a revival in the sixteenth century. The writ was often used by the royals to assert their power over corporate entities. Charles II used quo warranto to “remodel municipal corporations by forcing new charters on them.” Id. The City of London fought against these reforms and lost in 1683. A year later, the English government used a similar procedure to rescind the charter of colonial Massachusetts (a kind of corporation) to protect the royal prerogative over Harvard College. But individuals also made more and more use of the writ against government officials in the eighteenth century. (Edward Jenks, “The Prerogative Writs in English Law,” 32 Yale L.J. 523 (1923). Quo warranto was then limited in some ways, but “its scope was at the same time extended to cover all usurpations of public functions of importance, though not judicial.” (Baker, An Introduction to English Legal History, p. 126)  In England, the writ was abolished in 1938, but it lives on in American state statutes as a check on both public and corporate abuses of power.

Quo Warranto and Corporations in America

You might recall the lawsuits by private citizens against President Obama for being illegitimate as not naturally born a citizen (Orly Taitz and the birthers).  Those suits were quo warranto claims in the U.S. District Court for the District of Columbia. Taitz v. Obama, 707 F. Supp. 2d 1 (D.D.C. 2010). The District of Columbia Code provides that the U.S. Attorney General or the U.S. Attorney may bring such an action, and if they decline, a litigant must seek the discretionary leave of a court and must have standing. Sibley v. Obama, 866 F. Supp. 2d 17, 19 (D.D.C. 2012), aff’d, 12-5198, 2012 WL 6603088 (D.C. Cir. Dec. 6, 2012); See also Andrade v. Lauer, 729 F.2d 1475, 1498 (D.C.Cir.1984). It would be difficult for a private citizen to use quo warranto against President Trump for his receipt of emoluments.

Instead, states have statutes allowing a state official (or a shareholder and sometimes a member of the general public) to sue a corporation through quo warranto for acting “ultra vires” (beyond legal authority). A group of people create a legal corporation through state law, to create legal privileges and gain legal rights as legally fictional person. In order to retain these rights and privileges, a corporation must act only within the bounds of its charter and within the bounds of the law. The “ultra vires” doctrine originated with the English quo warranto writ. Helen Cam, Quo Warranto Proceedings in the Reign of King Edward I, 1278-1294 (1964); Comment, “The Use of Quo Warranto,” 18 Yale L.J. 58 (1908); Comment, “Quo Warranto and Private Corporations,” 37 Yale L.J. 237 (1927); Valeria Hendricks, “Which Writ is Which? A Trial Attorney’s Guide to Florida’s Extraordinary Writs,” Fla. B. J. Apr. 2007, at 46; Adam Sulkowski, “Ultra Vires Statutes,” 24 J. Envtl. Law and Litigation 74 (2009). The state laws of incorporation in the United States set various rules for application, renewal, the authorized scope of their powers, and the duration of the incorporation. The state legislatures added language allowing state attorneys general and shareholders to sue to enjoin any activities beyond the corporate charter or to dissolve the corporation if it has violated those terms. Kent Greenfield, “Ultra Vires Lives!,” 87 Va. L. Rev. 1279, 1319 (2001). Courts interpreted “ultra vires” broadly, so that regular transactions beyond the scope of a contract were valid for quo warranto challenges. Adam Sulkowski, “Ultra Vires Statutes,” 24 J. Envtl. Law and Litigation 74, 98 (2009). When corporations engaged in monopolistic behavior (trusts, in the sense of “anti-trust”), four state courts dissolved the corporations in the 1890s. People v. N. River Sugar Refining Co., 24 N.E. 834, 841 (N.Y. 1890); Russell Mokhiber, “The Death Penalty for Corporations Comes of Age,” Bus. Ethics, Nov. 1, 1998.

Over time, legislators observed that some shareholders or third parties were bringing quo warranto claims strategically if a deal had gone wrong or became a loss, so that they could dissolve their own company or have the contract judicially cancelled in order to avoid those losses. At the same time, shareholders gained other legal rights and processes to sue for mismanagement, so the private parties have used quo warranto (or its statutory variation) much less frequently. Sulkowski at 99.  Nevertheless, the statutes of almost all of the states still empower state attorneys general to intervene against illegal corporate acts.  All states have corporation statutes that require a corporation to obey the law. Sulkowski, p. 101. Many states have codified quo warranto or a similar proceeding for an attorney general to bring an action against a corporation for acting ultra vires.

Generally, state quo warranto statutes are always at least as broad as the common law writ, and they often expand the plaintiffs’ rights beyond the writ. Some states have adopted the involuntary judical dissolution provisions provided in the American Bar Associations Model Business Corporation Act. Many state statutes only allow the state attorney general to commence the action against the corporation, but some allow private citizens to initiate these actions.  There are three statutory variations on who can bring a quo warranto proceeding:

  1. Some states permit only the state attorney general to bring a quo warranto action.
  2. Some states permit an “interested” member of the public to bring a quo warranto action only after the attorney general officially declines.
  3. Other states permit a member of the public to bring a quo warranto suit only if he or she is particularly affected.

The remedies for a quo warranto proceeding for ultra vires (illegal) activities are:

  1. Revoking or dissolving the corporate charter
  2. Enjoining it from exercising the illegal activity.
  3. Imposing a financial penalty on the corporation
  4. Or a combination of remedies

(74 C.J.S. Quo Warranto § 26); see also Comment, Quo Warranto and Private Corporations, 37 Yale L.J. 237, 242 (1927); 12 Colum. L.R. at 549)

In most proceedings in American law, the plaintiff bears the burden of proof, but generally, in quo warranto claims, the burden is on the corporation to prove that it acted within its authority. Quo warranto proceedings also focus on the protection of public interests broadly. The attorneys general have broad discretion to bring a claim, and courts have discretion to weigh the gravity of the violation and the effect on public welfare. Comment, “Quo Warranto and Private Corporations,” 37 Yale L.J. at 242; Herbert Hovenkamp, Enterprise and American Law, 64).

Corporations or LLCs?

All of the precedents of quo warranto/ultra vires suits that I have read are against corporations. Most of Trump’s business entities are LLCs, limited liability companies authorized by state statutes. They are similar to corporations, but they are not treated the same legally. Can a state attorney general bring a quo warranto proceeding against an LLC? It may be possible for a state attorney general to bring a claim against an entity incorporated in another state, but only to revoke a certificate of authority to engage in business within the attorney general’s jurisdiction. Thus, even if quo warranto is limited strictly to corporations and not LLCs, an attorney general potentially could bring an action against a Trump hotel — even if it is incorporated in another state — to enjoin it from doing business in that state.   Cf. Bissell v. Michigan S. R. Co., 22 N.Y. 258, 258 (1860) (a New York tort claim against two corporations chartered in Michigan and Indiana. Dicta suggests that an innocent party to an illegal/ultra vires contract can nullify the obligations of that contract. It is unclear if an attorney general could nullify ultra vires contracts).

Most courts treat LLCs similar to corporations in the area of veil-piercing theories. Under federal civil procedure, LLCs are not considered corporations, but state law may regard them the same for the purposes of quo warranto, because both are legal entities needing legal “warrant” for special privileges. Most states passed statutes to create the LLC form in the late 1980s and early 1990s, and they may include similar language as the incorporation statutes, requiring the company to “follow the law” generally. Keatinge, et al.,”The Limited Liability Company: A Study of the Emerging Entity,” 47 Business Lawyer 375, 383-384 (Feb. 1992).

New York

The Trump Organization is incorporated in Delaware, but it also has an active entity called “The Trump Organization” formally incorporated in New York State, filed in 1981. (DOS ID 694908, filed April 23, 1981, search https://www.dos.ny.gov/corps/bus_entity_search.html).  New York, like many states, has codified the doctrine of quo warranto.  New York Business Corporation Law section 1101 grants the attorney general the authority “to bring an action for the dissolution of a corporation” if:

the corporation has exceeded the authority conferred upon it by law, or has violated any provision of law whereby it has forfeited its charter, or carried on, conducted or transacted its business in a persistently fraudulent or illegal manner, or by the abuse of its powers contrary to the public policy of the state has become liable to be dissolved.

N.Y. Bus. Corp. Law § 1101(a)(2) (McKinney 2016). In New York, section 1101 actions against a corporation have historically involved either a corporation’s “misuse” or “nonuse” of a franchise.  The State must provide a threshold showing that a corporation exceeded or abused its powers.  The State must also show the corporation’s “misuse” threatens to harm the public at large. See People v. N. River Sugar Ref. Co., 121 N.Y. 582, 609 (1890) (“But where the transgression has a wider scope and threatens the welfare of the people, [the State] may summon the offender to answer for the abuse of its franchise or the violation of its corporate duty.”); see also People v. Volunteer Rescue Army, 28 N.Y.S.2d 994, 997 (App. Div. 1941).  If the New York corporation’s illegal conduct harms the public at large, the state may commence an action under the parens patriae doctrine. See People v. Abbott Maint. Corp., 200 N.Y.S.2d 210 (Sup. Ct.), aff’d as modified, 201 N.Y.S.2d 895 (App. Div. 1960), aff’d, 9 N.Y.2d 810 (1961).

Others have argued that New York attorneys general may pursue “misuse” suits against New York corporations violating federal environmental laws. See Thomas Linzey, Awakening A Sleeping Giant: Creating A Quasi-Private Cause of Action for Revoking Corporate Charters in Response to Environmental Violations, 13 Pace Envtl. L. Rev. 219, 256 (1995).

Does 1101(a) include violations of federal law as grounds for dissolution?  New York precedents offer similar examples of dissolution on the basis of federal law. “Federal law is as much a law of the State as any specific law enacted by the State Legislature.” In re People (Int’l Workers Order, Inc.), 199 Misc. 941, 976, 106 N.Y.S.2d 953 (N.Y. Sup. Ct. 1951) (dissolving union insurance fund for “wilfully violat[ing] its charter,” and rejecting their argument that violation of federal law was improper basis for revocation), aff’d, 113 N.Y.S.2d 755 (N.Y. App. Div. 1952), aff’d, 305 N.Y. 258 (1953)

New York Limited Liability Company Law does not address actions against LLCs. See generally N.Y. Ltd. Liab. Co. Law (McKinney 2016). Although LLCs do not receive charters from the State, they similarly would not exist but for the State approving their articles of organization.  In addition, there are many areas of the law in which courts have applied corporate law to LLCs, effectively treating them as corporations. See N.Y. Ltd. Liab. Co. Law Ch. 34, Refs & Annos (McKinney 2016).  Considering that LLCs must adhere to the law and the scope of their articles, there must be some mechanism for public enforcement, and courts should recognize the statutory equivalent of quo warranto for this purpose.

Additional Sources: 6A N.Y. Jur. 2d Article 78 § 412

N.Y. Bus. Corp. Law § 109(a)(1) (McKinney) (empowering the attorney general “to annul the corporate existence or dissolve a corporation that has acted beyond its capacity or power or to restrain it from the doing of unauthorized business”)

N.Y. C.P.L.R. 1301-1303

People v. Bleecker St. & F.F.R. Co., 125 N.Y.S. 1045, 1049 (N.Y. App. Div. 1st Dept. 1910), aff’d, 95 N.E. 1136 (N.Y. 1911):

People v. Bank of Hudson, 1826 WL 2094 (N.Y. Sup. Ct. 1826):

In re Heim’s Est., 3 N.Y.S.2d 134 (N.Y. Sur. 1938), decree aff’d, 8 N.Y.S.2d 574 (N.Y. App. Div. 2d Dept. 1938):

Delaware

In Delaware (where the Trump Organization and a majority of publicly traded corporations are legally incorporated), “[a] corporation may be incorporated or organized under this chapter to conduct or promote any lawful business or purposes, except as may otherwise be provided by the Constitution or other law of this State.” Del. C. § 101(b); see also Section 102.  The Delaware Code empowers – even instructs – the attorney general to seek the revocation of a corporate charter if it has abused its power:
(a) The Court of Chancery shall have jurisdiction to revoke or forfeit the charter of any corporation for abuse, misuse or nonuse of its corporate powers, privileges or franchises. The Attorney General shall, upon the Attorney General’s own motion or upon the relation of a proper party, proceed for this purpose by complaint in the county in which the registered office of the corporation is located. Del. Code. Ann. tit. 8, Section 101(b).

Sources:

5A Fletcher Cyc. Corp. § 2326

Brooks v. State, 3 Boyce (26 Del) 1, 79 A. 790 (1911) (Remedy by information in the nature of a writ of quo warranto).

State v. Hancock, 45 A. 851, 854 (Del. Super. 1899):

Morford v. Trustees of Middletown Acad., 13 A.2d 168, 171 (Del. Ch. 1940)

Washington, D.C.

The attorney general for the District of Columbia may seek dissolution of a corporation if it continues “to exceed or abuse the authority conferred upon it by law.” D.C. Code § 29–312.20. This provision is relevant for both the Trump Hotel’s emoluments problem and its conflict with the GSA contract which states that “no elected official of the government … shall be admitted to any share or part of this Lease, or to any benefit that may arise therefrom.”

California:

California statutes appear to provide a very broad power to a quo warranto claim. Quo warranto is appropriate “against any person who usurps, intrudes into, or unlawfully holds or exercises any public office, civil or military, or any franchise, or against any corporation, either de jure or de facto, which usurps, intrudes into, or unlawfully holds or exercises any franchise, within this state.”  (Cal. Civ. Proc. Code § 803.). The applicability to “any franchise” may extend quo warranto beyond corporations to LLCs, depending on California law.  The California Department of Justice provides a useful guide on their website: https://oag.ca.gov/opinions/quo-warranto  Under the statutory system, the attorney general must bring the suit.  (See Oakland Municipal Improvement League v. City of Oakland (1972) 23 Cal.App.3d 165, 170; Cooper v. Leslie Salt Co. (1969) 70 Cal.2d 627, 633.)  However, Cal. Civ. Proc. Code §811 provides for an exception. “The action provided for in this chapter may be maintained by the board of supervisors of any county or city and county or the legislative body of any municipal corporation, respectively, in the name of such county, city and county or municipal corporation against any person who usurps, intrudes into or unlawfully holds or exercises any franchise, or portion thereof, within the respective territorial limits of such county, city and county or municipal corporation and which is of a kind that is within the jurisdiction of such board or body to grant or withhold.” (Id.; San Ysidro Irrigation Dist. v. Super. Ct. (1961) 56 Cal.2d 708, 716-17 (noting that while the statute only refers to a “person” usurping a franchise, corporations and governmental bodies are also to be included.))  A corporation arguably usurps or unlawfully holds a franchise if they are violating the statutory requirement of lawful conduct.

Future posts:

  1. If “emoluments” might not be any kind of payment, but only an office-related payment, would foreign payments to Trump hotels be a violation of the Emoluments clause?

“Emoluments” may not be any kind of payment, and indeed they may need to be office related. However, if a foreign official (or federal or state official) seeks to do business with a Trump entity because of Trump’s status as president, then the payment is related to the office and it would be an emolument.

     2. Other states on quo warranto

Thanks to Jonathan Hermann, Andrea Rodriguez, Katherine Wright, Paul Thompson, Sara Norstrand, and Stephanie Zuniga for your help.

 

Gorsuch, “Fascism Forever,” and his troubling Kissinger quote

Last night, I posted that Gorsuch wrote brilliantly for the rule of law and deserves our open minds. This morning, I am feeling naive and nauseous. Overnight, the Daily Mail published photographs of Neil Gorsuch’s Georgetown Prep yearbook showing that he founded and was president of the “Fascism Forever Club” for three years (10th through 12th grades). [Update 8pm: There are plausible explanations and denials, that it was not a real club but just an entry in his yearbook and a joke article about it. But as I had written below, I was initially more troubled by the 21-year-old’s embrace of the Kissinger quote anyway.]

But wait, that’s not even the worst revelation. Gorsuch also added a quote to the high school yearbook from Henry Kissinger: “The illegal we do immediately. The unconstitutional takes a little longer.” He loved this quote so much that he used it again in his Columbia yearbook in 1988.

Let me first say that I want to allow some time for confirmation of these stories and some kind of response. But we should focus even more on the Kissinger quote because its content has been confirmed by other sources, it is more obvious and relevant, the source (Kissinger) is troubling in precisely the ways we should be troubled in 2017, and Gorsuch quoted it repeatedly, at an age when we all expect more maturity. Snopes confirmed the Columbia yearbook already. The quote may come from Gary Allen’s book Kissinger in 1976. Someone excerpted quotes from Gary Allen’s book online for a little more context: “He was the man who said ‘power is the ultimate aphrodisiac,’ and who was quoted in New York Times magazine as joking, “The illegal we do immediately. the unconstitutional takes a little longer.” The Washington Post published this quote in 1973. Kissinger has been quoted elsewhere saying, “Before the Freedom of Information Act, I used to say at meetings, ‘The illegal we do immediately. The unconstitutional takes a little longer.’ … But since the Freedom of Information Act, I’m afraid to say things like that.”

Frankly, I’m astonished he would advertise these views so openly. It’s as if a 21-year-old were intentionally trying to sabotage his own nomination to the Supreme Court thirty years later, like he couldn’t help but confess, “I have a long-term plan to undermine the U.S. Constitution just like Nixon and Kissinger.” (Didn’t Nixon and Kissinger love “secret plans”?) On the one hand, there is something frankly refreshing that he was not plotting his ambitious political career so carefully as a teen and 20-something (maybe we need to worry more about those types). I suppose I should be relieved that he isn’t a totally stealth fascist. But decent people don’t behave like this, especially not as 20-somethings. As college students, we knew who Kissinger was. Even if you admired his hawkish successes, you surely knew about his bombing campaign in Cambodia and the allegations of war crimes, and you probably knew of his interventions for dictators in Latin America. Decent people don’t celebrate Kissinger’s bragging about lawlessness on the pages of everyone’s yearbook.

Given that we have a president who threatens illegal and unconstitutional actions similar to Nixon and Kissinger (or worse), we all should worry that the 49-year-old Gorsuch might be same person as the 21-year-old Gorsuch. I believe we ordinarily need to keep an open mind about stupid, offensive things people did when they were teens. However, these are not ordinary times, and this is not a nomination for an ordinary position. It’s a lifetime appointment for a relatively young nominee to the Supreme Court of the United States. This is a thirty or forty year commitment to someone who would have enormous power and no accountability. Did we all do stupid things when we were 16 or 18? Of course. Did we tell offensive jokes? Of course. But that’s a reason to give people a second chance. This isn’t a second chance. This is locking him into extraordinary power for the rest of our lives with no second chance for the rest of us.

Update: A Georgetown Prep teacher says there was no club, it was just an inside joke. http://www.thedailybeast.com/cheats/2017/02/02/scotus-pick-s-teacher-no-fascist-club.html?via=mobile&source=copyurl