Intermediate Scrutiny for Corporate Political Contributions

A corporation contributes to a Super PAC that supports a candidate for public office. A shareholder sues, alleging that management breached its duty of loyalty by making the contribution to promote its own political views rather than to serve the corporation’s best interests—i.e., by acting in bad faith. What standard will a Delaware court apply when reviewing management’s decision to cause the corporation to make the contribution? Myriad scholars have opined that the court will apply the standard of review for ordinary business decisions: the management-friendly business judgment rule. Unfortunately for our shareholder plaintiff, this rule presumes that management acts rationally, without a conflict of interest, and in good faith. Further, management can easily concoct a justification for supporting any major-party political candidate. Thus, absent a “smoking gun” that points to bad faith, it will be extremely difficult for a shareholder to prove that management has acted disloyally. This Article departs from the scholarly consensus that courts should apply the business judgment rule to review corporate political contributions. Instead, courts should apply the intermediate level of scrutiny—the Unocal test—that is applied whenever management adopts defensive measures in the face of a hostile takeover. Delaware courts apply Unocal to defensive measures due to the “omnipresent specter” that management will promote its own interests over the corporation’s best interests. Under Unocal, management must earn the protection of the business judgment rule by establishing the reasonableness and proportionality of its defensive actions. Courts evaluating management’s decision to make a Super PAC contribution should apply Unocal for two related reasons. First, like corporate charitable donations, corporate political contributions give rise to serious agency cost concerns. These same concerns led prior commentators to propose applying intermediate scrutiny to charitable contributions; post-Citizens United, this proposal should be updated to include corporate political contributions. Second, upon closer review, corporate Super PAC contributions give rise to greater agency cost concerns than corporate charitable gifts, due to the increased potential of management pretext in the former context. Indeed, although corporate Super PAC contributions do not pose an inherent conflict between management and the corporation, the possibility of pretext is so great that there is an “omnipresent specter” that management will serve its own purposes whenever it causes the corporation to make a political contribution. Therefore, by analogy to Unocal, a court evaluating a corporate political contribution should ask (1) whether management had reasonable grounds to believe that the contribution would directly or indirectly advance specific corporate interests, rather than some general political viewpoint; and (2) whether the contribution was reasonable, both as a method of addressing the specific corporate interest and in its amount. Only if management can show that the political contribution satisfies both prongs should it be protected by the business judgment rule

Zombies Attack Inadvertent Partnerships!—How Undead Precedents Killed By Uniform Statutes Still Roam the Reporters

Recently, the Texas Supreme Court breathed new life into some ancient zombies—zombie precedents, that is!—which have long lurked in the shadows of the nation’s partnership formation caselaw. This Article tells the story of those undead cases—describing them, debunking them, and plotting their demise. This zombie tale begins with the supposed black-letter law of partnership formation. In nearly every state, formation of a general partnership is governed by one of two uniform partnership acts. Under both acts, a business relationship ripens into a partnership whenever the statutory definition of partnership is satisfied. The parties’ intent to become “partners” (or not) is always, either explicitly or implicitly, one of the required elements of this definition. However, a storied line of cases holds—and the more recent uniform partnership act explicitly states—that the parties’ subjective intent to be partners (or not) is not dispositive as to formation. Therefore, law students learn as “settled law” that two parties cannot avoid formation of a partnership simply by signing a contract not to be partners. If the two parties’ business relationship satisfies the elements of partnership as a factual matter, the supposed “black-letter law” dictates that the two parties have formed an inadvertent partnership, even if they previously agreed not to become partners. Thing is, the caselaw was never really settled. In fact, an even more ancient—but far less famous—line of cases holds that the parties’ intent not to form a partnership is dispositive as between themselves. Further, from time to time courts have mistakenly given effect to parties’ agreements not to be partners without even considering the applicable partnership statute. Both types of cases appear in some modern treatises but have largely escaped scholarly attention because they are directly at odds with the uniform statutes. This Article finally brings the obscure, subjective-intent line of cases out of the shadows and gives them a close review. After briefly describing the ancient line of cases and the uniform partnershipacts, this Article concludes that the latter were enacted (in part) to eliminate the former. Yet, modern courts unwittingly continue to cite the old subjective intent cases, as well as the cases that simply ignore partnership law—occasionally allowing parties to contract around partnership as a matter of law. Hence, the subjective-intent cases are zombies—killed by the uniform acts, but still wandering the treatises, upending partnership law. Two years ago, the Texas Supreme Court faced a case that pitted the two lines of cases—one famous, one forgotten—against each other. It all began with a massive, highly publicized jury’s verdict that two energy companies had formed a joint venture (a form of partnership) despite initially agreeing not to do so unless and until their boards approved (which never happened). Subsequently, an appellate court overturned the verdict and held that the parties contracted around partnership formation as a matter of law; the Texas Supreme Court later upheld the reversal. This erroneous decision could revitalize the undead subjective-intent cases, sending them on a nationwide rampage to destroy inadvertent partnership formation. The only way to destroy a zombie is to obliterate its brain. In this case, the “brain” of the subjective-intent cases—i.e., what animates them—is the failure of legal research websites to recognize their death at the hands of the uniform partnership acts. Accordingly, the next court to address the issue of whether parties can contact around partnership should describe these cases as abrogated, thereby marking them with a red flag. Squarely repudiating the subjective-intent cases will effectively blow those ancient zombies to smithereens

Undead Dicta or Haunted Holdings? A Closer Look at the Zombie Subjective Intent Partnership Formation Cases

Undead precedents haunt the partnership formation caselaw. But just how dangerous are they? It depends on what type of zombies they are—walking-dead dicta or haunted holdings. Asking a court to ignore bad dicta is nowhere near as difficult for litigants as asking a court to overrule an entire line of cases. This article takes a closer look at the undead partnership formation cases that were previously identified in a companion article and concludes that nearly all such cases fall into the less-scary category of undead dicta, rather than truly dangerous category of zombie holdings

Are Corporate Super PAC Contributions Waste or Self-Dealing? A Closer Look

This Article is organized into four parts and a brief conclusion. Part II provides a brief background on the Citizens United decision. Part III describes derivative lawsuits, the business judgment rule, and what little leading scholars have said about shareholders’ ability to challenge corporate political contributions using derivative suits. Parts IV and V, respectively, summarize and critique arguments advanced by two recent authors, that shareholders could challenge political contributions as a breach of the duty of loyalty. Part IV deals with the theory of corporate waste and Part V deals with the theory of self-dealin

Corporate Political Contributions as Bad Faith

A shareholder who objects to a corporate political contribution can file a derivative lawsuit to challenge that contribution as a breach of management\u27s duty of loyalty to the corporation. Such a lawsuit will face long odds, however, if it is founded upon a traditional theory for breach of the duty of loyalty, like waste or self-dealing. Yet, there is a better theory for a shareholder to employ when filing suit to challenge a corporate political contribution: bad faith. Bad faith is a better basis for challenging a corporate political contribution than either waste or self-dealing because bad faith is a more flexible concept than self-dealing and a less difficult standard to satisfy than waste. Even if she intends no harm, a director acts in bad faith when she (1) takes official action that is motivated primarily by any reason other than advancing the corporation\u27s best interests or (2) consciously disregards her fiduciary duties. This Article identifies several examples of political contributions-both real and hypothetical-that are ripe for challenge as bad faith because they are made for reasons other than advancing the corporation\u27s best interest. For example, a CEO acts in bad faith if she causes the corporation to make a contribution in support of her own political views or a friend who is running for office. However, in the absence of a smoking gun, it will be difficult for a plaintiff to prove that the contribution was made for personal reasons rather than to advance the interests of the corporation. To overcome the difficulty of proving motive, this Article offers a novel argument: essentially all corporate political contributions made by large public corporations today constitute bad faith because they reflect management\u27s conscious disregard for shareholders\u27 political views. In our zero-sum, two-party political system, a board simply must know that a political contribution in support of a candidate from either major party will upset a substantial number (and perhaps a majority) of shareholders. What\u27s more, although the duty of loyalty typically demands that management consider the best interests of the corporation as a whole, not individual shareholders, a different rule should apply to political contributions. The policy rationales for vesting decision-making power in the board, rather than shareholders or courts, simply do not apply to political contributions. Political matters are outside of management\u27s core competence, and shareholders probably do not view management as a proxy for such matters. Further, political contributions differ greatly from most corporate spending, including charitable contributions. As a result, even if political contributions are not strictly ultra vires-i.e., beyond the corporate powers-they certainly verge on being ultra vires. When a board acts in the vicinity of ultra vires, its authority is at its lowest ebb; to shore up that authority, the board ought to consult the shareholders. If failing to poll the shareholders constitutes bad faith, boards wishing to contribute corporate funds in support of political candidates might nonetheless obtain protection of the business judgment rule in two ways. First, the board could submit a non-binding resolution to the shareholders at each annual meeting to gauge shareholder support for political contributions, generally, and also to gauge support for each major party. Second, management could establish a good faith reason for not consulting the shareholders for a specific contribution-for example, if the contribution directly and unambiguously promotes the corporation\u27s core business

Laboratories of Democracy? Policy Innovation in Decentralized Governments

Innovations in government produce positive externalities for other jurisdictions. Theory therefore predicts that local government will tend to produce a lower than optimal amount of innovation, as officials will prefer to free-ride on innovation by others. As Susan Rose-Ackerman observed in 1980, these two predictions, if true, tend to undermine arguments by proponents of federated government that decentralization will lead to many competing “laboratories of democracy.” In this paper, which is aimed primarily at legal academics, we review and critically assess nearly three decades of responses to Rose-Ackerman’s arguments, none of which have been discussed in depth in the legal literature. In addition we sketch and evaluate, without rigorously modeling, other possible grounds for believing that local officials may have incentives to innovate in the face of the temptation of free-riding. We also analyze the policy implications that follow from our conclusion that there are no demonstrably overwhelming replies to Rose-Ackerman’s skepticism. For instance, we suggest that one conclusion may be that certain regulatory regimes, such as corporate governance regulation, might best be centered at the national level, where collective action problems affecting public officials are lessened. However, we also caution that this result would depend on the likely effectiveness of industry itself propagating “good” regulation, or the effectiveness of contracting regulatory functions out to intermediaries, such as private consulting firms or non-profit organizations, who might use property rights to more fully capture the gains of policy innovation

The 74MHz System on the Very Large Array

The Naval Research Laboratory and the National Radio Astronomy Observatory completed implementation of a low frequency capability on the VLA at 73.8 MHz in 1998. This frequency band offers unprecedented sensitivity (~25 mJy/beam) and resolution (~25 arcsec) for low-frequency observations. We review the hardware, the calibration and imaging strategies, comparing them to those at higher frequencies, including aspects of interference excision and wide-field imaging. Ionospheric phase fluctuations pose the major difficulty in calibrating the array. Over restricted fields of view or at times of extremely quiescent ionospheric ``weather'', an angle-invariant calibration strategy can be used. In this approach a single phase correction is devised for each antenna, typically via self-calibration. Over larger fields of view or at times of more normal ionospheric ``weather'' when the ionospheric isoplanatic patch size is smaller than the field of view, we adopt a field-based strategy in which the phase correction depends upon location within the field of view. This second calibration strategy was implemented by modeling the ionosphere above the array using Zernike polynomials. Images of 3C sources of moderate strength are provided as examples of routine, angle-invariant calibration and imaging. Flux density measurements indicate that the 74 MHz flux scale at the VLA is stable to a few percent, and tied to the Baars et al. value of Cygnus A at the 5 percent level. We also present an example of a wide-field image, devoid of bright objects and containing hundreds of weaker sources, constructed from the field-based calibration. We close with a summary of lessons the 74 MHz system offers as a model for new and developing low-frequency telescopes. (Abridged)Comment: 73 pages, 46 jpeg figures, to appear in ApJ

Adding Spin Functionality to Traditional Optoelectronics via Chiral Perovskite

Spin polarized current generation and injection into semiconductors at room temperature are key to enable a broader range of opto-spintronic functionalities, yet the inherent efficiency of spin injection across commonly used semiconductor-ferromagnet interfaces is limited. Here, we demonstrate efficient spin injection into commercially viable III-V light emitting diodes (LED) by integrating chiral halide perovskite layers with (AlxGa1-x)0.5In0.5P multiple quantum wells (MQW). Spin polarized current is injected via chirality induced spin selectivity (CISS) and the spin accumulation in the III-V semiconductor is detected via the emission of circularly polarized light with a degree of circular polarization of up to ~ 15%. X-ray photoemission spectroscopy (XPS) and transmission electron microscopy (TEM) cross sectional imaging indicate a pristine perovskite/III-V interface. These findings demonstrate chiral perovskite semiconductors transform well-developed semiconductor platforms to enable control over spin, charge, and light