In my Agency and Partnership class today, I'm teaching Karl Rove & Co. v. Thornburgh, 39 F.3d 1273 (5th Cir.1994). Back when Richard Thornburgh ran for the U.S. Senate, and lost, Thornburgh left behind an unpaid bill of almost $170,000 owed to Karl Rove & Co. for services in conducting a direct mail campaign. It is clear that the authorized campaign committee—the "Thornburgh for Senate Committee"—had hired Rove & Co. and that it was liable. Unfortunately, the committee was broke. So Rove sued Thornburgh personally, seeking to hold Thornburg personally liable on the debt. The court first concluded that the committee was an unincorporated association. As a member of an unincorporated association, Thornburgh would be liable only if he assented to the contract. Because Thornburgh had not personally assented to the contract, the case turned on whether Thornburgh’s longtime aide Murray Dickman, in entering into a the contractual relationship with Rove & Co., acted as Thornburgh’s agent and within the scope of his authority. If so, Dickman's assent to the contract would be binding on Thornburgh. Held: Thornburgh is liable. Because Dickman is Thornburgh’s agent, Dickman’s assent to the contract constitutes assent by Thornbugh.
The case is of interest not only to business lawyers, of course, but also to political junkies in light of Rove's prominence in the Bush White House. After working through the case, I ask my students two analysis questions: First, how could a candidate for office structure the business relationship between the candidate, the election committee, and contractors so as to minimize the candidate's potential liability? Second, according to former President Ronald Reagan's famous dictum, the 11th Commandment reads, "Thou shall not speak ill of a fellow Republican." Why then is a GOP operative like Rove suing one of the party's most prominent candidates? What downside, if any, is there to a suit by Rove? Answers tomorrow.
*****
In my post yesterday on Karl Rove & Co. v. Thornburgh, 39 F.3d 1273 (5th Cir.1994), I asked two questions: First, how could a candidate for office structure the business relationship between the candidate, the election committee, and contractors so as to minimize the candidate's potential liability? Second, according to former President Ronald Reagan's famous dictum, the 11th Commandment reads, "Thou shall not speak ill of a fellow Republican." Why then is a GOP operative like Rove suing one of the party's most prominent candidates? What downside, if any, is there to a suit by Rove?
As to the former, the court explained that a candidate for federal office has at least two methods by which he could protect himself from personal liability for the contracts entered into by his principal campaign committee. First, he could incorporate his campaign committee. If the committee were incorporated (presumably as a nonprofit), then the candidate–whether or not he is a shareholder—is shielded from personal liability by the corporate entity, assuming, of course, that he takes no personal action that creates liability apart from the corporation’s. Second, a candidate could include in all contracts entered into by his principal campaign committee a provision expressly stipulating that the contracting party may look only to the committee and its assets for compensation, thereby eschewing the candidate’s personal liability, either directly or indirectly.
As to the latter question, I use it to impress upon students that the decision to litigate is ultimately a business one rather than a purely legal one. In some settings, you may win the legal battle, but lose the business war. As we see it, Rove faced the following trade-off: On the one hand, suing Thornburgh might give Rove a reputation as a tough guy with whom it is a bad idea to trifle. If so, future clients might think twice before welshing on a debt. In addition, if the suit is successful, Rove would recover a not inconsiderable sum. On the other hand, suing a party bigwig might alienate potential clients and thus cost Rove future business. In trying to sort out whether Rove made a wise decision, I note that Mark McKinnon, a former Democratic political consultant, reportedly calls Rove the “Bobby Fischer of politics. He not only sees the board, he sees about 20 moves ahead.”
