ProfessorBainbridge.com

Congratulations to Adam Winkler: We the Corporations

Congratulations to my colleague Adam Winkler, whose book We the Corporations has made the National Book Foundation Longlist for Nonfiction for 2018.

A work that is both engrossing and surprising….As we await the Supreme Court’s decision in the critical case of whether a business can decline to serve a customer based on its distaste for same-sex marriages, all citizens would do well to pick up a copy of We the Corporations to understand the full implications of what it decides. — Jonathan A. Knee (New York Times)

Much of the value of Winkler’s book lies in his elegant stitching together of 400 years of diverse cases, allowing us to feel the sweep and flow of history and the constantly shifting legal approaches to understanding this unusual entity — Blackstone’s ‘artificial person.’ Four hundred years is a lot of time, and Winkler does a wonderful job of finding illustrative details without drowning in them, and of giving each case enough attention to make it come alive…By nailing down the absurdities of the past, Winkler allows us to see how the future becomes more open. — Zephyr Teachout (New York Times Book Review)

Winkler’s deeply engaging legal history, authoritative but accessible to non-lawyers, takes readers inside courtrooms, judges’ chambers and corporate offices… The book offers new takes on familiar stories…as well as fascinating insights from largely forgotten moments… [A] meticulous, educational and thoroughly enjoyable retelling of our nation’s past. — Benjamin C. Waterhouse (Washington Post)

'Are corporations people?' That’s the provocative question Winkler poses at the outset of his impressive, engaging new book. . . . [Winkler] begins in Colonial America and provides a forceful and highly readable account of what he convincingly describes as a 'long, and long overlooked, corporate rights movement.' — The National Book Review

An eye-opening account of how corporations became ‘persons’ entitled to constitutional rights and used those rights to impede efforts to regulate them in the interests of real people. — David Cole, author of Engines of Liberty: The Power of Citizen Activists to Make Constitutional Law

An incisive account of the unlikely rise of an idea that has nearly turned American politics upside down. — Jill Lepore, author of The Secret History of Wonder Woman

This is a brilliant, beautifully written book on a topic affecting almost every area of law: how did corporations come to have rights under the Constitution? Professor Winkler carefully details this history from English law to the present, and the book is filled with new insights and information. Any future discussion of rights for corporations will be shaped by this wonderful book. — Erwin Chemerinsky, dean and Raymond Pryke Professor of First Amendment Law, University of California, Irvine School of Law

Impressively thorough and wide-ranging. . . . Winkler employs an evocative, fast-paced storytelling style, making for an entertaining and enlightening book that will likely complicate the views of partisans on both sides of the issue. — Publishers Weekly, starred review

A chronicle of the steady, willful process by which corporations became people—until, that is, you try to sue them. . . . Maddening for those who care about matters constitutional and an important document in the ongoing struggle to undo Citizens United. — Kirkus Reviews

[A] timely, exciting book . . . . Constitutional law professor and legal commentator Winkler examines the history of the relationship between corporations and the Constitution, providing a field guide to the legal issues and an overview of a long-term corporate civil rights movement that employs techniques familiar from social justice movements. . . . Along the way, he presents a wide range of vividly drawn historical figures, bringing their philosophies, tactics, debates, and shenanigans to life while allowing readers to assess the ethics and implications of their work. — Sara Jorgensen (Booklist)

Does California Recognize the De Facto Merger Doctrine Outside the Successor Liability Context?

I awoke this morning to find I had been tagged in the following tweet:</p?

Nice potential example for corporations casebook, if it gets to an opinion. (cc: @ProfBainbridge) https://t.co/kdtAnEPpOW

— Dave Hoffman (@HoffProf) September 13, 2018

It is true that California recognizes the de facto merger doctrine in successor liability cases. In Marks v. Minnesota Mining & Mfg. Co., 232 Cal. Rptr. 594 (Cal. App. 1st Dist. 1986), for example, "plaintiff filed a complaint for strict products liability, breach of warranty, and negligence against Minnesota Mining and Manufacturing Co. (3M) and McGhan Medical Corporation. 3M and McGhan Medical Corporation" alleging that they had manufactured a defective "inflatable mammary prosthesis used in breast augmentation surgery." The prosthesis had been manufactured by McGhan. Subsequently thereto McGhan's assets were sold to 3M, but 3M did not acquire McGhan's liabilities. 

In general, in such cases the liabilities remain with the seller and the purchaser takes the assets free of any attached liabilities. 

As the Third Circuit has explained:

Under the well-settled rule of corporate law, where one company sells or transfers all of its assets to another, the second entity does not become liable for the debts and liabilities, including torts, of the transferor.

Four generally recognized exceptions qualify this principle of successor nonliability. The purchaser may be liable where: (1) it assumes liability; (2) the transaction amounts to a consolidation or merger; (3) the transaction is fraudulent and intended to provide an escape from liability; or (4) the purchasing corporation is a mere continuation of the selling company.

The successor rule was designed for the corporate contractual world where it functions well. It protects creditors and dissenting shareholders, and facilitates determination of tax responsibilities, while promoting free alienability of business assets. The doctrine reflects the general policy that liabilities adhere to and follow the corporate entity. However, when the form of the transfer does not accurately portray substance, the courts will not refrain from deciding that the new organization is simply the older one in another guise.[1]

As noted, California does recognize the de facto merger doctrine in successor liability cases arising from tort. But the case to which Professor Hoffman drew my attention is not a traditional tort case involving successor liability:

Sixteen former Dickstein Shapiro partners have sued Blank Rome claiming the 2016 merger between the two firms was inappropriately styled as a sale to avoid paying out more than $4 million in capital accounts owed to former partners.

“Blank Rome’s transactional attorneys tried to ‘play cute’ by structuring the merger of Dickstein Shapiro into its law firm by the artifice of labeling it as an ‘asset sale’ for the solitary purpose of defrauding former Dickstein Shapiro partners (who were necessarily not going to be a part of Blank Rome),” wrote the former Dickstein Shapiro’s lawyers at Kabateck Brown Kellner and The Kellner Law Group in Los Angeles in a complaint filed Wednesday in Los Angeles Superior Court.

“This lawsuit has no merit and we intend to vigorously defend it,” a Blank Rome spokeswoman said in email Thursday morning.

The lawsuit, filed on behalf of 15 partners who left Dickstein in the run-up to the Blank Rome deal and one who retired about a month prior to the February 2016 tie-up, seeks a declaratory judgement that the deal was a “de facto merger.” Such a finding, the former partners claim, would leave Blank Rome liable for Dickstein’s debts and in breach of the defunct firm’s partnership agreement with former partners, which required the firm to pay back departing partners’ capital accounts with interest.

Instead, this case arguably is more analogous to cases in which shareholders seek to use the de facto merger doctrine so as to obtain voting or appraisal rights in a transaction designed to deprive them of those rights.

Assume that Buyer Corporation and Target Inc. agree that Buyer will acquire Target via a reverse triangular merger. As a result, Buyer's shareholders will not be entitled to vote on the merger nor will they be eligible for appraisal rights. Disgruntled Buyer shareholders sue, arguing that the reverse triangular merger is a de facto merger. If the court agrees, the court will ignore the form of the transaction, treat the deal as a standard two‑party merger, and grant both Buyer and Target shareholders the right to vote and the right to dissent.

Why did the Delaware courts and the Pennsylvania legislature reject the de facto merger doctrine? Is it simply that they prefer corporate interests to shareholder interests? No. The statute provides various ways of accomplishing an acquisition. It does so because no one acquisition technique is always appropriate. If we let courts recharacterize the statutory alternatives, we increase uncertainty and we eliminate the wealth‑creating advantages of having multiple acquisition formats.

Assuming the court decides that this case is more akin to de facto merger cases brought by shareholders than those brought by tort claimants in products liability cases, the pertinent question is whether California recognizes de facto merger outside the successor liability context.

A quick Westlaw search this morning seemed to kick up only successor liability cases. So I’m going to tag in Keith Paul Bishop.

 

[1]Polius v. Clark Equipment Co., 802 F.2d 75, 77-78 (3d Cir 1986) (citations omitted).

UND STEP Course on The Creed: Week 2 Assignment

As previously explained, I've enrolled in the University of Notre Dame's Satellite Theological Education Program (STEP) to pursue their Certificate in Doctrine. I've already taken three of the six required courses, plus I digressed from the course list to pick up the course on Catholic Social Teaching. Now I'm back on the Certificate pathway taking my fourth course. This time it's The Creed. Our text is Bernard L. Marthaler - The Creed.

Week 2 Questions:

• What does it mean to speak of God as “Father”? Explore the benefits and limitations in language in the naming of God, referring to St. Thomas Aquinas’ principle of analogy.

The Principle of Analogy

As we discussed last week, humans lack the language (and mental ability) to comprehend the Trinity. We are like the two-dimensional squares in Edwin Abbott's story Flatland, trying to understand what a three-dimensional cube is like. We simply don't have the technology of language and conception to do so.

Hence, we must use analogies. Marthaler explains that St. Thomas Aquinas articulated the concept of analogy in several ways, but that at its base it "means that there exists a common denominator between certain human qualities and the divine attributes." (39) Marthaler further argues that the process of analogy involves three steps: negation, affirmation, and attribution.

Applied to the question at hand, we begin with negation, which in this context means recognizing that God is not human. God thus has no gender as we understand it.

At the same time, however, we can affirm that many of the ways in which God is described in the Bible share a common denominator with--they are analogous to--the qualities we associate with Fatherhood: wisdom, guidance, discipline, love, kindness, comfort, protection, and so on.

Finally, we attribute those qualities to God.

This analogy sheds light on various aspects of the Christian faith and walk. I suspect most of us approach our fathers differently than our mothers. You know your dad loves you, but he is still a figure of respect to be honored.  He is the head of the household, after all, who sits at the head of the table. Going into your dad's study to talk to him is a (pale) image of approaching God the Father where he sits on the throne of heaven, but it is nevertheless a useful analogy.

UND STEP Course on The Creed: Week 1 Discussion Questions

"We know what we believe, so why the need to recite it every Sunday?"

Malcolm Gladwell famously said that to master something, you must do it 10,000 times. (More, precisely, he said you must practice it for 10,000 hours.) Repeating the Creed every week is like practicing an instrument regularly, It helps us internalize the Creed and to make it as natural a part of life as playing the instrument. It becomes part of the muscle memory of our faith.

"Why is it important for the Church to be able to point to scripture to back up the Creed?"

Scripture is the divinely inspired word of God. While the Church teaches that God's revelation did not end when the canonical order and content of the New Testament were finalized, no statement of faith or belief that is contrary to the Scripture can be regarded as truly orthodox. It is the touchstone against which our beliefs are measured.

"If you had to explain the difference between the Nicene and Apostles Creeds what would you say?"

Marthaler offers a somewhat odd explanation of the distinction between the two: "The Apostle's Creed came to have more of a pedagogical than a liturgical function." Given that we use the AC in the liturgy part fo the liturgical year, I found this unenlightening. My own view is that the AC is an earlier creed that was largely settled before the controversies to which the Nicene Creed is addressed. The AC lacks the developed theology--especially the more fully developed Christology--that is present in the NC. As a result, Unitarians accept the AC because of its lack of an explicit Trinitarian statement. Likewise, Arians (if there are still any) can accept the AC because of that absence.

A short essay on corporate philanthropy

A.P. Smith Manufacturing Co. v. Barlow, the most frequently cited example of cases validating corporate social responsibility, upheld a corporate charitable donation on the ground, inter alia, that “modern conditions require that corporations acknowledge and discharge social as well as private responsibilities as members of the communities within which they operate.”[1]Ultimately, however, the differences between Barlowand cases like Dodgev. Ford Motor Co.[2]have little more than symbolic import. As the Barlowcourt recognized, shareholders’ long-run interests are often served by decisions (such as charitable giving) that appear harmful in the short-run. Because the court acknowledged that the challenged contribution thus could be justified on profit-maximizing grounds, its broader language on corporate social responsibility is arguably mere dictum.

As we have seen, A. P. Smith Manufacturing Co. v. Barlow,[3]is often cited as a leading corporate social responsibility decision. Ironically, however, the specific question presented therein—the validity of corporate philanthropy—has been resolved in a more narrow way. Corporate charitable donations are subject to attack under two doctrines: ultra vires and breach of fiduciary duty. Neither is likely to succeed, so long as the amount in question is reasonable and some plausible corporate purpose may be asserted.

Virtually all states have adopted statutes specifically granting corporations the power to make charitable donations,[4]which eliminates the ultra vires issue. Although these statutes typically contain no express limit on the size of permissible gifts, courts interpreting the statutes require corporate charitable donations to be reasonable both as to the amount and the purpose for which they are given.[5]The federal corporate income tax code’s limits on the deductibility of corporate charitable giving are often used by analogy by courts seeking guidance on whether a gift was reasonable in amount.

As for breach of fiduciary duty claims, the principles announced in Dodge v. Ford Motor Co.[6]arguably require that corporate philanthropy redound to the corporation’s benefit. As Shlensky v. Wrigley[7]suggests, however, reasonable corporate donations should be protected by the business judgment rule.[8]Consequently, Barlow’s discourse on corporate social responsibility properly is regarded as mere dicta.

CST & The Law Seminar: Notes on Pope Leo XIII's Encyclical Rerum Novarum (1891)

Rerum Novarum: Major Themes

1. Work and the economy, with special emphasis on the respective rights and duties of capital and labor.
2. The nature of the common good and the obligation to promote it.
3. The role of the state in society.

Work and the Economy

Pope Leo XIII was deeply concerned with the state of workers. In that time, he argued, “working men have been surrendered, isolated and helpless, to the hardheartedness of employers and the greed of unchecked competition.” (3)

At the same time, however, Leo abhorred socialism, writing of socialists that “They are, moreover, emphatically unjust, for they would rob the lawful possessor, distort the functions of the State, and create utter confusion in the community.” (4) Rerum novarumoffers a qualified defense of private property. On the one hand, Leo contends that the right to private property is based on natural law. (6)[1]On the other hand, however, Leo cautions that wealth must be used for the welfare of all, especially the indigent.

True, no one is commanded to distribute to others that which is required for his own needs and those of his household; nor even to give away what is reasonably required to keep up becomingly his condition in life, "for no one ought to live other than becomingly.” But, when what necessity demands has been supplied, and one's standing fairly taken thought for, it becomes a duty to give to the indigent out of what remains over. (22)

Returning to the plight of the worker, Leo advocated both state intervention in the economy and collective action by workers.

• “Daily labor … should be so regulated as not to be protracted over longer hours than strength admits.” (42)
• “And, in regard to children, great care should be taken not to place them in workshops and factories until their bodies and minds are sufficiently developed. For, just as very rough weather destroys the buds of spring, so does too early an experience of life's hard toil blight the young promise of a child's faculties, and render any true education impossible.” (42)
• “The most important of all [beneficial societies] are workingmen's unions, for these virtually include all the rest. History attests what excellent results were brought about by the artificers' guilds of olden times. They were the means of affording not only many advantages to the workmen, but in no small degree of promoting the advancement of art, as numerous monuments remain to bear witness. Such unions should be suited to the requirements of this our age - an age of wider education, of different habits, and of far more numerous requirements in daily life.” (49)

In speaking of the right of workers to associate together, however, Leo was not talking about modern trade unions:

Associations of every kind, and especially those of working men, are now far more common than heretofore. As regards many of these there is no need at present to inquire whence they spring, what are their objects, or what the means they imply. Now, there is a good deal of evidence in favor of the opinion that many of these societies are in the hands of secret leaders, and are managed on principles ill - according with Christianity and the public well-being; and that they do their utmost to get within their grasp the whole field of labor, and force working men either to join them or to starve. Under these circumstances Christian working men must do one of two things: either join associations in which their religion will be exposed to peril, or form associations among themselves and unite their forces so as to shake off courageously the yoke of so unrighteous and intolerable an oppression. No one who does not wish to expose man's chief good to extreme risk will for a moment hesitate to say that the second alternative should by all means be adopted. (54)

Instead, he seems to have had in mind some form of Catholic workers’ association, apparently to be modeled on the medieval guild system.

It was only later Papal documents, such as Pope Pius X’s encyclical letter Singulari quadam, that more explicitly refer to organizations akin to modern trade unions (sydicatus):

… where either the laws of a country, or certain special economic institutions, or that deplorable dissension of minds and hearts so widespread in contemporary society and an urgent necessity of combating with united purpose and strength the massed ranks of revolutionarists, have prevented Catholics from founding purely Catholic labor unions. Under these conditions, Catholics seem almost forced to join secular labor unions. These unions, however, should always profess justice and equity and give Catholic members full freedom to care for their own conscience and obey the laws of the Church. It is clearly the office of bishops, when they know that these associations are on account of circumstances necessary and are not dangerous to religion, to approve of Catholic workers joining them, keeping before their eyes, however, the principles and precautions laid down by Our Predecessor, Pius X of holy memory.[24] Among these precautions the first and chief is this: Side by side with these unions there should always be associations zealously engaged in imbuing and forming their members in the teaching of religion and morality so that they in turn may be able to permeate the unions with that good spirit which should direct them in all their activity. As a result, the religious associations will bear good fruit even beyond the circle of their own membership. (Quadragesimo Anno, 35)

The Common Good

The English translationof Rerum Novarumrefers explicitly to the “common good” five times, but nowhere defines it. Leo probably felt it unnecessary to do so, because the term can be traced in Catholic theology back through Aquinas to Augustine.

The Compendium defines it as “the sum total of social conditions which allow people, either as groups or as individuals, to reach their fulfilment more fully and more easily.” (164)

Pope Leo acknowledged a role for the State in advancing the common good (so much for the libertarian night watchman state), observing that “it lies in the power of a ruler to benefit every class in the State, and amongst the rest to promote to the utmost the interests of the poor; and this in virtue of his office, and without being open to suspicion of undue interference - since it is the province of the commonwealth to serve the common good.” (32)

Leo also posits that all citizens “can and ought to contribute to that common good in which individuals share so advantageously to themselves,” while acknowledging that the ways on which each individual does so can and must vary by their condition and that of society. (34)

Leo also returns to the question of private property, explicitly rejecting the socialist notion that the common good can justify “any individual to seize upon that which belongs to another, or, under the futile and shallow pretext of equality, to lay violent hands on other people's possessions.” He therefore condemned radical revolutionaries “who are imbued with evil principles and eager for revolutionary change, whose main purpose is to stir up disorder and incite their fellows to acts of violence.” (38)

The Role of the State in Society

Church and State

Lucia Silecchia observes that:

The Church sees its place as neither beholden to nor bound by any particular order. Instead, while contributing a moral framework of law and policy making, Catholic social teaching remains hospitable to a wide variety of political regimes and parties.

How wide? In other words, are there political regimes and parties the Church views as illegitimate?

Rerum Novarumdoes not speak to this question, but its principles lay the framework on which later encyclicals build a somewhat qualified preference for democracy and opposition to totalitarianism and dictatorships.

Subsidiarity

Lucia Silecchia observes that:

… Octogesima Adveniensteaches, "[t]he domain of politics is wide and comprehensive, but it is not exclusive," [so] the Church's teaching is directed to all the institutions that can shape society. These include, but are not limited to, families, religious communities, schools, social and fraternal organizations, private charitable organizations, lay professionals in all fields, and, in some ways most importantly, individuals. (284)

Although Rerum Novarumdoes not explicitly discuss subsidiarity by name, the concept is clearly embedded in it. Pope Leo XIII emphasizes, for example, that “the State must not absorb the individual or the family; both should be allowed free and untrammelled action so far as is consistent with the common good and the interest of others.” (35) Later he again touches on what became the principle of subsidiarity, remarking that “Private societies, … although they exist within the body politic, and are severally part of the commonwealth, cannot nevertheless be absolutely, and as such, prohibited by public authority.” (51)

Practical Applications

I posed two questions to the class that attempted to get them thinking about how CST can be used to understand public policy questions. In part, however, I did do to illustrate how CST is often a blunt instrument for answering specific questions. It’s much better at laying out broad principles.

• At most corporations today, the chief executive officer (CEO) earns vastly more than the median worker. To cite just a couple of examples, Kohl’s reported a pay ratio of 1,264 to 1, with the median worker making $8,975 compared to the CEO’s pay of $11.3 million. Under Armour reported a pay ratio of 378 to 1, with median employee paid $10,686 a year. What would Pope Leo likely have said about such disparities? Does Rerum Novarum suggest any policy responses to such disparities?

I don’t think Pope Leo would have condemned inequalities of wealth out of hand. “It must be first of all recognized that the condition of things inherent in human affairs must be borne with, for it is impossible to reduce civil society to one dead level.” (17) Instead, Leo wrote that:

The following duties bind the wealthy owner and the employer: not to look upon their work people as their bondsmen, but to respect in every man his dignity as a person ennobled by Christian character. … His great and principal duty is to give every one what is just. Doubtless, before deciding whether wages axe fair, many things have to be considered; but wealthy owners and all masters of labor should be mindful of this - that to exercise pressure upon the indigent and the destitute for the sake of gain, and to gather one's profit out of the need of another, is condemned by all laws, human and divine. To defraud any one of wages that are his due is a great crime which cries to the avenging anger of Heaven. (20)

Rerum Novarum is thus less concerned with the CEOs wages than with ensuring that all workers are paid a just wage.

Having said that, however, Pope Leo introduces the important CST concept of stewardship:

… those whom fortune favors are warned that riches do not bring freedom from sorrow and are of no avail for eternal happiness, but rather are obstacles; that the rich should tremble at the threatenings of Jesus Christ—threatenings so unwonted in the mouth of our Lord—and that a most strict account must be given to the Supreme Judge for all we possess. The chief and most excellent rule for the right use of money is one the heathen philosophers hinted at, but which the Church has traced out clearly, and has not only made known to men's minds, but has impressed upon their lives. It rests on the principle that it is one thing to have a right to the possession of money and another to have a right to use money as one wills. Private ownership, as we have seen, is the natural right of man, and to exercise that right, especially as members of society, is not only lawful, but absolutely necessary. "It is lawful," says St. Thomas Aquinas, "for a man to hold private property; and it is also necessary for the carrying on of human existence."" But if the question be asked: How must one's possessions be used? - the Church replies without hesitation in the words of the same holy Doctor: "Man should not consider his material possessions as his own, but as common to all, so as to share them without hesitation when others are in need. Whence the Apostle with, ‘Command the rich of this world... to offer with no stint, to apportion largely.’" True, no one is commanded to distribute to others that which is required for his own needs and those of his household; nor even to give away what is reasonably required to keep up becomingly his condition in life, "for no one ought to live other than becomingly." But, when what necessity demands has been supplied, and one's standing fairly taken thought for, it becomes a duty to give to the indigent out of what remains over. "Of that which remaineth, give alms." (22)

In sum, the Pope reminds the wealthy that "it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.”

• What limitations on the right of private property would Pope Leo regard as legitimate? Consider, for example, the following: Environmental regulations that prevent a landowner from damaging the habitat of endangered species? Trespassing laws that allow landowners to expel the homeless from their property? In the United Kingdom, the Countryside and Rights of Way Act 2000 gave hikers a conditional right to access most areas of uncultivated private land.

This question is really designed to tee up for future classes the question of whether Pope Leo XIII’s strong defense of private property is something of an outlier in CST. Aquinas’ defense of private property rested on prudential grounds rather than natural law. Post-Rerum Novarumpapal encyclicals, moreover, made clear that the right to possess private property is limited. Pope John Paul II, for example, wrote in Laborem Exercensthat:

Christian tradition has never upheld this right as absolute and untouchable. On the contrary, it has always understood this right within the broader context of the right common to all to use the goods of the whole of creation: the right to private property is subordinated to the right to common use, to the fact that goods are meant for everyone. (14)

The Compendium thus affirms that “regulated interventions are necessary” to ensure the just use of goods. (173)

[1]Interestingly, although the title of the encyclical invokes the “new things” of the late 19th Century, Pope Leo’s analysis of private property (5-9) seems far more concerned with property in an agrarian society (i.e., land) than with the burgeoning industrial society of the time.

Woke Business: Putting the Nike-Kaepernick Ad Controversy into Context: The Problem of Social Justice Warrior CEOs

Nike has decided to make out of work quarterback Colin Kaepernick a central piece of its 30th anniversary advertising campaign:

Believe in something, even if it means sacrificing everything. #JustDoItpic.twitter.com/SRWkMIDdaO

— Colin Kaepernick (@Kaepernick7) September 3, 2018

Predictably, this has caused anger and consternation in some right of center quarters.

Colin Kaepernick will be featured in Nike's 30th anniversary "Just Do It" campaign, announced just days before the NFL season is set to begin

People are destroying their @Nike products in response pic.twitter.com/wcpnibBbUv

— Breaking911 (@Breaking911) September 4, 2018

As a lapsed football fan who has never owned a Nike product (not on purpose, it just worked out that way), I probably would not have paid much attention to this kerfuffle but for the fact that it implicates my two most recent scholarly projects.

In Book Review Essay: Conservatives Against Capitalism: From the Industrial Revolution to Globalization by Peter Kolozi, available at SSRN: https://ssrn.com/abstract=3206963, I point out that:

Although American conservatism in recent decades has been characterized by its rhetorical embrace of free market capitalism, Kolozi reminds us that it was not always so. To the contrary, there is a long tradition of skepticism about—and sometimes outright hostility to—capitalism among important strains of American conservative thought. ...

Kolozi’s concise and eminently readable text raises the intriguing possibility that the seemingly immutable conflation of conservatism and capitalism may have been a temporary aberration. Post-war conservatism in the United States was a somewhat rocky marriage of traditionalists, libertarians, and, somewhat later, neoconservatives. These conservative tribes were united mainly by a shared opposition to Communism. Given a seemingly binary and existential choice between what passed for capitalism in the post-war West and Soviet communism, American conservatives opted for the former. Yet, despite Frank S. Meyer’s famous fusionism project, which sought to create a new syncretic conservatism merging the various tribal traditions, the pre-existing fault lines persisted. With communism having been taken off the table as an existential threat, it may have been inevitable that those fault lines would rupture.

If it is possible that conservatives are going to abandon their long love affair with big business, it seems almost certain that big business is going to abandon conservatives (especially the brand of conservatives Hillary Clinton famously dismissed as deplorables).

I explore the reasons for that development in my article Corporate Purpose in a Populist Era, available at SSRN: https://ssrn.com/abstract=3237107.  In it, I observe that both left- and right-wing populists historically have viewed corporate directors and managers as elites opposed to the best interests of the people. Today, however, right of center populists find themselves increasingly at odds with an emergent class of social justice warrior CEOs, whose views on a variety of critical issues are increasingly closer to those of blue state elites than those of red state populists.

To be sure, as Josh Barro perceptively argues, brands like Nike have profit maximizing reasons for aligning themselves with woke coastal millennials, who are at the core of the supposedly most desirable marketing demographic. But there is also something else going on here, which I explore at length in my article:

The values of the elites (the Oligarchs and Clerisy, as Kotkin calls them), on the one hand, and those of non-elites, on the other, have been diverging for several decades. In his 1995 classic The Revolt of the Elites, Christopher Lasch identified the emergent split between what he called the New Elites and the rest of society.[1]Lasch identified several trends that have accelerated in subsequent years. First, he argued, American elites had become increasingly global, rejecting nationalism and patriotism, and refusing to be tied to places or people.[2]Today we refer to those elites, as well as their global counterparts and those who aspire to join them,[3]as Davos Man:

January is when the World Economic Forum (WEF) holds its annual conference at a Swiss mountain resort to “improve the state of the world.” More than a business meeting for 2,500-plus globetrotting academics, executives, politicians, and lobbyists, it is a tribal celebration for leaders who worship a holy trinity of ideas: capitalism, globalization, and innovation. In a 2004 essay, Samuel Huntington, who popularized the term “Davos Man,” described this breed of humans as “view[ing] national boundaries as obstacles that thankfully are vanishing.” (And, yes, more than 80 percent of attendees at the WEF conference are male.)[4]

As The Economist’s Schumpeter columnist observed in 2013, “[o]rdinary folk trust Davos Man no more than they would a lobbyist for the Worldwide Federation of Weasels.”[5] This distrust took on considerable political weight in the 2016 Presidential campaign, as the populists who voted for Trump recognized that a minority comprised of “people from ‘anywhere’” ruled the majority of people who came from “somewhere.”[6]

The first group … holds “achieved” identities based on educational and professional success. Anywheres value social and geographical mobility. The second group is characterised [sic] by identities rooted in a place, and its members value family, authority and nationality.

Whereas Anywheres, whose portable identities are well-suited to the global economy, have largely benefited from cultural and economic openness in the West, he argues, the Somewheres have been left behind—economically, but mainly in terms of respect for the things they hold dear. The Anywheres look down on them, provoking a backlash.[7]

The disdain in which elites now hold non-elites was another critical emergent trend Lasch identified. As Christopher Lasch explained, “the new elites, the professional classes in particular, regard the masses with mingled scorn and apprehension.”[8]Many of Lasch’s new elites dismissed the masses’ values as “mindless patriotism, religious fundamentalism, racism, homophobia, and retrograde views of women.”[9]

Middle Americans, as they appear to the makers of educated opinion, are hopelessly shabby, unfashionable, and provincial, ill informed about changes in taste or intellectual trends, addicted to trashy novels of romance and adventure, and stupefied by prolonged exposure to television. They are at once absurd and vaguely menacing—not because they wish to overthrow the old order but precisely because their defense of it seems so deeply irrational [to the new elites] ….[10]

This tension was perhaps nowhere more pronounced than with respect to religion. When Lasch write over two decades ago, “[a] skeptical, iconoclastic state of mind is one of the distinguishing characteristics of the knowledge classes. ... The elites’ attitude to religion ranges from indifference to active hostility.”[11]

If anything, today’s elites have become even more hostile to religious values. As Samuel Gregg observes, the Davos Man’s moral creed is “a mélange of social liberalism, environmentalism, and a new order of a borderless world. Religion is … considered the refuge of fanatics and anyone stupid enough to be skeptical of gender ideology and techno-utopianism.”[12]

In contrast, modern right-wing populists are highly religious. According to a 2011 Pew Research Center analysis, for example, Tea Party members were “much more likely than registered voters as a whole to say that their religion is the most important factor in determining their opinions on … social issues.”[13]Likewise, a subsequent Pew analysis found that “white born-again or evangelical Christians and white Catholics … strongly supported Donald Trump ….”[14]

Today’s elites thus hold non-elites in at least as much disdain as did the elites of Lasch’s period. The Clerisy, in particular, scarcely bothers to conceal its disdain for the traditional middle and working classes.[15]This disdain manifests itself in a variety of ways, perhaps most notably through the increasing separation between the working class and the elites.

The increasing geographical separation between the elites, on the one hand, and the working class, on the other, with the former migrating to the coasts and large cities and the latter remaining in rural areas, has been widely remarked.[16]Even when they live in relative geographical proximity, however, the elites are increasingly walling themselves off from non-elites. As Joel Kotkin observed, for example, “large sections of the [San Francisco] Bay Area … resemble a ‘gated’ community, where those without the proper academic credentials, and without access to venture funding are forced into a kind of marginal nether-existence.”[17]

Ditto Portland (or, more precisely, Beaverton). The bottom line is that the values, beliefs, and tastes of social justice warrior CEOs like Phil Knight have radically diverged from those of red state populists. In many cases, it simply would not occur to SJWs like Knight that there are folks who would take offense from the Kaepernick ad. And, if it did, Knight and his ilk simply won't care. 

Welcome to the new world.

Nike has decided to make out of work quarterback Colin Kaepernick a central piece of its 30th anniversary advertising campaign:

Believe in something, even if it means sacrificing everything. #JustDoItpic.twitter.com/SRWkMIDdaO

— Colin Kaepernick (@Kaepernick7) September 3, 2018

Predictably, this has caused anger and consternation in some right of center quarters.

Colin Kaepernick will be featured in Nike's 30th anniversary "Just Do It" campaign, announced just days before the NFL season is set to begin

People are destroying their @Nike products in response pic.twitter.com/wcpnibBbUv

— Breaking911 (@Breaking911) September 4, 2018

As a lapsed football fan who has never owned a Nike product (not on purpose, it just worked out that way), I probably would not have paid much attention to this kerfuffle but for the fact that it implicates my two most recent scholarly projects.

In Book Review Essay: Conservatives Against Capitalism: From the Industrial Revolution to Globalization by Peter Kolozi, available at SSRN: https://ssrn.com/abstract=3206963, I point out that:

Although American conservatism in recent decades has been characterized by its rhetorical embrace of free market capitalism, Kolozi reminds us that it was not always so. To the contrary, there is a long tradition of skepticism about—and sometimes outright hostility to—capitalism among important strains of American conservative thought. ...

Kolozi’s concise and eminently readable text raises the intriguing possibility that the seemingly immutable conflation of conservatism and capitalism may have been a temporary aberration. Post-war conservatism in the United States was a somewhat rocky marriage of traditionalists, libertarians, and, somewhat later, neoconservatives. These conservative tribes were united mainly by a shared opposition to Communism. Given a seemingly binary and existential choice between what passed for capitalism in the post-war West and Soviet communism, American conservatives opted for the former. Yet, despite Frank S. Meyer’s famous fusionism project, which sought to create a new syncretic conservatism merging the various tribal traditions, the pre-existing fault lines persisted. With communism having been taken off the table as an existential threat, it may have been inevitable that those fault lines would rupture.

If it is possible that conservatives are going to abandon their long love affair with big business, it seems almost certain that big business is going to abandon conservatives (especially the brand of conservatives Hillary Clinton famously dismissed as deplorables).

I explore the reasons for that development in my article Corporate Purpose in a Populist Era, available at SSRN: https://ssrn.com/abstract=3237107.  In it, I observe that both left- and right-wing populists historically have viewed corporate directors and managers as elites opposed to the best interests of the people. Today, however, right of center populists find themselves increasingly at odds with an emergent class of social justice warrior CEOs, whose views on a variety of critical issues are increasingly closer to those of blue state elites than those of red state populists.

To be sure, as Josh Barro perceptively argues, brands like Nike have profit maximizing reasons for aligning themselves with woke coastal millennials, who are at the core of the supposedly most desirable marketing demographic. But there is also something else going on here, which I explore at length in my article:

The values of the elites (the Oligarchs and Clerisy, as Kotkin calls them), on the one hand, and those of non-elites, on the other, have been diverging for several decades. In his 1995 classic The Revolt of the Elites, Christopher Lasch identified the emergent split between what he called the New Elites and the rest of society.[1]Lasch identified several trends that have accelerated in subsequent years. First, he argued, American elites had become increasingly global, rejecting nationalism and patriotism, and refusing to be tied to places or people.[2]Today we refer to those elites, as well as their global counterparts and those who aspire to join them,[3]as Davos Man:

January is when the World Economic Forum (WEF) holds its annual conference at a Swiss mountain resort to “improve the state of the world.” More than a business meeting for 2,500-plus globetrotting academics, executives, politicians, and lobbyists, it is a tribal celebration for leaders who worship a holy trinity of ideas: capitalism, globalization, and innovation. In a 2004 essay, Samuel Huntington, who popularized the term “Davos Man,” described this breed of humans as “view[ing] national boundaries as obstacles that thankfully are vanishing.” (And, yes, more than 80 percent of attendees at the WEF conference are male.)[4]

As The Economist’s Schumpeter columnist observed in 2013, “[o]rdinary folk trust Davos Man no more than they would a lobbyist for the Worldwide Federation of Weasels.”[5] This distrust took on considerable political weight in the 2016 Presidential campaign, as the populists who voted for Trump recognized that a minority comprised of “people from ‘anywhere’” ruled the majority of people who came from “somewhere.”[6]

The first group … holds “achieved” identities based on educational and professional success. Anywheres value social and geographical mobility. The second group is characterised [sic] by identities rooted in a place, and its members value family, authority and nationality.

Whereas Anywheres, whose portable identities are well-suited to the global economy, have largely benefited from cultural and economic openness in the West, he argues, the Somewheres have been left behind—economically, but mainly in terms of respect for the things they hold dear. The Anywheres look down on them, provoking a backlash.[7]

The disdain in which elites now hold non-elites was another critical emergent trend Lasch identified. As Christopher Lasch explained, “the new elites, the professional classes in particular, regard the masses with mingled scorn and apprehension.”[8]Many of Lasch’s new elites dismissed the masses’ values as “mindless patriotism, religious fundamentalism, racism, homophobia, and retrograde views of women.”[9]

Middle Americans, as they appear to the makers of educated opinion, are hopelessly shabby, unfashionable, and provincial, ill informed about changes in taste or intellectual trends, addicted to trashy novels of romance and adventure, and stupefied by prolonged exposure to television. They are at once absurd and vaguely menacing—not because they wish to overthrow the old order but precisely because their defense of it seems so deeply irrational [to the new elites] ….[10]

This tension was perhaps nowhere more pronounced than with respect to religion. When Lasch write over two decades ago, “[a] skeptical, iconoclastic state of mind is one of the distinguishing characteristics of the knowledge classes. ... The elites’ attitude to religion ranges from indifference to active hostility.”[11]

If anything, today’s elites have become even more hostile to religious values. As Samuel Gregg observes, the Davos Man’s moral creed is “a mélange of social liberalism, environmentalism, and a new order of a borderless world. Religion is … considered the refuge of fanatics and anyone stupid enough to be skeptical of gender ideology and techno-utopianism.”[12]

In contrast, modern right-wing populists are highly religious. According to a 2011 Pew Research Center analysis, for example, Tea Party members were “much more likely than registered voters as a whole to say that their religion is the most important factor in determining their opinions on … social issues.”[13]Likewise, a subsequent Pew analysis found that “white born-again or evangelical Christians and white Catholics … strongly supported Donald Trump ….”[14]

Today’s elites thus hold non-elites in at least as much disdain as did the elites of Lasch’s period. The Clerisy, in particular, scarcely bothers to conceal its disdain for the traditional middle and working classes.[15]This disdain manifests itself in a variety of ways, perhaps most notably through the increasing separation between the working class and the elites.

The increasing geographical separation between the elites, on the one hand, and the working class, on the other, with the former migrating to the coasts and large cities and the latter remaining in rural areas, has been widely remarked.[16]Even when they live in relative geographical proximity, however, the elites are increasingly walling themselves off from non-elites. As Joel Kotkin observed, for example, “large sections of the [San Francisco] Bay Area … resemble a ‘gated’ community, where those without the proper academic credentials, and without access to venture funding are forced into a kind of marginal nether-existence.”[17]

Ditto Portland (or, more precisely, Beaverton). The bottom line is that the values, beliefs, and tastes of social justice warrior CEOs like Phil Knight have radically diverged from those of red state populists. In many cases, it simply would not occur to SJWs like Knight that there are folks who would take offense from the Kaepernick ad. And, if it did, Knight and his ilk simply won't care. 

Welcome to the new world.

CST & The Law Seminar: Does Catholic Social Thought have a legitimate role in legal and public policy discussions in a liberal democracy?

In the social teaching, the Church speaks not just to the faithful but to the entire world. As the Compendiumexplains:

The text has been presented in such a way as to be useful not only from within (ab intra), that is among Catholics, but also from outside (ab extra). In fact, those who share the same Baptism with us, as well as the followers of other Religions and all people of good will, can find herein fruitful occasions for reflection and a common motivation for the integral development of every person and the whole person.

But we live in a secular society, one of whose foundational principles is claimedto be a wall of separation between church and state. Does the teaching of one Church have any relevance to us as citizens and, in particular, as lawyers who by the nature of our profession take a leading role in making law and setting public policy?

Obviously, these are highly controversial issues on which much ink has been spilled. We could spend an entire year on them. Because we only had about an hour to discuss it, however, I had the students read just two articles touching on these questions:

1. Avery Cardinal Dulles, Catholic Social Teaching and American Legal Perspective, 30 Fordham Urban Law Journal 277 (2002)
2. Lucia A. Silecchia, Catholic Social Teaching and Its Impact on American Law, 1 Journal of Catholic Social Thought 277 (2004)

Perhaps not surprisingly, given the nature of this course, both offer affirmative answers to those questions.

Silecchia offers a very practical justification for the Church’s social role; namely, it’s “hands-on experience” with a multitude of social ills in its role as “the single largest non-governmental provider of social services.” (292) Few other social actors can match that body of knowledge and practical wisdom.

He also offers a very practical reason for allowing citizens and lawmakers to consider their religious beliefs when acting in the public square: “it would be difficult for a religious legislator or, for that matter, for a religious voter, to make an honest assessment of solutions without consulting his or her religious values for guidance.” It’s very hard if not impossible to compartmentalize one’s thinking in that way.

Why California's Gender Quota Bill Is More Likely To Be Unconstitutional Than California's Pseudo-Foreign Corporation Statute https://t.co/9tlH8dfEzs

— Professor Bainbridge (@ProfBainbridge) September 4, 2018

UND STEP Course on The Creed: Week 1 Assignment

As previously explained, I've enrolled in the University of Notre Dame's Satellite Theological Education Program (STEP) to pursue their Certificate in Doctrine. I've already taken three of the six required courses, plus I digressed from the course list to pick up the course on Catholic Social Teaching. Now I'm back on the Certificate pathway taking my fourth course. This time it's The Creed. Our text is Bernard L. Marthaler - The Creed.

Week 1 Questions:

• Some Christians prefer to speak of the Triune God using the names, “Creator, Redeemer and Sanctifier” rather than the traditional names of “Father, Son and Holy Spirit.” Explain the possible advantages and disadvantages of using these names.

I assume that such terminology is an attempt to be politically correct by avoiding gendered language for God. While it is obviously desirable for the Church to be all-inclusive, so that all may be saved, and while it is true that God is neither male nor female in a literal sense, it is not obvious (at least to me) that non-gendered language is appropriate when speaking the Triune God. The historical Jesus, after all, was indisputably male. God refers to Jesus as "my Son." Conversely, Jesus refers to God as "Abba" or Father. According to Marthaler, he does so 170 times in the NT. (42) So too do the writings of the New Testament and the early Church fathers.

The Catechism explains that (239):

By calling God "Father", the language of faith indicates two main things: that God is the first origin of everything and transcendent authority; and that he is at the same time goodness and loving care for all his children.

As the Catechism goes on to emphasize, of course, this does not exclude the important role of women in the Church nor does it gender God ("He is neither man nor woman: he is God."). Instead, as Marthaler suggests, this usage reflects the fact that we attribute to God "those ideal qualities we associate with fatherhood: the giving of life, love, faithfulness, continued care and protection, and wisdom that guides and instructs. (43) 

• How could you reconcile these two statements: “God is a person” and “God is three persons”?

C.S. Lewis suggested that humans lack the language to truly understand that Trinity, but then offered a wonderful and helpful analogy that was probably based on Edwin Abbott's Flatland. Joel Anderson summarizes it as follows:

On a one-dimensional level, you can have a straight line. On a two-dimensional level, those lines can be combined in ways they couldn’t conceive in a one-dimensional world, and they could form a square. Moving on, on a three-dimensional level, those squares can be combined in yet more inconceivable ways for anyone living in a one-or-two-dimensional world, and could form a cube.

In our life in this natural world, we understand that one person is one being. I am me, and you are you. Perhaps we might get a fleeting glimpse of “two becoming one” in a strong, loving marriage—you know, the kind where the man and woman are so united that when one dies after 60 years of marriage, the very next day the other one passes away. Still, for the most part, in this world one person is one being, and we can’t really conceive of it any other way.

Lewis, though, suggests that the doctrine of the Trinity describes a “higher kind of life,” where you can have “a being who is three Persons while remaining one Being, just as a cube is six squares while remaining one cube.” Let’s face it, if you were a square, and someone tried to tell you about the reality of a cube, that person might be able to draw something like this,  but what you’re looking at isn’t really a cube: it’s a two-dimensional illustrate of what a cube would look like. We get a general idea, but unless you step into a three-dimensional world, that drawing will still be beyond our understanding.

UND STEP Course on The Creed: Week 1 Reflection

As previously explained, I've enrolled in the University of Notre Dame's Satellite Theological Education Program (STEP) to pursue their Certificate in Doctrine. I've already taken three of the six required courses, plus I digressed from the course list to pick up the course on Catholic Social Teaching. Now I'm back on the Certificate pathway taking my fourth course. This time it's The Creed. Our text is Bernard L. Marthaler - The Creed.

Week1 Reflection Question:

• In your opinion, why do we pray the Creed at Sunday Mass? What is its meaning or significance to you?

Marthaler describes the creed as a "criterion of orthodoxy." (10) It became a regular feature of the Mass in Spain at the end of the sixth century, where it's function was to help eradicate lingering Arianism among the Visigoths. (250)

Today, the Catechism states:

Whoever says "I believe" says "I pledge myself to what we believe." Communion in faith needs a common language of faith, normative for all and uniting all in the same confession of faith.

I take that to mean that the weekly recitation of the Creed at Mass serves as a regular reminder of what we believe and thereby help ensure that what we believe is orthodox. Reciting it out loud and publicly is a form of giving testimony to what we believe. Reciting it in unison is a way of being in community with our parish and, indeed, even Catholic who is reciting the creed anywhere in the world.

Can California Require Delaware Corporations to Comply with California's New Board of Director Gender Diversity Mandate? No.

Kim Krawiec reports:

Thanks to California, corporate board diversity or, more specifically, gender diversity, is in the news again. SB 826 which, according to news reports, Gov. Jerry Brown is expected to sign, passed the state Senate in a 23-9 vote and the Assembly in a 41-26 vote. The statute would require “publicly held domestic or foreign corporation[s] whose principal executive offices, according to the corporation’s SEC 10-K form, are located in California” to have a minimum of one female director on its board by the end of 2019. By the end of 2021, those numbers would increase for corporations with five directors, who would need to have a minimum of two female board members, and for corporations with six or more directors, who would need to have at least three female board members.

Kim goes on to review the policy arguments pro and con. Kevin Paul Bishop has a somewhat more detailed description of the bill.

In this post, I consider whether California can do this as a constitutional matter. 

Opponents of the legislation are mainly focusing on equal protection arguments, claiming that neither the U.S. nor the California constitutions prohibit the sort of quotas contemplated by the bill. I think there’s another issue raised by the statute, however.

Virtually all U.S. corporations are formed (“incorporated”) under the laws of a single state by filing articles of incorporation with the appropriate state official.[1]The state in which the articles of incorporation are filed is known as the “state of incorporation.” Selecting a state of incorporation has important consequences, because of the so-called “internal affairs doctrine”—a conflicts of law rule holding that corporate governance matters are controlled by the law of the state of incorporation.

Suppose, for example, that Acme, Inc., is incorporated in Delaware, but all of Acme’s assets are located in Illinois. All of Acme’s shareholders, directors, and employees reside in Illinois. Acme’s sole place of business is located in Illinois. An Acme shareholder brings suit against the board of directors, alleging that its members violated their fiduciary duty of care. The law suit is filed in an Illinois court. Despite all these Illinois ties, the Illinois court usually nevertheless will apply Delaware law.[2]

The internal affairs doctrine developed on the premise that, in order to prevent corporations from being subjected to inconsistent legal standards, the authority to regulate a corporation's internal affairs should not rest with multiple jurisdictions. … By providing certainty and predictability, the internal affairs doctrine protects the justified expectations of the parties with interests in the corporation.[3]

The internal affairs doctrine takes on particular transactional significance when considered in conjunction with the constitutional restrictions on a state’s ability to exclude foreign corporations. With rare exceptions, states have always allowed foreign and pseudo-foreign corporations to do business within their borders. As early as 1839, for example, the U.S. Supreme Court held that federal courts should presume a state would recognize foreign corporations in the absence of an express statement to the contrary by the legislature.[4]A subsequent Supreme Court decision implied that states could not exclude foreign corporations from doing business within the state provided that the business constituted interstate commerce under the Commerce Clause of the U.S. Constitution.[5]These decisions effectively created a common market for corporate charters. If Illinois, for example, adopts a restrictive corporation law, its businesses are free to incorporate in a less restrictive state, such as Delaware, while continuing to conduct business within Illinois.

Virtually all U.S. jurisdictions follow the internal affairs doctrine, even if the corporation in question has virtually no ties to the state of incorporation other than the mere fact of incorporation. A few states make a more general exception to the internal affairs doctrine for so-called pseudo-foreign corporations. A foreign corporation is one incorporated either by a state or nation other than the state in question. A pseudo-foreign corporation that has most of its ties to the state in question rather than to the state of incorporation. Many Delaware corporations are pseudo-foreign corporations. They are incorporated in Delaware, but most of their operations are located in one or more other states. In most states, there is no significant legal difference between a foreign and a pseudo-foreign corporation, and the internal affairs doctrine will be applied to invoke the law of the state of the incorporation with respect to both. California and New York are the principal exceptions to this rule. Both states purport to apply parts of their corporate laws to pseudo-foreign corporations formed in other states but having substantial contacts with California or New York.[6]SB 826 is the latest salvo in this struggle.

In 2005, the Delaware supreme court held that the general California statute was unconstitutional under the Due Process and Commerce Clauses of the U.S. Constitution.[7]

The internal affairs doctrine is not, however, only a conflicts of law principle. Pursuant to the Fourteenth Amendment Due Process Clause, directors and officers of corporations “have a significant right ... to know what law will be applied to their actions” and “[s]tockholders ... have a right to know by what standards of accountability they may hold those managing the corporation's business and affairs.” Under the Commerce Clause, a state “has no interest in regulating the internal affairs of foreign corporations.” Therefore, this Court has held that an “application of the internal affairs doctrine is mandated by constitutional principles, except in the ‘rarest situations,’ ” e.g., when “the law of the state of incorporation is inconsistent with a national policy on foreign or interstate commerce.”[8]

Ultimately, of course, the U.S. Supreme Court will have to decide the issue.

In my view, however, the Sureme Court will come down on Delaware’s side.

… application of local internal affairs law (here California's section 2115) to a foreign corporation (here Delaware) is “apt to produce inequalities, intolerable confusion, and uncertainty, and intrude into the domain of other states that have a superior claim to regulate the same subject matter....” Professor DeMott's review of the differences and conflicts between the Delaware and California corporate statutes with regard to internal affairs, illustrates why it is imperative that only the law of the state of incorporation regulate the relationships among a corporation and its officers, directors, and shareholders. To require a factual determination to decide which of two conflicting state laws governs the internal affairs of a corporation at any point in time, completely contravenes the importance of stability within inter-corporate relationships that the United States Supreme Court recognized in CTS.[9]

Unlike 2115, SB 826 tries to finesse that holding by limiting its application to quasi-foreign corporations “whose principal executive offices, according to the corporation’s SEC 10-K form.” I doubt whether that is sufficient, however. Let’s start with general principles. The Court has emphasized that “state regulation of corporate governance is regulation of entities whose very existence and attributes are a product of state law,”[10]from which the Court extrapolated the proposition that “it . . . is an accepted part of the business landscape in this country for States to create corporations, to prescribe their powers, and to define the rights that are acquired by purchasing their shares.” In keeping with that principle, the Court emphasized that state law governs the rights and duties of corporate directors: “As we have said in the past, the first place one must look to determine the powers of corporate directors is in the relevant State’s corporation law. . . . ‘Corporations are creatures of state law’ . . . and it is state law which is the font of corporate directors’ powers.”[11]Granted, none of these cases are directly on point, but taken together they suggest the Court will recognize the constitutional status of the internal affairs doctrine.

Now let’s drill down a bit. As Jack Jacobs (former Delaware Vice Chancellor and Supreme Court Justice) has noted, a problem with the California and New York statutes is that they “have extraterritorial reach because they legislatively overrule the internal affairs doctrine and impose their own, often different, internal governance requirements upon foreign corporations having a specified level of contact with the forum state.”[12]In Edgar v. Mite, a plurality of the Supreme Court held said that an Illinois statute violated the commerce clause of the U.S. Constitution because, inter alia, of the statute’s “sweeping extraterritorial effect.”[13]“The limits on a State's power to enact substantive legislation are similar to the limits on the jurisdiction of state courts. In either case, ‘any attempt “directly” to assert extraterritorial jurisdiction over persons or property would offend sister States and exceed the inherent limits of the State's power.’”[14]

SB 826 has similar extraterritorial effect. Imagine a Delaware corporation with operations in many countries around the world, as well as numerous U.S. states. While its principal executive offices are located in California, only about 3% of the company’s operations are located in California. A sizeable majority of the company’s board of directors are domiciles of other states (and even other countries). The board routinely holds conference calls linking directors at locations around the globe. The board’s regular meetings take place in various locations throughout the United States.