ProfessorBainbridge.com

The prospect of an Amy Comey Barrett nomination to the Supreme Court has unhinged both right- and-left wing anti-Catholic bigots

I think we can reasonably debate such things as:

• Is the Supreme Court too powerful in US life?
• Is it hypocritical for the GOP to nominate someone now after blocking Merrick Garland?
• Is it hypocritical for the Democrats to invoke Garland as a precedent for doing nothing now?
• Does the nominee (if there is one) have the proper legal skills and judicial temperament?

But what I will not put up with is the sort of modern Know-Nothingism being spewed over on Twitter and in some corners of the media at the mere possibility that Amy Comey Barrett might be the nominee. It's proving once again that anti-Catholicism is the last acceptable prejudice.

This good and decent person is being branded a "Catholic fascist," a harbinger of The Handmaid's Tale becoming real, "the Catholic version of Dolores Umbridge," and even worse. Much worse.

It's not just the left. Ann Coulter moronically asks: ""Would her ... idiosyncratic view of the vast deference Catholics owe the pope on political issues...lead to the ongoing influx of immigrants who overwhelmingly vote for pro-choice candidates?"

More indirect precedent for the proposition that California's Female Board Member Quota law is unconstitutional

Keith Paul Bishop has the details.

Roman Catholicism, Religious Assent, and Private Reason: The Case of the Gospel of Life

Longtime regular readers have probably figured out that I am pro-life. Over on Facebook, I posted something expressing a certain amount of dissatisfaction with Chief Justice Roberts' recent decision in June Medical Services v. Russo, the SCOTUS's latest pronouncement on abortion.

This prompted a friend to post the following reply:

Putting abortion to one side for a moment, do you favor things that would reduce the number of unwanted pregnancies? And what exactly? Do you favor free or subsidized contraception? Sex education broadly available to kids? Free or subsidized health care for pregnant moms, and free or subsidized help for young families? More adoptions? Put simply, while we all struggle to find agreement on abortion, are there other things we can do to collectively address your heartfelt objections? I do not agree with you, but I do not want to ignore your heartfelt view. What other policies can I support that you would view as helping here?

These are great questions, fairly asked, and deserve a fair answer. Such an answer, of course, requires more room than the usual Facebook reply. Hence, this blog post.

At least insofar as the question about contraception is concerned, I would respectfully suggest that its phrasing is problematic. I am, as you know, a Roman Catholic who tries (but all too often fails) to adhere to the faith. A core tenet of Roman Catholicism is the doctrine of religious assent:

Divine assistance is also given to the successors of the apostles, teaching in communion with the successor of Peter, and, in a particular way, to the bishop of Rome, pastor of the whole Church, when, without arriving at an infallible definition and without pronouncing in a "definitive manner," they propose in the exercise of the ordinary Magisterium a teaching that leads to better understanding of Revelation in matters of faith and morals. To this ordinary teaching the faithful "are to adhere to it with religious assent"which, though distinct from the assent of faith, is nonetheless an extension of it. (Catechism § 892.)

In his encyclical Evangelium Vitae, Saint Pope John Paul II affirmed that "direct abortion ... always constitutes a grave moral disorder." He specifically stated that this teaching is part of "the Church's Tradition and taught by the ordinary and universal Magisterium." (§ 62) In addition, JPII confirmed that "despite their differences of nature and moral gravity, contraception and abortion are often closely connected, as fruits of the same tree." (§ 13) In so doing, he disappointed those who hoped he would overturn or at least modify the ban on contraception set out in Pope Paul VI's encyclical Humanae Vitae (§ 14).

Although neither encyclical possesses the degree of infallibility Vatican I attributed to papal definitions, both possess the infallibility which Vatican II attributed to the teaching of the "ordinary and universal magisterium." (See Sullivan). As such, both command religious assent.

So what does that mean? The Dogmatic Constitution on the Church (Lumen Gentium) teaches that religious assent requires we acknowledge the teachings "with reverence" and "sincerely" adhere thereto. Despite the arguments of some Cafeteria Catholics I can't see any way around my obligation to adhere to the Church's position on contraception.

By the way, let me touch on an issue that often comes up at this point. Some critics of the doctrine of religious assent, especially as applied to issues involving the Gospel of Life, contend that it treats Catholics as unthinking automatons marching to the dictates of the Church hierarchy. The relationship between individual reason and religious assent is extremely complex. It is worth pointing out, however, that the church encourages lay initiative “especially when the matter involves discovering or inventing the means for permeating social, political, and economic realities with the demands of Christian doctrine and life.” (Catechism § 899) The Church also acknowledges that:

In the work of teaching and applying Christian morality, the Church needs the dedication of pastors, the knowledge of theologians, and the contribution of all Christians and men of good will. Faith and the practice of the Gospel provide each person with an experience of life "in Christ," who enlightens him and makes him able to evaluate the divine and human realities according to the Spirit of God.Thus the Holy Spirit can use the humblest to enlighten the learned and those in the highest positions. (Catechism § 2038) 

Hence, it is the task of Catholic intellectuals to exercise critical reflective judgment with respect to society, the Church, and the relationship between the two. An an active and critical role for the laity seems especially important with respect to economic life, as to which JPII emphasized that “church has no models to present." (Centesimus Annus § 43) I note in passing that this is why my scholarship is increasingly focused on using Catholic social teaching to critique corporate law.

But I digress.

As for my friend's other proposals, they all strike me as reasonable and desirable. The Gospel of Life teaches that we have to respect life from its beginning at conception to its end at natural death. Hence, my problem with the American political duopoly is that too many Republicans appear to care about life only until birth and that too many Democrats appear to only care about life after birth. In contrast, a polity founded on Catholic social thought would recognize that the "starting point for a correct and constructive relationship between the family and society is the recognition of the subjectivity and the social priority of the family. Their intimate relationship requires that 'society should never fail in its fundamental task of respecting and fostering the family.'" (Compendium § 252)

Accordingly, I am in substantial agreement with the platform of the American Solidarity Party:

• Federal and state governments must enact constitutional and legal measures establishing the right to life from conception until natural death. These measures specifically include a constitutional amendment clarifying that there is no right to abortion, as well as laws that prohibit or restrict abortion. Because human life begins at conception, the intentional destruction of human embryos in any context must end.
• Federal, state, and local governments must end taxpayer funding of organizations that provide, promote, or facilitate abortions, and of health-care plans that include abortion coverage. Such funding should be redirected to organizations that promote healthy pregnancies and prenatal care.
• Federal and state governments must end capital punishment in light of its disproportionate use against those with fewer legal resources, the impossibility of reversal, and the existence of alternative ways to ensure protection for the rest of society.
• We support efforts to help prevent the tragedy of suicide, including universal access to affordable mental-health care and the destigmatization of mental illness. Assisted suicide and euthanasia are a violation of disability rights, medical ethics, and human dignity, and must be prohibited in every state.
• Federal and state governments should collaborate to guarantee universal healthcare by diverse means, including single-payer initiatives, direct subsidization of provider networks, subsidized education for medical professionals willing to work in rural areas, support for cost-sharing programs and mutual aid societies, home care grants, simplified regulation, and the easing of restrictions on the importation of prescription drugs.
• Health policy must include protections for those with preexisting, chronic, and terminal conditions. We must include those who have no means to save for an emergency, people at every stage of life from prenatal care to hospice care, and people who find themselves in need of medical assistance while away from their home network.

Does that answer the question?

Judicial Watch has Standing to Bring Suit Against the California Board of Director Gender Quota Law

Keith Paul Bishop reports:

Last August, I reported on the filing of a taxpayer challenge to California's Board Gender Quota Law.  Crest v. Padilla, Cal. Super. Ct. Case No. 19STCV27561.  California's Secretary of State, Alex Padilla, was named as the defendant in his official capacity.  The plaintiffs allege that the law (SB 826) violates Articles 7 and 31 of the California Constitution.  In October of last year, Secretary Padilla filed a demurrer to the suit, arguing that the plaintiffs lack standing and that the action is not ripe.  Last week, Superior Court Judge Maureen Duffy-Lewis overruled the Secretary of State's demurrer ....

The Secretary of State, who is represented by the Attorney General, will be required to answer the complaint and we may all eventually get an answer to the question of the law's constitutionality.

Regular readers will recall that I have argued that the internal affairs doctrine has constitutional status and that the California statute is an unconstitutional violation thereof.

Stanford Law Professor Michael McConnell on the Free Exercise Clause and COVID-19

Maggie Gallagher reports:

Prof. McConnell briefed us all on the state of the law unfolding in multiple courts across the country:

"The real problem and this is what I think is quite disturbing from a Constitutional point of view, is that any governor has taken the view that religious activity be completely banned...It's treated the way you might treat going to a movie; it is not an essential activity...It is my view and it has been the view now of several federal courts, the First Amendment actually answers that question. Religious worship is essential, it's not only essential it's one of the most highly protected of all constitutional rights. So insofar as these orders denigrate the overall ability to practice religion because of the assumption that religion is less essential than say, hardware stores, I think that is impermissible, unconstitutional and will be struck down by most courts that look at it."

Daniel Rodriguez on the Wisconsin Supreme Court decision on COVID-19

Dan has a blog post on the 161 page 4-3 decision striking down the Wisconsin governor's shelter-in-place order. He's not impressed:

They never were able to reach any real agreement about why the order was bad.  Nor were they able to give any real guidance to either the executive or legislative branch about truly how to fix the problem.  Nonetheless, we are treated to 161 pages of text, wandering around John Locke, Thomas Jefferson, Scalia and Gorsuch, some prominent anti-administrativists, a couple Wisconsin L Rev student comments, and a bunch of Wisconsin cases that don’t, at least at a glance, seem to be very much on point.

Internal Affairs, the California Board Gender Quota Law, and Chin v. CH2M Hill Companies, Ltd.

Regular readers know that I am working on a forthcoming (with Foundation Press Book) Advanced Corporation Law: A Practical Approach to Corporate Governance. The book is almost done and I have started working on the teachers manual. Today, I tackled the section dealing with California's 2018 board gender quota statute, SB 826 [codified at California Corporations Code § 301.3], which imposed gender diversity quotas on all public corporations whose principal executive offices are located in California. If the corporation has six or more directors, it must have at least three female directors. If it has five board members, it must have at least two female members. If the board has four or fewer members, it must have at least one female director. 

Regular readers will recall that I wrote a briefing paper for The WLF Legal Pulse, in which I argued that the so-called internal affairs doctrine is not just a choice of law doctrine but also makes it "unconstitutional for a state other than the state of incorporation to attempt to regulate a corporation’s internal affairs." 

I excerpt the briefing paper in the forthcoming text and then pose this question:

Is board diversity an internal corporate affair? Does it matter whether one is applying the internal affairs doctrine as a rule of conflicts of law or one of constitutional law?

I am not aware of any case squarely on point, but—unfortunately, only after I published the briefing paper excerpted in the main text—I found a potentially relevant decision; namely Chin v. CH2M Hill Companies, Ltd.[1]

Plainitff Chin was kicked off defendant CH2m Hill Companies, Ltd. (“LTD”)’s board of directors. (More precisely, her term expired and she was not nominated for re-election.) She claimed “that she was not re-nominated to LTD's board of directors because Defendants discriminated against her on the basis of her sex, race, and disability and because Plaintiff had complained of gender discrimination in connection with a female employee whose employment had been terminated.” She brought suit under NY state civil rights statutes.

The defendants argued “that this case must be governed by the law of the state of incorporation and that New York City cannot regulate the internal affairs of a foreign corporation.” The court rejected that argument:

The cases cited by Defendants deal squarely with issues that “closely affect the organic structure or internal administration of the corporation.” Restatement (Second) of Conflict of Laws § 309 cmt. c (1971); see, e.g., In re BP P.L.C. Deriv. Litig., 507 F.Supp.2d 302 (S.D.N.Y.2007) (applying English corporate law to claims of breach of fiduciary duty to shareholders, waste of corporate assets, and commodities trading activities); Prescott v. Plant Indus., Inc., 88 F.R.D. 257 (S.D.N.Y.1980) (applying the internal affairs doctrine where seven individuals received equal votes for three open positions on the board of directors). While undoubtedly set in the context of a board election, our case is less about the validity of the election, or even the nomination of board members, than it is the “existence of groups prejudiced against one another and antagonistic to each other because of their actual or perceived differences, including those based on race, color, ... gender, [or] disability....” N.Y.C. Admin. Code § 8–101. One part of the relief Plaintiff seeks does directly implicate the internal administration of the corporation; reinstatement to the board. The case at bar, however, is concerned with matters that are far broader than the organic structure or internal administration of LTD. Reinstatement to the board may (or may not) be available to Plaintiff, but that does not render impossible the prospect of collecting damages. The aims of the internal affairs doctrine—to save a corporation from conflicting demands—are not necessarily frustrated by the potential requirements of the NYCHRL. This raises the questions of whether there is even a conflict to begin with and whether, if compliance with the NYCHRL is in tension with the demands of Delaware corporate law, this is sufficient (in consideration with other factors) to find that Delaware has a greater interest.

The interest expressed by New York City is, in no uncertain terms, significant. See N.Y.C. Admin. Code § 8–101 (“[T]here is no greater danger to the health, morals, safety and welfare of the city and its inhabitants than the existence of groups prejudiced against one another and antagonistic to each other because of their actual or perceived differences.... [P]rejudice, intolerance, bigotry, and discrimination ... threaten the rights and proper privileges of its inhabitants and menace the institutions and foundation of a free democratic state.”).

I see no reason why a defender of the California statute could not make the same argument. Having said that, the Chin case is dealing not with the constitutionality of the statutes in question, but solely with a choice of law problem. As such, it does not resolve the statute of board diversity laws for purposes of the dormant Commerce Clause, which is the issue to which my briefing paper was addressed. Still, it adds an interesting wrinkle.

Best Supreme Court Headline Ever?

The freedom to practice religion during a pandemic

I've recently read a couple of interesting secular and Catholic perspectives on the titular issue. First, in The NY Times,  Michael W. McConnell and Max Raskin tackle the question "If Liquor Stores Are Essential, Why Isn’t Church?" They posit that:

... religious leaders and public health officials will need to find new ways to deal with the novel conundrums forced on us by this novel coronavirus. Fortunately, these new arrangements can be fashioned with some very old materials: the centuries-old principles of the First Amendment.

Three time-tested principles of the First Amendment stand out as guideposts for navigating the competing demands of religious exercise and public health in a time of contagion.

First, separation of church and state does not give religious communities immunity from regulation that is necessary for the common good. ...

The second principle is that government can regulate religious activity only through what the Supreme Court calls “neutral” and “generally applicable” laws. This means that a government requirement cannot single out religious activity on the ground that it is somehow dispensable or “nonessential.” ...

Third, both sides must seek what the courts call “reasonable accommodations.”

Apropos of seeking reasonable accommodations, I refer you to Archbishop William Lori, who has been one of the most ardent defenders of religious liberty in the hierarchy:

... he is reminding fellow Catholics that “we are a people of faith and reason” and that heeding the government’s orders to suspend religious services is “eminently reasonable” and “it does not in any way attack or undermine our faith.” ...

What is happening now - the suspension of Masses and other sacraments, says Lori - is happening “out of pastoral love for both our people and our priests.”

In recent weeks, some minority Catholic groups have claimed that what is happening is a violation of religious liberty, an argument that is made in the open letter for the launch of a petition titled “We are an Easter People,” which calls upon the bishops to take steps to provide “some form of public celebration of Mass during this time of strife and pandemic.”

Lori - who led the U.S. bishops’ religious liberty committee and was their point person on the issue during the bishops’ clash with the Obama administration over the contraceptive mandate - has another message.

“One of the overriding responsibilities of government is to keep people safe. This is a health and public safety issue. And this is not only a concern that the government has, it’s also a concern of the church,” he told Crux. “The Church has to take steps to ensure that we are kept safe and healthy and those steps have to be reasonable, rational. We do not feel as though we have been forced into doing this by the government. We feel like we’re doing the right thing.”

“We’re doing something important for the sake of our people, for the love for our people, recognizing how painful it is to have churches closed and not to be able to receive the sacraments,” he continued. “Nonetheless, my prayer is that we can minimize the number of deaths and infections and contribute to that day when this pandemic will loosen its grip on us and upon our country and our world. I feel like this is something that we should be doing, and I do not see it at all as a violation of our religious liberties.”

I recommend reading both. 

Will Kokesh Footnote 3 bite the SEC or not? Disgorgement Takes an Odd Turn Before the Supreme Court

Regular readers may recall my article, Kokesh Footnote 3 Notwithstanding: The Future of the Disgorgement Penalty in SEC Cases, 56 Washington University Journal of Law & Policy 17 (2018), available at SSRN: https://ssrn.com/abstract=2992719, in which I argued that:

Disgorgement of ill-gotten gains long has been a basic tool in the Securities and Exchange Commission’s (SEC) penalty toolkit, despite a paucity of statutory authorization. Because disgorgement lacked a statutory framework, courts have had to flesh out the sanction via interstitial rulemaking. In Kokesh v. SEC, the US Supreme Court took up the seemingly technical—but surprisingly important—question of what statute of limitations applies to SEC disgorgement actions. More important, at least for present purposes, the Court’s opinion cast into doubt the validity of the seemingly well-established disgorgement sanction.

Earlier cases based the SEC’s authority to seek and the courts’ power to impose disgorgement on the claim that it is a form of equitable ancillary relief. If disgorgement is a penalty, however, courts lack that power and the SEC lacks that authority. This conclusion follows necessarily from the basic premise that there are no penalties in equity and the complete absence of any statutory authority to impose disgorgement as a legal sanction. Now that the Supreme Court has made clear that disgorgement is, in fact, a penalty, the future of the disgorgement penalty looks bleak.

Bloomberg Law is reporting that:

In an hour-long session in Washington Tuesday, the justices considered the SEC’s use of “disgorgement” to collect money from someone the commission sues in federal court. Disgorgement is distinct from fines and other penalties the SEC seeks, in part because it’s geared toward reimbursing victims.

The justices didn’t appear willing to altogether eliminate disgorgement, which opponents say the SEC is using as an illegal punishment. The argument suggested the court instead might bar the commission from collecting more than the amount of profit a defendant gained through fraud. The justices also indicated they might require the agency to return more money to harmed investors. 

The WSJ is reporting that:

U.S. Supreme Court justices Tuesday indicated they may be inclined to rein in how courts and regulators order wrongdoers to return money earned through illegal investment schemes.

In arguments, liberal and conservative justices questioned how they could narrow the remedy without quashing it outright, an alternative they appeared to reject. ...

Challengers say courts lack express authority from Congress to order the punishment, which is known as disgorgement. The critics also argue the SEC sometimes fails to return the money to investors, making the payments look more like a penalty that would require explicit congressional authority.

Justices on Tuesday appeared to dwell less on those questions and more on how disgorgement fits within an area of law that corrects the harm from misdeeds and makes victims whole.

“Would the government have any difficulty with a rule that the money should be returned to investors where feasible?” asked Justice Neil Gorsuch. The more liberal Justice Elena Kagan posed a similar question, as did other justices.

This strikes me as very odd. On what conceivable basis should the validity of the disgorgement remedy turn on whether the government works harder at paying recoveries over to investors? Especially when there is a private right of action available in most cases for defrauded investors to sue to recover their losses?

Once again, I suspect those of us who work in the securities regulation vein will end up being appalled by a Supreme Court decision, no matter how it comes out on the merits. As Mitu Gulati and I wrote a while back:

There is general agreement that the Supreme Court has not done a very good job in the securities area, especially in recent years. Scholars operating in a wide range of paradigms have criticized the court’s recent securities opinions.  Supreme Court securities law decisions typically lack a broad, consistent understanding of the relevant public policy considerations. Worse yet, they frequently lack such basics as doctrinal coherence and fidelity to prior opinions.

Why doesn’t the Supreme Court do a better job in securities cases? Our model offers an answer. When deciding securities cases, the Court is faced with hard, dry, and highly technical issues. Supreme Court justices and their clerks arrive on the court with little expertise in securities law. One reasonably assumes that neither the justices nor their clerks have much interest developing substantial institutional expertise in this area after they arrive. (Former Justice Powell being the exception that proves these rules.) Accordingly, it would be surprising if the Court’s securities opinions exhibited anything remotely resembling expert craftsmanship.

Under such conditions, we would expect the justices to take securities cases rarely, typically when there is a serious circuit split, which is in fact what we observe.  When obliged to take a securities issue, the Court will seek to minimize the amount of effort required to render a decision. This observation is not intended pejoratively. To the contrary, in terms of our model, the justices are acting rationally. …

Bounded rationality implies that Supreme Court justices (and their clerks) have a limited ability to master legal information, including the myriad complexities of doctrine and policy in the host of areas annually presented to the court. Specialization is a rational response to bounded rationality—the expert in a field makes the most of his limited capacity to absorb and master information by limiting the amount of information that must be processed by limiting the breadth of the field in which he develops expertise. Supreme Court justices will therefore need to specialize, just as experts in other fields must do. Specializing in securities law would not be rational. The psychic rewards of being a justice—present day celebrity and historical fame—are associated with decisions on great constitutional issues, not the minutiae of securities regulation.

 

My Preview of Liu v. SEC

My case brief of Liu v. SEC is now up on the ABA's Supreme Court Preview, but sadly you need a subscription, https://t.co/jdWgQAPEE1 Here's a taste: pic.twitter.com/IhaCyPod4C

— Professor Bainbridge (@ProfBainbridge) February 18, 2020

Why does the Government Keep Picking on The Little Sisters of the Poor

From The Becket Foundation:

The Supreme Court will once again weigh in on the case of the Little Sisters of the Poor in their legal battle against the HHS contraceptive mandate. The Supreme Court has twice protected the Catholic nuns, and an HHS rule issued in 2018 protects religious non-profits, but several states have dragged the Little Sisters of the Poor back to court. In Little Sisters of the Poor v. Commonwealth of Pennsylvania, the Little Sisters are defending their hard-won religious exemption from a lawsuit by the Pennsylvania Attorney General and a recent Third Circuit ruling against them threatening their ministry of serving the elderly poor.

The HHS contraceptive mandate required the Little Sisters to provide services such as the week-after pill in their health care plans or pay millions of dollars in fines. In 2016, the Supreme Court unanimously overturned lower court rulings against the Little Sisters, granting them an exemption from the mandate, and in 2018, HHS announced a new rule protecting religious non-profits, including the Little Sisters. Yet several states, including Pennsylvania and California, immediately sued the federal government to take that protection away, forcing the Little Sisters back to court. After a loss in the Third Circuit Court of Appeals, the Sisters now turn to the High Court to finally put an end to their long legal journey.

Carney v. Adams and the Future of Delaware Corporate Law

@ProfBainbridge on "Delaware's Judiciary in the U.S. Supreme Court" https://t.co/BUAhPlqSiR via @wlf

— Professor Bainbridge (@ProfBainbridge) December 13, 2019

Much Buzz About the Internal Affairs Doctrine

Francis Pileggi:

For readers who follow the law regarding forum selection clauses, a recent article by Professor Joseph Grundfest should be of interest. The good professor addresses the December 2018 Court of Chancery decision in Sciabacucchi v. Salzberg (highlighted on these pages), and the intersection of Delaware law and Federal law in the context of forum selection clauses and the internal affairs doctrine. The abstract follows to his article titled: The Limits of Delaware Corporate Law: Internal Affairs, Federal Forum Provisions, and Sciabacucchi

A Harvard Forum post by Grundfest himself summarizes the paper. It explains the core problem and is typically punchy:

The Securities Act of 1933 provides for concurrent federal and state jurisdiction. Securities Act claims were historically litigated in federal court, but in 2015 plaintiffs began filing far more frequently in state court where dismissals are less common and weaker claims more likely to survive. D&O insurance costs for IPOs have since increased significantly. Today, approximately 75% of defendants in Section 11 claims face state court actions. Federal Forum Provisions [FFPs] respond by providing that, for Delaware-chartered entities, Securities Act claims must be litigated in federal court or in Delaware state court.

Sciabacucchi’s logic and conclusion are fragile. The opinion conflicts with controlling U.S. and Delaware Supreme Court precedent and relies critically on assumptions of fact that are demonstrably incorrect.

Moshen Manesh:

During a four-month span in late 2018, two events occurred at opposite ends of the country that could dramatically reshape the regulation of corporations in America. First, in September 2018, California enacted the nation’s first law mandating board gender diversity for all public corporations that are physically headquartered in California.[1] Second, in December 2018, the Delaware Court of Chancery in Sciabacucchi v. Salzberg ruled that a corporation may not in its governing documents regulate the rights of its shareholders arising under federal securities law.[2] Although seemingly unrelated, I argue in a forthcoming article that both events share at their core a challenge to the internal affairs doctrine – a doctrine that is at the foundation of the state-based system of corporate law in the United States. ...

Challenges at the edges of the internal affairs doctrine, like those that emerged in late 2018, are a problem unlikely to go away for Delaware. Since California enacted its first-in-the-nation board diversity statute, state legislatures in Illinois and New Jersey have considered similar bills. And earlier this year, an activist  shareholder initiated litigation against the New Jersey-chartered Johnson & Johnson, pressing it to adopt a bylaw provision mandating arbitration for all shareholder claims brought under federal securities law. These developments suggest that skirmishes at the frontiers of the internal affairs doctrine are likely to persist. And these skirmishes could both erode Delaware’s hegemony and fundamentally reshape the regulation of corporate America.

Ann Lipton:

By now, regular readers of this blog are aware that I’ve been especially forceful in arguing that litigation limits in corporate charters and bylaws can only address matters of corporate internal affairs, and that federal securities claims are beyond their scope.  Vice Chancellor Laster adopted a similar view in his Sciabacucchi v. Salzbergdecision, where he invalidated charter provisions that purport to require that all Section 11 claims against the company be brought in federal court.  Now that the matter is on appeal to the Delaware Supreme Court (Docket No. 346,2019) – and the opening brief is due today –  a lot of articles about the scope of the internal affairs doctrine are dropping. [She links a number of them]

Kevin LaCroix:

After the U.S. Supreme Court’s March 2018 decision in the Cyancase that state courts retain concurrent jurisdiction for ’33 Act liability actions, one idea that circulated was that companies could avoid securities class action lawsuits in state court by adopting a charter provision designating a federal forum for these kinds of suits. Unfortunately, in December 2018, Delaware Chancery Court Vice Chancellor Travis Laster held in Sciabacucchi v. Salzburg that under Delaware law federal forum provisions are invalid and ineffective, as discussed here. The Sciabacucchi decision, which is now on appeal, is the subject of a comprehensive critique in a recent article by Stanford Law Professor Joseph Grundfest, entitled “The Limits of Delaware Corporate Law: Internal Affairs, Federal Forum Provisions, and Sciabacucchi” (here). Professor Grundfest argues that Sciabacucchi was wrongly decided and that a under a “straightforward” application of applicable Delaware statutory law, federal forum provisions are valid and permitted.

I recommend reading all of them.

 

A First Challenge to California’s Board Gender Diversity Law

Cydney Posner:

As reported here on Bloomberg, a conservative activist group has filed a lawsuit, Crest v. Alex Padilla, in California state court on behalf of three California taxpayers seeking to prevent implementation and enforcement of SB 826, California’s Board gender diversity legislation. This appears to be the first litigation filed to challenge the new law. Framed as a “taxpayer suit,” the litigation seeks to enjoin Alex Padilla, the California Secretary of State, from expending taxpayer funds and taxpayer-financed resources to enforce or implement the law, alleging that the law’s mandate is an unconstitutional gender-based quota and violates the California constitution. 

I don't know enough about taxpayer standing under California constitutional law to know whether the lawsuit will survive a standing challenge. Nor do I know enough about equal protection law under the California constitution to know if the suit has substantive merit.

Interestingly, the issue about which I do know something is not involved in the suit:

Interestingly, there was no challenge to the legislation as a violation of the “internal affairs doctrine,” which generally provides that the law of the state of incorporation governs those matters that pertain to the relationships among or between the corporation and its officers, directors and shareholders. The new gender diversity mandate would likely be viewed as a matter of internal corporate governance, and Section 2115.5 of the new law purports to make the mandate expressly applicable to foreign corporations with outstanding shares listed on a major U.S. stock exchange—to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated. Of course, because of standing issues, different plaintiffs would have been required to make a claim of that nature.