Jurors are the life's blood of our third branch of government, including for complex commercial disputes.

In this day and age of the Supreme Court’s enforcement of contractually imposed arbitration clauses, it is essential to remember that the right to a jury trial was the magnificent vision of the Founders.  “The Seventh Amendment promised to ‘preserve[]’ the right of ‘trial by jury’ in virtually all civil suits ‘at common law’ and limit the power of federal judges to overturn any fact properly found by a civil jury.” Akhil Reed Amar, America’s Unwritten Constitution 435 (Basic Books 2012).

In December 2018, U.S. District Judge William G. Young passionately argued for the sacred right to a jury trial, even in complex commercial disputes. Marchan v. John Miller Farms, Inc., 2018 U.S. Dist. LEXIS 210503 (N.D. 2018). (click to read).[1]

Marchan is a complex products liability case. The manufacturer was defunct, so the plaintiff would need to pierce the corporate veil in order to obtain a recovery from the manufacturer’s parent company. Piercing the corporate veil involves a fact-intensive inquiry into whether a shareholder, in this case the parent company, can be held liable for corporate obligations. Thus, the question arose whether the judge or the jury should decide whether to pierce the corporate veil. Judge Young determined that the jury must decide this issue.

The Jury Trial Clause of the Seventh Amendment provides that "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." U.S. Const. amend. VII (emphasis supplied). The phrase "suits at common law" refers not only to causes of action that existed in 1791, when the Seventh Amendment was adopted, but also to new causes of action created by statute, as long as those statutes "create[] legal rights and remedies, enforceable in an action for damages in the ordinary courts of law."

Citing Wm. Passalacqua Builders v. Resnick Developers, 933 F.2d 131, 135-37 (2d Cir. 1991), Judge Young determined that an action to pierce the corporate veil is a suit at common law. He concluded that “historical ‘sources support the proposition that the nature of the ancient action disregarding the corporate form had equitable and legal components.’” Passalacqua, 933 F.2d at 136. The Passalacqua court reasoned that since the nature of the relief sought in a piercing case is ultimately money damages, it is more like an action in law than in equity, and that the intense factual nature of the inquiry is more appropriate for a jury.

Judge Young dismissed out of hand criticisms that juries are not capable of handling complex issues such as piercing the corporate veil. “It is appropriate to point out that most of these unsupported conclusions are nothing but elitism, pure and simple. They are an unabashed retreat from the magnificent vision of the founders.” Marchan, at 14. “I have been trial judge for over forty years. In the fact-finding line, anything a judge can do, a jury can do better.” Marchan, at 16.

“It takes a special kind of arrogance to conclude that American jurors cannot handle the veil-piercing issues presented here.

“Quite simply, jurors are the life’s blood of our third branch of government.

“It is not too much to say that a courthouse without jurors is a building without purpose.’

 Marchan, at 17.

Judge Young notes hopefully that: “Americans themselves may yet rescue their right to a jury. Workers at Uber, Lyft, Microsoft, Google, and Facebook have caused those corporations to abjure forced arbitration of claims of sexual harassment and assault.” Marchan, at 20.   

But he asks:

“Do you care about any of this?

“You should.

“Your rights depend on it.”

Marchan at 21.


[1] Judge Young is from the District of Massachusetts and sat by designation for this case in the District of North Dakota.

The Dignity of Work

America:  The Farewell Tour, by Chris Hedges, provides a trenchant and extremely discomforting analysis of our current dilemma.  “Corporate capitalism” (in which I, and I’m guessing many of you, have been a participant) is brutally critiqued and blamed for hyper-individualism, the dehumanization of work, the opioid crisis, war and the decline of culture.  No one, Obama, Clinton, Bernie Sanders, let alone Bush or Trump (or any of us), is left unscathed.

Hedge’s critique seems at first glance to be mainly from the left, but for you right-of-center friends, note that he cites with approval Pope John Paul II’s encyclical Laborem exercens, or Through Work.  “John Paul II attacked the idea, fundamental to capitalism, that work was merely an exchange of money for labor.  Work could not be reduced to the commodification of human beings.  ‘[Work] is not only good in the sense that it is useful or something to enjoy; it is also good as being something worthy, that is to say, something that corresponds to man’s dignity, that expresses this dignity and increases it.’”  pp. 90-91. 

The book indeed has a spiritual dimension and it ends on a note of hope.  Perhaps the labels left and right, liberal and conservative, are no longer appropriate in the glare of Hedge’s analysis.  Here are the final two paragraphs: 

“The theologian Paul Tillich did not use the word ‘sin’ to mean an act of immorality.  He, like Kierkegaard, defined sin as estrangement.  For Tillich, it was our deepest existential dilemma.  Sin was our separation from the forces that give us meaning and purpose in life.  This separation fosters the alienation, anxiety, meaninglessness, and despair that are preyed upon by mass culture.  As long as we fold inward and embrace a hyper-individualism that is defined by selfishness and narcissism, we will never overcome this estrangement.  We will be separated from ourselves, from others and from the sacred. 

Resistance is not only about battling the forces of darkness.  It is about becoming a complete human being.  It is about overcoming estrangement.  It is about our neighbor. It is about dignity.  It is about sacrifice.  It is about courage.  It is about freedom.  It is about the capacity to love.  Resistance must become our vocation.” 

Here is a podcast interview with Mr. Hedges, well worth an hour of your time. https://ralphnaderradiohour.com/the-falling-of-the-american-empire/

Put Away Childish Things

“For reasons that remain inexplicable, Twitter seems to create an impulse control problem for too many — and when billions of dollars of investors’ money is on the line and the credibility of the markets are at stake, that seems like a risk not worth taking.”   

This line is about Elon Musk’s reckless tweets in which he implied that he has funding lined up to take Tesla private.  https://www.nytimes.com/2018/08/13/business/dealbook/elon-musk-tesla-twitter.html . Yet it applies equally to any person in a power position.  It is one thing to express a personal opinion about politics or the arts on Twitter.  It is quite another to announce a public policy or financial decision that may affect the lives of millions, or the market, using a communication tool that provides extremely limited information, that is not subject to the checks and balances of government or a board of directors and that appeals to the most infantile impulses of people holding vast power. 

It is time for the adults to take over again in business and government.  Indeed, we might heed the Biblical admonition:  “when I was a child, I spake as a child, I understood as a child, I thought as a child: but when I became a man, I put away childish things.”  1 Corinthians 13:11.  

Update on CBS Corporation v. National Amusements

On May 17, 2018, Chancellor Andre G. Bouchard issued his ruling, a copy of which is attached here, denying CBS's motion for a temporary restraining order against National Amusements and Shari Redstone.  Although the order denied the emergency injunctive relief CBS requested, I view it as a  victory for CBS in that Chancellor Bouchard found: 

"In my opinion, particularly given CBS's proclaimed commitment to independent board governance, these [CBS's] allegations are sufficient to state a colorable claim for breach of fiduciary duty against Ms. Redstone and NAI as CBS's controlling stockholder.

Chancellor Bouchard indicated that  "the court has extensive power to provide redress if Ms. Redstone takes action(s) inconsistent with the fiduciary obligations owed by a controlling stockholder," and therefore he decided that CBS had not demonstrated irreparable harm or that the balance of equities required a TRO.  "To demonstrate irreparable harm, a plaintiff must present an injury of such a nature that no fair and reasonable redress may be had in a court of law and must show that to refuse the injunction would be a denial of justice. The alleged injury must be imminent and genuine, as opposed to speculative."  The case continues and CBS can seek redress from the court for bad conduct by National Amusements and Redstone, as indeed it already has for their 11th hour amendment of the bylaws immediately before the TRO hearing.  

In a future blog post, I plan to address the relevance to other Delaware and non-Delaware corporations of CBS's claim that its majority shareholder had breached its fiduciary duty to the corporation.

A copy of my original May 14, 2018 post o CBS v. National Amusements may be found at https://rickbaileylaw.com/news/2018/5/14/corporation-seeks-an-injunction-against-its-majority-shareholder-for-breach-of-fiduciary-duty

Corporation Seeks an Injunction Against Its Majority Shareholder for Breach of Fiduciary Duty

This morning, CBS Corporation took the unusual step of suing its majority shareholder, Shari Redstone and her National Amusements, Inc. holding company, for breach of fiduciary duty.  The lawsuit, CBS Corporation v. National Amusements, Inc., No. 2018-0342, filed in Delaware Court of Chancery, seeks a temporary restraining order (TRO) barring Redstone and National Amusements from ousting any of CBS’s Directors or changing CBS’s governing documents before its full Board of Directors meets on Thursday, May 17, 2018.  The Directors are to consider a special dividend that would dilute National Amusements voting rights in CBS from about 80 percent to about 17 percent.  As the holder of Class A shares, National Amusements holds about 80 percent of the voting rights, but its economic stake in CBS is only about 10.3 percent.  Other shareholders hold Class B shares.  Ultimately, the dilution of National Amusement’s voting rights appears intended to block Redstone’s on-going attempts to merge CBS with Viacom, Inc. 

Although it is unusual for a corporation to sue its majority shareholder for breach of fiduciary duty, it is not unprecedented.  In its Motion for TRO, CBS cites Hollinger Intern., Inc. v. Black, 844 A.2d 1022 (Del.Ch. 2004), arguing: 

 “The relief sought here is consistent with the relief sought in Hollinger, 844 A.2d 1022, in which this Court granted a corporation a preliminary injunction against a similar attempt by a controller to undo a strategic process with independent directors to which that stockholder had agreed. Black had ‘nearly absolute’ control over Hollinger through high-vote stock, although he had only 15% of the equity interest. Id. at 1033. Black violated an agreement with the board by threatening to sell one of Hollinger’s principal assets for his own benefit and taking steps to disable the independent committee that he had agreed to establish to run the “strategic process.” Id. at 1044-47. Then-Vice Chancellor, now-Chief Justice Strine enjoined Black’s proposed asset sale. Id. at 1092. 22.

“CBS is at risk of the same inequitable conduct — an unfair transaction forced on it by a controlling stockholder. As in Hollinger, Ms. Redstone’s controlling voting stake is disproportionate to her economic interest. As in Hollinger, Ms. Redstone faces a Special Committee and a majority independent Board who have proven they will stand up for the public stockholders and prevent her from using CBS in a manner contrary to the best interests of all stockholders. And as in Hollinger, there is a real risk that Ms. Redstone might remove the Board or otherwise frustrate Board action. In those circumstances, then-Vice Chancellor Strine granted an injunction against any action by the controlling stockholder that would harm the public stockholders and invalidated a bylaw amendment enacted by written consent that gave Black the ability to veto any action taken by Hollinger — which is exactly the same bylaw Ms. Redstone forced on Viacom in 2016 and may seek to force on CBS in the next three days. Compl. ¶ 63; Hollinger, 844 A.2d at 1092.”  CBS Motion for TRO, at ¶¶ 21-22.

The Chancery Court is scheduled to hear the Motion for TRO on Wednesday, May 16, 2018. 

A copy of the CBS’s Complaint may be found at:  http://investors.cbscorporation.com/static-files/bbbc54bf-6ec2-44c7-812c-9175708a04b6

A copy of Plaintiffs’ Motion for a Temporary Restraining Order may be found at:  http://investors.cbscorporation.com/static-files/55721f04-cb0c-41e9-8fa9-ac5f46d442d8

A copy of the Chancery Court decision in Hollinger Intern., Inc. v. Black, 844 A.2d 1022 (Del.Ch. 2004) may be found at: https://scholar.google.com/scholar_case?case=9909430372557304530&q=hollinger+v.+black&hl=en&as_sdt=4006&as_vis=1

Selma

A few weeks ago, in honor of the Rev. Dr. Martin Luther King's holiday, I saw the movie "Selma" for the first time. That prompted me to do some reading about Selma and in turn that prompted me to reflect on why I have no memory of the event. Of course, I was only 7 at the time, but I have a vivid memory of the 1964 election, just a few months before: I thought we would have to move to Canada if Goldwater won. And I have a vivid memory of President Kennedy's assassination a year and a half before.

Indeed, I remember things before I was even three: being held by my Mom on the porch one sultry summer evening while my Dad used a broom to shoo a bat out of my bedroom; sitting in my Dad's lap next to my crib while he read to me under the cow jumping over the moon on the wall above; the neighbor lady, Esther, who made the cinnamon coffee cake that I can still smell; standing in the backseat of the car while my parents watched "Damn Yankees" at the outdoor theatre; the tiny frosted mugs of Root Beer at the A&W; and my Grandpa Bailey carrying me upside down by the ankles to the back of the church while I choked out a Ludens licorice cough drop.

So why don't I remember Selma?

I called my Dad to ask if he has any ideas about this. He told me that Selma is hazy for him too. We talked about what was going on in our lives: his service as Pastor for two Lutheran Churches in Lena, IL that were working towards a merger, one of which was building a new Christian education building; the beginnings of my Mom's illness, later diagnosed as Parkinson's; the 1964 election which I do remember and my Dad's first hearing from a friend who was a pastor in Texas of the extreme right-wing John Birch Society and the damage it was doing. I remembered that we moved from Lena, IL to North Aurora, IL one springtime -- I had to finish the last two months at a different school but made a new best friend on the first day. He checked his calendar, but this was a year later, in the spring of 1966.

Then we both remembered that my Grandpa Bailey had a heart attack in 1965. Again, Dad checked his calendar and the heart attack was on or about Wednesday, March 10, 1965. Bloody Sunday in Selma was March 7, 1965. The second march was on Tuesday, March 9th. The Unitarian Minister, Rev. James Reeb, was beaten in Selma later that night and he died on Thursday, March 11th. The hearing before Federal Judge Johnson was also on Thursday, March 11, 1965.

Grandpa Bailey died on Saturday March 13, 1965, while police barricaded protesters from marching on the courthouse in Selma.

The final march from Selma to Montgomery started on Sunday, March 21, 1965.

There are public earthquakes. And there are private earthquakes.

Critical issue before the Supreme Court: Does an agreement between an employer and employee requiring individual arbitration violate the National Labor Relations Act?

Issue:  "Whether an agreement that requires an employer and an employee to resolve employment-related disputes through individual arbitration, and waive class and collective proceedings, is enforceable under the Federal Arbitration Act, notwithstanding the provisions of the National Labor Relations Act."  

http://prospect.org/article/supreme-court-case-could-‘overturn-heart-new-deal’