19 Law Professors Submit Amicus Brief in Union Political Spending Case

John C. Coates is the John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School. This post relates to a brief submitted by 19 law professors, led by Professor Coates, in the case of Friedrichs v. California Teachers Association. The amicus brief is available here.

In 2010, the Supreme Court ruled in Citizens United v. Federal Election Commission that under the First Amendment, the government could not restrict a corporation’s independent political spending, even in the interest of aligning corporate expression with shareholders’ views. In contrast, an earlier Court case, Abood v. Detroit of Board of Education, conditioned the ability of unions to use fees from non-members for political spending on a mechanism for non-members to opt out of fees not directly used in collective bargaining. In Friedrichs v. California Teachers Associationcurrently awaiting oral argument in the Court’s October Term 2015—again deals with speech by labor unions, which the Supreme Court has compared to speech by corporations.

Presently, California requires that public schoolteachers either join the California Teachers Union or pay “agency fees” to compensate the union for its efforts on their behalf. Plaintiffs, a group of teachers, argue that these fees constitute forced subsidization of the union’s speech. Pinning their claim to the First Amendment, plaintiffs are seeking to invalidate agency fees altogether, or else require non-union members to affirmatively consent to subsidizing the union’s speech. In effect, plaintiffs are seeking to overturn Abood, converting an opt-out to an opt-in. The CTU, on the other hand, argues that the opt-out already required by Abood means that non-union teachers are not forced to pay for union speech at all.

On November 6, a group of corporate law professors submitted an amicus brief to the Court on the respondents’ behalf. Led by Harvard Law School Professor John Coates, the brief included as signatories Harvard Law School Professors Lucian Bebchuk, Reinier Kraakman and Mark Roe, as well as fifteen other law professors from a range of other law schools, including Professors Brian Quinn from Boston College, Jack Coffee, Jeff Gordon and Robert Jackson from Columbia, Jim Cox from Duke, Donald Langevoort from Georgetown, Vik Khanna from Michigan, Bernie Black from Northwestern, Marcel Kahan and Helen Scott from NYU, Ronald Gilson and Michael Klausner from Stanford, Larry Hamermesh from Widener, and Henry Hansmann from Yale.

The brief compares non-member contributions to union political activity and shareholder contributions to corporate political activity. Its central thesis that “because of how capital is saved and invested in corporations, most individual shareholders cannot obtain full information about corporate speech or political activities, even after the fact, nor can they prevent their savings from being used to speak in ways with which they disagree.” The brief concludes that “giving union non-members additional rights will only further increase the extent to which they enjoy greater rights than corporate shareholders.”

The first part of the brief draws on scholarship by HLS Professor Robert Clark, Delaware Chief Justice Leo Strine, and Wachtell Lipton founder Marty Lipton, among others, to summarize shareholder rights under corporate law. The brief points out shareholders’ lack of legal rights to “opt out” of corporate political speech or otherwise control the political speech that flows from their investment in the corporation. Part II explores the indirect powers of “corporate democracy,” one of the Court’s largest motivations for justifying its Citizens United stance. In the second part of the brief, the strongly limited de jure rights of shareholders cannot be overcome with de facto powers. In fact, “most corporate shareholders have no ability to use voting rights or sell their shares to prevent their invested capital from being used to speak in ways with which they disagree.” The third and final part of the brief shows how contemporary “investment structures, tax policy, and conventional financial advice” work together to “drive individuals to invest in ways that reinforce their inability to obtain information about or control corporate political spending.”

Harvard Law School professors have previously written about the corporate political speech. On September 1, 2010, Professor Bebchuk and Columbia’s Professor Jackson released the discussion paper Corporate Political Speech: Who Decides?, which was published in the Harvard Law Review’s Supreme Court issue that November. Who Decides proposed a set of new rules to control corporate political speech in ways that benefited shareholder interests; the rules included increased shareholder agency, oversight by independent directors, and disclosure of spending. On August 3, 2011, a group of ten corporate law professors, led by Bebchuk and Jackson, submitted an rulemaking petition to the Securities and Exchange Commission, urging the SEC to “develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities.” Professor Coates has supported the petition, submitting comments both on the Forum (here and here) and through written comments to the SEC (here and here). The SEC placed the petition on its 2013 agenda, but ultimately delayed its consideration of the proposed disclosure rules—though not before receiving over 600,000 comments on the petition, a historical record for the SEC. As of June 2015, the SEC had received over 1.2 million comments on the proposal, with the overwhelming majority of comments being positive. The petition led to a further article by Bebchuk and Jackson, Shining Light on Corporate Political Spending, which went into more detail about the argument for the petition and addressed its leading objections.

The full text of the amicus brief is available here.

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One Comment

  1. Nick Stieglitz
    Posted Friday, November 20, 2015 at 4:27 pm | Permalink

    Forced payment union dues are wholly different than funds from freely purchased shares of stock. And, union political contributions with funds derived from government contracts are patent Davis Bacon Act violations that union-biased federal judges are too bought and paid for to acknowledge. Especially in Boston.