Death Penalty for Corporations
In two surprising recent cases, a law school
professor and a circuit court judge seek to revoke the charters of corporate lawbreakers.
Throughout the nation's history, the states have had - and still have - the authority to give birth to a corporation by granting a corporate charter, and to impose the death penalty on a corporate wrongdoer by revoking its charter. Activist-author Richard Grossman points out that in 1890, for example, New York's highest court revoked the charter of the North River Sugar Refining Corporation - referring to the judgement explicitly as one of "corporate death." It was once widely understood that the states had this power. "New York, Ohio, Michigan and Nebraska revoked the charters of oil, match, sugar and whiskey trusts" in the 1800s, Grossman wrote in the pamphlet, "Taking Care of Business: Citizenship and the Charter of Incorporation," co-authored with Frank Adams.
For many decades now, this vital power has lain dormant in the public mind. But a small group of activists led by Grossman is hoping to resurrect it. They believe that to stem the tide of growing and unaccountable corporate power, it's not enough to rely on regulation, litigation, legislation, and law enforcement. Grossman and his Cambridge-based Project on Corporations, Law and Democracy want citizens to reclaim the power to put corporations to death.
Although Grossman has written and lectured extensively on the topic, few have taken him seriously. In an interview recently, he admitted to having only eleven citizen activists in his group.
Enter Loyola Law School professor Robert Benson. Benson had never heard about the corporate death penalty until he read Grossman's work. Then, a few years ago, Benson invited Grossman to Los Angeles to speak before the law school, and afterward the two struck up a conversation. Benson was looking for a way to bring corporate wrongdoers into line, and charter revocation struck him as something that might work. He decided to try it - in a big way.
On September 10, he and a coalition of more than 30 public interest organizations filed a petition calling on the attorney general (AG) of California to revoke the charter of Union Oil of California (Unocal). In social responsibility circles. Unocal is best (or perhaps worst) known for its controversial Burma pipeline, being built by a consortium co-owned in part by Unocal and the outlaw military regime there. for construction of the pipeline, the Burmese regime has reportedly seized land, forcibly relocated villages, and used forced labor - even of children and the elderly. Benson's petition cites many other outrages as well - including "unspeakable" human rights violations in Unocal's dealings with the Taliban militia in Afghanistan, which is known for its extreme cruelty to women; plus responsibility for the 1969 oil blowout in the Santa Barbara Channel; in addition to other environmental and employee-safety violations. Noting that California puts out of business hundreds of unruly accountants, lawyers, and doctors every year, the coalition called upon California Attorney General Dan Lungren (who is running for governor) to revoke Unocal's charter.
"We're letting the people of California in on a well-kept secret," said Benson. "The people mistakenly assume that we have to try to control these giant corporate repeat offenders one toxic spill at a time, one layoff at a time, one human rights violation at a time. But the law has always allowed the attorney general to go to court to simply dissolve a corporation for wrongdoing and sell its assets to others who will operate in the public interests."
In California, this power of charter revocation has apparently been invoked only once this century - in 1976, when a conservative Republican AG asked a court to dissolve a private water company for allegedly delivering impure water to its customers. In New York, it was invoked in early 1998, when the AG sought to revoke the charters of two corporations that put out allegedly deceptive "scientific" research for the tobacco industry. And in October, New York Democratic AG candidate Eliot Spitzer said that, if elected, he would not hesitate to revoke charters of corporate criminals.
Unocal spokesperson Barry Lane said "There is no legal basis" for Benson's petition. But that's untrue, for a California statute now on the books authorizes the attorney general to seek charter revocation. Similar statutes are on the books in all 50 states.
"We have committed misdemeanors in the past," Lane admitted. "But then so have many companies. We have operated here for 100 years. Yes, we have made some mistakes, but we have always taken responsibility for those mistakes and worked to correct them."
Whether or not that's true, the company's charter seems in little immediate danger. The attorney general's office rejected the petition a scant five days after it was filed. Delivered on a Thursday, it was rejected the following Tuesday - hardly sufficient time to review a 127-page document that cited 24 state and federal laws, 45 cases, and 40 international laws. "We got a three-sentence rejection that a court can clearly reverse as arbitrary and capricious," Benson said, as he made plans to appeal.
"We are not politically naive," Benson explained. "We don't think that this is going to get so far along the road that Unocal will actually be broken up any time soon, although it should be." The petition was filed to change the culture. "Our fundamental goal here is to change the public discourse and the media perception of the power of corporations versus people, to float the idea that people are sovereign over corporations," he said. And it may be working. While the case has failed to draw the attention of major national media, it has been covered on the West Coast and in the "Journal of Commerce" and the "Financial Times" of London. "The next time we go after a corporation to dissolve it," Benson said, "we believe the culture and the media will be much more receptive."
That hypothetical "next time" may already be at hand - through an unexpected sister case recently filed by Alabama Circuit Judge William Wynn, seeking to revoke the charters of the nation's five major cigarette companies. Remarkably, Judge Wynn expects to succeed.
He had never heard of Grossman or corporate charter revocations, when in May 1998 he filed a complaint in state court in Birmingham, Alabama, demanding that the corporate charters of Philip Morris, Brown & Williamson, R.J. Reynolds, The Liggett Group, and Lorillard Corporation be revoked. The judge was angry that Alabama had refused to join 22 states in suing the tobacco companies, and had spent the better part of a year researching Alabama law, to find a way to force the state to act. He stumbled across an obscure 19th century statute giving any citizen the right to petition the state for a "writ of quo warranto" - a Latin phrase meaning "by what authority?" As Judge Wynn explains it, the writ of quo warranto allows a citizen to file a lawsuit against any corporation, posing the question: By what authority are you holding a corporate franchise to do business, when you are in fact breaking the law?
Judge Wynn uncovered a number of laws he believes the cigarette companies have violated, including contributing to the dependency of a minor, unlawful distribution of material harmful to a minor, endangering the welfare of a child, assault in the third degree, recklessly endangering another, deceptive business practice, and causing the delinquency of a child. Though the companies have not been charged with these crimes in Alabama, Judge Wynn says that he's "calling for the criminal enforcement of these misdemeanors." And upon a finding that the companies have broken the law, he's then calling for charter revocation.
Perhaps the most surprising response to the lawsuit was that of the state's most influential paper, the "Birmingham News." The paper not only ran a news story about the lawsuit, but published a very long opinion piece by Grossman, titled "Slaying Big Tobacco." Mainstream readers were thus exposed to Grossman's argument that Judge Wynn is on "solid legal ground when he demands the state of Alabama provide its sovereign people with a proper remedy to end the corporate usurpation of the people's authority."
Judge Wynn is optimistic about his chances. He has known David Barber, the local district attorney, for 25 years, and calls him a "straight shooter." He says the chances Barber will file criminal charges against the tobacco companies are "excellent," and predicts that if Barber does so, any judge hearing the case will be forced to revoke the companies' state charters. Because that would mean a daily loss of $2 million in tobacco revenues, it would force the companies to settle. Judge Wynn predicts this will happen.
If he's blowing smoke, then the movement for the corporate death penalty may be driven back underground for a time. If he's right, look for major national news coverage and perhaps a sea change in the debate over corporate governance in America.
Russell Mokhiber is the editor of Corporate Crime Reporter, a legal weekly; 1209 National Press Bldg., Washington, DC 20045. Phone 202/737-1680.
(Reprint, "Business Ethics," (612/879-0695) November/December 1998 edition)
Copyright © 1996. The Light Party.
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