Smart but unconstitutional? Trump appointee inverts Scalia maxim in striking corporate transparency law

"Corporate Transparency," Seattle
by Daniel Foster via Flickr CC BY-NC 2.0

A federal district court in Alabama ruled the Corporate Transparency Act, a key anti-corruption statute, unconstitutional upon the inverse of a maxim of the late Justice Antonin Scalia.

There's much commentary on the reading-people's internet about the significance of the March 1, 2024, decision, which is certain to be reviewed by the Eleventh Circuit Court of Appeals. The dry question of business regulation might not make the cut on the TikTok news cycle, meanwhile, but the issue is immensely important.

Effective in January 2024, the Corporate Transparency Act, part of the Anti-Money Laundering Act of 2020, which in turn is part of the National Defense Authorization Act for Fiscal Year 2021 ("NDAA"), requires most businesses to report their "beneficial owners" with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department. The information is not then public, but can be shared with law enforcement, including tax authorities.

The change in law has been in the works for some 20 years, conceived initially in the years after 9-11 to combat the financing of terrorism. The ABA Business Law Section has a deeper dive for subscribers.

Critically, the transparency around beneficial corporate ownership brings the United States into compliance with transnational norms. We had become something of a money-laundering haven in the world because of the secrecy we allow around ownership of corporations, namely (pun intended) anonymous shell corporations.

People who are keen to exert dark-money influence in politics, to hide assets, or to launder money, of course, tend to have a lot of it. So the law did not come about quickly or easily. But Congress was determined enough in the end to enact the law by a super-majority, overriding President Trump's veto of the NDAA.

Constitutional objections to the law are abundant, based in the First, Fourth, and Fifth Amendments, besides the limits of congressional power under Article I, as amended. It was only the latter theory on which Judge Liles Burke ruled. He concluded that the Corporate Transparency Act strays beyond the necessary-and-proper latitude afforded Congress for any of its constitutional powers, including the Commerce Clause and the Sixteenth Amendment taxing power. It's a problem in vertical federalism; if there is to be transparency in corporate beneficial ownership, then, it must come from the states. Burke is a Trump appointee.

I'm skeptical of the winning argument. Congress's powers in business regulation are substantial, and corruption and tax evasion are almost invariably interstate endeavors. Thus, the significance of the decision: for if it is right, a great deal more of our federal regulatory and taxing machinery will be suspect.

To be fair, small businesses objected to the added burdens of FinCEN compliance amid their already hefty costs in tax compliance, and I am empathetic. We might ought do something about that. But I suspect the legislative obstacles have more to do with keeping commercial-tax preparers in business and keeping the law arcane to shield loopholes, than with flat aversion to transparency.

The other constitutional objections are not frivolous, even if they don't hold up in the end; the rights-based theories have more romantic appeal to the classical liberal. The Fifth Amendment claim is based on due process, not so strong by itself; the Fourth Amendment claim is creative: search or seizure without reasonable suspicion. The First Amendment claim gave me pause: Compelled transparency compromises anonymous speech.

It happens that just last month, I (pro se) created a nonprofit entity to operate an academic research project. To free my New York nonprofit of minimum tax obligations—even though it has and anticipates no money—I applied for a 501(c)(3) determination from the IRS—which costs, by the way, a $275 tip to Uncle Sam.

The IRS informed me that upon approval, I will have to report my nonprofit's beneficial owners to FinCEN. It's irritating; mostly, I'm put off just wondering whether there will be yet another fee.  But it did occur to me that my nonprofit will be engaged in academic expression, and it might have things to say that will upset people in power. So there is a hint of Orwellianism in having to register my state entity with the federal FinCEN and identify my "beneficial owners"—remember, not even with any money in the mix.

At the same time, this is the uneasy balance we always have struck with the nonprofit tax registrations of First Amendment-sensitive enterprises, such as churches and issue advocates. In essence, this is the Citizens United problem, which I've always thought is more layered than it gets credit for. We have not found a principled way to differentiate Nike-as-speaker from the ACLU-as-speaker without some office of government problematically intervening to make the call.

Anyway, what attracted me to this ruling from Alabama is none of the above; rather, it was page one of Judge Burke's opinion. Have a read:

The late Justice Antonin Scalia once remarked that federal judges should have a rubber stamp that says STUPID BUT CONSTITUTIONAL. See Jennifer Senior, In Conversation: Antonin Scalia, New York Magazine, Oct. 4, 2013. The Constitution, in other words, does not allow judges to strike down a law merely because it is burdensome, foolish, or offensive. Yet the inverse is also true—the wisdom of a policy is no guarantee of its constitutionality. Indeed, even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.

If that doesn't suck you into a 53-page opinion on financial regulation, nothing will.

For the time being, as of March 4, 2024, FinCEN has suspended reporting obligations for plaintiffs in the action only, including members of the National Small Business Association.

The case is National Small Business United v. Yellen (N.D. Ala. Mar. 1, 2024). The plaintiff is a 501(c)(6) nonprofit, I'm guessing a business league, though it sounds like a not-too-exciting football league.

Jarosiński to talk cloud law, from Europe to Zoom, in free transnational legal webinar series

Jarosiński

Wojciech Jarosiński, a friend and colleague, will speak in November on "The Cloud: A New Legal Frontier."  The talk is part of a free webinar series of the American Law Program (ALP) of the Columbus School of Law at The Catholic University of America (CUA) in Washington, D.C., and the law school, foreign program office, and American law student society at Jagiellonian University (UJ) in Kraków, Poland.

In just under a decade, armed with master's-in-law-degrees from UJ and CUA, attorney Jarosiński has risen to prominence as an accomplished attorney in transnational business.  Now a partner at the Maruta Wachta law firm in Warsaw, he heads the dispute resolution practice group, leading or supervising a portfolio of more than 200 technology cases valued at more than US$2bn.  At the same time, I know Wojtek to be a gifted and globally minded person.  In his spare time, he is a co-founder, expedition planner, and skipper for Vertical Shot Expeditions, a wilderness adventure company offering photography expeditions in remote locations from pole to pole.

Here is the description of the talk, which will be in English.

Until recently, the cloud was mainly storage for surplus holiday photos. Today, the cloud plays a vital role in commerce: allowing businesses to thrive in geographically distant markets, limiting operational costs, and enabling workplace flexibility for employees. These applications, though, bring sleepless nights for judges who try to apply existing law to a new reality.

This webinar will begin with a brief introduction to the cloud’s basics: where the cloud is located, what is stored there, and whether it is even possible to avoid the cloud in today’s business world. Then, the session will move to opportunities for lawyers to guide their clients through cloud regulations—highlighting the importance of legal education in cross-border legal concepts. Finally, the webinar will consider dispute resolution regarding cloud-based services. The webinar will consider Zoom, Apple Mail, Amazon Web Services, Oracle, and many other popular services, as well as the Court of Justice of the European Union Schrems II decision and the U.S. Cloud Act. 

The talk is scheduled for Tuesday, November 24, at 1 p.m. U.S. EST (6 p.m. GMT, 7 p.m. CET).  All of the talks in the series are free, but advance registration is required.  

Here is the full schedule.  [UPDATED, Oct. 22: All fall dates are now open for registration.]

• OCTOBER 21 – Marc Liebscher, "Wirecard, Europe’s Enron? – Auditor Liability to Investors in Corporate Fraud"
• OCTOBER 28 – Sarah H. Duggin, "Why Compliance Matters – The Increasing Significance of the Compliance and Ethics Function in Global Corporations"
• NOVEMBER 19 – Roger Colinvaux, "Nonprofits in Crisis: Changes to Giving Rules and Politicization"
• NOVEMBER 24 – Wojciech Jarosiński, "The Cloud – A New Legal Frontier"
• DECEMBER 2 – Justyna Regan, "Data Privacy in the US: Where We Stand Today and Predictions for the Future"
• DECEMBER 9 – Megan M. La Belle, "Artificial Intelligence and Intellectual Property"

I'm proud to claim Wojtek as an alum of one of my classes in 15 years' teaching in the CUA-UJ ALP, though I doubtless have naught to do with his success.  Regrettably, the ALP is not running live this year, because of the pandemic.  Lemonade from lemons, though, is the fascinating work being produced by the Law Against Pandemic project (CFP, CFP en español).  I was privileged meanwhile, in May, to offer an item on American tort law to the pilot iteration of the ALP webinar series.

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Our fearless leader @wjarosinski relaxing on a Pripyat rooftop with all his essential gear. #verticalshotexpeditions #chernobyl #pripyat #adventureawaits #exploretocreate #pelicase #peliproducts #gearpatrol #thenorthface #neverstopexploring #peakdesign #mypakage #adventureisoutthere #photographyadventures

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Human life, human rights are the losers in unraveling Chevron-Ecuador litigation

Crude contaminates an open toxic pool in the the Ecuadorean Amazon
rainforest near Lago Agrio.  Photo by Caroline Bennett / Rainforest
Action Network, CC BY-NC 2.0.

[UPDATE, May 24, 2019: SDNY Judge Kaplan yesterday held Donziger in civil contempt.  Read more from Michael I. Krauss at Forbes.]
 
Court rulings are stacking up against the plaintiffs in the global Chevron-Ecuador litigation.  About a month ago, the Dutch Supreme Court, affirming arbitral orders, refused enforcement of the $9.5bn judgment that Ecuadorean courts entered against Chevron, successor to Texaco, for oil pollution at Lago Agrio, feeding into the Amazon River (e.g., AP).  Plaintiffs’ appeals have fared poorly since Canadian courts rejected enforcement earlier in April (e.g., Reuters), piling on adverse outcomes in the United States, Brazil, and Argentina.

Now an opinion headline in Oakland News Now—if atop a column authored by a self-professed “influencer” who decidedly favors Chevron—trumpets that plaintiffs’ attorney “Steven Donziger, … Once The Toast Of Hollywood, Is Now Simply Toast.”  Notwithstanding that dry, I mean wry, assessment, it is true that Donziger was ordered in March 2018 to reimburse Chevron for more than $800,000 in legal fees as part of equitable relief in a private RICO action in the Second Circuit, and subsequently he was pressed to defend his bar license.  He maintains that he and his allies are being victimized in a political-hit orchestrated by Big Oil.

If you’re new to the Chevron-Ecuador case, beware the rabbit hole.  It’s almost impossible to summarize how we’ve come to this point in the course of a quarter century.  The quickly dated 2015 book Law of the Jungle by Paul M. Barrett is still an excellent and objective port of entry (Amazon).  (My co-instructor/spouse and I plan to assign it in our comparative law class in the fall semester.)  You also can read about the case through the columns of George Mason Law Professor Michael I. Krauss at Forbes; he’s followed developments closely over the years.

In short, there was some awful pollution in remote oil fields in Ecuador, reckless extraction and vacant regulation in the 1970s and 1980s wreaking devastating, long-term, far-reaching, and literally downstream consequences to human life and the environment.  That part is hardly in dispute.  What has been less clear and is hotly contested is whom should be blamed.

Enter the polarizing personality of Donziger, Harvard Law ’91, who, it must be said, is a genius for having designed a new model of global environmental litigation.  He solicited wealthy and famous, like, Sting famous, investors to raise money for the high costs of litigating against transnational Big Oil behemoths in an effort to tame them with the rule of domestic law.  At what point Donziger’s litigation lost the moral high ground—somewhere between the get-go and never—is the subject of much speculation.  However, that corruption was rampant in Ecuadorean courts is beyond dispute, and the role of the lawyer when justice might require, say, cash prepayment of a new “court fee,” raises some thorny questions in ethics and cultural relativism.  What is for sure is that when you start talking about Big Oil as occupying the moral high ground, something already has gone terribly wrong.

One can only make an informed guess about where liability for Lago Agrio should land.  Texaco/Chevron probably bears a slice of moral, if not legal, responsibility, at least in a strict-liability, “Superfund” sense.  But through an unascertainable and poisonous mix of lax regulation, corruption, foolhardy assumption of responsibility, and their own recklessness practices, the state of Ecuador and its state-owned enterprises (SOEs) in oil extraction were vastly enriched and probably bear principal responsibility for the disaster, morally and legally.  Arguable then is how thoroughly moral responsibility should flow back to the industrialized world along the pipeline of oil demand; I won’t step into those inky depths.

Donziger and the Ecuador litigation is a capstone course for law school, so I’m not here to state a thorough explication.  I mention the case because it strikes me that it exemplifies two serious problems in contemporary tort law, intersecting on this unusual tangent.

The first problem is that both state actors and transnational corporations operate above domestic law and without accountability to private claimants in international law, and that portends a disastrous end to life on earth.  What ought not be forgotten about the Chevron-Ecuador legal fiasco is that underneath all of the legal finger-pointing, there remains an unmitigated environmental catastrophe.  And what’s worse, it’s ongoing.  Ecuadorean operations in the area still use reckless extraction processes such as unlined oil pits, and Big Oil is bidding to reclaim a piece of the action.  People are still being poisoned, and the Amazon is still being polluted.

Meanwhile, follow the oil downstream, and Hasan Minhaj will show you (embedded below) how Brazil is newly doubling down on rain forest destruction.  I’m talking about the good old-fashioned, small-animals-fleeing-for-their-lives-from-set-fires-and-bulldozers kind of destruction that was the stuff of my childhood nightmares in the dark age before we recycled.  Human civilization and our rule of law on earth have not yet figured a way to attack this problem on the international level, much less to protect the human rights of local citizens within an offending country.  Our own alien tort statute was recently defanged vis-à-vis transnational corporations—in a case about Big Oil, by the way—and it’s not clear that the law’s landmark 1980 application in Filártiga v. Peña-Irala, bringing a foreign state torturer to justice, would even be upheld in federal court today.

The second problem is that in places where we do observe the rule of law, namely, here in the United States, legal transaction costs have spiraled so high that our courts have become available only as playgrounds for the rich and powerful, whether to settle disputes among themselves, subsidized by us, or to quash the claims that we, the little people, might dare to file in our puny arrogance.  We know this problem on the mundane, ground level as “access to justice.”  I suggest that this is the same problem that Donziger—giving him the benefit of the doubt at the get-go, for the moment, assuming reasonably that his multitude of motives must at least have included compassion for victims of pollution among the world’s poorest people—was up against in trying to take on Big Oil.  Documents in the RICO case contain tidbits about Donziger’s financing, such as a rock star’s “two equity positions in the case, one for 0.076 percent and 0.025 percent.”  It turns my stomach to read about human rights litigation as an investment opportunity, perhaps ripe for an initial public offering.  (“Call now for your free report; first time callers can get a free tenth-ounce Silver Walking Liberty Coin!”)  If that’s how we’re setting legal norms around human rights and deterring threats to human life, then that says more about us than it does about Steven Donziger.

These are the days that I want to give up on the human experiment and hunker down in willful ignorance to marshal my resources and plan for a contented retirement.

Though I’m a little short on resources.  Can I still buy shares in that Roundup litigation?

Research proposes U.S. FOIA reform upon South African example

I've published in the Villanova Law Review, "Access to Information in the Private Sector: African Inspiration for U.S. FOIA Reform" (available from SSRN).  The article appears as part of a symposium edition of the law review (63:5) on FOIA reform.  The special edition commemorates 50 years of the FOIA, which was passed by Congress in 1966 and went into effect in 1967.  I was privileged to present the piece at the Villanova University Charles Widger School of Law in 2017, upon generous invitation to the Norman J. Shachoy Symposium.  Here is the foreword (footnotes omitted):

The Freedom of Information Act of 1966 (FOIA) was a landmark global example of transparency, or access to information (ATI), to ensure democratically accountable governance.  Government had grown in the twentieth century, especially in the new administrative state, and FOIA re-balanced the distribution of power between people and public authority.  Today in the twenty-first century, much power in American society has migrated from the public sector to the private sector, specifically into the hands of corporations.  Even insofar as it works well, FOIA operates only against the conventional state by enabling an individual’s capacity to realize civil and political rights.  FOIA simply was not designed to enable the attainment of human necessities such as education and housing, much less environmental protection and healthcare, especially when the greatest threat to those rights is not government deprivation, but the commercial marketplace.

ATI in Africa is a different story.  Three decades after FOIA, planted among the unprecedented ambitions of the South African constitution was a right to ATI.   And within that right lay an extraordinary new provision.  As guaranteed by the South African constitution and enabling law, a person may request records from a nongovernmental respondent, a private body, if the person can show that the records are “required for the exercise or protection of any rights.”   In other words, South African ATI law jettisoned the historic barrier between public and private sectors.  South African lawmakers were informed by the experience of apartheid, in which the private sector’s complicity had been a vital and brutal partner in state-sanctioned human rights abuse.

Blossoming beyond even the visioning of an apartheid remedy, ATI in the private sector has been construed by the courts in a wide range of applications, from intrafamilial business disputes to environmental conservation.  South African courts have struggled to define “required” and “rights” in applying the ATI law.  But South Africa has demonstrated that ATI in the private sector can work.  The public-private division justifies a change in the terms of access, but not an absolute barrier.  In the last five years, the South African approach has been reiterated in the domestic law of at least five other African countries and in pan-African human rights instruments meant to inspire more domestic adoptions.

In this article, I suggest that the African example inspire U.S. FOIA reform.  In its time, FOIA shone a light into the darkest corners of American politics.  Now America deserves a new approach to restore power to the people in the age of the corporation.

Pai FCC net neutrality policy steers US wrong way

Today a political cartoon from my brother, Spencer Peltz, in AP Gov at Calvert Hall, where he is student body president.

Probably needless to say, I agree with the sentiment wholeheartedly.  India's Telecom Regulatory Authority is headed wisely in the opposite direction.  Read more at Global Net Neutrality Coalition.  Tiered access, a.k.a. internet censorship, is bad for social liberals and economic conservatives.  The only winner under the Pai FCC plan is corporate oligarchy, and that's not free-market capitalism.  Oh, there're other winners, too: people and commercial enterprise every else in the world, India included.  Guess whom that leaves as losers?

Policy proposal threatens academic freedom at University of Arkansas

Watchdogs in my former home state of Arkansas have alerted me to a major proposed change to University of Arkansas Board of Trustees tenure policy that threatens faculty academic freedom and tenure.  I wrote on this subject and presented at an AAUP conference some time ago; see "Penumbral Academic Freedom" at SSRN.  I happen to have just started serving here at UMass Dartmouth on a campus-wide committee studying policy related to faculty privileges and responsibilities.  I plan in time to write more about my experience here at UMD.  Meanwhile, though, what is happening at Arkansas, just one instance amid an alarming national trend, needs wider attention.  Simply put, an attack on academic freedom anywhere is an attack on academic freedom everywhere.

As is widely known both in and outside the academy, this is not a happy time for freedom of expression on the university campus.  (See this New York Times op-ed from yesterday, by University of Oregon President Michael Schill.)  Professor Catherine Ross at GW Law wrote an excellent piece recently for 66:4 Journal of Legal Education on "Assaultive Words and Constitutional Norms," explaining the clash between First Amendment freedom of speech and lately abundant and popular efforts to regulate speech that is normatively objectionable, such as hate speech.  The problem extends to our complicated American relationship with whistleblowers: compare the Obama Administration's "war on whistleblowers" (Guardian) with the later pardoning of Chelsea Manning.

In the academic sphere, the problem has played out in attack on faculty and faculty privileges, such as tenure, that are designed to preserve the university as "the quintessential marketplace of ideas."  The corporatization of the university and the infantilization of faculty have been documented and described, for example by Johns Hopkins Professor Benjamin Ginsberg in his 2013 book, The Fall of the Faculty (Amazon).

My colleague Professor Joshua Silverstein at the University of Arkansas Little Rock Law School wrote an excellent missive to his faculty on the proposed changes to Arkansas board policy.  He explained how the policy changes conflict with established AAUP norms.  Especially problematic is a provision that would allow termination of faculty for "unwillingness to work productively with colleagues."  As Professor Silverstein aptly observes, this is administrator-speak for what the AAUP long ago described and condemned as a "collegiality" requirement.

That provision would allow the termination of a faculty member who ignores instruction to teach the politically correct or anti-intellectual version of a subject in the classroom; who refuses to give passing grades for failing performance, when campus bean counters fear losing the student's tuition dollars; or who objects to the elimination of disciplines such as philosophy and foreign language as the university looks to budget according to revenue potential rather than academic mission.  In the corporatized university, there is no room for faculty governance and less for freedom of thought.  Faculty are expected to toe the line and make the widgets.  That's a frightening vision of the university, especially when one contemplates the impact on young adults of modeling automatous obedience in a purported democracy.

Professor Silverstein has given me permission to excerpt his missive, below.  His redline-and-comment version of the board policy I have parked here.  I note that Silverstein had to create the redline version himself; only a clean revision was distributed.  The redline version, he warns, might have mistakes that are artifacts of conversion from PDF.  The clean revision proposal is here.  The current rule can be found here.  Silverstein disclaims that he only received the proposal last weekend, so his review is not comprehensive.  Also, these comments pertain only to changes to the board policy on tenure.  Other proposed changes would affect employment periods and distinguished professorships.

The academy must stand together to repel attacks on tenure.  And we in the legal academy have an especial responsibility to heed the call.

--

Colleagues:

Last week, the faculty senate received proposed changes to the UA System rules regarding tenure (Board of Trustees Policy 405.1), employment periods (Policy 405.4), and university and distinguished professorships (Policy 470.1).   This email concerns the proposed changes to policy 405.1.  As the subject of my email indicates, I believe that the proposed changes are a grave threat to tenure and academic freedom within the entire UA System.  Most importantly, the revisions dramatically expand the grounds justifying termination for cause.  They do so by (1) effectively establishing collegiality as a basis for termination, and (2) permitting dismissal after a single unsatisfactory rating in an annual review.  In addition, the revisions critically weaken the procedural protections available at university committee hearings regarding terminations.  If these changes are adopted, the damage to the University of Arkansas will be wide-ranging and likely permanent.  It is thus imperative that we speak out about the threat.

*  *  *

1.  The University may not retroactively alter tenure rights.

In my opinion, the proposed changes to 405.1 cannot retroactively alter the rights granted under existing tenure contracts.  Well-established principles of contract law and constitutional law firmly support this conclusion.  Thus, the changes to 405.1, if adopted, will only apply to faculty not yet tenured.  However, I have not conducted exhaustive legal research on this point.  In addition, while nothing in the proposal suggests that the university believes it can—or intends to—apply the changes retroactively, an express admission on these points is the only way we can be sure of the thinking of the Board of Trustees and the rest of the central administration.

Even if the changes are applied solely in a prospective manner, that only modestly reduces the damage that the new rules will cause.  For example, all new hires will be subject to the revised standards.  That is a serious problem.  The changes will make it more difficult to hire the best entry-level and lateral faculty.  And those who are hired will possess weakened tenure protections and more limited academic freedom, both of which will result in numerous harms to teaching, research, and service within the UA system.

2.  The proposal dramatically expands the scope of what constitutes “cause” for purposes of terminating faculty. 

a.  Introduction.

Let me start by highlighting the critical textual changes to the definition of “cause.”  The current definition is set forth in section I of Policy 405.1 (which is on page 2 of the policy):

“Cause” is defined as conduct which demonstrates that the faculty member lacks the ability or willingness to perform his or her duties or to fulfill his or her responsibilities to the University; examples of such conduct include (but are not limited to) incompetence, neglect of duty, intellectual dishonesty, and moral turpitude.

Compare that to the revised definition, set out in section I of the proposal on pages 1-2 (and on pages 1-2 of my redline):

Cause - Cause is defined as conduct that demonstrates the faculty member lacks the willingness or ability to perform duties or responsibilities to the University. A faculty member may be disciplined, or dismissed, for cause on grounds including but not limited to unsatisfactory performance or (1) professional dishonesty or plagiarism; (2) discrimination, including harassment or retaliation, prohibited by law or university policy; (3) unethical conduct related to fitness to engage in teaching, research, service/outreach and/or administration, or otherwise related to the faculty member’s employment or public employment; (4) misuse of appointment or authority to exploit others; (5) theft or intentional misuse of property; (6) incompetence, job abandonment, pattern of disruptive conduct or unwillingness to work productively with colleagues, or refusal to perform reasonable duties; (7) threats or acts of violence or retaliatory conduct; or (8) violation of University policy, or state or federal law, substantially related to performance of faculty responsibilities or fitness to serve the University

I have highlighted two pieces of the revised definition.  First, I highlighted the addition of “unsatisfactory performance” near the beginning of the definition.  Second, I highlighted certain language in item 6.  Section 2.b. of this email addresses item 6.  Section 2.c. of this email addresses the insertion of “unsatisfactory performance.”  There is additional language in the proposal relating to the two pieces of the definition that I highlighted.  That language is discussed in the sections below corresponding to the highlighted language.

b.  Establishing collegiality as a basis for termination dramatically reduces tenure protections and academic freedom.

The language I highlighted in item 6 is very dangerous.  “Pattern of disruptive conduct” is a deeply subjective standard.  “Unwillingness to work productively with colleagues” is worse.  These standards create a serious potential for abuse.  It takes little imagination to see how the standards could be employed to stifle academic freedom by dismissing or otherwise punishing tenured faculty on the pretextual grounds that they are “disruptive” and/or “uncollegial.”  Note that including a collegiality requirement in tenure standards violates AAUP principles.  This change would thus move the UA System out of compliance with the AAUP.  See On Collegiality as a Criterion for Faculty Evaluation at page 1 (and throughout)), available here.

The importance of the changes in item (6) is highlighted by the fact that the “work productively” collegiality standard is repeated in the section of 405.1 that concerns academic freedom.  The proposal amends section IV.A.14.c, on page 10 by inserting the following language: “Faculty are expected to work productively with colleagues in carrying out the mission of the University.”  By adding this to the academic freedom section, it is clear that the drafters intend the language to circumscribe the scope of academic freedom everywhere within the University of Arkansas.

c.  The proposal permits termination after a single unsatisfactory rating in an annual review; this also dramatically reduces tenure protection and academic freedom.

Under the current standard, termination for performance issues may result only from “incompetence,” “neglect of duty,” or the like.  Under the proposed standard, a mere finding of “unsatisfactory performance” in a single annual review is sufficient grounds to warrant termination.  That is a profound change.

To elaborate, the proposal inserts new standards regarding annual reviews in section V.A.9.  Here is the pertinent language:

Any campus procedures regarding post-tenure review shall not allow greater than one academic year, with active cooperation from the faculty member, for an overall unsatisfactory performance rating to be substantially remedied prior to a recommendation of dismissal on the basis of unsatisfactory performance. In other words, if a faculty member’s overall performance is evaluated as unsatisfactory for an academic year, any improvement plans or other remedial measures are expected to result in a satisfactory evaluation by the end of the following academic year; if not, the faculty member may be issued a notice of dismissal on twelve months’ notice as provided for in this policy. Again, such period of time for remediation assumes the active cooperation and engagement of the faculty member; otherwise, a shortened timeframe may be utilized.

On the surface, this provision appears to provide that termination is only permissible after two unsatisfactory ratings.  In the first yellow block, the provision states that “any improvement plans or other remedial measures are expected to result in a satisfactory evaluation by the end of the following academic year; if not, the faculty member may be issued a notice of dismissal . . .”  (Emphasis added.)  That suggests that two unsatisfactory ratings are required.  But now consider the last sentence of the language I quoted, also highlighted in yellow: “Again, such period of time for remediation assumes the active cooperation and engagement of the faculty member; otherwise, a shortened timeframe may be utilized.”  (Emphasis added.)  This means that if the university, in its subjective judgment, determines that a person is not being sufficiently “cooperative” or “engaged” in the remediation plan, termination is possible well before the end of the first academic year after the unsatisfactory rating.  In short, a single unsatisfactory rating, combined with a judgment of insufficient “cooperation” or “engagement,” can result in termination. 

That is a dramatic change from the existing rule.  To repeat, the current standard requires “incompetence,” “neglect of duty,” or something comparable.  Those words denote performance that is considerably worse than suggested by a mere finding of “unsatisfactory.”  Indeed, “incompetence” and “neglect of duty” are much worse than multiple findings of unsatisfactory performance.

This change also violates AAUP standards.  For example, in a report regarding Greenville College in Illinois, the AAUP said this:

As the writers of the 1958 Statement on Procedural Standards had assumed, most institutions have indeed developed their own standards of what constitutes adequate cause for dismissal.  They most commonly tend to be “incompetence,” “professional misconduct,” “gross neglect,” and the like.  In comparison, Greenville’s standard of “unsatisfactory service” not only is nebulous and subjective, but also sets too low a bar for adequate protection of tenure and academic freedom . . . .

Report, Academic Freedom and Tenure: Greenville College (Illinois) at page 86, available here.

Likewise, the AAUP’s formal statement on post-tenure review explains that the appropriate standard for “cause” is “incompetence, malfeasance, or failure to perform . . . duties.”  Post-tenure Review: An AAUP Response at page 230, available here.  The report proceeds to explain that if “the standard of dismissal is shifted from ‘incompetence’ to ‘unsatisfactory performance,’ . . . then tenured faculty must recurrently ‘satisfy’ administrative officers rather than the basic standards of their profession,” which fatally undermines academic freedom.  See id.

As these AAUP documents make clear, the proposed change of the cause standard from “incompetence” and “neglect of duty” to mere “unsatisfactory” performance is fundamentally inconsistent with core principles of academic freedom.  And that would be true even if the proposal required multiple findings of unsatisfactory performance.  As I explained, however, a single finding of unsatisfactory performance can justify termination under the proposal (when combined with a finding that the faculty member is not sufficiently cooperative or engaged in remediation of the unsatisfactory performance).

3.  The proposal critically weakens procedural protections.

Section IV.C. of 405.1 concerns the procedures for dismissing a tenured or tenure-track faculty member.  Part of the termination process is a hearing before an impartial committee.  The proposal revises section IV.C.5., on page 14, to strip away the committee’s ability to grant procedural protections equivalent to those afforded in a court of law.  See comment j7 on page 12 of the redline, which explains this point in more detail.

* * *

Note that the redline contains a few other substantive comments.

As I said, this proposal is a striking attack on academic freedom and tenure.  It is thus imperative that we make our voices heard.

Josh

Joshua M. Silverstein

Professor of Law

University of Arkansas at Little Rock

William H. Bowen School of Law

1201 McMath Ave.

Little Rock, AR 72202-5142

The Death of Civil Justice: It Was a Good Run, 900 years

Opening panel at Anglia Ruskin University Sports Law 2016: Leonardo Valladares Pacheco de Oliveira, Ian Blackshaw, Tom Serby, Andrew Smith, and Antoine Duval

Last week I was privileged to attend a tremendous one-day Sports Law program at Anglia Ruskin University in Cambridge, UK, focusing on the question, “the future of ‘the legal autonomy’ of sport.”  Experts in the academy and in practice gave timely and informative commentary on contemporary sport governance from perspectives of contract law, politics, and dispute resolution. 

Though justifiably through the lens of sport, the program raised a broader and important question concerning the future of civil justice.  Dispute resolution in international sport today is the province of the Court of Arbitration for Sport (CAS), in Lausanne, Switzerland, under the very loose supervision of the Swiss Federal Tribunal.  CAS has a complicated relationship with international sport governance organizations such as the IOC and FIFA.  Certainly the court is not their stooge.  At the same time, through the magic of contract law, the mandatory use of the arbitration system carries down through the echelons of world sport from the IOC to the national sporting federation, and all the way to the athlete.

Transnational sport governing bodies, such as the IOC and FIFA, want their disputes handled in this single channel, because it renders them largely immune to oversight by the democratic instrumentalities of the world’s governments, especially the courts.  The transnationals have legitimate and less legitimate motivations.  They fairly worry about potential liability in multitudinous courts, each national judiciary applying its unique domestic law anchored in local priorities and prejudices.  Bypassing national legal systems, the transnationals can conserve resources for objectives in the public interest, such as sport for development and peace, and the promotion of human health and competitive achievement.  The logic supporting consolidation of international dispute resolution under one supra-national banner is the same by which the U.S. Constitution places interstate commercial disputes in U.S. federal courts, supervening the potential vagaries and favoritisms of the states.

But international arbitration has its dark side—in fact, nearly literally, as CAS operates in the opacity that typically surrounds arbitration.  Observers, including journalists and NGO watchdogs, grow frustrated and skeptical, as secrecy breeds unfairness and unaccountability.  This problem is the same that has generated angst within the United States over the “secret justice” system that has so thoroughly superseded the civil trial—see the excellent work of the Reporters Committee for Freedom of the Press in its Secret Justice series, linked from here. 

Further threatening the integrity of these proceedings, the contracts that bind parties to arbitration, and are then construed in arbitration, generally are adhesion contracts: drawn up by the transnationals themselves, weighted to their favor, and presented as fait accompli to young athletes with Olympic gold medals dancing in their dreams.  Barrister Andrew Smith, Matrix Chambers, conceded that these contracts are not meaningfully negotiated.  Their acceptance at the international level apparently marks the same phenomenon that has been documented with alarm, but as yet no serious reform, at the consumer level within the United States in works such as Nancy Kim’s Wrap Contracts and Margaret Jane Radin’s Boilerplate.

Upon my inquiry, Smith pointed out that for many reasons, athletes, given the choice, would themselves prefer arbitration to redress in the courts.  A plaintiff often desires secrecy as much as a defendant.  An expert arbiter might be more likely than a civil court to reach a conclusion that recognizes the nuances of divided merits, rather than erring in favor of dismissal as against the plaintiff’s burden of proof.  Though affordable representation for claimants has been a problem for the CAS system, organized arbitration systems still do a better job looking out for claimant’s access to representation than the usual civil court.  And most important to potential litigants are the time and costs of civil justice, often prohibitive deterrents that make faster and cheaper arbitration more appealing.

Nevertheless, panelists agreed that for the arbitration system to work fairness, stakeholders including athletes must take part in developing the process.  Conference organizer Tom Serby of Anglia Law School emphasized the need for democratization of sport governing bodies.  Smith said that organization of athletes into representative bodies is essential, noting with approval that “the United States is farther along with collective bargaining.”

With disparate levels of enthusiasm for the merits of judicial abstention, three speakers—Serby; Antoine Duval of the Asser Institute,Den Haag; and Simon Boyes of the Centre for Sports Law atNottingham Law School—all opined that national courts have been generously deferential to private dispute resolution in international jurisdiction.  Quotes from the iconic British jurist Lord Denning were offered both for and against the position.  Denning on the one hand bemoaned the courts’ relative lack of expertise in matters of private regulation, respecting the brightly formalist lines of conserved judicial power.  On the other hand, he declared, as quoted in Baker v. Jones, [1954] 1 W.L.R. 1005, “‘If parties should seek, by agreement, to take the law out of the hands of the courts and put it into the hands of a private tribunal, without any recourse at all to the courts in case of error of law, then the agreement is to that extent contrary to public policy and void.’”  Duval and Boyes mapped the ground between, where court intervention seems justified.  Boyes boiled down viable grounds to the protection of natural justice, human rights, and free competition and trade.

Incidentally the same autonomy question was taken up in similar dichotomy by Judge Richard Matsch and then the Tenth Circuit in Hackbart v. Cincinnati Bengals, Inc., 435 F. Supp. 352 (D. Colo. 1977), rev’d & remanded, 601 F.2d 516 (10th Cir. 1979).  Asked to intervene after an on-field altercation, Judge Matsch opined, on the “larger question” of “the business of professional football” and “the business of the courts,” that “the courts are not well suited” to allocate fault or probe causation.  For fear of excessive litigation and inconsistent rulings, any “government involvement” in the “self-regulated industry” of professional football was, in Matsch’s view, “best considered by the legislative branch”—Denning-like formalism.  Instead applying the law of recklessness to the dispute at hand, the Tenth Circuit disagreed.  Persuasive was the oft quoted reasoning of the Illinois Appellate Court in Nabozny v. Barnhill, 334 N.E.2d 258, 260—if a decision about teen athletes playing that other kind of football—that “some of the restraints of civilization must accompany every athlete onto the playing field.”

Well intentioned aspirations for meaningful athlete-as-stakeholder involvement and debate about the selective intervention of courts all gloss over the broader and more troubling trend of public, civil justice eclipsed by the private sphere.  I confess that what troubled me most about the sports lawyers’ commentaries on arbitration and autonomy was a problem beyond the scope of their charge: the disappearance of civil justice in our society at large.

Plenty has been written at the national level about vanishing civil justice and the rise of private dispute resolution.  But as the realities of globalization decree that every dispute becomes an international one—whether a youthful athlete against an international federation, or a homeowner against a floorboard maker—it it seems that public civil justice is dying.  Blind deference to adhesion contracts is hastening the trend, and the courts seem plenty eager to stand by and cede power.  They purport to further the laudable aims of deference to experts or freedom of contract.  But courts have always been in the business of second-guessing professed experts, and the contemporary commercial contract is hardly a product of free choices.

Dystopian science fiction in popular culture has in recent years flourished upon an obsession with burgeoning social angst over the corporatization of public life.  In 2013 and 2014, the Canadian TV series Continuum traced the personal struggle of an anti-terrorism agent who came to doubt the virtue of the corporate-dominated future she was sent back in time to protect.  Themes of abusive corporate supremacy and submissive, corrupted government dominate the visions of current hits, such as Killjoys and The Expanse, the latter based on the novels of James S.A. Corey.  The next year will see the premieres of Incorporated, a dark Matt Damon-Ben Affleck project, and the plainly titled Dystopia, which imagines 2037: “Governments are now powerless puppets for the biggest corporations.”

Western democracy has 900 years of experience developing a public system of civil justice to patrol the boundaries of right and wrong among us.  We ought not jettison that system so readily, nor so casually.  We ought not capitulate to the conveniences of globalization, nor certainly to the burdens of transaction costs.  Would that we spend more time and energy trying to fix the public system that we have rather than ushering it into the past and replacing it with the corporatized private justice of our nightmares.