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The Death Penalty for Corporations Comes of Age

by Russell MokhiberBusiness Ethics
November 1st, 1998


In two surprising recent cases, a law school professor and a circuit court judge seek to revoke the charters of corporate lawbreakers.

We know what the death penalty for individuals means: Commit an egregious crime, die at the hands of the state. What does it mean to talk about the ''death penalty'' for corporations? Simply this: Commit an egregious wrong, and have your charter revoked. In other words, lose the state's permission to exist. It's an intriguing concept, because most of us never think about corporations needing anyone's permission to exist. But they do.

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 judgment 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 unpaid 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 in treatment of women; plus responsibility for the 1969 oil blowout in the Santa Barbara Channel; in addition to hundreds of other environmental and employee-safety violations. Noting that California routinely 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 interest.''

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 more recently, when the AG sought to revoke the charters of two corporations that put out allegedly deceptive ''scientific'' research for the tobacco industry.

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 plus the District of Columbia.

''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 anytime soon, although it should be.'' The petition was filed to change the legal and political 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 extensively covered on the West Coast and in papers like 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 the 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 the characteristically radical Grossman style, arguing 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.

Resources

  • The 127-page petition against Unocal is available on the Web at www.heed.net.

  • ''Taking Care of Business: Citizenship and the Charter of Incorporation,'' a pamphlet by Richard Grossman and Frank Adams, first published in 1993, is an excellent introduction to the concept of corporate de-chartering. Single copies are $4.55 from the Program on Corporations, Law & Democracy at P.O. Box 806, Cambridge, MA 02140.

  • Professor of Law Robert Benson can be reached at Loyola Law School, Los Angeles, CA 90015. Phone 213/736-1094.

    Judge William Wynn can be reached at 660 Jefferson County Courthouse, Birmingham, AL 35263. Phone 205/325-5367.

Blurbs:

''It is hardly a radical or drastic notion that some corporations should be permanently prevented from doing harm. The state permanently revokes the privilege to do business of accountants, doctors, lawyers and others licensed by the state -- hundreds of them every year.''

-- Thesis 3 from the petition to revoke Unocal's charter.

''Corporations today operate out of control as private governments, more powerful than nation- states.''

-- Thesis 6 from the petition to revoke Unocal's charter.

''Even under incorporation statutes 'liberalized' in the race for the laxest state regulation of corporations, corporate activity must be lawful and in accord with the public policy of the state.''

-- Thesis 9 from the petition to revoke Unocal's charter.

''The company's environmental devastation extends from local to global and is serious enough to describe as ecocide.''

-- From the petition to revoke Unocal's charter.

''A corporation in law is just what the incorporation act makes it. It is the creature of the law and may be moulded to any shape or for any purpose the Legislature may deem most conducive for the common good.''

-- 1834 declaration by Pennsylvania Legislature

''This is an historic event. It is the first broad-based effort of this century to use the people's sovereign authority over a corporation chartered by one of our states to terminate its privilege to do business.''

-- Ronnie Dugger, founder of Alliance for Democracy, one of 30 groups who petitioned to revoke Unocal's charter.

Reproduced from Business Ethics, bizethics@aol.com
PO Box 8439, Minneapolis MN 55408.

Russell Mokhiber is editor of Corporate Crime Reporter in Washington, D.C.