Q&A’s - Our 3/10/2010 Meeting 48 Days After Citizens United

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Q&A’s - Our 3/10/2010 Meeting 48 Days After Citizens United

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Reading Liberally Editorial Note:

The title of our focus book (“Corruption in America”) obviously “mouse trapped” John Karls into thinking the book was about Corruption in America, which appears to be why his Short Quiz focused so much on Dana Milbank’s “Homo Politicus: The Strange and Scary Tribes That Run Our Government” and Robert Kuttner’s “The Squandering of America” which were the twin foci of our 2/14/2008 meeting on “The Best Government Money Can Buy: Bribery & Extortion” -- the theme of both Milbank and Kuttner that nothing happens in THE CESSPOOL THAT IS WASHINGTON DC except as the result of extortion by the politicians and bribery of the politicians, both in the form of “campaign contributions.”

However, a fair reading of “Corruption in America” indicates that it is simply a polemic against the US Supreme Court’s 1/21/2010 decision in Citizens United v. Federal Election Commission which held that the First Amendment’s Right of Free Speech (which had already been held by the US Supreme Court to extend to corporations in NAACP v. Button (1963) to enable the NAACP at the height of the Civil Rights Movement to advertise for oppressed African Americans to become legal clients of the NAACP in violation of state laws prohibiting solicitation of legal clients) meant that the Free Speech of labor unions and corporations could not be restricted by political-campaign-contribution laws.

Indeed, her 15-page conclusion boils down to (p. 304): “My hope is that lawmakers will quickly act to pass public funding systems and anti-monopoly laws to protect our civic culture.”

Our 3/10/2010 meeting, a mere 48 days after Citizens United v. FEC, focused on the decision (which is 183 pages) plus all of the expertise that all of our regulars who are/were attorneys and law professors could bring to bear.

Accordingly, it seemed worthwhile to dredge up John Karls’ Suggested Answers to the Short Quiz for the 3/10/2010 meeting.

Suggested Answers - Short Quiz
Posted by johnkarls » Fri Feb 26, 2010 11:15 pm

Question 1

What does the U.S. Constitution's First Amendment actually say regarding "free speech"?

Suggested Answer 1

The First Amendment states in its entirety:

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

Question 2

How many opinions (main, concurring, dissenting) were filed in Citizens United v. Federal Election Commission?

Suggested Answer 2


1. Main Opinion = Kennedy (author), Roberts, Scalia and Alito plus (A) Thomas joined except as to Part IV = 5 justices; and (B) Stevens, Ginsberg, Breyer and Sotomayor joined as to Part IV = 8 justices.

2. Concurring Opinion = Roberts (author) and Alito = 2 justices.

3. Concurring Opinion = Scalia (author), Alito and, in part, Thomas = 2.5 justices.

4. Opinion Concurring In Part and Dissenting In Part = Stevens (author), Ginsberg, Breyer and Sotomayor = 4 justices.

5. Opinion Concurring In Part and Dissenting In Part = Thomas (author) = 1 justice.

Question 3

Were there prior Supreme Court cases regarding "free speech" by corporations?

Suggested Answer 3


Various cases such as the 1963 landmark case of NAACP vs. Button had recognized that “political speech” by a corporation is protected by the First Amendment (apparently the NAACP was a not-for-profit corporation). Addressing the Federal Election Campaign Act of 1971, the 1976 decision of Buckley vs. Valeo upheld limits on direct contributions to candidates in recognition of a governmental interest in preventing bribes, but invalidated limits on “independent expenditures” by individuals, corporations and unions to influence elections as an unconstitutional restriction of “free speech.” Buckley vs. Valeo also held that expenditures by candidates on their own campaigns cannot be restricted at all!!!

In 1990, the Supreme Court held in Austin vs. Michigan Chamber of Commerce that political speech can be banned based on the speaker’s corporate identity. This, of course, was effectively overruling NAACP vs. Button, Buckley vs. Valeo, etc.

In Citizens United, the Supreme Court overruled Austin and effectively re-instated NAACP vs. Button, Buckley vs. Valeo, etc.

Question 4

How have "media corporations" always been treated (including "the press" which usually comprises corporations and for which the First Amendment requires "freedom of")?

Suggested Answer 4

“The press” which almost always comprises corporations (e.g., The New York Times Company – NYSE symbol = NYT) has almost always enjoyed carte blanche. The most important limitations have been in the fields of defamation (though the Supreme Court’s 1964 decision in New York Times Company vs. Sullivan held that false statements regarding a “public figure” must be accompanied by “actual malice”) and national security (though the Supreme Court’s 1971 “Pentagon Papers” decision in New York Times Company vs. United States held that an injunction against publishing was an unconstitutional “prior restraint” on freedom of the press).

Other media corporations, including the major television networks, have also almost always enjoyed the same carte blanche – certainly the benefit of the “public figure” and “prior restraint” decisions.

Question 5

Should General Electric enjoy greater "free speech" than its competitors simply because it has owned NBC since 1986 when G.E. acquired NBC's then-parent, RCA? Should the sale of a 20% minority interest in NBC by G.E. in 2004 insulate G.E. from any restrictions on exercising its "free media speech" through its now-only-80%-owned subsidiary?

Suggested Answer 5

Probably not and probably not -- though, of course, it does enjoy and is insulated!!!

Editorial Note:

On December 3, 2009, the NY Times reported that General Electric and Comcast Corporation (NASDAQ Symbol = CMCSA) had just announced agreement that General Electric’s 80% share in NBC Universal would be put into a joint venture with Comcast Corporation. Comcast would put into the JV all of its cable channels and Comcast would also pay GE $6.5 billion in cash directly. Following consummation of the deal, Comcast would own 51% of the JV and GE would own 49%. The CEO of NBC would then report to the CEO of Comcast.

The NY Times article also said that the deal could take up to 18 months to pass regulatory muster. However, if the deal goes through, the same Reading Liberally questions will still be valid though “Comcast Corporation” should then be substituted for “General Electric.”

Question 6

Have personal expenditures by wealthy candidates (such as Presidents Franklin Roosevelt and John Kennedy, New York Governor and U.S. Vice President Nelson Rockefeller, Sen. Ted Kennedy, U.S. Presidential Candidate John Kerry, etc.) on their own behalf ever been regulated? If not, why should their views be permitted greater financing than those of anyone else?

Suggested Answer 6

No!!! (See, for example, the 1976 Supreme Court decision in Buckley vs. Valeo discussed in Q&A No. 3).

Who knows???

Question 7

In John Kerry's case, should gifts destined for his U.S. Presidential campaign from his wife, Teresa Heinz Kerry (primary owner of the Heinz food empire), have been subject to campaign finance laws? Or should gifts from spouses be exempt and, if so, why? Especially considering John Kerry and his wife refused to disclose her financial affairs during his Presidential campaign.

Suggested Answer 7

Yes. No.

Incidentally, John Kerry also refused to disclose his U.S. Navy records during the campaign. Give the N.Y.Times credit, they obtained the records after the campaign was over in order to parse through them to find out why Kerry had refused to release them. No, it had nothing to do with what his record disclosed with respect to the Navy “swift boat” operation in which Kerry was involved!!! The NY Times reported that the only thing it could find in Kerry’s U.S. Navy records that was embarrassing was his Yale College transcript that accompanied his U.S. Navy application which disclosed that Kerry’s Grade Point Average was below the GPA of George W. Bush!!!

Question 8

If personal expenditures by wealthy individuals have never been regulated, what about expenditures by wholly-owned corporations of wealthy individuals? After all, each could simply have her/his wholly-owned company pay a dividend and then s/he could make the expenditure as an individual.

Suggested Answer 8

Expenditures by wholly-owned corporations should probably be exempt. One might be tempted to quibble on the basis of the tax treatment since a dividend is not deductible to the corporation and is taxable to the shareholder – but per “Taxation 101” if a corporation has made an expenditure that is not “ordinary and necessary” vis-à-vis the corporation’s business but, instead, is made on behalf of the shareholder(s), the I.R.S. will treat the expenditure as a non-deductible dividend paid by the corporation and a dividend taxable to the shareholder(s).

So ironically, the real issue boils down essentially to publicly-held for-profit corporations.

Liberals love to demagogue corporations as evil – and in many cases they need governmental regulation to protect themselves from unfair competition.

For example, absent environmental laws and occupational-safety laws, corporations are forced by competition to the lowest common denominator. Indeed, American labor unions are always “up in arms” that their U.S. employers are forced to compete against imports by foreign corporations employing foreign workers in foreign countries that do not impose environmental laws or occupational-safety laws or even child-labor laws. And pre-9/11, airlines were spending less and less and less on security screening.

And the U.S. government constantly drives U.S.-based corporations out of business by imposing requirements to which foreign-based competitors importing into the U.S. are not subject. Indeed, “yours truly” invented and led for 4 years the “International Competitiveness” Subcommittee of the American Bar Association Tax Section’s International Tax Committee (as well as heading several other subcommittees before heading for 2 years the entire committee comprising the top 300 international tax lawyers in the U.S. with 22 working subcommittees) – and you wouldn’t believe the competitively-unfair taxation the U.S. government imposes on U.S. based companies but not their foreign-based U.S.-importing competitors!!!

Why “ironically” that the real issue boils down essentially to publicly-held for-profit corporations???

Because liberals who demagogue corporations (and Congress which loves to impose competitively-unfair legislation) love to ignore who the shareholders are!!! By and large, the shareholders of U.S.-based corporations are American retirement/pension funds (though many individual retirement funds would be invested through mutual funds) -- and university endowment funds. And for what do the university endowment funds largely use their income??? To fund scholarships for minority students!!!

Question 9

Was the Supreme Court in "Citizens United" dealing with legal provisions that apply to both corporations and labor unions?

Suggested Answer 9


Question 10

What is a "political action committee" ("PAC")?

Suggested Answer 10

When an interest group, such as a labor union or corporation, wants to contribute DIRECTLY to federal candidates or parties, it must do so through a PAC. PAC's are permitted to receive contributions from a restricted class, such as members of a particular labor union or managers/shareholders of a particular corporation. Prior to the recent "Citizens United" Supreme Court decision, labor unions and corporations were ALSO not permitted to make INDEPENDENT EXPENDITURES themselves.

An ironic but irrelevant footnote - PAC's themselves are probably not-for-profit corporations since virtually all other suitable forms of legal entities would expose owners to unlimited liability for acts by the legal entity. However, after a reasonably-extensive research effort, "yours truly" was unable to confirm this. (The same may also be true for labor unions and, if it is smart in the wake of all the controversy regarding child molestation by priests, the same would be true for the Roman Catholic Church with regard to restructuring its various churches and dioceses as not-for-profit corporations which, presumably, would still enjoy First Amendment "freedom of religion").

Question 11

If a labor union's members can each decide whether to contribute to a PAC sponsored by the union, and a corporation's employees and shareholders can each decide whether to contribute to a PAC sponsored by the corporation, why do labor unions and corporations have any need for "free speech" of their own?

Suggested Answer 11

Psychology 101. The same reason why people don’t vote, etc. – “Let someone else do it – my individual efforts won’t make any difference.”

Question 12

Is there any reason why foreign corporations or foreign-owned corporations need "free speech"? How would the determination be made whether a corporation is "foreign" or "foreign owned"?

Suggested Answer 12

The U.S. government is just as apt to impose competitive disadvantages on foreign-owned corporations compared to their U.S. competitors as vice versa.

And many foreign-owned corporations (starting with banks, automotives, pharmaceuticals, oils, insurers, etc. and even brewers such as Miller and Anheuser-Busch) employ substantial numbers of Americans who could lose their jobs if Congress imposes a competitive disadvantage on their foreign-owned employers. The Organization for International Investment is a lobbying organization that represents 160 foreign-owned U.S. subsidiaries operating in the U.S. per its web site = http://www.ofii.org/memlist.htm.

Moreover, most American retirement/pension funds that are large enough (most IRA’s would not qualify) and American university endowment funds invest in U.S. corporations through LBO (leveraged buy-out) funds. If properly structured, the LBO funds will use a new foreign-incorporated entity with a new U.S. acquisition subsidiary to make the acquisition. As noted in Q&A No. 8, the income of university endowment funds is largely dedicated to scholarships for minority students.

Vis-à-vis the second question, determining what is “foreign” and “foreign owned” has become very difficult to ascertain. Many multi-national companies headed by U.S.-incorporated companies have listed their stock on foreign as well as U.S. stock exchanges. And many multi-national companies headed by non-U.S.-incorporated companies have listed their stock on U.S. as well as foreign stock exchanges.

The Securities and Exchange Commission requires disclosure of shareholders that own 10% or more of a company, whether or not U.S-incorporated, whose stock trades on a U.S. stock exchange. Accordingly, for corporations that are publicly-traded in the U.S., we could “piggy back” on the SEC’s information regarding ownership.

The big challenges, obviously, are publicly-held corporations whose stock does not trade on U.S. stock exchanges and privately-held corporations that operate in the U.S. = U.S. subsidiaries of foreign corporations, companies that have been "taken private" in an LBO, companies owned by so-called Sovereign-Wealth Funds (i.e. the funds of foreign or "sovereign" governments whose ownership is difficult to track), etc., etc.

Question 13

What did the Supreme Court say about the legal requirements for disclaimers and disclosures regarding the "speech" of labor unions and corporations?

Suggested Answer 13

Disclaimers and disclosures can be required.

Question 14

If disclaimers and disclosures can be required for anything being aired on television by a corporation or labor union, what about cable and satellite? What about internet blogs?

Suggested Answer 14

Good luck!!!

Question 15

What did we learn at our February 2008 meeting from reading "Homo Politicus" by Washington Post Columnist Dana Milbank and "The Squandering of America" by New Republic Senior Editor Robert Kuttner?

Suggested Answer 15

The answer appears in the next question.

Question 16

Isn't the real problem NOT whether corporations can be censored (and, if so, how and to what extent), BUT RATHER that in the view of Dana Milbank and Robert Kuttner, every governmental decision is "for sale" to all comers and the sales price rarely rounds up to a single digit, much less ever breaks into double digits?

Suggested Answer 16

Of course!!!

Question 17

And, in fact, didn't Dana Milbank and Robert Kuttner believe that national politicians are more often guilty of extorting "campaign contributions" than accepting bribes (aka "campaign contributions")?

Suggested Answer 17


Indeed, when “yours truly” was Senior Tax Counsel and Director of Worldwide Tax Planning for Texaco Inc. (1974-1987) when it was still a Fortune-Ten company, the U.S. government was constantly proposing competitively-unfair laws for the purpose of “shaking down” various target groups for “campaign contributions” – though passing such legislation was usually the last thing Congress wanted to do because it would “kill the Golden Geese”!!!

Question 18

Indeed, with the insight of Dana Milbank and Robert Kuttner regarding extortion of "campaign contributions" vs. accepting bribes (aka "campaign contributions"), why do you think that so many different Congressional committees asserted jurisdiction over health-care legislation last year and why do you think that the Democratic majority excluded Republications from any of the decision making? And why do you think they took so long in their "deliberations" (aka "campaign contribution" extortion) that they ultimately jeopardized passage of any bill? And, having extorted maximum "campaign contributions," do you think they even care whether a bill was passed?

Suggested Answer 18

Hint = this is a test of your naiveté!!!

Question 19

Are there any amendments to the U.S. Constitution that we should consider recommending?

Suggested Answer 19

Let’s discuss this on March 10th.

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