Legal Strategies to Revoke the Corporate Charter
In accordance with the strict legislative control exercised over corporations who sought the privilege of incorporation and following in the path of centuries of English commonlaw (case made law), the states codified (made into written law) the power to revoke the charters of corporations who "misused" or "abused" their charter powers. The English foundation for these statutes can be traced to the theory of quo warranto, which literally means that the state is asking the corporation, "By which grant of right do you exercise the powers you are exercising?" The extensive history of quo warranto theory to revoke charters adds credence to its contemporary use.
In addition to this common-law theory, the states codified the law, and in most states, granted the power to revoke the corporation's charter for misuse or abuse to the Attorney General of the state. Forty-nine states have adopted quo warranto statutes. Some states offer even stronger protection, allowing for revocation of corporate charters in specific situations, such as when the corporation has engaged in a conspiracy (Washington) or when the corporation has engaged in bid-rigging or anti-trust activities (Pennsylvania).
In addition, state courts addressing the issue of corporate charter revocation in cases from 1900-1950 uniformly have held that a legislative repeal of the quo warranto statute would not have the effect of extinguishing the charter revocation remedy. Courts have stated that the common-law theory of quo warranto exists independently of the state statute. In effect, this prevents a backlash from the state legislature (who would seek to repeal the statute) if the corporate charter revocation remedy is invoked. This long common-law history is similar to that found in the tort areas of nuisance, battery, arson, murder, etc. These crimes existed long before the advent of state statutes that defined the crimes. Even if the statutes were taken "off the books" or repealed, a cause of action would remain because these crimes are so thoroughly anchored in centuries of case law as it has developed from English origins.
The Community Environmental Legal Defense Fund (CELDF) is currently researching the opportunities presented by the existence of these quo waranto statutes. Specifically, CELDF has explored the possibility of revoking CSX Transportation's charter in West Virginia, WMX Technologies' charter in Delaware, Weyerhauser Corporation's charter in Washington, and Union Carbide's charter in New York. The WMX Technologies' case is furthest along in the process. CELDF has apprised the Attorney General of Delaware of the existence of the corporate charter revocation statute and has sent him a communication that details the consistent history of environmental statutory and anti-trust violations that have been committed by WMX and its subsidiaries. CELDF has also located potential plaintiffs in Delaware that would be willing to participate in a lawsuit to revoke WMX's charter.
One of the problems is that the quo warranto statutes give only the Attorney General the power to bring a corporate charter revocation action. Many times, the state statute gives the Attorney General the discretion to bring such an action. The language is usually couched as "the Attorney General may" initiate proceedings to revoke the corporation's charter. This "may" is very difficult for citizens to enforce because it grants broad discretion to the Attorney General that the courts are reluctant to enforce. To attempt to force the A.G. to take action in this situation is a losing proposition unless a massive citizen movement can be launched that convinces him/her that his/her political future rests upon his/her decision to take action against the corporation.
In legal terms, to force the A.G. to revoke a charter under this "may" language, the citizen lawyer would be forced to jump two hurdles. First, the courts have been leery of forcing the A.G. to prosecute; in other words, they are hesitant to impose their will on an area called "prosecutorial discretion." The second hurdle is the standard that the court would impose even if they did decide to review the A.G.'s decision not to bring charter revocation proceedings. The citizen lawyer would have to prove that the decision not to bring a revocation suit was "arbitrary and capricious." This standard of review is the standard used in cases in which the court has been asked to review an agency decision. This standard is tough to prove in most situations because the courts will usually uphold a decision by the Attorney General as long as it is "rational" and supported by some evidence.
That's the bad news. The majority of states have the "may" discretionary language lodged in their quo warranto statutes. The good news, ironically, is that Delaware, that king of corporate moguls, has the strongest quo warranto statute of any state that the CELDF has researched. Under Delaware law, the Attorney General "shall" bring a charter revocation suit if requested to do so by a "proper party." The statute, therefore, is not discretionary, but mandatory. This area of the law offers a new opportunity-a lawsuit that requires the issuance by the court of a writ of mandamus-this type of law is used to force state employees who have refused to take a non-discretionary action. CELDF believes that this gives citizens the necessary opening to force the Attorney General to bring a corporate charter revocation lawsuit against a corporation that has "misused" or "abused" its charter powers. Courts are much more willing to force the Attorney General to act in a "shall" situation than a "may" situation, because the legislature has specifically spoken about the activities that they wish the A.G. to pursue.
How does a corporation "misuse" or "abuse" its charter powers? One needs to look to prior case law to discover what activities fall into this category. Obviously, illegal activity falls outside of any charter powers that could be granted by the state. In Delaware law, as with many other states, corporate charter revocations were commonplace until around 1950. The drop-off of charter revocation actions can be blamed on the rise of the "regulatory state," in which regulation in the corporate area was passed to administrative state agencies established for these purposes. These revocation cases have defined "misuse" and "abuse" as a consistent history of statutory violations that caused public harms. CELDF believes that many of the largest U.S. corporations, including WMX Technologies Corporation, Weyerhauser Corporation, Monsanto Corporation, Union Carbide Corporation, and CSX Transportation Corporation fall into those categories of companies that have misused and abused their charter powers.
This brings us to the current situation. CELDF has drafted a fourteen-page letter that delineates the past fifteen years of WMX violations and outlines Delaware case law that would support an action to revoke a corporate charter. This is the second letter that has been drafted to the Attorney General of Delaware. The first was sent directly from CELDF, but the second will be sent from a "proper party"-an environmental organization headquartered in Delaware. This will set into motion the process by which citizens will begin to regain control of these corporate monoliths that have been allowed to grow into immense, bloated shapes.
The reason for the letter? A legal doctrine called exhaustion of administrative remedies, demands that all avenues for action be explored by the plaintiff prior to the bringing of a lawsuit to force this type of action. A span of time will be granted to the State to allow them to initiate charter revocation proceedings. If they fail to initiate the proceedings, then CELDF will file suit to force the action on the part of the Attorney General. If we are successful in this action-forcing mechanism, then CELDF will file as an "intervenor" to the litigation, which means that we could stand in the shoes of a co-plaintiff during the revocation proceedings. We would take this action to ensure that the Attorney General would not settle the lawsuit without approval or input from us. As an intervenor, we could continue to litigate the case even if the Attorney General bows out.
It is our hope that injunctive relief would be granted by the court which would freeze the assets of the corporation during litigation and prevent the corporation from re-chartering in the event that it is dissolved. These actions are essential to the revocation lawsuit because without them, we have done nothing except to force the corporation to transfer their assets into other holding corporations.
That is the plan on the legal front. What is needed in conjunction with legal action, is a movement that convinces the judiciary, the legislature and the politicians that a "re-thinking" of the corporate form needs to take place and that citizens need to regain their sovereignty over these artificial beasts. It is our hope that others begin "Rethinking Corporations," as they have in five other states. It is essential that others accept this challenge and begin working together to formulate a new future in which citizen sovereignty serves as a cornerstone, because these concepts are part of every battle, whether an environmental organization is fighting against wellhead contamination, highway construction, landfill liner leakage, hazardous waste incinerators, cogeneration plants, or (for) workers' issues. It is this solidarity that offers the greatest hope-as persons of differing causes join together for this great adventure.
-excerpted from the Mendocino Environmental Newsletter, Summer 1995. Thomas Linzey is CEO of The Community Environmental Legal Defense Fund. For further information, contact CELDF at 2244 Lindsay Lot Rd., Shippensburg, PA 17257, (717) 530-0931.
MAY 2, 1996 CELDF UPDATE
CELDF received a grant from the Fund for Wild Nature to pursue a corporate charter revocation legal action against Waste Management. CELDF located several environmental activists to serve as plaintiffs and traveled to that state to speak with them. They eventually declined, citing the legal strategy as "too radical" and were afraid that the case would cause a backlash that could make situations worse.
CELDF then approached a small waste-hauler in Delaware who was already involved in a suit against WMX for a breach of contract. This company eventually turned us down also as a plaintiff, and were afraid that if the strategy was successful against WMX, that it could then be used against them. CELDF then began to concentrate on bringing a charter revocation action within Pennsylvania. WMX is the parent corporation to the company that has been awarded a contract to pursue the citing of a low level radioactive waste dump in Pennsylvania. CELDF has already sued the state over the LLRW statute, and is two weeks away from updating the WMX compliance history to allow us to mail a letter demanding revocation to the Pennsylvania Attorney General. Two months after these letters are sent, CELDF intends to file in Commonwealth Court to revoke WMX's "certificate to do business" that was granted to them to do business here in Pennsylvania.
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