The Supreme Court shows corporate America how to screw over its customers and employees without breaking the law.
The Supreme Court shows corporate America how to screw over its customers and employees without breaking the law.
The law, lawyers, and the court.
July 1 2011 5:21 PM

Operating Instructions

The Supreme Court shows corporate America how to screw over its customers and employees without breaking the law.

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Think Progress' Ian Millhiser put it even more starkly. After AT&T, he writes, big corporations "need never worry about a class action again. They can simply tell all of their workers to sign away their rights or they're fired. Likewise, cell phone companies, banks, credit card companies, nursing homes—indeed, anyone who requires you to sign an agreement before they will do business with you—can completely immunize themselves from class actions simply by adding a few magic words to the agreement." We may need a new metaphor. This is not merely closing the courthouse doors anymore. It's turning the civil justice system into a hostage situation.

Which brings us to the third case in this trifecta, a case that has gone largely unnoticed in the blur that is the end of the 2010 term: In yet another 5-4 decision last week, Janus Capital Group, Inc. v. First Derivative Traders, the court not only immunized big business from yet more awkward and messy litigation; it gave them an instruction manual on how best to lie to consumers. Millhiser again:

Securities and Exchange Commission regulations make it illegal to "make any untrue statement of a material fact … in connection with the purchase or sale of any security." And according to a complaint filed by the New York Attorney General's office, an investment company named Janus did exactly that. Essentially, the complaint maintains, Janus promised its investors that it would prevent any new investors from engaging in a particular kind of price manipulation while secretly entering into agreements permitting that manipulation to occur.


In a 5-4 opinion written by Justice Clarence Thomas, the court found that the false and misleading statements made by Janus were not in fact "made" by Janus but by a second company Janus had set up, which acted—in Thomas' view—more like … a speechwriter. And, as a mere speechwriter, of course, it couldn't be held responsible for its statements.

Even though Janus Capital Management did indeed produce the false prospectuses, the court found that they were actually filed by a separate legal entity—the Janus Investment Fund. And even though the Janus Investment Fund is run by Janus Capital Management, Janus Capital Management is not on the hook for the lies. Wrote Thomas, "Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes credit—or blame—for what is ultimately said."

Don't even bother asking how huge financial companies will benefit from the holding in the case. It's as easy as setting up a dummy corporation to make your false statements for you. In the wake of the holding, William A. Birdthistle, an associate professor of law at Chicago-Kent College of Law, told Bloomberg columnist Susan Antillato expect "corporations outside of the investment-management business to alter their legal structures to gain the same protection that funds now enjoy." As he put it, "In Delaware, with 30 minutes and $50, you can create a legal entity."

As the Boston Globe editorialized, the new rule "lets Janus and similar companies hide false information in a complicated organization chart [and] can only undermine public confidence in the mutual fund industry over time." Ask yourself whether you really want the Supreme Court to be in the business of teaching corporate giants how better to deceive you about your investments. Yet Thomas, like Scalia in the AT&T case, was more worried about Janus, and its possible exposure to burdensome new lawsuits, than he was about the investors who were deceived. The purpose of civil litigation isn't solely to redress past wrongs. It's also to encourage better future conduct, particularly in situations where the parties have vastly unequal power. When you obliterate the very possibility of civil litigation, you are, by definition, helping big business screw over the little guy. But when you teach big business precisely how to screw over the little guy, and how to do it faster, cheaper, and without detection … well, that's not even an illusion of justice anymore. It's enabling.

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