Two Supreme Court Rulings Give Big Companies “Get Out of Liability Free” Cards

If you had any doubts that the US has become a corpocracy, two fresh rulings by the Supreme Court should seal any doubt. They are stunningly bad, in that they reduce or gut the reach of well-settled law over large companies, to the degree that it will take very little in the way of effort for companies to organize their affairs so as to escape liability for their actions in areas that affect large numbers of citizens.

The through line in both rulings is the creative and selective use of the notion of corporate “personhood”. That personhood has been the basis for the extension of a whole raft of rights to corporations, including, perversely, the Constitutional right of free speech. Yet the same notion which has been used to confer privileges that companies lack in other countries is at the same time being construed so as to vitiate accountability, when ordinary people find it mighty hard to escape the consequences of their actions. I’m certain the Founding Fathers, who were wary of concentrated power, would be spinning in their graves at the logic and effect of recent decisions on this front.

The first stunner is a ruling today in favor of WalMart on an employment discrimination class action lawsuit. It effectively weakens anti-discrimination laws as far as big companies are concerned. Per the New York Times:

In its majority opinion, the court essentially said that if lawyers brought a nationwide class action against an employer, they would have to offer strong evidence of a nationwide practice or policy that hurt the class. In the Wal-Mart case, the court wrote that the plaintiffs had not demonstrated that Wal-Mart had any nationwide policies or practices that discriminated against women.

I strongly suggest readers look at the piece “Fit vs. Fitness“. Discrimination is seldom overt; it usually takes the form of people hiring people just like them. The inherent problem is virtually all jobs are sufficiently complex that the performance assessment will involve subjective judgments. And that leads to mischief. For instance:

[T]here is evidence that subjective processes set a higher bar for minorities and women. For example, a 1997 Nature paper by Christine Wenneras and Agnes Wold, “Nepotism and Gender Bias in Peer-Review,” determined that women seeking research grants need to be 2.5 times more productive than men to receive the same competence score.

I guarantee there would be virtually no women or blacks in top law firms, corporate boardrooms and executive positions, Wall Street, or senior regulatory positions in the absence of government policy to make it hard and costly to keep them out. I started out in business a half a generation after women were first accepted into top tier organizations. I can tell you from my own and my peer group’s experience that we were hired reluctantly and viewed with considerable skepticism (as in maybe we could do the yeoman’s work, but forget about being able to build client relationships and bring in business). For instance, I had James Wolfensohn, who then ran Salomon’s corporate finance department, and later headed the World Bank, tell me that it was really silly for women to want to be on Wall Street; why didn’t I just get married?

And the evidence of bias against various groups in the absence of overt policy is very strong. For instance, what assignments you get and who you get to work with makes a great deal of difference in your career prospects. Men seldom mentor women (and when they do, it’s often perceived to be for the wrong reasons, undercutting the benefits of the tutelage) and women are also typically cut out of the informal information networks in large organizations. Indeed, just as “pink collar” professions are (or at least were until this downturn) worse paid than comparable or even lower-skilled work performed by men, so to did women in finance wind up being shunted to the less well paid areas like muni finance and (ironically) structured credit (but not higher paid CDOs, that was macho).

So give the inherent and large obstacles that minority groups face, having companies be scrupulous in their hiring and pay practices in the areas they control has social value (and I don’t just mean fairness; my own experience has been that I could get much better talent by hiring outside the white male spec; this gap was persistent even with budget-constrained employers like me leaning against the wind, so it strongly suggests that even with laws encouraging minority hiring, we are well away from an optimal outcome in terms of efficiency).

How does the Supreme Court ruling weaken this effort? Again from the Times:

In its majority opinion, the court essentially said that if lawyers brought a nationwide class action against an employer, they would have to offer strong evidence of a nationwide practice or policy that hurt the class. In the Wal-Mart case, the court wrote that the plaintiffs had not demonstrated that Wal-Mart had any nationwide policies or practices that discriminated against women.

Now anyone with an operating brain cell can see the problem with this logic. At most companies, there is a not-inconsiderable gap between formal policy, enshrined in CYA documents that pretty much no one reads, and all of the formal and informal signals as to what is acceptable, the biggest being the behavior of the people who get promoted. For instance, back in the stone ages when Goldman actually was a pretty well behaved firm by Wall Street standards, people who were seen as being “political” or too risk oriented got promoted less quickly than nose to the grindstone types (no joke, a fondness for fast cars was not seen as a plus). By contrast, most companies suffer from a “big producer syndrome” in which a certain amount of rule breaking is forgiven for managers who are seen as particularly valuable.

So in other words, if you assume discrimination is normal human behavior, you need to have policies in place to mitigate it that are enforced adequately, and looking for “proof is in the pudding” widespread patterns of, say, pervasive pay gaps, should be considered to be strong evidence that something is amiss (and the company should have reason to engage in prompt corrective action rather than wait to have lawsuits dropped on it).

But the Court’s top sophist Judge Scalia turned that sort of reasoning on its head:
“In a company of Wal-Mart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction.” Huh? What about “people prefer to hire people just like them” don’t you understand? In other words, the company has to have active policies in place that encourage discrimination for it to be liable, when the standard more logically when the data looks sus is that companies need to prove they did an adequate job in making sure that managers did not overindulge the strong propensity that many have to discriminate.

Consider the implication of Scalia’s stance. It’s pretty well known on Wall Street that strip clubs and prostitutes are a mainstay of entertainment on the trading side. The fact is that this practice works to the disadvantage of women. No firm admits to having a pro-strip club/hooker policy, yet the expense chits get processed and manager level types all know this happens all the time. But because there was no “common direction”, it would seem that a group of women could not argue an accepted and well established practice was an impediment (and it could well be due to it being perceived to be an impediment, that that sort of entertainment was actually less important to winning business than everyone professed, but since the manager like oogling naked pretty women, they would be the last to question whether this sort of expenditure was really all that productive. Paying for hookers is different, that’s more of an out and out bribe, but that also skirts legality….).

Now admittedly that sort of abuse could still be fought on a more local level, most likely the business manager or business unit. But as the strip club example suggests, some practices are hostile to certain groups, widely practices across major firms, yet this ruling would seem to give management an easy escape for appropriately broad-based legal actions.

If we take this out of the employment realm, it might be easier for some readers to see what is wrong. Notice the Scalia emphasis upon manager discretion. This gives Big Cos a liability shield they can drive a truck through. Just be silent or issue apple pie and motherhood statements on key issues, and let managers be your liability shield. This ruling encourages large corporations to have lax controls as way for them to engage in misconduct and escape the more costly repercussions (if nothing else, it will be harder for less well heeled litigants to get someone to take up their cause).

I’m every bit as unhappy with the other recent heinous Supreme Court ruling, Janus Capital Group, Inc. v. First Derivative Traders, but since this ruling came out last week and I somehow managed to miss it. other able commentators have already expressed their considerable dismay.

But what is disconcerting and even scary about the Janus ruling is that it guts a key section of well settled securities law, the one that was the best (and in some cases the only) grounds for wronged investors in mutual funds or special purpose vehicles to sue. And it provides a road map for other fund operators to escape from liability.

The basis of the fraud claim against Janus was that the Janus fund prospectuses stated clearly that market timing was prohibited, yet the manager allowed it to occur. Hedge funds would rapidly trade in and out, arbing the mutual funds’ stale prices. Janus allowed that to occur because it also enhance its profits. The suit was brought by public shareholders in Janus but the logic of the ruling would apply to fund investors as well.

Steve Waldman, who has an excellent post on this ruling, explains how barmy and damaging it is:

When an ordinary firm issues securities, the firm itself is the “person” who makes the statements that appear in prospectuses and other disclosures. But with dedicated investment vehicles, things are more complicated. Investment vehicles — mutual funds and ETFs, but also securitizations like RMBS and CDOs — segregate the management and operation of the fund from the legal entity whose securities investors hold. If you “own” a Janus mutual fund, the securities you hold are likely claims against an entity called Janus Investment Fund. But Janus Investment Fund exists mostly on paper. Another company, Janus Capital Management, actually does everything. The human beings who make day-to-day investment decisions, as well as the offices they work in and the equipment they work on, are provided by Janus Capital Management. Communications and legal formalities, including prospectuses, are drafted by employees of Janus Capital Management.

The Supreme Court held is that, even though employees of Janus Capital Management company actually wrote any misleading statements, even though they managed nearly every substantive aspect of the operation of the fund, they cannot be held responsible because they did not “make” the statements. The “person” under law who made the statements was the entity on whose behalf the offending prospectus was issued, the investment fund, which has no capital other than the money it invests for shareholders. Under Janus, the management company is beyond the reach of aggrieved investors.

CBS MoneyWatch (hat tip Michael F) was equally derisive:

Now you, I, and anyone who’s spent two minutes thinking about it know that the notion that a mutual fund is independent of its advisor is laughable…..those funds are staffed, managed, and operated by the management firm. Further, the fund’s board of directors is almost invariably chaired by the CEO of the management firm. And where does the board get the information they need in order to provide their oversight? Well, from the management company, of course…

The relationship between management company and mutual fund is so entrenched that I can recall only one — one single instance — in which the mutual fund board of directors told the management company to take a hike because they weren’t performing well…

The clearest proof of control that fund managers have over the funds they manage is the enormous amounts of money that mutual fund advisors reap on the sale of their firms. If the underlying funds are beyond the control of the manager and likely to be pulled at any given moment, it’s difficult to explain why those managers are being paid hundreds of millions of dollars to transfer those funds to another manager.

But in Janus Capital Group v. First Derivative Traders, the Supreme Court ignored reality, along with decades of history, in favor of a breathtakingly narrow reading of the law. In writing for the majority, Justice Clarence Thomas wrote that despite Janus Capital Management’s inarguable role in preparing those prospectuses, the statements therein were “made” by the Janus funds. As such, according to the Court, the funds are responsible for those statements, not Janus Capital Group

For those who like more nitty gritty, Michael F also passed along this analysis from Clearly Gottlieb. Reading between the lines of their dry prose, you can tell they are also gobsmacked:

Cleary Gottlieb – Supreme Court Limits Liability for False Statements Under Rule 10b-5

Most Federal regulators, Congress, and the Supreme Court seem altogether happy to indulge the black hole of desire, the ravenous Id that Corporate America has become. They’ve become an indulgent parent that continues to give their spoiled child whatever he wants, even when they know their checks are being used to feed a drug habit that will destroy his health. By contrast, although Paul Volcker’s anti-labor stance is reason to have reservations about his record, he knew it was important to rein the banks in for their own good, and Wall Street applauded even while it was suffering meager profits from taking his tough medicine.

As Amar Bhide stressed in a 1994 Harvard Business Review article, and it really was true back then, the US had the deepest capital markets in the world, and one of the biggest reasons was they were seen as the cleanest and fairest. As the US is losing its dominant economic role, you would think it would be incumbent upon us to preserve our other bases for competitive advantage, such as well functioning and policed markets. Why should foreign or even domestic investors be wiling to put money in funds or other pooled vehicles when the Supreme Court has just removed the best avenue for seeking recourse in the case of abuses? The corporate enablers are the worst enemies not just of average citizens, but of even of the long term interests of the interest groups they think they are aiding. But who needs to worry about the future if you have stacked the deck so you can grab enough today?

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  1. attempter

    The double standard that corporate “rights” are to be interpreted in the most loose, broad, dissipated way possible, and infringments of those rights are to be discovered in a similarly freewheeling way, while corporate wrongdoing (bribery, discrimination, etc.) has to be meticulously established with smoking gun de jure documentation, goes back to the 1970s and Lewis Powell (with help from liberal heroes like Brennan and Marshall). That’s when the SCOTUS really launched its modern pro-corporate, anti-American, anti-human assault.

    It should be clear to any conscientious citizen that there is no legitimate judicial authority, that on the contrary the “supreme” court is a rogue institution serving a criminal class which is utterly foreign and alien to America.

    (But given how many people here still want to believe in Republicans and Democrats, of all things, I suppose there won’t be much recognition of the SCOTUS’ illegitimacy yet.)

    1. K Ackermann

      I’m with you.

      I am really liking the idea of delegitimizing authority in the US.

      It is not serving us, and in fact, marginalizes the masses.

      It can’t stand. What do they think they will end up with?

      Under no circumstances will I vote – no matter how charismatic the liar is.

      I have not had a bank account for almost two years now. I refuse to give any business to institutions that work against my well-being. My elderly neighbor cashes my paycheck for $25. I would rather help my neighbor on a fixed income than give my business to blood-sucking leeches.

      I really want to dump my tax bill into a harbor.

    2. lambert strether

      In Bush v. Gore, a faction on the court stopped a vote count and awarded the office of the Presidency to the candidate that would reinforce the power of their faction by nominating candidates acceptable to them.

      Every decision made by the Court after its composition was changed following Bush v. Gore is the fruit of that poisonous tree; hence, none of its decisions are legitimate, and all should be rolled back, including the pernicious grants of rights to non-human entities like corporations.

      1. attempter

        I mixed up Marshall and Blackmun. Blackmun decided against the people in both the Buckley “money = speech” case and the Bellotti corporate speech case. (JP Stevens also joined the corporate speech side in Bellotti.)

  2. Geoff

    Let’s see: we’ve got dinosaur male judges who openly consort with big businesses – and they surprisingly come up with a judgement blatantly rigged to ensure that it is difficult for little people to take on these businesses when harmed by them.

    Well. let no one say that justice is blind – not only can justice see, but it sure knows where its bread is buttered – at the corporate trough.

  3. Eagle

    I haven’t had a chance to read much about the Wal-Mart case, the Supreme Court was unanimous that the class should not have been certified (splitting 5-4 only over the scope). At first glance, I suspect the decision is not nearly as egregious as you make it out to be.

    1. aet

      i agree that class-actions are inappropriate for personal actions; they only really seem apt in mass-market product liability actions.

      this ruling does not prevent individuals from seeking redress, does it? It seems a control of the form of the action, rather than anything substantive.

      But systemic discrimination happens, do doubt about that.
      How to redress that is not a simple matter.

      As to the Janus decision, wouldn’t an amendment to the governing statute be sufficient to plug the gap which now exists? Simply add the word “create”, tO go with “make”.

      1. Eagle

        Yes individual actions can still be pursued, as can class actions comprised of smaller regions – the court just said a national class wasn’t appropriate.

        And yes, as far as I understand, there were no constitutional issues raised in either case – Congress could simply amend the law to allow for the results Yves wants.

      2. curlydan

        The Wal-Mart SCOTUS decision seems somewhat similar to the decision a month or two ago regarding the class action against cell phone companies’ charges.

        Yes, in the cell phone case, a individual is still allowed to go through binding arbitration to get his/her $50 back in possibly fraudulent charges, but God help us if the company that made the possibly fraudulent charges be required to prove in a court of law that their charges to all customers are not fraudulent. SCOTUS said forget the class action there.

        Both decisions allow corporations to maintain “mountains” of fraud or discriminatory policies while only allowing an individual or smaller groups to take their “pick axes” against the mountain. The results: the mountain remains while the true people are only able to chip away at it.

        This is destructive and seems Randian in philosophy. It’s individual vs individual…it’s just that one individual makes $30K, $50K, or $100K in revenue/salary a year versus the other “person” or personhood that makes $5B, $10B, $20B+ in revenue each year. It seems perfectly fair for the Randians–mano a mano, let the stronger man win.

      3. Lou Zher

        Yes, the janus ruling could be corrected by legislation, but will it?

        Big Corp owns the legislature, so naturally this flaw will absolutely not be fixed. As a matter of fact, I expect that now that the loophole has been found, it will be expanded and more thoroughly exploited.

        It won’t be fixed.

  4. reallynow

    Oh the Walmart matter is a wonderful decisions. It shows that the SCOTUS has not been totally intimated by the Left and the (mostly Democrat) blood sucking, class action lawyers–vipers all. How refreshing to see them stand up to yet anther PC, feminist extortion racket.

    And, as usual, you grossly misstate the facts. Plaintiffs are perfectly free to sue individually; no actual liability to any individual has been thrown out, and thus Walmart’s liability has not been limited in any substantial way. The whole case was completely bogus (as most class actions are). The response from the court was rational and correct. Sophistic? Hardly. Well argued s more like it. Scalia is not a “sophist” merely because he disagrees with you or is not a Cultural Marxist. I would say that that word does not mean what you think it does, but that would be incorrect: you here show your own voluminous capacity for it. Sophistry and ad hominem assault when crossed is the usual Leftist response to rational argument. So it is here.

    Whatever is irrational or “sophistic” about this:

    In its majority opinion, the court essentially said that if lawyers brought a nationwide class action against an employer, they would have to offer strong evidence of a nationwide practice or policy that hurt the class.

    Valid, rational, commonsensical and correct.

    The whole case was just another bogus “women’s rights” hustle.

    Speaking of feminist hustling, this little bit s pure hogwash:

    I can tell you from my own and my peer group’s experience that we were hired reluctantly and viewed with considerable skepticism

    In fact they were falling all over themselves to give “you gals” jobs back then, and you were not held to the same standards as men. If anything, they were turning down perfectly qualified men in order to engage in this Affirmative Acton nonsense. (And, as Obama clearly shows, AA rarely works out well for society at large).

    It is a vice of you feminist of that generation that you make up this personal mythology of “The Struggle”, but it was, of course, nothing of the sort. If you had been held to the same standard, you would really be whining. You were given opportunities beyond your merit. Females like you are in fact collectively the most indulged, pampered and catered to group of people, male or female, that the nation has ever seen. This preening about “Obstacles” and “The Struggle” merely serves to underline now self-absorbed and shallow, not to mention ungrateful, the lot of you truly are. It will take a generation to recover from you

    Your claims here are risible. Your response to this judgement is literally hysterical.

    1. YankeeFrank

      You address none of the subtlety and nuance around this issue and make ad hominem attacks against the author and indeed all women, minorities, and caucasian men that love and support them. I know we aren’t supposed to feed the trolls but here goes — hiring managers tend to hire people like themselves. That is a fact. A company, especially a large company like walmart, should have policies in place to mitigate this all too human tendency; not just because it is fair and just, but also because it leads to a more effective workforce. As Yves stated, Scalia turns this logic on its head to the detriment of society, and to support his narrow corporate-fascist agenda. Its ironic that if the history of this once great country was decided by men like Scalia, he wouldn’t be allowed to even attend law school, let alone become a member of the highest court in the land. His Sicilian ancestry would make him fit to perform manual labor and not much else.

      Your hate-filled diatribe against women is repulsive and betrays a weak and immoral character. Women routinely face many kinds of discrimination in the workplace your assertions to the contrary notwithstanding. My guess is you lost your job or a promotion to a woman who may or may not have been better qualified or higher performing than you. I guess you wish that life were more fair. Isn’t it ironic that is just what women want as well: to be judged on the merits and not because of some extraneous happenstance. Grow up and realize that fairness and justice cannot only flow to you, or it is not fair and is not just. Bitterness is a narcissistic response to the injustices of life. Get over yourself and open your mind if you want any happiness in your short life.

      1. leapfrog

        “Your hate-filled diatribe against women is repulsive and betrays a weak and immoral character.”

        Awesome. Wish I could “fan and fave”. Its wishful thinking that the troll will get his comeuppance one day when he is damaged by a corporation and seeks redress; only to discover that his rights too have been stripped and sold off to the highest bidder. God bless America!

    2. UNreallynow


      Your claims are risible! Your comments are (male) hysteria!
      Typical masculinist response!
      See, the other side can play the stupid blame game!

    3. leapfrog

      “I myself have never been able to find out what feminism is; I only know that people call me a feminist whenever I express sentiments that differentiate me from a doormat or a prostitute.” ~ Rebecca West

    4. Yves Smith Post author

      You clearly cannot read. I very clearly stated individual and smaller group actions were possible, indeed a big part of the post related to company versus manager level issues.

      So who is the hysteric here? It looks like the person who slings mud without bothering to look at an argument.

    5. hosswire

      Wow. What an awful smell you just made. Sour. Bitter. And stale. Especially stale. Looks like Yves just dislodged some fetid pocket of hate & resentment that has been stuck inside you for a very, very long time.

      A part of me hopes that belching it out in the safety of anonymity makes you feel better. And frees you up to move forward without that corrosive swelling deeply inside you.

      But most of me hopes that you mostly feel ashamed now.

    6. Francois T

      There is no reasoned answer that can address the amorphous collection of ad hominem, vile and venomous rhetoric you just spewed in your post. Trying to address your writing via logic would be tantamount to try to pin Jell-O on a wall.

      Therefore, I’ll summarize: You are a fuck head.

  5. Norman

    Like Bush, who thought that he’s be dead before the world knew that his misadventure in war[s] were a fraud, so too will this S.C.O.T.U.S. see that their rulings are just as corrupt. As Bush said: “Hell of a way to go, Brownie”, so too will any dependents of those members of the present Court say: “Hell of a way to go, your rulings are what brought the U.S.A. down to its knees”. What a pathetic legacy to leave.

  6. Cal

    “Discrimination is seldom overt; it usually takes the form of people hiring people just like them. The inherent problem is virtually all jobs are sufficiently complex that the performance assessment will involve subjective

    i.e. Good luck getting a job in that environmental
    nonprofit in the Bay Area, White boy. The nonprofits are
    rife with the good old girl network. If you are obviously a flamer, you are no threat and you might get the
    opportunity to work for free while they collect the

    1. YankeeFrank

      There is nothing more distasteful than a whiny and bitter man. Beneficiary of most of societies prejudices and rigged assumptions and yet you still whine about the unfairness of your life. I guess you’ll just have to move away from SF to follow your calling. Its a tragedy. Really.

      1. Dave of Maryland

        I think what Cal is pointing out is that many large organizations are beset with cliques of one sort or another. The “good old boy” clique is one, the good old gals clique is another. I once tried working in menswear departments in New York department stores & found them overrun with gays.

        In every case, cliques exploit local conditions for their own benefit, which eventually results in the exclusion of those who cannot or will not join. If you’re a gay male & love handling other men’s bodies, and if you can stand the low pay, you’ll love working in a menswear store. Is this good or bad, pro or anti gay? None of the above. It’s just how things are.

        Yves has more intestinal fortitude than I. She’s survived decades of a personally hostile environment. So has Elizabeth Warren.

  7. indio007

    I think complaining about corporate personhood is like pulling the fire alarm after the house has burnt down.

    Like it or not the government itself is a corporation. The government claims to be the sovereign and to have “citizens”.
    It casts itself as a juridical person. It is simply taking it’s own self promoting claims to their logical absurdity.if it can be clothed with the attributes of personhood why not have other “paper persons”?

    There can be no allegiance to a legal fiction. Allegiance is mano et mano. Between men because ligeance is faith.

    Don’t ask me ask Lord Coke
    from Case of the Postnati

    “In fide, in faith or ligeance nothing ought to be feigned, but ought to be ex fide non ficta.”

  8. Cal

    “Discrimination is seldom overt; it usually takes the form of people hiring people just like them.”

    Shall we talk about the entertainment industry?

  9. Dan Daoust

    Yves, you’re making it seem like the Supreme Court has thrown out gender discrimination as a cause of action. All the court has said here is that 1.5 million employees can’t all have been treated the same way, held down the same way, excluded the same way. It’s not possible and it’s unfair to the company to make it defend against that accusation.

    Everything you said about the subtlety and invidiousness of gender discrimination is absolutely still true. And those claims can be brought on an individual basis or as a class against a branch, region, etc.

    1. Jane Doe

      I have not read the case, but if your interpretation is right, then the ruling is bullshit.

      The nature of a class (whether gender, ethnicity, religious belief, or whatever) involves whether the bigotry is against that class. Not the varied ways in which the bigot discriminates.

      The reason for this is obvious to anyone not trying to argue an absurdity. Your argument leaves the bigot the ability to vary his discrimination so as to avoid being sued. You may say that everyone can sue separately, but, this is something that any lawyer would laugh at. The ability to sue is as much about resources (the money to litigate) as anything else in America.

    2. Jane Doe

      Before you answer- or don’t- let me add that I started off working for an insurance company that handled sexual harassment suits. One of the strategies in a non-class action case was to wait out the resources of the plaintiff to see if they could continue to sue or would have to drop out because their lawyers could not afford the case.

      1. LMS

        It does not matter whether an insurance company is better able to defend itself from an individual action due to an asymmetry in resources. Classic failure to distinguish procedure from substance. For a court to certify a lawsuit as a class action requires a determination that this is the best way for the claims to be adjudicated. You would think from some of these posts that the analysis starts and ends with: “What is the best way to stick it to WalMart and reduce discrimination?”

        I am no fan of WalMart and I concede discrimination remains a big problem, but people need to understand that more is at stake in certification of a class action than the impact on the corporate defendant. The rights of absent plaintiffs are being adjudicated without them being afforded an opportunity to appear and be heard. Once the lawsuit is resolved, absent class members will be precluded from bringing their own lawsuit due to principles of res judicata. There are due process rights to be protected, which is reflected in the higher standards requiring court approval of class action settlements. A nationwide class action involving 1.5 million plaintiffs should be disfavored and should be held to a high standard for purposes of certification, particularly in the employment law context where the facts can vary from case to case.

  10. Old Steve (formerly Steve)

    Wow! No takers for the mutual fund case……

    The Janus decision was way, way worse than the Wal-Mart decision (which was bad too, but at least the case was more complex).

    The Court in essence said that a mutual fund board and the adviser are two separate entities. For those of us with experience in the mutual fund industry, this is a distinction without a difference. The advisers write the prospectuses. The fund boards have “outside counsel” for a legal “fig leaf” and they receive so much compensation from the adviser that they cannot be deemed independent for any practical purposes.

    So investors are being told by the Court that they basically have no recourse against false and deceptive claims in mutual fund prospectuses. This is amazing and it is a dark day for investors. It is also an embarrassing day for the industry. It will prove to be a Pyrrhic victory as fund inflows dwindle to insignificance in coming years.

    1. Eagle

      The decision certainly displays a fundamental misunderstanding of the fund industry – I think the court is missing the influence of Justice Stevens on business cases – but I’d like to know more about why Waldmann and others feel investors can’t sue the fund directors, and in fact, why they weren’t sued in this case.

      Either way, mutual funds won’t lose flows as a result of this – decisions to choose funds at the institutional level are made based on performance and investing philosophy, and retail investors go with whatever their brokers tell them.

      1. Nathanael

        The smart money has already left US mutual funds. Question how much smart money there is. :-P

    2. Cedric Regula

      Egads! Sock Puppet Investing? Muppet Mutual Funds? Miss Piggy Fund Managers?

      I’m outta here!

  11. Fraud Guy

    The third SCOTUS ruling this year that makes a trifecta of anti-consumer cases is the one from a month ago where the court held that it is legal for companies to put a provision in contracts with consumers prohibiting them from participating in class actions. This means that your cell phone provider, software maker, hospital–anyone who can make you assnt to a “contract” before providing their good or service to you–can totally insulate themselves from the consequences of stealing a few dollars from large numbers of customers. The only effective remedy for such small scale theft is the class action law suit, since it is wildly cost-ineffective for harmed customers to pursue the matter on an individual basis.

    1. Veri

      Which effectively makes contracts greater than The Law. It is the same with mandatory arbitration. Contracts are now greater than the law, at least when it comes to contracts between a person and a legal fiction of a person (corporation).

      America is quickly becoming a nation ruled by The Rule of Contract, instead of ‘Rule of Law’.

  12. Patrick

    The epitome of power is when you control the arbiters of the law. Corporate America has prevailed over democracy by selecting a SCOTUS that backs up their shoddy behavior with spurious legal reasoning and decisions.

    The Janus decision is not just bad law it is also bad for business. The decision strikes at the principle that underlies the entire foundation of capitalism: Trust in your counterparties veracity, allied with an ability to hold them to their words. The events of the past few years have shaken that foundation; this decision removes it entirely.

    No one in their right mind is going to believe the word of a financial enterprise operating under American Law. There should be a new sign on the Statue of Liberty: Investors beware!

        1. F. Beard

          They probably are over-regulated. The banking and money system on which our economy is based is fundamentally dishonest and unstable. But rather than fix the root cause, endless regulations are invented to treat the symptoms. Good luck with that!

          Eventually the system will either bog down or the regulations will be disregarded/discarded in the interest of “economic necessity”. The former is economic stagnation and the later is fascism.

          1. Veri

            Really? Those regulations worked very well before some Democrats and Republicans decided to remove them. Glass-Steagal, anyone?

          2. Mark Mason

            “Really? Those regulations worked very well before some Democrats and Republicans decided to remove them. Glass-Steagal, anyone? ”

            That’s the operative word– worked—as in past tense. Regulation doesn’t work. The best regulations this side of Pluto can, and have been, rescinded outright or else ignored by lax enforcement by living regulators who look forward to working for one and the same people they regulate. At public hearings, regulators are looking across the table at their future employers, all this while Congress goes in and out of media phases. Big market crash? Get out those new regs! Wait a few months, stop enforcing them, and then deregulate when the media spotlight vanishes.

            There’s no fixing any corporation. They’re widely recognized to be antithetical to the public good, else little attention would be paid to regulating them. Regulating them is a poor excuse for ridding ourselves of the institution in toto. So, the founding fathers rid themselves of the then-tyranny of the British monarchy. Today, our task is to rid ourselves of the latest flavor of tyranny–the corporation.

  13. Fraud Guy

    There was also a fourth, very pro-corporate/anti-citizen case handed down by SCOTUS last month: Schindler Elevator v. US. The issue here was whether a whisltleblower who attempts to hold a company accountable for fraud against the U.S. government by filing a false claims case can use evidence obtained via FOIA. The court held that obtaining information via FOIA disqualifies a case from being actionable as a false claim, as the False Claims Act prohibits filing cases on the basis of publicly-available “reports”. SCOTUS hung its entire decision on its determination that any FOIA information received constitutes a “report”. Of course, the reality is that the typical False Claims Act filer is looking not for synthesized “reports” that say, “The agency has evidence that Company XYZ has engaged in inflated billing…”. Rather, the prospective False Claims filer is much more interested in obtaining via FOIA copies of the raw billing records themselves, which the government has no idea are fraudulent and which the filer knows are fraudulent because s/he performed, supervised, or audited the actual work. It is an incredible stretch to call these raw records a “report”.

    It is clear to me that this was a decision that the court did not have to make, based on the law. The court’s commentary is preposterous that a contrary ruling would allow “fishing expeditions” by prospective False Claims filers that would unreasonably burden the government. I can only read the decision as the court recognizing that government contractors are very vulnerable to having their fraud uncovered if knowledgeable citizens can look at detailed public record billing information. So the court decided to stick up for its friends.

  14. F. Beard

    Huh? What about “people prefer to hire people just like them” don’t you understand? Yves Smith

    I suspect that many corporate abuses would dry up if corporations were more widely owned. For example, suppose Wal-Mart was equally owned by the entire US adult population. In that case, the majority of Wal-Mart stock would be owned by women since women outnumber men in the US. I’m not sure how much clout other minorities would have separately but strong coalitions could be formed, I’d bet.

    So why aren’t corporations widely owned? Ans: Because they don’t have to be. Corporations can finance themselves with cheap loans from the government backed counterfeiting cartel, the banking system. But what if that cartel was abolished? Would not corporations have to issue a lot more common stock to finance themselves?

    The morality of this country is strange. We strain out a gnat (hiring preferences) but swallow a camel by allowing a government enforced counterfeiting cartel which violates a very simple commandment – “Thou shall not steal.”

    Not that I am opposed to regulating corporations but there would be far less need for regulating if our money system was at least ethical.

    1. Nathanael

      You’d also have to fix the problems where widely owned corporations (old AT&T, anyone?) are still effectively controlled by a small cabal, the board of directors and the CEO. The shareholders have no power and are prohibited from coordinating; the board holds Soviet-style uncompetitive elections.

  15. Hugh

    The Court as a whole agreed that the class action was filed under the wrong rule of Title VII and improperly mixed payback claims with injunctive relief. However, and this is where the dissent comes in the bombastic and ideological Scalia did not leave matters there but turned around and misapplied another rule of Title VII imputing characteristics to it which it did not possess.

    The upshot of all this is that any large corporation that effects discrimination through managerial discretion is immune from class action redress since while disparate treatment may be widespread throughout the company, it will not be uniformly disparate, and so under this new Scalia doctrine its victims do not form a class. The end result is that the individual seeking redress is pitted against the vast resources of the corporation. This is an unequal struggle so that to all intents and purposes, the Court has sanctioned the discrimination.

    Now if we had a functioning government and not the criminal enterprise it has become, the Court would not have ruled this way. But even if it had, the Congress and President could quickly amend and clarify the relevant portions of Title VII to allow the certification of such classes. However, given the kleptocracy we live in, the chances of legislative redress are zero. I doubt that it will even be brought up as a possibility. But even if it were, the hard right ideologue majority of the Court: Kennedy, Roberts, Alito, Scalia, and Thomas would just invalidate in other grounds.

    There are two issues that the radical conservatives on the Court are targeting here. The first is the class action process itself. While they strongly push the rights of corporations as persons, they strongly resist attempts to put individuals on an equal footing with corporations. (Parenthetically, this is particularly hypocritical for an “originalist” like Scalia because corporate personhood is something the Framers never enviseaged or approved.) The second target is Title VII itself. This Court has been waging a war on Title VII precisely because it empowers groups and individuals who have been disempowered and discriminated against and gives them tools with which they can challenge the powers that be. The conservatives on the Court hate it and have been issuing upside-down decisions like this one to gut its provisions, one by one.

  16. another

    “If you had any doubts that the US has become a corpocracy, two fresh rulings by the Supreme Court should seal any doubt.”

    Initially read that as ‘coprocracy’, which is perhaps more correct than we care to acknowledge.

  17. charlie

    This ruling handed down by a conservatively controlled supreme court, (in which the court is now controlled by conservatives through fraud and deceit), is nothing more then the bought and paid for lackeys protecting the corporations from being forced to obay the rules by the citizenry. America will not recover prosperity for the majority until we end minority control.

  18. sgt_doom

    “..recent heinous Supreme Court ruling, Janus Capital Group, Inc. v. First Derivative Traders,..”

    This really simply appears to be a reaffirmation of the 1994 Supreme Court decision, Central Bank of Denver v. First Interstate Bank of Denver, which stated that financial institutions, attorneys and accountants could not be held accountable for aiding and abetting securities fraud; later made into law with the unanimous passage in the House of Representatives of the 1995 Private Securities Litigation Reform Act, thus removing “legal risk” from the arena, which was what the Group of Thirty advised JPMorgan Chase in the necessity of doing, as in the aftermath of the S&L meltdown, over 1,000 banksters were convicted, with most serving some jail time.

  19. sgt_doom

    But why would these women ever sue Walmart for such a thing? After all, both Michelle Obama and Hillary Clinton once served on Walmart’s Board of Directors.

    I don’t believe Walmart could ever be guilty!!!

    Funny, over the past thirty or so years, either the president or vice president must be named Bush, or else the president’s wife must have been on Walmart’s BoD, and the prez’s chief of staff (Erskine Bowles: Clinton, Rahm and Daly: Obama) must have been a private bankster. (Rahm at Wasserstein Perella, Erskine at a whole bunch, beginning with Forstmann Little).

    I guess that’s what you call an oligarchic ruling system?

  20. Peripheral Visionary

    “So in other words, if you assume discrimination is normal human behavior . . . “

    No, actually, I do not consider it to be normal behavior. Nor does the law, which considers individuals and organizations to be innocent until proven guilty. But anti-discrimination policy and much of anti-discrimination law has been built around the opposite premise, that individuals and organizations are guilty until proven innocent; and it is about time that courts started seriously questioning those assumptions.

    But this ruling was not about discrimination, as much as lawyers for the plaintiffs would like to make that case–it was, rather, about the ability of lawyers to present themselves as representing vast classes of people, the vast majority of whom have not consented to be represented in court by the lawyers in question (and I do not consider absence of a dissent to be a consent). Founding Fathers spinning in their graves over concentration of power? Indeed–if only they could see our current legal system, where lawyers with a handful of accomplices can claim to represent vast groups of people who never consented to have those lawyers represent them.

    “I guarantee there would be virtually no women or blacks in top law firms, corporate boardrooms and executive positions, Wall Street, or senior regulatory positions in the absence of government policy to make it hard and costly to keep them out.”

    Actually, in the modern United States we have not just blacks as minorities, but also East Asians, South Asians, Latinos (who are now the largest minority group), Native Americans, and a large and growing number of people of mixed race. The view of the U.S. in terms of “black” and “white” is an artifact of the 1960’s, and a clear sign of views that badly need to be updated to the present.

    1. Hugh

      Nice example of studied obliviousness. We live in a corporate kleptocracy. The rich and the corporations have trashed the Constitution, are immune from the rule of law, own the politicians, own the regulators, own the courts, and so who do you want to protect? The corporations of course.

      It’s amazing how much 35 years of economic, political, and historical indoctrination renders so easy the transmutation of victim into predator and predator into victim. But that it is so easy is a measure of how successful the class war of the rich and the corporate has been against ordinary Americans.

      1. Peripheral Visionary

        Ah yes, the old “if you are not with the revolution you are against the revolution” propaganda. Sorry, not interested–the French Revolution was over two hundred years ago, and we have the reality of the present to deal with.

        1. sgt_doom

          There’s where you are all wet.

          We never stopped fighting the French Revolution, but those slow on the uptake will continue to believe it was done and finished with!

        2. Blunt

          “the French Revolution was over two hundred years ago, and we have the reality of the present to deal with”

          I believe “studied obliviousness” certainly does apply. The focus of vision to the peripheral seems to blind one to the gigantic frauds being committed directly in front of one’s nose. That is the “reality of the present” that must be dealt with.

          The past seventy years of USA social life appear to have neutered us to the notion that we can ever lose whatever we had gathered in our aid earlier.

          But in point of fact we have pretty much lost it all, and appeals to “present reality” seem very much like appeals to “pay no attention to the men behind the curtain.”

    2. Yves Smith Post author

      I suggest you read the paper I linked to. The evidence is overwhelming that people are deeply biased, to the point where they cannot override it even in tests (see the Implicit Bias test, for instance).

      1. Nathanael

        Having Asperger’s, and several other odd mental conditions, and being unusual physically, I would probably be largely unbiased because I would *never meet a candidate like me*. :-P That’s not normal, however (almost by definition).

        I’d probably still be biased towards people who *sound* like me, as I have a fairly typical accent. :-(

  21. Devil's Advocate

    Corporations cannot be held to account for “their” actions because “they” do not exist. Corporations are just notions. Yes, people hire people they like and they are more likely to hire people like them. People, not corporations. You can’t have it both ways Yves.

  22. gibby the fourth

    Yves, can I suggest that the plaintiffs conduct an experiment and present the findings to the Supreme Court? The experiment is to submit identical applications to Walmart job ads at branches across the country, filled out with equal numbers of “white”, “black” and “hispanic” names (and photos if required) and see what the responses are like? Or would the existing literature have enough examples of bias despite corporate policies forbidding such actions to sway judges?

    1. Yves Smith Post author

      That experiment was done years ago. Resumes with black sounding names (“Lakisha” or “Tyrone” in many cases didn’t even get read.

  23. barrisj

    The Wal-Mart decision falls nicely into the same pattern of pro-corporate rationalisation as Ledbetter v Goodyear Tire and Rubber that the Supremos decided for Goodyear in 2007. Here they took Title VII anti-discrimination intent and grossly decontexualised it by ruling that Lily Ledbetter didn’t file suit within 180 days of the perceived pay discrimination event, never mind that it was a cumulative slighting of pay rises over 19yrs that rendered her salary substantially less than a male employee performing the same task at the same performance level. It seems that this Court – that is, the Unholy Five – continually goes well out of its way to parse technicalities in federal laws that ALWAYS redounds to the favour of corporations as opposed to individuals or classes of individuals who have been palpably and egregiously wronged by their employers. In all the cases cited in Ms Smith’s post and in the comments that follow, INTENT of a law simply is of no consequence when it concerns the rights of individual employees who have the temerity to sue companies for breaching those very laws that were written to protect the employees. Yes, Bush v Gore was in fact the singular event that has led us – the people, for God’s sake – into the maw of corporatist tyranny.

    1. Nathanael

      The four RATS on the Supreme Court are overdue for impeachment, but the US Senate is broken, and can’t get a 2/3 vote to do *anything*. The court could be stacked to outweigh the RATS, the way FDR threatened to, but we have a Republican enabler as President.

      The collapse of the federal government is really the only possible outcome, because this sort of lawless kleptocracy can’t be maintained. (Yes, other sorts of lawless kleptocracy can be maintained, but not THIS sort.) We’ll see how much it takes with it on its way down.

  24. Francois T

    Yves wrote:

    “Why should foreign or even domestic investors be wiling to put money in funds or other pooled vehicles when the Supreme Court has just removed the best avenue for seeking recourse in the case of abuses?”

    I have been asking this question for more than a year! I guess that since the SCOTUS merely confirmed what was already baked in the cake (did anyone sincerely believed for one moment the SCOTUS would go against the financiers?) the idea of investors avoiding the USA as a place to invest does not seem too far fetched.

    1. Nathanael

      Investor here. Only managing a few million dollars, but…

      Already avoiding mutual funds, where possible (goddamned retirement funds make it hard).

      Already avoiding US-based corporations, with a few rare exceptions (family-owned, family-controlled where I think I can trust the family).

  25. don

    successful capitalists hire people who can make them money. gender, race or religion mean nothing.if you don’t like the way the cards fall then quit whining and move on.(maybe Greece). Also I have been watching this website for over a year. most of you should get to your point. way too much rhetoric

    1. Yves Smith Post author

      I don’t know what planet you live on. Seriously. I’ve worked with a lot of companies at all size ranges, from startups to Fortune 25 companies, and have had a fair bit of international experience. They all have certain types (background, ethnicity, education, temperament) that they prefer and screen for. And there is TONS of research that is consistent with my personal observations.

  26. RichardB

    with 60+% of enrollment in professional schools now women, they will soon dominate corporate management. You are fighting the last war.

  27. rps

    The Declaration of Independence states, “…But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”

    The USA is the chosen example to the rest of the world of corporate takeover of government and imperial despotism. We are witnessing the banking and corporate industry coupe of the three branches of government and the representatives of the people to enact and enforce harsh mandatory austerity and compliance of its citizens. We are experiencing IMF austerity measures and privatization of public-owned institutions and resources but it hasn’t been publicized……yet. I always wondered when Roman and Greek civilizations fell whether their citizens realized they were living in the eye of the hurricane and witnessing massive destruction of their civilizations?

  28. Andrew P

    I’ve always believed that the Supreme Court is no more immune from politics than any other branch of government. Interpretation of the law is a political act, just because they do it in silly robes with a lot of stuffy foolish ritual doesn’t make it stink less. If you look at the court’s major decisions, it’s always tilting with the times, moving to either consensus elite opinion, or proactively seeking conciliation with social movement pressure. Thus the Court has a habit of turning it’s major decisions in the direction inveterate conservatism, or seemingly “radical” liberal reforms which a generation later seem totally mainstream. Moral of the story, if you leave them alone they’ll be total oligarchic craptards, if you pressure them hard the politicians will whisper to them “Make the crap decision for us.”

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