Vermont Legislature SmartTranscripts:

[Senator Christopher Mattos (Clerk)]: We are live. Alright.

[Senator Nader Hashim (Chair)]: We are back in senate judiciary. It is still February 24. We have s l u 22 in front of us that sent over from government operations. And we have Rick from from to provide us a walk through. I know it's 36 pages. I'm not sure if we're gonna be able to get through it all in half an hour, but we'll take it as we go.

[Rick Sedgold (Office of Legislative Counsel)]: Yeah. So good morning. Rick Sedgold, office of council. And as the chair said, it is 36 pages, but a lot of this is repetitive, which is helpful to the number of pages. I do wanna kinda start with a bit of an overview of the bill because it is so many pages. What the bill would do as written is basically remove the power of not just corporations, but business organizations in the state from spending money in election activities. And that is defined. I'll go over that here in a little bit. So that's kind of the the big overview. And that sounds pretty simple. Right? It's a very simple idea that you, as the government, you remove this authority that a state has given foreign business organizations to do x, in this case, spend money in elections, and you remove that authority. So while that sounds simple, there are definitely some constitutional implications to be discussed. Obviously, not gonna get to all those today in thirty minutes, but my office will gladly provide testimony on that. And you should also have more testimony from interested witnesses who may be affected by this by this bill. It's a novel concept. No state has actually enacted language like this. You've probably heard of limitations on abilities of corporations, other entities from spending money in elections, and those have been litigated. Citizens United is the more famous Supreme Court case in recent history. But this is a the idea is common, but the the way that this would do it is novel. That you basically remove the power that corporations have to make those donations, if that makes sense. Mhmm. So that's that's kind of the background. And the reason that we're gonna look at 36 pages is because Vermont specifically has our businesses scattered through several titles. This normally would be like a five, six page bill because the language is very repetitive. But because you have corporations in 11 b or 11 a, nonprofits in 11 b, LLCs in 11, this bill makes sure that there's no loophole, that no business can be created just to spend money in election activity. So therefore, have this very repetitive language in every possible business and statute. Mhmm. Right. So start the walkthrough, if that's okay with the chair. Page one starts with the findings and purpose of the bill. I'm not gonna skip to subsection d. You can read the findings there on your own. Subsection d, the purposes are to revoke any prior grants of of powers to artificial legal persons that may be construed to authorize election activity or ballot share activity. Those terms are gonna be defined here in a little bit. Regrant all those powers necessary or convenient for the lawful business, charitable, cooperative, or organizational purposes, expressly excluding any authority to engage in election activity or a valid issue activity. On the top of page three, establish uniform limitations across all entity forms while preserving distinctions among them. And four, preserve and protect the constitutional rights of natural persons and the lawful activities of political committees and political parties. So, again, these are just purpose statements, but, again, setting the stage for how this bill is

[Senator Philip Baruth (Member)]: going to

[Rick Sedgold (Office of Legislative Counsel)]: be structured is does not affect people's ability to spend money. CEOs, anybody that is a human being would not be affected by the bill. It would be the business entities that would be affected by the bill. Section two, there are 12 secondtions in the bill because we have these scattered chapters and titles regulating businesses. Tie section two amends title 11, Section 42, which is very specific to private corporations that operate as a regional clearinghouse or a cooperative loan plans. These are a very specific set of businesses, but because they would be they could make these contributions as they currently do are able to do so. There's language added to amend the authority of these corporations. In subdivision A on line 14 you'll see some language added, and this varies by statute. Sometimes Vermont has given corporations the power to do anything that an individual can do, and then the language needs to be adjusted to make clear that it's not everything. So in this case, we have, as limited by the section, private corporations have the following powers. And I'm gonna skip to page five because they need changes on pages four and the top of page five which is grammatical. On line 13 on page five, a corporation organized pursuant to this chapter possesses no power to engage in election activity or ballot issue activity, and any such activity is ultraviarese. I have to think about that word because we pronounce that buyers in Texas, so I have to be but still has I have that blood in my body. It's voir dire, not voir dire. So ultraviouries and void. As used in the section, these are definitions that are gonna be repeated throughout the I'm sorry. Go ahead.

[Senator Philip Baruth (Member)]: Can you just give me a quick definition of ultraviouries?

[Rick Sedgold (Office of Legislative Counsel)]: Outside the power of the organization. So wrongful activity. In other words, typically, it's used in corporations where shareholders can basically sue the corporation for an act that the shareholders believe is outside the scope of the power of the corporation. Okay. Thank you. Mhmm. So ballot issue activity means paying, contributing, or spending money or anything of value to support or oppose any initiative, referendum, recall, constitutional amendment, charter amendment, or any other question, formally certified or submitted to the electors of the state or any of its political subdivisions. So every time this definition is used, it's going to have these exact same words. So I'm gonna skip it going forward. But, again, this is one of the things that over and over again, you're going to see businesses are not going to be able to do. Paying, contributing, spending money, or anything of value to support or oppose any initiative, referendum, recall, constitutional amendment, charter amendment, or any other question formally certified. It does not include on the top of page six, any bonafide news story, commentary, or editorial distributed through an independent news organization, not owned or controlled by a political party, political committee, or candidate. The determination by a corporation to endorse a ballot question and the de minimis use of resources of the corporation to communicate the endorsement to general public. Three, activity by corporation to support or oppose consideration of a measure by the general assembly or by legislative body of a political subdivision of the state prior to the formal submission or certification of the measures of the electors lobbying is how we define that section. Lobbying activities would be exempt from this. BI, election activity means paying, contributing, or expending money or anything of value to support or oppose a candidate, local party, or Election activity does not include similar language, bona fide news story, commentary, editorial, not owned or controlled by a political party, committee, or candidate. The determination by a corporation to endorse a candidate and the de minimis use of corporate resources to communicate that endorsement to the general public provided endorsement is not facilitated, solicited, or approved by the candidate or the candidate's committee.

[Senator Nader Hashim (Chair)]: I'm sorry. Senator Mattos.

[Senator Christopher Mattos (Clerk)]: So does that just mean no donations as well?

[Rick Sedgold (Office of Legislative Counsel)]: Would include it would include that. Correct. Okay.

[Senator Nader Hashim (Chair)]: And then back up a little bit on

[Senator Christopher Mattos (Clerk)]: valid issue. It talks about

[Senator Nader Hashim (Chair)]: where'd it go?

[Senator Christopher Mattos (Clerk)]: But I'm thinking of, like, a business that is a print shop. Right. Would that fall into here? Because if you were hired to print the media or postcard or whatever it is, would that fall into here? Because technically, you are contributing as you're contracted to do so.

[Rick Sedgold (Office of Legislative Counsel)]: So would a print shop doing that to some would that be supporting or opposing any candidate referendum?

[Senator Christopher Mattos (Clerk)]: Could appear to be potentially printed. Right?

[Senator Philip Baruth (Member)]: They could

[Rick Sedgold (Office of Legislative Counsel)]: choose not to take the business. Right. They choose not to do the the kind the the order for the company. So that may need to be thought about.

[Senator Philip Baruth (Member)]: One one question also on page six. So ballot issue activity does not include activity by a corporation to support or oppose consideration of a measure by the general assembly. I'm I'm kind of thinking of what we think of as issue ads and candidate ads. So a corporation under this not only could hire a lobbyist, but they could run ads saying the general assembly is thinking about raising your taxes, and they could spend whatever they can spend currently. But they can't in the election itself spend money. That's,

[Rick Sedgold (Office of Legislative Counsel)]: I think, a good read of the language that not only can you spend money on lobbying lobbying members of the general assembly, that if there was some kind of issue that a corporation wanted to spend money to advertise either on Facebook or on TV, that that would also fall under that exception.

[Senator Philip Baruth (Member)]: And so maybe over here on page seven, has the secretary of state adopt these rules to clarify things, including setting parameters. Might that include timelines from an election, like within so many days of an election, you can't

[Rick Sedgold (Office of Legislative Counsel)]: It's so yeah. I hadn't got that that sentence yet, but that's a big one. On page seven, subdivision five, the secretary of state shall have the authority to adopt rules regarding the definitions of terms set forth in subdivision four, which includes the ballot activity, election activity. So, yes, it's very broad authority. And that this there is a specific rule authority there about parameters of what is and what is not considered de minimis. But I think the secretary would read this and say, we can also provide authority on election running elections during a general assembly issue that is being taken on.

[Senator Philip Baruth (Member)]: So Okay. Yep. Thank you. Mhmm.

[Senator Christopher Mattos (Clerk)]: Now does that include, like, election activity, like your your scorecards, report cards, you know, we'll get the email. This vote might be on your report card or scorecard, whatever it is.

[Rick Sedgold (Office of Legislative Counsel)]: Who do those come from?

[Senator Philip Baruth (Member)]: Advocacy groups.

[Senator Christopher Mattos (Clerk)]: Yeah. I'll pick on ones in the room.

[Senator Philip Baruth (Member)]: They they go to books. Yeah.

[Rick Sedgold (Office of Legislative Counsel)]: We don't

[Senator Philip Baruth (Member)]: we don't recommend candidates. Oh, but don't you have scorecards? No? Do what? Sell scorecards. No. So

[Rick Sedgold (Office of Legislative Counsel)]: expending money, you know, does it cost money to create these emails?

[Senator Christopher Mattos (Clerk)]: I guess so. Okay. I'm just curious what

[Rick Sedgold (Office of Legislative Counsel)]: You're Cuban. It's a

[Senator Christopher Mattos (Clerk)]: very civil law authority. Yeah. It's very broad, so I'm curious about it.

[Rick Sedgold (Office of Legislative Counsel)]: Okay. Section three, these this is specific to financial institutions and mutual insurance companies. We're still entitled 11. Skipping to page eight. So one of these corporations possesses no power online board to engage in election activity or ballot issue activity, and any such activity is ultraviolet and void. I'm not gonna repeat these exact definitions starting on line six on page eight. Nothing changes on those two definitions. On the next page, nine, also, nothing on this page is new. This is repetitive from the previous definition of election activity and the same rule making authority for the secretary of state. K. On page 10, this statute in title 11 governs cooperative associations. You're gonna see very similar language again. This and again, I mentioned this earlier, but occasionally, the way these businesses are given powers, you see here section nine and four powers, they're written differently. And in order to get the purpose of the bill across these various businesses, you have to write the exceptions differently. So on line 14, you see here to do and let me start with mine at the very top on line six of solution 10. To do everything necessary, suitable, or proper for the accomplishment of any of the purposes for the attainment of any of the objects here enumerated or conducive, etcetera, to exercise and possess all powers, rights, etcetera. Then skipping down to line 14 and to the extent consistent with the artificial person powers defined in subsection e of the section. So that not removing language there, but saying that you have every power except this exception. Be a cooperative association organized pursuant to this chapter has artificial person powers and or the powers express expressly granted elsewhere in this chapter. On page 11, subsection c is new language. The creation and continued existence of a cooperative association organized pursuant to this chapter is a conditional grant of legal status by the state and remain subject to verification or alteration at any time. You'll see this occasionally where the state has given itself the authority to revoke the authority of a, in this case, corporate association to be existing in the state. D is repeated language about ultraviolet activity. Subsection e, there is a new definition, artificial person powers, because it's used in the statute. It means the powers necessary or convenient to lawful cooperative association purposes, excluding any authority to engage in election activity or valid issue activity. The definition of ballot issue activity is the same as is election activity. And subsection f on the top of page 13 gives the secretary of state the same rule making authority. Section five is the worker cooperative cooperation worker cooperative corporations chapter in title 11. So in this case, the power section is created to establish and and put parameters on the powers of these corporations. Subsection a is similar language that it is governed by this chapter and is a conditional grant of legal status by the state and remain subject to verification or alteration at the time. Again, the these corporations has only artificial person powers. Same definitions in subsection

[Senator Philip Baruth (Member)]: d. One sixteen.

[Rick Sedgold (Office of Legislative Counsel)]: Page 16? Yeah. I'm almost there. Okay. Yep. Starting at the bottom of page 15. Got it. So section six, these are the LLCs, a very popular form of business in most states, including Vermont. Here, you have language struck through, and I'm gonna read this because this is existing language that would be important to LLC owners and operators. An LLC limited liability company shall possess and may exercise all the powers and privileges granted by this chapter, any other law, its articles of organization or its operating agreement together with any powers incidental. There too, so far as the powers and privileges are necessary or convenient to the conduct promotion or attainment of the business purpose or activities of the limited liability company, including the power to sue and be sued, complain and defend in its company's name, and most importantly, the power to do all things necessary or convenient to carry on its activities, which, again, you'll in modern business organization statutes, that's what you're gonna see. States have overwhelming this overwhelmingly decided to give LLCs, corporations the authority to do anything. That's very, very common for. But that's been struck through, and instead, you have the creation and continued existence of a LLC governed by the chapter is a conditional grant of legal status by the state and remain subject to revocation or alteration at any time. An LLC has only artificial person powers, similar language there. Jumping on to four, a limited liability company that undertakes finances or directs election activity or valid issue activity without authority pursuant to this chapter shall be required to remit payment to the office of the state treasurer. I would not equal to the value expended in the activity. You'll see that. Yes. Sam?

[Senator Philip Baruth (Member)]: Had a question about that. Is that taken from elsewhere in terms of what the penalty is? So 100% of their unauthorized spending or ultra vires spending is their penalty. Is is that a new construct, or is that a penalty that exists elsewhere?

[Rick Sedgold (Office of Legislative Counsel)]: In the state or anywhere? Here. Personally, I've not seen this language used. Doesn't mean it doesn't have precedent, but I have not seen it. I can look into that.

[Senator Philip Baruth (Member)]: Because it's it's interesting. It it reminds me of the excess spending penalty. Right? You in other words, an LLC, and correct me if I'm wrong, could spend a million dollars on an election and then pay a million dollar penalty to the secretary of state. Correct. Okay. So it says that their LLC status can be revoked or altered at any time, but it doesn't clarify that if they do that, it will be revoked. Correct. So it's basically just setting it up as a steep penalty, a 100% then. Correct. Okay. Not wild about that. Great.

[Rick Sedgold (Office of Legislative Counsel)]: Subdivision five, a foreign limited liability company, meaning an LLC that's organized outside of the state, not outside the country. Although, I guess, could be, but this is mostly referring to an out of state LLC that directly or indirectly undertakes finances or directs election activity or valid issue activity in the state in the state or with respect to any election or valid measures submitted to the elections of the state is conclusively deemed to be transacting business in the state for jurisdiction and enforcement purposes. So if you have an outside LLC in New Hampshire, New York that wants to spend money on a Vermont election, even though they may not even be organized in Vermont, they would be subject based on this language, they would be subject to remaining payments to the office of state director. So is this

[Senator Nader Hashim (Chair)]: so is this kind of closing the door to any disagreement about personal jurisdiction?

[Rick Sedgold (Office of Legislative Counsel)]: The words on the paper make it sound very simple that this is just the way that it's going to be. But there I assure you there are constitutional issues with requiring an out of state business to not exercise one of its constitutional rights in Vermont. So personal jurisdiction is interesting. They would be making they would be availing themselves of the state by conducting business in the state. So I'm not sure that would be an issue, but there are certainly other constitutional things that may come up.

[Senator Nader Hashim (Chair)]: I'm just I mean, it might be a stretch of this thing. You have the indirect participation. And if it's indirect, you're going through multiple states.

[Rick Sedgold (Office of Legislative Counsel)]: Right. I see what you mean. I see what you mean. Yeah. It it it could be a very, very indirect business being connected to Pembroke. I see what you mean.

[Senator Nader Hashim (Chair)]: And so it's just that conclusively deemed piece is what Yes. We wonder if that kinda shuts the door on any personal jurisdiction question. But that sounds like that might be

[Rick Sedgold (Office of Legislative Counsel)]: a different issue. I think it's a different issue. Subsection h, same definitions. So we will jump to page 19. Still in title 11. These are your limited partnerships. A and b and c are similar definitions you've seen before about ultra vivaries and remaining payments of the office of the treasurer. D is different language because partnerships are unique in different ways. The liability provisions set forth in subsection b of the section applied to limited partnerships and to all general partners, limited partners, and other persons of the limited partnership who authorize direct control or knowingly participate in subjectivity. E is also different or new. This section applies only to limited partnerships does not apply to general partnerships or other associations in which all partners bear unlimited personal liability for the obligations of the partnership. Subsection f, the definitions aren't the same. I'll keep saying it every time.

[Senator Philip Baruth (Member)]: I assume that at some point, you'll address the the overall constitutional

[Rick Sedgold (Office of Legislative Counsel)]: question. Yeah. We'll see. You know, it's almost we have about ten minutes left. If not today, certainly

[Senator Philip Baruth (Member)]: I'm just hoping today you can give us some some sense before we leave, I guess, if it's voted by the Supreme Court not that I don't think this is a useful exercise, but it'd be good to know what our chances are in terms of the supremacy clause.

[Rick Sedgold (Office of Legislative Counsel)]: So we can see

[Senator Nader Hashim (Chair)]: if I mean, if much of the rest of the bill is going to be kind of repetitive just to get to the other chapters of all the different forms of businesses, then I have no problem getting the spark notes of what your initial concerns are and then scheduling another hearing a bit later on so we can take a deeper dive into it.

[Rick Sedgold (Office of Legislative Counsel)]: Sure. Let me I do wanna show so most of the language is repetitive. I will I will note that the the most probably the sections you wanna look at, language similar is going to be on page 25, section nine. That's your business corporations title 11 a. And then the next section, section 10 on page 28, that's your nonprofit corporations chapter 11 b, title 11 b. Those are gonna be the most common types of entities that will be affected by the bill. So, again, language is similar, but if if you wanna look at, especially the struck out language to see what the state would be doing to those entities would be, I think, helpful to understand the bill. And then I do wanna walk through the last page, section 12, the applicability of the corporate power reset. So page 36. Nothing in the act shall invalidate, impair, or modify any contract, debt, instrument, security, or other legal obligation lawfully entered into on or before 12/31/2026. The effective date would be 01/01/2027. That's why you have the December 31 date. No power, privilege, or capacity withheld or limited by the act shall be revived, reinstated, or implied by operation of law or judicial construction. If any provision of the act is held invalid as applied to any artificial legal person, the invalidity shall not be construed to authorize that entity to engage in election activity or balance your activity or to revive any power, privilege, capacity withheld by the act. So just kind of making it clear that there is this kind of line in the sand on December 31 this year That is basically saying that supplies starting January 1 that you were can continue doing these election activities. But starting even if you're in existence today, a corporation existing today would be held to these new statutes starting January 2027. Okay. So the question is about and I have two of my colleagues here who we've all been working. This is a very interesting bill because even though I, the corporations, are in my portfolio, Tucker deals with the Vermont constitution and corporation charters, municipal charters, which have some relevance here, and then Tim elections. So the three of us have been working on this bill, and we're here to answer questions. And you said you want my you say CliffNotes?

[Senator Nader Hashim (Chair)]: Can't remember. Or CliffNotes. SparkNotes. Whichever one. Very twenty first century. Just a general synopsis Yeah. Initial take of what the constitutional concerns are so that we have them in our heads and then we can have an additional hearing Yeah. Another date so we can take a deeper dive and see what is feasible or not.

[Rick Sedgold (Office of Legislative Counsel)]: Yeah. So I referenced a little bit. I referenced Citizens United, which I think you are familiar with, especially Senator Norris, who was worked on the government operations committee. The idea is novel. Right? The idea of removing a corporate power to spend money in elections has not been inactive anymore. That that's a novel concept. And with that said, you have a lot of court president that kinda gets to this issue of a state regulating the corporate authority to do something. There is no doubt that the state does have an authority to control corporations in many ways. And you can see in the statutes, have typically, Vermont has given corporations the authority to do anything. And that is the decision that Vermont has made. But the question is, can then a state take away powers? Can a state then restrict powers? In this case, the argument is that are these First Amendment powers, the freedom to spend money in elections. Is that a power protected by the First Amendment? That answer is mostly yes. That Citizens United and other similar decisions have said that corporations do have a First Amendment right to spend money in elections. You can disagree with the decision, and maybe at some point, the court will change their mind. But our job is to kind of inform you of what a court is gonna look at, and that's gonna be case number one. Right? And a lot is another supreme court case. Similar holding that corporations have these rights. So that the spark notes is is a complex set of topics. It's not just the first amendment. It's also the contract clause because you'd be regulating corporations that already chartered in the state. There's due process involved here. There is tenth amendment involved here, and it's more complex is the first one I keep thinking about and has deserves a lot of thought and witnesses to kinda help you through this bill and how you wanna accomplish your goals.

[Senator Nader Hashim (Chair)]: Just to refresh my memory, contracts clause, that's when the state makes a law that affects already existing contracts to the benefit of the state?

[Rick Sedgold (Office of Legislative Counsel)]: They don't need to benefit the state. Just a pre existing contract. Right. No. Yeah. Now there are it doesn't mean you can't ever do that, but that's something that you wanna look at and see. Look at the court precedent and see when can states not do this. What are the limitations on that? I mean, can states do that?

[Senator Nader Hashim (Chair)]: And senator

[Senator Philip Baruth (Member)]: Baruth. I'm just remembering the the popular way of phrasing Citizens United was that corporations are people and have First Amendment rights that cannot be under enabling them. So when I when I read this, I agree a 100% with our ability to do this and with the world it would produce, but it seems to me that a majority on the Supreme Court believe that corporations are people with constitutional rights that cannot be revoked because they're fully citizens united. Right? So am I wrong to to think that there's just a an insurmountable bar at the Supreme Court in terms of a six three majority or five four majority? Not not that you can read the future, but Right.

[Senator Nader Hashim (Chair)]: Do you

[Senator Philip Baruth (Member)]: see what I'm saying?

[Rick Sedgold (Office of Legislative Counsel)]: I do. And I I may defer to Tucker as well, but I I think and Tim as well. I think my answer to that is it's not just the current court. There's been decades, maybe over a century, of court decisions that have led to Citizens United, that corporations, not for people. Right? That's that's what Citizens said. But that corporations, while they are creatures of the state because you get a charter from the state, they also have these rights. I don't if I use in inalienable, but rights that are inherently theirs that the government cannot give or take away. Right. So if the government cannot give a right to something, can it then take it away? So I I don't know if I would look at this court and say this is what they're gonna do, but I think you look at the history of the court's decision on corporate rights. Mhmm. And you say, this is probably what a court in the next few years would do because this is the precedent, and these are the the the decisions that have led them to citizens.

[Senator Nader Hashim (Chair)]: So maybe I'm oversimplifying this, but in other words, the First Amendment isn't a right that is given to corporations by the state. It's enshrined in the US constitution, and we can't circumvent or curtail that right. Is that kind of

[Rick Sedgold (Office of Legislative Counsel)]: Tucker,

[Tucker Anderson (Office of Legislative Counsel)]: to frame all this, Tucker Anderson legislative counsel. Since the beginning of the nineteenth century, there's been a string of US Supreme Court cases identifying corporate personhood. And, really, what senator Baruth was talking about is a railroad tax case. It's literally called a series of railroad tax cases decided by chief justice Shaw starting in 1881 in which they identified that the corporation is an artificial person specifically capable of holding rights under the fourteenth amendment to the United States constitution, due process and access to the federal courts. And since that time, United States Supreme Court has started to identify all of the rights that a corporation is capable of holding as a person. Now that does not mean they are entitled to all of the rights that are identified in the guarantees of the United States constitution, But The United States Supreme Court has identified specific instances where there are constitutional rights that are held by corporate persons. And there are two United States Supreme Court cases that apply to the bill in its instant context. The first was decided in 1978 in its first National Bank of Boston versus, identified that corporations had first amendment rights. The second is Citizens United. What you have in front of you is very interesting and nuanced in its approach, but that approach is still constrained by the guarantees of the federal constitution. And Rick has not gotten to this yet. We are happy to inform you about this, the Vermont constitution, because that is the well of power that you are drawing from. And the Vermont constitution is unique in that it identifies specific limitations on the general assembly and its exercise power over corporations. That's section 69 of the Vermont constitution. It has a direct impact on the legal analysis of the bill in front of you. And as Rick said, it is an endlessly complex and interesting topic to go through. We have prepared a ton of research on this, and we're always happy to come back and walk you through. It gets confusing very fast because you have to start with US Supreme Court decisions in the nineteenth century that predate Vermont's adoption of section 69 and then continuing through into the modern era in US Supreme Court's decisions about rights of corporations. And thank you for

[Rick Sedgold (Office of Legislative Counsel)]: Thank you. Alright. Well, we are

[Senator Nader Hashim (Chair)]: right at noon. Thank you for the walk through, and we can