Vermont Legislature SmartTranscripts:

[Senator Nader Hashim (Chair, Senate Judiciary Committee)]: Clear line. Hi. Good morning. We're back in Senate Judiciary for s three 22 on March 12. It is Tom. There you are. Great. Welcome, Tom. Thanks for your flexibility, and floor is all yours.

[Tom Moore, Senior Fellow for Democracy Policy, Center for American Progress]: Thank you very much. Good morning, Chittenden. Members of the committee, thank you for the opportunity to testify on S-three 22. My name is Tom Moore. I'm a senior fellow for democracy policy at the Center for American Progress. Before joining CAP, I served for seven years as senior counsel and chief of staff to former federal election commission chair Ellen l Weintrop. I've spent the last two years developing the legal framework behind this bill, and I do come to you today with good news. For sixteen years, we've all been told that the only way to undo Citizens United is through a federal constitutional amendment or a new supreme court. But there is another way. It's brand new. It's shockingly simple. It's based on two hundred years of foundational corporation law, and it's before you today in s three twenty two. All Vermont has to do to get its corporations out of its politics is decide to no longer grant corporations the power to spend in its politics. That really is it. But before I explain how the bill works, I wanna tell you where it comes from because this story doesn't start in 2010 with Citizens United or even in 1978 with Pilate. It starts almost February earlier. Legislative council did a nice rundown of Dartmouth College v Woodward. New Hampshire tried to take control of Dartmouth College's property and seize control of its governance. And John Marshall said, no. The corporate charter's contract, the state in the charter reserving might change that so he couldn't do it. But justice Joseph Story made a suggestion that changed American corporate law forever said, hey. Wouldn't it be a good thing if states included a clause reserving the authority to modify their corporate charters? And over the next several decades, that's exactly what all the states did. In the early days, Vermont created every corporation by a special legislative act, You know, an act to incorporate the Addison Railroad Company or the SD Oregon company, hundreds of these. Each corporation received a bespoke statute that created it and specified exactly what powers it had. There was no general grant, no do anything you want clause. Corporations only had the specific powers the state gave them, and the state gave them as few as they could get away with. Now in 1851, following justice Story's advice, the Vermont legislature adopted a reserved powers statute. The language is plain. Any act creating, altering, or renewing a corporation may be revealed repealed or amended by the general assembly as the public good requires. Every corporation founded after 11/19/1851 was created subject to that reservation. And the supreme court has held consistently that every corporation in every state with this kind of provision is on notice that the legislature can modify its powers at any time. And it has said, it doesn't matter if it's good reasons, no reasons, bad reasons. It doesn't matter what the effect is. It doesn't matter what the motive of the legislature is at all. They have a authority to do this. And because the corporations are unnoticed, they don't get to complain about it. They accepted this when they accepted their charter. In 1913, Vermont went further and amended its constitution. By then, the special chartering system had become a nightmare. Passing individual corporate charters constituted like half of the workload of any state legislatures, and it was notoriously corrupt. Your section 69 does two things. First, it ends special charters. Corporations must be formed under general laws. That is what the phrase under general laws means in section 69. You cannot write special charters for individual corporations anymore. You do it through general statutes. Second, it confirms that these general laws can be altered from time to time or repealed. Now the idea that corporations exist only because the state grants the powers is not a new theory. It is the foundation of American corporate law. Vermont recognized that in 1851 when it reserved the power to alter corporate charters whenever the public good requires. And again, 1913, when it embedded that structure in the constitution. This bill simply asks the legislature to exercise an authority that Vermont reserved for itself and for you more than a century ago. That authority is not something that's sitting in a museum case. It is the hammer the legislature put in your hands and you pick it up every session. Every time you amend title 11 a, 11 b, 11 c, every time you tweak the corporate code, adjust LLC rules, change governance requirements, that is the eighteen fifty one hammer. It is routine. It is ordinary. It's corporate housekeeping. You've just never swung this hammer at the nail of corporate political spending powers before, but it was designed for that nail. Your predecessors in 1851 were terrified about corporations having too much power, and they were looking exactly the problem that you were looking at today. Corporations acting in ways that damage the public good. Now the difference between corporate powers and corporate rights is hard to get your arms around at first, and it gets confused in a lot of these analyses but it's foundational and it's critically important. This is the best way I figured out how to explain the difference. You and I do not have the power to fly. You know, not flap our arms and fly. We were not given that power by our creator. Birds, bats, yes, people, no. If the Supreme Court of the United States announced tomorrow that human beings have a constitutional right to fly, none of us would go to the dome of your state house to give it a shot. Because no court can change the underlying reality that we don't have that power. We're not defined as cities that have power. It works the same with corporations. Vermont created its corporations. Vermont defines what they are. Vermont decides what powers they hold. If you're you define your corporations as entities that do not possess the power to spend in politics, it doesn't really matter what a court says about a right to spend in politics. It doesn't change the underlying reality that the corporation has defined as an entity that doesn't have that capacity. This kinda sounds like form over function, but it is not. The distinction between powers and rights is absolutely foundational to corporation law. Now this bill before you is different from everything that has come before you before. This is something that nobody has legislated in for the last hundred years. It wields an authority you almost never wield. What you usually wield is the regulatory power of the state. That is a subtractive power. You start with a fully empowered entity, a corporation that's been granted broad powers or a natural person that was born with these powers, and you regulate. You know, don't kill people. Don't drive a 150 miles an hour through a school zone, you know, things like that. Just whittling away at people's rights. Most of them, you know, for good reason. You require people to do things. You ban them from doing things. You impose conditions. You tax them and so forth. And when you go too far, the supreme court can step in and say, no. No. You overreached. That regulation can't be enforced. That and the previous status quo gets restored. It is what almost every court case is about. That is what the world of Citizens United is. It's what the world of Baladi is. Those cases are about the limits of regulatory power. All of them. This bill is an exercise of a completely different power that the legislature holds. This is the affirmative discretionary proactive creating power of the state to define what its corporations are in the first place. This is the power granting authority you have, and it applies only to entities that receive their powers from the government. People do not receive their powers from the government. In a democracy, it's the other way around. People give their powers to the government, but corporations are different. Corporations receive every power they have from the state, and the tools the court has to review the exercise of this authority are entirely different than in the regulatory context. Courts have erasers. They do not have pens. A court can say the regulation that took took too much away cannot be enforced, But a court cannot say that a power grant that's too short must be extended. That would be picking up a pen and only the legislature holds that pen. Your legislative council gave you an excellent walk through of the bill structure. My scholarship has led to some different conclusions on the constitutional analysis, and I'd like to address those. Legislative council told you that corporations have constitutional rights the state cannot take away. That is correct, but it's incomplete. What everyone has been assuming for the last hundred years is a particular set of powers. The broad do anything power grants that have been standard in corporate law since the early twentieth century. And given that set of powers, yes, there are certain rights that flow from them that cannot be taken away through regulation. But nothing says that that set of powers you've been granting is the set of powers that you must grant. I invite any member of this committee or legislative council to find the text in Citizens United or in Belotti or in any decision the Supreme Court has ever issued that requires a state to grant any particular power to the corporations it creates. It's not there. No court has ever said it. Legislative council's right that there's over a century of precedent on corporate constitutional rights from the railroad tax cases through Pilates, through Citizens United, but that's a century of strong precedent about the wrong question. Every one of these cases involve state exercising subtractive regulatory authority against the corporation that already possess the power in question. Not one of them asks whether the state was required to grant that power in the first place. Every constitutional test the courts apply, strict scrutiny, exacting scrutiny, is designed to measure whether the government took too much from someone who already had something. Those tests do not measure whether the government gave enough. The constitution is a shield against overreach. It is not a blueprint for what the state must build. Legislative council used the phrase rights are that are inherently theirs that the government cannot give or take away. Inalienable rights apply to people. Period. This legislature could pass a law tomorrow that strikes the corporation good from your statute books altogether, and there would be no corporations in the state of Vermont. There's nothing inalienable about any aspect of corporate existence. Corporations exist at the pleasure of the legislature and can cease to exist with a stroke of a pen. What the supreme court has said, the only thing it has said along these lines is that if corporations are empowered in certain ways, then certain rights flow from those powers. It has never said that you must give them the underlying power. Legislative counsel flagged section 69 of your constitution as imposing limitations on the legislature's authority over corporations. That is true, but it doesn't apply here. This bill operates through generally applicable amendments to Vermont's entity statutes, which is precisely the kind of lawmaking section 69 commands. Section 69 requires that corporations be formed under general laws and confirms that those general laws may be altered or repealed. That is not a conflict. I'm sorry. This bill alters those general laws generally. That is not a conflict with section 69. It is section 69 working exactly as designed and written. Legislative councils also mentioned the tenth amendment. This bill is an exercise of state authority over state created legal entities. There is no federal power being asserted, no federal statute being circumvented, and no federalism question presented. The supreme court has been really clear that matters of corporate power are state matters. In a previous session, senator Baruth raised the concern that there may be an insurmountable bar at the supreme court, a majority that will simply not allow this, and I I hear that. But here's how I think about it. We're never gonna convince the supreme court that they like this. Upholding this bill is going to be for some of the justices like eating a spider. But what we can convince them of is that the alternative striking it down is like drinking a glass of battery acid. It will do massive systemic damage to American corporate law long after the memory of the taste of that spider would be gone. The supreme court has not shown a great deal of respect for the traditional norms of judicial restraint, and I'm not relying on their good faith or their good judgment in any of this. But the one thing the supreme court never rules against is its own interests, and the members of the Supreme Court majority have an interest in a functioning American corporate economy. Let me give you an example. 25 states, including Vermont, have reserved powers provisions in their constitution that only empower the state to create corporations whose powers it can modify. Modify. If the supreme court holds that there are certain powers the state must grant, the political spending power is constitutionally required as part of the corporate form, it doesn't just affect this bill or Vermont. It potentially disables the ability of 25 states to create corporations on the terms of their own constitutions require. It throws into doubt the validity of every corporate charter those states have ever issued. And what would keep the US Supreme Court up at night is how this plays out. It's not in their control. It's in the control of 25 individual state supreme courts interpreting their own constitutions. The supreme court does not have to overturn a single precedent to uphold this bill. But to strike it down, it may have to destabilize American corporate law and potentially the American economy in ways cannot control. That is a glass of battery asset even this court may not want to drink. Legislative council raised the contract clause. The there is a contract of sorts at play here between the state and the corporation. The state grants legal existence and defined powers. In return, the corporation follows the state's laws, pays its taxes, and operates within it its charter. And the reason is you you really can't consider it a regular contract is because one party, the state, has said, we can change the terms of this agreement at any time, which is a crazy contract to enter into under most circumstances. You know? But since 1851, Vermont has said that you can change the terms at any time when the public good requires it. Every corporation formed in Vermont since 1851 has constructive knowledge that this is the deal. They accepted it when they accepted the charter, and the Supreme Court has held that because that's the case, they don't get to complain about changes when they're made. And this is the due process concern. This is what addresses the due process concern. Due process requires notice. These corporations have had notice since the day that they were chartered that Vermont reserves the authority to modify their powers. There is no surprise here and no deprivation without process. This is the process. I'm pleased to report that bills similar to s three twenty two have been introduced in 11 state legislatures now. A ballot initiative in Montana was just cleared to go to voters this week. They're gonna start collecting signatures this weekend. Another ballot initiative is just getting off the ground in Colorado. So Vermont is not alone, but you can be the first state to pass this into law and deliver us all from Citizens United. Many of us, many senators on this committee, I'm sure, have spoken out against Citizens United over the years as I have. You have talked the talk. We all have. S three twenty two is your opportunity to walk the walk. Now be before I settled on a formal name for this project, I called it operation Ruby Slippers. Glinda, the good witch of the North, told Dorothy, you've always had the power, my dear. You just had to learn it for yourself. The power to undo corporate money in Vermont's politics has been sitting in Vermont's laws since 1851. You've always had the power. In s three twenty two is, I suspect, how many of you are discovering that you have it. Getting this bill passed in law is not gonna be as easy as tapping your ruby slippers together three times. It's gonna take some effort and political courage, but it's what the people of Vermont want and deserve. I've taken thousands of questions on this approach over the past two years, and I welcome all of yours. Thank you so much.

[Senator Nader Hashim (Chair, Senate Judiciary Committee)]: Thank you, Tom. Committee, any questions? Not seeing any questions in the room. I suspect I'll have a few questions. Just there's not at the moment. They're still swirling in my head and there's a few things that I need to read up on a bit more. So I'll likely be reaching out to you soon. But but thank you for your testimony and your flexibility again. Appreciate it.

[Tom Moore, Senior Fellow for Democracy Policy, Center for American Progress]: No. It's my pleasure. Thank you so much for hearing me out.

[Senator Nader Hashim (Chair, Senate Judiciary Committee)]: Have a good one. Sure. Okay. Where did this go? What? I can go to this. Alright. We should