Chamber of Commerce's junk lawsuit clogs up the courts

Steven Pearlstein
Washington Post Staff Writer
Thursday, October 21, 2010; 10:25 PM

Another junk lawsuit has landed on the docket of the U.S. Court of Appeals for the District of Columbia, clogging up the judicial process, distracting busy and important defendants and eating up valuable resources that could be used to create a more productive economy.

The suit questions the business judgments made by experienced decision-makers in the normal course of performing their duties - judgments that by their nature are subjective, require balancing of conflicting goals and involve substantial risks. And as usual, slick plaintiffs' lawyers have strung together a set of procedural "gotchas" designed to give sympathetic activist judges the legal hook with which to frustrate the defendants and their enterprise.

This is just the sort of abusive litigation that the business lobby, with good reason, has been complaining about for years. So imagine my shock and dismay to discover that the plaintiffs in this case are none other than those champions of civil justice reform, the Business Roundtable and the U.S. Chamber of Commerce.

The case, filed late last month, seeks once again to block the Securities and Exchange Commission from enforcing a new rule designed to give shareholders the right, under carefully prescribed circumstances, to nominate a competing slate of candidates to serve on a company's board of directors and have those candidates listed on the ballots sent out to all shareholders, along with the candidates nominated by the incumbent directors.

Outside of China and North Korea, the American corporation is perhaps the last institution that still relies on Soviet-style elections in which members of the ruling faction are the only ones listed on the ballot. To have contested elections, the Roundtable and the Chamber argue in their brief, would not only trample the companies' First and Fifth Amendment rights but also be a "waste of corporate assets." Moreover, the mere prospect of having to accept "dissident" directors - let alone ones chosen by union pension funds - could disrupt boardroom harmony and distract directors from their vital work.

Because Congress recently authorized the SEC to promulgate just such a rule, the corporate lobby couldn't rely on its usual allegation that the agency had vastly overreached its statutory authority. So it was left to argue that the agency acted in an arbitrary and capricious manner, failing to give due consideration to the business lobby's many objections and failing to perform an objective cost-benefit analysis as required by administrative law.

Reading through the court filing, you'd have no idea that the SEC, in fact, had issued an exhaustive 451-page explanation of what it did, including a 53-page cost-benefit analysis. Much of the document is given over to responding to written comments filed by the plaintiffs and their members in response to the proposed rulemaking. But because the commission didn't follow all of their advice and scrap the rule altogether, their lawyers did what plaintiffs' lawyers always do: accuse the defendants of bad faith and flagrant abuse of discretion.

The case will now drag on at least through the spring and, no matter who loses, will probably be appealed to the Supreme Court, where any final decision could take as much as another year. Meanwhile, the rule will be stayed and two or three proxy seasons will have passed. And should the Roundtable and Chamber ultimately prevail and the matter return to the SEC for another round of comment and rulemaking, the business lobby will surely appeal again.

This scorched-earth legal approach by big corporations isn't used only against government regulators. It is a strategy that is used regularly in dealing with aggrieved employees, customers, suppliers, partners and competitors. By filing an unending stream of motions and appeals, by stretching out the process of discovery and deposition-taking, by confronting the other side with the prospect of never-ending trials, corporations use the legal process to bludgeon their opponents. "Bleeding them to death" has become the corporate legal strategy of choice.

As a result, it's no longer slimy malpractice lawyers or class-action attorneys hustling for contingency fees who bear the most responsibility for clogging the courts and abusing the judicial system, if they ever were. These days it's the $750-an-hour attorneys from white-shoe law firms whose charge is to win the case at any cost - not only because of the money at stake but also because it sends an important message to anyone else who might get in their way. Mafia chiefs send their thugs to break a few legs; corporate chiefs send in the litigators from Kirkland & Ellis.

Recent revelations about the foreclosure process provide the latest evidence of how thoroughly the court system and the legal "profession" have been turned into instruments of corporate control. Lawyers representing big banks and mortgage servicers routinely used false affidavits, forged documents and knowingly incomplete filings to reduce the cost and increase the efficiency of the foreclosure process. And yet the reaction of the financial industry has been to complain privately that the crisis is largely a fabrication of public-interest lawyers and class-action attorneys intent on using the legal process to pick the pockets of banks and investors.

When I called the Chamber's Institute for Legal Reform this week to get its take on the foreclosure scandal, all the spokesman could come up with was some blather about how foreclosures should be adjudicated on a "case-by-case basis." For those of you who are out of the policy loop, that's code for "no blanket moratorium" on foreclosures.

Strangely, however, the institute's statement contained none of the usual jabs at "junk lawsuits," "irresponsible lawyers" and "abuse of the civil justice system." Far be it from me to accuse the nation's largest business organization of hypocrisy. Maybe a more polite way of putting it is that now that corporate interests have successfully captured the legal system, the Chamber's focus has shifted from reform to keeping things just the way they are.

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