Drake Law Review
51 Drake L. Rev. 307
ARTICLE: THE CONFLICT OF THE COURTS: RICO, LABOR, AND LEGAL PREEMPTION IN UNION COMPREHENSIVE CAMPAIGNS
NAME: Nathan Newman *
* Nathan Newman is Associate Counsel at the Brennan Center for Social Justice at New York University School of Law. Previously he was an associate at the labor law firm of Eisner & Hubbard. He received his law degree from Yale Law School and a Ph.D. from the Sociology Department at the University of California-Berkeley.
[*308] I. Introduction
Why do we regulate labor conflict in one set of courts, largely through National Labor Relations Board proceedings overseen by circuit courts of appeals, while internal corporate governance is regulated largely by state corporate law statutes, overwhelmingly overseen by the Delaware Court of Chancery? Despite the fact that labor conflict is largely a struggle with shareholders over labor's share of corporate surplus (the so-called wage-profits split), the oddity is not just that the U.S. so completely separates the law governing shareholder versus labor interests over that same surplus, but that such completely different courts are involved in their respective disputes with firm management.[*309]
While such a split approach had a semblance of coherence in the immediate post- New Deal era of integrated oligopolistic firms, in an era of increased subcontracting, merger and spin off activities, and intensive consumer and environmental regulation, this tradition of split court jurisdiction over corporate governance has become less viable. As this Article will explore, nothing highlights this dysfunction more than the recent turn by corporations to use the Racketeer Influenced and Corrupt Organization Act (RICO) against unions seeking to enlist consumer and some shareholder allies in conflicts with firms. Such lawsuits suddenly add federal criminal and civil courts to the cacophony of players over corporate governance and the economic weapons that are viable for each side in battling for shares of the corporate surplus.
This breakdown in simple court jurisdiction reflects a broader legal and theoretical breakdown in simple models of the firm that once worried little about the relationship of firm internal governance to the markets in which they operated. What more recent corporate governance analysts make clear is that firm structure decisions have both efficiency maximization aspects as well distributional effects by changing the relative bargaining power of different actors, both within and outside the firm. So decisions on "internal" corporate governance, whether decided in the Delaware Courts of Chancery or in federal courts determining through RICO hearings that union tactics are illegitimate interference in such governance, inevitably have effects on traditional bargaining under the aegis of the National Labor Relations Act (NLRA). Given this reality, this Article will highlight why the recent breakdown in court jurisdictional divisions was inevitable in the modern era, especially as unions have increasingly begun to use broad "corporate campaigns" to target corporate opponents beyond their traditional strike weapon.
II. Corporate Campaigns and the Conflict of the Courts
In recent years, labor unions have begun regularly resorting to new strategies that target corporations beyond traditional workplace-based pressure. Labeled corporate or comprehensive campaigns, these tactics leverage union pension funds and alliances with a whole variety of other economic actors in order to challenge their employer-opponents directly at the level of corporate [*310] deal making. Examples include simple zoning challenges, initiating regulatory actions, using pension assets, and attempts to directly replace the opposition corporate board of directors.
With labor reverses in recent decades, comprehensive campaigns have grown significantly, with new departments at many unions devoted specifically to the national coordination needed for such campaigns. The contemporary birth of comprehensive campaign strategies is usually traced to the success of the J.P. Stevens textile campaign by the Textile Workers Union in forcing a militantly antiunion employer to agree to unionization. Since then, a whole range of unions have begun emulating the successes of that campaign and adding new tactics.
The kicker to such campaigns is that they take unions outside the traditional legal venues of the NLRA and into entirely different areas of economic and legal conflict where unions have no clear legal status. This has led many employers to try to block such campaigns by suing the unions under RICO with charges of engaging in blackmail, extortion, and tortious interference in business relations. Employers are jockeying to either have [*311] judges support their legal position or pass legislation that would clearly make any union action illegal outside the straightjacket of traditional labor actions.
A. Preemption and the NLRB-Delaware Divide
These legal challenges to comprehensive campaigns play out in an almost ping- pong movement of preemption and conflict of courts. To take one example, Bayou Steel a few years ago reacted to a comprehensive campaign by the United Steelworkers over a strike at a Louisiana factory by filing a RICO action in the federal district court of Delaware, basing venue on the union's filing of a shareholder suit in the Delaware Court of Chancery. They argued that the Louisiana state law of extortion and blackmail should govern the case based on applying the federal RICO act's definition of "predicate acts." The Steelworkers in turn argued that federal labor law preempted the state law and RICO claims, and the case should be moved to the National Labor Relations Board (NLRB), and asserted that their shareholder actions were completely legal under Delaware chancery court rules. [*312]
This whole set of preemption and venue arguments might be seen as just one more amusing by-product of U.S. federalism in the courts, but this conflict of courts is more than that. What these union comprehensive campaigns are pushing against is not just conflicts in the courts, but the very way class conflict is contained within separate legal spheres in our system. What it reveals, contrary to conventional wisdom, is how starkly class-conscious American economic law is in its heart, even as it desperately uses procedural rulings to mask substantive decisions over conflicts between employee and shareholder interests.
On one hand, you have a set of arduously obtained labor laws that create a narrow but deep right of workers to fight employers collectively for as great a share of profits as they can. Both the Right and Left at the NLRA's inception had contempt for any argument for shared interests between investors and workers. From the ban on company unions to the refusal to let supervisors collectively organize, the question of "which side are you on" was the basic question of the law-labor on one side, management on the other. There was no social democratic mediating codetermination for the U.S., just flat-out conflict. With more and more conservative labor laws piled on, this may have degenerated into a more functional division between labor and management within the corporate enterprise, but its core is class conscious with the NLRB designated as a mediator of the rules of war, not an arbiter of results. To describe labor battles as blackmail and extortion is to be almost tautological-power and threats in the interests of union employees, not substantive economic regulations, are the core of the wage-rate and work condition setting in American labor law. [*313]
Less obviously, but as significantly, this class conflict is mirrored in corporate law as well. Shareholder interests are treated as paramount within corporate governance with an almost frenetic agitation among free market theorists and most judicial decisions against any mediation of those interests with "stakeholder" interests within corporate governance. Maximizing returns to shareholders is considered so singularly the goal of corporate governance that, in principle, the shareholders collectively cannot renounce that goal for other concerns. The cornerstone of this principle was highlighted in the Dodge v. Ford Motor Co. decision of 1919, where Henry Ford, as majority owner, was barred by the courts from renouncing expanded dividends in the name of running the company on behalf of employees and society. The court famously stated: "A business corporation is organized and carried on primarily for the profit of the stockholders," and while discretion could be used by the directors in the means to attain that goal, that discretion "does not extend to a change in the end itself, to the reduction of profits." This principle was extended in Pillsbury v. Honeywell, which barred even the discussion of a shareholder resolution that would renounce a profit-making enterprise without a business justification.
In the context of corporation law that theoretically bars any firm from offering a wage that does not maximize profits, the implication is that any union demanding a wage above that amount must, by definition, engage in some form of threat or blackmail in order for a firm to have a legal justification to offer a higher wage. So between U.S. labor law and U.S. corporate law, we have embedded the starkest separation of class interests and conflict possible.
What normally keeps the class politics of this opposition out of our legal system is that it usually plays out in completely separate courts, with decisions regulating labor conduct occurring at the National Labor Relations Board, and most corporate law decisions governing shareholder interests coming down in the Delaware Court of Chancery. United States law therefore generally eliminates substantive discussion of conflicts between shareholder and employee interests [*314] by reducing them to procedural rules that shunt decisions to one court or the other.
B. Origins of the Conflict of the Courts
This approach to addressing class issues is a complicated product of both the nature of historic economic conflict between employers and employees in the U.S. and the way the dynamics of U.S. legal history shaped how this conflict was funneled into legal principles and procedures.
Corporate governance grew from strong direct control by state governments under early American incorporation acts, to broad general purpose incorporation laws that, with the federal rules allowing incorporation in any state, allowed corporations to "shop" for the most favorable pro-shareholder venue they could find. Ultimately, corporate incorporation overwhelmingly settled in Delaware. Combined with sharp limits on state or federal regulation of corporations imposed by the Lochner Court in the early part of this century, this left state and federal governments with little political role to represent nonshareholder interests in corporate operations.
Labor unions, on the other hand, have throughout U.S. history been subjected to criminal conspiracy statutes, antitrust injunctions, and other court-ordered restrictions. This led to a rather bitter, anti-judicial orientation among U.S. unionists that sought a corrective to corporate power, not so much through legal restrictions on business, but rather through freeing workers to fight without judicial restraint. This manifested itself in 1914 with the Clayton Act [*315] exceptions to antitrust laws, and more clearly in the 1932 Norris- LaGuardia Act, which was designed to completely take federal courts out of the business of regulation by injunction. The 1935 Wagner Act reflected that anti-judicial libertarian streak in its preemption of state and federal courts in favor of decisions by a new National Labor Relations Board, whose function was merely to usher the parties to the bargaining table and leave employers and employees to fight over the substantive results.
The success of unions in the 1930s was, of course, a response to the economic crisis of the Great Depression, which undermined the legitimacy of the corporate- dominated laissez-faire system of the 1920s. Numerous theorists have argued that this marked a global shift to a new form of managing the economy, and a new system of political management of class conflict. Legal and political theorist Jurgen Habermas has described the transition as one of the state absorbing the economic crisis of the private economy into political mediation by the state, which requires the state to manage and contain the ensuing [*316] "legitimation crisis" that state-centered politics entails. While the U.S.'s New Deal encompassed some aspects of that transition, it avoided the corporatist and social democratic mediations of employer-employee conflicts and corporate governance common in Europe, in favor of the more unique procedural separation of courts noted above.
This sharply different political course was not foreordained, since the U.S. had sampled a version of social democratic mediation in the War Labor Board policy of World War I, and enacted the extremely corporatist National Industrial Recovery Act (NIRA) in 1933, which would have created radical state mediation of most economic conflicts. But with the declaration of the NIRA's unconstitutionality and the turn to competition-oriented securities regulation and antitrust enforcement, the shareholder interests model of the [*317] Delaware corporate law framework was maintained with the 1935 Wagner Act becoming the labor-based legal system to uphold worker interests in the new New Deal procedural compromise.
The result was the maintenance of more bitter class conflict within the operations of the workplace and economy in the U.S. than in Europe, even as it downplayed class conflict in the political and judicial system. The assumption was that employee interests in corporate governance would be adequately addressed at the bargaining table.
For reasons this Article will further explore, this corporate and labor law system would slowly unravel in the postwar period and fail to give workers a real position to enforce their interests within corporate governance. This unraveling was due to changes in the law that undermined labor interests, transformation in the economy that undermined its operation, and an aggressive campaign by corporate interests against unions that undermined their power. The result was that unions and other worker activists increasingly turned to alternative political remedies to address worker concerns, from a new regime of individual [*318] employment laws to a host of new environmental, consumer, and workplace safety regulations. Some academics, legislatures, and judges also began arguing for a stronger direct role for stakeholders like labor within corporate law itself. Furthermore, unions began utilizing both these new laws and growing pension funds to seek influence over corporate governance outside the traditional workplace strike system.
C. RICO and the Unraveling of Labor Preemption
Enter RICO. RICO was passed in 1970 primarily as a tool to fight organized crime. Clearly, there was no intention by the legislative authors to modify the traditional labor law system with its passage. While fears of corruption in unions had been a staple of antiunion rhetoric, most agree that the goal of this legislation in regards to its union provisions was to help workers by [*319] eradicating mob influence from the scattered corrupt union locals that often betrayed worker interests.
RICO in its structure is a limited, but real, corporate governance statute, whatever its stated purposes. Any new federal corporate governance statute that could reach the actions of any union, business, or other economic entity (or even noneconomic entity in recent abortion clinic cases) could inevitably impact and even preempt the traditional divide between NLRB-based labor law and largely Delaware- based corporate law.
While not obvious on its face, RICO's character as a corporate and business governance law flows naturally from the kind of crime it was trying to target. Rather than just seeking to punish individual criminal acts, RICO's goal is to prevent one group (envisioned originally as the mafia) from using a series of what could be small crimes-labeled "predicate acts" in the law-to control the operations of an economic enterprise, whether union or business. Now, while most traditional state corporate law assiduously concentrates on internal rules of corporate governance, RICO is in many ways government recognition that a business's operations can be indirectly controlled through a range of means, including controlling capital sources, key suppliers, transport facilities, or employment contracts. What RICO attempts to define are the illegal methods for conducting such indirect corporate governance.
In the case of violent crimes like murder, physical assault, and arson, the illegitimacy of the means is relatively well understood (although even in the [*320] labor union context there are issues of how incidental physical violence relates to the legitimacy of the more general aims of collective bargaining). But in the case of more specific economic acts, where their illegitimacy is based on their assumed damage to the economy or economic rights, you end up in slippery policy areas without an overarching political and economic determination of what is really bad for corporate governance.
The inherent flexibility of interpretation in such a context is reflected elsewhere in the varying interpretations over the years of antitrust laws-a companion piece of federal corporate governance law whose reach was largely restricted in recent years by the courts as the economic views of judges changed, even in a time when RICO enforcements have expanded. Complicating the problem is that many of the state or federal crimes defined as RICO "predicate acts" were never legislated with a view toward their role in corporate governance. As a result, judges are left to carve out new interpretations for which crimes cross the line into RICO and which crimes do not. Incorporating many white collar crimes into RICO has taxed the interpretative skills of judges for this very reason, and incorporating most state labor law violations into RICO faces even deeper problems.
One more complication is that a RICO violation is not just a criminal act, but also has a civil lawsuit punitive component where alleged victims of RICO acts can sue for triple damages, making RICO itself a weapon of economic [*321] conflict and control. This leaves judges to evaluate whether enforcing RICO suits will in turn chill and distort the original economic system it was supposed to protect.
The end result is that our odd federal system has created three nearly autonomous areas of corporate governance law: (1) the internal shareholder governance rules of corporate law (usually Delaware law); (2) federal labor law governing firm-employee conflict over governance; and (3) RICO law (in combination with state law over commercial activity in states where the firm does business) governing the power of non-firm actors to indirectly exert governance control. In such a divided legal situation, procedural preemption decisions by judges are usually more important in deciding the outcome of the case than any substantive interpretation of the particular area of law. And in the case of union comprehensive campaigns where the union actors in question can arguably fit within any of the legal categories, the decision becomes essentially a political decision based on unlegislated assumptions of the economic worth of union goals and the union's role in our society.
D. Theories of the Firm and RICO
The politics in judicial interpretation of this divided body of corporate governance law is reflected in recent scholarly divisions in understanding the very idea of a firm and its governance in our economy. Surprisingly, up until recent years, the division between "the firm" and other economic actors was taken by most economists as a given. The firm acted essentially as a black box [*322] unit in competition with other firm units, with the main question being how the firm deals with other firms and maximized competition and efficiency in the overall economy-the classic worry of antitrust analysts. However, more recent analysis has opened up the black box of the firm and questioned the determination of where one firm starts and another ends, especially in a period that has seen an explosion of both mergers and contracting out of functions previously internal to a firm. On one hand, some analysts have downgraded the very idea of a firm by arguing that what we see as a unitary entity is really just a "nexus of contracts"-little difference from the range of contracts negotiated in the marketplace. The only difference is the density of different actors (employees, shareholders, and creditors) involved in what we identify as "firms."
"Transaction cost" theorists have emphasized how the need to prevent opportunism in contracts over relation-specific investments often leads firms to internalize certain operations rather than contract in the marketplace. It is precisely because outside actors can "hold up" firms through control of crucial supplies, transport, capital, or employment contracts (note the parallel to RICO worries) that firms will attempt to structure themselves to avoid the danger. This latter transaction cost analysis has been teamed with analysis of property rights over physical assets to argue that it is strategic control over critical assets that define the limits of the firm and its decisions to subcontract to other firms. This general point has led analysts like John Coffee, Jr. to abandon any "equilibrium" analysis of efficiency maximization within firms in favor of seeing [*323] firms as a system of "unstable coalitions" involving various shareholder, creditor, managerial, and employee actors negotiating both alliances for power and economic distribution within the firm.
The first upshot of this new analysis is that it becomes harder to define the "natural" line between what should be considered an insider and what should be considered an outsider for corporate governance, because in similar situations an actor could be part of the firm, or alternatively, a contractor in the marketplace. More importantly, analysts like Oliver Hart emphasize that such decisions on firm structure have both efficiency maximization aspects and relation-specific distributional effects by changing the relative bargaining power of different actors, both within and outside of the firm.
Given all this analysis on the complicated internal and external politics of firm structure, legal restrictions on how inside and outside actors can cooperate have significant distributional results. In the case of labor unions, the invocation of RICO against union comprehensive campaigns is a weapon used by corporate management seeking to prevent unions from teaming up strategically with alternative actors in corporate governance-dissident shareholders unhappy with management for their own reasons, creditors at odds with shareholders, and regulatory agencies representing other social interests.
What this means is that decisions on whether federal labor law preempts RICO is ultimately less about interpreting substantive law (especially given RICO's notorious ambiguity), and much more about whether judges will make a political decision to use a new procedural tool to restrict union power within corporate governance. In this sense, RICO is merely one more legal tool in a succession throughout American history, from "criminal conspiracy" to antitrust at the turn of the century, which has been used to limit union power within corporate governance and thereby redistribute resources form workers to shareholders. What is different, however, is that RICO is one element [*324] undermining the political ingenuity that decades ago depoliticized class conflict in the U.S. through the procedural separation of corporate governance spheres.
E. Understanding the Conflict of the Courts
Due to the fact that other legal scholars have strongly laid out the case why such uses of RICO betray the intentions and goals of our labor law system, the rest of this Article is not designed to argue for the maintenance of that separation. Nor will the Article lay out an alternative legal synthesis that will eliminate the legal and economic contradictions of the present system. Rather, the Article will place the legal confrontation of union comprehensive campaigns with RICO in the broader historical and economic context of the class conflict over control of corporate power and wealth, thereby illustrating the inherent conflicts that have made and still make such a legal synthesis impossible, and why class conflict over legal structures inherently rears its head as the economic and political landscape itself is transformed.
In that sense, the confrontation over RICO, like the rise of union comprehensive campaign tactics themselves, is just a reflection of a broader failure of the old New Deal labor and corporate law regime to contain that conflict, with the subsequent result being a repoliticization of class issues in the courts. The last few decades have seen increased corporate assaults on labor unions, along with an increased political assault (including use of RICO) to undermine the collective bargaining system. Conversely, as labor law itself was narrowed and unions have increasingly seen the whole system as too limiting in a [*325] globalizing economy, unions have increasingly pushed the envelope of the law to assert a greater degree of control over corporate governance.
III. Origins of Class Conflict
A. The Escape of Corporations from Public Purpose Requirements
As a yardstick for this rising legal and economic battle, the first section of this part of the Article will place that struggle in the context of the history that led to the present system. The procedural compromise of the New Deal was in many ways a reflection of the procedural struggle that had preceded it, where federal courts had assumed ever greater discretion limiting state power over corporations while encouraging state and federal court suppression of labor unions.
In the early years of the Republic, all corporate charters were seen as based on promoting "public or near public" purposes, with only 355 entities granted corporate status by 1800. These charters were regulated by "quo warranto" state statutes, which "granted the power to state Attorney Generals to revoke a corporation's charter for the 'abuse,' 'misuse,' or 'non-use' of charter-granted rights and duties."
However, in 1819, the Supreme Court in Trustees of Dartmouth College v. Woodward, restricted state power to modify corporate charters once granted by a state, the first step towards the Lochner-era upholding "rights of contract" over public concerns. Chief Justice John Marshall argued that the "constitution of our country has placed [corporate charters] beyond legislative control" and [*326] that such charters should be considered inviolate charters in order to keep the legislature from "violating the right to property."
Shareholders gained even more independence from state power, however, with the rise of general incorporation statutes, propelled by Jacksonian denunciation of monopolies holding state-chartered "privileges," statutes that freed companies from many restrictions on their ability to change businesses. With the judicial extension of "personhood" to corporations under the Fourteenth Amendment, corporate governance would become even more independent from state governments seeking to represent nonshareholder interests.
But the most dramatic limits on political control of corporate governance came from procedural rules declaring the law of the state of incorporation supreme, allowing corporations to escape most obligations to nonshareholders by merely filing incorporation paperwork in a more hospitable state. The late nineteenth century saw the rise of many business trusts and monopolies that state governments sought to regulate and, in some cases, abolish by challenging their corporate charters. But the possibility of reestablishing incorporation in a more hospitable state defeated these attempts to rein in the new corporate power. The Ohio Supreme Court in 1892 declared Standard Oil's corporate charter void as "organized for a purpose contrary to the policy of our laws," but John D. Rockefeller's company was able to elude sanction by reconstituting its charter in the more favorable climate of New Jersey. Anxious to collect the incorporation fees from these new mobile corporate gypsies, a number of states engaged in a [*327] competition to weaken state control mechanisms and thereby attract incorporation in those states.
B. Early Labor Law as an Alternative Curb on Corporate Power
As attempts at political limits on the supremacy of shareholder interests increasingly disappeared into the preemptive power of the Delaware Court of Chancery, the struggle to have labor unions make a similar escape from control by the courts as a counterbalance became an increasing focus of progressive intellectuals and working class unionists. The Norris-LaGuardia and Wagner Acts embodied this goal of preemption of state courts on behalf of labor interests to counterbalance the Delaware Chancery preemption in favor of shareholders.
Leaving their mark on American discourse over labor's role in corporate governance, the common law courts of the pre-New Deal era that allowed union actions would make distinctions between permission for narrow firm-based actions versus prohibited actions allied with outside interests. In the early history of the Republic, common law courts had often declared any union action a per se criminal conspiracy, although criminal prosecution was largely abandoned by the middle part of the nineteenth century. Still, common law courts would continue to issue injunctions against many strikes, especially those deemed based on [*328] noneconomic issues, such as seeking to strengthen union power generally. While judges increasingly approved strikes restricted solely to a single worksite, they were far more likely to issue injunctions against a strike covering greater regional areas or seeking to enlist the help of workers at other firms or appealing to the general consuming public. Armed with the Sherman Antitrust Act, courts would deploy that new tool against unions, much more than corporations in the law's early years. In the 1908 Loewe v. Lawlor case, the so- called Danbury Hatters case, the Supreme Court upheld an injunction against a hatters union for launching a consumer boycott because it imposed the conflict on "third parties and strangers involuntarily." Similarly, in Coronado Coal Co. v. United Mine Workers of America, the Supreme Court held that an otherwise legitimate local strike could be enjoined because its purpose was not merely to win higher wages locally, but to prevent non-union production from undermining union wages at other companies. Despite the passage of the 1914 Clayton Act, which was supposed to end the application of the Sherman Act to labor actions, the Supreme Court essentially gutted the intent of the law in Duplex Printing Press Co. v. Deering by holding that the passed exemption applied only to actions taken by an employer's direct employees. Any sympathy action or boycott by fellow union members could be enjoined.
However, the dissent in Duplex argued that older common law ideas about unions had to give way to "new facts" since the "centralization in the control of business brought its corresponding centralization in the organization of workingmen." The dissent argued that the clear legislative intent of the Clayton Act was to "declare the right of industrial combatants to push their struggle to the limits of the justification of self-interest" without judicial interference. The dissent's understanding of the intent of the Clayton Act would be embodied in the 1932 Norris-LaGuardia Act; notably, the first response [*329] to the Depression was not to call for more state intervention, but to demand, via judicial injunction, that the state withdraw its support from the side of capitalist concentration seen as ungovernable by local and national legislation. With changes in the New Deal Court, subsequent rulings would declare union activities essentially exempt from the Sherman Act injunction or criminal indictment. Essentially, unrestrained and unmediated industrial conflict had been legitimized with economic self-interest on each side of the class divide marking the proper realm of action.
C. Triumph of Shareholder Interests in Twentieth Century Corporate Law
This shift in attitude was also reflected in the state corporate laws. The pendulum had swung so far away from public interest controls on corporate behavior that even the assertion by a company of an intent to operate in the public interest was deemed an illegal betrayal of responsibility to a company's shareholders. When Henry Ford announced plans to stop issuing dividends to shareholders and instead devote the increased capital to higher wages and the expansion of production to lower the cost of cars for the public, minority shareholders successfully sued the corporation to force dividends instead of such public-interested purposes. As the Michigan Supreme Court declared:
A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the nondistribution of profits among stockholders in order to devote them to other purposes.
At the dawn of the New Deal, the law had established a basic legal framework of industrial combat that not only legitimized full-out pursuit of class interests, but in fact required it of corporate directors. Economic threat by labor was sanctified as the main weapon of restraining corporate power. This basic class-conscious divide would ultimately be further endorsed by New Deal [*330] changes, but would be modified procedurally and, with post-New Deal amendments, would weaken labor's hand without restoring any social democratic mediation within corporate governance.
It is worth noting that the U.S. was not immune to the corporatist and social democratic currents that were sweeping European capitalism. The passage of the National Industrial Recovery Act (NIRA) in 1933 envisioned industry-wide codes that would restrain economic competition, and its section 7(a) required companies to allow the collective organization of workers without interference. While both employer and union provisions were largely unenforced in the face of corporate resistance and the law was ultimately struck down as unconstitutional by the Supreme Court, its passage shows that a more corporatist alternative structure of corporate governance was not as alien to the American character as some might argue. In many ways, it had its roots in the rhetoric of "industrial democracy" that shaped the War Labor Board of World War I and its public controls of much industry, and would be reflected again in war-time industrial controls in World War II.
But in the wake of the Supreme Court's actions against the NIRA, federal regulation in the U.S. retreated from corporatist forms in favor of a greater insistence on the sovereignty of shareholder interests and a stronger focus on individual firm competition rather than cooperation. The 1933 and 1934 Securities Acts became the basis of a federal supplement to state incorporation laws, focusing the attention of corporate management on serving shareholders' interests above all else. With Thurman Arnold's new trustbusting focus at the [*331] Justice Department in the late 1930s, and a new tough Supreme Court antitrust regime, the period from the 1930s to the 1970s focused federal policy on deterring corporate combination, not encouraging corporatist cooperation.
D. Creation of the Conflict of the Courts
The 1935 passage of the Wagner Act, essentially codifying the collective bargaining remains of the NIRA without the corporatist framework, resulted in two major changes. First, it extended a few new protections to workers voicing support for unionization in their workplaces. Second, and what proved to be its most important function, it created the National Labor Relations Board (NLRB) as the main institution to judge the legitimacy of union actions. This meant that state common law courts were largely preempted from ruling against union actions, essentially creating a preemption of state court action similar to the Norris-LaGuardia Act's preemption of federal courts.
Procedurally, if control of corporations was being spirited off to the Delaware Court of Chancery where shareholder interests would dominate, labor disputes were being sectioned off from state common law into the NLRB system and federal court review. While labor unions immediately benefited from escaping inconsistent and often antiunion state courts, this separation also isolated them away from the rest of the legal terrain. The New Deal era Erie Railroad Co. v. Tompkins decision had definitively declared that "[t]here is no federal general common law," yet the Textile Workers Union v. Lincoln Mills decision essentially repudiated Erie in the area of labor law, calling for a federal common law to supersede any state procedural rules governing labor conflicts, an anomaly marking the oddness of labor law in the procedural universe of U.S. law.
The New Deal would make more labor weapons legal, but the continued firm- specific focus of the law was embodied in the majority certification rules for [*332] recognition at firms. Later antilabor amendments would ban secondary strikes and restrict unions seeking pressure on employers through alliances with other workers in the corporation's nexus of suppliers and customers. While not as narrow a restriction as the older common law framework, by concentrating labor on this firm-specific venue, legal conflicts over labor could more easily be separated from the vast tangle of legal concerns that would be involved if multiple industries and actors were involved. This allowed labor law to be procedurally isolated and depoliticized.
Some analysts, both radical and conservative, have dismissed this procedural compromise as a very American response reflecting the conservatism of the American society. Given the bloody battles that line the history of early U.S. labor conflict, from the Homestead strike, to the Pullman railroad strike, to the bloody Idaho and Colorado mining battles, it is too glib to explain this history from the passivity of the workers' viewpoint. More fruitfully, many analysts have argued that such a compromise was the result not of worker conservatism in the U.S., but rather the strength of the corporate class that opposed them. This is supported by the previously noted corporate power to uphold its interests within its own sphere of corporate law, but that is still insufficient given the militancy of union struggle in the 1930s and the embrace by unionists of the emancipation from state law, which was celebrated by labor leaders. The [*333] social democratic "codetermination" of labor and management in Europe and Japan was denounced not only by anticommunist unionists, but also by the many left-leaning union radicals who to this day denounce any joint "team" between union leadership and management as an incipient sell-out of the working class. United States unions would act on the power given to them under U.S. labor law to lead some of the longest and most militant strike waves around the world, from continual wildcat strikes in the coal fields (precipitating President Truman's takeover), to the 1946 strike wave, to the bitter 1958 Steel strike. There was a confidence in U.S. labor that what could not be wrested from capital through worker power to strike, was probably not worth begging for at the knees of politicians in Washington. As unions were pushed on the defensive, this perspective would change, but for decades there remained among unionists a strong laissez-faire view that open conflict in the street was better than compromise in the political sphere.
E. Failure of Postwar Unions to Exercise Pension Fund Power on Firms
Along with the legal bar to unions teaming up with supplier networks to challenge corporate governance, both union ideology and the law restrict unions from making control of corporate investments an important tool in their immediate postwar fights with corporate America. The financial collapse of 1929 destroyed most of the tentative steps made by unions in the 1920s toward [*334] worker-owned banks and businesses. Combined with left-wing union hostility towards sharing capitalist management of firms, this created broad disdain towards workers, compromising the class struggle by confusing the wage-earner interest with shareholder interests-a parallel with the corporate law allergy to mixing nonshareholder interests in with a primary shareholder focus. Despite growing pension funds, unions were largely indifferent or even hostile to establishing even limited control over union pension funds allowed after the 1947 Taft-Hartley restrictions. Labor lawyer Thomas Geoghegan has called this attitude by labor "the longest-running mistake in the history of labor, the unwitting, almost Gandhi-like renunciation of power." He notes that if unions had fought for control of their pensions from day one instead of leaving most of them under direct employer control, the term "'pension-fund socialism'" would not be a "business school joke" and the President of the AFL-CIO "would be king of the junk bonds."
The result of these three legal and social traditions-the procedural division of corporate and labor law, the bar to unions applying pressure through supplier or customer networks, and the ideological and legal bar to unions using their pension funds aggressively-would all combine to create the strict oppositional worker- management class conflict characteristic of the postwar system in the U.S. Court preemption by the NLRB and the Delaware Court of Chancery would keep labor issues and corporate governance separated into different legal spheres, not only from each other, but from the general legal debates of the postwar period, largely depoliticizing class issues even in the midst of the most raucous strikes of the era.
IV. Breakdown of the System
Why did this system break down? What are the reasons for the turn of the unions to comprehensive campaigns and their more broad-based alliances with consumers, regulatory agencies, and capital markets in their conflict with employers for control of corporate governance? This next section will explore that question and how this repoliticization of class issues would collide with [*335] RICO and reveal the complexities of dealing with corporate governance in the modern era.
The breakdown of labor law as an alternative avenue for the workers' role in corporate governance had two parts related to its inherent weaknesses: changes in labor law and the economic changes that reshaped firm structures to the detriment of labor given that legal context.
A. Legal Undermining of the New Deal Procedural Compromise
The failure of labor law on its own terms to give labor a role in corporate governance was clear in the initial strike wave that followed World War II. The United Auto Workers' Walter Reuther launched the 1946 auto strikes with the goal of linking worker pay to company productivity and demanding a union role in company governance, including the ability to monitor the company books to prevent opportunistic behavior by management. That campaign was rebuffed in the name of "management rights"; while economic demands would be addressed, management of the auto industry, as in other industries, made it clear that labor would have as limited a role in governance as possible.
This 1946 strike defeat would be legislated into a more permanent defeat in the 1947 Taft-Hartley Act and 1959 amendments along with NLRB interpretations that weakened labor's ability to bargain over many "management" [*336] areas while barring labor law protection for supervisors and management personnel. Unions lost not only the ability to contract against the company dealing with nonunion subcontractors and suppliers, but the law barred unions from contracting to prevent a firm itself from opening nonunion subsidiaries or requiring that workers be retrained for new jobs where automation eliminates their old ones. Making labor control even more precarious, in the case of acquisition of assets from a firm by another company, the new owner can generally abrogate all terms of the collective bargaining agreement, and need not retain either the employees or the union itself.
Regarding both bargaining and the role of specific employees, the law has hardened the "which side are you on" line of opposition between management [*337] and labor. To accentuate this divide, the Supreme Court, in its 1980 NLRB v. Yeshiva University decision, declared that where workers attain significant collective control over firm decision-making, they are collectively declared managerial employees, are unprotected under labor law, and lose the right to be certified as a union. This decision was essentially the nail in the coffin of attempts by workers to exercise power over corporate governance solely through collective bargaining, because any eventual success is legally self- defeating.
This limit on union power at the negotiations level has been paralleled by corporate law that restricts representation on boards of directors to directors chosen by shareholders, a sharp contrast to German codetermination or Japanese systems of corporate governance, where such governance bodies play a mediating role between shareholders and workers. Unions can achieve limited representation on boards by negotiating with management to nominate a union representative on the management slate, usually tantamount to election at most companies, but such representation is inherently limited by the power of shareholders to replace them. The major exception to this limited representation is where union members have been granted significant ownership stakes in the company in exchange for wage concessions, as at Chrysler in the 1970s and more recently in airline contracts. Since this takes the discussion outside bare workplace-based bargaining, we will return to it later in the section.[*338]
B. Corporate Restructuring Used to Exploit These Legal Restrictions on Unions
Restrictions on secondary strike activity in support of subcontractor employees, along with increasing legal weakening of unions' right to block subcontracting, has led many firms to strategically reorganize firm structures to minimize labor power. Since workers isolated in subcontractors would largely be barred from solidarity support from workers in the main firm or other subcontractors, this dynamic, along with other economic transformations, has encouraged widespread subcontracting throughout industry. Combined with economic globalization, firm-based collective bargaining had control over an ever decreasing share of total employment contributing to a firm's core output. The rise of new technology has decreased the coordination costs for employers managing geographically dispersed economic units, further encouraging this strategic decentralization. A general assumption of the New Deal labor system was that employers and employees both had large sunk costs in specific locations, so neither necessarily had great opportunistic bargaining power in the threat to abandon a location. But, with the increased flexibility of new [*339] technology, employers now have a strong ability to use employee sunk investments in community and home values to leverage opportunistic concessions.
The rise of union comprehensive campaigns is a response to this undermining of any real role for labor in corporate governance through strike-based negotiations. Not only were unions increasingly weakened under the law, but employers specifically began using corporate governance decisions, such as subcontracting, to further undermine labor bargaining power, thereby making a search for a renewed labor role in corporate governance doubly vital. In the New Deal procedural separation of corporate and labor law, labor-management conflicts were supposed to occur in a deep but isolated river of law, yet the ban on secondary activity by labor and corporate subcontracting acted like a dam on that river that, though delayed by years, has led to union comprehensive campaigns overflowing the banks spilling like rivulets all over the legal terrain.
C. How Regulatory Changes Opened Up New Opportunities for Union Campaigns
If legal and economic changes pushed labor towards alternatives of the strike- based labor law system, expanded state and federal regulation of corporations, and particular restrictions on union use of pension funds encouraged the specific shape of union comprehensive campaigns. The rise of new environmental, consumer, and workplace safety regulations in the last few decades has constituted a strong reassertion of the government's role in corporate governance, especially by state governments, which had lost such a role through both Lochner-era constitutional restrictions and the rise of Delaware corporate law autonomy. Where antitrust and fair trade statutes had made small inroads into regulation of interfirm interactions between suppliers and contractors, these new laws assert much greater direct regulation on day-to-day operations in the name of the social interest. Some states, like California, even [*340] tried (largely unsuccessfully) to reassert governing authority over core shareholder- firm relationships in companies that had large operations within their states, but who were not incorporated in their states.
These new state and federal laws not only strengthened the public voice in corporate governance, but dramatically strengthened state and federal courts as venues for corporate governance battles along with the more traditional Delaware Court of Chancery and NLRB labor forums. Crucially, the state's involvement could be initiated by nongovernment actors. As Thomas Linzey argues, "The citizen suits authorized by many of the major legislative acts . . . provided what has turned out to be one of the most productive mechanisms for the enforcement of the procedural and substantive provisions contained within the legislation."
The addition of RICO law in 1970 added to this expansion of venue as a whole range of securities fraud and other legal violations of state laws governing attempts to influence corporate conduct brought more corporate governance cases into venues outside the traditional corporate law courts. The depoliticization of corporate governance under U.S. law was badly under assault as the New Deal separation of courts for labor and capital was being undermined.
D. The Rise of Union Comprehensive Campaigns
Into this newly politicized legal environment entered the union comprehensive campaign beginning largely in the late 1970s with the J.P. Stevens textile workers campaign. Tools used in these campaigns included the simple application of union resources to push regulatory agencies to fully apply the new laws in ways that hurt corporate opponents, thereby encouraging companies to settle labor contracts in order to induce unions to pull back their resources. A second, more complicated step by union comprehensive campaigns was to highlight the legal misdeeds not just of their core corporate opponents, but of the web of suppliers and contractors that worked with that [*341] firm. Aiding unions in this endeavor was one of the few pro-union Supreme Court decisions of recent decades, the Edward J. DeBartolo Corp. v. Florida Gulf Coast Building and Construction Trades Council decision, which upheld the First Amendment right of unions to distribute factual information about such secondary companies so long as the unions did not engage in physical picketing. As a result of this decision, unions began using comprehensive campaigns to promote consumer boycotts and regulatory pressure on the supply networks of their core firm opponents, encouraging them to in turn, apply pressure on the core firm to settle labor disputes. Through the strange twisting of U.S. legal history, union workers were barred from using their core strike and picketing weapon against any firm other than their primary employer, but seemed to have the ability to make alliances with consumers, stockholders, and regulatory agencies to put pressure on the goods and capital supplier networks they could not directly pressure themselves.
The third major part of comprehensive campaigns was the mobilization of pension funds and other allied capital sources to put pressure on firms directly at the corporate board level. Again, legal history forced unions to use an indirect rather than a direct approach to this pressure. The 1947 Taft-Hartley Act had completely barred union workers from owning their own pension funds directly, and union pension funds were required to include company officials as joint trustees. While in practice this meant that union officials had significant control, the legal rules for a trusteed fund significantly restricted the use of those funds for any noninvestment-based use on behalf of workers. The 1973 ERISA law only compounded that situation with even tougher rules requiring that unions run their pension funds in the interest of their members as investors, not as workers. Again, U.S. law created a rather stark conflict between shareholder and worker interests, admitting no situation where a worker-investor might have dual interests that needed mediation rather than rigidly defined fiduciary rules that assumed only investor interests. In order to mobilize its pension fund resources, unions found themselves approaching corporate venues as investors [*342] qua investors, mobilizing allies to pressure corporate opponents under traditional investor-based interests, even as their indirect motives were promoting worker interests.
The end result was a legal regime where unions could not directly launch strike solidarity between workers in the same corporate network or mobilize capital directly in their own interests. Barred from extending solidarity among workers, unions increasingly looked to alliances with customers, regulatory agencies, creditors, and disenchanted shareholder forces to seek new coalitions in shaping corporate governance both at the core firm and suppliers in the corporate network who could be pressured themselves to exert pressure on core union opponents.
V. RICO Versus Comprehensive Campaigns
The third part of this Article will outline the corporate attack on union comprehensive campaigns using RICO as a key tool. While there is, given the above- noted odd procedural and ideological development of U.S. law, a seemingly attractive line of attack here, what is ignored is its economic incoherence given the much broader law and economics analysis that conservatives have promoted in justifying corporate law. Given the more flexible view of firm differentiation embodied in everything from attacks on antitrust enforcement to support of mergers in corporate law, the odd sanctity of the independent firm embodied in the attack on union comprehensive campaigns is in jarring contradiction. Of course, as detailed procedural rules for preemption have been the classic mode of managing such contradictions in U.S. law, the very use of RICO creates a cross-jurisdictional politicization of the law that does more to expose such contradictions than to manage them effectively.
A. Herbert Northrup and RICO at Bayou Steel
This section of the Article will briefly examine the Bayou Steel Corp. v. United Steelworkers of America case, primarily because Herbert R. Northrup, a former Chairman of the Wharton School's Council of Labor Relations and Department of Industry, was a consultant on the case and has co-written an extensive law review article outlining the case for RICO prosecution of union [*343] comprehensive campaigns. This Article follows up on other general articles Northrup has written against such campaigns. Northrup's views are worth considering because of his history as an ideological advisor to a range of business groups in perfecting union-busting strategies in the last few decades; most notably in his leadership in promoting the use of permanent replacement workers in the early 1980s. First widely used upon his advice in the 1983 Arizona Phelps Dodge mining strike, this was considered a critical turning point in the radical decline of union density in the last two decades. Given Northrup's background, his views on using RICO as a weapon against unions are worth careful examination.
Northrup's argument for RICO prosecution preempting the traditional labor law courts is based largely on the politicized power given to judges in our procedural separation of courts. With labor law covering a range of areas, courts can either treat every union act as covered by NLRB courts unless another law specifically designates otherwise, or, as Northrup essentially argues, they can preempt the NLRB unless labor law specifically covers the union action. It is the political choice between "all that is not prohibited is permitted" versus "all that is not permitted is prohibited" that makes procedural decisions so powerful.
Just as courts in the early part of the century made innovative consumer boycotts and other nonstrike activities illegal as being outside the direct interests of the workers involved, Northrup and other union opponents essentially want to revive that general prohibition on innovation in union tactics through RICOization of any nontraditional approach. The core of Northrup's argument is that while union threats to strike an employer may be a protected "privilege" under U.S. law, any attempt to link a threat to disclosure of nasty information about the employer to a third party constitutes legal blackmail. This bias against including "third parties" in supposed two-party labor-management disputes is a pervasive theme in labor history, with the invocation of RICO [*344] merely being a new procedural method to bypass the NLRB in favor of state common law courts.
Ignoring tough preemption decisions (including San Diego Building Trades Council v. Garmon and United States v. Enmons ) that the Supreme Court has traditionally used to avoid dragging unions into state courts on criminal charges (preemption arguments to which I will return later), Northrup's theoretical argument is, on its face, reasonable. If an individual threatens to reveal information about another person unless payment is made, even when the information is true, but in some way dangerous if known publicly, the individual commits common law blackmail and extortion. Northrup compares this to the threat made in a union comprehensive campaign where unions threaten to call attention to environmental or other regulatory violations unless a contract is signed.
Northrup recognizes that not all union demands for a contract will constitute blackmail, and admits that "it is not obvious how courts distinguish lawful threats from unlawful ones." What defines blackmail, according to Northrup, is the entangling of threats with third-party interests:
The key to distinguishing blackmail from lawful hard bargaining lies in noting blackmail's distinctive triangular structure. Characteristically, and invariably, blackmail involves not only a blackmailer and a victim, but third-party interests as well . . . . In each instance, however, the blackmailer threatens to bring third parties into a dispute with the victim, unless the blackmailer's silence is purchased. Thus, the hallmark of blackmail is a disjunction between the blackmailer's genuine interests and the genuine interests of the third parties whose leverage is used for the blackmailer's personal gain. Stated concisely, in blackmail the blackmailer threatens to exploit third-party interests to exert pressure-usually economic pressure- [*345] on the victim; that is, the blackmailer plays with someone else's 'chip,' and absent such third-party interests there is no blackmail.
Here we see a nice intersection of the complicated legal debate over the definition of blackmail, combined with the historical suspicion of labor disputes enveloping third parties. The unfairness and apparent illegality is that unions are using the pressure of those other third parties to win economic concessions where the union's own power might be insufficient on its own. Yet every union strike by picketing reveals information to a third-party public that may be motivated to put pressure on a company based on revelations of employer unfairness. Every contract strike encourages other workers not to cross a picket line or consumers not to purchase the company's goods. Essentially, a union's contract is the price of "buying the silence" of the union, a transaction which effectually bans a union from badmouthing the company to such third parties.
B. RICO and Corporate Governance Coalitions
Stepping aside from the theoretical critiques of general common law blackmail in the labor context, it is unclear that it even has a place in more general corporate governance situations in which threats of exit and disclosure of negative information is critical to the functioning of the system. Analysts have argued that large creditors are often in a position to know critical information about a firm's finances, and that their threats of exit play a critical role in forcing firms to both keep faith with those creditors and, in the case of creditor exit, signaling other "stakeholders" such as shareholders or regulatory agencies that something is seriously amiss with the company, thereby giving those other actors the chance to act to mitigate the harm. Of course, there is the concern against encouraging creditors or others (such as unions) to become collaborators with a firm's management in deceit against others in exchange for payoffs, but Northrup's argument is focused purely on restraining the union's power, not on protecting the public through assuring fuller disclosure. [*346]
The point of most union comprehensive campaigns is to inform other stakeholders whether customers, creditors, shareholders, or regulatory agencies of information that they, for their own interests, need to know; exactly the kind of information that is seen as crucial for restraining general management abuse against other stakeholders. If the Steelworkers at Bayou Steel had information of illegal management activities to which only they were privy as insider employees, and demanded a contract as the price for keeping the information private, the traditional paradigm of blackmail may have been met. However, as Northrup details, what the Steelworkers did was publicize little known but public information about Bayou's environmental compliance record, which helped lead to an investigation by the state environmental agency. The state environmental agency used that publicity of Bayou's poor environmental record to delay tax benefits Bayou was seeking from another state agency, and argued before the Securities Exchange Commission (SEC) that the company had failed to detail these state environmental investigations and associated problems in prospectuses filed with the securities agency and sent to investors. During the SEC registration process, the Steelworkers actively worked to dissuade potential investors from buying Bayou Steel's mortgage notes, even publishing critical "tombstone" ads in the Wall Street Journal.
To use blackmail charges to stop unions from informing such third parties of useful facts would not only constrain the power of unions, but would hurt the third parties uninformed of that information. While such third parties may not receive such information if a company "buys off" the union with a contract, the company does have an incentive to correct any legal or management problems in order to avoid giving unions the leverage of a publicity advantage during contract negotiations. If unions were deprived of the ability to do such comprehensive campaign publicity, the company would, in turn, be deprived of a major incentive to correct the problems impacting those third parties. So, whether the information is in fact revealed or not during a contract campaign, the union's ability to reveal information publicly helps the third parties.[*347]
C. Avoiding Criminalizing Basic Economic Activities Under RICO
The fact that we can only consider the charge of blackmail based on the use of the federal RICO statute further complicates the picture, because the whole point of RICO is not merely to federalize various state common law crimes, but to prevent systematic illegitimate control of corporate governance. While the case law on RICO is conflicting, the general thrust of the law has been specifically to avoid using public policy concerns to criminalize the economic (as opposed to criminal) acts of regular participants in corporate governance such as unions, creditors, and shareholders.
To prosecute a RICO suit, a plaintiff must prove that the defendant engaged in racketeering, which includes "any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or listed chemical . . . which is chargeable under State law and punishable by imprisonment for more than one year" or activities covered by federal mail or wire fraud. While the latter provisions have created broad litigation using RICO as an antifraud statute, circuit courts have been reluctant to allow RICO to federalize other state law crimes not listed as a so- called "predicate act," because fraud distorts such corporate governance. As the Third Circuit noted in Annulli v. Panikkar:
[I]f garden-variety state law crimes, torts, and contract breaches were to constitute predicate acts of racketeering (along with mail and wire fraud), civil RICO law, which is already a behemoth, would swallow state civil and criminal law whole. Virtually every litigant would have the incentive to file their breach of contract and tort claims under the federal civil RICO Act, as treble damages and attorney's fees would be in sight. We will not read language into _ 1961 to federalize every state tort, contract, and criminal law action.
D. Labor Preemption Law and RICO
Recognizing this restriction, the Bayou Steel Corporation argued that the blackmail it alleged was a form of extortion covered by Louisiana law and thus, [*348] encompassed by the RICO statute listing of extortion as a predicate act. As opposing counsel argued in the case, even in nonlabor contexts, courts have generally rejected such a broad definition of extortion when what is being "extorted" is a legitimate objective of the person or entity making the threat (i.e., bargaining made in a business negotiation). In the case of labor negotiations, the Supreme Court has laid out very tough preemption arguments that seem to forestall almost any extortion claim made against a labor union. The basic preemption of state law applying to the labor context came in San Diego Building Trades Council v. Garmon, but the Supreme Court has ruled more specifically since that decision that even physical violence does not constitute extortion under the federal Hobbs Act when a union is pursuing a legitimate collective bargaining agreement. In United States v. Enmons, the Court held that union violence could be "wrongful" extortion only "where the obtaining of the property would itself be 'wrongful' because the alleged extortionist has no lawful claim to that property." However, the Court declared that desired wages were not the property of the employer:
[T]he literal language of the statute will not bear the Government's semantic argument that the Hobbs Act reaches the use of violence to achieve legitimate union objectives, such as higher wages in return for genuine services which the employer seeks. In that type of case, there has been no "wrongful" taking of the employer's property; he has paid for the services he bargained for, and the workers receive the wages to which they are entitled in compensation for their services.
This decision starkly restates the basic agnostic class conflict underlying U.S. labor law-there is no "natural" wage rate beyond whatever level each side [*349] of the conflict can win in industrial battle. Until that battle has been concluded in a bargaining agreement, there is no property to be stolen as far as compensation is concerned, and therefore nothing to extort until the bargaining is concluded. In that sense, extortion is impossible in the normal union context.
Taken in the context of Garmon, the Court in Enmons said that state courts were free to prosecute individuals engaging in illegal violence, although the union struggle for higher wages or benefits itself could not be considered criminal even if illegal means might have been used. Instead, any evaluation of union wrongdoing would be done in the context of NLRB hearings. This decision provides another clear illustration of the way class conflict is contained and depoliticized by separating issues into different court contexts: individual wrongdoing decided in state criminal courts with "class" wrongdoing.
E. Trying to Find Exceptions to Preemption Under RICO
A number of lower courts found exceptions to the Enmons preemption rules in the early years of RICO litigation. Due to the fact that RICO does not have the same requirements of wrongful motive for illegal acts, an early RICO decision by the Ninth Circuit found no Enmons exemptions for large-scale violence during a union conflict, which the court distinguished from the lower-level and isolated acts involved in Enmons. Other lower courts have held that where a union demanded concessions that it could not legally demand under labor law, such as including supervisors in the bargaining unit, the union thereby loses its preemption from RICO.
Along these lines of thought, Northrup argues that because secondary publicity is not governed by the NLRB, unions have been held liable in state courts for defamation. Northrup argues, "Thus, federal labor law arguably neither protects labor unions' speech, nor arguably proscribes their speech. [*350] Indeed, the fact that an employer cannot assert an unfair labor practice charge for injurious speech by a union assures that federal labor law does not preempt state blackmail law." This is actually a clever legal argument. Under the NLRA, certain kinds of secondary acts such as sympathy strikes are barred. But it is clear that the Steelworkers acts in Bayou Steel would not be barred under the labor courts-the whole reason the RICO case was brought. Yet the argument against NLRA preemption is essentially that the secondary acts barred under labor law are not specific weapons denied to labor unions out of a large potential arsenal, but rather show the general antipathy of the law toward any nontraditional form of labor solidarity beyond single-firm, single-union strike action. By this argument, any specific union act of solidarity not specifically permitted or barred under labor law is appropriately governed by other venues, an ideological move that essentially borrows the specific antiunion rules of labor law to negate the core pro-labor nature of the original Wagner Act-that is, the specific preemption of state common law in governing labor union struggle against the employer.
However, despite this creative playing with preemption arguments, the almost insurmountable barrier to applying RICO to labor struggles became clearer as the Supreme Court focused more clearly on RICO's role as a corporate governance law and the limits on what players in the corporate enterprise can be targeted. RICO is not written as a general conspiracy statute for any set of linked crimes, but rather focuses on restricting the ability of outside players (the prototype being the mafia) manipulating specific economic actors for their own ends. Section 1962(c) prohibits a "person . . . associated with any enterprise . . . [from] conduct[ing] . . . such enterprise's affairs through a pattern of racketeering activity . . . ."
This phrase has two key effects. First, courts have held that a sued RICO "person" cannot be the same as the "enterprise" that is targeted as the criminal enterprise. This is known as the so-called "nonidentity rule." Secondly, a "person" must be "associated" with an enterprise in some way, meaning that the courts do not allow too distant an economic relationship between them. [*351]
The nonidentity rule-upheld in every circuit other than the Eleventh -holds that a corporation, union, or any other entity cannot be sued under RICO for the activities of that entity itself. This goes to the purpose of RICO in targeting "outside" racketeers manipulating a legitimate enterprise for its own self-interest. Generally, it prevents a union from being treated as both a RICO defendant and the illegal RICO enterprise.
To escape the nonidentity rule, Bayou Steel claimed that the RICO enterprise was not just the union, but an "association-in-fact," involving the Steelworkers, the AFL-CIO Industrial Department, consultants, and outside experts writing reports for the campaign. This argument would provide that the "enterprise" involved more than the RICO defendant Steelworkers. The problem with this argument, however, is that courts have declared that there is no "association" between an entity and its own subdivisions, employees, and agents. For example, a corporation cannot be sued as an "outside" actor controlling a subsidiary under RICO law, but instead, actors outside the official corporate governance structure must be involved seeking gain for their own ends. For this reason, courts have generally refused to treat a union itself as a possible RICO actor, but have instead required association by the union with others to create an illegal RICO enterprise that can be prosecuted. The Tenth Circuit clearly rejected an attempt to allege an association-in-fact between a [*352] union and its business agent, and the Fifth Circuit refused to impose vicarious liability under RICO for the actions of its union negotiator based on the nonidentity rule.
Bayou and Northrup tried to evade these precedents by making the interesting argument that international unions and their locals and other affiliated union groups are organized in a way that they are not completely agents of one another. In a sense, Northrup argues that the multiple levels of democracy in unions make them more vulnerable to RICO lawsuit than the clear lines of subordination within corporate enterprises. Aside from the perverseness of the argument where internal democracy creates greater legal liability and would thereby create very bad incentives for unions to decrease internal democracy, it did not fit the facts of a pretty tight comprehensive campaign run by the Steelworkers.
However, in other campaigns where a looser coalition might be formed in support of a union fight, such an argument creates the danger of opening a divide between free-to-act individual unions and legally suspect conspiracies under RICO, when acting in association with other unions or nonunion actors. This application of RICO would essentially replicate the old Danbury Hatters attack on unions enlisting nonlabor support for its goals. Assuming all the other labor preemption defenses failed, this opens up the dangerous realm of restraint on democratic activity that many fear is at stake in the ongoing RICO litigation against antiabortion protesters. But, even for such broad associations, the courts usually require that they exist for more than the particular alleged illegal activity, that is, that they maintain an ongoing decision-making structure and continuity beyond the specific alleged RICO acts themselves, something [*353] neither the Bayou nor almost any other particular union comprehensive campaign does, even when involving allied groups. And there are clear First Amendment arguments that any union or associated activists could invoke against RICO claims based on lobbying or publicity in a comprehensive campaign.
One other argument asserted by employers in some RICO cases, although not in the Bayou Steel litigation, has been that unions are illegally involved in seeking to manage the enterprise of the company itself. This line of argument was essentially foreclosed by the Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Union 639, decision of the D.C. Circuit in 1989, which held:[*354]
We see no logical reason why a union attempting to gain recognition from a company is any more participating in the conduct of the company's affairs than is any other external entity attempting to contract with the putative enterprise . . . . [T]he Union, acting as a party with interests adverse to those of Yellow Bus, conducted only its own affairs as an enterprise.
Like the Third Circuit's Annulli v. Panikkar decision mentioned earlier, which blocked application of RICO to "garden variety" torts by business contractors, any other approach would threaten to have RICO swallow business law whole as every corporate player negotiating for advantage would face the tripwire of RICO treble damages at the hint of any legal violations. A few years after Yellow Bus, the Supreme Court in Reves v. Ernst & Young created a tight, bright-line rule that contractors whose role was to provide specific services to a firm could not be considered as "participating" in the affairs of a company. As such, those contractors could not be charged as RICO persons in regards to the company as an enterprise. As the Enmons case makes clear, the Court treats collective bargaining as an arms-length conflict over the price of contracting for labor services, not as an internal matter of corporate governance, so unions would pretty clearly be covered by the Reves rule- no doubt one of the reasons Bayou Steel pushed the "association-in-fact" argument in their pleading.
A. How RICO Highlights Complications in Theories of the Firm
While RICO, under present case law, has largely not restricted union comprehensive campaigns, there remains the chilling threat that a shift in Supreme Court precedent, such as abolishing the Enmons exemption for union activities (where Justice Rehnquist was in the original dissent ), or new legislation could bring the historic separation of class issues into separate courts [*355] in the end. As the NLRB ruled in numerous cases, including the Bayou Steel conflict, just the threat of litigation chills union speech and organizing rights. However, Justice Scalia, in his concurrence to the Court's recent BE & K Construction Co. v. NLRB decision, indicated that NLRB sanctions against employer lawsuits are inappropriate unless an employer lawsuit is completely baseless, even if done with a retaliatory motive. Given the procedural complications involved in union corporate campaigns and RICO, it may be hard for unions to prove that RICO litigation is completely baseless even where it may fail on specific merits, given the contradictions of U.S. labor, common law, and corporate law approaches to workplace conflict and corporate governance.
At one level, the one-sided nature of any targeting of union acts using state common law is highlighted by the fact that the Bayou lawsuit was filed not in Louisiana, but in Delaware federal court due to Bayou Steel's incorporation there. Bayou Steel had specifically incorporated in a state different from its main operations so that the corporation could escape most economic regulation [*356] of the actions of its shareholders under Louisiana state law. If RICOization of union comprehensive campaigns expands, the situation will arise where corporations can, by carefully choosing separate places of incorporation and operations, choose the corporate law least restrictive on shareholder power to threaten workers or other stakeholders, and pick the state common law most restrictive on worker power to influence corporations through regulatory or other comprehensive campaign tactics. This selective preemption of state law to benefit shareholders and undercut NLRB preemption is at the heart of the RICO assault on unions.
However, the most interesting result of this RICO strategy by corporations is that by highlighting the complicated web of relationships that affect corporate governance, they are inviting a more far-ranging analysis of the relationship of all stakeholders both within firms and as actors in the broader marketplace. In the postwar period, an expanded antitrust enforcement challenged a range of corporate deals with suppliers and others in the production and distribution chain as unfairly restricting competition. While such analysis focused almost exclusively on harm to other firms or consumers without disaggregating harms to particular stakeholders in the firms, it still challenged certain aspects of Lochner- era laissez-faire corporate decision-making.
B. Corporate Coalitions and Union Comprehensive Campaigns
In the past, an ever-widening law and economics analysis challenged the simple black-box treatment of firms in that postwar antitrust tradition in favor of arguing that mergers or corporate deal-making should be analyzed more in terms of transaction cost analysis for various contracting agents. The "firm" was increasingly disaggregated into its component parts such that only inefficient contracting arrangements, rather than reification of "unfair" contracting between specific "firms," should be targeted by antitrust law. The immediate thrust of this analysis was largely a conservative pulling back of government supervision of corporations under antitrust law. [*357]
But what law and economics takes with one hand, it may theoretically give with the other. This skepticism of the reification of the firm in the antitrust field opens up the firm as a whole to broader analysis. While most law and economics types still found that such analysis left shareholders as the best owners of residual claims on revenues, this was only because other stakeholder actors were seen as exercising control over their interests in corporate governance through other methods. What this implies is that political or judicial restrictions on such "other methods" of action of stakeholders like unions cannot be abstracted from how this upsets the "coalitions" that govern corporations, in John Coffee's phrase.
Which returns us to the phenomenon of corporations pushing to use RICO as a quasi-corporate governance law regulating such "other methods" somewhat like an unguided missile. While the enforcement of RICO initially threatens a range of worker interests, it also potentially repoliticizes the whole arena of corporate governance to lay out class conflicts that were sublimated in the postwar era of separated courts for shareholder and labor interests. It encourages a much deeper analysis of the interdependence of labor rights with shareholder rights constituting power within the modern corporate firm.
This extends not just to analyzing the corporate coalitions of stakeholders in the firms and how different rules on exit and disclosure affect their ability to assert their interests, but also forces a reevaluation of what constitutes an "insider" versus an "outsider" within that corporate web of interests. At one level, it is almost nonsensical under law and economics analysis that a business-oriented conservative would make the argument that a union hiring independent consultants for a comprehensive campaign should be treated differently under RICO than a union that internalized those functions.
C. Why RICOization of Union Campaigns Interferes with Internal Firm Governance
More broadly, the whole firm-specific focus on union action is open to new critical light. As Oliver Hart argues, relationships between firms in a corporate web not only change which managers and shareholders get the benefits of surpluses, but also change the power of workers. An employee-subcontractor has less ability to contract for part of the surplus important to the [*358] main contractor because he or she cannot bargain directly with the main controller of that surplus. Because this analysis shows that the choice to merge or subcontract in such a situation has both distributional as well as efficiency results, denying workers the ability to cooperate across the artificial divide of such firm divisions is merely a decision to allow corporate shareholders to set the framework for bargaining, not a legally neutral implication of firm governance. Given statutory prohibitions on secondary strikes, such economic analysis does not repeal such prohibitions, but it should encourage an evaluation of RICO to understand that disabling non strike cooperation across the shareholder-chosen firm divisions is not legally neutral, but a firmly political pro-worker or pro-shareholder decision on power.
If the preemption of NLRB law by state court common law through RICO is then to be analyzed for its economic and political implications for power within corporate governance, it is equally true that the second major component of union comprehensive campaigns-its mobilization of worker capital assets-needs a reevaluation in this new politicized terrain. The odd fact of union shareholder actions is that they are never able to represent their members' interests as workers, but only as shareholders, as if those interests are so clearly separable. That attempts to use such union pension assets directly in support of worker campaigns (that in many cases are fought to expand those same pensions) is targeted as criminal under RICO or ERISA laws, merely emphasizes the way corporate law has been used to disable workers' ability to express their interests within corporate governance.
D. Why the Global Economy Undermines Codetermination Alternatives
Some liberals propose to address the politicization of corporate governance, having been highlighted by union comprehensive campaigns, by seeking to emulate the social democratic and codetermination models of Europe. The idea is to create a legal structure that mediates, rather than completely separates, the interests of different stakeholders as the New Deal labor laws and U.S. corporate law system have traditionally done. Whether through forms of pension fund socialism or embedding such shared codetermination in labor-management bargaining, the problem is that there is [*359] no neutral legal point where workers and shareholders would not face zero-sum distributional choices.
Some reduce the debate to the pure efficiency gains from shareholder control argued for by conservative law and economics advocates versus the social interests (including concern for social externalities) represented by the codetermination style approaches. Many advocates of such codetermination or labor-management cooperation models promote them as achieving greater social efficiency across the economic board, often dubbing such an approach a "high road" to economic growth versus the "low road" of lower wages and a lower skill economy.
However, the problem with such codetermination style approaches is that they replicate and entrench the firm-specific focus of law that was the base, not only of the New Deal system, but the codetermination approach of Germany or the labor- management cooperation system of Japan. And all those systems are suffering erosion in a globalizing economy of increasing subcontracting and networking of firms.
In a sense, the problems of all these firm-specific systems of corporate governance are not new, but were muted in the Depression and immediate postwar periods when large corporations operating overwhelmingly within national economies were the norm. Yet numerous labor scholars have noted that the gains for workers in these systems were partial, and usually left a harsh divide in the economy between core workers protected by these systems and those left out, usually women and racial minority groups in what analysts dubbed the "peripheral" economy. As subcontracting, "flexible" employment, and globalization have preceded apace, the "periphery" of the labor force has become the main event. Echoes of this divide are heard currently in the global debate on labor standards as peripheral Third World workers who fear "labor standards" [*360] may be a code word for shutting them out of the systems protecting core workers in developed nations.
While RICO prosecutions threaten to further restrict workers rights, it also politicizes the broader problem of corporate governance that transcends firm-specific stakeholder debates. For progressive advocates, it requires both an activist and intellectual focus on new regimes of worker organization that allow workers the same flexibility of organization beyond the confines of the firm that shareholders have attained in the age of mergers, subcontracting, and globalization.
At their heart, union comprehensive campaigns are radical because they inherently transcend thefirm-specific focus of traditional labor regimes in the U.S. Accordingly, by transcending the separation of courts that depoliticized labor- capital conflict in the postwar period, they are forcing that conflict into whole new areas of legal decision-making. If backed by the always-necessary political organizing power, they may help force the social changes needed to reflect the true organizational needs of workers in the global economy.
originally enacted to combat organized crime, it has been extended to a range
of economic areas with the Supreme Court affirming that Congress has mandated a
"liberal construction" of the statute to extend it to economic
activity. See, e.g., United
States v. Turkette, 452 U.S. 576, 587 (1981)
(holding that enactment of an intentionally broad RICO statute cannot be
restricted by courts); Sedima, S.P.R.L. v. Imrex Co.,
473 U.S. 479, 495-97 (1985) (holding that RICO is not limited to organized
crime, but may be applied to legitimate businesses).
n1 As economist and legal scholar Kenneth G. Dau- Schmidt notes, this split is not always the simplistic zero-sum conflict portrayed: [T]he primary sources of union benefits are employer rents, quasi-rents, and productivity increases associated with unionism. These rents and productivity increases constitute the cooperative surplus that the parties divide through collective bargaining. Individual bargaining will not secure for employees a share of this surplus. The workers must organize and bargain collectively to raise themselves to a position of rough equality relative to the employer and gain a share of the surplus. Kenneth G. Dau-Schmidt, A Bargaining Analysis of American Labor Law and the Search for Bargaining Equity and Industrial Peace, 91 Mich. L. Rev. 419, 424 (1992). Strategic bargaining can increase wages or profits without necessarily coming at the expense of the other party, but the very dependent interrelationship of wage and profit demands in some ways makes the split court jurisdiction more problematic.
n2 See discussion infra Parts II.B, II.D.
n3 See discussion infra Part III.A-B.
n4 See infra note 13 and accompanying text.
n5 See discussion infra Parts II.C, IV.
n6 See discussion infra Parts II.D, IV.B.
n7 See David Moberg, Labor's Capital Strategies, in Not Your Father's Union Movement 201, 206-07 (Jo-Ann Mort ed., 1998) (discussing corporate campaigns in the new labor movement).
n8 See id. at 206-10 (providing examples of corporate campaigns by unions and the resulting actions by management).
n9 See, e.g., id. at 202 (discussing the creation of a new department in the AFL-CIO).
n10 See Sara U. Douglas, Labor's New Voice: Unions and the Mass Media 8-9 (1986) (discussing the comprehensive campaign strategies used by the Textile Workers Union in the campaign against J.P. Stevens as "a classic example of a union going beyond established and conventional union techniques").
n11 See generally Moberg, supra note 7, at 206-07 (discussing corporate campaign strategies and providing examples of current union actions).
n12 See San Diego Bldg. Trades Council v. Garmon, 359 U.S. 236 (1959) (holding that federal labor law preempts most state government attempts to regulate labor relations). But as this Article will detail, as unions have conducted campaigns with tools outside the traditional arsenal of collective bargaining pressure in the workplace, the question becomes whether that preemption is still valid in such cases.
n13 18 U.S.C. _ 1962 (2000) (enacted as Title IX of the Organized Crime Control Act of 1970, Pub. L. No. 91-452, 84 Stat. 922 (1970)).