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Sunday
Apr142013

Dusting Off the Ultra Vires Doctrine to Rein in Corporate Violations of International Law

This past week, Kent Greenfield alerted me to a suit against Hershey seeking to get records about their alleged use of child labor.  (You can find a news item providing some background here.)  As Kent explained in his email: “The theory of the case -- that violations of international law are ultra vires -- is basically something I came up with 10 years ago, and this is the first case using the theory.”  (You can find an example of Kent’s relevant scholarship here.)  I reviewed the amicus brief that Kent and The Honorable Nancy Gertner, Professor of Practice at Harvard Law School, have filed with the Delaware Court of Chancery, and here is an excerpt I thought might be of interest to our readers:

The implication of the requirement that corporations not engage in illegalities in this case cannot be overstated. Shareholders have an interest in monitoring whether the corporation is acting unlawfully even if there is insufficient evidence to show that directors or other fiduciaries should be subject to personal liability for a failure to monitor under Caremark and Stone v Ritter…. In all fairness, however, there are two gaps in the argument that would hold Hershey and its directors responsible under Delaware corporate law for the illegalities alleged in the complaint. The first gap is informational, and the second is doctrinal…. [However, while t]he extent of knowledge or involvement of Hershey management and of The Hershey Corporation in these illegalities is yet murky…. gathering this kind of information is a very purpose of a § 220 inspection…. Meanwhile, the Delaware judiciary has not yet defined the contours of corporations’ responsibility for illegalities committed by suppliers, business partners, or other third parties. Certainly a company and its board cannot protect itself from legal accountability simply by hiding behind an assertion that an illegality was committed by a separate legal entity or middleman…. On one end [of the continuum of responsibility] will be situations in which there is de facto unity between a Delaware corporation and a subcontractor, supplier, or middleman acting illegally, or when a Delaware corporation is acting in partnership with entities acting illegally. The responsible end of the continuum would also capture situations in which a Delaware corporation and its fiduciaries were knowingly complicit in such illegalities, even if managerial unity or partnership did not exist. On the other end of the continuum, it would be unjust for corporations and their management to be held responsible for the behavior and decisions of independent actors committing illegalities without the complicity, benefit, or knowledge of the corporation.

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