Skip Oliva, who has been collecting links galore on his blog “Under Penalty of Catapult,” has several must-read posts for those following the Koch-Cato controversy. First, as noted below, he has an interview with Cato Chairman Bob Levy responding to Charles Koch’s public statement. This interview provides lots of detail about the steps each side took before the Koch brothers filed their lawsuit. If Charles Koch’s statement contained equivalent detail it would be easier to evaluate his claims.
Second, Oliva comments on the Cato Institute’s legal position, which has now been detailed by Cato. As he notes, some aspects of Cato’s position are straightforward. Others involve a contestable reading of the underlying legal documents. One thing is clear, the shareholders agreement was not a model of legal draftsmanship.
Third, Oliva has two insightful comments on the dispute, “The Balance of Power” and “And Now We Play the Leverage Game.” The latter of these two posts, in particular, is worth a read. He notes that there are really multiple issues here, including the “long-simmering feud” between Cato President Ed Crane and the Koch brothers. Their personal differences have certainly contributed to the conflict, and any final resolution will likely turn on Crane’s future as Cato President and the selection of his successor. Oliva writes:
Any resolution to this dispute must include a clear timeline for Crane’s retirement and selecting a new Cato president. The Kochs will definitely play a role in this. Levy himself conceded that Crane offered the Kochs veto power over the choice of successor in exchange for dissolving the shareholder agreement. The Kochs also offered to delay this entire matter until after the 2012 elections. That suggests there’s room for compromise, say, if Crane were to publicly announce his retirement effective March 1, 2013.
Of course, there’s still the issue of board composition. Levy was adamant the Kochs not be allowed to control half the board. Crane’s only real leverage here is to cling to power—he still controls a majority of the board, pending the outcome of the lawsuit—until the Kochs concede that point. The Kochs’ leverage, in turn, was time-consuming litigation that, as Levy acknowledged, cripples Crane’s ability to raise money. So now we’re left to see who blinks first while everyone else—Cato’s staff and donors—is held hostage.
Greg Q says:
The more I read the Crane / Cato side of this dispute, the more I end up supporting the Kochs.
1: The Crane / Cato position seems to be “the shareholders can get stuffed, the Board of Directors is all that is important, and the current members should be the only ones picking future members.” As I strongly dislike inbred groups, this is not a winning argument with me.
2: Bob Levy said they couldn’t accept the Kochs’ offer to wait a year, because “major donors” are refusing to give money until they know the Kochs won’t take over. However, the Crane / Cato legal claim is that the lawsuit isn’t ripe because the will won’t be finalized until the November / December time-frame. Which is it? Can this wait a year, or can’t it?
3: The Crane / Cato desire to fight this in “the Court of Public Opinion” rather than a Court of Law makes me believe:
A: The law is on the Kochs’ side, and Crane knows it.
B: Crane would rather burn Cato to the ground than let the Kochs get control.
As a libertarian leaning conservative, I find both of the above to be quite distasteful.
Here’s a suggestion:
1: Ed Crane, and every member of the BoD, agrees to immediately resign.
2: Ed Crane and the Kochs each get to pick 50% of the new BoD. However, each gets the unlimited right to veto the others choices.
3: All nominations, and vetoes, are made in public.
Should be acceptable, if the real issue isn’t that Ed Crane and friends want to keep their power and paychecks, no?
Greg Q(Quote)
March 9, 2012, 4:46 pmGreg Q says:
Sorry, I left out:
4: The shareholder structure is terminated.
5: A strict lifetime term limit for BoD members is instituted (say 8 years max). If Cato can’t help spawn enough bright new libertarian minds to replace the BoD every 8 years, then it’s a failure, and needs to die anyway.
Greg Q(Quote)
March 9, 2012, 5:04 pmRichard F says:
“This interview provides lots of detail about the steps each side took before the Koch brothers filed their lawsuit. If Charles Koch’s statement contained equivalent detail it would be easier to evaluate his claims.”
With all due respect, that’s a bit of an unfair judgment to make against Koch.
The ONLY reason Oliva even knew to ask Levy for those details about the proposed mediation, about the proposed standstill agreement until after the election, and about Koch’s rejected restructuring proposal is because Koch provided those details in the first place.
Cato sure as hell didn’t volunteer any of that info, despite a week of lengthy and specific insinuations about other elements of the dispute to impugn Koch’s motives. It only came to light because Koch revealed it, and the tone of Levy’s statements in the Oliva interview make it evident that he was uncomfortable being pressed on it (e.g. refusing to identify which donors had an issue with Koch, etc.)
Richard F(Quote)
March 9, 2012, 5:32 pmRichard F says:
This is one of many things where Cato can’t quite seem to make up its mind.
For example, a central point of their message has been to accuse the Kochs of trying to turn Cato into part of the anti-Obama campaign before the elections. Yet everything about the Cato strategy suggests they are the ones bringing this up in an election year, whereas everything we find out about the Kochs suggest they were trying to put it off until after the election.
Sorry, but Cato’s 2 and 2 are not adding up here.
Richard F(Quote)
March 9, 2012, 5:40 pmDavid M. Nieporent says:
What do you mean “which is it”? These are two totally different claims. One claim is that it’s economically harmful to Cato for this matter to be hanging over their heads for a year. The other claim is that, legally, the lawsuit is not ripe.
David M. Nieporent(Quote)
March 9, 2012, 6:00 pmMichael Watts says:
So far I’ve seen the claim that writers funded by Cato come under attack for it, and can defend themselves by pointing out that being funded by a third party doesn’t mean you’re expressing their views. Also the claim that if the Kochs were to acquire a majority share in Cato, its reuptation would be irreparably tainted. The two aren’t incompatible, but there’s a tension between them. I’ve seen the claim that a Cato for which the Kochs constituted 2 out of 3 shareholders would be monolithically controlled by them, and be nothing but an instrument of Koch will…. and the claim that Charles and David Koch express radically diverging opinions on politics and on the appropriate path of Cato, so that the objection isn’t to letting Charles run Cato but to opening the possibility of David inheriting Charles’ shares. Those two views are explicitly in conflict with one another. So:
Why is the reputation of “Cato”, the think tank, inherently superior to that of “The Koch Foundation”, the think tank (both hypothetical)?
Are the various works of the Bill and Melinda Gates Foundation more or less suspect according to the degree of ownership by Bill and Melinda Gates?
Are the Kochs likely to vote as a united front, or do they divide on some issues?
If Charles Koch were to obtain shared majority control of Cato between himself and a close friend known to agree strongly with him on most issues — more than David is supposed to — would that be a better or worse situation?
Michael Watts(Quote)
March 9, 2012, 6:04 pmS.M. Oliva says:
Richard F is correct in that my conversation with Mr. Levy was directly prompted by Charles Koch’s statement. I emailed Mr. Levy this morning seeking a response to Mr. Koch, and Mr. Levy suggested I speak with him via telephone. I will add that I have been in contact with representatives of the Kochs seeking additional clarification from their side.
I will say, Mr. Levy was quite forthcoming during our 15-minute conversation. The only question he refused to answer was regarding the identity of the donors that he claimed would not contribute to Cato while the threat of “Koch control” loomed. He was also quite emphatic that neither he nor Mr. Crane would stand for a board that was half-Koch, half-”independent.”
S.M. Oliva(Quote)
March 9, 2012, 6:17 pmGreg Q says:
If delaying resolution for a year is impossible, because it will keep major donors from donating for that year, then why is Cato arguing in court that the lawsuit needs to be put off for a year, and then dealt with?
If the court finds for Crane / Cato that the case is not ripe, then presumably the Cato BoD won’t be able to rule that the shares are rightfully the wife’s, no? IOW, Cato can not right now argue that the case is not ripe, and then next year argue that the BoD agreed the shares belong to the wife, and therefore the case is moot. All their ripeness argument does is push to keep the whole situation as a Sword of Damocles hanging over Cato’s head for the next year.
If that’s an acceptable outcome, then why didn’t they agree to the year delay, and avoid the whole public fight breaking out now?
In short, it appears the Crane faction are either idiots or dishonest. Neither reflects well on them, nor makes me think that they should continue running Cato.
Greg Q(Quote)
March 9, 2012, 6:24 pmDevin says:
I’m not sure I understand why this matters all that much. No matter what happens the Kochs will now control CATO. EVEN if they lose the lawsuit (which if they win they get like 66% control, if they lose they get 55% control). Although I would prefer if the Koch’s gave some of their shares to a 3rd party that is a known and respected libertarian so the Koch’s don’t have complete control, that isn’t the reality right now as I see it.
This is what the CATO shareholders look like right now:
Charles Koch 16 shares
David Koch 16 shares
Ed Crane 16 shares
estate of William Niskanen 16 shares
Assuming the Koches are wrong and that the will is the only thing that applies. Once the estate resolves which is to be devided according to his will with 1/3 going to Kathryn Washburn, 1/3 going to Institute for Justice, and 1/3 going to CATO (I am assuming the last share would go to CATO, but I’m not sure what would happen there). That would leave
16 shares Charles Koch
16 shares David Koch
16 shares Ed Crane
5 shares Institute for Justice
5 shares Kathryn Washburn
(the other 6 returned to the CATO organization, and sit unused like the other 942 shares that are not assigned currently).
That would still leave the Koch’s with 32 of 58 shares or 55% control of CATO. So even if the will decides who gets what (and not the shareholder agreement), then the Koch’s still control CATO.
Devin(Quote)
March 9, 2012, 6:50 pmDavid M. Nieporent says:
I’m not sure why you think that because the residuary estate is divided three ways, that this means each beneficiary must get 1/3 of each item in the estate.
David M. Nieporent(Quote)
March 9, 2012, 7:09 pmDavid M. Nieporent says:
Well, Cato hasn’t argued anything in court. But assuming they make the arguments in court (*) that they’re making publicly, I repeat: they’re arguing that the lawsuit isn’t ripe. If the lawsuit isn’t ripe, it can’t be brought now, regardless of whether they want it to be resolved.
Specifically, the Kochs are arguing that Washburn is in breach of contract because she is required under the shareholder agreement to offer the shares back to Cato and has not done so. But the ROFR in the shareholder agreement doesn’t kick in until she actually gets the shares. Right now they’re still part of the estate.
(*) Although, frankly, I’m not sure what Cato is doing in court at all; this complaint seems to be as badly drafted as the original shareholder agreement. The only proper defendant at this point appears to be Washburn, in her capacity as representative for the estate. It’s Washburn who should be making this argument, not Cato.
They aren’t rightfully the wife’s (yet), so Cato can’t rule that for the same reason that the case isn’t ripe: the shares are part of the estate. Until the estate is doled out, there’s no decision to be made by anybody.
That wouldn’t make it moot.
It’s not “acceptable.” It’s just legally unavoidable.
David M. Nieporent(Quote)
March 9, 2012, 7:22 pmDevin says:
The primary problem with not splitting the shares 1/3 1/3 1/3 (and probably would be partial ownership of the last share), would be deciding on the valuation of the shares. The question would be are those actually worth only $1 each (just because they were bought at that price doesn’t mean that is their value)? Or as they are controlling an organization with a total net worth of over $50 million, are they worth $800,000 each share. My guess is if Kathryn decides $1 year, the koch’s will dispute that.
Devin(Quote)
March 9, 2012, 7:57 pmGreg Q says:
David,
So, what am I missing? If it was guaranteed that the situation could not be resolved before December 2012, why was it “necessary” to have a vote on March 1 where the wife got to vote her dead husband’s shares? Said vote would not have resolved anything (correct?), the threat of Koch control would have remained, and the “major donors” would have refused to give Cato any money. No?
The story line I’m reading is that, before March 1, the Crane / Levy position was that it would destroy Cato to wait a year before resolving the issue, so they had to push for a meeting and vote on March 1. AS of March 8, their position is that the Koch lawsuit is not ripe, and therefore the situation must not get resolved before December 2012.
1: Is my story line factually correct?
2: If it is, how did they get from their first position to their second one?
3: If they got there by deciding that they’d rather see Cato destroyed, than see it in the control of the Koch brothers, should we perhaps employ the wisdom of Solomon, and support the party that doesn’t want to see Cato destroyed?
4: Is it the position of Crane and Levy that, by letting the wife vote her husband’s estate’s shares as the executor of the estate, they can so change the rules that even if the Kochs get control of 2/3 of the outstanding shares come December, it won’t do the Kochs any good? (Reaching for straws here, I know.)
Greg Q(Quote)
March 9, 2012, 8:09 pmDevin says:
I don’t think they can change the rules unless they hold majority control (and can then force others out until they hold unanimous control and can then change the shareholder agreement). As even with her as executor of the estate she and Ed would only hold 50% and the Koch’s would hold the other 50% neither one of them could force the other out (but if either side gets 1 more share then they could)
Devin(Quote)
March 9, 2012, 8:16 pmDavid M. Nieporent says:
It was necessary to meet because they’re required to have an annual meeting.
That seems to be correct, yes.
No; you seem to be linking two unlinked things. The annual meeting is for the purpose of, inter alia, electing directors – not for the purpose of resolving the dispute over Washburn’s shares.
Based on Koch’s statement, he seems to be taking the position that simply by Washburn showing up and vote at the meeting, that this somehow means the dispute is being resolved in Cato’s favor. But that’s wrong; she’s not voting as a new shareholder, but as the representative of the estate.
I don’t know where “December 2012″ came from here. It will become ripe when the estate is closed and Washburn has to distribute Niskanen’s shares. That could be December 2012, it could be sooner, it might be later.
I don’t speak for them, but I haven’t seen anything to suggest that this is their position. Neither side can unilaterally change the rules under the status quo, because it’s a 50-50 split.
David M. Nieporent(Quote)
March 9, 2012, 8:48 pmGreg Q says:
David,
From the Levy interview:
Not “we had to have a meeting” but “we had to make sure there could be no Koch takeover.” If they had to have a meeting, they could have agreed to have the meeting, and agreed that nothing would be done to change the status quo during the meeting. That doesn’t seem to be something Levy and Crane were willing to offer.
From Breaking Down the Legalese:
I believe the Kochs are claiming that the executor was required by the agreement to offer the shares to the Cato Board as soon as the shares were “disposed” to the estate, (which would be when he died, or at least when Washburn was named executor of the estate), and since that’s more than 30 days before the meeting, they are owed the right to buy the shares, and they’re going to execute that right. At least, that’s what I see linking things together, but IANAL.
I think I’ll tentatively abandon my #4. But that takes me back to “they would rather destroy Cato than see the Kochs get it, which pushes me to be more against Crane and Levy.
Greg Q(Quote)
March 9, 2012, 10:03 pmFormer Intern says:
So who to replace Ed? Ed’s got to retire at some point regardless, and the big hoopla is over who to replace him. So how about some names? I like Gene Healy myself. Smart guy, principled. Doesn’t back down on the key stuff. I think he’d be great and able to lead Cato into the future.
Former Intern(Quote)
March 9, 2012, 10:08 pmDavid M. Nieporent says:
I think that’s generally an accurate summary of what they seem to be claiming. I also think that it has little legal merit.
1) Dying is not “disposing” one’s assets to one’s estate, and I can’t imagine any court would read it that way.
2) They have no right to buy the shares. Cato has the ROFR. And the agreement doesn’t say anything remotely like, “If Cato doesn’t buy them, the shareholders automatically have the right to.”
David M. Nieporent(Quote)
March 9, 2012, 10:15 pmGreg Q says:
I think I’ve had an Epiphany (and I have no idea if I’m the 20th person to say this, because I really haven’t followed this much before today):
It is perfectly reasonable to say “yes you have the right to do that, but no, you shouldn’t have done it.”
It is not, however, right, legitimate, or proper to say “yes, you have the law on your side, but I’m going to fight you anyway because I don’t like the legally correct result.”
It appears that Ed Crane doesn’t like the agreement he signed ~40 years ago. That’s allowed. Ignoring it because he doesn’t like it, OTOH, isn’t allowed. Not if he’s going to claim to believe in the rule of law and the sanctity of private contracts.
And if he doesn’t believe in those things, what kind of “libertarian” could he possibly be?
People are talking about what happens to Cato if it’s run by the Kochs? Well, what happens to Cato if everybody who pays attention knows that it’s run by people who are only in charge because they decided that their personal desires and beliefs are more important than contracts and the law?
Sorry, Bob, if you don’t like the law. Sorry, Ed, if you don’t like the contract you signed. But if you don’t end this “court of Public Opinion” BS, and accept the law and your contract, no matter how much you hate teh results, then you’re no more libertarian that President Obama.
Whether or not the Kochs should have pushed this is irrelevant. They did. If Levy and Crane want to fight this in the court of law, that’s fine.
But if Levy and Crane are going to chose to fight in “the court of public opinion” while the Kochs focus on the court of law, what that says is that Levy and Crane think “laws are for the little people”.
And if that’s that case, then IMHO there’s no possible worse result than Crane and Levy remaining in charge at Cato.
Greg Q(Quote)
March 9, 2012, 10:47 pmJerry Taylor says:
It is indeed quite clear that you “haven’t followed this much before today.”
1. Cato is NOT saying “yes, you have the law on your side.” We disagree with their interpretation of the law. Our general position on the legal issues can be found here: http://www.cato.org/SaveCato/. The chairman of Cato’s board, Bob Levy, goes into a bit of more legal detail here: http://www.cato.org/multimedia/radio-highlights/robert-levy-discusses-koch-lawsuit-bob-harden-show. We will allow a judge to decide who is correct and we’re confident that we will prevail. There is nothing “ill-libertarian” about asking a judge to resolve a private contract dispute. But to be precise, Cato is not asking a judge to intervene in a contractual disagreement; the Kochs are. They, after all, are the plaintiffs. They are the ones who’ve taken this to court.
2. No, neither Ed nor the Cato board of directors is happy with the shareholder arrangement. Both Ed individually and the board collectively have spent years trying to renegotiate that arrangement with the shareholders. There is nothing “ill-libertarian” about that. Contracts are renegotiated in private markets all the time. It is, of course, within the Kochs’ rights to resist any renegotiation. We hope, however, that they will change their minds.
3. We think we have a moral obligation to let donors, friends, colleagues, and the political world at large know that there is a takeover operation underway and that, if that takeover succeeds, the “Cato” they know at present will be transformed into something quite different. We think that transformation would be a bad one, but of course, some may disagree.
Jerry Taylor(Quote)
March 10, 2012, 6:49 amFormer Intern says:
If that were true, then folks should never have challenged the health care mandate, nor fought for gun rights, nor fought in Brown, etc. because the chances of a legal victory was small at the outset, regardless of what they knew, as individuals, would be a just result. I think your moral theory is flawed. :/ Also, the law is not clear-cut here. Period.
Former Intern(Quote)
March 10, 2012, 7:54 amRichard F says:
But it does seem to indicate a scenario of some sort under some condition wherein the shareholders do have the option to buy them. The legal dispute here will be whether that condition exists, as the Kochs maintain.
Of equal if not more importance though is what happens to the shares if the board declines to buy them back. But nobody at Cato is talking about what happens next. Crane’s current position seems to be “If Cato doesn’t buy them, then Niskanen’s widow is automatically installed as a full shareholder and we all live happily ever after.”
While there is indeed room to argue what exactly the language means when it suggests the other shareholders have an option to acquire the shares under certain conditions, there isn’t anything even REMOTELY close to Crane’s apparent position in the language.
So all of you who think the Kochs do not have the second option to purchase if Cato declines, tell me this: If not that, what do YOU think happens next under the shareholder agreement?
Richard F(Quote)
March 10, 2012, 10:16 amRichard F says:
All of those cases refer to individuals challenging prevailing and coercive policies of the state that harmed them. This case involves one individual signatory to a voluntary contract suing another signatory to that same voluntary contract because he no longer likes what he signed 35 years ago. Apples to oranges and such.
Richard F(Quote)
March 10, 2012, 10:20 amRichard F says:
Correction to the above, since it was Koch and not Crane that initiated the suit.
“This case involves one individual signatory to a voluntary contract challenging another signatory to that same voluntary contract because he no longer likes what he signed 35 years ago. Apples to oranges and such.”
Richard F(Quote)
March 10, 2012, 10:24 amS.M. Oliva says:
I respond to Devin’s comment at my blog: http://www.underpenaltyofcatapult.com/591/cato-shares-and-fair-market-value
S.M. Oliva(Quote)
March 10, 2012, 11:58 amRobert says:
When I saw the title, I thought this post was going to be a dismissal of Mr. Oliva’s remarks as unimportant, Mr. Adler wanting to save us the trouble.
Robert(Quote)
March 10, 2012, 12:15 pmDavid M. Nieporent says:
The Kochs don’t maintain that. Their complaint did not plead that the condition existed, and indeed selectively quoted the text of the shareholders agreement to leave out the requirement altogether.
If Cato doesn’t buy them, and if the conditional right of the existing shareholders to buy them isn’t triggered, then they are distributed to the beneficiaries just like the other assets of his estate. Assuming Washburn distributes the shares to herself, she doesn’t need to be “installed as” a shareholder; she is a shareholder.
Nothing at all. Why should it? It’s not a complete document to the governance of Cato; it’s just an agreement between shareholders about how to manage their shares. 99% of the time it has no applicability to anything.
David M. Nieporent(Quote)
March 10, 2012, 3:56 pmRichard F says:
Your argument is entirely circular, not to mention absurd.
The primary issue of the lawsuit is whether the shares can be passed through inheritance. The Koch’s position is that such a transfer is prohibited by the clause stating “No stockholder of the Corporation shall have the right or power to pledge, hypothecate, sell or otherwise dispose of, directly or indirectly, all or any part of his shares of stock” to any other person without first offering them to the corporation.
It should also be noted that, contrary to the insinuations of the Cato crowd that suggest this prohibition does not apply to inheritance, a later section of the agreement explicitly states “This agreement shall be binding upon and anure to the benefit of the undersigned parties and their respective heirs, legatees, and personal representatives of whatsoever nature.”
Is Washburn not an “heir” or “personal representative of whatsoever nature” of Niskanen? If so, then she is legally bound to the agreement, in which case she cannot simply assume his shares.
Again the only real question of law here is whether the agreement is enforceable in Kansas as written. That’s a legitimate issue that may be argued both ways in court. But the rest is only word parsing and legal semantics by the Cato crowd, some of it quite silly and circular and all of it indicative of their inability to settle on a coherent position of why they are resisting the Koch action…
…except for, well, “The shareholder agreement is arcane and dormant so we should just ignore it and try this thing in the court of public opinion because, even though we welcomed GOP media hack Rupert Murdoch onto our board for over a decade with not a word of complaint and even though we forced this dispute into public in an election year by refusing the Kochs’ 1 year standstill offer to get us past November 2012, the Kochs secretly want to stack Cato with Republican operatives so they can take down Obama.”
Richard F(Quote)
March 10, 2012, 5:51 pmRichard F says:
I should also mention that Cato’s current argument that the case isn’t “ripe” yet because Washburn hasn’t offered her shares to the board is directly contradicted by the fact that Crane planned to use the March 1 shareholder meeting to formally install Washburn with Niskanen’s shares, thus bypassing even that minimal and required step.
Argue about the prudence of the Kochs filing suit all you want. That’s a fair point open to differing interpretations. But the legal issue really *is* all about Boss Crane’s increasingly desperate clinging to power.
Richard F(Quote)
March 10, 2012, 5:56 pmRichard F says:
Another point to consider:
If the shareholder’s agreement did not contemplate a transfers by death when it said a shareholder cannot “pledge, hypothecate, sell or otherwise dispose of, directly or indirectly, all or any part of his shares of stock” then why did a later section of the same agreement SPECIFICALLY say that its terms were also to be binding upon the shareholder’s heirs?
Richard F(Quote)
March 10, 2012, 6:10 pmContract Lawyer says:
Subject: the when the estate closes defense
This is fascinating—trained lawyers who say they don’t know what a plain simple contract or worse–those who challenge for a prize for dissembing.
Of these, the best is the “the Kochs can’t get the stock until the estate closes.” I don’t find such in the contract. In fact, of course, the law is to the opposite.
The date set by statute for closing an estate is the outer limit. As a party to the contract by operation of law the personal representative is subject to the implied duty to carry out the purpose of the contract with reasonable dispatch so as to not deprive the others the benefit of their bargain.
All of this seems to be proving the old saw: the cover up is worse than the crime. When you make farfected arguments to keep you seat at the table, doesn’t that tend to show that what you said earlier was also “farfected.”
The Kochs have certainly exposed hidden truths about Cato and its crowd.
Contract Lawyer(Quote)
March 10, 2012, 6:54 pmloki13 says:
*sigh* I hate to get back into this, but it’s clear that
1) you are not a lawyer and
2) you are only seeking out whatever you can that already supports your position.
The selection you cite, if anything, weakens the Koch’s case, since it appears to *specifically contemplate* heirs receiving the shares.
Again, this will be settled in a court, and is a result of incredibly bad drafting. I can’t tell you, given the drafting, wtf the parties intended. And clearly they can’t either.
loki13(Quote)
March 10, 2012, 7:48 pmhialeah says:
Koch v. CATO. Keep up the fight as long as possible. No one who hears about the fight is going to think better of either party for it. CATO’s reputation for nonpartisan independence is gone.
hialeah(Quote)
March 10, 2012, 8:01 pmRichard F says:
If anything, it specifically contemplates them acting as executors of a shareholder’s estate, in which case they are bound to abide by the shareholder’s agreement when disposing of the shares.
Simply blathering that “it’s a badly written agreement” over and over and over again tells us little that’s useful about the case, adds nothing to the discussion that isn’t already known, and makes you look either stupid or consciously intent upon misdirection, by the way.
Whatever its defects, it’s still the agreement we have and BOTH parties signed it back in 1977 knowing full well what it contained. If Crane doesn’t like that a straightforward reading of it seems to support Koch’s position, Crane has only himself to blame. And if he thinks it should be interpreted otherwise, he needs to come up with a coherent argument for his position – not the present scatter-shot and hope something hits approach wherein he offers up a bizarre mixture of legal obfuscation, inane word parsing, self contradictory narratives of the events that led to the dispute, and a PR war to demonize his opponent “in the court of public opinion,” whatever or wherever that may be.
Richard F(Quote)
March 10, 2012, 8:14 pmRichard F says:
Cato’s alleged reputation for nonpartisan independence was gone the day Ed Crane invited Rupert Murdoch to be on their board over a decade ago. The notion that they are some sort of highly respected “above the fray” intellectual outfit sitting smack in the middle of the most partisan, hackish city in the world is a self-created illusion. But to those of us outside the Washington bubble, they’re just another Heritage, AEI, CAP, or Brookings with a slightly different political ideology but all the same bad habits of rubbing elbows with elite political circles.
They’re legends in their own minds.
Richard F(Quote)
March 10, 2012, 8:21 pmloki13 says:
cf.
Fess up, Richard F. You wrote the agreement, didn’t you!
(Seriously though, I love the mental contortions you must have gone through to get to the second cited passage. Specifically contemplating something is great- writing it is better, especially when the Venn Diagram for heirs (who are unknown until death) and executors isn’t perfectly overlapping!))
loki13(Quote)
March 10, 2012, 8:49 pmChrisTS says:
I partially agree with Richard F, though I think Cato has continued to do some independent work.
@J. Adler:
I know you are not a big fan (ahem) of Crooked Timber, but Holbo has an interesting post about some of Wilkinson’s comments (ones I think you did not discuss). Certainly, W. suggests that Cato has been ideologically inclined (“right-fusion”) for awhile. I’m wondering if you think some of the prior moves had already damaged the institute’s reputation for scholarly independence?
ChrisTS(Quote)
March 10, 2012, 8:52 pmChrisTS says:
Ugh: CATO. Jeesh, I miss the edit function. (And the name recognition, and…)
ChrisTS(Quote)
March 10, 2012, 8:54 pmRichard F says:
That’s probably why the agreement accounted for all possibilities. “This agreement shall be binding upon and anure to the benefit of the undersigned parties and their respective heirs, legatees, and personal representatives of whatsoever nature.”
Reading comprehension must not be your strong suit.
Richard F(Quote)
March 10, 2012, 9:05 pmloki13 says:
Only someone with your reading comprehension skills is masterful enough to have drafted this agreement. You have outed yourself, Richard F.!
(In case you’re missing the humor, try and read it again, and pay attention to what the bold part that you think is dispositive actually modifies; as please notice that the agreement is not just binding upon parties that were not part of the agreement, it anures to their benefit)
loki13(Quote)
March 10, 2012, 10:09 pmKirk Lazarus says:
If that has any bearing it bears opposite your position. That clause attempts to transmit the restrictions on disposal to the shareholder’s heirs, which only makes sense if the shares can be acquired by inheritance.
Kirk Lazarus(Quote)
March 10, 2012, 11:14 pmRichard F says:
loki13: In case you’re missing the humor, try and read it again, and pay attention to what the bold part that you think is dispositive actually modifies
>
The term “and” indicates an encompassing modifier to that which follows it; if a discretionary element were intended, “or” would be the term of choice. Beyond that, the phrase as a whole is common legal boilerplate to extend the requirements of the agreement to those who might be charged by inheritance or any other legal arrangement with the administration of the shares as part of an estate.
In short, Washburn, as Niskanen’s designated representative, must abide by the same restrictions on the transfer of the shares that Niskanen himself agreed to as a shareholder. And that includes (or rather precludes) transferring them to herself.
As noted previously, reading comprehension appears not be your strong suit. Apparently contract law isn’t much of one either.
Richard F(Quote)
March 10, 2012, 11:15 pmRichard F says:
Would a “personal representative” of a shareholder necessarily be an inheritor of the shares? No. Therefore the clause cannot be said to convey acquisition by inheritance.
Richard F(Quote)
March 10, 2012, 11:19 pmKirk Lazarus says:
That doesn’t touch on my point. You just ignored the leg of the conjunction I refered to and imputed a straw man argument to me based on another. Why would there be a need to apply restrictions in the shareholder agreement to shareholders’ heirs if heirs cannot be shareholders?
If the drafters wanted to prevent shareholdings’ being inherited, they could easily have said so explicitly. They did not.
Kirk Lazarus(Quote)
March 10, 2012, 11:51 pmRichard F says:
Very simple. They accounted for the scenario in which a shareholder’s shares, themselves explicitly restricted from transfer to another person by the terms of the agreement, could end up in the possession of another person acting on the shareholder’s behalf. In the case of death, that person acting on the shareholder’s behalf would be his heir and/or executor. That doesn’t mean that the heir and/or executor becomes a shareholder though, as such would constitute a transfer of the shares to another person.
Richard F(Quote)
March 11, 2012, 12:34 amRichard F says:
Or to put it another way, simple possession of the shares does not equal becoming a named shareholder. And that includes perfectly legal and authorized possession as a representative of the named shareholder or his estate.
Richard F(Quote)
March 11, 2012, 12:37 amGreg Q says:
Wow, that is scarily wrong. I am free to say “this is a bad law, and I think it should be overturned.” I am not free to say “I don’t like this contract I signed and previously used to my advantage, so I’m going to ignore it now.” Your attempt to conflate the two shows either a massive amount of dishonesty on your part, or else a very poor ability to read and follow an argument.
Greg Q(Quote)
March 11, 2012, 3:48 amGreg Q says:
Sure, shares can be acquired by inheritance.
1: The shares are offered to the board. The board refuses to buy them.
2: The shares are offered to every other shareholder. One or more of the shareholders decline to buy the shares they’re free to buy. Those shores go to the heirs.
So Cato refuses to buy the 16 shares, the Koch brothers each buy 5, and Ed Crane decides not to buy any, this leaves 6 shares to go to the heirs.
What’s so difficult about that? How does that contradict the Koch position in any way?
Greg Q(Quote)
March 11, 2012, 4:02 amGreg Q says:
1: Sorry, I don’t do multimedia, at least not for information gathering. I read much faster than anyone talks.
2: The crux of the Crane / Levy case is this “The Agreement could be construed to require that at some point, the Estate’s stock must be tendered to the Institute for possible purchase. However, the Agreement does not require that Cato purchase the offered stock. Further the Agreement does not provide that the stock must be offered to the other stockholders unless Cato deems that a purchase by Cato would be ‘inconsistent with its corporate purposes.’”
Sorry, but your argument’s bullshit. If the purpose was “consistent with [Cato's] corporate purposes”, Cato would buy the shares. Therefore, if Cato doesn’t buy the shares, it’s because the Board of Directors decided that the purchase was “inconsistent with [Cato's] corporate purposes.” Unless you wish to claim that Cato can not afford to buy the shares. In which case, I’ll donate $16 for the purpose of buying the shares, just to get the problem solved.
Refusing to honor the clear terms of a contract because you don’t like the outcome is most definitely “ill-libertarian”. Getting a judge to force you to honor the contract you signed, OTOH, is a perfectly libertarian thing to do.
In short, you agree that the current setup will give the Kochs their way, and don’t like that. Fine. You want to change the situation. Also fine. You’re refusing to honor the contract in the hopes you can bully the Kochs into giving up their legal rights.
Not fine.
You’ve decided you’d rather destroy Cato than let the Kochs get control of it, regardless of whether or not they have to legal right to take control. So you denied the plain meaning of the contract, fought to dodge your obligations under it, tried to bully the Kochs into letting you get your way, and when they refused to be bullied, and took you to court, you decided to take the fight to “the court of public opinion” rather than let it remain a legal matter resolved based upon the law.
Short of hiring assassins to kill the Kochs, or paying people to firebomb Koch property, I can’t really think of a more “ill-libertarian” response than the one you’ve engaged in.
It may be that the initial agreement was a stupid idea. It may be that it would be better for the world if the Koch brothers were completely aced out, the agreement changed, etc.
But none of that matters to how you are supposed to behave in this situation. If you can’t see that, then you are no kind of libertarian, and you are polluting Cato by your presence.
An outside commentator who has no influence over the situation is free to say “I don’t care if the Kochs have the legal right to do this, they shouldn’t have done it.” Ed Crane, Bob Levy, and the Board of Directors do not have that luxury. Or, rather, you can say whatever you want. but when it comes to what you do, you are, and should be, bound by that contract. That is the core and basis of all libertarian thought: you make an agreement, you sign a contract, you honor it. No matter how much you don’t like it.
Greg Q(Quote)
March 11, 2012, 4:33 amGreg Q says:
FWIW, two additional thoughts:
1: Snark and bile are great ways to encourage people that they’re right to be opposed to you.
2: Nothing that you said or referenced provided any new information to me. I read a good deal over at Skip Olivia’s before coming here to comment. I’ve read, or at least skimmed, most of the posts here on it. I haven’t read the comment threads here at Volokh, other than the comments to this post. I read Erick Erickson’s comments after my “Epiphany”, and was amused that he had the exact same reaction I did, just several days earlier.
3: Buy the shares, or let the Kochs buy the 10 and 2/3 their entitled to buy. Congratulations, you’re now controlled by Koch. Figure out how you can help them make the change work for Cato. IOW, man up. You lost, deal with it. Cato is not you, it’s not Ed Crane, and it’s not Bob Levy. Or, rather, if that’s all it is it’s a worthless pile of crap that needs to be destroyed, anyway. It’s supposed to be a think tank, not a ego shop.
If you just can’t handle working for the Kochs, that’s fine. Leave. Go start a new think tank, taking all those supposed “Koch hating” donors with you.
But honor your contracts. Or don’t call yourself a libertarian.
Greg Q(Quote)
March 11, 2012, 4:56 amloki13 says:
You’re new here, aren’t you? :)
Heh. Would you like an extra shovel?
Totally missed answering the question. Not a surprise.
Also, read in its entirety, what is the importance of this part in conjunction with the other cited parts of this agreement?
Anyway, how does Kansas law interpret rights of first refusal in contract law? Narrowly or broadly? Does past action regarding rights of first refusal (see what happened to prior shares) have a bearing on that?
What some people continue to assert (such as you and Greg Q) that is indisputably wrong is the following-
1. That this cause of action is “crystal clear”. It isn’t. In addition to a number of procedural problems just from the start, and in addition to a complaint that may have been drafted by the same Richard F that drew up the agreement, the agreement itself *just dealing with the BoD right of first refusal* and getting past the procedural issues is less than 100% clear. But a court can determine that.
2. Once you get past 1, however, there is another big issue. There isn’t a colorable claim to be made (nor was one correctly pled) that there is a *shareholder right to second refusal*.
You could say the same about the Kochs. After all, this is a dispute about a contract. I will continue to say that any philosophy that depends on the sanctity of contracts needs to pay more attention to the writing of the contracts, and less hope that Richard F. will be the reader.
loki13(Quote)
March 11, 2012, 8:23 amSteven J. Willis says:
I cannot locate the earlier link I posted to the lawsuit, which contains the shareholder agreements; however, I suggest everyone debating them, read them.
As I recall, a shareholder who disposes of shares must offer them to CATO. What constitute a disposal is unclear. Whether dying is a disposition is unclear; however, I doubt it would be, especially if I correctly recall the agreement: how could an obligation be binding on the deceased. Although a later provision makes it either binding on or annure to the benefit of heirs, etc., they would not be the ones disposing of the shares; instead, they would be receiving them.
In any event, I recall the agreement triggering the “required” offer to others only if the purchase by CATO “is deemed inconsistent with its corporate purposes.” Clearly, that does not say who does the deeming, the standards for deeming, the meaning of inconsistent,and the relevant corporate purposes.
I do not know what the parties meant by any of this. I do know CATO was not a party. I also know quite a bit about the law of tax exempt organizations, the purposes of them, the federal laws controlling them and their purposes, and the laws restricting the actions of shareholders and members (which are two different things). I have been unable to imagine any plausible or even possible inconsistencies a purchase would create with what my best guess is of CATO’s purposes. As I stated in other threads, without the articles of incorporation, the by-laws, and the FORM 1023, speculation about those purposes – especially by people not trained in the meaning of tax exempt purposes – is not very fruitful.
I have no dog in this fight; however, I find the issue academically fascinating. From what I have read, including all the comments in all the threads, I see no merit to the Koch’s lawsuit. I don’t think its states a proper claim, as it mis-quotes the agreement. I doubt it has jurisdiction over the estate.
This is all still fascinating, except for the tone of many comments, which have deteriorated into name-calling. IMHO, non-lawyers should tone down their apparent certainty regarding legal interpretation. Non-tax lawyers should consider the tax law impact on the meaning of the terms: ultimately, that should have a great impact on the interpretation (though I understand a state court may miss the issues if not properly argued). Even tax lawyers should understand the large impact laws and rules governing tax exempt organizations can ultimately have on the dispute and its resolution (though I understand the IRS may ignore this and the parties to the agreement may never seek to get them involved).
Lastly, someone please re-post the link to the lawsuit and the shareholder agreement so everyone can read it again. As with any legal document, I suggest everyone read it a dozen times, at least. I also wish I had the relevant Kansas statutes from the time of drafting. I have not found them.
Steven J. Willis(Quote)
March 11, 2012, 9:24 amloki13 says:
Prof. Willis,
The complaint, with attached exhibits, is available here.
Your words re: tone of comments are noted, but I will just point out that despite the nearly endless threads on the topic, and the patient explanations of the issues in this case from many commenters previously (including you), a select few individuals have decided to continue making the exact same point repeatedly (the contract is crystal clear, no true libertarian dare dispute crystal clear contract language etc.). While a certain amount of forbearance can be expected to those new to the threads who haven’t bothered to read the prior explanations, at a certain point you have to assume that select commenters aren’t bothering to listen.
Anyway, I’ll exit.
PS- While I can’t expend client money to look it up, IIRC it was relatively easy to look up past versions of statutes back when I had free Westlaw/Lexis. Coverage doesn’t go back to that point?
loki13(Quote)
March 11, 2012, 10:52 amloki13 says:
Meh. Checked scope. Some questions answer themselves!
loki13(Quote)
March 11, 2012, 10:59 amDavid M. Nieporent says:
My argument isn’t at all circular. You’re not using the word you intend to use here, but I don’t know what word that is.
No. It isn’t. There’s no question that the shares can be passed through inheritance. (The very language you quote — that the agreement is binding on the heirs — contemplates that the shares can be passed through inheritance.)
That is not a “prohibition,” as I have already explained to you. It is a right of first refusal. Thus, assuming this provision applies to this situation, before the shares can be distributed through inheritance, they must first be offered back to Cato. Cato can exercise its ROFR and buy them, or it can decline to do so.
You want to mis-read the agreement as saying, “The parties agree that the shares are non-transferrable. Upon the death of a shareholder, they shall revert to the corporation.” But it doesn’t say that. (The Koch’s want to mis-read the agreement as saying, “Cato shall have the right of first refusal. If Cato does not exercise this right, the shareholders shall have the right of second refusal.” But it doesn’t say that, either.)
There’s no question that a different section of the contract says that. But the fact that the agreement is binding on heirs — something Cato does not deny — is not the same as saying that the provision of the contract regarding the ROFR applies to inheritance. To explain the difference: there’s no question that, if Washburn inherits the shares, she cannot offer to sell them to Eugene Volokh without first offering them back to Cato. That’s because the agreement would be binding on her. But that doesn’t mean that the provision relating to “pledge, hypothecate, sell or otherwise dispose of” includes their transfer on death by operation of law. But even assuming it does, all that means is that the shares must be offered back to Cato first, and based on Levy’s statement, Cato agrees that she will do this. But so what? Cato isn’t required to buy them. And if Cato doesn’t, then she does get them.
You’re apparently not a lawyer, because you certainly don’t understand the legal issues. The real question is what the agreement requires, as written. (Though, obviously, if it is unenforceable under Kansas law, that would be a superseding question.)
David M. Nieporent(Quote)
March 11, 2012, 11:17 amGreg Q says:
Does the current Cato Board of Directors think it would be ‘inconsistent with [Cato's] corporate purposes’ to let Cato be taking over by the Koch brothers?
Is the Board of Directors refusing to buy the shares because doing so would allow the Kochs to take over?
I’d say the answer to the first is “yes”, and we know the answer to the second is “yes”, it therefore follows that Cato is refusing to buy the shares “a purchase by Cato would be “inconsistent with its corporate purposes.”
Therefore, by the terms of the agreement, the Koch brothers get to take over. Thank you for playing along at home, have a nice day.
Greg Q(Quote)
March 11, 2012, 12:29 pmRichard F says:
Except that I’ve never even remotely suggested as much. I’ve stated from the very start that there are legitimate questions of enforceability surrounding the agreement. But I’ve also stated, and maintain, that the Kochs seem to have the stronger position in their reading of the agreement. The Cato response, not unlike your own commentary in support of it, comes across as muddled and disjointed in its articulation, is frequently self-contradictory, and seems to be built around an extremely pedantic, forced, and generally implausible reading of the contract’s terms.
Again, it’s perfectly fair to note that there are contestable elements to the Koch’s case and even that the 1977 contract was not always the clearest document. But blathering over and over and over again about it being “poorly written” tells us nothing about its substance, or the perfectly salient critiques that have been made here of Cato’s disjointed response. An honest reading of the agreement reveals that the current Crane/Cato position is a highly flawed one, even while we can openly concede that the Koch position is not impregnable.
Then again, we’ve already established that reading comprehension is not your strong suit so I wouldn’t expect to see you acknowledge that. Rather, you will continue prattling on about how it’s “poorly written” followed by an unsustainable leap to the conclusion that Cato = right, Kochs = wrong and anyone who thinks otherwise should be flippantly dismissed by the repetition of the aforementioned.
Richard F(Quote)
March 11, 2012, 12:48 pmDavid M. Nieporent says:
What is the factual basis for this claim?
David M. Nieporent(Quote)
March 11, 2012, 12:55 pmRichard F says:
The evidence suggests otherwise. You have effectively asserted Washburn’s inheritance of the shares to “prove” that she may install herself as a shareholder, sidestepping that her alleged inheritance is very much in dispute right now. To borrow from the Prior Analytics, such is the textbook definition of a circular argument: “If then begging the question is proving what is not self-evident by means of itself, in other words failing to prove when the failure is due to the thesis to be proved and the premiss through which it is proved being equally uncertain, either because predicates which are identical belong to the same subject, or because the same predicate belongs to subjects which are identical, the question may be begged in the middle and third figures in both ways, though, if the syllogism is affirmative, only in the third and first figures.”
But go ahead and keep telling yourself otherwise. Just note that most who examine the case in any detail seem to be justifiably wondering why the Cato feels compelled to “appeal to the court of public opinion” while offering only strained word parsing and general tediousness to the actual court. That alone is an admission that they know they have the weaker case.
Richard F(Quote)
March 11, 2012, 1:06 pmGreg Q says:
This brings me to my other point: I wonder if Bob Levy, Ed Crane, and loki13 all thing the 2nd Amendment only creates a “collective right” to bear arms, or if it only protects your right to bear arms when you’re actively in militia training, or any of the other BS that left-wingers threw out over the years , just because the 2nd Amendment starts with “A well regulated militia being necessary to the security of a free state, “.
There are two, and only two, reason why Cato would not buy back the shares:
1: They can’t afford to buy back the shares (in which case, I’ll give them the $16 to do it).
2: They feel that a purchase by Cato would be “inconsistent with its corporate purposes.”
Or are you saying that the Cato leadership likes to get into grudge inducing and destructive pissing matches to avoid doing something that is consistent with their corporate purposes?
Cato has the chance to purchase 1/4 of a $50 million + company for $16. If it wasn’t “inconsistent with its corporate purposes”, why woudn’t it do it?
Sorry, but that argument is as lame as teh left wing ones about the Second Amendment that lost in Heller.
Greg Q(Quote)
March 11, 2012, 1:07 pmRichard F says:
The Kochs have specifically stated it twice:
Email to the Koch Foundation: “All of these efforts were rejected, and Cato’s other shareholder [Ed Crane] demanded that a shareholders’ meeting be held on March 1 where a new party (Ms. Washburn — Bill Niskanen’s widow) would be named a shareholder and new directors would be named.”
Statement of Charles Koch: “The third Cato shareholder, Ed Crane, insisted that we have a shareholder meeting on March 1 to vote on new directors. At this meeting, a new shareholder was to be recognized in violation of our longstanding written agreement and the Institute’s bylaws and articles of incorporation.”
To my knowledge nobody at Cato has disputed this claim. If they wish to dispute it, it would provide a much-welcome additional detail to the chain of events that led to the lawsuit. If they don’t dispute it, then I don’t see how they can simultaneously argue that the case was not ripe. In fact, I fully expect to see the Koch counterargument to the ripeness claim to emphasize that the lawsuit was filed when it was to specifically stop Crane from installing Washburn as a shareholder on March 1.
Richard F(Quote)
March 11, 2012, 1:19 pmGreg Q says:
For someone who likes to criticize other people’s reading comprehension, you’re not very good at it.
The point is not that two libertarians can’t disagree about a contract. The point is that you don’t go to “the court of public opinion” over a contract fight. If it’s a bad contract, and Cato will be destroyed because if it, that’s too damn bad. But it’s a violation of every libertarian principle I know of to say “I don’t like the requirements of this contract, so I’m not going to obey it.”
But that’s what I’m hearing from Levy and Crane.
Either the judge rules for them, or against them. If the judge rules against them, then they’re done. Period, dot, end of sentence. They lose, Koch wins, Cato goes to the Koch brothers.
If the people running Cato were true to their supposed libertarian principles, that would be the end of it. Because they’re not willing for that to be the end of it, they either have no libertarian principles, or else they “have” them, but don’t actually follow them. In either case, that tells me they shouldn’t be in charge at Cato, or any other libertarian organization.
Greg Q(Quote)
March 11, 2012, 1:21 pmRichard F says:
Mr. Pot, meet my dear friend Mr. Kettle.
Or isn’t it time for another hourly reminder that the shareholder agreement was “poorly written” and therefore, evidently, not worthy of any deeper consideration?
Richard F(Quote)
March 11, 2012, 1:24 pmRichard F says:
Perhaps they contemplated that an heir of the deceased could be receiving them, but a “personal representative” acting on behalf of the deceased could be disposing of them? This might also be why the Kochs’ suit emphasizes Washburn in her capacity as “personal representative” of Niskanen’s estate when it invokes that clause.
Without any special knowledge of what they were contemplating when they wrote that, might it be as simple as this: a decision by Cato to repurchase the shares is itself the action that is “consistent” with corporate purposes, whereas a decision not to repurchase is the act of deeming them “inconsistent” with corporate purposes, in which case the option automatically falls to the shareholders?
I also suspect that looking to what was done with Roger MacBride’s shares in the early 1980′s may reveal this intent. Sometime between 1977 and 1985, the three remaining shareholders each increased their holdings from 12 to 16 shares. This is just speculation but it seems to suggest that the shareholders – including Crane – exercised the so-called second option in this case and divided MacBride’s shares up three ways, giving them the current total of 16 each (Rothbard’s shares would fall under the different category of being a revoked minority shareholder, though there is a lingering question if this revocation occurred legally – Rothbard suggested it did not).
Richard F(Quote)
March 11, 2012, 1:39 pmGreg Q says:
A short Cato – Koch timeline. If I’ve got anything factually wrong here, please let me know:
1: William Niskanen dies
2: Koch brothers: Either Cato must buy Niskanen’s shares, or we get to buy 2/3s of them.
3: Crane / Levy: We’re not going to buy the shares, and we’re not going to let you buy them, either.
4: Lots of arguing occurs.
5: Koch brothers: We’re taking you to court, because we think the contract favors us.
6: Crane / Levy: We’re going to fight you in court, but more importantly we’re going to take this to the “Court of Public Opinion”, and do our best to win there.
After a good deal of reading and thought, I realized that that, right there, is the end point for me. Bob Levy and Ed Crane aren’t attorneys, whose proper job is to fight for their client no matter what. They’re leaders of a libertarian think tank, yet what they are clearly saying is “we don’t care what the law says. We want to keep our money and power, and we will do anything in our power to accomplish that goal.”
If that behavior is consistent with your view of libertarian ideas, then we have no common ground. That’s the kind of behavior we expect from statist thugs, not libertarians.
If you value Cato as a libertarian think tank, then Ed Crane and Bob Levy, and anyone and everyone else who approved of those tactics, must go. Because an organization run by people who clearly don’t believe that contracts apply to them, can not make the case that other people should let contracts apply to themselves. And without that, there’s really nothing left to libertarianism.
Greg Q(Quote)
March 11, 2012, 1:41 pmGreg Q says:
Whatever the validity of your first point, your second point is wrong. Yes, it does say what the Kochs say it says. If buying the shares were consistent with Cato’s corporate purposes, the Cato BoD would buy the shares. Since they’re refusing to buy the shares, it follows that the Cato BoD has determined that buying the shares is inconsistent with Cato’s corporate purposes. Which means now the other shareholders get to buy them.
If Ed Crane doesn’t want to buy 5 1/3 shares, Washburn can inherit them. Great! Who cares? The Koch brothers have right of second refusal on 10 2/3 shares, and they’re going to exercise it.
Ed should buy his 1/3, buzz off, and hope that one of the Koch brothers dies before he does. Then it would be back to 50 / 50. Hey, if he outlives them both, he can then get control back.
but unless you can provide an air-tight solid case for why it would be “consistent with [Cato's] corporate purposes” for the BoD to buy the shares, but despite that they’re not going to buy them, your case falls apart.
Here’s a point you’re going to have to address: Does the Cato BoD think it would be “inconsistent with [Cato's] corporate purposes” to let the Koch brothers take over? Yes? Are they refusing to buy the shares to avoid that happening? Yes? Need the Kochs prove anything more than that?
Greg Q(Quote)
March 11, 2012, 1:57 pmRichard F says:
Interesting, and it illustrates yet again the importance of settling what happens if the board declines repurchase.
The Kochs have offered a plausible answer for what happens next. Cato, despite harping endlessly on the “right” of the board to decline repurchase, has not.
Richard F(Quote)
March 11, 2012, 2:16 pmDavid M. Nieporent says:
This is , of course, completely wrong. Heirs are people who receive money, not people “acting as executors.” These aren’t remotely the same concept. Heirs do not act as executors; executors do. (That is not to say, of course, that an executor can’t be an heir; in fact, that’s frequently the case. But they’re separate roles.)
It tells us that when you say that Crane “knows full well what it contained” or talk about a “straightforward reading” of it, you’re (and this is a technical legal term) talking out of your ass. Because it’s not well-drafted, there is no one “straightforward reading” of it; that’s what “not-well-drafted” means. And if there’s not one straightforward reading, then claiming both parties knew full well what it contained is faulty.
Well, the defendants haven’t filed their Answer yet. When they do, you’ll see what their arguments are. It’s sort of bizarre to complain about their arguments when all we have is some blog posts, mostly by non-parties.
However, that having been said, there has been nothing “contradictory” or “unclear” about their arguments. Perhaps because you’re a non-lawyer, you have trouble with arguments in the alternative; I’ve noticed that many lay people do. But simply blathering that Cato’s arguments are unclear when they’re not over and over and over again tells us little that’s useful about the case, adds nothing to the discussion that isn’t already known, and makes you look either stupid or consciously intent upon misdirection, by the way. Their argument (and when I say “their argument,” I mean the argument that I and others would make on their behalf; their lawyers will make their actual argument.) is very clear:
1. The ROFR provision of the shareholder agreement does not apply to inheritance.
2. If the ROFR provision does apply to inheritance, then the estate will be required to offer the shares to Cato before the shares are distributed to the heirs. However, the estate is not yet required to do that, because the estate is still open.
3. Once the distribution is ready, the offer must be made, but Cato is under no obligation to accept the offer.
4. If Cato doesn’t accept the offer, then the shares are to be distributed to the heirs.
Now, people have also argued that even if this interpretation is wrong and the Kochs have the right to the relief they seek, the Kochs should not exercise that right for the good of Cato. But that does not vitiate the argument that this interpretation is correct.
David M. Nieporent(Quote)
March 11, 2012, 2:27 pmRichard F says:
You are constructing a straw man. Go back and re-read the clause. It does not say simply “heirs.” It does not say simply “executors.” It does not say you gets to choose between “heirs or executors” based on whatever one happens to be convenient at the moment, as Ed Crane seems to be trying to do in his effort to install Washburn as a shareholder. It says in what appear to be intentionally broad and sweeping terms, “heirs, legatees, and personal representatives of whatsoever nature.” It’s boilerplate, but boilerplate intentionally written to cover every conceivable circumstance.
Richard F(Quote)
March 11, 2012, 2:37 pmRichard F says:
You are confusing your terminology again. “Poorly written” does not equal “lacks a straightforward meaning.” A contract can be “poorly written” in the sense that it seeks to do something that is difficult to enforce, yet also be perfectly clear what it seeks to do.
As to whether what Crane knew he was getting into, your argument there fails as well because Crane himself used the shareholder agreement to oust Rothbard in 1981 when its terms worked to his advantage. In fact by every indicator from the time, it appears that Crane and not Koch was the INSTIGATOR of the move to oust Rothbard using the shareholder agreement. To plead ignorance of that now that it’s coming back to bite him in the ass 30 years later simply doesn’t pass the smell test.
Perhaps you missed this, but Cato has largely taken its intended legal strategy to the “court of public opinion” by posting it online. http://www.cato.org/SaveCato/
Simply saying “they haven’t filed their answer yet” and using that as an excuse to shelter their published arguments from scrutiny is a cop out. And I’d also point out that the most specific and substantive “other” arguments in favor of Cato to date have come from Levy and Taylor, who are anything but “non-parties” to the Cato position.
Richard F(Quote)
March 11, 2012, 2:48 pmDavid M. Nieporent says:
Your third sentence does follow from your second. The problem is that the second one is simply handwaving. There are many things “consistent with” their corporate purpose. They are not obligated to do all of them.
Your reading is silly; you are reading the right of second refusal as virtually automatic, but there is no reason anyone would put a condition in there if the condition would always be triggered. If it meant what you want it to mean, they would have simply written, “If Cato declines to purchase the shares, the shareholders shall have the right to purchase them.”
David M. Nieporent(Quote)
March 11, 2012, 2:49 pmDavid M. Nieporent says:
But you’re still showing that you don’t understand the issues, by using irregular terminology. “Enforceability” is an entirely different concept than ambiguity/lack of clarity. There may be issues of enforceability (that would depend on Kansas law, which I do not know), but we’re primarily discussing issues of what the agreement means, not whether that meaning may be enforced.
David M. Nieporent(Quote)
March 11, 2012, 2:55 pmDavid M. Nieporent says:
I have not used the phrase “install herself as a shareholder,” because I don’t know what you mean by it, and therefore have not made any arguments about it or based on it.
Her inheritance of the shares — which has not happened yet, but will presumably happen unless something intervenes — does not “prove” she can become a shareholder; it makes her a shareholder. She inherits if (a) Niskanen’s executor (her) distributes the shares to her consistent with his will, (b) Cato doesn’t exercise its ROFR (either because it chooses not to, or because the ROFR does not apply to inheritance), and (c) Cato’s shareholders, including the Kochs, do not buy the shares (either because they choose not to or because they’re not entitled to). You seem to think that after (a)-(c), she must still do something else.
Who cares? Your claim was about Crane’s intent. How can you support a claim about Crane’s intent by what the Koch’s said? Surely Crane’s intent can only be divined from what Crane has said.
So if Cato doesn’t fight “in the court of public opinion,” you’ll hold it against them? In any case, you’re incorrect. On Cato’s website, they explain their position:
This is consistent with what the attorneys here have been trying to explain to you, and inconsistent with your interpretation of events.
David M. Nieporent(Quote)
March 11, 2012, 3:31 pmRichard F says:
That’s funny. The bulk of the discussion so far has revolved around the admittedly vague matter of whether the agreement was “poorly written,” with some persons essentially resisting any effort to move beyond acknowledgment of that as a declarative statement and others asking the next obvious questions “if it is poorly written, then how so and what does that mean?” But I certainly don’t recall anyone making you the moderator of what may be “primarily discussed” and in what context.
As for my own position, I’ve been perfectly clear from the outset that the phrase “poorly written” connotes multiple things about the agreement. To that end I’ve (1) readily conceded that enforcement of the terms of the agreement are probably a legitimate point of dispute (though one that’s better suited for someone who knows how the state of Kansas deals with these things), and thus it may be fairly called “poorly written” on those grounds. But I’ve also maintained (and still maintain) that (2) the Koch interpretation of the agreement *as written* is far and away the more plausible and straightforward of the two, and that the Cato interpretation comes across more like a tedious exercise in word parsing, some of it quite a stretch, for reasons that have been thoroughly elaborated upon above.
I’m honestly sorry that you cannot seem to differentiate the two issues from one another, but on that point the confusion is entirely self-imposed.
Richard F(Quote)
March 11, 2012, 3:45 pmRichard F says:
And may the circle be unbroken.
Cutting through all the crap, your argument essentially reduces to this: stating she is becoming a shareholder through inheritance proves that she can become a shareholder through inheritance, and if she can become a shareholder through inheritance she should inherit the shares.
Yet her ability to inherit them is very much in dispute by the Kochs, your apparent suggestions otherwise notwithstanding. They maintain she cannot, and plausibly so given the restrictive terms of the agreement where the transfer of shares is concerned.
Second, if the Kochs’ position is valid and she cannot legally inherit the shares, then recognizing her as a shareholder at the March 1 meeting and thereby permitting her to vote her shares at that meeting would violate the agreement, would it not? Therefore we also run straight up against the problem with Cato’s ripeness argument.
Richard F(Quote)
March 11, 2012, 4:05 pmDavid M. Nieporent says:
Nope. You’re still not getting it. The Cato shares passing through inheritance is the default, just as with Niskanen’s house, IBM shares, Chevy Impala, collection of signed Tino Martinez baseball cards, and riding lawn mower. The heirs inherit each and every item of property, including the Cato shares, unless there’s an intervening factor.
One intervening factor, common to all of his property, is claims by creditors (including, if applicable, death taxes) on the estate. In the case of the Cato shares, a second potential intervening factor is the decision by Cato to exercise its right of first refusal. It’s not clear that such a ROFR exists in the case of inheritance. If it does not exist, then the shares definitely pass via inheritance. If the ROFR does exist, then Cato’s decision to exercise it would prevent them from passing via inheritance. But if Cato declines to exercise it — as both sides agree will happen — then the shares pass via inheritance, unless Cato’s decision to decline was because exercising the ROFR was “deemed inconsistent with its corporate purposes.” (Nobody — including the Kochs in their lawsuit — makes the claim that it was.)
Nothing Cato does can violate the agreement, because Cato isn’t a party to the agreement. However, it would indeed be problematic for other reasons, yes. But Cato never said they were going to do that, and as I quoted above from the Save Cato page, they in fact said that she would only be voting as representative of the estate. Since the Kochs didn’t move for a TRO, it’s a reasonable assumption that the latter is all that was going to happen. However, here’s the thing: check the calendar. It’s after March 1. There’s no need to talk about what actions Cato will take at the meeting, because the meeting already happened. What actions actually took place at the meeting? The Kochs haven’t amended their complaint or taken any action to suggest that anything happened at the meeting to violate the agreement.
David M. Nieporent(Quote)
March 11, 2012, 5:08 pmGreg Q says:
Yes, I am reading the right of secondary refusal as being essentially automatic. All the Cato defenders seem to be insisting that the agreement was poorly written, and I agree. That phrase doesn’t belong, shouldn’t have been added, and has no real meaning.
You, however, are ignoring my point that we know why the board doesn’t want to buy the shares: it’s because doing so would give the Koch brothers control of Cato, and the Cato BoD thinks that’s “inconsistent with [Cato's] corporate purposes”. Which means that even if you grant the clause great meaning and value, in this case the Kochs still win.
I can see the depositions now:
Attorney for Koch: If the Cato BoD purchased the shares, would that give control of Cato to the Koch brothers?
Member of Cato BoD: Yes
Attn’y: Do you consider Koch control of Cato to be inconsistent with Cato’s corporate purposes?
Member: Yes
Multiply by number of Cato BoD members supporting Crane
I’ll let someone else write the hysterical dialog that would follow a Crane supporting BoD member trying to claim that it would be perfectly consistent with Cato’s corporate purposes for the Kochs to take over. I’m guessing it would involve reading back to the BoD member the various arguments Crane and Levy have put out about how bad it would be for the Kochs to take over, then asking the BoD member whether he or she agreed with those statements. Also occasionally reminder the BoD member that he or she is under oath, and perjury is a felony.
Greg Q(Quote)
March 11, 2012, 5:10 pmRichard F says:
…unless, of course, the shareholder’s agreement intervenes. But that’s the rub, isn’t it? And no matter what you think of the Kochs’ argument that it does intervene, you cannot claim that an inheritance in spite of the potentially intervening agreement is proof that the intervening agreement does not apply to that inheritance, because that would be…well…circular, as per my original critique. Q.E.D.
Richard F(Quote)
March 11, 2012, 7:40 pmDavid M. Nieporent says:
But the phrase was added, and you can’t pretend it wasn’t. Your argument, in essence, is that, given a contractual provision that says,
“The parties have the right to do X if condition Y is present,”
If we can’t figure out what Y means, that we simply toss out the conditional entirely and interpret the provision to say, “The parties have the right to do X.”
But those are very different, and that would not be the standard approach, I think.
Joseph Heller would be proud. But there are two problems with that argument. The first is that I disagree with your premise, which is that you treat it as obvious that they would buy back the shares if not for the Koch-Crane dispute. Why would they? If Washburn is not objectionable, why would the board try to keep her from inheriting? Second, even if they were motivated by a desire to block the Kochs, you’re conflating “not in the best interests of Cato” with “inconsistent with the corporate purpose.” They may think it’s the former without thinking it’s the latter.
David M. Nieporent(Quote)
March 11, 2012, 8:23 pmDavid M. Nieporent says:
Which is pretty much what I said in the next several paragraphs of the post. Is there a reason you deleted them and then pretended I didn’t say them?
Great. Luckily at no point did I claim anything remotely similar to what you just said. You’re as bad at reading what I write as you are at reading the Shareholder Agreement.
David M. Nieporent(Quote)
March 11, 2012, 8:27 pmJohn says:
death of contracts law
According to Cato:
First, the language of the Agreement does not provide that the stock owned by the Estate need be offered for purchase by Cato until the Estate is closed, which is likely to be early next year. The Agreement does not anywhere state that the death of a stockholder is a transfer of stock subject to the Agreement. Instead, the Estate takes the place of a deceased stockholder at death as a matter of law, without transfer. When the Estate is closed and the stock is ready for distribution, the distribution could potentially trigger the right of the Institute to receive an offer to purchase the stock. Meanwhile, the law of Kansas, where the lawsuit was filed, provides that “persons holding stock in a fiduciary capacity are entitled to vote the shares so held.” Kansas courts have held that a personal representative of an estate acts in a fiduciary capacity.
Now I have looked through the contract with a reasoned eye and no where does such appear. The contract doesn’t state a time; accordingly, under one of the most settled rules, the time for transferring the stock is within a “reasonable,” which should be no later than the last day for creditors to file claims (on the off chance Kansas law would pierce the restraint on alienation as a fraudulent conveyance).
Beyond that, Cato seems to fail to understand the fiduciary duties of a personal representative, which is not to do the bidding or Crane but, instead to carry out the intent of the shareholder as evidenced by the agreement he signed.
Let us all hope that this kind of a frivolous defense meets the fate it deserves, with the personal representative being charged with waste and having to pay personally for the cost of the “defense.”
John(Quote)
March 11, 2012, 9:28 pm