Update (October 24, 2012): A huge part of U.S. civil litigation is a shell-game of identifying the correct parties. While there is no dispute that corporations occupy a critical place in the U.S. economy, on the other hand, there is a punishing cost to us all in the ways that corporate forms are lawfully exploited. As mentioned in any earlier post, below, maybe, in the next several decades, there will be legal changes so that extraordinarily complex and nearly invisible corporate webs will not befog and befuddle the American economic and the American justice systems so much?
Time will tell. In the mean time, however, the corporate form will continue to be at the foundation of our economic system and will continue to complicate our justice system. At times, though, complex corporate structures will be employed against those who use it. It can a sword against those using complicated corporate forms as well as a shield designed for their protection.
Take, for example, a pending action in U.S. District Court (D. Minn.) arising out of a dispute between a property owner and an architect. The property owner seeks to compel arbitration of an allegedly botched construction project in Willmar, Minnesota; the architect (that is, counsel for the architect through its insurer, it seems), however, argues that “the property owner” is only one of many corporate entities and the entity that sued the architect had no contract with the architect and thus no basis to compel arbitration.
It falls to U.S. District Court Judge Richard H. Kyle, Sr. (D. Minn.) to untangle web of corporate forms to solve this puzzle. Regardless, one can only hope that plaintiff “FJM Properties of Willmar, LLC f/k/a Family Eye Properties, LLC” gots its money worth for its complicated corporate composition through tax advantages or whatever else motivated the plethora of corporate forms, because it seems to be paying for it in this longstanding fight about whether it is the proper party to force an arbitration.
Original Post (July 18, 2012): (Under the subject line: On The Law, Norms, Morals, and The Future): Before 1934, that is, before the passage of the federal Securities Exchange Act, there was no prohibition against “insider trading,” or the trading of publicly traded stocks based on insider confidential information. Many large fortunes were made from this lawful, if troubling (at least in retrospect), practice. Now, of course, insider trading is widely known and deeply understood to be criminal.
What widespread lawful business practice of today will be viewed at some point in the future as “troubling” or even will be viewed as criminal conduct by later generations?
Give me a buzz in 2062 and I will answer this question for you with more certainty. In the mean time this is my best guess:
The exploitation of the corporate form in the United States today, which is widely and lawfully used to insulate individuals from legal responsibility and from financial liability, is also used to insulate individuals from moral responsibility and from blame.
That is, manipulations of the corporate form are now used for what many if not most among us consider wrong-doing in ways for which today’s law offers no remedy, or, at a minimum, for which today’s laws make extremely difficult to hold individuals fully responsible.
As insider trading corrupts a basic principle of an open market and, most (but not all) now agree, should be criminalized, some manipulations of the corporate form are a detriment or set-back to our economy — they can be weapons in the scammer’s arsenal — rather than the huge boon to the capitalist system for which the legal fiction that is “the corporate entity” was invented and designed.
Maybe someday, then, a business like Integrity Dominion Funds will have a “slam dunk” lawsuit against Lazy Deuce Capital Co., LLC., Lazy Deuce Development Co. LLC, Semita Partners, LLC, Brent Johnson, Brian S. Baldwin, Frank W. Delahanty III.
But maybe that “someday” is not any time soon and maybe the complicated interrelationships and apparent concealed self-dealing that seem to underlie the Integrity Dominion Fund matter is just “the cost of doing business” in our currrent system?