by James Daily
Tort Claimants and Bankruptcy
The real bad news is that Vesetech is almost certainly going to be bankrupt in short order: All of its facilities around the world were raided, virtually every aspect of its business is suspect, and it is looking at massive criminal penalties. What’s more, tort claims are general unsecured claims, a.k.a. “the back of the line” in bankruptcy. So even if the women’s case is successful, they may ultimately receive nothing as secured creditors and the government take everything the corporation owns in liquidation. Sad, but that’s the law for you.
1. We discuss only superhero teams rather than supervillains in this section because a criminal conspiracy can’t avoid liability by hiding behind a corporation. Forming an explicit organization also makes it that much easier to prosecute the organization under the Racketeer Influenced and Corrupt Organizations Act, which is often used to prosecute organized crime. That leaves tax avoidance as the major advantage to forming a business organization, and somehow we suspect that most supervillains (with some exceptions, such as Lex Luthor) aren’t too concerned with paying income tax on their loot.
2. The terms “business organization,” “business association,” and “business entity” are used interchangeably here.
3. UNIFORM PARTNERSHIP ACT § 202(a) (1997). Every state except Louisiana has adopted some version of the Uniform Partnership Act.
4. See, e.g., In re Brokers, Inc., 363 B.R. 458 (Bankr. M.D.N.C. 2007) (“A partnership may be formed without a written or oral contract. In the absence of an express contract, the existence of a partnership may be established by examining the manner in which the parties conducted business. A partnership may be created by the agreement or conduct of the parties, either express or implied.”).
5. UNIFORM PARTNERSHIP ACT § 401(b) (by default, “Each partner is entitled to an equal share of the partnership profits”) and § 401 cmt. 3 (partners may agree to share profits other than equally).
6. See, e.g., Reddington v. Thomas, 45 N.C. App. 236 (1980) (“The word ‘profit,’ as it is used in the Act relates to the purpose of the business, not to whether the business actually produced a net gain.”).
7. UNIFORM PARTNERSHIP ACT § 202(a), cmt. 2.
8. Id.
9. UNIFORM PARTNERSHIP ACT § 301, -306 (1997).
10. INTERNAL REVENUE SERV., PUBLICATION 541, PARTNERSHIPS, available at http://www.irs.gov/pub/irs-pdf/p541.pdf.
11. UNIFORM LIMITED PARTNERSHIP ACT § 201 (2001).
12. Gavin L. Phillips, Annotation, Liability of Limited Partner Arising From Taking Part in Control of Business Under Uniform Limited Partnership Act, 79 A.L.R. 4th 427 (1990).
13. See discussion of respondeat superior later in this chapter.
14. About Agency, DELAWARE DEPARTMENT OF STATE, http://corp.delaware.gov/aboutagency
.shtml (last visited Mar. 14, 2012).
15. See, e.g., Robert B. Thompson, Piercing the Corporate Veil: An Empirical Study, 76 CORNELL L. REV. 1036 (1991). Thompson studied a pool of about 1600 cases, finding that courts pierced the veil in only 40 percent of cases. In no case did a court pierce the corporate veil in a case involving a publicly held corporation. Courts applying Delaware law likewise universally declined to pierce the corporate veil. Also see John H. Matheson, Why Courts Pierce: An Empirical Study of Piercing the Corporate Veil, 7 BERKELEY BUS. L.J. 1 (2010) (finding an overall piercing rate of 31.86%).
16. There may be additional registrations with states and municipalities once a federal tax-exempt application is approved. The requirements vary by state and municipality.
17. 26 U.S.C. § 501(c)(3).
18. INTERNAL REVENUE SERV., INTERNAL REVENUE MANUAL § 7.25.3.5 (1999), available at http://www.irs.gov/irm/part7/irm_07-025-003.xhtml.
19. J. WILLIAM CALLISON AND MAUREEN A. SULLIVAN, LIMITED LIABILITY COMPANIES: A STATE-BY-STATE GUIDE TO LAW AND PRACTICE § 1:1 (2011); Id. at § 1:3.
20. Id. at § 1:3.
21. Id. at § 3:2.
22. Id. at § 3:7; See, e.g., Mo. Rev. Stat. § 347.081(1) (2004) for an example of a state statute requiring the adoption of an operating agreement.
23. Id. at § 1:1.
24. As a not-for-profit, the Maria Stark Foundation itself is likely organized as a corporation.
25. In some states, the employer can then seek indemnification from the employee (i.e., sue them). As a practical matter, however, many employees are “judgment proof” and cannot afford to pay the damages, which is one of the justifications for respondeat superior.
26. See RESTATEMENT (THIRD) OF AGENCY §§ 2.04 and 7.07(1) (2006).
27. RESTATEMENT (THIRD) OF AGENCY, §7.07(2) (2006).
28. Respondeat superior only applies to the torts of employees, not independent contractors. It is possible to sue someone for the negligent hiring of an independent contractor, but that’s harder to do than suing an employer under respondeat superior.
29. Or Stark International, Stark Enterprises, etc. The name of Stark’s company changes almost as often as his armor does.
30. Or a subsidiary corporation, but we’re concerned with individuals here, not corporate shell games.
31. Castleberry v. Branscum, 721 S.W.2d 270, 275–76 (Tex. 1986).
32. 42 U.S.C. § 12101 et seq.
33. See Cleburne v. Cleburne Living Center, 473 U.S. 432 (1985).
34. 42 U.S.C. § 12102(1)(A).
35. 42 U.S.C. § 12102(1)(C).
36. 42 U.S.C. § 12102(2)(A-B).
37. 42 U.S.C. § 12102(4)(A,C-D) and (E)(i).
38. 42 U.S.C. § 12112(a).
39. 42 U.S.C. § 12113(a, b). We’re looking at you, Mr. Banner.
40. 29 U.S.C. § 216(b).
41. 29 U.S.C. § 217.
42. 29 U.S.C. § 216(b).
43. U.S. Const., Art III § 2, cl. 1.
44. 28 U.S.C. § 1332.
45. 28 U.S.C. § 1367.
46. Legal pedantry note: It is broadly assumed that this is so, but the Supreme Court has indicated in dictum that a foreign plaintiff may not claim federal jurisdiction under diversity of citizenship. Verlinden BV v. Central Bank of Nigeria, 461 U.S. 480, 492 (1983). It is not completely clear what the answer is in a case like this, with foreign plaintiffs and a US defendant.
47. These requirements are usually referred to as numerosity (“the class is so numerous that joinder of all members is impracticable”), commonality (“there are questions of law or fact common to the class”), typicality (“the claims or defenses of the representative parties are typical of the claims or defenses of the class”), and adequacy of representation (“the representative parties will fairly and adequately protect the interests of the class”).
48. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003) (holding that Due Process generally requires punitive damages be less than ten times the compensatory damages).
CHAPTER 8
Administrative Law
In a classic Silver Age comic, Superman finds himself facing that most dreaded of foes: the IRS agent. 1 The IRS figures out that Superman has been receiving a fortune in reward money, squeezing coal into diamonds, and digging up buried treasure, all without paying taxes on it. In typical Silver Age style, Superman tries a variety of crazy schemes to earn money to pay the billion dollars in back taxes he is assessed, but in the end everything is resolved with a simple loophole: Since Superman routinely saves the entire planet, he can claim everyone on Earth as a dependent, thus zeroing out his tax bill. Although the story is lighthearted (and that tax dodge almost certainly wouldn’t work), it’s one of many examples of the ways administrative agencies like the IRS can affect superheroes.
Administrative agencies touch on almost every aspect of life and business. There are over 160,000 pages of federal regulations alone! It’s not surprising, then, that there are many regulations that impact superheroes, from flying machines to weapons to experimental medical procedures. And, as that Superman story showed, the IRS catches up to everyone eventually. But the wide reach of administrative agencie
s is a relatively new development.
Two things are certain in life, even for Superman: death and taxes. Robert Bernstein et al., Superman Owes a Billion Dollars!, in SUPERMAN (VOL. 1) 148 (DC Comics October 1961).
Beginning in the middle of the twentieth century, right when superheroes took off, the American legal system was transformed by what amounts to the introduction of an entirely new kind of law. Legislation has existed basically forever, case law has been part of common law systems for centuries, and written constitutions became a touchstone of American jurisprudence in the late eighteenth century. But the introduction of administrative law in the New Deal period and its formalization after World War II was something new and different.
The New Deal saw the creation of a wide variety of federal agencies the likes of which had never before been seen, e.g., the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Administration (FHA), the Civil Works Administration, the National Labor Relations Board, the Social Security Administration, the Tennessee Valley Authority, etc. A significant number of current federal agencies can trace their origins to some part of the New Deal.
The function of these agencies was not merely to implement congressional legislation—the executive branch had been doing that for a century at that point—but to essentially create new laws governing their particular area of competency, i.e., whatever the agency was in charge of regulating. So rather than following specific directions to do particular things, the agencies were given a significant deal of freedom to operate.
Congress was not entirely sanguine about this. The creation of these agencies shifted power from the legislative branch to the executive, and legislators are never really happy about that. But the circumstances of the Great Depression that led to the New Deal were dire, and WWII immediately followed, so Congress was unwilling to do all that much to rein in these agencies, many of which acted with almost zero oversight. 2 But once World War II was over, Congress wasted little time in reasserting its authority as the king of the hill in Washington.
This it did by passing the Administrative Procedure Act of 1946 (APA). 3 The APA, as it is known, sets forth a unified set of procedures by which all federal agencies must operate. The details of the law are the subject of an entire law school course, and there is insufficient space to do the topic justice here, but suffice it to say that since the 1940s, administrative law has played a bigger and bigger role in the lives and businesses of Americans.
Administrative Agencies v. Military Operations
Given the reach of administrative law, it is unsurprising that superheroes might run into issues. But there is one distinction that needs to be teased out before we launch into administrative agencies proper: Civilian administrative agencies are different from military operations.
This is significant because civilian agencies are subject to the APA and must be created and funded directly by Congress. Any rules they promulgate must go through the Notice and Comment procedure, 4 and the agency’s funding is authorized by Congress. But military organizations such as the National Security Agency (NSA) and Central Intelligence Agency (CIA) are divisions of the Department of Defense, and their powers are far less circumscribed by civilian law than agencies like the Federal Communications Commission (FCC) and the Environmental Protection Agency (EPA). Budgets for these sorts of military agencies are frequently “black,” or classified, and for quite some time the NSA was jokingly referred to as “No Such Agency,” because it did not officially exist. 5
Further, whereas civilian agencies require the passage of an “organic statute,” i.e., a statute that creates and funds the agency, military organizations can be created by an Executive Order that does not require congressional involvement. Congress’s ability to control defense spending is more limited than its ability to control other kinds of spending, because it shares war powers with the presidency. Once funding has been authorized for the Defense Department, the President and the Secretary of Defense have a significant amount of freedom to spend that money as they see fit, without necessarily telling Congress what’s going on.
This is a very rough overview of the differences between military and civilian agencies. The relationship of the military and Congress has been fraught with controversy for almost the entire period since World War II, and though many military agencies do have organic statutes (e.g., the National Security Act of 1947, which authorized the National Security Agency), many of these statutes simply provided congressional authorization for organizations that already existed. Whether or not the President is allowed to create these agencies on his own authority has never really been established, but the fact is that it happens. The 9/11 attacks have not lessened the tension between Congress and the President caused by their shared War Powers, and this area of law continues to evolve.
As a result, the public does not have much information about what these sorts of agencies do, and their ability to engage in operations is presumably significantly broader than that of traditional law enforcement or other civilian agencies. So if a comic book character runs into a fictional agency that appears to be related to the military, there’s a fair chance that whatever legal problems may be involved aren’t strictly administrative law problems. 6
Politics and Agency Administrators
Let’s take a look directly at civilian agencies then. The Marvel Civil War event ran during 2006–2007 and tells the story of the passage of the Superhuman Registration Act and its aftermath. The gist of the story is that the American populace had been growing increasingly uncomfortable with the thought of unlicensed and unknown individuals with superhuman abilities just sort of running loose across the country, but these fears were, until then, balanced out by the efforts of some of these superhumans to protect and serve. This calculus changed when an irresponsible group of young mutants wound up involved in the destruction of an elementary school in Stamford, Connecticut, on live television. The SHRA was passed due to the huge public outcry.
The constitutionality and other aspects of the law are discussed in chapter 1. Here, we are interested in the implementation. What the law seems to have done is to follow Congress’s typical pattern when it wishes to regulate something. For example, rather than set specific environmental targets by statute, Congress created the EPA to do the work of figuring out what those targets should be and giving the EPA the authority to enforce those regulations. Likewise, rather than coming up with a plan detailing exactly how superheroes are to be registered and what happens to them once they do (or if they refuse), Congress created a new federal agency that it empowered to take care of things. 7 Tony Stark, whose identity as Iron Man was public knowledge by this point, is initially chosen as the head of the new agency, which given his business experience and political connections makes a certain amount of sense. CEO types are frequently appointed heads of federal agencies. 8
In this case, though, things end badly. Stark has never really been known for being a humble, cooperative type. On the contrary, he’s pretty egotistical and arrogant, and once he’s convinced he’s right, he tends not to pull any punches. This persuades Captain America to lead a resistance movement, kicking off the eponymous civil war among superheroes. In addition to the main civil rights issue (see chapter 1), many of the resisters did not trust Stark or his agency to adequately care for registered heroes’ privacy or protect them from the resulting danger.
But in a What If? issue published towards the end of the event, the authors took a look at what might have happened if Steve Rogers rather than Tony Stark had been appointed head of the agency. The suggestion is that things would have turned out quite differently, as Rogers is widely trusted by just about the entire superhero community and his leadership would have allayed many of the resisters’ fears.
What’s so interesting about this is that administrators really can have a huge impact on the conduct and mission of federal agencies. This is one of the main reasons why winning a presidential election is such a big deal. In addition to the abil
ity to sign or veto laws passed by Congress, the President has the opportunity to appoint the heads of almost every federal agency out there. 9 This is hugely important, as administrative agencies have a wide range of discretion in the regulations they pursue and enforce.
Take the recent issue of “net neutrality,” i.e., how the Internet is or is not to be regulated. President George W. Bush was generally of the opinion that the federal government should basically leave this alone, and the chairman of the FCC, at his direction, focused his energies elsewhere. But President Obama has made this a priority, and under its new chairman, the FCC has spent a decent amount of Obama’s term trying to develop net neutrality rules. Similarly, Bush’s EPA administrator significantly backed off environmental regulations and enforcement, but Obama’s has strengthened its enforcement activities and started the process of regulating carbon dioxide, something never attempted before. Picking a different agency head has a huge impact on how that agency works. So it is entirely realistic to believe that if Captain America had been in charge of the registration effort rather than Iron Man, the conflict in Civil War might have been almost entirely avoided.
Air Traffic Control and the FAA
But hypothetical registration acts are not the only places where our heroes might find themselves running into administrative law problems. For example, many comic book characters fly, either via superpowers or awesome vehicles of their own design. Some do both. Many comic book stories tend to take place near major urban areas too, mostly New York City, Metropolis, and Gotham, but occasionally other cities as well. 10
This is a problem, because all domestic airspace is regulated by the Federal Aviation Administration (FAA) and airspace around major urban areas is pretty tightly controlled. Granted, commercial airline and freight traffic is far more tightly regulated both in terms of inspection requirements and flight-plan filings than private and amateur flights, but unidentified aircraft detected over, say, Washington, DC, tend to result in the scrambling of fighters. Since September 11, 2001, such forces have been on constant standby, and there have been several instances in which wayward private aircraft have found themselves with military escorts, though no one has actually been shot down yet. Suffice it to say that the Fantasticar showing up on radar at the control towers at JFK International Airport and LaGuardia Airport without any kind of prior warning could cause a fairly major incident. It seems likely that a law-abiding superhero who planned on using a homebrew aircraft with any regularity would probably need to establish a working relationship with the FAA, and that would entail compliance with at least some FAA regulations, at the very least those regarding interfacing and communicating with air traffic control.
