Professor Jed Shugerman wrote a blog post about the procedural steps that state attorneys general could take to investigate potential violations of the Emoluments Clause by Donald Trump.

The Foreign Emoluments clause of the U.S. Constitution states, “no person holding any office of profit or trust under them, shall, without the consent of the Congress, accept of any present, emolument, office, or title, of any kind whatever, from any king, prince, or foreign state.” Article I, Section 9, Cl. 8. The Compensation (or Domestic Emoluments) clause prohibits the president from receiving, on top of his salary, “any other Emolument from the United States, or any of them.” Article II, Section 1, Cl. 7. An emolument is a kind of payment or benefit. Others have argued persuasively that President Trump has been violating this clause, because foreign states and officials are paying “emoluments” to Trump through the hotels as business conduits. New documents this week show that even though Trump has put his businesses in a trust, he is the exclusive beneficiary of the trust, and he can revoke the trust at any time.

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My purpose in this post is to address a procedural question:

If there are procedural problems (such as standing) in suing the President directly, is there any other way to enforce the Emoluments clause?

In a follow-up post, I will address a substantive question:

If “emoluments” might not be any kind of payment, but only an office-related payment, would foreign payments (or state or federal payments) to Trump hotels be a violation of the Emoluments clause?

My answers are yes and yes. The bottom line is that state attorneys general in states with a Trump corporation (and perhaps a Trump LLC, a statutory limited liability company) can bring a quo warranto proceeding to access information about whether the entities are conduits for illegal emoluments, to enjoin those activities, to force President Trump to divest, and/or to dissolve those entities. The Trump Organization is incorporated in both Delaware and New York, and it has business entities (LLCs) that could be conduits for emoluments in Florida, Illinois, New Jersey, California, Hawaii, and an increasing number of states as Trump expands his Trump and Scion brand hotel chains. “Emoluments” arguably might not be a payment of any kind, and indeed they may need to be office related. However, if a foreign official (or federal or state official) seeks to do business with a Trump entity because of Trump’s status as president or pays above market value as an effect of Trump’s office, then the payment is related to the office and it would be an emolument. The possibility of such intent or overpayment — by the foreign or state official, regardless of Trump’s specific awareness of the deal — would be enough of a factual claim to survive a motion to dismiss. Arguably, the rent payments from the Secret Service and Defense Department, forced to stay in Trump buildings in New York City become an office-related emolument. The remedy is total divestment or dissolution of the corporation.

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A lot of ink and pixels have been spilled recently on Emoluments. If you want to read more about the Emoluments clause, I recommend: Zephyr Teachout’s book Corruption in America, the suit by the non-profit Center for Responsibility and Ethics in Washington, their Atlantic article, “A Note on the Original Meaning of Emolument,” by Georgetown law professor John Mikhail; and a post by Joshua Matz and Lawrence Tribe. As a particularly thoughtful counterpoint, please read Andy Grewal’s thorough paper, which I will address in a future post.

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Procedure: If there are procedural problems (such as standing) in suing the President directly, is there any other way to enforce the Emoluments clause?

Yes. Let me first explain the challenge of trying to enforce this clause or other officials’ other legal duties. For an individual to sue, that person must have a “case or controversy,” which means they must have “standing,” some particular claim, rather than a general or abstract complaint. A plaintiff must have some “concrete and particular” injury, which is “actual or imminent,” not “conjectural or hypothetical.” The problem is that government officials often impact the general public and create diffuse problems, so that the harm is broad, not particular to a smaller set of people. Over the past three decades, conservatives on the Supreme Court have built up obstacles for private citizens trying to sue the government by increasing the requirement for injury, causation, and “zone of interests.” Counterintuitively, when a government official harms the public more widely, it is often harder for any individual citizen to have particular standing. And counterintuitively, when the government official is more powerful, the harms are more diffuse, and there are a mix of rules making it harder to see him or her (e.g., qui tam rules; Congress exempting the president from conflict of interest laws). The valid concern is too much litigation against public officials, by too many people with less compelling claims. A good pro-plaintiff argument for standing is that challengers to government misconduct are best served when courts must choose the plaintiff with the most compelling, most sympathetic case. But standing rules go too far when they completely insulate government officials from the citizens and the courts. The CREW emolument law suit and other suits by private parties against President Trump will have to overcome these excessive standing rules.

I suggest a solution: Instead of private parties suing the public official (Trump), public officials can sue the private parties (the Trump hotels and other business entities). The public officials in the Department of Justice – the U.S. Attorney General or the U.S. Attorneys – could theoretically open an investigation, but it’s not a realistic hope. However, the state attorneys have the power through state courts. Could the state attorneys sue President Trump directly for violating the U.S. Constitution? That is a different Fed Courts questions for a different day. But corporations are a creature of state law, not federal law, and state attorneys general have a special role in making sure that corporations adhere to federal and state law.

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Quo Warranto in England

The longstanding procedure for state attorneys general to stop corporate violations of the law is “quo warranto,” an old English writ meaning “what authority,” i.e., by what authority do you exercise power? Quo Warranto was one of many prerogative writs created in medieval and early modern England to check the abuse of government powers (see also Habeas Corpus, Mandamus, Prohibition, Certiorari, Declarations and Applications, cf. Qui Tam). Quo Warranto was first created by statute in 1189 (Baker, p. 125), but then faded until a revival in the sixteenth century. The writ was often used by the royals to assert their power over corporate entities. Charles II used quo warranto to “remodel municipal corporations by forcing new charters on them.” Id. The City of London fought against these reforms and lost in 1683. A year later, the English government used a similar procedure to rescind the charter of colonial Massachusetts (a kind of corporation) to protect the royal prerogative over Harvard College. But individuals also made more and more use of the writ against government officials in the eighteenth century. (Edward Jenks, “The Prerogative Writs in English Law,” 32 Yale L.J. 523 (1923). Quo warranto was then limited in some ways, but “its scope was at the same time extended to cover all usurpations of public functions of importance, though not judicial.” (Baker, An Introduction to English Legal History, p. 126) In England, the writ was abolished in 1938, but it lives on in American state statutes as a check on both public and corporate abuses of power.

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Quo Warranto and Corporations in America

You might recall the lawsuits by private citizens against President Obama for being illegitimate as not naturally born a citizen (Orly Taitz and the birthers). Those suits were quo warranto claims in the U.S. District Court for the District of Columbia. Taitz v. Obama, 707 F. Supp. 2d 1 (D.D.C. 2010). The District of Columbia Code provides that the U.S. Attorney General or the U.S. Attorney may bring such an action, and if they decline, a litigant must seek the discretionary leave of a court and must have standing. Sibley v. Obama, 866 F. Supp. 2d 17, 19 (D.D.C. 2012), aff’d, 12-5198, 2012 WL 6603088 (D.C. Cir. Dec. 6, 2012); See also Andrade v. Lauer, 729 F.2d 1475, 1498 (D.C.Cir.1984). It would be difficult for a private citizen to use quo warranto against President Trump for his receipt of emoluments.

Instead, states have statutes allowing a state official (or a shareholder and sometimes a member of the general public) to sue a corporation through quo warranto for acting “ultra vires” (beyond legal authority). A group of people create a legal corporation through state law, to create legal privileges and gain legal rights as legally fictional person. In order to retain these rights and privileges, a corporation must act only within the bounds of its charter and within the bounds of the law. The “ultra vires” doctrine originated with the English quo warranto writ. Helen Cam, Quo Warranto Proceedings in the Reign of King Edward I, 1278-1294 (1964); Comment, “The Use of Quo Warranto,” 18 Yale L.J. 58 (1908); Comment, “Quo Warranto and Private Corporations,” 37 Yale L.J. 237 (1927); Valeria Hendricks, “Which Writ is Which? A Trial Attorney’s Guide to Florida’s Extraordinary Writs,” Fla. B. J. Apr. 2007, at 46; Adam Sulkowski, “Ultra Vires Statutes,” 24 J. Envtl. Law and Litigation 74 (2009). The state laws of incorporation in the United States set various rules for application, renewal, the authorized scope of their powers, and the duration of the incorporation. The state legislatures added language allowing state attorneys general and shareholders to sue to enjoin any activities beyond the corporate charter or to dissolve the corporation if it has violated those terms. Kent Greenfield, “Ultra Vires Lives!,” 87 Va. L. Rev. 1279, 1319 (2001). Courts interpreted “ultra vires” broadly, so that regular transactions beyond the scope of a contract were valid for quo warranto challenges. Adam Sulkowski, “Ultra Vires Statutes,” 24 J. Envtl. Law and Litigation 74, 98 (2009). When corporations engaged in monopolistic behavior (trusts, in the sense of “anti-trust”), four state courts dissolved the corporations in the 1890s. People v. N. River Sugar Refining Co., 24 N.E. 834, 841 (N.Y. 1890); Russell Mokhiber, “The Death Penalty for Corporations Comes of Age,” Bus. Ethics, Nov. 1, 1998.

Over time, legislators observed that some shareholders or third parties were bringing quo warranto claims strategically if a deal had gone wrong or became a loss, so that they could dissolve their own company or have the contract judicially cancelled in order to avoid those losses. At the same time, shareholders gained other legal rights and processes to sue for mismanagement, so the private parties have used quo warranto (or its statutory variation) much less frequently. Sulkowski at 99. Nevertheless, the statutes of almost all of the states still empower state attorneys general to intervene against illegal corporate acts. All states have corporation statutes that require a corporation to obey the law. Sulkowski, p. 101. Many states have codified quo warranto or a similar proceeding for an attorney general to bring an action against a corporation for acting ultra vires.

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Generally, state quo warranto statutes are always at least as broad as the common law writ, and they often expand the plaintiffs’ rights beyond the writ. Some states have adopted the involuntary judical dissolution provisions provided in the American Bar Associations Model Business Corporation Act. Many state statutes only allow the state attorney general to commence the action against the corporation, but some allow private citizens to initiate these actions. There are three statutory variations on who can bring a quo warranto proceeding:

Some states permit only the state attorney general to bring a quo warranto action.

Some states permit an “interested” member of the public to bring a quo warranto action only after the attorney general officially declines.

Other states permit a member of the public to bring a quo warranto suit only if he or she is particularly affected.

The remedies for a quo warranto proceeding for ultra vires (illegal) activities are:

Revoking or dissolving the corporate charter

Enjoining it from exercising the illegal activity.

Imposing a financial penalty on the corporation

Or a combination of remedies

(74 C.J.S. Quo Warranto § 26); see also Comment, Quo Warranto and Private Corporations, 37 Yale L.J. 237, 242 (1927); 12 Colum. L.R. at 549)

In most proceedings in American law, the plaintiff bears the burden of proof, but generally, in quo warranto claims, the burden is on the corporation to prove that it acted within its authority. Quo warranto proceedings also focus on the protection of public interests broadly. The attorneys general have broad discretion to bring a claim, and courts have discretion to weigh the gravity of the violation and the effect on public welfare. Comment, “Quo Warranto and Private Corporations,” 37 Yale L.J. at 242; Herbert Hovenkamp, Enterprise and American Law, 64).

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Corporations or LLCs?

All of the precedents of quo warranto/ultra vires suits that I have read are against corporations. Most of Trump’s business entities are LLCs, limited liability companies authorized by state statutes. They are similar to corporations, but they are not treated the same legally. Can a state attorney general bring a quo warranto proceeding against an LLC? It may be possible for a state attorney general to bring a claim against an entity incorporated in another state, but only to revoke a certificate of authority to engage in business within the attorney general’s jurisdiction. Thus, even if quo warranto is limited strictly to corporations and not LLCs, an attorney general potentially could bring an action against a Trump hotel — even if it is incorporated in another state — to enjoin it from doing business in that state. Cf. Bissell v. Michigan S. R. Co., 22 N.Y. 258, 258 (1860) (a New York tort claim against two corporations chartered in Michigan and Indiana. Dicta suggests that an innocent party to an illegal/ultra vires contract can nullify the obligations of that contract. It is unclear if an attorney general could nullify ultra vires contracts).

Most courts treat LLCs similar to corporations in the area of veil-piercing theories. Under federal civil procedure, LLCs are not considered corporations, but state law may regard them the same for the purposes of quo warranto, because both are legal entities needing legal “warrant” for special privileges. Most states passed statutes to create the LLC form in the late 1980s and early 1990s, and they may include similar language as the incorporation statutes, requiring the company to “follow the law” generally. Keatinge, et al.,”The Limited Liability Company: A Study of the Emerging Entity,” 47 Business Lawyer 375, 383-384 (Feb. 1992).

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New York

The Trump Organization is incorporated in Delaware, but it also has an active entity called “The Trump Organization” formally incorporated in New York State, filed in 1981. (DOS ID 694908, filed April 23, 1981, search https://www.dos.ny.gov/corps/bus_entity_search.html). New York, like many states, has codified the doctrine of quo warranto. New York Business Corporation Law section 1101 grants the attorney general the authority “to bring an action for the dissolution of a corporation” if:

the corporation has exceeded the authority conferred upon it by law, or has violated any provision of law whereby it has forfeited its charter, or carried on, conducted or transacted its business in a persistently fraudulent or illegal manner, or by the abuse of its powers contrary to the public policy of the state has become liable to be dissolved.

N.Y. Bus. Corp. Law § 1101(a)(2) (McKinney 2016). In New York, section 1101 actions against a corporation have historically involved either a corporation’s “misuse” or “nonuse” of a franchise. The State must provide a threshold showing that a corporation exceeded or abused its powers. The State must also show the corporation’s “misuse” threatens to harm the public at large. See People v. N. River Sugar Ref. Co., 121 N.Y. 582, 609 (1890) (“But where the transgression has a wider scope and threatens the welfare of the people, [the State]may summon the offender to answer for the abuse of its franchise or the violation of its corporate duty.”); see also People v. Volunteer Rescue Army, 28 N.Y.S.2d 994, 997 (App. Div. 1941). If the New York corporation’s illegal conduct harms the public at large, the state may commence an action under the parens patriae doctrine. See People v. Abbott Maint. Corp., 200 N.Y.S.2d 210 (Sup. Ct.), aff’d as modified, 201 N.Y.S.2d 895 (App. Div. 1960), aff’d, 9 N.Y.2d 810 (1961).

Others have argued that New York attorneys general may pursue “misuse” suits against New York corporations violating federal environmental laws. See Thomas Linzey, Awakening A Sleeping Giant: Creating A Quasi-Private Cause of Action for Revoking Corporate Charters in Response to Environmental Violations, 13 Pace Envtl. L. Rev. 219, 256 (1995).

New York Limited Liability Company Law does not address actions against LLCs. See generally N.Y. Ltd. Liab. Co. Law (McKinney 2016). Although LLCs do not receive charters from the State, they similarly would not exist but for the State approving their articles of organization. In addition, there are many areas of the law in which courts have applied corporate law to LLCs, effectively treating them as corporations. See N.Y. Ltd. Liab. Co. Law Ch. 34, Refs & Annos (McKinney 2016). Considering that LLCs must adhere to the law and the scope of their articles, there must be some mechanism for public enforcement, and courts should recognize the statutory equivalent of quo warranto for this purpose.

Additional Sources: 6A N.Y. Jur. 2d Article 78 § 412

N.Y. Bus. Corp. Law § 109(a)(1) (McKinney) (empowering the attorney general “to annul the corporate existence or dissolve a corporation that has acted beyond its capacity or power or to restrain it from the doing of unauthorized business”)

N.Y. C.P.L.R. 1301-1303

People v. Bleecker St. & F.F.R. Co., 125 N.Y.S. 1045, 1049 (N.Y. App. Div. 1st Dept. 1910), aff’d, 95 N.E. 1136 (N.Y. 1911):

People v. Bank of Hudson, 1826 WL 2094 (N.Y. Sup. Ct. 1826):

In re Heim’s Est., 3 N.Y.S.2d 134 (N.Y. Sur. 1938), decree aff’d, 8 N.Y.S.2d 574 (N.Y. App. Div. 2d Dept. 1938):

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Delaware

In Delaware (where the Trump Organization and a majority of publicly traded corporations are legally incorporated), “[a]corporation may be incorporated or organized under this chapter to conduct or promote any lawful business or purposes, except as may otherwise be provided by the Constitution or other law of this State.” 8 Del. C. § 101(b); see also Section 102. The Delaware Code empowers – even instructs – the attorney general to seek the revocation of a corporate charter if it has abused its power:

(a) The Court of Chancery shall have jurisdiction to revoke or forfeit the charter of any corporation for abuse, misuse or nonuse of its corporate powers, privileges or franchises. The Attorney General shall, upon the Attorney General’s own motion or upon the relation of a proper party, proceed for this purpose by complaint in the county in which the registered office of the corporation is located. Del. Code. Ann. tit. 8, Section 101(b).

Sources:

5A Fletcher Cyc. Corp. § 2326

Brooks v. State, 3 Boyce (26 Del) 1, 79 A. 790 (1911) (Remedy by information in the nature of a writ of quo warranto).

State v. Hancock, 45 A. 851, 854 (Del. Super. 1899):

Morford v. Trustees of Middletown Acad., 13 A.2d 168, 171 (Del. Ch. 1940)

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Washington, D.C.

The attorney general for the District of Columbia may seek dissolution of a corporation if it continues “to exceed or abuse the authority conferred upon it by law.” D.C. Code § 29–312.20. This provision is relevant for both the Trump Hotel’s emoluments problem and its conflict with the GSA contract which states that “no elected official of the government … shall be admitted to any share or part of this Lease, or to any benefit that may arise therefrom.”

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California:

California statutes appear to provide a very broad power to a quo warranto claim. Quo warranto is appropriate “against any person who usurps, intrudes into, or unlawfully holds or exercises any public office, civil or military, or any franchise, or against any corporation, either de jure or de facto, which usurps, intrudes into, or unlawfully holds or exercises any franchise, within this state.” (Cal. Civ. Proc. Code § 803.). The applicability to “any franchise” may extend quo warranto beyond corporations to LLCs, depending on California law. The California Department of Justice provides a useful guide on their website: https://oag.ca.gov/opinions/quo-warranto Under the statutory system, the attorney general must bring the suit. (See Oakland Municipal Improvement League v. City of Oakland (1972) 23 Cal.App.3d 165, 170; Cooper v. Leslie Salt Co. (1969) 70 Cal.2d 627, 633.) However, Cal. Civ. Proc. Code §811 provides for an exception. “The action provided for in this chapter may be maintained by the board of supervisors of any county or city and county or the legislative body of any municipal corporation, respectively, in the name of such county, city and county or municipal corporation against any person who usurps, intrudes into or unlawfully holds or exercises any franchise, or portion thereof, within the respective territorial limits of such county, city and county or municipal corporation and which is of a kind that is within the jurisdiction of such board or body to grant or withhold.” (Id.; San Ysidro Irrigation Dist. v. Super. Ct. (1961) 56 Cal.2d 708, 716-17 (noting that while the statute only refers to a “person” usurping a franchise, corporations and governmental bodies are also to be included.)) A corporation arguably usurps or unlawfully holds a franchise if they are violating the statutory requirement of lawful conduct.

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Future posts:

If “emoluments” might not be any kind of payment, but only an office-related payment, would foreign payments to Trump hotels be a violation of the Emoluments clause?

“Emoluments” may not be any kind of payment, and indeed they may need to be office related. However, if a foreign official (or federal or state official) seeks to do business with a Trump entity because of Trump’s status as president, then the payment is related to the office and it would be an emolument.

Other states on quo warranto

Thanks to Jonathan Hermann, Andrea Rodriguez, Katherine Wright, Paul Thompson, Sara Norstrand, and Stephanie Zuniga for your help.