We the Corporations
Page 26
Long beat the impeachment effort and immediately declared war on the state’s biggest newspaper companies. “These daily newspapers have been against every progressive step in the state,” he said, “and the only way for the people of Louisiana to get ahead is to stomp them flat.” Stomping on opponents is what Long did best. When public officials in Shreveport sought state approval to acquire land for an airbase, Long refused, complaining that the city’s papers treated him poorly. His machine established a state board of censors to review movies and newsreels. He set up another state board to select which papers would carry official government notices, and let it be known that papers that opposed him would be excluded. Several papers dependent upon that revenue abruptly stopped discussing political issues altogether. In an incident that gained national attention, Long threatened to shut down the Louisiana State University newspaper after it published an unflattering article about him: “I’m not going to stand for any students criticizing Huey Long.”9
The centerpiece of Long’s attack on the press was an advertising tax on large-circulation newspapers enacted in 1934. By then, Long had left the governor’s mansion to become a senator, but as contemporaries recognized, “his grasp upon the destinies of the state [was] stronger than it ever was.” Long returned from Washington to oversee passage of the advertising tax law, moving the sitting governor out of his office to manage the vote. Louisiana Act No. 23 imposed a 2 percent tax on advertising receipts for periodicals with a weekly circulation of 20,000 or more. The circulation threshold meant that the small, rural weekly newspapers that tended to support Long—about 150 of the 163 total papers in the state—were exempt. The tax burden was shouldered solely by the 13 largest urban dailies, like Manship’s Morning Advocate, all but one of which had opposed Long.10
On the floor of the state legislature, the advertising tax was justified as a measure to raise revenue for the state to finance educational reforms, like free textbooks for schools. The Louisiana strongman, however, offered his own, more censorial justification, saying the “lying newspapers should have to pay for their lying.” “I’m going to help these newspapers by hitting them in their pocketbooks,” he explained. “Maybe then they’ll try to clean up.” In a widely distributed political circular, Long said that the “big Louisiana newspapers tell a lie every time they make a dollar. This tax should be called a tax on lying, two cents per lie.”11
Manship’s Morning Advocate complained that Long’s advertising tax was a threat to free speech and the free press. Long intended the tax to intimidate the newspapers into supporting the government orthodoxy, with the implicit threat of even higher taxes for any future dissent. If Long could impose special taxes on newspapers for opposing him, the Morning Advocate editorialized, “the guarantee of a free press, written in the Constitution of the United States, is at an end.”
In fact, however, the Supreme Court was only first breathing life into the Constitution’s guarantees of freedom of speech and freedom of the press in the 1930s. And corporations would play an influential role in the rise of judicial protection of these fundamental rights.
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ALTHOUGH THE FIRST AMENDMENT is central to America’s legal identity, the Supreme Court did not vibrantly protect the freedom of speech or the freedom of the press until the twentieth century. While there had long been considerable debate about freedom of expression—including the brewing companies’ challenges to the Tillman Act and similar state bans on corporate campaign contributions—World War I was a turning point. In response to the silencing and persecution of political dissenters, the court began to invigorate the First Amendment. Among the dissidents who inspired the court were the Louisiana newspaper corporations.12
One reason for the long delay between the adoption of the First Amendment in 1791 and the court’s embrace of the freedom of expression in the early twentieth century was the text of the Constitution. It says, “Congress shall pass no law,” suggesting that it applies only to federal laws, not to laws passed by the state or local governments. For much of American history, the federal government did not regulate speech very often, and when it did the courts usually refused to interfere. First in 1798 and then again during World War I, with the Espionage Act of 1917 and the Sedition Act of 1918, Congress did enact laws making “disloyal” speech a crime.13
President Woodrow Wilson aggressively enforced the law, rounding up socialists, radicals, and pacifists, especially in immigrant communities. More than 1,500 people were prosecuted, including labor leader and four-time presidential candidate Eugene Debs; he ran his fifth campaign from a prison cell after the Supreme Court upheld his ten-year sentence for making a speech against the draft. A movie producer was even sentenced to ten years for a film about the American Revolution because it portrayed Britain, now an ally, in a negative light. The federal prosecution of political dissenters also justified similar repression by state and local governments, by industry, and even by universities—as Harlan Fiske Stone discovered as dean of Columbia law school. Historians remember the World War I crackdown on dissent as “one of the greatest restrictions on civil liberties in American history.”14
The experience with political persecution during the World War I era opened the eyes of many Americans to the dangers of censorship. Among them was Supreme Court justice Oliver Wendell Holmes Jr. Appointed by Teddy Roosevelt, Holmes voted to uphold restrictions on speech and the press early in his tenure. In 1907, for example, Holmes wrote the majority opinion for the Supreme Court in Patterson v. Colorado upholding a conviction of a newspaper publisher for publishing critical articles and cartoons about state judges. The purpose of the freedom of the press, Holmes said then, was to prohibit only prior restraints on publication and did “not prevent subsequent punishment” of publishers for publishing articles “deemed contrary to the public welfare.” With the World War I prosecutions of political minorities, however, Holmes’s views began to evolve, and American attitudes toward freedom of expression would soon follow.15
Holmes began to articulate a new, more vibrant vision for the First Amendment in the case of Jacob Abrams, a Jewish immigrant from Russia who was sentenced to twenty years in prison for distributing leaflets critical of President Wilson. Although the Supreme Court upheld the conviction in Abrams v. United States, decided in 1919, Holmes filed a dissenting opinion. He wrote that while government could restrict speech that presented a clear and present danger to public safety, Abrams’s “silly leaflet” threatened no harm. Joined by Justice Louis Brandeis, Holmes warned that “persecution for the expression of opinions” was always tempting, but experience showed that once-unshakable truths have often been disproved by advancing knowledge. Introducing a libertarian metaphor from the world of commerce that would come to define the freedom of expression in both law and popular culture, Holmes wrote that “the ultimate good desired is better reached by free trade in ideas—that the best test of truth is the power of the thought to get itself accepted in the competition of the market.” The marketplace of ideas, not the government, should decide which views prevail.16
JUSTICE OLIVER WENDELL HOLMES BREATHED LIFE INTO THE FIRST AMENDMENT’S GUARANTEES OF FREEDOM OF SPEECH AND OF THE PRESS.
Another case involving political persecution led the Supreme Court to say, for the first time, that freedom of speech was a “liberty” right under the Fourteenth Amendment. The question arose not in the context of corporate rights but rather in the context of a doctrine with a similar name, “incorporation.” That is the constitutional doctrine that determines which provisions of the Bill of Rights apply to the states. Although the Supreme Court traditionally read the Bill of Rights to apply only to the federal government, the court began to require states to adhere to those rights too around the turn of the twentieth century. The court held that certain fundamental rights among the first eight amendments were “incorporated” through the due process clause of the Fourteenth Amendment to apply to the states. In the case of Benjamin Gitlow, an anarchist convicte
d for publishing books said to advocate the overthrow of the government, the Supreme Court held the freedom of speech was also a limit on state and local laws. Gitlow v. New York was a groundbreaking ruling that greatly expanded the scope of free speech protections—although Gitlow himself did not benefit. Finding the prosecution justified, the Supreme Court upheld his conviction, over another dissent by Holmes and Brandeis.17
While pushing out the boundaries of the First Amendment, the court had still never invalidated a law for violating the freedom of expression. The very first Supreme Court cases striking down laws on speech or press grounds were handed down in the spring of 1931—and one of those early cases involved a corporation. Near v. Minnesota involved a Minnesota law that allowed the shuttering of newspapers that created a “public nuisance” by distributing “malicious, scandalous and defamatory” material. The law was designed to silence one man in particular, Jay M. Near, and his sleazy scandal rag, The Saturday Press. Described as “anti-Catholic, anti-Semitic, anti-black, and anti-labor,” Near was a constant thorn in the side of Minneapolis politicians. His vulgar brand of yellow journalism accused them of incompetence, graft, conspiracy, and just about every other crime, rarely backed by a scintilla of evidence. The politicians repaid the favor and attempted to use the public nuisance law to permanently stop the publication of his paper. Near claimed the law infringed his First Amendment press rights as an unconstitutional prior restraint on speech.18
Near was not styled a corporate rights case. Formally, at least, it was a case about Jay Near’s own constitutional rights as an individual. The lawsuit was nonetheless spearheaded and bankrolled by the Tribune Company, the corporation that owned the powerful and influential Chicago Tribune. One of the most respected papers in the country, the Chicago Tribune was the polar opposite of Near’s tabloid. Robert McCormick, the Tribune’s strong-willed and visionary publisher, nevertheless saw Near’s case as an opportunity to set a First Amendment precedent that would extend to his corporation’s newspapers too. McCormick was prescient, as the court ruled in Near’s favor and struck down the Minnesota law for infringing the freedom of the press. Unlike Benjamin Gitlow, Near won his case, but he did not benefit either; Near’s paper shuttered soon after and he died in obscurity five years later. Meanwhile, McCormick commemorated the victory by etching a quote from the Supreme Court’s opinion about the special role of the press into the marble walls of the lobby of Tribune Tower in Chicago. Large media corporations like McCormick’s would be the primary beneficiaries of the lawsuit brought in the name of Near’s scurrilous little outfit.
Even after Near v. Minnesota established more vibrant protections for freedom of the press, the law nonetheless appeared to be on the side of Huey Long when it came to the advertising tax. Near was a prior restraint case and the court had never held that free speech applied to any other kinds of burdens. The Louisiana advertising tax was not a prior restraint because it did not prevent the thirteen newspapers from publishing anything. It only taxed their advertising revenue. Nonetheless, the newspapers had one thing in common with the radicals and outcasts, like Jacob Abrams, Benjamin Gitlow, and Jay Near. The newspapers, too, were political dissenters facing persecution by powerful government officials eager to quiet them. The advertising tax, like the Sedition Act and the Minnesota public nuisance law, was used to punish and silence those who challenged government orthodoxy.
The American Newspaper Publishers Association, with a push from the Tribune’s McCormick, urged the Louisiana newspaper corporations to sue. “The press and the nation must stand solidly with the Louisiana newspapers in this fight, for other brazen demagogues will follow any Long success.” Repeating a common refrain in the corporate rights movements, the ANPA said the papers’ lawsuit should be “if necessary carried to the U.S. Supreme Court!”19
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CHARLES MANSHIP AND HIS Capital City Press took the lead in organizing the newspaper corporations’ challenge to Long’s advertising tax in the fall of 1934. Two New Orleans lawyers, Eberhard P. Deutsch and Esmond Phelps, were hired to handle the case. Deutsch was the founding partner of one of the city’s leading law firms. Phelps, the scion of a local aristocratic family, usually represented corporations like Western Union and the Texas and Pacific Railroad and was also a bitter enemy of Long. When the Kingfish was impeached, Phelps volunteered to lead the effort to remove him.20
The hurdles the two men faced were significant. In addition to the fact that the advertising tax was not a prior restraint, the newspapers were corporations. The federal and state courts had two decades earlier held that corporations did not have free speech rights in cases involving the bans on corporate political spending. More recently, Gitlow had held that free speech was a “liberty” right under the Fourteenth Amendment, and the court had consistently held over the previous thirty years that corporations have only property rights. Despite the obstacles, the newspaper companies filed suit, portraying Long’s law as an act of political persecution—“an attempted reprisal or punishment by the dominant political faction of the state . . . against the daily press of the state for its past opposition, and a threat of further reprisals in the event of further or future opposition.”21
The named defendant in the lawsuit was Alice Grosjean, the supervisor of public accounts. From one perspective, Grosjean was something of a political pioneer. At the tender age of 24, she was appointed Louisiana’s secretary of state, the only woman in the country of any age to hold such a high government post. Her rise to power, however, was not due to education; the high-school dropout was Long’s mistress. The Kingfish was so smitten with her that he once moved her into the Governor’s Mansion over the predictably vociferous objections of his wife, who promptly moved out. Long relied on Grosjean for more than companionship, however. He appointed her, along with other allies, to important positions in state government to solidify his iron-fisted control.22
Grosjean, however, was not a lawyer. The job of defending the tax fell to the state attorney general, Gaston L. Porterie, another of Long’s cronies. The year before the newspaper companies’ lawsuit, Porterie had been expelled from the state bar for ethics violations. The bar determined that he had improperly used his position as attorney general to quash an investigation into election fraud by the Long machine. Long appreciated Porterie’s loyalty more than the bar did and ordered the legislature to “make me a new bar.” Porterie was promptly named president of the new bar association and retained his position as the state’s leading law enforcement official.23
Even though the law was on Long’s side, cronyism had its costs. The state might have been better served if the unschooled Grosjean herself had appeared in court. Porterie and his lead counsel in the case, Charles Rivet, made an embarrassing series of mistakes defending the advertising tax. Most glaringly, they were not up to date on current Supreme Court case law. They argued, for instance, that freedom of speech and freedom of the press were only restrictions on Congress, not the states, even though Gitlow and Near had held precisely the opposite. In almost a comedy of errors, Porterie and Rivet also devoted the lion’s share of their constitutional argument to the wrong clause of the Constitution. Although Charles Manship and the newspapers challenged the advertising tax as a violation of the “liberty” guaranteed by the Fourteenth Amendment’s due process clause, Porterie and Rivet focused on the privileges or immunities clause—an entirely irrelevant provision of the Constitution that had been effectively gutted a half-century earlier in the Slaughter-House Cases.24
Because they focused on the wrong constitutional provision, Porterie and Rivet all but ignored the most persuasive argument on their side: a consistent line of precedent holding that corporations had property rights but not liberty rights. Instead of emphasizing this point, Porterie and Rivet mentioned it only in passing, as if it were an afterthought. Perhaps the Louisiana state bar was onto something when it tried to stop Porterie from practicing law. In any event, once the case was in the Supreme Court, with significa
nt cutting-edge constitutional issues on the line, it became clear that Porterie and Rivet were in over their heads.
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IN THEIR DEFENSE OF LONG’S advertising tax, Porterie and Rivet argued that newspaper corporations were no different from any other type of business corporation. Just as the state had the authority to impose a tax on oil companies for refining oil, it could tax newspaper companies for selling advertising. The news trade was just another business properly subject to state regulation and taxation. Although the newspapers portrayed themselves as victims, Porterie and Rivet argued instead that they were successful corporations unhappy that Louisiana was preventing them from maximizing profits.
The notion that corporations should devote themselves to maximizing profits is often taken to be one of the bedrock principles of corporate law and governance. In the early history of corporations, however, business corporations were much different; as Blackstone wrote in his Commentaries, corporations could only be formed if they served public purposes. Today, in part because of the Dartmouth College case, that rule no longer applies, and modern business corporations are considered private entities that need not serve any explicitly public objective. Indeed, corporate officers who failed to focus on the profitability of the business, at least in the long term, would be in breach of their fiduciary duties. If the transformation of the corporation from public to private was begun in 1819 with Dartmouth College, involving storied lawyer Daniel Webster, it was completed exactly a century later with a case involving another American legend, Henry Ford.
Ford, the visionary carmaker behind the Model T and the assembly line production process, was sued in 1916 by two business partners, James and Horace Dodge. The Dodge brothers, who built Ford’s engines and owned 10 percent of Ford Motor Company stock, had been made immensely wealthy from their relationship with the company; their $10,000 investment netted them more than $32 million. Yet the brothers were unhappy that Ford refused to maximize profits even more, running the company in ways designed to benefit employees and the larger community instead of stockholders. In 1914, for example, Ford announced that he would begin paying workers $5 a day, double their previous wages, even though job applicants were plentiful. Every year the company lowered the price of cars even as significant improvements were introduced and inventory sold out. Ford had decided the stockholders were earning enough, explaining that he did “not believe that we should make such an awful profit on our cars.”25