InnerChange Litigation

[Vance R. Koven]

There are several ways of looking at how PFM might or might not be liable
for money damages here. The first thing that leapt to mind was as an agent
for an undisclosed principal--since had it been known PFM was acting on
behalf of the state, which was under a prohibition, then its acts would be
immediately perceived as wrongful. However, the liability of an agent in
this case is, so far as I know, limited to those with whom it transacts
downstream.

A taxpayer suit might be analogous to a derivative action by shareholders,
in which the shareholders act in the name of the corporation to recover
damages caused by the wrongful acts of corporate fiduciaries and agents. As
others have pointed out, PFM, though, did not do anything inherently
wrongful, they were only wrongful because committed willy-nilly in the name
of the state; the inherently wrongful acts were committed by *other* state
agents who appointed PFM to undertake its activities in the prisons. It
would be highly salutary, though as far as I know it is unprecedented (other
than by specific statute), for state officials to be personally liable to
taxpayers for waste/misuse of state funds pursuing unlawful objectives; but
that's not PFM's problem. If you take the old hoary approach of tracing the
duties of the different parties, it seems as though the only party with any
duty to taxpayers/citizens is the state itself. The state officials owe
duties to the state to act within the scope of their engagement, and you can
say the same for PFM, but its scope is radically different from theirs, and
nobody has suggested (at least in this discussion) that PFM did not comply
with its (ultimately invalid) mandate.

Another route might be the doctrine of ultra vires, since plainly the state
had no authority to appoint PFM as its agent to do what the state could not
do directly. Modern corporate law has essentially eliminated actions on the
ultra vires theory, but if I remember correctly, contracts ultra vires are
void, not just voidable. On that theory PFM might have to give the money
back, but I confess this is just theory-spinning on my part without
examining any cases. It's been a *long* time since I needed to know this,
either for teaching or practicing!

Vance

On Dec 5, 2007 12:45 AM, Christopher Lund <lund at mc.edu> wrote:

> The points by Profesors Lupu, Green & Lederman make a lot of sense, and
> I'll check out Brentwood Academy, which sounds helpful.  Maybe it's just
> recoupment here that I have trouble understanding.  Recoupment seems to
> have little value here except as a way of punishing PFM.  Recoupment
> means that PFM now has to pay Iowa for the constitutional violation they
> committed together.  I don't think that makes much sense.  Maybe PFM is
> as culpable as Iowa -- but is there really an argument that PFM is more
> culpable, that the Establishment Clause applies more to PFM than it does
> to Iowa?  By virtue of the taxpayer theory, Iowa suddenly gets to flip
> sides in the litigation.  It doesn't have to pay the plaintiffs.  It
> instead gets to become the plaintiffs and take PFM's money back on their
> alleged behalf.
>
> Now I understand the theory -- that the injury was taxpayer dollars
> going to PFM, that the remedy, if there is to be one, means the money
> has to go back, and that Iowa this time could spend it on something
> constitutional.  But it seems like the remedy of recoupment means we've
> moved full circle from (1) Iowa being responsible, to (2) Iowa and PFM
> being jointly responsible, to (3) PFM being chiefly (or even solely)
> responsible.  Maybe I'm missing something, but I find this problematic.
>
> Best,
> Chris
>
>
> Christopher C. Lund
> Assistant Professor of Law
> Mississippi College School of Law
> 151 E. Griffith St.
> Jackson, MS  39201
> (601) 925-7141 (office)
> (601) 925-7113 (fax)
>


-- 
Vance R. Koven
Boston, MA USA
vrkoven at world.std.com
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