The Supreme Court’s decision last December in Salman v. United States settled important issues concerning Rule 10b-5’s reach over trades based on a tip of confidential material information. One important question, however, remains unanswered: In tipping cases based on the misappropriation theory, is it necessary, as some courts have stated, to show that the tipper enjoyed a personal benefit of which the trader was aware? There are commentators who assume the need for such a showing, but in fact the lower courts have split on the issue and the Supreme Court in Salman explicitly said that it was not reaching the matter. In our view, inserting the personal benefit requirement into the misappropriation theory is seriously misguided as a matter of both doctrine and policy. Doing so needlessly leaves many socially undesirable trades unpunished and hence undeterred. A misappropriation case up for appeal in the Second Circuit, SEC v. Payton, raises this issue again and presents the opportunity for the court to address it squarely and hold that a personal benefit is not required for liability in tipping case based on the misappropriation theory.
The necessary starting point to our inquiry is a brief trip back to the early days of Supreme Court jurisprudence concerning the application of Rule 10b-5 to insider trading cases, reviewing the origins of the classical and misappropriation theories and the personal benefit requirement. This review makes clear that the personal benefit test was developed in the context of the classical theory and that the reasons for its creation are related to features present only in those cases for which the classical theory is the relevant approach.
The seminal Supreme Court case concerning when trading on non-public material information violates Rule 10b-5 is Chiarella v. United States, in which Justice Powell’s opinion sets out the so-called “classical theory.” This theory applies “‘when a corporate insider’ or his tippee ‘trades in the securities of [the tipper’s] corporation on the basis of material, nonpublic information.’” It is premised upon “a relationship of trust and confidence between the parties to a transaction,” which Powell finds to exist between an insider of an issuer and its shareholders.
This formulation poses a problem in a tipping case, even one involving information originating inside the corporation whose shares are being traded. Unlike a case where an issuer insider is the trader, in tipping cases the person doing the trading has no special relationship of trust with the persons with whom he trades. In his Chiarella opinion, Justice Powell, in dictum, finds an inventive workaround to this problem. He suggests that the insider tipper, who is deemed to be in such a relationship, breaches her duty to the issuer’s shareholders by providing the information to an outsider likely to trade on it, and the recipient tippee, by trading on the information, becomes a “participant after the fact” in the source’s breach.
Three years after Chiarella, this participant-after-the-fact idea became the basis of the Supreme Court holding in Dirks v. SEC,  a classical theory case based on information coming from within the corporation whose shares were being traded. But the majority opinion in Dirks, also authored by Powell, adds an additional wrinkle that goes beyond his dictum in Chiarella. He concludes that a breach of duty to the shareholders requires that the tipper “personally . . . benefit, directly or indirectly, from [her] disclosure,” not just that the insider tipper’s transfer of information was in violation of the issuer’s determination that it be kept confidential.
Importantly, the Court indicates that it added the personal benefit requirement to avoid chilling analyst interviews with corporate insiders, which both the Court and the SEC regarded as socially beneficial and “necessary to the preservation of a healthy market.” The requirement that corporate insider tippers personally benefit in order to breach their duty to shareholders protects market analysts who can continue to meet and question corporate insiders in order to “ferret out and analyze information” without fear of liability. At the same time, it would allow punishment of corporate insiders who provide information to outsiders in return for favors or as a “gift” to a friend or relative, as well as punishment of the tippee who trades if she was aware of the breach including the personal benefit.
In contrast to the classical theory, where liability arises out of a duty of trust and confidence between the trading parties, the misappropriation theory, approved by the Supreme Court in United States v. O’Hagan, premises liability on a “duty of trust and confidence” owed to the source of the material, non-public information.  The idea is that a misappropriating fiduciary deceives the source of the information by trading based on the confidential information, thereby “defraud[ing] the principal of the exclusive use of that information.” This deceit is a violation because, as required by Rule 10b-5, it is “in connection with the purchase or sale of any security.” This alternative to the classical theory allows application of the rule in situations where the information originally comes not from within the company whose shares are being traded, but from within some other entity. It permits, for example, the imposition of Rule 10b-5 liability on an insider who trades based on the knowledge that his company has a still unannounced plan to acquire a target firm. The theory can also be used to impose such liability on an insider of this potential acquirer’s law firm, investment bank, or financial printer. Where any of these insiders purchases shares of the target, liability cannot be based on the classical theory. This is because the purchaser is the insider of an entity other than the issuer, and hence is not in a relationship of trust and confidence with shareholders of the target company, who are the counterparties to his trade. Most relevant for the question being explored in this blog post, the misappropriation theory also allows imposition of Rule 10b-5 liability on such an insider if she tips instead of trading and gives the information to someone she has reason to believe will trade on it. And, using the participant-after-the-fact rationale, it allows imposing such liability on her trading tippee as well.
In this context, adding the requirement that the tipper must personally benefit in order to find a breach of a duty of trust and confidence does not make much sense. If a tipper owes a duty of trust and confidence to another, say through a written non-disclosure agreement, the tipper breaches the non-disclosure agreement (and thereby breaches the duty of trust and confidence) by simply telling the information to another, whether or not the tipper received a personal benefit. And if the tipper has reason to believe that the recipient will trade on the tip and in fact he does so, this breach is in connection with the purchase or sale of a security. By telling the information to another person, the tipper has defrauded the principal of the exclusive use of that information.
The risk of chilling market analysts—the policy concern that drove the Court to adopt the personal benefit test in Dirks—is not applicable in the misappropriation setting. Market analysts frequently question and receive information about issuers from their corporate insiders. Such interviews are, as a general matter, beneficial for the source of the information—the issuer and its shareholders—and, by increasing share price accuracy, for society more generally. In contrast, stock analyst interviews involving confidential information concerning an issuer’s stock value that are conducted with officials of a different entity are far less common. Where insiders of another entity possess material, non-public information about an issuer, for example information relating to a potential future acquisition, it is usually contrary to the interest of the entity to share this information with market analysts because their trading would drive up the share price of the potential target. More generally, entities such as financial printers, law firms, and investment banking firms do not give socially valuable interviews to market analysts about the future prospects of companies about which they have confidential knowledge. Nor does a spouse sharing a confidence with her mate, another situation that can give rise to a misappropriation claim, have anything to do with analyst interviews. Moreover, adding the personal benefit test to the misappropriation theory involves a significant downside: It leaves many socially undesirable trades beyond the reach of Rule 10b-5’s prohibitions for no good reason.
In terms of other circuits, the First Circuit has, in its own words, “dodged the question.” In each misappropriation tipping case where it identified the issue of whether or not the personal benefit test applied, the court found that it did not need to resolve the issue, because the evidence was sufficient to show that if the test should be applied, it was satisfied. The Eleventh Circuit, however, has come down squarely in favor of applying the test in misappropriation cases, stating, in United States v. Yun, “the SEC must prove that a misappropriator expected to benefit from the tip.” Unlike the Second Circuit’s offhand dicta in Newman, the court in Yun engaged in a lengthy analysis of the problem.
The court in Yun provides a number of reasons for taking this position, “perhaps most importantly,” according to the court, “that nearly all violations under the classical theory of insider trading can be alternatively characterized as misappropriations.”  Accordingly, it suggests, failing to insert the test in misappropriation cases “would essentially render Dirks a dead letter.” The court’s logic is unconvincing. In resolving the issue of whether the personal benefit test needs to be inserted in such cases, it would be very simple for a court to rule that in any situation that fits under the classical theory, the personal benefit must be proven even if the situation could also be characterized as fitting under the misappropriation theory. Any situation that fits only under the misappropriation theory, however, would not require that the personal benefit test be satisfied.
Consider the application of this approach to tippee trades in three different situations, each involving an initial tipper who is an insider of Corporation A. In the first situation, the tip involves confidential information material to the value of the shares of Corporation B, and the potential defendant tippee, whether a direct or indirect recipient of the tip, trades in shares of B. This case can only be prosecuted under the misappropriation theory, because the original tipper owed no duty to B’s shareholders. Under the suggested approach, the personal benefit test would not need to be satisfied. In the second situation, the tip instead involves confidential information material to the value of the A’s shares, the potential defendant tippee, whether a direct or indirect recipient of the tip, trades in shares of A, and liability is based on the breach of the initial tipper, who is an insider of A. This case can be prosecuted under the classical theory, because the first tipper owes a duty to the shareholders of Corporation A, as explained in Dirks. Under the suggested approach, the personal benefit test would need to be satisfied, even though the breach by the initial tipper might also be characterized as a misappropriation. The third situation is identical to the second except that liability is based on a breach of duty by an indirect tippee to a preceding tippee in the chain. This case can only be prosecuted under the misappropriation theory because the breached duty is to another tippee, not to the shareholders.
Beyond this concern that failing to insert the personal benefit test in misappropriation cases would render Dirks a dead letter, the theme of the court’s arguments in Yun is that it is desirable to have consistency in insider case law. It suggests that imposing the personal benefit test only in cases based on one of the two theories would construct an “arbitrary fence” between the two. According to the court, the fence would be arbitrary because, in its view, each theory premises liability on breaching a duty of loyalty and confidence and the harm to the marketplace under each is identical. The problems with this view are that the two theories in fact involve different kinds of breaches and that enforcement under the two theories protects against different harms. The core points are as follows. All trading based on non-public information is harmful to the trading public, who lack this information. We only make a fraction of such trades illegal under Rule 10b-5. These are ones that fit under the classical or misappropriation theories. The reason for doing so—the harm being protected against—differs depending on which theory applies.
Consider three more scenarios. In the first, unknown to the public, Corporation C, through analysis, views Corporation D’s shares as underpriced or its management inept. As a result, C plans a premium takeover bid for D. C authorizes its agent U to disclose these plans to an outsider V in return for good consideration. C has good reason to believe that V will trade on the information and he does. C would not have violated Rule 10b-5 if C itself had gone into the market and anonymously purchased shares of D. For the same reason, there is no violation by C, U or V where U, authorized by C, discloses the information to V and V trades upon it. In each case, neither classical nor misappropriation theory applies. These legal outcomes make sense even though the trades in both examples come at the expense of other traders: C’s expected gain from trading itself, or from tipping, is a reward for engaging in the hard work of analysis that can help make share prices more informed or increase the likelihood that productive assets make their way into the hands of those who can use them to create the most value.
In the second scenario, W, another insider of C, also learns through his job of this plan for a premium takeover of D. In this scenario without C’s authorization, W discloses this information to X, who is an outsider that W has good reason to think will trade on it. X does trade on it. Under the misappropriation theory, it would be a violation of Rule 10b-5 if W had purchased the shares himself. The same is true of W’s disclosure to X, and of X’s trade if X knows that the disclosure involved a breach by W. The reason for imposing liability would not be because of the resulting harm to the trading public, which would be just as severe as when, in the preceding scenario, V traded after the tip from U. Rather, in the words of the majority opinion in O’Hagan, whether W trades himself or tips X, he “defraud[s] the principal[, in this case C,] of the exclusive use of that information,” thereby eroding C’s reward for its socially useful hard work and analysis.
In the third scenario, Y, an insider of E corporation, learns through his job that E is going to announce a substantial dividend increase. In advance of its public announcement, Y, without E’s consent, tips news of the dividend increase to Z. Y has good reason to believe that Z will trade on it, and Z does trade on it. Under the classical theory, it would be a violation of Rule 10b-5 if Y had purchased the shares of E herself. The same would be true of Y’s tipping the information to Z, and, if Z knew of Y’s breach, of Z’s trading. This time, though, the reason would be the harm to members of the trading public who do not know the information. This is because Y, as an insider, owes a duty to the persons with whom he trades, who are E shareholders.
In this third tipping scenario, involving the classical theory, settled law imposes an exception shielding the various parties from liability where Y enjoys no personal benefit. The personal benefit test serves a purpose here, because it avoids chilling analyst interviews. Having E subject to such interviews can be of benefit to the shareholders of E, which is the group that Rule 10b-5 is intended to protect in classical theory cases. This is not so in the second scenario, the one involving the misappropriation theory. There, C corporation, the party that Rule 10b-5 is intended to protect in such a case, is just as damaged from the loss of its exclusive use of the information whether W, the insider tippee, gains a personal benefit or not. Unlike classical theory tipping cases, requiring a showing of personal benefit in misappropriation tipping cases serves no useful purpose that can improve the functioning of the capital market. It simply makes cases worthy of prosecution more difficult to bring successfully.
S.E.C. v. Payton, currently under appeal to the Second Circuit, provides a concrete example of the added complexities and shortcomings associated with applying the personal benefit requirement in a tipping case based on the misappropriation theory. The allegations in Payton are as follows. Dallas, an associate at a law firm representing IBM in its acquisition of SPSS, confidentially shared information about the pending acquisition with his friend Martin. Martin was a person with whom Dallas had a history of sharing similar confidential information that gave rise to an obligation by Martin to Dallas to keep the news of the pending acquisition confidential. Martin, in breach of this duty of trust and confidence, then tipped the information to his roommate Conradt, a lawyer and registered representative associated with a broker in New York. Conradt in turn tipped his brokerage colleagues Payton and Durant, who, like Conradt, purchased shares of SPSS. In a civil enforcement action, the SEC charged Payton and Durant with insider trading. The case had to be brought under the misappropriation theory because neither Dallas, nor any of the others involved, owed any duty to the shareholders of SPSS. Even if Dallas were considered a constructive insider of IBM, he was a “complete stranger” to the shareholders of SPSS.
A misappropriation case requires no showing of a personal benefit to the tipper, because the breach is inherent in the tipper’s theft of confidential information. The theft alone, in violation of the source of information’s property right to the information, is a breach of the person’s duty to the source of the information.
At trial, a jury found Payton and Durant civilly liable. Payton and Durant filed a motion for judgment as a matter of law or for a new trial, arguing, among other things, that there was insufficient evidence that Martin received a personal benefit in connection with making the initial tip and that Payton and Durant knew or had reason to know of Martin’s personal benefit. Judge Rakoff denied the motion, deciding that there was sufficient evidence for a rational jury to conclude both that there was a personal benefit and that the defendants knew or had reason to know of it. Payton and Durant have now appealed to the Second Circuit the denial of their motion.
There was in short plentiful evidence from which the jury could have concluded defendants deliberately chose not to ask Conradt questions about the circumstances in which Martin told him about the confidential SPSS information, because they understood that there was a high probability that they would have learned of Martin’s personal benefit.
The fact that the case turns on this evidence with regard to tippee knowledge shows the difficulties that can arise from inserting the test in misappropriation cases. To start, not every jury in a case with this kind of evidence would necessarily find that the tippee knew or had reason to know that the tipper enjoyed a personal benefit just because the tippee did not inquire about the matter. Moreover, even where, as here, a jury in such a case does make this finding, it is not clear that the Second Circuit will agree with Judge Rakoff that the jury’s finding is based on sufficient evidence. In any event, it is very unlikely that such evidence would support a finding of tippee knowledge of the tipper’s personal benefit in a criminal proceeding, the threat of which provides much of Rule 10b-5’s deterrent power with respect to insider trading.
The personal benefit test will often give rise to these sorts of evidentiary problems. These problems impose substantial obstacles in the way of imposing legal sanctions on both tippers and tippees generally, and especially on indirect tippees. As argued above, for misappropriation-based cases, these obstacles are completely unnecessary in terms of the doctrines laid down in Chiarella, Dirks, and O’Hagan, the seminal Supreme Court Rule 10b-5 insider trading cases. Nor are they necessary to support the test’s policy rationale laid out in Dirks, where the test originated. Assume, for example, that Martin in fact did not receive any personal benefit for tipping or, if he did, that Payton and Durant were unaware of it. Martin’s tipping should be a violation as long as there was a breach a duty of trust and confidence by Martin to his source, Dallas, and Martin had reason to believe the information would be used for trading. Payton and Durant’s trading should be violations as long as, in addition, they “know or should know” that they received the information, albeit indirectly, as the result of such a breach.
Based on the facts alleged in the complaint and the findings of the jury, Martin breached this duty of trust and confidence to Dallas the moment that he shared the information with Conradt, thereby depriving Dallas’ client, IBM, of the exclusive use of that information. There are no redeeming social benefits associated with employees of a brokerage firm trading on material, non-public information originating from confidential communication between a law firm associate and his friend. To the contrary, such trading causes many negative costs independent of whether Martin received a benefit. The prospect of trading like that of Payton and Durant diminishes the incentive of entities such as IBM to search out good takeover targets because of mismanagement, undervaluation or their synergy potential. This is because such trading can raise the price that the potential acquirer would have to pay. More generally, for no good reason, the prospect of such trading also decreases the incentive of stock analysts to expend resources to discover information about issuers with publicly traded stocks, because such trading results in analysts and their customers experiencing a higher cost of trading, thereby reducing the accuracy of share prices.  In sum, unlike the concern over analyst interviews that in Dirks gave rise to the personal benefit test in classical theory tipping cases, it is difficult to imagine any socially beneficial scenario where a law firm associate shares material, non-public information about a future acquisition of a client that is subsequently traded upon by direct or indirect recipients.
 See e.g., Salman v. United States, 137 S. Ct. 420 (2016).
 See, e.g., Elizabeth Williams, 14 A.L.R. Fed. 2d 401 (2017); Donald C. Langevoort, Tippers and Tippees, 18 Insider Trading Regulation, Enforcement and Prevention § 6:13 (2017).
 Salman, 137 S. Ct. at 425 n.2 (“We do not need to resolve the question [of whether the personal benefit test applies to the misappropriation theory]. The parties do not dispute that Dirks’s personal-benefit analysis applies in both classical and misappropriation cases, so we will proceed on the assumption that it does.”).
 No. 17-290 (filed Jan. 30, 2017).
 Salman, 137 S. Ct. at 425 n.2 (quoting United States v. O’Hagan, 521 U.S. 642, 651–52 (1997)).
 445 U.S. at 230 n.12.
 463 U.S. 646, 660 (1983) (“a tippee assumes a fiduciary duty to the shareholders of a corporation not to trade on material nonpublic information only when the insider has breached his fiduciary duty to the shareholders by disclosing his information to the tippee and the tippee knows or should know that there has been a breach.” (citation omitted).
 Id. at 662. For an extensive discussion of the genesis of the personal benefit test, see Adam C. Pritchard, Dirks and the Genesis of Personal Benefit, 68 SMU L. Rev. 857 (2015).
 The concern here appeared to relate to the possibility that, although an issuer would intend that only non-material non-public information be conveyed in such an interview, there is always the possibility that a material piece of information is accidentally included as well. If the issuer’s spokesperson and the analyst feared that if this happened and the tip of, and trade on, the material piece of information were considered illegal under Rule 10b-5, the practice of analyst interviews would be chilled.
 See 463 U.S. at 664.
 O’Hagan, 521 U.S. 642, 651–53; Salman, 137 S. Ct. at 423.
 O’Hagan, 521 U.S. 642, 652.
 Id. at 658 (quoting 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5 (1996)).
 See Chiarella v. United States, 445 U.S. 222, 232–33, (1980) (“Second, the element required to make silence fraudulent—a duty to disclose—is absent in this case. No duty could arise from petitioner’s relationship with the sellers of the target company’s securities, for petitioner had no prior dealings with them. He was not their agent, he was not a fiduciary, he was not a person in whom the sellers had placed their trust and confidence. He was, in fact, a complete stranger who dealt with the sellers only through impersonal market transactions.”).
 See, e.g., SEC v. Yun, 327 F.3d 1263, 1270 n. 15 (11th Cir.).
 SEC v. Musella, 748 F. Supp. 1028, 1038 n.4 (S.D.N.Y. 1989) aff’d, 898 F.2d 138 (2d Cir. 1990 (finding an indirect tippee liable without a finding as to whether the tipper enjoyed a personal benefit or whether the indirect tippee knew of a personal benefit). See also SEC v. Willis, 777 F.Supp. 1165, 1172 n.7 (S.D.N.Y.1991) (another tipping case based on the misappropriation theory, rejecting a motion to dismiss without an analysis of whether the complaint alleged facts indicating that the tippee enjoyed a personal benefit).
 United States v. Chestman, 903 F.2d 75 (2d Cir. 1990).
 United States v. Libera, 989 F.2d 596, 600 (2d Cir. 1993) (“In Chestman, we noted that the misappropriation theory requires the establishment of two elements: (i) a breach by the tipper of a duty owed to the owner of the nonpublic information; and (ii) the tippee’s knowledge that the tipper had breached the duty. . . . We believe these two elements, without more, are sufficient for tippee liability.”).
 Id. at 446. This statement is dictum because the case involves information coming from within the issuer whose shares were being traded and there was no allegation that the tippee owed any duty of confidentiality to the tipper. Thus, the case is clearly based on the classical theory. Accordingly, the issue of whether or not the personal benefit test needs to be included in misappropriation based tipping actions was not an issue. See also SEC v. Obus, 693 F.3d 276. (2d Cir. 2012), a misappropriation tipping case where the court, while reversing the district court’s grant of summary judgment for the defendant, stated, also in dictum, “[t]he Supreme Court’s tipping doctrine was developed in a classical case, Dirks, but the same analysis governs in a misappropriation case.” The court again provided no analysis in support of this statement, instead simply citing United States v. Falcone, 247 F.3d 226, 233 (2d Cir. 2001). While the opinion in Falcone mentions the personal benefit test in its review of Dirks, which it describes as involving a holding under the “traditional theory,” i.e. classical theory, 247 F.3d at 229, it does not, contrary to what is implied by the citation in Obus, address whether the personal benefit test should be imposed in misappropriation tipping cases.
 United States v. Parigian, 824 F.3d 5, 15 (1st Cir. 2016).
 SEC v. Sargent, 229 F.3d 68, 76–77 (1st Cir. 2000); SEC v. Rocklage, 470 F.3d 1, 7 n.4 (1st Cir. 2006).
 SEC v. Yun, 327 F.3d 1263, 1275 (11th Cir. 2003). A California district court also implied that the personal benefit was required for misappropriation cases, but there is no serious analysis of the issue. See SEC v. Trikilis, No. CV 92-1336-RSWL(EEX), 1992 WL 301398, at *3 (C.D. Cal. July 28, 1992), vacated sub nom. SEC v. Trikilis, No. (EEX), 1993 WL 43571 (C.D. Cal. Jan. 22, 1993).
 Yun, 327 F.3d at 1279.
 Under the Exchange Act, its only constraint in doing so is the requirement under Section 13(d) that within 10 days of its reaching a 5 percent ownership in B, it must file with the SEC a form indicating this fact and setting out its intentions going forward.
Another example of a situation similar to this hypothetical is when an activist hedge fund tips other hedge funds in advance of a public announcement of its stake in a corporation, an announcement that can be expected to result in a price jump in the corporation’s shares. The activist fund does so with the hope that the other funds will purchase shares on the news and will then be available to join the activist fund in forming a “wolf pack.” Such tipping and purchases by the tippees do not violate insider-trading laws. See John C. Coffee, Jr. & Darius Palia, The Wolf at the Door: The Impact of Hedge Fund Activist on Corporate Governance, 1 Annals Corp. Governance 1, 30 (2016).
 See Brian Baxter, Cravath, Mayer Brown Advise on IBM, SPSS Merger, AmLaw Daily (July 28, 2009), http://amlawdaily.typepad.com/amlawdaily/2009/07/cravath-mayer-brown-advise-on-ibm-spss-merger.html.
 SEC v. Payton, 219 F. Supp. 3d 485, 488 (S.D.N.Y. 2016); SEC v. Payton, 97 F. Supp. 3d 558, 560 (S.D.N.Y. 2015).
 Payton 219 F. Supp. 3d at 488; Payton 97 F. Supp. 3d at 560.
 Payton 97 F. Supp. 3d at 561.
 See Dirks v. SEC, 463 U.S. 646, 655 n. 14 (1983).
 See Plaintiff Securities and Exchange Commission’s Opposition to Defendants’ Motion to Dismiss at 4–7, SEC v. Payton, 97 F. Supp. 3d 558, 562 (S.D.N.Y. 2015).
 Payton, 97 F. Supp. at 562.
 No. 14 CIV. 4644, 2016 WL 3023151 (S.D.N.Y. May 16, 2016)]. Martin, Conradt, Payton, Durant, and a fifth defendant Weishaus were indicted for criminal insider trading, but these charges were dropped in early 2015. See Nolle Prosequi, United States v. Conradt, No. 12 Cr. 887 (Feb. 3, 2015).
 The evidence that he cites in reaching the decision concerning the sufficiency of the evidence with regard to Martin’s personal benefit from making the tip is more straightforward. Specifically there was evidence at trial that the Martin, the tipper, and the Conradt, the initial tippee, were good friends and that Martin urged Conradt to buy SPSS stock. Payton, 219 F.Supp. 3d 490–91. From this evidence, a jury could infer that the tip was the equivalent of a cash gift. Salman v. United States, 137 S. Ct. 420, 428. Where the tip is such a gift, it qualifies as a personal benefit to the tipper under Dirks. See supra note 15 and accompanying text. There was also evidence that Martin sought and obtained free legal advice from Conradt, from which the jury could conclude that the Martin received a quid pro quo for the tip, Payton, 219 F.Supp. 3d 490–91, another form of personal benefit under Dirks.
 A large part of the defendant’s appeal focuses on whether a reasonable jury could find that Martin received a personal benefit from tipping Conradt or that Payton and Durant knew of the breach of duty and personal benefit of Martin. Brief and Special Appendix for Defendants-Appellants, SEC v. Payton, No. 17-290, at 35–52 (Apr. 28, 2017).
 In formulating what the standard is for demonstrating tippee knowledge of the tipper’s personal benefit, Judge Rakoff states “in a civil case like this one, the SEC need only prove ‘that defendants knew or had reason to know of the benefit to the tipper.’” Payton, 219 F.Supp. 3d at 492 (citations omitted, emphasis added). The Second Circuit in Newman stated that for criminal cases a tippee must actually know that some personal benefit is being provided in return for the information in order to meet the mens rea requirement. See United States v. Newman, 773 F.3d 438, 448–50, 449 n.3 (2d Cir. 2014).
 Dirks, 4463 U.S. at 660.
 The defendants also argue that there was no duty of trust and confidence to Dallas, although this argument takes up a shorter amount of the brief. Brief and Special Appendix for Defendants-Appellants, SEC v. Payton, No. 17-290, at 30–35 (Apr. 28, 2017).
 See Merritt B. Fox, Lawrence R. Glosten & Gabriel V. Rauterberg, The New Stock Market: Sense and Nonsense, 65 Duke L.J. 191, 238 n. 106 (“Persons trading on the basis of confidential nonpublic information neither worked to develop the information, nor paid someone else to work to develop it. Whether these trades are legal or not depends on the circumstances, but legality aside, the gain the trader enjoys at the expense of other investors would be hard to justify as representing a socially useful incentive. Such information usually becomes public relatively quickly and thus would have been reflected in price soon anyway. Yet, as we have seen, the existence of the practice of trading on its basis decreases liquidity, which discourages the activities of those who trade on the basis of information that does take work to develop. So, on a net basis, trading on the basis of nonpublic confidential information that took no work to develop is, if anything, likely to be socially harmful.”). In contrast, the trading of Payton and Durant adds little to stock price accuracy, because the nonpublic information will be reflected in the stock price once the acquisition by IBM was announced. Id.
This post come to us from Professor Merritt B. Fox at Columbia Law School and George Tepe, a 2017 graduate of the law school.
Interesting read. For an earlier treatment of the practical and policy issues raised by Newman, please see an earlier post on this excellent blog http://clsbluesky.law.columbia.edu/2015/01/28/why-newman-leaves-me-with-a-queasy-feeling-or-deregulating-the-demand-for-insider-information/. (For interests of disclosure, I am both a prior editor of the blog and the author of the cited post:).


text:
Psalm 72, the last recorded prayer of David, was written for his son, Solomon. A dying blessing, a prayer of a king for his successor, a prayer for the subjects to sing to their new king.
As you read through and ponder these verses one thing becomes clear - no earthly king could succeed at all these things. Solomon, certainly, the wisest of all, with a wisdom given to him by God, was more likely to succeed than any other. Yet, we know the end of his story.
Reading these verses in light of our New Testament reveals the precious promises of the coming Messiah. We see the prophecy of prosperity and timelessness of the kingdom of Christ.
There shall be a peaceful government. v. 3 While Solomon's reign was peaceful, true peace is the glory of God's kingdom because it reconciles man to God and men to one another. For He is our PEACE.
There shall be a protective government. v. 3; 12-14 The poor and needy shall be, in a particular way, protected. Because they have no helper and because they cry unto Him, He has promised to answer their prayers and to help them. Christ is the poor man's King.
All wrongs will be made right. v. 4 Proud oppressors shall be reckoned with. Christ will take away their power to hurt and punish them for all they have done. He shall save us from the power of Satan. Both the old serpent who seeks to deceive and the roaring lion who seeks to terrify and destroy us.
Religion shall flourish. v. 5 Faith in Christ brings about the fear of God. So as Christ's government promotes devotion to God, so it promotes both justice and charity among men. v. 7 Righteousness will endure.
Christ's government shall cover the whole earth. v. 8 He will have dominion from sea to sea. He shall reign over all. From those who dwell in the wilderness, to those in cottages to those who dwell in the finest palaces.
The Lord Jesus shall reign forever! v. 5, 7 It is Christ and Christ alone Who will be feared throughout all generations and Who will endure as the moon forevermore. His name shall endure FOREVER!
Men shall be blessed. v. 17 Truly and forever blessed in HIM.
As we wait in the darkness of this day may we hold fast to the promise of Gen 12:3; that in HIM all the nations of the earth will be blessed! It is a promise soon to be fulfilled!

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A May 10 election in West Virginia could leave the state’s new right-to-work law in peril. On that day, voters will decide whether to re-elect Republican Justice Brent Benjamin to the West Virginia Supreme Court of Appeals, or replace him, possibly with union-supported Darrell McGraw.
McGraw, who is seen as leading the pack of those challenging the 12-term justice, is endorsed almost entirely by unions. If elected, he would be the fourth Democrat on the five-member court.
The main concern of those who favor giving workers the freedom to choose whether or not they have to pay a union to keep their job is that with McGraw on the bench, the West Virginia Supreme Court may have the majority it needs to issue a ruling similar to the one recently made by a Wisconsin judge striking down the state’s right-to-work protections.
Dane County judge William Foust ruled that under the law, “a free-rider problem is born — the ability of nonmembers to refuse to pay for services unions are compelled to provide by law.” He then sided with the three unions in the case, including the Wisconsin State AFL-CIO, that argued that the right-to-work law took their property without just compensation.
The ruling is incorrect and will almost certainly be overruled.
While Wisconsin’s ruling came from a lower court and will likely be overturned by a higher court, the West Virginia Supreme Court of Appeals would be the final arbiter in a question regarding that state’s new right-to-work law. If that court says it violates federal law, the case could go to the U.S. Supreme Court. If McGraw is elected and assists in overruling worker protections, workers’ only recourse (assuming the case involves a federal issue) is to take the question to the Supreme Court, which has been in limbo since the February death of Justice Antonin Scalia.
A leading candidate in the race for the West Virginia Supreme Court, Darrell McGraw, has the endorsement of most of the state’s unions.
The current 4-4 split means the U.S. Supreme Court may fail to uphold nearly seven decades of precedent and kill right-to-work in West Virginia. If there is a tie — as was seen in the most recent union case before the court, Friedrichs v. California Teachers Association — the lower, unfavorable West Virginia ruling would stand. Such a ruling would not set a precedent for future cases or impact other states’ right-to-work protections.
A court with Garland, or an appointee like him, could conceivably strike down right-to-work for the entire country.
As a former Supreme Court of Appeals justice and former attorney general, McGraw benefits from better name ID than most of the other candidates on the ballot.
The former state Supreme Court justice and former attorney general is among five candidates vying for the single seat on the five-member court. McGraw, because of his long political career, likely enjoys the highest name recognition in the field that includes current Justice Brent Benjamin, Wayne King, Beth Walker and Bill Wooten.
Will unions have a majority on the West Virginia Court?
According to a 2015 study from West Virginia Citizens Against Lawsuit Abuse, a nonprofit citizen watchdog group that fights lawsuit abuse, two of the justices, Democrat Robin Davis and Democrat Margaret Workman, joined together 68 percent of the time on non-unanimous decisions.
Still, there is hope. Only Davis dissented on a procedural issue during the right-to-work fight that would have killed the chances of the bill. The question was whether the governor had to appoint a Republican or a Democrat to fill a seat vacated by a Republican who had been elected as a Democrat. Workman wrote the majority opinion stating a Republican had to be appointed.
Workman was joined by Democrat Chief Justice Menis Ketchum and Republican Justice Allen Loughry; Benjamin did not participate in the decision due to a conflict of interest.
If McGraw is elected, it would take only one justice siding with a likely Davis vote against right-to-work, to make worker freedom in West Virginia history.
Worse, if Merrick Garland or someone of similar persuasion is appointed to the U.S. Supreme Court, the outlook for right-to-work across the country could be in jeopardy.
About The Author: F. Vincent Vernuccio is director of labor policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Michigan. Nathan Lehman, a 2014 research intern with the Center, contributed to this article. This issue originally appeared in the August 2014 issue of Labor Watch and is republished here with permission.
Rebecca Friedrichs, a third-grade teacher in the Savanna School District, which serves portions of northwest Orange County, is the lead plaintiff in Friedrichs v. California Teachers Association, a lawsuit brought by several teachers that challenged the hegemonic power of their union to collect fees from non-union members. The challenge, made on First Amendment grounds, could have a significant impact on the way unions do business.
The Supreme Court heard oral arguments in January, and a ruling was expected over the summer. But with the untimely passing of Supreme Court Justice Antonin Scalia, the largest threat to union power in recent memory may have subsided, at least for now.
We sat down with Rebecca Friedrichs to talk about the case and its future.
(1) First, what was it like to have your case heard before the Supreme Court?
Having our case heard before the US Supreme Court was such an honor. Our voices have been silenced by forced unionism for decades, so it was a liberating feeling to listen as the Justices heard our pleas for freedom from coerced union speech. We were awed by the beauty of the historical artwork within the Court, the respectful nature of the Court proceedings, and by the remarkable support we received from many supporters who rallied on our behalf outside on the steps of the Court. That day will forever live in my memory as breathtaking blessing from God.
(2) How do you think the oral arguments went?
I feel very good about the oral arguments. It seemed that the Justices heard our side of the issues, and I’m hopeful and praying that they will rule in favor of our Constitutional First Amendment rights to freedom of speech and association.
(3) Now, a little background, why did you become a teacher?
I wanted to be a teacher from the time I was in sixth grade. Then I had a seventh grade English teacher who really inspired me, and that solidified my desire to become a teacher so that I could inspire children to love learning too. I’ve never regretted the decision because working with little children has been very rewarding. There’s nothing like being part of the excitement when small children discover new and exciting information. Their enthusiasm is contagious, and it’s my desire to help them to become enthusiastic lifelong learners.
(4) Did you consider the fact that you would have to join the union?
I never even knew about the teachers’ unions until I was a student teacher, which was only six months before I was hired as an elementary school teacher. Sadly, my lesson about teachers’ unions was the result of an experience I had during student teaching. I was learning how to teach under a highly qualified and loving master teacher, but next door to us was a teacher who had lost her patience with children, and in my opinion, she was abusive to them. Every day I would witness her grab the children by the arms, yank them into line, and yell in their little faces. These children were in first grade; they were only six years old. I was so disturbed by the abuse that I asked my master teacher what could be done about the situation. At that time, she sat me down and educated me on teachers’ unions. She explained that tenure made it very difficult for administrators to rid districts of teachers who had become incompetent or even abusive, and she also informed me of the unions’ collective political efforts which were against almost everything I believed.
(5) How involved have you been in the union? What were some of the policies you disagreed with and how did the union respond to your concerns? Were you ostracized or retaliated against?
I was a full union member from around 1998 – 2012. During that time, I served as a union site representative, and I also served two years as the secretary on our local union executive board, so in all, I served three years as a union leader within my district. After stepping down as a leader, I remained engaged with the union leadership in an effort to help with extremely low morale in our school district.
I disagreed with many of the policies of our union including tenure, attacks on school choice, and the single-minded focus on raises at the expense of a more well rounded curriculum for the children.
During the downturn in our economy, I was a union board member. The district alerted us that they would have to lay off several newer teachers because of a lack of funds. The teachers who would lose their jobs were doing an outstanding job, and many of my colleagues were eager to support ideas to save those jobs. I surveyed a number of teachers on my campus, and they were willing to take a small pay cut in order to save the jobs of their friends, keep class sizes lower, and to stand in solidarity with the community we serve because many of the parents had lost their jobs or taken severe salary cuts. I brought this idea to our union leadership on several occasions. Every time I was met with resistance and told that the teachers would never go for it. When I suggested an anonymous survey so that teachers could share their voices with the leadership, I was again told no. After pursuing this idea for weeks, a union leader said, “Rebecca, don’t worry about those teachers. The union is going to take care of them. We’re going to offer them a seminar on how to receive unemployment benefits.” I was shocked. I told them that those teachers didn’t want to be on unemployment, they wanted to teach, and their students and the community deserved to have them in the classroom. Every one of those teachers was laid off that year. All of them left demoralized and feeling they were inferior teachers. In reality, they were stellar educators, but the union they were forced to give $1000 a year didn’t “represent” them at all.
(6) What made you decide to take action? What was the proverbial straw that broke the camel’s back?
I decided to take action because I discovered after years of trying to make a difference within the union and within my district that even union leaders are ignored and bullied if they dare to stand against the union status quo. No matter how many times I tried to reason with my local union on behalf of my colleagues, no one ever took action to support the needs of my colleagues and myself; even though we were paying the bills. No matter how many times I brought up our collective concerns about the political efforts of our union, the many negative issues surrounding tenure and other union policies that many of us feel harm our students, the voices of my colleagues and I were never heard. On top of that, every education reform I believe in is defeated by the union I’m forced to fund.
Someone had to speak up to alert the American people that their teachers are being mistreated by a private organization we are forced to fund, and that the very organization that claims to “represent” teachers and protect children is actually the money behind defeating common sense education reforms that would be good for our children and teachers.
(7) The case revolves around “agency fees.” What are agency fees? How are they different from dues and why shouldn’t teachers have to pay them?
There is only one way in which teachers can be union members, and that is to pay full collective bargaining fees and the overt political dues that fund union politics (like contributions to candidates and ballot measures). Full membership dues run around $1,000 a year in California, and I know teachers who pay as much as $1200. So, teacher payments are called “dues” when teachers pay for collective bargaining and overt union politics.
If teachers want to avoid paying for the overt politics of the union, which have nothing to do with their jobs, they can elect to become “fee payers,” but they lose their membership and all benefits of membership. So “fees” are all of the dues minus the overt political portion of the dues.
Fee payers pay 100% of the union dues, and at the end of the year, they can send a request to receive a rebate of the funds that were used for the union’s overt politics; the rebate is usually around 30% – 35% of the dues. If fee payers forget to send their rebate requests during the short window provided for rebates, they do not receive their rebates, but they are still considered “fee payers,” and non members. The union gets to decide for itself which expenditures are considered “chargeable” to fee payers or “nonchargeable” and overtly political.
Although fee payers, like myself, pay 100% of the collective bargaining fees, we are denied a vote on the collective bargaining agreements that we are forced to teach under, and we are denied the right to serve within union leadership. We lose all benefits of membership including our professional liability insurance and other perks like life insurance which are only available to us through the union. Because we lose our liability insurance, most fee payers replace that insurance through private organizations like Association of American Educators (AAE) or Christian Educators Association International (CEAI), so we spend our rebates on our liability insurance coverage.
(8) The union says without agency fees, it would create a class of “free riders,” who receive the benefits of union membership without paying for it and leave the union destitute. How do you respond?
First of all, it’s not a free ride if you never asked for the ride in the first place. No one asked me if I wanted to be represented by the union. Second, the unions lobby the legislature for the power to have the right to bargain on behalf of all public sector workers, even if a worker doesn’t want to be a member. So, they are out there actively working for laws that create the “free rider” problem.
The union consistently states that fee payers are “benefitting” from their collective bargaining efforts; however, many of us don’t think the collective bargaining agreements are benefits. In my value system, it’s immoral to place my narrow financial self-interest above the needs of my community, my students and my country. So when my union uses my forced fees to gain more and more for me at the expense of my students, my community and my country, I am offended and forced to take “benefits” that for which I never asked. I have so many ideas to improve our schools that I’d love to bring to the table, but my union (with my money) stifles my ideas and often promotes ideas and policies that are in direct opposition to what I (as a 28 year classroom teacher) feel would be beneficial to my students and to other students across this country.
The union takes my forced fees, yet they give me no voice and no vote in collective bargaining, and they strip me of liability insurance and membership. The truth is that I’m a forced rider and the unions have been free riding off of me and teachers like me for almost 40 years.
There are currently 25 states with Right to Work laws, and in those states, teachers have the right to choose whether or not to pay or join those unions. The unions are not destitute in those states; in fact, they’re doing quite well. The union’s argument that giving teachers choice would decimate the unions is simply a scare tactic.
(9) How have you been received by other teachers?
There are, of course, some union members who are angry with me; however, I’ve been pleasantly surprised by the large number of teachers who have reached out to support me from across the country. Most teachers who support me do so quietly because they’re too afraid to speak out publicly, but some are gaining the courage to speak out publicly as well. Isn’t it tragic that so many teachers across the country have been bullied into silence by a union that claims to “represent” their best interests? It is my sincere hope that people across this country will become acutely aware of the abuse their beloved teachers have been enduring for decades at the hands of unions they’ve been forced to fund, and that those Americans will speak up in defense of teachers everywhere so that the teachers themselves will be able to find the courage to speak out as well.
(10) Why do you think more teachers don’t speak out as you have?
Three words: They are afraid.
(11) How do you think the passing of Justice Scalia will affect the outcome of the case?
We were very sad to hear about Justice Scalia’s passing. My heart is broken for his family. He was a brilliant man of integrity and faith. Our country was blessed by his service, and I am so grateful that I had the opportunity to see him in action the day our case was heard. Although I am personally hoping and praying for a positive decision this term, we don’t know what the outcome of the case will be. Court observers expect that if a decision is reached without Scalia, it will be a 4-4 tie. That would leave this very important issue unresolved. We think this issue needs to be put to rest once and for all—and we may need a Supreme Court with 9 members to reach a decision, so if necessary, we are going to push for a final decision to be made by the Supreme Court when there are 9 members. In other words, if we get a tied decision, we will ask for the case to be re-heard when a new Justice is confirmed.
Karen Cuen has more than a casual interest in Friedrichs v. California Teachers Association, which was argued before the U.S. Supreme Court in January. She is one of the parties to a case whose future course became unclear following the Feb. 13 death of Justice Antonin Scalia.
Cuen is a music, band, and choir teacher who has taught elementary school students in Chino Valley, California, for over 20 years. She does not feel that the teachers union represents her best interests, and she is not a member. But since California is not a right-to-work state, she is required to pay fees to the union.
If Cuen and the other petitioners in Friedrichs prevail, they will be able to opt out of paying the CTA and its local affiliates.
Karen Cuen is a plantiff in a U.S. Supreme Court case involving mandatory union fees.
The union representation fees Cuen must pay as a nonmember are spent on politics, she said, including union negotiations for policies such as pay increases that reward longevity with no regard for effectiveness.
She disagrees with many of these positions but is forced to pay for them to keep her job.
“New teachers are often some of the most excited. They come up with new ideas and great teaching strategies. Letting these kinds of teachers go is just bad business,” Cuen said.
The teachers who brought the case to the Supreme Court argue that mandatory union fees in the public sector violate the First Amendment rights of nonmembers since public employee unions engage in politically charged negotiations over taxpayer resources, public services, and government workers.
What would happen were the court to rule for Cuen?
“A favorable ruling would mean that after 20-plus years as an agency fee payer, I would finally stop having money taken out of my paycheck without my consent,” she said.
Arguing against Cuen and her fellow petitioners, union lawyers warn that ending mandatory fees in the public sector would upset labor peace, harming workers by weakening unions.
Cuen disagrees, saying public employee unions could become stronger, not weaker.
During oral arguments on Jan 11., a majority of Supreme Court justices seemed sympathetic to the position advanced by attorneys representing Cuen and the other teachers. Counsel for the petitioners has asked the court to rehear the case after a replacement for Scalia is confirmed.
About the Author: Jason Hart is an Ohio-based reporter covering labor issues for Watchdog.org, with a focus on right-to-work, public employee unions and Obamacare. Before joining Watchdog, Jason was communications director for Media Trackers Ohio. His work has been featured at FoxNews.com, The Daily Signal, RedState, Washington Examiner, Townhall and elsewhere. His investigations into labor union spending and Obamacare’s Medicaid expansion have been cited by national commentators including Michelle Malkin, Erick Erickson, Dana Loesch and Mark Levin.
The unfortunate and untimely passing of Supreme Court Justice Antonin Scalia has Big Labor bosses and their liberal political allies cheering. Scalia would have been the decisive vote in a major Supreme Court decision affecting labor unions scheduled for this June (see Why Antonin Scalia was a jurist of colossal consequence). Justice Scalia’s influence would have impacted government union bosses, as he most likely would have voted in favor of union members in Friedrichs v. California Teachers Association. The case involves a California teacher who claims her First Amendment rights have been violated by having to pay union dues, even though she isn’t a member of the union. This matter was further chronicled in a previous blog, Will the Supreme Court undo the damage done to the rights of millions of government workers?
Such a defeat could have been a death spiral for Public Sector Unions. Without a replacement for Scalia, the vote could end up in a tie, considering the Supreme Court is now divided evenly — four liberal justices and four conservative justices. In the event of a tie, the decision of the lower court continues to stand. In this case, the Court of Appeals ruled in favor of the labor unions.
Despite the fact President Obama will push for a quick replacement for Scalia, likely a liberal candidate, which would tilt the Supreme Court to the left, and unions don’t technically even need this appointment, as they are currently in position to Win by Default. This could also be a setback to Christian businesses in America. Without Scalia’s vote, cases involving Religious Beliefs and Christian Values may swing against such businesses due to a likely liberal selection by the President.
Big Labor’s cheering will be somewhat dampened by the news that West Virginia just voted to become the 26th Right-To-Work (RTW) State, effective July 1, 2016. West Virginia makes the fourth state to pass RTW legislation in the last 4 years –along with Indiana, Michigan and Wisconsin. It is obvious that the country is moving in a new direction and that there is actually a movement for National RTW Legislation. This recent development, combined with the fact that Democrats may lose the 2016 Presidential Election and continue to be the congressional minority, has the big labor bosses concerned. Undoubtedly, they will be a Major Presence in the 2016 Elections, as they may possibly face extinction if they lose this Election.
I often experience flashbacks of the SEIU attacks made against my company when watching Hillary Clinton, Bernie Sanders and President Obama speak. They are using the same misguided promises, false information, lies, rhetoric and intimidation tactics the SEIU utilized when attempting to force unionize my employees. It is imperative that a Supreme Court decision is not made in favor of big labor as a result of Scalia’s death.
There is no doubt Scalia’s Death Throws a Wrench in the Bench. However, it is time for Americans from both sides of the aisle to band together, absent political persuasion, to assure that Scalia’s replacement will be one that does not represent progressive ideology, but rather someone who Defends the Constitution of the United States of America and the future of this great country — as Antonin Scalia notably did for so many years.
About the Author: David A. Bego is the President and CEO of EMS, an industry leader in the field of environmental workplace maintenance, employing nearly 5000 workers in thirty-three states. Bego is the author of “The Devil at My Doorstep,” as well as the just released sequel, “The Devil at Our Doorstep,” based on his experiences fighting back against one of the most powerful unions in existence today.
Last month a group of California teachers fighting mandatory union fees at the U.S. Supreme Court had, by all appearances, a good day.
Supreme Court justices seemed receptive to the arguments brought by teachers in the Friedrichs v. California Teachers Association case. If the case is successful, Rebecca Friedrichs and other government workers across the nation will gain the ability to opt out of agency fees unions charge to nonmembers.
Remarks from several of the justices indicated they agree with Friedrichs on a central point, that public sector union negotiations are inherently political because they involve taxpayer money, public employees, and government services. This fact makes collective bargaining in government workplaces different from its counterpart in the private sector.
This is crucial to the Friedrichs case because the First Amendment protects against compelled political speech, and the CTA — like many public sector unions — takes mandatory agency fees from nonmembers to cover its collective bargaining costs.
Rebecca Friedrichs is a teacher who is the lead plantiff in the Friedrichs v. California Teachers Association U.S. Supreme Court case.
“The problem is that everything that is collectively bargained with the government is within the political sphere, almost by definition,” Justice Antonin Scalia said.
Kennedy, Roberts, and Scalia are considered the swing votes in the case. Justice Samuel Alito and Justice Clarence Thomas are widely expected to rule in favor of letting teachers and other public employees decline union membership without being forced to pay agency fees.
Patrick Wright, the vice president for legal affairs at the Mackinac Center for Public Policy, attended oral arguments and said the justices’ comments were a good sign for Friedrichs and her fellow petitioners.
“The court seemed quite receptive to the argument that agency fees subsidize speech that many public employees strongly disagree with, thereby converting them into compelled riders,” Wright said.
The biggest surprise, he said, was Kennedy’s skepticism of agency fees in the public sector.
“If the tone of oral argument translates to votes, it seems likely that there are five votes to find that compelling subsidization of union speech through the use of agency fees will be declared unconstitutional,” Wright added.
California Solicitor General Edward DuMont, speaking against the teachers seeking an end to agency fees, made little effort to dispute the notion public sector collective bargaining is political.
Under questioning from Roberts, DuMont conceded that “there are deep public policy implications to many of the topics and to the general tenor of public employee bargaining.
DuMont argued primarily in defense of exclusive representation in the public sector, which means a bargaining unit in a government workplace can be represented by no more than one labor union. A win for Friedrichs would not affect exclusive representation.
DuMont, union attorney David Frederick, and Obama administration Solicitor General Donald Verrilli said government employers support agency fees, and asked the court to stand by the 1977 Abood v. Detroit Board of Education decision allowing mandatory union fees in the public sector.
“Overruling Abood now would substantially disrupt established First Amendment doctrine and labor management systems in nearly half the country,” Frederick warned.
Ending agency fees in the public sector, Verrilli said, would “disrupt those long-term relationships that have developed over time” between government employers, employees, and unions.
DuMont, Frederick, and Verrilli defended the Abood precedent with help from Justice Sonia Sotomayor, Justice Elena Kagan, and — to a lesser extent — Justice Ruth Bader Ginsburg and Justice Stephen Breyer.
Kagan emphasized her concern that ending agency fees could disrupt “tens of thousands of contracts,” particularly their provisions concerning agency fees.
After insisting the California Teachers Association is a government entity under state law, Sotomayor wondered aloud if the government itself could fund public employee unions in the absence of agency fees.
A decision in the case is expected in June; until then, even the most informed observer can only speculate as to how each justice will rule.
It goes without saying that education and economics go hand in hand. For most parents, regardless of race or class, part of the American Dream is for our children to attend safe, family friendly, high-quality schools with great principals, teachers and support staff. As parents, we imagine that special day when our children graduate high school, attend a traditional college or trade school, and then obtain livable wage employment, hopefully with family friendly benefits.
The harsh reality, however, is that many parents, especially from Black and poor communities, must send their children to public schools that do not meet their academic and life needs. In addition, parents are learning that the many teachers who work tirelessly to put the needs of children first, don’t have much power within their own unions to effectively support students. Why? Because I learned, through the suit of Friedrichs v. California Teachers Association, that many teachers are beholden to a narrow electorate of union politicians that shape education policy to favor the political agendas of union leadership, rather than the students in greatest need. All of this, at the expense of the taxpayer, regardless of results.
The California Teacher Association’s 23 Board of Directors.
So, what do parents need to know about Friedrichs? Plenty. This week, the U.S. Supreme Court heard a case brought by Mrs. Rebecca Friedrichs and nine other California teachers who are not members of the teacher’s union, but are required to pay agency fees to the union, say that they do not benefit from the collective bargaining agreement and that collective bargaining is political because it includes workplace rules and requirements that prevent laws from being passed that would improve under-performing and under-served schools.
Friedrichs and many of her fellow teachers share the dreams we parents have for our children. This includes safe, high-quality schools that equitably educate all children, regardless of their zip-code and they encourage their colleagues to deliver the best possible teaching to all children, regardless of their family backgrounds. The reality is that families of color like mine are not alone in our fight for fair and just education.
For me, the suit brought by Friedrichs and her nine other colleagues brings awareness of the consequences of forced compulsory dues laws. While compulsory laws may have had good intentions decades ago, laws that force parents and teachers to do what is against their interests and those of children are wrong. It is unconstitutional, unethical, and wrong to force parents to send their kids to unsafe and low performing schools. It is unconstitutional, unethical, and wrong to force teachers to pay for other people’s political campaigns and agendas. Neither parents nor teachers should be forced to do what they believe is morally wrong.
How can it be legal to force someone, in this case a teacher, to pay for an organization’s political agenda? How can forced compulsory dues laws be consistent with the First Amendment guarantees of free speech? Do the Constitutional rights of the individual matter? For both teachers and families, our ability to choose, either to support or not support political action, or to choose schools for our kids, is a Constitutional matter upon which no one should encroach.
But Friedrichs isn’t just about choice. It is also about justice, especially for our children. As parents, we are tirelessly fighting for equitable changes that would improve schools in disenfranchised and marginalized communities are prevented by union collective bargaining agreements. Each day, National Education Association, American Federation of Teachers, and their affiliates use dollars forced out of the pockets of teachers to advance policies, laws, and collective bargaining agreements that stand against justice for our children and even against the interests of teachers they proclaim to represent.
If NEA and AFT were no longer able to force every teacher—even teachers who disagree with those policies—to fund their advocacy, we would have a better chance at adopting reforms that are fair to effective teachers and meet the needs of students. We could get rid of the policies and practices advanced by National Education Association and American Federation of Teachers affiliates that prevent justice for students most in need of meaningful review of teacher performance, demand assignment and retention of teachers based on seniority rather than effectiveness and need, and insist that teachers be compensated without regard to what, where, or how well they teach. We could instead fight for policies that bring justice to our children.
As a Black parent, living in the age of Sandra Bland, Trayvon Martin, Michael Brown, Tamir Rice, Eric Garner, Freddie Gray and the many unarmed Black people that needlessly lost their lives in 2015, what I want and need more than anything is for the Constitution to matter for all citizens. Children and families need our government to enforce the Fourteenth Amendment to the United States Constitution, which guarantees the equal protection of the laws and due process for all.
So you can imagine that I empathize with Friedrichs and her colleagues. She is compelled to send her dues to an education bureaucracy with which she did not agree, the same way parents like me are compelled by law to send our own children to schools that we do not trust. Her compulsory dues, like my children’s compulsory attendance, are part of a system designed to protect the economic interests of a white professional class at the expense of the freedom and equality for black, Hispanic, and Native American students.
Parents want the freedom to demand high quality educational opportunities for our children, and teachers like Friedrichs agree with us. But she is forced by these laws to fund anti-parent choice, anti-accountability lobbying that is fundamentally unjust. And this is wrong.
The research is clear: a quality education is the foundation needed to help ensure families and communities obtain careers that will lead to fulfilling, equitable lives. Parents like me are grateful for teachers like Friedrichs. Their fight is not only constitutionally just, it is also necessary for our public education bureaucracy to work the way it should, on behalf of children.
As Dropout Nation reported last week, National Education Association has had to deal with declining rank-and-file numbers as well as prop up affiliates struggling with pension woes and other issues. None of this, by the way, includes the nation’s largest teachers’ union’s own virtually-insolvent defined-benefit pension.
Yet as NEA has shown in its 2014-2015 financial disclosure to the U.S. Department of Labor, it hasn’t done much to reign in its costs even while revenue remains stagnant.
The union reported overall revenue of $389 million in 2014-2015, a one percent increase over the previous year. Dues and agency fee collections barely budged over the previous year, remaining at $363 million. If not for a 31 percent increase in “other receipts” (including vendor rebates and reimbursements by affiliates for using NEA’s software and technology services), the union’s revenue would have declined.
While NEA’s revenue didn’t increase, its expenses certainly did. The union spent $362 million in 2014-2015, a 2.8 percent increase over the previous years (or nearly $10 million more than last year). Much of that increase can be attributed to a 30 percent increase in direct lobbying spending, as well as a 4.5 percent increase in union administration costs. Adding 21 more employees earning six-figure sums also didn’t help the expense line. The union only slightly trimmed its benefits payouts, reducing those costs by a mere 2.3 percent.
Meanwhile NEA spent big on its annual convention at Walt Disney World in Orlando. This included $216,375 for meetings and hotel rooms at the resort’s Swan and Dolphin Hotel, $131,192 at Walt Disney World’s Buena Vista Palace Hotel. Among the other big hotel spends: NEA dropped $39,641 with Kimpton Hotel’s swanky Grand Solamar, spent $54,155 at the Loews Vanderbilt Hotel in Nashville, ran up $57,365 at the MGM Resorts, and put down $70,876 with Hilton’s Minneapolis hotel.
Yet for all the spending, NEA managed to come up with a surplus of $27 million. This is 18 percent lower than the surplus generated in 2013-2014. But a surplus (or profit, as it is known in Corporate America) is still a surplus. The big question is how long can the state of affairs last. As Dropout Nation noted last week, the union defined-benefit pension is virtually insolvent to the tune of $111 million, according to the plan’s 2013 announcement to retirees. This is a 37 percent increase in unfunded liabilities over the previous year, and 82 percent more than liability levels two years ago. The union has $364 million in assets that could be liquidated in order to cover those liabilities today. But with shortfalls increasing at a fast clip, the union may end up in dire straits itself.
These woes come just as the union and its affiliates must deal with the possible aftermath of the U.S. Supreme Court abolishing compulsory dues laws nationally with a ruling next year in Friedrichs v. California Teachers Association. [Dropout Nation, Editor RiShawn Biddle, and Contributing Editors Gwen Samuel and Dmitri Mehlhorn, are parties to an amicus brief filed in the case.] If the court rules in favor of the plaintiffs, as it is likely based on Justice Samuel Alito’s majority opinion in last year’s ruling in Harris v. Quinn, NEA could lose at least a quarter of rank-and-file, taking a $66 million hit to its coffers (based on 2014-2015 dues and agency fee collections). This would mean a dramatic reduction in dollars available to the union both to pay down its pension as well as dole out for influence-spending.
While NEA’s Golden State affiliate has developed plans to deal with the aftermath of an end to compulsory dues, other state units haven’t done so. NEA itself doesn’t seem to have a plan in place at all. Unlike rival American Federation of Teachers, NEA hasn’t taken the step of aggressively expanding into other union-dominated fields such as healthcare and hasn’t done the kind of talent-hiring from unions such as Service Employees International Union that would be helpful in organizing. Also, unlike AFT, NEA hasn’t offered an associate membership category that would allow teachers and others to join the union and pay dues into it. While NEA may hope that the status quo remains ante on this front, it isn’t likely. And refusing to tackle those issues head-on may leave it weaker in the long run.
You can check out the data yourself by checking out the NEA’s latest financial report, or by visiting the Department of Labor’s Web site. Also check out Dropout Nation‘s Teachers Union Money Report, for this and previous reports on NEA and AFT spending.
The Supreme Court’s decision to hear the Friedrichs case has the unions in a tizzy.
On June 30th, the Supreme Court decided to hear Friedrichs v. California Teachers Association et al, a case that could seriously change the way the public employee unions (PEUs) do business. If the plaintiffs are victorious, teachers, nurses, sanitation workers, etc. would be able to work without the financial burden of paying union dues. The responses to the Court’s decision from the teachers unions and their friends have ranged from silly to contradictory to blatantly dishonest.
The very first thing any new union wants is exclusivity. No other unions are allowed to negotiate on behalf of people in the bargaining unit. Unit members cannot hire their own agent, nor can they represent themselves. Making people pay for services they neither asked for nor want is a ‘privilege’ we reserve for government, not for private organizations. Unions are freeloading on those additional dues.
When a union has exclusive recognition with a federal activity or agency, that union is required to represent all workers in that unit, whether or not those workers are members of the union. We do not contest this requirement. We support it for federal service, just as we support it in private industry labor-management relations.
While the NLRA applies only to private employee unions, the same types of rules invariably govern PEUs. Passed in 1976, California’s Rodda Act allows for exclusive representation and it’s up to each school district and its local union whether or not they want to roll that way. However, it is clearly in the best interest of the union to be the only representative for teachers because it then gets to collect dues from every teacher in the district. It’s also easier on school boards as they only have to deal with one bargaining entity. So it is really a corrupt bargain; there is no law foisting exclusivity on any teachers union in the state.
So exclusive representation is good for the unions and simplifies life for the school boards, but very bad for teachers who want nothing to do with organized labor. It is also important to keep in mind that the Friedrichs case is not an attempt to “bust unions.” This silly mantra is a diversionary tactic; the case in no way suggests a desire to do away with unions. So when organized labor besieges us with histrionics about “the promise of America,” the dying middle class, free riders etc., please remind them (with a nod to President Obama), “If you like your union, you can keep your union.” In this case, it’s the truth.
That’s precisely what occurred last week, when the 9th U.S. Circuit Court of Appeals granted the motion by Rebecca Friedrichs’ attorneys to decide her case (Friedrichs v. California Teachers Association) on the basis of the pleadings, without a trial or additional oral arguments.
The “loss” actually means that plaintiffs – several California public school teachers – can immediately file a petition to the U.S. Supreme Court without having to wait the one to two years it usually takes to get a case through the 9th Circuit before appealing to the Supreme Court. The Center for Individual Rights – counsel for Friedrichs and the other teacher plaintiffs – worked to expedite the proceedings. Essentially, they elected to “lose” in the lower courts, reinforcing their contention that only the Supreme Court has authority to grant them their petitioned relief.
The ruling was the result of a tactical maneuver by plaintiffs to get their motion for a decision on the pleadings in front of a motions panel that is assigned monthly to consider procedural motions rather than allowing it to languish until a panel could be assigned to hear the substantive appeal. The motions panel ruled there is nothing of substance to decide in Friedrichs because it is governed by past Supreme Court precedent, which the 9th Circuit is powerless to overturn.
Plaintiffs anticipate the court will take the case in spring 2015, with a 2016 decision.
Friedrichs involves a state’s right to require public employees, including teachers, to pay union dues, called “agency shop” laws. Twenty-six states, including California, require such. Friedrichs argues this violates free-speech rights.
Friedrichs has national implications. “This case is about the right of teachers to decide for themselves whether they want to join a union. If we win, we will not just strike down the law in California but compulsory union-dues laws nationally,” Pell explained.
While California teachers are not required to join the union, they still must pay union dues, but they can get a refund of the approximately one-third of dues that CTA claims goes toward political action.
Plaintiffs argue the case concerns the First Amendment right of public employees to decide for themselves whether to join and financially support a union. Their case argues that collective bargaining activities are just as political as anything else the union does, and contend that the government cannot compel individuals to financially support the political positions taken by unions in collective bargaining negotiations.
CTA has argued that compulsory dues are needed to prevent employees from “free riding” – gaining the benefits of union membership, including collective bargaining on their behalf, without paying for them.
Last June, the Supreme Court stopped short of doing away with compulsory dues in a 5-4 ruling in Harris v. Quinn.
I recently opined on the outsized political influence CTA wields on California legislative policy and elections. With 325,000 members, and the collection of mandatory dues from members, it usually gets its way in the Capitol, and in most elections. If the Supreme Court rules that individual public employees are not bound to pay dues to their unions, CTA’s money chest – and its political hegemony – will be diminished, inextricably altering the balance of power in California.
This is the case that may decide it all: hence, all eyes are on it.
About the Author: Gloria Romero, a Los Angeles resident, served in the California Legislature from 1998 to 2008, the last seven years as Senate majority leader. Romero is the founder of the California Center for Parent Empowerment, established by in order to empower public school parents–especially those with children trapped in chronically underperforming schools–to understand and use the Parent Empowerment Act of 2010. This article originally appeared in the Orange County Register and is republished here with permission from the author.
Not going to happen. If change comes, it will be from the outside.
Mike Stryer is a former teacher and co-founder of NewTLA, a union reform group that came into being in 2010. One of its goals was to get the powerful United Teachers of Los Angeles to adopt a sweeping education reform agenda. Now Vice President for Programs at Teach Plus, he wrote “A Crossroads for Teacher Unions?” for Huffington Post last week.
As teacher unions step up their calls to stop the “corporate agenda” in education and to confront the “privatization” movement, there is a far more real and serious threat facing teacher unions. The threat comes not from billionaires or charter schools or philanthropists. Rather, it comes from many teacher unions’ difficulty to modernize and reshape themselves in the midst of profound demographic changes of their members. At stake are the relevance and even existence of teacher unions–a force that historically has played such a vital role in American public school education.
Stryer believes that the younger union members aren’t going to put up with their stodgy old out-of-touch, anti-reform elders.
Teacher unions and teacher union leaders that continue to ignore the voices of the new majority of early career teachers do so at their own peril. The choice should be clear: modernize and reshape teacher unions in ways that professionalize teaching and attract early career teachers or become a disappearing force that plays a marginal role in American public education.
I wish he was right, but history has shown otherwise. Attempting to placate younger teachers and the general public, union leaders have for some time now been pledging to engage in reform, raise teaching standards and, in general, bend and change with the times. But when push comes to shove, the same old agenda remains in place.
It is true that younger teachers as a rule are not much interested in the traditional union agenda and the more idealistic ones like Mr. Stryer are downright opposed to it. And, yes, the bulk of the activists are indeed older members. But the young eventually become older, and inevitably the traditional “protect my job and perks at all costs” mentality kicks in. Tenure, seniority, the step-and-column salary scale and loopy dismissal statutes become infinitely more enticing as the years go by.
The teacher union reform field is littered with the bodies of those who sought to alter the union’s primary mission – protecting teachers – and found themselves ousted in favor of challengers who promised to get tough with administrators.
The argument that young teachers are going to transform the unions is just as fanciful, and just as wrong…. Unions are unions. They are in the business of protecting jobs: that is why their members join, that is what their members expect them to do, and that is what they actually do. If you expect them to do something else–to represent children or to represent the public interest–you will be wrong ….
The right-to-work movement is gaining steam. After successes in Michigan and Indiana, the National Right to Work Foundation is trying to end forced unionism in Missouri, Kentucky and Pennsylvania.
If successful, the Students Matter lawsuit in California will remove the tenure, seniority and arcane dismissal statutes from the education code and render them unconstitutional, thus making it easier to get rid of incompetent and criminal teachers while outlawing seniority as a method of teacher retention.
If the Friedrichs v. California Teachers Association case gets to the U.S. Supreme Court, it could conceivably end forced unionism in all fifty states.
As technology-based education becomes more prevalent, fewer teachers will be needed.
There has been a steady political shift. Whereas unions historically could rely on across-the-board support from Democrats, many current reform leaders are left-of-center folks who have come to realize that the unions do not act in the best interest of children.
Parent groups are becoming more influential. Typically led by mothers, these organizations are fed up with the status quo, and are demanding reform in cities and towns nationwide.
Launched with a full head of steam in 2010, they ceased to exist just two years later.
http://californiapolicycenter.org/wp-content/uploads/2017/08/LOGO_v2_white_269x70.png 0 0 Larry Sand http://californiapolicycenter.org/wp-content/uploads/2017/08/LOGO_v2_white_269x70.png Larry Sand2013-12-17 11:09:092016-12-14 05:08:53Teachers Unions Reforming Themselves?
Throughout our nation, teachers are being trained to combat bullying within our schools and social media. It’s ironic that this movement is led by teachers unions, which have been bullying independent-minded teachers for decades.
In California, where I’m a public school teacher, union bullying is enshrined in state law. The law requires that all teachers in public schools pay compulsory “agency fees” to support the agenda of the teachers unions — the most powerful political force in the state — thus allowing the union to dominate and skew political dialogue.
This system requires me to pay hundreds of dollars each year to support union activities that stand in direct opposition to my personal and political beliefs. That’s why I joined a group of other public-school teachers in a lawsuit filed April 30 in a California federal court, asserting that forced union fees violate our core First Amendment rights to free speech and free association.
In 2011, the California Teachers Association collected over $191 million in tax-free revenue, with more than $178 million coming from dues from teachers like me. The union has used this money to become the highest-spending interest group in the state, pushing controversial positions inside and outside of collective bargaining.
Unions have deployed massive expenditures on debatable matters related to education policy and state spending, and taken positions on issues that have nothing to do with public education, such as The Affordable Care Act.
In 2012, California voters were offered Proposition 32, which sought to prohibit unions and corporations from using payroll-deducted funds for political purposes. The unions launched a $60 million attack against the measure, financed (ironically) by fees deducted from the salaries of public employees. The campaign falsely claimed that without compulsory fees, public employees would lose their right to bargain for fair wages, and return to substandard labor practices of an earlier era. As a result, the unions defeated Proposition 32, just as they’ve defeated past initiatives seeking to scale back compulsory union fees.
This brought back memories of 1993, when I refused to support my union’s efforts to defeat a voucher initiative offering parents choice in their children’s schools (while saving millions in taxes). My union representative berated me in front of colleagues, calling me a “radical right-winger.” It’s hardly “radical” to believe no Americans should be forced to support political causes that contradict their beliefs, or that parents should be empowered with school choice.
The problem is obvious. Teachers unions have used state power to entrench themselves in our political system, extracting compulsory fees to buy influence with lawmakers, who then allow unions to abuse their power at the expense of teachers and other public employees. Dissenting teachers feel bullied and paralyzed.
Recognizing that compulsory union fees violate the First Amendment won’t abolish unions or prevent them from engaging in collective bargaining. It will provide unionized laborers their individual rights to free speech.
The NEA 2012 Handbook states, “Bullying creates an unhealthy and unprofessional power imbalance between bully and target,” and asserts the union believes “education employees should be protected from workplace bullying.” Yet the greatest power imbalance is between union bullies and individual teachers. The oppression is so severe, we have a nation of silenced teachers who meekly submit to their unions’ controls, and are forced to pay for them! Teachers, parents, and taxpayers must stand together and demand a long overdue emancipation from entrenched union power, financed through compulsory fees paid by the very teachers the unions are hired to protect.
Rebecca Friedrichs is an Orange County educator and one of the plaintiffs in Friedrichs v. California Teachers Association. This originally appeared as a guest column in the San Diego Union Tribune and is published here with permission from the author.

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