Cort v. Ash
The Supreme Court ruled that a shareholder of Bethlehem Steel could not sue the company's directors for damages under a federal criminal statute barring corporate spending in presidential elections, because the law itself created no such private right to sue.
The Court also held that a new federal law passed after the lawsuit began now requires complaints about future election-spending violations to go through the Federal Election Commission rather than directly to court, further narrowing what the shareholder could seek.
How it got here: A federal trial court denied an injunction and later granted summary judgment for the directors; the Third Circuit reversed, finding an implied private right to sue, and the directors sought Supreme Court review.
The Case in Depth
What happened
Bethlehem Steel Corporation used general corporate funds to pay for newspaper ads and mailings featuring its chairman's speech defending big business and criticizing a "prominent presidential candidate," widely understood to be George McGovern. A Bethlehem shareholder, believing this violated a federal law barring corporate spending in presidential elections, sued the company's directors seeking an injunction and damages for the corporation.
The question before the Court
Could a company shareholder sue the company's directors for damages under a federal criminal law that bans corporate spending in presidential elections?
Why it matters
Shareholders who object to a corporation's political spending cannot rely on this federal criminal statute alone to sue company directors for damages; instead they must look to state corporate law or, for future violations, file a complaint with the Federal Election Commission. This limited who could privately enforce federal campaign-finance rules against corporations.
What changes now
The shareholder's federal damages claim is foreclosed, though he may still be able to pursue a breach-of-fiduciary-duty or similar claim under Delaware corporate law in state court. Future complaints about corporate election spending under this statute must go through the Federal Election Commission's administrative process. The Court did not decide whether the challenged ads actually violated the statute or whether the statute itself is constitutional.
What this does not decide
The Court did not decide whether Bethlehem's advertisements actually amounted to an illegal "expenditure" under the statute, nor whether the statute violates the First Amendment or equal protection guarantees. It also left open whether union members might be able to sue under a similar provision covering labor organizations, a question it explicitly did not address.
How the Court got there
The legal reasoning, step by step
- The Court first addressed the claim for an injunction against future violations, noting that a 1974 amendment to federal election law, passed after the lower court's ruling, created a Federal Election Commission and required complaints about violations to go through that agency rather than directly through a private lawsuit.
- Applying the rule that courts must decide cases under the law in effect at the time of decision (unless doing so causes manifest injustice), the Court held that the new law displaced any private right to seek an injunction for future violations, since Congress had built a specific administrative complaint process into the statute.
- Turning to the damages claim, the Court laid out a four-factor test for deciding whether a federal law that doesn't expressly authorize a private lawsuit should nonetheless be read to allow one: whether the plaintiff belongs to the group the law was specially designed to protect, whether Congress showed any intent to create or deny such a suit, whether allowing the suit fits the law's underlying purpose, and whether the claim is the kind traditionally left to state law.
- Examining the statute's history, the Court found that protecting individual shareholders from having their money spent on politics was, at most, a secondary goal; the law's main purpose was to keep corporate wealth from corrupting federal elections, not to regulate the internal relationship between a corporation and its shareholders.
- The Court found no sign in the law's history that Congress meant to give shareholders a right to sue for damages, and reasoned that letting a corporation recover money from its own directors would do little to undo the effect of election spending that had already happened.
- Because the relationship between a corporation and its shareholders is traditionally governed by state law, and reading in a federal damages remedy would not actually serve the statute's election-integrity purpose, the Court concluded that no private federal right to sue for damages could be read into the statute.
Doctrinal impact
Cases affected by this decision
Distinguishes J. I. Case Co. v. Borak (377 U. S. 426)
Distinguished because that securities law expressly gave courts jurisdiction over private suits, unlike the election-spending statute here.
Distinguishes Wyandotte Transportation Co. v. United States (389 U. S. 191)
Distinguished because that case already had a conceded civil remedy, unlike the bare criminal statute at issue here.