Providing Clarity and Certainty in Ohio Regulatory Law
Professor Luke Milligan[i]
The responsibility to bring clarity and certainty to Ohio regulatory law lies not only with the legislative and executive branches, but also the courts. In the coming years, the Ohio judiciary will be called upon to improve Ohio regulatory law through a range of means, including the reasoned consideration and application of constitutional rules regarding vagueness and judicial standing.
To highlight just one example, an interesting and emerging question facing Ohio courts concerns the meaning of Ohio Revised Code §1707.043. Section 1707.043 was passed by the Ohio legislature in 1990 and is colloquially known as the “Anti-Greenmail” statute. Part of Chapter 1707 of the Ohio Revised Code, which governs “Securities,” the statute seeks to prevent “manipulative practices” by a person who proposes to “acquire control of [an Ohio] corporation.” At Subsection G, the statute expressly grants the Ohio Division of Securities the authority to adopt rules defining the “terms used in [the] section” and the “types of conduct or practices which the Division determines” are “comprehended within [the] section.”
Although the Ohio Division of Securities has not exercised its rulemaking authority under Subsection G, it has submitted an amicus brief in a recent litigation matter in Ohio, speaking to the exact definitional issues referenced in Subsection G. Bringing much-needed clarity to the statute, the brief’s very first sentence leaves no doubt about the Division’s understanding of the purpose of Section 1707.043:
R.C. 1707.043 was enacted for the specific purpose of preventing a particular manipulative practice called “greenmailing.” The legislature intended that the statute be applied to prevent only this manipulative practice. (Emphasis added.)
After clarifying that Section 1707.043 was enacted to prevent only “greenmailing,” the Division’s brief goes on to define “greenmailing” as the “act of staging a hostile takeover bid in order to manipulate a firm into repurchasing its own common stock at a premium above current price.”
To illustrate the practice of “greenmail”: Picture a party (“Greenmailer”) who buys 1 million shares of an Ohio corporation (“Ohio Co.”) on the open stock market for $5/share (for a total investment of $5 million). Greenmailer then threatens Ohio Co., promising to purchase more shares, take the company over, and fire officers and directors. To prevent the takeover, officers and directors of Ohio Co. authorize Ohio Co. to purchase Greenmailer’s shares for, say, $8/share (even though the shares can be bought on the open market for $5/share). Greenmailer thereby realizes a premium of $3 million over what it would have received for its shares on the open market.
That’s a basic illustration of “greenmail.” And according to the Ohio Division of Securities, the prevention of “greenmail” was the entire purpose of enacting Section 1707.043.
Which brings us to how judicial applications of constitutional rules regarding vagueness and judicial standing can bring added clarity and certainty to Ohio regulatory law.
Section 1707.043 does not include a definition of the term “manipulative practices.” Nor does it enumerate specific types of conduct covered by that term. The breadth and open texture of the term “manipulative practices” in the context of Section 1707.043 litigation is cause for concern, raising the question: How can Ohioans (and those doing business with Ohioans) have confidence that their business actions will not be recast as a “manipulative practice” (or, as referenced in the statute at Subsection B, a “potentially manipulative practice”) by a court in a future, high-stakes Section 1707.043 litigation matter? Shareholders and corporate actors are entitled to clarity and certainty, and a “you know it when you see it” approach to construing Section 1707.043 provides neither. Moreover, a broad and unbounded understanding of “manipulative practices” in the context of Section 1707.043 litigation could invite challenges to the statute’s constitutionality on grounds of vagueness and overbreadth. A narrower understanding of “manipulative practices,” similar to that of the Ohio Division of Securities, eases these concerns, providing welcomed clarity and certainty, and ensuring a proper degree of uniformity in future litigation matters.
A statute like Section 1707.043 also presents interesting constitutional questions relating to judicial standing. It’s axiomatic that a plaintiff must have standing to bring a lawsuit. Reaching back centuries to the law of England, the “common law” approach to standing requires a showing that (1) the plaintiff suffered an injury-in-fact that is concrete, particularized, and actual or imminent; (2) the injury was likely caused by the defendant; and (3) the injury would likely be redressed by the requested judicial relief. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).
Throughout the years, courts have entertained alternatives to common-law standing. One such approach is known as “statutory standing.” In the context of a lawsuit brought under Section 1707.043, a party might argue that even if it cannot demonstrate a concrete injury (such as a financial loss), it nonetheless has standing to sue in Ohio courts because of the existence of a specific statutory grant of authority.
Unfortunately for these kinds of plaintiffs, “statutory standing” is no longer a sure thing in Ohio. When the Ohio Supreme Court recognized the viability of “statutory standing” in the 1986 decision of Middletown v. Ferguson, it relied exclusively on the fact that “statutory standing” had been endorsed by the U.S. Supreme Court. 25 Ohio St.3d 71, 75-76 (1986). Resting on the federal standing rules of the time, the Ohio Supreme Court wrote: “As the United States Supreme Court has recognized, standing may also be conferred by a specific statutory grant of authority.” Id. (citing Sierra Club v. Morton, 405 U.S. 727, 731-32 (1972)).
But that was almost 40 years ago. And today, the U.S. Supreme Court unambiguously rejects the theory of “statutory standing.” In the 2016 decision of Spokeo, Inc. v. Robins, the U.S. Supreme Court explained that a plaintiff does not “automatically satisf[y] the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right,” clarifying further that “standing requires a concrete injury even in the context of a statutory violation.” 578 U.S. 330, 341 (2016). Five years later, in TransUnion LLC v. Ramirez, the Court reiterated this point, writing that “[o]nly those plaintiffs who have been concretely harmed by a defendant’s statutory violation may sue that private defendant over that violation.” 594 U.S. 413, 427 (2021).
In addition to formal and abstract separation-of-powers principles, the TransUnion Court appealed to core prudential concerns, observing that if the law “did not require plaintiffs to demonstrate a ‘concrete harm,’ Congress could authorize virtually any citizen to bring a statutory damages suit against virtually any defendant who violated virtually any federal law.” Id. at 429. The Court further recognized that, as a general matter, “the choice of how to prioritize and how aggressively to pursue legal actions against defendants who violate the law falls within the discretion of the Executive Branch, not within the purview of private plaintiffs (and their attorneys).” Id. After Spokeo and TransUnion, the law in federal court could not be clearer: standing requires a concrete injury, even in the context of a statutory violation.
The recent elimination of “statutory standing” in federal court is likely a harbinger of things to come in Ohio courts. Put bluntly: the foundation for “statutory standing” in Ohio, as it was expressly identified in Middletown v. Ferguson, has collapsed. And while the Ohio Supreme Court has not yet addressed the implications of Spokeo and TransUnion, Ohio appellate courts are openly and directly questioning the viability of “statutory standing.” The Tenth Appellate District, for example, recently observed that, due to changes in federal standing rules, “the continued validity in Ohio of ‘statutory standing’ as an exception to Ohio’s common-law standing requirements is questionable.” Smith v. Ohio State Univ., 10th Dist. Franklin No. 17AP-218, 2017-Ohio-8836, ¶ 13, fn. 1.
It seems time for the Ohio judiciary to reassess the legitimacy of “statutory standing” and, in turn, harmonize its standing jurisprudence with the rules of federal courts. For those interested in the interplay between regulatory and constitutional law, the Ohio judiciary’s consideration of the rules regarding vagueness and judicial standing in the coming years will certainly be worth watching.
[i] Luke Milligan is a Professor of Law and Director of the Ordered Liberty Program at the University of Louisville’s Louis D. Brandeis School of Law. He sits on the Board of Advisors of the Cato Supreme Court Review and the Board of Scholars of the Bluegrass Institute. A former litigator at Williams & Connolly in Washington, D.C., and a member of the Ohio Bar since 2004, he lives with his wife and children in Central Ohio.