United Liberty

Last month, Charles and David Koch filed a lawsuit against the Cato Institute over the shares owned by the late William Niskanen. They insist that the shares were not transferrable to Niskanen’s widow and should have been made available for purchase.

In the days since the lawsuit was filed, scholars employed by and supporters of the Cato Institute have taken to the Internet, explaining that the lawsuit is nothing more than a hostile takeover of one of Washington’s premier, independent think tanks.

Unfortunately, the battle for the heart and soul of the libertarian movement was escalated yesterday when the Koch brothers filed a second lawsuit against Cato. They’re claiming that a recent election to expand the Institute’s governing board should be invalidated:

According to court documents filed Monday and obtained by The Washington Post, the Kochs are asking the court to invalidate the results of an “improper election” held recently by Cato’s board—an action the Kochs refer to as a “Board-packing scheme.”

On March 22 Cato’s board voted, by a narrow margin of 9-7, to increase the number of seats on the board and to fill those seats with four previous members whom the Kochs had removed earlier in March by exercising their shareholder rights in the organization.

According to the documents, the Kochs argue that, in accordance with Cato’s by-laws, the board has neither the power to expand its size, nor the power to fill the seats.

“These Board members are solid libertarians who have been generous supporters of the Cato Institute. We very much appreciate their support and are delighted to have them actively involved in Cato’s governance,”  said Robert A. Levy, chairman of the Board, at the time of the vote.
[…]
“The primary purpose of the Board-packing scheme” say the documents, “was to disenfranchise certain of [sic] shareholders—namely Charles and David Koch—and prevent them from being able to elect a percentage of Board members proportionate to the Kochs’ voting shares in Cato. Efforts to undermine the ability of shareholders to effect change through the ballot are subject to ‘enhanced judicial scrutiny’ under Kansas law. Absent a ‘compelling justification,’ such devices are deemed to constitute breaches of the fiduciary duty of loyalty and are rendered null and void as a result.”

While I have no idea whether the Koch brothers have a leg to stand on here or not. Their initial lawsuit doesn’t seem likely to succeed, though I suppose anything can happen. With that being said, the action taken to expand the board doesn’t strike me as a good idea in light of everything else going on.