Edward M. McNally (argued) and Raj Srivatsan, Morris, James, Hitchens & Williams, Wilmington, DE, for appellant.

Samuel A. Nolen, Richards, Layton & Finger, Wilmington, DE, for appellees.

Before STEELE, Chief Justice, HOLLAND, BERGER, Justices, and ABLEMAN, Judge.^[1]

HOLLAND, Justice:

This is the appeal of the plaintiff-appellant, North American Catholic Educational Programming Foundation, Inc. ("NACEPF") from a final judgment of the Court of Chancery that dismissed NACEPF's Complaint for failure to state a claim.^[2] NACEPF holds certain radio wave spectrum licenses regulated by the Federal Communications Commission ("FCC"). In March 2001, NACEPF, together with other similar spectrum license-holders, entered into the Master Use and Royalty Agreement (the "Master Agreement") with Clearwire Holdings, Inc. ("Clearwire"), a Delaware corporation. Under the Master Agreement, Clearwire could obtain rights to those licenses as then-existing leases expired and the then-current lessees failed to exercise rights of first refusal.

The defendant-appellees are Rob Gheewalla, Gerry Cardinale, and Jack Daly (collectively, the "Defendants"), who served as directors of Clearwire at the behest of Goldman Sachs & Co. ("Goldman Sachs"). NACEPF's Complaint alleges that the Defendants, even though they comprised less than a majority of the board, were able to control Clearwire because its only source of funding was Goldman Sachs. According to NACEPF, they used that power to favor Goldman Sachs' agenda in derogation of their fiduciary duties as directors of Clearwire. In addition to bringing fiduciary duty claims, NACEPF's Complaint also asserts that the Defendants fraudulently induced it to enter into the Master Agreement with Clearwire and that the Defendants tortiously interfered with NACEPF's business opportunities.^[3]

NACEPF is not a shareholder of Clearwire. Instead, NACEPF filed its Complaint in the Court of Chancery as a putative [94] creditor of Clearwire. The Complaint alleges direct, not derivative, fiduciary duty claims against the Defendants, who served as directors of Clearwire while it was either insolvent or in the "zone of insolvency."

Personal jurisdiction over the Defendants was premised exclusively upon 10 Del. C. § 3114, which subjects directors of Delaware corporations to personal jurisdiction in the Court of Chancery over claims "for violation of a duty in [their] capacity [as directors of the corporation]." No other basis for personal jurisdiction over the Defendants was asserted. Accordingly, NACEPF's efforts to bring its other claims in the Court of Chancery fail on jurisdictional grounds unless those other claims are adequately alleged to be "sufficiently related" to a viable fiduciary duty claim against the Defendants.

For the reasons set forth in its Opinion, the Court of Chancery concluded: (1) that creditors of a Delaware corporation in the "zone of insolvency" may not assert direct claims for breach of fiduciary duty against the corporation's directors; (2) that the Complaint failed to state a claim for the narrow, if extant, cause of action for direct claims involving breach of fiduciary duty brought by creditors against directors of insolvent Delaware corporations; and (3) that, with dismissal of its fiduciary duty claims, NACEPF had not provided any basis for exercising personal jurisdiction over the Defendants with respect to NACEPF's other claims. Therefore, the Defendants' Motion to Dismiss the Complaint was granted.

In this opinion, we hold that the creditors of a Delaware corporation that is either insolvent or in the zone of insolvency have no right, as a matter of law, to assert direct claims for breach of fiduciary duty against the corporation's directors. Accordingly, we have concluded that the judgments of the Court of Chancery must be affirmed.

Facts^[4]

NACEPF is an independent lay organization incorporated under the laws of Rhode Island. In 2000, NACEPF joined with Hispanic Information and Telecommunications Network, Inc. ("HITN"), Instructional Telecommunications Foundation, Inc. ("ITF"), and various affiliates of ITF to form the ITFS Spectrum Development Alliance, Inc. (the "Alliance"). Collectively, the Alliance owned a significant percentage of FCC-approved licenses for microwave signal transmissions ("spectrum") used for educational programs that were known as "Instruction Television Fixed Service" spectrum ("ITFS") licenses.

The Defendants were directors of Clearwire. The Defendants were also all employed by Goldman Sachs and served on the Clearwire Board of Directors at the behest of Goldman Sachs. NACEPF alleges that the Defendants effectively controlled Clearwire through the financial and other influence that Goldman Sachs had over Clearwire.

According to the Complaint, the Defendants represented to NACEPF and the other Alliance members that Clearwire's stated business purpose was to create a national system of wireless connections to the internet. Between 2000 and March 2001, Clearwire negotiated a Master Agreement with the Alliance, which Clearwire and the Alliance members entered into in March 2001. NACEPF asserts [95] that it negotiated the terms of the Master Agreement with several individuals, including the Defendants. NACEPF submits that all of the Defendants purported to be acting on the behalf of Goldman Sachs and the entity that became Clearwire.

Under the terms of the Master Agreement, Clearwire was to acquire the Alliance members' ITFS spectrum licenses when those licenses became available. To do so, Clearwire was obligated to pay NACEPF and other Alliance members more than $24.3 million. The Complaint alleges that the Defendants knew but did not tell NACEPF that Goldman Sachs did not intend to carry out the business plan that was the stated rationale for asking NACEPF to enter into the Master Agreement, i.e., by funding Clearwire.

In June 2002, the market for wireless spectrum collapsed when WorldCom announced its accounting problems. It appeared that there was or soon would be a surplus of spectrum available from World-Com. Thereafter, Clearwire began negotiations with the members of the Alliance to end Clearwire's obligations to the members. Eventually, Clearwire paid over $2 million to HITN and ITF to settle their claims and; according to NACEPF, was only able to limit its payments to that amount by otherwise threatening to file for bankruptcy protection. These settlements left the NACEPF as the sole remaining member of the Alliance. The Complaint alleges that, by October 2003, Clearwire "had been unable to obtain any further financing and effectively went out of business."^[5]

NACEPF's Complaint

In its Complaint, NACEPF asserts three claims against the Defendants. In Count I of the Complaint, NACEPF alleges that the Defendants fraudulently induced it to enter into the Master Agreement and, thereafter, to continue with the Master Agreement to "preserv[e] its spectrum licenses for acquisition by Clearwire."^[6] In Count II, NACEPF alleges that because, at all relevant times, Clearwire was either insolvent or in the "zone of insolvency," the Defendants owed fiduciary duties to NACEPF "as a substantial creditor of Clearwire," and that the Defendants breached those duties by:

(1) not preserving the assets of Clearwire for its benefit and that of its creditors when it became apparent that Clearwire would not be able to continue as a going concern and would need to be liquidated and (2) holding on to NACEPF's ITFS license rights when Clearwire would not use them, solely to keep Goldman Sachs's investment "in play."^[7]

In Count III, NACEPF claims that the Defendants tortiously interfered with a prospective business opportunity belonging to NACEPF in that they caused Clearwire wrongfully "to assert the right to acquire NACEPF wireless spectrum," which resulted in NACEPF losing "the opportunity to convey its licenses for spectrum to other buyers."^[8]

Motions to Dismiss

The Defendants moved to dismiss the Complaint on two grounds: first, for lack of personal jurisdiction under Court of Chancery Rule 12(b)(2); and, second, for [96] NACEPF's failure to state a claim upon which relief can be granted under Court of Chancery Rule 12(b)(6). With respect to their first basis for dismissal, the Defendants noted that NACEPF's sole ground for asserting personal jurisdiction over them is 10 Del. C. § 3114. The Defendants argued that personal jurisdiction under § 3114 requires, at least, sufficient allegations of a breach of fiduciary duty owed by director-defendants. With respect to their second basis for dismissal, the Defendants contended that, even assuming that personal jurisdiction was sufficiently alleged, NACEPF's Complaint failed to set forth allegations which adequately supported any of its claims for relief, as a matter of law.

Court of Chancery Rule 12(b)(2)

The Court of Chancery initially addressed the Defendants' motion under Rule 12(b)(2).^[9] It began by examining the exercise of personal jurisdiction over nonresident directors of Delaware corporations under 10 Del. C. § 3114:^[10]

"[T]he Delaware courts have consistently held that Section 3114 is applicable only in connection with suits brought against a nonresident for acts performed in his . . . capacity as a director . . . of a Delaware corporation." Further narrowing the scope of Section 3114, "Delaware cases have consistently interpreted [early cases construing the section] as establishing that [it] . . . appl[ies] only in connection with suits involving the statutory and nonstatutory fiduciary duties of nonresident directors."^[11]

The Court of Chancery limited its Rule 12(b)(2) analysis to whether personal jurisdiction existed over the Defendants with respect to Count II of the Complaint.

Count II alleged that the Defendants breached their fiduciary duties while they served as directors of Clearwire and while Clearwire was either insolvent or in the zone of insolvency. The Court of Chancery concluded that the facts alleged in the Complaint, as supported by the affidavit submitted by NACEPF, constituted a prima facia showing of a breach of fiduciary duty by the Defendants in their capacity [97] as directors of a Delaware corporation. Accordingly, the Court of Chancery held that a statutory basis for the exercise of personal jurisdiction had been established by NACEPF for purposes of litigating Count II of the Complaint.

NACEPF expressly premised its Rule 12(b)(2) arguments for personal jurisdiction over the Defendants regarding Counts I and III (i.e., the non-fiduciary duty claims) on the Court of Chancery's first determining that Count II (i.e., the fiduciary duty claim) survives the Defendants' Rule 12(b)(6) motion to dismiss. Accordingly, the Court of Chancery proceeded on the basis that if it found that Count II must be dismissed under Rule 12(b)(6), then it would be without personal jurisdiction over the Defendants for purposes of moving forward with the merits of Counts I and III. Therefore, to resolve the issue of personal jurisdiction, the Court of Chancery was required to decide whether, as a matter of law, Count II of the NACEPF Complaint properly stated a breach of fiduciary duty claim upon which relief could be granted.

Court of Chancery Rule 12(b)(6)

The standards governing motions to dismiss under Court of Chancery Rule 12(b)(6) are well settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are "well-pleaded" if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the nonmoving party; and (iv) dismissal is inappropriate unless the "plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof."^[12]

In the Court of Chancery and in this appeal, NACEPF waived any basis it may have had for pursuit of its claim derivatively. Instead, NACEPF seeks to assert only a direct claim for breach of fiduciary duties. It contends that such direct claims by creditors should be recognized in the context of both insolvency and the zone of insolvency. Accordingly, in ruling on the 12(b)(6) motion to dismiss Count II of the Complaint, the Court of Chancery was confronted with two legal questions: whether, as a matter of law, a corporation's creditors may assert direct claims against directors for breach of fiduciary duties when the corporation is either: first, insolvent or second, in the zone of insolvency.

Allegations of Insolvency and Zone of Insolvency

In support of its claim that Clearwire was either insolvent or in the zone of insolvency during the relevant periods, NACEPF alleged that Clearwire needed "substantially more financial support than it had obtained in March 2001."^[13] The Complaint alleges Goldman Sachs had invested $47 million in Clearwire, which "represent[ed] 84% of the total sums invested in Clearwire in March 2001, when Clearwire was otherwise virtually out of funds."^[14]

After March 2001, Clearwire had financial obligations related to its agreement with NACEPF and others that potentially exceeded $134 million, did not have the ability to raise sufficient cash from operations to pay its debts as they became due and was dependent on Goldman [98] Sachs to make additional investments to fund Clearwire's operations for the foreseeable future.^[15]

The Complaint also alleges:

For example, upon the closing of the Master Agreement, Clearwire had approximately $29.2 million in cash and of that $24.3 million would be needed for future payments for spectrum to the Alliance members. Clearwire's "burn" rate was $2.1 million per month and it had then no significant revenues. The process of acquiring spectrum upon expiration of existing licenses was both time consuming and expensive, particularly if existing licenseholders contested the validity of any Clearwire offer that those license holders were required to match under their rights of first refusal.^[16]

Additionally, in the Complaint, NACEPF alleges that, "[b]y October 2003, Clearwire had been unable to obtain any further financing and effectively went out of business. Except for money advanced to it as a stopgap measure by Goldman Sachs in late 2001, Clearwire was never able to raise any significant money."^[17]

The Court of Chancery opined that insolvency may be demonstrated by either showing (1) "a deficiency of assets below liabilities with no reasonable prospect that the business can be successfully continued in the face thereof,"^[18] or (2) "an inability to meet maturing obligations as they fall due in the ordinary course of business."^[19] Applying the standards applicable to review under Rule 12(b)(6), the Court of Chancery concluded that NACEPF had satisfactorily alleged facts which permitted a reasonable inference that Clearwire operated in the zone of insolvency^[20] during at least a substantial portion of the relevant periods for purposes of this motion to dismiss. The Court of Chancery also concluded that insolvency had been adequately alleged in the Complaint, for Rule 12(b)(6) purposes, for at least a portion of the relevant periods following execution of the Master Agreement.

Corporations in the Zone of Insolvency Direct Claims for Breach of Fiduciary Duty May Not Be Asserted by Creditors

In order to withstand the Defendant's Rule 12(b)(6) motion to dismiss, the Plaintiff [99] was required to demonstrate that the breach of fiduciary duty claims set forth in Count II are cognizable under Delaware law.^[21] This procedural requirement requires us to address a substantive question of first impression that is raised by the present appeal: as a matter of Delaware law, can the creditor of a corporation that is operating within the zone of insolvency bring a direct action against its directors for an alleged breach of fiduciary duty?

It is well established that the directors owe their fiduciary obligations to the corporation and its shareholders.^[22] While shareholders rely on directors acting as fiduciaries to protect their interests, creditors are afforded protection through contractual agreements, fraud and fraudulent conveyance law, implied covenants of good faith and fair dealing, bankruptcy law, general commercial law and other sources of creditor rights.^[23] Delaware courts have traditionally been reluctant to expand existing fiduciary duties.^[24] Accordingly, "the general rule is that directors do not owe creditors duties beyond the relevant contractual terms."^[25]

In this case, NACEPF argues that when a corporation is in the zone of insolvency, this Court should recognize a new direct right for creditors to challenge directors' exercise of business judgments as breaches of the fiduciary duties owed to them. This Court has never directly addressed the zone of insolvency issue involving directors' purported fiduciary duties to creditors that is presented by NACEPF in this appeal.^[26] That subject has been discussed, however, in several judicial opinions^[27] and many scholarly articles.^[28]

[100] In Production Resources, the Court of Chancery remarked that recognition of fiduciary duties to creditors in the "zone of insolvency" context may involve:

"using the law of fiduciary duty to fill gaps that do not exist. Creditors are often protected by strong covenants, liens on assets, and other negotiated contractual protections. The implied covenant of good faith and fair dealing also protects creditors. So does the law of fraudulent conveyance. With these protections, when creditors are unable to prove that a corporation or its directors breached any of the specific legal duties owed to them, one would think that the conceptual room for concluding that the creditors were somehow, nevertheless, injured by inequitable conduct would be extremely small, if extant. Having complied with all legal obligations owed to the firm's creditors, the board would, in that scenario, ordinarily be free to take economic risk for the benefit of the firm's equity owners, so long as the directors comply with their fiduciary duties to the firm by selecting and pursuing with fidelity and prudence a plausible strategy to maximize the firm's value."^[29]

In this case, the Court of Chancery noted that creditors' existing protections — among which are the protections afforded by their negotiated agreements, their security instruments, the implied covenant of good faith and fair dealing, fraudulent conveyance law, and bankruptcy law — render the imposition of an additional, unique layer of protection through direct claims for breach of fiduciary duty unnecessary.^[30] It also noted that "any benefit to be derived by the recognition of such additional direct claims appears minimal, at best, and significantly outweighed by the costs to economic efficiency."^[31] The Court of Chancery reasoned that "an otherwise solvent corporation operating in the zone of insolvency is one in most need of effective and proactive leadership — as well as the ability to negotiate in good faith with its creditors — [101] goals which would likely be significantly undermined by the prospect of individual liability arising from the pursuit of direct claims by creditors."^[32] We agree.

Delaware corporate law provides for a separation of control and ownership.^[33] The directors of Delaware corporations have "the legal responsibility to manage the business of a corporation for the benefit of its shareholders owners."^[34] Accordingly, fiduciary duties are imposed upon the directors to regulate their conduct when they perform that function. Although the fiduciary duties of the directors of a Delaware corporation are unremitting:

the exact cause of conduct that must be charted to properly discharge that responsibility will change in the specific context of the action the director is taking with regard to either the corporation or its shareholders. This Court has endeavored to provide the directors with clear signal beacons and brightly lined channel markers as they navigate with due care, good faith, a loyalty on behalf of a Delaware corporation and its shareholders. This Court has also endeavored to mark the safe harbors clearly.^[35]

In this case, the need for providing directors with definitive guidance compels us to hold that no direct claim for breach of fiduciary duties may be asserted by the creditors of a solvent corporation that is operating in the zone of insolvency. When a solvent corporation is navigating in the zone of insolvency, the focus for Delaware directors does not change: directors must continue to discharge their fiduciary duties to the corporation and its shareholders by exercising their business judgment in the best interests of the corporation for the benefit of its shareholder owners. Therefore, we hold the Court of Chancery properly concluded that Count II of the NACEPF Complaint fails to state a claim, as a matter of Delaware law, to the extent that it attempts to assert a direct claim for breach of fiduciary duty to a creditor while Clearwire was operating in the zone of insolvency.

Insolvent Corporations Direct Claims For Breach of Fiduciary Duty May Not Be Asserted by Creditors

It is well settled that directors owe fiduciary duties to the corporation.^[36] When a corporation is solvent, those duties may be enforced by its shareholders, who have standing to bring derivative actions on behalf of the corporation because they are the ultimate beneficiaries of the corporation's growth and increased value.^[37] When a corporation is insolvent, however, its creditors take the place of the shareholders as the residual beneficiaries of any increase in value.

Consequently, the creditors of an insolvent corporation have standing to maintain derivative claims against directors on behalf of the corporation for breaches of fiduciary duties.^[38] The corporation's [102] insolvency "makes the creditors the principal constituency injured by any fiduciary breaches that diminish the firm's value."^[39] Therefore, equitable considerations give creditors standing to pursue derivative claims against the directors of an insolvent corporation. Individual creditors of an insolvent corporation have the same incentive to pursue valid derivative claims on its behalf that shareholders have when the corporation is solvent.

In Production Resources, the Court of Chancery recognized that — in most, if not all instances — creditors of insolvent corporations could bring derivative claims against directors of an insolvent corporation for breach of fiduciary duty. In that case, in response to the creditor plaintiff's contention that derivative claims for breach of fiduciary duty were transformed into direct claims upon insolvency, the Court of Chancery stated:

The fact that the corporation has become insolvent does not turn [derivative] claims into direct creditor claims, it simply provides creditors with standing to assert those claims. At all times, claims of this kind belong to the corporation itself because even if the improper acts occur when the firm is insolvent, they operate to injure the firm in the first instance by reducing its value, injuring creditors only indirectly by diminishing the value of the firm and therefore the assets from which the creditors may satisfy their claims.^[40]

Nevertheless, in Production Resources, the Court of Chancery stated that it was "not prepared to rule out" the possibility that the creditor plaintiff had alleged conduct that "might support" a limited direct claim.^[41] Since the complaint in Production Resources sufficiently alleged a derivative claim, however, it was unnecessary to decide if creditors had a legal right to bring direct fiduciary claims against directors in the insolvency context.^[42]

In this case, NACEPF did not attempt to allege a derivative claim in Count II of its Complaint. It only asserted a direct claim against the director Defendants for alleged breaches of fiduciary duty when Clearwire was insolvent. The Court of Chancery did not decide that issue. Instead, the Court of Chancery assumed arguendo that a direct claim for a breach of fiduciary duty to a creditor is legally cognizable in the context of actual insolvency. It then held that Count II of NACEPF's Complaint failed to state such a direct creditor claim because it did not satisfy the pleading requirements described by the decisions in Production Resources^[43] and [103] Big Lots Stores, Inc. v. Bain Capital Fund VII, LLC.^[44]

To date, the Court of Chancery has never recognized that a creditor has the right to assert a direct claim for breach of fiduciary duty against the directors of an insolvent corporation. However, prior to this opinion, that possibility remained an open question because of the "arguendo assumption" in this case and the dicta in Production Resources and Big Lots Stores. In this opinion, we recognize "the pragmatic conduct-regulating legal realms . . . calls for more precise conceptual line drawing."^[45]

Recognizing that directors of an insolvent corporation owe direct fiduciary duties to creditors, would create uncertainty for directors who have a fiduciary duty to exercise their business judgment in the best interest of the insolvent corporation. To recognize a new right for creditors to bring direct fiduciary claims against those directors would create a conflict between those directors' duty to maximize the value of the insolvent corporation for the benefit of all those having an interest in it, and the newly recognized direct fiduciary duty to individual creditors. Directors of insolvent corporations must retain the freedom to engage in vigorous, good faith negotiations with individual creditors for the benefit of the corporation.^[46] Accordingly, we hold that individual creditors of an insolvent corporation have no right to assert direct claims for breach of fiduciary duty against corporate directors. Creditors may nonetheless protect their interest by bringing derivative claims on behalf of the insolvent corporation or any other direct nonfiduciary claim, as discussed earlier in this opinion, that may be available for individual creditors.

Conclusion

The creditors of a Delaware corporation that is either insolvent or in the zone of insolvency have no right, as a matter of law, to assert direct claims for breach of fiduciary duty against its directors. Therefore, Count II of NACEPF's Complaint failed to state a claim upon which relief could be granted. Consequently, the final judgment of the Court of Chancery is affirmed.

[1] Sitting by designation pursuant to Del. Const. art. IV, § 12 and Supr. Ct. R. 2 and 4.

[2] North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, 2006 WL 2588971 (Del.Ch. Sept. 1, 2006) ("Opinion").

[3] This action was initially filed in the Superior Court; it was dismissed without prejudice for lack of subject matter jurisdiction. Transfer to the Court of Chancery was permitted under 10 Del. C. § 1902.

[4] The relevant facts are primarily selected excerpts from the opening brief filed by NACEPF in this appeal.

[5] Complaint at ¶ 36 ("Except for money advanced to it as a stopgap measure by Goldman Sachs in late 2001, Clearwire was never able to raise any significant money.").

[6] Id. at ¶ 40.

[7] Id. at ¶ 45.

[8] Id. at ¶ 50.

[9] See Branson v. Exide Elecs. Corp., 625 A.2d 267 (Del.1993).

[10] The basis for personal jurisdiction relied upon by NACEPF, provides:

Every nonresident of this State who after September 1, 1977, accepts election or appointment as a director, trustee or member of the governing body of a corporation organized under the laws of this State or who after June 30, 1978, serves in such capacity, and every resident of this State who so accepts election or appointment or serves in such capacity and thereafter removes residence from this State shall, by such acceptance or by such service, be deemed thereby to have consented to the appointment of the registered agent of such corporation (or, if there is none, the Secretary of State) as an agent upon whom service of process may be made in all civil actions or proceedings brought in this State, by or on behalf of, or against such corporation, in which such director, trustee or member is a necessary or proper party, or in any action or proceeding against such director, trustee or member for violation of a duty in such capacity, whether or not the person continues to serve as such director, trustee or member at the time suit is commenced. Such acceptance or service as such director, trustee or member shall be a signification of the consent of such director, trustee or member that any process when so served shall be of the same legal force and validity as if served upon such director, trustee or member within this State and such appointment of the registered agent (or, if there is none, the Secretary of State) shall be irrevocable.

10 Del. C. § 3114(a) (emphasis added).

[11] Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery § 3-5[a] (2005).

[12] In re General Motors (Hughes) S'holder Litig., 897 A.2d 162, 168 (Del.2006) (quoting Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del.2002)).

[13] Complaint at ¶ 30.

[14] Id. at ¶ 7(a).

[15] Id. at ¶ 7(b) (emphasis added). NACEPF also asserts that "Clearwire was unable to borrow money or obtain any other significant financing after March 2001, except from Goldman Sachs." Id. at ¶ 7(c).

[16] Id. at ¶ 30.

[17] Id. at ¶ 36.

[18] For that proposition, the Court of Chancery relied upon Production Res. Group v. NCT Group, Inc., 863 A.2d 772, 782 (Del.Ch. 2004) (quoting Siple v. S & K Plumbing & Heating, Inc., 1982 WL 8789, at *2 (Del.Ch. Apr. 13, 1982)); Geyer v. Ingersoll Publ'ns Co., 621 A.2d 784, 789 (Del.Ch.1992) (explaining that corporation is insolvent if "it has liabilities in excess of a reasonable market value of assets held"); and McDonald v. Williams, 174 U.S. 397, 403, 19 S.Ct. 743, 43 L.Ed. 1022 (1899) (defining insolvent corporation as an entity with assets valued at less than its debts).

[19] For that proposition, the Court of Chancery also relied upon Production Res. Group v. NCT Group, Inc., 863 A.2d at 782 (quoting Siple v. S & K Plumbing & Heating, Inc., 1982 WL 8789, at *2).

[20] In light of its ultimate ruling, the Court of Chancery did not attempt to set forth a precise definition of what constitutes the "zone of insolvency." See Credit Lyonnais Bank Nederland N.V. v. Pathe Commc'ns Corp., 1991 WL 277613, at *34; see also Production Res. Group v. NCT Group, Inc., 863 A.2d at 789 n. 56 (describing the difficulties presented in identifying "zone of insolvency"). Our holding in this opinion also makes it unnecessary to precisely define a "zone of insolvency."

[21] See Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1039 (Del.2004) ("In this case it cannot be concluded that the complaint alleges a derivative claim. . . . But, it does not necessarily follow that the complaint states a direct, individual claim. While the complaint purports to set forth a direct claim, in reality, it states no claim at all.")

[22] See Guth v. Loft, 5 A.2d 503, 510 (Del. 1939) (while not technically trustees, directors stand in a fiduciary relationship to the corporation and its shareholders); Malone v. Brincat, 722 A.2d 5, 10 (Del.1998).

[23] See Production Res. Group v. NCT Group, Inc., 863 A.2d at 790.

[24] See, e.g., Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 625 (Del.Ch.2005), aff'd in part and rev'd in part on other grounds, 901 A.2d 106 (Del.2006).

[25] See, e.g., Simons v. Cogan, 549 A.2d 300, 304 (Del.1988); Katz v. Oak Indus., Inc., 508 A.2d 873, 879 (Del.Ch.1986); Geyer v. Ingersoll Publ'ns Co., 621 A.2d 784, 787 (Del.Ch. 1992); Production Res. Group v. NCT Group, Inc., 863 A.2d 772, 787 (Del.Ch.2004).

[26] E. Norman Veasey & Christine T. Di Guglelmo, What Happened in Delaware Corporate Law and Governance From 1992-2004? A Retrospective on Some Key Developments, 153 U. Pa. L.Rev. 1399, 1432 (May 2005).

[27] Credit Lyonnais Bank Nederland N.V. v. Pathe Commc'ns Corp., 1991 WL 277613 (Del. Ch.); Production Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d 772 (Del.Ch.2004); Trenwick America Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168 (Del.Ch.2006); Big Lots Stores, Inc. v. Bain Capital Fund VI, LLC, 922 A.2d 1169 (Del.Ch.2006).

[28] Rutheford B. Campbell, Jr. & Christopher W. Frost, Managers' Fiduciary Duties in Financially Distressed Corporations: Chaos in Delaware (and Elsewhere), 32 J. Corp. L. 491 (2007); Richard M. Cieri & Michael J. Riela, Protecting Directors and Officers of Corporations That Are Insolvent or In the Zone or Vicinity of Insolvency: Important Considerations, Practical Solutions, 2 DePaul Bus. & Com. L.J. 295, 301-02 (2004); Patrick M. Jones & Katherine Heid Harris, Chicken Little Was Wrong (Again): Perceived Trends in the Delaware Corporate Law of Fiduciary Duties and Standing in the Zone of Insolvency, 16 J. Bankr. L. & Prac. 2 (2007); Laura Lin, Shift of Fiduciary Duty Upon Corporate Insolvency: Proper Scope of Directors' Duty to Creditors, 46 Vand. L.Rev. 1485, 1487 (1993); Jonathan C. Lipson, Directors' Duties to Creditors: Powe-Imbalance and the Financially Distressed Corporation, 50 UCLA L.Rev. 1189 (2003); Ramesh K.S. Rao, et al., Fiduciary Duty A La Lyonnais: An Economic Perspective on Corporate Governance in a Financially-Distressed Firm, 22 J. Corp. L. 53 (1996); Myron M. Sheinfeld & Harris Pippitt, Fiduciary Duties of Directors of a Corporation in the vicinity of Insolvency and After Initiation of a Bankruptcy Case, 60 Bus. Law. 79 (2004); Robert K. Sahyan, Note, The Myth of the Zone of Insolvency: Production Resources Group v. NCG Group, 3 Hastings Bus. L.J. 181 (2006). Vladimir Jelisavcic, Corporate Law — A Safe Harbor Proposal to Define the Limits of Directors' Fiduciary Duty to Creditors in the "Vicinity of Insolvency:" Credit Lyonnais Bank Nederland N.V. v. Pathe Commc'ns Corp., 18 J. Corp. L. 145 (Fall 1993). See also Selected Papers from the University of Maryland's "Twilight in the Zone of Insolvency" Conference: Stephen M. Bainbridge, Much Ado About Little? Insolvency, 1 J.Bus.&Tech.L.; 335 (2007); J. Directors' Fiduciary Duties in the Vicinity of William Callison, Why a Fiduciary Duty Shift to Creditors of Insolvent Business Entities Is Incorrect as a Matter of Theory and Practice, 1 J.Bus.&Tech.L.; 431 (2007); Larry E. Ribstein & Kelli A. Alces, Directors' Duties in Failing Firms, 1 J.Bus.&Tech.L.; 529 (2007); Frederick Tung, Gap Filling in the Zone of Insolvency, 1 J.Bus.&Tech.L.; 607 (2007).

[29] Production Resources Group L.L. v. NCT Group, Inc., 863 A.2d at 790 (emphasis, added).

[30] See, e.g., Big Lots Stores, Inc. v. Bain Capital Fund VII, LLC, 922 A.2d at 1181 (citing Stephen M. Bainbridge, Much Ado About Little? Directors' Fiduciary Duties in the Vicinity of Insolvency, 1 J.Bus.&Tech.L.; 335 (2007).

[31] Opinion at *13.

[32] Id.

[33] Malone v. Brincat, 722 A.2d 5 (1998).

[34] Id. at 9.

[35] Id. at 10.

[36] See, e.g., Guth v. Loft, Inc., 5 A.2d 503, 510 (Del.1939).

[37] See, e.g., Aronson v. Lewis, 473 A.2d 805, 811 (Del.1984) partially overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del.2000).

[38] Agostino v. Hicks, 845 A.2d 1110, 1117 (Del.Ch.2004); see also Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d at 1036 ("The derivative suit has been generally described as `one of the most interesting and ingenious of accountability mechanisms for large formal organizations.'") (quoting Kramer v. W. Pac. Indus., Inc., 546 A.2d 348, 351 (Del.1988)); Guttman v. Huang, 823 A.2d 492, 500 (Del.Ch.2003) (noting the "deterrence effects of meritorious derivative suits on faithless conduct.").

[39] Production Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d at 794 n. 67.

[40] Production Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d at 776; see also Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 195 n. 75 (Del.Ch.2006).

[41] Production Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d at 800. The court reserved "the opportunity . . . to revisit some of these questions with better input from the parties." Id. at 801.

[42] Id.

[43] In Production Resources, the Court of Chancery expressed in dicta a "conservative assumption that there might, possibly exist circumstances in which the directors [of an actually insolvent corporation] display such a marked degree of animus towards a particular creditor with a proven entitlement to payment that they expose themselves to a direct fiduciary duty claim by that creditor." Production Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d at 798. We think not. While there may well be a basis for a direct claim arising out of contract or tort, our holding today precludes a direct claim arising out of a purported breach of a fiduciary duty owed to that creditor by the directors of an insolvent corporation.

[44] Big Lots Stores, Inc. v. Bain Capital Fund VII, LLC, 922 A.2d 1169 (Del.Ch.2006). In Big Lots, the Court of Chancery reiterated, also in dicta, that any potentially cognizable direct claims asserted by creditors in actual insolvency should be confined to the limited circumstances in Production Resources, namely, instances in which invidious conduct toward a particular "creditor" with a "proven entitlement to payment" has been alleged. Id. The suggestion in that dicta is also inconsistent with and precluded by our holding in this opinion.

[45] In Re Walt Disney Co. Derivative Litigation, 906 A.2d 27, 65 (Del.2006).

[46] Production Resources Group, L.L.C. v. NCT Group, Inc., 863 A.2d at 797.

[1505] Philip Howard, Jack P. Levin, C. William Phillips, Howard, Darby & Levin, New York City, for plaintiffs.

Michael Bradley, Scott Tross, Brown & Wood, New York City, for defendant RJR Nabisco.

D. Scott Wise, Davis, Polk & Wardwell, New York City, for defendant F. Ross Johnson.

Kenneth Logan, Michael Lamb, Simpson Thacher & Bartlett, New York City, for KKR.

OPINION AND ORDER

WALKER, District Judge:

I. INTRODUCTION

The corporate parties to this action are among the country's most sophisticated financial institutions, as familiar with the Wall Street investment community and the securities market as American consumers are with the Oreo cookies and Winston cigarettes made by defendant RJR Nabisco, Inc. (sometimes "the company" or "RJR Nabisco"). The present action traces its origins to October 20, 1988, when F. Ross Johnson, then the Chief Executive Officer of RJR Nabisco, proposed a $17 billion leveraged buy-out ("LBO") of the company's shareholders, at $75 per share.^[1] Within a few days, a bidding war developed among the investment group led by Johnson and the investment firm of Kohlberg Kravis Roberts & Co. ("KKR"), and others. On December 1, 1988, a special committee of RJR Nabisco directors, established by the company specifically to consider the competing proposals, recommended that the company accept the KKR proposal, a $24 billion LBO that called for the purchase of the company's outstanding stock at roughly $109 per share.

The flurry of activity late last year that accompanied the bidding war for RJR Nabisco spawned at least eight lawsuits, filed before this Court, charging the company and its former CEO with a variety of securities and common law violations.^[2] The [1506] Court agreed to hear the present action — filed even before the company accepted the KKR proposal — on an expedited basis, with an eye toward March 1, 1989, when RJR Nabisco was expected to merge with the KKR holding entities created to facilitate the LBO. On that date, RJR Nabisco was also scheduled to assume roughly $19 billion of new debt.^[3] After a delay unrelated to the present action, the merger was ultimately completed during the week of April 24, 1989.

Plaintiffs now allege, in short, that RJR Nabisco's actions have drastically impaired the value of bonds previously issued to plaintiffs by, in effect, misappropriating the value of those bonds to help finance the LBO and to distribute an enormous windfall to the company's shareholders. As a result, plaintiffs argue, they have unfairly suffered a multimillion dollar loss in the value of their bonds.^[4]

On February 16, 1989, this Court heard oral argument on plaintiffs' motions. At the hearing, the Court denied plaintiffs' request for a preliminary injunction, based on their insufficient showing of irreparable harm.^[5] An exchange between the Court and plaintiffs' counsel, like the submissions before it, convinced the Court that plaintiffs had failed to meet their heavy burden:

THE COURT: How do you respond to [defendants'] statements on irreparable harm? What we're looking at now is whether or not there's a basis for a preliminary injunction and if there's no irreparable harm then we're in a damage action and that changes ... the contours of the suit.... We're talking about the ability ... of the company to satisfy any judgment.

PLAINTIFFS: That's correct. And our point ... is that if we receive a judgment at any time, six months from now, after a trial for example, that judgment will almost inevitably be the basis for a judgment for everyone else ... But if we get a judgment, everyone else will get one as well ...

THE COURT: [Y]ou're ... asking me ... [to] infer a huge number of plaintiffs and a lot more damages than your clients could ever recover as being the basis for deciding the question of irreparable harm. And those [potential] actions aren't before me.

[1507] PLAINTIFFS: I think that's correct ...

Tr. at 39. See also P. Reply at 33. Plaintiffs failed to respond convincingly to defendants' arguments that, although plaintiffs have invested roughly $350 million in RJR Nabisco, their potential damages nonetheless remain relatively small and that, upon completion of the merger, the company will retain an equity base of $5 billion. See, e.g., Tr. at 32, 35; D. Opp. at 48, 49. Given plaintiffs' failure to show irreparable harm, the Court denied their request for injunctive relief. This initial ruling, however, left intact plaintiffs' underlying motions, which, together with defendants' cross-motions, now require attention.

The motions and cross-motions are based on plaintiffs' Amended Complaint, which sets forth nine counts.^[6] Plaintiffs move for summary judgment pursuant to Fed.R. Civ.P. 56 against the company on Count I, which alleges a "Breach of Implied Covenant of Good Faith and Fair Dealing," and against both defendants on Count V, which is labeled simply "In Equity."

For its part, RJR Nabisco moves pursuant to Fed.R.Civ.P. 12(c) for judgment on the pleadings on Count I in full; on Count II (fraud) and Count III (violations of § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder) as to most of the securities at issue; and on Count V in full. In the alternative, the company moves for summary judgment on Counts I and V. In addition, RJR Nabisco moves pursuant to Fed.R.Civ.P. 9(b) to dismiss Counts II, III and IX (alleging violations of applicable fraudulent conveyance laws) for an alleged failure to plead fraud with requisite particularity. Johnson has moved to dismiss Counts II, III and V.^[7]

Although the numbers involved in this case are large, and the financing necessary to complete the LBO unprecedented,^[8] the legal principles nonetheless remain discrete and familiar. Yet while the instant motions thus primarily require the Court to evaluate and apply traditional rules of equity and contract interpretation, plaintiffs do raise issues of first impression in the context of an LBO. At the heart of the present motions lies plaintiffs' claim that RJR Nabisco violated a restrictive covenant — not an explicit covenant found within the four corners of the relevant bond indentures, but rather an implied covenant of good faith and fair dealing — not to incur the debt necessary to facilitate the LBO and thereby betray what plaintiffs claim was the fundamental basis of their bargain with the company. The company, plaintiffs assert, consistently reassured its bondholders that it had a "mandate" from its Board of Directors to maintain RJR Nabisco's preferred credit rating. Plaintiffs ask this Court first to imply a covenant of good faith and fair dealing that would prevent the recent transaction, then to hold that this covenant has been breached, and finally [1508] to require RJR Nabisco to redeem their bonds.

RJR Nabisco defends the LBO by pointing to express provisions in the bond indentures that, inter alia, permit mergers and the assumption of additional debt. These provisions, as well as others that could have been included but were not, were known to the market and to plaintiffs, sophisticated investors who freely bought the bonds and were equally free to sell them at any time. Any attempt by this Court to create contractual terms post hoc, defendants contend, not only finds no basis in the controlling law and undisputed facts of this case, but also would constitute an impermissible invasion into the free and open operation of the marketplace.

For the reasons set forth below, this Court agrees with defendants. There being no express covenant between the parties that would restrict the incurrence of new debt, and no perceived direction to that end from covenants that are express, this Court will not imply a covenant to prevent the recent LBO and thereby create an indenture term that, while bargained for in other contexts, was not bargained for here and was not even within the mutual contemplation of the parties.

II. BACKGROUND

Summary judgment, of course, is appropriate only where "there is no genuine issue as to any material fact ..." Fed.R. Civ.P. 56(c). A genuine dispute exists if "a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The burden is on the moving party to show that no relevant facts are in dispute. While the Court must resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought, see, e.g., Quinn v. Syracuse Model Neighborhood Corp., 613 F.2d 438, 444 (2d Cir.1980), the nonmoving party may not rely simply "on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment." Knight v. U.S. Fire Insurance Co., 804 F.2d 9, 12 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987).

Both sides now move for summary judgment on Counts I and V. In support of their motions, the parties have filed extensive memoranda and supporting exhibits. Having carefully reviewed the submissions before it, the Court agrees with the parties that there is no genuine issue as to any material fact regarding these counts, and given the disposition of the motions as to Counts I and V, the Court, as it must, draws all reasonable inferences in favor of the plaintiffs.

A. The Parties:

Metropolitan Life Insurance Co. ("MetLife"), incorporated in New York, is a life insurance company that provides pension benefits for 42 million individuals. According to its most recent annual report, MetLife's assets exceed $88 billion and its debt securities holdings exceed $49 billion. Bradley Aff. ¶ 11. MetLife is a mutual company and therefore has no stockholders and is instead operated for the benefit of its policyholders. Am.Comp. ¶ 5. MetLife alleges that it owns $340,542,000 in principal amount of six separate RJR Nabisco debt issues, bonds allegedly purchased between July 1975 and July 1988. Some bonds become due as early as this year; others will not become due until 2017. The bonds bear interest rates of anywhere from 8 to 10.25 percent. MetLife also owned 186,000 shares of RJR Nabisco common stock at the time this suit was filed. Am. Comp. ¶ 12.

Jefferson-Pilot Life Insurance Co. ("Jefferson-Pilot") is a North Carolina company that has more than $3 billion in total assets, $1.5 billion of which are invested in debt securities. Bradley Aff. ¶ 12. Jefferson-Pilot alleges that it owns $9.34 million in principal amount of three separate RJR Nabisco debt issues, allegedly purchased between June 1978 and June 1988. Those bonds, bearing interest rates of anywhere from 8.45 to 10.75 percent, become due in 1993 and 1998. Am.Comp. ¶ 13.

[1509] RJR Nabisco, a Delaware corporation, is a consumer products holding company that owns some of the country's best known product lines, including LifeSavers candy, Oreo cookies, and Winston cigarettes. The company was formed in 1985, when R.J. Reynolds Industries, Inc. ("R.J. Reynolds") merged with Nabisco Brands, Inc. ("Nabisco Brands"). In 1979, and thus before the R.J. Reynolds-Nabisco Brands merger, R.J. Reynolds acquired the Del Monte Corporation ("Del Monte"), which distributes canned fruits and vegetables. From January 1987 until February 1989, co-defendant Johnson served as the company's CEO. KKR, a private investment firm, organizes funds through which investors provide pools of equity to finance LBOs. Bradley Aff. ¶¶ 12-15.

B. The Indentures:

The bonds^[9] implicated by this suit are governed by long, detailed indentures, which in turn are governed by New York contract law.^[10] No one disputes that the holders of public bond issues, like plaintiffs here, often enter the market after the indentures have been negotiated and memorialized. Thus, those indentures are often not the product of face-to-face negotiations between the ultimate holders and the issuing company. What remains equally true, however, is that underwriters ordinarily negotiate the terms of the indentures with the issuers. Since the underwriters must then sell or place the bonds, they necessarily negotiate in part with the interests of the buyers in mind. Moreover, these indentures were not secret agreements foisted upon unwitting participants in the bond market. No successive holder is required to accept or to continue to hold the bonds, governed by their accompanying indentures; indeed, plaintiffs readily admit that they could have sold their bonds right up until the announcement of the LBO. Tr. at 15. Instead, sophisticated investors like plaintiffs are well aware of the indenture terms and, presumably, review them carefully before lending hundreds of millions of dollars to any company.

Indeed, the prospectuses for the indentures contain a statement relevant to this action:

The Indenture contains no restrictions on the creation of unsecured short-term debt by [RJR Nabisco] or its subsidiaries, no restriction on the creation of unsecured Funded Debt by [RJR Nabisco] or its subsidiaries which are not Restricted Subsidiaries, and no restriction on the payment of dividends by [RJR Nabisco].

Bradley Resp.Aff., Exh. L at 24.^[11] Further, as plaintiffs themselves note, the contracts at issue "[do] not impose debt limits, since debt is assumed to be used for productive purposes." P. Reply at 34.

1. The relevant Articles:

A typical RJR Nabisco indenture contains thirteen Articles. At least four of them are relevant to the present motions and thus merit a brief review.^[12]

Article Three delineates the covenants of the issuer. Most important, it first provides for payment of principal and interest. It then addresses various mechanical provisions regarding such matters as payment [1510] terms and trustee vacancies. The Article also contains "negative pledge" and related provisions, which restrict mortgages or other liens on the assets of RJR Nabisco or its subsidiaries and seek to protect the bond-holders from being subordinated to other debt.

Article Five describes various procedures to remedy defaults and the responsibilities of the Trustee. This Article includes the distinction in the indentures noted above, see supra n. 11. In seven of the nine securities at issue, a provision in Article Five prohibits bondholders from suing for any remedy based on rights in the indentures unless 25 percent of the holders have requested in writing that the indenture trustee seek such relief, and, after 60 days, the trustee has not sued. See, e.g., Bradley Aff.Exh. L, §§ 5.6, 5.7. Defendants argue that this provision precludes plaintiffs from suing on these seven securities. See D.Mem. at 22-25. Given its holdings today, see infra, the Court need not address this issue.

Article Nine governs the adoption of supplemental indentures. It provides, inter alia, that the Issuer and the Trustee can

add to the covenants of the Issuer such further covenants, restrictions, conditions or provisions as its Board of Directors by Board Resolution and the Trustee shall consider to be for the protection of the holders of Securities, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth ...

Bradley Aff.Exh. L, § 9.1(c).

Article Ten addresses a potential "Consolidation, Merger, Sale or Conveyance," and explicitly sets forth the conditions under which the company can consolidate or merge into or with any other corporation. It provides explicitly that RJR Nabisco "may consolidate with, or sell or convey, all or substantially all of its assets to, or merge into or with any other corporation," so long as the new entity is a United States corporation, and so long as it assumes RJR Nabisco's debt. The Article also requires that any such transaction not result in the company's default under any indenture provision.^[13]

2. The elimination of restrictive covenants:

In its Amended Complaint, MetLife lists the six debt issues on which it bases its claims. Indentures for two of those issues — the 10.25 percent Notes due in 1990, of which MetLife continues to hold $10 million, and the 8.9 percent Debentures due in 1996, of which MetLife continues to hold $50 million — once contained express covenants that, among other things, restricted the company's ability to incur precisely the sort of debt involved in the recent LBO. In order to eliminate those restrictions, the parties to this action renegotiated the terms of those indentures, first in 1983 and then again in 1985.

MetLife acquired $50 million principal amount of 10.25 percent Notes from Del Monte in July of 1975. To cover the $50 million, MetLife and Del Monte entered into a loan agreement. That agreement restricted Del Monte's ability, among other things, to incur the sort of indebtedness involved in the RJR Nabisco LBO. See promissory note §§ 2.6-2.15, attached as Exhibit A to Bradley Aff.Exh. E. In 1979, R.J. Reynolds — the corporate predecessor to RJR Nabisco — purchased Del Monte and [1511] assumed its indebtedness. Then, in December of 1983, R.J. Reynolds requested MetLife to agree to deletions of those restrictive covenants in exchange for various guarantees from R.J. Reynolds. See Bradley Aff. ¶ 17. A few months later, MetLife and R.J. Reynolds entered into a guarantee and amendment agreement reflecting those terms. See Bradley Aff. ¶ 17, Exh. G. Pursuant to that agreement, and in the words of Robert E. Chappell, Jr., MetLife's Executive Vice President, MetLife thus "gave up the restrictive covenants applicable to the Del Monte debt ... in return for [the parent company's] guarantee and public covenants." Chappell Dep. at 196.

MetLife acquired the 8.9 percent Debentures from R.J. Reynolds in October of 1976 in a private placement. A promissory note evidenced MetLife's $100 million loan. That note, like the Del Monte agreement, contained covenants that restricted R.J. Reynolds' ability to incur new debt. See Bradley Aff., Exh. H, §§ 2.5-2.9. In June of 1985, R.J. Reynolds announced its plans to acquire Nabisco Brands in a $3.6 billion transaction that involved the incurrence of a significant amount of new debt. R.J. Reynolds requested MetLife to waive compliance with these restrictive covenants in light of the Nabisco acquisition. See D.Mem. at 45; Bradley Aff. ¶ 18.

In exchange for certain benefits, MetLife agreed to exchange its 8.9 percent debentures — which did contain explicit debt limitations — for debentures issued under a public indenture — which contain no explicit limits on new debt. An internal MetLife memorandum explained the parties' understanding:

[MetLife's $100 million financing of the Nabisco Brands purchase] had its origins in discussions with RJR regarding potential covenant violations in the 8.90% Notes. More specifically, in its acquisition of Nabisco Brands, RJR was slated to incur significant new long-term debt, which would have caused a violation in the funded indebtedness incurrence tests in the 8.90% Notes. In the discussions regarding [MetLife's] willingness to consent to the additional indebtedness, it was determined that a mutually beneficial approach to the problem was to 1) agree on a new financing having a rate and a maturity desirable for [MetLife] and 2) modify the 8.90% Notes. The former was accomplished with agreement on the proposed financing, while the latter was accomplished by [MetLife] agreeing to substitute RJR's public indenture covenants for the covenants in the 8.90% Notes. In addition to the covenant substitution, RJR has agreed to "debenturize" the 8.90% Notes upon [MetLife's] request. This will permit [MetLife] to sell the 8.90% Notes to the public.

MetLife Southern Office Memorandum, dated July 11, 1985, attached as Bradley Aff.Exh. J, at 2 (emphasis added).

3. The recognition and effect of the LBO trend:

Other internal MetLife documents help frame the background to this action, for they accurately describe the changing securities markets and the responses those changes engendered from sophisticated market participants, such as MetLife and Jefferson-Pilot. At least as early as 1982, MetLife recognized an LBO's effect on bond values.^[14] In the spring of that year, MetLife participated in the financing of an LBO of a company called Reeves Brothers ("Reeves"). At the time of that LBO, MetLife also held bonds in that company. Subsequent to the LBO, as a MetLife memorandum explained, the "Debentures of Reeves were downgraded by Standard & Poor's from BBB to B and by Moody's from Baal to Ba3, thereby lowering the value of the Notes and Debentures held by [1512] [MetLife]." MetLife Memorandum, dated August 20, 1982, attached as Bradley Reply Aff. Exh D, at 1.

MetLife further recognized its "inability to force any type of payout of the [Reeves'] Notes or the Debentures as a result of the buy-out [which] was somewhat disturbing at the time we considered a participation in the new financing. However," the memorandum continued,

our concern was tempered since, as a stockholder in [the holding company used to facilitate the transaction], we would benefit from the increased net income attributable to the continued presence of the low coupon indebtedness. The recent downgrading of the Reeves Debentures and the consequent "loss" in value has again raised questions regarding our ability to have forced a payout. Questions have also been raised about our ability to force payouts in similar future situations, particularly when we would not be participating in the buyout financing.

Id. (emphasis added). In the memorandum, MetLife sought to answer those very "questions" about how it might force payouts in "similar future situations."

A method of closing this apparent "loophole," thereby forcing a payout of [MetLife's] holdings, would be through a covenant dealing with a change in ownership. Such a covenant is fairly standard in financings with privately-held companies ... It provides the lender with an option to end a particular borrowing relationship via some type of special redemption ...

Id., at 2 (emphasis added).

A more comprehensive memorandum, prepared in late 1985, evaluated and explained several aspects of the corporate world's increasing use of mergers, takeovers and other debt-financed transactions. That memorandum first reviewed the available protection for lenders such as MetLife:

Covenants are incorporated into loan documents to ensure that after a lender makes a loan, the creditworthiness of the borrower and the lender's ability to reach the borrower's assets do not deteriorate substantially. Restrictions on the incurrence of debt, sale of assets, mergers, dividends, restricted payments and loans and advances to affiliates are some of the traditional negative covenants that can help protect lenders in the event their obligors become involved in undesirable merger/takeover situations.

MetLife Northeastern Office Memorandum, dated November 27, 1985, attached as Bradley Aff.Exh. U, at 1-2 (emphasis added). The memorandum then surveyed market realities:

Because almost any industrial company is apt to engineer a takeover or be taken over itself, Business Week says that investors are beginning to view debt securities of high grade industrial corporations as Wall Street's riskiest investments. In addition, because public bondholders do not enjoy the protection of any restrictive covenants, owners of high grade corporates face substantial losses from takeover situations, if not immediately, then when the bond market finally adjusts.... [T]here have been 10-15 merger/takeover/LBO situations where, due to the lack of covenant protection, [MetLife] has had no choice but to remain a lender to a less creditworthy obligor.... The fact that the quality of our investment portfolio is greater than the other large insurance companies ... may indicate that we have negotiated better covenant protection than other institutions, thus generally being able to require prepayment when situations become too risky ... [However,] a problem exists. And because the current merger craze is not likely to decelerate and because there exist vehicles to circumvent traditional covenants, the problem will probably continue. Therefore, perhaps it is time to institute appropriate language designed to protect Metropolitan from the negative implications of mergers and takeovers.

Id. at 2-4 (emphasis added).^[15]

Indeed, MetLife does not dispute that, as a member of a bondholders' association, it [1513] received and discussed a proposed model indenture, which included a "comprehensive covenant" entitled "Limitations on Shareholders' Payments."^[16] As becomes clear from reading the proposed — but never adopted — provision, it was "intend[ed] to provide protection against all of the types of situations in which shareholders profit at the expense of bondholders." Id. The provision dictated that the "[c]orporation will not, and will not permit any [s]ubsidiary to, directly or indirectly, make any [s]hareholder [p]ayment unless ... (1) the aggregate amount of all [s]hareholder payments during the period [at issue] ... shall not exceed [figure left blank]." Bradley Resp.Aff.Exh. H, at 9. The term "shareholder payments" is defined to include "restructuring distributions, stock repurchases, debt incurred or guaranteed to finance merger payments to shareholders, etc." Id. at i.

Apparently, that provision — or provisions with similar intentions — never went beyond the discussion stage at MetLife. That fact is easily understood; indeed, MetLife's own documents articulate several reasonable, undisputed explanations:

While it would be possible to broaden the change in ownership covenant to cover any acquisition-oriented transaction, we might well encounter significant resistance in implementation with larger public companies ... With respect to implementation, we would be faced with the task of imposing a non-standard limitation on potential borrowers, which could be a difficult task in today's highly competitive marketplace. Competitive pressures notwithstanding, it would seem that management of larger public companies would be particularly opposed to such a covenant since its effect would be to increase the cost of an acquisition (due to an assumed debt repayment), a factor that could well lower the price of any tender offer (thereby impacting shareholders).

Bradley Reply Aff.Exh. D, at 3 (emphasis added). The November 1985 memorandum explained that

[o]bviously, our ability to implement methods of takeover protection will vary between the public and private market. In that public securities do not contain any meaningful covenants, it would be very difficult for [MetLife] to demand takeover protection in public bonds. Such a requirement would effectively take us out of the public industrial market. A recent Business Week article does suggest, however, that there is increasing talk among lending institutions about requiring blue chip companies to compensate them for the growing risk of downgradings. This talk, regarding such protection as restrictions on future debt financings, is met with skepticism by the investment banking community which feels that CFO's are not about to give up the option of adding debt and do not really care if their companies' credit ratings drop a notch or two.

Bradley Resp.Aff.Exh. A, at 8 (emphasis added).

The Court quotes these documents at such length not because they represent an "admission" or "waiver" from MetLife, or an "assumption of risk" in any tort sense, or its "consent" to any particular course of conduct — all terms discussed at even greater length in the parties' submissions. See, [1514] e.g., P. Opp. at 31-36; P. Reply at 16-17; D. Reply at 15-16. Rather, the documents set forth the background to the present action, and highlight the risks inherent in the market itself, for any investor. Investors as sophisticated as MetLife and Jefferson-Pilot would be hard-pressed to plead ignorance of these market risks. Indeed, MetLife has not disputed the facts asserted in its own internal documents. Nor has Jefferson-Pilot—presumably an institution no less sophisticated than MetLife — offered any reason to believe that its understanding of the securities market differed in any material respect from the description and analysis set forth in the MetLife documents. Those documents, after all, were not born in a vacuum. They are descriptions of, and responses to, the market in which investors like MetLife and Jefferson-Pilot knowingly participated.

These documents must be read in conjunction with plaintiffs' Amended Complaint. That document asserts that the LBO "undermines the foundation of the investment grade debt market ...," Am. Comp. ¶ 16; that, although "the indentures do not purport to limit dividends or debt ... [s]uch covenants were believed unnecessary with blue chip companies ...", Am. Comp. ¶ 17^[17]; that "the transaction contradicts the premise of the investment grade market ...", Am.Comp. ¶ 33; and, finally, that "[t]his buy-out was not contemplated at the time the debt was issued, contradicts the premise of the investment grade ratings that RJR Nabisco actively solicited and received, and is inconsistent with the understandings of the market ... which [p]laintiffs relied upon." Am.Comp. ¶ 51.

Solely for the purposes of these motions, the Court accepts various factual assertions advanced by plaintiffs: first, that RJR Nabisco actively solicited "investment grade" ratings for its debt; second, that it relied on descriptions of its strong capital structure and earnings record which included prominent display of its ability to pay the interest obligations on its long-term debt several times over, Am.Comp. ¶ 14; and third, that the company made express or implied representations not contained in the relevant indentures concerning its future creditworthiness. Id. ¶ 15. In support of those allegations, plaintiffs have marshaled a number of speeches made by co-defendant Johnson and other executives of RJR Nabisco.^[18] In addition, plaintiffs rely on an affidavit sworn to by John Dowdle, the former Treasurer and then Senior Vice President of RJR Nabisco from 1970 until 1987. In his opinion, the LBO "clearly undermines the fundamental premise of the [c]ompany's bargain with the bondholders, and the commitment that I believe the [c]ompany made to the bondholders ... I firmly believe that the company made commitments ... that require it to redeem [these bonds and notes] before paying out the value to the shareholders." Dowdle Aff. ¶¶ 4, 7.

III. DISCUSSION

At the outset, the Court notes that nothing in its evaluation is substantively altered by the speeches given or remarks made by RJR Nabisco executives, or the opinions of various individuals — what, for instance, former RJR Nabisco Treasurer Dowdle personally did or did not "firmly believe" the indentures meant. See supra, and generally Chappell, Dowdle and Howard Affidavits. The parol evidence rule bars plaintiffs from arguing that the speeches made by company executives [1515] prove defendants agreed or acquiesced to a term that does not appear in the indentures. See West, Weir & Bartel, Inc. v. Mary Carter Paint Co., 25 N.Y.2d 535, 540, 307 N.Y.S.2d 449, 452, 255 N.E.2d 709, 712 (1969) ("The rule in this State is well settled that the construction of a plain and unambiguous contract is for the Court to pass on, and that circumstances extrinsic to the agreement will not be considered when the intention of the parties can be gathered from the instrument itself.") In interpreting these contracts, this Court must be concerned with what the parties intended, but only to the extent that what they intended is evidenced by what is written in the indentures. See, e.g., Rodolitz v. Neptune Paper Products, Inc., 22 N.Y.2d 383, 386-7, 292 N.Y.S.2d 878, 881, 239 N.E.2d 628, 630 (1968); Raleigh Associates v. Henry, 302 N.Y. 467, 473, 99 N.E.2d 289 (1951).

The indentures at issue clearly address the eventuality of a merger. They impose certain related restrictions not at issue in this suit, but no restriction that would prevent the recent RJR Nabisco merger transaction. See supra at 1510 (discussion of Article 10). The indentures also explicitly set forth provisions for the adoption of new covenants, if such a course is deemed appropriate. See supra at 1510 (discussion of Article 9). While it may be true that no explicit provision either permits or prohibits an LBO, such contractual silence itself cannot create ambiguity to avoid the dictates of the parol evidence rule, particularly where the indentures impose no debt limitations.

Under certain circumstances, however, courts will, as plaintiffs note, consider extrinsic evidence to evaluate the scope of an implied covenant of good faith. See Valley National Bank v. Babylon Chrysler-Plymouth, Inc., 53 Misc.2d 1029, 1031-32, 280 N.Y.S.2d 786, 788-89 (Sup.Ct. Nassau), aff'd, 28 A.D.2d 1092, 284 N.Y.S.2d 849 (2d Dep't 1967) (Relying on custom and usage because "[w]hen a contract fails to establish the time for performance, the law implies that the act shall be done within a reasonable time ...").^[19] However, the Second Circuit has established a different rule for customary, or boilerplate, provisions of detailed indentures used and relied upon throughout the securities market, such as those at issue. Thus, in Sharon Steel Corporation v. Chase Manhattan Bank, N.A., 691 F.2d 1039 (2d Cir.1982), Judge Winter concluded that

[b]oilerplate provisions are ... not the consequences of the relationship of particular borrowers and lenders and do not depend upon particularized intentions of the parties to an indenture. There are no adjudicative facts relating to the parties to the litigation for a jury to find and the meaning of boilerplate provisions is, therefore, a matter of law rather than fact. Moreover, uniformity in interpretation is important to the efficiency of capital markets ... Whereas participants in the capital market can adjust their affairs according to a uniform interpretation, whether it be correct or not as an initial proposition, the creation of enduring uncertainties as to the meaning of boilerplate provisions would decrease the value of all debenture issues and greatly impair the efficient working of capital markets ... Just such uncertainties would be created if interpretation of boilerplate provisions were submitted to juries sitting in every judicial district in the nation.

Id. at 1048. See also Morgan Stanley & Co. v. Archer Daniels Midland Co., 570 F.Supp. 1529, 1535-36 (S.D.N.Y.1983) (Sand, J.) ("[Plaintiff concedes that the legality of [the transaction at issue] would depend on a factual inquiry ... This case-by-case approach is problematic ... [Plaintiff's [1516] theory] appears keyed to the subjective expectations of the bondholders ... and reads a subjective element into what presumably should be an objective determination based on the language appearing in the bond agreement."); Purcell v. Flying Tiger Line, Inc., No. 82-3505, at 5, 8 (S.D. N.Y. Jan. 12, 1984) (CES) ("The Indenture does not contain any such limitation [as the one proposed by plaintiff].... In light of our holding that the Indenture unambiguously permits the transaction at issue in this case, we are precluded from considering any of the extrinsic evidence that plaintiff offers on this motion ... It would be improper to consider evidence as to the subjective intent, collateral representations, and either the statements or the conduct of the parties in performing the contract.") (citations omitted). Ignoring these principles, plaintiffs would have this Court vary what they themselves have admitted is "indenture boilerplate," P. Reply at 2, of "standard" agreements, P. Mem. at 14, to comport with collateral representations and their subjective understandings.^[20]

A. Plaintiffs' Case Against the RJR Nabisco LBO:

1. Count One: The implied covenant:

In their first count, plaintiffs assert that

[d]efendant RJR Nabisco owes a continuing duty of good faith and fair dealing in connection with the contract [i.e., the indentures] through which it borrowed money from MetLife, Jefferson-Pilot and other holders of its debt, including a duty not to frustrate the purpose of the contracts to the debtholders or to deprive the debtholders of the intended object of the contracts — purchase of investment-grade securities.

In the "buy-out," the [c]ompany breaches the duty [or implied covenant] of good faith and fair dealing by, inter alia, destroying the investment grade quality of the debt and transferring that value to the "buy-out" proponents and to the shareholders.

Am.Comp. ¶¶ 34, 35. In effect, plaintiffs contend that express covenants were not necessary because an implied covenant would prevent what defendants have now done.

A plaintiff always can allege a violation of an express covenant. If there has been such a violation, of course, the court need not reach the question of whether or not an implied covenant has been violated. [1517] That inquiry surfaces where, while the express terms may not have been technically breached, one party has nonetheless effectively deprived the other of those express, explicitly bargained-for benefits. In such a case, a court will read an implied covenant of good faith and fair dealing into a contract to ensure that neither party deprives the other of "the fruits of the agreement." See, e.g., Greenwich Village Assoc. v. Salle, 110 A.D.2d 111, 115, 493 N.Y.S.2d 461, 464 (1st Dep't 1985). See also Van Gemert v. Boeing Co., 553 F.2d 812, 815 ("Van Gemert II") (2d. Cir.1977) Such a covenant is implied only where the implied term "is consistent with other mutually agreed upon terms in the contract." Sabetay v. Sterling Drug, Inc., 69 N.Y.2d 329, 335, 514 N.Y.S.2d 209, 212, 506 N.E.2d 919, 922 (1987). In other words, the implied covenant will only aid and further the explicit terms of the agreement and will never impose an obligation "`which would be inconsistent with other terms of the contractual relationship.'" Id. (citation omitted). Viewed another way, the implied covenant of good faith is breached only when one party seeks to prevent the contract's performance or to withhold its benefits. See Collard v. Incorporated Village of Flower Hill, 75 A.D.2d 631, 632, 427 N.Y. S.2d 301, 302 (2d Dep't 1980). As a result, it thus ensures that parties to a contract perform the substantive, bargained-for terms of their agreement. See, e.g., Wakefield v. Northern Telecom, Inc., 769 F.2d 109, 112 (2d Cir.1985) (Winter, J.)

In contracts like bond indentures, "an implied covenant ... derives its substance directly from the language of the Indenture, and `cannot give the holders of Debentures any rights inconsistent with those set out in the Indenture.' [Where] plaintiffs' contractual rights [have not been] violated, there can have been no breach of an implied covenant." Gardner & Florence Call Cowles Foundation v. Empire Inc., 589 F.Supp. 669, 673 (S.D.N.Y.1984), vacated on procedural grounds, 754 F.2d 478 (2d Cir.1985) (quoting Broad v. Rockwell, 642 F.2d 929, 957 (5th Cir.) (en banc), cert. denied, 454 U.S. 965, 102 S.Ct. 506, 70 L.Ed.2d 380 (1981)) (emphasis added).

Thus, in cases like Van Gemert v. Boeing Co., 520 F.2d 1373 (2d Cir.), cert. denied, 423 U.S. 947, 96 S.Ct. 364, 46 L.Ed.2d 282 (1975) ("Van Gemert I"), and Pittsburgh Terminal Corp. v. Baltimore & Ohio Ry. Co., 680 F.2d 933 (3d Cir.), cert. denied, 459 U.S. 1056, 103 S.Ct. 475, 74 L.Ed.2d 621 (1982) — both relied upon by plaintiffs — the courts used the implied covenant of good faith and fair dealing to ensure that the bondholders received the benefit of their bargain as determined from the face of the contracts at issue. In Van Gemert I, the plaintiff bondholders alleged inadequate notice to them of defendant's intention to redeem the debentures in question and hence an inability to exercise their conversion rights before the applicable deadline. The contract itself provided that notice would be given in the first place. See, e.g., id. at 1375 ("A number of provisions in the debenture, the Indenture Agreement, the prospectus, the registration statement ... and the Listing Agreement ... dealt with the possible redemption of the debentures ... and the notice debenture-holders were to receive ..."). Faced with those provisions, defendants in that case unsurprisingly admitted that the indentures specifically required the company to provide the bondholders with notice. See id. at 1379. While defendant there issued a press release that mentioned the possible redemption of outstanding convertible debentures, that limited release did not "mention even the tentative dates for redemption and expiration of the conversion rights of debenture holders." Id. at 1375. Moreover, defendant did not issue any general publicity or news release. Through an implied covenant, then, the court fleshed out the full extent of the more skeletal right that appeared in the contract itself, and thus protected plaintiff's bargained-for right of conversion.^[21] As the court observed,

[1518] What one buys when purchasing a convertible debenture in addition to the debt obligation of the company ... is principally the expectation that the stock will increase sufficiently in value that the conversion right will make the debenture worth more than the debt ... Any loss occurring to him from failure to convert, as here, is not from a risk inherent in his investment but rather from unsatisfactory notification procedures.

Id. at 1385 (emphasis added, citations omitted).^[22] I also note, in passing, that Van Gemert I presented the Second Circuit with "less sophisticated investors." Id. at 1383. Similarly, the court in Pittsburgh Terminal applied an implied covenant to the indentures at issue because defendants there "took steps to prevent the Bondholders from receiving information which they needed in order to receive the fruits of their conversion option should they choose to exercise it." Pittsburgh Terminal, 680 F.2d at 941 (emphasis added).

The appropriate analysis, then, is first to examine the indentures to determine "the fruits of the agreement" between the parties, and then to decide whether those "fruits" have been spoiled — which is to say, whether plaintiffs' contractual rights have been violated by defendants.

The American Bar Foundation's Commentaries on Indentures ("the Commentaries"), relied upon and respected by both plaintiffs and defendants, describes the rights and risks generally found in bond indentures like those at issue:

The most obvious and important characteristic of long-term debt financing is that the holder ordinarily has not bargained for and does not expect any substantial gain in the value of the security to compensate for the risk of loss ... [T]he significant fact, which accounts in part for the detailed protective provisions of the typical long-term debt financing instrument, is that the lender (the purchaser of the debt security) can expect only interest at the prescribed rate plus the eventual return of the principal. Except for possible increases in the market value of the debt security because of changes in interest rates, the debt security will seldom be worth more than the lender paid for it ... It may, of course, become worth much less. Accordingly, the typical investor in a long-term debt security is primarily interested in every reasonable assurance that the principal and interest will be paid when due.... Short of bankruptcy, the debt security holder can do nothing to protect himself against actions of the borrower which jeopardize its ability to pay the debt unless he ... establishes his rights through contractual provisions set forth in the debt agreement or indenture.

Id. at 1-2 (1971) (emphasis added).

A review of the parties' submissions and the indentures themselves satisfies the Court that the substantive "fruits" guaranteed by those contracts and relevant to the present motions include the periodic and regular payment of interest and the eventual repayment of principal. See, e.g., Bradley Aff.Exh. L, § 3.1 ("The Issuer covenants ... that it will duly and punctually pay ... the principal of, and interest on, each of the Securities ... at the respective times and in the manner provided in such Securities ..."). According to a typical indenture, a default shall occur if the company either (1) fails to pay principal when due; (2) fails to make a timely sinking fund payment; (3) fails to pay within 30 days of the due date thereof any interest on the date; or (4) fails duly to observe or perform any of the express covenants or agreements set forth in the agreement. See, e.g., Brad.Aff.Exh.L, § 5.1.^[23] Plaintiffs' [1519] Amended Complaint nowhere alleges that RJR Nabisco has breached these contractual obligations; interest payments continue and there is no reason to believe that the principal will not be paid when due.^[24]

It is not necessary to decide that indentures like those at issue could never support a finding of additional benefits, under different circumstances with different parties. Rather, for present purposes, it is sufficient to conclude what obligation is not covered, either explicitly or implicitly, by these contracts held by these plaintiffs. Accordingly, this Court holds that the "fruits" of these indentures do not include an implied restrictive covenant that would prevent the incurrence of new debt to facilitate the recent LBO. To hold otherwise would permit these plaintiffs to straightjacket the company in order to guarantee their investment. These plaintiffs do not invoke an implied covenant of good faith to protect a legitimate, mutually contemplated benefit of the indentures; rather, they seek to have this Court create an additional benefit for which they did not bargain.

Although the indentures generally permit mergers and the incurrence of new debt, there admittedly is not an explicit indenture provision to the contrary of what plaintiffs now claim the implied covenant requires. That absence, however, does not mean that the Court should imply into those very same indentures a covenant of good faith so broad that it imposes a new, substantive term of enormous scope. This is so particularly where, as here, that very term — a limitation on the incurrence of additional debt — has in other past contexts been expressly bargained for; particularly where the indentures grant the company broad discretion in the management of its affairs, as plaintiffs admit, P.Mem. at 35; particularly where the indentures explicitly set forth specific provisions for the adoption of new covenants and restrictions, see, e.g., Bradley Aff.Exh.L, § 9.1(c); and especially where there has been no breach of the parties' bargained-for contractual rights on which the implied covenant necessarily is based. While the Court stands ready to employ an implied covenant of good faith to ensure that such bargained-for rights are performed and upheld, it will not, however, permit an implied covenant to shoehorn into an indenture additional terms plaintiffs now wish had been included. See also Broad v. Rockwell International Corp., 642 F.2d 929 (5th Cir.) (en banc) (applying New York law), cert. denied, 454 U.S. 965, 102 S.Ct. 506, 70 L.Ed.2d 380 (1981) (finding no liability pursuant to an implied covenant where the terms of the indenture, as bargained for, were enforced).^[25]

[1520] Plaintiffs argue in the most general terms that the fundamental basis of all these indentures was that an LBO along the lines of the recent RJR Nabisco transaction would never be undertaken, that indeed no action would be taken, intentionally or not, that would significantly deplete the company's assets. Accepting plaintiffs' theory, their fundamental bargain with defendants dictated that nothing would be done to jeopardize the extremely high probability that the company would remain able to make interest payments and repay principal over the 20 to 30 year indenture term — and perhaps by logical extension even included the right to ask a court "to make sure that plaintiffs had made a good investment." Gardner, 589 F.Supp. at 674. But as Judge Knapp aptly concluded in Gardner, "Defendants ... were under a duty to carry out the terms of the contract, but not to make sure that plaintiffs had made a good investment. The former they have done; the latter we have no jurisdiction over." Id. Plaintiffs' submissions and MetLife's previous undisputed internal memoranda remind the Court that a "fundamental basis" or a "fruit of an agreement" is often in the eye of the beholder, whose vision may well change along with the market, and who may, with hindsight, imagine a different bargain than the one he actually and initially accepted with open eyes.

The sort of unbounded and one-sided elasticity urged by plaintiffs would interfere with and destabilize the market. And this Court, like the parties to these contracts, cannot ignore or disavow the marketplace in which the contract is performed. Nor can it ignore the expectations of that market — expectations, for instance, that the terms of an indenture will be upheld, and that a court will not, sua sponte, add new substantive terms to that indenture as it sees fit.^[26] The Court has no reason to believe that the market, in evaluating bonds such as those at issue here, did not discount for the possibility that any company, even one the size of RJR Nabisco, might engage in an LBO heavily financed by debt. That the bonds did not lose any of their value until the October 20, 1988 announcement of a possible RJR Nabisco LBO only suggests that the market had theretofore evaluated the risks of such a transaction as slight.

The Court recognizes that the market is not a static entity, but instead involves what plaintiffs call "evolving understanding[s]." P.Opp. at 21. Just as the growing prevalence of LBO's has helped change certain ground rules and expectations in the field of mergers and acquisitions, so too it has obviously affected the bond market, a fact no one disputes. See, e.g., Chappell Dep. at 136 ("I think we would have been extremely naive not to understand what was happening in the marketplace."). To support their argument that defendants have violated an implied [1521] covenant, plaintiffs contend that, since the October 20, 1988 announcement, the bond market has "stopped functioning." Tr. at 9. They argue that if they had "sold and abandoned the market [before October 20, 1988], the market, if everyone had the same attitude, would have disappeared." Tr. at 15. What plaintiffs term "stopped functioning" or "disappeared," however, are properly seen as natural responses and adjustments to market realities. Plaintiffs of course do not contend that no new issues are being sold, or that existing issues are no longer being traded or have become worthless.

To respond to changed market forces, new indenture provisions can be negotiated, such as provisions that were in fact once included in the 8.9 percent and 10.25 percent debentures implicated by this action. New provisions could include special debt restrictions or change-of-control covenants. There is no guarantee, of course, that companies like RJR Nabisco would accept such new covenants; parties retain the freedom to enter into contracts as they choose. But presumably, multi-billion dollar investors like plaintiffs have some say in the terms of the investments they make and continue to hold. And, presumably, companies like RJR Nabisco need the infusions of capital such investors are capable of providing.

Whatever else may be true about this case, it certainly does not present an example of the classic sort of form contract or contract of adhesion often frowned upon by courts. In those cases, what motivates a court is the strikingly inequitable nature of the parties' respective bargaining positions. See generally, Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 Harv.L.Rev. 1173 (1982). Plaintiffs here entered this "liquid trading market," P.Mem. at 17, with their eyes open and were free to leave at any time. Instead they remained there notwithstanding its well understood risks.

Ultimately, plaintiffs cannot escape the inherent illogic of their argument. On the one hand, it is undisputed that investors like plaintiffs recognized that companies like RJR Nabisco strenuously opposed additional restrictive covenants that might limit the incurrence of new debt or the company's ability to engage in a merger.^[27] Furthermore, plaintiffs argue that they had no choice other than to accept the indentures as written, without additional restrictive covenants, or to "abandon" the market. Tr. at 14-15.

Yet on the other hand, plaintiffs ask this Court to imply a covenant that would have just that restrictive effect because, they contend, it reflects precisely the fundamental assumption of the market and the fundamental basis of their bargain with defendants. If that truly were the case here, it is difficult to imagine why an insistence on that term would have forced the plaintiffs to abandon the market. The Second Circuit has offered a better explanation: "[a] promise by the defendant should be implied only if the court may rightfully assume that the parties would have included it in their written agreement had their attention been called to it ... Any such assumption in this case would be completely unwarranted." Neuman v. Pike, 591 F.2d 191, 195 (2d Cir.1979) (emphasis added, citations omitted).

In the final analysis, plaintiffs offer no objective or reasonable standard for a court to use in its effort to define the sort of actions their "implied covenant" would permit a corporation to take, and those it would not.^[28] Plaintiffs say only that investors like themselves rely upon the "skill" and "good faith" of a company's board and management, see, e.g., P.Mem. at 35, and that their covenant would prevent the company [1522] from "destroy[ing] ... the legitimate expectations of its long-term bondholders." Id. at 54. As is clear from the preceding discussion, however, plaintiffs have failed to convince the Court that by upholding the explicit, bargained-for terms of the indenture, RJR Nabisco has either exhibited bad faith or destroyed plaintiffs' legitimate, protected expectations.

Plaintiffs argue that defendants have sought to blame plaintiffs themselves for whatever losses they may have incurred. Yet this Court need not address whether plaintiffs are at fault, or whether they assumed a risk in any tort sense, or whether they should never have agreed to exchange the specific debt provisions in at least two of the covenants at issue for alternative benefits and public covenants. Instead, it concludes that courts are properly reluctant to imply into an integrated agreement terms that have been and remain subject to specific, explicit provisions, where the parties are sophisticated investors, well versed in the market's assumptions, and do not stand in a fiduciary relationship with one another.

It is also not to say that defendants were free willfully or knowingly to misrepresent or omit material facts to sell their bonds. Relief on claims based on such allegations would of course be available to plaintiffs, if appropriate^[29] — but those claims properly sound in fraud, and come with requisite elements. Plaintiffs also remain free to assert their claims based on the fraudulent conveyance laws, which similarly require specific proof.^[30] Those burdens cannot be avoided by resorting to an overbroad, superficially appealing, but legally insufficient, implied covenant of good faith and fair dealing.

2. Count Five: In Equity:

Count Five substantially restates and realleges the contract claims advanced in Count I. Compare, e.g., Am.Comp. ¶¶ 33, 35 ("The transaction contradicts the premise of the investment grade market and invalidates the blue chip rating that [RJR Nabisco] solicited and took the benefit from.... In the `buy-out,' [RJR Nabisco] breaches the duty of good faith and fair dealing ...") with Am.Comp. ¶¶ 51-52 ("The `buy-out' was not contemplated at the time the debt was issued, contradicts the premise of the investment grade ratings that RJR Nabisco actively solicited and received, and is inconsistent with the understandings of the market.... The `buy-out' ... is contrary to the implied representations made by RJR Nabisco ... that it would act consistently with its obligations of good faith and fair dealing.") Along with these repetitions, plaintiffs blend in allegations that the transaction "frustrates the commercial purpose" of the parties, under "circumstances [that] are outrageous, and ... it would [therefore] be unconscionable to allow the `buy-out' to proceed ..." Id. ¶¶ 52-53. Those very issues — frustration of purpose and unconscionability — are equally matters of contract law, of course, and plaintiffs could just as easily have advanced them in Count I. Indeed, to some extent plaintiffs did advance these claims in that Count. See, e.g., Am.Comp. ¶ 34 ("RJR Nabisco owes a continuing duty ... not to frustrate the purpose of the contracts ..."). For present purposes, it makes no difference how plaintiffs characterize their arguments.^[31] Their equity claims cannot survive [1523] defendants' motion for summary judgment.

In their papers, plaintiffs variously attempt to justify Count V as being based on unjust enrichment, frustration of purpose, an alleged breach of something approaching a fiduciary duty, or a general claim of unconscionability. Each claim fails. First, as even plaintiffs recognize, an unjust enrichment claim requires a court first to find that "the circumstances [are] such that in equity and good conscience the defendant should make restitution." See, e.g., Chase Manhattan Bank v. Banque Intra, S.A., 274 F.Supp. 496, 499 (S.D.N.Y.1967); P.Mem. at 56. Plaintiffs have not alleged a violation of a single explicit term of the indentures at issue, and on the facts alleged this Court has determined that an implicit covenant of good faith and fair dealing has not been violated. Under these circumstances, this Court concludes that defendants need not, "in equity and good conscience," make restitution.

Second, in support of their motions plaintiffs claim frustration of purpose. Yet even resolving all ambiguities and drawing all reasonable inferences in plaintiffs' favor, their claim cannot stand. A claim of frustration of purpose has three elements:

First, the purpose that is frustrated must have been a principal purpose of that party in making the contract.... The object must be so completely the basis of the contract that, as both parties understand, without it the transaction would make little sense. Second, the frustration must be substantial. It is not enough that the transaction has become less profitable for the affected party or even that he will sustain a loss. The frustration must be so severe that it is not fairly to be regarded as within the risks that he assumed under the contract. Third, the non-occurrence of the frustrating event must have been a basic assumption on which the contract was made.

Restatement (Second) of Contracts, 265 comment a (1981). In The Murphy Door Bed Co., Inc. v. Interior Sleep Systems, Inc., 874 F.2d 95 (2d Cir.1989), defendants argued that the contract was void ab initio since its purpose, allegedly the conveyance of trademark rights, was frustrated because the mark was generic. However, the Second Circuit concluded, "there is no indication that a transfer of trademark rights was the essence of the distributorship agreement ..." Id. at 102-03. Similarly, there is no indication here that an alleged refusal to incur debt to facilitate an LBO was the "essence" or "principal purpose" of the indentures, and no mention of such an alleged restriction is made in the agreements. Further, while plaintiffs' bonds may have lost some of their value, "[d]ischarge under this doctrine has been limited to instances where a virtually cataclysmic, wholly unforeseeable event renders the contract valueless to one party." United States v. General Douglas MacArthur Senior Village, Inc., 508 F.2d 377, 381 (2d Cir.1974) (emphasis added). That is not the case here. Moreover, "the frustration of purpose defense is not available where, as here, the event which allegedly frustrated the purpose of the contract ... was clearly foreseeable." VJK Productions v. Friedman/Meyer Productions, 565 F.Supp. 916 (S.D.N.Y.1983) (citation omitted). Faced with MetLife's internal memoranda, see, e.g., Bradley Resp.Aff.Exh. A, plaintiffs cannot but admit that "MetLife has been concerned about `buy-outs' for several years." P.Opp. at 5. Nor do plaintiffs provide any reasonable basis for believing that a party as sophisticated as Jefferson-Pilot was any less cognizant of the market around it.^[32]

[1524] Third, plaintiffs advance a claim that remains based, their assertions to the contrary notwithstanding, on an alleged breach of a fiduciary duty.^[33] Defendants go to great lengths to prove that the law of Delaware, and not New York, governs this question. Defendants' attempt to rely on Delaware law is readily explained by even a cursory reading of Simons v. Cogan, 549 A.2d 300, 303 (Del.1988), the recent Delaware Supreme Court ruling which held, inter alia, that a corporate bond "represents a contractual entitlement to the repayment of a debt and does not represent an equitable interest in the issuing corporation necessary for the imposition of a trust relationship with concomitant fiduciary duties." Before such a fiduciary duty arises, "an existing property right or equitable interest supporting such a duty must exist." Id. at 304. A bondholder, that court concluded, "acquires no equitable interest, and remains a creditor of the corporation whose interests are protected by the contractual terms of the indenture." Id. Defendants argue that New York law is not to the contrary, but the single Supreme Court case they cite — a case decided over fifty years ago that was not squarely presented with the issue addressed by the Simons court — provides something less than dispositive support. See Marx v. Merchants' National Properties, Inc., 148 Misc. 6, 7, 265 N.Y.S. 163, 165 (1933). For their part, plaintiffs more convincingly demonstrate that New York law applies than that New York law recognizes their claim.^[34]

Regardless, this Court finds Simons persuasive, and believes that a New York court would agree with that conclusion. In the venerable case of Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928), then Chief Judge Cardozo explained the obligations imposed on a fiduciary, and why those obligations are so special and rare:

Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market [1525] place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty ... Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.

Id. at 464 (citation omitted). Before a court recognizes the duty of a "punctilio of an honor the most sensitive," it must be certain that the complainant is entitled to more than the "morals of the market place," and the protections offered by actions based on fraud, state statutes or the panoply of available federal securities laws. This Court has concluded that the plaintiffs presently before it — sophisticated investors who are unsecured creditors — are not entitled to such additional protections.

Equally important, plaintiffs' position on this issue — that "A Company May Not Deliberately Deplete its Assets to the Injury of its Debtholders," P.Mem. at 42 — provides no reasonable or workable limits, and is thus reminiscent of their implied covenant of good faith. Indeed, many indisputably legitimate corporate transactions would not survive plaintiffs' theory. With no workable limits, plaintiffs' envisioned duty would extend equally to trade creditors, employees, and every other person to whom the defendants are liable in any way. Of all such parties, these informed plaintiffs least require a Court's equitable protection; not only are they willing participants in a largely impersonal market, but they also possess the financial sophistication and size to secure their own protection.

Finally, plaintiffs cannot seriously allege unconscionability, given their sophistication and, at least judging from this action, the sophistication of their legal counsel as well. Under the undisputed facts of this case, see supra at 13-20, this Court finds no actionable unconscionability.

B. Defendants' Remaining Motions:

Defendants attack plaintiffs' fraud claims on various fronts. The Court has determined that repleading is necessary. In drafting a Second Amended Complaint, plaintiffs must bear in mind the Court's conclusions below.

1. Rule 10b-5:

Defendants move to dismiss pursuant to Fed.R.Civ.P. 12(c) Count III, the Rule 10b-5 counts, as to those six debt issues purchased by plaintiffs prior to September 1987, which is when plaintiffs allege in their complaint that defendants first began to develop an LBO plan. Plaintiffs admit that Rule 10b-5 is limited to purchases or sales during the period of non-disclosure or misrepresentation. See Pross v. Katz, 784 F.2d 455 (2d Cir.1986). The rule does not afford relief to those who forgo a purchase or sale and instead merely hold in reliance of a nondisclosure or misrepresentation. See, e.g., Bonime v. Doyle, 416 F.Supp. 1372, 1387 (S.D.N.Y.1976), aff'd, 556 F.2d 554 (2d Cir.), cert. denied, 434 U.S. 924, 98 S.Ct. 401, 54 L.Ed.2d 281 (1977). The first, second, third, fifth, seventh and eighth securities listed in the Amended Complaint fail to satisfy this requirement, at least on the facts as presently pleaded.^[35] Accordingly, the Court grants defendants' motion on Count III as to those issues. Plaintiffs correctly note, however, that the disclosure-related common law fraud claims are not restricted to purchases and sales. See Weinberger v. Kendrick, 698 F.2d 61, 78 (2d Cir.1982) (Friendly, J.), cert. denied, 464 U.S. 818, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983); Continental Insurance Co. v. Mercadante, 222 A.D. 181, 186, 225 N.Y.S. 488, 494 (1st Dep't 1927). Thus, the Court denies defendants' motion to dismiss Count II on this basis.

2. Rule 9(b):

The parties are well aware of the purposes and requirements of Rule 9(b), mandating [1526] particularity in pleading fraud. Those principles have often been reaffirmed by the Second Circuit. See, e.g., Stern v. Leucadia National Corp., 844 F.2d 997 (2d Cir.), cert. denied, ___ U.S. ___, 109 S.Ct. 137, 102 L.Ed.2d 109 (1988); Di Vittorio v. Equidyne Extractive Industries, 822 F.2d 1242 (2d Cir.1987). As it now stands, the Amended Complaint cannot not on its own survive scrutiny under that rule. Plaintiffs must heed the guidelines established by the controlling Second Circuit authority. On previous occasions, this Court has left little doubt about what it expects to see in a complaint that pleads fraud. It will not take this opportunity to repeat itself and instead refers the parties to those opinions. See, e.g., Philan v. Hall, 712 F.Supp. 339 (S.D.N.Y.1989). The Court notes that the complaint currently before it was filed even before the January 12 close of the expedited discovery period for these motions. Moreover, since January additional discovery has taken place. Today's ruling, of course, should not be misperceived as an invitation to submit a Second Amended Complaint indiscriminately larded with factual recitations and legal boilerplate. The Court has no reason to believe that plaintiffs, represented by skilled counsel, intend to follow that unwise course.

III. CONCLUSION

For the reasons set forth above, the Court grants defendants summary judgment on Counts I and V, judgment on the pleadings for certain of the securities at issue in Count III, and dismisses for want of requisite particularity Counts II, III, and IX. All remaining motions made by the parties are denied in all respects. Plaintiffs shall have twenty days to replead.

SO ORDERED.

[1] A leveraged buy-out occurs when a group of investors, usually including members of a company's management team, buy the company under financial arrangements that include little equity and significant new debt. The necessary debt financing typically includes mortgages or high risk/high yield bonds, popularly known as "junk bonds." Additionally, a portion of this debt is generally secured by the company's assets. Some of the acquired company's assets are usually sold after the transaction is completed in order to reduce the debt incurred in the acquisition.

[2] On December 7, 1989, this Court agreed to accept as related all actions growing out of the RJR Nabisco LBO. On January 4, 1989, the Court consolidated with the present suit an action brought by three KKR affiliates — RJR Holdings Corp., RJR Holdings Group, Inc., and RJR Acquisition Corporation — against the Jefferson-Pilot Life Insurance Company. KKR established those entities to effect the buyout of RJR Nabisco. Throughout this Opinion, these entities and their parent will be referred to collectively as "KKR." When this action was filed, those entities and KKR were not formally named as parties. However, in its January 4 Order, the Court granted KKR's request to participate fully in the present action. Pursuant to that Order, KKR filed joint briefs with RJR Nabisco and participated in oral argument before the Court on February 16, 1989.

[3] The Court set January 12, 1989 as the close of the expedited discovery period for these motions, which were filed the next day.

[4] Agencies like Standard & Poor's and Moody's generally rate bonds in two broad categories: investment grade and speculative grade. Standard & Poor's rates investment grade bonds from "AAA" to "BBB." Moody's rates those bonds from "AAA" to "Baa3." Speculative grade bonds are rated either "BB" and lower, or "Ba1" and lower, by Standard & Poor's and Moody's, respectively. See, e.g., Standard and Poor's Debt Rating Criteria at 10-11. No one disputes that, subsequent to the announcement of the LBO, the RJR Nabisco bonds lost their "A" ratings.

[5]In their papers, plaintiffs had argued that the LBO "should be Preliminarily Enjoined Unless Provision is Made to Ensure That Funds for Redemption will be Available after Trial." P.Mem. at 59 (capitalization in original). The preliminary injunction requested "is not intended to stop the transaction, but only to enjoin any substantial encumbrance on the [c]ompany until the [c]ompany posts a bond or otherwise provides security to ensure its ability to redeem Plaintiffs' bonds after trial." P.Mem. at 60.

References throughout this Opinion are as follows: Transcript of February 16, 1989 Argument ("Tr."); Amended Complaint ("Am. Comp."); [Name of affiant] Affidavit ("[Name of affiant] Aff."); [Name of affiant] Response Affidavit ("[Name of affiant] Resp.Aff."); [Name of affiant] Reply Affidavit ("[Name of affiant] Reply Aff."); Exhibit ("Exh."); Plaintiffs' Exhibit ("P.Exh."); [Name of deponent] Deposition ("[Name of deponent] Dep."); Plaintiffs' Memorandum in Support of Summary Judgment ("P.Mem."); Plaintiffs' Answering Brief [in Opposition to Defendants' Motions] ("P.Opp."); Plaintiffs' Reply Brief ("P. Reply"); Defendants' Memorandum in Support of their Motion for Judgment on the Pleadings [and Partial Summary Judgment and Partial Dismissal] ("D.Mem."); Defendants' Memorandum in Opposition to Plaintiffs' Motion ("D.Opp."); Defendants' Reply Memorandum ("D. Reply").

[6] Count I alleges a breach of an implied covenant of good faith and fair dealing (against defendant RJR Nabisco); Count II alleges fraud (against both defendants); Count III alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (against both defendants); Count IV alleges violations of Section 11 of the 1933 Act (on behalf of plaintiff Jefferson-Pilot Life Insurance Company against both defendants); Count V is labeled "In Equity," and is asserted against both defendants; Count VI alleges breach of duties (against defendant Johnson); Count VII alleges tortious interference with property (against Johnson); Count VIII alleges tortious interference with contract (against Johnson); and Count IX alleges a violation of the fraudulent conveyance laws (against RJR Nabisco).

[7] Johnson has not filed memoranda in support of his motions but instead incorporates the arguments set forth in the papers filed by RJR Nabisco and KKR. Johnson has not moved with respect to Counts IV, VI, VII or VIII. Counts VI, VII and VIII apply only to Johnson. Count IV is the only count with respect to which RJR Nabisco has not moved.

[8] On February 9, 1989, KKR completed its tender offer for roughly 74 percent of RJR Nabisco's common stock (of which approximately 97% of the outstanding shares were tendered) and all of its Series B Cumulative Preferred Stock (of which approximately 95% of the outstanding shares were tendered). Approximately $18 billion in cash was paid out to these stockholders. KKR acquired the remaining stock in the late April merger through the issuance of roughly $4.1 billion of pay-in-kind exchangeable preferred stock and roughly $1.8 billion in face amount of convertible debentures. See Bradley Reply Aff. ¶ 2.

[9] For the purposes of this Opinion, the terms "bonds," "debentures," and "notes" will be used interchangeably. Any distinctions among these terms are not relevant to the present motions.

[10] Both sides agree that New York law controls this Court's interpretation of the indentures, which contain explicit designations to that effect. See, e.g., P.Mem. at 26; D. Mem at 15 n. 23. The indentures themselves provide that they "shall be deemed to be a contract under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State, except as may otherwise be required by mandatory provisions of law." Bradley Aff., Exh. L, § 12.8.

[11] While nine securities are at issue in this suit, the parties agree — and the Court's review confirms — that the separate indentures mirror one another in all important respects, with one exception that is discussed herein. Indeed, plaintiffs have submitted a helpful Addendum in which they outline what they term "[t]ypical RJR Nabisco [i]ndenture [t]erms." SeeP. Reply, Addendum.

Thus, the prospectus statement quoted above has its counterpart in each of the other prospectuses. See Bradley Aff. ¶ 9.

[12] For the following discussion, see generally, Indenture dated as of October 15, 1982, between R.J. Reynolds Industries, Inc., Issuer, and Bankers Trust Company, Trustee, included as Bradley Aff.Exh. L, and Plaintiffs' Exh. 1.

[13] The remaining Articles are not relevant to the motions currently before the Court. Article One contains definitions; Article Two contains mechanical terms regarding, for instance, the issuance and transfer of the securities; Article Four concerns such mechanical matters as securityholders' lists and annual reports; Article Six addresses the rights and responsibilities of the Trustee; Article Seven contains mechanical provisions concerning the securityholders; Article Eight concerns procedural matters such as securityholders' meetings and consents; Article Eleven deals with the satisfaction and discharge of the indenture; Article Twelve sets forth various miscellaneous provisions; and Article Thirteen includes provisions regarding the redemption of securities and sinking funds. See, e.g., Bradley Aff.Exh. L.

[14] MetLife itself began investing in LBOs as early as 1980. See MetLife Special Projects Memorandum, dated June 17, 1989, attached as Bradley Aff.Exh. V, at 1 ("[MetLife's] history of investing in leveraged buyout transactions dates back to 1980; and through 1984, [MetLife] reviewed a large number of LBO investment opportunities presented to us by various investment banking firms and LBO specialists. Over this five-year period, [MetLife] invested, on a direct basis, approximately $430 million to purchase debt and equity securities in 10 such transactions ...").

[15] During discovery, MetLife produced from its files an article that appeared in The New York Timeson January 7, 1986. The article, like the memoranda discussed above, reviewed the position of bondholders like MetLife and Jefferson-Pilot:

"Debt-financed acquisitions, as well as those defensive actions to thwart takeovers, have generally resulted in lower bond ratings ... Of course, a major problem for debtholders is that, compared with shareholders, they have relatively little power over management decisions. Their rights are essentially confined to the covenants restricting, say, the level of debt a company can accrue."

Bradley Reply Aff.Exh. H (emphasis added).

[16] See Bradley Resp.Aff.Exh. F. That exhibit is an August 5, 1988 letter from the New York law firm of Kaye, Scholer, Fierman, Hays & Handler. A partner at that firm sent the letter to "Indenture Group Members," including MetLife, who participated in the Institutional Bondholders' Rights Association ("the IBRA"). The "Limitations on Shareholders' Payments" provision appears in a draft IBRA model indenture. See Bradley Resp.Aff. ¶¶ 3, 7.

[17] Due to a typographical error, the Amended Complaint contains two paragraphs numbered "17." The passage above refers to the first such paragraph.

[18] See, e.g., Address by F. Ross Johnson, November 12, 1987, P.Exh. 8, at 5 ("Our strong balance sheet is a cornerstone of our strategies. It gives us the resources to modernize facilities, develop new technologies, bring on new products, and support our leading brands around the world."); Remarks of Edward J. Robinson, Executive Vice President and Chief Financial Officer, February 15, 1988, P.Exh. 6, at 1 ("RJR Nabisco's financial strategy is ... to enhance the strength of the balance sheet by reducing the level of debt as well as lowering the cost of existing debt."); Remarks by Dr. Robert J. Carbonell, Vice Chairman of RJR Nabisco, June 3, 1987, P.Exh. 10, at 5 ("We will not sacrifice our longer-term health for the sake of short term heroics.").

[19] In support of this proposition, plaintiffs also rely on Reback v. Story Productions, Inc., 15 Misc.2d 681, 181 N.Y.S.2d 980, modified and aff'd, 9 A.D.2d 880, 193 N.Y.S.2d 520 (1st Dep't 1959). The court in that case, however, was presented with an ambiguous written agreement. See 181 N.Y.S.2d at 983. Plaintiffs similarly rely on Van Gemert v. Boeing Co., 520 F.2d 1373 (2d Cir.), cert. denied, 423 U.S. 947, 96 S.Ct. 364, 46 L.Ed.2d 282 (1975) ("Van Gemert I"). In that case, however, the right asserted was addressed by an express provision which provided a framework for determining the scope and effect of the implied covenant. See infra.

[20] To a certain extent, this discussion is academic. Even if the Court did consider the extrinsic evidence offered by plaintiffs, its ultimate decision would be no different. Based on that extrinsic evidence, plaintiffs attempt to establish that an implied covenant of good faith is necessary to protect the benefits of their agreements. That inquiry necessarily asks the Court to determine whether the existing contractual terms should be construed to preclude defendants from engaging in an LBO along the lines of the recently completed transaction. However, even evaluating all facts—such as the public statements made by company executives—in the light most favorable to plaintiffs, these plaintiffs fail as a matter of law to establish that the purported "fundamental basis" of their bargain with defendants created a contractual obligation on the part of the defendants not to engage in an LBO. It is first worth noting that plaintiffs have quoted selectively from certain speeches and remarks made by RJR Nabisco executives; in some respects, those public statements are more equivocal than plaintiffs would have this Court believe. See, e.g., P.Exh. 3 at 25 ("[W]e believe our strong balance sheet and our debt capacity ... provide us with the flexibility to pursue any conceivable strategy or financial option we choose.") More important, those representations are improperly raised under the rubric of an implied covenant of good faith when they cannot properly or reasonably be construed as evidencing a binding agreement or acquiescence by defendants to substantive restrictive covenants. Moreover, nothing like the mutual understanding plaintiffs now advance has been shown; in fact, as far as these parties are concerned, quite the opposite is true. See infraat 39-40. Thus, as a matter of law, and accepting all extrinsic evidence offered, the "implied covenant of good faith" does not serve these plaintiffs in the way they represent. As explained more fully below, by relying on extrinsic evidence and the familiar implied covenant of good faith, plaintiffs do not seek to protect an existing contractual right; they seek to create a new one, and thus to obtain a better bargain than originally agreed upon. Therefore, even if the parole evidence rule did not block plaintiffs' path, their course would not be followed.

The parole evidence rule of course does not bar descriptions of either the background of this suit or market realities consistent with the contracts at issue.

[21] Since newspaper notice, for instance, was promised in the indenture, the court used an implied covenant to ensure that meaningful, reasonable newspaper notice was provided. See id. at 1383.

[22] See also id. at 1383 ("An issuer of [convertible] debentures has a duty to give adequate notice either on the face of the debentures, ... or in some other way, of the notice to be provided in the event the company decides to redeem the debentures. Absent such advice as to the specific notice agreed upon by the issuer and the trustee for the debenture holders, the debenture holders' reasonable expectations as to notice should be protected.").

[23]Plaintiffs originally indicated that, depending on the Court's disposition of the instant motions, they might seek to amend their complaint to allege that "they are not equally and ratably secured under the [express terms of the] `negative pledge' clause of the indentures." P. Reply at 12 n. 7. On May 26, 1989, shortly before this Opinion was filed, the Court granted defendants' request to assert a counterclaim for a declaratory judgment that those "negative pledge" covenants have not been violated by the post-LBO financial structure of RJR Nabisco. This counterclaim was advanced in response to notices of default by plaintiffs based on matters not raised in the Amended Complaint.

The Court of course will not now determine whether an alleged implied covenant flowing from a "negative pledge" provision has been breached. That inquiry necessarily must follow the Court's determination of whether or not the "negative pledge" provision has been expressly breached.

[24] The Court here incorporates by reference its earlier discussion not only of plaintiffs' failure to demonstrate sufficiently a risk of irreparable harm on their motion for a preliminary injunction, but also defendants' proof concerning the financing of the LBO and the company's current equity base. See supra at 4-5. Consequently, the Court rejects plaintiffs' general assertion that the LBO "subjects existing debtholders to dramatically greater risk of non-payment, and the Company to a significant risk of insolvency." Am.Comp. ¶ 26. In brief, there is no implied covenant restricting any action that might subject plaintiffs' investment to greater risk of non-payment. What plaintiffs have failed to allege is that an interest or principal payment due them has not been paid, or that any other explicit contractual right has not been honored.

[25] The cases relied on by plaintiffs are not to the contrary. They invoke an implied covenant where it proves necessary to fulfill the explicit terms of an agreement, or to give meaning to ambiguous terms. See, e.g., Grad v. Roberts, 14 N.Y.2d 70, 248 N.Y.S.2d 633, 636, 198 N.E.2d 26, 28 (1964) (court relied on implied covenant to effect "performance of [an] option agreement according to its terms"); Zilg v. Prentice-Hall, Inc., 717 F.2d 671 (2d Cir.1983), cert. denied, 466 U.S. 938, 104 S.Ct. 1911, 80 L.Ed.2d 460 (1984). In Zilg, the Second Circuit first described a contract which, on its face, established the publisher's obligation to publish, advertise and publicize the book at issue. The court then determined that "the contract in question establishes a relationship between the publisher and author which implies an obligation upon the former to make certain [good faith] efforts in publishing a book it has accepted notwithstanding the clause which leaves the number of volumes to be printed and the advertising budget to the publisher's discretion." 717 F.2d at 679. In other words, the court there sought to ensure a meaningful fulfillment of the contract's express terms. See also Van Gemert I, supra; Pittsburgh Terminal, supra. In the latter two cases, the courts sought to protect the bondholders' express, bargained-for rights.

[26] Cf. Broad v. Rockwell, 642 F.2d at 943 ("Not least among the parties `who must comply with or refer to the indenture' are the members of the investing public and their investment advisors. A large degree of uniformity in the language of debenture indentures is essential to the effective functioning of the financial markets: uniformity of the indentures that govern competing debenture issues is what makes it possible meaningfully to compare one debenture issue with another, focusing only on the business provisions of the issue ...") (citation omitted); Sharon Steel Corporation v. Chase Manhattan Bank, N.A., 691 F.2d. 1039, 1048 (2d Cir.1982) (Winter, J.) ("[U]niformity in interpretation is important to the efficiency of capital markets ... [T]he creation of enduring uncertainties as to the meaning of boilerplate provisions would decrease the value of all debenture issues and greatly impair the efficient working of capital markets.").

[27] See, e.g., MetLife Memorandum, dated August 20, 1982, attached as Bradley Reply Aff. Exh. D, at 3; MetLife Memorandum, dated November 1985, attached as Bradley Resp.Aff.Exh. A, at 8.

[28] Under plaintiffs' theory, bondholders might ask a court to prohibit a company like RJR Nabisco not only from engaging in an LBO, but also from entering a new line of business — with the attendant costs of building new physical plants and hiring new workers — or from acquiring new businesses such as RJR Nabisco did when it acquired Del Monte.

[29] The Court, of course, today takes no position on this issue.

[30] As noted elsewhere, plaintiffs can also allege violations of express terms of the indentures.

[31] For much the same reason, the Court rejects defendants' reliance on cases like In re Kemp & Beatley, Inc., 64 N.Y.2d 63, 70, 484 N.Y.S.2d 799, 803, 473 N.E.2d 1173, 1177 (1984), for "the ancient principle that equity jurisdiction will not lie when there exists a remedy at law." See, e.g., D.Mem. at 26. That case contemplated a classic equitable remedy — the dissolution of a corporation. And in that respect, it accurately set forth a rule of law; no court will, for instance, enter an injunction or order specific performance or dissolution if an adequate legal remedy remains available. The Court has already denied plaintiffs' request for an injunction. To the extent that Count V does in fact merely restate plaintiffs' prayer for injunctive relief — "it would be unconscionable to allow the `buy-out' to proceed until defendants make restitution to the debtholders," Am.Comp. ¶ 53 — it is of course inappropriate. As far as the Court can determine, however, and reading plaintiffs' "In Equity" Count as charitably as possible, the claims advanced by plaintiffs in Count V do not necessarily seek such an exclusive remedy. In general, remedies based on claims of unjust enrichment or frustration of purpose are certainly quantifiable and subject to money damages, and would thus support a legal remedy.

[32] At least one of Jefferson-Pilot's directors— Clemmie Dixon Spangler — not only was aware of the possibility of an LBO of a company like RJR Nabisco, but he also in fact proposed an LBO of RJR Nabisco itself, a fact plaintiffs do not dispute. See Bradley Aff. ¶ 28, Exh. R. Spangler apparently never mentioned his unsolicited bid for RJR Nabisco to his fellow Jefferson-Pilot directors.

[33] While the Court reads plaintiffs' Amended Complaint and submissions as charitably as it can, it nonetheless has trouble with assertions such as this: "The right of unsecured creditors [like plaintiffs] against having the [c]ompany's assets stripped away is not in the nature of broad fiduciary duty, but rather a specific charge, founded in principles of equity and tort law of New York and other jurisdictions ..." P.Mem. at 51-52. Any such "charge" — beyond a potential fiduciary duty the Court now addresses, see infra — is not, however, so "specific" as to have been stated with any clarity by any one court. Indeed, cases relied upon by plaintiffs to support their "In Equity" Count focus on fraudulent schemes or conveyances. See, e.g., United States v. Tabor Court Realty Corp., 803 F.2d 1288, 1295 (3d Cir.1986) (explaining lower court's findings in United States v. Gleneagles Investment Co., 565 F.Supp. 556 (M.D.Pa.1983)); Pepper v. Litton, 308 U.S. 295, 296, 60 S.Ct. 238, 84 L.Ed. 281 (1939) ("The findings by the District Court, amply supported by the evidence, reveal a scheme to defraud creditors ..."); Harff v. Kerkorian, 347 A.2d 133, 134 (Del.1975) (bondholders limited to contract claims in absence of "`fraud, insolvency, or a violation of a statute.'") (citation omitted). Moreover, if the Court here were confronted with an insolvent corporation, which is not the case, the company's officers and directors might become trustees of its assets for the protection of its creditors, among others. See, e.g., New York Credit Men's Adjustment Bureau v. Weiss, 278 A.D. 501, 503, 105 N.Y.S.2d 604, 606 (1st Dep't 1951), aff'd,305 N.Y. 1, 110 N.E.2d 397 (1953).

If not based on a fiduciary duty and the other equitable principles addressed by the Court, plaintiffs' claim, in effect, asks this Court to use its broad equitable powers to fashion a new cause of action that would adopt precisely the same arguments the Court rejected in Count I.

[34] The indenture provision designating New York law as controlling, see supra n. 10, would, one might assume, resolve at least the issue of the applicable law. In quoting the relevant indenture provision, however, plaintiffs omit the proviso "except as may otherwise be required by mandatory provisions of law." P.Mem. at 52, n. 46. Defendants, however, fail to argue that the internal affairs doctrine, which they assert dictates that Delaware law controls this question, is such a "mandatory provision of law." Nor do defendants respond to plaintiffs' reliance on First National City Bank v. Banco Para El Comercio, 462 U.S. 611, 621, 103 S.Ct. 2591, 2597, 77 L.Ed.2d 46 (1983) ("Different conflicts principles apply, however, where the rights of third parties external to the corporation are at issue.") (emphasis in original, citation omitted). Ultimately, the point is academic; as explained below, the Court would grant defendants summary judgment on this Count under either New York or Delaware law.

[35] It remains unclear how the fourth security listed in the Amended Complaint fares under the controlling law. If plaintiffs purchased portions of that issue prior to September 1987, then, of course, the Court's above holding applies equally here.

APPEAL FROM THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

[71] James A. Strain argued the cause for appellant in No. 86-71. With him on the brief were Richard E. Deer and Stanley C. Fickle. John F. Pritchard argued the cause and filed a brief for appellant in No. 86-97.

[72] Lowell E. Sachnoff argued the cause for appellee in both cases. With him on the brief were Dean A. Dickie and Sarah R. Wolff.^[†]

JUSTICE POWELL delivered the opinion of the Court.

These cases present the questions whether the Control Share Acquisitions Chapter of the Indiana Business Corporation Law, Ind. Code § 23-1-42-1 et seq. (Supp. 1986), is preempted by the Williams Act, 82 Stat. 454, as amended, 15 U. S. C. §§ 78m(d)-(e) and 78n(d)-(f) (1982 ed. and Supp. III), or violates the Commerce Clause of the Federal Constitution, Art. I, § 8, cl. 3.

I

A

On March 4, 1986, the Governor of Indiana signed a revised Indiana Business Corporation Law, Ind. Code § 23-1-17-1 et seq. (Supp. 1986). That law included the Control Share Acquisitions Chapter (Indiana Act or Act). Beginning on August 1, 1987, the Act will apply to any corporation incorporated in Indiana, § 23-1-17-3(a), unless the corporation amends its articles of incorporation or bylaws to opt out of the Act, § 23-1-42-5. Before that date, any Indiana corporation can opt into the Act by resolution of its board of directors. § 23-1-17-3(b). The Act applies only to "issuing [73] public corporations." The term "corporation" includes only businesses incorporated in Indiana. See § 23-1-20-5. An "issuing public corporation" is defined as:

"a corporation that has:

"(1) one hundred (100) or more shareholders;

"(2) its principal place of business, its principal office, or substantial assets within Indiana; and

"(3) either:

"(A) more than ten percent (10%) of its shareholders resident in Indiana;

"(B) more than ten percent (10%) of its shares owned by Indiana residents; or

"(C) ten thousand (10,000) shareholders resident in Indiana." § 23-1-42-4(a).^[1]

The Act focuses on the acquisition of "control shares" in an issuing public corporation. Under the Act, an entity acquires "control shares" whenever it acquires shares that, but for the operation of the Act, would bring its voting power in the corporation to or above any of three thresholds: 20%, 33 1/3%, or 50%. § 23-1-42-1. An entity that acquires control shares does not necessarily acquire voting rights. Rather, it gains those rights only "to the extent granted by resolution approved by the shareholders of the issuing public corporation." § 23-1-42-9(a). Section 23-1-42-9(b) requires a majority vote of all disinterested^[2] shareholders holding each [74] class of stock for passage of such a resolution. The practical effect of this requirement is to condition acquisition of control of a corporation on approval of a majority of the pre-existing disinterested shareholders.^[3]

The shareholders decide whether to confer rights on the control shares at the next regularly scheduled meeting of the shareholders, or at a specially scheduled meeting. The [75] acquiror can require management of the corporation to hold such a special meeting within 50 days if it files an "acquiring person statement,"^[4] requests the meeting, and agrees to pay the expenses of the meeting. See § 23-1-42-7. If the shareholders do not vote to restore voting rights to the shares, the corporation may redeem the control shares from the acquiror at fair market value, but it is not required to do so. § 23-1-42-10(b). Similarly, if the acquiror does not file an acquiring person statement with the corporation, the corporation may, if its bylaws or articles of incorporation so provide, redeem the shares at any time after 60 days after the acquiror's last acquisition. § 23-1-42-10(a).

B

On March 10, 1986, appellee Dynamics Corporation of America (Dynamics) owned 9.6% of the common stock of appellant CTS Corporation, an Indiana corporation. On that day, six days after the Act went into effect, Dynamics announced a tender offer for another million shares in CTS; purchase of those shares would have brought Dynamics' ownership interest in CTS to 27.5%. Also on March 10, Dynamics filed suit in the United States District Court for the Northern District of Illinois, alleging that CTS had violated the federal securities laws in a number of respects no longer relevant to these proceedings. On March 27, the board of directors of CTS, an Indiana corporation, elected to be governed by the provisions of the Act, see § 23-1-17-3.

Four days later, on March 31, Dynamics moved for leave to amend its complaint to allege that the Act is pre-empted by the Williams Act, 15 U. S. C. §§ 78m(d)-(e) and 78n(d)-(f) (1982 ed. and Supp. III), and violates the Commerce Clause, Art. I, § 8, cl. 3. Dynamics sought a temporary restraining order, a preliminary injunction, and declaratory relief against [76] CTS' use of the Act. On April 9, the District Court ruled that the Williams Act pre-empts the Indiana Act and granted Dynamics' motion for declaratory relief. 637 F. Supp. 389 (ND Ill. 1986). Relying on JUSTICE WHITE's plurality opinion in Edgar v. MITE Corp., 457 U. S. 624 (1982), the court concluded that the Act "wholly frustrates the purpose and objective of Congress in striking a balance between the investor, management, and the takeover bidder in takeover contests." 637 F. Supp., at 399. A week later, on April 17, the District Court issued an opinion accepting Dynamics' claim that the Act violates the Commerce Clause. This holding rested on the court's conclusion that "the substantial interference with interstate commerce created by the [Act] outweighs the articulated local benefits so as to create an impermissible indirect burden on interstate commerce." Id., at 406. The District Court certified its decisions on the Williams Act and Commerce Clause claims as final under Federal Rule of Civil Procedure 54(b). Ibid.

CTS appealed the District Court's holdings on these claims to the Court of Appeals for the Seventh Circuit. Because of the imminence of CTS' annual meeting, the Court of Appeals consolidated and expedited the two appeals. On April 23 — 23 days after Dynamics first contested application of the Act in the District Court — the Court of Appeals issued an order affirming the judgment of the District Court. The opinion followed on May 28. 794 F. 2d 250 (1986).

After disposing of a variety of questions not relevant to this appeal, the Court of Appeals examined Dynamics' claim that the Williams Act pre-empts the Indiana Act. The court looked first to the plurality opinion in Edgar v. MITE Corp., supra, in which three Justices found that the Williams Act pre-empts state statutes that upset the balance between target management and a tender offeror. The court noted that some commentators had disputed this view of the Williams Act, concluding instead that the Williams Act was "an anti-takeover statute, expressing a view, however benighted, [77] that hostile takeovers are bad." 794 F. 2d, at 262. It also noted:

"[I]t is a big leap from saying that the Williams Act does not itself exhibit much hostility to tender offers to saying that it implicitly forbids states to adopt more hostile regulations. . . . But whatever doubts of the Williams' Act preemptive intent we might entertain as an original matter are stilled by the weight of precedent." Ibid.

Once the court had decided to apply the analysis of the MITE plurality, it found the case straightforward:

"Very few tender offers could run the gauntlet that Indiana has set up. In any event, if the Williams Act is to be taken as a congressional determination that a month (roughly) is enough time to force a tender offer to be kept open, 50 days is too much; and 50 days is the minimum under the Indiana act if the target corporation so chooses." Id., at 263.

The court next addressed Dynamic's Commerce Clause challenge to the Act. Applying the balancing test articulated in Pike v. Bruce Church, Inc., 397 U. S. 137 (1970), the court found the Act unconstitutional:

"Unlike a state's blue sky law the Indiana statute is calculated to impede transactions between residents of other states. For the sake of trivial or even negative benefits to its residents Indiana is depriving nonresidents of the valued opportunity to accept tender offers from other nonresidents.

". . . Even if a corporation's tangible assets are immovable, the efficiency with which they are employed and the proportions in which the earnings they generate are divided between management and shareholders depends on the market for corporate control — an interstate, indeed international, market that the State of Indiana is not authorized to opt out of, as in effect it has done in this statute." 794 F. 2d, at 264.

[78] Finally, the court addressed the "internal affairs" doctrine, a "principle of conflict of laws . . . designed to make sure that the law of only one state shall govern the internal affairs of a corporation or other association." Ibid. It stated:

"We may assume without having to decide that Indiana has a broad latitude in regulating those affairs, even when the consequence may be to make it harder to take over an Indiana corporation. . . . But in this case the effect on the interstate market in securities and corporate control is direct, intended, and substantial. . . . [T]hat the mode of regulation involves jiggering with voting rights cannot take it outside the scope of judicial review under the commerce clause." Ibid.

Accordingly, the court affirmed the judgment of the District Court.

Both Indiana and CTS filed jurisdictional statements. We noted probable jurisdiction under 28 U. S. C. § 1254(2), 479 U. S. 810 (1986), and now reverse.^[5]

II

The first question in these cases is whether the Williams Act pre-empts the Indiana Act. As we have stated frequently, absent an explicit indication by Congress of an intent to pre-empt state law, a state statute is pre-empted only

[79] " `where compliance with both federal and state regulations is a physical impossibility . . . ,' Florida Lime & Avocado Growers, Inc. v. Paul, 373 U. S. 132, 142-143 (1963), or where the state `law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.' Hines v. Davidowitz, 312 U. S. 52, 67 (1941) . . . ." Ray v. Atlantic Richfield Co., 435 U. S. 151, 158 (1978).

Because it is entirely possible for entities to comply with both the Williams Act and the Indiana Act, the state statute can be pre-empted only if it frustrates the purposes of the federal law.

A

Our discussion begins with a brief summary of the structure and purposes of the Williams Act. Congress passed the Williams Act in 1968 in response to the increasing number of hostile tender offers. Before its passage, these transactions were not covered by the disclosure requirements of the federal securities laws. See Piper v. Chris-Craft Industries, Inc., 430 U. S. 1, 22 (1977). The Williams Act, backed by regulations of the SEC, imposes requirements in two basic areas. First, it requires the offeror to file a statement disclosing information about the offer, including: the offeror's background and identity; the source and amount of the funds to be used in making the purchase; the purpose of the purchase, including any plans to liquidate the company or make major changes in its corporate structure; and the extent of the offeror's holdings in the target company. See 15 U. S. C. § 78n(d)(1) (incorporating § 78m(d)(1) by reference); 17 CFR §§ 240.13d-1, 240.14d-3 (1986).

Second, the Williams Act, and the regulations that accompany it, establish procedural rules to govern tender offers. For example, stockholders who tender their shares may withdraw them while the offer remains open, and, if the offeror has not purchased their shares, any time after 60 days from commencement of the offer. 15 U. S. C. § 78n(d)(5); 17 [80] CFR § 240.14d-7(a)(1) (1986), as amended, 51 Fed. Reg. 25873 (1986). The offer must remain open for at least 20 business days. 17 CFR § 240.14e-1(a) (1986). If more shares are tendered than the offeror sought to purchase, purchases must be made on a pro rata basis from each tendering shareholder. 15 U. S. C. § 78n(d)(6); 17 CFR § 240.14(8) (1986). Finally, the offeror must pay the same price for all purchases; if the offering price is increased before the end of the offer, those who already have tendered must receive the benefit of the increased price. § 78n(d)(7).

B

The Indiana Act differs in major respects from the Illinois statute that the Court considered in Edgar v. MITE Corp., 457 U. S. 624 (1982). After reviewing the legislative history of the Williams Act, JUSTICE WHITE, joined by Chief Justice Burger and JUSTICE BLACKMUN (the plurality), concluded that the Williams Act struck a careful balance between the interests of offerors and target companies, and that any state statute that "upset" this balance was pre-empted. Id., at 632-634.

The plurality then identified three offending features of the Illinois statute. JUSTICE WHITE's opinion first noted that the Illinois statute provided for a 20-day precommencement period. During this time, management could disseminate its views on the upcoming offer to shareholders, but offerors could not publish their offers. The plurality found that this provision gave management "a powerful tool to combat tender offers." Id., at 635. This contrasted dramatically with the Williams Act; Congress had deleted express precommencement notice provisions from the Williams Act. According to the plurality, Congress had determined that the potentially adverse consequences of such a provision on shareholders should be avoided. Thus, the plurality concluded that the Illinois provision "frustrate[d] the objectives of the Williams Act." Ibid. The second criticized feature of [81] the Illinois statute was a provision for a hearing on a tender offer that, because it set no deadline, allowed management " `to stymie indefinitely a takeover,' " id., at 637 (quoting MITE Corp. v. Dixon, 633 F. 2d 486, 494 (CA7 1980)). The plurality noted that " `delay can seriously impede a tender offer,' " 457 U. S., at 637 (quoting Great Western United Corp. v. Kidwell, 577 F. 2d 1256, 1277 (CA5 1978) (Wisdom, J.)), and that "Congress anticipated that investors and the takeover offeror would be free to go forward without unreasonable delay," 457 U. S., at 639. Accordingly, the plurality concluded that this provision conflicted with the Williams Act. The third troublesome feature of the Illinois statute was its requirement that the fairness of tender offers would be reviewed by the Illinois Secretary of State. Nothing that "Congress intended for investors to be free to make their own decisions," the plurality concluded that " `[t]he state thus offers investor protection at the expense of investor autonomy — an approach quite in conflict with that adopted by Congress.' " Id., at 639-640 (quoting MITE Corp. v. Dixon, supra, at 494).

C

As the plurality opinion in MITE did not represent the views of a majority of the Court,^[6] we are not bound by its reasoning. We need not question that reasoning, however, because we believe the Indiana Act passes muster even under the broad interpretation of the Williams Act articulated by JUSTICE WHITE in MITE. As is apparent from our summary of its reasoning, the overriding concern of the [82] MITE plurality was that the Illinois statute considered in that case operated to favor management against offerors, to the detriment of shareholders. By contrast, the statute now before the Court protects the independent shareholder against the contending parties. Thus, the Act furthers a basic purpose of the Williams Act, " `plac[ing] investors on an equal footing with the takeover bidder,' " Piper v. Chris-Craft Industries, Inc., 430 U. S., at 30 (quoting the Senate Report accompanying the Williams Act, S. Rep. No. 550, 90th Cong., 1st Sess., 4 (1967)).^[7]

The Indiana Act operates on the assumption, implicit in the Williams Act, that independent shareholders faced with tender offers often are at a disadvantage. By allowing such [83] shareholders to vote as a group, the Act protects them from the coercive aspects of some tender offers. If, for example, shareholders believe that a successful tender offer will be followed by a purchase of nontendering shares at a depressed price, individual shareholders may tender their shares — even if they doubt the tender offer is in the corporation's best interest — to protect themselves from being forced to sell their shares at a depressed price. As the SEC explains: "The alternative of not accepting the tender offer is virtual assurance that, if the offer is successful, the shares will have to be sold in the lower priced, second step." Two-Tier Tender Offer Pricing and Non-Tender Offer Purchase Programs, SEC Exchange Act Rel. No. 21079 (June 21, 1984), [1984 Transfer Binder] CCH Fed. Sec. L. Rep. ¶ 83,637, p. 86,916 (footnote omitted) (hereinafter SEC Release No. 21079). See Lowenstein, Pruning Deadwood in Hostile Takeovers: A Proposal for Legislation, 83 Colum. L. Rev. 249, 307-309 (1983). In such a situation under the Indiana Act, the shareholders as a group, acting in the corporation's best interest, could reject the offer, although individual shareholders might be inclined to accept it. The desire of the Indiana Legislature to protect shareholders of Indiana corporations from this type of coercive offer does not conflict with the Williams Act. Rather, it furthers the federal policy of investor protection.

In implementing its goal, the Indiana Act avoids the problems the plurality discussed in MITE. Unlike the MITE statute, the Indiana Act does not give either management or the offeror an advantage in communicating with the shareholders about the impending offer. The Act also does not impose an indefinite delay on tender offers. Nothing in the Act prohibits an offeror from consummating an offer on the 20th business day, the earliest day permitted under applicable federal regulations, see 17 CFR § 240.14e-1(a) (1986). Nor does the Act allow the state government to interpose its views of fairness between willing buyers and sellers of shares [84] of the target company. Rather, the Act allows shareholders to evaluate the fairness of the offer collectively.

D

The Court of Appeals based its finding of pre-emption on its view that the practical effect of the Indiana Act is to delay consummation of tender offers until 50 days after the commencement of the offer. 794 F. 2d, at 263. As did the Court of Appeals, Dynamics reasons that no rational offeror will purchase shares until it gains assurance that those shares will carry voting rights. Because it is possible that voting rights will not be conferred until a shareholder meeting 50 days after commencement of the offer, Dynamics concludes that the Act imposes a 50-day delay. This, it argues, conflicts with the shorter 20-business-day period established by the SEC as the minimum period for which a tender offer may be held open. 17 CFR § 240.14e-1 (1986). We find the alleged conflict illusory.

The Act does not impose an absolute 50-day delay on tender offers, nor does it preclude an offeror from purchasing shares as soon as federal law permits. If the offeror fears an adverse shareholder vote under the Act, it can make a conditional tender offer, offering to accept shares on the condition that the shares receive voting rights within a certain period of time. The Williams Act permits tender offers to be conditioned on the offeror's subsequently obtaining regulatory approval. E. g., Interpretive Release Relating to Tender Offer Rules, SEC Exchange Act Rel. No. 34-16623 (Mar. 5, 1980), 3 CCH Fed. Sec. L. Rep. ¶ 24,284I, p. 17,758, quoted in MacFadden Holdings, Inc. v. JB Acquisition Corp., 802 F. 2d 62, 70 (CA2 1986).^[8] There is no reason to doubt that [85] this type of conditional tender offer would be legitimate as well.^[9]

Even assuming that the Indiana Act imposes some additional delay, nothing in MITE suggested that any delay imposed by state regulation, however short, would create a conflict with the Williams Act. The plurality argued only that the offeror should "be free to go forward without unreasonable delay." 457 U. S., at 639 (emphasis added). In that case, the Court was confronted with the potential for indefinite delay and presented with no persuasive reason why some deadline could not be established. By contrast, the Indiana Act provides that full voting rights will be vested — if this eventually is to occur — within 50 days after commencement of the offer. This period is within the 60-day period Congress established for reinstitution of withdrawal rights in 15 U. S. C. § 78n(d)(5). We cannot say that a delay within that congressionally determined period is unreasonable.

Finally, we note that the Williams Act would pre-empt a variety of state corporate laws of hitherto unquestioned validity if it were construed to pre-empt any state statute that may limit or delay the free exercise of power after a successful tender offer. State corporate laws commonly permit corporations to stagger the terms of their directors. See Model Business Corp. Act § 37 (1969 draft) in 3 Model Business Corp. Act Ann. (2d ed. 1971) (hereinafter MBCA); American [86] Bar Foundation, Revised Model Business Corp. Act § 8.06 (1984 draft) (1985) (hereinafter RMBCA).^[10] By staggering the terms of directors, and thus having annual elections for only one class of directors each year, corporations may delay the time when a successful offeror gains control of the board of directors. Similarly, state corporation laws commonly provide for cumulative voting. See 1 MBCA § 33, ¶ 4; RMBCA § 7.28.^[11] By enabling minority shareholders to assure themselves of representation in each class of directors, cumulative voting provisions can delay further the ability of offerors to gain untrammeled authority over the affairs of the target corporation. See Hochman & Folger, Deflecting Takeovers: Charter and By-Law Techniques, 34 Bus. Law. 537, 538-539 (1979).

In our view, the possibility that the Indiana Act will delay some tender offers is insufficient to require a conclusion that the Williams Act pre-empts the Act. The longstanding prevalence of state regulation in this area suggests that, if Congress had intended to pre-empt all state laws that delay the acquisition of voting control following a tender offer, it would have said so explicitly. The regulatory conditions that the Act places on tender offers are consistent with the text and the purposes of the Williams Act. Accordingly, we [87] hold that the Williams Act does not pre-empt the Indiana Act.

III

As an alternative basis for its decision, the Court of Appeals held that the Act violates the Commerce Clause of the Federal Constitution. We now address this holding. On its face, the Commerce Clause is nothing more than a grant to Congress of the power "[t]o regulate Commerce . . . among the several States. . . ," Art. I, § 8, cl. 3. But it has been settled for more than a century that the Clause prohibits States from taking certain actions respecting interstate commerce even absent congressional action. See, e. g., Cooley v. Board of Wardens, 12 How. 299 (1852). The Court's interpretation of "these great silences of the Constitution," H. P. Hood & Sons, Inc. v. Du Mond, 336 U. S. 525, 535 (1949), has not always been easy to follow. Rather, as the volume and complexity of commerce and regulation have grown in this country, the Court has articulated a variety of tests in an attempt to describe the difference between those regulations that the Commerce Clause permits and those regulations that it prohibits. See, e. g., Raymond Motor Transportation, Inc. v. Rice, 434 U. S. 429, 441, n. 15 (1978).

A

The principal objects of dormant Commerce Clause scrutiny are statutes that discriminate against interstate commerce. See, e. g., Lewis v. BT Investment Managers, Inc., 447 U. S. 27, 36-37 (1980); Philadelphia v. New Jersey, 437 U. S. 617, 624 (1978). See generally Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause, 84 Mich. L. Rev. 1091 (1986). The Indiana Act is not such a statute. It has the same effects on tender offers whether or not the offeror is a domiciliary or resident of Indiana. Thus, it "visits its effects equally upon both interstate and local business," Lewis v. BT Investment Managers, Inc., supra, at 36.

[88] Dynamics nevertheless contends that the statute is discriminatory because it will apply most often to out-of-state entities. This argument rests on the contention that, as a practical matter, most hostile tender offers are launched by offerors outside Indiana. But this argument avails Dynamics little. "The fact that the burden of a state regulation falls on some interstate companies does not, by itself, establish a claim of discrimination against interstate commerce." Exxon Corp. v. Governor of Maryland, 437 U. S. 117, 126 (1978). See Minnesota v. Clover Leaf Creamery Co., 449 U. S. 456, 471-472 (1981) (rejecting a claim of discrimination because the challenged statute "regulate[d] evenhandedly . . . without regard to whether the [commerce came] from outside the State"); Commonwealth Edison Co. v. Montana, 453 U. S. 609, 619 (1981) (rejecting a claim of discrimination because the "tax burden [was] borne according to the amount . . . consumed and not according to any distinction between instate and out-of-state consumers"). Because nothing in the Indiana Act imposes a greater burden on out-of-state offerors than it does on similarly situated Indiana offerors, we reject the contention that the Act discriminates against interstate commerce.

B

This Court's recent Commerce Clause cases also have invalidated statutes that may adversely affect interstate commerce by subjecting activities to inconsistent regulations. E. g., Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U. S. 573, 583-584 (1986); Edgar v. MITE Corp., 457 U. S., at 642 (plurality opinion of WHITE, J.); Kassel v. Consolidated Freightways Corp., 450 U. S. 662, 671 (1981) (plurality opinion of POWELL, J.). See Southern Pacific Co. v. Arizona, 325 U. S. 761, 774 (1945) (noting the "confusion and difficulty" that would attend the "unsatisfied need for uniformity" in setting maximum limits on train lengths); Cooley v. Board of Wardens, supra, at 319 (stating that the Commerce Clause prohibits States from regulating [89] subjects that "are in their nature national, or admit only of one uniform system, or plan of regulation"). The Indiana Act poses no such problem. So long as each State regulates voting rights only in the corporations it has created, each corporation will be subject to the law of only one State. No principle of corporation law and practice is more firmly established than a State's authority to regulate domestic corporations, including the authority to define the voting rights of shareholders. See Restatement (Second) of Conflict of Laws § 304 (1971) (concluding that the law of the incorporating State generally should "determine the right of a shareholder to participate in the administration of the affairs of the corporation"). Accordingly, we conclude that the Indiana Act does not create an impermissible risk of inconsistent regulation by different States.

C

The Court of Appeals did not find the Act unconstitutional for either of these threshold reasons. Rather, its decision rested on its view of the Act's potential to hinder tender offers. We think the Court of Appeals failed to appreciate the significance for Commerce Clause analysis of the fact that state regulation of corporate governance is regulation of entities whose very existence and attributes are a product of state law. As Chief Justice Marshall explained:

"A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly, or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created." Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 636 (1819).

See First National Bank of Boston v. Bellotti, 435 U. S. 765, 822-824 (1978) (REHNQUIST, J., dissenting). Every State in this country has enacted laws regulating corporate governance. [90] By prohibiting certain transactions, and regulating others, such laws necessarily affect certain aspects of interstate commerce. This necessarily is true with respect to corporations with shareholders in States other than the State of incorporation. Large corporations that are listed on national exchanges, or even regional exchanges, will have shareholders in many States and shares that are traded frequently. The markets that facilitate this national and international participation in ownership of corporations are essential for providing capital not only for new enterprises but also for established companies that need to expand their businesses. This beneficial free market system depends at its core upon the fact that a corporation — except in the rarest situations — is organized under, and governed by, the law of a single jurisdiction, traditionally the corporate law of the State of its incorporation.

These regulatory laws may affect directly a variety of corporate transactions. Mergers are a typical example. In view of the substantial effect that a merger may have on the shareholders' interests in a corporation, many States require supermajority votes to approve mergers. See, e. g., 2 MBCA § 73 (requiring approval of a merger by a majority of all shares, rather than simply a majority of votes cast); RMBCA § 11.03 (same). By requiring a greater vote for mergers than is required for other transactions, these laws make it more difficult for corporations to merge. State laws also may provide for "dissenters' rights" under which minority shareholders who disagree with corporate decisions to take particular actions are entitled to sell their shares to the corporation at fair market value. See, e. g., 2 MBCA §§ 80, 81; RMBCA § 13.02. By requiring the corporation to purchase the shares of dissenting shareholders, these laws may inhibit a corporation from engaging in the specified transactions.^[12]

[91] It thus is an accepted part of the business landscape in this country for States to create corporations, to prescribe their powers, and to define the rights that are acquired by purchasing their shares. A State has an interest in promoting stable relationships among parties involved in the corporations it charters, as well as in ensuring that investors in such corporations have an effective voice in corporate affairs.

There can be no doubt that the Act reflects these concerns. The primary purpose of the Act is to protect the shareholders of Indiana corporations. It does this by affording shareholders, when a takeover offer is made, an opportunity to decide collectively whether the resulting change in voting control of the corporation, as they perceive it, would be desirable. A change of management may have important effects on the shareholders' interests; it is well within the State's role as overseer of corporate governance to offer this opportunity. The autonomy provided by allowing shareholders collectively to determine whether the takeover is advantageous to their [92] interests may be especially beneficial where a hostile tender offer may coerce shareholders into tendering their shares.

Appellee Dynamics responds to this concern by arguing that the prospect of coercive tender offers is illusory, and that tender offers generally should be favored because they reallocate corporate assets into the hands of management who can use them most effectively.^[13] See generally Easterbrook & Fischel, The Proper Role of a Target's Management in Responding to a Tender Offer, 94 Harv. L. Rev. 1161 (1981). As indicated supra, at 82-83, Indiana's concern with tender offers is not groundless. Indeed, the potentially coercive aspects of tender offers have been recognized by the SEC, see SEC Release No. 21079, p. 86,916, and by a number of scholarly commentators, see, e. g., Bradley & Rosenzweig, Defensive Stock Repurchases, 99 Harv. L. Rev. 1377, 1412-1413 (1986); Macey & McChesney, A Theoretical Analysis of Corporate Greenmail, 95 Yale L. J. 13, 20-22 (1985); Lowenstein, 83 Colum. L. Rev., at 307-309. The Constitution does not require the States to subscribe to any particular economic theory. We are not inclined "to secondguess the empirical judgments of lawmakers concerning the utility of legislation," Kassel v. Consolidated Freightways Corp., 450 U. S., at 679 (BRENNAN, J., concurring in judgment). In our view, the possibility of coercion in some takeover bids offers additional justification for Indiana's decision to promote the autonomy of independent shareholders.

[93] Dynamics argues in any event that the State has " `no legitimate interest in protecting the nonresident shareholders.' " Brief for Appellee 21 (quoting Edgar v. MITE Corp., 457 U. S., at 644). Dynamics relies heavily on the statement by the MITE Court that "[i]nsofar as the . . . law burdens out-of-state transactions, there is nothing to be weighed in the balance to sustain the law." 457 U. S., at 644. But that comment was made in reference to an Illinois law that applied as well to out-of-state corporations as to in-state corporations. We agree that Indiana has no interest in protecting nonresident shareholders of nonresident corporations. But this Act applies only to corporations incorporated in Indiana. We reject the contention that Indiana has no interest in providing for the shareholders of its corporations the voting autonomy granted by the Act. Indiana has a substantial interest in preventing the corporate form from becoming a shield for unfair business dealing. Moreover, unlike the Illinois statute invalidated in MITE, the Indiana Act applies only to corporations that have a substantial number of shareholders in Indiana. See Ind. Code § 23-1-42-4(a)(3) (Supp. 1986). Thus, every application of the Indiana Act will affect a substantial number of Indiana residents, whom Indiana indisputably has an interest in protecting.

D

Dynamics' argument that the Act is unconstitutional ultimately rests on its contention that the Act will limit the number of successful tender offers. There is little evidence that this will occur. But even if true, this result would not substantially affect our Commerce Clause analysis. We reiterate that this Act does not prohibit any entity — resident or nonresident — from offering to purchase, or from purchasing, shares in Indiana corporations, or from attempting thereby to gain control. It only provides regulatory procedures designed for the better protection of the corporations' shareholders. We have rejected the "notion that the Commerce [94] Clause protects the particular structure or methods of operation in a . . . market." Exxon Corp. v. Governor of Maryland, 437 U. S., at 127. The very commodity that is traded in the securities market is one whose characteristics are defined by state law. Similarly, the very commodity that is traded in the "market for corporate control" — the corporation — is one that owes its existence and attributes to state law. Indiana need not define these commodities as other States do; it need only provide that residents and nonresidents have equal access to them. This Indiana has done. Accordingly, even if the Act should decrease the number of successful tender offers for Indiana corporations, this would not offend the Commerce Clause.^[14]

IV

On its face, the Indiana Control Share Acquisitions Chapter evenhandedly determines the voting rights of shares of Indiana corporations. The Act does not conflict with the provisions or purposes of the Williams Act. To the limited extent that the Act affects interstate commerce, this is justified by the State's interests in defining the attributes of shares in its corporations and in protecting shareholders. Congress has never questioned the need for state regulation of these matters. Nor do we think such regulation offends the Constitution. Accordingly, we reverse the judgment of the Court of Appeals.

It is so ordered.

JUSTICE SCALIA, concurring in part and concurring in the judgment.

I join Parts I, III-A, and III-B of the Court's opinion. However, having found, as those Parts do, that the Indiana [95] Control Share Acquisitions Chapter neither "discriminates against interstate commerce," ante, at 88, nor "create[s] an impermissible risk of inconsistent regulation by different States," ante, at 89, I would conclude without further analysis that it is not invalid under the dormant Commerce Clause. While it has become standard practice at least since Pike v. Bruce Church, Inc., 397 U. S. 137 (1970), to consider, in addition to these factors, whether the burden on commerce imposed by a state statute "is clearly excessive in relation to the putative local benefits," id., at 142, such an inquiry is ill suited to the judicial function and should be undertaken rarely if at all. This case is a good illustration of the point. Whether the control shares statute "protects shareholders of Indiana corporations," Brief for Appellant in No. 86-97, p. 88, or protects incumbent management seems to me a highly debatable question, but it is extraordinary to think that the constitutionality of the Act should depend on the answer. Nothing in the Constitution says that the protection of entrenched management is any less important a "putative local benefit" than the protection of entrenched shareholders, and I do not know what qualifies us to make that judgment — or the related judgment as to how effective the present statute is in achieving one or the other objective — or the ultimate (and most ineffable) judgment as to whether, given importance-level x, and effectiveness-level y, the worth of the statute is "outweighed" by impact-on-commerce z.

One commentator has suggested that, at least much of the time, we do not in fact mean what we say when we declare that statutes which neither discriminate against commerce nor present a threat of multiple and inconsistent burdens might nonetheless be unconstitutional under a "balancing" test. See Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause, 84 Mich. L. Rev. 1091 (1986). If he is not correct, he ought to be. As long as a State's corporation law governs only its own corporations and does not discriminate against out-of-state interests, it should survive this Court's scrutiny under [96] the Commerce Clause, whether it promotes shareholder welfare or industrial stagnation. Beyond that, it is for Congress to prescribe its invalidity.

I also agree with the Court that the Indiana Control Share Acquisitions Chapter is not pre-empted by the Williams Act, but I reach that conclusion without entering into the debate over the purposes of the two statutes. The Williams Act is governed by the antipre-emption provision of the Securities Exchange Act of 1934, 15 U. S. C. § 78bb(a), which provides that nothing it contains "shall affect the jurisdiction of the securities commission (or any agency or officer performing like functions) of any State over any security or any person insofar as it does not conflict with the provisions of this chapter or the rules and regulations thereunder." Unless it serves no function, that language forecloses pre-emption on the basis of conflicting "purpose" as opposed to conflicting "provision." Even if it does not have literal application to the present case (because, perhaps, the Indiana agency responsible for securities matters has no enforcement responsibility with regard to this legislation), it nonetheless refutes the proposition that Congress meant the Williams Act to displace all state laws with conflicting purpose. And if any are to survive, surely the States' corporation codes are among them. It would be peculiar to hold that Indiana could have pursued the purpose at issue here through its blue-sky laws, but cannot pursue it through the State's even more sacrosanct authority over the structure of domestic corporations. Prescribing voting rights for the governance of state-chartered companies is a traditional state function with which the Federal Congress has never, to my knowledge, intentionally interfered. I would require far more evidence than is available here to find implicit pre-emption of that function by a federal statute whose provisions concededly do not conflict with the state law.

I do not share the Court's apparent high estimation of the beneficence of the state statute at issue here. But a law can [97] be both economic folly and constitutional. The Indiana Control Share Acquisitions Chapter is at least the latter. I therefore concur in the judgment of the Court.

JUSTICE WHITE, with whom JUSTICE BLACKMUN and JUSTICE STEVENS join as to Part II, dissenting.

The majority today upholds Indiana's Control Share Acquisitions Chapter, a statute which will predictably foreclose completely some tender offers for stock in Indiana corporations. I disagree with the conclusion that the Chapter is neither pre-empted by the Williams Act nor in conflict with the Commerce Clause. The Chapter undermines the policy of the Williams Act by effectively preventing minority shareholders, in some circumstances, from acting in their own best interests by selling their stock. In addition, the Chapter will substantially burden the interstate market in corporate ownership, particularly if other States follow Indiana's lead as many already have done. The Chapter, therefore, directly inhibits interstate commerce, the very economic consequences the Commerce Clause was intended to prevent. The opinion of the Court of Appeals is far more persuasive than that of the majority today, and the judgment of that court should be affirmed.

I

The Williams Act expressed Congress' concern that individual investors be given sufficient information so that they could make an informed choice on whether to tender their stock in response to a tender offer. The problem with the approach the majority adopts today is that it equates protection of individual investors, the focus of the Williams Act, with the protection of shareholders as a group. Indiana's Control Share Acquisitions Chapter undoubtedly helps protect the interests of a majority of the shareholders in any corporation subject to its terms, but in many instances, it will effectively prevent an individual investor from selling his stock at a premium. Indiana's statute, therefore, does not [98] "furthe[r] the federal policy of investor protection," ante, at 83 (emphasis added), as the majority claims.

In discussing the legislative history of the Williams Act, the Court, in Piper v. Chris-Craft Industries, Inc., 430 U. S. 1 (1977), looked to the legislative history of the Williams Act and concluded that the Act was designed to protect individual investors, not management and not tender offerors: "The sponsors of this legislation were plainly sensitive to the suggestion that the measure would favor one side or the other in control contests; however, they made it clear that the legislation was designed solely to get needed information to the investor, the constant focal point of the committee hearings." Id., at 30-31. The Court specifically noted that the Williams Act's legislative history shows that Congress recognized that some "takeover bids . . . often serve a useful function." Id., at 30. As quoted by the majority, ante, at 82, the basic purpose of the Williams Act is " `plac[ing] investors on an equal footing with the takeover bidder.' " Piper, supra, at 30 (emphasis added).

The Control Share Acquisitions Chapter, by design, will frustrate individual investment decisions. Concededly, the Control Share Acquisitions Chapter allows the majority of a corporation's shareholders to block a tender offer and thereby thwart the desires of an individual investor to sell his stock. In the context of discussing how the Chapter can be used to deal with the coercive aspects of some tender offers, the majority states: "In such a situation under the Indiana Act, the shareholders as a group, acting in the corporation's best interest, could reject the offer, although individual shareholders might be inclined to accept it." Ante, at 83. I do not dispute that the Chapter provides additional protection for Indiana corporations, particularly in helping those corporations maintain the status quo. But it is clear to me that Indiana's scheme conflicts with the Williams Act's careful balance, which was intended to protect individual investors and permit them to decide whether it is in their best interests [99] to tender their stock. As noted by the plurality in MITE, "Congress . . . did not want to deny shareholders `the opportunities which result from the competitive bidding for a block of stock of a given company,' namely, the opportunity to sell shares for a premium over their market price. 113 Cong. Rec. 24666 (1967) (remarks of Sen. Javits)." Edgar v. MITE Corp., 457 U. S. 624, 633, n. 9 (1982).

The majority claims that if the Williams Act pre-empts Indiana's Control Share Acquisitions Chapter, it also pre-empts a number of other corporate-control provisions such as cumulative voting or staggering the terms of directors. But this view ignores the fundamental distinction between these other corporate-control provisions and the Chapter: unlike those other provisions, the Chapter is designed to prevent certain tender offers from ever taking place. It is transactional in nature, although it is characterized by the State as involving only the voting rights of certain shares. "[T]his Court is not bound by `[t]he name, description or characterization given [a challenged statute] by the legislature or the courts of the State,' but will determine for itself the practical impact of the law." Hughes v. Oklahoma, 441 U. S. 322, 336 (1979) (quoting Lacoste v. Louisiana Dept. of Conservation, 263 U. S. 545, 550 (1924)). The Control Share Acquisitions Chapter will effectively prevent minority shareholders in some circumstances from selling their stock to a willing tender offeror. It is the practical impact of the Chapter that leads to the conclusion that it is pre-empted by the Williams Act.

II

Given the impact of the Control Share Acquisitions Chapter, it is clear that Indiana is directly regulating the purchase and sale of shares of stock in interstate commerce. Appellant CTS' stock is traded on the New York Stock Exchange, and people from all over the country buy and sell CTS' shares daily. Yet, under Indiana's scheme, any prospective purchaser will be effectively precluded from purchasing CTS' [100] shares if the purchaser crosses one of the Chapter's threshold ownership levels and a majority of CTS' shareholders refuse to give the purchaser voting rights. This Court should not countenance such a restraint on interstate trade.

The United States, as amicus curiae, argues that Indiana's Control Share Acquisitions Chapter "is written as a restraint on the transferability of voting rights in specified transactions, and it could not be written in any other way without changing its meaning. Since the restraint on the transfer of voting rights is a restraint on the transfer of shares, the Indiana Chapter, like the Illinois Act [in MITE], restrains `transfers of stock by stockholders to a third party.' " Brief for Securities and Exchange Commission and United States as Amici Curiae 26. I agree. The majority ignores the practical impact of the Chapter in concluding that the Chapter does not violate the Commerce Clause. The Chapter is characterized as merely defining "the attributes of shares in its corporations," ante, at 94. The majority sees the trees but not the forest.

The Commerce Clause was included in our Constitution by the Framers to prevent the very type of economic protectionism Indiana's Control Share Acquisitions Chapter represents:

"The few simple words of the Commerce Clause — `The Congress shall have Power . . . To regulate Commerce. . . among the several States . . .' — reflected a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation." Hughes, supra, at 325-326.

The State of Indiana, in its brief, admits that at least one of the Chapter's goals is to protect Indiana corporations. The State notes that the Chapter permits shareholders "to determine [101] . . . whether [a tender offeror] will liquidate the company or remove it from the State." Brief for Appellant in No. 86-97, p. 19. The State repeats this point later in its brief: "The Statute permits shareholders (who may also be community residents or employees or suppliers of the corporation) to determine the intentions of any offeror concerning the liquidation of the company or its possible removal from the State." Id., at 90. A state law which permits a majority of an Indiana corporation's stockholders to prevent individual investors, including out-of-state stockholders, from selling their stock to an out-of-state tender offeror and thereby frustrate any transfer of corporate control, is the archetype of the kind of state law that the Commerce Clause forbids.

Unlike state blue sky laws, Indiana's Control Share Acquisitions Chapter regulates the purchase and sale of stock of Indiana corporations in interstate commerce. Indeed, as noted above, the Chapter will inevitably be used to block interstate transactions in such stock. Because the Commerce Clause protects the "interstate market" in such securities, Exxon Corp. v. Governor of Maryland, 437 U. S. 117, 127 (1978), and because the Control Share Acquisitions Chapter substantially interferes with this interstate market, the Chapter clearly conflicts with the Commerce Clause.

With all due respect, I dissent.

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[*] Together with No. 86-97, Indiana v. Dynamics Corporation of America, also on appeal from the same court.

[†] Briefs of amici curiae urging reversal were filed for the State of New York by Robert Abrams, Attorney General, O. Peter Sherwood, Solicitor General, Mary Ellen Burns, Deputy Chief Assistant Attorney General, and Colvin W. Grannum, Assistant Attorney General; for the State of Minnesota by Hubert H. Humphrey III, Attorney General, and Alan I. Gilbert and Barry R. Greller, Special Assistant Attorneys General; and for the Indiana Chamber of Commerce et al. by Donald F. Elliott, Jr., and Barton R. Peterson.

Briefs of amici curiae urging affirmance were filed for the Securities and Exchange Commission et al. by Solicitor General Fried, Deputy Solicitor General Cohen, Roy T. Englert, Jr., Daniel L. Goelzer, and Paul Gonson; for the Securities Industry Association, Inc., by Marc P. Cherno, Irwin Blum, and William J. Fitzpatrick; and for the United Shareholders Association by James Edward Maloney and David E. Warden.

[1] These thresholds are much higher than the 5% threshold acquisition requirement that brings a tender offer under the coverage of the Williams Act. See 15 U. S. C. § 78n(d)(1).

[2] "Interested shares" are shares with respect to which the acquiror, an officer, or an inside director of the corporation "may exercise or direct the exercise of the voting power of the corporation in the election of directors." § 23-1-42-3. If the record date passes before the acquiror purchases shares pursuant to the tender offer, the purchased shares will not be "interested shares" within the meaning of the Act; although the acquiror may own the shares on the date of the meeting, it will not "exercise . . . the voting power" of the shares.

As a practical matter, the record date usually will pass before shares change hands. Under Securities and Exchange Commission (SEC) regulations, the shares cannot be purchased until 20 business days after the offer commences. 17 CFR § 240.14e-1(a) (1986). If the acquiror seeks an early resolution of the issue — as most acquirors will — the meeting required by the Act must be held no more than 50 calendar days after the offer commences, about three weeks after the earliest date on which the shares could be purchased. See § 23-1-42-7. The Act requires management to give notice of the meeting "as promptly as reasonably practicable . . . to all shareholders of record as of the record date set for the meeting." § 23-1-42-8(a). It seems likely that management of the target corporation would violate this obligation if it delayed setting the record date and sending notice until after 20 business days had passed. Thus, we assume that the record date usually will be set before the date on which federal law first permits purchase of the shares.

[3] The United States and appellee Dynamics Corporation suggest that § 23-1-42-9(b)(1) requires a second vote by all shareholders of record. Brief for SEC and United States as Amici Curiae 5, and n. 6; Brief for Appellee 2-3, and n. 5. Indiana disputes this interpretation of its Act. Brief for Appellant in No. 86-87, p. 29, n. Section 23-1-42-9(b)(1) provides:

"[T]he resolution must be approved by:

"(1) each voting group entitled to vote separately on the proposal by a majority of all the votes entitled to be cast by that voting group, with the holders of the outstanding shares of a class being entitled to vote as a separate voting group if the proposed control share acquisition would, if fully carried out, result in any of the changes described in [Indiana Code § 23-1-38-4(a) (describing fundamental changes in corporate organization)]."

The United States contends that this section always requires a separate vote by all shareholders and that the last clause merely specifies that the vote shall be taken by separate groups if the acquisition would result in one of the listed transactions. Indiana argues that this section requires a separate vote only if the acquisition would result in one of the listed transactions. Because it is unnecessary to our decision, we express no opinion as to the appropriate interpretation of this section.

[4] An "acquiring person statement" is an information statement describing, inter alia, the identity of the acquiring person and the terms and extent of the proposed acquisition. See § 23-1-42-6.

[5] CTS and Dynamics have settled several of the disputes associated with Dynamics' tender offer for shares of CTS. The case is not moot, however, because the judgment of this Court still affects voting rights in the shares Dynamics purchased pursuant to the offer. If we were to affirm, Dynamics would continue to exercise the voting rights it had under the judgment of the Court of Appeals that the Act was pre-empted and unconstitutional. Because we decide today to reverse the judgment of the Court of Appeals, Dynamics will have no voting rights in its shares unless shareholders of CTS grant those rights in a meeting held pursuant to the Act. See Settlement Agreement, p. 7, par. 12, reprinted in letter from James A. Strain, Counsel for CTS, to Joseph F. Spaniol, Jr., Clerk of the United States Supreme Court (Mar. 13, 1987).

[6] JUSTICE WHITE's opinion on the pre-emption issue, 457 U. S., at 630-640, was joined only by Chief Justice Burger and by JUSTICE BLACKMUN. Two Justice disagreed with JUSTICE WHITE's conclusion. See id., at 646-647 (POWELL, J., concurring in part); id., at 655 (STEVENS, J., concurring in part and concurring in judgment). Four Justices did not address the question. See id., at 655 (O'CONNOR, J., concurring in part); id., at 664 (MARSHALL, J., with whom BRENNAN, J., joined, dissenting); id., at 667 (REHNQUIST, J., dissenting).

[7] Dynamics finds evidence of an intent to favor management in several features of the Act. It argues that the provision of the Act allowing management to opt into the Act, see § 23-1-17-3(b), grants management a strategic advantage because tender offerors will be reluctant to take the expensive preliminary steps of a tender offer if they do not know whether their efforts will be subjected to the Act's requirements. But this provision is only a temporary option available for the first 17 months after enactment of the Act. The Indiana Legislature reasonably could have concluded that corporations should be allowed an interim period during which the Act would not apply automatically. Because of its short duration, the potential strategic advantage offered by the opportunity to opt into the Act during this transition period is of little significance.

The Act also imposes some added expenses on the offeror, requiring it, inter alia, to pay the costs of special shareholder meetings to vote on the transfer of voting rights, see § 23-1-42-7(a). In our view, the expenses of such a meeting fairly are charged to the offeror. A corporation pays the costs of annual meetings that it holds to discuss its affairs. If an offeror — who has no official position with the corporation — desires a special meeting solely to discuss the voting rights of the offeror, it is not unreasonable to have the offeror pay for the meeting.

Of course, by regulating tender offers, the Act makes them more expensive and thus deters them somewhat, but this type of reasonable regulation does not alter the balance between management and offeror in any significant way. The principal result of the Act is to grant shareholders the power to deliberate collectively about the merits of tender offers. This result is fully in accord with the purposes of the Williams Act.

[8] Although the SEC does not appear to have spoken authoritatively on this point, similar transactions are not uncommon. For example, Hanson Trust recently conditioned consummation of a tender offer for shares in SCM Corporation on the removal of a "lockup option" that would have seriously diminished the value of acquiring the shares of SCM Corporation. See Hanson Trust PLC, HSCM v. ML SCM Acquisition Inc., ML L.B.O., 781 F. 2d 264, 272, and n. 7 (CA2 1986).

[9] Dynamics argues that conditional tender offers are not an adequate alternative because they leave management in place for three extra weeks, with "free rein to take other defensive steps that will diminish the value of tendered shares." Brief for Appellee 37. We reject this contention. In the unlikely event that management were to take actions designed to diminish the value of the corporation's shares, it may incur liability under state law. But this problem does not control our pre-emption analysis. Neither the Act nor any other federal statute can assure that shareholders do not suffer from the mismanagement of corporate officers and directors. Cf. Cort v. Ash, 422 U. S. 66, 84 (1975).

[10] Every State except Arkansas and California allows classification of directors to stagger their terms of office. See 2 Model Business Corp. Act Ann. § 8.06, p. 830 (3d ed., Supp. 1986).

[11] "Cumulative voting is a means devised to protect minorities by providing a method of voting which assures to a minority, if it is sufficiently purposeful poseful and cohesive, representation on the board of directors to an extent roughly proportionate to the minority's size. This is achieved by permitting each shareholder . . . to cast the total number of his votes for a single candidate for election to the board, or to distribute such total among any number of such candidates (the total number of his votes being equal to the number of shares he is voting multiplied by the number of directors to be elected)." 1 MBCA § 33, ¶ 4 comment. Every State permits cumulative voting. See 2 Model Business Corp. Act Ann. § 7.28, pp. 675-677 (3d ed., Supp. 1986).

[12] Numerous other common regulations may affect both nonresident and resident shareholders of a corporation. Specified votes may be required for the sale of all of the corporation's assets. See 2 MBCA § 79; RMBCA § 12.02. The election of directors may be staggered over a period of years to prevent abrupt changes in management. See 1 MBCA § 37; RMBCA § 8.06. Various classes of stock may be created with differences in voting rights as to dividends and on liquidation. See 1 MBCA § 15; RMBCA § 6.01(c). Provisions may be made for cumulative voting. See 1 MBCA § 33, ¶ 4; RMBCA § 7.28; n. 9, supra. Corporations may adopt restrictions on payment of dividends to ensure that specified ratios of assets to liabilities are maintained for the benefit of the holders of corporate bonds or notes. See 1 MBCA § 45 (noting that a corporation's articles of incorporation can restrict payment of dividends); RMBCA § 6.40 (same). Where the shares of a corporation are held in States other than that of incorporation, actions taken pursuant to these and similar provisions of state law will affect all shareholders alike wherever they reside or are domiciled.

Nor is it unusual for partnership law to restrict certain transactions. For example, a purchaser of a partnership interest generally can gain a right to control the business only with the consent of other owners. See Uniform Partnership Act § 27, 6 U. L. A. 353 (1969); Uniform Limited Partnership Act § 19 (1916 draft), 6 U. L. A. 603 (1969); Revised Uniform Limited Partnership Act §§ 702, 704 (1976 draft), 6 U. L. A. 259, 261 (Supp. 1986). These provisions — in force in the great majority of the States — bear a striking resemblance to the Act at issue in this case.

[13] It is appropriate to note when discussing the merits and demerits of tender offers that generalizations usually require qualification. No one doubts that some successful tender offers will provide more effective management or other benefits such as needed diversification. But there is no reason to assume that the type of conglomerate corporation that may result from repetitive takeovers necessarily will result in more effective management or otherwise be beneficial to shareholders. The divergent views in the literature — and even now being debated in the Congress — reflect the reality that the type and utility of tender offers vary widely. Of course, in many situations the offer to shareholders is simply a cash price substantially higher than the market price prior to the offer.

[14] CTS also contends that the Act does not violate the Commerce Clause — regardless of any burdens it may impose on interstate commerce — because a corporation's decision to be covered by the Act is purely "private" activity beyond the reach of the Commerce Clause. Because we reverse the judgment of the Court of Appeals on other grounds, we have no occasion to consider this argument.

J. Travis Laster, Brock E. Czeschin, Philippe Y. Blanchard, Richards, Layton & Finger, Wilmington, DE, for appellant.

Martin P. Tully, David J. Teklits, and Thomas W. Briggs, Jr., Morris, Nichols, Arsht & Tunnell, Wilmington, DE, for appellee.

Before STEELE, Chief Justice, HOLLAND and JACOBS, Justices.

[1109] HOLLAND, Justice:

This is an expedited appeal from the Court of Chancery following the entry of a final judgment on the pleadings. We have concluded that the judgment must be affirmed.

Delaware Action

On March 3, 2005, the plaintiff-appellee, Examen, Inc. ("Examen"), filed a Complaint in the Court of Chancery against VantagePoint Venture Partners, Inc. ("VantagePoint"), a Delaware Limited Partnership and an Examen Series A Preferred shareholder, seeking a judicial declaration that pursuant to the controlling Delaware law and under the Company's Certificate of Designations of Series A Preferred Stock ("Certificate of Designations"), VantagePoint was not entitled to a class vote of the Series A Preferred Stock on the proposed merger between Examen and a Delaware subsidiary of Reed Elsevier Inc.

California Action

On March 8, 2005, VantagePoint filed an action in the California Superior Court seeking: (1) a declaration that Examen was required to identify whether it was a "quasi-California corporation" under section 2115 of the California Corporations Code^[1]; (2) a declaration that Examen was [1110] a quasi-California corporation pursuant to California Corporations Code section 2115 and therefore subject to California Corporations Code section 1201(a), and that, as a Series A Preferred shareholder, VantagePoint was entitled to vote its shares as a separate class in connection with the proposed merger; (3) injunctive relief; and (4) damages incurred as the result of alleged violations of California Corporations Code sections 2111(F) and 1201.

Delaware Action Decided

On March 10, 2005, the Court of Chancery granted Examen's request for an expedited hearing on its motion for judgment on the pleadings. On March 21, 2005, the California Superior Court stayed its action pending the ruling of the Court of Chancery. On March 29, 2005, the Court of Chancery ruled that the case was governed by the internal affairs doctrine as explicated by this Court in McDermott v. Lewis.^[2] In applying that doctrine, the Court of Chancery held that Delaware law governed the vote that was required to approve a merger between two Delaware corporate entities.

On April 1, 2005, VantagePoint filed a notice of appeal with this Court. On April 4, 2005, VantagePoint sought to enjoin the merger from closing pending its appeal. On April 5, 2005, this Court denied VantagePoint's request to enjoin the merger from closing, but granted its request for an expedited appeal.

Merger Without Mootness

Following this Court's ruling on April 5, 2005, Examen and the Delaware subsidiary of Reed Elsevier consummated the merger that same day. This Court directed the parties to address the issue of mootness, simultaneously with the expedited briefing that was completed on April 13, 2005. VantagePoint argues that if we agree with its position "that a class vote was required, then VantagePoint could pursue remedies for loss of this right, including rescission of the Merger, rescissory damages or monetary damages." Examen submits that "the need for final resolution of the validity of the merger vote remains important to the parties and to the public interest" because a decision from this Court will conclusively determine the parties' rights with regard to the law that applies to the merger vote. We have concluded that this appeal is not moot.

Facts

Examen was a Delaware corporation engaged in the business of providing web-based [1111] based legal expense management solutions to a growing list of Fortune 1000 customers throughout the United States. Following consummation of the merger on April 5, 2005, LexisNexis Examen, also a Delaware corporation, became the surviving entity. VantagePoint is a Delaware Limited Partnership organized and existing under the laws of Delaware. VantagePoint, a major venture capital firm that purchased Examen Series A Preferred Stock in a negotiated transaction, owned eighty-three percent of Examen's outstanding Series A Preferred Stock (909,091 shares) and no shares of Common Stock.

On February 17, 2005, Examen and Reed Elsevier executed the Merger Agreement, which was set to expire on April 15, 2005, if the merger had not closed by that date. Under the Delaware General Corporation Law and Examen's Certificate of Incorporation, including the Certificate of Designations for the Series A Preferred Stock, adoption of the Merger Agreement required the affirmative vote of the holders of a majority of the issued and outstanding shares of the Common Stock and Series A Preferred Stock, voting together as a single class. Holders of Series A Preferred Stock had the number of votes equal to the number of shares of Common Stock they would have held if their Preferred Stock was converted. Thus, VantagePoint, which owned 909,091 shares of Series A Preferred Stock and no shares of Common Stock, was entitled to vote based on a converted number of 1,392,727 shares of stock.

There were 9,717,415 total outstanding shares of the Company's capital stock (8,626,826 shares of Common Stock and 1,090,589 shares of Series A Preferred Stock), representing 10,297,608 votes on an as-converted basis. An affirmative vote of at least 5,148,805 shares, constituting a majority of the outstanding voting power on an as-converted basis, was required to approve the merger. If the stockholders were to vote by class, VantagePoint would have controlled 83.4 percent of the Series A Preferred Stock, which would have permitted VantagePoint to block the merger. VantagePoint acknowledges that, if Delaware law applied, it would not have a class vote.

Chancery Court Decision

The Court of Chancery determined that the question of whether VantagePoint, as a holder of Examen's Series A Preferred Stock, was entitled to a separate class vote on the merger with a Delaware subsidiary of Reed Elsevier, was governed by the internal affairs doctrine because the issue implicated "the relationship between a corporation and its stockholders." The Court of Chancery rejected VantagePoint's argument that section 2115 of the California Corporation Code did not conflict with Delaware law and operated only in addition to rights granted under Delaware corporate law. In doing so, the Court of Chancery noted that section 2115 "expressly states that it operates `to the exclusion of the law of the jurisdiction in which [the company] is incorporated.'"

Specifically, the Court of Chancery determined that section 2115's requirement that stockholders vote as a separate class conflicts with Delaware law, which, together with Examen's Certificate of Incorporation, mandates that the merger be authorized by a majority of all Examen stockholders voting together as a single class. The Court of Chancery concluded that it could not enforce both Delaware and California law. Consequently, the Court of Chancery decided that the issue presented was solely one of choice-of-law, and that it need not determine the constitutionality of section 2115.

[1112] VantagePoint's Argument

According to VantagePoint, "the issue presented by this case is not a choice of law question, but rather the constitutional issue of whether California may promulgate a narrowly-tailored exception to the internal affairs doctrine that is designed to protect important state interests." VantagePoint submits that "Section 2115 was designed to provide an additional layer of investor protection by mandating that California's heightened voting requirements apply to those few foreign corporations that have chosen to conduct a majority of their business in California and meet the other factual prerequisite of Section 2115." Therefore, VantagePoint argues that "Delaware either must apply the statute if California can validly enact it, or hold the statute unconstitutional if California cannot." We note, however, that when an issue or claim is properly before a tribunal, "the court is not limited to the particular legal theories advanced by the parties, but rather retains the independent power to identify and apply the proper construction of governing law."^[3]

Standard of Review

In granting Examen's Motion for Judgment on the Pleadings, the Court of Chancery held that, as a matter of law, the rights of stockholders to vote on the proposed merger were governed by the law of Delaware — Examen's state of incorporation — and that an application of Delaware law resulted in the Class A Preferred shareholders having no right to a separate class vote. The issue of whether VantagePoint was entitled to a separate class vote of the Series A Preferred Stock on the merger is a question of law^[4] that this Court reviews de novo.^[5]

Internal Affairs Doctrine

In CTS Corp. v. Dynamics Corp. of Am., the United States Supreme Court stated that it is "an accepted part of the business landscape in this country for States to create corporations, to prescribe their powers, and to define the rights that are acquired by purchasing their shares."^[6] In CTS, it was also recognized that "[a] State has an interest in promoting stable relationships among parties involved in the corporations it charters, as well as in ensuring that investors in such corporations have an effective voice in corporate affairs."^[7] The internal affairs doctrine is a long-standing choice of law principle which recognizes that only one state should have the authority to regulate a corporation's internal affairs — the state of incorporation.^[8]

The internal affairs doctrine developed on the premise that, in order to prevent corporations from being subjected to inconsistent legal standards, the authority to regulate a corporation's internal affairs should not rest with multiple jurisdictions.^[9] [1113] It is now well established that only the law of the state of incorporation governs and determines issues relating to a corporation's internal affairs.^[10] By providing certainty and predictability, the internal affairs doctrine protects the justified expectations of the parties with interests in the corporation.^[11]

The internal affairs doctrine applies to those matters that pertain to the relationships among or between the corporation and its officers, directors, and shareholders.^[12] The Restatement (Second) of Conflict of Laws § 301 provides: "application of the local law of the state of incorporation will usually be supported by those choice-of-law factors favoring the need of the interstate and international systems, certainty, predictability and uniformity of result, protection of the justified expectations of the parties and ease in the application of the law to be applied."^[13] Accordingly, the conflicts practice of both state and federal courts has consistently been to apply the law of the state of incorporation to "the entire gamut of internal corporate affairs."^[14]

The internal affairs doctrine is not, however, only a conflicts of law principle. Pursuant to the Fourteenth Amendment Due Process Clause, directors and officers of corporations "have a significant right ... to know what law will be applied to their actions"^[15] and "[s]tockholders ... have a right to know by what standards of accountability they may hold those managing the corporation's business and affairs."^[16] Under the Commerce Clause, a state "has no interest in regulating the internal affairs of foreign corporations."^[17] Therefore, this Court has held that an "application of the internal affairs doctrine is mandated by constitutional principles, except in the `rarest situations,'"^[18]e.g., when "the law of the state of incorporation is inconsistent with a national policy on foreign or interstate commerce."^[19]

California Section 2115

VantagePoint contends that section 2115 of the California Corporations Code is a limited exception to the internal affairs doctrine. Section 2115 is characterized as an outreach statute because it requires certain foreign corporations to conform to a broad range of internal affairs provisions. Section 2115 defines the foreign corporations for which the California statute has an outreach effect as those foreign [1114] corporations, half of whose voting securities are held of record by persons with California addresses, that also conduct half of their business in California as measured by a formula weighing assets, sales and payroll factors.^[20]

VantagePoint argues that section 2115 "mandates application of certain enumerated provisions of California's corporation law to the internal affairs of `foreign' corporations if certain narrow factual prerequisites [set forth in section 2115] are met." Under the California statute, if more than one half of a foreign corporation's outstanding voting securities are held of record by persons having addresses in California (as disclosed on the books of the corporation) on the record date, and the property, payroll and sales factor tests are satisfied, then on the first day of the income year, one hundred and thirty five days after the above tests are satisfied, the foreign corporation's articles of incorporation are deemed amended to the exclusion of the law of the state of incorporation.^[21] If the factual conditions precedent for triggering section 2115 are established, many aspects of a corporation's internal affairs are purportedly governed by California corporate law to the exclusion of the law of the state of incorporation.^[22]

In her comprehensive analysis of the internal affairs doctrine, Professor Deborah A. DeMott examined section 2115. As she astutely points out:

In contrast to the certainty with which the state of incorporation may be determined, the criteria upon which the applicability of section 2115 hinges are not constants. For example, whether half of a corporation's business is derived from California and whether half of its voting securities have record holders with California addresses may well vary from year to year (and indeed throughout any given year). Thus, a corporation might be subject to section 2115 one year but not the next, depending on its situation at the time of filing the annual statement required by section 2108.^[23]

Internal Affairs Require Uniformity

In McDermott, this Court noted that application of local internal affairs law (here California's section 2115) to a foreign corporation (here Delaware) is "apt to produce inequalities, intolerable confusion, and uncertainty, and intrude into the domain of other states that have a superior claim to regulate the same subject matter [1115] ...."^[24] Professor DeMott's review of the differences and conflicts between the Delaware and California corporate statutes with regard to internal affairs, illustrates why it is imperative that only the law of the state of incorporation regulate the relationships among a corporation and its officers, directors, and shareholders.^[25] To require a factual determination to decide which of two conflicting state laws governs the internal affairs of a corporation at any point in time, completely contravenes the importance of stability within inter-corporate relationships that the United States Supreme Court recognized in CTS.^[26]

In Kamen v. Kemper Fin. Serv., the United States Supreme Court reaffirmed its commitment to the need for stability that is afforded by the internal affairs doctrine.^[27] In Kamen, the issue was whether the federal courts could superimpose a universal-demand rule upon the corporate doctrine of all states.^[28] The United States Supreme Court held that a federal court universal-demand rule would cause disruption to the internal affairs of corporations and that its holding in Burks^[29] had counseled "against establishing competing federal — and state — law principles on the allocation of managerial prerogatives within [a] corporation."^[30] In Kamen v. Kemper, the Restatement (Second) of Conflict of Laws was cited for the proposition that "[u]niform treatment of directors, officers and shareholders is an important objective which can only be attained by having the rights and liabilities of those persons with respect to the corporation governed by a single law."^[31] If a universal-demand rule in federal courts would be disruptive because the demand rule in a state court would be different, a fortiori, it would be disruptive for section 2115's panoply of different internal affairs rules to operate intermittently within corporate relationships under either the law of California or the law of the state of incorporation — dependent upon the vissitudes of the ever-changing facts.

State Law of Incorporation Governs Internal Affairs

In McDermott, this Court held that the "internal affairs doctrine is a major tenet of Delaware corporation law having important federal constitutional underpinnings."^[32] Applying Delaware's well-established choice-of-law rule — the internal affairs doctrine — the Court of Chancery recognized that Delaware courts must apply the law of the state of incorporation to issues involving corporate internal affairs, and that disputes concerning a shareholder's right to vote fall squarely within the purview of the internal affairs doctrine.^[33]

Examen is a Delaware corporation. The legal issue in this case — whether a [1116] preferred shareholder of a Delaware corporation had the right, under the corporation's Certificate of Designations, to a Series A Preferred Stock class vote on a merger — clearly involves the relationship among a corporation and its shareholders. As the United States Supreme Court held in CTS, "[n]o principle of corporation law and practice is more firmly established than a State's authority to regulate domestic corporations, including the authority to define the voting rights of shareholders."^[34]

In CTS, the Supreme Court held that the Commerce Clause "prohibits States from regulating subjects that `are in their nature national, or admit only of one uniform system, or plan of regulation,'"^[35] and acknowledged that the internal affairs of a corporation are subjects that require one uniform system of regulation.^[36] In CTS, the Supreme Court concluded that "[s]o long as each State regulates voting rights only in the corporations it has created, each corporation will be subject to the law of only one State."^[37] Accordingly, we hold Delaware's well-established choice of law rules^[38] and the federal constitution^[39] mandated that Examen's internal affairs, and in particular, VantagePoint's voting rights, be adjudicated exclusively in accordance with the law of its state of incorporation, in this case, the law of Delaware.

Any Forum — Internal Affairs — Same Law

VantagePoint acknowledges that the courts of Delaware, as the forum state, may apply Delaware's own substantive choice of law rules.^[40] VantagePoint argues, however, that Delaware's "choice" to apply the law of the state of incorporation to internal affairs issues — notwithstanding California's enactment of section 2115 — will result in future forum shopping races to the courthouse. VantagePoint submits that, if the California action in these proceedings had been decided first, the California Superior Court would have enjoined the merger until it was factually determined whether section 2115 is applicable. If the statutory prerequisites were found to be factually satisfied, VantagePoint submits that the California Superior Court would have applied the internal affairs law reflected in section 2115, "to the exclusion" of the law of Delaware — the state where Examen is incorporated.

In support of those assertions, VantagePoint relies primarily upon a 1982 decision by the California Court of Appeals in Wilson v. Louisiana-Pacific Resources, Inc.^[41] In Wilson v. Louisiana-Pacific Resources, Inc., a panel of the California Court of Appeals held that section 2115 did not violate the federal constitution by applying the California Code's mandatory cumulative [1117] voting provision to a Utah corporation that had not provided for cumulative voting but instead had elected the straight voting structure set forth in the Utah corporation statute.^[42] The court in Wilson did not address the implications of the differences between the Utah and California corporate statutes upon the expectations of parties who chose to incorporate in Utah rather than California.^[43] As Professor DeMott points out, "[a]lthough it is possible under the Utah statute for the corporation's charter to be amended by the shareholders and the directors, that mechanical fact does not establish California's right to coerce such an amendment" whenever the factual prerequisites of section 2115 exist.^[44]

Wilson was decided before the United States Supreme Court's decision in CTS and before this Court's decision in McDermott. Ten years after Wilson, the California Supreme Court cited with approval this Court's analysis of the internal affairs doctrine in McDermott, in particular, our holding that corporate voting rights disputes are governed by the law of the state of incorporation.^[45] Two years ago, in State Farm v. Superior Court, a different panel of the California Court of Appeals questioned the validity of the holding in Wilson following the broad acceptance of the internal affairs doctrine over the two decades after Wilson was decided.^[46] In State Farm, the court cited with approval the United States Supreme Court decision in CTS Corp. v. Dynamics^[47] and our decision in McDermott.^[48] In State Farm, the court also quoted at length that portion of our decision in McDermott relating to the constitutional imperatives of the internal affairs doctrine.^[49]

Since Wilson was decided, the United States Supreme Court has recognized the constitutional imperatives of the internal affairs doctrine.^[50] In Draper v. Gardner, this Court acknowledged the Wilson opinion in a footnote^[51] and nevertheless permitted the dismissal of a Delaware action in favor of a California action in which a California court would be called upon to decide the internal affairs "demand" issue involving a Delaware corporation. As stated in Draper, we had no doubt that after the Kamen and CTS holdings by the United States Supreme Court, the California courts would "apply Delaware [demand] law [to the internal affairs of a Delaware corporation], given the vitality and constitutional underpinnings of the internal affairs [1118] doctrine."^[52] We adhere to that view in this case.

Conclusion

The judgment of the Court of Chancery is affirmed. The Clerk of this Court is directed to issue the mandate immediately.^[53]

[1] Section 2115 of the California Corporations Code purportedly applies to corporations that have contacts with the State of California, but are incorporated in other states. See Cal. Corp.Code §§ 171 (defining "foreign corporation"); and Cal. Corp.Code §§ 2115(a), (b). Section 2115 of the California Corporations Code provides that, irrespective of the state of incorporation, foreign corporations' articles of incorporation are deemed amended to comply with California law and are subject to the laws of California if certain criteria are met. See Cal. Corp.Code § 2115 (emphasis added). To qualify under the statute: (1) the average of the property factor, the payroll factor and the sales factor as defined in the California Revenue and Taxation Code must be more than 50 percent during its last full income year; and (2) more than one-half of its outstanding voting securities must be held by persons having addresses in California. Id. If a corporation qualifies under this provision, California corporate laws apply "to the exclusion of the law of the jurisdiction where [the company] is incorporated." Id. Included among the California corporate law provisions that would govern is California Corporations Code section 1201, which states that the principal terms of a reorganization shall be approved by the outstanding shares of each class of each corporation the approval of whose board is required. See Cal. Corp.Code §§ 2115, 1201.

[2] McDermott Inc. v. Lewis, 531 A.2d 206 (Del.1987).

[3] Kamen v. Kemper Fin. Serv., 500 U.S. 90, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991).

[4] See, e.g., Warner Communications, Inc. v. Chris-Craft Indus., Inc., 583 A.2d 962 (Del.Ch.1989), aff'd, 567 A.2d 419 (Del.1989).

[5] See Kaiser Aluminum Corp. v. Matheson, 681 A.2d 392, 394 (Del.1996).

[6] CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 91, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987).

[7] Id.

[8] McDermott Inc. v. Lewis, 531 A.2d 206 (Del.1987). Accord State Farm Mut. Auto. Ins. Co. v. Superior Court, 114 Cal.App.4th 434, 442, 8 Cal.Rptr.3d 56 (2d Dist.2003), citing Edgar v. MITE Corp., 457 U.S. 624, 645, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982).

[9] See Edgar v. MITE Corp., 457 U.S. at 645.

[10] See CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 89-93, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987).

[11] Id.

[12] McDermott Inc. v. Lewis, 531 A.2d at 214.

[13] Restatement (Second) of Conflict of Laws § 301 (1971). See Restatement (Second) of Conflict of Laws § 303 cmt. d (stressing importance of uniform treatment of shareholders).

[14] McDermott Inc. v. Lewis, 531 A.2d at 216 (quoting John Kozyris, Corporate Wars and Choice of Law, 1985 Duke L.J. 1, 98 (1985)). The internal affairs doctrine does not apply where the rights of third parties external to the corporation are at issue, e.g., contracts and torts. Id.See also Rogers v. Guaranty Trust Co. of N.Y., 288 U.S. 123, 130-31, 53 S.Ct. 295, 77 L.Ed. 652 (1933).

[15] McDermott Inc. v. Lewis, 531 A.2d at 216.

[16] Id. at 217.

[17] Id. (quoting Edgar v. MITE Corp. 457 U.S. 624, 645-46, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982)).

[18] Id. (quoting CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 90, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987)).

[19] Id.

[20] Cal. Corp.Code § 2115(a) (1977 & Supp.1984).

[21] Id.

[22] If Section 2115 applies, California law is deemed to control the following: the annual election of directors; removal of directors without cause; removal of directors by court proceedings; the filing of director vacancies where less than a majority in office are elected by shareholders; the director's standard of care; the liability of directors for unlawful distributions; indemnification of directors, officers, and others; limitations on corporate distributions in cash or property; the liability of shareholders who receive unlawful distributions; the requirement for annual shareholders' meetings and remedies for the same if not timely held; shareholder's entitlement to cumulative voting; the conditions when a supermajority vote is required; limitations on the sale of assets; limitations on mergers; limitations on conversions; requirements on conversions; the limitations and conditions for reorganization (including the requirement for class voting); dissenter's rights; records and reports; actions by the Attorney General and inspection rights. See Cal. Corp.Code § 2115(b) (1977 & Supp.1984).

[23] Deborah A. DeMott, Perspectives on Choice of Law for Corporate Internal Affairs, 48 Law & Contemp. Probs. 161, 166 (1985).

[24] McDermott Inc. v. Lewis, 531 A.2d 206, 216 (Del.1987) (quoting Kozyris at 98).

[25] Deborah A. DeMott, Perspectives on Choice of Law for Corporate Internal Affairs, 48 Law & Contemp. Probs. 161, 166 (1985).

[26] CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987).

[27] Kamen v. Kemper Fin. Serv., 500 U.S. 90, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991).

[28] Id.

[29] Burks v. Lasker, 441 U.S. 471, 99 S.Ct. 1831, 60 L.Ed.2d 404 (1979).

[30] Kamen v. Kemper Fin. Serv., 500 U.S. at 106, 111 S.Ct. 1711.

[31] Id. (quoting Restatement (Second) of Conflict of Laws § 302, cmt. e, p. 309 (1971)).

[32] McDermott Inc. v. Lewis, 531 A.2d 206, 209 (Del.1987).

[33] See Rosenmiller v. Bordes, 607 A.2d 465, 468-69 (Del.Ch.1991).

[34] CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 89, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987) (emphasis added). See Restatement (Second) of Conflict of Laws § 304 (1971) (concluding that the law of the incorporating State generally should "determine the right of a shareholder to participate in the administration of the affairs of the corporation").

[35] CTS Corp. v. Dynamics Corp. of Am., 481 U.S. at 89, 107 S.Ct. 1637 (quoting Cooley v. Bd. of Wardens, 53 U.S. 299, 319, 12 How. 299, 13 L.Ed. 996 (1851)).

[36] Id.

[37] Id. (emphasis added).

[38] McDermott Inc. v. Lewis, 531 A.2d 206 (Del.1987).

[39] CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987).

[40] Allstate Ins. Co. v. Hague, 449 U.S. 302, 101 S.Ct. 633, 66 L.Ed.2d 521 (1981).

[41] Wilson v. La.-Pac. Res., Inc., 138 Cal.App.3d 216, 187 Cal.Rptr. 852 (1982).

[42] Id. at 230-31, 187 Cal.Rptr. 852.

[43] Id.

[44] Deborah A. DeMott, Perspectives on Choice of Law for Corporate Internal Affairs, 48 Law & Contemp. Probs. 161, 187-88 (1985).

[45] See Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459, 11 Cal.Rptr.2d 330, 834 P.2d 1148, 1155 (1992), citing McDermott Inc. v. Lewis, 531 A.2d 206 (Del.1987).

[46] State Farm Mut. Auto. Ins. Co. v. Superior Court, 114 Cal.App.4th 434, 8 Cal.Rptr.3d 56 (2d Dist.2003).

[47] CTS Corp. v. Dynamics Corp. of Am., 481 U.S. at 89-90, 107 S.Ct. 1637.

[48] See State Farm Mut. Auto. Ins. Co. v. Superior Court, 114 Cal.App.4th 434, 8 Cal.Rptr.3d 56 (2d Dist.2003).

[49] Id. at 443-44, 8 Cal.Rptr.3d 56.

[50] E.g., Edgar v. MITE Corp. 457 U.S. 624, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982); CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987). See also Kamen v. Kemper Fin. Serv., 500 U.S. 90, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991).

[51] Draper v. Gardner, 625 A.2d 859, 867 n. 10 (Del.1993).

[52] Id. at 867.

[53] Supr. Ct. R. 4(f).

[353] Sullivan & Cromwell, Robert A. Sacks, Adam S. Paris, Diane L. McGimsey and Edward E. Johnson for Petitioner.

No appearance for Respondent.

Robins, Kaplan, Miller & Ciresi, Roman M. Silberfeld, Michael A. Geibelson and Rebecka M. Biejo for Real Party in Interest.

[354] CERTIFIED FOR PARTIAL PUBLICATION^[1]

OPINION

BOREN, P. J.—

The novel question presented in this case is whether, under a conflict of laws principle known as the internal affairs doctrine, California law or foreign law applies to a claim brought by an officer of a foreign corporation for wrongful termination in violation of public policy. We hold that under the circumstances alleged here, specifically where a foreign corporation has removed or constructively discharged a corporate officer in retaliation for that person's complaints of possible harmful or unethical activity, California law applies.

BACKGROUND

The parties do not dispute the following facts for the purposes of summary adjudication:

Petitioner, Alexander Lidow, has a Ph.D. in applied physics. Real party in interest, International Rectifier Corporation (IR), is incorporated in Delaware and based in El Segundo, California. IR is a semiconductor company founded by petitioner's father. Petitioner began working for IR in 1977 after graduating from Stanford University. Petitioner became a member of IR's board of directors (Board) in 1994, co-chief executive officer (CEO) in 1995, and sole CEO in 1999. At no point in time did petitioner have a written employment contract with IR. IR's bylaws provided at all relevant times that the corporation's officers (including the CEO) "shall be chosen annually by, and shall serve at the pleasure of, the Board, and shall hold their respective offices until their resignation, removal, or other disqualification from service." Removal of an officer, according to IR's bylaws, may be "with or without cause, by the Board at any time."

In early 2007, IR commenced an internal investigation after accounting irregularities surfaced at IR's subsidiary in Japan. In late August 2007, the Board placed petitioner on paid administrative leave. Prior to being placed on administrative leave, petitioner had not received any negative criticisms or negative reviews about his performance as CEO. Petitioner stepped down as CEO and Board member in October 2007 pursuant to a negotiated separation agreement entered into by petitioner and IR. Although the separation agreement did not include a release of liability for either party, it did specify that petitioner's resignation was "[a]t the Company's request," and that petitioner had signed the agreement "freely and voluntarily."

[355] Approximately 18 months later, petitioner sued IR in superior court, alleging causes of action for (1) breach of contract; (2) wrongful termination in violation of public policy; (3) breach of employment contract; (4) failure to pay outstanding wages at the time of termination (Lab. Code, §§ 201, 203); (5) failure to make personnel records available in a timely manner (Lab. Code, §§ 226, 1198.5); (6) tortious interference; and (7) unfair business practices (Bus. & Prof. Code, § 17200). After IR prevailed on several pleading motions, only petitioner's second, fourth, and fifth causes of action remained.

IR moved for summary adjudication of petitioner's cause of action for wrongful termination on three grounds: First, pursuant to the "internal affairs doctrine," Delaware law governed petitioner's wrongful termination claim. Under Delaware law, a CEO serves at the pleasure of the corporation's board of directors and is barred from bringing a wrongful termination claim (unless authorized by specific statutory enactments) as a matter of law. Second, to bring a claim for wrongful termination, a plaintiff must either be terminated or constructively discharged. Here, petitioner freely and voluntarily resigned as CEO. Third, even assuming IR had removed or constructively discharged petitioner, IR had legitimate, nonretaliatory reasons for doing so.

Petitioner opposed the motion for summary adjudication, arguing the following: First, the circumstances underlying his wrongful termination claim did not constitute an internal affair of the corporation, and thus California law (and not Delaware law) governed his claim. Second, petitioner had raised a triable issue of material fact as to whether he was constructively discharged. Third, petitioner had raised a triable issue of material fact as to whether IR had retaliated against him for complaints he raised about the treatment of Japanese employees during the investigation into the alleged accounting irregularities.

The superior court granted IR's motion for summary adjudication on the first ground raised by IR. It reasoned that pursuant to the internal affairs doctrine, Delaware law applied to petitioner's wrongful termination claim, and under Delaware law, petitioner "could be removed without the threat of litigation arising from a wrongful termination claim (except a claim based upon a subsequent statutory enactment such as one relating to discrimination of which there is no allegation or proof before this Court)."

Petitioner timely filed the present petition for writ of mandate challenging the superior court's order. After considering IR's preliminary opposition to the petition, this court issued an alternative writ of mandate directing the [356] superior court to set aside its order granting summary adjudication in favor of IR, or show cause why this court should not issue a peremptory writ of mandate ordering the superior court to do so. The superior court elected not to set aside its order. As a result, this court set the matter for argument and received a formal return from IR and reply from petitioner.

Based on our de novo review, we conclude the superior court erred by granting summary adjudication in favor of IR. Accordingly, we direct the superior court to vacate the order in question and to enter a new order denying IR's motion for summary adjudication of petitioner's cause of action for wrongful termination in violation of public policy.

STANDARD OF REVIEW

The standard of review for an order granting or denying a motion for summary judgment or adjudication is de novo. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860 [107 Cal.Rptr.2d 841, 24 P.3d 493] (Aguilar).) The trial court's stated reasons for granting summary relief are not binding on the reviewing court, which reviews the trial court's ruling, not its rationale. (Kids' Universe v. In2Labs (2002) 95 Cal.App.4th 870, 878 [116 Cal.Rptr.2d 158].)

A party moving for summary adjudication "bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law" on a particular cause of action. (Aguilar, supra, 25 Cal.4th at p. 850, fn. omitted.) "There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Ibid., fn. omitted.) "A defendant bears the burden of persuasion that `one or more elements of' the `cause of action' in question `cannot be established,' or that `there is a complete defense' thereto. [Citation.]" (Ibid.)

DISCUSSION

I. Overview

In the published portion of this decision, we hold that a claim for wrongful termination of public policy brought by an officer of a foreign corporation [357] falls outside the scope of the internal affairs doctrine, and thus is governed by California law.^[2] In the unpublished portion of this decision, we address IR's alternative grounds for summary adjudication.

II. Internal Affairs Doctrine

A. Allegations

As related to the claim for wrongful termination in violation of public policy, petitioner alleged the following events took place:^[3]

In October 2006, IR's internal finance department raised concerns that possible accounting improprieties were taking place at the corporation's subsidiary in Japan. In response, the Board's audit committee, which was comprised of all the Board members except for petitioner and his father, and IR's general counsel hired the law firm of Sheppard Mullin Richter & Hampton LLP (Sheppard Mullin) to conduct an investigation into the possible accounting improprieties. Sheppard Mullin had a long-standing relationship with the general counsel and had advised him on past occasions when he had received negative performance reviews from petitioner.

Sheppard Mullin outsourced the accounting investigation to a private company made up predominantly of ex-law enforcement officers from the United States and the United Kingdom. The investigators conducted interrogations during which they physically intimidated employees at IR's Japanese subsidiary, lied to these employees in an attempt to coerce inconsistent statements, and failed to advise these employees that they could, or should, retain independent counsel, despite the possibility that the employees could be criminally prosecuted based on the statements they gave during the interrogations. As a result of the investigators' aggressive and coercive tactics, employees at the Japanese subsidiary filed multiple complaints and threatened to resign in mass numbers. Productivity at the Japanese subsidiary came to a halt.

[358] Concerned about the deteriorating situation, petitioner travelled to Japan in order to convince the remaining employees to cooperate with the investigation, and to ensure, that going forward, the employees were treated with fairness and respect. Petitioner called for the implementation of protocols that would restore integrity to the investigation process and stem the loss of Japanese personnel. At the same time, petitioner spoke out against the tactics used by the investigators, and criticized how Sheppard Mullin, the general counsel, and the audit committee were overseeing the investigation. Additionally, petitioner criticized the audit committee for failing to control the mounting legal and accounting fees associated with the investigation, which were already in the millions of dollars.

When news broke that IR was investigating possible accounting improprieties at its Japanese subsidiary, a class action securities lawsuit was filed against IR. IR's general counsel decided to retain Sheppard Mullin to defend the lawsuit. Petitioner protested Sheppard Mullin's retention, complaining that it would be a conflict of interest for Sheppard Mullin to defend a lawsuit based on accounting irregularities and to conduct a purportedly independent investigation into the irregularities at the same time.

Because of petitioner's complaints about the manner in which employees were being treated in Japan, his critical remarks about how the investigation was progressing, and his protestations over Sheppard Mullin's retention to defend the securities lawsuit, petitioner became a target of Sheppard Mullin, the general counsel, and the audit committee. Approximately 10 months after the investigation commenced, Sheppard Mullin issued a report to the audit committee implicating petitioner in the alleged accounting irregularities. According to the report, which petitioner claims is pure conjecture, petitioner either ordered employees at the Japanese subsidiary to create false accounting documents, or knew that the employees were creating false accounting documents and turned a blind eye to the fraud.

Based on the report, the audit committee, which was now acting as the de facto Board, placed petitioner on administrative leave without giving him an opportunity to respond to the charges. Shortly after the audit committee placed petitioner on administrative leave, it informed him that if he did not resign as CEO in seven days, he would be removed. Petitioner entered in a separation agreement with IR wherein he agreed to step down as CEO and Board member at IR's request.

B. Legal Framework

(1) "`The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a [359] corporation's internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders— because otherwise a corporation could be faced with conflicting demands.' (Edgar v. MITE Corp. (1982) 457 U.S. 624, 645 [73 L.Ed.2d 269, 102 S.Ct. 2629] [citation].)" (Vaughn v. LJ Internat., Inc. (2009) 174 Cal.App.4th 213, 223 [94 Cal.Rptr.3d 166] (Vaughn).) `"States normally look to the State of a business' incorporation for the law that provides the relevant corporate governance general standard of care."' (Vaughn, supra, at p. 223.)

"Matters falling within the scope of the [internal affairs doctrine] and which involve primarily a corporation's relationship to its shareholders include steps taken in the course of the original incorporation, the election or appointment of directors and officers, the adoption of by-laws, the issuance of corporate shares, preemptive rights, the holding of directors' and shareholders' meetings, methods of voting including any requirement for cumulative voting, shareholders' rights to examine corporate records, charter and by-law amendments, mergers, consolidations and reorganizations and the reclassification of shares." (Rest.2d Conf. of Laws, § 302, com. a, p. 307; see State Farm Mutual Automobile Ins. Co. v. Superior Court (2003) 114 Cal.App.4th 434, 442 [8 Cal.Rptr.3d 56] (State Farm) [adopting the Restatement's definition of "internal affairs"].) "[I]t would be impractical to have matters of the sort mentioned in the previous paragraph, which involve a corporation's organic structure or internal administration, governed by different laws." (Rest.2d Conf. of Laws, § 302, com. e, p. 310.)

(2) `"The policy underlying the internal affairs doctrine is an important one ...: "Under the prevailing conflicts practice, neither courts nor legislatures have maximized the imposition of local corporate policy on foreign corporations but have consistently applied the law of the state of incorporation to the entire gamut of internal corporate affairs."' (State Farm, supra, 114 Cal.App.4th at p. 443.) Applying local law to the internal affairs of a foreign corporation `""produce[s] inequalities, intolerable confusion, and uncertainty, and intrude[s] into the domain of other states that have a superior claim to regulate the same subject matter.""' (Id. at p. 444.)

There is, however, a vital limitation to the internal affairs doctrine: "The local law of the state of incorporation will be applied ... except where, with respect to the particular issue, some other state has a more significant relationship ... to the parties and the transaction ...." (Rest.2d Conf. of Laws, § 309, italics added.) Indeed, "[t]here is no reason why corporate acts" involving "the making of contracts, the commission of torts and the transfer of property" "should not be governed by the local law of different states." (Id., § 302, com. e, p. 309.)

[360] The issue of whether the termination of a corporate officer for reasons that allegedly violate public policy falls within the scope of a corporation's internal affairs is one of first impression. For guidance, we turn to those cases in which courts of this state have applied, or not applied, the internal affairs doctrine to particular claims.

In Western Air Lines, Inc. v. Sobieski (1961) 191 Cal.App.2d 399 [12 Cal.Rptr. 719] (Western), the plaintiff, a Delaware corporation with its principal place of business in California, sought to amend its bylaws to eliminate cumulative voting rights for its shareholders. California's Commissioner of Corporations took the position that this proposed change in voting rights would constitute a "sale" of securities under California law, and thus petitioner would have to apply for and obtain a permit authorizing such action from the commissioner.^[4] After petitioner filed the requisite application, the commissioner declined to issue a permit, finding that the proposed elimination of cumulative voting "would be `... unfair, unjust and inequitable to the great number of security holders residing in California.'" (191 Cal.App.2d at p. 403.)

The plaintiff sought review of the commissioner's decision through a petition for writ of administrative mandate before the superior court. The superior court granted the petition and ruled that the commissioner had acted without jurisdiction because the amendment of the plaintiff's articles of incorporation was an "internal affair" of the corporation and its shareholders. (Western, supra, 191 Cal.App.2d at p. 405.) The Court of Appeal reversed the superior court's order. It reasoned, in part, that `"ordinarily speaking the issuance of capital stock or the stock structure of a corporation is an internal affair, yet the issuance and sale of stock within a state other than that of its organization may be regulated in order to protect the residents and citizens of the former state."' (Id. at p. 410, italics added.)

In Friese v. Superior Court (2005) 134 Cal.App.4th 693 [36 Cal.Rptr.3d 558] (Friese), the plaintiff, the successor in interest to a Delaware corporation headquartered in California, sued a group of former directors and officers under Corporations Code section 25502.5 (part of California's Corporate Securities Law of 1968 (Corp. Code, § 25000 et seq.)), a statute that gives an issuer of securities standing to sue its own directors and officers for insider trading. The former directors and officers demurred to the plaintiff's complaint, arguing that because their actions violated internal duties owed to the [361] corporation, Delaware law applied under the internal affairs doctrine. And because Delaware did not have a statute analogous to Corporations Code section 25502.5, they were entitled to judgment as a matter of law. (Friese, supra, at p. 698.) The superior court agreed and sustained the demurrer.

The Court of Appeal granted writ relief. It explained that "California's corporate securities laws are designed to protect participants in California's securities marketplace and deter unlawful conduct which takes place [in California]." (Friese, supra, 134 Cal.App.4th at p. 698; see id. at p. 710 ["California's corporate securities regulation scheme . . . serves broad public interests rather than the more narrow interests of a corporation's shareholders."].) Although the scope of a director's or officer's duties to a corporation is ordinarily an internal affair of that corporation, the appellate court reasoned that where the conduct in question also implicates the broader public interest of securities regulation, California has a greater stake in applying its law (as opposed to Delaware law) to maintain a fair and equitable marketplace for its shareholder citizens. Thus, the appellate court concluded, the internal affairs doctrine could not be used to shield the directors and officers from liability for insider trading. (134 Cal.App.4th at pp. 706-708.)

The Court of Appeal's decisions in Western and Friese serve as instructional contrasts to the decisions in State Farm, supra, 114 Cal.App.4th 434, and Vaughn, supra, 174 Cal.App.4th 213. In State Farm, insurance policy holders residing in California sued an insurance company incorporated and headquartered in Illinois, alleging that the company's board of directors did not pay promised dividends. The policyholders framed their claim as an alleged breach of contract, and argued that California had an interest in enforcing contracts made in California under California law. The Court of Appeal rejected this argument. It held that the issuance of dividends was strictly an internal corporate affair, regardless of how the policyholders had framed their claim, and thus Illinois law applied. (State Farm, supra, at p. 446 ["Simply put, the policyholders challenge a decision of the board of directors that falls within State Farm's internal affairs. The causes of action in the complaint, though labeled in common terms—breach of contract and breach of the covenant of good faith and fair dealing—involve `matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders . . . .'"].)

In Vaughn, supra, 174 Cal.App.4th 213, the defendant corporation, LJ, was incorporated in the British Virgin Islands (BVI), headquartered in Hong Kong, and had a "few employees" based in California. (Id. at p. 216.) A [362] shareholder (who did not reside in Cal.) brought a derivative suit against the corporation based on allegedly false and misleading financial statements that it had issued in Los Angeles. The corporation demurred to the complaint, arguing that BVI law applied under the internal affairs doctrine, and that the shareholder had failed to comply with a BVI statute requiring approval from the high court of that jurisdiction before a shareholder could sue derivatively. (Id. at p. 217.) The superior court sustained the demurrer without leave to amend, and the Court of Appeal affirmed, reasoning that the BVI statute in question "establish[ed] a condition precedent to the right of a shareholder to derivatively sue corporate directors on behalf of the company," which "most definitely [implicated] the internal affairs of the corporation." (Id. at p. 225.) The appellate court noted that California had "no extraordinary interest" in an international corporation that was not headquartered in the state, and the shareholder had failed to show that a "significant California public policy" would "be offended" if he were forced to bring the derivative suit under BVI law. (Id. at p. 226.)

(3) What we learn from the decisions in Friese and Western is that courts are less apt to apply the internal affairs doctrine when vital statewide interests are at stake, such as maintaining the integrity of California security markets and protecting its citizens from harmful conduct. In contrast, what we learn from the decisions in State Farm and Vaughn is that when less vital state interests are at stake (e.g., whether a foreign corporation headquartered in another state pays promised dividends to its shareholders, or whether the shareholder of a foreign corporation must fulfill certain procedural requirements set before bringing a derivative suit), courts are more apt to apply the internal affairs doctrine.

(4) We now turn to the situation presented in this case. Certainly, the removal of a CEO for any number of reasons (e.g., the corporation is not performing well, the CEO did not meet certain financial expectations set by the board of directors) falls within the scope of a corporation's internal governance, thus triggering the application of the internal affairs doctrine. This case, however, presents an entirely different set of allegations. Removing an officer in retaliation for his complaints about possible illegal or harmful activity (e.g., witness intimidation, physical threats to employees, etc.) and breaches of ethical conduct (e.g., defending a client against allegations of accounting irregularities and conducting an independent investigation in the same irregularities) goes beyond internal governance and touches upon broader public interest concerns that California has a vital interest in protecting. (Accord, Rest.2d Conf. of Laws, § 6, subd. (2)(b); id., com. c. p. 12 [under general choice-of-law principles, one factor to consider is the relevant public policies of the forum state].)

[363] At oral argument, counsel for IR relied heavily on VantagePoint Venture Partners 1996 v. Examen, Inc. (Del. 2005) 871 A.2d 1108 (VantagePoint), a decision issued by the Delaware Supreme Court. The reasoning articulated in that case, however, only supports our conclusion in this case.

VantagePoint involved three Delaware entities: Examen, a corporation incorporated in Delaware; VantagePoint, a limited partnership organized under Delaware law, and a Delaware subsidiary of Reed Elsevier Inc. Examen and Reed proposed a merger. VantagePoint, which owned 83 percent of Examen's series A preferred stock, and none of Examen's common stock, wanted to block the proposed merger. Under Delaware law, which makes no distinction between preferred and common stock shareholders when voting for mergers, VantagePoint did not have sufficient shares to block the merger; under California law, VantagePoint did. VantagePoint claimed that California law applied because Examen met the criteria of California's "outreach statute," codified at Corporations Code section 2115.^[5]

The Delaware Supreme Court held that Delaware law applied in that case because "courts must apply the law of the state of incorporation to issues involving corporate internal affairs, and . . . disputes concerning a shareholder's right to vote fall squarely within the purview of the internal affairs doctrine." (VantagePoint, supra, 871 A.2d at p. 1115, fn. omitted.) Quoting the United States Supreme Court's decision in CTS Corp. v. Dynamics Corp. of America (1987) 481 U.S. 69 [95 L.Ed.2d 67, 107 S.Ct. 1637], the Delaware Supreme Court stated that "`[n]o principle of corporation law and practice is more firmly established than a State's authority to regulate domestic corporations, including the authority to define the voting rights of shareholders.'" (VantagePoint, supra, 871 A.2d at p. 1116, fn. omitted.)

This court agrees that the voting rights of shareholders, just like the payment of dividends to shareholders (see State Farm, supra, 114 Cal.App.4th 434) and the procedural requirements of shareholder derivative suits (see Vaughn, supra, 174 Cal.App.4th 213), involve matters of internal corporate governance and thus, fall within a corporation's internal affairs. But, as stated above, the allegations made by petitioner involve circumstances that go beyond internal corporate governance.

(5) Our Supreme Court has long recognized that claims for wrongful termination in violation of public policy serve vital interests insofar as they impose liability on employers who coerce their employees to engage in [364] criminal or other harmful conduct, or employers who retaliate against their employees for speaking out against such conduct. (See Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 178 [164 Cal.Rptr. 839, 610 P.2d 1330] ["an employer's authority over its employee does not include the right to demand that the employee commit a criminal act to further its interests, and an employer may not coerce compliance with such unlawful directions by discharging an employee who refuses to follow such an order. An employer engaging in such conduct violates a basic duty imposed by law upon all employers, and thus an employee who has suffered damages as a result of such discharge may maintain a tort action for wrongful discharge against the employer."]; Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 665 [254 Cal.Rptr. 211, 765 P.2d 373] [an employer's right to discharge an "at will" employee is still subject to limits imposed by public policy, "since otherwise the threat of discharge could be used to coerce employees into committing crimes, concealing wrongdoing, or taking other action harmful to the public weal" (fn. omitted)]; Roby v. McKesson Corp. (2009) 47 Cal.4th 686, 702 [101 Cal.Rptr.3d 773, 219 P.3d 749] ["The central assertion of a claim of wrongful termination in violation of public policy is that the employer's motives for terminating the employee are so contrary to fundamental norms that the termination inflicted an injury sounding in tort." (italics added)].)

(6) For these reasons, we conclude that under the circumstances presented here, i.e., where there are allegations made by a corporate officer that he was removed for complaining about possible illegal or harmful activity, the internal affairs doctrine is inapplicable and California law governs the claim.^[6]

III. Alternative Grounds for Summary Adjudication^[7]

DISPOSITION

The alternative writ is discharged. Let a peremptory writ of mandate issue directing the superior court to vacate its order of February 6, 2012, granting real party in interest's motion for summary adjudication of petitioner's claim [365] for wrongful termination in violation of public policy, and to enter a new order denying said motion. The parties shall bear their own costs related to this petition.

Ashmann-Gerst, J., and Chavez, J., concurred.

[1] Pursuant to California Rules of Court, rules 8.1100 and 8.1110, this opinion is certified for publication with the exception of part III of the Discussion.

[2] For the purposes of this opinion, we assume, without deciding, that the policies implicated here satisfy the requirements to support a tortious discharge claim. (Stevenson v. Superior Court (1997) 16 Cal.4th 880, 889-890 [66 Cal.Rptr.2d 888, 941 P.2d 1157].) This issue was neither raised nor briefed by the parties in the petition, return, or reply.

[3] We emphasize that these are petitioner's allegations and for this reason entirely one sided. At this juncture, a trier of fact has made no findings about the truth or falsity of these allegations, and our discussion of these allegations should not be interpreted as lending any credibility to them.

[4] At the time, Corporations Code section 25500 provided that `"No company shall sell any security of its own issue ... until it has first applied for and secured from the commissioner a permit authorizing it to do so."' (Western, supra, 191 Cal.App.2d at p. 401, fn. 2.) Under section 25510 of the same code, the commissioner could refuse to issue the permit `"if in his opinion the [planned sale was] not fair, just, or equitable to all security holders affected."' (Western, supra, at p. 401, fn. 3.)

[5] Corporations Code section 2115, as succinctly explained by IR, enumerates the various California laws that apply to certain foreign corporations that meet specified financial and operating criteria. IR points out that section 2115 "expressly states that it does not apply to companies, like IR, whose securities are listed on the New York Stock Exchange."

[6] Because we conclude that California law governs in this instance, we need not address IR's argument and supporting authorities that the Board was entitled to remove petitioner under Delaware law.

[7] See footnote, ante, page 351.

[886] Theodore B. Olson, for Appellant.

Floyd Abrams, for Senator Mitch McConnell as amicus curiae, by special leave of the Court, supporting the Appellant.

Elena Kagan, Solicitor General, Washington, D.C., for Respondent.

Seth P. Waxman, for Senator John McCain, as amici curiae, by special leave of the Court, supporting the Appellee.

Michael Boos, Fairfax, VA, Theodore B. Olson, Matthew D. McGill, Amir C. Tayrani, Justin S. Herring, Gibson, Dunn & Crutcher LLP, Washington, D.C., for Appellant.

Justice KENNEDY delivered the opinion of the Court.

Federal law prohibits corporations and unions from using their general treasury funds to make independent expenditures for speech defined as an "electioneering communication" or for speech expressly advocating the election or defeat of a candidate. 2 U.S.C. § 441b. Limits on electioneering communications were upheld in McConnell v. Federal Election Comm'n, 540 U.S. 93, 203-209, 124 S.Ct. 619, 157 L.Ed.2d 491 (2003). The holding of McConnell rested to a large extent on an earlier case, Austin v. Michigan Chamber of Commerce, 494 U.S. 652, 110 S.Ct. 1391, 108 L.Ed.2d 652 (1990). Austin had held that political speech may be banned based on the speaker's corporate identity.

In this case we are asked to reconsider Austin and, in effect, McConnell. It has been noted that "Austin was a significant departure from ancient First Amendment principles," Federal Election Comm'n v. Wisconsin Right to Life, Inc., 551 U.S. 449, 490, 127 S.Ct. 2652, 168 L.Ed.2d 329 (2007) (WRTL) (SCALIA, J., concurring in part and concurring in judgment). We agree with that conclusion and hold that stare decisis does not compel the continued acceptance of Austin. The Government may regulate corporate political speech through disclaimer and disclosure requirements, but it may not suppress that speech altogether. We turn to the case now before us.

I

A

Citizens United is a nonprofit corporation. It brought this action in the United States District Court for the District of [887] Columbia. A three-judge court later convened to hear the cause. The resulting judgment gives rise to this appeal.

Citizens United has an annual budget of about $12 million. Most of its funds are from donations by individuals; but, in addition, it accepts a small portion of its funds from for-profit corporations.

In January 2008, Citizens United released a film entitled Hillary: The Movie. We refer to the film as Hillary. It is a 90-minute documentary about then-Senator Hillary Clinton, who was a candidate in the Democratic Party's 2008 Presidential primary elections. Hillary mentions Senator Clinton by name and depicts interviews with political commentators and other persons, most of them quite critical of Senator Clinton. Hillary was released in theaters and on DVD, but Citizens United wanted to increase distribution by making it available through video-on-demand.

Video-on-demand allows digital cable subscribers to select programming from various menus, including movies, television shows, sports, news, and music. The viewer can watch the program at any time and can elect to rewind or pause the program. In December 2007, a cable company offered, for a payment of $1.2 million, to make Hillary available on a video-on-demand channel called "Elections '08." App. 255a-257a. Some video-on-demand services require viewers to pay a small fee to view a selected program, but here the proposal was to make Hillary available to viewers free of charge.

To implement the proposal, Citizens United was prepared to pay for the video-on-demand; and to promote the film, it produced two 10-second ads and one 30-second ad for Hillary. Each ad includes a short (and, in our view, pejorative) statement about Senator Clinton, followed by the name of the movie and the movie's Website address. Id., at 26a-27a. Citizens United desired to promote the video-on-demand offering by running advertisements on broadcast and cable television.

B

Before the Bipartisan Campaign Reform Act of 2002 (BCRA), federal law prohibited—and still does prohibit— corporations and unions from using general treasury funds to make direct contributions to candidates or independent expenditures that expressly advocate the election or defeat of a candidate, through any form of media, in connection with certain qualified federal elections. 2 U.S.C. § 441b (2000 ed.); see McConnell, supra, at 204, and n. 87, 124 S.Ct. 619; Federal Election Comm'n v. Massachusetts Citizens for Life, Inc., 479 U.S. 238, 249, 107 S.Ct. 616, 93 L.Ed.2d 539 (1986) (MCFL). BCRA § 203 amended § 441b to prohibit any "electioneering communication" as well. 2 U.S.C. § 441b(b)(2) (2006 ed.). An electioneering communication is defined as "any broadcast, cable, or satellite communication" that "refers to a clearly identified candidate for Federal office" and is made within 30 days of a primary or 60 days of a general election. § 434(f)(3)(A). The Federal Election Commission's (FEC) regulations further define an electioneering communication as a communication that is "publicly distributed." 11 CFR § 100.29(a)(2) (2009). "In the case of a candidate for nomination for President ... publicly distributed means" that the communication "[c]an be received by 50,000 or more persons in a State where a primary election ... is being held within 30 days." § 100.29(b)(3)(ii). Corporations and unions are barred from using their general treasury funds for express advocacy or electioneering communications. They may establish, however, a "separate segregated fund" (known as a political action committee, or PAC) for these purposes. 2 U.S.C. [888] § 441b(b)(2). The moneys received by the segregated fund are limited to donations from stockholders and employees of the corporation or, in the case of unions, members of the union. Ibid.

C

Citizens United wanted to make Hillary available through video-on-demand within 30 days of the 2008 primary elections. It feared, however, that both the film and the ads would be covered by § 441b's ban on corporate-funded independent expenditures, thus subjecting the corporation to civil and criminal penalties under § 437g. In December 2007, Citizens United sought declaratory and injunctive relief against the FEC. It argued that (1) § 441b is unconstitutional as applied to Hillary; and (2) BCRA's disclaimer and disclosure requirements, BCRA §§ 201 and 311, are unconstitutional as applied to Hillary and to the three ads for the movie.

The District Court denied Citizens United's motion for a preliminary injunction, 530 F.Supp.2d 274 (D.D.C.2008) (per curiam), and then granted the FEC's motion for summary judgment, App. 261a-262a. See id., at 261a ("Based on the reasoning of our prior opinion, we find that the [FEC] is entitled to judgment as a matter of law. See Citizen[s] United v. FEC, 530 F.Supp.2d 274 (D.D.C.2008) (denying Citizens United's request for a preliminary injunction)"). The court held that § 441b was facially constitutional under McConnell, and that § 441b was constitutional as applied to Hillary because it was "susceptible of no other interpretation than to inform the electorate that Senator Clinton is unfit for office, that the United States would be a dangerous place in a President Hillary Clinton world, and that viewers should vote against her." 530 F.Supp.2d, at 279. The court also rejected Citizens United's challenge to BCRA's disclaimer and disclosure requirements. It noted that "the Supreme Court has written approvingly of disclosure provisions triggered by political speech even though the speech itself was constitutionally protected under the First Amendment." Id., at 281.

We noted probable jurisdiction. 555 U.S. ___, 128 S.Ct. 1471, 170 L.Ed.2d 294 (2008). The case was reargued in this Court after the Court asked the parties to file supplemental briefs addressing whether we should overrule either or both Austin and the part of McConnell which addresses the facial validity of 2 U.S.C. § 441b. See 557 U.S. ___, 128 S.Ct. 1732, 170 L.Ed.2d 511 (2009).

II

Before considering whether Austin should be overruled, we first address whether Citizens United's claim that § 441b cannot be applied to Hillary may be resolved on other, narrower grounds.

A

Citizens United contends that § 441b does not cover Hillary, as a matter of statutory interpretation, because the film does not qualify as an "electioneering communication." § 441b(b)(2). Citizens United raises this issue for the first time before us, but we consider the issue because "it was addressed by the court below." Lebron v. National Railroad Passenger Corporation, 513 U.S. 374, 379, 115 S.Ct. 961, 130 L.Ed.2d 902 (1995); see 530 F.Supp.2d, at 277, n. 6. Under the definition of electioneering communication, the video-on-demand showing of Hillary on cable television would have been a "cable... communication" that "refer[red] to a clearly identified candidate for Federal office" and that was made within 30 days of a primary election. 2 U.S.C. § 434(f)(3)(A)(i). Citizens United, however, argues that Hillary was not "publicly [889] distributed," because a single video-on-demand transmission is sent only to a requesting cable converter box and each separate transmission, in most instances, will be seen by just one household—not 50,000 or more persons. 11 CFR § 100.29(a)(2); see § 100.29(b)(3)(ii).

This argument ignores the regulation's instruction on how to determine whether a cable transmission "[c]an be received by 50,000 or more persons." § 100.29(b)(3)(ii). The regulation provides that the number of people who can receive a cable transmission is determined by the number of cable subscribers in the relevant area. §§ 100.29(b)(7)(i)(G), (ii). Here, Citizens United wanted to use a cable video-on-demand system that had 34.5 million subscribers nationwide. App. 256a. Thus, Hillary could have been received by 50,000 persons or more.

One amici brief asks us, alternatively, to construe the condition that the communication "[c]an be received by 50,000 or more persons," § 100.29(b)(3)(ii)(A), to require "a plausible likelihood that the communication will be viewed by 50,000 or more potential voters"—as opposed to requiring only that the communication is "technologically capable" of being seen by that many people, Brief for Former Officials of the American Civil Liberties Union as Amici Curiae 5. Whether the population and demographic statistics in a proposed viewing area consisted of 50,000 registered voters—but not "infants, pre-teens, or otherwise electorally ineligible recipients"— would be a required determination, subject to judicial challenge and review, in any case where the issue was in doubt. Id., at 6.

In our view the statute cannot be saved by limiting the reach of 2 U.S.C. § 441b through this suggested interpretation. In addition to the costs and burdens of litigation, this result would require a calculation as to the number of people a particular communication is likely to reach, with an inaccurate estimate potentially subjecting the speaker to criminal sanctions. The First Amendment does not permit laws that force speakers to retain a campaign finance attorney, conduct demographic marketing research, or seek declaratory rulings before discussing the most salient political issues of our day. Prolix laws chill speech for the same reason that vague laws chill speech: People "of common intelligence must necessarily guess at [the law's] meaning and differ as to its application." Connally v. General Constr. Co., 269 U.S. 385, 391, 46 S.Ct. 126, 70 L.Ed. 322 (1926). The Government may not render a ban on political speech constitutional by carving out a limited exemption through an amorphous regulatory interpretation. We must reject the approach suggested by the amici. Section 441b covers Hillary.

B

Citizens United next argues that § 441b may not be applied to Hillary under the approach taken in WRTL. McConnell decided that § 441b(b)(2)'s definition of an "electioneering communication" was facially constitutional insofar as it restricted speech that was "the functional equivalent of express advocacy" for or against a specific candidate. 540 U.S., at 206, 124 S.Ct. 619. WRTL then found an unconstitutional application of § 441b where the speech was not "express advocacy or its functional equivalent." 551 U.S., at 481, 127 S.Ct. 2652 (opinion of ROBERTS, C. J.). As explained by THE CHIEF JUSTICE's controlling opinion in WRTL, the functional-equivalent test is objective: "a court should find that [a communication] is the functional equivalent of express advocacy only if [it] is susceptible of no reasonable interpretation other than as an appeal [890] to vote for or against a specific candidate." Id., at 469-470, 127 S.Ct. 2652.

Under this test, Hillary is equivalent to express advocacy. The movie, in essence, is a feature-length negative advertisement that urges viewers to vote against Senator Clinton for President. In light of historical footage, interviews with persons critical of her, and voiceover narration, the film would be understood by most viewers as an extended criticism of Senator Clinton's character and her fitness for the office of the Presidency. The narrative may contain more suggestions and arguments than facts, but there is little doubt that the thesis of the film is that she is unfit for the Presidency. The movie concentrates on alleged wrongdoing during the Clinton administration, Senator Clinton's qualifications and fitness for office, and policies the commentators predict she would pursue if elected President. It calls Senator Clinton "Machiavellian," App. 64a, and asks whether she is "the most qualified to hit the ground running if elected President," id., at 88a. The narrator reminds viewers that "Americans have never been keen on dynasties" and that "a vote for Hillary is a vote to continue 20 years of a Bush or a Clinton in the White House," id., at 143a-144a.

Citizens United argues that Hillary is just "a documentary film that examines certain historical events." Brief for Appellant 35. We disagree. The movie's consistent emphasis is on the relevance of these events to Senator Clinton's candidacy for President. The narrator begins by asking "could [Senator Clinton] become the first female President in the history of the United States?" App. 35a. And the narrator reiterates the movie's message in his closing line: "Finally, before America decides on our next president, voters should need no reminders of ... what's at stake—the well being and prosperity of our nation." Id., at 144a-145a.

As the District Court found, there is no reasonable interpretation of Hillary other than as an appeal to vote against Senator Clinton. Under the standard stated in McConnell and further elaborated in WRTL, the film qualifies as the functional equivalent of express advocacy.

C

Citizens United further contends that § 441b should be invalidated as applied to movies shown through video-on-demand, arguing that this delivery system has a lower risk of distorting the political process than do television ads. Cf. McConnell, supra, at 207, 124 S.Ct. 619. On what we might call conventional television, advertising spots reach viewers who have chosen a channel or a program for reasons unrelated to the advertising. With video-on-demand, by contrast, the viewer selects a program after taking "a series of affirmative steps": subscribing to cable; navigating through various menus; and selecting the program. See Reno v. American Civil Liberties Union, 521 U.S. 844, 867, 117 S.Ct. 2329, 138 L.Ed.2d 874 (1997).

While some means of communication may be less effective than others at influencing the public in different contexts, any effort by the Judiciary to decide which means of communications are to be preferred for the particular type of message and speaker would raise questions as to the courts' own lawful authority. Substantial questions would arise if courts were to begin saying what means of speech should be preferred or disfavored. And in all events, those differentiations might soon prove to be irrelevant or outdated by technologies that are in rapid flux. See Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 639, 114 S.Ct. 2445, 129 L.Ed.2d 497 (1994).

[891] Courts, too, are bound by the First Amendment. We must decline to draw, and then redraw, constitutional lines based on the particular media or technology used to disseminate political speech from a particular speaker. It must be noted, moreover, that this undertaking would require substantial litigation over an extended time, all to interpret a law that beyond doubt discloses serious First Amendment flaws. The interpretive process itself would create an inevitable, pervasive, and serious risk of chilling protected speech pending the drawing of fine distinctions that, in the end, would themselves be questionable. First Amendment standards, however, "must give the benefit of any doubt to protecting rather than stifling speech." WRTL, 551 U.S., at 469, 127 S.Ct. 2652 (opinion of ROBERTS, C.J.) (citing New York Times Co. v. Sullivan, 376 U.S. 254, 269-270, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964)).

D

Citizens United also asks us to carve out an exception to § 441b's expenditure ban for nonprofit corporate political speech funded overwhelmingly by individuals. As an alternative to reconsidering Austin, the Government also seems to prefer this approach. This line of analysis, however, would be unavailing.

In MCFL, the Court found unconstitutional § 441b's restrictions on corporate expenditures as applied to nonprofit corporations that were formed for the sole purpose of promoting political ideas, did not engage in business activities, and did not accept contributions from for-profit corporations or labor unions. 479 U.S., at 263-264, 107 S.Ct. 616; see also 11 CFR § 114.10. BCRA's so-called Wellstone Amendment applied § 441b's expenditure ban to all nonprofit corporations. See 2 U.S.C. § 441b(c)(6); McConnell, 540 U.S., at 209, 124 S.Ct. 619. McConnell then interpreted the Wellstone Amendment to retain the MCFL exemption to § 441b's expenditure prohibition. 540 U.S., at 211, 124 S.Ct. 619. Citizens United does not qualify for the MCFL exemption, however, since some funds used to make the movie were donations from for-profit corporations.

The Government suggests we could find BCRA's Wellstone Amendment unconstitutional, sever it from the statute, and hold that Citizens United's speech is exempt from § 441b's ban under BCRA's Snowe-Jeffords Amendment, § 441b(c)(2). See Tr. of Oral Arg. 37-38 (Sept. 9, 2009). The Snowe-Jeffords Amendment operates as a backup provision that only takes effect if the Wellstone Amendment is invalidated. See McConnell, supra, at 339, 124 S.Ct. 619 (KENNEDY, J., concurring in judgment in part and dissenting in part). The Snowe-Jeffords Amendment would exempt from § 441b's expenditure ban the political speech of certain nonprofit corporations if the speech were funded "exclusively" by individual donors and the funds were maintained in a segregated account. § 441b(c)(2). Citizens United would not qualify for the Snowe-Jeffords exemption, under its terms as written, because Hillary was funded in part with donations from for-profit corporations.

Consequently, to hold for Citizens United on this argument, the Court would be required to revise the text of MCFL, sever BCRA's Wellstone Amendment, § 441b(c)(6), and ignore the plain text of BCRA's Snowe-Jeffords Amendment, § 441b(c)(2). If the Court decided to create a de minimis exception to MCFL or the Snowe-Jeffords Amendment, the result would be to allow for-profit corporate general treasury funds to be spent for independent expenditures that support candidates. There is no principled basis [892] for doing this without rewriting Austin's holding that the Government can restrict corporate independent expenditures for political speech.

Though it is true that the Court should construe statutes as necessary to avoid constitutional questions, the series of steps suggested would be difficult to take in view of the language of the statute. In addition to those difficulties the Government's suggestion is troubling for still another reason. The Government does not say that it agrees with the interpretation it wants us to consider. See Supp. Brief for Appellee 3, n. 1 ("Some courts" have implied a de minimis exception, and "appellant would appear to be covered by these decisions"). Presumably it would find textual difficulties in this approach too. The Government, like any party, can make arguments in the alternative; but it ought to say if there is merit to an alternative proposal instead of merely suggesting it. This is especially true in the context of the First Amendment. As the Government stated, this case "would require a remand" to apply a de minimis standard. Tr. of Oral Arg. 39 (Sept. 9, 2009). Applying this standard would thus require case-by-case determinations. But archetypical political speech would be chilled in the meantime. "`First Amendment freedoms need breathing space to survive.' " WRTL, supra, at 468-469, 127 S.Ct. 2652 (opinion of ROBERTS, C.J.) (quoting NAACP v. Button, 371 U.S. 415, 433, 83 S.Ct. 328, 9 L.Ed.2d 405 (1963)). We decline to adopt an interpretation that requires intricate case-by-case determinations to verify whether political speech is banned, especially if we are convinced that, in the end, this corporation has a constitutional right to speak on this subject.

E

As the foregoing analysis confirms, the Court cannot resolve this case on a narrower ground without chilling political speech, speech that is central to the meaning and purpose of the First Amendment. See Morse v. Frederick, 551 U.S. 393, 403, 127 S.Ct. 2618, 168 L.Ed.2d 290 (2007). It is not judicial restraint to accept an unsound, narrow argument just so the Court can avoid another argument with broader implications. Indeed, a court would be remiss in performing its duties were it to accept an unsound principle merely to avoid the necessity of making a broader ruling. Here, the lack of a valid basis for an alternative ruling requires full consideration of the continuing effect of the speech suppression upheld in Austin.

Citizens United stipulated to dismissing count 5 of its complaint, which raised a facial challenge to § 441b, even though count 3 raised an as-applied challenge. See App. 23a (count 3: "As applied to Hillary, [§ 441b] is unconstitutional under the First Amendment guarantees of free expression and association"). The Government argues that Citizens United waived its challenge to Austin by dismissing count 5. We disagree.

First, even if a party could somehow waive a facial challenge while preserving an as-applied challenge, that would not prevent the Court from reconsidering Austin or addressing the facial validity of § 441b in this case. "Our practice `permit[s] review of an issue not pressed [below] so long as it has been passed upon. . . .'" Lebron, 513 U.S., at 379, 115 S.Ct. 961 (quoting United States v. Williams, 504 U.S. 36, 41, 112 S.Ct. 1735, 118 L.Ed.2d 352 (1992); first alteration in original). And here, the District Court addressed Citizens United's facial challenge. See 530 F.Supp.2d, at 278 ("Citizens wants us to enjoin the operation of BCRA § 203 as a facially unconstitutional burden on the First Amendment right to [893] freedom of speech"). In rejecting the claim, it noted that it "would have to overrule McConnell" for Citizens United to prevail on its facial challenge and that "[o]nly the Supreme Court may overrule its decisions." Ibid. (citing Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 484, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989)). The District Court did not provide much analysis regarding the facial challenge because it could not ignore the controlling Supreme Court decisions in Austin or McConnell. Even so, the District Court did "`pas[s] upon'" the issue. Lebron, supra, at 379, 115 S.Ct. 961. Furthermore, the District Court's later opinion, which granted the FEC summary judgment, was "[b]ased on the reasoning of [its] prior opinion," which included the discussion of the facial challenge. App. 261a (citing 530 F.Supp.2d 274). After the District Court addressed the facial validity of the statute, Citizens United raised its challenge to Austin in this Court. See Brief for Appellant 30 ("Austin was wrongly decided and should be overruled"); id., at 30-32. In these circumstances, it is necessary to consider Citizens United's challenge to Austin and the facial validity of § 441b's expenditure ban.

Second, throughout the litigation, Citizens United has asserted a claim that the FEC has violated its First Amendment right to free speech. All concede that this claim is properly before us. And "`[o]nce a federal claim is properly presented, a party can make any argument in support of that claim; parties are not limited to the precise arguments they made below.'" Lebron, supra, at 379, 115 S.Ct. 961 (quoting Yee v. Escondido, 503 U.S. 519, 534, 112 S.Ct. 1522, 118 L.Ed.2d 153 (1992); alteration in original). Citizens United's argument that Austin should be overruled is "not a new claim." Lebron, 513 U.S., at 379, 115 S.Ct. 961. Rather, it is—at most—"a new argument to support what has been [a] consistent claim: that [the FEC] did not accord [Citizens United] the rights it was obliged to provide by the First Amendment." Ibid.

Third, the distinction between facial and as-applied challenges is not so well defined that it has some automatic effect or that it must always control the pleadings and disposition in every case involving a constitutional challenge. The distinction is both instructive and necessary, for it goes to the breadth of the remedy employed by the Court, not what must be pleaded in a complaint. See United States v. Treasury Employees, 513 U.S. 454, 477-478, 115 S.Ct. 1003, 130 L.Ed.2d 964 (1995) (contrasting "a facial challenge" with "a narrower remedy"). The parties cannot enter into a stipulation that prevents the Court from considering certain remedies if those remedies are necessary to resolve a claim that has been preserved. Citizens United has preserved its First Amendment challenge to § 441b as applied to the facts of its case; and given all the circumstances, we cannot easily address that issue without assuming a premise—the permissibility of restricting corporate political speech—that is itself in doubt. See Fallon, As-Applied and Facial Challenges and Third-Party Standing, 113 Harv. L.Rev. 1321, 1339 (2000) ("[O]nce a case is brought, no general categorical line bars a court from making broader pronouncements of invalidity in properly `as-applied' cases"); id., at 1327-1328. As our request for supplemental briefing implied, Citizens United's claim implicates the validity of Austin, which in turn implicates the facial validity of § 441b.

When the statute now at issue came before the Court in McConnell, both the majority and the dissenting opinions considered the question of its facial validity. The holding and validity of Austin were [894] essential to the reasoning of the McConnell majority opinion, which upheld BCRA's extension of § 441b. See 540 U.S., at 205, 124 S.Ct. 619 (quoting Austin, 494 U.S., at 660, 110 S.Ct. 1391). McConnell permitted federal felony punishment for speech by all corporations, including nonprofit ones, that speak on prohibited subjects shortly before federal elections. See 540 U.S., at 203-209, 124 S.Ct. 619. Four Members of the McConnell Court would have overruled Austin, including Chief Justice Rehnquist, who had joined the Court's opinion in Austin but reconsidered that conclusion. See 540 U.S., at 256-262, 124 S.Ct. 619 (SCALIA, J., concurring in part, concurring in judgment in part, and dissenting in part); id., at 273-275, 124 S.Ct. 619 (THOMAS, J., concurring in part, concurring in result in part, concurring in judgment in part, and dissenting in part); id., at 322-338, 124 S.Ct. 619 (opinion of KENNEDY, J., joined by Rehnquist, C.J., and Scalia, J.). That inquiry into the facial validity of the statute was facilitated by the extensive record, which was "over 100,000 pages" long, made in the three-judge District Court. McConnell v. Federal Election Comm'n, 251 F.Supp.2d 176, 209 (D.D.C.2003) (per curiam) (McConnell I). It is not the case, then, that the Court today is premature in interpreting § 441b "`on the basis of [a] factually barebones recor[d].'" Washington State Grange v. Washington State Republican Party, 552 U.S. 442, 450, 128 S.Ct. 1184, 170 L.Ed.2d 151 (2008) (quoting Sabri v. United States, 541 U.S. 600, 609, 124 S.Ct. 1941, 158 L.Ed.2d 891 (2004)).

The McConnell majority considered whether the statute was facially invalid. An as-applied challenge was brought in Wisconsin Right to Life, Inc. v. Federal Election Comm'n, 546 U.S. 410, 411-412, 126 S.Ct. 1016, 163 L.Ed.2d 990 (2006) (per curiam), and the Court confirmed that the challenge could be maintained. Then, in WRTL, the controlling opinion of the Court not only entertained an as-applied challenge but also sustained it. Three Justices noted that they would continue to maintain the position that the record in McConnell demonstrated the invalidity of the Act on its face. 551 U.S., at 485-504, 127 S.Ct. 2652 (opinion of SCALIA, J.). The controlling opinion in WRTL, which refrained from holding the statute invalid except as applied to the facts then before the Court, was a careful attempt to accept the essential elements of the Court's opinion in McConnell, while vindicating the First Amendment arguments made by the WRTL parties. 551 U.S., at 482, 127 S.Ct. 2652 (opinion of ROBERTS, C.J.).

As noted above, Citizens United's narrower arguments are not sustainable under a fair reading of the statute. In the exercise of its judicial responsibility, it is necessary then for the Court to consider the facial validity of § 441b. Any other course of decision would prolong the substantial, nation-wide chilling effect caused by § 441b's prohibitions on corporate expenditures. Consideration of the facial validity of § 441b is further supported by the following reasons.

First is the uncertainty caused by the litigating position of the Government. As discussed above, see Part II-D, supra, the Government suggests, as an alternative argument, that an as-applied challenge might have merit. This argument proceeds on the premise that the nonprofit corporation involved here may have received only de minimis donations from for-profit corporations and that some nonprofit corporations may be exempted from the operation of the statute. The Government also suggests that an as-applied challenge to § 441b's ban on books may be successful, although it would defend § 441b's ban as applied to almost every other form of media [895] including pamphlets. See Tr. of Oral Arg. 65-66 (Sept. 9, 2009). The Government thus, by its own position, contributes to the uncertainty that § 441b causes. When the Government holds out the possibility of ruling for Citizens United on a narrow ground yet refrains from adopting that position, the added uncertainty demonstrates the necessity to address the question of statutory validity.

Second, substantial time would be required to bring clarity to the application of the statutory provision on these points in order to avoid any chilling effect caused by some improper interpretation. See Part II-C, supra. It is well known that the public begins to concentrate on elections only in the weeks immediately before they are held. There are short timeframes in which speech can have influence. The need or relevance of the speech will often first be apparent at this stage in the campaign. The decision to speak is made in the heat of political campaigns, when speakers react to messages conveyed by others. A speaker's ability to engage in political speech that could have a chance of persuading voters is stifled if the speaker must first commence a protracted lawsuit. By the time the lawsuit concludes, the election will be over and the litigants in most cases will have neither the incentive nor, perhaps, the resources to carry on, even if they could establish that the case is not moot because the issue is "capable of repetition, yet evading review." WRTL, supra, at 462, 126 S.Ct. 1016 (opinion of ROBERTS, C.J.) (citing Los Angeles v. Lyons, 461 U.S. 95, 109, 103 S.Ct. 1660, 75 L.Ed.2d 675 (1983); Southern Pacific Terminal Co. v. ICC, 219 U.S. 498, 515, 31 S.Ct. 279, 55 L.Ed. 310 (1911)). Here, Citizens United decided to litigate its case to the end. Today, Citizens United finally learns, two years after the fact, whether it could have spoken during the 2008 Presidential primary—long after the opportunity to persuade primary voters has passed.

Third is the primary importance of speech itself to the integrity of the election process. As additional rules are created for regulating political speech, any speech arguably within their reach is chilled. See Part II-A, supra. Campaign finance regulations now impose "unique and complex rules" on "71 distinct entities." Brief for Seven Former Chairmen of FEC et al. as Amici Curiae 11-12. These entities are subject to separate rules for 33 different types of political speech. Id., at 14-15, n. 10. The FEC has adopted 568 pages of regulations, 1,278 pages of explanations and justifications for those regulations, and 1,771 advisory opinions since 1975. See id., at 6, n. 7. In fact, after this Court in WRTL adopted an objective "appeal to vote" test for determining whether a communication was the functional equivalent of express advocacy, 551 U.S., at 470, 127 S.Ct. 2652 (opinion of ROBERTS, C. J.), the FEC adopted a two-part, 11-factor balancing test to implement WRTL's ruling. See 11 CFR § 114.15; Brief for Wyoming Liberty Group et al. as Amici Curiae 17-27 (filed Jan. 15, 2009).

This regulatory scheme may not be a prior restraint on speech in the strict sense of that term, for prospective speakers are not compelled by law to seek an advisory opinion from the FEC before the speech takes place. Cf. Near v. Minnesota ex rel. Olson, 283 U.S. 697, 712-713, 51 S.Ct. 625, 75 L.Ed. 1357 (1931). As a practical matter, however, given the complexity of the regulations and the deference courts show to administrative determinations, a speaker who wants to avoid threats of criminal liability and the heavy costs of defending against FEC enforcement must ask a governmental agency for prior permission to speak. See 2 U.S.C. § 437f; 11 CFR § 112.1. These onerous [896] restrictions thus function as the equivalent of prior restraint by giving the FEC power analogous to licensing laws implemented in 16th- and 17th-century England, laws and governmental practices of the sort that the First Amendment was drawn to prohibit. See Thomas v. Chicago Park Dist., 534 U.S. 316, 320, 122 S.Ct. 775, 151 L.Ed.2d 783 (2002); Lovell v. City of Griffin, 303 U.S. 444, 451-452, 58 S.Ct. 666, 82 L.Ed. 949 (1938); Near, supra, at 713-714, 51 S.Ct. 625. Because the FEC's "business is to censor, there inheres the danger that [it] may well be less responsive than a court—part of an independent branch of government—to the constitutionally protected interests in free expression." Freedman v. Maryland, 380 U.S. 51, 57-58, 85 S.Ct. 734, 13 L.Ed.2d 649 (1965). When the FEC issues advisory opinions that prohibit speech, "[m]any persons, rather than undertake the considerable burden (and sometimes risk) of vindicating their rights through case-by-case litigation, will choose simply to abstain from protected speech—harming not only themselves but society as a whole, which is deprived of an uninhibited marketplace of ideas." Virginia v. Hicks, 539 U.S. 113, 119, 123 S.Ct. 2191, 156 L.Ed.2d 148 (2003) (citation omitted). Consequently, "the censor's determination may in practice be final." Freedman, supra, at 58, 85 S.Ct. 734.

This is precisely what WRTL sought to avoid. WRTL said that First Amendment standards "must eschew `the open-ended rough-and-tumble of factors,' which `invit[es] complex argument in a trial court and a virtually inevitable appeal.'" 551 U.S., at 469, 127 S.Ct. 2652 (opinion of ROBERTS, C.J.) (quoting Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 547, 115 S.Ct. 1043, 130 L.Ed.2d 1024 (1995); alteration in original). Yet, the FEC has created a regime that allows it to select what political speech is safe for public consumption by applying ambiguous tests. If parties want to avoid litigation and the possibility of civil and criminal penalties, they must either refrain from speaking or ask the FEC to issue an advisory opinion approving of the political speech in question. Government officials pore over each word of a text to see if, in their judgment, it accords with the 11-factor test they have promulgated. This is an unprecedented governmental intervention into the realm of speech.

The ongoing chill upon speech that is beyond all doubt protected makes it necessary in this case to invoke the earlier precedents that a statute which chills speech can and must be invalidated where its facial invalidity has been demonstrated. See WRTL, supra, at 482-483, 127 S.Ct. 2652 (ALITO, J., concurring); Thornhill v. Alabama, 310 U.S. 88, 97-98, 60 S.Ct. 736, 84 L.Ed. 1093 (1940). For these reasons we find it necessary to reconsider Austin.

III

The First Amendment provides that "Congress shall make no law . . . abridging the freedom of speech." Laws enacted to control or suppress speech may operate at different points in the speech process. The following are just a few examples of restrictions that have been attempted at different stages of the speech process—all laws found to be invalid: restrictions requiring a permit at the outset, Watchtower Bible & Tract Soc. of N.Y., Inc. v. Village of Stratton, 536 U.S. 150, 153, 122 S.Ct. 2080, 153 L.Ed.2d 205 (2002); imposing a burden by impounding proceeds on receipts or royalties, Simon & Schuster, Inc. v. Members of N.Y. State Crime Victims Bd., 502 U.S. 105, 108, 123, 112 S.Ct. 501, 116 L.Ed.2d 476 (1991); seeking to exact a cost after the speech occurs, New York Times Co. v. Sullivan, 376 U.S., at 267, 84 S.Ct. 710; and subjecting the speaker to [897] criminal penalties, Brandenburg v. Ohio, 395 U.S. 444, 445, 89 S.Ct. 1827, 23 L.Ed.2d 430 (1969) (per curiam).

The law before us is an outright ban, backed by criminal sanctions. Section 441b makes it a felony for all corporations—including nonprofit advocacy corporations—either to expressly advocate the election or defeat of candidates or to broadcast electioneering communications within 30 days of a primary election and 60 days of a general election. Thus, the following acts would all be felonies under § 441b: The Sierra Club runs an ad, within the crucial phase of 60 days before the general election, that exhorts the public to disapprove of a Congressman who favors logging in national forests; the National Rifle Association publishes a book urging the public to vote for the challenger because the incumbent U.S. Senator supports a handgun ban; and the American Civil Liberties Union creates a Web site telling the public to vote for a Presidential candidate in light of that candidate's defense of free speech. These prohibitions are classic examples of censorship.

Section 441b is a ban on corporate speech notwithstanding the fact that a PAC created by a corporation can still speak. See McConnell, 540 U.S., at 330-333, 124 S.Ct. 619 (opinion of KENNEDY, J.). A PAC is a separate association from the corporation. So the PAC exemption from § 441b's expenditure ban, § 441b(b)(2), does not allow corporations to speak. Even if a PAC could somehow allow a corporation to speak—and it does not—the option to form PACs does not alleviate the First Amendment problems with § 441b. PACs are burdensome alternatives; they are expensive to administer and subject to extensive regulations. For example, every PAC must appoint a treasurer, forward donations to the treasurer promptly, keep detailed records of the identities of the persons making donations, preserve receipts for three years, and file an organization statement and report changes to this information within 10 days. See id., at 330-332, 124 S.Ct. 619 (quoting MCFL, 479 U.S., at 253-254, 107 S.Ct. 616).

And that is just the beginning. PACs must file detailed monthly reports with the FEC, which are due at different times depending on the type of election that is about to occur:

"`These reports must contain information regarding the amount of cash on hand; the total amount of receipts, detailed by 10 different categories; the identification of each political committee and candidate's authorized or affiliated committee making contributions, and any persons making loans, providing rebates, refunds, dividends, or interest or any other offset to operating expenditures in an aggregate amount over $200; the total amount of all disbursements, detailed by 12 different categories; the names of all authorized or affiliated committees to whom expenditures aggregating over $200 have been made; persons to whom loan repayments or refunds have been made; the total sum of all contributions, operating expenses, outstanding debts and obligations, and the settlement terms of the retirement of any debt or obligation.'" 540 U.S., at 331-332, 124 S.Ct. 619 (quoting MCFL, supra, at 253-254, 107 S.Ct. 616).

PACs have to comply with these regulations just to speak. This might explain why fewer than 2,000 of the millions of corporations in this country have PACs. See Brief for Seven Former Chairmen of FEC et al. as Amici Curiae 11 (citing FEC, Summary of PAC Activity 1990-2006, online at http://www.fec.gov/press/press2007/ 20071009pac/sumhistory.pdf); IRS, Statistics of Income: 2006, Corporation [898] Income Tax Returns 2 (2009) (hereinafter Statistics of Income) (5.8 million for-profit corporations filed 2006 tax returns). PACs, furthermore, must exist before they can speak. Given the onerous restrictions, a corporation may not be able to establish a PAC in time to make its views known regarding candidates and issues in a current campaign.

Section 441b's prohibition on corporate independent expenditures is thus a ban on speech. As a "restriction on the amount of money a person or group can spend on political communication during a campaign," that statute "necessarily reduces the quantity of expression by restricting the number of issues discussed, the depth of their exploration, and the size of the audience reached." Buckley v. Valeo, 424 U.S. 1, 19, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976) (per curiam). Were the Court to uphold these restrictions, the Government could repress speech by silencing certain voices at any of the various points in the speech process. See McConnell, supra, at 251, 124 S.Ct. 619 (opinion of SCALIA, J.) (Government could repress speech by "attacking all levels of the production and dissemination of ideas," for "effective public communication requires the speaker to make use of the services of others"). If § 441b applied to individuals, no one would believe that it is merely a time, place, or manner restriction on speech. Its purpose and effect are to silence entities whose voices the Government deems to be suspect.

Speech is an essential mechanism of democracy, for it is the means to hold officials accountable to the people. See Buckley, supra, at 14-15, 96 S.Ct. 612 ("In a republic where the people are sovereign, the ability of the citizenry to make informed choices among candidates for office is essential"). The right of citizens to inquire, to hear, to speak, and to use information to reach consensus is a precondition to enlightened self-government and a necessary means to protect it. The First Amendment "`has its fullest and most urgent application' to speech uttered during a campaign for political office." Eu v. San Francisco County Democratic Central Comm., 489 U.S. 214, 223, 109 S.Ct. 1013, 103 L.Ed.2d 271 (1989) (quoting Monitor Patriot Co. v. Roy, 401 U.S. 265, 272, 91 S.Ct. 621, 28 L.Ed.2d 35 (1971)); see Buckley, supra, at 14, 96 S.Ct. 612 ("Discussion of public issues and debate on the qualifications of candidates are integral to the operation of the system of government established by our Constitution").

For these reasons, political speech must prevail against laws that would suppress it, whether by design or inadvertence. Laws that burden political speech are "subject to strict scrutiny," which requires the Government to prove that the restriction "furthers a compelling interest and is narrowly tailored to achieve that interest." WRTL, 551 U.S., at 464, 127 S.Ct. 2652 (opinion of ROBERTS, C.J.). While it might be maintained that political speech simply cannot be banned or restricted as a categorical matter, see Simon & Schuster, 502 U.S., at 124, 112 S.Ct. 501 (KENNEDY, J., concurring in judgment), the quoted language from WRTL provides a sufficient framework for protecting the relevant First Amendment interests in this case. We shall employ it here.

Premised on mistrust of governmental power, the First Amendment stands against attempts to disfavor certain subjects or viewpoints. See, e.g., United States v. Playboy Entertainment Group, Inc., 529 U.S. 803, 813, 120 S.Ct. 1878, 146 L.Ed.2d 865 (2000) (striking down content-based restriction). Prohibited, too, are restrictions distinguishing among different speakers, allowing speech by some but not others. See First Nat. Bank of Boston v. [899] Bellotti, 435 U.S. 765, 784, 98 S.Ct. 1407, 55 L.Ed.2d 707 (1978). As instruments to censor, these categories are interrelated: Speech restrictions based on the identity of the speaker are all too often simply a means to control content.

Quite apart from the purpose or effect of regulating content, moreover, the Government may commit a constitutional wrong when by law it identifies certain preferred speakers. By taking the right to speak from some and giving it to others, the Government deprives the disadvantaged person or class of the right to use speech to strive to establish worth, standing, and respect for the speaker's voice. The Government may not by these means deprive the public of the right and privilege to determine for itself what speech and speakers are worthy of consideration. The First Amendment protects speech and speaker, and the ideas that flow from each.

The Court has upheld a narrow class of speech restrictions that operate to the disadvantage of certain persons, but these rulings were based on an interest in allowing governmental entities to perform their functions. See, e.g., Bethel School Dist. No. 403 v. Fraser, 478 U.S. 675, 683, 106 S.Ct. 3159, 92 L.Ed.2d 549 (1986) (protecting the "function of public school education"); Jones v. North Carolina Prisoners' Labor Union, Inc., 433 U.S. 119, 129, 97 S.Ct. 2532, 53 L.Ed.2d 629 (1977) (furthering "the legitimate penological objectives of the corrections system" (internal quotation marks omitted)); Parker v. Levy, 417 U.S. 733, 759, 94 S.Ct. 2547, 41 L.Ed.2d 439 (1974) (ensuring "the capacity of the Government to discharge its [military] responsibilities" (internal quotation marks omitted)); Civil Service Comm'n v. Letter Carriers, 413 U.S. 548, 557, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973) ("[F]ederal service should depend upon meritorious performance rather than political service"). The corporate independent expenditures at issue in this case, however, would not interfere with governmental functions, so these cases are inapposite. These precedents stand only for the proposition that there are certain governmental functions that cannot operate without some restrictions on particular kinds of speech. By contrast, it is inherent in the nature of the political process that voters must be free to obtain information from diverse sources in order to determine how to cast their votes. At least before Austin, the Court had not allowed the exclusion of a class of speakers from the general public dialogue.

We find no basis for the proposition that, in the context of political speech, the Government may impose restrictions on certain disfavored speakers. Both history and logic lead us to this conclusion.

A

1

The Court has recognized that First Amendment protection extends to corporations. Bellotti, supra, at 778, n. 14, 98 S.Ct. 1407 (citing Linmark Associates, Inc. v. Willingboro, 431 U.S. 85, 97 S.Ct. 1614, 52 L.Ed.2d 155 (1977); Time, Inc. v. Firestone, 424 U.S. 448, 96 S.Ct. 958, 47 L.Ed.2d 154 (1976); Doran v. Salem Inn, Inc., 422 U.S. 922, 95 S.Ct. 2561, 45 L.Ed.2d 648 (1975); Southeastern Promotions, Ltd. v. Conrad, 420 U.S. 546, 95 S.Ct. 1239, 43 L.Ed.2d 448 (1975); Cox Broadcasting Corp. v. Cohn, 420 U.S. 469, 95 S.Ct. 1029, 43 L.Ed.2d 328 (1975); Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241, 94 S.Ct. 2831, 41 L.Ed.2d 730 (1974); New York Times Co. v. United States, 403 U.S. 713, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971) (per curiam); Time, Inc. v. Hill, 385 U.S. 374, 87 S.Ct. 534, 17 L.Ed.2d 456 (1967); New York Times Co. v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686; Kingsley Int'l Pictures Corp. [900] v. Regents of Univ. of N. Y., 360 U.S. 684, 79 S.Ct. 1362, 3 L.Ed.2d 1512 (1959); Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495, 72 S.Ct. 777, 96 L.Ed. 1098 (1952)); see, e.g., Turner Broadcasting System, Inc. v. FCC, 520 U.S. 180, 117 S.Ct. 1174, 137 L.Ed.2d 369 (1997); Denver Area Ed. Telecommunications Consortium, Inc. v. FCC, 518 U.S. 727, 116 S.Ct. 2374, 135 L.Ed.2d 888 (1996); Turner, 512 U.S. 622, 114 S.Ct. 2445, 129 L.Ed.2d 497; Simon & Schuster, 502 U.S. 105, 112 S.Ct. 501, 116 L.Ed.2d 476; Sable Communications of Cal., Inc. v. FCC, 492 U.S. 115, 109 S.Ct. 2829, 106 L.Ed.2d 93 (1989); Florida Star v. B.J. F., 491 U.S. 524, 109 S.Ct. 2603, 105 L.Ed.2d 443 (1989); Philadelphia Newspapers, Inc. v. Hepps, 475 U.S. 767, 106 S.Ct. 1558, 89 L.Ed.2d 783 (1986); Landmark Communications, Inc. v. Virginia, 435 U.S. 829, 98 S.Ct. 1535, 56 L.Ed.2d 1 (1978); Young v. American Mini Theatres, Inc., 427 U.S. 50, 96 S.Ct. 2440, 49 L.Ed.2d 310 (1976); Gertz v. Robert Welch, Inc., 418 U.S. 323, 94 S.Ct. 2997, 41 L.Ed.2d 789 (1974); Greenbelt Cooperative Publishing Assn., Inc. v. Bresler, 398 U.S. 6, 90 S.Ct. 1537, 26 L.Ed.2d 6 (1970).

This protection has been extended by explicit holdings to the context of political speech. See, e.g., Button, 371 U.S., at 428-429, 83 S.Ct. 328; Grosjean v. American Press Co., 297 U.S. 233, 244, 56 S.Ct. 444, 80 L.Ed. 660 (1936). Under the rationale of these precedents, political speech does not lose First Amendment protection "simply because its source is a corporation." Bellotti, supra, at 784, 98 S.Ct. 1407; see Pacific Gas & Elec. Co. v. Public Util. Comm'n of Cal., 475 U.S. 1, 8, 106 S.Ct. 903, 89 L.Ed.2d 1 (1986) (plurality opinion) ("The identity of the speaker is not decisive in determining whether speech is protected. Corporations and other associations, like individuals, contribute to the `discussion, debate, and the dissemination of information and ideas' that the First Amendment seeks to foster" (quoting Bellotti, 435 U.S., at 783, 98 S.Ct. 1407)). The Court has thus rejected the argument that political speech of corporations or other associations should be treated differently under the First Amendment simply because such associations are not "natural persons." Id., at 776, 98 S.Ct. 1407; see id., at 780, n. 16, 98 S.Ct. 1407. Cf. id., at 828, 98 S.Ct. 1407 (Rehnquist, J., dissenting).

At least since the latter part of the 19th century, the laws of some States and of the United States imposed a ban on corporate direct contributions to candidates. See B. Smith, Unfree Speech: The Folly of Campaign Finance Reform 23 (2001). Yet not until 1947 did Congress first prohibit independent expenditures by corporations and labor unions in § 304 of the Labor Management Relations Act 1947, 61 Stat. 159 (codified at 2 U.S.C. § 251 (1946 ed., Supp. I)). In passing this Act Congress overrode the veto of President Truman, who warned that the expenditure ban was a "dangerous intrusion on free speech." Message from the President of the United States, H.R. Doc. No. 334, 89th Cong., 1st Sess., 9 (1947).

For almost three decades thereafter, the Court did not reach the question whether restrictions on corporate and union expenditures are constitutional. See WRTL, 551 U.S., at 502, 127 S.Ct. 2652 (opinion of SCALIA, J.). The question was in the background of United States v. CIO, 335 U.S. 106, 68 S.Ct. 1349, 92 L.Ed. 1849 (1948). There, a labor union endorsed a congressional candidate in its weekly periodical. The Court stated that "the gravest doubt would arise in our minds as to [the federal expenditure prohibition's] constitutionality" if it were construed to suppress that writing. Id., at 121, 68 S.Ct. 1349. The Court engaged in statutory interpretation [901] and found the statute did not cover the publication. Id., at 121-122, and n. 20, 68 S.Ct. 1349. Four Justices, however, said they would reach the constitutional question and invalidate the Labor Management Relations Act's expenditure ban. Id., at 155, 68 S.Ct. 1349 (Rutledge, J., joined by Black, Douglas, and Murphy, JJ., concurring in result). The concurrence explained that any "`undue influence' " generated by a speaker's "large expenditures" was outweighed "by the loss for democratic processes resulting from the restrictions upon free and full public discussion." Id., at 143, 68 S.Ct. 1349.

In United States v. Automobile Workers, 352 U.S. 567, 77 S.Ct. 529, 1 L.Ed.2d 563 (1957), the Court again encountered the independent expenditure ban, which had been recodified at 18 U.S.C. § 610 (1952 ed.). See 62 Stat. 723-724. After holding only that a union television broadcast that endorsed candidates was covered by the statute, the Court "[r]efus[ed] to anticipate constitutional questions" and remanded for the trial to proceed. 352 U.S., at 591, 77 S.Ct. 529. Three Justices dissented, arguing that the Court should have reached the constitutional question and that the ban on independent expenditures was unconstitutional:

"Under our Constitution it is We The People who are sovereign. The people have the final say. The legislators are their spokesmen. The people determine through their votes the destiny of the nation. It is therefore important—vitally important—that all channels of communications be open to them during every election, that no point of view be restrained or barred, and that the people have access to the views of every group in the community." Id., at 593, 77 S.Ct. 529 (opinion of Douglas, J., joined by Warren, C.J., and Black, J.).

The dissent concluded that deeming a particular group "too powerful" was not a "justificatio[n] for withholding First Amendment rights from any group—labor or corporate." Id., at 597, 77 S.Ct. 529. The Court did not get another opportunity to consider the constitutional question in that case; for after a remand, a jury found the defendants not guilty. See Hayward, Revisiting the Fable of Reform, 45 Harv. J. Legis. 421, 463 (2008).

Later, in Pipefitters v. United States, 407 U.S. 385, 400-401, 92 S.Ct. 2247, 33 L.Ed.2d 11 (1972), the Court reversed a conviction for expenditure of union funds for political speech—again without reaching the constitutional question. The Court would not resolve that question for another four years.

2

In Buckley, 424 U.S. 1, 96 S.Ct. 612, 46 L.Ed.2d 659, the Court addressed various challenges to the Federal Election Campaign Act of 1971 (FECA) as amended in 1974. These amendments created 18 U.S.C. § 608(e) (1970 ed., Supp. V), see 88 Stat. 1265, an independent expenditure ban separate from § 610 that applied to individuals as well as corporations and labor unions, Buckley, 424 U.S., at 23, 39, and n. 45, 96 S.Ct. 612.

Before addressing the constitutionality of § 608(e)'s independent expenditure ban, Buckley first upheld § 608(b), FECA's limits on direct contributions to candidates. The Buckley Court recognized a "sufficiently important" governmental interest in "the prevention of corruption and the appearance of corruption." Id., at 25, 96 S.Ct. 612; see id., at 26, 96 S.Ct. 612. This followed from the Court's concern that large contributions could be given "to secure a political quid pro quo." Ibid.

The Buckley Court explained that the potential for quid pro quo corruption distinguished [902] direct contributions to candidates from independent expenditures. The Court emphasized that "the independent expenditure ceiling . . . fails to serve any substantial governmental interest in stemming the reality or appearance of corruption in the electoral process," id., at 47-48, 96 S.Ct. 612, because "[t]he absence of prearrangement and coordination . . . alleviates the danger that expenditures will be given as a quid pro quo for improper commitments from the candidate," id., at 47, 96 S.Ct. 612. Buckley invalidated § 608(e)'s restrictions on independent expenditures, with only one Justice dissenting. See Federal Election Comm'n v. National Conservative Political Action Comm., 470 U.S. 480, 491, 105 S.Ct. 1459, 84 L.Ed.2d 455, n. 3 (1985) (NCPAC).

Buckley did not consider § 610's separate ban on corporate and union independent expenditures, the prohibition that had also been in the background in CIO, Automobile Workers, and Pipefitters. Had § 610 been challenged in the wake of Buckley, however, it could not have been squared with the reasoning and analysis of that precedent. See WRTL, supra, at 487, 127 S.Ct. 2652 (opinion of SCALIA, J.) ("Buckley might well have been the last word on limitations on independent expenditures"); Austin, 494 U.S., at 683, 110 S.Ct. 1391 (SCALIA, J., dissenting). The expenditure ban invalidated in Buckley, § 608(e), applied to corporations and unions, 424 U.S., at 23, 39, n. 45, 96 S.Ct. 612; and some of the prevailing plaintiffs in Buckley were corporations, id., at 8., 96 S.Ct. 612 The Buckley Court did not invoke the First Amendment's overbreadth doctrine, see Broadrick v. Oklahoma, 413 U.S. 601, 615, 93 S.Ct. 2908, 37 L.Ed.2d 830 (1973), to suggest that § 608(e)'s expenditure ban would have been constitutional if it had applied only to corporations and not to individuals, 424 U.S., at 50, 96 S.Ct. 612. Buckley cited with approval the Automobile Workers dissent, which argued that § 610 was unconstitutional. 424 U.S., at 43, 96 S.Ct. 612 (citing 352 U.S., at 595-596, 77 S.Ct. 529 (opinion of Douglas, J.)).

Notwithstanding this precedent, Congress recodified § 610's corporate and union expenditure ban at 2 U.S.C. § 441b four months after Buckley was decided. See 90 Stat. 490. Section 441b is the independent expenditure restriction challenged here.

Less than two years after Buckley, Bellotti, 435 U.S. 765, 98 S.Ct. 1407, 55 L.Ed.2d 707, reaffirmed the First Amendment principle that the Government cannot restrict political speech based on the speaker's corporate identity. Bellotti could not have been clearer when it struck down a state-law prohibition on corporate independent expenditures related to referenda issues:

"We thus find no support in the First. . . Amendment, or in the decisions of this Court, for the proposition that speech that otherwise would be within the protection of the First Amendment loses that protection simply because its source is a corporation that cannot prove, to the satisfaction of a court, a material effect on its business or property.. . . [That proposition] amounts to an impermissible legislative prohibition of speech based on the identity of the interests that spokesmen may represent in public debate over controversial issues and a requirement that the speaker have a sufficiently great interest in the subject to justify communication.

* * * * * *

"In the realm of protected speech, the legislature is constitutionally disqualified from dictating the subjects about which persons may speak and the speakers who may address a public issue." Id., at 784-785, 98 S.Ct. 1407.

[903] It is important to note that the reasoning and holding of Bellotti did not rest on the existence of a viewpoint-discriminatory statute. It rested on the principle that the Government lacks the power to ban corporations from speaking.

Bellotti did not address the constitutionality of the State's ban on corporate independent expenditures to support candidates. In our view, however, that restriction would have been unconstitutional under Bellotti's central principle: that the First Amendment does not allow political speech restrictions based on a speaker's corporate identity. See ibid.

3

Thus the law stood until Austin. Austin "uph[eld] a direct restriction on the independent expenditure of funds for political speech for the first time in [this Court's] history." 494 U.S., at 695, 110 S.Ct. 1391 (KENNEDY, J., dissenting). There, the Michigan Chamber of Commerce sought to use general treasury funds to run a newspaper ad supporting a specific candidate. Michigan law, however, prohibited corporate independent expenditures that supported or opposed any candidate for state office. A violation of the law was punishable as a felony. The Court sustained the speech prohibition.

To bypass Buckley and Bellotti, the Austin Court identified a new governmental interest in limiting political speech: an antidistortion interest. Austin found a compelling governmental interest in preventing "the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public's support for the corporation's political ideas." 494 U.S., at 660, 110 S.Ct. 1391; see id., at 659, 110 S.Ct. 1391 (citing MCFL, 479 U.S., at 257, 107 S.Ct. 616; NCPAC, 470 U.S., at 500-501, 105 S.Ct. 1459).

B

The Court is thus confronted with conflicting lines of precedent: a pre-Austin line that forbids restrictions on political speech based on the speaker's corporate identity and a post-Austin line that permits them. No case before Austin had held that Congress could prohibit independent expenditures for political speech based on the speaker's corporate identity. Before Austin Congress had enacted legislation for this purpose, and the Government urged the same proposition before this Court. See MCFL, supra, at 257, 107 S.Ct. 616 (FEC posited that Congress intended to "curb the political influence of `those who exercise control over large aggregations of capital'" (quoting Automobile Workers, supra, at 585, 77 S.Ct. 529)); California Medical Assn. v. Federal Election Comm'n, 453 U.S. 182, 201, 101 S.Ct. 2712, 69 L.Ed.2d 567 (1981) (Congress believed that "differing structures and purposes" of corporations and unions "may require different forms of regulation in order to protect the integrity of the electoral process"). In neither of these cases did the Court adopt the proposition.

In its defense of the corporate-speech restrictions in § 441b, the Government notes the antidistortion rationale on which Austin and its progeny rest in part, yet it all but abandons reliance upon it. It argues instead that two other compelling interests support Austin's holding that corporate expenditure restrictions are constitutional: an anticorruption interest, see 494 U.S., at 678, 110 S.Ct. 1391 (STEVENS, J., concurring), and a shareholder-protection interest, see id., at 674-675, 110 S.Ct. 1391 (Brennan, J., concurring). We consider the three points in turn.

[904] 1

As for Austin's antidistortion rationale, the Government does little to defend it. See Tr. of Oral Arg. 45-48 (Sept. 9, 2009). And with good reason, for the rationale cannot support § 441b.

If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech. If the antidistortion rationale were to be accepted, however, it would permit Government to ban political speech simply because the speaker is an association that has taken on the corporate form. The Government contends that Austin permits it to ban corporate expenditures for almost all forms of communication stemming from a corporation. See Part II-E, supra; Tr. of Oral Arg. 66 (Sept. 9, 2009); see also id., at 26-31 (Mar. 24, 2009). If Austin were correct, the Government could prohibit a corporation from expressing political views in media beyond those presented here, such as by printing books. The Government responds "that the FEC has never applied this statute to a book," and if it did, "there would be quite [a] good as-applied challenge." Tr. of Oral Arg. 65 (Sept. 9, 2009). This troubling assertion of brooding governmental power cannot be reconciled with the confidence and stability in civic discourse that the First Amendment must secure.

Political speech is "indispensable to decisionmaking in a democracy, and this is no less true because the speech comes from a corporation rather than an individual." Bellotti, 435 U.S., at 777, 98 S.Ct. 1407 (footnote omitted); see ibid. (the worth of speech "does not depend upon the identity of its source, whether corporation, association, union, or individual"); Buckley, 424 U.S., at 48-49, 96 S.Ct. 612 ("[T]he concept that government may restrict the speech of some elements of our society in order to enhance the relative voice of others is wholly foreign to the First Amendment"); Automobile Workers, 352 U.S., at 597, 77 S.Ct. 529 (Douglas, J., dissenting); CIO, 335 U.S., at 154-155, 68 S.Ct. 1349 (Rutledge, J., concurring in result). This protection for speech is inconsistent with Austin's antidistortion rationale. Austin sought to defend the antidistortion rationale as a means to prevent corporations from obtaining "`an unfair advantage in the political marketplace'" by using "`resources amassed in the economic marketplace.' " 494 U.S., at 659, 110 S.Ct. 1391 (quoting MCFL, supra, at 257, 107 S.Ct. 616). But Buckley rejected the premise that the Government has an interest "in equalizing the relative ability of individuals and groups to influence the outcome of elections." 424 U.S., at 48, 96 S.Ct. 612; see Bellotti, supra, at 791, n. 30, 98 S.Ct. 1407. Buckley was specific in stating that "the skyrocketing cost of political campaigns" could not sustain the governmental prohibition. 424 U.S., at 26, 96 S.Ct. 612. The First Amendment's protections do not depend on the speaker's "financial ability to engage in public discussion." Id., at 49, 96 S.Ct. 612.

The Court reaffirmed these conclusions when it invalidated the BCRA provision that increased the cap on contributions to one candidate if the opponent made certain expenditures from personal funds. See Davis v. Federal Election Comm'n, 554 U.S. ___, ___, 128 S.Ct. 2759, 2774, 171 L.Ed.2d 737 (2008) ("Leveling electoral opportunities means making and implementing judgments about which strengths should be permitted to contribute to the outcome of an election. The Constitution, however, confers upon voters, not Congress, the power to choose the Members of the House of Representatives, Art. I, § 2, and it is a dangerous business for Congress to use the election laws to influence [905] the voters' choices"). The rule that political speech cannot be limited based on a speaker's wealth is a necessary consequence of the premise that the First Amendment generally prohibits the suppression of political speech based on the speaker's identity.

Either as support for its antidistortion rationale or as a further argument, the Austin majority undertook to distinguish wealthy individuals from corporations on the ground that "[s]tate law grants corporations special advantages—such as limited liability, perpetual life, and favorable treatment of the accumulation and distribution of assets." 494 U.S., at 658-659, 110 S.Ct. 1391. This does not suffice, however, to allow laws prohibiting speech. "It is rudimentary that the State cannot exact as the price of those special advantages the forfeiture of First Amendment rights." Id., at 680, 110 S.Ct. 1391 (SCALIA, J., dissenting).

It is irrelevant for purposes of the First Amendment that corporate funds may "have little or no correlation to the public's support for the corporation's political ideas." Id., at 660, 110 S.Ct. 1391 (majority opinion). All speakers, including individuals and the media, use money amassed from the economic marketplace to fund their speech. The First Amendment protects the resulting speech, even if it was enabled by economic transactions with persons or entities who disagree with the speaker's ideas. See id., at 707, 110 S.Ct. 1391 (KENNEDY, J., dissenting) ("Many persons can trace their funds to corporations, if not in the form of donations, then in the form of dividends, interest, or salary").

Austin's antidistortion rationale would produce the dangerous, and unacceptable, consequence that Congress could ban political speech of media corporations. See McConnell, 540 U.S., at 283, 124 S.Ct. 619 (opinion of THOMAS, J.) ("The chilling endpoint of the Court's reasoning is not difficult to foresee: outright regulation of the press"). Cf. Tornillo, 418 U.S., at 250, 94 S.Ct. 2831 (alleging the existence of "vast accumulations of unreviewable power in the modern media empires"). Media corporations are now exempt from § 441b's ban on corporate expenditures. See 2 U.S.C. §§ 431(9)(B)(i), 434(f)(3)(B)(i). Yet media corporations accumulate wealth with the help of the corporate form, the largest media corporations have "immense aggregations of wealth," and the views expressed by media corporations often "have little or no correlation to the public's support" for those views. Austin, 494 U.S., at 660, 110 S.Ct. 1391. Thus, under the Government's reasoning, wealthy media corporations could have their voices diminished to put them on par with other media entities. There is no precedent for permitting this under the First Amendment.

The media exemption discloses further difficulties with the law now under consideration. There is no precedent supporting laws that attempt to distinguish between corporations which are deemed to be exempt as media corporations and those which are not. "We have consistently rejected the proposition that the institutional press has any constitutional privilege beyond that of other speakers." Id., at 691, 110 S.Ct. 1391 (SCALIA, J., dissenting) (citing Bellotti, 435 U.S., at 782, 98 S.Ct. 1407); see Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749, 784, 105 S.Ct. 2939, 86 L.Ed.2d 593 (1985) (Brennan, J., joined by Marshall, Blackmun, and STEVENS, JJ., dissenting); id., at 773, 105 S.Ct. 2939 (White, J., concurring in judgment). With the advent of the Internet and the decline of print and broadcast media, moreover, the line between the media and others who wish to [906] comment on political and social issues becomes far more blurred.

The law's exception for media corporations is, on its own terms, all but an admission of the invalidity of the antidistortion rationale. And the exemption results in a further, separate reason for finding this law invalid: Again by its own terms, the law exempts some corporations but covers others, even though both have the need or the motive to communicate their views. The exemption applies to media corporations owned or controlled by corporations that have diverse and substantial investments and participate in endeavors other than news. So even assuming the most doubtful proposition that a news organization has a right to speak when others do not, the exemption would allow a conglomerate that owns both a media business and an unrelated business to influence or control the media in order to advance its overall business interest. At the same time, some other corporation, with an identical business interest but no media outlet in its ownership structure, would be forbidden to speak or inform the public about the same issue. This differential treatment cannot be squared with the First Amendment.

There is simply no support for the view that the First Amendment, as originally understood, would permit the suppression of political speech by media corporations. The Framers may not have anticipated modern business and media corporations. See McIntyre v. Ohio Elections Comm'n, 514 U.S. 334, 360-361, 115 S.Ct. 1511, 131 L.Ed.2d 426 (1995) (Thomas, J., concurring in judgment). Yet television networks and major newspapers owned by media corporations have become the most important means of mass communication in modern times. The First Amendment was certainly not understood to condone the suppression of political speech in society's most salient media. It was understood as a response to the repression of speech and the press that had existed in England and the heavy taxes on the press that were imposed in the colonies. See McConnell, 540 U.S., at 252-253, 124 S.Ct. 619 (opinion of SCALIA, J.); Grosjean, 297 U.S., at 245-248, 56 S.Ct. 444; Near, 283 U.S., at 713-714, 51 S.Ct. 625. The great debates between the Federalists and the Anti-Federalists over our founding document were published and expressed in the most important means of mass communication of that era—newspapers owned by individuals. See McIntyre, 514 U.S., at 341-343, 115 S.Ct. 1511; id., at 367, 115 S.Ct. 1511 (THOMAS, J., concurring in judgment). At the founding, speech was open, comprehensive, and vital to society's definition of itself; there were no limits on the sources of speech and knowledge. See B. Bailyn, Ideological Origins of the American Revolution 5 (1967) ("Any number of people could join in such proliferating polemics, and rebuttals could come from all sides"); G. Wood, Creation of the American Republic 1776-1787, p. 6 (1969) ("[I]t is not surprising that the intellectual sources of [the Americans'] Revolutionary thought were profuse and various"). The Framers may have been unaware of certain types of speakers or forms of communication, but that does not mean that those speakers and media are entitled to less First Amendment protection than those types of speakers and media that provided the means of communicating political ideas when the Bill of Rights was adopted.

Austin interferes with the "open marketplace" of ideas protected by the First Amendment. New York State Bd. of Elections v. Lopez Torres, 552 U.S. 196, 208, 128 S.Ct. 791, 169 L.Ed.2d 665 (2008); see ibid. (ideas "may compete" in this marketplace "without government interference"); McConnell, supra, at 274, 124 S.Ct. 619 (opinion of THOMAS, J.). It permits the [907] Government to ban the political speech of millions of associations of citizens. See Statistics of Income 2 (5.8 million for-profit corporations filed 2006 tax returns). Most of these are small corporations without large amounts of wealth. See Supp. Brief for Chamber of Commerce of the United States of America as Amicus Curiae 1, 3 (96% of the 3 million businesses that belong to the U.S. Chamber of Commerce have fewer than 100 employees); M. Keightley, Congressional Research Service Report for Congress, Business Organizational Choices: Taxation and Responses to Legislative Changes 10 (2009) (more than 75% of corporations whose income is taxed under federal law, see 26 U.S.C. § 301, have less than $1 million in receipts per year). This fact belies the Government's argument that the statute is justified on the ground that it prevents the "distorting effects of immense aggregations of wealth." Austin, 494 U.S., at 660, 110 S.Ct. 1391. It is not even aimed at amassed wealth.

The censorship we now confront is vast in its reach. The Government has "muffle[d] the voices that best represent the most significant segments of the economy." McConnell, supra, at 257-258, 124 S.Ct. 619 (opinion of SCALIA, J.). And "the electorate [has been] deprived of information, knowledge and opinion vital to its function." CIO, 335 U.S., at 144, 68 S.Ct. 1349 (Rutledge, J., concurring in result). By suppressing the speech of manifold corporations, both for-profit and nonprofit, the Government prevents their voices and viewpoints from reaching the public and advising voters on which persons or entities are hostile to their interests. Factions will necessarily form in our Republic, but the remedy of "destroying the liberty" of some factions is "worse than the disease." The Federalist No. 10, p. 130 (B. Wright ed.1961) (J. Madison). Factions should be checked by permitting them all to speak, see ibid., and by entrusting the people to judge what is true and what is false.

The purpose and effect of this law is to prevent corporations, including small and nonprofit corporations, from presenting both facts and opinions to the public. This makes Austin's antidistortion rationale all the more an aberration. "[T]he First Amendment protects the right of corporations to petition legislative and administrative bodies." Bellotti, 435 U.S., at 792, n. 31, 98 S.Ct. 1407 (citing California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 510-511, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972); Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 137-138, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961)). Corporate executives and employees counsel Members of Congress and Presidential administrations on many issues, as a matter of routine and often in private. An amici brief filed on behalf of Montana and 25 other States notes that lobbying and corporate communications with elected officials occur on a regular basis. Brief for State of Montana et al. as Amici Curiae 19. When that phenomenon is coupled with § 441b, the result is that smaller or nonprofit corporations cannot raise a voice to object when other corporations, including those with vast wealth, are cooperating with the Government. That cooperation may sometimes be voluntary, or it may be at the demand of a Government official who uses his or her authority, influence, and power to threaten corporations to support the Government's policies. Those kinds of interactions are often unknown and unseen. The speech that § 441b forbids, though, is public, and all can judge its content and purpose. References to massive corporate treasuries should not mask the real operation of this law. Rhetoric ought not obscure reality.

[908] Even if § 441b's expenditure ban were constitutional, wealthy corporations could still lobby elected officials, although smaller corporations may not have the resources to do so. And wealthy individuals and unincorporated associations can spend unlimited amounts on independent expenditures. See, e.g., WRTL, 551 U.S., at 503-504, 127 S.Ct. 2652 (opinion of SCALIA, J.) ("In the 2004 election cycle, a mere 24 individuals contributed an astounding total of $142 million to [26 U.S.C. § 527 organizations]"). Yet certain disfavored associations of citizens—those that have taken on the corporate form—are penalized for engaging in the same political speech.

When Government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought. This is unlawful. The First Amendment confirms the freedom to think for ourselves.

2

What we have said also shows the invalidity of other arguments made by the Government. For the most part relinquishing the antidistortion rationale, the Government falls back on the argument that corporate political speech can be banned in order to prevent corruption or its appearance. In Buckley, the Court found this interest "sufficiently important" to allow limits on contributions but did not extend that reasoning to expenditure limits. 424 U.S., at 25, 96 S.Ct. 612. When Buckley examined an expenditure ban, it found "that the governmental interest in preventing corruption and the appearance of corruption [was] inadequate to justify [the ban] on independent expenditures." Id., at 45, 96 S.Ct. 612.

With regard to large direct contributions, Buckley reasoned that they could be given "to secure a political quid pro quo," id., at 26, 96 S.Ct. 612, and that "the scope of such pernicious practices can never be reliably ascertained," id., at 27, 96 S.Ct. 612. The practices Buckley noted would be covered by bribery laws, see, e.g., 18 U.S.C. § 201, if a quid pro quo arrangement were proved. See Buckley, supra, at 27, and n. 28, 96 S.Ct. 612 (citing Buckley v. Valeo, 519 F.2d 821, 839-840, and nn. 36-38 (CADC 1975) (en banc) (per curiam)). The Court, in consequence, has noted that restrictions on direct contributions are preventative, because few if any contributions to candidates will involve quid pro quo arrangements. MCFL, 479 U.S., at 260, 107 S.Ct. 616; NCPAC, 470 U.S., at 500, 105 S.Ct. 1459; Federal Election Comm'n v. National Right to Work Comm., 459 U.S. 197, 210, 103 S.Ct. 552, 74 L.Ed.2d 364 (1982) (NRWC). The Buckley Court, nevertheless, sustained limits on direct contributions in order to ensure against the reality or appearance of corruption. That case did not extend this rationale to independent expenditures, and the Court does not do so here.

"The absence of prearrangement and coordination of an expenditure with the candidate or his agent not only undermines the value of the expenditure to the candidate, but also alleviates the danger that expenditures will be given as a quid pro quo for improper commitments from the candidate." Buckley, 424 U.S., at 47, 96 S.Ct. 612; see ibid. (independent expenditures have a "substantially diminished potential for abuse"). Limits on independent expenditures, such as § 441b, have a chilling effect extending well beyond the Government's interest in preventing quid pro quo corruption. The anticorruption interest is not sufficient to displace the speech here in question. Indeed, 26 States do not restrict independent expenditures [909] by for-profit corporations. The Government does not claim that these expenditures have corrupted the political process in those States. See Supp. Brief for Appellee 18, n. 3; Supp. Brief for Chamber of Commerce of the United States of America as Amicus Curiae 8-9, n. 5.

A single footnote in Bellotti purported to leave open the possibility that corporate independent expenditures could be shown to cause corruption. 435 U.S., at 788, n. 26, 98 S.Ct. 1407. For the reasons explained above, we now conclude that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption. Dicta in Bellotti's footnote suggested that "a corporation's right to speak on issues of general public interest implies no comparable right in the quite different context of participation in a political campaign for election to public office." Ibid. Citing the portion of Buckley that invalidated the federal independent expenditure ban, 424 U.S., at 46, 96 S.Ct. 612, and a law review student comment, Bellotti surmised that "Congress might well be able to demonstrate the existence of a danger of real or apparent corruption in independent expenditures by corporations to influence candidate elections." 435 U.S., at 788, n. 26, 98 S.Ct. 1407. Buckley, however, struck down a ban on independent expenditures to support candidates that covered corporations, 424 U.S., at 23, 39, n. 45, 96 S.Ct. 612, and explained that "the distinction between discussion of issues and candidates and advocacy of election or defeat of candidates may often dissolve in practical application," id., at 42, 96 S.Ct. 612. Bellotti's dictum is thus supported only by a law review student comment, which misinterpreted Buckley. See Comment, The Regulation of Union Political Activity: Majority and Minority Rights and Remedies, 126 U. Pa. L.Rev. 386, 408 (1977) (suggesting that "corporations and labor unions should be held to different and more stringent standards than an individual or other associations under a regulatory scheme for campaign financing").

Seizing on this aside in Bellotti's footnote, the Court in NRWC did say there is a "sufficient" governmental interest in "ensur[ing] that substantial aggregations of wealth amassed" by corporations would not "be used to incur political debts from legislators who are aided by the contributions." 459 U.S., at 207-208, 103 S.Ct. 552 (citing Automobile Workers, 352 U.S., at 579, 77 S.Ct. 529); see 459 U.S., at 210, and n. 7, 103 S.Ct. 552; NCPAC, supra, at 500-501, 105 S.Ct. 1459 (NRWC suggested a governmental interest in restricting "the influence of political war chests funneled through the corporate form"). NRWC, however, has little relevance here. NRWC decided no more than that a restriction on a corporation's ability to solicit funds for its segregated PAC, which made direct contributions to candidates, did not violate the First Amendment. 459 U.S., at 206, 103 S.Ct. 552. NRWC thus involved contribution limits, see NCPAC, supra, at 495-496, 105 S.Ct. 1459, which, unlike limits on independent expenditures, have been an accepted means to prevent quid pro quo corruption, see McConnell, 540 U.S., at 136-138, and n. 40, 124 S.Ct. 619; MCFL, supra, at 259-260, 107 S.Ct. 616. Citizens United has not made direct contributions to candidates, and it has not suggested that the Court should reconsider whether contribution limits should be subjected to rigorous First Amendment scrutiny.

When Buckley identified a sufficiently important governmental interest in preventing corruption or the appearance of corruption, that interest was limited to quid pro quo corruption. See McConnell, supra, at 296-298, 124 S.Ct. 619 (opinion of [910] KENNEDY, J.) (citing Buckley, supra, at 26-28, 30, 46-48, 96 S.Ct. 612); NCPAC, 470 U.S., at 497, 105 S.Ct. 1459 ("The hallmark of corruption is the financial quid pro quo: dollars for political favors"); id., at 498, 105 S.Ct. 1459. The fact that speakers may have influence over or access to elected officials does not mean that these officials are corrupt:

"Favoritism and influence are not . . . avoidable in representative politics. It is in the nature of an elected representative to favor certain policies, and, by necessary corollary, to favor the voters and contributors who support those policies. It is well understood that a substantial and legitimate reason, if not the only reason, to cast a vote for, or to make a contribution to, one candidate over another is that the candidate will respond by producing those political outcomes the supporter favors. Democracy is premised on responsiveness." McConnell, 540 U.S., at 297, 124 S.Ct. 619 (opinion of KENNEDY, J.).

Reliance on a "generic favoritism or influence theory . . . is at odds with standard First Amendment analyses because it is unbounded and susceptible to no limiting principle." Id., at 296, 124 S.Ct. 619.

The appearance of influence or access, furthermore, will not cause the electorate to lose faith in our democracy. By definition, an independent expenditure is political speech presented to the electorate that is not coordinated with a candidate. See Buckley, supra, at 46, 96 S.Ct. 612. The fact that a corporation, or any other speaker, is willing to spend money to try to persuade voters presupposes that the people have the ultimate influence over elected officials. This is inconsistent with any suggestion that the electorate will refuse "`to take part in democratic governance'" because of additional political speech made by a corporation or any other speaker. McConnell, supra, at 144, 124 S.Ct. 619 (quoting Nixon v. Shrink Missouri Government PAC, 528 U.S. 377, 390, 120 S.Ct. 897, 145 L.Ed.2d 886 (2000)).

Caperton v. A.T. Massey Coal Co., 556 U.S. ___, 129 S.Ct. 2252, 173 L.Ed.2d 1208 (2009), is not to the contrary. Caperton held that a judge was required to recuse himself "when a person with a personal stake in a particular case had a significant and disproportionate influence in placing the judge on the case by raising funds or directing the judge's election campaign when the case was pending or imminent." Id., at ___, 129 S.Ct., at 2263-2264. The remedy of recusal was based on a litigant's due process right to a fair trial before an unbiased judge. See Withrow v. Larkin, 421 U.S. 35, 46, 95 S.Ct. 1456, 43 L.Ed.2d 712 (1975). Caperton's holding was limited to the rule that the judge must be recused, not that the litigant's political speech could be banned.

The McConnell record was "over 100,000 pages" long, McConnell I, 251 F.Supp.2d, at 209, yet it "does not have any direct examples of votes being exchanged for . . . expenditures," id., at 560 (opinion of Kollar-Kotelly, J.). This confirms Buckley's reasoning that independent expenditures do not lead to, or create the appearance of, quid pro quo corruption. In fact, there is only scant evidence that independent expenditures even ingratiate. See 251 F.Supp.2d, at 555-557 (opinion of Kollar-Kotelly, J.). Ingratiation and access, in any event, are not corruption. The BCRA record establishes that certain donations to political parties, called "soft money," were made to gain access to elected officials. McConnell, supra, at 125, 130-131, 146-152, 124 S.Ct. 619; see McConnell I, 251 F.Supp.2d, at 471-481, 491-506 (opinion of Kollar-Kotelly, J.); id., at 842-843, 858-859 (opinion of Leon, J.). This case, however, is about [911] independent expenditures, not soft money. When Congress finds that a problem exists, we must give that finding due deference; but Congress may not choose an unconstitutional remedy. If elected officials succumb to improper influences from independent expenditures; if they surrender their best judgment; and if they put expediency before principle, then surely there is cause for concern. We must give weight to attempts by Congress to seek to dispel either the appearance or the reality of these influences. The remedies enacted by law, however, must comply with the First Amendment; and, it is our law and our tradition that more speech, not less, is the governing rule. An outright ban on corporate political speech during the critical preelection period is not a permissible remedy. Here Congress has created categorical bans on speech that are asymmetrical to preventing quid pro quo corruption.

3

The Government contends further that corporate independent expenditures can be limited because of its interest in protecting dissenting shareholders from being compelled to fund corporate political speech. This asserted interest, like Austin's antidistortion rationale, would allow the Government to ban the political speech even of media corporations. See supra, at 905-906. Assume, for example, that a shareholder of a corporation that owns a newspaper disagrees with the political views the newspaper expresses. See Austin, 494 U.S., at 687, 110 S.Ct. 1391 (SCALIA, J., dissenting). Under the Government's view, that potential disagreement could give the Government the authority to restrict the media corporation's political speech. The First Amendment does not allow that power. There is, furthermore, little evidence of abuse that cannot be corrected by shareholders "through the procedures of corporate democracy." Bellotti, 435 U.S., at 794, 98 S.Ct. 1407; see id., at 794, n. 34, 98 S.Ct. 1407.

Those reasons are sufficient to reject this shareholder-protection interest; and, moreover, the statute is both underinclusive and overinclusive. As to the first, if Congress had been seeking to protect dissenting shareholders, it would not have banned corporate speech in only certain media within 30 or 60 days before an election. A dissenting shareholder's interests would be implicated by speech in any media at any time. As to the second, the statute is overinclusive because it covers all corporations, including nonprofit corporations and for-profit corporations with only single shareholders. As to other corporations, the remedy is not to restrict speech but to consider and explore other regulatory mechanisms. The regulatory mechanism here, based on speech, contravenes the First Amendment.

4

We need not reach the question whether the Government has a compelling interest in preventing foreign individuals or associations from influencing our Nation's political process. Cf. 2 U.S.C. § 441e (contribution and expenditure ban applied to "foreign national[s]"). Section 441b is not limited to corporations or associations that were created in foreign countries or funded predominately by foreign shareholders. Section 441b therefore would be overbroad even if we assumed, arguendo, that the Government has a compelling interest in limiting foreign influence over our political process. See Broadrick, 413 U.S., at 615, 93 S.Ct. 2908.

C

Our precedent is to be respected unless the most convincing of reasons demonstrates that adherence to it puts us [912] on a course that is sure error. "Beyond workability, the relevant factors in deciding whether to adhere to the principle of stare decisis include the antiquity of the precedent, the reliance interests at stake, and of course whether the decision was well reasoned." Montejo v. Louisiana, 556 U.S. ___, ___, 129 S.Ct. 2079, 2088-2089, 173 L.Ed.2d 955 (2009) (overruling Michigan v. Jackson, 475 U.S. 625, 106 S.Ct. 1404, 89 L.Ed.2d 631 (1986)). We have also examined whether "experience has pointed up the precedent's shortcomings." Pearson v. Callahan, 555 U.S. ___, ___, 129 S.Ct. 808, 816, 172 L.Ed.2d 565 (2009) (overruling Saucier v. Katz, 533 U.S. 194, 121 S.Ct. 2151, 150 L.Ed.2d 272 (2001)).

These considerations counsel in favor of rejecting Austin, which itself contravened this Court's earlier precedents in Buckley and Bellotti. "This Court has not hesitated to overrule decisions offensive to the First Amendment." WRTL, 551 U.S., at 500, 127 S.Ct. 2652 (opinion of SCALIA, J.). "[S]tare decisis is a principle of policy and not a mechanical formula of adherence to the latest decision." Helvering v. Hallock, 309 U.S. 106, 119, 60 S.Ct. 444, 84 L.Ed. 604 (1940).

For the reasons above, it must be concluded that Austin was not well reasoned. The Government defends Austin, relying almost entirely on "the quid pro quo interest, the corruption interest or the shareholder interest," and not Austin's expressed antidistortion rationale. Tr. of Oral Arg. 48 (Sept. 9, 2009); see id., at 45-46. When neither party defends the reasoning of a precedent, the principle of adhering to that precedent through stare decisis is diminished. Austin abandoned First Amendment principles, furthermore, by relying on language in some of our precedents that traces back to the Automobile Workers Court's flawed historical account of campaign finance laws, see Brief for Campaign Finance Scholars as Amici Curiae; Hayward, 45 Harv. J. Legis. 421; R. Mutch, Campaigns, Congress, and Courts 33-35, 153-157 (1988). See Austin, supra, at 659, 110 S.Ct. 1391 (quoting MCFL, 479 U.S., at 257-258, 107 S.Ct. 616; NCPAC, 470 U.S., at 500-501, 105 S.Ct. 1459); MCFL, supra, at 257, 107 S.Ct. 616 (quoting Automobile Workers, 352 U.S., at 585, 77 S.Ct. 529); NCPAC, supra, at 500, 105 S.Ct. 1459 (quoting NRWC, 459 U.S., at 210, 103 S.Ct. 552); id., at 208, 103 S.Ct. 552 ("The history of the movement to regulate the political contributions and expenditures of corporations and labor unions is set forth in great detail in [Automobile Workers], supra, at 570-584, 77 S.Ct. 529, and we need only summarize the development here").

Austin is undermined by experience since its announcement. Political speech is so ingrained in our culture that speakers find ways to circumvent campaign finance laws. See, e.g., McConnell, 540 U.S., at 176-177, 124 S.Ct. 619 ("Given BCRA's tighter restrictions on the raising and spending of soft money, the incentives . . . to exploit [26 U.S.C. § 527] organizations will only increase"). Our Nation's speech dynamic is changing, and informative voices should not have to circumvent onerous restrictions to exercise their First Amendment rights. Speakers have become adept at presenting citizens with sound bites, talking points, and scripted messages that dominate the 24-hour news cycle. Corporations, like individuals, do not have monolithic views. On certain topics corporations may possess valuable expertise, leaving them the best equipped to point out errors or fallacies in speech of all sorts, including the speech of candidates and elected officials.

Rapid changes in technology—and the creative dynamic inherent in the concept of [913] free expression—counsel against upholding a law that restricts political speech in certain media or by certain speakers. See Part II-C, supra. Today, 30-second television ads may be the most effective way to convey a political message. See McConnell, supra, at 261, 124 S.Ct. 619 (opinion of SCALIA, J.). Soon, however, it may be that Internet sources, such as blogs and social networking Web sites, will provide citizens with significant information about political candidates and issues. Yet, § 441b would seem to ban a blog post expressly advocating the election or defeat of a candidate if that blog were created with corporate funds. See 2 U.S.C. § 441b(a); MCFL, supra, at 249, 107 S.Ct. 616. The First Amendment does not permit Congress to make these categorical distinctions based on the corporate identity of the speaker and the content of the political speech.

No serious reliance interests are at stake. As the Court stated in Payne v. Tennessee, 501 U.S. 808, 828, 111 S.Ct. 2597, 115 L.Ed.2d 720 (1991), reliance interests are important considerations in property and contract cases, where parties may have acted in conformance with existing legal rules in order to conduct transactions. Here, though, parties have been prevented from acting—corporations have been banned from making independent expenditures. Legislatures may have enacted bans on corporate expenditures believing that those bans were constitutional. This is not a compelling interest for stare decisis. If it were, legislative acts could prevent us from overruling our own precedents, thereby interfering with our duty "to say what the law is." Marbury v. Madison, 1 Cranch 137, 177, 2 L.Ed. 60 (1803).

Due consideration leads to this conclusion: Austin, 494 U.S. 652, 110 S.Ct. 1391, 108 L.Ed.2d 652, should be and now is overruled. We return to the principle established in Buckley and Bellotti that the Government may not suppress political speech on the basis of the speaker's corporate identity. No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.

D

Austin is overruled, so it provides no basis for allowing the Government to limit corporate independent expenditures. As the Government appears to concede, overruling Austin "effectively invalidate[s] not only BCRA Section 203, but also 2 U.S.C. 441b's prohibition on the use of corporate treasury funds for express advocacy." Brief for Appellee 33, n. 12. Section 441b's restrictions on corporate independent expenditures are therefore invalid and cannot be applied to Hillary.

Given our conclusion we are further required to overrule the part of McConnell that upheld BCRA § 203's extension of § 441b's restrictions on corporate independent expenditures. See 540 U.S., at 203-209, 124 S.Ct. 619. The McConnell Court relied on the antidistortion interest recognized in Austin to uphold a greater restriction on speech than the restriction upheld in Austin, see 540 U.S., at 205, 124 S.Ct. 619, and we have found this interest unconvincing and insufficient. This part of McConnell is now overruled.

IV

A

Citizens United next challenges BCRA's disclaimer and disclosure provisions as applied to Hillary and the three advertisements for the movie. Under BCRA § 311, televised electioneering communications funded by anyone other than a candidate must include a disclaimer that [914] "`______ is responsible for the content of this advertising.'" 2 U.S.C. § 441d(d)(2). The required statement must be made in a "clearly spoken manner," and displayed on the screen in a "clearly readable manner" for at least four seconds. Ibid. It must state that the communication "is not authorized by any candidate or candidate's committee"; it must also display the name and address (or Web site address) of the person or group that funded the advertisement. § 441d(a)(3). Under BCRA § 201, any person who spends more than $10,000 on electioneering communications within a calendar year must file a disclosure statement with the FEC. 2 U.S.C. § 434(f)(1). That statement must identify the person making the expenditure, the amount of the expenditure, the election to which the communication was directed, and the names of certain contributors. § 434(f)(2).

Disclaimer and disclosure requirements may burden the ability to speak, but they "impose no ceiling on campaign-related activities," Buckley, 424 U.S., at 64, 96 S.Ct. 612, and "do not prevent anyone from speaking," McConnell, supra, at 201, 124 S.Ct. 619 (internal quotation marks and brackets omitted). The Court has subjected these requirements to "exacting scrutiny," which requires a "substantial relation" between the disclosure requirement and a "sufficiently important" governmental interest. Buckley, supra, at 64, 66, 96 S.Ct. 612 (internal quotation marks omitted); see McConnell, supra, at 231-232, 124 S.Ct. 619.

In Buckley, the Court explained that disclosure could be justified based on a governmental interest in "provid[ing] the electorate with information" about the sources of election-related spending. 424 U.S., at 66, 96 S.Ct. 612. The McConnell Court applied this interest in rejecting facial challenges to BCRA §§ 201 and 311. 540 U.S., at 196, 124 S.Ct. 619. There was evidence in the record that independent groups were running election-related advertisements "`while hiding behind dubious and misleading names.'" Id., at 197, 124 S.Ct. 619 (quoting McConnell I, 251 F.Supp.2d, at 237). The Court therefore upheld BCRA §§ 201 and 311 on the ground that they would help citizens "`make informed choices in the political marketplace.'" 540 U.S., at 197, 124 S.Ct. 619 (quoting McConnell I, supra, at 237); see 540 U.S., at 231, 124 S.Ct. 619.

Although both provisions were facially upheld, the Court acknowledged that as-applied challenges would be available if a group could show a "`reasonable probability'" that disclosure of its contributors' names "`will subject them to threats, harassment, or reprisals from either Government officials or private parties.'" Id., at 198, 124 S.Ct. 619 (quoting Buckley, supra, at 74, 96 S.Ct. 612).

For the reasons stated below, we find the statute valid as applied to the ads for the movie and to the movie itself.

B

Citizens United sought to broadcast one 30-second and two 10-second ads to promote Hillary. Under FEC regulations, a communication that "[p]roposes a commercial transaction" was not subject to 2 U.S.C. § 441b's restrictions on corporate or union funding of electioneering communications. 11 CFR § 114.15(b)(3)(ii). The regulations, however, do not exempt those communications from the disclaimer and disclosure requirements in BCRA §§ 201 and 311. See 72 Fed.Reg. 72901 (2007).

Citizens United argues that the disclaimer requirements in § 311 are unconstitutional as applied to its ads. It contends that the governmental interest in providing information to the electorate does not justify requiring disclaimers for [915] any commercial advertisements, including the ones at issue here. We disagree. The ads fall within BCRA's definition of an "electioneering communication": They referred to then-Senator Clinton by name shortly before a primary and contained pejorative references to her candidacy. See 530 F.Supp.2d, at 276, nn. 2-4. The disclaimers required by § 311 "provid[e] the electorate with information," McConnell, supra, at 196, 124 S.Ct. 619, and "insure that the voters are fully informed" about the person or group who is speaking, Buckley, supra, at 76, 96 S.Ct. 612; see also Bellotti, 435 U.S., at 792, n. 32, 98 S.Ct. 1407 ("Identification of the source of advertising may be required as a means of disclosure, so that the people will be able to evaluate the arguments to which they are being subjected"). At the very least, the disclaimers avoid confusion by making clear that the ads are not funded by a candidate or political party.

Citizens United argues that § 311 is underinclusive because it requires disclaimers for broadcast advertisements but not for print or Internet advertising. It asserts that § 311 decreases both the quantity and effectiveness of the group's speech by forcing it to devote four seconds of each advertisement to the spoken disclaimer. We rejected these arguments in McConnell, supra, at 230-231, 124 S.Ct. 619. And we now adhere to that decision as it pertains to the disclosure provisions.

As a final point, Citizens United claims that, in any event, the disclosure requirements in § 201 must be confined to speech that is the functional equivalent of express advocacy. The principal opinion in WRTL limited 2 U.S.C. § 441b's restrictions on independent expenditures to express advocacy and its functional equivalent. 551 U.S., at 469-476, 127 S.Ct. 2652 (opinion of ROBERTS, C.J.). Citizens United seeks to import a similar distinction into BCRA's disclosure requirements. We reject this contention.

The Court has explained that disclosure is a less restrictive alternative to more comprehensive regulations of speech. See, e.g., MCFL, 479 U.S., at 262, 107 S.Ct. 616. In Buckley, the Court upheld a disclosure requirement for independent expenditures even though it invalidated a provision that imposed a ceiling on those expenditures. 424 U.S., at 75-76, 96 S.Ct. 612. In McConnell, three Justices who would have found § 441b to be unconstitutional nonetheless voted to uphold BCRA's disclosure and disclaimer requirements. 540 U.S., at 321, 124 S.Ct. 619 (opinion of KENNEDY, J., joined by Rehnquist, C.J., and SCALIA, J.). And the Court has upheld registration and disclosure requirements on lobbyists, even though Congress has no power to ban lobbying itself. United States v. Harriss, 347 U.S. 612, 625, 74 S.Ct. 808, 98 L.Ed. 989 (1954) (Congress "has merely provided for a modicum of information from those who for hire attempt to influence legislation or who collect or spend funds for that purpose"). For these reasons, we reject Citizens United's contention that the disclosure requirements must be limited to speech that is the functional equivalent of express advocacy.

Citizens United also disputes that an informational interest justifies the application of § 201 to its ads, which only attempt to persuade viewers to see the film. Even if it disclosed the funding sources for the ads, Citizens United says, the information would not help viewers make informed choices in the political marketplace. This is similar to the argument rejected above with respect to disclaimers. Even if the ads only pertain to a commercial transaction, the public has an interest in knowing who is speaking about a candidate shortly before an election. Because the informational [916] interest alone is sufficient to justify application of § 201 to these ads, it is not necessary to consider the Government's other asserted interests.

Last, Citizens United argues that disclosure requirements can chill donations to an organization by exposing donors to retaliation. Some amici point to recent events in which donors to certain causes were blacklisted, threatened, or otherwise targeted for retaliation. See Brief for Institute for Justice as Amicus Curiae 13-16; Brief for Alliance Defense Fund as Amicus Curiae 16-22. In McConnell, the Court recognized that § 201 would be unconstitutional as applied to an organization if there were a reasonable probability that the group's members would face threats, harassment, or reprisals if their names were disclosed. 540 U.S., at 198, 124 S.Ct. 619. The examples cited by amici are cause for concern. Citizens United, however, has offered no evidence that its members may face similar threats or reprisals. To the contrary, Citizens United has been disclosing its donors for years and has identified no instance of harassment or retaliation.

Shareholder objections raised through the procedures of corporate democracy, see Bellotti, supra, at 794, and n. 34, 98 S.Ct. 1407, can be more effective today because modern technology makes disclosures rapid and informative. A campaign finance system that pairs corporate independent expenditures with effective disclosure has not existed before today. It must be noted, furthermore, that many of Congress' findings in passing BCRA were premised on a system without adequate disclosure. See McConnell, 540 U.S., at 128, 124 S.Ct. 619 ("[T]he public may not have been fully informed about the sponsorship of so-called issue ads"); id., at 196-197, 124 S.Ct. 619 (quoting McConnell I, 251 F.Supp.2d, at 237). With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters. Shareholders can determine whether their corporation's political speech advances the corporation's interest in making profits, and citizens can see whether elected officials are "`in the pocket' of so-called moneyed interests." 540 U.S., at 259, 124 S.Ct. 619 (opinion of SCALIA, J.); see MCFL, supra, at 261, 107 S.Ct. 616. The First Amendment protects political speech; and disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.

C

For the same reasons we uphold the application of BCRA §§ 201 and 311 to the ads, we affirm their application to Hillary. We find no constitutional impediment to the application of BCRA's disclaimer and disclosure requirements to a movie broadcast via video-on-demand. And there has been no showing that, as applied in this case, these requirements would impose a chill on speech or expression.

V

When word concerning the plot of the movie Mr. Smith Goes to Washington reached the circles of Government, some officials sought, by persuasion, to discourage its distribution. See Smoodin, "Compulsory" Viewing for Every Citizen: Mr. Smith and the Rhetoric of Reception, 35 Cinema Journal 3, 19, and n. 52 (Winter 1996) (citing Mr. Smith Riles Washington, Time, Oct. 30, 1939, p. 49); Nugent, Capra's Capitol Offense, N.Y. Times, Oct. 29, 1939, p. X5. Under Austin, though, officials could have done more than discourage [917] its distribution—they could have banned the film. After all, it, like Hillary, was speech funded by a corporation that was critical of Members of Congress. Mr. Smith Goes to Washington may be fiction and caricature; but fiction and caricature can be a powerful force.

Modern day movies, television comedies, or skits on Youtube.com might portray public officials or public policies in unflattering ways. Yet if a covered transmission during the blackout period creates the background for candidate endorsement or opposition, a felony occurs solely because a corporation, other than an exempt media corporation, has made the "purchase, payment, distribution, loan, advance, deposit, or gift of money or anything of value" in order to engage in political speech. 2 U.S.C. § 431(9)(A)(i). Speech would be suppressed in the realm where its necessity is most evident: in the public dialogue preceding a real election. Governments are often hostile to speech, but under our law and our tradition it seems stranger than fiction for our Government to make this political speech a crime. Yet this is the statute's purpose and design.

Some members of the public might consider Hillary to be insightful and instructive; some might find it to be neither high art nor a fair discussion on how to set the Nation's course; still others simply might suspend judgment on these points but decide to think more about issues and candidates. Those choices and assessments, however, are not for the Government to make. "The First Amendment underwrites the freedom to experiment and to create in the realm of thought and speech. Citizens must be free to use new forms, and new forums, for the expression of ideas. The civic discourse belongs to the people, and the Government may not prescribe the means used to conduct it." McConnell, supra, at 341, 124 S.Ct. 619 (opinion of KENNEDY, J.).

The judgment of the District Court is reversed with respect to the constitutionality of 2 U.S.C. § 441b's restrictions on corporate independent expenditures. The judgment is affirmed with respect to BCRA's disclaimer and disclosure requirements. The case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Chief Justice ROBERTS, with whom Justice ALITO joins, concurring.

The Government urges us in this case to uphold a direct prohibition on political speech. It asks us to embrace a theory of the First Amendment that would allow censorship not only of television and radio broadcasts, but of pamphlets, posters, the Internet, and virtually any other medium that corporations and unions might find useful in expressing their views on matters of public concern. Its theory, if accepted, would empower the Government to prohibit newspapers from running editorials or opinion pieces supporting or opposing candidates for office, so long as the newspapers were owned by corporations—as the major ones are. First Amendment rights could be confined to individuals, subverting the vibrant public discourse that is at the foundation of our democracy.

The Court properly rejects that theory, and I join its opinion in full. The First Amendment protects more than just the individual on a soapbox and the lonely pamphleteer. I write separately to address the important principles of judicial restraint and stare decisis implicated in this case.

I

Judging the constitutionality of an Act of Congress is "the gravest and most delicate duty that this Court is called upon to [918] perform." Blodgett v. Holden, 275 U.S. 142, 147-148, 48 S.Ct. 105, 72 L.Ed. 206 (1927) (Holmes, J., concurring). Because the stakes are so high, our standard practice is to refrain from addressing constitutional questions except when necessary to rule on particular claims before us. See Ashwander v. TVA, 297 U.S. 288, 346-348, 56 S.Ct. 466, 80 L.Ed. 688 (1936) (Brandeis, J., concurring). This policy underlies both our willingness to construe ambiguous statutes to avoid constitutional problems and our practice "`never to formulate a rule of constitutional law broader than is required by the precise facts to which it is to be applied.'" United States v. Raines, 362 U.S. 17, 21, 80 S.Ct. 519, 4 L.Ed.2d 524 (1960) (quoting Liverpool, New York & Philadelphia S.S. Co. v. Commissioners of Emigration, 113 U.S. 33, 39, 5 S.Ct. 352, 28 L.Ed. 899 (1885)).

The majority and dissent are united in expressing allegiance to these principles. Ante, at 892; post, at 936-937 (STEVENS, J., concurring in part and dissenting in part). But I cannot agree with my dissenting colleagues on how these principles apply in this case.

The majority's step-by-step analysis accords with our standard practice of avoiding broad constitutional questions except when necessary to decide the case before us. The majority begins by addressing— and quite properly rejecting—Citizens United's statutory claim that 2 U.S.C. § 441b does not actually cover its production and distribution of Hillary: The Movie (hereinafter Hillary). If there were a valid basis for deciding this statutory claim in Citizens United's favor (and thereby avoiding constitutional adjudication), it would be proper to do so. Indeed, that is precisely the approach the Court took just last Term in Northwest Austin Municipal Util. Dist. No. One v. Holder, 557 U.S. ___, 129 S.Ct. 2504, 174 L.Ed.2d 140 (2009), when eight Members of the Court agreed to decide the case on statutory grounds instead of reaching the appellant's broader argument that the Voting Rights Act is unconstitutional.

It is only because the majority rejects Citizens United's statutory claim that it proceeds to consider the group's various constitutional arguments, beginning with its narrowest claim (that Hillary is not the functional equivalent of express advocacy) and proceeding to its broadest claim (that Austin v. Michigan Chamber of Commerce, 494 U.S. 652, 110 S.Ct. 1391, 108 L.Ed.2d 652 (1990) should be overruled). This is the same order of operations followed by the controlling opinion in Federal Election Comm'n v. Wisconsin Right to Life, Inc., 551 U.S. 449, 127 S.Ct. 2652, 168 L.Ed.2d 329 (2007) (WRTL). There the appellant was able to prevail on its narrowest constitutional argument because its broadcast ads did not qualify as the functional equivalent of express advocacy; there was thus no need to go on to address the broader claim that McConnell v. Federal Election Comm'n, 540 U.S. 93, 124 S.Ct. 619, 157 L.Ed.2d 491 (2003), should be overruled. WRTL, 551 U.S., at 482, 127 S.Ct. 2652; id., at 482-483, 127 S.Ct. 2652 (ALITO, J., concurring). This case is different—not, as the dissent suggests, because the approach taken in WRTL has been deemed a "failure," post, at 935, but because, in the absence of any valid narrower ground of decision, there is no way to avoid Citizens United's broader constitutional argument.

The dissent advocates an approach to addressing Citizens United's claims that I find quite perplexing. It presumably agrees with the majority that Citizens United's narrower statutory and constitutional arguments lack merit—otherwise its conclusion that the group should lose this case would make no sense. Despite agreeing [919] that these narrower arguments fail, however, the dissent argues that the majority should nonetheless latch on to one of them in order to avoid reaching the broader constitutional question of whether Austin remains good law. It even suggests that the Court's failure to adopt one of these concededly meritless arguments is a sign that the majority is not "serious about judicial restraint." Post, at 938.

This approach is based on a false premise: that our practice of avoiding unnecessary (and unnecessarily broad) constitutional holdings somehow trumps our obligation faithfully to interpret the law. It should go without saying, however, that we cannot embrace a narrow ground of decision simply because it is narrow; it must also be right. Thus while it is true that "[i]f it is not necessary to decide more, it is necessary not to decide more," post, at 937 (internal quotation marks omitted), sometimes it is necessary to decide more. There is a difference between judicial restraint and judicial abdication. When constitutional questions are "indispensably necessary" to resolving the case at hand, "the court must meet and decide them." Ex parte Randolph, 20 F. Cas. 242, 254 (No. 11, 558) (CC Va. 1833) (Marshall, C.J.).

Because it is necessary to reach Citizens United's broader argument that Austin should be overruled, the debate over whether to consider this claim on an asapplied or facial basis strikes me as largely beside the point. Citizens United has standing—it is being injured by the Government's enforcement of the Act. Citizens United has a constitutional claim—the Act violates the First Amendment, because it prohibits political speech. The Government has a defense—the Act may be enforced, consistent with the First Amendment, against corporations. Whether the claim or the defense prevails is the question before us.

Given the nature of that claim and defense, it makes no difference of any substance whether this case is resolved by invalidating the statute on its face or only as applied to Citizens United. Even if considered in as-applied terms, a holding in this case that the Act may not be applied to Citizens United—because corporations as well as individuals enjoy the pertinent First Amendment rights—would mean that any other corporation raising the same challenge would also win. Likewise, a conclusion that the Act may be applied to Citizens United—because it is constitutional to prohibit corporate political speech—would similarly govern future cases. Regardless whether we label Citizens United's claim a "facial" or "as-applied" challenge, the consequences of the Court's decision are the same.^[1]

II

The text and purpose of the First Amendment point in the same direction: Congress may not prohibit political speech, even if the speaker is a corporation or union. What makes this case difficult is the need to confront our prior decision in Austin.

This is the first case in which we have been asked to overrule Austin, and thus it is also the first in which we have had reason to consider how much weight to give stare decisis in assessing its continued validity. The dissent erroneously declares [920] that the Court "reaffirmed" Austin's holding in subsequent cases—namely, Federal Election Comm'n v. Beaumont, 539 U.S. 146, 123 S.Ct. 2200, 156 L.Ed.2d 179 (2003); McConnell; and WRTL. Post, at 956-957. Not so. Not a single party in any of those cases asked us to overrule Austin, and as the dissent points out, post, at 931-932, the Court generally does not consider constitutional arguments that have not properly been raised. Austin's validity was therefore not directly at issue in the cases the dissent cites. The Court's unwillingness to overturn Austin in those cases cannot be understood as a reaffirmation of that decision.

A

Fidelity to precedent—the policy of stare decisis—is vital to the proper exercise of the judicial function. "Stare decisis is the preferred course because it promotes the evenhanded, predictable, and consistent development of legal principles, fosters reliance on judicial decisions, and contributes to the actual and perceived integrity of the judicial process." Payne v. Tennessee, 501 U.S. 808, 827, 111 S.Ct. 2597, 115 L.Ed.2d 720 (1991). For these reasons, we have long recognized that departures from precedent are inappropriate in the absence of a "special justification." Arizona v. Rumsey, 467 U.S. 203, 212, 104 S.Ct. 2305, 81 L.Ed.2d 164 (1984).

At the same time, stare decisis is neither an "inexorable command," Lawrence v. Texas, 539 U.S. 558, 577, 123 S.Ct. 2472, 156 L.Ed.2d 508 (2003), nor "a mechanical formula of adherence to the latest decision," Helvering v. Hallock, 309 U.S. 106, 119, 60 S.Ct. 444, 84 L.Ed. 604 (1940), especially in constitutional cases, see United States v. Scott, 437 U.S. 82, 101, 98 S.Ct. 2187, 57 L.Ed.2d 65 (1978). If it were, segregation would be legal, minimum wage laws would be unconstitutional, and the Government could wiretap ordinary criminal suspects without first obtaining warrants. See Plessy v. Ferguson, 163 U.S. 537, 16 S.Ct. 1138, 41 L.Ed. 256 (1896), overruled by Brown v. Board of Education, 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954); Adkins v. Children's Hospital of D. C., 261 U.S. 525, 43 S.Ct. 394, 67 L.Ed. 785 (1923), overruled by West Coast Hotel Co. v. Parrish, 300 U.S. 379, 57 S.Ct. 578, 81 L.Ed. 703 (1937); Olmstead v. United States, 277 U.S. 438, 48 S.Ct. 564, 72 L.Ed. 944 (1928), overruled by Katz v. United States, 389 U.S. 347, 88 S.Ct. 507, 19 L.Ed.2d 576 (1967). As the dissent properly notes, none of us has viewed stare decisis in such absolute terms. Post, at 938-939; see also, e.g., Randall v. Sorrell, 548 U.S. 230, 274-281, 126 S.Ct. 2479, 165 L.Ed.2d 482 (2006) (STEVENS, J., dissenting) (urging the Court to overrule its invalidation of limits on independent expenditures on political speech in Buckley v. Valeo, 424 U.S. 1, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976) (per curiam)).

Stare decisis is instead a "principle of policy." Helvering, supra, at 119, 60 S.Ct. 444. When considering whether to reexamine a prior erroneous holding, we must balance the importance of having constitutional questions decided against the importance of having them decided right. As Justice Jackson explained, this requires a "sober appraisal of the disadvantages of the innovation as well as those of the questioned case, a weighing of practical effects of one against the other." Jackson, Decisional Law and Stare Decisis, 30 A.B.A.J. 334 (1944).

In conducting this balancing, we must keep in mind that stare decisis is not an end in itself. It is instead "the means by which we ensure that the law will not merely change erratically, but will develop in a principled and intelligible fashion." [921] Vasquez v. Hillery, 474 U.S. 254, 265, 106 S.Ct. 617, 88 L.Ed.2d 598 (1986). Its greatest purpose is to serve a constitutional ideal—the rule of law. It follows that in the unusual circumstance when fidelity to any particular precedent does more to damage this constitutional ideal than to advance it, we must be more willing to depart from that precedent.

Thus, for example, if the precedent under consideration itself departed from the Court's jurisprudence, returning to the "`intrinsically sounder' doctrine established in prior cases" may "better serv[e] the values of stare decisis than would following [the] more recently decided case inconsistent with the decisions that came before it." Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 231, 115 S.Ct. 2097, 132 L.Ed.2d 158 (1995); see also Helvering, supra, at 119, 60 S.Ct. 444; Randall, supra, at 274, 126 S.Ct. 2479 (STEVENS, J., dissenting). Abrogating the errant precedent, rather than reaffirming or extending it, might better preserve the law's coherence and curtail the precedent's disruptive effects.

Likewise, if adherence to a precedent actually impedes the stable and orderly adjudication of future cases, its stare decisis effect is also diminished. This can happen in a number of circumstances, such as when the precedent's validity is so hotly contested that it cannot reliably function as a basis for decision in future cases, when its rationale threatens to upend our settled jurisprudence in related areas of law, and when the precedent's underlying reasoning has become so discredited that the Court cannot keep the precedent alive without jury-rigging new and different justifications to shore up the original mistake. See, e.g., Pearson v. Callahan, 555 U.S. ___, ___, 129 S.Ct. 808, 817, 172 L.Ed.2d 565 (2009); Montejo v. Louisiana, 556 U.S. ___, ___, 129 S.Ct. 2079, 2088-2089, 173 L.Ed.2d 955 (2009) (stare decisis does not control when adherence to the prior decision requires "fundamentally revising its theoretical basis").

B

These considerations weigh against retaining our decision in Austin. First, as the majority explains, that decision was an "aberration" insofar as it departed from the robust protections we had granted political speech in our earlier cases. Ante, at 907; see also Buckley, supra; First Nat. Bank of Boston v. Bellotti, 435 U.S. 765, 98 S.Ct. 1407, 55 L.Ed.2d 707 (1978). Austin undermined the careful line that Buckley drew to distinguish limits on contributions to candidates from limits on independent expenditures on speech. Buckley rejected the asserted government interest in regulating independent expenditures, concluding that "restrict[ing] the speech of some elements of our society in order to enhance the relative voice of others is wholly foreign to the First Amendment." 424 U.S., at 48-49, 96 S.Ct. 612; see also Bellotti, supra, at 790-791, 98 S.Ct. 1407; Citizens Against Rent Control/Coalition for Fair Housing v. Berkeley, 454 U.S. 290, 295, 102 S.Ct. 434, 70 L.Ed.2d 492 (1981). Austin, however, allowed the Government to prohibit these same expenditures out of concern for "the corrosive and distorting effects of immense aggregations of wealth" in the marketplace of ideas. 494 U.S., at 660, 110 S.Ct. 1391. Austin's reasoning was—and remains—inconsistent with Buckley's explicit repudiation of any government interest in "equalizing the relative ability of individuals and groups to influence the outcome of elections." 424 U.S., at 48-49, 96 S.Ct. 612.

Austin was also inconsistent with Bellotti's clear rejection of the idea that "speech that otherwise would be within the protection of the First Amendment loses that [922] protection simply because its source is a corporation." 435 U.S., at 784, 98 S.Ct. 1407. The dissent correctly points out that Bellotti involved a referendum rather than a candidate election, and that Bellotti itself noted this factual distinction, id., at 788, n. 26, 98 S.Ct. 1407; post, at 958. But this distinction does not explain why corporations may be subject to prohibitions on speech in candidate elections when individuals may not.

Second, the validity of Austin's rationale—itself adopted over two "spirited dissents," Payne, 501 U.S., at 829, 111 S.Ct. 2597—has proved to be the consistent subject of dispute among Members of this Court ever since. See, e.g., WRTL, 551 U.S., at 483, 127 S.Ct. 2652 (SCALIA, J., joined by KENNEDY and THOMAS, JJ., concurring in part and concurring in judgment); McConnell, 540 U.S., at 247, 264, 286, 124 S.Ct. 619 (opinions of SCALIA, THOMAS, and KENNEDY, JJ.); Beaumont, 539 U.S., at 163, 164, 123 S.Ct. 2200 (opinions of KENNEDY and THOMAS, JJ.). The simple fact that one of our decisions remains controversial is, of course, insufficient to justify overruling it. But it does undermine the precedent's ability to contribute to the stable and orderly development of the law. In such circumstances, it is entirely appropriate for the Court—which in this case is squarely asked to reconsider Austin's validity for the first time—to address the matter with a greater willingness to consider new approaches capable of restoring our doctrine to sounder footing.

Third, the Austin decision is uniquely destabilizing because it threatens to subvert our Court's decisions even outside the particular context of corporate express advocacy. The First Amendment theory underlying Austin's holding is extraordinarily broad. Austin's logic would authorize government prohibition of political speech by a category of speakers in the name of equality—a point that most scholars acknowledge (and many celebrate), but that the dissent denies. Compare, e.g., Garrett, New Voices in Politics: Justice Marshall's Jurisprudence on Law and Politics, 52 Howard L.J. 655, 669 (2009) (Austin "has been understood by most commentators to be an opinion driven by equality considerations, albeit disguised in the language of `political corruption'") with post, at 970 (Austin's rationale "is manifestly not just an `equalizing' ideal in disguise").^[2]

It should not be surprising, then, that Members of the Court have relied on Austin's expansive logic to justify greater incursions on the First Amendment, even outside the original context of corporate advocacy on behalf of candidates running for office. See, e.g., Davis v. Federal Election Comm'n, 554 U.S. ___, ___, 128 S.Ct. 2759, 2780, 171 L.Ed.2d 737 (2008) (STEVENS, J., concurring in part and dissenting in part) (relying on Austin and other cases to justify restrictions on campaign spending by individual candidates, explaining that "there is no reason that their logic—specifically, their concerns about the corrosive and distorting effects of wealth on our political process—is not [923] equally applicable in the context of individual wealth"); McConnell, supra, at 203-209, 124 S.Ct. 619 (extending Austin beyond its original context to cover not only the "functional equivalent" of express advocacy by corporations, but also electioneering speech conducted by labor unions). The dissent in this case succumbs to the same temptation, suggesting that Austin justifies prohibiting corporate speech because such speech might unduly influence "the market for legislation." Post, at 975. The dissent reads Austin to permit restrictions on corporate speech based on nothing more than the fact that the corporate form may help individuals coordinate and present their views more effectively. Post, at 975. A speaker's ability to persuade, however, provides no basis for government regulation of free and open public debate on what the laws should be.

If taken seriously, Austin's logic would apply most directly to newspapers and other media corporations. They have a more profound impact on public discourse than most other speakers. These corporate entities are, for the time being, not subject to § 441b's otherwise generally applicable prohibitions on corporate political speech. But this is simply a matter of legislative grace. The fact that the law currently grants a favored position to media corporations is no reason to overlook the danger inherent in accepting a theory that would allow government restrictions on their political speech. See generally McConnell, supra, at 283-286, 124 S.Ct. 619 (THOMAS, J., concurring in part, concurring in judgment in part, and dissenting in part).

These readings of Austin do no more than carry that decision's reasoning to its logical endpoint. In doing so, they highlight the threat Austin poses to First Amendment rights generally, even outside its specific factual context of corporate express advocacy. Because Austin is so difficult to confine to its facts—and because its logic threatens to undermine our First Amendment jurisprudence and the nature of public discourse more broadly—the costs of giving it stare decisis effect are unusually high.

Finally and most importantly, the Government's own effort to defend Austin— or, more accurately, to defend something that is not quite Austin—underscores its weakness as a precedent of the Court. The Government concedes that Austin "is not the most lucid opinion," yet asks us to reaffirm its holding. Tr. of Oral Arg. 62 (Sept. 9, 2009). But while invoking stare decisis to support this position, the Government never once even mentions the compelling interest that Austin relied upon in the first place: the need to diminish "the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public's support for the corporation's political ideas." 494 U.S., at 660, 110 S.Ct. 1391.

Instead of endorsing Austin on its own terms, the Government urges us to reaffirm Austin's specific holding on the basis of two new and potentially expansive interests—the need to prevent actual or apparent quid pro quo corruption, and the need to protect corporate shareholders. See Supp. Brief for Appellee 8-10, 12-13. Those interests may or may not support the result in Austin, but they were plainly not part of the reasoning on which Austin relied.

To its credit, the Government forthrightly concedes that Austin did not embrace either of the new rationales it now urges upon us. See, e.g., Supp. Brief for Appellee 11 ("The Court did not decide in Austin... whether the compelling interest in preventing actual or apparent corruption provides a constitutionally sufficient justification [924] for prohibiting the use of corporate treasury funds for independent electioneering"); Tr. of Oral Arg. 45 (Sept. 9, 2009) ("Austin did not articulate what we believe to be the strongest compelling interest"); id., at 61 ("[The Court:] I take it we have never accepted your shareholder protection interest. This is a new argument. [The Government:] I think that that's fair"); id., at 64 ("[The Court:] In other words, you are asking us to uphold Austin on the basis of two arguments, two principles, two compelling interests we have never accepted in [the context of limits on political expenditures]. [The Government:] [I]n this particular context, fair enough").

To be clear: The Court in Austin nowhere relied upon the only arguments the Government now raises to support that decision. In fact, the only opinion in Austin endorsing the Government's argument based on the threat of quid pro quo corruption was Justice STEVENS's concurrence. 494 U.S., at 678, 110 S.Ct. 1391. The Court itself did not do so, despite the fact that the concurrence highlighted the argument. Moreover, the Court's only discussion of shareholder protection in Austin appeared in a section of the opinion that sought merely to distinguish Austin's facts from those of Federal Election Comm'n v. Massachusetts Citizens for Life, Inc., 479 U.S. 238, 107 S.Ct. 616, 93 L.Ed.2d 539 (1986). Austin, supra, at 663, 110 S.Ct. 1391. Nowhere did Austin suggest that the goal of protecting shareholders is itself a compelling interest authorizing restrictions on First Amendment rights.

To the extent that the Government's case for reaffirming Austin depends on radically reconceptualizing its reasoning, that argument is at odds with itself. Stare decisis is a doctrine of preservation, not transformation. It counsels deference to past mistakes, but provides no justification for making new ones. There is therefore no basis for the Court to give precedential sway to reasoning that it has never accepted, simply because that reasoning happens to support a conclusion reached on different grounds that have since been abandoned or discredited.

Doing so would undermine the rule-of-law values that justify stare decisis in the first place. It would effectively license the Court to invent and adopt new principles of constitutional law solely for the purpose of rationalizing its past errors, without a proper analysis of whether those principles have merit on their own. This approach would allow the Court's past missteps to spawn future mistakes, undercutting the very rule-of-law values that stare decisis is designed to protect.

None of this is to say that the Government is barred from making new arguments to support the outcome in Austin. On the contrary, it is free to do so. And of course the Court is free to accept them. But the Government's new arguments must stand or fall on their own; they are not entitled to receive the special deference we accord to precedent. They are, as grounds to support Austin, literally unprecedented. Moreover, to the extent the Government relies on new arguments— and declines to defend Austin on its own terms—we may reasonably infer that it lacks confidence in that decision's original justification.

Because continued adherence to Austin threatens to subvert the "principled and intelligible" development of our First Amendment jurisprudence, Vasquez, 474 U.S., at 265, 106 S.Ct. 617, I support the Court's determination to overrule that decision.

* * *

We have had two rounds of briefing in this case, two oral arguments, and 54 amicus [925] briefs to help us carry out our obligation to decide the necessary constitutional questions according to law. We have also had the benefit of a comprehensive dissent that has helped ensure that the Court has considered all the relevant issues. This careful consideration convinces me that Congress violates the First Amendment when it decrees that some speakers may not engage in political speech at election time, when it matters most.

Justice SCALIA, with whom Justice ALITO joins, and with whom Justice THOMAS joins in part, concurring.

I join the opinion of the Court.^[3]

I write separately to address Justice STEVENS' discussion of "Original Understandings," post, at 948 (opinion concurring in part and dissenting in part) (hereinafter referred to as the dissent). This section of the dissent purports to show that today's decision is not supported by the original understanding of the First Amendment. The dissent attempts this demonstration, however, in splendid isolation from the text of the First Amendment. It never shows why "the freedom of speech" that was the right of Englishmen did not include the freedom to speak in association with other individuals, including association in the corporate form. To be sure, in 1791 (as now) corporations could pursue only the objectives set forth in their charters; but the dissent provides no evidence that their speech in the pursuit of those objectives could be censored.

Instead of taking this straightforward approach to determining the Amendment's meaning, the dissent embarks on a detailed exploration of the Framers' views about the "role of corporations in society." Post, at 949. The Framers didn't like corporations, the dissent concludes, and therefore it follows (as night the day) that corporations had no rights of free speech. Of course the Framers' personal affection or disaffection for corporations is relevant only insofar as it can be thought to be reflected in the understood meaning of the text they enacted—not, as the dissent suggests, as a freestanding substitute for that text. But the dissent's distortion of proper analysis is even worse than that. Though faced with a constitutional text that makes no distinction between types of speakers, the dissent feels no necessity to provide even an isolated statement from the founding era to the effect that corporations are not covered, but places the burden on petitioners to bring forward statements showing that they are ("there is not a scintilla of evidence to support the notion that anyone believed [the First Amendment] would preclude regulatory distinctions based on the corporate form," post, at 948).

Despite the corporation-hating quotations the dissent has dredged up, it is far from clear that by the end of the 18th century corporations were despised. If so, how came there to be so many of them? The dissent's statement that there were few business corporations during the eighteenth century—"only a few hundred during all of the 18th century"—is misleading. Post, at 949, n. 53. There were approximately 335 charters issued to business corporations in the United States by the end of the 18th century.^[4] See 2 J. & Davis, [926] Essays in the Earlier History of American Corporations 24 (1917) (reprint 2006) (hereinafter Davis). This was a "considerable extension of corporate enterprise in the field of business," Davis 8, and represented "unprecedented growth," id., at 309. Moreover, what seems like a small number by today's standards surely does not indicate the relative importance of corporations when the Nation was considerably smaller. As I have previously noted, "[b]y the end of the eighteenth century the corporation was a familiar figure in American economic life." McConnell v. Federal Election Comm'n, 540 U.S. 93, 256, 124 S.Ct. 619, 157 L.Ed.2d 491 (2003) (SCALIA, J., concurring in part, concurring in judgment in part, and dissenting in part) (quoting C. Cooke, Corporation Trust and Company 92 (1951) (hereinafter Cooke)).

Even if we thought it proper to apply the dissent's approach of excluding from First Amendment coverage what the Founders disliked, and even if we agreed that the Founders disliked founding-era corporations; modern corporations might not qualify for exclusion. Most of the Founders' resentment towards corporations was directed at the state-granted monopoly privileges that individually chartered corporations enjoyed.^[5] Modern corporations do not have such privileges, and would probably have been favored by most of our enterprising Founders—excluding, perhaps, Thomas Jefferson and others favoring perpetuation of an agrarian society. Moreover, if the Founders' specific intent with respect to corporations is what matters, why does the dissent ignore the Founders' views about other legal entities that have more in common with modern business corporations than the founding-era corporations? At the time of the founding, religious, educational, and literary corporations were incorporated under general incorporation statutes, much as business corporations are today.^[6] See Davis 16-17; R. Seavoy, Origins of the American Business Corporation, 1784-1855, p. 5 (1982); Cooke 94. There were also small unincorporated business associations, which some have argued were the "`true progenitors'" of today's business corporations. Friedman 200 (quoting S. Livermore, Early American Land Companies: Their Influence on Corporate Development 216 (1939)); see also Davis 33. Were all of these silently excluded from the protections of the First Amendment?

The lack of a textual exception for speech by corporations cannot be explained on the ground that such organizations did not exist or did not speak. To the contrary, colleges, towns and cities, religious institutions, and guilds had long been organized as corporations at common law and under the King's charter, see 1 W. Blackstone, Commentaries on the Laws of England 455-473 (1765); 1 S. Kyd, A [927] Treatise on the Law of Corporations 1-32, 63 (1793) (reprinted 2006), and as I have discussed, the practice of incorporation only expanded in the United States. Both corporations and voluntary associations actively petitioned the Government and expressed their views in newspapers and pamphlets. For example: An antislavery Quaker corporation petitioned the First Congress, distributed pamphlets, and communicated through the press in 1790. W. diGiacomantonio, "For the Gratification of a Volunteering Society": Antislavery and Pressure Group Politics in the First Federal Congress, 15 J. Early Republic 169 (1995). The New York Sons of Liberty sent a circular to colonies farther south in 1766. P. Maier, From Resistance to Revolution 79-80 (1972). And the Society for the Relief and Instruction of Poor Germans circulated a biweekly paper from 1755 to 1757. Adams, The Colonial German-language Press and the American Revolution, in The Press & the American Revolution 151, 161-162 (B. Bailyn & J. Hench eds.1980). The dissent offers no evidence—none whatever—that the First Amendment's unqualified text was originally understood to exclude such associational speech from its protection.^[7]

Historical evidence relating to the textually similar clause "the freedom of ... the press" also provides no support for the proposition that the First Amendment excludes conduct of artificial legal entities from the scope of its protection. The freedom of "the press" was widely understood to protect the publishing activities of individual editors and printers. See McIntyre v. Ohio Elections Comm'n, 514 U.S. 334, 360, 115 S.Ct. 1511, 131 L.Ed.2d 426 (1995) (THOMAS, J., concurring in judgment); see also McConnell, 540 U.S., at 252-253, 124 S.Ct. 619 (opinion of SCALIA, J.). But these individuals often acted through newspapers, which (much like corporations) had their own names, outlived the individuals who had founded them, could be bought and sold, were sometimes owned by more than one person, and were operated for profit. See generally F. [928] Mott, American Journalism: A History of Newspapers in the United States Through 250 Years 3-164 (1941); J. Smith, Freedom's Fetters (1956). Their activities were not stripped of First Amendment protection simply because they were carried out under the banner of an artificial legal entity. And the notion which follows from the dissent's view, that modern newspapers, since they are incorporated, have free-speech rights only at the sufferance of Congress, boggles the mind.^[8]

In passing, the dissent also claims that the Court's conception of corruption is unhistorical. The Framers "would have been appalled," it says, by the evidence of corruption in the congressional findings supporting the Bipartisan Campaign Reform Act of 2002. Post, at 963. For this proposition, the dissent cites a law review article arguing that "corruption" was originally understood to include "moral decay" and even actions taken by citizens in pursuit of private rather than public ends. Teachout, The Anti-Corruption Principle, 94 Cornell L.Rev. 341, 373, 378 (2009). It is hard to see how this has anything to do with what sort of corruption can be combated by restrictions on political speech. Moreover, if speech can be prohibited because, in the view of the Government, it leads to "moral decay" or does not serve "public ends," then there is no limit to the Government's censorship power.

The dissent says that when the Framers "constitutionalized the right to free speech in the First Amendment, it was the free speech of individual Americans that they had in mind." Post, at 950. That is no doubt true. All the provisions of the Bill of Rights set forth the rights of individual men and women—not, for example, of trees or polar bears. But the individual person's right to speak includes the right to speak in association with other individual persons. Surely the dissent does not believe that speech by the Republican Party or the Democratic Party can be censored because it is not the speech of "an individual American." It is the speech of many individual Americans, who have associated in a common cause, giving the leadership of the party the right to speak on their behalf. The association of individuals in a business corporation is no different—or at least it cannot be denied the right to speak on the simplistic ground that it is not "an individual American."^[9]

[929] But to return to, and summarize, my principal point, which is the conformity of today's opinion with the original meaning of the First Amendment. The Amendment is written in terms of "speech," not speakers. Its text offers no foothold for excluding any category of speaker, from single individuals to partnerships of individuals, to unincorporated associations of individuals, to incorporated associations of individuals—and the dissent offers no evidence about the original meaning of the text to support any such exclusion. We are therefore simply left with the question whether the speech at issue in this case is "speech" covered by the First Amendment. No one says otherwise. A documentary film critical of a potential Presidential candidate is core political speech, and its nature as such does not change simply because it was funded by a corporation. Nor does the character of that funding produce any reduction whatever in the "inherent worth of the speech" and "its capacity for informing the public," First Nat. Bank of Boston v. Bellotti, 435 U.S. 765, 777, 98 S.Ct. 1407, 55 L.Ed.2d 707 (1978). Indeed, to exclude or impede corporate speech is to muzzle the principal agents of the modern free economy. We should celebrate rather than condemn the addition of this speech to the public debate.

Justice STEVENS, with whom Justice GINSBURG, Justice BREYER, and Justice SOTOMAYOR join, concurring in part and dissenting in part.

The real issue in this case concerns how, not if, the appellant may finance its electioneering. Citizens United is a wealthy nonprofit corporation that runs a political action committee (PAC) with millions of dollars in assets. Under the Bipartisan Campaign Reform Act of 2002 (BCRA), it could have used those assets to televise and promote Hillary: The Movie wherever and whenever it wanted to. It also could have spent unrestricted sums to broadcast Hillary at any time other than the 30 days before the last primary election. Neither Citizens United's nor any other corporation's speech has been "banned," ante, at 886. All that the parties dispute is whether Citizens United had a right to use the funds in its general treasury to pay for broadcasts during the 30-day period. The notion that the First Amendment dictates an affirmative answer to that question is, in my judgment, profoundly misguided. Even more misguided is the notion that the Court must rewrite [930] the law relating to campaign expenditures by for-profit corporations and unions to decide this case.

The basic premise underlying the Court's ruling is its iteration, and constant reiteration, of the proposition that the First Amendment bars regulatory distinctions based on a speaker's identity, including its "identity" as a corporation. While that glittering generality has rhetorical appeal, it is not a correct statement of the law. Nor does it tell us when a corporation may engage in electioneering that some of its shareholders oppose. It does not even resolve the specific question whether Citizens United may be required to finance some of its messages with the money in its PAC. The conceit that corporations must be treated identically to natural persons in the political sphere is not only inaccurate but also inadequate to justify the Court's disposition of this case.

In the context of election to public office, the distinction between corporate and human speakers is significant. Although they make enormous contributions to our society, corporations are not actually members of it. They cannot vote or run for office. Because they may be managed and controlled by nonresidents, their interests may conflict in fundamental respects with the interests of eligible voters. The financial resources, legal structure, and instrumental orientation of corporations raise legitimate concerns about their role in the electoral process. Our lawmakers have a compelling constitutional basis, if not also a democratic duty, to take measures designed to guard against the potentially deleterious effects of corporate spending in local and national races.

The majority's approach to corporate electioneering marks a dramatic break from our past. Congress has placed special limitations on campaign spending by corporations ever since the passage of the Tillman Act in 1907, ch. 420, 34 Stat. 864. We have unanimously concluded that this "reflects a permissible assessment of the dangers posed by those entities to the electoral process," FEC v. National Right to Work Comm., 459 U.S. 197, 209, 103 S.Ct. 552, 74 L.Ed.2d 364 (1982) (NRWC), and have accepted the "legislative judgment that the special characteristics of the corporate structure require particularly careful regulation," id., at 209-210, 103 S.Ct. 552. The Court today rejects a century of history when it treats the distinction between corporate and individual campaign spending as an invidious novelty born of Austin v. Michigan Chamber of Commerce, 494 U.S. 652, 110 S.Ct. 1391, 108 L.Ed.2d 652 (1990). Relying largely on individual dissenting opinions, the majority blazes through our precedents, overruling or disavowing a body of case law including FEC v. Wisconsin Right to Life, Inc., 551 U.S. 449, 127 S.Ct. 2652, 168 L.Ed.2d 329 (2007) (WRTL), McConnell v. FEC, 540 U.S. 93, 124 S.Ct. 619, 157 L.Ed.2d 491 (2003), FEC v. Beaumont, 539 U.S. 146, 123 S.Ct. 2200, 156 L.Ed.2d 179 (2003), FEC v. Massachusetts Citizens for Life, Inc., 479 U.S. 238, 107 S.Ct. 616, 93 L.Ed.2d 539 (1986) (MCFL), NRWC, 459 U.S. 197, 103 S.Ct. 552, 74 L.Ed.2d 364, and California Medical Assn. v. FEC, 453 U.S. 182, 101 S.Ct. 2712, 69 L.Ed.2d 567 (1981).

In his landmark concurrence in Ashwander v. TVA, 297 U.S. 288, 346, 56 S.Ct. 466, 80 L.Ed. 688 (1936), Justice Brandeis stressed the importance of adhering to rules the Court has "developed ... for its own governance" when deciding constitutional questions. Because departures from those rules always enhance the risk of error, I shall review the background of this case in some detail before explaining why the Court's analysis rests on a faulty understanding of Austin and McConnell and [931] of our campaign finance jurisprudence more generally.^[10] I regret the length of what follows, but the importance and novelty of the Court's opinion require a full response. Although I concur in the Court's decision to sustain BCRA's disclosure provisions and join Part IV of its opinion, I emphatically dissent from its principal holding.

I

The Court's ruling threatens to undermine the integrity of elected institutions across the Nation. The path it has taken to reach its outcome will, I fear, do damage to this institution. Before turning to the question whether to overrule Austin and part of McConnell, it is important to explain why the Court should not be deciding that question.

Scope of the Case

The first reason is that the question was not properly brought before us. In declaring § 203 of BCRA facially unconstitutional on the ground that corporations' electoral expenditures may not be regulated any more stringently than those of individuals, the majority decides this case on a basis relinquished below, not included in the questions presented to us by the litigants, and argued here only in response to the Court's invitation. This procedure is unusual and inadvisable for a court.^[11] Our colleagues' suggestion that "we are asked to reconsider Austin and, in effect, McConnell," ante, at 886, would be more accurate if rephrased to state that "we have asked ourselves" to reconsider those cases.

In the District Court, Citizens United initially raised a facial challenge to the constitutionality of § 203. App. 23a-24a. In its motion for summary judgment, however, Citizens United expressly abandoned its facial challenge, 1:07-cv-2240-RCL-RWR, Docket Entry No. 52, pp. 1-2 (May 16, 2008), and the parties stipulated to the dismissal of that claim, id., Nos. 53 (May 22, 2008), 54 (May 23, 2008), App. 6a. The District Court therefore resolved the case on alternative grounds,^[12] and in its jurisdictional [932] statement to this Court, Citizens United properly advised us that it was raising only "an as-applied challenge to the constitutionality of ... BCRA § 203." Juris. Statement 5. The jurisdictional statement never so much as cited Austin, the key case the majority today overrules. And not one of the questions presented suggested that Citizens United was surreptitiously raising the facial challenge to § 203 that it previously agreed to dismiss. In fact, not one of those questions raised an issue based on Citizens United's corporate status. Juris. Statement (i). Moreover, even in its merits briefing, when Citizens United injected its request to overrule Austin, it never sought a declaration that § 203 was facially unconstitutional as to all corporations and unions; instead it argued only that the statute could not be applied to it because it was "funded overwhelmingly by individuals." Brief for Appellant 29; see also id., at 10, 12, 16, 28 (affirming "as applied" character of challenge to § 203); Tr. of Oral Arg. 4-9 (Mar. 24, 2009) (counsel for Citizens United conceding that § 203 could be applied to General Motors); id., at 55 (counsel for Citizens United stating that "we accept the Court's decision in Wisconsin Right to Life").

"`It is only in exceptional cases coming here from the federal courts that questions not pressed or passed upon below are reviewed,' " Youakim v. Miller, 425 U.S. 231, 234, 96 S.Ct. 1399, 47 L.Ed.2d 701 (1976) (per curiam) (quoting Duignan v. United States, 274 U.S. 195, 200, 47 S.Ct. 566, 71 L.Ed. 996 (1927)), and it is "only in the most exceptional cases" that we will consider issues outside the questions presented, Stone v. Powell, 428 U.S. 465, 481, n. 15, 96 S.Ct. 3037, 49 L.Ed.2d 1067 (1976). The appellant in this case did not so much as assert an exceptional circumstance, and one searches the majority opinion in vain for the mention of any. That is unsurprising, for none exists.

Setting the case for reargument was a constructive step, but it did not cure this fundamental problem. Essentially, five Justices were unhappy with the limited nature of the case before us, so they changed the case to give themselves an opportunity to change the law.

As-Applied and Facial Challenges

This Court has repeatedly emphasized in recent years that "[f]acial challenges are disfavored." Washington State Grange v. Washington State Republican Party, 552 U.S. 442, 450, 128 S.Ct. 1184, 170 L.Ed.2d 151 (2008); see also Ayotte v. Planned Parenthood of Northern New Eng., 546 U.S. 320, 329, 126 S.Ct. 961, 163 L.Ed.2d 812 (2006) ("[T]he `normal rule' is that `partial, rather than facial, invalidation is the required course,' such that a `statute may ... be declared invalid to the extent that it reaches too far, but otherwise left intact'" (quoting Brockett v. Spokane Arcades, Inc., 472 U.S. 491, 504, 105 S.Ct. 2794, 86 L.Ed.2d 394 (1985); alteration in original)). By declaring § 203 facially unconstitutional, our colleagues have turned an as-applied challenge into a facial challenge, in defiance of this principle.

This is not merely a technical defect in the Court's decision. The unnecessary resort to a facial inquiry "run[s] contrary to the fundamental principle of judicial restraint [933] that courts should neither anticipate a question of constitutional law in advance of the necessity of deciding it nor formulate a rule of constitutional law broader than is required by the precise facts to which it is to be applied." Washington State Grange, 552 U.S., at 450, 128 S.Ct. 1184 (internal quotation marks omitted). Scanting that principle "threaten[s] to short circuit the democratic process by preventing laws embodying the will of the people from being implemented in a manner consistent with the Constitution." Id., at 451, 128 S.Ct. 1184. These concerns are heightened when judges overrule settled doctrine upon which the legislature has relied. The Court operates with a sledge hammer rather than a scalpel when it strikes down one of Congress' most significant efforts to regulate the role that corporations and unions play in electoral politics. It compounds the offense by implicitly striking down a great many state laws as well.

The problem goes still deeper, for the Court does all of this on the basis of pure speculation. Had Citizens United maintained a facial challenge, and thus argued that there are virtually no circumstances in which BCRA § 203 can be applied constitutionally, the parties could have developed, through the normal process of litigation, a record about the actual effects of § 203, its actual burdens and its actual benefits, on all manner of corporations and unions.^[13] "Claims of facial invalidity often rest on speculation," and consequently "raise the risk of premature interpretation of statutes on the basis of factually barebones records." Id., at 450, 128 S.Ct. 1184 (internal quotation marks omitted). In this case, the record is not simply incomplete or unsatisfactory; it is nonexistent. Congress crafted BCRA in response to a virtual mountain of research on the corruption that previous legislation had failed to avert. The Court now negates Congress' efforts without a shred of evidence on how § 203 or its state-law counterparts have been affecting any entity other than Citizens United.^[14]

Faced with this gaping empirical hole, the majority throws up its hands. Were we to confine our inquiry to Citizens United's as-applied challenge, it protests, we would commence an "extended" process of "draw[ing], and then redraw[ing], constitutional [934] lines based on the particular media or technology used to disseminate political speech from a particular speaker." Ante, at 891. While tacitly acknowledging that some applications of § 203 might be found constitutional, the majority thus posits a future in which novel First Amendment standards must be devised on an ad hoc basis, and then leaps from this unfounded prediction to the unfounded conclusion that such complexity counsels the abandonment of all normal restraint. Yet it is a pervasive feature of regulatory systems that unanticipated events, such as new technologies, may raise some unanticipated difficulties at the margins. The fluid nature of electioneering communications does not make this case special. The fact that a Court can hypothesize situations in which a statute might, at some point down the line, pose some unforeseen as-applied problems, does not come close to meeting the standard for a facial challenge.^[15]

The majority proposes several other justifications for the sweep of its ruling. It suggests that a facial ruling is necessary because, if the Court were to continue on its normal course of resolving as-applied challenges as they present themselves, that process would itself run afoul of the First Amendment. See, e.g., ante, at 890 (as-applied review process "would raise questions as to the courts' own lawful authority"); ibid. ("Courts, too, are bound by the First Amendment"). This suggestion is perplexing. Our colleagues elsewhere trumpet "our duty `to say what the law is,'" even when our predecessors on the bench and our counterparts in Congress have interpreted the law differently. Ante, at 913 (quoting Marbury v. Madison, 1 Cranch 137, 177, 2 L.Ed. 60 (1803)). We do not typically say what the law is not as a hedge against future judicial error. The possibility that later courts will misapply a constitutional provision does not give us a basis for pretermitting litigation relating to that provision.^[16]

The majority suggests that a facial ruling is necessary because anything less would chill too much protected speech. See ante, at 890-891, 892, 894-897. In addition to begging the question what types of corporate spending are constitutionally protected and to what extent, this claim rests on the assertion that some significant number of corporations have [935] been cowed into quiescence by FEC "`censor[ship].'" Ante, at 895-896. That assertion is unsubstantiated, and it is hard to square with practical experience. It is particularly hard to square with the legal landscape following WRTL, which held that a corporate communication could be regulated under § 203 only if it was "susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate." 551 U.S., at 470, 127 S.Ct. 2652 (opinion of ROBERTS, C.J.) (emphasis added). The whole point of this test was to make § 203 as simple and speech-protective as possible. The Court does not explain how, in the span of a single election cycle, it has determined THE CHIEF JUSTICE's project to be a failure. In this respect, too, the majority's critique of line-drawing collapses into a critique of the as-applied review method generally.^[17]

The majority suggests that, even though it expressly dismissed its facial challenge, Citizens United nevertheless preserved it—not as a freestanding "claim," but as a potential argument in support of "a claim that the FEC has violated its First Amendment right to free speech." Ante, at 892-893; see also ante, at 919 (ROBERTS, C.J., concurring) (describing Citizens United's claim as: "[T]he Act violates the First Amendment"). By this novel logic, virtually any submission could be reconceptualized as "a claim that the Government has violated my rights," and it would then be available to the Court to entertain any conceivable issue that might be relevant to that claim's disposition. Not only the as-applied/facial distinction, but the basic relationship between litigants and courts, would be upended if the latter had free rein to construe the former's claims at such high levels of generality. There would be no need for plaintiffs to argue their case; they could just cite the constitutional provisions they think relevant, and leave the rest to us.^[18]

Finally, the majority suggests that though the scope of Citizens United's claim may be narrow, a facial ruling is necessary as a matter of remedy. Relying on a law review article, it asserts that Citizens United's dismissal of the facial challenge does not prevent us "`from making broader pronouncements of invalidity in properly "as-applied" cases.'" Ante, at 893 (quoting Fallon, As-Applied and Facial Challenges and Third-Party Standing, 113 Harv. L.Rev. 1321, 1339 (2000) (hereinafter Fallon)); accord, ante, at 919 (opinion of ROBERTS, C.J.) ("Regardless whether we label Citizens United's claim a `facial' or `as-applied' challenge, the consequences of the Court's decision are the same"). The majority is on firmer conceptual ground here. Yet even if one accepts this part of Professor Fallon's thesis, one must proceed [936] to ask which as-applied challenges, if successful, will "properly" invite or entail invalidation of the underlying statute.^[19] The paradigmatic case is a judicial determination that the legislature acted with an impermissible purpose in enacting a provision, as this carries the necessary implication that all future as-applied challenges to the provision must prevail. See Fallon 1339-1340.

Citizens United's as-applied challenge was not of this sort. Until this Court ordered reargument, its contention was that BCRA § 203 could not lawfully be applied to a feature-length video-on-demand film (such as Hillary) or to a nonprofit corporation exempt from taxation under 26 U.S.C. § 501(c)(4)^[20] and funded overwhelmingly by individuals (such as itself). See Brief for Appellant 16-41. Success on either of these claims would not necessarily carry any implications for the validity of § 203 as applied to other types of broadcasts, other types of corporations, or unions. It certainly would not invalidate the statute as applied to a large for-profit corporation. See Tr. of Oral Arg. 8, 4 (Mar. 24, 2009) (counsel for Citizens United emphasizing that appellant is "a small, nonprofit organization, which is very much like [an MCFL corporation]," and affirming that its argument "definitely would not be the same" if Hillary were distributed by General Motors).^[21] There is no legitimate basis for resurrecting a facial challenge that dropped out of this case 20 months ago.

Narrower Grounds

It is all the more distressing that our colleagues have manufactured a facial challenge, because the parties have advanced numerous ways to resolve the case that would facilitate electioneering by nonprofit advocacy corporations such as Citizens [937] United, without toppling statutes and precedents. Which is to say, the majority has transgressed yet another "cardinal" principle of the judicial process: "[I]f it is not necessary to decide more, it is necessary not to decide more," PDK Labs., Inc. v. Drug Enforcement Admin., 362 F.3d 786, 799 (C.A.D.C.2004) (Roberts, J., concurring in part and concurring in judgment).

Consider just three of the narrower grounds of decision that the majority has bypassed. First, the Court could have ruled, on statutory grounds, that a feature-length film distributed through video-on-demand does not qualify as an "electioneering communication" under § 203 of BCRA, 2 U.S.C. § 441b. BCRA defines that term to encompass certain communications transmitted by "broadcast, cable, or satellite." § 434(f)(3)(A). When Congress was developing BCRA, the video-on-demand medium was still in its infancy, and legislators were focused on a very different sort of programming: short advertisements run on television or radio. See McConnell, 540 U.S., at 207, 124 S.Ct. 619. The sponsors of BCRA acknowledge that the FEC's implementing regulations do not clearly apply to video-on-demand transmissions. See Brief for Senator John McCain et al. as Amici Curiae 17-19. In light of this ambiguity, the distinctive characteristics of video-on-demand, and "[t]he elementary rule ... that every reasonable construction must be resorted to, in order to save a statute from unconstitutionality," Hooper v. California, 155 U.S. 648, 657, 15 S.Ct. 207, 39 L.Ed. 297 (1895), the Court could have reasonably ruled that § 203 does not apply to Hillary.^[22]

Second, the Court could have expanded the MCFL exemption to cover § 501(c)(4) nonprofits that accept only a de minimis amount of money from for-profit corporations. Citizens United professes to be such a group: Its brief says it "is funded predominantly by donations from individuals who support [its] ideological message." Brief for Appellant 5. Numerous Courts of Appeal have held that de minimis business support does not, in itself, remove an otherwise qualifying organization from the ambit of MCFL.^[23] This Court could have simply followed their lead.^[24]

Finally, let us not forget Citizens United's as-applied constitutional challenge. [938] Precisely because Citizens United looks so much like the MCFL organizations we have exempted from regulation, while a feature-length video-on-demand film looks so unlike the types of electoral advocacy Congress has found deserving of regulation, this challenge is a substantial one. As the appellant's own arguments show, the Court could have easily limited the breadth of its constitutional holding had it declined to adopt the novel notion that speakers and speech acts must always be treated identically—and always spared expenditures restrictions—in the political realm. Yet the Court nonetheless turns its back on the as-applied review process that has been a staple of campaign finance litigation since Buckley v. Valeo, 424 U.S. 1, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976) (per curiam), and that was affirmed and expanded just two Terms ago in WRTL, 551 U.S. 449, 127 S.Ct. 2652, 168 L.Ed.2d 329.

This brief tour of alternative grounds on which the case could have been decided is not meant to show that any of these grounds is ideal, though each is perfectly "valid," ante, at 892 (majority opinion).^[25] It is meant to show that there were principled, narrower paths that a Court that was serious about judicial restraint could have taken. There was also the straightforward path: applying Austin and McConnell, just as the District Court did in holding that the funding of Citizens United's film can be regulated under them. The only thing preventing the majority from affirming the District Court, or adopting a narrower ground that would retain Austin, is its disdain for Austin.

II

The final principle of judicial process that the majority violates is the most transparent: stare decisis. I am not an absolutist when it comes to stare decisis, in the campaign finance area or in any other. No one is. But if this principle is to do any meaningful work in supporting the rule of law, it must at least demand a significant justification, beyond the preferences of five Justices, for overturning settled doctrine. "[A] decision to overrule should rest on some special reason over and above the belief that a prior case was wrongly decided." Planned Parenthood of Southeastern Pa. v. Casey, 505 U.S. 833, 864, 112 S.Ct. 2791, 120 L.Ed.2d 674 (1992). No such justification exists in this case, and to the contrary there are powerful prudential reasons to keep faith with our precedents.^[26]

The Court's central argument for why stare decisis ought to be trumped is that it does not like Austin. The opinion "was not well reasoned," our colleagues assert, and it conflicts with First Amendment [939] principles. Ante, at 912. This, of course, is the Court's merits argument, the many defects in which we will soon consider. I am perfectly willing to concede that if one of our precedents were dead wrong in its reasoning or irreconcilable with the rest of our doctrine, there would be a compelling basis for revisiting it. But neither is true of Austin, as I explain at length in Parts III and IV, infra, at 942-979, and restating a merits argument with additional vigor does not give it extra weight in the stare decisis calculus.

Perhaps in recognition of this point, the Court supplements its merits case with a smattering of assertions. The Court proclaims that "Austin is undermined by experience since its announcement." Ante, at 912. This is a curious claim to make in a case that lacks a developed record. The majority has no empirical evidence with which to substantiate the claim; we just have its ipse dixit that the real world has not been kind to Austin. Nor does the majority bother to specify in what sense Austin has been "undermined." Instead it treats the reader to a string of non sequiturs: "Our Nation's speech dynamic is changing," ante, at 912; "[s]peakers have become adept at presenting citizens with sound bites, talking points, and scripted messages," ibid.; "[c]orporations ... do not have monolithic views," ibid. How any of these ruminations weakens the force of stare decisis, escapes my comprehension.^[27]

The majority also contends that the Government's hesitation to rely on Austin's antidistortion rationale "diminishe[s]" "the principle of adhering to that precedent." Ante, at 912; see also ante, at 923 (opinion of ROBERTS, C.J.) (Government's litigating position is "most importan[t]" factor undermining Austin). Why it diminishes the value of stare decisis is left unexplained. We have never thought fit to overrule a precedent because a litigant has taken any particular tack. Nor should we. Our decisions can often be defended on multiple grounds, and a litigant may have strategic or case-specific reasons for emphasizing only a subset of them. Members of the public, moreover, often rely on our bottom-line holdings far more than our precise legal arguments; surely this is true for the legislatures that have been regulating corporate electioneering since Austin. The task of evaluating the continued viability of precedents falls to this Court, not to the parties.^[28]

[940] Although the majority opinion spends several pages making these surprising arguments, it says almost nothing about the standard considerations we have used to determine stare decisis value, such as the antiquity of the precedent, the workability of its legal rule, and the reliance interests at stake. It is also conspicuously silent about McConnell, even though the McConnell Court's decision to uphold BCRA § 203 relied not only on the antidistortion logic of Austin but also on the statute's historical pedigree, see, e.g., 540 U.S., at 115-132, 223-224, 124 S.Ct. 619, and the need to preserve the integrity of federal campaigns, see id., at 126-129, 205-208, and n. 88, 124 S.Ct. 619.

We have recognized that "[s]tare decisis has special force when legislators or citizens `have acted in reliance on a previous decision, for in this instance overruling the decision would dislodge settled rights and expectations or require an extensive legislative response.'" Hubbard v. United States, 514 U.S. 695, 714, 115 S.Ct. 1754, 131 L.Ed.2d 779 (1995) (quoting Hilton v. South Carolina Public Railways Comm'n, 502 U.S. 197, 202, 112 S.Ct. 560, 116 L.Ed.2d 560 (1991)). Stare decisis protects not only personal rights involving property or contract but also the ability of the elected branches to shape their laws in an effective and coherent fashion. Today's decision takes away a power that we have long permitted these branches to exercise. State legislatures have relied on their authority to regulate corporate electioneering, confirmed in Austin, for more than a century.^[29] The Federal Congress has relied on this authority for a comparable stretch of time, and it specifically relied on Austin throughout the years it spent developing and debating BCRA. The total record it compiled was 100,000 pages long.^[30] Pulling out the rug beneath Congress after affirming the constitutionality of § 203 six years ago shows great disrespect for a coequal branch.

By removing one of its central components, today's ruling makes a hash out of BCRA's "delicate and interconnected regulatory scheme." McConnell, 540 U.S., at 172, 124 S.Ct. 619. Consider just one example of the distortions that will follow: Political parties are barred under BCRA from soliciting or spending "soft money," funds that are not subject to the statute's disclosure requirements or its source and amount limitations. 2 U.S.C. § 441i; McConnell, 540 U.S., at 122-126, 124 S.Ct. 619. Going forward, corporations and unions will be free to spend as much general treasury money as they wish on ads that support or attack specific candidates, whereas national parties will not be able to spend a dime of soft money on ads of any kind. The Court's ruling thus dramatically enhances the role of corporations and unions—and the narrow interests they represent—vis-à-vis the role of political parties—and the broad coalitions they represent—in determining who will hold public office.^[31]

Beyond the reliance interests at stake, the other stare decisis factors also cut against the Court. Considerations of antiquity [941] are significant for similar reasons. McConnell is only six years old, but Austin has been on the books for two decades, and many of the statutes called into question by today's opinion have been on the books for a half-century or more. The Court points to no intervening change in circumstances that warrants revisiting Austin. Certainly nothing relevant has changed since we decided WRTL two Terms ago. And the Court gives no reason to think that Austin and McConnell are unworkable.

In fact, no one has argued to us that Austin's rule has proved impracticable, and not a single for-profit corporation, union, or State has asked us to overrule it. Quite to the contrary, leading groups representing the business community,^[32] organized labor,^[33] and the nonprofit sector,^[34] together with more than half of the States,^[35] urge that we preserve Austin. As for McConnell, the portions of BCRA it upheld may be prolix, but all three branches of Government have worked to make § 203 as user-friendly as possible. For instance, Congress established a special mechanism for expedited review of constitutional challenges, see note following 2 U.S.C. § 437h; the FEC has established a standardized process, with clearly defined safe harbors, for corporations to claim that a particular electioneering communication is permissible under WRTL, see 11 CFR § 114.15 (2009);^[36] and, as noted above, THE CHIEF JUSTICE crafted his controlling opinion in WRTL with the express goal of maximizing clarity and administrability, 551 U.S., at 469-470, 473-474, 127 S.Ct. 2652. The case for stare decisis may be bolstered, we have said, when subsequent rulings "have reduced the impact" of a precedent "while reaffirming the decision's core ruling." Dickerson v. United States, 530 U.S. 428, 443, 120 S.Ct. 2326, 147 L.Ed.2d 405 (2000).^[37]

In the end, the Court's rejection of Austin and McConnell comes down to nothing more than its disagreement with their results. [942] Virtually every one of its arguments was made and rejected in those cases, and the majority opinion is essentially an amalgamation of resuscitated dissents. The only relevant thing that has changed since Austin and McConnell is the composition of this Court. Today's ruling thus strikes at the vitals of stare decisis, "the means by which we ensure that the law will not merely change erratically, but will develop in a principled and intelligible fashion" that "permits society to presume that bedrock principles are founded in the law rather than in the proclivities of individuals." Vasquez v. Hillery, 474 U.S. 254, 265, 106 S.Ct. 617, 88 L.Ed.2d 598 (1986).

III

The novelty of the Court's procedural dereliction and its approach to stare decisis is matched by the novelty of its ruling on the merits. The ruling rests on several premises. First, the Court claims that Austin and McConnell have "banned" corporate speech. Second, it claims that the First Amendment precludes regulatory distinctions based on speaker identity, including the speaker's identity as a corporation. Third, it claims that Austin and McConnell were radical outliers in our First Amendment tradition and our campaign finance jurisprudence. Each of these claims is wrong.

The So-Called "Ban"

Pervading the Court's analysis is the ominous image of a "categorical ba[n]" on corporate speech. Ante, at 910. Indeed, the majority invokes the specter of a "ban" on nearly every page of its opinion. Ante, at 886-887, 889, 891-892, 894, 896-898, 900-907, 909-912, 915, 916. This characterization is highly misleading, and needs to be corrected.

In fact it already has been. Our cases have repeatedly pointed out that, "[c]ontrary to the [majority's] critical assumptions," the statutes upheld in Austin and McConnell do "not impose an absolute ban on all forms of corporate political spending." Austin, 494 U.S., at 660, 110 S.Ct. 1391; see also McConnell, 540 U.S., at 203-204, 124 S.Ct. 619; Beaumont, 539 U.S., at 162-163, 123 S.Ct. 2200. For starters, both statutes provide exemptions for PACs, separate segregated funds established by a corporation for political purposes. See 2 U.S.C. § 441b(b)(2)(C); Mich. Comp. Laws Ann. § 169.255 (West 2005). "The ability to form and administer separate segregated funds," we observed in McConnell, "has provided corporations and unions with a constitutionally sufficient opportunity to engage in express advocacy. That has been this Court's unanimous view." 540 U.S., at 203, 124 S.Ct. 619.

Under BCRA, any corporation's "stockholders and their families and its executive or administrative personnel and their families" can pool their resources to finance electioneering communications. 2 U.S.C. § 441b(b)(4)(A)(i). A significant and growing number of corporations avail themselves of this option;^[38] during the most recent election cycle, corporate and union PACs raised nearly a billion dollars.^[39] Administering [943] a PAC entails some administrative burden, but so does complying with the disclaimer, disclosure, and reporting requirements that the Court today upholds, see ante, at 914, and no one has suggested that the burden is severe for a sophisticated for-profit corporation. To the extent the majority is worried about this issue, it is important to keep in mind that we have no record to show how substantial the burden really is, just the majority's own unsupported factfinding, see ante, at 897-898. Like all other natural persons, every shareholder of every corporation remains entirely free under Austin and McConnell to do however much electioneering she pleases outside of the corporate form. The owners of a "mom & pop" store can simply place ads in their own names, rather than the store's. If ideologically aligned individuals wish to make unlimited expenditures through the corporate form, they may utilize an MCFL organization that has policies in place to avoid becoming a conduit for business or union interests. See MCFL, 479 U.S., at 263-264, 107 S.Ct. 616.

The laws upheld in Austin and McConnell leave open many additional avenues for corporations' political speech. Consider the statutory provision we are ostensibly evaluating in this case, BCRA § 203. It has no application to genuine issue advertising—a category of corporate speech Congress found to be far more substantial than election-related advertising, see McConnell, 540 U.S., at 207, 124 S.Ct. 619—or to Internet, telephone, and print advocacy.^[40] Like numerous statutes, it exempts media companies' news stories, commentaries, and editorials from its electioneering restrictions, in recognition of the unique role played by the institutional press in sustaining public debate.^[41] See 2 U.S.C. § 434(f)(3)(B)(i); McConnell, 540 U.S., at 208-209, 124 S.Ct. 619; see also Austin, 494 U.S., at 666-668, 110 S.Ct. 1391. It also allows corporations to spend unlimited sums on political communications with their executives and shareholders, § 441b(b)(2)(A); 11 CFR § 114.3(a)(1), to fund additional PAC activity through trade associations, 2 U.S.C. § 441b(b)(4)(D), to distribute voting guides and voting records, 11 CFR §§ 114.4(c)(4)-(5), [944] to underwrite voter registration and voter turnout activities, § 114.3(c)(4); § 114.4(c)(2), to host fundraising events for candidates within certain limits, § 114.4(c); § 114.2(f)(2), and to publicly endorse candidates through a press release and press conference, § 114.4(c)(6).

At the time Citizens United brought this lawsuit, the only types of speech that could be regulated under § 203 were: (1) broadcast, cable, or satellite communications;^[42] (2) capable of reaching at least 50,000 persons in the relevant electorate;^[43] (3) made within 30 days of a primary or 60 days of a general federal election;^[44] (4) by a labor union or a non-MCFL, nonmedia corporation;^[45] (5) paid for with general treasury funds;^[46] and (6) "susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate."^[47] The category of communications meeting all of these criteria is not trivial, but the notion that corporate political speech has been "suppress[ed] ... altogether," ante, at 886, that corporations have been "exclu[ded]... from the general public dialogue," ante, at 899, or that a work of fiction such as Mr. Smith Goes to Washington might be covered, ante, at 916-917, is nonsense.^[48] Even the plaintiffs in McConnell, who had every incentive to depict BCRA as negatively as possible, declined to argue that § 203's prohibition on certain uses of general treasury funds amounts to a complete ban. See 540 U.S., at 204, 124 S.Ct. 619.

In many ways, then, § 203 functions as a source restriction or a time, place, and manner restriction. It applies in a viewpoint-neutral fashion to a narrow subset of advocacy messages about clearly identified candidates for federal office, made during discrete time periods through discrete channels. In the case at hand, all Citizens United needed to do to broadcast Hillary right before the primary was to abjure business contributions or use the funds in its PAC, which by its own account is "one of the most active conservative PACs in America," Citizens United Political Victory Fund, http://www.cupvf.org/.^[49]

So let us be clear: Neither Austin nor McConnell held or implied that corporations may be silenced; the FEC is not a "censor"; and in the years since these [945] cases were decided, corporations have continued to play a major role in the national dialogue. Laws such as § 203 target a class of communications that is especially likely to corrupt the political process, that is at least one degree removed from the views of individual citizens, and that may not even reflect the views of those who pay for it. Such laws burden political speech, and that is always a serious matter, demanding careful scrutiny. But the majority's incessant talk of a "ban" aims at a straw man.

Identity-Based Distinctions

The second pillar of the Court's opinion is its assertion that "the Government cannot restrict political speech based on the speaker's ... identity." Ante, at 902; accord, ante, at 886, 898, 900, 902-904, 912-913. The case on which it relies for this proposition is First Nat. Bank of Boston v. Bellotti, 435 U.S. 765, 98 S.Ct. 1407, 55 L.Ed.2d 707 (1978). As I shall explain, infra, at 958-960, the holding in that case was far narrower than the Court implies. Like its paeans to unfettered discourse, the Court's denunciation of identity-based distinctions may have rhetorical appeal but it obscures reality.

"Our jurisprudence over the past 216 years has rejected an absolutist interpretation" of the First Amendment. WRTL, 551 U.S., at 482, 127 S.Ct. 2652 (opinion of ROBERTS, C.J.). The First Amendment provides that "Congress shall make no law... abridging the freedom of speech, or of the press." Apart perhaps from measures designed to protect the press, that text might seem to permit no distinctions of any kind. Yet in a variety of contexts, we have held that speech can be regulated differentially on account of the speaker's identity, when identity is understood in categorical or institutional terms. The Government routinely places special restrictions on the speech rights of students,^[50] prisoners,^[51] members of the Armed Forces,^[52] foreigners,^[53] and its own employees.^[54] When such restrictions are justified by a legitimate governmental interest, [946] they do not necessarily raise constitutional problems.^[55] In contrast to the blanket rule that the majority espouses, our cases recognize that the Government's interests may be more or less compelling with respect to different classes of speakers,^[56] cf. Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 585, 103 S.Ct. 1365, 75 L.Ed.2d 295 (1983) ("[D]ifferential treatment" is constitutionally suspect "unless justified by some special characteristic" of the regulated class of speakers (emphasis added)), and that the constitutional rights of certain categories of speakers, in certain contexts, "`are not automatically coextensive with the rights'" that are normally accorded to members of our society, Morse v. Frederick, 551 U.S. 393, 396-397, 404, 127 S.Ct. 2618, 168 L.Ed.2d 290 (2007) (quoting Bethel School Dist. No. 403 v. Fraser, 478 U.S. 675, 682, 106 S.Ct. 3159, 92 L.Ed.2d 549 (1986)).

The free speech guarantee thus does not render every other public interest an illegitimate basis for qualifying a speaker's autonomy; society could scarcely function if it did. It is fair to say that our First Amendment doctrine has "frowned on" certain identity-based distinctions, Los Angeles Police Dept. v. United Reporting Publishing Corp., 528 U.S. 32, 47, n. 4, 120 S.Ct. 483, 145 L.Ed.2d 451 (1999) (STEVENS, J., dissenting), particularly those that may reflect invidious discrimination or preferential treatment of a politically powerful group. But it is simply incorrect to suggest that we have prohibited all legislative distinctions based on identity or content. Not even close.

The election context is distinctive in many ways, and the Court, of course, is right that the First Amendment closely guards political speech. But in this context, too, the authority of legislatures to enact viewpoint-neutral regulations based on content and identity is well settled. We have, for example, allowed state-run broadcasters to exclude independent candidates from televised debates. Arkansas Ed. Television Comm'n v. Forbes, 523 U.S. 666, 118 S.Ct. 1633, 140 L.Ed.2d 875 (1998).^[57] We have upheld statutes that prohibit the distribution or display of campaign materials near a polling place. Burson v. Freeman, 504 U.S. 191, 112 S.Ct. [947] 1846, 119 L.Ed.2d 5 (1992).^[58] Although we have not reviewed them directly, we have never cast doubt on laws that place special restrictions on campaign spending by foreign nationals. See, e.g., 2 U.S.C. § 441e(a)(1). And we have consistently approved laws that bar Government employees, but not others, from contributing to or participating in political activities. See n. 45, supra. These statutes burden the political expression of one class of speakers, namely, civil servants. Yet we have sustained them on the basis of longstanding practice and Congress' reasoned judgment that certain regulations which leave "untouched full participation ... in political decisions at the ballot box," Civil Service Comm'n v. Letter Carriers, 413 U.S. 548, 556, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973) (internal quotation marks omitted), help ensure that public officials are "sufficiently free from improper influences," id., at 564, 93 S.Ct. 2880, and that "confidence in the system of representative Government is not ... eroded to a disastrous extent," id., at 565, 93 S.Ct. 2880.

The same logic applies to this case with additional force because it is the identity of corporations, rather than individuals, that the Legislature has taken into account. As we have unanimously observed, legislatures are entitled to decide "that the special characteristics of the corporate structure require particularly careful regulation" in an electoral context. NRWC, 459 U.S., at 209-210, 103 S.Ct. 552.^[59] Not only has the distinctive potential of corporations to corrupt the electoral process long been recognized, but within the area of campaign finance, corporate spending is also "furthest from the core of political expression, since corporations' First Amendment speech and association interests are derived largely from those of their members and of the public in receiving information," Beaumont, 539 U.S., at 161, n. 8, 123 S.Ct. 2200 (citation omitted). Campaign finance distinctions based on corporate identity tend to be less worrisome, in other words, because the "speakers" are not natural persons, much less members of our political community, and the governmental interests are of the highest order. Furthermore, when corporations, as a class, are distinguished from noncorporations, as a class, there is a lesser risk that regulatory distinctions will reflect invidious discrimination or political favoritism.

If taken seriously, our colleagues' assumption that the identity of a speaker has no relevance to the Government's ability to regulate political speech would lead to some remarkable conclusions. Such an assumption would have accorded the propaganda broadcasts to our troops by "Tokyo Rose" during World War II the same protection as speech by Allied commanders. More pertinently, it would appear to afford the same protection to multinational corporations [948] controlled by foreigners as to individual Americans: To do otherwise, after all, could "`enhance the relative voice'" of some (i.e., humans) over others (i.e., nonhumans). Ante, at 904 (quoting Buckley, 424 U.S., at 49, 96 S.Ct. 612).^[60] Under the majority's view, I suppose it may be a First Amendment problem that corporations are not permitted to vote, given that voting is, among other things, a form of speech.^[61]

In short, the Court dramatically overstates its critique of identity-based distinctions, without ever explaining why corporate identity demands the same treatment as individual identity. Only the most wooden approach to the First Amendment could justify the unprecedented line it seeks to draw.

Our First Amendment Tradition

A third fulcrum of the Court's opinion is the idea that Austin and McConnell are radical outliers, "aberration[s]," in our First Amendment tradition. Ante, at 907; see also ante, at 910, 916-917 (professing fidelity to "our law and our tradition"). The Court has it exactly backwards. It is today's holding that is the radical departure from what had been settled First Amendment law. To see why, it is useful to take a long view.

1. Original Understandings

Let us start from the beginning. The Court invokes "ancient First Amendment principles," ante, at 886 (internal quotation marks omitted), and original understandings, ante, at 906-907, to defend today's ruling, yet it makes only a perfunctory attempt to ground its analysis in the principles or understandings of those who drafted and ratified the Amendment. Perhaps this is because there is not a scintilla of evidence to support the notion that anyone believed it would preclude regulatory distinctions based on the corporate form. To the extent that the Framers' views are discernible and relevant to the disposition of this case, they would appear to cut strongly against the majority's position.

This is not only because the Framers and their contemporaries conceived of speech more narrowly than we now think of it, see Bork, Neutral Principles and Some First Amendment Problems, 47 Ind. [949] L.J. 1, 22 (1971), but also because they held very different views about the nature of the First Amendment right and the role of corporations in society. Those few corporations that existed at the founding were authorized by grant of a special legislative charter.^[62] Corporate sponsors would petition the legislature, and the legislature, if amenable, would issue a charter that specified the corporation's powers and purposes and "authoritatively fixed the scope and content of corporate organization," including "the internal structure of the corporation." J. Hurst, The Legitimacy of the Business Corporation in the Law of the United States 1780-1970, pp. 15-16 (1970) (reprint 2004). Corporations were created, supervised, and conceptualized as quasi-public entities, "designed to serve a social function for the state." Handlin & Handlin, Origin of the American Business Corporation, 5 J. Econ. Hist. 1, 22 (1945). It was "assumed that [they] were legally privileged organizations that had to be closely scrutinized by the legislature because their purposes had to be made consistent with public welfare." R. Seavoy, Origins of the American Business Corporation, 1784-1855, p. 5 (1982).

The individualized charter mode of incorporation reflected the "cloud of disfavor under which corporations labored" in the early years of this Nation. 1 W. Fletcher, Cyclopedia of the Law of Corporations § 2, p. 8 (rev. ed.2006); see also Louis K. Liggett Co. v. Lee, 288 U.S. 517, 548-549, 53 S.Ct. 481, 77 L.Ed. 929 (1933) (Brandeis, J., dissenting) (discussing fears of the "evils" of business corporations); L. Friedman, A History of American Law 194 (2d ed.1985) ("The word `soulless' constantly recurs in debates over corporations.... Corporations, it was feared, could concentrate the worst urges of whole groups of men"). Thomas Jefferson famously fretted that corporations would subvert the Republic.^[63] General incorporation statutes, and widespread acceptance of business corporations as socially useful actors, did not emerge until the 1800's. See Hansmann & Kraakman, The End of History for Corporate Law, 89 Geo. L.J. 439, 440 (2001) (hereinafter Hansmann & Kraakman) ("[A]ll general business corporation statutes appear to date from well after 1800").

The Framers thus took it as a given that corporations could be comprehensively [950] regulated in the service of the public welfare. Unlike our colleagues, they had little trouble distinguishing corporations from human beings, and when they constitutionalized the right to free speech in the First Amendment, it was the free speech of individual Americans that they had in mind.^[64] While individuals might join together to exercise their speech rights, business corporations, at least, were plainly not seen as facilitating such associational or expressive ends. Even "the notion that business corporations could invoke the First Amendment would probably have been quite a novelty," given that "at the time, the legitimacy of every corporate activity was thought to rest entirely in a concession of the sovereign." Shelledy, Autonomy, Debate, and Corporate Speech, 18 Hastings Const. L.Q. 541, 578 (1991); cf. Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 636, 4 L.Ed. 629 (1819) (Marshall, C.J.) ("A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it"); Eule, Promoting Speaker Diversity: Austin and Metro Broadcasting, 1990 S.Ct. Rev. 105, 129 ("The framers of the First Amendment could scarcely have anticipated its application to the corporation form. That, of course, ought not to be dispositive. What is compelling, however, is an understanding of who was supposed to be the beneficiary of the free speech guaranty—the individual"). In light of these background practices and understandings, it seems to me implausible that the Framers believed "the freedom of speech" would extend equally to all corporate speakers, much less that it would preclude legislatures from taking limited measures to guard against corporate capture of elections.

The Court observes that the Framers drew on diverse intellectual sources, communicated through newspapers, and aimed to provide greater freedom of speech than had existed in England. Ante, at 906. From these (accurate) observations, the Court concludes that "[t]he First Amendment was certainly not understood to condone the suppression of political speech in society's most salient media." Ibid. This conclusion is far from certain, given that many historians believe the Framers were focused on prior restraints on publication and did not understand the First Amendment to "prevent the subsequent punishment of such [publications] as may be deemed contrary to the public welfare." [951] Near v. Minnesota ex rel. Olson, 283 U.S. 697, 714, 51 S.Ct. 625, 75 L.Ed. 1357 (1931). Yet, even if the majority's conclusion were correct, it would tell us only that the First Amendment was understood to protect political speech in certain media. It would tell us little about whether the Amendment was understood to protect general treasury electioneering expenditures by corporations, and to what extent.

As a matter of original expectations, then, it seems absurd to think that the First Amendment prohibits legislatures from taking into account the corporate identity of a sponsor of electoral advocacy. As a matter of original meaning, it likewise seems baseless—unless one evaluates the First Amendment's "principles," ante, at 886, 912, or its "purpose," ante, at 919-920 (opinion of ROBERTS, C.J.), at such a high level of generality that the historical understandings of the Amendment cease to be a meaningful constraint on the judicial task. This case sheds a revelatory light on the assumption of some that an impartial judge's application of an originalist methodology is likely to yield more determinate answers, or to play a more decisive role in the decisional process, than his or her views about sound policy.

Justice SCALIA criticizes the foregoing discussion for failing to adduce statements from the founding era showing that corporations were understood to be excluded from the First Amendment's free speech guarantee. Ante, at 925-926, 929. Of course, Justice SCALIA adduces no statements to suggest the contrary proposition, or even to suggest that the contrary proposition better reflects the kind of right that the drafters and ratifiers of the Free Speech Clause thought they were enshrining. Although Justice SCALIA makes a perfectly sensible argument that an individual's right to speak entails a right to speak with others for a common cause, cf. MCFL, 479 U.S. 238, 107 S.Ct. 616, 93 L.Ed.2d 539, he does not explain why those two rights must be precisely identical, or why that principle applies to electioneering by corporations that serve no "common cause." Ante, at 928. Nothing in his account dislodges my basic point that members of the founding generation held a cautious view of corporate power and a narrow view of corporate rights (not that they "despised" corporations, ante, at 925), and that they conceptualized speech in individualistic terms. If no prominent Framer bothered to articulate that corporate speech would have lesser status than individual speech, that may well be because the contrary proposition—if not also the very notion of "corporate speech"— was inconceivable.^[65]

Justice SCALIA also emphasizes the unqualified nature of the First Amendment text. Ante, at 925, 928-929. Yet he would seemingly read out the Free Press Clause: How else could he claim that my purported views on newspapers must track my views on corporations generally? Ante, at 927.^[66] Like virtually all modern lawyers, Justice [952] SCALIA presumably believes that the First Amendment restricts the Executive, even though its language refers to Congress alone. In any event, the text only leads us back to the questions who or what is guaranteed "the freedom of speech," and, just as critically, what that freedom consists of and under what circumstances it may be limited. Justice SCALIA appears to believe that because corporations are created and utilized by individuals, it follows (as night the day) that their electioneering must be equally protected by the First Amendment and equally immunized from expenditure limits. See ante, at 928-929. That conclusion certainly does not follow as a logical matter, and Justice SCALIA fails to explain why the original public meaning leads it to follow as a matter of interpretation.

The truth is we cannot be certain how a law such as BCRA § 203 meshes with the original meaning of the First Amendment.^[67] I have given several reasons why I believe the Constitution would have been understood then, and ought to be understood now, to permit reasonable restrictions on corporate electioneering, and I will give many more reasons in the pages to come. The Court enlists the Framers in its defense without seriously grappling with their understandings of corporations or the free speech right, or with the republican principles that underlay those understandings.

In fairness, our campaign finance jurisprudence has never attended very closely to the views of the Framers, see Randall v. Sorrell, 548 U.S. 230, 280, 126 S.Ct. 2479, 165 L.Ed.2d 482 (2006) (STEVENS, J., dissenting), whose political universe differed profoundly from that of today. We have long since held that corporations are covered by the First Amendment, and many legal scholars have long since rejected the concession theory of the corporation. But "historical context is usually relevant," ibid. (internal quotation marks omitted), and in light of the Court's effort to cast itself as guardian of ancient values, it pays to remember that nothing in our constitutional history dictates today's outcome. To the contrary, this history helps illuminate just how extraordinarily dissonant the decision is.

2. Legislative and Judicial Interpretation

A century of more recent history puts to rest any notion that today's ruling is faithful to our First Amendment tradition. At the federal level, the express distinction between corporate and individual political spending on elections stretches back to 1907, when Congress passed the Tillman Act, ch. 420, 34 Stat. 864, banning all corporate contributions to candidates. The Senate Report on the legislation observed that "[t]he evils of the use of [corporate] money in connection with political elections are so generally recognized that the committee deems it unnecessary to make any [953] argument in favor of the general purpose of this measure. It is in the interest of good government and calculated to promote purity in the selection of public officials." S.Rep. No. 3056, 59th Cong., 1st Sess., 2 (1906). President Roosevelt, in his 1905 annual message to Congress, declared:

"`All contributions by corporations to any political committee or for any political purpose should be forbidden by law; directors should not be permitted to use stockholders' money for such purposes; and, moreover, a prohibition of this kind would be, as far as it went, an effective method of stopping the evils aimed at in corrupt practices acts.'" United States v. Automobile Workers, 352 U.S. 567, 572, 77 S.Ct. 529, 1 L.Ed.2d 563 (1957) (quoting 40 Cong. Rec. 96).

The Court has surveyed the history leading up to the Tillman Act several times, see WRTL, 551 U.S., at 508-510, 127 S.Ct. 2652 (Souter, J., dissenting); McConnell, 540 U.S., at 115, 124 S.Ct. 619; Automobile Workers, 352 U.S., at 570-575, 77 S.Ct. 529, and I will refrain from doing so again. It is enough to say that the Act was primarily driven by two pressing concerns: first, the enormous power corporations had come to wield in federal elections, with the accompanying threat of both actual corruption and a public perception of corruption; and second, a respect for the interest of shareholders and members in preventing the use of their money to support candidates they opposed. See ibid.; United States v. CIO, 335 U.S. 106, 113, 68 S.Ct. 1349, 92 L.Ed. 1849 (1948); Winkler, "Other People's Money": Corporations, Agency Costs, and Campaign Finance Law, 92 Geo. L.J. 871 (2004).

Over the years, the limitations on corporate political spending have been modified in a number of ways, as Congress responded to changes in the American economy and political practices that threatened to displace the commonweal. Justice Souter recently traced these developments at length.^[68]WRTL, 551 U.S., at 507-519, 127 S.Ct. 2652 (dissenting opinion); see also McConnell, 540 U.S., at 115-133, 124 S.Ct. 619; McConnell, 251 F.Supp.2d, at 188-205. The Taft-Hartley Act of 1947 is of special significance for this case. In that Act passed more than 60 years ago, Congress extended the prohibition on corporate support of candidates to cover not only direct contributions, but independent expenditures as well. Labor Management Relations Act, 1947, § 304, 61 Stat. 159. The bar on contributions "was being so narrowly construed" that corporations were easily able to defeat the purposes of the Act by supporting candidates through other means. WRTL, 551 U.S., at 511, 127 S.Ct. 2652 (Souter, J., dissenting) (citing S.Rep. No. 1, 80th Cong., 1st Sess., 38-39 (1947)).

Our colleagues emphasize that in two cases from the middle of the 20th century, several Justices wrote separately to criticize the expenditure restriction as applied to unions, even though the Court declined to pass on its constitutionality. Ante, at 900-901. Two features of these cases are of far greater relevance. First, those Justices were writing separately; which is to [954] say, their position failed to command a majority. Prior to today, this was a fact we found significant in evaluating precedents. Second, each case in this line expressed support for the principle that corporate and union political speech financed with PAC funds, collected voluntarily from the organization's stockholders or members, receives greater protection than speech financed with general treasury funds.^[69]

This principle was carried forward when Congress enacted comprehensive campaign finance reform in the Federal Election Campaign Act of 1971 (FECA), 86 Stat. 3, which retained the restriction on using general treasury funds for contributions and expenditures, 2 U.S.C. § 441b(a). FECA codified the option for corporations and unions to create PACs to finance contributions and expenditures forbidden to the corporation or union itself. § 441b(b).

By the time Congress passed FECA in 1971, the bar on corporate contributions and expenditures had become such an accepted part of federal campaign finance regulation that when a large number of plaintiffs, including several nonprofit corporations, challenged virtually every aspect of the Act in Buckley, 424 U.S. 1, 96 S.Ct. 612, 46 L.Ed.2d 659, no one even bothered to argue that the bar as such was unconstitutional. Buckley famously (or infamously) distinguished direct contributions from independent expenditures, id., at 58-59, 96 S.Ct. 612, but its silence on corporations only reinforced the understanding that corporate expenditures could be treated differently from individual expenditures. "Since our decision in Buckley, Congress' power to prohibit corporations and unions from using funds in their treasuries to finance advertisements expressly advocating the election or defeat of candidates in federal elections has been firmly embedded in our law." McConnell, 540 U.S., at 203, 124 S.Ct. 619.

Thus, it was unremarkable, in a 1982 case holding that Congress could bar nonprofit corporations from soliciting nonmembers for PAC funds, that then-Justice Rehnquist wrote for a unanimous Court [955] that Congress' "careful legislative adjustment of the federal electoral laws, in a cautious advance, step by step, to account for the particular legal and economic attributes of corporations . . . warrants considerable deference," and "reflects a permissible assessment of the dangers posed by those entities to the electoral process." NRWC, 459 U.S., at 209, 103 S.Ct. 552 (internal quotation marks and citation omitted). "The governmental interest in preventing both actual corruption and the appearance of corruption of elected representatives has long been recognized," the unanimous Court observed, "and there is no reason why it may not . . . be accomplished by treating . . . corporations . . . differently from individuals." Id., at 210-211, 103 S.Ct. 552.

The corporate/individual distinction was not questioned by the Court's disposition, in 1986, of a challenge to the expenditure restriction as applied to a distinctive type of nonprofit corporation. In MCFL, 479 U.S. 238, 107 S.Ct. 616, 93 L.Ed.2d 539, we stated again "that `the special characteristics of the corporate structure require particularly careful regulation,'" id., at 256, 107 S.Ct. 616 (quoting NRWC, 459 U.S., at 209-210, 103 S.Ct. 552), and again we acknowledged that the Government has a legitimate interest in "regulat[ing] the substantial aggregations of wealth amassed by the special advantages which go with the corporate form," 479 U.S., at 257, 107 S.Ct. 616 (internal quotation marks omitted). Those aggregations can distort the "free trade in ideas" crucial to candidate elections, ibid., at the expense of members or shareholders who may disagree with the object of the expenditures, id., at 260, 107 S.Ct. 616 (internal quotation marks omitted). What the Court held by a 5-to-4 vote was that a limited class of corporations must be allowed to use their general treasury funds for independent expenditures, because Congress' interests in protecting shareholders and "restrict[ing] `the influence of political war chests funneled through the corporate form,'" id., at 257, 107 S.Ct. 616 (quoting FEC v. National Conservative Political Action Comm., 470 U.S. 480, 501, 105 S.Ct. 1459, 84 L.Ed.2d 455 (1985) (NCPAC)), did not apply to corporations that were structurally insulated from those concerns.^[70]

It is worth remembering for present purposes that the four MCFL dissenters, led by Chief Justice Rehnquist, thought the Court was carrying the First Amendment too far. They would have recognized congressional authority to bar general treasury electioneering expenditures even by this class of nonprofits; they acknowledged that "the threat from corporate political activity will vary depending on the particular characteristics of a given corporation," but believed these "distinctions among corporations" were "distinctions in degree," not "in kind," and thus "more properly drawn by the Legislature than by the Judiciary." 479 U.S., at 268, 107 S.Ct. 616 (opinion of Rehnquist, C.J.) (internal quotation marks omitted). Not a single Justice suggested that regulation of corporate [956] political speech could be no more stringent than of speech by an individual.

Four years later, in Austin, 494 U.S. 652, 110 S.Ct. 1391, 108 L.Ed.2d 652, we considered whether corporations falling outside the MCFL exception could be barred from using general treasury funds to make independent expenditures in support of, or in opposition to, candidates. We held they could be. Once again recognizing the importance of "the integrity of the marketplace of political ideas" in candidate elections, MCFL, 479 U.S., at 257, 107 S.Ct. 616, we noted that corporations have "special advantages—such as limited liability, perpetual life, and favorable treatment of the accumulation and distribution of assets," 494 U.S., at 658-659, 110 S.Ct. 1391—that allow them to spend prodigious general treasury sums on campaign messages that have "little or no correlation" with the beliefs held by actual persons, id., at 660, 110 S.Ct. 1391. In light of the corrupting effects such spending might have on the political process, ibid., we permitted the State of Michigan to limit corporate expenditures on candidate elections to corporations' PACs, which rely on voluntary contributions and thus "reflect actual public support for the political ideals espoused by corporations," ibid. Notwithstanding our colleagues' insinuations that Austin deprived the public of general "ideas," "facts," and "knowledge," ante, at 906-907, the decision addressed only candidate-focused expenditures and gave the State no license to regulate corporate spending on other matters.

In the 20 years since Austin, we have reaffirmed its holding and rationale a number of times, see, e.g., Beaumont, 539 U.S., at 153-156, 123 S.Ct. 2200, most importantly in McConnell, 540 U.S. 93, 124 S.Ct. 619, 157 L.Ed.2d 491, where we upheld the provision challenged here, § 203 of BCRA.^[71] Congress crafted § 203 in response to a problem created by Buckley. The Buckley Court had construed FECA's definition of prohibited "expenditures" narrowly to avoid any problems of constitutional vagueness, holding it applicable only to "communications that expressly advocate the election or defeat of a clearly identified candidate," 424 U.S., at 80, 96 S.Ct. 612, i.e., statements containing so-called "magic words" like "`vote for,' `elect,' `support,' `cast your ballot for,' `Smith for Congress,' `vote against,' `defeat,' [or] `reject,'" id., at 43-44, and n. 52, 96 S.Ct. 612. After Buckley, corporations and unions figured out how to circumvent the limits on express advocacy by using sham "issue ads" that "eschewed the use of magic words" but nonetheless "advocate[d] the election or defeat of clearly [957] identified federal candidates." McConnell, 540 U.S., at 126, 124 S.Ct. 619. "Corporations and unions spent hundreds of millions of dollars of their general funds to pay for these ads." Id., at 127, 124 S.Ct. 619. Congress passed § 203 to address this circumvention, prohibiting corporations and unions from using general treasury funds for electioneering communications that "refe[r] to a clearly identified candidate," whether or not those communications use the magic words. 2 U.S.C. § 434(f)(3)(A)(i)(I).

When we asked in McConnell "whether a compelling governmental interest justifie[d]" § 203, we found the question "easily answered": "We have repeatedly sustained legislation aimed at `the corrosive and distorting effects of immense aggregations of wealth that are accumulated with the help of the corporate form and that have little or no correlation to the public's support for the corporation's political ideas.'" 540 U.S., at 205, 124 S.Ct. 619 (quoting Austin, 494 U.S., at 660, 110 S.Ct. 1391). These precedents "represent respect for the legislative judgment that the special characteristics of the corporate structure require particularly careful regulation." 540 U.S., at 205, 124 S.Ct. 619 (internal quotation marks omitted). "Moreover, recent cases have recognized that certain restrictions on corporate electoral involvement permissibly hedge against `"circumvention of [valid] contribution limits."'" Ibid. (quoting Beaumont, 539 U.S., at 155, 123 S.Ct. 2200, in turn quoting FEC v. Colorado Republican Federal Campaign Comm., 533 U.S. 431, 456, and n. 18, 121 S.Ct. 2351, 150 L.Ed.2d 461 (2001) (Colorado II); alteration in original). BCRA, we found, is faithful to the compelling governmental interests in "`preserving the integrity of the electoral process, preventing corruption, . . . sustaining the active, alert responsibility of the individual citizen in a democracy for the wise conduct of the government,'" and maintaining "`the individual citizen's confidence in government.'" 540 U.S., at 206-207, n. 88, 124 S.Ct. 619 (quoting Bellotti, 435 U.S., at 788-789, 98 S.Ct. 1407; some internal quotation marks and brackets omitted). What made the answer even easier than it might have been otherwise was the option to form PACs, which give corporations, at the least, "a constitutionally sufficient opportunity to engage in" independent expenditures. 540 U.S., at 203, 124 S.Ct. 619.

3. Buckley and Bellotti

Against this extensive background of congressional regulation of corporate campaign spending, and our repeated affirmation of this regulation as constitutionally sound, the majority dismisses Austin as "a significant departure from ancient First Amendment principles," ante, at 886 (internal quotation marks omitted). How does the majority attempt to justify this claim? Selected passages from two cases, Buckley, 424 U.S. 1, 96 S.Ct. 612, 46 L.Ed.2d 659, and Bellotti, 435 U.S. 765, 98 S.Ct. 1407, 55 L.Ed.2d 707, do all of the work. In the Court's view, Buckley and Bellotti decisively rejected the possibility of distinguishing corporations from natural persons in the 1970's; it just so happens that in every single case in which the Court has reviewed campaign finance legislation in the decades since, the majority failed to grasp this truth. The Federal Congress and dozens of state legislatures, we now know, have been similarly deluded.

The majority emphasizes Buckley's statement that "`[t]he concept that government may restrict the speech of some elements of our society in order to enhance the relative voice of others is wholly foreign to the First Amendment.'" Ante, at 904 (quoting 424 U.S., at 48-49, 96 S.Ct. 612); ante, at 921 (opinion of ROBERTS, [958] C.J.). But this elegant phrase cannot bear the weight that our colleagues have placed on it. For one thing, the Constitution does, in fact, permit numerous "restrictions on the speech of some in order to prevent a few from drowning out the many": for example, restrictions on ballot access and on legislators' floor time. Nixon v. Shrink Missouri Government PAC, 528 U.S. 377, 402, 120 S.Ct. 897, 145 L.Ed.2d 886 (2000) (BREYER, J., concurring). For another, the Buckley Court used this line in evaluating "the ancillary governmental interest in equalizing the relative ability of individuals and groups to influence the outcome of elections." 424 U.S., at 48, 96 S.Ct. 612. It is not apparent why this is relevant to the case before us. The majority suggests that Austin rests on the foreign concept of speech equalization, ante, at 904-905; ante, at 921-922 (opinion of ROBERTS, C.J.), but we made it clear in Austin (as in several cases before and since) that a restriction on the way corporations spend their money is no mere exercise in disfavoring the voice of some elements of our society in preference to others. Indeed, we expressly ruled that the compelling interest supporting Michigan's statute was not one of "`equaliz[ing] the relative influence of speakers on elections,'" Austin, 494 U.S., at 660, 110 S.Ct. 1391 (quoting id., at 705, 110 S.Ct. 1391 (KENNEDY, J., dissenting)), but rather the need to confront the distinctive corrupting potential of corporate electoral advocacy financed by general treasury dollars, id., at 659-660, 110 S.Ct. 1391.

For that matter, it should go without saying that when we made this statement in Buckley, we could not have been casting doubt on the restriction on corporate expenditures in candidate elections, which had not been challenged as "foreign to the First Amendment," ante, at 904 (quoting Buckley, 424 U.S., at 49, 96 S.Ct. 612), or for any other reason. Buckley's independent expenditure analysis was focused on a very different statutory provision, 18 U.S.C. § 608(e)(1) (1970 ed., Supp. V). It is implausible to think, as the majority suggests, ante, at 901-902, that Buckley covertly invalidated FECA's separate corporate and union campaign expenditure restriction, § 610 (now codified at 2 U.S.C. § 441b), even though that restriction had been on the books for decades before Buckley and would remain on the books, undisturbed, for decades after.

The case on which the majority places even greater weight than Buckley, however, is Bellotti, 435 U.S. 765, 98 S.Ct. 1407, 55 L.Ed.2d 707, claiming it "could not have been clearer" that Bellotti's holding forbade distinctions between corporate and individual expenditures like the one at issue here, ante, at 902. The Court's reliance is odd. The only thing about Bellotti that could not be clearer is that it declined to adopt the majority's position. Bellotti ruled, in an explicit limitation on the scope of its holding, that "our consideration of a corporation's right to speak on issues of general public interest implies no comparable right in the quite different context of participation in a political campaign for election to public office." 435 U.S., at 788, n. 26, 98 S.Ct. 1407; see also id., at 787-788, 98 S.Ct. 1407 (acknowledging that the interests in preserving public confidence in Government and protecting dissenting shareholders may be "weighty . . . in the context of partisan candidate elections"). Bellotti, in other words, did not touch the question presented in Austin and McConnell, and the opinion squarely disavowed the proposition for which the majority cites it.

The majority attempts to explain away the distinction Bellotti drew—between general corporate speech and campaign speech intended to promote or prevent the election of specific candidates for office— [959] as inconsistent with the rest of the opinion and with Buckley. Ante, at 903, 909-910. Yet the basis for this distinction is perfectly coherent: The anticorruption interests that animate regulations of corporate participation in candidate elections, the "importance" of which "has never been doubted," 435 U.S., at 788, n. 26, 98 S.Ct. 1407, do not apply equally to regulations of corporate participation in referenda. A referendum cannot owe a political debt to a corporation, seek to curry favor with a corporation, or fear the corporation's retaliation. Cf. Austin, 494 U.S., at 678, 110 S.Ct. 1391 (STEVENS, J., concurring); Citizens Against Rent Control/Coalition for Fair Housing v. Berkeley, 454 U.S. 290, 299, 102 S.Ct. 434, 70 L.Ed.2d 492 (1981). The majority likewise overlooks the fact that, over the past 30 years, our cases have repeatedly recognized the candidate/issue distinction. See, e.g., Austin, 494 U.S., at 659, 110 S.Ct. 1391; NCPAC, 470 U.S., at 495-496, 105 S.Ct. 1459; FCC v. League of Women Voters of Cal., 468 U.S. 364, 371, n. 9, 104 S.Ct. 3106, 82 L.Ed.2d 278 (1984); NRWC, 459 U.S., at 210, n. 7, 103 S.Ct. 552. The Court's critique of Bellotti's footnote 26 puts it in the strange position of trying to elevate Bellotti to canonical status, while simultaneously disparaging a critical piece of its analysis as unsupported and irreconcilable with Buckley. Bellotti, apparently, is both the font of all wisdom and internally incoherent.

The Bellotti Court confronted a dramatically different factual situation from the one that confronts us in this case: a state statute that barred business corporations' expenditures on some referenda but not others. Specifically, the statute barred a business corporation "from making contributions or expenditures `for the purpose of. . . influencing or affecting the vote on any question submitted to the voters, other than one materially affecting any of the property, business or assets of the corporation,'" 435 U.S., at 768, 98 S.Ct. 1407 (quoting Mass. Gen. Laws Ann., ch. 55, § 8 (West Supp.1977); alteration in original), and it went so far as to provide that referenda related to income taxation would not "`be deemed materially to affect the property, business or assets of the corporation,'" 435 U.S., at 768, 98 S.Ct. 1407. As might be guessed, the legislature had enacted this statute in order to limit corporate speech on a proposed state constitutional amendment to authorize a graduated income tax. The statute was a transparent attempt to prevent corporations from spending money to defeat this amendment, which was favored by a majority of legislators but had been repeatedly rejected by the voters. See id., at 769-770, and n. 3, 98 S.Ct. 1407. We said that "where, as here, the legislature's suppression of speech suggests an attempt to give one side of a debatable public question an advantage in expressing its views to the people, the First Amendment is plainly offended." Id., at 785-786, 98 S.Ct. 1407 (footnote omitted).

Bellotti thus involved a viewpoint-discriminatory statute, created to effect a particular policy outcome. Even Justice Rehnquist, in dissent, had to acknowledge that "a very persuasive argument could be made that the [Massachusetts Legislature], desiring to impose a personal income tax but more than once defeated in that desire by the combination of the Commonwealth's referendum provision and corporate expenditures in opposition to such a tax, simply decided to muzzle corporations on this sort of issue so that it could succeed in its desire." Id., at 827, n. 6, 98 S.Ct. 1407. To make matters worse, the law at issue did not make any allowance for corporations to spend money through PACs. Id., at 768, n. 2, 98 S.Ct. 1407 (opinion of the Court). This really was a [960] complete ban on a specific, preidentified subject. See MCFL, 479 U.S., at 259, n. 12, 107 S.Ct. 616 (stating that 2 U.S.C. § 441b's expenditure restriction "is of course distinguishable from the complete foreclosure of any opportunity for political speech that we invalidated in the state referendum context in . . . Bellotti" (emphasis added)).

The majority grasps a quotational straw from Bellotti, that speech does not fall entirely outside the protection of the First Amendment merely because it comes from a corporation. Ante, at 902-903. Of course not, but no one suggests the contrary and neither Austin nor McConnell held otherwise. They held that even though the expenditures at issue were subject to First Amendment scrutiny, the restrictions on those expenditures were justified by a compelling state interest. See McConnell, 540 U.S., at 205, 124 S.Ct. 619; Austin, 494 U.S., at 658, 660, 110 S.Ct. 1391. We acknowledged in Bellotti that numerous "interests of the highest importance" can justify campaign finance regulation. 435 U.S., at 788-789, 98 S.Ct. 1407. But we found no evidence that these interests were served by the Massachusetts law. Id., at 789, 98 S.Ct. 1407. We left open the possibility that our decision might have been different if there had been "record or legislative findings that corporate advocacy threatened imminently to undermine democratic processes, thereby denigrating rather than serving First Amendment interests." Ibid.

Austin and McConnell, then, sit perfectly well with Bellotti. Indeed, all six Members of the Austin majority had been on the Court at the time of Bellotti, and none so much as hinted in Austin that they saw any tension between the decisions. The difference between the cases is not that Austin and McConnell rejected First Amendment protection for corporations whereas Bellotti accepted it. The difference is that the statute at issue in Bellotti smacked of viewpoint discrimination, targeted one class of corporations, and provided no PAC option; and the State has a greater interest in regulating independent corporate expenditures on candidate elections than on referenda, because in a functioning democracy the public must have faith that its representatives owe their positions to the people, not to the corporations with the deepest pockets.

* * *

In sum, over the course of the past century Congress has demonstrated a recurrent need to regulate corporate participation in candidate elections to "`[p]reserv[e] the integrity of the electoral process, preven[t] corruption, . . . sustai[n] the active, alert responsibility of the individual citizen,'" protect the expressive interests of shareholders, and "`[p]reserv[e] . . . the individual citizen's confidence in government.'" McConnell, 540 U.S., at 206-207, n. 88, 124 S.Ct. 619 (quoting Bellotti, 435 U.S., at 788-789, 98 S.Ct. 1407; first alteration in original). These understandings provided the combined impetus behind the Tillman Act in 1907, see Automobile Workers, 352 U.S., at 570-575, 77 S.Ct. 529, the Taft-Hartley Act in 1947, see WRTL, 551 U.S., at 511, 127 S.Ct. 2652 (Souter, J., dissenting), FECA in 1971, see NRWC, 459 U.S., at 209-210, 103 S.Ct. 552, and BCRA in 2002, see McConnell, 540 U.S., at 126-132, 124 S.Ct. 619. Continuously for over 100 years, this line of "[c]ampaign finance reform has been a series of reactions to documented threats to electoral integrity obvious to any voter, posed by large sums of money from corporate or union treasuries." WRTL, 551 U.S., at 522, 127 S.Ct. 2652 (Souter, J., dissenting). Time and again, we have recognized these realities in approving [961] measures that Congress and the States have taken. None of the cases the majority cites is to the contrary. The only thing new about Austin was the dissent, with its stunning failure to appreciate the legitimacy of interests recognized in the name of democratic integrity since the days of the Progressives.

IV

Having explained why this is not an appropriate case in which to revisit Austin and McConnell and why these decisions sit perfectly well with "First Amendment principles," ante, at 886, 912, I come at last to the interests that are at stake. The majority recognizes that Austin and McConnell may be defended on anticorruption, antidistortion, and shareholder protection rationales. Ante, at 903-911. It badly errs both in explaining the nature of these rationales, which overlap and complement each other, and in applying them to the case at hand.

The Anticorruption Interest

Undergirding the majority's approach to the merits is the claim that the only "sufficiently important governmental interest in preventing corruption or the appearance of corruption" is one that is "limited to quid pro quo corruption." Ante, at 909-910. This is the same "crabbed view of corruption" that was espoused by Justice KENNEDY in McConnell and squarely rejected by the Court in that case. 540 U.S., at 152, 124 S.Ct. 619. While it is true that we have not always spoken about corruption in a clear or consistent voice, the approach taken by the majority cannot be right, in my judgment. It disregards our constitutional history and the fundamental demands of a democratic society.

On numerous occasions we have recognized Congress' legitimate interest in preventing the money that is spent on elections from exerting an "`undue influence on an officeholder's judgment'" and from creating "`the appearance of such influence,'" beyond the sphere of quid pro quo relationships. Id., at 150, 124 S.Ct. 619; see also, e.g., id., at 143-144, 152-154, 124 S.Ct. 619; Colorado II, 533 U.S., at 441, 121 S.Ct. 2351; Shrink Missouri, 528 U.S., at 389, 120 S.Ct. 897. Corruption can take many forms. Bribery may be the paradigm case. But the difference between selling a vote and selling access is a matter of degree, not kind. And selling access is not qualitatively different from giving special preference to those who spent money on one's behalf. Corruption operates along a spectrum, and the majority's apparent belief that quid pro quo arrangements can be neatly demarcated from other improper influences does not accord with the theory or reality of politics. It certainly does not accord with the record Congress developed in passing BCRA, a record that stands as a remarkable testament to the energy and ingenuity with which corporations, unions, lobbyists, and politicians may go about scratching each other's backs—and which amply supported Congress' determination to target a limited set of especially destructive practices.

The District Court that adjudicated the initial challenge to BCRA pored over this record. In a careful analysis, Judge Kollar-Kotelly made numerous findings about the corrupting consequences of corporate and union independent expenditures in the years preceding BCRA's passage. See McConnell, 251 F.Supp.2d, at 555-560, 622-625; see also id., at 804-805, 813, n. 143 (Leon, J.) (indicating agreement). As summarized in her own words:

"The factual findings of the Court illustrate that corporations and labor unions routinely notify Members of Congress as soon as they air electioneering communications relevant to the Members' elections. The record also indicates [962] that Members express appreciation to organizations for the airing of these election-related advertisements. Indeed, Members of Congress are particularly grateful when negative issue advertisements are run by these organizations, leaving the candidates free to run positive advertisements and be seen as `above the fray.' Political consultants testify that campaigns are quite aware of who is running advertisements on the candidate's behalf, when they are being run, and where they are being run. Likewise, a prominent lobbyist testifies that these organizations use issue advocacy as a means to influence various Members of Congress.

"The Findings also demonstrate that Members of Congress seek to have corporations and unions run these advertisements on their behalf. The Findings show that Members suggest that corporations or individuals make donations to interest groups with the understanding that the money contributed to these groups will assist the Member in a campaign. After the election, these organizations often seek credit for their support. . . . Finally, a large majority of Americans (80%) are of the view that corporations and other organizations that engage in electioneering communications, which benefit specific elected officials, receive special consideration from those officials when matters arise that affect these corporations and organizations." Id., at 623-624 (citations and footnote omitted).

Many of the relationships of dependency found by Judge Kollar-Kotelly seemed to have a quid pro quo basis, but other arrangements were more subtle. Her analysis shows the great difficulty in delimiting the precise scope of the quid pro quo category, as well as the adverse consequences that all such arrangements may have. There are threats of corruption that are far more destructive to a democratic society than the odd bribe. Yet the majority's understanding of corruption would leave lawmakers impotent to address all but the most discrete abuses.

Our "undue influence" cases have allowed the American people to cast a wider net through legislative experiments designed to ensure, to some minimal extent, "that officeholders will decide issues . . . on the merits or the desires of their constituencies," and not "according to the wishes of those who have made large financial contributions"—or expenditures— "valued by the officeholder." McConnell, 540 U.S., at 153, 124 S.Ct. 619.^[72] When private interests are seen to exert outsized control over officeholders solely on account of the money spent on (or withheld from) their campaigns, the result can depart so thoroughly "from what is pure or correct" in the conduct of Government, Webster's Third New International Dictionary 512 (1966) (defining "corruption"), that it amounts to a "subversion . . . of the electoral [963] process," Automobile Workers, 352 U.S., at 575, 77 S.Ct. 529. At stake in the legislative efforts to address this threat is therefore not only the legitimacy and quality of Government but also the public's faith therein, not only "the capacity of this democracy to represent its constituents [but also] the confidence of its citizens in their capacity to govern themselves," WRTL, 551 U.S., at 507, 127 S.Ct. 2652 (Souter, J., dissenting). "Take away Congress' authority to regulate the appearance of undue influence and `the cynical assumption that large donors call the tune could jeopardize the willingness of voters to take part in democratic governance.'" McConnell, 540 U.S., at 144, 124 S.Ct. 619 (quoting Shrink Missouri, 528 U.S., at 390, 120 S.Ct. 897).^[73]

The cluster of interrelated interests threatened by such undue influence and its appearance has been well captured under the rubric of "democratic integrity." WRTL, 551 U.S., at 522, 127 S.Ct. 2652 (Souter, J., dissenting). This value has underlined a century of state and federal efforts to regulate the role of corporations in the electoral process.^[74]

Unlike the majority's myopic focus on quid pro quo scenarios and the free-floating "First Amendment principles" on which it rests so much weight, ante, at 886, 912, this broader understanding of corruption has deep roots in the Nation's history. "During debates on the earliest [campaign finance] reform acts, the terms `corruption' and `undue influence' were used nearly interchangeably." Pasquale, Reclaiming Egalitarianism in the Political Theory of Campaign Finance Reform, 2008 U. Ill. L.Rev. 599, 601. Long before Buckley, we appreciated that "[t]o say that Congress is without power to pass appropriate legislation to safeguard . . . an election from the improper use of money to influence the result is to deny to the nation in a vital particular the power of self protection." Burroughs v. United States, 290 U.S. 534, 545, 54 S.Ct. 287, 78 L.Ed. 484 (1934). And whereas we have no evidence to support the notion that the Framers would have wanted corporations to have the same rights as natural persons in the electoral context, we have ample evidence to suggest that they would have been appalled by the evidence of corruption that Congress unearthed in developing BCRA and that the Court today discounts to irrelevance. It is fair to say that "[t]he Framers were obsessed with corruption," [964] Teachout 348, which they understood to encompass the dependency of public officeholders on private interests, see id., at 373-374; see also Randall, 548 U.S., at 280, 126 S.Ct. 2479 (STEVENS, J., dissenting). They discussed corruption "more often in the Constitutional Convention than factions, violence, or instability." Teachout 352. When they brought our constitutional order into being, the Framers had their minds trained on a threat to republican self-government that this Court has lost sight of.

Quid Pro Quo Corruption

There is no need to take my side in the debate over the scope of the anticorruption interest to see that the Court's merits holding is wrong. Even under the majority's "crabbed view of corruption," McConnell, 540 U.S., at 152, 124 S.Ct. 619, the Government should not lose this case.

"The importance of the governmental interest in preventing [corruption through the creation of political debts] has never been doubted." Bellotti, 435 U.S., at 788, n. 26, 98 S.Ct. 1407. Even in the cases that have construed the anticorruption interest most narrowly, we have never suggested that such quid pro quo debts must take the form of outright vote buying or bribes, which have long been distinct crimes. Rather, they encompass the myriad ways in which outside parties may induce an officeholder to confer a legislative benefit in direct response to, or anticipation of, some outlay of money the parties have made or will make on behalf of the officeholder. See McConnell, 540 U.S., at 143, 124 S.Ct. 619 ("We have not limited [the anticorruption] interest to the elimination of cash-for-votes exchanges. In Buckley, we expressly rejected the argument that antibribery laws provided a less restrictive alternative to FECA's contribution limits, noting that such laws `deal[t] with only the most blatant and specific attempts of those with money to influence governmental action'" (quoting 424 U.S., at 28, 96 S.Ct. 612; alteration in original)). It has likewise never been doubted that "[o]f almost equal concern as the danger of actual quid pro quo arrangements is the impact of the appearance of corruption." Id., at 27, 96 S.Ct. 612. Congress may "legitimately conclude that the avoidance of the appearance of improper influence is also critical . . . if confidence in the system of representative Government is not to be eroded to a disastrous extent." Ibid. (internal quotation marks omitted; alteration in original). A democracy cannot function effectively when its constituent members believe laws are being bought and sold.

In theory, our colleagues accept this much. As applied to BCRA § 203, however, they conclude "[t]he anticorruption interest is not sufficient to displace the speech here in question." Ante, at 908.

Although the Court suggests that Buckley compels its conclusion, ante, at 908-910, Buckley cannot sustain this reading. It is true that, in evaluating FECA's ceiling on independent expenditures by all persons, the Buckley Court found the governmental interest in preventing corruption "inadequate." 424 U.S., at 45, 96 S.Ct. 612. But Buckley did not evaluate corporate expenditures specifically, nor did it rule out the possibility that a future Court might find otherwise. The opinion reasoned that an expenditure limitation covering only express advocacy (i.e., magic words) would likely be ineffectual, ibid., a problem that Congress tackled in BCRA, and it concluded that "the independent advocacy restricted by [FECA § 608(e)(1)] does not presently appear to pose dangers of real or apparent corruption comparable to those identified with large campaign contributions," id., at 46, 96 S.Ct. 612 (emphasis added). Buckley expressly contemplated that an anticorruption [965] rationale might justify restrictions on independent expenditures at a later date, "because it may be that, in some circumstances, `large independent expenditures pose the same dangers of actual or apparent quid pro quo arrangements as do large contributions.'" WRTL, 551 U.S., at 478, 127 S.Ct. 2652 (opinion of ROBERTS, C.J.) (quoting Buckley, 424 U.S., at 45, 96 S.Ct. 612). Certainly Buckley did not foreclose this possibility with respect to electioneering communications made with corporate general treasury funds, an issue the Court had no occasion to consider.

The Austin Court did not rest its holding on quid pro quo corruption, as it found the broader corruption implicated by the antidistortion and shareholder protection rationales a sufficient basis for Michigan's restriction on corporate electioneering. 494 U.S., at 658-660, 110 S.Ct. 1391. Concurring in that opinion, I took the position that "the danger of either the fact, or the appearance, of quid pro quo relationships [also] provides an adequate justification for state regulation" of these independent expenditures. Id., at 678, 110 S.Ct. 1391. I did not see this position as inconsistent with Buckley's analysis of individual expenditures. Corporations, as a class, tend to be more attuned to the complexities of the legislative process and more directly affected by tax and appropriations measures that receive little public scrutiny; they also have vastly more money with which to try to buy access and votes. See Supp. Brief for Appellee 17 (stating that the Fortune 100 companies earned revenues of $13.1 trillion during the last election cycle). Business corporations must engage the political process in instrumental terms if they are to maximize shareholder value. The unparalleled resources, professional lobbyists, and single-minded focus they bring to this effort, I believed, make quid pro quo corruption and its appearance inherently more likely when they (or their conduits or trade groups) spend unrestricted sums on elections.

It is with regret rather than satisfaction that I can now say that time has borne out my concerns. The legislative and judicial proceedings relating to BCRA generated a substantial body of evidence suggesting that, as corporations grew more and more adept at crafting "issue ads" to help or harm a particular candidate, these nominally independent expenditures began to corrupt the political process in a very direct sense. The sponsors of these ads were routinely granted special access after the campaign was over; "candidates and officials knew who their friends were," McConnell, 540 U.S., at 129, 124 S.Ct. 619. Many corporate independent expenditures, it seemed, had become essentially interchangeable with direct contributions in their capacity to generate quid pro quo arrangements. In an age in which money and television ads are the coin of the campaign realm, it is hardly surprising that corporations deployed these ads to curry favor with, and to gain influence over, public officials.

The majority appears to think it decisive that the BCRA record does not contain "direct examples of votes being exchanged for . . . expenditures." Ante, at 910 (internal quotation marks omitted). It would have been quite remarkable if Congress had created a record detailing such behavior by its own Members. Proving that a specific vote was exchanged for a specific expenditure has always been next to impossible: Elected officials have diverse motivations, and no one will acknowledge that he sold a vote. Yet, even if "[i]ngratiation and access . . . are not corruption" themselves, ibid., they are necessary prerequisites to it; they can create both the opportunity for, and the appearance of, quid pro quo arrangements. The influx of unlimited corporate money into the electoral [966] realm also creates new opportunities for the mirror image of quid pro quo deals: threats, both explicit and implicit. Starting today, corporations with large war chests to deploy on electioneering may find democratically elected bodies becoming much more attuned to their interests. The majority both misreads the facts and draws the wrong conclusions when it suggests that the BCRA record provides "only scant evidence that independent expenditures. . . ingratiate," and that, "in any event," none of it matters. Ibid.

In her analysis of the record, Judge Kollar-Kotelly documented the pervasiveness of this ingratiation and explained its significance under the majority's own touchstone for defining the scope of the anticorruption rationale, Buckley. See McConnell, 251 F.Supp.2d, at 555-560, 622-625. Witnesses explained how political parties and candidates used corporate independent expenditures to circumvent FECA's "hard-money" limitations. See, e.g., id., at 478-479. One former Senator candidly admitted to the District Court that "`[c]andidates whose campaigns benefit from [phony "issue ads"] greatly appreciate the help of these groups. In fact, Members will also be favorably disposed to those who finance these groups when they later seek access to discuss pending legislation.'" Id., at 556 (quoting declaration of Sen. Dale Bumpers). One prominent lobbyist went so far as to state, in uncontroverted testimony, that "`unregulated expenditures—whether soft money donations to the parties or issue ad campaigns—can sometimes generate far more influence than direct campaign contributions.'" Ibid. (quoting declaration of Wright Andrews; emphasis added). In sum, Judge Kollar-Kotelly found, "[t]he record powerfully demonstrates that electioneering communications paid for with the general treasury funds of labor unions and corporations endears those entities to elected officials in a way that could be perceived by the public as corrupting." Id., at 622-623. She concluded that the Government's interest in preventing the appearance of corruption, as that concept was defined in Buckley, was itself sufficient to uphold BCRA § 203. 251 F.Supp.2d, at 622-625. Judge Leon agreed. See id., at 804-805 (dissenting only with respect to the Wellstone Amendment's coverage of MCFL corporations).

When the McConnell Court affirmed the judgment of the District Court regarding § 203, we did not rest our holding on a narrow notion of quid pro quo corruption. Instead we relied on the governmental interest in combating the unique forms of corruption threatened by corporations, as recognized in Austin's antidistortion and shareholder protection rationales, 540 U.S., at 205, 124 S.Ct. 619 (citing Austin, 494 U.S., at 660, 110 S.Ct. 1391), as well as the interest in preventing circumvention of contribution limits, 540 U.S., at 128-129, 205, 206, n. 88, 124 S.Ct. 619. Had we felt constrained by the view of today's Court that quid pro quo corruption and its appearance are the only interests that count in this field, ante, at 903-911, we of course would have looked closely at that issue. And as the analysis by Judge Kollar-Kotelly reflects, it is a very real possibility that we would have found one or both of those interests satisfied and § 203 appropriately tailored to them.

The majority's rejection of the Buckley anticorruption rationale on the ground that independent corporate expenditures "do not give rise to [quid pro quo] corruption or the appearance of corruption," ante, at 909, is thus unfair as well as unreasonable. Congress and outside experts have generated significant evidence corroborating this rationale, and the only reason we do not have any of the relevant materials before us is that the Government had no reason [967] to develop a record at trial for a facial challenge the plaintiff had abandoned. The Court cannot both sua sponte choose to relitigate McConnell on appeal and then complain that the Government has failed to substantiate its case. If our colleagues were really serious about the interest in preventing quid pro quo corruption, they would remand to the District Court with instructions to commence evidentiary proceedings.^[75]

The insight that even technically independent expenditures can be corrupting in much the same way as direct contributions is bolstered by our decision last year in Caperton v. A.T. Massey Coal Co., 556 U.S. ___, 129 S.Ct. 2252, 173 L.Ed.2d 1208 (2009). In that case, Don Blankenship, the chief executive officer of a corporation with a lawsuit pending before the West Virginia high court, spent large sums on behalf of a particular candidate, Brent Benjamin, running for a seat on that court. "In addition to contributing the $1,000 statutory maximum to Benjamin's campaign committee, Blankenship donated almost $2.5 million to `And For The Sake Of The Kids,'" a § 527 corporation that ran ads targeting Benjamin's opponent. Id., at ___, 129 S.Ct., at 2257. "This was not all. Blankenship spent, in addition, just over $500,000 on independent expenditures. . . `"to support . . . Brent Benjamin."'" Id., at ___, 129 S.Ct., at 2257 (second alteration in original). Applying its common sense, this Court accepted petitioners' argument that Blankenship's "pivotal role in getting Justice Benjamin elected created a constitutionally intolerable probability of actual bias" when Benjamin later declined to recuse himself from the appeal by Blankenship's corporation. Id., at ___, 129 S.Ct., at 2262. "Though n[o] . . . bribe or criminal influence" was involved, we recognized that "Justice Benjamin would nevertheless feel a debt of gratitude to Blankenship for his extraordinary efforts to get him elected." Ibid. "The difficulties of inquiring into actual bias," we further noted, "simply underscore the need for objective rules," id., at ___, 129 S.Ct., at 2263—rules which will perforce turn on the appearance of bias rather than its actual existence.

In Caperton, then, we accepted the premise that, at least in some circumstances, independent expenditures on candidate elections will raise an intolerable specter of quid pro quo corruption. Indeed, this premise struck the Court as so intuitive that it repeatedly referred to Blankenship's spending on behalf of Benjamin—spending that consisted of 99.97% independent expenditures ($3 million) and 0.03% direct contributions ($1,000)—as a "contribution." See, e.g., id., at ___, 129 S.Ct., at 2257 ("The basis for the [recusal] motion was that the justice had received campaign contributions in an extraordinary amount from" Blankenship); id., at ___, 129 S.Ct., at 2258 (referencing "Blankenship's $3 million in contributions"); id., at ___, 129 S.Ct., at 2264 ("Blankenship contributed some $3 million to unseat the incumbent and replace [968] him with Benjamin"); id., at ___, 129 S.Ct., at 2264 ("Blankenship's campaign contributions . . . had a significant and disproportionate influence on the electoral outcome"). The reason the Court so thoroughly conflated expenditures and contributions, one assumes, is that it realized that some expenditures may be functionally equivalent to contributions in the way they influence the outcome of a race, the way they are interpreted by the candidates and the public, and the way they taint the decisions that the officeholder thereafter takes.

Caperton is illuminating in several additional respects. It underscores the old insight that, on account of the extreme difficulty of proving corruption, "prophylactic measures, reaching some [campaign spending] not corrupt in purpose or effect, [may be] nonetheless required to guard against corruption." Buckley, 424 U.S., at 30, 96 S.Ct. 612; see also Shrink Missouri, 528 U.S., at 392, n. 5, 120 S.Ct. 897. It underscores that "certain restrictions on corporate electoral involvement" may likewise be needed to "hedge against circumvention of valid contribution limits." McConnell, 540 U.S., at 205, 124 S.Ct. 619 (internal quotation marks and brackets omitted); see also Colorado II, 533 U.S., at 456, 121 S.Ct. 2351 ("[A]ll Members of the Court agree that circumvention is a valid theory of corruption"). It underscores that for-profit corporations associated with electioneering communications will often prefer to use nonprofit conduits with "misleading names," such as And For The Sake Of The Kids, "to conceal their identity" as the sponsor of those communications, thereby frustrating the utility of disclosure laws. McConnell, 540 U.S., at 128, 124 S.Ct. 619; see also id., at 196-197, 124 S.Ct. 619.

And it underscores that the consequences of today's holding will not be limited to the legislative or executive context. The majority of the States select their judges through popular elections. At a time when concerns about the conduct of judicial elections have reached a fever pitch, see, e.g., O'Connor, Justice for Sale, Wall St. Journal, Nov. 15, 2007, p. A25; Brief for Justice at Stake et al. as Amici Curiae 2, the Court today unleashes the floodgates of corporate and union general treasury spending in these races. Perhaps "Caperton motions" will catch some of the worst abuses. This will be small comfort to those States that, after today, may no longer have the ability to place modest limits on corporate electioneering even if they believe such limits to be critical to maintaining the integrity of their judicial systems.

Deference and Incumbent Self-Protection

Rather than show any deference to a coordinate branch of Government, the majority thus rejects the anticorruption rationale without serious analysis.^[76] Today's opinion provides no clear rationale for being so dismissive of Congress, but the prior individual opinions on which it relies have offered one: the incentives of the legislators who passed BCRA. Section 203, our colleagues have suggested, may be little more than "an incumbency protection plan," McConnell, 540 U.S., at 306, 124 S.Ct. 619 (KENNEDY, J., concurring in judgment in part and dissenting in part); see also id., at 249-250, 260-263, 124 S.Ct. 619 (SCALIA, J., concurring in part, concurring in judgment in part, and dissenting in part), a disreputable attempt at legislative [969] self-dealing rather than an earnest effort to facilitate First Amendment values and safeguard the legitimacy of our political system. This possibility, the Court apparently believes, licenses it to run roughshod over Congress' handiwork.

In my view, we should instead start by acknowledging that "Congress surely has both wisdom and experience in these matters that is far superior to ours." Colorado Republican Federal Campaign Comm. v. FEC, 518 U.S. 604, 650, 116 S.Ct. 2309, 135 L.Ed.2d 795 (1996) (STEVENS, J., dissenting). Many of our campaign finance precedents explicitly and forcefully affirm the propriety of such presumptive deference. See, e.g., McConnell, 540 U.S., at 158, 124 S.Ct. 619; Beaumont, 539 U.S., at 155-156, 123 S.Ct. 2200; NRWC, 459 U.S., at 209-210, 103 S.Ct. 552. Moreover, "[j]udicial deference is particularly warranted where, as here, we deal with a congressional judgment that has remained essentially unchanged throughout a century of careful legislative adjustment." Beaumont, 539 U.S., at 162, n. 9, 123 S.Ct. 2200 (internal quotation marks omitted); cf. Shrink Missouri, 528 U.S., at 391, 120 S.Ct. 897 ("The quantum of empirical evidence needed to satisfy heightened judicial scrutiny of legislative judgments will vary up or down with the novelty and plausibility of the justification raised"). In America, incumbent legislators pass the laws that govern campaign finance, just like all other laws. To apply a level of scrutiny that effectively bars them from regulating electioneering whenever there is the faintest whiff of self-interest, is to deprive them of the ability to regulate electioneering.

This is not to say that deference would be appropriate if there were a solid basis for believing that a legislative action was motivated by the desire to protect incumbents or that it will degrade the competitiveness of the electoral process.^[77] See League of United Latin American Citizens v. Perry, 548 U.S. 399, 447, 126 S.Ct. 2594, 165 L.Ed.2d 609 (2006) (STEVENS, J., concurring in part and dissenting in part); Vieth v. Jubelirer, 541 U.S. 267, 317, 124 S.Ct. 1769, 158 L.Ed.2d 546 (2004) (STEVENS, J., dissenting). Along with our duty to balance competing constitutional concerns, we have a vital role to play in ensuring that elections remain at least minimally open, fair, and competitive. But it is the height of recklessness to dismiss Congress' years of bipartisan deliberation and its reasoned judgment on this basis, without first confirming that the statute in question was intended to be, or will function as, a restraint on electoral competition. "Absent record evidence of invidious discrimination against challengers as a class, a court should generally be hesitant to invalidate legislation which on its face imposes evenhanded restrictions." Buckley, 424 U.S., at 31, 96 S.Ct. 612.

We have no record evidence from which to conclude that BCRA § 203, or any of the dozens of state laws that the Court today calls into question, reflects or fosters such invidious discrimination. Our colleagues have opined that "`any restriction upon a type of campaign speech that is equally available to challengers and incumbents tends to favor incumbents.'" McConnell, 540 U.S., at 249, 124 S.Ct. 619 (opinion of SCALIA, J.). This kind of airy speculation could easily be turned on its head. The electioneering prohibited by [970] § 203 might well tend to favor incumbents, because incumbents have pre-existing relationships with corporations and unions, and groups that wish to procure legislative benefits may tend to support the candidate who, as a sitting officeholder, is already in a position to dispense benefits and is statistically likely to retain office. If a corporation's goal is to induce officeholders to do its bidding, the corporation would do well to cultivate stable, long-term relationships of dependency.

So we do not have a solid theoretical basis for condemning § 203 as a front for incumbent self-protection, and it seems equally if not more plausible that restrictions on corporate electioneering will be self-denying. Nor do we have a good empirical case for skepticism, as the Court's failure to cite any empirical research attests. Nor does the legislative history give reason for concern. Congress devoted years of careful study to the issues underlying BCRA; "[f]ew legislative proposals in recent years have received as much sustained public commentary or news coverage"; "[p]olitical scientists and academic experts . . . with no self-interest in incumbent protectio[n] were central figures in pressing the case for BCRA"; and the legislation commanded bipartisan support from the outset. Pildes, The Supreme Court 2003 Term Foreword: The Constitutionalization of Democratic Politics, 118 Harv. L.Rev. 28, 137 (2004). Finally, it is important to remember just how incumbent-friendly congressional races were prior to BCRA's passage. As the Solicitor General aptly remarked at the time, "the evidence supports overwhelmingly that incumbents were able to get re-elected under the old system just fine." Tr. of Oral Arg. in McConnell v. FEC, O.T. 2003, No. 02-1674, p. 61. "It would be hard to develop a scheme that could be better for incumbents." Id., at 63.

In this case, then, "there is no convincing evidence that th[e] important interests favoring expenditure limits are fronts for incumbency protection." Randall, 548 U.S., at 279, 126 S.Ct. 2479 (STEVENS, J., dissenting). "In the meantime, a legislative judgment that `enough is enough' should command the greatest possible deference from judges interpreting a constitutional provision that, at best, has an indirect relationship to activity that affects the quantity . . . of repetitive speech in the marketplace of ideas." Id., at 279-280, 126 S.Ct. 2479. The majority cavalierly ignores Congress' factual findings and its constitutional judgment: It acknowledges the validity of the interest in preventing corruption, but it effectively discounts the value of that interest to zero. This is quite different from conscientious policing for impermissibly anticompetitive motive or effect in a sensitive First Amendment context. It is the denial of Congress' authority to regulate corporate spending on elections.

Austin and Corporate Expenditures

Just as the majority gives short shrift to the general societal interests at stake in campaign finance regulation, it also overlooks the distinctive considerations raised by the regulation of corporate expenditures. The majority fails to appreciate that Austin's antidistortion rationale is itself an anticorruption rationale, see 494 U.S., at 660, 110 S.Ct. 1391 (describing "a different type of corruption"), tied to the special concerns raised by corporations. Understood properly, "antidistortion" is simply a variant on the classic governmental interest in protecting against improper influences on officeholders that debilitate the democratic process. It is manifestly not just an "`equalizing'" ideal in disguise. Ante, at 904 (quoting Buckley, 424 U.S., at 48, 96 S.Ct. 612).^[78]

[971] 1. Antidistortion

The fact that corporations are different from human beings might seem to need no elaboration, except that the majority opinion almost completely elides it. Austin set forth some of the basic differences. Unlike natural persons, corporations have "limited liability" for their owners and managers, "perpetual life," separation of ownership and control, "and favorable treatment of the accumulation and distribution of assets . . . that enhance their ability to attract capital and to deploy their resources in ways that maximize the return on their shareholders' investments." 494 U.S., at 658-659, 110 S.Ct. 1391. Unlike voters in U.S. elections, corporations may be foreign controlled.^[79] Unlike other interest groups, business corporations have been "effectively delegated responsibility for ensuring society's economic welfare";^[80] they inescapably structure the life of every citizen. "`[T]he resources in the treasury of a business corporation,'" furthermore, "`are not an indication of popular support for the corporation's political ideas.'" Id., at 659, 110 S.Ct. 1391 (quoting MCFL, 479 U.S., at 258, 107 S.Ct. 616). "`They reflect instead the economically motivated decisions of investors and customers. The availability of these resources may make a corporation a formidable political presence, even though the power of the corporation may be no reflection of the power of its ideas.'" 494 U.S., at 659, 110 S.Ct. 1391 (quoting MCFL, 479 U.S., at 258, 107 S.Ct. 616).^[81]

[972] It might also be added that corporations have no consciences, no beliefs, no feelings, no thoughts, no desires. Corporations help structure and facilitate the activities of human beings, to be sure, and their "personhood" often serves as a useful legal fiction. But they are not themselves members of "We the People" by whom and for whom our Constitution was established.

These basic points help explain why corporate electioneering is not only more likely to impair compelling governmental interests, but also why restrictions on that electioneering are less likely to encroach upon First Amendment freedoms. One fundamental concern of the First Amendment is to "protec[t] the individual's interest in self-expression." Consolidated Edison Co. of N.Y. v. Public Serv. Comm'n of N. Y., 447 U.S. 530, 534, n. 2, 100 S.Ct. 2326, 65 L.Ed.2d 319 (1980); see also Bellotti, 435 U.S., at 777, n. 12, 98 S.Ct. 1407. Freedom of speech helps "make men free to develop their faculties," Whitney v. California, 274 U.S. 357, 375, 47 S.Ct. 641, 71 L.Ed. 1095 (1927) (Brandeis, J., concurring), it respects their "dignity and choice," Cohen v. California, 403 U.S. 15, 24, 91 S.Ct. 1780, 29 L.Ed.2d 284 (1971), and it facilitates the value of "individual self-realization," Redish, The Value of Free Speech, 130 U. Pa. L.Rev. 591, 594 (1982). Corporate speech, however, is derivative speech, speech by proxy. A regulation such as BCRA § 203 may affect the way in which individuals disseminate certain messages through the corporate form, but it does not prevent anyone from speaking in his or her own voice. "Within the realm of [campaign spending] generally," corporate spending is "furthest from the core of political expression." Beaumont, 539 U.S., at 161, n. 8, 123 S.Ct. 2200.

It is an interesting question "who" is even speaking when a business corporation places an advertisement that endorses or attacks a particular candidate. Presumably it is not the customers or employees, who typically have no say in such matters. It cannot realistically be said to be the shareholders, who tend to be far removed from the day-to-day decisions of the firm and whose political preferences may be opaque to management. Perhaps the officers or directors of the corporation have the best claim to be the ones speaking, except their fiduciary duties generally prohibit them from using corporate funds for personal ends. Some individuals associated with the corporation must make the decision to place the ad, but the idea that these individuals are thereby fostering their self-expression or cultivating their critical faculties is fanciful. It is entirely possible that the corporation's electoral message will conflict with their personal convictions. Take away the ability to use general treasury funds for some of those ads, and no one's autonomy, dignity, or political equality has been impinged upon in the least.

Corporate expenditures are distinguishable from individual expenditures in this respect. I have taken the view that a legislature may place reasonable restrictions on individuals' electioneering expenditures in the service of the governmental interests explained above, and in recognition of the fact that such restrictions are not direct restraints on speech but rather on its financing. See, e.g., Randall, 548 [973] U.S., at 273, 126 S.Ct. 2479 (dissenting opinion). But those restrictions concededly present a tougher case, because the primary conduct of actual, flesh-and-blood persons is involved. Some of those individuals might feel that they need to spend large sums of money on behalf of a particular candidate to vindicate the intensity of their electoral preferences. This is obviously not the situation with business corporations, as their routine practice of giving "substantial sums to both major national parties" makes pellucidly clear. McConnell, 540 U.S., at 148, 124 S.Ct. 619. "[C]orporate participation" in elections, any business executive will tell you, "is more transactional than ideological." Supp. Brief for Committee for Economic Development as Amicus Curiae 10.

In this transactional spirit, some corporations have affirmatively urged Congress to place limits on their electioneering communications. These corporations fear that officeholders will shake them down for supportive ads, that they will have to spend increasing sums on elections in an ever-escalating arms race with their competitors, and that public trust in business will be eroded. See id., at 10-19. A system that effectively forces corporations to use their shareholders' money both to maintain access to, and to avoid retribution from, elected officials may ultimately prove more harmful than beneficial to many corporations. It can impose a kind of implicit tax.^[82]

In short, regulations such as § 203 and the statute upheld in Austin impose only a limited burden on First Amendment freedoms not only because they target a narrow subset of expenditures and leave untouched the broader "public dialogue," ante, at 899, but also because they leave untouched the speech of natural persons. Recognizing the weakness of a speaker-based critique of Austin, the Court places primary emphasis not on the corporation's right to electioneer, but rather on the listener's interest in hearing what every possible speaker may have to say. The Court's central argument is that laws such as § 203 have "`deprived [the electorate] of information, knowledge and opinion vital to its function,'" ante, at 907 (quoting CIO, 335 U.S., at 144, 68 S.Ct. 1349 (Rutledge, J., concurring in judgment)), and this, in turn, "interferes with the `open marketplace' of ideas protected by the First Amendment," ante, at 906 (quoting New York State Bd. of Elections v. Lopez Torres, 552 U.S. 196, 208, 128 S.Ct. 791, 169 L.Ed.2d 665 (2008)).

There are many flaws in this argument. If the overriding concern depends on the interests of the audience, surely the public's perception of the value of corporate speech should be given important weight. That perception today is the same as it [974] was a century ago when Theodore Roosevelt delivered the speeches to Congress that, in time, led to the limited prohibition on corporate campaign expenditures that is overruled today. See WRTL, 551 U.S., at 509-510, 127 S.Ct. 2652 (Souter, J., dissenting) (summarizing President Roosevelt's remarks). The distinctive threat to democratic integrity posed by corporate domination of politics was recognized at "the inception of the republic" and "has been a persistent theme in American political life" ever since. Regan 302. It is only certain Members of this Court, not the listeners themselves, who have agitated for more corporate electioneering.

Austin recognized that there are substantial reasons why a legislature might conclude that unregulated general treasury expenditures will give corporations "unfai[r] influence" in the electoral process, 494 U.S., at 660, 110 S.Ct. 1391, and distort public debate in ways that undermine rather than advance the interests of listeners. The legal structure of corporations allows them to amass and deploy financial resources on a scale few natural persons can match. The structure of a business corporation, furthermore, draws a line between the corporation's economic interests and the political preferences of the individuals associated with the corporation; the corporation must engage the electoral process with the aim "to enhance the profitability of the company, no matter how persuasive the arguments for a broader or conflicting set of priorities," Brief for American Independent Business Alliance as Amicus Curiae 11; see also ALI, Principles of Corporate Governance: Analysis and Recommendations § 2.01(a), p. 55 (1992) ("[A] corporation . . . should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain"). In a state election such as the one at issue in Austin, the interests of nonresident corporations may be fundamentally adverse to the interests of local voters. Consequently, when corporations grab up the prime broadcasting slots on the eve of an election, they can flood the market with advocacy that bears "little or no correlation" to the ideas of natural persons or to any broader notion of the public good, 494 U.S., at 660, 110 S.Ct. 1391. The opinions of real people may be marginalized. "The expenditure restrictions of [2 U.S.C.] § 441b are thus meant to ensure that competition among actors in the political arena is truly competition among ideas." MCFL, 479 U.S., at 259, 107 S.Ct. 616.

In addition to this immediate drowning out of noncorporate voices, there may be deleterious effects that follow soon thereafter. Corporate "domination" of electioneering, Austin, 494 U.S., at 659, 110 S.Ct. 1391, can generate the impression that corporations dominate our democracy. When citizens turn on their televisions and radios before an election and hear only corporate electioneering, they may lose faith in their capacity, as citizens, to influence public policy. A Government captured by corporate interests, they may come to believe, will be neither responsive to their needs nor willing to give their views a fair hearing. The predictable result is cynicism and disenchantment: an increased perception that large spenders "`call the tune'" and a reduced "`willingness of voters to take part in democratic governance.'" McConnell, 540 U.S., at 144, 124 S.Ct. 619 (quoting Shrink Missouri, 528 U.S., at 390, 120 S.Ct. 897). To the extent that corporations are allowed to exert undue influence in electoral races, the speech of the eventual winners of those races may also be chilled. Politicians who fear that a certain corporation can make or break their reelection chances may be cowed into silence about that corporation. On a variety of levels, unregulated corporate electioneering [975] might diminish the ability of citizens to "hold officials accountable to the people," ante, at 898, and disserve the goal of a public debate that is "uninhibited, robust, and wide-open," New York Times Co. v. Sullivan, 376 U.S. 254, 270, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964). At the least, I stress again, a legislature is entitled to credit these concerns and to take tailored measures in response.

The majority's unwillingness to distinguish between corporations and humans similarly blinds it to the possibility that corporations' "war chests" and their special "advantages" in the legal realm, Austin, 494 U.S., at 659, 110 S.Ct. 1391, may translate into special advantages in the market for legislation. When large numbers of citizens have a common stake in a measure that is under consideration, it may be very difficult for them to coordinate resources on behalf of their position. The corporate form, by contrast, "provides a simple way to channel rents to only those who have paid their dues, as it were. If you do not own stock, you do not benefit from the larger dividends or appreciation in the stock price caused by the passage of private interest legislation." Sitkoff, Corporate Political Speech, Political Extortion, and the Competition for Corporate Charters, 69 U. Chi. L.Rev. 1103, 1113 (2002). Corporations, that is, are uniquely equipped to seek laws that favor their owners, not simply because they have a lot of money but because of their legal and organizational structure. Remove all restrictions on their electioneering, and the door may be opened to a type of rent seeking that is "far more destructive" than what noncorporations are capable of. Ibid. It is for reasons such as these that our campaign finance jurisprudence has long appreciated that "the `differing structures and purposes' of different entities `may require different forms of regulation in order to protect the integrity of the electoral process.'" NRWC, 459 U.S., at 210, 103 S.Ct. 552 (quoting California Medical Assn., 453 U.S., at 201, 101 S.Ct. 2712).

The Court's facile depiction of corporate electioneering assumes away all of these complexities. Our colleagues ridicule the idea of regulating expenditures based on "nothing more" than a fear that corporations have a special "ability to persuade," ante, at 923 (opinion of ROBERTS, C.J.), as if corporations were our society's ablest debaters and viewpoint-neutral laws such as § 203 were created to suppress their best arguments. In their haste to knock down yet another straw man, our colleagues simply ignore the fundamental concerns of the Austin Court and the legislatures that have passed laws like § 203: to safeguard the integrity, competitiveness, and democratic responsiveness of the electoral process. All of the majority's theoretical arguments turn on a proposition with undeniable surface appeal but little grounding in evidence or experience, "that there is no such thing as too much speech," Austin, 494 U.S., at 695, 110 S.Ct. 1391 (SCALIA, J., dissenting).^[83] If individuals in our society had infinite free time to listen to and contemplate every last bit of speech uttered by anyone, anywhere; and if broadcast advertisements had no special ability to influence elections apart from the merits of their arguments (to the extent they make any); and if legislators always operated with nothing less than perfect virtue; then I suppose the majority's premise would be sound. In the real world, we have seen, corporate domination of the airwaves prior to an election may decrease the average listener's exposure to [976] relevant viewpoints, and it may diminish citizens' willingness and capacity to participate in the democratic process.

None of this is to suggest that corporations can or should be denied an opportunity to participate in election campaigns or in any other public forum (much less that a work of art such as Mr. Smith Goes to Washington may be banned), or to deny that some corporate speech may contribute significantly to public debate. What it shows, however, is that Austin's "concern about corporate domination of the political process," 494 U.S., at 659, 110 S.Ct. 1391, reflects more than a concern to protect governmental interests outside of the First Amendment. It also reflects a concern to facilitate First Amendment values by preserving some breathing room around the electoral "marketplace" of ideas, ante, at 896, 904, 906, 914, 915, the marketplace in which the actual people of this Nation determine how they will govern themselves. The majority seems oblivious to the simple truth that laws such as § 203 do not merely pit the anticorruption interest against the First Amendment, but also pit competing First Amendment values against each other. There are, to be sure, serious concerns with any effort to balance the First Amendment rights of speakers against the First Amendment rights of listeners. But when the speakers in question are not real people and when the appeal to "First Amendment principles" depends almost entirely on the listeners' perspective, ante, at 886, 912, it becomes necessary to consider how listeners will actually be affected.

In critiquing Austin's antidistortion rationale and campaign finance regulation more generally, our colleagues place tremendous weight on the example of media corporations. See ante, at 905-907, 911; ante, at 917, 923 (opinion of ROBERTS, C.J.); ante, at 927-928 (opinion of SCALIA, J.). Yet it is not at all clear that Austin would permit § 203 to be applied to them. The press plays a unique role not only in the text, history, and structure of the First Amendment but also in facilitating public discourse; as the Austin Court explained, "media corporations differ significantly from other corporations in that their resources are devoted to the collection of information and its dissemination to the public," 494 U.S., at 667, 110 S.Ct. 1391. Our colleagues have raised some interesting and difficult questions about Congress' authority to regulate electioneering by the press, and about how to define what constitutes the press. But that is not the case before us. Section 203 does not apply to media corporations, and even if it did, Citizens United is not a media corporation. There would be absolutely no reason to consider the issue of media corporations if the majority did not, first, transform Citizens United's as-applied challenge into a facial challenge and, second, invent the theory that legislatures must eschew all "identity"-based distinctions and treat a local nonprofit news outlet exactly the same as General Motors.^[84] This calls to mind George Berkeley's description of philosophers: "[W]e have first raised a dust and then complain we cannot see." Principles of Human Knowledge/Three Dialogues 38, ¶ 3 (R. Woolhouse ed.1988).

It would be perfectly understandable if our colleagues feared that a campaign finance [977] regulation such as § 203 may be counterproductive or self-interested, and therefore attended carefully to the choices the Legislature has made. But the majority does not bother to consider such practical matters, or even to consult a record; it simply stipulates that "enlightened self-government" can arise only in the absence of regulation. Ante, at 898. In light of the distinctive features of corporations identified in Austin, there is no valid basis for this assumption. The marketplace of ideas is not actually a place where items— or laws—are meant to be bought and sold, and when we move from the realm of economics to the realm of corporate electioneering, there may be no "reason to think the market ordering is intrinsically good at all," Strauss 1386.

The Court's blinkered and aphoristic approach to the First Amendment may well promote corporate power at the cost of the individual and collective self-expression the Amendment was meant to serve. It will undoubtedly cripple the ability of ordinary citizens, Congress, and the States to adopt even limited measures to protect against corporate domination of the electoral process. Americans may be forgiven if they do not feel the Court has advanced the cause of self-government today.

2. Shareholder Protection

There is yet another way in which laws such as § 203 can serve First Amendment values. Interwoven with Austin's concern to protect the integrity of the electoral process is a concern to protect the rights of shareholders from a kind of coerced speech: electioneering expenditures that do not "reflec[t] [their] support." 494 U.S., at 660-661, 110 S.Ct. 1391. When corporations use general treasury funds to praise or attack a particular candidate for office, it is the shareholders, as the residual claimants, who are effectively footing the bill. Those shareholders who disagree with the corporation's electoral message may find their financial investments being used to undermine their political convictions.

The PAC mechanism, by contrast, helps assure that those who pay for an electioneering communication actually support its content and that managers do not use general treasuries to advance personal agendas. Ibid. It "`allows corporate political participation without the temptation to use corporate funds for political influence, quite possibly at odds with the sentiments of some shareholders or members.'" McConnell, 540 U.S., at 204, 124 S.Ct. 619 (quoting Beaumont, 539 U.S., at 163, 123 S.Ct. 2200). A rule that privileges the use of PACs thus does more than facilitate the political speech of like-minded shareholders; it also curbs the rent seeking behavior of executives and respects the views of dissenters. Austin's acceptance of restrictions on general treasury spending "simply allows people who have invested in the business corporation for purely economic reasons"—the vast majority of investors, one assumes—"to avoid being taken advantage of, without sacrificing their economic objectives." Winkler, Beyond Bellotti, 32 Loyola (LA) L.Rev. 133, 201 (1998).

The concern to protect dissenting shareholders and union members has a long history in campaign finance reform. It provided a central motivation for the Tillman Act in 1907 and subsequent legislation, see Pipefitters v. United States, 407 U.S. 385, 414-415, 92 S.Ct. 2247, 33 L.Ed.2d 11 (1972); Winkler, 92 Geo. L. J., at 887-900, and it has been endorsed in a long line of our cases, see, e.g., McConnell, 540 U.S., at 204-205, 124 S.Ct. 619; Beaumont, 539 U.S., at 152-154, 123 S.Ct. 2200; MCFL, 479 U.S., at 258, 107 S.Ct. 616; NRWC, 459 U.S., at 207-208, 103 S.Ct. 552; Pipefitters, 407 U.S., at 414-416, 92 [978] S.Ct. 2247; see also n. 60, supra. Indeed, we have unanimously recognized the governmental interest in "protect[ing] the individuals who have paid money into a corporation or union for purposes other than the support of candidates from having that money used to support political candidates to whom they may be opposed." NRWC, 459 U.S., at 207-208, 103 S.Ct. 552.

The Court dismisses this interest on the ground that abuses of shareholder money can be corrected "through the procedures of corporate democracy," ante, at 911 (internal quotation marks omitted), and, it seems, through Internet-based disclosures, ante, at 916.^[85] I fail to understand how this addresses the concerns of dissenting union members, who will also be affected by today's ruling, and I fail to understand why the Court is so confident in these mechanisms. By "corporate democracy," presumably the Court means the rights of shareholders to vote and to bring derivative suits for breach of fiduciary duty. In practice, however, many corporate lawyers will tell you that "these rights are so limited as to be almost nonexistent," given the internal authority wielded by boards and managers and the expansive protections afforded by the business judgment rule. Blair & Stout 320; see also id., at 298-315; Winkler, 32 Loyola (LA) L.Rev., at 165-166, 199-200. Modern technology may help make it easier to track corporate activity, including electoral advocacy, but it is utopian to believe that it solves the problem. Most American households that own stock do so through intermediaries such as mutual funds and pension plans, see Evans, A Requiem for the Retail Investor? 95 Va. L.Rev. 1105 (2009), which makes it more difficult both to monitor and to alter particular holdings. Studies show that a majority of individual investors make no trades at all during a given year. Id., at 1117. Moreover, if the corporation in question operates a PAC, an investor who sees the company's ads may not know whether they are being funded through the PAC or through the general treasury.

If and when shareholders learn that a corporation has been spending general treasury money on objectionable electioneering, they can divest. Even assuming that they reliably learn as much, however, this solution is only partial. The injury to the shareholders' expressive rights has already occurred; they might have preferred to keep that corporation's stock in their portfolio for any number of economic reasons; and they may incur a capital gains tax or other penalty from selling their shares, changing their pension plan, or the like. The shareholder protection rationale has been criticized as underinclusive, in that corporations also spend money on lobbying and charitable contributions in ways that any particular shareholder might disapprove. But those expenditures do not implicate the selection of public officials, an area in which "the interests of unwilling . . . corporate shareholders [in not being] forced to subsidize that speech" "are at their zenith." Austin, 494 U.S., at 677, 110 S.Ct. 1391 (Brennan, J., concurring). And in any event, the question is whether shareholder protection provides a basis for regulating expenditures in the weeks before an election, not whether additional types of corporate communications [979] might similarly be conditioned on voluntariness.

Recognizing the limits of the shareholder protection rationale, the Austin Court did not hold it out as an adequate and independent ground for sustaining the statute in question. Rather, the Court applied it to reinforce the antidistortion rationale, in two main ways. First, the problem of dissenting shareholders shows that even if electioneering expenditures can advance the political views of some members of a corporation, they will often compromise the views of others. See, e.g., id., at 663, 110 S.Ct. 1391 (discussing risk that corporation's "members may be . . . reluctant to withdraw as members even if they disagree with [its] political expression"). Second, it provides an additional reason, beyond the distinctive legal attributes of the corporate form, for doubting that these "expenditures reflect actual public support for the political ideas espoused," id., at 660, 110 S.Ct. 1391. The shareholder protection rationale, in other words, bolsters the conclusion that restrictions on corporate electioneering can serve both speakers' and listeners' interests, as well as the anticorruption interest. And it supplies yet another reason why corporate expenditures merit less protection than individual expenditures.

V

Today's decision is backwards in many senses. It elevates the majority's agenda over the litigants' submissions, facial attacks over as-applied claims, broad constitutional theories over narrow statutory grounds, individual dissenting opinions over precedential holdings, assertion over tradition, absolutism over empiricism, rhetoric over reality. Our colleagues have arrived at the conclusion that Austin must be overruled and that § 203 is facially unconstitutional only after mischaracterizing both the reach and rationale of those authorities, and after bypassing or ignoring rules of judicial restraint used to cabin the Court's lawmaking power. Their conclusion that the societal interest in avoiding corruption and the appearance of corruption does not provide an adequate justification for regulating corporate expenditures on candidate elections relies on an incorrect description of that interest, along with a failure to acknowledge the relevance of established facts and the considered judgments of state and federal legislatures over many decades.

In a democratic society, the longstanding consensus on the need to limit corporate campaign spending should outweigh the wooden application of judge-made rules. The majority's rejection of this principle "elevate[s] corporations to a level of deference which has not been seen at least since the days when substantive due process was regularly used to invalidate regulatory legislation thought to unfairly impinge upon established economic interests." Bellotti, 435 U.S., at 817, n. 13, 98 S.Ct. 1407 (White, J., dissenting). At bottom, the Court's opinion is thus a rejection of the common sense of the American people, who have recognized a need to prevent corporations from undermining self-government since the founding, and who have fought against the distinctive corrupting potential of corporate electioneering since the days of Theodore Roosevelt. It is a strange time to repudiate that common sense. While American democracy is imperfect, few outside the majority of this Court would have thought its flaws included a dearth of corporate money in politics.

I would affirm the judgment of the District Court.

Justice THOMAS, concurring in part and dissenting in part.

I join all but Part IV of the Court's opinion.

[980] Political speech is entitled to robust protection under the First Amendment. Section 203 of the Bipartisan Campaign Reform Act of 2002 (BCRA) has never been reconcilable with that protection. By striking down § 203, the Court takes an important first step toward restoring full constitutional protection to speech that is "indispensable to the effective and intelligent use of the processes of popular government." McConnell v. Federal Election Comm'n, 540 U.S. 93, 265, 124 S.Ct. 619, 157 L.Ed.2d 491 (2003) (THOMAS, J., concurring in part, concurring in judgment in part, and dissenting in part) (internal quotation marks omitted). I dissent from Part IV of the Court's opinion, however, because the Court's constitutional analysis does not go far enough. The disclosure, disclaimer, and reporting requirements in BCRA §§ 201 and 311 are also unconstitutional. See id., at 275-277, and n. 10, 124 S.Ct. 619.

Congress may not abridge the "right to anonymous speech" based on the "`simple interest in providing voters with additional relevant information,'" id., at 276, 124 S.Ct. 619 (quoting McIntyre v. Ohio Elections Comm'n, 514 U.S. 334, 348, 115 S.Ct. 1511, 131 L.Ed.2d 426 (1995)). In continuing to hold otherwise, the Court misapprehends the import of "recent events" that some amici describe "in which donors to certain causes were blacklisted, threatened, or otherwise targeted for retaliation." Ante, at 916. The Court properly recognizes these events as "cause for concern," ibid., but fails to acknowledge their constitutional significance. In my view, amici's submissions show why the Court's insistence on upholding §§ 201 and 311 will ultimately prove as misguided (and ill fated) as was its prior approval of § 203.

Amici's examples relate principally to Proposition 8, a state ballot proposition that California voters narrowly passed in the 2008 general election. Proposition 8 amended California's constitution to provide that "[o]nly marriage between a man and a woman is valid or recognized in California." Cal. Const., Art. I, § 7.5. Any donor who gave more than $100 to any committee supporting or opposing Proposition 8 was required to disclose his full name, street address, occupation, employer's name (or business name, if self-employed), and the total amount of his contributions.^[86] See Cal. Govt.Code Ann. § 84211(f) (West 2005). The California Secretary of State was then required to post this information on the Internet. See §§ 84600-84601; §§ 84602-84602.1 (West Supp.2010); §§ 84602.5-84604 (West 2005); § 85605 (West Supp.2010); §§ 84606-84609 (West 2005).

Some opponents of Proposition 8 compiled this information and created Web sites with maps showing the locations of homes or businesses of Proposition 8 supporters. Many supporters (or their customers) suffered property damage, or threats of physical violence or death, as a result. They cited these incidents in a complaint they filed after the 2008 election, seeking to invalidate California's mandatory disclosure laws. Supporters recounted being told: "Consider yourself lucky. If I had a gun I would have gunned you down along with each and every other supporter," or, "we have plans for you and your friends." Complaint in ProtectMarriage.com—Yes on 8 v. Bowen, Case No. [981] 2:09-cv-00058-MCE-DAD (ED Cal.), ¶ 31. Proposition 8 opponents also allegedly harassed the measure's supporters by defacing or damaging their property. Id., ¶ 32. Two religious organizations supporting Proposition 8 reportedly received through the mail envelopes containing a white powdery substance. Id., ¶ 33.

Those accounts are consistent with media reports describing Proposition 8-related retaliation. The director of the nonprofit California Musical Theater gave $1,000 to support the initiative; he was forced to resign after artists complained to his employer. Lott & Smith, Donor Disclosure Has Its Downsides, Wall Street Journal, Dec. 26, 2008, p. A13. The director of the Los Angeles Film Festival was forced to resign after giving $1,500 because opponents threatened to boycott and picket the next festival. Ibid. And a woman who had managed her popular, family-owned restaurant for 26 years was forced to resign after she gave $100, because "throngs of [angry] protesters" repeatedly arrived at the restaurant and "shout[ed] `shame on you' at customers." Lopez, Prop. 8 Stance Upends Her Life, Los Angeles Times, Dec. 14, 2008, p. B1. The police even had to "arriv[e] in riot gear one night to quell the angry mob" at the restaurant. Ibid. Some supporters of Proposition 8 engaged in similar tactics; one real estate businessman in San Diego who had donated to a group opposing Proposition 8 "received a letter from the Prop. 8 Executive Committee threatening to publish his company's name if he didn't also donate to the `Yes on 8' campaign." Donor Disclosure, supra, at A13.

The success of such intimidation tactics has apparently spawned a cottage industry that uses forcibly disclosed donor information to pre-empt citizens' exercise of their First Amendment rights. Before the 2008 Presidential election, a "newly formed nonprofit group ... plann[ed] to confront donors to conservative groups, hoping to create a chilling effect that will dry up contributions." Luo, Group Plans Campaign Against G.O.P. Donors, N.Y. Times, Aug. 8, 2008, p. A15. Its leader, "who described his effort as `going for the jugular,'" detailed the group's plan to send a "warning letter ... alerting donors who might be considering giving to right-wing groups to a variety of potential dangers, including legal trouble, public exposure and watchdog groups digging through their lives." Ibid.

These instances of retaliation sufficiently demonstrate why this Court should invalidate mandatory disclosure and reporting requirements. But amici present evidence of yet another reason to do so — the threat of retaliation from elected officials. As amici's submissions make clear, this threat extends far beyond a single ballot proposition in California. For example, a candidate challenging an incumbent state attorney general reported that some members of the State's business community feared donating to his campaign because they did not want to cross the incumbent; in his words, "`I go to so many people and hear the same thing: "I sure hope you beat [the incumbent], but I can't afford to have my name on your records. He might come after me next."'" Strassel, Challenging Spitzerism at the Polls, Wall Street Journal, Aug. 1, 2008, p. A11. The incumbent won reelection in 2008.

My point is not to express any view on the merits of the political controversies I describe. Rather, it is to demonstrate — using real-world, recent examples — the fallacy in the Court's conclusion that "[d]isclaimer and disclosure requirements ... impose no ceiling on campaign-related activities, and do not prevent anyone from speaking." Ante, at 914 (internal quotation marks and citations omitted). Of [982] course they do. Disclaimer and disclosure requirements enable private citizens and elected officials to implement political strategies specifically calculated to curtail campaign-related activity and prevent the lawful, peaceful exercise of First Amendment rights.

The Court nevertheless insists that as-applied challenges to disclosure requirements will suffice to vindicate those speech rights, as long as potential plaintiffs can "show a reasonable probability that disclosure... will subject them to threats, harassment, or reprisals from either Government officials or private parties." Ante, at 914 (internal quotation marks omitted). But the Court's opinion itself proves the irony in this compromise. In correctly explaining why it must address the facial constitutionality of § 203, see ante, at 888-897, the Court recognizes that "[t]he First Amendment does not permit laws that force speakers to ... seek declaratory rulings before discussing the most salient political issues of our day," ante, at 889; that as-applied challenges to § 203 "would require substantial litigation over an extended time" and result in an "interpretive process [that] itself would create an inevitable, pervasive, and serious risk of chilling protected speech pending the drawing of fine distinctions that, in the end, would themselves be questionable," ante, at 891; that "a court would be remiss in performing its duties were it to accept an unsound principle merely to avoid the necessity of making a broader ruling," ante, at 892; and that avoiding a facial challenge to § 203 "would prolong the substantial, nation-wide chilling effect" that § 203 causes, ante, at 894. This logic, of course, applies equally to as-applied challenges to §§ 201 and 311.

Irony aside, the Court's promise that as-applied challenges will adequately protect speech is a hollow assurance. Now more than ever, §§ 201 and 311 will chill protected speech because — as California voters can attest — "the advent of the Internet" enables "prompt disclosure of expenditures," which "provide[s]" political opponents "with the information needed" to intimidate and retaliate against their foes. Ante, at 916. Thus, "disclosure permits citizens ... to react to the speech of [their political opponents] in a proper" — or undeniably improper — "way" long before a plaintiff could prevail on an as-applied challenge.^[87]Ibid.

I cannot endorse a view of the First Amendment that subjects citizens of this Nation to death threats, ruined careers, damaged or defaced property, or pre-emptive and threatening warning letters as the price for engaging in "core political speech, the `primary object of First Amendment protection.'" McConnell, 540 U.S., at 264, 124 S.Ct. 619 (THOMAS, J., concurring in part, concurring in judgment in part, and dissenting in part) (quoting Nixon v. Shrink Missouri Government PAC, 528 U.S. 377, 410-411, 120 S.Ct. 897, 145 L.Ed.2d 886 (2000) (THOMAS, J., dissenting)). Accordingly, I respectfully dissent from the Court's judgment upholding BCRA §§ 201 and 311.

[1] The dissent suggests that I am "much too quick" to reach this conclusion because I "ignore" Citizens United's narrower arguments. Post, at 936, n. 12. But in fact I do not ignore those arguments; on the contrary, I (and my colleagues in the majority) appropriately consider and reject them on their merits, before addressing Citizens United's broader claims. Supra, at 918-919; ante, at 888-892.

[2] See also, e.g., R. Hasen, The Supreme Court and Election Law: Judging Equality from Baker v. Carr to Bush v. Gore 114 (2003) ("Austin represents the first and only case [before McConnell] in which a majority of the Court accepted, in deed if not in word, the equality rationale as a permissible state interest"); Strauss, Corruption, Equality, and Campaign Finance Reform, 94 Colum. L.Rev. 1369, 1369, and n. 1 (1994) (noting that Austin's rationale was based on equalizing political speech); Ashdown, Controlling Campaign Spending and the "New Corruption": Waiting for the Court, 44 Vand. L.Rev. 767, 781 (1991); Eule, Promoting Speaker Diversity: Austin and Metro Broadcasting, 1990 S.Ct. Rev. 105, 108-111.

[3] Justice THOMAS does not join Part IV of the Court's opinion.

[4] The dissent protests that 1791 rather than 1800 should be the relevant date, and that "[m]ore than half of the century's total business charters were issued between 1796 and 1800." Post, at 949, n. 53. I used 1800 only because the dissent did. But in any case, it is surely fanciful to think that a consensus of hostility towards corporations was transformed into general favor at some magical moment between 1791 and 1796.

[5] "[P]eople in 1800 identified corporations with franchised monopolies." L. Friedman, A History of American Law 194 (2d ed.1985) (hereinafter Friedman). "The chief cause for the changed popular attitude towards business corporations that marked the opening of the nineteenth century was the elimination of their inherent monopolistic character. This was accomplished primarily by an extension of the principle of free incorporation under general laws." 1 W. Fletcher, Cyclopedia of the Law of Corporations § 2, p. 8 (rev. ed.2006).

[6] At times (though not always) the dissent seems to exclude such non-"business corporations" from its denial of free speech rights. See post, at 949-950. Finding in a seemingly categorical text a distinction between the rights of business corporations and the rights of non-business corporations is even more imaginative than finding a distinction between the rights of all corporations and the rights of other associations.

[7] The best the dissent can come up with is that "[p]ostratification practice" supports its reading of the First Amendment. Post, at 951, n. 56. For this proposition, the dissent cites Justice White's statement (in dissent) that "[t]he common law was generally interpreted as prohibiting corporate political participation," First Nat. Bank of Boston v. Bellotti, 435 U.S. 765, 819, 98 S.Ct. 1407, 55 L.Ed.2d 707 (1978). The sole authority Justice White cited for this proposition, id., at 819, n. 14, 98 S.Ct. 1407, was a law-review note that made no such claim. To the contrary, it stated that the cases dealing with the propriety of corporate political expenditures were "few." Note, Corporate Political Affairs Programs, 70 Yale L. J. 821, 852 (1961). More specifically, the note cites only two holdings to that effect, one by a Federal District Court, and one by the Supreme Court of Montana. Id., at 852, n. 197. Of course even if the common law was "generally interpreted" to prohibit corporate political expenditures as ultra vires, that would have nothing to do with whether political expenditures that were authorized by a corporation's charter could constitutionally be suppressed.

As additional "[p]ostratification practice," the dissent notes that the Court "did not recognize any First Amendment protections for corporations until the middle part of the 20th century." Post, at 951, n. 56. But it did that in Grosjean v. American Press Co., 297 U.S. 233, 56 S.Ct. 444, 80 L.Ed. 660 (1936), a case involving freedom of the press—which the dissent acknowledges did cover corporations from the outset. The relative recency of that first case is unsurprising. All of our First Amendment jurisprudence was slow to develop. We did not consider application of the First Amendment to speech restrictions other than prior restraints until 1919, see Schenck v. United States, 249 U.S. 47, 39 S.Ct. 247, 63 L.Ed. 470 (1919); we did not invalidate a state law on First Amendment grounds until 1931, see Stromberg v. California, 283 U.S. 359, 51 S.Ct. 532, 75 L.Ed. 1117 (1931), and a federal law until 1965, see Lamont v. Postmaster General, 381 U.S. 301, 85 S.Ct. 1493, 14 L.Ed.2d 398 (1965).

[8] The dissent seeks to avoid this conclusion (and to turn a liability into an asset) by interpreting the Freedom of the Press Clause to refer to the institutional press (thus demonstrating, according to the dissent, that the Founders "did draw distinctions—explicit distinctions—between types of `speakers,' or speech outlets or forms"). Post, at 951-952 and n. 57. It is passing strange to interpret the phrase "the freedom of speech, or of the press" to mean, not everyone's right to speak or publish, but rather everyone's right to speak or the institutional press's right to publish. No one thought that is what it meant. Patriot Noah Webster's 1828 dictionary contains, under the word "press," the following entry:

"Liberty of the press, in civil policy, is the free right of publishing books, pamphlets, or papers without previous restraint; or the unrestrained right which every citizen enjoys of publishing his thoughts and opinions, subject only to punishment for publishing what is pernicious to morals or to the peace of the state." 2 American Dictionary of the English Language (1828) (reprinted 1970).

As the Court's opinion describes, ante, at 905-906, our jurisprudence agrees with Noah Webster and contradicts the dissent.

"The liberty of the press is not confined to newspapers and periodicals. It necessarily embraces pamphlets and leaflets.... The press in its historical connotation comprehends every sort of publication which affords a vehicle of information and opinion." Lovell v. City of Griffin, 303 U.S. 444, 452, 58 S.Ct. 666, 82 L.Ed. 949 (1938).

[9] The dissent says that "`speech'" refers to oral communications of human beings, and since corporations are not human beings they cannot speak. Post, at 950, n. 55. This is sophistry. The authorized spokesman of a corporation is a human being, who speaks on behalf of the human beings who have formed that association—just as the spokesman of an unincorporated association speaks on behalf of its members. The power to publish thoughts, no less than the power to speak thoughts, belongs only to human beings, but the dissent sees no problem with a corporation's enjoying the freedom of the press.

The same footnote asserts that "it has been `claimed that the notion of institutional speech ... did not exist in post-revolutionary America.'" This is quoted from a law-review article by a Bigelow Fellow at the University of Chicago (Fagundes, State Actors as First Amendment Speakers, 100 Nw. U.L.Rev. 1637, 1654 (2006)), which offers as the sole support for its statement a treatise dealing with government speech, M. Yudof, When Government Speaks 42-50 (1983). The cited pages of that treatise provide no support whatever for the statement—unless, as seems overwhelmingly likely, the "institutional speech" referred to was speech by the subject of the law-review article, governmental institutions.

The other authority cited in the footnote, a law-review article by a professor at Washington and Lee Law School, Bezanson, Institutional Speech, 80 Iowa L.Rev. 735, 775 (1995), in fact contradicts the dissent, in that it would accord free-speech protection to associations.

[10] Specifically, Part I, infra, at 931-938, addresses the procedural history of the case and the narrower grounds of decision the majority has bypassed. Part II, infra, at 938-942, addresses stare decisis. Part III, infra, at 942-961, addresses the Court's assumptions that BCRA "bans" corporate speech, that identity-based distinctions may not be drawn in the political realm, and that Austin and McConnell were outliers in our First Amendment tradition. Part IV, infra, at 961-979, addresses the Court's treatment of the anticorruption, antidistortion, and shareholder protection rationales for regulating corporate electioneering.

[11] See Yee v. Escondido, 503 U.S. 519, 535, 112 S.Ct. 1522, 118 L.Ed.2d 153 (1992) ("[U]nder this Court's Rule 14.1(a), only questions set forth in the petition, or fairly included therein, will be considered by the Court" (internal quotation marks and alteration omitted)); Wood v. Allen, ___ U.S. ___, 130 S.Ct. 841, ___ L.Ed.2d ___, 2010 WL 173369 *5 ("[T]he fact that petitioner discussed [an] issue in the text of his petition for certiorari does not bring it before us. Rule 14.1(a) requires that a subsidiary question be fairly included in the question presented for our review" (internal quotation marks and brackets omitted)); Cooper Industries, Inc. v. Aviall Services, Inc., 543 U.S. 157, 168-169, 125 S.Ct. 577, 160 L.Ed.2d 548 (2004) ("We ordinarily do not decide in the first instance issues not decided below" (internal quotation marks omitted)).

[12] The majority states that, in denying Citizens United's motion for a preliminary injunction, the District Court "addressed" the facial validity of BCRA § 203. Ante, at 892-893. That is true, in the narrow sense that the court observed the issue was foreclosed by McConnell v. FEC, 540 U.S. 93, 124 S.Ct. 619, 157 L.Ed.2d 491 (2003). See 530 F.Supp.2d 274, 278 (D.D.C.2008) (per curiam). Yet as explained above, Citizens United subsequently dismissed its facial challenge, so that by the time the District Court granted the Federal Election Commission's (FEC) motion for summary judgment, App. 261a-262a, any question about statutory validity had dropped out of the case. That latter ruling by the District Court was the "final decision" from which Citizens United appealed to this Court under BCRA § 403(a)(3). As regards the lower court decision that has come before us, the claim that § 203 is facially unconstitutional was neither pressed nor passed upon in any form.

[13] Shortly before Citizens United mooted the issue by abandoning its facial challenge, the Government advised the District Court that it "require[d] time to develop a factual record regarding [the] facial challenge." 1:07-cv-2240-RCL-RWR, Docket Entry No. 47, p. 4 (Mar. 26, 2008). By reinstating a claim that Citizens United abandoned, the Court gives it a perverse litigating advantage over its adversary, which was deprived of the opportunity to gather and present information necessary to its rebuttal.

[14] In fact, we do not even have a good evidentiary record of how § 203 has been affecting Citizens United, which never submitted to the District Court the details of Hillary's funding or its own finances. We likewise have no evidence of how § 203 and comparable state laws were expected to affect corporations and unions in the future.

It is true, as the majority points out, that the McConnell Court evaluated the facial validity of § 203 in light of an extensive record. See ante, at 893-894. But that record is not before us in this case. And in any event, the majority's argument for striking down § 203 depends on its contention that the statute has proved too "chilling" in practice—and in particular on the contention that the controlling opinion in WRTL, 551 U.S. 449, 127 S.Ct. 2652, 168 L.Ed.2d 329 (2007), failed to bring sufficient clarity and "breathing space" to this area of law. See ante, at 892, 894-897. We have no record with which to assess that claim. The Court complains at length about the burdens of complying with § 203, but we have no meaningful evidence to show how regulated corporations and unions have experienced its restrictions.

[15] Our cases recognize a "type of facial challenge in the First Amendment context under which a law may be overturned as impermissibly overbroad because a substantial number of its applications are unconstitutional." Washington State Grange v. Washington State Republican Party, 552 U.S. 442, 449, n. 6, 128 S.Ct. 1184, 170 L.Ed.2d 151 (2008) (internal quotation marks omitted). Citizens United has not made an overbreadth argument, and "[w]e generally do not apply the strong medicine of overbreadth analysis where the parties fail to describe the instances of arguable overbreadth of the contested law," ibid. (internal quotation marks omitted). If our colleagues nonetheless concluded that § 203's fatal flaw is that it affects too much protected speech, they should have invalidated it for overbreadth and given guidance as to which applications are permissible, so that Congress could go about repairing the error.

[16] Also perplexing is the majority's attempt to pass blame to the Government for its litigating position. By "hold[ing] out the possibility of ruling for Citizens United on a narrow ground yet refrain[ing] from adopting that position," the majority says, the Government has caused "added uncertainty [that] demonstrates the necessity to address the question of statutory validity." Ante, at 895. Our colleagues have apparently never heard of an alternative argument. Like every litigant, the Government would prefer to win its case outright; failing that, it would prefer to lose on a narrow ground. The fact that there are numerous different ways this case could be decided, and that the Government acknowledges as much, does not demonstrate anything about the propriety of a facial ruling.

[17] The majority's "chilling" argument is particularly inapposite with respect to 2 U.S.C. § 441b's longstanding restriction on the use of corporate general treasury funds for express advocacy. If there was ever any significant uncertainty about what counts as the functional equivalent of express advocacy, there has been little doubt about what counts as express advocacy since the "magic words" test of Buckley v. Valeo, 424 U.S. 1, 44, n. 52, 96 S.Ct. 612, 46 L.Ed.2d 659 (1976) (per curiam). Yet even though Citizens United's briefs never once mention § 441b's restriction on express advocacy; even though this restriction does not generate chilling concerns; and even though no one has suggested that Hillary counts as express advocacy; the majority nonetheless reaches out to opine that this statutory provision is "invalid" as well. Ante, at 913.

[18] The majority adds that the distinction between facial and as-applied challenges does not have "some automatic effect" that mechanically controls the judicial task. Ante, at 893. I agree, but it does not follow that in any given case we should ignore the distinction, much less invert it.

[19] Professor Fallon proposes an intricate answer to this question that the majority ignores. Fallon 1327-1359. It bears mention that our colleagues have previously cited Professor Fallon's article for the exact opposite point from the one they wish to make today. In Gonzales v. Carhart, 550 U.S. 124, 127 S.Ct. 1610, 167 L.Ed.2d 480 (2007), the Court explained that "[i]t is neither our obligation nor within our traditional institutional role to resolve questions of constitutionality with respect to each potential situation that might develop," and "[f]or this reason, `[a]s-applied challenges are the basic building blocks of constitutional adjudication.'" Id., at 168, 127 S.Ct. 1610 (opinion for the Court by KENNEDY, J.) (quoting Fallon 1328 (second alteration in original)).

[20] Internal Revenue Code section 501(c)(4) applies, inter alia, to nonprofit organizations "operated exclusively for the promotion of social welfare, ... the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes."

[21] THE CHIEF JUSTICE is therefore much too quick when he suggests that, "[e]ven if considered in as-applied terms, a holding in this case that the Act may not be applied to Citizens United—because corporations as well as individuals enjoy the pertinent First Amendment rights—would mean that any other corporation raising the same challenge would also win." Ante, at 919 (concurring opinion). That conclusion would only follow if the Court were to ignore Citizens United's plausible as-applied arguments and instead take the implausible position that all corporations and all types of expenditures enjoy the same First Amendment protections, which always trump the interests in regulation. At times, the majority appears to endorse this extreme view. At other times, however, it appears to suggest that nonprofit corporations have a better claim to First Amendment protection than for-profit corporations, see ante, at 897, 907, "advocacy" organizations have a better claim than other nonprofits, ante, at 897, domestic corporations have a better claim than foreign corporations, ante, at 911-912, small corporations have a better claim than large corporations, ante, at 906-908, and printed matter has a better claim than broadcast communications, ante, at 904. The majority never uses a multinational business corporation in its hypotheticals.

[22] The Court entirely ignores this statutory argument. It concludes that § 203 applies to Hillary on the basis of the film's content, ante, at 889-890, without considering the possibility that § 203 does not apply to video-on-demand transmissions generally.

[23] See Colorado Right to Life Comm., Inc. v. Coffman, 498 F.3d 1137, 1148 (C.A.10 2007) (adopting this rule and noting that "every other circuit to have addressed this issue" has done likewise); Brief for Independent Sector as Amicus Curiae 10-11 (collecting cases). The Court rejects this solution in part because the Government "merely suggest[s] it" and "does not say that it agrees with the interpretation." Ante, at 892. Our colleagues would thus punish a defendant for showing insufficient excitement about a ground it has advanced, at the same time that they decide the case on a ground the plaintiff expressly abandoned. The Court also protests that a de minimis standard would "requir[e] intricate case-by-case determinations." Ante, at 892. But de minimis tests need not be intricate at all. A test that granted MCFL status to § 501(c)(4) organizations if they received less than a fixed dollar amount of business donations in the previous year, or if such donations represent less than a fixed percentage of their total assets, would be perfectly easy to understand and administer.

[24] Another bypassed ground, not briefed by the parties, would have been to revive the Snowe-Jeffords Amendment in BCRA § 203(c), allowing certain nonprofit corporations to pay for electioneering communications with general treasury funds, to the extent they can trace the payments to individual contributions. See Brief for National Rifle Association as Amicus Curiae 5-15 (arguing forcefully that Congress intended this result).

[25] THE CHIEF JUSTICE finds our discussion of these narrower solutions "quite perplexing" because we suggest that the Court should "latch on to one of them in order to avoid reaching the broader constitutional question," without doing the same ourselves. Ante, at 918-919. There is nothing perplexing about the matter, because we are not similarly situated to our colleagues in the majority. We do not share their view of the First Amendment. Our reading of the Constitution would not lead us to strike down any statutes or overturn any precedents in this case, and we therefore have no occasion to practice constitutional avoidance or to vindicate Citizens United's as-applied challenge. Each of the arguments made above is surely at least as strong as the statutory argument the Court accepted in last year's Voting Rights Act case, Northwest Austin Municipal Util. Dist. No. One v. Holder, 557 U.S. ___, 129 S.Ct. 2504, 174 L.Ed.2d 140 (2009).

[26] I will have more to say shortly about the merits—about why Austin and McConnell are not doctrinal outliers, as the Court contends, and why their logic is not only defensible but also compelling. For present purposes, I limit the discussion to stare-decisis-specific considerations.

[27] THE CHIEF JUSTICE suggests that Austin has been undermined by subsequent dissenting opinions. Ante, at 934. Under this view, it appears that the more times the Court stands by a precedent in the face of requests to overrule it, the weaker that precedent becomes. THE CHIEF JUSTICE further suggests that Austin "is uniquely destabilizing because it threatens to subvert our Court's decisions even outside" its particular facts, as when we applied its reasoning in McConnell. Ante, at 922. Once again, the theory seems to be that the more we utilize a precedent, the more we call it into question. For those who believe Austin was correctly decided—as the Federal Government and the States have long believed, as the majority of Justices to have served on the Court since Austin have believed, and as we continue to believe—there is nothing "destabilizing" about the prospect of its continued application. It is gutting campaign finance laws across the country, as the Court does today, that will be destabilizing.

[28] Additionally, the majority cites some recent scholarship challenging the historical account of campaign finance law given in United States v. Automobile Workers, 352 U.S. 567, 77 S.Ct. 529, 1 L.Ed.2d 563 (1957). Ante, at 912. Austin did not so much as allude to this historical account, much less rely on it. Even if the scholarship cited by the majority is correct that certain campaign finance reforms were less deliberate or less benignly motivated than Automobile Workers suggested, the point remains that this body of law has played a significant and broadly accepted role in American political life for decades upon decades.

[29] See Brief for State of Montana et al. as Amici Curiae 5-13; see also Supp. Brief for Senator John McCain et al. as Amici Curiae 1a-8a (listing 24 States that presently limit or prohibit independent electioneering expenditures from corporate general treasuries).

[30] Magleby, The Importance of the Record in McConnell v. FEC, 3 Election L. J. 285 (2004).

[31] To be sure, the majority may respond that Congress can correct the imbalance by removing BCRA's soft-money limits. Cf. Tr. of Oral Arg. 24 (Sept. 9, 2009) (query of KENNEDY, J.). But this is no response to any legislature that takes campaign finance regulation seriously. It merely illustrates the breadth of the majority's deregulatory vision.

[32] See Brief for Committee for Economic Development as Amicus Curiae; Brief for American Independent Business Alliance as Amicus Curiae. But see Supp. Brief for Chamber of Commerce of the United States of America as Amicus Curiae.

[33] See Brief for American Federation of Labor and Congress of Industrial Organizations as Amicus Curiae 3, 9.

[34] See Brief for Independent Sector as Amicus Curiae 16-20.

[35] See Brief for State of Montana et al. as Amici Curiae.

[36] The FEC established this process following the Court's June 2007 decision in that case, 551 U.S. 449, 127 S.Ct. 2652, 168 L.Ed.2d 329. In the brief interval between the establishment of this process and the 2008 election, corporations and unions used it to make $108.5 million in electioneering communications. Supp. Brief for Appellee 22-23; FEC, Electioneering Communication Summary, online at http://fec.gov/finance/disclosure/ ECSummary.shtml (all Internet materials as visited Jan. 18, 2010, and available in Clerk of Court's case file).

[37] Concededly, Austin and McConnell were constitutional decisions, and we have often said that "claims of stare decisis are at the weakest in that field, where our mistakes cannot be corrected by Congress." Vieth v. Jubelirer, 541 U.S. 267, 305, 124 S.Ct. 1769, 158 L.Ed.2d 546 (2004) (plurality opinion). As a general matter, this principle is a sound one. But the principle only takes on real force when an earlier ruling has obstructed the normal democratic process; it is the fear of making "mistakes [that] cannot be corrected by Congress," ibid., that motivates us to review constitutional precedents with a more critical eye. Austin and McConnell did not obstruct state or congressional legislative power in any way. Although it is unclear how high a bar today's decision will pose to future attempts to regulate corporate electioneering, it will clearly restrain much legislative action.

[38] See FEC, Number of Federal PAC's Increases, http://fec.gov/press/ press2008/20080812paccount.shtml.

[39] See Supp. Brief for Appellee 16 (citing FEC statistics placing this figure at $840 million). The majority finds the PAC option inadequate in part because "[a] PAC is a separate association from the corporation." Ante, at 897. The formal "separateness" of PACs from their host corporations—which administer and control the PACs but which cannot funnel general treasury funds into them or force members to support them—is, of course, the whole point of the PAC mechanism.

[40] Roaming far afield from the case at hand, the majority worries that the Government will use § 203 to ban books, pamphlets, and blogs. Ante, at 896, 904, 912-913. Yet by its plain terms, § 203 does not apply to printed material. See 2 U.S.C. § 434(f)(3)(A)(i); see also 11 CFR § 100.29(c)(1) ("[E]lectioneering communication does not include communications appearing in print media"). And in light of the ordinary understanding of the terms "broadcast, cable, [and] satellite," § 434(f)(3)(A)(i), coupled with Congress' clear aim of targeting "a virtual torrent of televised election-related ads," McConnell, 540 U.S., at 207, 124 S.Ct. 619, we highly doubt that § 203 could be interpreted to apply to a Web site or book that happens to be transmitted at some stage over airwaves or cable lines, or that the FEC would ever try to do so. See 11 CFR § 100.26 (exempting most Internet communications from regulation as advertising); § 100.155 (exempting uncompensated Internet activity from regulation as an expenditure); Supp. Brief for Center for Independent Media et al. as Amici Curiae 14 (explaining that "the FEC has consistently construed [BCRA's] media exemption to apply to a variety of non-traditional media"). If it should, the Government acknowledges "there would be quite [a] good as-applied challenge." Tr. of Oral Arg. 65 (Sept. 9, 2009).

[41] As the Government points out, with a media corporation there is also a lesser risk that investors will not understand, learn about, or support the advocacy messages that the corporation disseminates. Supp. Reply Brief for Appellee 10. Everyone knows and expects that media outlets may seek to influence elections in this way.

[42] 2 U.S.C. § 434(f)(3)(A)(i).

[43] § 434(f)(3)(C).

[44] § 434(f)(3)(A)(i)(II).

[45] § 441b(b); McConnell, 540 U.S., at 211, 124 S.Ct. 619.

[46] § 441b(b)(2)(C).

[47] WRTL, 551 U.S. 449, 470, 127 S.Ct. 2652, 168 L.Ed.2d 329 (2007) (opinion of Roberts, C.J.).

[48] It is likewise nonsense to suggest that the FEC's "`business is to censor.'" Ante, at 896 (quoting Freedman v. Maryland, 380 U.S. 51, 57, 85 S.Ct. 734, 13 L.Ed.2d 649 (1965)). The FEC's business is to administer and enforce the campaign finance laws. The regulatory body at issue in Freedman was a state Board of Censors that had virtually unfettered discretion to bar distribution of motion picture films it deemed not to be "moral and proper." See id., at 52-53, and n. 2, 85 S.Ct. 734. No movie could be shown in the State of Maryland that was not first approved and licensed by the Board of Censors. Id., at 52, n. 1, 85 S.Ct. 734. It is an understatement to say that Freedman is not on point, and the majority's characterization of the FEC is deeply disconcerting.

[49] Citizens United has administered this PAC for over a decade. See Defendant FEC's Memorandum in Opposition to Plaintiff's Second Motion for Preliminary Injunction in No. 07-2240 (ARR, RCL, RWR) (DC), p. 20. Citizens United also operates multiple "527" organizations that engage in partisan political activity. See Defendant FEC's Statement of Material Facts as to Which There Is No Genuine Dispute in No. 07-2240(DC), ¶¶ 22-24.

[50] See, e.g., Bethel School Dist. No. 403 v. Fraser, 478 U.S. 675, 682, 106 S.Ct. 3159, 92 L.Ed.2d 549 (1986) ("[T]he constitutional rights of students in public school are not automatically coextensive with the rights of adults in other settings").

[51] See, e.g., Jones v. North Carolina Prisoners' Labor Union, Inc., 433 U.S. 119, 129, 97 S.Ct. 2532, 53 L.Ed.2d 629 (1977) ("In a prison context, an inmate does not retain those First Amendment rights that are inconsistent with his status as a prisoner or with the legitimate penological objectives of the corrections system" (internal quotation marks omitted)).

[52] See, e.g., Parker v. Levy, 417 U.S. 733, 758, 94 S.Ct. 2547, 41 L.Ed.2d 439 (1974) ("While the members of the military are not excluded from the protection granted by the First Amendment, the different character of the military community and of the military mission requires a different application of those protections").

[53] See, e.g., 2 U.S.C. § 441e(a)(1) (foreign nationals may not directly or indirectly make contributions or independent expenditures in connection with a U.S. election).

[54] See, e.g., Civil Service Comm'n v. Letter Carriers, 413 U.S. 548, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973) (upholding statute prohibiting Executive Branch employees from taking "any active part in political management or in political campaigns" (internal quotation marks omitted)); Public Workers v. Mitchell, 330 U.S. 75, 67 S.Ct. 556, 91 L.Ed. 754 (1947) (same); United States v. Wurzbach, 280 U.S. 396, 50 S.Ct. 167, 74 L.Ed. 508 (1930) (upholding statute prohibiting federal employees from making contributions to Members of Congress for "any political purpose whatever" (internal quotation marks omitted)); Ex parte Curtis, 106 U.S. 371, 1 S.Ct. 381, 27 L.Ed. 232 (1882) (upholding statute prohibiting certain federal employees from giving money to other employees for political purposes).

[55] The majority states that the cases just cited are "inapposite" because they "stand only for the proposition that there are certain governmental functions that cannot operate without some restrictions on particular kinds of speech." Ante, at 899. The majority's creative suggestion that these cases stand only for that one proposition is quite implausible. In any event, the proposition lies at the heart of this case, as Congress and half the state legislatures have concluded, over many decades, that their core functions of administering elections and passing legislation cannot operate effectively without some narrow restrictions on corporate electioneering paid for by general treasury funds.

[56] Outside of the law, of course, it is a commonplace that the identity and incentives of the speaker might be relevant to an assessment of his speech. See Aristotle, Poetics 43-44 (M. Heath transl. 1996) ("In evaluating any utterance or action, one must take into account not just the moral qualities of what is actually done or said, but also the identity of the agent or speaker, the addressee, the occasion, the means, and the motive"). The insight that the identity of speakers is a proper subject of regulatory concern, it bears noting, motivates the disclaimer and disclosure provisions that the Court today upholds.

[57] I dissented in Forbes because the broadcaster's decision to exclude the respondent from its debate was done "on the basis of entirely subjective, ad hoc judgments," 523 U.S., at 690, 118 S.Ct. 1633, that suggested anticompetitive viewpoint discrimination, id., at 693-694, 118 S.Ct. 1633, and lacked a compelling justification. Needless to say, my concerns do not apply to the instant case.

[58] The law at issue in Burson was far from unusual. "[A]ll 50 States," the Court observed, "limit access to the areas in or around polling places." 504 U.S., at 206, 112 S.Ct. 1846; see also Note, 91 Ky. L. J. 715, 729, n. 89, 747-769 (2003) (collecting statutes). I dissented in Burson because the evidence adduced to justify Tennessee's law was "exceptionally thin," 504 U.S., at 219, 112 S.Ct. 1846, and "the reason for [the] restriction [had] disappear[ed]" over time, id., at 223, 112 S.Ct. 1846. "In short," I concluded, "Tennessee ha[d] failed to point to any legitimate interest that would justify its selective regulation of campaign-related expression." Id., at 225, 112 S.Ct. 1846. These criticisms are inapplicable to the case before us.

[59] They are likewise entitled to regulate media corporations differently from other corporations "to ensure that the law `does not hinder or prevent the institutional press from reporting on, and publishing editorials about, newsworthy events.'" McConnell, 540 U.S., at 208, 124 S.Ct. 619 (quoting Austin v. Michigan Chamber of Commerce, 494 U.S. 652, 668, 110 S.Ct. 1391, 108 L.Ed.2d 652 (1990)).

[60] The Court all but confesses that a categorical approach to speaker identity is untenable when it acknowledges that Congress might be allowed to take measures aimed at "preventing foreign individuals or associations from influencing our Nation's political process." Ante, at 911. Such measures have been a part of U.S. campaign finance law for many years. The notion that Congress might lack the authority to distinguish foreigners from citizens in the regulation of electioneering would certainly have surprised the Framers, whose "obsession with foreign influence derived from a fear that foreign powers and individuals had no basic investment in the well-being of the country." Teachout, The Anti-Corruption Principle, 94 Cornell L.Rev. 341, 393, n. 245 (2009) (hereinafter Teachout); see also U.S. Const., Art. I, § 9, cl. 8 ("[N]o Person holding any Office of Profit or Trust ... shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State"). Professor Teachout observes that a corporation might be analogized to a foreign power in this respect, "inasmuch as its legal loyalties necessarily exclude patriotism." Teachout 393, n. 245.

[61] See A. Bickel, The Supreme Court and the Idea of Progress 59-60 (1978); A. Meiklejohn, Political Freedom: The Constitutional Powers of the People 39-40 (1965); Tokaji, First Amendment Equal Protection: On Discretion, Inequality, and Participation, 101 Mich. L.Rev. 2409, 2508-2509 (2003). Of course, voting is not speech in a pure or formal sense, but then again neither is a campaign expenditure; both are nevertheless communicative acts aimed at influencing electoral outcomes. Cf. Strauss, Corruption, Equality, and Campaign Finance Reform, 94 Colum. L.Rev. 1369, 1383-1384 (1994) (hereinafter Strauss).

[62] Scholars have found that only a handful of business corporations were issued charters during the colonial period, and only a few hundred during all of the 18th century. See E. Dodd, American Business Corporations Until 1860, p. 197 (1954); L. Friedman, A History of American Law 188-189 (2d ed. 1985); Baldwin, American Business Corporations Before 1789, 8 Am. Hist. Rev. 449, 450-459 (1903). Justice SCALIA quibbles with these figures; whereas we say that "a few hundred" charters were issued to business corporations during the 18th century, he says that the number is "approximately 335." Ante, at 925 (concurring opinion). Justice SCALIA also raises the more serious point that it is improper to assess these figures by today's standards, ante, at 926, though I believe he fails to substantiate his claim that "the corporation was a familiar figure in American economic life" by the century's end, ibid. (internal quotation marks omitted). His formulation of that claim is also misleading, because the relevant reference point is not 1800 but the date of the First Amendment's ratification, in 1791. And at that time, the number of business charters must have been significantly smaller than 335, because the pace of chartering only began to pick up steam in the last decade of the 18th century. More than half of the century's total business charters were issued between 1796 and 1800. Friedman, History of American Law, at 189.

[63] See Letter from Thomas Jefferson to Tom Logan (Nov. 12, 1816), in 12 The Works of Thomas Jefferson 42, 44 (P. Ford ed. 1905) ("I hope we shall ... crush in [its] birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country").

[64] In normal usage then, as now, the term "speech" referred to oral communications by individuals. See, e.g., 2 S. Johnson, Dictionary of the English Language 1853-1854 (4th ed. 1773) (reprinted 1978) (listing as primary definition of "speech": "The power of articulate utterance; the power of expressing thoughts by vocal words"); 2 N. Webster, American Dictionary of the English Language (1828) (reprinted 1970) (listing as primary definition of "speech": "The faculty of uttering articulate sounds or words, as in human beings; the faculty of expressing thoughts by words or articulate sounds. Speech was given to man by his Creator for the noblest purposes"). Indeed, it has been "claimed that the notion of institutional speech ... did not exist in post-revolutionary America." Fagundes, State Actors as First Amendment Speakers, 100 Nw. U. L. Rev. 1637, 1654 (2006); see also Bezanson, Institutional Speech, 80 Iowa L. Rev. 735, 775 (1995) ("In the intellectual heritage of the eighteenth century, the idea that free speech was individual and personal was deeply rooted and clearly manifest in the writings of Locke, Milton, and others on whom the framers of the Constitution and the Bill of Rights drew"). Given that corporations were conceived of as artificial entities and do not have the technical capacity to "speak," the burden of establishing that the Framers and ratifiers understood "the freedom of speech" to encompass corporate speech is, I believe, far heavier than the majority acknowledges.

[65] Postratification practice bolsters the conclusion that the First Amendment, "as originally understood," ante, at 906, did not give corporations political speech rights on a par with the rights of individuals. Well into the modern era of general incorporation statutes, "[t]he common law was generally interpreted as prohibiting corporate political participation," First Nat. Bank of Boston v. Bellotti, 435 U.S. 765, 819, 98 S.Ct. 1407, 55 L.Ed.2d 707 (1978) (White, J., dissenting), and this Court did not recognize any First Amendment protections for corporations until the middle part of the 20th century, see ante, at 899-900 (listing cases).

[66] In fact, the Free Press Clause might be turned against Justice SCALIA, for two reasons. First, we learn from it that the drafters of the First Amendment did draw distinctions—explicit distinctions—between types of "speakers," or speech outlets or forms. Second, the Court's strongest historical evidence all relates to the Framers' views on the press, see ante, at 906-907; ante, at 926-928 (SCALIA, J., concurring), yet while the Court tries to sweep this evidence into the Free Speech Clause, the Free Press Clause provides a more natural textual home. The text and history highlighted by our colleagues suggests why one type of corporation, those that are part of the press, might be able to claim special First Amendment status, and therefore why some kinds of "identity"-based distinctions might be permissible after all. Once one accepts that much, the intellectual edifice of the majority opinion crumbles.

[67] Cf. L. Levy, Legacy of Suppression: Freedom of Speech and Press in Early American History 4 (1960) ("The meaning of no other clause of the Bill of Rights at the time of its framing and ratification has been so obscure to us" as the Free Speech and Press Clause).

[68] As the majority notes, there is some academic debate about the precise origins of these developments. Ante, at 912; see also n. 19, supra. There is always some academic debate about such developments; the motives of legislatures are never entirely clear or unitary. Yet the basic shape and trajectory of 20th-century campaign finance reform are clear, and one need not take a naïve or triumphalist view of this history to find it highly relevant. The Court's skepticism does nothing to mitigate the absurdity of its claim that Austin and McConnell were outliers. Nor does it alter the fact that five Justices today destroy a longstanding American practice.

[69] See Pipefitters v. United States, 407 U.S. 385, 409, 414-415, 92 S.Ct. 2247, 33 L.Ed.2d 11 (1972) (reading the statutory bar on corporate and union campaign spending not to apply to "the voluntary donations of employees," when maintained in a separate account, because "[t]he dominant [legislative] concern in requiring that contributions be voluntary was, after all, to protect the dissenting stockholder or union member"); Automobile Workers, 352 U.S., at 592, 77 S.Ct. 529 (advising the District Court to consider on remand whether the broadcast in question was "paid for out of the general dues of the union membership or [whether] the funds [could] be fairly said to have obtained on a voluntary basis"); United States v. CIO, 335 U.S. 106, 123, 68 S.Ct. 1349, 92 L.Ed. 1849 (1948) (observing that "funds voluntarily contributed [by union members or corporate stockholders] for election purposes" might not be covered by the expenditure bar). Both the Pipefitters and the Automobile Workers Court approvingly referenced Congress' goal of reducing "the effect of aggregated wealth on federal elections," understood as wealth drawn from a corporate or union general treasury without the stockholders' or members' "free and knowing choice." Pipefitters, 407 U.S., at 416, 92 S.Ct. 2247; see Automobile Workers, 352 U.S., at 582, 77 S.Ct. 529.

The two dissenters in Pipefitters would not have read the statutory provision in question, a successor to § 304 of the Taft-Hartley Act, to allow such robust use of corporate and union funds to finance otherwise prohibited electioneering. "This opening of the door to extensive corporate and union influence on the elective and legislative processes," Justice Powell wrote, "must be viewed with genuine concern. This seems to me to be a regressive step as contrasted with the numerous legislative and judicial actions in recent years designed to assure that elections are indeed free and representative." 407 U.S., at 450, 92 S.Ct. 2247 (opinion of Powell, J., joined by Burger, C.J.).

[70] Specifically, these corporations had to meet three conditions. First, they had to be formed "for the express purpose of promoting political ideas," so that their resources reflected political support rather than commercial success. MCFL, 479 U.S., at 264, 107 S.Ct. 616. Next, they had to have no shareholders, so that "persons connected with the organization will have no economic disincentive for disassociating with it if they disagree with its political activity." Ibid. Finally, they could not be "established by a business corporation or a labor union," nor "accept contributions from such entities," lest they "serv[e] as conduits for the type of direct spending that creates a threat to the political marketplace." Ibid.

[71] According to THE CHIEF JUSTICE, we are "erroneou[s]" in claiming that McConnell and Beaumont "`reaffirmed'" Austin. Ante, at 919-920. In both cases, the Court explicitly relied on Austin and quoted from it at length. See 540 U.S., at 204-205, 124 S.Ct. 619, 539 U.S., at 153-155, 158, 160, 163, 123 S.Ct. 2200; see also ante, at 893-894 ("The holding and validity of Austin were essential to the reasoning of the McConnell majority opinion"); Brief for Appellants National Rifle Association et al., O.T. 2003, No. 02-1675, p. 21 ("Beaumont reaffirmed . . . the Austin rationale for restricting expenditures"). The McConnell Court did so in the teeth of vigorous protests by Justices in today's majority that Austin should be overruled. See ante, at 893-894 (citing relevant passages); see also Beaumont, 539 U.S., at 163-164, 123 S.Ct. 2200 (KENNEDY, J., concurring in judgment). Both Courts also heard criticisms of Austin from parties or amici. See Brief for Appellants Chamber of Commerce of the United States et al., O.T.2003, No. 02-1756, p. 35, n. 22; Reply Brief for Appellants/Cross-Appellees Senator Mitch McConnell et al., O.T. 2003, No. 02-1674, pp. 13-14; Brief for Pacific Legal Foundation as Amicus Curiae in FEC v. Beaumont, O.T. 2002, No. 02-403, passim. If this does not qualify as reaffirmation of a precedent, then I do not know what would.

[72] Cf. Nixon v. Shrink Missouri Government PAC, 528 U.S. 377, 389, 120 S.Ct. 897, 145 L.Ed.2d 886 (2000) (recognizing "the broader threat from politicians too compliant with the wishes of large contributors"). Though discrete in scope, these experiments must impose some meaningful limits if they are to have a chance at functioning effectively and preserving the public's trust. "Even if it occurs only occasionally, the potential for such undue influence is manifest. And unlike straight cash-for-votes transactions, such corruption is neither easily detected nor practical to criminalize." McConnell, 540 U.S., at 153, 124 S.Ct. 619. There should be nothing controversial about the proposition that the influence being targeted is "undue." In a democracy, officeholders should not make public decisions with the aim of placating a financial benefactor, except to the extent that the benefactor is seen as representative of a larger constituency or its arguments are seen as especially persuasive.

[73] The majority declares by fiat that the appearance of undue influence by high-spending corporations "will not cause the electorate to lose faith in our democracy." Ante, at 910. The electorate itself has consistently indicated otherwise, both in opinion polls, see McConnell v. FEC, 251 F.Supp.2d 176, 557-558, 623-624 (D.D.C.2003) (opinion of Kollar-Kotelly, J.), and in the laws its representatives have passed, and our colleagues have no basis for elevating their own optimism into a tenet of constitutional law.

[74] Quite distinct from the interest in preventing improper influences on the electoral process, I have long believed that "a number of [other] purposes, both legitimate and substantial, may justify the imposition of reasonable limitations on the expenditures permitted during the course of any single campaign." Davis v. FEC, 554 U.S. ___, ___, 128 S.Ct. 2759, 2779, 171 L.Ed.2d 737 (2008) (opinion concurring in part and dissenting in part). In my judgment, such limitations may be justified to the extent they are tailored to "improving the quality of the exposition of ideas" that voters receive, ibid., "free[ing] candidates and their staffs from the interminable burden of fundraising," ibid. (internal quotation marks omitted), and "protect[ing] equal access to the political arena," Randall v. Sorrell, 548 U.S. 230, 278, 126 S.Ct. 2479, 165 L.Ed.2d 482 (2006) (STEVENS, J., dissenting) (internal quotation marks omitted). I continue to adhere to these beliefs, but they have not been briefed by the parties or amici in this case, and their soundness is immaterial to its proper disposition.

[75] In fact, the notion that the "electioneering communications" covered by § 203 can breed quid pro quo corruption or the appearance of such corruption has only become more plausible since we decided McConnell. Recall that THE CHIEF JUSTICE's controlling opinion in WRTL subsequently limited BCRA's definition of "electioneering communications" to those that are "susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate." 551 U.S., at 470, 127 S.Ct. 2652. The upshot was that after WRTL, a corporate or union expenditure could be regulated under § 203 only if everyone would understand it as an endorsement of or attack on a particular candidate for office. It does not take much imagination to perceive why this type of advocacy might be especially apt to look like or amount to a deal or a threat.

[76] "We must give weight" and "due deference" to Congress' efforts to dispel corruption, the Court states at one point. Ante, at 911. It is unclear to me what these maxims mean, but as applied by the Court they clearly do not entail "deference" in any normal sense of that term.

[77] Justice BREYER has suggested that we strike the balance as follows: "We should defer to [the legislature's] political judgment that unlimited spending threatens the integrity of the electoral process. But we should not defer in respect to whether its solution . . . insulates legislators from effective electoral challenge." Shrink Missouri, 528 U.S., at 403-404, 120 S.Ct. 897 (concurring opinion).

[78] THE CHIEF JUSTICE denies this, ante, at 921-923, citing scholarship that has interpreted Austin to endorse an equality rationale, along with an article by Justice Thurgood Marshall's former law clerk that states that Marshall, the author of Austin, accepted "equality of opportunity" and "equalizing access to the political process" as bases for campaign finance regulation, Garrett, New Voices in Politics: Justice Marshall's Jurisprudence on Law and Politics, 52 Howard L. J. 655, 667-668 (2009) (internal quotation marks omitted). It is fair to say that Austin can bear an egalitarian reading, and I have no reason to doubt this characterization of Justice Marshall's beliefs. But the fact that Austin can be read a certain way hardly proves THE CHIEF JUSTICE's charge that there is nothing more to it. Many of our precedents can bear multiple readings, and many of our doctrines have some "equalizing" implications but do not rest on an equalizing theory: for example, our takings jurisprudence and numerous rules of criminal procedure. More important, the Austin Court expressly declined to rely on a speech-equalization rationale, see 494 U.S., at 660, 110 S.Ct. 1391, and we have never understood Austin to stand for such a rationale. Whatever his personal views, Justice Marshall simply did not write the opinion that THE CHIEF JUSTICE suggests he did; indeed, he "would have viewed it as irresponsible to write an opinion that boldly staked out a rationale based on equality that no one other than perhaps Justice White would have even considered joining," Garrett, 52 Howard L. J., at 674.

[79] In state elections, even domestic corporations may be "foreign"-controlled in the sense that they are incorporated in another jurisdiction and primarily owned and operated by out-of-state residents.

[80] Regan, Corporate Speech and Civic Virtue, in Debating Democracy's Discontent 289, 302 (A. Allen & M. Regan eds. 1998) (hereinafter Regan).

[81] Nothing in this analysis turns on whether the corporation is conceptualized as a grantee of a state concession, see, e.g., Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 636, 4 L.Ed. 629 (1819) (Marshall, C. J.), a nexus of explicit and implicit contracts, see, e.g., F. Easterbrook & D. Fischel, The Economic Structure of Corporate Law 12 (1991), a mediated hierarchy of stakeholders, see, e.g., Blair & Stout, A Team Production Theory of Corporate Law, 85 Va. L. Rev. 247 (1999) (hereinafter Blair & Stout), or any other recognized model. Austin referred to the structure and the advantages of corporations as "state-conferred" in several places, 494 U.S., at 660, 665, 667, 110 S.Ct. 1391, but its antidistortion argument relied only on the basic descriptive features of corporations, as sketched above. It is not necessary to agree on a precise theory of the corporation to agree that corporations differ from natural persons in fundamental ways, and that a legislature might therefore need to regulate them differently if it is human welfare that is the object of its concern. Cf. Hansmann & Kraakman 441, n. 5.

[82] Not all corporations support BCRA § 203, of course, and not all corporations are large business entities or their tax-exempt adjuncts. Some nonprofit corporations are created for an ideological purpose. Some closely held corporations are strongly identified with a particular owner or founder. The fact that § 203, like the statute at issue in Austin, regulates some of these corporations' expenditures does not disturb the analysis above. See 494 U.S., at 661-665, 110 S.Ct. 1391. Small-business owners may speak in their own names, rather than the business', if they wish to evade § 203 altogether. Nonprofit corporations that want to make unrestricted electioneering expenditures may do so if they refuse donations from businesses and unions and permit members to disassociate without economic penalty. See MCFL, 479 U.S. 238, 264, 107 S.Ct. 616, 93 L.Ed.2d 539 (1986). Making it plain that their decision is not motivated by a concern about BCRA's coverage of nonprofits that have ideological missions but lack MCFL status, our colleagues refuse to apply the Snowe-Jeffords Amendment or the lower courts' de minimis exception to MCFL. See ante, at 891-892.

[83] Of course, no presiding person in a courtroom, legislature, classroom, polling place, or family dinner would take this hyperbole literally.

[84] Under the majority's view, the legislature is thus damned if it does and damned if it doesn't. If the legislature gives media corporations an exemption from electioneering regulations that apply to other corporations, it violates the newly minted First Amendment rule against identity-based distinctions. If the legislature does not give media corporations an exemption, it violates the First Amendment rights of the press. The only way out of this invented bind: no regulations whatsoever.

[85] I note that, among the many other regulatory possibilities it has left open, ranging from new versions of § 203 supported by additional evidence of quid pro quo corruption or its appearance to any number of tax incentive or public financing schemes, today's decision does not require that a legislature rely solely on these mechanisms to protect shareholders. Legislatures remain free in their incorporation and tax laws to condition the types of activity in which corporations may engage, including electioneering activity, on specific disclosure requirements or on prior express approval by shareholders or members.

[86] BCRA imposes similar disclosure requirements. See, e.g., 2 U.S.C. § 434(f)(2)(F) ("Every person who makes a disbursement for the direct costs of producing and airing electioneering communications in an aggregate amount in excess of $10,000 during any calendar year" must disclose "the names and addresses of all contributors who contributed an aggregate amount of $1,000 or more to the person making the disbursement").

[87] But cf. Hill v. Colorado, 530 U.S. 703, 707-710, 120 S.Ct. 2480, 147 L.Ed.2d 597 (2000) (approving a statute restricting speech "within 100 feet" of abortion clinics because it protected women seeking an abortion from "`sidewalk counseling,'" which "consists of efforts `to educate, counsel, persuade, or inform passersby about abortion and abortion alternatives by means of verbal or written speech,'" and which "sometimes" involved "strong and abusive language in face-to-face encounters").

[6] William M. Lafferty, Eric S. Wilensky, Amy L. Simmerman, Pauletta J. Brown, and Ryan D. Stottmann, of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware; of Counsel: Michael G. Rhodes, of Cooley Godward Kronish LLP, San Diego, California, Attorneys for Plaintiff.

Anne C. Foster, Catherine G. Dearlove, and Brock E. Czeschin, of Richards, Layton & Finger, P.A., Wilmington, Delaware, Attorneys for Defendants Craig Newmark and James Buckmaster.

Arthur L. Dent, Michael A. Pittenger, Berton W. Ashman, Jr., and Meghan M. Dougherty, of Potter Anderson & Corroon LLP, Wilmington, Delaware; of Counsel: H. Michael Clyde and K. McKay Worthington, of Perkins Coie Brown & Bain P.A., Phoenix, Arizona, Jason A. Yurasek and Joren S. Bass, of Perkins Coie LLP, San Francisco, California, Attorneys for Nominal Defendant craigslist, Inc.

OPINION

CHANDLER, Chancellor

On June 29, 2007, eBay launched the online classifieds site www.Kijiji.com in the United States. eBay designed Kijiji to compete with www.craigslist.org, the most widely used online classifieds site in the United States, which is owned and operated by craigslist, Inc. ("craigslist" or "the Company"). At the time of Kijiji's launch, eBay owned 28.4% of craigslist and was one of only three craigslist stockholders. The other two stockholders were Craig Newmark ("Craig") and James Buckmaster ("Jim"),^[1] who together own a majority of craigslist's shares and dominate the craigslist board. eBay purchased its stake in craigslist in August 2004 pursuant to the terms of a stockholders' agreement between Jim, Craig, craigslist, and eBay that expressly permits eBay to compete with craigslist in the online classifieds arena. Under the stockholders' agreement, when eBay chose to compete with craigslist by launching Kijiji, eBay lost certain contractual consent rights that gave eBay the right to approve or disapprove of a variety of corporate actions at craigslist. Another consequence of eBay's choice to compete with craigslist, however, was that the craigslist shares eBay owns were freed of the right of first refusal Jim and Craig had held over the shares, and the shares became freely transferable.

Notwithstanding eBay's express right to compete, Jim and Craig were not enthusiastic about eBay's foray into online classifieds. Accordingly, they asked eBay to sell its stake in craigslist, indicating a preference that eBay either sell its craigslist shares back to the Company or to a third party who would be compatible with Jim, Craig, and craigslist's unique corporate culture. When eBay refused to sell, Jim and Craig deliberated with outside counsel for six months about how to respond. Finally, on January 1, 2008, Jim and Craig, acting in their capacity as directors, responded by (1) adopting a rights plan that restricted eBay from purchasing additional craigslist shares and hampered eBay's ability to freely sell the craigslist shares it owned to third parties, (2) implementing a staggered board that made it impossible for eBay to unilaterally elect a director to the craigslist board, and (3) seeking to obtain a right of first refusal in craigslist's favor over the craigslist shares eBay owns by offering to issue one new share of craigslist stock in exchange for every five shares over which any craigslist stockholder granted a right of first refusal in craigslist's favor. As to the third measure, Jim and Craig accepted the right of first refusal [7] offer in their capacity as craigslist stockholders and received new shares; eBay, however, declined the offer, did not receive new shares, and had its ownership in craigslist diluted from 28.4% to 24.9%.

eBay filed this action challenging all three measures on April 22, 2008. eBay asserts that, in approving and implementing each measure, Jim and Craig, as directors and controlling stockholders, breached the fiduciary duties they owe to eBay as a minority stockholder of the corporation. After lengthy discovery and pre-trial motion practice, the Court held an extensive nine-day trial from December 7, 2009 to December 17, 2009. During trial, the parties examined nine live witnesses, offered seven witnesses by deposition, and presented over one thousand exhibits. The parties completed post-trial briefing on May 14, 2010. I conclude that Jim and Craig breached the fiduciary duties they owe to eBay by adopting the rights plan and by making the right of first refusal offer. I order rescission of these two measures. I also conclude that Jim and Craig did not breach the fiduciary duties they owe to eBay by implementing a staggered board. Accordingly, I leave that measure undisturbed, and craigslist may continue to operate with a staggered board.

I. FACTS

Since the time the parties completed their post-trial briefing, I have examined carefully the briefs, exhibits, deposition testimony and trial transcript. I have also reflected at length on my observations of witness testimony during trial, including my impressions regarding the credibility and demeanor of each witness. The following are my findings of the relevant facts in this dispute, based on evidence introduced at trial and my post-trial review.^[2]

A. Oil and Water

In 1995, two individuals in northern California began to develop modest ideas that would take hold in cyberspace and grow to become household names. Craig Newmark, founder of craigslist, started an email list for San Francisco events that in time has morphed into the most-used classifieds site in the United States. Pierre Omidyar, founder of eBay, Inc., started an online auction system that has grown to become one of the largest auction and shopping websites in the United States. As they grew, both companies expanded overseas and established a presence in international markets.

Now, even though both companies enjoy household-name status, craigslist and eBay are, to put it mildly, different animals. Indeed, the two companies are a study in contrasts, with different business strategies, different cultures, and different perspectives on what it means to run a successful business. It is curious these two companies ever formed a business relationship. Each, however, felt it had something to offer to and gain from the other. Thus, [8] despite all differences, eBay and craigslist formed a relationship.^[3]

The dissimilarities between these two companies drive this dispute, so I will spend a moment discussing them. I will begin with craigslist. Though a for-profit concern, craigslist largely operates its business as a community service. Nearly all classified advertisements are placed on craigslist free of charge. Moreover, craigslist does not sell advertising space on its website to third parties. Nor does craigslist advertise or otherwise market its services, craigslist's revenue stream consists solely of fees for online job postings in certain cities and apartment listings in New York City.^[4]

Despite ubiquitous name recognition, craigslist operates as a small business. It is headquartered in an old Victorian house in a residential San Francisco neighborhood. It employs approximately thirty-four employees. It is privately held and has never been owned by more than three stockholders at a time. It is not subject to the reporting requirements of federal securities laws, and its financial statements are not in the public domain. It keeps its internal business data, such as detailed site metrics, confidential.^[5]

Almost since its inception, the craigslist website has maintained the same consistent look and simple functionality. Classified categories the site offers are broad (for example, antiques, personal ads, music gigs, and legal services), but craigslist has largely kept its focus on the classifieds business. It has not forayed into ventures beyond its core competency in classifieds, craigslist's management team—consisting principally of defendants Jim, CEO and President of craigslist, and Craig, Chairman and Secretary of the craigslist board—is committed to this community-service approach to doing business. They believe this approach is the heart of craigslist's business.^[6] For most of its history, craigslist has not focused on "monetizing" its site. The relatively small amount of monetization craigslist has pursued (for select job postings and apartment listings) does not approach what many craigslist competitors would consider an optimal or even minimally acceptable level. Nevertheless, craigslist's unique business strategy continues to be successful, even if it does run counter to the strategies used by the titans of online commerce. Thus far, no competing site has been able to dislodge craigslist from its perch atop the pile of most-used online classifieds sites in the United States, craigslist's lead position is made more enigmatic by the fact that it maintains its dominant market position with small-scale physical and human capital. Perhaps the most mysterious thing about craigslist's continued success is the fact that craigslist does not expend any great effort seeking to maximize its profits or to monitor its competition or its market share.

[9] Now to eBay. Initially a venture with humble beginnings, eBay has grown to be a global enterprise. eBay is a for-profit concern that operates its business with an eye to maximizing revenues, profits, and market share. Sellers who use eBay's site pay eBay a commission on each sale. These commissions formed the initial revenue stream for eBay, and they continue to be an important source of revenue today. Over the years eBay has tapped other revenue sources, expanding its product and service offerings both internally and through acquisitions of online companies such as PayPal, Skype, Half.com, and Rent.com. eBay advertises its services and actively seeks to drive web traffic to its sites. It has a large management team and a formal management structure. It employs over 16,000 people at multiple locations around the world. It actively monitors its competitive market position. Its shares trade on the NASDAQ. It maintains a constant focus on monetization, turning online products and services into revenue streams. In terms of business objectives, eBay is vastly different from craigslist; eBay focuses on generating income from each of the products and services it offers rather than from only a small subset of services. It might be said that "eBay" is a moniker for monetization, and that "craigslist" is anything but.

B. The Knowlton Crisis

Consistent with its ongoing interest in exploring new profit opportunities, eBay officially ventured into the online classifieds business in January 2004 when it acquired mobile.de, a leading classifieds site in Germany that specializes in selling automobiles. Concurrent with its purchase of mobile.de, eBay embarked on a detailed review of other classifieds opportunities around the world. Around the same time, craigslist was wading through an internal crisis with a stockholder named Phillip Knowlton that would ultimately lead eBay further into the classifieds arena by way of an investment in craigslist.

Knowlton was one of only three craigslist stockholders. He also sat on the craigslist board of directors. The other two stockholders at the time were Jim and Craig, who were also directors. In 2002, Knowlton began demanding that craigslist seek increased profits by monetizing more of its website. Jim and Craig resisted this idea for a considerable time. Eventually, Knowlton began to use his shares as leverage to effect change at craigslist. For example, in July 2003, Knowlton had his attorney send a letter to Jim and Craig outlining a number of "business alternatives" Knowlton might pursue if Jim and Craig did not follow his advice about monetization, including an alternative Knowlton characterized as "[n]on-[f]riendly-[p]ersuasion," which involved selling his minority interest to a competitor.^[7] Jim, Craig, and craigslist's outside counsel viewed this as a threat to "convey the shares to parties that would have as [their] goal the destruction of [craigslist]."^[8]

I will not take the time to elaborate on the back and forth that took place between Knowlton, Jim, and Craig during this dispute over monetization. Suffice it to say that by late 2003 Knowlton had begun actively shopping his shares. When that shopping began, Jim felt it was his duty as CEO to meet with potential suitors and share information about craigslist. When [10] meeting with suitors, Jim typically required them to sign nondisclosure agreements that would protect craigslist's financial and other nonpublic information. Jim met with a number of suitors, including Google, Warburg Pincus, Yahoo!, and salon.com. The theme of the meetings was that Jim and Craig were not interested in selling their own shares but that they were both willing to accommodate a sale of Knowlton's shares.

In early 2004, eBay learned that Knowlton's shares were in play and quickly approached Knowlton expressing interest. After negotiations, eBay tentatively inked a deal to acquire Knowlton's shares for $15 million, signing a letter of intent to that effect on May 7, 2004. Wanting to "go through the front door" with its investment in craigslist, eBay also involved Jim and Craig in negotiations over its purchase of Knowlton's shares.^[9] Thus, after the letter of intent was signed, threeway negotiations ensued, with all parties represented by counsel. During these negotiations eBay carried on a sort of shuttle diplomacy between Knowlton, on the one hand, and Jim and Craig, on the other, and also negotiated its own position.

eBay's hope at this juncture was that the "Knowlton Crisis" might provide an opportunity to acquire not only Knowlton's shares but also Jim and Craig's shares, thereby minting craigslist the newest member of the eBay family of companies. eBay executive Garrett Price was a principle negotiator for eBay. During negotiations, he "repeatedly and incessantly" explained that eBay was interested in acquiring a larger stake than Knowlton had to offer.^[10] It soon became clear, however, that Jim and Craig were not interested in relinquishing any of their shares. eBay's push for a greater equity stake eventually resulted in Jim and Craig breaking off negotiations. When that happened, eBay asked craigslist representatives to meet with Meg Whitman, eBay's CEO. They did so on July 22, 2004. In that meeting Whitman assured Jim and Craig that eBay would be content with a minority interest in craigslist.

At an early stage of the negotiations, Jim and Craig learned that Knowlton was to receive $15 million for his shares. Upon receiving this revelation, Craig explained in an email to craigslist's outside counsel that he was "definitely not interested in seeing the dumb guy [Knowlton] get that figure."^[11] As negotiations progressed, eBay came to believe that Jim and Craig wanted to be paid whatever Knowlton was paid before they would agree to the eBay investment.^[12] As is common practice before making a minority investment in a closely held corporation, eBay was negotiating for certain rights to protect its investment. Brian Levey, eBay's in-house counsel, expressed in an email his understanding that Jim and Craig wanted to "receive some form of compensation for agreeing to [the] investor protections" eBay was negotiating for itself, "whether from [Knowlton's] proceeds on his stock sale to [eBay] or from [eBay] directly."^[13] eBay believed that Jim and Craig viewed a straight payment to Knowlton for his shares as giving Knowlton "100% of the [11] financial benefits of any stock sale, while [Jim and Craig] are giving up important investor rights without corresponding compensation."^[14]

C. The eBay Investment

After three months of negotiations, eBay ultimately agreed to pay $32 million for Knowlton's shares. Knowlton received $16 million of that amount, and Jim and Craig each received $8 million.^[15] eBay completed the purchase of Knowlton's shares on August 10, 2004. Since then, craigslist has been owned by Craig, Jim, and eBay. After eBay's investment, Craig owned 42.6% of craigslist, Jim owned 29% of craigslist, and eBay owned 28.4% of craigslist. The terms of eBay's investment in craigslist were set out in a stock purchase agreement (the "SPA") and a stockholders' agreement (the "Shareholders' Agreement"), both dated August 9, 2004. Jim and Craig also executed a voting agreement (the "Jim-Craig Voting Agreement") the same day. These agreements play a role in this dispute.^[16] Accordingly, I will set forth the salient provisions of each, beginning with the SPA.

There are five parties to the SPA: eBay, Inc.; eBay Holdings, Inc.; 1010 Cole Street, Inc.; Jim; and Craig. eBay Holdings is a wholly owned subsidiary of eBay, Inc., formed for the specific purpose of acquiring and holding Knowlton's shares.^[17] eBay, Inc. and eBay Holdings are both Delaware corporations. 1010 Cole Street was a California corporation and the predecessor to craigslist, a Delaware corporation. Section 6.18 of the SPA required eBay to assist as needed in changing 1010 Cole Street's corporate domicile from California to Delaware, including approving a new charter for craigslist. A proviso of § 6.18 stated that the "reincorporation shall not result in a material change in [eBay's] rights as a shareholder of [craigslist]."

craigslist's new charter provided for a three-person board of directors to be elected under a cumulative voting regime. The mechanics of cumulative voting ensured that eBay could use its 28.4% stake in craigslist to unilaterally elect one of the three members to the craigslist board.

I will now explain the Shareholders' Agreement. The same five parties that signed the SPA signed the Shareholders' Agreement, which contains the lion's share of contractual provisions the parties focus on in this dispute. The Shareholders' Agreement sets forth (1) eBay's confidentiality obligations as a craigslist stockholder; (2) eBay's right to consent to certain Company transactions; (3) numerous transfer restrictions on the craigslist shares owned by Craig, Jim, and eBay; (4) eBay's right to compete with craigslist [12] subject to certain consequences; and, most importantly, (5) the consequences (i.e., changes in the rights and obligations of the parties) that will ensue should eBay decide to compete with craigslist. Each of these provisions deserves a little unpacking.

Section 4.3 of the Shareholders' Agreement requires eBay to treat confidential craigslist information with the same degree of care eBay affords its own confidential information. Section 4.3 also limits how eBay may use craigslist's confidential information. Specifically, eBay Holdings (the shell entity that acquired craigslist's shares) is permitted to share confidential information with its subsidiaries, outside advisors, or eBay, Inc. "for the purpose of evaluating [eBay Holdings'] investment in [craigslist]."^[18] Before sharing confidential information, eBay Holdings must obtain a written agreement from any subsidiary, advisor, or eBay, Inc., that they will abide by the confidentiality obligations in § 4.3.

Section 4.6(a) of the Shareholders' Agreement gives eBay the right to consent to certain transactions craigslist might enter into. The important consent rights provided eBay by § 4.6(a) include the right to consent to (1) any amendment to the craigslist charter "that adversely affects [eBay],"^[19] (2) any increase or decrease in the authorized number of shares of craigslist stock,^[20] (3) the adoption of any agreement between craigslist and its officers or directors providing for the issuance of stock,^[21] and (4) declarations of dividends.^[22] Effectively, Section 4.6(a) gives eBay a veto over a host of possible transactions even though its minority interest would not otherwise have permitted eBay to prevent actions that required a stockholder vote (e.g., a proposed amendment to the craigslist charter) or to influence actions typically left to the discretion of the board (e.g., dividend declarations).

Section 2.1 of the Shareholders' Agreement requires eBay, Jim, and Craig to comply with certain transfer restrictions in the Shareholders' Agreement when transferring their craigslist shares. The transfer restrictions are found in § 5.1 (preemptive rights) and in §§ 6.2 and 7.2 (rights of first refusal) of the Shareholders' Agreement. The preemptive rights give eBay, Jim, and Craig the right to purchase enough shares in a new issuance of craigslist stock to maintain their respective ownership percentages. The rights of first refusal give eBay, Jim, and Craig first dibs on the purchase of each other's shares should any one of them wish to sell to a third party, provided they match the purchase price and other terms offered by the third party.

In negotiations, eBay strove to maintain full leeway to compete with craigslist in online classifieds even after acquiring a minority interest. eBay believed it was critical to preserve the right to compete, so much so that it likely would not have invested in craigslist without this right.^[23] [13] Ultimately, eBay did not obtain an entirely unfettered ability to compete; the Shareholders' Agreement does expressly and unequivocally permit eBay to compete but guarantees certain consequences should eBay do so.^[24] Interestingly, what craigslist considers "competition" is quite narrow. The Shareholders' Agreement defines "Competitive Activity" as "the business of providing an Internet posting board containing specific categories for the listing by employers and recruiters of available jobs and posting of resumes by job seekers anywhere in the United States."^[25] Section 8.3(e) provides that if eBay launches an online job posting site in the United States, craigslist may issue a notice to eBay that eBay has engaged in Competitive Activity. If eBay fails to cure within ninety days, eBay loses (1) its consent rights, (2) its preemptive rights over the issuance of new shares, and (3) its rights of first refusal over Jim and Craig's shares. Concomitantly, however, eBay is freed of the rights of first refusal Jim and Craig hold over eBay's shares in craigslist, making those shares freely transferable. eBay's confidentiality obligations remain firmly in place. The Shareholders' Agreement states that the change in rights and obligations specified by § 8.3 "shall be the sole remedy for any action brought by [craigslist] against [eBay] . . . that may arise from or as a result of [eBay] . . . engaging in Competitive Activity[.]"^[26]

Finally, I discuss the Jim-Craig Voting Agreement. The Jim-Craig Voting Agreement is an agreement between Jim and Craig, in their capacities as stockholders, that spells out how Jim and Craig will vote their shares in director elections. Specifically, the Jim-Craig Voting Agreement requires Jim and Craig to vote their shares "so as to elect one [ ] representative designated by Jim . . . and one [ ] representative designated by Craig, as members of [craigslist's] Board of Directors[.]"^[27] Given that craigslist was to have a three-director board after eBay's investment, the Jim-Craig Voting Agreement ensured that two out of the three director positions would be filled by Jim's and Craig's designees, who have always been Jim and Craig. The third position would be filled by eBay—not by contractual right, but by the laws of mathematics under a cumulative voting system with a non-staggered board.^[28]

[14] D. eBay as a craigslist Stockholder

During the period leading up to eBay's investment, Omidyar met with Craig, founder-to-founder, regarding eBay's potential investment in craigslist. By that time, Omidyar had not been involved in the day-to-day management of eBay for many years, but he remained Chairman of the eBay board of directors. The meeting was largely a relationship-building endeavor. Omidyar came away with the impression that Craig was "a very, very bright guy,"^[29] even if one with "a rather unique user interface."^[30] The rapport between Omidyar and Craig ultimately led eBay management to encourage Omidyar to fill the third seat on craigslist's board once eBay had made its investment. After thinking it over, Omidyar decided to join the board, viewing his role as "facilitating the relationship. . . between craigslist and eBay, help[ing] craigslist see the value of having eBay as a partner, and ultimately [getting] that relationship . . . closer and closer so that [eBay] would end up in an acquisition[.]"^[31] Omidyar understood that the "long-term plan" was for eBay to acquire craigslist.^[32] Not willing to place all their hopes in a single plan, however, eBay executives calculated that the eBay-craigslist relationship would at least provide them with an opportunity to learn the "secret sauce" of craigslist's success, presumably so that eBay could spread that sauce all over its own competing classifieds site.^[33]

The first craigslist board meeting Omidyar attended was on February 1, 2005. By then, eBay had established its own footholds in the online classifieds arena internationally, independent of craigslist. For example, eBay had purchased mobile.de in Germany and Marktplaats in the Netherlands and was negotiating the acquisition of Gumtree in the United Kingdom. eBay was also in the latter stages of developing P168, a software platform it hoped would form the basis of all of its international classifieds sites. Price prepared a presentation for the February 1 craigslist board meeting that he forwarded to Jim, Craig, and Omidyar. The presentation outlined goals for the eBay-craigslist relationship. The first page of the presentation unabashedly proclaimed: "eBay has successfully followed a strategy of working extremely close with affiliates on their path to becoming wholly-owned subsidiaries of eBay, Inc."^[34] The balance of the presentation contained information on the potential for an international eBay-craigslist partnership, including such lofty statements as "craigslist and eBay should act as members of one family to leverage their respective strengths and better serve their combined communities"^[35] and "[i]t is critical to the craigslist-eBay relationship that eBay DNA becomes a part of craigslist and vice-versa."^[36] A briefing memorandum given to Omidyar and Whitman^[37] specified that eBay's goal was to make Jim and Craig [15] understand that eBay felt a sense of urgency to capitalize on international classifieds opportunities and that craigslist and eBay needed to "get on the same page ASAP."^[38] Perhaps because eBay recognized that its presentation would receive a cool response from Jim and Craig—particularly the part about craigslist becoming a wholly owned eBay subsidiary—the briefing memorandum cautioned Whitman to use discretion "regarding [any] attempt to obtain clarity on path to control."^[39]

Omidyar's expectation going into the February 1, 2005 board meeting was that he would be treated as a potential partner, one who could impart wisdom from his own experiences with eBay to help craigslist improve its domestic business and sally forth (with eBay) into the new world of international classifieds. To that end, Omidyar came to the meeting offering to deploy eBay's resources to help craigslist improve trust and safety issues on the craigslist site and find new office space for craigslist, among other things. Omidyar also raised the possibility of an international eBay-craigslist partnership. Jim and Craig's responses to Omidyar's suggestions curbed whatever enthusiasm Omidyar had going into the meeting. Omidyar came away feeling that Jim and Craig "rebuffed" his suggestions and that the eBay-craigslist relationship was not as close as he had envisioned it would be.^[40] All in all, the February 1 board meeting was not a blazing start to the eBay-craigslist relationship.

Perplexed at having been "treated more as an outsider than a potential partner," Omidyar looked to Price to determine "what the heck [was] going on."^[41] Price then sent Jim an email ahead of the next craigslist board meeting scheduled for March 28, 2005, requesting that Jim and Craig provide a "relationship update" at the meeting. Price explained that Omidyar was interested in Jim and Craig's "motivations for taking the investment from eBay, what [they] expected to gain from it, and how [they] would like to see it work going forward."^[42] At the March 28 meeting, Jim and Craig provided the board with a summary of their view of the eBay-craigslist relationship. Among Jim and Craig's expectations were the following: (1) eBay would show appreciation for craigslist's unique mission and philosophy, (2) eBay would be content with a minority equity stake and a three-year "getting to know you" period,^[43] and (3) craigslist was to be eBay's primary interest in online classifieds.^[44] After this second meeting, Omidyar felt that the expectations of eBay were severely disconnected from the expectations of Jim and Craig. He also believed his advice would not be well-received by Jim and Craig and, therefore, he eventually resigned as a craigslist director in November 2005.

The February 1 and March 28, 2005 craigslist board meetings reflect that the eBay-craigslist relationship was marred by inconsistent expectations from the beginning. eBay wanted to acquire craigslist, [16] and many eBay executives believed an acquisition was inevitable. Along the path to control, eBay hoped to combine the resources of the two companies to capitalize on international classifieds opportunities. During the first year of eBay's investment, eBay proposed at least three separate international joint ventures to craigslist, none of which materialized. eBay had also determined that if craigslist would not accompany it into the international classifieds arena, eBay was willing to delve into an international online classifieds business alone, hopefully using the "secret sauce" it learned from craigslist. Hence, even while eBay was proposing international partnerships to craigslist, eBay was independently building its own international portfolio of online classifieds sites.

Because Jim and Craig's expectations of the eBay-craigslist relationship diverged so sharply from eBay's, eBay's efforts to influence the direction of craigslist and to increase its craigslist holdings bore little fruit. Jim and Craig were typically slow to respond (or were entirely unresponsive) to eBay's suggestions. They did not implement most of eBay's ideas domestically and ultimately declined to partner with eBay on an international venture.

The stunted development of the eBay-craigslist relationship appears to have been driven in part by the oil-and-water nature of the two companies and in part by an antitrust investigation launched by the New York Attorney General's office (the "NYAG") shortly after eBay's investment in craigslist. As to the disparate nature of the two companies, eBay's goal was always to capitalize on the "tremendous untapped monetization potential"^[45] of craigslist, but craigslist's goal was to grow its business by continuing along its (primarily) free-listings trajectory. Jim and Craig ultimately controlled the direction craigslist would take because they collectively owned the controlling block of craigslist shares and occupied two of the three board seats. eBay's ability to affirmatively influence craigslist was limited to the persuasion that might be achieved by the one director eBay was able to elect to the board.^[46] By and large, Jim and Craig simply did not wish to go along with eBay's plans for craigslist, and they ignored most of eBay's overtures and suggestions.

The NYAG investigation also caused the eBay-craigslist relationship to stagnate. Apparently, the NYAG had antitrust concerns regarding § 8.3 of the Shareholders' Agreement, the provision dealing with eBay's right to compete with craigslist. During the investigation, eBay's outside counsel wrote a letter to the NYAG explaining that the Shareholders' Agreement was not an unlawful non-compete agreement implicating anti-trust concerns because it was not a non-compete agreement at all. The letter explained that if eBay engaged in Competitive Activity, "it [would] lose various shareholder rights, such as a board seat, approval of certain transactions, and right of first refusal on future stock issuances."^[47] The letter further explained that the loss of these rights was not intended to dissuade eBay from competing but rather to protect craigslist's "competitively sensitive information and its business in the event eBay becomes a competitor [17] . . . ."^[48] Notwithstanding these reassurances, the NYAG continued its investigation and issued a subpoena to craigslist seeking company records. When craigslist received the subpoena, Jim and Craig decided not to pursue a partnership with eBay, fearing it would create additional antitrust fodder for the NYAG.

E. Kijiji and craigslist's Nonpublic Information

While eBay was attempting to form an international venture with craigslist, it was also forging ahead in foreign territories on its own. eBay had already begun acquiring international classifieds sites. In March 2005, shortly after Omidyar's first attendance at a craigslist board meeting, eBay deployed P168 internationally, naming the site Kijiji. Although it is different in appearance than craigslist's site, Kijiji offered a similar free classifieds service with a broad selection of categories. Following Kijiji's unveiling, eBay expanded Kijiji to service countries throughout Europe and Asia and even launched a site in Canada.

After Omidyar resigned from the craigslist board, eBay appointed Joshua Silverman to replace him. Silverman had been responsible for leading the launch of eBay's European Classifieds Businesses, including Kijiji. He had hired the founding Kijiji teams and helped develop marketing plans and budgets for Kijiji.

Evidence introduced at trial suggests that the development of P168—as well as Kijiji, the site it spawned—was aided by nonpublic craigslist information that eBay had access to by virtue of eBay's minority investment and board seat. Evidence also suggests that, after launching Kijiji, eBay used craigslist's nonpublic information to expand Kijiji's reach and that eBay passed craigslist's nonpublic information around internally in a liberal fashion. For example, in October 2004, shortly after eBay purchased Knowlton's shares, Price asked Jim for access to nonpublic craigslist site metrics. This information was sent to eBay employee Erik Hansen, who had Price request it because he felt it would "be very helpful to plan our [i.e., P168's] capacity needs."^[49] Around this time Silverman also used the craigslist due diligence data eBay had obtained before purchasing Knowlton's shares to take a "stab at initial projections and success metrics" for eBay's international classifieds business.^[50] Silverman then shared those projections with Price. In June 2006, after Silverman became a craigslist director, he instructed eBay's accounting department to forward craigslist's nonpublic financial statements to Randy Ching, the eBay employee with global responsibility for Kijiji.^[51] Ching continued to receive craigslist financials periodically until Jacob Aqraou succeeded him, at which point Ching forwarded craigslist financials to Aqraou, the eBay executive who would be responsible [18] for Kijiji's launch in the United States. On March 12, 2007, Levey forwarded craigslist financials from 2004 to 2007 to Aqraou and his Kijiji launch team. Levey understood that this information would be used to determine whether it would be profitable to launch Kijiji in the United States.^[52] Two days later, on March 14, 2007, Silverman and Levey attended a craigslist board meeting and received hard copies of craigslist's 2007 budget. After this meeting, Levey returned to his office and forwarded the budget information to eBay employee Pat Kolek saying, "Here are the numbers for [c]raigslist's 2007 financial plan. Look at all that cash! Please pass along to whomever on a need-to-know basis. Thx!"^[53] In April 2007, eBay employee Martin Herbst used craigslist's 2007 budget in an "analysis on CL revenue" to determine "how much they make in AdSense in the cities that they charge listing fees . . . [to] maybe giv[e] [eBay] a better sense of what Kijiji's potential could be if [it] got to similar penetration rates in [its] markets. . . ."^[54] Neither Jim nor Craig knew that craigslist's nonpublic site metrics or financial information had been forwarded to eBay employees working on P168 or Kijiji.

Apart from the use of nonpublic craigslist information, evidence introduced at trial also suggests that eBay employed a practice known as "scraping" to obtain data from craigslist's website. "Scraping" in the Internet context refers to the (typically automated) process of remotely extracting data from a third-party website. On several occasions before and after eBay purchased Knowlton's shares, eBay used a third-party service to scrape craigslist's site.^[55] Jim and Craig were not aware this had occurred until they conducted discovery in this trial.

F. The United States Launch of Kijiji and the Notice of Competitive Activity

On June 19, 2007, Silverman called Jim and informed him that eBay planned to launch Kijiji in the United States on June 29, 2007. Silverman worked from a script on the call. The script outlined numerous talking points Silverman wanted to get across to Jim. Included in these points was a reminder that the Shareholders' Agreement permitted eBay to launch a competing site domestically. The United States launch of Kijiji qualified as Competitive Activity under the Shareholders' Agreement because it provided a job listings [19] section. Silverman's script did not contain an express acknowledgment that eBay could lose many of its rights under the Shareholders' Agreement by launching Kijiji in the United States. Silverman appears to have been aware of this possibility, however, because he told Jim that Levey would soon contact craigslist's outside counsel to discuss modifications to the Shareholders' Agreement in light of the United States launch of Kijiji.

Three days later, on June 22, 2007, Levey emailed a term sheet to craigslist's outside counsel proposing modifications to terms in the Shareholders' Agreement. Among other things, eBay sought to modify § 4.6 so that, although eBay would still lose its consent rights, craigslist would be required to give eBay "15 calendar days advance notice" before taking any § 4.6 actions, including an "adverse charter amendment" or "issuance of [craigslist]. . . stock."^[56] In exchange, Levey said eBay would be willing to consent to a charter amendment that would eliminate cumulative voting, thereby making it impossible for eBay to elect a director to the craigslist board. Levey believed eBay had a right to a board seat and that eBay would retain that right after launching Kijiji in the United States. No one at craigslist responded to Levey's invitation to renegotiate the Shareholders' Agreement.

On June 29, 2007, Kijiji went live in two-hundred and twenty cities in all fifty states. The same day, craigslist sent eBay a notice of Competitive Activity per § 8.3(e) of the Shareholders' Agreement. The notice gave eBay ninety days to cure before eBay would lose (1) its consent rights, (2) its preemptive rights over the issuance of new shares, and (3) its rights of first refusal over Jim and Craig's shares. All was not dreary for eBay if it failed or declined to cure, however, because the craigslist shares eBay owned would become freely transferable. On July 6, 2007, Silverman resigned from the craigslist board, and Levey informed craigslist that eBay employee Tom Jeon would replace Silverman. Levey asked craigslist to send copies of the board resolutions appointing Jeon as a director. On the same day, craigslist's outside counsel asked Jeon for an introductory biography, which Jeon provided, but nobody communicated with Jeon thereafter. craigslist never seated Jeon; nor did it send confirmation to Levey that Jeon would be seated.

G. "Our Thoughts"

On July 12, 2007, Jim sent an email to Whitman captioned "Our Thoughts," informing Whitman that craigslist wished to "gracefully unwind the relationship" between the two companies because craigslist was no longer comfortable with eBay's shareholding and board seat.^[57] Jim explained that craigslist had received negative feedback from its users regarding the continuing eBay-craigslist relationship in the wake of Kijiji's launch. Jim further explained that craigslist did not think in terms of competition, but it was clear that eBay did, which made craigslist uncomfortable because eBay was a large stockholder privy to craigslist financials and other nonpublic information. Jim hoped craigslist could negotiate a repurchase of its shares from eBay or find a new home for the shares with some other investor.

After four days passed without a response from Whitman, craigslist's outside counsel—Ed Wes—telephoned Levey to [20] see if Whitman had received Jim's email. After the discussion with Levey, Wes sent an email to Jim informing him of the conversation. According to the email, when Wes asked Levey how Whitman felt about Jim's proposal that eBay divest its shares, Levey responded with his own question: How would Jim and Craig react if Whitman told them to go "pound sand?"^[58]

In the meantime, Jim had started to brainstorm with craigslist's outside counsel about what craigslist should do if eBay declined to sell its craigslist shares. The ideas batted around included issuing additional craigslist shares to a third party sufficient in number to dilute eBay's ownership to less than twenty-five percent, implementing a poison pill, and implementing a staggered board. In exploring these measures, Jim was trying to identify—with the help of counsel—capital structure or corporate governance changes that, if implemented, would make it impossible for eBay to place a director on the board and would limit eBay's ability to purchase additional craigslist shares. Of course, none of the proposed measures could be implemented before the ninety-day cure period had run, and eBay lost its consent rights. But presumably by then craigslist would know if eBay was going to keep its shares while operating a competing business.

Whitman finally responded to Jim's "Our Thoughts" email on July 23, 2007 with the following:

[W]e are so happy with our relationship with craigslist, that we could [not] imagine. . . parting with our shareholding in craigslist, Inc. under any foreseeable circumstances. Quite to the contrary, we would welcome the opportunity to acquire the remainder of craigslist, Inc. we do not already own whenever you and Craig feel it would be appropriate.

. . . Given the foregoing long held and oft communicated sentiment, we are quite surprised that you would suggest any course of action to the contrary, especially given your recent comments to the Times:

"Many companies offer classifieds, but since we don't concern ourselves with considerations such as market share or revenue maximization, we don't think of them as competition."

"Our focus is providing what users want. If other companies are better positioned, then [users] should migrate over to that."

In keeping with the emphasis [eBay] places on integrity, we have already taken even further steps to completely firewall off the operations relating to our Kijiji offering in the U.S. from the corporate management of our investment in craigslist Inc. Hence, more than ever, we feel we should, as we have unfortunately been unable to do to date, together leverage the myriad assets in the global eBay Inc. family to provide the craigslist community with the best possible user experience.^[59]

Jim and Craig interpreted this as Whitman's way of telling them to go "pound sand." They also began to suspect, based on Whitman's reference to an internal firewall, that nonpublic craigslist data had been used to develop and expand Kijiji. From that point, Jim and Craig were determined to take measures to keep eBay out of the craigslist boardroom and to limit eBay's ability to purchase additional craigslist shares.

[21] H. Jim and Craig Develop the 2008 Board Actions

For the next six months, Jim and Craig consulted with outside counsel on ways to accomplish their objectives. This process ultimately resulted in the execution of three transactions that gave rise to this dispute: (1) implementation of a staggered board through amendments to the craigslist charter and bylaws (the "Staggered Board Amendments"); (2) approval of a stockholder rights plan (the "Rights Plan"); and (3) an offer to issue one new share of craigslist stock in exchange for every five shares on which a craigslist stockholder granted a right of first refusal in favor of craigslist (the "ROFR/Dilutive Issuance") (collectively these three transactions are referred to as the "2008 Board Actions" or "Actions"). Before discussing the substance of the 2008 Board Actions, I will give a brief description of the process that Jim and Craig employed in developing and approving the Actions. I also will discuss incidents that increased the strain on the eBay-craigslist relationship during the period Jim and Craig crafted the Actions.

Development of the 2008 Board Actions spanned a period of six months. During that time, Jim and Craig met and conferred with counsel on a number of occasions. Counsel conducted legal research into the possibilities that Jim had begun to explore in July 2007. Counsel also introduced new ideas into the general framework. Jim and Craig considered yet ultimately rejected some of these ideas. Counsel also prepared and distributed to Jim and Craig at least four formal memoranda analyzing the legality of proposed aspects of the Actions. Jim and Craig reviewed the memoranda and asked questions. As Jim, Craig, and their counsel reached consensus on the substance of the Actions, counsel prepared drafts of the legal documents necessary to effectuate the Actions. Jim and Craig reviewed these drafts, asked questions, and suggested revisions before giving final approval. In short, the process for approving the 2008 Board Actions was deliberative, and both Jim and Craig were involved in it.^[60] eBay was not involved in the process, and Jim and Craig took pains to ensure that eBay did not get wind of the 2008 Board Actions before their implementation.

As Jim and Craig mulled over the 2008 Board Actions, they received emails from concerned craigslist users who had run into what those users perceived to be a Kijiji subterfuge online. These users noted that when they typed "craigslist" or similar search terms into Google's search engine, their searches yielded Google Ad-Words results that contained links to what appeared to be craigslist.org or craigslist.com. Users who actually clicked on these links, however, were taken to Kijiji.com.^[61] After confirming the accuracy of [22] these reports, Jim sent Whitman an email demanding that the ads be removed. No one ever responded to Jim.^[62]

After the Google AdWords incident, Jim and Craig forged ahead with crafting the 2008 Board Actions. Wes informed Jim that there was a possibility eBay would file suit once Jim and Craig implemented the Actions. On October 31, 2007, Jim made notes to himself about the implications of an eBay-versus-craigslist suit, observing that it would set up a "david-vs-goliath battle which could be good PR."^[63] Thus, Jim contemplated that the 2008 Board Actions could lead to a legal battle with eBay that would attract attention and speculated that such a battle, undesirable as it might be, could nevertheless cast craigslist in a positive light.

By the end of December 2007, Jim and Craig had reached a final decision on the particulars of the 2008 Board Actions. Jim, Craig, and their counsel designed a sequence for approving and implementing the Actions at the beginning of 2008, planning to notify eBay after the Actions were a fait accompli. In accordance with this plan, on January 1, 2008, Jim and Craig executed a unanimous written consent as craigslist directors and a written consent as majority stockholders to approve the Actions. On January 2, they implemented the Actions. On January 3, they informed eBay.

I. The Practical Effect of the 2008 Board Actions

Jim and Craig implemented three separate Actions on January 2:(1) the Staggered Board Amendments, (2) the Rights Plan, and (3) the ROFR/Dilutive Issuance. I will explore the substance of each Action to illustrate the effect the 2008 Board Actions had on eBay as a minority stockholder and to illustrate how the Actions altered the eBay-craigslist relationship. I begin with the Staggered Board Amendments.

1. The Staggered Board Amendments

On January 2, 2008, Jim and Craig restated the craigslist charter and bylaws in their entirety. For present purposes, the important changes in these documents were the addition of provisions implementing a staggered board.^[64] The Staggered Board Amendments created three classes of directors, one director per class, with each class serving three-year terms. Each year one director is up for election. The restated charter appointed Craig as the Class I director and Jim as the Class II director, and left Class III open, to be filled at a later date. Craig was to serve until the 2008 stockholders' meeting, and [23] Jim was to serve until the 2009 stockholders' meeting. Whoever was appointed to the Class III director position would serve until the 2010 stockholders' meeting.^[65] To date, the Class III director position has not been filled.

The Staggered Board Amendments did not eliminate cumulative voting. Article IX of the restated charter specifically provides for cumulative voting. Practically speaking, however, the cumulative voting provisions are not meaningful if only one director position is up for election in any given year. There must be at least two board seats in play in order for a stockholder to cumulate votes and direct those votes towards a single director candidate. Because eBay's ability to unilaterally elect a director depended on a cumulative voting regime where all three positions were up for grabs in a given year, the staggered board cut off eBay's unilateral ability to place a director on the craigslist board.

2. The Rights Plan

The Rights Plan implemented on January 2, 2008 contains some standard terms frequently seen in rights plans and some not-so-standard terms. The Rights Plan pays a dividend to craigslist stockholders of one right per share of craigslist stock. Each right allows its holder to purchase two shares of craigslist stock at $0.00005 per share if the rights are triggered. There are two triggers. The first trigger involves acquisitions by Jim, Craig, or eBay. If any of these three becomes the "Beneficial Owner" of 0.01% of additional craigslist stock, the rights are triggered. The second trigger involves anyone other than Jim, Craig, or eBay. Should any such person become the "Beneficial Owner" of 15% or more of craigslist's outstanding shares, the rights are triggered. "Beneficial Ownership" is defined broadly. Specifically, a stockholder is deemed to "beneficially own" not only the shares he or she actually owns, but also shares owned by the stockholder's affiliates, associates, or persons with whom the stockholder has "any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting. . . or disposing of any voting securities of [craigslist]. . . ."^[66]

Certain transfers do not trigger the rights. Specifically, the rights are not triggered if Jim or Craig transfers shares to his heirs by will or intestate succession, to a trust established for estate planning purposes, or to a charitable organization. eBay Holdings may transfer its shares to eBay, Inc. or to any successor in interest by merger (provided the successor remains a wholly owned direct or indirect subsidiary of eBay, Inc.) without triggering the rights.

The Rights Plan gives the craigslist board four options if the rights are triggered: (1) the board can redeem the rights at $0.00001 per right within ten days, and the rights will not become exercisable; (2) the board may amend the Rights Plan within ten days to make the Rights Plan [24] inapplicable to the transaction that triggered the rights; (3) the board may leave the choice of whether to exercise the rights in the hands of the individual stockholders; or (4) within ten days of the rights being triggered, the board may unilaterally exchange the rights for shares of stock, at a rate of two shares of common stock per right.

3. The ROFR/Dilutive Issuance

Under the ROFR/Dilutive Issuance, Jim, Craig, and craigslist executed a right of first refusal agreement that provided that Jim and Craig would receive one newly issued craigslist share for every five shares over which they granted a right of first refusal in craigslist's favor. By signing the right of first refusal agreement, Jim and Craig gave craigslist a right of first refusal over their shares in the event a third party wished to purchase their shares. Jim and Craig approved the right of first refusal agreement in their capacity as directors, and Jim signed the agreement on craigslist's behalf in his capacity as CEO. Jim and Craig then signed the right of first refusal agreement in their personal capacities as stockholders. The right of first refusal agreement gives eBay three years to execute a joinder to the right of first refusal agreement.^[67] If eBay does this, eBay will receive the same deal as Jim and Craig, namely a newly issued craigslist share for every five shares eBay encumbers with a right of first refusal in craigslist's favor.

Under the right of first refusal agreement, if craigslist receives the opportunity to exercise its right of first refusal and decides not to, the third-party purchaser of the shares, as a condition of the sale, must execute a joinder agreement leaving craigslist's right of first refusal in place.^[68] Thus, craigslist has a perpetual right of first refusal over Jim and Craig's shares, a right that will only be extinguished if craigslist purchases the shares. The right survives even if Jim or Craig transfers his shares to a third party that outbids craigslist. Should eBay decide to grant craigslist a right of first refusal, craigslist would have the same perpetual rights over eBay's craigslist shares as it does over Jim's and Craig's shares.

Certain share transfers are exempt from craigslist's right of first refusal. Specifically, transfers by Jim or Craig to their heirs by will or intestate succession, to a trust established for estate planning purposes, or to a charitable organization do not invoke craigslist's right of first refusal. Such transferees of Jim or Craig, however, must execute a joinder leaving craigslist's right of first refusal intact. Transfers by eBay Holdings to eBay, Inc. or to any successor in interest by merger (provided the successor remains a wholly owned direct or indirect subsidiary of eBay, Inc.) do not invoke craigslist's right of first refusal. Such transferees of eBay also must execute a joinder.

Importantly, when the right of first refusal agreement was executed, eBay's shares were freely transferable. Jim and Craig's shares, on the other hand, already were encumbered by the right of first refusal each held over the other's shares under § 7.2 of the Shareholders' Agreement. Thus, in granting craigslist a right of first refusal, Jim and Craig were placing an encumbrance on shares that were already encumbered. If eBay were to grant a right of first refusal, however, it would be encumbering freely tradeable shares.

[25] Because eBay chose not to grant a right of first refusal in craigslist's favor, eBay did not receive additional craigslist shares. The effect of the ROFR/Dilutive Issuance was to dilute eBay's ownership in craigslist from 28.4% to 24.9%. Concomitantly, Jim's ownership increased from 29% to 30.4%, and Craig's ownership increased from 42.6% to 44.7%. I will discuss the economic effects of this dilution in my analysis of the legitimacy of the ROFR/Dilutive Issuance below.

The ROFR/Dilutive Issuance was another nail in the coffin of eBay's ability unilaterally to elect a director to the craigslist board. Under a cumulative voting regime with no staggered board and three board seats up for election, the laws of mathematics require a minority stockholder to own at least 25% of the company for the minority stockholder's cumulated votes to be sufficient to elect one of the three directors. The ROFR/Dilutive Issuance diluted eBay to 24.9%, which made it impossible for eBay to unilaterally elect a director even if Jim and Craig had not approved the Staggered Board Amendments to implement a staggered board. Evidence introduced at trial suggests that Jim and Craig chose the five-to-one ratio to ensure that, if eBay did not grant a right of first refusal, it would be diluted to an ownership percentage just below 25%.

J. "David" and "Goliath" in the Courtroom

When David first confronted Goliath, the giant was chagrined.^[69] Similarly, perhaps, eBay was chagrined when craigslist confronted it with the 2008 Board Actions on January 3, 2008. eBay responded by filing suit against craigslist on April 22, 2008, alleging that the Actions were a breach of fiduciary duty by Jim and Craig in their capacities as directors and as controlling stockholders. eBay also alleged that the ROFR/Dilutive Issuance violates 8 Del. C. §§ 152 and 202(b). craigslist responded by filing suit against eBay in California state court on May 13, 2008, alleging that eBay engaged in unfair competition, misappropriation of trade secrets, false advertising, trademark infringement, and other wrongs. In the California action, craigslist seeks, among other things, to have eBay restore the craigslist shares it owns to craigslist.

Whether the California action is the proverbial stone in craigslist's sling that will fell the giant eBay remains to be seen.^[70] As I discuss in my analysis below, the battle in Delaware has not been as one-sided a victory for the smaller contender as was the contest between the fabled Israelite and Philistine:^[71] more fortunate than Goliath, eBay leaves this field with only a gash across its forehead; less fortunate than David, craigslist leaves this field with something less than total victory.

II. ANALYSIS

Jim and Craig owe fiduciary duties to eBay because they are directors [26] and controlling stockholders of craigslist, and eBay is a minority stockholder of craigslist. All directors of Delaware corporations are fiduciaries of the corporations' stockholders.^[72] Similarly, controlling stockholders are fiduciaries of their corporations' minority stockholders.^[73] Even though neither Jim nor Craig individually owns a majority of craigslist's shares, the law treats them as craigslist's controlling stockholders because they form a control group, bound together by the Jim-Craig Voting Agreement, with the power to elect the majority of the craigslist board.^[74]

eBay's complaint asserts that Jim and Craig breached the fiduciary duties they owed to eBay by implementing the 2008 Board Actions. eBay argues that the implementation of the 2008 Board Actions was a breach of fiduciary duty because the SPA and the Shareholders' Agreement limits the actions craigslist can take in response to eBay's Competitive Activity, and, by implementing the 2008 Board Actions, Jim and Craig used their fiduciary positions to cause craigslist to take actions beyond those permitted by the SPA and the Shareholders' Agreement.^[75] eBay also asserts that by enacting the 2008 Board Actions, Jim and Craig used their fiduciary positions to secure rights and benefits for themselves that they were not able to secure when they negotiated the SPA and the Shareholders' Agreement with eBay in 2004.^[76] Fundamentally these contentions [27] sound like arguments that Jim and Craig breached the SPA, the Shareholders' Agreement, or the implied covenant of good faith and fair dealing inherent in the SPA and the Shareholders' Agreement. Curiously, however, eBay has never formally alleged—in the complaint, trial arguments, or briefs—that Jim and Craig breached the SPA or the Shareholders' Agreement by implementing the 2008 Board Actions; nor has eBay formally alleged that Jim and Craig breached the implied covenant of good faith and fair dealing by implementing the 2008 Board Actions.^[77] eBay's contention is that Jim and Craig breached their fiduciary duties by implementing the 2008 Board Actions and that the ROFR/Dilutive Issuance violates §§ 152 and 202(b) of the Delaware General Corporation Law ("DGCL"). Throughout this dispute, I have repeatedly read and listened to what look and sound like breach of contract arguments, which eBay uses not to prove Jim and Craig breached a contract, but rather to prove Jim and Craig breached their fiduciary duties. This has been an odd exercise, and I admit I am puzzled by eBay's decision not to bring a breach of contract claim or, more promising perhaps, a claim for breach of the implied covenant, considering eBay expended significant effort arguing that the 2008 Board Actions violated both the technical provisions and the spirit of the SPA and the Shareholders' Agreement. The fact remains, however, that eBay asserted neither a breach of contract claim nor a claim for breach of the implied covenant. Therefore, I make no ruling on whether Jim and Craig breached the SPA, the Shareholders' Agreement, or the implied covenant of good faith and fair dealing by implementing the 2008 Board Actions. The legal conclusions in this Opinion only relate to whether Jim and Craig breached the fiduciary duties they owe to eBay by implementing the 2008 Board Actions.^[78]

Any time a stockholder challenges an action taken by the board of directors, the Court must first determine the appropriate standard of review to use in analyzing the challenged action. Identifying the appropriate standard of review ensures that the Court applies the proper level of judicial scrutiny to the board's decision-making process.^[79]

Although Jim and Craig implemented all the 2008 Board Actions on the same date, I analyze each Action individually. This case does not present a situation in which I must view each Action as a unified response to a specific threat; that is, I need not apply the Unocal Corporation v. Mesa [28] Petroleum Company^[80] standard of review to each of the Actions or to the Actions as a whole. The Delaware Supreme Court has stated:

In assessing a challenge to defensive actions by a target corporation's board of directors in a takeover context . . . the Court of Chancery should evaluate the board's overall response, including the justification for each contested defensive measure, and the results achieved thereby. Where all of the target board's defensive actions are inextricably related, the principles of Unocal require that such actions be scrutinized collectively as a unitary response to the perceived threat.^[81]

The 2008 Board Actions are not an "inextricably related" set of responses to a takeover threat. In fact, I do not view the Staggered Board Amendments, in the unique circumstances of this case, as a defensive measure at all.^[82] Accordingly, I do not apply the heightened standard from Unocal and its progeny to the Staggered Board Amendments, and I apply a deferential business judgment standard for reasons outlined below. The Rights Plan, on the other hand, implicates Unocal concerns in my view because rights plans (known as "poison pills" in takeover parlance) fundamentally are defensive devices that, if used correctly, can enhance stockholder value but, if used incorrectly, can entrench management and deter value-maximizing bidders at the stockholders' expense. I therefore subject the Rights Plan to the Unocal standard of review. Finally, I subject the ROFR/Dilutive Issuance to entire fairness review because Jim and Craig stand on both sides of that Action in the classic sense. I begin my analysis with the Rights Plan.

A. The Rights Plan

I will review Jim and Craig's adoption of the Rights Plan using the intermediate standard of enhanced scrutiny, typically referred to as the Unocal test. Framed generally, enhanced scrutiny "requires directors to bear the burden to show their actions were reasonable."^[83] The directors must "(1) identify the proper corporate objectives served by their actions; and (2) justify their actions as reasonable in relationship to those objectives."^[84]

Enhanced scrutiny has been applied universally when stockholders challenge a board's use of a rights plan as a defensive device.^[85] In the typical scenario, the decision to deploy a rights plan will fall within the range of reasonableness if the directors use the plan in a good faith effort to promote stockholder value. For example, the Delaware Supreme Court originally validated the use of a rights plan so that boards could protect target stockholders from two-tiered, front-end loaded, structurally [29] coercive offers.^[86] Subsequent case law has established that a board can use the protection of a rights plan to respond to an underpriced bid, counter the tender offeror's timing and informational advantages, and force the hostile acquirer to negotiate with the board.^[87] What remains fairly litigable is the degree to which a board can keep the shield of a rights plan in place under the situationally specific circumstances of a given case.^[88] A board similarly can use a rights plan creatively to protect the value of a corporate asset for the benefit of its stockholders^[89] or to block a creeping takeover.^[90] Using a rights plan to promote stockholder value is a legitimate exercise of board authority that accords with the directors' fiduciary duties.

Like any strong medicine, however, a pill can be misused. The Delaware Supreme Court understood from the outset that a rights plan can be deployed [30] inappropriately to benefit incumbent managers and directors at the stockholders' expense.^[91] Therefore when deploying a rights plan, "directors must at minimum convince the court that they have not acted for an inequitable purpose."^[92] And more than mere subjective good faith is required. Human judgment can be clouded by subtle influences like the prestige and perquisites of board membership, personal relationships with management, or animosity towards a bidder.^[93] Because of the omnipresent specter that directors could use a rights plan improperly, even when acting subjectively in good faith, Unocal and its progeny require that this Court also review the use of a rights plan objectively. Like other defensive measures, a rights plan cannot be used preclusively or coercively; nor can its use fall outside the "range of reasonableness."^[94]

This case involves a unique set of facts heretofore not seen in the context of a challenge to a rights plan. To my knowledge, no decision under Delaware law has addressed a challenge to a rights plan adopted by a privately held company with so few stockholders.^[95] The ample case law [31] addressing rights plans almost invariably involves publicly traded corporations with a widely dispersed, potentially disempowered, and arguably vulnerable stockholder base. In cases involving rights plans to date, Delaware courts have typically and understandably approved the use of rights plans to remedy the collective action problems that stockholders face, including but not limited to the classically coercive prisoner's dilemma imposed by a two-tiered offer. At the same time, Delaware courts have guarded against the overt risk of entrenchment and the less visible, yet more pernicious risk that incumbents acting in subjective good faith might nevertheless deprive stockholders of value-maximizing opportunities.

In this unique case, I do not face those same concerns. Jim and Craig are not dispersed, disempowered, or vulnerable stockholders. They are the majority. Jim and Craig are not using the Rights Plan improperly to preclude craigslist stockholders from considering and opting for a value-maximizing transaction. As the majority, Jim and Craig can consider and opt-for a value-maximizing transaction whenever they want.

Nor are Jim and Craig using the Rights Plan to protect their board seats. Together Jim and Craig own an overwhelming majority of craigslist's voting power, and they have entered into the Jim-Craig Voting Agreement which ensures that each votes the other onto the board. If eBay were to sell its entire interest in craigslist to some third party, that third party would not be able to unseat either Jim or Craig because, like eBay, it would only own a minority interest. Neither eBay nor any third party who might purchase eBay's craigslist shares could threaten Jim or Craig with a proxy fight. Under their voting agreement, Jim cannot grant a proxy to unseat Craig, and Craig cannot grant a proxy to unseat Jim. Furthermore, as rationally self-interested actors, Jim and Craig will not give someone a proxy to unseat themselves.

These unique factors do not, however, eliminate Unocal's usefulness. Unocal has correctly been described as "the most innovative and promising"^[96] case in our corporation law and one whose insights "will [] continue to resonate with judges."^[97] The intermediate standard of review is not limited to the historic and now classic paradigm. Fiduciary duties apply regardless of whether a corporation is "registered and publicly traded, dark and delisted, or closely held."^[98] It is entirely possible that the board of a closely held company such as craigslist could deploy a rights plan improperly. The Unocal standard of review is best equipped to address this concern.

Thus, the two main issues I confront are: First, did Jim and Craig properly and reasonably perceive a threat to craigslist's corporate policy and effectiveness? Second, [32] if they did, is the Rights Plan a proportional response to that threat?

As discussed above, there are several recognized and accepted corporate purposes for adopting a rights plan. Nevertheless, there is no formal exhaustive list of valid reasons for doing so. As Vice Chancellor Noble demonstrated earlier this year, the Court of Chancery is mindful of changing conditions in the corporate world that may warrant the Court's recognition of a new, valid corporate purpose for adopting a rights plan.^[99] In that spirit, I have carefully considered Jim and Craig's contentions in this case and the evidence they presented in support of those contentions. I conclude, based on all of the evidence, that Jim and Craig in fact did not adopt the Rights Plan in response to a reasonably perceived threat or for a proper corporate purpose.

Jim and Craig contend that they identified a threat to craigslist and its corporate policies that will materialize after they both die and their craigslist shares are distributed to their heirs. At that point, they say, "eBay's acquisition of control [via the anticipated acquisition of Jim or Craig's shares from some combination of their heirs] would fundamentally alter craigslist's values, culture and business model, including departing from [craigslist's] public-service mission in favor of increased monetization of craigslist."^[100] To prevent this unwanted potential future reality, Jim and Craig have adopted the Rights Plan now so that their vision of craigslist's culture can bind future fiduciaries and stockholders from beyond the grave. Having given new meaning to the concept of a "dead-hand pill," Jim and Craig ask this Court to validate their attempt to use a pill to shape the future of the space-time continuum.

It is true that on the unique facts of a particular case—Paramount Communications, Inc. v. Time Inc.^[101]—this Court and the Delaware Supreme Court accepted defensive action by the directors of a Delaware corporation as a good faith effort to protect a specific corporate culture.^[102] It was a muted embrace. Chancellor Allen wrote only that he was "not persuaded that there may not be instances in which the law might recognize as valid a perceived threat to a `corporate culture' that is shown to be palpable (for lack of a better word), distinctive and advantageous."^[103] This conditional, limited, and double-negative-laden comment was offered in a case that involved the journalistic independence of an iconic American institution. Even in that fact-specific context, the acceptance of the amorphous purpose of "cultural protection" as a justification for defensive action did not escape criticism.^[104]

[33] More importantly, Time did not hold that corporate culture, standing alone, is worthy of protection as an end in itself. Promoting, protecting, or pursuing non-stockholder considerations must lead at some point to value for stockholders.^[105] When director decisions are reviewed under the business judgment rule, this Court will not question rational judgments about how promoting non-stockholder interests—be it through making a charitable contribution, paying employees higher salaries and benefits, or more general norms like promoting a particular corporate culture—ultimately promote stockholder value. Under the Unocal standard, however, the directors must act within the range of reasonableness.

Ultimately, defendants failed to prove that craigslist possesses a palpable, distinctive, and advantageous culture that sufficiently promotes stockholder value to support the indefinite implementation of a poison pill. Jim and Craig did not make any serious attempt to prove that the craigslist culture, which rejects any attempt to further monetize its services, translates into increased profitability for stockholders. I am sure that part of the reason craigslist is so popular is because it offers a free service that is also extremely useful. It may be that offering free classifieds is an essential component of a successful online classifieds venture. After all, by offering free classifieds, craigslist is able to attract such a large community of users that real estate brokers in New York City gladly pay fees to list apartment rentals in order to access the vast community of craigslist users. Likewise, employers in select cities happily pay fees to advertise job openings to craigslist users. Neither of these fee-generating activities would have been possible if craigslist did not provide brokers and employers access to a sufficiently large market of consumers, and brokers and employers may not have reached that market without craigslist's free classifieds.

Giving away services to attract business is a sales tactic, however, not a corporate culture. Jim, Craig, and the defense witnesses advisedly described craigslist's business using the language of "culture" because that was what carried the day in Time. To the extent business measures like loss-leading products, money-back coupons, or putting products on sale are cultural artifacts, they reflect the American capitalist culture, not something unique to craigslist. Having heard the evidence and judged witness credibility at trial, I find that there is nothing about craigslist's corporate culture that Time or Unocal protects. The existence of a distinctive craigslist "culture" was not proven at trial. It is a fiction, invoked almost talismanically for purposes of this trial in order to find deference under Time's dicta.

[34] The defendants also failed to prove at trial that when adopting the Rights Plan, they concluded in good faith that there was a sufficient connection between the craigslist "culture" (however amorphous and intangible it might be) and the promotion of stockholder value. No evidence at trial suggested that Jim or Craig conducted any informed evaluation of alternative business strategies or tactics when adopting the Rights Plan. Jim and Craig simply disliked the possibility that the Grim Reaper someday will catch up with them and that a company like eBay might, in the future, purchase a controlling interest in craigslist. They considered this possible future state unpalatable, not because of how it affects the value of the entity for its stockholders, but rather because of their own personal preferences. Jim and Craig therefore failed to prove at trial that they acted in the good faith pursuit of a proper corporate purpose when they deployed the Rights Plan. Based on all of the evidence, I find instead that Jim and Craig resented eBay's decision to compete with craigslist and adopted the Rights Plan as a punitive response. They then cloaked this decision in the language of culture and post mortem corporate benefit. Although Jim and Craig (and the psychological culture they embrace) were the only known beneficiaries of the Rights Plan, such a motive is no substitute for their fiduciary duty to craigslist stockholders.

Jim and Craig did prove that they personally believe craigslist should not be about the business of stockholder wealth maximization, now or in the future. As an abstract matter, there is nothing inappropriate about an organization seeking to aid local, national, and global communities by providing a website for online classifieds that is largely devoid of monetized elements. Indeed, I personally appreciate and admire Jim's and Craig's desire to be of service to communities. The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. Jim and Craig opted to form craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dollars from eBay as part of a transaction whereby eBay became a stockholder. Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The "Inc." after the company name has to mean at least that. Thus, I cannot accept as valid for the purposes of implementing the Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders—no matter whether those stockholders are individuals of modest means^[106] or a corporate titan of online commerce. If Jim and Craig were the only stockholders affected by their decisions, then there would be no one to object. eBay, however, holds a significant stake in craigslist, and Jim and Craig's actions affect others besides themselves.

Jim and Craig's defense of the Rights Plan thus fails the first prong of Unocal both factually and legally. I find that defendants failed to prove, as a factual matter, the existence of a distinctly protectable craigslist culture and further failed to prove, both factually and legally, that they actually decided to deploy the Rights Plan because of a craigslist culture. [35] I find, instead, that Jim and Craig acted to punish eBay for competing with craigslist. Directors of a for-profit Delaware corporation cannot deploy a rights plan to defend a business strategy that openly eschews stockholder wealth maximization—at least not consistently with the directors' fiduciary duties under Delaware law.

Up to this point, I have evaluated the Rights Plan primarily though the lens of the first prong of Unocal. To the extent I assume for purposes of analysis that a craigslist culture was something that Jim and Craig reasonably could seek to protect, the Rights Plan nonetheless does not fall within the range of reasonable responses. In evaluating the range of reasonableness, it is important to note that Jim and Craig actually do not seek to protect the craigslist "culture" today. They are perfectly able to ensure the continuation of craigslist's "culture" so long as they remain majority stockholders. What they instead want is to preserve craigslist's "culture" over some indefinite period that starts at the (happily) unknowable moment when their natural lives come to a close. The attenuated nature of that goal further undercuts the degree to which "culture" can provide a basis for heavy-handed defensive action.

In their fight against the imperatives of time, Jim and Craig deployed a rights plan that singles out eBay and effectively precludes eBay from selling the entirety of its shares as one complete block. Because the Rights Plan is not fully preclusive—in that eBay can sell its shares in chunks no larger than 14.99%—the plan is more appropriately evaluated against the range of reasonableness.

The avowed purpose of the Rights Plan is to protect the craigslist "culture" at some point in the future unrelated to when eBay sells some or all of its shares. As long as Jim and Craig have control, however, they can maintain the craigslist "culture" regardless of whether eBay sells some or all of its shares. The Rights Plan neither affects when eBay can sell its shares nor affects when the craigslist culture can change. It therefore does not have a reasonable connection to Jim and Craig's professed goal. Assuming Jim and Craig sought to establish a corporate Academie Francaise to protect the cultural integrity of craigslist's business model, the Rights Plan simply does not serve that goal. It therefore falls outside the range of reasonableness.^[107] On the factual record presented at trial, therefore, the defendants also failed to meet their burden of proof under the second prong of Unocal.

Because defendants failed to prove that they acted to protect or defend a legitimate corporate interest and because they failed to prove that the rights plan was a reasonable response to a perceived threat to corporate policy or effectiveness, I rescind the Rights Plan in its entirety.

B. The Staggered Board Amendments

Before determining whether I should subject the Staggered Board Amendments to business judgment review or entire fairness review, I will first explain more fully why I conclude that the Staggered Board Amendments are not subject to Unocal review. Unlike the Rights Plan, the Staggered Board Amendments do not function as a defensive device under the unique facts of this case. Even if craigslist did not have a staggered [36] board, Jim and Craig would control a majority of the board. The Jim-Craig Voting Agreement ensures that Jim's designee and Craig's designee will always fill two of the three director positions. At best, eBay places one director on the board; at worst, eBay places no directors on the board. So long as the Jim-Craig Voting Agreement remains in effect and there are only three authorized director positions, eBay will never have an opportunity to control the board. The number of authorized director positions will not change unless Jim and Craig, as the majority of the board, vote to change the number of director positions.^[108] Thus, the Staggered Board Amendments make it impossible for eBay to unilaterally place one of three directors on the board, but did not affect Jim and Craig's ability to control the board by filling two of the three director positions currently authorized by the craigslist bylaws. It would be inappropriate to apply Unocal to the Staggered Board Amendments because they do not implicate the concerns that drive Unocal; there is no "omnipresent specter" that the Staggered Board Amendments are being used for entrenchment purposes.^[109] I will now analyze whether the Staggered Board Amendments should be subject to the business judgment or the entire fairness standard of review.

Under the business judgment rule, when a party challenges the decisions of a board of directors, the Court begins with the "presumption that in making a business decision the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company."^[110] The business judgment standard of review is deferential. When applying this standard, the Court "will not substitute its judgment for that of the board if the [board's] decision can be `attributed to any rational business purpose.'"^[111] Thus, the business judgment rule protects against the risk that a court might "impos[e] itself unreasonably on the business and affairs of a corporation."^[112]

To avoid application of the deferential business judgment standard, the plaintiff must produce evidence that rebuts the business judgment presumption.^[113] There are a number of ways the plaintiff can rebut the business judgment presumption, including by showing that the majority of directors who approved the action (1) had a personal interest in the subject matter of the action,^[114] (2) were not fully informed in approving the action,^[115] or (3) did not act in good faith in approving the action.^[116] If the plaintiff rebuts the business judgment presumption, the Court applies the entire fairness standard of review to the challenged action and places the burden on the directors to prove that the [37] action was entirely fair.^[117]

eBay contends that the Staggered Board Amendments must pass muster under the entire fairness standard on two grounds: (1) Jim and Craig, as controlling stockholders and directors, were personally interested in the Staggered Board Amendments because implementing a staggered board redounded to their benefit but harmed eBay as the minority stockholder, and (2) Jim and Craig approved the Staggered Board Amendments in bad faith, with the intent to harm eBay. I will consider each argument in turn.

First, eBay contends that Jim and Craig are personally interested in the Staggered Board Amendments—even though they do not literally stand on both sides of that Action—because the Staggered Board Amendments treat eBay, the minority stockholder, differently than Jim and Craig, the majority stockholders and directors, by eliminating eBay's ability to unilaterally elect a director to the craigslist board but having no effect on Jim and Craig's abilities to elect craigslist directors. After they implemented the Staggered Board Amendments, Jim and Craig still were able to elect their director nominees to the craigslist board. In the years that the Class I and II director positions are up for election, the Jim-Craig Voting Agreement requires Jim and Craig to vote their shares together, thereby ensuring that their nominees will be elected. eBay, however, lost its ability to unilaterally elect an eBay nominee to the craigslist board. The Staggered Board Amendments leave eBay with only the mere possibility of having an eBay nominee elected in the year the Class III director position is voted upon. In that year, eBay has no guarantee that its nominee will be elected because eBay's minority ownership interest is insufficient to unilaterally elect a director if only one director position is up for election, even under a cumulative voting regime. Thus, eBay contends, the Staggered Board Amendments affect Jim and Craig differently than they affect eBay, and this disparate treatment between fiduciaries, on the one hand, and a minority stockholder, on the other hand, requires application of the entire fairness standard of review. eBay relies on In re John Q. Hammons Hotels, Inc. Shareholder Litigation,^[118]Hamilton v. Nozko,^[119] and Litle v. Waters^[120] to argue that whenever a board action affects directors or controlling stockholders differently than minority stockholders, entire fairness review applies.^[121]

I am not persuaded that entire fairness review applies to the Staggered Board Amendments on the ground that eBay was affected differently than Jim and Craig by the implementation of a staggered board. The cases eBay relies on do not support a rule of law that would invoke entire fairness review any time a corporate action affects directors or controlling stockholders differently than minority stockholders.^[122] Entire fairness review ordinarily applies in cases where a fiduciary [38] either literally stands on both sides of the challenged transaction or where the fiduciary "expects to derive personal financial benefit from the [challenged] transaction in the sense of self-dealing, as opposed to a benefit which devolves upon the corporation or all stockholders generally."^[123] The three cases eBay relies on—In re Hammons, Hamilton, and Litle—involved situations where a fiduciary allegedly derived a personal financial benefit from the challenged transaction at the expense of the minority stockholders.^[124] Such transactions involve classic self-dealing by a fiduciary and are subject to entire fairness review.^[125] The transactions challenged in those three cases are quite dissimilar from the Staggered Board Amendments. First, Jim and Craig did not realize a financial benefit by approving the Staggered Board Amendments so there was no self-dealing on the basis of financial considerations. Second, and more importantly, Delaware law does not require that minority stockholders such as eBay have board representation. Delaware corporations do not have to adopt cumulative voting for the benefit of minority stockholders,^[126] and Delaware corporations have the express power to implement staggered boards.^[127] If a corporation implements a staggered board, and this renders the corporation's cumulative voting system ineffective, minority stockholders have not been deprived of anything they are entitled to under the common law or the DGCL, because minority stockholders are not entitled to a cumulative voting system in the first instance. It is true that by approving the Staggered Board Amendments, Jim and Craig implemented a corporate governance structure that had a disparate and, from eBay's point of view, unfavorable impact on eBay. This is not the sort of disparate treatment, however, that can be classified as self-dealing because the law expressly allows majority stockholders to elect the entire board. Thus, the Staggered Board Amendments cannot be subjected to entire fairness review on the grounds that eliminating eBay's ability to elect a director was a form of self-dealing.

Of course, even where fiduciaries are legally permitted to take a particular action, the action will not be countenanced if it works an inequity.^[128] But the Staggered Board Amendments do not work an inequity. eBay's ability to unilaterally elect a director to the craigslist board was solely based on a cumulative voting system combined with a non-staggered board. Before eBay engaged in Competitive Activity, eBay was able to ensure this voting system and board structure remained in place because it had the contractual right under § 4.6(a)(iii) of the Shareholders' Agreement to consent to any charter amendment that would "adversely affect[] [eBay]." This consent right, however, was not indefeasible. Section 8.3 of the Shareholders' Agreement provides that "all of the rights and obligations of [eBay] set forth in Section[] . . . [39] 4.6 . . . shall terminate" if eBay engages in Competitive Activity. Thus, eBay lost its consent rights over charter amendments by engaging in Competitive Activity. Throughout this dispute, eBay has protested that the 2008 Board Actions, including the Staggered Board Amendments, secured for Jim and Craig benefits that they were not able to obtain when negotiating the Shareholders' Agreement.^[129] The right to amend the craigslist charter, however, without eBay's consent if eBay chose to compete with craigslist was a benefit Jim and Craig negotiated for and secured in the Shareholders' Agreement. Section 8.3 plainly articulates that benefit. Thus, the Staggered Board Amendments cannot be inequitable because they were exactly the sort of consequence eBay accepted would occur if eBay decided to compete with craigslist.^[130]

By challenging the Staggered Board Amendments in this litigation, eBay, not Jim and Craig, seeks to obtain a benefit it was not able to obtain under the Shareholders' Agreement. In trying to undo the staggered board, and thereby protect its mathematical ability to fill a board seat, eBay is doing exactly what it accuses Jim and Craig of doing. eBay negotiated for and secured a fettered right to engage in Competitive Activity; the "fetter" being that eBay would lose its minority investor consent rights, including its right to block charter amendments, if eBay decided to compete with craigslist in online job postings in the United States. eBay engaged in Competitive Activity by launching Kijiji in the United States. eBay then chose not to cease its Competitive Activity (by either shutting down Kijiji or removing Kijiji's job listings) within the ninety-day cure period provided by § 8.3(e) after craigslist [40] sent the Notice of Competitive Activity. The negotiated consequence of these decisions, as expressly provided for in the Shareholders' Agreement, is that eBay lost the ability to block charter amendments such as the Staggered Board Amendments. eBay now asks this Court to undo the Staggered Board Amendments even though they were expressly permitted by the Shareholders' Agreement. This strikes me as eBay's attempt to obtain a permanent board seat through litigation, when it could not obtain a permanent board seat through arms-length negotiations with Jim and Craig. I decline to facilitate eBay's attempt.

eBay also argues that entire fairness review should apply to the Staggered Board Amendments because Jim and Craig implemented the Staggered Board Amendments in bad faith, intending to harm eBay. Under Delaware law, when a plaintiff demonstrates the directors made a challenged decision in bad faith, the plaintiff rebuts the business judgment rule presumption, and the burden shifts to the directors to prove that the decision was entirely fair to the corporation and its stockholders.^[131] I find that eBay has failed to prove that Jim and Craig approved the Staggered Board Amendments in bad faith. Rather, as I will describe more fully below, the evidence at trial proves that Jim and Craig approved the Staggered Board Amendments in good faith to prevent eBay, a business competitor, from having access to confidential craigslist board discussions.

Because eBay failed to rebut the business judgment presumption in its challenge to the Staggered Board Amendments, I review the Staggered Board Amendments under the business judgment standard of review. When the business judgment rule applies, the board's business decisions "will not be disturbed if they can be attributed to any rational business purpose. A court under such circumstances will not substitute its own notions of what is or is not sound business judgment" for the board's notions.^[132] Accordingly, I will analyze the Staggered Board Amendments to see if they further any rational business purpose.

Throughout this dispute, Jim and Craig have argued that they designed the Staggered Board Amendments to keep eBay, a business competitor, from unilaterally being able to place a director on craigslist's board. Jim and Craig assert that competitively sensitive information is discussed in board meetings, and, even though craigslist does not typically concern itself with beating the competition, this competitively sensitive information could nevertheless be used by eBay to harm craigslist. Jim expressed this sentiment in his "Our Thoughts" email to Whitman shortly after eBay launched Kijiji. Moreover, eBay's own counsel represented to the NYAG that one reason the Shareholders' Agreement terminated eBay's consent rights if eBay engaged in Competitive Activity— including eBay's right to consent to an action like the Staggered Board Amendments—was to protect craigslist's "competitively sensitive information and its business in the event eBay becomes a competitor."^[133] Preventing a competitor that is also a minority stockholder from unilaterally placing a director on the board so [41] that confidential corporate information will not be freely shared with that competitor is a legitimate and rational business purpose.^[134] It was rational for Jim and Craig to want to ensure that they could trust any director nominated by eBay not to use his or her board seat to access confidential information and then surreptitiously pass it on to eBay. Implementing a staggered board was one way to accomplish this. It does not matter that there were (and are) other alternatives available to Jim and Craig because the Staggered Board Amendments were sufficiently rational to satisfy business judgment review.^[135] Accordingly, I conclude that Jim and Craig did not breach their fiduciary duties by approving the Staggered Board Amendments, and I decline eBay's request that I rescind the Staggered Board Amendments.

C. The ROFR/Dilutive Issuance

The business judgment rule's protections only apply to transactions in which a majority of directors are disinterested and independent.^[136] A director is "interested" if he or she stands on both sides of a transaction or expects to derive a material personal financial benefit from the transaction that does not devolve on all stockholders generally.^[137] When the business judgment rule's protections do not apply, the burden is placed on the defendant directors to prove the challenged transaction is entirely fair.^[138] "When directors of a Delaware corporation are on both sides of a transaction, they are required to demonstrate their utmost good faith and the most scrupulous inherent fairness of the [transaction]."^[139] If directors structure a transaction that is unfair, they breach their duty of loyalty, and [42] the Court may provide equitable relief to remedy the injury.^[140]

To prove a transaction was entirely fair, directors must demonstrate that the transaction was (1) effectuated at a fair price and (2) the product of fair dealing.^[141] The fair price element relates to the economics of the transaction; it focuses on whether the transaction was economically fair to the plaintiff.^[142] The analysis of price can draw on any valuation methods or techniques generally accepted in the financial community.^[143] Fair dealing focuses on the conduct of the fiduciaries involved in the transaction. In analyzing fair dealing the Court may inquire into how the transaction was timed, initiated, negotiated, and structured, as well as how approvals of the directors and stockholders were obtained.^[144] The entire fairness test is not bifurcated; the Court must consider allegations of unfair dealing and unfair price.^[145] Price, however, is the paramount consideration because procedural aspects of the deal are circumstantial evidence of whether the price is fair.^[146]

I conclude that the ROFR/Dilutive Issuance is subject to entire fairness review. Jim and Craig stood on both sides of that Action. The parties to the right of first refusal agreement underlying the ROFR/Dilutive Issuance are craigslist on the one side and Jim and Craig on the other. Jim and Craig approved the ROFR/Dilutive Issuance in their capacity as craigslist directors, and Jim, in his capacity as CEO, signed the right of first refusal agreement for craigslist. Jim and Craig then each counter-signed the right of first refusal agreement in their individual capacities as stockholders. The consideration in the right of first refusal agreement flows from craigslist to Jim and Craig (craigslist issuing shares to Jim and Craig) and vice-versa (Jim and Craig granting a right of first refusal to craigslist). In transactions such as this, where fiduciaries deal directly with the corporation, entire fairness is ordinarily the applicable standard of review.^[147]

[43] Under the terms of the ROFR/Dilutive Issuance, Jim and Craig received an additional share of craigslist stock for every five shares over which they granted craigslist a right of first refusal. Jim and Craig likely had the contractual ability to implement the ROFR/Dilutive Issuance. The Shareholders' Agreement provided that eBay would lose certain consent rights if it chose to engage in Competitive Activity.^[148] Among the rights eBay lost were the right to consent to (1) an increase in the authorized number of craigslist shares,^[149] (2) agreements between craigslist and its officers providing for the issuance of stock,^[150] and (3) preemptive rights to purchase newly issued craigslist shares.^[151] Each of these measures was necessary to carry out the ROFR/Dilutive Issuance. In addition, eBay lost any contractual right to receive notice that the board was deliberating about the right of first refusal agreement. After launching Kijiji, eBay unsuccessfully tried to renegotiate the terms of the Shareholders' Agreement. One of the rights eBay sought (but failed) to obtain via renegotiation was the right to fifteen days advance notice before craigslist undertook any actions to which eBay previously had a right to consent. Based on the foregoing considerations, Jim and Craig probably did not violate a technical provision of the Shareholders' Agreement when they approved the ROFR/Dilutive Issuance.^[152]

But the question before me is whether Jim and Craig breached their fiduciary duty of loyalty by approving the ROFR/Dilutive Issuance. Even if eBay lost its contractual ability to prevent the ROFR/Dilutive Issuance, eBay was entitled to the fiduciary duties Jim and Craig owed it as a minority stockholder. As fiduciaries, Jim and Craig were bound not to approve an interested transaction unless that transaction was entirely fair to craigslist and to eBay.

To determine whether the ROFR/Dilutive Issuance was entirely fair, I will first analyze whether that Action was effectuated at a fair price. The "price" of receiving an additional craigslist share under the ROFR/Dilutive Issuance was the granting of a right of first refusal over five shares. This same deal (a 5:1 ratio) was offered to each craigslist stockholder. Jim and Craig argue that the ROFR/Dilutive Issuance [44] was fair to craigslist stockholders because all stockholders were offered the same deal. Superficially, this appears to be true. Deeper reflection, however, reveals that it actually costs eBay more to grant a right of first refusal over five of its craigslist shares than it costs Jim or Craig to do the same. When eBay engaged in Competitive Activity by launching Kijiji, Jim and Craig had to decide whether to issue a Notice of Competitive Activity. If they chose to do so and if eBay failed to cure within ninety days, eBay would lose its contractual consent rights. But there was an upside for eBay if it failed to cure: the rights of first refusal Jim and Craig held over eBay's craigslist shares under § 7.2 of the Shareholders' Agreement would terminate, and eBay's shares would become freely transferable.^[153] The rights of first refusal Jim and Craig held over each other's shares under § 7.2 of the Shareholders' Agreement, however, would remain intact. eBay failed to cure within ninety days after receiving the Notice of Competitive Activity, and the craigslist shares it owns became freely transferable. Jim and Craig's craigslist shares remained encumbered. Thus, the price Jim and Craig had to pay for a new share under the ROFR/Dilutive Issuance was their granting a right of refusal to craigslist on five already-encumbered shares. The price eBay had to pay for a new share under the ROFR/Dilutive Issuance was its granting a right of first refusal to craigslist on five freely transferable shares. Although each craigslist stockholder had to grant a right of first refusal over the same number of shares to obtain a newly issued share, eBay had to surrender full transferability of its shares to craigslist, but Jim and Craig only had to substitute craigslist for themselves as the party holding a right of first refusal on their shares. Thus, the price of the ROFR/Dilutive Issuance is not fair because it requires eBay, the minority stockholder, to give up more value per share than either Jim or Craig, the majority stockholders and directors. This disproportionate "price" is sufficient, standing alone, to render the ROFR/Dilutive Issuance void.

There is at least one other reason that the ROFR/Dilutive Issuance does not satisfy the fair price element of entire fairness. The ROFR/Dilutive Issuance put eBay in a position where it had to make one of two choices, and either choice would harm eBay economically while benefitting Jim and Craig. When Jim and Craig informed eBay of the ROFR/Dilutive Issuance, they told eBay that it had three years to decide whether to execute a joinder to the right of first refusal agreement. One of eBay's choices was to refrain from joining the right of first refusal agreement, thereby keeping its craigslist shares freely transferable. If eBay did this, however, its ownership interest in craigslist would be diluted from 28.4% to 24.9%. eBay's other choice was to join the right of first refusal agreement and receive a new craigslist share for every five shares it subjected to craigslist's right of first refusal. This would have allowed eBay to maintain its 28.4% ownership interest, but at the cost of encumbering its freely transferable craigslist shares.

Either of these two choices would deprive eBay of economic value while simultaneously benefitting Jim and Craig. The detrimental economic effects of the first choice are easiest to explain, so I will begin there. By choosing not to join the right of first refusal agreement, eBay's ownership interest was diluted from 28.4% to 24.9%. Jim and Craig's ownership interests were concomitantly increased from 29% to [45] 30.4% and 42.6% to 44.7%, respectively. The economic effect of this choice was to transfer wealth from eBay to Jim and Craig by virtue of increasing Jim and Craig's ownership of craigslist at eBay's expense.

The second choice would also harm eBay economically. By encumbering its freely tradable craigslist shares with a right of first refusal, eBay would immediately suffer an illiquidity discount. The right of first refusal is in craigslist's favor, and craigslist is controlled by Jim and Craig. The expected value to third party bidders of eBay's ownership stake in craigslist would decrease because bidders would be aware that Jim and Craig have superior "inside" knowledge of craigslist's operations^[154] and are likely to place idiosyncratic value on craigslist's shares.^[155] Therefore, third-party bidders would be less willing to incur the transaction costs associated with bidding for craigslist shares (including due diligence costs) if Jim and Craig could simply cause craigslist to match their offer. Third-party bidders would also be dissuaded from bidding because, even if they outbid craigslist, craigslist would retain its right of first refusal over the shares in the hands of the third party.^[156] Most, if not all, bidders would not engage in a bidding war with craigslist for eBay's craigslist shares knowing that craigslist would continue to have a right of first refusal over the shares even if the bidder won the bidding war. It is the rare bidder who would engage in a bidding war for perpetually encumbered shares.

It is not immediately clear from the evidence offered at trial whether a wealth transfer from eBay to Jim and Craig would occur if eBay joined the right of first refusal agreement.^[157] It is certain, however, that Jim and Craig would benefit if eBay decided to grant craigslist a right of first refusal. I find, as a matter of fact, that Jim and Craig implemented the ROFR/Dilutive Issuance because they wanted to control whom eBay sold its craigslist shares to.^[158] Jim and Craig knew that eBay's shares had become freely [46] transferable. This caused Jim and Craig to be concerned that another "Knowlton problem" was on the horizon; that is, they feared that eBay would sell its shares to a stockholder who did not fit with the craigslist culture. If Jim and Craig could coax eBay into giving craigslist a right of first refusal, then Jim and Craig could vote as directors to preempt eBay's sale to any unsuitable purchaser by simply having craigslist purchase eBay's shares. I find, as a matter of fact, that Jim and Craig desired a right of first refusal in craigslist's favor to protect their personal, sentimental interests in controlling the culture of craigslist, including the composition of its stockholders. Controlling the composition of stockholders or the respective ownership stakes of stockholders through a right of first refusal in the corporation's favor may be permitted, provided the right of first refusal bears some reasonably necessary relation to the corporation's best interests.^[159] Put another way, the right of first refusal must advance a valid corporate purpose. Moreover, when directors vote to issue new shares to themselves in exchange for giving the corporation a right of first refusal, and thus stand on both sides of the transaction, the right of first refusal arrangement must be entirely fair to the corporation and to its stockholders. The ROFR/Dilutive Issuance is invalid under Delaware law because Jim and Craig have sought to control craigslist's stockholder composition for their personal and sentimental benefit at eBay's expense.^[160] Thus, it fails the price element of the entire fairness test and does not advance a proper corporate purpose.

Jim and Craig breached their fiduciary duty of loyalty by using their power as directors and controlling stockholders to implement an interested transaction that was not entirely fair to eBay, the minority stockholder. All parties agree that the most appropriate remedy for a breach of fiduciary duty in this case is rescission.^[161] I concur with that assessment. Accordingly, I rescind the ROFR/Dilutive Issuance.

D. The DGCL

eBay contends in Counts IV and V of the complaint that the ROFR/Dilutive Issuance violates 8 Del. C. §§ 152 and 202(b). Having concluded that the ROFR/Dilutive Issuance must be rescinded because it was not entirely fair to eBay, I need not address whether the ROFR/Dilutive Issuance violated the DGCL.

E. Attorneys' Fees

eBay asks the Court to order Jim and Craig to reimburse craigslist for all of the legal fees incurred in this action and for the legal fees relating to the 2008 Board Actions. eBay also asks the Court to award eBay the legal fees it has incurred in this action. I decline to order any shifting of fees.

eBay is not entitled to fees under § 9.8 of the Shareholders' Agreement^[162] because eBay did not bring a [47] claim for breach of the Shareholders' Agreement or for breach of the implied covenant of good faith and fair dealing inherent in the Shareholders' Agreement. More importantly, however, the equities in this case do not mandate a shifting of attorneys' fees. Under Delaware law, parties are ordinarily responsible for paying their own attorneys' fees.^[163] Equity may make an exception and shift fees to a party that has acted in bad faith in connection with the prosecution or defense of the litigation.^[164] Fees may also be shifted to a losing party whose pre-litigation conduct was undertaken in bad faith and "was so egregious as to justify an award of attorneys' fees as an element of damages."^[165] The Court typically will not find a litigant acted in bad faith for purposes of shifting attorneys' fees unless the litigant's conduct rose to the level of "glaring egregiousness."^[166] "[M]erely being adjudicated a wrongdoer under our corporate law is not enough to justify fee shifting."^[167]

Neither Jim nor Craig engaged in behavior that could be characterized as bad faith for purposes of fee shifting. Their conduct during litigation was typical of litigants before this Court; they vigorously defended their legal position without making frivolous arguments. Moreover, the 2008 Board Actions cannot be described as "glaring[ly] egregious" pre-litigation conduct. As should be evident by this point in the narrative, this is a unique case with distinct facts and difficult legal issues. I find, as a matter of fact, after evaluating the credibility and demeanor of Jim and Craig, that both men subjectively believed the 2008 Board Actions, despite their uniqueness, were legally permissible under Delaware law.^[168] Their judgment was wrong, in my view, with respect to the Rights Plan and the ROFR/Dilutive Issuance. But that does not mean that Jim and Craig implemented the Rights Plan and the ROFR/Dilutive Issuance in bad faith. Neither Jim nor Craig acted with the sort of vexatious, wanton, or frivolous conduct consistent with bad faith.^[169] Rather, they deliberated with counsel over a period of six months regarding the 2008 Board Actions, considered the possibility of a legal challenge to the Actions, and decided to move forward after concluding, albeit incorrectly, that the Actions were consistent with law.

eBay also argues that it should be awarded fees because its lawsuit caused [48] Jim and Craig to sign affidavits that they would not execute the director indemnification agreements that eBay challenged in Counts I and II of the complaint. The corporate-benefit exception applies only if the fee applicant demonstrates that "(1) the suit was meritorious when filed; (2) the action producing benefit to the corporation was taken by the defendants before a judicial resolution was achieved; and (3) the resulting corporate benefit was causally related to the lawsuit."^[170] Counts I and II were dismissed because "neither claim. . . [was] ripe for judicial review."^[171] The director indemnification agreements had not been executed when eBay filed the complaint so there was "no contract or transaction for me to examine under [the] self-dealing or waste claims" in Counts I and II.^[172] Therefore, Counts I and II were not meritorious when filed,^[173] and an award of fees for those claims "would not be appropriate."^[174]

III. CONCLUSION

Based on the foregoing findings of fact and conclusions of law, I rescind the Rights Plan and the ROFR/Dilutive Issuance because Jim and Craig breached their fiduciary duties when they implemented those Actions. I do not rescind the Staggered Board Amendments because Jim and Craig did not breach their fiduciary duties when they implemented that Action. Further, I decline to order Jim and Craig to reimburse craigslist or eBay for attorneys' fees.

An Order has been entered consistent with this Opinion.

[1] I use first names for convenience and ease of reference, and not out of disrespect.

[2] In telling this story, I discuss eBay's alleged misuse of craigslist's nonpublic information and some of eBay's allegedly unfair competitive activities. Whether eBay's use of craigslist's nonpublic information or its competitive activity was unlawful does not affect my decision in this case. Accordingly, I make no legal conclusion as to whether eBay is liable for unfair competition, misappropriation of trade secrets, trademark infringement, or the like, craigslist has filed suit against eBay in California asserting such claims, and I leave it to the California judiciary to resolve them. In this Opinion, I discuss eBay's use of craigslist's nonpublic information and eBay's competitive activities simply to tell the story of this dispute more completely.

[3] It has often been said that politics makes strange bedfellows. Evidently, so can business.

[4] Despite its undiversified revenue stream, the fees craigslist generates on job postings and apartment listings are substantial, apparently more than enough to meet craigslist's operating and capital needs and certainly enough to attract the attention of potential entrants into the online classifieds industry.

[5] Summary site metrics are available on craigslist's website, but the more granular detail that would be useful for business planning purposes is not publicly available.

[6] See, e.g., Tr. at 1572:23-1573:3(Jim) (testifying that craigslist's community service mission "is the basis upon which our business success rests. Without that mission, I don't think this company has the business success it has. It's an also-ran. I think it's a footnote.").

[7] PTX-8 (letter from Knowlton's counsel to craigslist's outside counsel (July 24, 2003)) at 60124-25.

[8] Tr. at 1566:5-6(Jim); accord id. at 2228:12-17(Wes) (craigslist's outside counsel testifying that Knowlton's goal was to sell to a competitor who would "bleed [craigslist] and suck it dry.").

[9] Id. at 18:2-3 (Whitman).

[10] Id. at 788:24-789:4 (Price).

[11] PTX-19 (email from Craig to Jim and Ed Wes (May 25, 2004)).

[12] PTX-49 (email from Garrett Price to eBay executives stating his belief that "anything we pay to [Knowlton] we also have to pay to Craig and Jim[.]" (July 29, 2004)).

[13] PTX-24 (email from Brian Levey to eBay executives (June 1, 2004)).

[14] Id.

[15] The exact mechanics of eBay's investment are not relevant to the legal issues in these proceedings, so I will not burden the reader by spelling them out. In sum, eBay paid Knowlton $16 million directly for an option to purchase his shares (this option was exercised at the closing of eBay's investment) and eBay paid Jim and Craig $8 million each (which they received via a special craigslist dividend in conjunction with eBay's investment).

[16] Contrary to what the reader might expect, however, this case does not involve claims for breach of contract. Thus, the SPA, the Shareholders' Agreement, and the Jim-Craig Voting Agreement are not significant to a contractual dispute between Jim, Craig, and eBay. Rather, eBay uses these agreements to color its arguments that Jim and Craig breached their fiduciary duties.

[17] Throughout this Opinion I refer to eBay, Inc. and eBay Holdings simply as "eBay" except in one or two instances where the separateness of the two entities has legal significance.

[18] PTX-73 (the "Shareholders' Agreement" (Aug. 9, 2004)) § 4.3.

[19] Id. § 4.6(a)(iii).

[20] Id. § 4.6(a)(i).

[21] Id. § 4.6(a)(v).

[22] Id. § 4.6(a)(vii).

[23] For example, during negotiations, Price sent an email to eBay executives explaining that Jim and Craig understood that if they insisted eBay sign a non-compete agreement it would be "a defcon 5/deal breaker issue" for eBay. PTX-30 (email from Garret Price to eBay executives (June 24, 2004)). I include this email in the story (1) to illustrate how strongly eBay felt about maintaining the right to compete and (2) because we all appreciate a good reference now and then to the Defense Readiness Condition ("DefCon") of the armed forces. A good DefCon reference, however, is even better when it makes use of the appropriate DefCon level. Accordingly, Price's DefCon reference would have been more adept if he had used DefCon 1, which signals "maximum force readiness." See Description of DefCon Defense Condition, Federation of American Scientists, http://www.fas.org/nuke/ guide/usa/c3i/defcon.htm (last visited August 12, 2010); see also WARGAMES (Metro-Goldwyn-Mayer 1983) (Dr. McKittrick: "See that sign up here—up here. `DefCon.' That indicates our current `def'ense `con'dition. It should read `DefCon 5,' which means peace. It's still 4 because of that little stunt you pulled. Actually, if we hadn't caught it in time, it might have gone to DefCon 1. You know what that means, David?" David: "No. What does that mean?" Dr. McKittrick: "World War Three."). Price, however, referenced DefCon 5, which merely signals "normal peacetime readiness." I assume, therefore, that Price's reference to DefCon 5 is not an accurate characterization of what eBay's negotiation stance would have been had Jim and Craig fired a mandatory non-compete across eBay's bow.

[24] Section 8.3 of the Shareholders' Agreement plainly states that eBay does not "have any obligation to refrain from engaging in Competitive Activity."

[25] Shareholders' Agreement § 1.1(a).

[26] Id. § 8.3.

[27] PTX-74 (the "Jim-Craig Voting Agreement" (Aug. 9, 2004)) ¶ 2.

[28] That is, eBay's 28.4% ownership stake was a sufficiently large enough interest to ensure eBay would be able to unilaterally elect one of the three craigslist directors.

[29] Tr. at 160:23 (Omidyar).

[30] PTX-28 (email from Pierre Omidyar to Garrett Price (June 19, 2004)).

[31] Tr. at 185:6-11 (Omidyar).

[32] Id.

[33] See, e.g., DX-263 (email from Garrett Price to eBay executives (Oct. 25, 2004)).

[34] DX-087 (presentation materials for the February 1, 2005 craigslist board meeting) at 8484.

[35] Id. at 8485.

[36] Id. at 8522.

[37] Whitman attended a dinner with Jim and Craig after the board meeting but did not attend the board meeting itself.

[38] PTX-162 (eBay's agenda items for the February 1, 2005 craigslist board meeting) at 30089.

[39] Id.

[40] Tr. at 201:6 (Omidyar).

[41] Id. at 203:15 (Omidyar).

[42] PTX-189 (email from Garrett Price to Jim and Craig (Mar. 21, 2005)).

[43] After which, presumably, eBay might have the opportunity to acquire more craigslist shares or a larger ownership stake.

[44] PTX-197 (presentation materials for the March 28, 2005 craigslist board meeting) at 45859.

[45] See DX-202 (classifieds strategy presentation for the June 23, 2004 eBay board meeting) at 11911.

[46] eBay also had the ability to block certain craigslist actions (e.g., issuance of new shares) through its consent rights and so could influence craigslist in that way.

[47] DX-371 (letter from eBay's outside counsel to the NYAG (Apr. 27, 2005)).

[48] Id.

[49] DX-264 (email from Erik Hansen to Garrett Price (Oct. 19, 2004)); Tr. at 1052:13-19 (Price).

[50] DX-076.01 (email from Josh Silverman to Garrett Price and eBay employee Adam Friedman with projections data attached (Nov. 9, 2004)).

[51] DX-382 (email from eBay executive Alex Kazim to eBay employees announcing that Randy Ching had been assigned "global responsibility for Kijiji[.]" (June 28, 2005)); DX-102.02 (email from Josh Silverman to eBay accounting personnel instructing them to include Randy Ching on periodic distributions of craigslist financial statements (June 26, 2006)). Silverman received craigslist's financial statements because the Shareholders' Agreement required craigslist to forward its financial information to eBay on a monthly basis. Shareholders' Agreement § 4.1(d).

[52] Tr. at 629:11-15 (Levey) ("Q. You took confidential craigslist information and you gave it to the people at eBay that were planning to launch Kijiji in the United States in the spring of 2007, didn't you? A. Yes."); Id. at 750:23-752:12 (Levey).

[53] DX-474 (email from Brian Levey to Pat Kolek (Mar. 20, 2007)).

[54] DX-476 (email from Martin Herbst to Lawrence Illg (Apr. 3, 2007)).

[55] See, e.g., DX-128 (email from eBay employee Rob Veres to vendor captioned "Up for more scraping?" and containing the following proposition: "If you're interested in doing more scraping, we're interested in getting a complete scrape of craigslist—I think you did only the "goods" categories before, but now we'd want everything—all cities, all listings." (Apr. 30, 2004)); DX-620 (email from eBay employee Nancy Ramamurthi to a group of eBay executives regarding an upcoming meeting with Meg Whitman, explaining that Whitman "asks" for the next meeting to include a "[c]raigslist performance update: will have to rely on 3rd party sources and use, if possible, our scraping service." (May 2, 2006)); DX-130 (email from eBay employee Stephanie Ma to Martin Herbst: "Martin—I'm working on a project with the motors team and David Boyer suggested that you may have a scrape of Craigslist that shows the distribution of listings across categories and cities. If available, would you please send it over to us?" (July 10, 2007)).

[56] DX-488 (email from Brian Levey to Ed Wes attaching a term sheet of eBay's proposed changes to the Shareholders' Agreement (June 22, 2007)).

[57] PTX-284 (email from Jim to Meg Whitman (July 12, 2007)).

[58] PTX-286 (email from Ed Wes to Jim (July 16, 2007)).

[59] DX-697 (email from Meg Whitman to Jim (July 23, 2007)).

[60] At trial, eBay argued that Craig wholly abandoned his role as a craigslist director and was not involved whatsoever in the deliberations leading to adoption of the 2008 Board Actions. This is inaccurate. Jim clearly was more involved in the process than Craig, but there is sufficient evidence that Craig informed himself of the 2008 Board Actions before approving them. Accordingly, eBay's contention that Craig breached his duty of care is without merit.

[61] See, e.g., DX-512 (writing to craigslist staff and noting the potential for monetary damages, a craigslist user explained the following: "I just searched Google about 1 minute ago and the top advertised link came in as: Sponsored Link Craigslist Com www.Kijiji.com 100% Free local classifieds site! Compare Kijiji & Craigslist. I clicked on it and it goes to Kijiji but I typed in [] my search on Google.com as: `www.craigslist.com' You may want to have a word with someone. Best of luck, and 10% to me . . ."); DX-514 (email from Terry Richards, administrator of the Fredericksburg, Virginia local online classifieds site BurgBoard.com, to Craig captioned "Kijiji or whatever the hell its [sic] called" stating: "Craig, How goes it? I was browsing some classified sites in VA and noticed this adsense ad that Kijijiji [sic] (WTF) is running . . . I think it is unethical and unfair to your business to run ads with your brand in it." (Oct. 11, 2007)). Richard's spelling of Kijiji with an extra "ji" was obviously intentional.

[62] Whitman forwarded Jim's email to Aqraou's Kijiji team asking that a response be issued. There is no evidence a response was made, but employees with the Kijiji team noted that eBay could "turn off the U.S. paid stuff easily." DX-516 (email from Lawrence Illg to Jacob Aqraou (Oct. 11, 2007)).

[63] PTX-320 (Jim's personal notes regarding the poison pill and rights of first refusal measures the craigslist board was considering (Oct. 31, 2007)).

[64] Article VIII of the restated charter and Article 3.3 of the restated bylaws implemented a staggered board. PTX-361 (Second Amended and Restated Certificate of Incorporation of craigslist, Inc. (Jan. 2, 2008)) ("Restated Charter"); PTX-360 (Amended and Restated Bylaws of craigslist, Inc. (Jan. 2, 2008)).

[65] Given that it is 2010 and both Jim and Craig remain on the craigslist board, it is safe to assume they reelected themselves in 2008 and 2009 in their capacity as stockholders, though no evidence was presented on this point. Presumably, each voted for the other as required by the Jim-Craig Voting Agreement.

[66] PTX-362 (Statement of Rights (Jan. 2, 2008)) § 1(d)(iii). The parties dispute whether the Rights Plan would treat eBay as the "Beneficial Owner" of Jim or Craig's shares in the event either Jim or Craig gave eBay a revocable proxy to vote their shares. eBay argues that it would be treated as a "Beneficial Owner" of Jim or Craig's shares in such a case and therefore cannot engage in a proxy contest without triggering the rights. Jim and Craig, however, argue that the Rights Plan permits revocable proxies. As I will describe below, I need not settle this dispute.

[67] Under the right of first refusal agreement, craigslist may accelerate this timetable by issuing a notice to eBay, at any time, that eBay has thirty days to execute the joinder before eBay's opportunity to become a party to the agreement will terminate. PTX-359 (Right of First Refusal Agreement (Jan. 2, 2008)) § 1.1.

[68] Id. § 3.2(b).

[69] See 1 Samuel 17:43 (Goliath expressing annoyance when David first confronts him with staff, sling, and stone: "Am I a dog, that thou comest to me with staves?").

[70] I realize, of course, that in some circles craigslist may already be enjoying a "davidvs-goliath" public relations benefit, independent of the legal merits of this case. I also realize that there is some irony in referring to craigslist as "David" and eBay as "Goliath," given craigslist's dominance in the field of online classifieds and eBay's position as a minority stockholder here. That irony has its limits, however, as eBay clearly dwarfs craigslist by any other measure of business scale or scope.

[71] Samuel 17:44-51 (describing David's prodigious thumping of Goliath).

[72] Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1280 (Del.1989).

[73] Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334, 1344 (Del. 1987).

[74] Dubroff v. Wren Holdings, LLC, 2009 WL 1478697, at *3 (Del.Ch. May 22, 2009) ("Delaware case law has recognized that a number of shareholders, each of whom individually cannot exert control over the corporation (either through majority ownership or significant voting power coupled with formidable managerial power), can collectively form a control group where those shareholders are connected in some legally significant way— e.g., by contract, common ownership, agreement, or other arrangement—to work together toward a shared goal. In that case, the control group is accorded controlling shareholder status, and, therefore, its members owe fiduciary duties to their fellow shareholders.").

[75] For example, eBay contends that § 8.3 of the Shareholders' Agreement precluded craigslist from implementing the 2008 Board Actions because eBay's loss of consent rights, preemptive rights, and rights of first refusal were to be "the sole remedy for any action brought by [craigslist] against [eBay] . . . that may arise from or as a result of [eBay] . . . engaging in Competitive Activity. . . ." I take a moment to address eBay's argument about § 8.3 of the Shareholders' Agreement, even though doing so is gratuitous because, as I will explain below, this argument fundamentally asserts that Jim and Craig caused craigslist to breach the Shareholders' Agreement. eBay did not, however, make a claim for breach of contract in its complaint. Had eBay asserted a claim alleging breach of § 8.3, however, I would not have been persuaded. A plain reading of the text demonstrates that § 8.3 simply limits the remedies craigslist can obtain by filing suit (i.e., "bringing an action") against eBay based on eBay's Competitive Activity. Section 8.3 does not apply to the 2008 Board Actions because the Actions did not involve a lawsuit brought by craigslist against eBay. Moreover, nothing in § 8.3 expressly prohibits craigslist from implementing corporate governance or capital structure changes in response to eBay's Competitive Activity. Accordingly, § 8.3 of the Shareholders' Agreement did not preclude craigslist from implementing the 2008 Board Actions.

[76] For example, eBay argues that during negotiations for the SPA and the Shareholders' Agreement, Jim and Craig were unable to get eBay to agree that Jim and Craig would both have the right to consent to additional purchases of craigslist shares by eBay. eBay asserts that Jim and Craig secured this benefit through the Rights Plan, contending that the Rights Plan effectively requires both Jim and Craig to consent before eBay can purchase additional craigslist shares, because additional purchases by eBay will trigger the rights unless both Jim and Craig, as directors, vote to make the Rights Plan inapplicable to eBay's purchases.

[77] The complaint contains seven counts: Count I is a claim for breach of fiduciary duty related to director indemnification agreements which was dismissed, Count II is a claim for waste related to director indemnification agreements which was dismissed, Count III is a claim for breach of fiduciary duty in connection with the ROFR/Dilutive Issuance, Counts IV and V are claims that the ROFR/Dilutive Issuance violate the DGCL, Count VI is a claim for breach of fiduciary duty in connection with the Rights Plan, and Count VII is a claim for breach of fiduciary duty in connection with the Staggered Board Amendments.

[78] Although I am only required to determine whether Jim and Craig breached their fiduciary duties to resolve this dispute, this Opinion unavoidably engages in some contractual analysis because eBay often attempts to prove a breach of fiduciary duty by arguing that the 2008 Board Actions violated the SPA and the Shareholders' Agreement.

[79] MM Companies, Inc. v. Liquid Audio, Inc., 813 A.2d 1118, 1127 (Del.2003).

[80] 493 A.2d 946 (Del. 1985).

[81] Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1386-87 (Del.1995).

[82] There could well be instances where a staggered board provision is adopted as a defensive device to a takeover threat. See Eric S. Robinson, Classified Boards Once Again Prove Their Value to Shareholders in Recent Takeover Battle, THE HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE AND FINANCIAL REGULATION, Aug. 20, 2007, http:// blogs.law.harvard.edu/corpgov/files/2007/10/ 20071020-staggered-boards.pdf. This case, however, is not such an instance.

[83] Mercier v. Inter-Tel (Delaware), Inc., 929 A.2d 786, 807 (Del.Ch.2007).

[84] Id.

[85] See, e.g., Yucaipa Am. Alliance Fund II, L.P. v. Riggio, 1 A.3d 310 (Del.Ch.2010); Moran v. Household Int'l, Inc., 500 A.2d 1346 (Del.1985).

[86] Coercive offers of this type were frequently used in the 1980's, and the Supreme Court addressed the propriety of board defensive actions in a series of decisions, beginning with Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 956 (Del. 1985) ("It is now well recognized that such offers are a classic coercive measure designed to stampede shareholders into tendering at the first tier, even if the price is inadequate, out of fear of what they will receive at the back end of the transaction.") (citation omitted) and then continuing with Moran, 500 A.2d at 1357 (upholding a rights plan that directors implemented to protect the company from future coercive acquisition techniques, including boot-strap and bust-up takeovers in the form of two-tiered offers) and Revlon Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) (holding that although a rights plan's usefulness was mooted by subsequent board action, the board's initial decision to adopt the rights plan was reasonable to counter a threat in the form of a hostile takeover at a price below what the board reasonably concluded was the company's intrinsic value).

[87] See City Capital Assocs. v. Interco Inc., 551 A.2d 787, 798 (Del.Ch. 1988) ("If [a board's determination of price inadequacy] is made in good faith . . . it alone will justify leaving a poison pill in place, even in the setting of a noncoercive offer, for a period while the board exercises its good faith business judgment to take such steps as it deems appropriate to protect and advance shareholder interests in light of the significant development that such an offer doubtless is. That action may entail negotiation on behalf of shareholders with the offeror, the institution of a Revlon-style auction for the Company, a recapitalization or restructuring designed as an alternative to the offer, or other action.") (citation omitted). Cf. Paramount Commc'ns, Inc. v. Time Inc., 1989 WL 79880 (Del.Ch. July 14, 1989), aff'd, 571 A.2d 1140 (Del. 1990).

[88] See, e.g., Yucaipa, 1 A.3d 310 (holding that given the specific facts of the case, the board had made a reasonable judgment that there was a threat to the corporation and had employed a rights plan that was a reasonable and proportional response to that threat); Interco Inc., 551 A.2d 787 (granting an injunction requiring board of directors to redeem a rights plan, given that the noncoercive stock offer presented only a mild threat to stockholders' economic interests and, thus, did not justify use of a rights plan that would preclude the stockholders from accepting the offer).

[89] See, e.g., Selectica, Inc. v. Versata Enters., Inc., 2010 WL 703062 (Del.Ch. Feb. 26, 2010) (declaring valid a board's decision to adopt and deploy a poison pill with a low trigger of 4.99% in an effort to preserve the company's right to use its tax-advantageous net operating losses).

[90] See, e.g., Yucaipa, 1 A.3d 310; Louisiana Mun. Police Employees' Ret. Sys. v. Fertitta, 2009 WL 2263406, at *5 (Del.Ch. July 28, 2009) (noting that although a board must have been aware of defendant's creeping takeover, the board did nothing to stop the accumulation of shares, such as reach a standstill agreement or adopt a rights plan). Cf. Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334 (Del.1987) (holding that a comprehensive defensive scheme—consisting of a dividend, a standstill agreement, and a street sweep—met the Unocal test for a reasonable and proportional response to a perceived threat to the corporation).

[91] See, e.g., Unocal, 493 A.2d at 954 ("Because of the omnipresent specter that a board may be acting primarily in its own interests, rather than those of the corporation and its shareholders, there is an enhanced duty which calls for judicial examination at the threshold before the protections of the business judgment rule may be conferred."). See also Selectica, Inc., 2010 WL 703062, at *12 (applying enhanced scrutiny due to the omnipresent specter discussed in Unocal); Kahn on Behalf of DeKalb Genetics Corp. v. Roberts, 679 A.2d 460, 464 (Del. 1996) (acknowledging the omnipresent specter discussed in Unocal); Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1373 (Del.1995) (noting that the Delaware Supreme Court "has recognized that directors are often confronted with an inherent conflict of interest during contests for corporate control because of the omnipresent specter that a board may be acting primarily in its own interests, rather than those of the corporation and its shareholders.") (quotation omitted).

[92] Mercier v. Inter-Tel (Delaware), Inc., 929 A.2d 786, 807 (Del.Ch.2007) (citing Unocal, 493 A.2d at 955).

[93] See, e.g., Venhill Ltd. P'ship ex rel. Stallkamp, 2008 WL 2270488, at *1 (Del.Ch. June 3, 2008) ("[I]t is not only greed that can inspire disloyal behavior by a business fiduciary."); In re RJR Nabisco, Inc. S'holders Litig., 1989 WL 7036, at *15 (Del.Ch. Jan. 31, 1989) ("Greed is not the only human emotion that can pull one from the path of propriety; so might hatred, lust, envy, revenge, or, as is here alleged, shame or pride. Indeed any human emotion may cause a director to place his own interests, preferences or appetites before the welfare of the corporation. . . ."); Interco Inc., 551 A.2d at 796 ("[H]uman nature may incline even one acting in subjective good faith to rationalize as right that which is merely personally beneficial.").

[94] See Unitrin, Inc., 651 A.2d at 1387-88 ("If a defensive measure is not draconian, however, because it is not either coercive or preclusive, the Unocal proportionality test requires the focus of enhanced judicial scrutiny to shift to `the range of reasonableness'") (citing Paramount Commc'ns, Inc. v. QVC Network, Inc., 637 A.2d 34, 45-46 (Del. 1994)); see also Chesapeake Corp. v. Shore, 771 A.2d 293, 323, 329 (Del.Ch.2000) (explaining that although the Court will "afford a reasonable degree of deference to a properly functioning board that identifies a threat and adopts proportionate defenses after a careful and good faith inquiry," "subjectively well-intentioned board action that has preclusive or coercive effects" is nonetheless subject to intermediate scrutiny by the Court); see generally Mercier, 929 A.2d 786.

[95] Experts in this field have noted the rarity of a private company adopting a rights plan. See, e.g., LOU R. KLING & EILEEN T. NUGENT, NEGOTIATED ACQUISITIONS OF COMPANIES, SUBSIDIARIES AND DIVISIONS, § 16.06 n. 1 (2010) ("In theory, there is no reason why a private company, if its shares were sufficiently widely held, could not adopt such a plan. In our experience, this rarely occurs, either because the ownership of such companies is not sufficiently dispersed to make them vulnerable to hostile takeovers or, conversely, because the shareholders do not wish to cede to their boards the ability to control such a powerful defensive weapon if an unsolicited takeover were attempted.").

[96] Interco Inc., 551 A.2d at 796.

[97] William T. Allen, Jack B. Jacobs & Leo E. Strine, Jr., The Great Takeover Debate: A Meditation on Bridging the Conceptual Divide, 69 U. CHI. L.REV. 1067, 1093 (2002) (discussing "[t]he original insight in Unocal that justifies [a] more intensive form of review," and describing that insight as the consideration "that when directors and managers face displacement by an offer they did not solicit, a variety of human emotions can potentially compromise their ability to respond to that offer impartially.").

[98] Kurz v. Holbrook, 989 A.2d 140, 183 (Del. Ch.2010), rev'd on other grounds, 992 A.2d 377 (Del.2010).

[99] See Selectica, Inc. v. Versata Enters., Inc., 2010 WL 703062 (Del.Ch. Feb. 26, 2010) (declaring valid a board's decision to adopt and deploy a poison pill with a low trigger of 4.99% in an effort to preserve the company's right to use its tax-advantageous net operating losses).

[100] Defs.' Post-Trial Answering Br. 54.

[101] 571 A.2d 1140 (Del. 1990).

[102] The defendants also cite Kors v. Carey, 158 A.2d 136 (Del.Ch. 1960), a decision issued long before Mr. Lipton's invention of the pill and the Delaware Supreme Court's revolutionary creation of the intermediate standard of enhanced scrutiny. I cannot regard Kors as persuasive authority in light of the quite different approach to the review of defensive board action that prevailed during that era (the 1950's) and the watershed era of Unocal, Revlon, and Moran (the 1980's).

[103] Paramount Commc'ns, Inc. v. Time Inc., 1989 WL 79880, at *4 (Del.Ch. July 14, 1989), aff'd, 571 A.2d 1140 (Del.1990).

[104] See Joel E. Friedlander, Corporation and Kulturkampf: Time Culture as Illegal Fiction, 29 CONN. L.REV. 31, 38-40, 115 (1996); Joel E. Friedlander, Overturn Time-Warner Three Different Ways, 33 DEL. J. CORP. L. 631 (2008); Alan E. Garfield, Paramount: The Mixed Merits of Mush, 17 DEL. J. CORP. L. 33 (1992).

[105] E.g., Revlon Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 183 (Del. 1986) ("Although such considerations [of non-stockholder corporate constituencies and interests] may be permissible, there are fundamental limitations upon that prerogative. A board may have regard for various constituencies in discharging its responsibilities, provided there are rationally related benefits accruing to the stockholders."). See also ROBERT C. CLARK, CORPORATE LAW § 16.2 (1986) (discussing views about the corporation's proper role); Jonathan Macey, A Close Read of an Excellent Commentary on Dodge v. Ford, 3 VA. L. & BUS. REV. 177, 179 (2008) (suggesting that boards can take action that may not seem to directly maximize profits, so long as there is some plausible connection to a rational business purpose that ultimately benefits stockholders in some way; the benefit to other constituencies cannot be at the stockholders' expense).

[106] The evidence does not suggest that Jim or Craig falls into the category of stockholders of modest means, at least according to the average person's definition of "modest."

[107] See Mentor Graphics Corp. v. Quickturn Design Sys., Inc., 728 A.2d 25, 50-51 (Del.Ch. 1998) (enjoining a poison pill because, although it was neither coercive nor preclusive, it fell outside the range of reasonableness and therefore failed the proportionality test), aff'd on different grounds, 721 A.2d 1281 (Del. 1998).

[108] See Restated Charter, Article VIII ("The number of directors of the corporation shall be fixed, and may be increased or decreased from time to time, exclusively by resolution approved by the affirmative vote of a majority of the whole Board of Directors[.]").

[109] See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del.1985).

[110] Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1373 (Del.1995) (quoting Aronson v. Lewis, 473 A.2d 805, 811 (Del.1984)).

[111] Id. (quoting Unocal, 493 A.2d at 954).

[112] Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 360 (Del. 1993).

[113] Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1162 (Del. 1995).

[114] Aronson, 473 A.2d at 812.

[115] Citron v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 64 (Del. 1989).

[116] Id.

[117] Cede & Co. v. Technicolor, Inc., 634 A.2d at 361. These three alternatives are not an exhaustive list of ways a plaintiff may invoke entire fairness review.

[118] 2009 WL 3165613 (Del.Ch. Oct. 2, 2009).

[119] 1994 WL 413299 (Del.Ch. July 27, 1994).

[120] 1992 WL 25758 (Del.Ch. Feb. 11, 1992).

[121] See, e.g., Pl.'s Post-Trial Op. Br. 53.

[122] Disparate treatment of stockholders is not a per se violation of Delaware law. See Nixon v. Blackwell, 626 A.2d 1366 (Del. 1993) (concluding that defendants had established entire fairness of a policy that treated employee stockholders and non-employee stockholders differently).

[123] Litle, 1992 WL 25758, at *4 (citing Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984)).

[124] See In re John Q. Hammons Hotels, Inc., 2009 WL 3165613, at *18; Hamilton, 1994 WL 413299, at *7; Litle, 1992 WL 25758, at *4.

[125] In In re John Q. Hammons Hotels, Inc., the Court held that certain procedural protections could have been implemented ab initio that would have neutralized the threat of self-dealing by the fiduciary and rendered the transaction subject to business judgment review. 2009 WL 3165613, at *12.

[126] See 8 Del. C. § 214.

[127] 8 Del. C. § 141(d).

[128] Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437, 439 (Del.1971).

[129] See, e.g., Pl.'s Post-Trial Opening Br. 1 ("The purpose of [the 2008 Board Actions] was (and is) to secure for [Jim and Craig] benefits they did not secure in 2004, when eBay negotiated the terms of its investment in craigslist.").

[130] eBay argues that it negotiated for and secured the right to unilaterally elect a director to the craigslist board, even if eBay engaged in Competitive Activity, through § 6.18 of the SPA. The SPA required eBay to support craigslist's change in corporate domicile from California to Delaware in 2004 provided "that such [such] reincorporation shall not result in a material change in [eBay's] rights as a shareholder of [craigslist]." eBay contends that § 6.18 was intended to forever secure for eBay the rights of a stockholder in a non-listed California corporation. Because California law requires non-listed corporations to adopt cumulative voting and precludes staggered boards, eBay contends that the Staggered Board Amendments materially changed eBay's stockholder rights in violation of § 6.18. I am not persuaded by this argument. Section 6.18 confirmed the parties' intent to reincorporate craigslist in Delaware and contains a covenant, subject to a proviso, for eBay to consent to the reincorporation. The proviso would have allowed eBay to withhold its consent to reincorporation if the reincorporation were to materially change eBay's rights as a craigslist stockholder. eBay agreed with the terms of reincorporation in a signed written consent. DX-758 (written stockholders' consent approving merger of 1010 Cole Street into craigslist, signed on eBay's behalf by Brian Levey (Oct. 18, 2004)). Once craigslist reincorporated in Delaware, the proviso and covenant in § 6.18 were both satisfied and had no further application. From that point forward, eBay's stockholder rights were governed by Delaware law, not California law. Nothing in § 6.18 suggests that the parties intended for eBay to forever have the rights of a minority stockholder of a California corporation. Rights in contravention of the default rules of the DGCL must be clearly, unambiguously, and affirmatively expressed. See, e.g., Centaur Partners, IV v. Nat'l Intergroup, Inc., 582 A.2d 923, 926-27 (Del. 1990) ("In order to abrogate the [default DGCL rule] of plurality control, charter and by-law provisions purporting to have that effect must be clear and unambiguous"). Section 6.18 does not clearly express that eBay was forever entitled to cumulative voting and a non-staggered board.

[131] In re The Walt Disney Co. Derivative Litig., 906 A.2d 27, 52 (Del.2006).

[132] Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del.1971).

[133] DX-371 (letter from eBay's outside counsel to the NYAG (Apr. 27, 2005)).

[134] Evidence presented in this case suggests that eBay liberally passed nonpublic craigslist information around within eBay's departments. Some of this nonpublic information was information eBay obtained at craigslist board meetings (e.g., craigslist's 2007 budget). It even appears that eBay used some of craigslist's nonpublic information to develop and launch Kijiji. Moreover, by the time Jim and Craig implemented the Staggered Board Amendments they were aware that Google AdWords were misdirecting internet users searching for "craigslist" to Kijiji. Jim and Craig had reason to suspect eBay was behind the misdirection, particularly because no one at eBay responded to Jim's accusation that eBay was misusing the AdWords. It was reasonable for Jim and Craig to further suspect that if eBay was willing to misuse AdWords to advantage Kijiji at craigslist's expense, eBay would also be willing to use, for its own advantage, nonpublic craigslist information obtained in craigslist board meetings. I discuss the evidence of eBay's alleged misuse of craigslist's nonpublic information simply to better illustrate why it would be rational for a corporate board to wish to limit competitor access to nonpublic information. Jim and Craig's suspicion that eBay was misusing information is not a basis for my opinion regarding the propriety of the staggered board; Jim and Craig would have acted rationally even if they did not already suspect eBay of malfeasance when they staggered the board. Whether there has been actual malfeasance or not, a rational business purpose is served by limiting a competitor's access to nonpublic information.

[135] Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) ("[T]he business judgment rule . . . protect[s] corporate officers and directors and the decisions they make, and our courts will not second-guess these business judgments.").

[136] Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984); Orman v. Cullman, 794 A.2d 5, 22 (Del.Ch.2002).

[137] Cede & Co. v. Technicolor, Inc., 634 A.2d at 363 (holding that an individual director is "interested" in a transaction only where the director's interest is material); Orman, 794 A.2d at 23.

[138] Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1279 (Del.1989).

[139] Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del.1983).

[140] See Mills Acquisition Co., 559 A.2d at 1264-65 (reversing the Court of Chancery's decision not to enjoin an asset option agreement that the board entered into in breach of its duties of loyalty and care).

[141] Weinberger, 457 A.2d at 711.

[142] Id.

[143] Rosenblatt v. Getty Oil Co., 493 A.2d 929, 940 (Del. 1985).

[144] Weinberger, 457 A.2d at 711.

[145] Id.

[146] Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1172 (Del.1995) ("[A]rm's-length negotiation provides strong evidence that the transaction meets the test of fairness.") (internal quotations omitted); Monroe County Employees' Ret. Sys. v. Carlson, 2010 WL 2376890, at *2 (Del.Ch. June 7, 2010) (granting a motion to dismiss on the basis that, regardless of allegations relating to unfair dealing, there were "no factual allegations geared towards proving that the . . . transactions were executed at an unfair price.").

[147] But see 8 Del. C. § 144 (providing for three routes by which an interested director or officer can prevent invalidation of an agreement solely on the basis of his or her interest and involvement in the agreement); Gantler v. Stephens, 965 A.2d 695, 713 (Del. 2009) ("[R]estor[ing] coherence and clarity" to Delaware's common law doctrine of shareholder ratification by limiting the doctrine to "circumstances where a fully informed shareholder vote approves director action that does not legally require shareholder approval in order to become legally effective."); In re Wheelabrator Techs., Inc. S'holders Litig., 663 A.2d 1194, 1203 (Del.Ch.1995) ("Approval by fully informed, disinterested shareholders pursuant to § 144(a)(2) invokes `the business judgment rule and limits judicial review to issues of gift or waste with the burden of proof upon the party attacking the transaction.'") (quoting Marciano v. Nakash, 535 A.2d 400, 405 n. 3 (Del. 1987)). There also is a burden-shifting mechanism, rather than standard-shifting mechanism, which applies to transactions between a corporation and its controlling stockholder—as compared to those between a corporation and its directors or officers. See id. (citing cases that hold when minority stockholders ratify such a transaction, "the standard of review remains entire fairness, but the burden of demonstrating that the [transaction] was unfair shifts to the plaintiff") (citations omitted). However, neither mechanism applies here. Jim and Craig are not disinterested stockholders (meaning they cannot ratify their own decision as directors and shift the standard from entire fairness to business judgment), and eBay has not ratified a transaction as craigslist's minority stockholder (meaning there is no burden shift; indeed, eBay itself is the plaintiff). Thus, the appropriate standard of review is entire fairness, and it is Jim and Craig's burden to prove that the ROFR/Dilutive Issuance was entirely fair.

[148] Shareholders' Agreement § 8.3.

[149] Id. § 4.6(a)(i).

[150] Id. § 4.6(a)(v).

[151] Id. § 5.1.

[152] The parties did not argue and I, therefore, need not decide whether the ROFR/Dilutive Issuance (which is governed by Delaware law) created a personal property interest, not held in trust, that might not vest within twenty-one years of a life in being at the time the interest was created, in violation of the rule against perpetuities. See Stuart Kingston, Inc. v. Robinson, 596 A.2d 1378, 1383 (Del.1991).

[153] Shareholders' Agreement § 8.3.

[154] See D.I. Walker, Rethinking Rights of First Refusal, 5 STAN. J.L. BUS. & FIN. 1, 18 (1999) ("The existence of an insider with an informational advantage affects the outsider's expected return and willingness to enter the bidding. If the better informed insider knows that the true property value is higher than the outsider believes, the insider will tend to buy. In the reverse situation, the insider will refrain. The net result should be that the informationally disadvantaged outsider tends to succeed when true value is low and to fail when true value is high.").

[155] Id. at 17 ("The uncertainty created by the specter of potential insider idiosyncratic value reduces the outsider's expected payoff and generally lowers an outsider's interest. Intuition suggests that the potential for idiosyncratic value correlates roughly with uniqueness. Close corporation shares are quite unique and have a high potential for insider idiosyncratic value. Commercial property tends to be less unique and generally carries less idiosyncratic value.") (emphasis added).

[156] Right of First Refusal Agreement § 3.1(a) ("[E]ach Stockholder agrees not to offer to sell all or any portion of such Stockholder's Equity Securities, unless: . . . (ii) the terms of such transfer require the proposed third-party transferee (the "Proposed Transferee") to enter into a Joinder Agreement and to acknowledge that any Offered Shares purchased by the Proposed Transferee shall continue to be subject to the rights of the Company pursuant to this Agreement.").

[157] The illiquidity discount on eBay's shares may simply have resulted in a deadweight loss to eBay.

[158] This factual determination is based primarily on my evaluation of Jim and Craig's trial testimony. It is also based on an extensive review of the trial record, including relevant exhibits and deposition transcripts.

[159] 8 Del. C. § 202(c)(1); Grynberg v. Burke, 378 A.2d 139, 142-43 (Del.Ch. 1977).

[160] eBay alleges that the ROFR/Dilutive Issuance was also the product of unfair dealing. I need not explore those allegations because I have concluded that the ROFR/Dilutive Issuance does not satisfy the fair price element of the entire fairness test.

[161] See Pl.'s Post-Trial Opening Br. 86 n.60; Defs.' Post-Trial Answering Br. 79 n.69.

[162] Section 9.8 provides: "In the event that any suit or action is instituted under or in relation to this Agreement, including, without limitation, to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including, without limitation such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals."

[163] Dover Historical Soc., Inc. v. City of Dover Planning Comm'n, 902 A.2d 1084, 1090 (Del. 2006).

[164] Mainiero v. Tanter, 2003 WL 21003260, at *2 (Del.Ch. Apr. 25, 2003).

[165] Reagan v. Randell, 2002 WL 1402233, at *3 (Del.Ch. June 21, 2002).

[166] Kaung v. Cole Nat'l Corp., 2004 WL 1921249, at *6 (Del.Ch. Aug. 27, 2004), aff'd in part, rev'd in part, 884 A.2d 500 (Del.2005).

[167] VGS, Inc. v. Castiel, 2001 WL 1154430, at *2 (Del.Ch. Sept. 25, 2001).

[168] In re Sunbelt Beverage Corp. S'holder Litig., 2010 WL 26539, at *15 (Del.Ch. Jan. 5, 2010) (holding that fee shifting was inappropriate where there was a legal issue in the case upon which the parties reasonably could differ).

[169] See, e.g., Arbitrium (Cayman Islands) Handels AG v. Johnston, 705 A.2d 225 (Del. Ch.1997) (finding that defendants acted in bad faith by, inter alia, opposing the action despite their knowledge that plaintiff's claim to majority stockholder status was valid, altering testimony, changing positions repeatedly, and falsifying evidence at trial), aff'd, 720 A.2d 542 (Del.1998).

[170] Belanger v. Fab Indus., Inc., 2004 WL 3030517, at *1 (Del.Ch. Dec. 29, 2004) (internal quotations omitted).

[171] eBay Domestic Holdings, Inc. v. Newmark, 2009 WL 3205674, at *2 (Del.Ch. Oct. 2, 2009).

[172] Id.

[173] Belanger, 2004 WL 3030517, at *2 ("Because Count I was premature and not ripe, Count I was not meritorious when filed.").

[174] Id.