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Can Corporate Status Protect An Anti-corporate Site From Liability For Sabotage?

Monday, Nov. 19, 2001

There is an aphorism that has been adopted by various radical critics of the current legal system: "The Master's tools will be used to take apart the Master's house." It suggests, of course, that the best way to oppose powerful interests in society is not to confront them up front, but to work subtly, from within. But it also suggests a deeper point — the point that when it comes to capitalism, the very weapons that helped one side today can be used to help the other side tomorrow.

This is a intriguing theory, and it is very comforting for lawyers, because it suggests that by doing exactly what they were trained to do, they will eventually be able to help the forces of change. Now it seems that some Internet professionals have taken up the same perspective.

Since 1993, a corporation called RTMark — with the logo "®TMark" — has been carrying on "business" as a "broker" on the Internet. Its site contains the sort of graphics and language that one associates with the many Internet brokerage sites like E-Trade and Wit Capital that appeared in the late 90's. For instance, RTMark markets so-called "mutual funds" represented by symbols that look like stock ticker symbols.

On one level, RTMark is a big joke—it is a parody of the glitz and style-over-substance of the Internet boom, especially the Internet stock bubble. On another level, however, RTMark is a matchmaker between anti-corporate activists and anti-corporate donors.

The "mutual funds" are not truly groupings of securities; rather, they are projects that need money. For example, an investor may "invest" in the SUIC fund. The money in that fund, according to the site, will be used to "create a corporate suicide website precisely describing to CEOs how they can kill their own corporations (for whatever personal reasons they may have)."

At it deepest level, RTMark is an attempt at corporate jujitsu. RTMark is a corporation, and not just a bunch of friends in a chatroom, for a reason. Its website states that RTMark "benefits from 'limited liability' just like any other corporation; using this principle, [it] supports the sabotage (informative alteration) of corporate products, from dolls and children's learning tools to electronic action games . . . ."

RTMark's Activities: From Deconstructing Beck to Barbie Liberation

On June 12, 2001 an article published by the San Francisco Chronicle breathlessly stated that "as a registered corporation, RTMark protects its members from legal recourse for their mischievous actions through the Teflon-coated limited-liability feature of incorporation. Like any conglomerate, the company is responsible for actions, not the individuals behind them."

Do the people working with RTMark need this protection from legal liability? There is some reason to think the answer is yes.

The vast majority of the "mutual funds" offered by RTMark simply contain criticisms of corporations, which are likely to be viewed by a court as constitutionally-protected expressions of opinion. (For example, for a while RTMark's anti-WTO message was conveyed on its legally owned website But other activities have been viewed, at least by some, as violating legally protected interests.

For instance, Beck's record company, Geffen Records, noted in a letter to RTMark that it viewed "Deconstructing Beck", a CD of remastered portions of Beck's published work, as a violation of Beck's copyright.

While the purchase and the modification of the Barbies and Joes do not raise legal issues, the store returns likely do — for the returning customer generally warrants that the product being returned is the same as that which was bought.

Taunting Corporations Into Abridging Limited Liability?

Do these actions — pinpricks on the hides of huge corporate behemoths — have any broader meaning? Some in the press have suggested they do.

According to press accounts, RTMark may want to provoke the targets of their attacks to tighten the laws limiting corporate criminal and civil liability. The idea is that to go after RTMark and broaden its potential liability, corporations would seek legal changes — but then the changes for which they lobbied would turn around and bite them, for when they acted badly, their liability, too, would be broader than before.

The result? RTMark's founders might be held personally liable for some minor illegal act, but Firestone's president might face something more scary than angry shareholders the next time his tires fail.

Of course, it is highly unlikely that companies advised by high-priced lawyers would ever shoot themselves in the foot in this obvious way. Moreover, if this is RTMark's true goal, then the site needs to get a few facts straight about the law.

Limited Liability: Less Limited Than It Looks

First, RTMark itself may not really be a registered corporation entitled to limited liability. Its website does not give its address or place of incorporation, but no matter where it is incorporated, it may be in trouble.

In all 50 states, a corporation maintains its limited liability status if and only if it satisfies that state's Secretary of State (or its equivalent) that certain legal criteria have been met. In many states, one of those criteria is that a limited liability corporation must have as its major goal the pursuit of financial "profit" for its investors. Yet RTMark admits on its website that it defines profit not in terms of dollars, but the improvement of culture.

At least in theory, the answer is no. Notwithstanding what one might think from watching The Sopranos, tortious or criminal activity done by individuals cannot magically be made "corporate." If the owners of an enterprise use the enterprise to engage in a variety of criminal acts, including mail and wire fraud, they may be prosecuted personally under federal and state racketeering law and they may be sued personally under civil racketeering laws.

Furthermore, one does not even have to look to racketeering law to understand why the doctrine of "limited liability" is not an absolute bar to holding managers personally responsible for their wrongdoing: actual real-world prosecutions will suffice. Formally, at least, the law does not prevent corporate managers from being held liable in either criminal or civil law for their misdeeds, and sometimes prosecutions apply the law in precisely this formal way.

For example, in 1990, the former president of Film Recovery Systems, Inc, two officers, the plant manager, and the plant foreman were charged with involuntary manslaughter and murder and convicted in Illinois for the cyanide poisoning of an employee who had died as a result of safety violations at the workplace.

Why Do Individual Corporate Wrongdoers So Often Get Off the Hook?

Nevertheless, whatever the law formally may say, there is also a reality for which RTMark may be trying to get attention: Empirically, personal liability is very rarely assessed for acts performed by corporate managers in pursuit of corporate ends. (The Film Recovery Systems prosecutions were a rare counterexample.)

The reason for this state of affairs is complex, and has been the subject of a very large literature. There are two basic reasons, however, why plaintiffs' lawyers and prosecutors rarely pursue individual corporate officers for actions taken in the boardroom. (Securities plaintiffs' lawyers are an exception; as the increase in the cost of insurance for boards of directors demonstrates, they are not afraid to go after directors).

The first is the problem of attribution of responsibility in a complex hierarchy. Unlike the law of conspiracy, which has at its center someone who clearly intends to engage in an illegal act, often it is hard to locate such a person in the context of corporate decision-making, an institution famous for buck-passing, blame-shifting, and, more innocently, the division of responsibility among multiple people.

Anti-corporate activists may be convinced — and perhaps rightly so — that when wrongdoing occurs, some individual the appropriate state of mind is hiding somewhere in the corporation. But even if they are right, the rules of civil procedure and criminal procedure make it very difficult to prove such suspicions in court.

That leads to the second, closely-related reason individuals are rarely held accountable: It is very hard to prove intent or negligence on the part of a single person in the context of a large organization. In criminal law, we often require proof of specific intention beyond a reasonable doubt for most serious offenses. And even in the context of civil law, where the standard of proof is reduced, the problem of proving state of mind, while less daunting, still remains.

As political education, RTMark is very interesting. As political theater, it is spectactularly successful. As legal jujitsu, it misfires.

The problem is not — as the site seems to suggest — that limited liability offers special protections to corporate managers. Rather, the problem is that our criminal and civil law contains principles, that, when applied evenhandedly to individuals in and out of corporations, make it very difficult prove criminal and civil claims against corporate managers. RTMark may think the culprit is limited liability, but it would be more accurate to say that standards of proof and evidence rules create the problems at which RTMark takes aim.

Anthony J. Sebok, a FindLaw columnist, is a Professor of Law at Brooklyn Law School, where he teaches Torts, among other subjects. Professor Sebok's other columns on tort issues, including issues of corporate liability, can be located in the archive of his columns on the site.

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