Five weeks ago, Charles and David Koch filed suit against the Cato Institute, seeking to gain majority control of the institute under a shareholders’ agreement that had lain dormant for nearly three decades. Immediately all hell broke loose. Did the Kochs have a moral right to commandeer the Cato Institute? Could an institute literally owned by Charles and David Koch have any credibility with the general public? Did the Kochs intend to plug Cato into a vertically integrated, right-wing political machine?
Those questions persist because the Kochs have offered shifting and contradictory rationales for their lawsuit, rationales that have increased the heat without adding much light. The Kochs’ public case for the hostile action they’ve taken has proceeded in three distinct stages — and at each new stage, the arguments they’ve offered have been even less convincing than those that came before.
Stage 1: March 1–7
“We support Cato and its work. We are not acting in a partisan manner, we seek no ‘takeover,’ and this is not a hostile action.” — Charles Koch, March 1, 2012
Move along, nothing to see here, just a little legal squabble between friends. That’s the story Charles Koch offered to the press the day after he and David Koch sued Cato. As Catoites were quick to point out, though, the people they’d nominated and appointed to our board sure seemed partisan, and the action the Kochs were pursuing — which would give them the power to wipe out Cato’s board of directors virtually at will — was a “hostile takeover” in the ordinary sense of the term.
Yet an unsigned memo from the Charles G. Koch Foundation to Koch-program alumni on March 6 doubled down on the nonpartisan, non-hostile, no-takeover narrative, reiterating that Charles and David Koch “merely want the integrity of the shares, the original structure that all parties agreed to, upheld and for Cato’s officers and directors to act in a manner consistent with the principles the organization was founded on.” “If Cato’s leaders are willing to abandon a key libertarian principle — adhering to voluntary agreements,” the memo’s author suggested, “. . . the organization has lost its way as an advocate of these principles.”
It seems more than a little presumptuous to insist that Cato is disrespecting the principle of the sanctity of contracts when it refuses to immediately comply with Koch lawyers’ interpretation of one contract. Cato will have its day in court. But when neutral parties with considerable expertise, including a professor of corporate law at the University of Kansas Law School, doubt the merits of the Kochs’ case, perhaps the rule of law is safe from the Cato Institute. Was that really all there was to the dispute?