[CCWG-ACCT] FW: Continued Counsel Dialogue

[James Gannon]

Hi Sam and Bruce,

First of all I wish to express my disappointment at the tone on this memo, perhaps this is a cultural issues as I am more familiar with reading legal documents prepared by European counsel but I find the memo to be unnecessarily aggressive and accusatory in its tone. As the board and ICANN legal representation to the CCWG I would appreciate it if could be communicated to Jones Day a more collegial and collaborative tone would go a long way to ensuring that we all come to a mutually acceptable solution on these matters. I have noted some of my observations and notes on the content on the memo below for the CCWG to consider. Please note I am not a legal professional so these are my laypersons observations.

DRAFT OF 1 OCTOBER 2015

High Level Response to CCWG Counsel’s 29 September 2015 Slides

There appear to be several fundamental misconceptions concerning the CCWG’s Proposal and the Board’s Proposal, many of which can be said to derive from certain absolute statements by CCWG Counsel that at best are incomplete, and at worst are incorrect. The slides published by CCWG Counsel on 29 September 2015 highlight the root causes of this confusion. This memorandum is intended to clarify, at a high level, some of these misconceptions.

  *   Untested Model: Contrary to CCWG Counsel’s assertion, the SMM does not have the “same basic structure as current governance.” The proposed SMM is untested within ICANN and is a significant and fundamental structural change from the multistakeholder governance mechanism that currently exists. Although membership may be a common practice for some non-profit organizations in certain contexts, CCWG Counsel has not identified exemplars where organizations comparable to ICANN (e.g., with many stakeholders) have instituted and successfully operated under the proposed SMM. In fact, a membership model was considered at ICANN’s inception and was rejected because it would not best serve the bottom-up, multistakeholder model. Care must be given before undertaking a widespread transformation of ICANN’s governance, particularly at a time – as now – when stability of the organization is of critical importance. In addition, CCWG Counsel has given little consideration to the need to test such a transformation of ICANN’s governance structure against the potential adverse effects it may have, including risks of capture, and whether this can be accomplished in the limited time available to meet a September 2016 transition.

I don’t feel that the argument that membership was previously examined and rejected should hold much weight at this time, the form of membership and methods by which it will be exercised as proposed by the CCWG are extremely different to the previous membership explored within ICANN. We are planning for the future of ICANN and to continue to look backwards and push for a maintenance of the status quo is a futile exercise. The CCWG has considered through its extensive analysis, stress testing and other deliberations the issues raised with regards to assessing the various governance options available to us to fulfil our mandate of ‘enhancing ICANN’s accountability’, our counsel were not charged or instructed to develop such tests so it is correct that they have not made recommendations in this area to date, however I am confident that such matters have been considered during their own deliberations. Jones Day (JD) is correct in noting that membership is a common practise in non-profit corporate governance and I agree that ICANN is a diverse stakeholder group, however I cannot accept that this is a solid rationale for discounting the tribal knowledge in this area that we can assess during our deliberations. The CCWG has stated that further stress and risk management may be required going forward towards our final draft with regards to unintenden consequences and risks and has engaged with the board members and staff who have raised these critical issues.


  *   The Sole Member and its Participants Owe No Fiduciary Duties to ICANN – One of the CCWG’s stated goals is to “propose reforms that would see ICANN attain a level of accountability to the global multistakeholder community that is satisfactory in the absence of its historical contractual relationship with the U.S. Government.” However, proponents of the CCWG’s Proposal minimize or ignore the fact that the shift to the SMM would place a significant amount of power in the hands of individuals and stakeholders that hold no fiduciary obligations to ICANN or the global stakeholder community. These individuals and stakeholders are free to act in their personal interest and are not required to make decisions based on what is best for ICANN, the ICANN community, and the global public interest. The result would be that a limited number of SOs and ACs (which could change over time) would have ultimate power over ICANN for significant matters with literally no accountability, producing exactly the opposite result that the community now seeks, i.e., “power without accountability.” Any shift of authority to the SOs and ACs should be accompanied by a commensurate level of accountability.

To claim that the SMM would place a significant amount of power into the hands of individual stakeholders is in my assessment incorrect, we are placing power into the combined persona of the ICANN community, with representatives and stakeholders from every continent, with diverse backgrounds and interests and stakeholders who have proven over the past 17 years to be stakeholders worthy of accepting the responsibility of accepting the stewardship of the IANA functions as outlined in NTIA’s Memo of March 14th which stated its intent to transition stewardship to "the global multistakeholder community”, I believe that the NTIA chose its wording of the community and not specifying ICANN for a reason, and that is a reason that we cannot ignore.

  *   Binding Arbitration is an Enforceable Mechanism to Ensure That ICANN Abides By The Fundamental Bylaws – CCWG Counsel asserts that there are “enforcement uncertainties” surrounding the Board’s proposed use of binding arbitration as an enforcement mechanism. This is not correct. Under a binding arbitration model, a panel would declare whether the challenged decision or action of the Board did or did not comply with ICANN’s Fundamental Bylaws. If the Board is found to have violated a Fundamental Bylaw, the Board is required to remedy that violation, within the Board’s discretion. If the Board fails to remedy a violation, the claimant may enforce the arbitration decision in the California courts.
  *   CCWG Counsel agrees that a claimant “could be organized as a legal person,” although it states this is true “depending on implementation.” To be clear, under the Board’s Proposal, there are various options for “who” might enforce the final arbitration decision. The decision could be enforced by an unincorporated association comprised of: (i) an individual participating SO/AC or some grouping of participating SOs/ACs; (ii) the members of multiple participating SOs/ACs; or (iii) chairs of multiple participating SOs/ACs. Much like the SMM, discussed in ¶ 306 (p. 49) of the CCWG’s 2nd Draft Proposal, the SO/AC claimant/plaintiff “would be a legal person created through ICANN’s Bylaws as an unincorporated association.” In the alternative, the individual (natural) people serving as chairs of the participating SOs/ACs could enforce the award in an individual capacity (and could be indemnified by ICANN to assure that they would not have any personal risk). Both unincorporated associations and individual persons possess the requisite legal personhood to enforce an arbitration decision in court.
  *   The binding arbitration decision is enforceable in California courts even if ICANN, for some reason, did not participate in the underlying arbitration. Specifically, if ICANN’s Bylaws allow ex parte arbitration proceedings, in the unlikely event that ICANN refuses to participate in the binding arbitration, the arbitration would still take place and, if the claimant is successful, ICANN would suffer the equivalent of a default judgment against it. A court could then enforce the arbitration award even if ICANN refused to participate in the arbitration proceedings (or the subsequent court proceedings).
  *   The binding arbitration decision can be enforced by a California court even if the Board asserts that compliance with an arbitration decision would force the Board to violate its fiduciary duties. If the Board raised such a “defense,” the court would evaluate that claim and, within its discretion, would accept or reject it. If the “fiduciary duty defense” was rejected (which, practically speaking, is likely), a court order would issue compelling ICANN to comply with the arbitration decision

I would appreciate JD providing examples of their basis for the above set of assertions, as there appears to be a direct contradiction with other known caselaw on the historical position of US courts when it comes to deferring to the decisions of the board of directors of a corporation when it comes to matters of fiduciary responsibility.

  *   Board Removal is the Ultimate Enforceability Mechanism – Above all, under both the CCWG Proposal and the Board Proposal, the Community can remove individual directors or recall the entire Board if a director fails – in the Community’s view – to comply with the Fundamental Bylaws.

The CCWG has long held that board removal is an accountability measure among a number and should not be the sole enforceability mechanism due to th risks involved in such actions, we need a toolkit not a sledgehammer to enforce the communnty powers.

  *   Sole Member’s Statutory Rights – CCWG Counsel acknowledges that a Sole Member possesses broad statutory rights, but proposes that they be “limited by institution of high voting thresholds for their exercise.” However, the Sole Member’s statutory rights are enumerated by statute, and CCWG Counsel has acknowledged that many of these rights are mandatory and cannot be restricted. CCWG Counsel asserts that the CCWG’s proposal makes it difficult for the Sole Member to exercise its rights, but this does not mean that these statutory rights can be restricted or eliminated.
  *   Regardless of the thresholds required for the Sole Member to exercise a statutory power, such thresholds only constrain the ability of the Sole Member to exercise the statutory power; the actual power cannot be restricted, so there remains a risk that the power will be exercised. Moreover, there is a possibility that only a limited number of SOs and ACs could participate in the SMM (and the number could decrease over time), which is made more problematic by the waiting periods on electing (or re-electing) to become a voting participant contained in the CCWG’s Proposal. Thus, statutory rights exist, no matter the voting threshold necessary to exercise those rights, and with no corresponding mechanism to ensure that the SOs and ACs that direct the Sole Member are accountable to ICANN or the global public interest, the existence of such rights constitutes a significant shift in ICANN’s governance.

I don’t belive that the CCWG has received advise or has been under the impression at any time in our deliberations that statutory rights can be removed or eliminated, I believe that we have enough lawyers and laypersons familiar with legal terminology and constructs to guide us on basic matters of law such as this. The CCWG is currently assessing the issues of participation in the SMM and the various methods by which the community could express its positions through the sole member. We have at no point sought to exclude any part of the community from the deliberations or participation in the sole member. Some parts of the community have expressed a position that they will likely not participate on most matters brought before the sole member, however I feel that classifying voluentary withdrawl of one part of the community as capture by the remaining parts is at best incorrect and at worst inflammatory.

We are all here to work together to a common goal, we as the CCWG have said that we have more work to do and are on conference calls and meetings and working day in and day out to try and come to the best ICANN we can envisage. Lets not denigrate that noble cause to accusations of capture and improper influence and see it for what it is, a complex and good faith effort to make this process work for all involved.

-James

From: <accountability-cross-community-bounces at icann.org<mailto:accountability-cross-community-bounces at icann.org>> on behalf of Grace Abuhamad
Date: Friday 2 October 2015 05:38
To: Accountability Cross Community
Subject: [CCWG-ACCT] FW: Continued Counsel Dialogue

Dear all,


Attached please find a memo that Jones Day lawyers just sent to Sidley and Adler to respond to some of the characterizations of Jones Day's advice.


This memo is being forwarded to the CCWG-Accountability for transparency.


This memo was also circulated to the ICANN Board after it was sent to CCWG-Accountability's Counsel.


—Grace

Begin forwarded message:

From: Kate Wallace <kwallace at jonesday.com<mailto:kwallace at jonesday.com>>
Date: October 1, 2015 at 8:49:24 PM PDT
To: "Gregory, Holly" <holly.gregory at sidley.com<mailto:holly.gregory at sidley.com>>, "Rosemary E. Fei" <rfei at adlercolvin.com<mailto:rfei at adlercolvin.com>>
Cc: Lizanne Thomas <lthomas at jonesday.com<mailto:lthomas at jonesday.com>>, <jlevee at jonesday.com<mailto:jlevee at jonesday.com>>, "Kevin B Espinola" <kbespinola at jonesday.com<mailto:kbespinola at jonesday.com>>, John Jeffrey <john.jeffrey at icann.org<mailto:john.jeffrey at icann.org>>, <samantha.eisner at icann.org<mailto:samantha.eisner at icann.org>>
Subject: Continued Counsel Dialogue

Dear Holly and Rosemary,

In an effort to continue our dialogue, please see the attached document responding to some of the issues raised in the slides you distributed on 29 September 2015.

Thanks,
Kate

Kate Wallace
Partner
JONES DAY® - One Firm Worldwide℠<http://www.jonesday.com/>
555 S. Flower Street, 50th Floor
Los Angeles, California 90071
Office +1.213.243.2536
kwallace at jonesday.com<mailto:kwallace at jonesday.com>



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