BEYOND CORPORATE FORM: A RESPONSE TO DAN DEPASQUALE, SURBHI SARANG, AND NATALIE BUMP VENA'S 'FORGING FOOD JUSTICE THROUGH COOPERATIVES IN NEW YORK CITY'.

• Author: Brown, Jonathan
• Position: Article in this issue, p. 909 - Colloquium: Taking a Bite out of the Big Apple: A Conversation About Urban Food Policy

Introduction 1121 I. Distinguishing and Categorizing Policy Objectives and Types of Cooperatives 1122 II. The Limitations of Legal Forms 1124 A. New York Cooperative Corporation Law 1125 B. The Risk of Making Policy Based on Cooperatives as a Legal Form 1127 III. Beyond Cooperatives: The Role of Other Enterprise Models 1130 A. The Unique Advantages and Disadvantages of the Cooperative Structure 1131 B. The Role of For-Profit Businesses 1133 C. The Role of Charitable Non-Profit Organizations 1135 Conclusion 1138 INTRODUCTION

In their article, Forging Food Justice Through Cooperatives in New York City, Dan DePasquale, Surbhi Sarang, and Natalie Bump Vena (the "Authors") argue that consumer-owned and worker-owned cooperatives hold promise as a means for advancing policy objectives associated with "food justice," namely building community wealth and power and providing more affordable access to healthy food in low-income and minority communities. (1) Looking to examples of legislation and policies in other jurisdictions, they advocate for a wide range of policies to promote the viability of cooperatives in New York City, including reforms to cooperative corporation laws and strategies for better allocating funding and technical assistance to cooperatives. (2) I largely agree with the Authors' argument and support their effort to identify practical policy solutions that would help food cooperatives in New York City overcome barriers to success. This Response makes three observations about their proposals. First, this Response observes that food access and economic development are distinct objectives and that consumer and worker cooperatives may have different roles to play in food justice strategies depending on how these objectives are defined and prioritized. Second, the significance of cooperative corporation statutes may be overstated, both because a variety of legal entity forms are available to cooperative organizations (mitigating the impact of potential reforms to New York's cooperative corporation law) and because the legal form itself does not guarantee adoption of many of the values and principles commonly associated with cooperatives. Third, this Response argues that the role of other, non-cooperative organizational models should not be overlooked in shaping policy in this area. This Response advocates for a more comprehensive strategy that promotes a wide range of community-based businesses and organizations, including but not limited to cooperatives, and that allocates resources according to the identity of organizations' stakeholders and the degree of their community impact, rather than relying on their legal form.

1. DISTINGUISHING AND CATEGORIZING POLICY OBJECTIVES AND TYPES OF COOPERATIVES

   This Part briefly parses the policy objectives and categories of cooperative models identified in the Author's article, before proceeding with an analysis of the Authors' proposals in Parts II and III. The objectives of the "food justice movement" identified by the Authors can be categorized into two central goals: the first, to "redress food insecurity as well as other inequities throughout the food system," by such means as establishing "alternative pathways for bringing healthy food" to underserved communities, and the second, "the economic development and revival of communities and the creation of sustainable livelihoods." (4) They observe that in both cases, the "food justice" approach emphasizes community-driven solutions to structural inequities. (5)

   It is worth noting that food access and economic development are related, but nevertheless distinct, policy objectives. Further, "food access" itself is a loaded term, connoting a much-disputed narrative that lack of physical proximity to healthy food causes food insecurity and diet-related health disparities. (6) Scholars have persuasively argued that the root causes of such disparities are in fact poverty and other socioeconomic factors, and have observed that "food access" strategies aimed at increasing proximity to healthy food in low-income neighborhoods--in particular, efforts to bring supermarkets to perceived "food deserts"--have largely been ineffective in changing health outcomes. (7) Law professor Nathan Rosenberg and public health professor Nevin Cohen criticize food policy that has "emphasized subsidizing conventional food retailers to increase food access while shifting attention from the more fundamental upstream causes of malnourishment and health disparities: social inequality, race, gender, class oppression, and poverty." (8) Similarly, law professors Deborah Archer and Tamara Belinanti criticize interventions that embrace a "myopic narrative of food access... centered around problems of proximity," arguing that "true access" to food is largely an issue of its affordability and cultural appropriateness. (9) These critiques suggest that, in crafting policy around food justice-related concerns, policymakers should prioritize wealth creation and should take a broader and more nuanced approach to "food access."

   As a related point, consumer cooperatives and worker cooperatives are inherently different structures and consequently may have different roles to play in policy strategies. Quite simply, consumer cooperatives are organized for the benefit of consumers and worker cooperatives are organized for the benefit of workers. (10) As the Authors observe, these structural features indicate that consumer cooperatives have the potential to increase affordable food access and worker cooperatives have the potential to create sustainable community wealth. (11) Of course, neither model is homogeneous; consumer cooperatives may adopt policies focused on community job creation just as worker cooperatives may adopt policies focused on food access. Further, hybrid or "solidarity" cooperatives, like the Central Co-op in Seattle, may feature both consumer and worker ownership. (12) Nevertheless, the core structural differences between the two cooperative models imply different policy considerations, and it therefore may not be effective to group the two together in all strategies.

2. THE LIMITATIONS OF LEGAL FORMS

   The Authors recommend improving the New York Cooperative Corporations Law ("NYCCL") as one solution for overcoming barriers to the success of both consumer and worker cooperatives (and, by extension, furthering food justice objectives), but this strategy may overstate the significance of a cooperative's legal form for two reasons. (13) First, the constraints of the NYCCL are relatively insignificant as a practical matter because, quite simply, cooperative organizations in New York are not limited to incorporating under the NYCCL. (14) Rather, they can employ the same cooperative principles and enjoy the same favorable treatment under federal law by taking advantage of more flexible legal entity forms such as the limited liability company ("LLC"). (15) Liberalizing the NYCCL presents only a limited upside and comes with a risk of eroding the signaling power of "cooperative" as a corporate name. Second, and more importantly, adopting the cooperative corporation legal form does not guarantee that an organization will embody all of the principles that are often cited as benefits of cooperatives. Therefore, policy solutions that focus entirely on legal form, rather than on how an organization operates or whom it benefits, risk missing the mark.

   1. New York Cooperative Corporation Law

      To support their proposal to improve the NYCCL as a means of supporting consumer and worker cooperatives, the Authors look to other domestic and international cooperative legal regimes as examples. They primarily focus on reforms that would make the cooperative corporation a more flexible legal entity. (16) As an example of a more flexible state statute, they cite Minnesota's cooperative corporation law, which permits non-patron investors to hold equity in cooperative corporations coupled with limited voting rights. (17) As an international example, they cite the Quebec Cooperatives Act, which provides the option of forming a "solidarity cooperative," a hybrid form of cooperative with multiple classes of stakeholders as members. (18)

      While there are certainly other legal regimes that provide more flexibility than the NYCCL, loosening the constraints of the NYCCL may have limited practical benefits for a simple reason: organizations that wish to operate as cooperatives in New York are not limited to the cooperative corporation statute. (19) As noted by the Authors, (20) cooperatives may be formed as New York LLCs or potentially other business entities that incorporate cooperative principles into their constitutive documents, rather than forming as cooperative corporations under the NYCCL. (21) LLC statutes offer a highly flexible form, wherein LLCs can incorporate cooperative principles while also permitting non-patron equity investments and can accommodate any permutation of hybrid cooperative structures with multiple stakeholders. (22) In fact, many cooperative organizations in New York choose to form as LLCs. (23) The principal benefit under federal law of operating as a cooperative--the exemption of patronage dividends from the cooperative's income tax pursuant to Subchapter T of the Internal Revenue Code--does not depend on an entity's designation under state law. (24) Rather, it applies if an entity that is considered a corporation for federal tax purposes is "operating on a cooperative basis." (25) An LLC that elects to be considered a corporation for tax purposes is eligible to be taxed as a cooperative so long as it is operating in a way that satisfies the Subchapter T requirements. (26) An LLC that elects to be considered a partnership for tax purposes qualifies for pass-through taxation, generally making exemption under Subchapter T unnecessary. (27) Therefore, forming a cooperative under the NYCCL does not provide any particular tax advantage, and in...