Is Foxconn Contract Illegal?

Matt Flynn, who lost his bid to win the Democratic primary for governor, is a longtime attorney who believes the state could sue to overturn the contract with Foxconn. He has worked for months with David L. De Bruin, a Milwaukee resident who serves as an appellate attorney with the Honigman Business Law Firm in Chicago.  

They would have standing as citizens of the state to file suit, but Flynn says they would prefer that newly elected Gov. Tony Evers and Attorney General Josh Kaul consider legal action to invalidate the contract. 

“It would have a lot more credibility if it’s initiated by the governor and attorney general,” Flynn says. 

Flynn says the two attorneys believe there two different legal challenges to the Foxconn contract that could be made. 

First, the fact that state passed a law with special benefits for only one party. “It’s a principle of law that you can’t pass a law for the benefit of only one business or person,” Flynn says. 

Specifically, the Wisconsin Constitution has a provision prohibiting special laws to benefit a particular party that are not general in scope. And the law providing a subsidy for Foxconn gives the company different legal treatment than any business in Wisconsin: 

-Foxconn is exempt from certain provisions of state law regulating treatment of wetlands;

-Foxconn is exempt from state law requiring an Environmental Impact Statement to be filed by any new company building a plant;

-And Foxconn has been awarded special legal treatment under the courts, whereby any legal claims made against it can bypass the state court of appeals and go straight from circuit court to the Wisconsin Supreme Court. In fact, any decision by a circuit court is automatically “stayed” or delayed, until the Republican-leaning Wisconsin Supreme Court takes up the case.   

No other business in Wisconsin has been accorded these benefits. The Republican-dominated legislature sought to disguise this, Flynn notes, by targeting the benefits to any company in a designed investment area, “but then they said there can be only one company allowed in this area. That’s tantamount to saying only Foxconn can benefit from this, which is unconstitutional.”

It would be difficult for the state, even under different leadership, to seek to overturn provisions awarded by the Legislature, but Wisconsin law allows citizens as taxpayers the ability to sue. Such a suit might force Foxconn to comply with the state laws on wetlands and environment impact statements, which could make is less feasible for the company to proceed. And it could also delay the project pending court decisions and any remedial actions by Foxconn. But such a suit by itself couldn’t overturn the contract. 

A second challenge to the legality of the Foxconn deal, Flynn notes, is for breach of contract. The company promised to build a Generation 10.5 plant, with a factory of workers building panels for 75-inch TVs, but it now says it will build a much smaller Gen 6 plant, with most of the manufacturing done by robots. 

The deal, moreover, was supposed to provide a state subsidy in return for 13,000 jobs going to Wisconsin workers, but Foxconn is now considering bringing workers from China, as the Wall Street Journal has reported. The company denies this, but had earlier denied the change away from 75-inch TVs, only to later concede these news reports were correct. 

Moreover the company said that while Wisconsin workers will be the first priority, “We will supplement that recruitment from other US locations as required.”

In short, Foxconn’s plans have changed radically from what it promised when it signed the contract with the state, with far fewer jobs likely to go to state workers. Has it violated that contract? That would depend not just on the language of the contract, but on any verbal discussions between Foxconn and state officials. If, for instance, Foxconn made it clear that it couldn’t build the 75-inch screens without having a glass manufacturer like Owens Corning on site at the Foxconn campus, then it may be able to argue it complied with the contract.

The Owens Corning company clearly wanted a Foxconn-like subsidy to locate a plant here, and the Walker administration said no, which meant Corning walked away from the project. But this was after it became clear that many voters didn’t like the sound of the Foxconn deal. Did Walker make assurances to Foxconn that the state would consider a subsidy for Corning? That would make any breach of contract suit difficult to pursue. 

Meanwhile, Foxconn now plans to cut $2.9 billion in expenses in its company and to eliminate 10 percent of its non-technical staff, as Bloomberg has reported. Yet it continues to insist it will comply with the agreement to build a $10 billion plant and create 13,000 jobs. But how it intends to get there — and how fast — has become increasingly murky. There is nothing in the law to stop the company from taking its time to meeting those goals. The deal provides for subsidies as it reaches certain stages of investment and employees hired, but no punishment if it never reaches the finish line. 

Evers has repeatedly said he didn’t think the Foxconn deal could be overturned. But in response to last week’s news of Foxconn’s $2.9 billion cuback, he said this: “It looks like they’re re-trenching within their own structure. How that impacts Wisconsin I don’t know yet, but right from the beginning there’s always been asterisks next to Foxconn, whether it’s the size of the plant or the size of the piece of glass that they’re making.” 

Kaul has said little about Foxconn, other than noting during his campaign that his job as attorney general would be to make sure Foxconn complies with its contract with the state. 

There will need to be pressure on both Evers and Kaul to look for ways to overturn the Foxconn deal, Flynn says. (DeBruin declined to discuss his work with Flynn on Foxconn.)

Flynn notes that polls done by Democrats during the campaign showed “overwhelming” opposition to the deal by Democratic voters. “It was quite clear this was a toxic issue.”

“I went around the state for ten months and the opposition to the deal was visceral and it was angry,” Flynn says, and that included some Republicans he encountered. 

Republican legislative leaders are already planning a lame-duck session to pass laws that might further tie Evers hands on Foxconn, for instance, by giving the governor less power over appointments to the Wisconsin Economic Development Corporation, which oversees the Foxconn deal. 

Long-term that could be a huge mistake for Republicans. The Foxconn deal puts taxpayers on the line to pay up to $4.1 billion in subsidies over a period that could stretch beyond 2050. When the gerrymandering of legislative districts ends in 2022, Democrats will be able to run for office on an even playing field, and odds are they will be looking at how Republican lawmakers voted on a handout that is very unpopular, and likely to become more so as a Democratic governor has access to all the relevant documents on the deal. 

Foxconn, moreover, has a dreadful record of living up to deals with other governments, and can be counted on to make other moves that benefit the company at the expense of taxpayers. How many Republican lawmakers will want to defend that in the years to come?

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